UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2014
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File No.: 000-28865
AMINCOR, INC.
(Exact name of registrant as specific in its charter)
Nevada 30-0658859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1350 Avenue of the Americas, 24th Floor
New York, NY 10019
(Address of Principal Executive Offices)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 15, 2014, there were 8,996,355 shares of Registrant's Class A Common
Stock and 21,286,344 shares of Registrant's Class B Common Stock outstanding.
AMINCOR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2014
CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements................................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A").......................................27
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........37
Item 4. Controls and Procedures..............................................37
PART II - OTHER INFORMATION
Item 1. Legal Proceedings....................................................40
Item 1A. Risk Factors.........................................................42
Item 5. Other Information....................................................53
Item 6. Exhibits.............................................................53
SIGNATURES....................................................................54
2
EXPLANATORY NOTE
In this Quarterly Report on Form 10-Q, unless the context indicates otherwise,
the terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to
Amincor, Inc., and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve substantial risks and uncertainties. These forward-looking statements
are not historical facts, but rather are based on current expectations,
estimates and projections about us, our industry, our beliefs, and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "would," "should," "scheduled," "projects,"
and variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties, and other factors, some of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements.
The forward-looking statements in this Quarterly Report on Form 10-Q speak only
as of the date hereof and caution should be taken not to place undue reliance on
any such forward-looking statements. Forward-looking statements are subject to
certain events, risks and uncertainties many of which are outside of our
control. When considering forward-looking statements, you should carefully
review the risks, uncertainties and other cautionary statements in this
Quarterly Report on Form 10-Q as they identify certain important factors that
could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements. These factors include, among others,
the risks described below under Item 1A Risk Factors and elsewhere in this
Quarterly Report on Form 10-Q. We do not undertake any obligation to update any
forward looking statements.
We undertake no obligation to revise or publicly release the results of any
revisions to these forward-looking statements or information. You should
carefully review documents we file from time to time with the Securities and
Exchange Commission. A number of factors may materially affect our business,
financial condition, operating results and prospects. These factors include but
are not limited to those set forth in our Annual Report on Form 10-K and
elsewhere in this Quarterly Report on Form 10-Q. Any one of these factors may
cause our actual results to differ materially from recent results or from our
anticipated future results. You should not rely too heavily on the
forward-looking statements contained in this Quarterly Report on Form 10-Q,
because these forward-looking statements are relevant only as of the date they
were made.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file quarterly and annual reports and other information with
the United States Securities and Exchange Commission ("SEC"). You may read and
copy this information, for a copying fee, at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room. Our SEC
filings will also be available to the public from commercial document retrieval
services, and at the Web site maintained by the SEC at http://www.sec.gov.
Our Company website is located at http://www.amincorinc.com.
3
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
March 31, 2014 and December 31, 2013
March 31, December 31,
2014 2013
-------------- --------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 105,693 $ 295,793
Accounts receivable, net of allowance of $584,853 and $589,201
at March 31, 2014 and December 31, 2013, respectively 3,682,133 5,449,234
Inventories, net 952,413 838,164
Costs and estimated earnings in excess of billings on
uncompleted contracts 29,141 40,049
Prepaid expenses and other current assets 1,208,964 458,065
-------------- --------------
Total current assets 5,978,344 7,081,305
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net - continuing operations 11,874,801 12,260,857
Property held for investment 6,000,000 6,000,000
-------------- --------------
Total property, plant and equipment, net 17,874,801 18,260,857
-------------- --------------
OTHER ASSETS:
Loan receivable, net of allowance of $260,000 at March 31, 2014
and December 31, 2013 240,000 240,000
Goodwill 22,241 22,241
Other intangible assets 851,000 851,000
Other assets 44,873 53,648
Assets available for sale 2,086,433 2,086,433
-------------- --------------
Total other assets 3,244,547 3,253,322
-------------- --------------
Total assets $ 27,097,692 $ 28,595,484
============== ==============
4
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
March 31, 2014 and December 31, 2013
March 31, December 31,
2014 2013
-------------- --------------
(unaudited) (audited)
LIABILITIES AND (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,067,422 $ 11,849,200
Assumed liabilities 1,372,003 1,409,295
Accrued expenses and other current liabilities 5,550,362 5,807,148
Loans payable to related party 9,498,948 8,493,689
Notes payable - current portion 8,394,047 7,957,909
Capital lease obligations - current portion 204,531 215,859
Billings in excess of costs and estimated earnings on
uncompleted contracts 540,059 675,786
Deferred revenue 76,660 101,675
Current liabilities - discontinued operations 4,994,254 5,001,665
-------------- --------------
Total current liabilities 42,698,286 41,512,226
-------------- --------------
LONG-TERM LIABILITIES:
Capital lease obligations - net of current portion 126,631 170,890
Due to related party 792,475 809,731
Notes payable - net of current portion 199,889 220,955
Other long-term liabilities -- 6,104
-------------- --------------
Total long-term liabilities 1,118,995 1,207,680
-------------- --------------
Total liabilities 43,817,281 42,719,906
-------------- --------------
COMMITMENTS AND CONTINGENCIES
(DEFICIT) EQUITY:
AMINCOR SHAREHOLDERS' (DEFICIT) EQUITY:
Convertible preferred stock, $0.001 par value per share; 3,000,000
authorized, 1,752,823 issued and outstanding 1,753 1,753
Common stock - class A; $0.001 par value; 22,000,000
authorized, 8,996,355 and 7,919,023 issued and outstanding
as of March 31, 2014 and December 31, 2013, respectively 8,996 7,913
Common stock - class B; $0.001 par value; 40,000,000
authorized, 21,286,344 issued and outstanding 21,286 21,286
Additional paid-in capital 87,464,792 87,201,076
Accumulated deficit (103,704,965) (100,852,132)
-------------- --------------
Total Amincor shareholders' (deficit) equity (16,208,138) (13,620,104)
-------------- --------------
NONCONTROLLING INTEREST DEFICIT: (511,451) (504,318)
-------------- --------------
Total (deficit) equity (16,719,589) (14,124,422)
-------------- --------------
Total liabilities and (deficit) equity $ 27,097,692 $ 28,595,484
============== ==============
The accompanying notes are an integral part of these
consolidated condensed financial statements
5
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Operations
Three Months Ended March 31,
(Unaudited)
2014 2013
------------ ------------
NET REVENUES $ 6,341,676 $ 6,968,046
COST OF REVENUES 5,612,725 6,032,101
------------ ------------
Gross profit 728,951 935,945
SELLING, GENERAL AND ADMINISTRATIVE 2,948,498 3,068,991
------------ ------------
Loss from operations (2,219,547) (2,133,046)
------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 765,447 241,345
Other expense (income) (122,306) (70,587)
------------ ------------
Total other expenses (income) 643,141 170,758
------------ ------------
Loss before provision for income taxes (2,862,688) (2,303,804)
Provision for income taxes -- --
------------ ------------
Net loss from continuing operations (2,862,688) (2,303,804)
------------ ------------
Income (loss) from discontinued operations 2,722 (181,276)
------------ ------------
Net loss (2,859,966) (2,485,080)
------------ ------------
Net loss attributable to non-controlling interests (7,133) (6,652)
------------ ------------
Net loss attributable to Amincor shareholders $ (2,852,833) $ (2,478,428)
============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS - BASIC AND DILUTED:
Net loss from continuing operations $ (0.09) $ (0.08)
============ ============
Weighted average shares outstanding - basic and diluted 30,186,403 28,949,367
============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR SHAREHOLDERS - BASIC AND DILUTED:
Net loss attributable to Amincor shareholders $ (0.09) $ (0.09)
============ ============
Weighted average shares outstanding - basic and diluted 30,186,403 28,949,367
============ ============
The accompanying notes are an integral part of these
consolidated condensed financial statements
6
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statement of Changes in Shareholders' (Deficit) Equity
Three Months Ended March 31, 2014 and 2013
Amincor, Inc. and Subsidiaries
-------------------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
------------------- ------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balances at December 31, 2012 (audited) 1,752,823 $ 1,753 7,663,023 $ 7,663 21,286,344 $ 21,286
========= ======== ========= ======== ========== =========
Share based compensation of employees -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- -------- --------- -------- ---------- ---------
Balances at March 31, 2013 (unaudited) 1,752,823 $ 1,753 7,663,023 $ 7,663 21,286,344 $ 21,286
========= ======== ========= ======== ========== =========
Balances at December 31, 2013 (audited) 1,752,823 $ 1,753 7,913,023 $ 7,913 21,286,344 $ 21,286
========= ======== ========= ======== ========== =========
Issuance of shares to officers for cash -- -- 1,083,332 1,083 -- --
Share based compensation of employees -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- -------- --------- -------- ---------- ---------
Balances at March 31, 2014 (unaudited) 1,752,823 $ 1,753 8,996,355 $ 8,996 21,286,344 $ 21,286
========= ======== ========= ======== ========== =========
Amincor, Inc. and Subsidiaries
------------------------------
Additional Total
Paid-in Accumulated Non-controlling (Deficit)
Capital Deficit Deficit Equity
------- ------- ------- ------
Balances at December 31, 2012 (audited) $ 86,549,322 $ (84,342,834) $ (403,833) $ 1,833,357
============ ============= ========== ============
Share based compensation of employees 139,139 -- -- 139,139
Net loss -- (2,478,428) (6,652) (2,485,080)
------------ ------------- ---------- ------------
Balances at March 31, 2013 (unaudited) $ 86,688,461 $ (86,821,262) $ (410,485) $ (512,584)
============ ============= ========== ============
Balances at December 31, 2013 (audited) $ 87,201,076 $(100,852,132) $ (504,318) $(14,124,422)
============ ============= ========== ============
Issuance of shares to officers for cash 128,917 -- -- 130,000
Share based compensation of employees 134,799 -- -- 134,799
Net loss -- (2,852,833) (7,133) (2,859,966)
------------ ------------- ---------- ------------
Balances at March 31, 2014 (unaudited) $ 87,464,792 $(103,704,965) $ (511,451) $(16,719,589)
============ ============= ========== ============
The accompanying notes are an integral part of these
consolidated condensed financial statements
7
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2014 and 2013
(Unaudited)
2014 2013
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (2,862,688) $ (2,303,804)
Adjustments to reconcile net loss to net cash from continuing
operations (used in) provided by operating activities:
Depreciation and amortization of property, plant and equipment 433,505 457,344
Stock based compensation of employees 134,799 139,139
Provision for doubtful accounts 13,401 3,402
Changes in assets and liabilities:
Accounts receivable 1,753,700 (53,806)
Inventories (114,249) 60,800
Costs and estimated earnings in excess of billings on
uncompleted contracts 10,908 (1,918)
Prepaid expenses and other current assets 189,814 349,657
Other assets 8,775 --
Accounts payable 218,222 364,233
Accrued expenses and other current liabilities (256,786) 361,307
Billings in excess of costs and estimated earnings on
uncompleted contracts (135,727) (214,217)
Deferred revenue (25,015) (36,116)
Other long-term liabilities (6,104) --
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES - CONTINUING OPERATIONS (637,445) (873,979)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (47,449) (20,873)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (47,449) (20,873)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds/loans from related parties 988,003 1,342,116
Proceeds from issuance of common stock 130,000 --
Principal payments of capital lease obligations (55,587) (67,150)
Repayments of notes payable (525,641) (592,517)
Assumed liabilities (37,292) (348)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS 499,483 682,101
------------ ------------
NET CASH USED IN CONTINUING OPERATIONS (185,411) (212,751)
------------ ------------
8
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31, 2014 and 2013
(Unaudited)
2014 2013
------------ ------------
Net cash used in operating activities - discontinued operations (4,689) (2,879)
Net cash provided by investing activities - discontinued operations -- --
Net cash used in financing activities - discontinued operations -- (7,827)
------------ ------------
NET CASH USED IN DISCONTINUED OPERATIONS (4,689) (10,706)
------------ ------------
Decrease in cash (190,100) (223,457)
Cash, beginning of period 295,793 357,029
------------ ------------
Cash, end of period $ 105,693 $ 133,572
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 742,947 $ 316,877
============ ============
Income taxes $ -- $ --
============ ============
Non-cash investing and financing activities:
Financing of insurance by notes payable $ 940,713 $ 934,220
============ ============
Conversion of accounts payable to term notes payable $ -- $ 155,965
============ ============
Acquisition of equipment by notes payable $ -- $ 40,501
============ ============
The accompanying notes are an integral part of these
consolidated condensed financial statements
9
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor") is headquartered in New York, New York. As of March
31, 2014 and December 31, 2013 Amincor's had the following operating
subsidiaries:
Advanced Waste & Water Technology, Inc. ("AWWT")
Baker's Pride, Inc. ("BPI")
Tyree Holdings Corp. ("Tyree")
Amincor Other Assets, Inc. ("Other Assets")
AWWT
AWWT performs water remediation services in the Northeastern United States and
is headquartered in Farmingdale, New York. In addition to its fixed station
operations AWWT is working with impacted water produces to provide water
remediation equipment and services throughout the United States and select
international markets. The services include water testing and evaluation, system
engineering and design, system training servicing and maintenance.
BPI
BPI manufactures bakery food products, consisting primarily of several varieties
of sliced and packaged private label bread in addition to fresh and frozen
varieties of donuts, in 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 and Mid-Atlantic 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.
OTHER ASSETS
Other Assets was incorporated to hold real estate, equipment and loan
receivables.
On April 30, 2013, Other Assets sold its 360,000 square foot facility located in
Allentown, Pennsylvania. The property was sold for $500,000, less outstanding
taxes and costs due and owing on the property, for net sale proceeds of
$232,497.
10
On December 19, 2013, Other Assets executed a promissory note against its
property located in Pelham Manor, New York. The promissory note is for $1.5
million and provides for interest only payments of $15,000 per month, with the
full principal balance due on January 1, 2015. The note carries an interest rate
of 12.0% per annum.
DISCONTINUED OPERATIONS
On April 1, 2013, Amincor sold the business of a subsidiary, Environmental
Quality Services ("EQS") to a former manager of the Company. EQS provided
environmental and hazardous waste testing services in the Northeastern United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated 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 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,
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 recorded net of discounts and is recognized upon the sale of products
when title to the goods has passed, the price to the customer is fixed and
determinable, and collection from the customer is reasonably assured. Those
conditions are typically satisfied when goods are delivered to BPI's shipping
dock, and are made available for pick-up by the customer, at which point the
title passes to the customer. Customer sales discounts are accounted for as
reductions of revenues in the same period the related sales are recorded.
11
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 rate 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.
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 represents amounts due from customers and is reported net of
an allowance for doubtful accounts. The allowance for doubtful accounts is based
on management's estimate of the amount of receivables that will actually be
collected after analyzing the credit worthiness of its customers and historical
experience, as well as the prevailing business and economic environment.
12
Accounts are written off when significantly past due and after exhaustive
efforts at collection. Recoveries of accounts receivables previously written off
are recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree,
BPI, and 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.
ALLOWANCE FOR LOAN LOSSES
The Company performs ongoing credit evaluations of its loans receivable and
provides an allowance for loan losses based on the payee's credit evaluation,
current financial condition, and collection history. When it is determined that
it is more likely than not that the scheduled payments of principal and interest
under the terms of the loan will not be received when due, an allowance for loan
losses is established, based upon management's estimate of the amount of the
loan that will actually be collected.
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Market is determined based on the net realizable value with
appropriate consideration given to obsolescence, excessive levels and other
market factors. An inventory reserve is recorded if the carrying amount of the
inventory exceeds its estimated market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost, less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the remaining lease
terms. 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.
PROPERTY HELD FOR INVESTMENT
Property held for investment consists of property in Pelham Manor, New York. The
value of the property is based on the fair value of the property.
13
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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying value of the asset may not be
recoverable. The Company assesses recoverability by determining whether the net
book value of the related asset will be recovered through the projected
undiscounted future cash flows of the asset. If the Company determines that the
carrying value of the asset may not be recoverable, it measures any impairment
based on the asset's fair value as compared to the asset's carrying value.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share considers the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or could otherwise cause the issuance of common
stock. Such contracts include stock options 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 for the three months ended March 31, 2014
and 2013 because any potential additional common shares would reduce the
reported loss per share and therefore have an antidilutive effect.
SHARE-BASED COMPENSATION
All share-based awards are measured based on their grant date fair values and
are charged to expenses over the period during which the required services are
provided in exchange for the award (the vesting period). Share-based awards are
subject to specific vesting conditions. Compensation cost is recognized over the
vesting period based on the grant date fair value of the awards and the portion
of the award that is ultimately expected to vest.
14
RECLASSIFICATIONS
Certain reclassifications have been made to the accompanying consolidated
financial statements of prior periods to conform to the current period's
presentation.
3. GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern, which 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
had a working capital deficit of $36,719,942 and a (deficit) equity of
$16,719,589 as of March 31, 2014, which raises substantial doubt about the
Company's ability to continue as a going concern. Our auditors have stated, in
their report dated April 15, 2014, 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 significant deficits in working capital and
equity. The Company's ability to continue as a going concern is dependent upon
its ability 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:
* Advanced Waste & Water Technology, Inc.
* Successfully selling large-scale waste water treatment equipment
through AWWT's established licensing agreement.
* Acquiring the company with which AWWT has established its
licensing agreement.
* Baker's Pride, Inc.
* Securing 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,
* Increasing co-pack donut, bread and bun business once the
existing plant assets are operating at maximum capacity,
* Negotiating with its commercial bank to commence paying principal
payments on its bridge loan, which matures on September 1, 2014,
when BPI's cash flow improves.
* Tyree Holdings Corp.
* Increasing 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,
15
* Evaluating Tyree's construction and maintenance business units
with respect to their ability to increase margins and operate
profitably independent of each other,
* Liquidating 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.
* Liquidating assets held for sale to provide working capital to
the Company's subsidiaries,
* Renting assets held for sale until they can be sold.
* Amincor, Inc.
* Securing new financing from a financial institution to provide
needed working capital to the subsidiary companies.
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 March 31, 2015, if the Company is not
able to do so and if the Company is unable to become profitable for the next
twelve months through March 31, 2015, the Company would likely need to modify
its plans and/or cut back on its operations. If the Company raises 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. The consolidated financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
4. DISCONTINUED OPERATIONS
The Company discontinued the operations of EQS when it was sold on April 1, 2013
and the loss from discontinued operations in the accompanying consolidated
financial statements for the three months ended March 31, 2013 primarily relates
to EQS. Liabilities related to EQS and previously discontinued operations are
presented separately on the consolidated balance sheets as of March 31, 2014 and
December 31, 2013. Changes in net cash from discontinued operations are
presented in the accompanying consolidated statements of cash flows for the
three months ended March 31, 2014 and 2013. All prior period information has
been reclassified to conform to the current period presentation.
The following amounts have been segregated from continuing operations and
reported as discontinued operations:
16
For The Three Months Ended March 31,
2014 2013
---------- ----------
Results From Discontinued Operations:
Net revenues from discontinued operations $ -- $ 233,658
========== ==========
Income (loss) from discontinued operations $ 2,722 $ (181,276)
========== ==========
Assets held for sale (which is recorded separately on the consolidated balance
sheets) are the only remaining assets related to the discontinued operations.
The following is a summary of the liabilities of the discontinued operations:
March 31, December 31,
2014 2013
---------- ----------
Accounts payable $3,938,221 $3,945,632
Accrued expenses and other current liabilities 1,056,033 1,056,033
---------- ----------
Total liabilities $4,994,254 $5,001,665
========== ==========
The Company will continue to provide administrative services for the
discontinued entities until their liquidation is completed.
5. INVENTORIES
Inventories consist of:
* Raw materials, construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
A summary of inventory as of March 31, 2014 and December 31, 2013 is below:
March 31, December 31,
2014 2013
---------- ----------
Raw materials $1,250,905 $1,316,364
Ingredients 333,605 254,492
Finished goods 173,345 72,750
---------- ----------
1,757,855 1,643,606
Inventory reserves 805,442 805,442
---------- ----------
Inventories, net $ 952,413 $ 838,164
========== ==========
6. PROPERTY, PLANT AND EQUIPMENT
As of March 31, 2014 and December 31, 2013, property, plant and equipment from
continuing operations consisted of the following:
17
Useful Lives March 31, December 31,
(Years) 2014 2013
------- ------------ ------------
Land n/a $ 430,000 $ 430,000
Machinery and equipment 2-10 15,177,814 15,147,163
Furniture and fixtures 5-10 169,258 169,258
Building and leasehold improvements 10 3,443,598 3,443,598
Computer equipment and software 5-7 842,989 838,466
Property Held for Investment n/a 6,000,000 6,000,000
Vehicles 3-10 446,692 437,042
----------- -----------
26,510,351 26,465,527
Less accumulated depreciation 8,635,550 8,204,670
----------- -----------
$17,874,801 $18,260,857
=========== ===========
Total depreciation expense related to continuing operations for the three months
ended March 31, 2014 and 2013 was $433,505 and $457,344, respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
During the years ended December 31, 2013 and 2012, Tyree did not file certain
required payroll tax returns on a timely basis and did not properly pay its
payroll tax liabilities, including trust funds withheld on behalf of its
employees. Through the assistance of an outside payroll services company, Tyree
filed all delinquent payroll tax returns during the fourth quarter of 2013 and
is currently in negotiations with federal and various state authorities to
settle its remaining payroll tax obligations. Tyree estimates that its
outstanding payroll tax liability, including penalties and interest, was
approximately $2.5 million as of March 31, 2014.
During the year ended December 31, 2013, Tyree did not file required sales tax
returns in various jurisdictions. Tyree subsequently filed the required returns
and is currently in negotiations with various state authorities to settle the
remaining sales tax liability. Tyree estimates that its outstanding sales tax
liability, including penalties and interest, is approximately $1.3 million as of
March 31, 2014.
8. LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 2014 and December 31,
2013:
18
March 31, December 31,
2014 2013
----------- -----------
Equipment loans payable, collateralized by
the assets purchased, and bearing interest at
annual fixed rates ranging from 8.00% to
15.00% as of March 31, 2014 and December 31,
2013 with principal and interest payable in
installments through July 2014 $ 280,912 $ 355,056
Promissory notes converted from accounts
payable, with an imputed interest rate of
10%. Payment terms are from 12 to 36 months 2,781,236 2,884,937
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 and
are in default as of March 31, 2014 and bear
interest at an annual fixed rate of 6.00% 500,000 500,000
Note payable to insurance company, with
accrued interest. Payable in monthly
installments of principal and interest
through January 2015. The annual interest
rate is 4.78% 595,713 --
Note payable to a commercial bank. Payable in
monthly installments of principal and
interest through March 2015. The annual
interest rate is 7.25% 170,817 188,613
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
September 1, 2014. 2,749,985 2,749,985
Promissory note payable, collateralized by
property. Payable in monthly installments of
interest only bearing an interest rate of
12.00%. The loan matures on January 1, 2015
at which time the entire unpaid principal
amount and all accrued interest is fully due
and payable. 1,515,273 1,500,273
----------- -----------
Total 8,593,936 8,178,864
Less current portion 8,394,047 7,957,909
----------- -----------
Long-term portion $ 199,889 $ 220,955
=========== ===========
9. RELATED PARTY TRANSACTIONS
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.
19
LOANS PAYABLE
Loans from a related party consist of the following at:
March 31, December 31,
2014 2013
----------- -----------
Loan and security agreement with Capstone
Capital Group, LLC which matures on October
31, 2016 bearing interest at 18% per annum.
Maximum borrowing of $8,000,000 $ 7,172,895 $ 6,001,021
Loan and security agreement with Capstone
Capital Group, LLC which matures on May 15,
2015 bearing interest at 18% per annum.
Maximum borrowing of $1,000,000 377,092 427,069
Short-term accounts receivable financing
arrangement with Capstone Business Funding,
LLC. No maturity date is specified. Interest
is charged at variable rates based upon
collection days outstanding 1,944,031 2,060,730
Loan and security agreement with Stephen
Tyree which matures on November 5, 2014
bearing interest at 5.0% per annum. 4,930 4,869
----------- -----------
Total loans and amounts payable to related
parties $ 9,498,948 $ 8,493,689
=========== ===========
Interest expense for these loans amounted to $660,960 and $125,388 for the three
months ended March 31, 2014 and 2013, respectively.
MANAGEMENT FEES
The Company maintains an informal management services agreement with Capstone
Credit Group, LLC to provide office space, back office services and other
various services from time to time for a monthly fee. Management fees are due
and payable monthly and the Company recorded management fee income of $75,000
and $45,000 for the three months ended March 31, 2014 and 2013, respectively. As
of March 31, 2014, $45,000 of accrued management fees remained unpaid. There
were no unpaid management fees as of December 31, 2013.
10. SHARES OF COMMON STOCK ISSUED
On January 9, 2014 the Company issued 1,083,332 shares of Class A Voting common
shares to certain officers of the Company in exchange for $130,000. The
Company's Class A shares were valued using a $0.12 valuation, which was the
market price for the Company's Class A shares on January 9, 2014.
11. 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.
During the three months ended March 31, 2014, the Company's Board of Directors
granted 635,000 common stock Class A options to the President, Vice-President
and Interim Chief Financial Officer, certain management and employees of the
Company, certain officers and employees of its subsidiary companies, and certain
20
non-employees of the Company, at an exercise price of $0.50. No common stock
options were granted in the three months ended March 31, 2013. Stock based
compensation expense totaled $134,799 and $139,139 for the three months ended
March 31, 2014 and 2013, respectively. 50% of the options vest and become
exercisable on the first anniversary of the grant date and the remaining 50%
vest on the second anniversary of the grant date, provided that the individual
is employed by the Company on such 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.
12. OPERATING SEGMENTS
The Company is organized into five operating segments: (1) Amincor, (2) Other
Assets, (3) AWWT (4) BPI, and (5) Tyree. Assets related to discontinued
operations ("Disc. Ops") are also presented below where relevant. Segment
information is as follows:
March 31, December 31,
2014 2013
------------ ------------
Total Assets:
Amincor $ 148,711 $ 362,839
Other Assets 8,452,170 8,446,271
AWWT 359,531 354,264
BPI 11,253,154 11,313,853
Tyree 6,884,126 8,118,257
------------ ------------
Total assets $ 27,097,692 $ 28,595,484
============ ============
March 31, December 31,
2014 2013
------------ ------------
Total Goodwill:
Amincor $ -- $ --
Other Assets -- --
AWWT 22,241 22,241
BPI -- --
Tyree -- --
------------ ------------
Total goodwill $ 22,241 $ 22,241
============ ============
21
March 31, December 31,
2014 2013
------------ ------------
Total Other Intangible Assets:
Amincor $ -- $ --
Other Assets -- --
AWWT -- --
BPI -- --
Tyree 851,000 851,000
------------ ------------
Total other intangible assets $ 851,000 $ 851,000
============ ============
Three Months Ended March 31,
2014 2013
------------ ------------
Net Revenues:
Amincor $ -- $ --
Other Assets -- --
AWWT 114,503 53,216
BPI 1,207,296 54,808
Tyree 5,019,877 6,860,022
------------ ------------
Net revenues $ 6,341,676 $ 6,968,046
============ ============
Three Months Ended March 31,
2014 2013
------------ ------------
Income (loss) before Provision
for Income Taxes:
Amincor $ (178,857) $ 150,219
Other Assets (69,830) (30,126)
AWWT (29,234) (17,038)
BPI (1,871,403) (1,750,171)
Tyree (713,364) (656,688)
------------ ------------
Income (loss) before Provision
for Income Taxes $ (2,862,688) $ (2,303,804)
============ ============
Three Months Ended March 31,
2014 2013
------------ ------------
Depreciation of Property and Equipment:
Amincor $ -- $ --
Other Assets -- --
AWWT 12,225 11,818
BPI 296,360 294,301
Tyree 124,920 151,225
------------ ------------
Total depreciation of property and equipment $ 433,505 $ 457,344
============ ============
22
Three Months Ended March 31,
2014 2013
------------ ------------
Interest Expense - net:
Amincor $ (174,532) $ (136,619)
Other Assets 35,000 (7,247)
AWWT -- 2,997
BPI 406,344 169,327
Tyree 498,635 212,887
------------ ------------
Total interest expense, net $ 765,447 $ 241,345
============ ============
13. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES/LEGAL MATTERS:
Amincor 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.
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 is vigorously defending it.
BPI
In connection with a United States Department of Agriculture ("USDA") loan
application, BPI had Environmental Site Assessments performed on the property
where its Mt. Pleasant Street Bakery, Inc. operates, as required by the
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
23
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 in order 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 IDNR's Innocent Landowner
Fund. As such, there is no direct liability related to the cleanup of the
hazard.
TYREE
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection. As of that date, Tyree had
a pre-petition receivable of $1,515,401, which was subsequently written-off due
to the uncertainty of collection. 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. 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 clawback any amounts
paid to Tyree pre-petition. On April 4, 2014, Tyree sold its general and
administrative claims to a third party for the aggregate sum of $553,662.
In December 2013, Tyree Environmental Corp. and Tyree Service Corp. ("Tyree
entities") were sued by the liquidating trustee of GPMI for recovery of
preferential transfers in the respective amounts of $1,147,154 and $2,479,755.
On March 27, 2014, the bankruptcy liquidating trustee entered into forbearance
agreements with the Tyree entities with respect to the preference actions until
June 2014, with the understanding that the forbearance periods will be extended
and the actions will ultimately be dismissed if the Tyree entities continue to
not voluntarily assist Getty Realty in litigation against GPMI. Management
believes that this recovery of preferential transfers has no merit or basis.
Tyree currently has 110 full-time employees and 3 part time employees, some of
whom are represented by six different collective bargaining agreements. Tyree
has unpaid obligations for union dues of approximately $1.2 million. Tyree
management does not dispute that benefits are due and owing to the respective
unions. Labor contracts expired on December 31, 2012 for five of the six
bargaining units. Local 355 has entered into a 36 month payment agreement with
Tyree Services, Inc., to settle Tyree's obligation. The monthly payment is
$20,000 per month until paid in full. Local 200 has agreed to settle its claim
24
for a $25,000 down payment and monthly payments of $5,000 per month for 28
months. Tyree Services, Inc. will sign the settlement and Tyree Holdings, Inc.
will act as a guarantor. Local 99 has entered into a verbal settlement agreement
with Tyree Services, Inc. calling for monthly payments of $4,000 per month of
which 24 payments remain. Local 138 has entered into a verbal settlement
agreement with Tyree Services, Inc. which calls for monthly payments of $10,000
per month for 18 months. Local 25 has agreed to a continuance of its action
against Tyree while Tyree's counsel and Local 25 counsel draft a settlement
agreement. Management anticipates that the agreement will call for payments of
$5,000 per month for 24 months.
A variety of unsecured vendors have filed suit for non-payment of outstanding
invoices totaling approximately $2.7 million as of March 31, 2014, which are
reflected as liabilities on the Company's consolidated balance sheet. Each of
these actions is handled on a case by case basis, with settlement and payment
plans ranging from a few months for smaller claims to up to five years for
larger claims.
Tyree's services are regulated by federal, state and local laws enacted to
regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. 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 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.
EPIC SPORTS INTERNATIONAL, INC. ("ESI")
The Company discontinued the operations of ESI, a former subsidiary in 2011.
Concurrently, a license agreement along with a Strategic Alliance Agreement with
Samsung America CT, Inc. ("Samsung") was terminated. The licensor, 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. 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 Epic Sports
International, Inc., 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
25
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
due and owing. Frost is seeking among other things, damages, attorneys' fees and
costs and expenses. As of March 31, 2014, the Defendants have answered the
complaint and the lawsuit has been dismissed pending parties' agreement to
arbitrate the matter. Frost initiated arbitration proceedings in April 2014.
Defendants believe that this arbitration has no merit or basis and intend to
vigorously defend.
IMSC/OTHER ASSETS
Capstone Business Credit, LLC, a related party, was 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 a business whose
operations were discontinued in 2011. As of December 31, 2009, a mortgage
related to an IFR property was assigned to Amincor, Inc. and thereafter to
Amincor Other Assets, Inc. In November 2011, a Judgment of Foreclosure was
granted by the court ordering that the property (the "Property") be sold at
public auction.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder and title to the property was transferred to Amincor Other
Assets, Inc.
TULARE FROZEN FOODS, LLC ("TFF")
The City of Lindsay, California has invoiced TFF, a business whose operations
were discontinued in 2011, $533,571 for outstanding delinquent real estate
taxes, including a significant amount for 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.
14. SUBSEQUENT EVENTS
The Company has evaluated subsequent events up through May 15, 2014, the date
which the financial statements were available to be issued. The Company had no
other material subsequent events requiring disclosure.
26
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A").
AMINCOR (CONSOLIDATED BASIS)
GOING CONCERN / LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2014, cash flows used in operating
activities from continuing operations were $637,445. This was principally due to
a net loss from continuing operations of $2,862,688 which was partially offset
by a decrease in accounts receivable of approximately $1.7 million and
depreciation and amortization of property, plant and equipment of approximately
$434,000. The net loss from continuing operations is discussed in greater detail
in the results from operations for the three months ended March 31, 2014 and
2013 section of this MD&A.
For the three months ended March 31, 2014, cash flows used in investing
activities from continuing operations of $47,449 were primarily due the purchase
of additional machinery at BPI and AWWT.
For the three months ended March 31, 2014, cash flows provided by financing
activities from continuing operations of $499,483 was primarily due to proceeds
received from loans with related parties.
For the three months ended March 31, 2014, total cash flows used in discontinued
operations was $4,689. Cash used in discontinued operations was not material for
the three months ended March 31, 2014.
The accompanying consolidated 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 financial statements, we recorded a
net loss from continuing operations of $2,862,688 for the three months ended
March 31, 2014. We had a working capital deficit of $36,719,942 and an
accumulated deficit of $103,704,965 as of March 31, 2014. The results of the
Company's cash flows from continuing operations for the three months ended March
31, 2014 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 EQS in 2013 which had a negative impact on the Company's cash
flows. 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 dated December 31, 2013 that there is substantial doubt on the
Company's ability to continue operations as a going concern due to our recurring
27
net losses from operations, and the Company having a significant deficits in
working capital and equity. Our ability to continue as a going concern is
dependent upon our ability 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 world's 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
2014, the Mt. Pleasant Street facility and the Jefferson Street facility will be
operationally capable of supporting itself on its internally generated cash
flows. Management, with its lender, Central State Bank, extended 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 2014 and 2015. 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 has attempted to liquidate or cease additional purchases of similar
inventory. As a result, inventory is significantly lower year over year between
2014 and 2013. There was a significant increase in the reserve for obsolete
inventory as of March 31, 2014. Management continues to seek opportunities to
liquidate excess inventory and 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 March 31,
2014, Tyree has a working capital deficit of approximately $19.9 million
exclusive of amounts owed to Amincor and recorded a net loss of approximately
$632,000 for the three months ended March 31, 2014. 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.
28
With respect to AWWT, management continues to market water technology under a
licensing agreement executed in 2012. AWWT seeks 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
is currently in negotiations regarding the assets related to Tulare and is in
the process of finalizing the transaction to complete the sale of the assets.
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.
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended March 31, 2014 totaled $6,341,676 as
compared to net revenues of $6,968,046 for the three months ended March 31,
2013, a decrease in net revenues of $626,370 or approximately 9.0%. The primary
reason for the decrease in net revenues is related to Tyree's operations.
Tyree's net revenues decreased by approximately $1.8 million but was partially
offset by an increase in revenue by BPI of approximately $1.2 million during the
three months ended March 31, 2014. A detailed analysis of each subsidiary
company's individual net revenues can be found within their respective MD&A
sections of this Form 10-Q.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2014 totaled $5,612,725 or
approximately 88.5% of net revenues as compared to $6,032,101 or approximately
29
86.6% of net revenues for the three months ended March 31, 2013. A detailed
analysis of each subsidiary company's individual cost of revenues can be found
within their respective MD&A sections of this Form 10-Q.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the three months ended
March 31, 2014 totaled $2,948,498 as compared to $3,068,991 for the three months
ended March 31, 2013, a decrease in operating expenses of $120,493 or
approximately 3.9%. The primary reason for the decrease in SG&A expenses was
related to Tyree's operations. Tyree's operating expenses decreased by
approximately $613,000 during the three months ended March 31, 2014 as compared
to the three months ended March 31, 2013. A detailed analysis of each subsidiary
company's individual operating expenses can be found within their respective
MD&A sections of this Form 10-Q.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2014 totaled
$2,219,547 as compared to $2,133,046 for the three months ended March 31, 2013,
an increase in loss from operations of $86,501 or approximately 4.1%. The
primary reason for the increase in loss from operations is related to the
decrease in net revenues and increases in cost of revenues as noted above.
OTHER EXPENSES (INCOME)
Other income for the three months ended March 31, 2014 totaled $643,141 as
compared to other expenses of $170,758 for the three months ended March 31,
2013, an increase in other expenses of $472,383 or approximately 276.6%. The
primary reason for the increase in other expenses is related to increased
interest expense associated with BPI's working capital loan which increased by
approximately $4.9 million between March 31, 2014 and March 31, 2013.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $2,862,688 for the three months
ended March 31, 2014 as compared to $2,303,804 for the three months ended March
31, 2013, an increase in net loss from continuing operations of $558,884 or
approximately 24.3%. The primary reason for the increase in net loss from
continuing operations is related to the decrease in net revenues and increases
in cost of revenues and selling, general and administrative expenses as noted
above.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Income from discontinued operations increased to $2,722 for the three months
ended March 31, 2014 as compared to a loss from discontinued operations of
($181,276) for the three months ended March 31, 2013, primarily because the
operations of EQS were discontinued on April 1, 2013.
30
NET LOSS
Net loss totaled $2,859,966 for the three months ended March 31, 2014 as
compared to $2,485,080 for the three months ended March 31, 2013, an increase in
net loss of $374,886 or approximately 15.1%. The primary reason for the increase
in net loss is due to the decreases in net revenues and increases in cost of
revenues and selling, general and administrative expenses as noted above.
ADVANCED WASTE & WATER TECHNOLOGY, INC.
SEASONALITY
AWWT's sales are typically higher during periods of peak wet and rainy
conditions of the season which generally can occur during the second and third
quarters of its fiscal year. The first and fourth quarters of the year are
usually affected by cold and inclement weather which makes it difficult to
process liquid streams due to issues with freezing. The effect of freezing
impacts the entire wastewater treatment industry including AWWT's customers,
suppliers and vendors.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended March 31, 2014 totaled $138,742 as
compared to $92,323 for the three months ended March 31, 2013, an increase of
$46,419 or approximately 50.3%. The primary reason for the increase is due to an
overall volume increase in wastewater gallons processed in 2014 as compared to
2013 despite the severe winter weather conditions that occurred during in 2014
as compared to 2013, when winter weather conditions were not as severe. Gallons
processed during the three months ended March 31, 2014 compared to March 31,
2013 increased by approximately 55.4%, comparatively similar to the increase in
revenue.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2014 totaled $123,666 or
approximately 89.1% of net revenues as compared to $77,514 or approximately
84.0% of net revenues for the three months ended March 31, 2013. The primary
reason for the increase is related to materially higher rates associated with
the disposal of waste product which were incurred during the three months ended
March 31, 2014. Costs related to the disposal of waste were approximately
$45,000 for the three months ended March 31, 2014 as compared to approximately
$8,000 for the three months ended March 31, 2013, an increase of approximately
$37,000.
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OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2014 totaled $43,258 or
approximately 31.2% of net revenues as compared to $28,850 or 31.2% of net
revenues for the three months ended March 31, 2013, an increase of $14,407 or
approximately 49.9%. The primary reason for the increase is related to
administrative payroll expenses which were allocated to both EQS and AWWT during
the three months ended March 31, 2013, but were not allocated during the three
months ended March 31, 2014 as management discontinued the operations of EQS on
April 1, 2013. Administrative payroll expenses were approximately $23,000 for
the three months ended March 31, 2014 as compared to approximately $8,000 for
the three months ended March 31, 2013, an increase of approximately $15,000 or
187.5%
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2014 totaled $28,182
or approximately 20.3% of net revenues as compared to $14,041 or approximately
15.2% of net revenues for the three months ended March 31, 2013, an increase in
loss from operations of $14,141 or approximately 100.7%. The increase in loss
from operations was primarily due to the increase in cost of revenues and
operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the three months ended March 31, 2014 totaled $1,052 or
approximately 0.8% of net revenues as compared to other expenses of $2,997 or
approximately 3.2% of net revenue for three months ended March 31, 2013, a
decrease in other expenses of $1,945 or approximately 64.9%. The primary reason
for the decrease in other expenses is related to a decrease in financing fees as
AWWT did not finance any receivables during the three months ended March 31,
2014.
NET LOSS
Net loss for the three months ended March 31, 2014 totaled $29,234 as compared
to a net loss of $17,038 for the three months ended March 31, 2013, an increase
in net loss of $12,196 or approximately 71.6%. The increase in net loss is
primarily attributable to the aforementioned increase in cost of revenues and
operating expenses as noted above.
BAKER'S PRIDE, INC.
SEASONALITY
Operations at the Jefferson Street are not influenced by seasonality. Operations
at the Mt. Pleasant Street operation are affected by seasonality and sales are
typically higher during the Spring and late Fall compared to other periods of
the year. Due to co-packing and a limited customer base for the three months
32
ended March 31, 2014, Jefferson Street and Mt. Pleasant Street operations were
not as affected by seasonality as they would be if the facilities operated at
higher volumes.
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. BPI
performed an impairment study and concluded that BPI's goodwill and intangible
assets were fully impaired.
Net revenues generated from Aldi comprised 0.0% of net revenues for the three
months ended March 31, 2014 and 2013. All of the revenues formerly generated
from Aldi were generated from BPI's Jefferson Street facility. Effective
November 2, 2012, BPI stopped significant production at the Jefferson Street
facility. As a result, there were layoffs of production personnel and wage
reductions of remaining personnel in order to minimize losses until significant
production resumes at the Jefferson Street facility. Production continues with
low volume regional companies. Marketing is working to increase product
offerings, obtain additional customers and grow the business. A contract was
secured with a major bread customer in October 2013 which resulted in
significant re-hiring of personnel and increased output at the Jefferson 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.
Discussions continue with additional bread and donut customers to operate as
their producer, as well as opportunities for BPI branded products at both the
Jefferson Street and Mt. Pleasant Street facilities. However, as of the time of
filing BPI is still seeking significant business from new customers. Contract
negotiations with additional significant customers are ongoing.
33
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended March 31, 2014 totaled $1,207,295 as
compared to $54,808 for the three months ended March 31, 2013, an increase of
$1,152,488. The primary reason for the increase in net revenues is related to
the acquisition of two new customers in 2013. Of the approximate $1.2 million
increase in net revenues, these two customers represented $1.1 million or 90.1%
of revenues for the three months ended March 31, 2014 as compared to $0 or 0.0%
of revenues for the three months ended March 31, 2013.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2014 totaled $1,529,283 as
compared to $554,650 for the three months ended March 31, 2013, an increase of
$974,633 or approximately 175.7%. The Company had a 2,102.8% increase in net
revenues against a 175.7% increase in cost of revenues in 2014 as compared to
2013. The primary reason for the increase in cost of revenues is related to
increases in production at both the Jefferson Street facility and the Mt.
Pleasant Street facility during the three months ended March 31, 2014 due to the
aforementioned two new customers. Certain fixed costs are incurred by BPI
regardless of the production levels at BPI's facilities which were incurred
during the three months ended March 31, 2014 and 2013 which contributed to the
negative gross margin reported for both periods.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A expenses for the three months ended March 31, 2014 totaled $1,143,072 as
compared to $1,081,017 for the three months ended March 31, 2013, an increase of
$62,055 or approximately 5.7%. The primary reason for the increase in 2014 is
related to an increase in management payroll of approximately $60,000. This
increase was due to the increase in business and re-staffing the required
management necessary to operate both the Jefferson Street facility and the Mt.
Pleasant Street facility concurrently.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2014 totaled
$1,465,059 as compared to $1,580,859 for the three months ended March 31, 2013,
a decrease in loss from operations of $115,800 or approximately 7.3%. The
decrease in loss from operations was primarily due to the increase in net
revenues as noted above.
OTHER EXPENSES
Other expenses for the three months ended March 31, 2014 totaled $406,344 as
compared to $169,312 for three months ended March 31, 2013, an increase of
34
$237,032 or approximately 140.0%. The primary reason for this increase in 2014
is a higher interest expense incurred due to a larger loan balances on BPI's
working capital line.
NET LOSS
Net loss for the three months ended March 31, 2014 totaled $1,871,403 as
compared to $1,750,171 for the three months ended March 31, 2013, an increase in
net loss of $121,232. The primary reason for this increase in net loss is
related to the increase in other expenses as noted above.
TYREE HOLDINGS CORP.
SEASONALITY AND BUSINESS CONDITIONS
Historically, Tyree's revenues tend to be lower during the first half of the
year as Tyree's customers complete their planning for the upcoming year.
Approximately 30% of Tyree's revenues are earned from new customer capital
expenditures. Customer's capital expenditures are cyclical and tend to mirror
the condition of the economy. During normal conditions, Tyree will need to draw
from its borrowing base early in the year and then pay down the borrowing base
as the year progresses when it generates positive cash flows. The highest
revenue generation occurs from late in the second quarter through the third
quarter of the year.
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
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 three months ended March 31, 2014 and 2013.
