Attached files
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| EX-21 - ORGANIZATIONAL CHART - Amincor, