Attached files
Exhibit 99.1
Tyree Holdings Corp. and Subsidiaries
Consolidated Financial Statements
Years Ended December 31, 2009 and 2008
WITH
Report of Independent
Registered Public Accounting Firm
TYREE HOLDINGS CORP. AND SUBSIDIARIES
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CONTENTS
December 31, 2009 and 2008
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Page
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM 1
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets 2-3
Consolidated Statements of Operations 4
Consolidated Statements of Changes in Stockholders' Equity (Deficit) 5
Consolidated Statements of Cash Flows 6
Notes to Consolidated Financial Statements 7-26
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Stockholders
Tyree Holdings Corp. and Subsidiaries
We have audited the accompanying consolidated balance sheets of Tyree Holdings
Corp. and Subsidiaries, ("Successor Companies" as explained in Note 2 to the
financial statements) as of December 31, 2009 and 2008 and the related
consolidated statements of operations, and changes in stockholders' equity
(deficit) and cash flows for the year ended December 31, 2009 and the period
from January 18, 2008 to December 31, 2008 (Successor Companies), and
consolidated statements of operations, and changes in stockholders' equity
(deficit) and cash flows for the period from January 1, 2008 to January 17, 2008
of The Tyree Organization, Ltd., and Affiliates ("Predecessor Companies" as
explained in Note 1 to the financial statements). These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated financial
statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall consolidated financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Tyree Holdings Corp.
and Subsidiaries (Successor Companies) as of December 31, 2009 and 2008, and the
results of their consolidated operations and their cash flows for the year then
ended December 31, 2009 and the period from January 18, 2008 to December 31,
2008 (Successor Companies), and the results of the consolidated operations and
the cash flows of The Tyree Organization Ltd. and Affiliates (Predecessor
Companies) for the period from January 1, 2008 to January 17, 2008, in
conformity with accounting principles generally accepted in the United States of
America.
/s/ ROSEN SEYMOUR SHAPPS MARTIN & COMPANY LLP
New York, New York
October 8, 2010
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TYREE HOLDINGS CORP. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS
December 31, 2009 and 2008
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2009 2008
------------ ------------
ASSETS
Current assets:
Cash $ 322,896 $ 16,221
Accounts receivable, net of allowance for doubtful accounts
of $905,000 and $590,802 in 2009 and 2008, respectively 8,147,807 9,243,252
Inventory, net 2,664,928 3,012,741
Construction in process 3,856,824 6,981,612
Prepaid expenses and other current assets 277,252 697,950
------------ ------------
Total current assets 15,269,707 19,951,776
------------ ------------
PROPERTY AND EQUIPMENT, NET 3,129,916 2,050,055
------------ ------------
OTHER ASSETS:
Security deposits 142,975 124,496
Goodwill 7,575,500 7,575,500
Intangible assets, net 8,342,622 9,449,062
Deferred financing costs, net 475,933 632,426
------------ ------------
Total other assets 16,537,030 17,781,484
------------ ------------
Total assets $ 34,936,653 $ 39,783,315
============ ============
(Continued)
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TYREE HOLDINGS CORP. AND SUBSIDIARIES
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CONSOLIDATED BALANCE SHEETS (Continued)
December 31, 2009 and 2008
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2009 2008
------------ ------------
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 5,913,963 $ 5,605,618
Accrued expenses and other current liabilities 1,943,582 1,091,009
Assumed liabilities - current portion 3,942,166 2,329,009
Senior credit facility - related party 5,577,670 5,901,741
Notes payable - current portion 343,459 238,469
Billings on construction 5,916,570 7,507,624
Deferred revenue 474,000 537,347
------------ ------------
Total current liabilities 24,111,410 23,210,817
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 295,817 4,237,984
Notes payable - net of current portion 1,464,603 678,036
Other long-term liabilities 22,509 --
------------ ------------
Total long-term liabilities 1,782,929 4,916,020
------------ ------------
Total liabilities 25,894,339 28,126,837
------------ ------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Preferred stock, Series A, $0.001 par value per share;
50,000 shares authorized, 8,930 shares issued and outstanding 9 9
Common stock, $0.001 par value per share, 1,000,000 shares
authorized, 10,698 shares issued and outstanding 11 11
Additional paid-in capital 13,394,922 13,394,922
Accumulated deficit (4,352,628) (1,738,464)
------------ ------------
Total stockholders' equity 9,042,314 11,656,478
------------ ------------
Total liabilities and stockholders' equity $ 34,936,653 $ 39,783,315
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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TYREE HOLDINGS CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2009 and 2008
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Predecessor and
Successor Companies Successor Companies Predecessor Companies
Twelve Months For the Period For the Period
Year Ended Ended January 18, 2008 to January 1, 2008 to
December 31, December 31, December 31, January 17,
2009 2008 2008 2008
------------ ------------ ------------ ------------
Net revenues $ 53,654,956 $ 59,754,922 $ 58,208,639 $ 1,546,283
Cost of revenues 44,234,184 46,319,930 45,482,278 837,652
------------ ------------ ------------ ------------
Gross profit 9,420,772 13,434,992 12,726,361 708,631
Selling, general and administrative 10,831,583 12,475,843 12,094,130 381,713
------------ ------------ ------------ ------------
Loss (income) from operations (1,410,811) 959,149 632,231 326,918
Interest expense 1,203,353 2,869,181 2,370,695 498,486
------------ ------------ ------------ ------------
Net loss $ (2,614,164) $ (1,910,032) $ (1,738,464) $ (171,568)
============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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TYREE HOLDINGS CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
Years Ended December 31, 2009 and 2008
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Convertible Preferred Stock
------------------------------------- Treasury Stock,
Series A Series B Common Stock at Cost
---------------- ---------------- ----------------- ------------------
Shares Amount Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------ ------ ------
Balance - January 1, 2008
(Predecessor Companies) -- $ -- -- $ -- 726 $ 32,723 139 $(550,000)
Net loss for the period
January 1, 2008 through
January 17, 2008 -- -- -- -- -- -- -- --
----- ------ ------ ------ ------ -------- ------ ---------
Balance - January 17, 2008
(Predecessor Companies) -- -- -- -- 726 32,723 139 (550,000)
Acquisition and recapitalization 8,080 8 4,040 4 18,474 (32,704) (139) 550,000
----- ------ ------ ------ ------ -------- ------ ---------
Balance - January 18, 2008
(Successor Companies) 8,080 8 4,040 4 19,200 19 -- --
----- ------ ------ ------ ------ -------- ------ ---------
Series B conversion 850 1 (4,040) (4) (8,502) (9) -- --
Conversion of debt to equity on
December 31, 2008 -- -- -- -- -- -- -- --
Net loss for the period
January 18, 2008 through
December 31, 2008 -- -- -- -- -- -- -- --
----- ------ ------ ------ ------ -------- ------ ---------
Balance - December 31, 2008
(Successor Companies) 8,930 9 -- -- 10,698 11 -- --
----- ------ ------ ------ ------ -------- ------ ---------
Net loss for the year ended
December 31, 2009 -- -- -- -- -- -- -- --
----- ------ ------ ------ ------ -------- ------ ---------
Balance - December 31, 2009
(Successor Companies) 8,930 $ 9 -- $ -- 10,698 $ 11 -- $ --
===== ====== ====== ====== ====== ======== ====== =========
Total
Additional Stockholders'
Paid-In Accumulated Equity
Capital Deficit (Deficit)
------- ------- ---------
Balance - January 1, 2008
(Predecessor Companies) $ 2,621,206 $(58,087,065) $(55,983,136)
Net loss for the period
January 1, 2008 through
January 17, 2008 -- (171,568) (171,568)
----------- ------------ ------------
Balance - January 17, 2008
(Predecessor Companies) 2,621,206 (58,258,633) (56,154,704)
Acquisition and recapitalization 10,027,549 58,258,633 68,803,490
----------- ------------ ------------
Balance - January 18, 2008
(Successor Companies) 12,648,755 -- 12,648,786
----------- ------------ ------------
Series B conversion 12 -- --
Conversion of debt to equity on
December 31, 2008 746,155 -- 746,155
Net loss for the period
January 18, 2008 through
December 31, 2008 -- (1,738,464) (1,738,464)
----------- ------------ ------------
Balance - December 31, 2008
(Successor Companies) 13,394,922 (1,738,464) 11,656,478
----------- ------------ ------------
Net loss for the year ended
December 31, 2009 -- (2,614,164) (2,614,164)
----------- ------------ ------------
Balance - December 31, 2009
(Successor Companies) $13,394,922 $ (4,352,628) $ 9,042,314
=========== ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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TYREE HOLDINGS CORP. AND SUBSIDIARIES
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CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2009 and 2008
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Predecessor and
Successor Companies Successor Companies Predecessor Companies
Twelve Months For the Period For the Period
Year Ended Ended January 18, 2008 to January 1, 2008 to
December 31, December 31, December 31, January 17,
2009 2008 2008 2008
------------ ------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,614,164) $ (1,910,032) $ (1,738,464) $ (171,568)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property
and equipment 733,355 558,846 539,357 19,489
Amortization of intangible assets 1,106,440 1,060,338 1,060,338 --
Amortization of deferred financing cost 156,493 1,558,087 1,558,087 --
Loss on sale of equipment -- 233,436 233,436 --
Provision for doubtful accounts 314,198 590,802 590,802 --
Deferred rent 22,509 -- -- --
Changes in assets and liabilities:
Accounts receivable 781,247 910,935 (1,277,879) 2,188,814
Inventory 347,813 266,367 266,367 --
Construction in process 3,124,788 2,468,534 2,593,659 (125,125)
Prepaid expenses and other current assets 420,699 135,159 125,140 10,019
Security deposits (18,479) (41,974) (41,974) --
Accounts payable 308,345 (472,480) 1,987,021 (2,459,501)
Accrued expenses and other current liabilities 1,337,571 322,866 171,549 151,317
Billings on construction (1,591,054) (4,476,794) (4,201,415) (275,379)
Deferred revenue (63,347) (1,461,726) (865,640) (596,086)
------------ ------------ ------------ ------------
Net cash provided by (used in) operations 4,366,414 (257,636) 1,000,384 (1,258,020)
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (1,813,216) (508,901) (508,901) --
Proceeds from sales of equipment -- 25,000 25,000 --
------------ ------------ ------------ ------------
Net cash used in investing activities (1,813,216) (483,901) (483,901) --
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Borrowings from senior credit facility 53,307,883 62,945,897 59,363,888 3,582,009
Repayments of senior credit facility (53,631,954) (55,859,629) (53,462,147) (2,397,482)
Proceeds from subordinated debt -- 700,000 700,000 --
Proceeds from notes payable 1,209,348 6,574 6,574 --
Repayments of notes payable (317,791) (726,683) (726,683) --
Payments for debt issuance costs (485,000) (798,583) (798,583) --
Payments of assumed liabilities (2,329,009) (5,583,311) (5,583,311) --
------------ ------------ ------------ ------------
Net cash (used in) provided by
financing activities (2,246,523) 684,265 (500,262) 1,184,527
------------ ------------ ------------ ------------
Increase (decrease) in cash 306,675 (57,272) 16,221 (73,493)
CASH, beginning of year (period) 16,221 73,493 -- 73,493
------------ ------------ ------------ ------------
CASH, end of year (period) $ 322,896 $ 16,221 $ 16,221 $ --
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year (period) for:
Interest $ 991,144 $ 729,949 $ 729,949 $ --
============ ============ ============ ============
Income taxes $ 116,387 $ -- $ -- $ --
============ ============ ============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Net Assets Acquired $ -- $ 12,648,786 $ 12,648,786 $ --
============ ============ ============ ============
Subordinated debt and accrued interest
converted to equity $ -- $ 746,156 $ 746,156 $ --
============ ============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
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TYREE HOLDINGS CORP. AND SUBSIDIARIES
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009 and 2008
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1. NATURE OF BUSINESS
Tyree Holdings Corp. and Subsidiaries was formed in January 2008 and on January
17, 2008, acquired substantially all of the assets and assumed the operations of
The Tyree Organization, Ltd., and Affiliates (the "Predecessor Companies"). The
affiliated companies were Larry E. Tyree Co., Inc., Tyree Bros. Environmental
Services, Inc., Tyree Maintenance Company, Inc., and T.M. Excavating Corp.
The Company operates two distinct lines of business:
Environmental - Environmental consulting, site assessment, analysis and
management of site remediation for owners and operators of property with
petroleum storage facilities.
Services - Maintenance, repair and construction services provided principally to
the retail petroleum industry and other customers with underground petroleum
storage tanks and petroleum product dispensing equipment.
The Company markets its services throughout the Northeast, Mid-Atlantic and
Southern California regions of the United States to national and multinational
for-profit enterprises, as well as to local and national governmental agencies
and municipalities. The majority of the Company's revenue is derived from
customers in the Northeastern United States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements for the year ended December 31, 2009 and
the period from January 18, 2008 to December 31, 2008 include the accounts of
Tyree Holdings Corp. and its wholly owned subsidiaries, Tyree Service Corp.,
Tyree Environmental Corp. and Tyree Equipment Corp. (collectively, the "Company"
or "Successor Companies").
The consolidated financial statements of the Predecessor Companies for the
period January 1, 2008 to January 17, 2008 include the transactions of companies
which had substantially common ownership and management.
All significant intercompany transactions have been eliminated in consolidation.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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CASH AND CASH EQUIVALENTS
The Company considers all highly liquid instruments purchased with an original
maturity of three months or less to be cash equivalents. There were no cash
equivalents as of December 31, 2009 and 2008.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded at the invoiced amount and do not bear
interest. The Company extends unsecured credit to its customers in the ordinary
course of business but mitigates the associated risks by performing credit
checks and actively pursuing past due accounts. The Company generally follows
the practice of filing statutory "mechanics" liens on construction projects
where collection problems are anticipated. An allowance for doubtful accounts is
established and determined based on management's assessments of known
requirements, aging of receivables, payment history, the customer's current
credit worthiness and the economic environment. Accounts receivables are written
off when deemed uncollectible. Recoveries of accounts receivables previously
written off are recorded as income when subsequently collected.
INVENTORY
Inventory consists principally of maintenance parts and is stated at the lower
of cost or market using the first-in, first-out method. The Company writes down
its inventory for estimated obsolescence based upon the age of inventory and
assumptions about future demand and usage. An inventory reserve is recorded if
any carrying amount of the inventory exceeds its estimated market value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and the related depreciation is
computed primarily on a straight-line basis over the lives of the respective
assets. Estimated useful lives are as follows:
Machinery and equipment 5-10 Years
Vehicles 7 Years
Furniture and fixtures 5-7 Years
Computers 5 Years
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
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.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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INTANGIBLE ASSETS AND GOODWILL
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite lived intangible assets consist of customer relationships,
and non-competition agreements. Such intangible assets are amortized on a
straight-line basis over the useful lives of the assets. The useful lives of
intangible assets are as follows:
Customer relationships 5 Years
Non-competition agreements 7 Years
Goodwill and identifiable intangible assets with indefinite useful lives are not
amortized but are subject to an annual test for impairment and more frequently
in certain circumstances.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value. No impairment
charges have been recognized for the years ended December 31, 2009 and 2008.
DEFERRED FINANCING COSTS
Costs incurred in conjunction with the incurrence of indebtedness are
capitalized and subsequently amortized to interest expense over the related
period of the obligation using the straight-line method, which approximates the
effective interest rate method. These costs were primarily incurred during the
acquisition in January 2008 and consist of professional fees related to the
portion of the purchase price that was financed. These professional fees were
allocated on a proportional basis of debt to purchase price. Accumulated
amortization of deferred financing costs totaled $306,393 and $149,900 as of
December 31, 2009 and 2008, respectively, and has been included in interest
expense on the consolidated statements of operations.
DEFERRED REVENUE
Monthly customer payments under fixed fee maintenance contracts are deferred
until the month in which the services are provided. Deferred revenue of $474,000
and $537,347 as of December 31, 2009 and 2008, respectively, consists of
customer payments made in advance for services provided in January 2010 and
2009, respectively.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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DEFERRED RENT
The Company recognizes rent expense on leases containing scheduled rent
increases by amortizing the aggregate lease payments on a straight-line basis
over the lease term.
WARRANTY RESERVE
Most contracts that the Company enters into with its customers contain a written
or implied warranty on workmanship for one year. Subcontractors and parts
suppliers used by the Company generally warrant the parts they supply or
services they perform for a similar period. At project or service completion,
customers provide written or verbal acceptance of the Company's work. Warranty
related cost experienced by the Company typically consist of minor adjustments
or calibration work. The Company has accrued $53,000 at December 31, 2009 and
2008 for warranty related cost.
REVENUE RECOGNITION
ENVIRONMENTAL
Environmental contracts are generally performed on a unit-price or time and
material basis and revenue is recognized as these services are rendered.
SERVICES
The Company performs maintenance and repair services for several retail
petroleum customers under multi-year, unit price contracts. Under these
agreements, the customer pays a set price per contracted retail location per
month and the Company provides a defined scope of maintenance and repair
services at these locations on an on-call or as scheduled basis. Due to the
large number of retail locations and the broad scope of services that fall under
these contracts, the number and type of maintenance calls performed are
consistent on a month-to-month basis. The Company recognizes revenue under these
contracts based on the number of retail locations covered each month at the
prevailing per location unit price. Other maintenance and repair services are
performed on a unit-price or time and material basis and revenue is recognized
as these services are rendered.
Revenue is recognized on fixed-priced construction contracts and modified
fixed-priced construction contracts on the completed contract method, whereby
revenue and cost from construction projects are recognized only when a project
has been substantially completed. Contract costs include all direct material,
labor, equipment and subcontract costs as well as other job related costs.
Changes in job performance and job conditions, contract penalty provisions,
final contract settlements, change orders, claims or other contract revisions
are recognized at the completion of the contract. Provisions for estimated
losses on uncompleted contracts are made when it is determined that a loss is
probable. In the event a provision for estimated losses is deemed necessary, the
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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entire estimated loss is recognized in the period in which the determination
arises. In the consolidated balance sheets, the asset "Construction in process"
represents the direct cost on uncompleted contracts and the liability "Billings
on construction" represents customer billing on uncompleted contracts.
ADVERTISING COSTS
Advertising costs are expensed as incurred. For the years ended December 31,
2009 and 2008, advertising expenses totaled approximately $33,000 and $15,000,
respectively, and are included in selling, general and administrative costs on
the accompanying consolidated statements of operations.
INCOME TAXES
The Company accounts for income taxes in accordance with using the liability
method, which provides for an asset and liability approach to accounting for
income taxes. Under this method, deferred tax assets and liabilities are
recorded for tax effects of temporary differences between the financial
reporting and tax basis of assets and liabilities, and measured using the
current tax rates and laws that are expected to be in effect when the underlying
assets or liabilities are anticipated to be recovered or settled. The Company
records a valuation allowance based on whether its deferred tax assets will,
more likely than not, result in any future tax benefits.
The Company and its subsidiaries are subject to the federal, state and local tax
jurisdictions in which the Company operates.
Generally accepted accounting principles ("GAAP") require that, in applying the
liability method the financial statements' effects of an uncertain tax position
be recognized based on the outcome that is more likely than not to occur. Under
this criterion the most likely resolution of an uncertain tax position should be
analyzed based on technical merits and on the outcome that will likely be
sustained under examination. These requirements became effective for annual
financial statements beginning after December 15, 2008 and the Company adopted
them as of January 1, 2009.
As of December 31, 2009, the Company has determined that it has no uncertain tax
positions that require either recognition or disclosure in the consolidated
financial statements.
The Company's income tax returns for the years 2008 and 2009 are subject to
examination by federal, state, and local income tax authorities.
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practicable to estimate that
value as required under GAAP:
CASH: The carrying amount approximates fair value because of the liquidity
of those instruments.
ACCOUNTS RECEIVABLE AND ACCOUNTS PAYABLE: The carrying amount approximates
fair value because the amounts will be collected or paid, respectively, in
the near term.
REVOLVING LINE OF CREDIT AND LONG-TERM DEBT: The carrying amount
approximates fair value based on current market conditions and interest
rates available to the Company for similar financial instruments.
USE OF ESTIMATES
The preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the consolidated financial statements and the
reported amounts of revenues and expenses during the reporting period.
Significant estimates include, but are not limited to, the valuation of goodwill
and intangible assets, useful lives of tangible and intangible assets,
depreciation and amortization, allowances for doubtful accounts and inventory
obsolescence, loss contingencies on particular uncompleted contracts, and the
valuation allowance on deferred tax assets. Actual results could differ from
these estimates and assumptions.
RELATED PARTIES
The Company considers parties to be related if one party has the ability,
directly or indirectly, to control another party or exercise significant
influence over the other party in making financial and operating decisions or
where the Company and the party are subject to common control or common
significant influence. Related parties may be individuals or other entities.
3. ACQUISITION
On January 17, 2008, the owners of the Company contributed approximately
$49,600,000 in exchange for assets and certain assumed liabilities having a net
fair value of $12,648,786. The net fair value of these assets and liabilities
was not determined based on the $49,600,000 purchase price but is instead based
on an independent valuation of the business as a whole. Therefore the difference
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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of approximately $36,950,000 represents an investment of the purchasers in
excess of the book value of the Company.
The acquisition was accounted for as a business purchase in accordance with GAAP
and recorded at the estimated fair value of the assets acquired and the
liabilities assumed as of January 17, 2008, as follows:
Accounts receivable $ 8,556,174
Inventory 3,279,108
Construction in process 9,575,271
Prepaid expenses and deposits 905,612
Property and equipment 2,338,947
Goodwill 7,575,500
Intangible assets 10,509,400
Deferred financing costs 2,190,513
Accounts payable (3,694,979)
Accrued expenses (1,687,812)
Assumed liabilities (12,150,308)
Long-term debt (1,636,614)
Billings on construction (11,709,039)
Deferred revenue (1,402,987)
------------
$ 12,648,786
============
The Company assumed certain liabilities of the Predecessor Companies under the
asset purchase agreement related to the acquisition. The liabilities assumed
were for the payment of certain delinquent accounts payable, income taxes,
litigation settlements and other specified liabilities. Subsequent to the
acquisition, the Company negotiated repayment terms with the majority of the
parties owed. These repayments are non-interest bearing and have terms ranging
in duration from 2 to 48 months. The balance of assumed liabilities totaled
$4,237,983 and $6,556,993 as of December 31, 2009 and 2008, respectively.
As of December 31, 2009, the required and expected payments of assumed
liabilities are as follows:
Years Ending
December 31, Amount
------------ ------
2010 $3,942,165
2011 267,000
2012 28,818
----------
$4,237,983
==========
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
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4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following as of December 31:
2009 2008
---------- ----------
Machinery and equipment $ 581,647 $ 570,043
Vehicles 2,603,991 1,348,230
Furniture and fixtures 85,874 27,682
Computers 671,254 210,842
Leasehold improvements 424,212 400,121
4,366,978 2,556,918
Less accumulated depreciation and amortization 1,237,062 506,863
---------- ----------
$3,129,916 $2,050,055
========== ==========
Depreciation and amortization expense for the years ended December 31, 2009 and
2008 totaled $733,355 and $558,846, respectively.
5. GOODWILL AND INTANGIBLE ASSETS
Intangible assets were acquired in connection with the acquisition. The carrying
amount of goodwill was $7,575,500 as of December 31, 2009 and 2008. There have
been no changes in the carrying amount of goodwill during the year ended
December 31, 2009 and the period from January 17, 2008 to December 31, 2008.
Other intangible assets consist of the following as of December 31:
2009 2008
----------- -----------
Intangible assets subject to amortization:
Customer relationships $ 1,327,700 $ 1,327,700
Non-competition agreements 5,886,300 5,886,300
----------- -----------
7,214,000 7,214,000
Less accumulated amortization 2,166,778 1,060,338
----------- -----------
Intangible assets subject to amortization, net $ 5,047,222 $ 6,153,662
=========== ===========
Intangible assets not subject to amortization:
Licenses and permits $ 3,295,400 $ 3,295,400
Goodwill 7,575,500 7,575,500
----------- -----------
$10,870,900 $10,870,900
=========== ===========
14
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
Licenses and permits have renewal provisions, generally one to four years. As of
December 31, 2009, the weighted-average period to the next renewal was thirteen
months. Costs of renewal are expensed when incurred. The Company has the intent
and ability to renew all licenses and permits, as the renewal costs are nominal.
Accounting rules require that the intangible assets be tested for impairment at
least annually. Accordingly, an impairment analysis was performed as of December
31, 2009 and 2008 using a discounted cash flow analysis. A discounted cash flow
analysis requires that certain assumptions and estimates be made regarding
industry economic factors and future profitability and cash flows. As a result
of the 2009 and 2008 impairment analysis, it was determined that goodwill was
not impaired.
Amortization expense for intangible assets subject to amortization totaled
$1,106,440 and $1,060,338 for the years ended December 31, 2009 and 2008,
respectively.
Future amortization expense for the finite lived intangible assets is as
follows:
Years Ending
December 31, Amount
------------ ------
2010 $1,106,440
2011 1,106,440
2012 1,106,440
2013 851,964
2014 840,900
2015 35,038
----------
$5,047,222
==========
6. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and other current liabilities consist of the following as of
December 31:
2009 2008
---------- ----------
Employee compensation, taxes and benefits $ 912,642 $ 312,559
Acquisition costs -- 485,000
State sales taxes payable 651,594 180,715
Legal 89,936 --
Franchise and capital stock taxes 50,000 30,000
Warranty reserve 53,000 53,000
Accrued interest 58,750 28,750
Other 127,660 985
---------- ----------
$1,943,582 $1,091,009
========== ==========
15
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
7. REVOLVING LOAN AGREEMENT AND SUBORDINATED DEBT - RELATED PARTIES
SENIOR REVOLVING CREDIT AGREEMENT
The Company maintains a $15,000,000 revolving credit agreement with a related
party which expires on January 17, 2013. Borrowings under this agreement are
limited to 70% of eligible accounts receivable and the lesser of 50% of eligible
inventory or $4,000,000. The balances outstanding under this agreement were
$5,577,670 and $5,901,741 as of December 31, 2009 and 2008, respectively.
Borrowings under this agreement are collateralized by a first lien security
interest in all tangible and intangible assets owned by the Company. The Company
had approximately $9,400,000 and $9,100,000 of unused amounts available on the
revolving credit agreement at December 31, 2009 and 2008, respectively, subject
to borrowing base limitations. The agreement calls for a minimum fixed charges
coverage ratio and a maximum total debt to adjusted EBITDA ratio which have yet
to be defined or determined. The annual interest rate charged on this loan is
16%.
SENIOR SUBORDINATED NOTES
These notes are borrowings from a related party and were originally scheduled to
mature on January 17, 2013. The notes were collateralized by a security interest
in all tangible and intangible assets assumed by the Company, but the security
interest was subordinated to the security interest under the Company's senior
revolving credit agreement. The notes carried an interest rate of 8% prior to
conversion.
On December 31, 2008, the Company converted all of its related senior
subordinated notes of $700,000 and accrued interest of $46,156 to equity.
16
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
8. LONG-TERM DEBT
Long-term debt consists of the following as of December 31:
2009 2008
---------- ----------
Note payable to a commercial bank payable in monthly
installments of principal and interest of $6,198 through
March 2011. The annual interest rate is 7.25%. $ 62,644 $ 153,893
Note payable to a former stockholder of the Predecessor
Companies payable in monthly installments of principal
and interest of $9,709 through July 2010. The annual
interest rate is prime plus 1.5%. 59,813 170,317
Promissory notes payable, with accrued interest, to three
former stockholders of the Predecessor Companies maturing
on December 31, 2012. These notes are unsecured and are
subordinate to the Company's senior debt. The annual
interest rate charged on these notes is 6.0%. 500,000 500,000
Other long-term debt is comprised of loans incurred in
connection with the purchase of equipment. These loans
are collateralized by the assets purchased and bear
interest at an annual fixed rates ranging from 8.0% to
15.0% as of December 31, 2009 and 2008, with principal
and interest payable in installments through July 2014. 1,185,605 92,295
---------- ----------
Total 1,808,062 916,505
Less current portion 343,459 238,469
---------- ----------
Long-term portion $1,464,603 $ 678,036
========== ==========
The approximate future minimum principal payments on long-term debt are as
follows:
Years Ending
December 31, Amount
------------ ------
2010 $ 343,459
2011 240,577
2012 747,000
2013 278,000
2014 199,026
----------
$1,808,062
==========
17
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
9. STOCKHOLDERS' EQUITY
Upon the Company's acquisition date of January 17, 2008, the Company issued
8,080 and 4,040 shares of cumulative convertible preferred stock Series A and B,
respectively.
The Series A preferred stock is senior to all other forms of capital stock and
is convertible into common stock at the option of the holder at any time. Each
share of the Series A preferred stock is convertible into common shares
initially at a rate of 10 shares of common stock for each share of Series A
preferred stock. The conversion rate has anti-dilutive provisions that
proportionately increase the number of common shares to be received on
conversion as new issues of common stock occur. Each share of Series A preferred
stock has the voting rights of that number of common shares into which it is
convertible. Series A preferred stock has dividends that are cumulative and are
payable at an annual rate of 2%. As of December 31, 2009 and 2008, dividends in
arrears amounted to approximately $664,000 and $311,000, respectively, which
will not be recorded until declared by the Board of Directors.
The Series B preferred stock is junior to the Series A preferred stock but
senior to all other forms of capital stock. Dividends accrue at a rate of 16% of
their original purchase price per year. The Series B preferred stock has no
voting rights, but has protective anti-dilution provisions. The Series B shares
had redemption features based on collections of receivables and the sale of
inventory of the Predecessor Companies existing at the date of the acquisition
of their assets and assumption of their liabilities. The Series B were converted
into Series A preferred shares based on a formula dependent upon the outstanding
balance of the accounts receivable and inventory after the closing of the
acquisition of the assets and the assumption of liabilities. Once determined the
shares were converted based on the formula.
Pursuant to a Stockholders' Agreement dated January 17, 2008, on October 31,
2008, 4,040 shares issued and designated Series B Convertible Preferred were
converted into 850 shares of Series A preferred convertible and all Series B
shares were canceled. In addition, 8,502 shares of common stock were surrendered
and canceled per this agreement. By an agreement between the Company's
shareholders, there was no payment to the common shareholders upon surrendering
their shares.
CONVERSION OF DEBT TO EQUITY
As previously noted, on December 31, 2008, the Company converted all of its
related senior subordinated notes of $700,000 and accrued interest of $46,156 to
equity.
18
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
10. INCOME TAXES
The Company's net deferred tax assets result primarily from the future tax
benefit of net operating loss carryforwards. Under the liability method, the
Company has provided a full valuation allowance against its net deferred tax
assets of approximately $1,723,000 and $690,000 as of December 31, 2009 and
2008. The valuation allowance against the deferred tax assets increased by
approximately $1,033,000 and $690,000 during the years ended December 31, 2009
and 2008.
As of December 31, 2009, the Company's federal net operating losses were
approximately $2,670,000. The federal net operating losses expire from the years
ending 2028 through 2029. These net operating loss carryforwards may be limited
in accordance with Section 382 of the Internal Revenue Code of 1986, as amended,
based on certain changes in ownership that have occurred, or could occur in the
future.
The Company evaluates deferred income taxes quarterly to determine if the
valuation allowances against deferred tax assets should be established or
adjusted based on consideration of all available evidence, both positive and
negative, using a more likely than not realization standard. This assessment
considers, among other matters, the nature, frequency of recent income and
losses, forecasts of future profitability, and the duration of the statutory
carryforward period. In making such judgments, significant weight is given to
evidence that can be objectively verified.
Valuation allowances have been established for deferred tax assets based on the
Company's evaluation, as described above, about the likelihood of realizing
future tax benefits. The Company's ability to realize deferred tax assets
depends on the Company's ability to generate sufficient taxable income within
the carryforward periods provided for in the tax law for each applicable tax
jurisdiction.