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 $713,364 and $665,233 for the three months ended
March 31, 2014 and 2013, respectively. Since Tyree's largest customer filed
bankruptcy in December 2011, Tyree has been having significant cash flow
problems. Significantly reduced revenues and old accounts payable settlement
payments have put stress on the available funding and the existing credit
facility. In the fourth quarter of 2011 and the first quarter of 2012,
management responded with a plan to term out all current vendors. Many vendors
agreed to long term payouts, so Tyree converted a portion of accounts payable to
long and short term debt. At March 31, 2014 this amounted to $2,748,733. In
35
reaction to the GPMI Bankruptcy filing, management reduced employee headcount,
rescheduled accounts payable, reduced management's salaries and reduced its rent
commitments. Management continues to analyze Tyree's overhead expenses and will
continue to reduce its works force as necessary until it is able to replace the
business lost as a result of the GPMI bankruptcy filing.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended March 31, 2014 totaled $5,019,877 as
compared to $6,860,022 for the three months ended March 31, 2013, a decrease of
$1,840,145 or approximately 26.8%. The decrease in revenues in 2014 can
primarily be attributable to the harsh weather conditions experienced during the
three months ended March 31, 2014. The winter season was irregularly adverse
which impacted Tyree's ability to complete work and therefore generate revenue.
Revenues by operating division for the three months ended March 31, 2014 and
2013 were as follows:
2014 2013
---------- ----------
Revenues
Service and Construction $2,747,153 $3,288,315
Environmental, Compliance and Engineering 2,272,724 3,571,707
---------- ----------
Total $5,019,877 $6,860,022
========== ==========
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2014 totaled $3,984,015 or
approximately 79.4% of net revenues as compared to $5,447,589, or 79.4% for the
three months ended March 31, 2013. Margins were able to be maintained with a
lower sales volume primarily due to a reduction in accounts payable due to
reconciliation discrepancies which decreased cost of goods sold by approximately
$290,000 for the three months ended March 31, 2014. Without this reduction, the
cost of revenue from operations was $1,173,286 less than it was in 2013, the
reduction in revenue of $1,840,145 resulted in the cost of revenue from
operations being 5.7% greater than it was in 2013.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2014 totaled $1,250,591,
or approximately 24.9% of net revenues compared to $1,863,281, or approximately
27.2% of net revenues for the three months ended March 31, 2013, a decrease in
operating expenses of $612,690 or approximately 32.9%. During the three months
ended March 31, 2014, Tyree's payroll and benefits were reduced by approximately
$176,000 and Tyree's management fee to Amincor was reduced by approximately
$360,000. In addition, reductions in professional fees, rent, telephones, and
travel accounted for the remainder of the expense reductions.
36
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2014 totaled $214,729
or approximately 4.3% of net revenues as compared to $450,849, or approximately
6.6% of net revenues for the three months ended March 31, 2013, a decrease in
loss from operations of $236,120 or approximately 52.3%. The decrease in loss
from operations was primarily due to the aforementioned adjustments to accounts
payable.
OTHER EXPENSES
Other expenses for the three months ended March 31, 2014 totaled $498,635 or
approximately 9.9% of net revenues as compared to other expenses (income) of
$214,384, or approximately 3.1% of net revenues for the three months ended March
31, 2013, an increase in other expenses of $284,251 or approximately 57.0%.
Interest expense for the three months ended March 31, 2014 was $498,635 as
compared to $212,887 for the three months ended March 31, 2013, an increase of
$285,748 or approximately 134.2%. The primary reason for this increase is due to
an increase in the volume of receivables financed during the three months ended
March 31, 2014 as compared to the three months ended March 31, 2013.
NET LOSS
Net loss for the three months ended March 31, 2014 totaled $713,364 as compared
to $665,233 for the three months ended March 31, 2013, an increase in net loss
of $48,131 or approximately 7.2%. The increase in net loss was primarily due to
the increase decrease in net revenues and increase in cost of revenues as
discussed above.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Amincor has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
We maintain "disclosure controls and procedures" as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating
our disclosure controls and procedures, our management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily was required to
37
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer and our Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on such
evaluation, and as discussed in greater detail below, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were not
effective:
* to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms, and
* to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our CEO and
our CFO, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15 of the Securities
Exchange Act of 1934. Our internal control system was designed to provide
reasonable assurance to our management and the Board of Directors regarding the
preparation and fair presentation of published financial statements. Our
internal control over financial reporting includes those policies and procedures
that:
* pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets,
* provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorization
of management and directors, and
* provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements.
38
Our management has not assessed the effectiveness of our internal control over
financial reporting as of March 31, 2014. Management understands that in making
this assessment, it should use the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Although an assessment using those criteria has
not been performed, our management believes that the Company's internal control
over financial reporting was not effective at March 31, 2014.
As of the date of this report, we have been unable to complete a full assessment
and adequately test our internal control over financial reporting and
accordingly lack the documented evidence that we believe is necessary to support
an assessment that our internal control over financial reporting is effective.
Without such testing, we cannot conclude whether there are any material
weaknesses, nor can we appropriately remediate any such weaknesses that might
have been detected.
Therefore, there is a possibility that misstatements which could be material to
our annual or interim financial statements could occur that would not be
prevented or detected.
There have been no changes in our internal control over financial reporting
during this fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
We will complete our assessment of internal control over financial reporting and
take the remediation steps detailed below to enhance our internal control over
financial reporting and reduce control deficiencies. With regards to the
improvement of our internal controls over financial reporting, we believe the
following steps will assist in reducing our deficiencies, but will not
completely eliminate them. We will continue to work on the elimination of
control weaknesses and deficiencies noted.
Management of the Company takes very seriously the strength and reliability of
the internal control environment for the Company. Going forward, the Company
intends to implement new internal policies and undertake additional steps
necessary to improve the control environment including, but not limited to:
* Implementing an internal disclosure policy to govern the disclosure of
material, non-public information in a manner designed to provide full
and fair disclosure of information about the Company. This disclosure
policy is intended to ensure that management and employees of the
Company and its subsidiaries comply with applicable laws including the
SEC's Fair Disclosure Rules (Regulation FD) governing disclosure of
material, non-public information to the public.
* Strengthening the effectiveness of corporate governance through the
implementation of standard policies and procedures and training
employees.
39
* Establishing an audit committee of the Board.
* Assigning additional members of the management team to assist in
preparing and reviewing the ongoing financial reporting process.
Management is committed to and acknowledges its responsibility for internal
controls over financial reporting and seeks to continually improve these
controls. In order to eventually achieve compliance with Section 404 of the
Sarbanes Oxley Act, we intend to perform the system and process evaluation
needed to comply with Section 404 of the Sarbanes Oxley Act as soon as
reasonably possible.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Capstone Business Credit, LLC, a related party, was 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.
As of December 31, 2009, the mortgage related to this Property was assigned to
Amincor, Inc. and thereafter to Amincor Other Assets, Inc. In November, 2011 a
Judgment of Foreclosure was granted by the court ordering that the IMSC property
in Pelham Manor, New York (the "Property") be sold at public auction.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder and title to the Property has been transferred to Amincor
Other Assets, Inc.
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
had a pre-petition receivable of approximately $1,515,401.27. As an unsecured
creditor, Tyree may never have collected or may have collected a small
percentage of the pre-petition amount owed. Accordingly on April 4, 2014 Tyree
sold its unsecured general and administrative claims to an unrelated third party
for the aggregate sum of $553,661.96
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
40
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 are vigorously defending 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. As of December 31, 2013, the Amincor Clients have answered the
complaint in the Amincor Litigation and the California lawsuit has been
dismissed pending parties' agreement to arbitrate the matter. Plaintiff Sean
Frost initiated arbitration in April 2014. Defendants believe that this
arbitration has no merit or basis and intend to vigorously defend.
On March 22, 2013 Fleetmatics USA, Inc. brought an action in the Supreme Court
in the State of New York, County of Suffolk against Tyree Equipment Corp. and
Tyree Services Corp. seeking $313,176.09 plus interest and costs for services
rendered. In June 26, 2013 a default judgment was entered against Tyree
Equipment Corp. and Tyree Services Corp. in the amount of $328,083.29. On
February 24, 2014 All Safe Protection, Inc. brought action against Tyree
Holdings, Corp. and other Tyree entities for services rendered to Tyree in the
amount of $236,817.98 plus interest and costs. On March 3, 2014 American Express
Travel related Services Company brought suit in the Supreme Court in the State
of New York, County of Nassau against Tyree Holdings, Corp. seeking the sum of
$142,235.42 plus interest and cost for unpaid interest and charges. Management
is attempting to finalize settlement agreements for a three year payment plan
based on a 60 month payment schedule with a balloon payment at the end of the
third year. Management anticipates that Fleetmatics and American Express will
agree to the payment plan and will endeavor to reach a similar agreement with
All Safe.
A number of additional unsecured vendors have either threatened to or have filed
suit for non-payment of outstanding invoices, as noted in Tyree's financial
statements under accounts payable. Each of these matters, which occurred in the
ordinary course of business, is handled on a case by case basis, with settlement
and payment plans.
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.
41
ITEM 1A. RISK FACTORS
RISK FACTORS RELATING TO AMINCOR'S SECURITIES
OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE.
We are and will continue to be subject to the disclosure and reporting
requirements of applicable U.S. securities laws. Many of our principal
competitors are not subject to these disclosure and reporting requirements. As a
result, we may be required to disclose certain information and expend funds on
disclosure and financial and other controls that may put us at a competitive
disadvantage to our principal competitors.
SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO
THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD
BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT.
THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE
THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.
Our officers and directors directly own 7,694,266 shares of the total of
8,996,355 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.
42
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (as defined by the
Securities Act of 1933, as amended) must make a special suitability
determination for the purchaser and must receive the purchaser's written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks. The additional sales practice and disclosure
requirements imposed upon broker-dealers selling penny stock may discourage such
broker-dealers from effecting transactions in our shares, which could severely
limit the market liquidity of the shares and impede the sale of our shares in
the secondary market.
INVESTORS THAT NEED TO RELY ON DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE
SHARES OF OUR COMMON STOCK.
We do not anticipate paying any dividends on our common stock for the
foreseeable future. Investors that need to rely on dividend income should not
invest in our common stock, as any income would only come from any rise in the
market price of our common stock, which is uncertain and unpredictable.
Investors that require liquidity should also not invest in our common stock.
There is no established trading market, and should one develop, it will likely
be volatile and such market may not be sustained.
HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE
FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON
STOCK 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 8,996,355 Class A common shares
and 21,286,341 Class B common shares and 1,752,823 shares of Preferred Stock
(which since January 1, 2011 have been convertible into Class B common shares on
the basis of ten Class B common shares for each Preferred Share) 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 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.
43
As of the date of this filing, there were 55 Class A stockholders of record,
owning all of the 8,996,355 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 35 institutional shareholders of record owning all of the
1,752,823 issued and outstanding shares of our Preferred Stock.
FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
WE ARE SUBJECT TO THE PERIODIC REPORTING REQUIREMENTS OF THE EXCHANGE ACT THAT
WILL REQUIRE US TO INCUR AUDIT FEES AND LEGAL FEES IN CONNECTION WITH THE
PREPARATION OF SUCH REPORTS. THESE ADDITIONAL COSTS COULD REDUCE OR ELIMINATE
OUR ABILITY TO EARN A PROFIT.
We are required to file periodic reports with the SEC pursuant to the Exchange
Act and the rules and regulations promulgated thereunder. In order to comply
with these requirements, our independent registered public accounting firm will
have to review our financial statements on a quarterly basis and audit our
financial statements on an annual basis. Moreover, our legal counsel will have
to review and assist in the preparation of such reports. The costs charged by
these professionals for such services cannot be accurately predicted at this
time because factors such as the number and type of transactions that we engage
in and the complexity of our reports cannot be determined at this time and will
have a major affect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will obviously be an expense to
our operations and thus have a negative effect on our ability to meet our
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.
44
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the Company have no obligation to devote full time
to the business of the Company. They are required to devote only such time and
attention to the affairs of the Company, as they may deem appropriate in their
sole discretion. It is anticipated that they will each spend approximately 70%
of their time on their duties related to Amincor but they are under no
obligation to continue to do so, nor are they restricted by an agreement not to
compete with the Company and they may engage in other activities or ventures
which may result in various conflicts of interest with the Company.
GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES
AMINCOR 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 turn around 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.
Amincor's independent registered public accounting firm has stated that there is
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, 2013.
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
45
financial resources to develop or maintain an affiliated business until we could
replace such individual and replace any business lost by the departure of that
person.
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
revenue, margins and earnings. Additionally, the economic situation could have
an impact on our lenders or customers, causing them to fail to meet their
obligations to us. The occurrence of any of these risks could materially and
adversely affect our subsidiary businesses' financial condition and results of
operations.
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
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
46
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.
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. Aldi, Inc. accounted for
0.0 % of revenue for the three months ended March 31, 2014 and 2013,
respectively. The loss of Aldi, Inc. has had a materially adverse effect on
BPI's results of operations and financial condition since November 2012 and
through the date of this report.
47
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.
48
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.
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 ADVANCED WASTE & WATER TECHNOLOGY, INC.
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.
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, it 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
49
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
turn around 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
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.
50
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
cleanup 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.
51
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.
TYREE NEEDS TO COMPLETE ITS NEGOTIATIONS WITH FEDERAL AND STATE TAX AUTHORITIES
TO SET UP PAYMENT PLANS TO PAY DOWN ITS PAYROLL AND SALES TAX LIABILITIES.
During the years ended December 31, 2013 and 2012, Tyree did not file certain
required payroll tax returns on a timely basis and did not properly pay its
payroll tax liabilities, including trust funds withheld on behalf of its
employees. Through the assistance of an outside payroll services company, Tyree
filed all delinquent payroll tax returns during the fourth quarter of 2013 and
is currently in negotiations with federal and various state authorities to
settle its remaining payroll tax obligations. Tyree estimates that its
outstanding payroll tax liability, including penalties and interest, was
approximately $2.5 million as of March 31, 2014.
During the year ended December 31, 2013, Tyree did not file required sales tax
returns in various jurisdictions. Tyree subsequently filed the required returns
and is currently in negotiations with various state authorities to settle the
remaining sales tax liability. Tyree estimates that its outstanding sales tax
liability, including penalties and interest, is approximately $1.3 million as of
March 31, 2014.
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
52
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. In 2014,
the Trustee indicated that Tyree may collect a small percentage of the
pre-petition and post petition amounts owed. Subsequent thereto on April 4, 2014
Tyree sold its unsecured general and administration claim to an unrelated third
party for the aggregate sum of $553,661.96.
In December 2013, Tyree Environmental Corp. and Tyree Service Corp. ("Tyree
entities") were sued by liquidating trustee of GPMI for recovery of preferential
transfers in the respective amounts of $1,147,154 and $2,479,755. On March 27,
2014, the bankruptcy liquidating trustee entered into forbearance agreements
with the Tyree entities with respect to the preference actions until June 2014,
with the understanding that the forbearance periods will be extended and the
actions will ultimately be dismissed if the Tyree entities continue to not
voluntarily assist Getty Realty in litigation against GPMI. We believe that this
recovery of preferential transfers has no merit or basis.
ITEM 5. OTHER INFORMATION
On January 9, 2014, the Board of Directors of the Registrant approved the
issuance of 1,083,332 Class A Voting Common Stock, par value $0.001 (the
"Shares") to certain officers of the Company in exchange for $130,000. The
Company's Class A shares were valued using a $0.12 valuation, which was the
market price for the Company's Class A shares on January 9, 2014
ITEM 6. EXHIBITS
31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101+ Interactive data files pursuant to Rule 405 of Regulation S-T.
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+ Filed Herewith
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMINCOR, INC.
Date: May 15, 2014 By: /s/John R. Rice, III
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John R. Rice, III, President
Date: May 15, 2014 By: /s/ Joseph F. Ingrassia
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Joseph F. Ingrassia, Interim Chief
Financial Officer
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