19
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
The tax effects of temporary differences that give rise to the deferred tax
liabilities as of December 31, 2009 and 2008, are presented below:
2009 2008
---------- ----------
Deferred tax assets:
Net operating loss carryforwards $1,097,000 $ 38,000
Accounts receivable 371,000 242,000
Inventory 50,000 48,000
Property and equipment -- 37,000
Intangible assets 314,000 148,000
Contract revenue recognition 334,000 337,000
Accrued expenses and other current liabilities 76,000 47,000
Other long term liabilities 9,000 --
---------- ----------
2,251,000 897,000
Deferred tax liabilities:
Goodwill 414,000 207,000
Property and equipment 114,000 --
---------- ----------
528,000 207,000
Subtotal 1,723,000 690,000
Less deferred tax valuation allowance 1,723,000 690,000
---------- ----------
Net deferred income tax asset $ -- $ --
========== ==========
The provision for income taxes is presented below as follows:
Years Ended December 31,
2009 2008
----------- -----------
Current:
Federal $ (880,000) $ (572,000)
State (181,000) (118,000)
----------- -----------
(1,061,000) (690,000)
Deferred:
Federal 880,000 572,000
State 181,000 118,000
----------- -----------
1,061,000 690,000
----------- -----------
Total provision (benefit) for income taxes $ -- $ --
=========== ===========
20
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
The Company's effective rate differs from the statutory federal income tax rate
of 34%, primarily due to the effect of state and local income taxes and the
impact of recording a valuation allowance to offset the potential future tax
benefit resulting from net operating loss carry forwards for all years
presented. The following is a reconciliation of the U.S. federal statutory
income tax rate to the Company's effective income tax rate for the years ended
December 31, 2009 and 2008:
2009 2008
------ ------
Federal statutory rate (34.0)% (34.0)%
State taxes, net of federal tax benefit (7.0)% (7.0)%
Permanent differences 0.4% 1.3%
Net operating loss carryforwards 40.6% 1.0%
Change to valuation allowance 0.0% 38.7%
------ ------
0.0% 0.0%
====== ======
11. COMMITMENTS AND CONTINGENCIES
LEASE COMMITMENTS
The Company leases office and warehouse space under non-cancelable operating
leases, some of which, are between the Company and related parties, that expire
in 2014. Generally, these leases carry renewal provisions and require the
Company to pay maintenance costs. Rental payments may be adjusted for increases
in taxes and insurance above specified amounts.
The Company recognizes rent expense on leases containing scheduled rent
increases by amortizing the aggregate lease payments on a straight-line basis
over the lease term. The amount included in other liabilities related to this
deferred rent liability is $22,509 at December 31, 2009. There was no such
liability at December 31, 2008.
Rent expense (including common area maintenance and straight-line rent) totaled
$1,071,732 and $1,110,237 for the years ended December 31, 2009 and 2008,
respectively.
21
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
As of December 31, 2009, including related party transactions, the approximate
future minimum lease payments required under non-cancelable operating leases are
as follows:
Years Ending
December 31, Amount
------------ ------
2010 $ 566,000
2011 437,000
2012 222,000
2013 154,000
2014 57,000
----------
$1,436,000
==========
The Company rents equipment for certain construction and other projects on a
daily, weekly or monthly basis as needed.
Short-term equipment rental expense totaled $937,532 and $1,134,840 for the
years ended December 31, 2009 and 2008, respectively.
EMPLOYMENT AGREEMENTS
The Chief Executive Officer ("CEO") entered into an employment agreement for the
period commencing on March 3, 2008 and ending on December 31, 2012. The CEO
agreement provides for annual compensation of $240,000 plus certain other
benefits. The CEO's annual compensation will increase by 3% on each anniversary
of the term. The bonus for each year will be up to 100% of the annual
compensation, provided that the Company meets all of the annual objectives
established by the Board of Directors.
The Chief Operating Officer and President ("COO") entered into an employment
agreement for the period commencing on January 17, 2008 and ending on December
31, 2012. The COO agreement provides for annual compensation of $320,000 plus
certain other benefits. The COO's annual compensation may be reduced at the
discretion of the Board of Directors in the event the Company's EBITDA is 80% or
less of budgeted amounts for the period. The bonus for each year will be no less
than $100,000 provided that the Company meets all of the annual objectives
established by the Board of Directors.
The Vice President, Business Development ("VP") entered into an employment
agreement for the period commencing on January 17, 2008 and ending on December
31, 2012. The VP agreement provides for annual compensation of $320,000 plus
certain other benefits. The VP's annual compensation may be reduced at the
discretion of the Board of Directors in the event the Company's EBITDA is 80% or
less of budgeted amounts for the period. The bonus for each year will be no less
22
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
than $100,000 provided that the Company meets all of the annual objectives
established by the Board of Directors.
Each of these officers entered into a non-competition agreement for the terms of
the officer's employment and for a period subsequent to the officer's
termination of two years.
The approximate minimum base compensation of the four executives is as follows:
Years Ending
December 31, Amount
------------ ------
2010 $ 880,000
2011 880,000
2012 880,000
----------
$2,640,000
==========
CONTINGENCIES
LEGAL PROCEEDINGS
The Company's services are regulated by federal, state, and local laws enacted
to regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. This
ongoing regulation results in the Company or the Predecessor Companies becoming
a party to legal proceedings involving customers or other interested parties.
The issues involved in such proceedings generally relate to alleged
responsibility arising under federal or state laws to remediate contamination at
properties owned or operated either by current or former customers or by other
parties who allege damages. To limit its exposure to such proceedings, the
Company purchases, for itself and the Predecessor Companies, site pollution,
pollution, and professional liability insurance. Aggregate limits, per
occurrence limits, and deductibles for this policy are $10,000,000, $5,000,000
and $50,000, respectively.
The Company 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.
23
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
ASSUMED LIABILITIES
As part of its acquisition of the Predecessor Companies, the Company assumed
certain liabilities that include tax liabilities, which are in the process of
being settled. The Company has accrued $2,475,000 and $2,642,000 for these tax
liabilities as of December 31, 2009 and 2008, respectively. Settlement of these
tax liabilities in excess of the amounts accrued could have a material adverse
effect on the Company's financial position, results of operations or cash flows.
SURETY
In connection with its normal construction activities, the Company is required
to acquire bid, performance and payment bonds. The surety issuing the bonds has
recourse against certain Company assets in the event the surety is required to
honor the bonds.
12. RELATED PARTY TRANSACTIONS
Entities that provide working capital to the Company or are holders of
subordinated promissory notes share common management or ownership with the
Company's majority stockholder. The total principal and accrued interest owed to
these related entities was $6,136,420 and $6,430,491 as of December 31, 2009 and
2008, respectively. Interest expense incurred to these related entities totaled
$896,413 and $752,926 for the years ended December 31, 2009 and 2008,
respectively.
The Company receives consulting services from an entity controlled by the
relatives of certain stockholders under a consulting agreement. The agreement
expires on January 18, 2015. The Company makes payments of $15,800 per month
during the term of the agreement.
The Company leases office and warehouse space from an entity controlled by
certain stockholders. Rents paid to this related entity totaled $460,531 and
$1,064,000 in 2009 and 2008, respectively. There were no balances due to this
related entity as of December 31, 2009 and 2008.
13. EMPLOYEE BENEFITS
In 2008 the Company adopted The Tyree Holdings 401(k) Retirement Plan (the
"Plan"), which covers all eligible non-union employees. The Plan provides for
voluntary contributions by eligible employees up to a maximum of 85% of their
eligible compensation, subject to the applicable federal limitations. The
Company has the option to make a discretionary contribution each year. The
Company did not make any contributions for the years ended December 31, 2009 and
2008.
The Company has entered into collective bargaining agreements with certain labor
unions. These agreements expire at varying dates through April 30, 2012. The
Company also participates in several multi-employer pension plans. These plans
24
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
provide benefits to substantially all union employees. Payments made under these
plans totaled $1,620,454 and $2,013,654 for the years ended December 31, 2009
and 2008, respectively. The Company funds these plans on a monthly basis in
accordance with the provisions of the negotiated labor contracts.
14. CONCENTRATIONS OF CREDIT RISK
CASH
The Company maintains cash balances with various banks, which may at times
exceed the Federal Deposit Insurance Corporation limit. The Company believes
that the risk of loss as a result of this policy is negligible. There was no
uninsured cash maintained in banks as of December 31, 2009.
ACCOUNTS RECEIVABLE
The Company believes the concentration of credit risk in its accounts
receivables is substantially mitigated by its ongoing contract acceptance,
billing and credit evaluation process, relatively short-term collection terms
and its ability to file mechanics liens against customer properties serviced or
constructed. The Company does not generally require collateral from customers.
Management also believes that its subcontractor qualification policies and
contract performance monitoring procedures are adequate to minimize its exposure
with respect to non-performance by subcontractors.
The Company's customers are located in the Northeast, Mid-Atlantic and Southern
California regions of the United States. The Company's two largest customers
accounted for 42% and 16% of the Company's consolidated revenues for the year
ended December 31, 2009 and their balances amounted to 35% and 14% of accounts
receivable as of December 31, 2009. The Company's two largest customers
accounted for 51% and 12% of the Company's consolidated revenues for the year
ended December 31, 2008 and their balances amounted to 54% and 14% of accounts
receivable as of December 31, 2008.
PURCHASE CONCENTRATION
For the years ended December 31, 2009 and 2008, 43% and 39%, respectively, of
the total purchases of inventory products were from
one vendor.
15. LIQUIDITY
The Company incurred losses for the year ended December 31, 2009 and the period
from January 18, 2008 to December 31, 2008. In 2010 and 2011, managements'
intention is to obtain a new lending credit facility from a financial
institution which would provide the Company with additional funds at a lower
25
TYREE HOLDINGS CORP. AND SUBSIDIARIES
--------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2009 and 2008
--------------------------------------------------------------------------------
interest rate than its current existing credit facility. The prospective new
financing will permit the Company to increase its current market share in its
core businesses by financing acquisitions, as well as to strengthen its
competitiveness within its industry by reducing its costs of financing. In
addition, the Company is currently implementing a plan to increase its working
capital, thereby improving its liquidity. The Company will continue to utilize
its senior revolving credit facility while it negotiates with new lenders.
Management is currently seeking to obtain a new lender credit facility to
support the growth of the Company. Although management is confident that it will
succeed in negotiating financing for the Company, there are no assurances that
they will be successful in their endeavors. However, management believes they
have sufficient access to working capital to sustain operations through
September 30, 2011.
16. SUBSEQUENT EVENTS
On January 28, 2010, the Company entered into a Letter of Intent to be acquired
by Amincor, Inc. ("Amincor") (formerly known as Joning Corp.), a related party.
Amincor is to acquire all of the issued and outstanding stock of the Company
upon issuance of these financial statements.
The Company has evaluated its subsequent events through October 8, 2010, the
date that the accompanying consolidated financial statements were available to
be issued. The Company had no additional subsequent events requiring disclosure.
2
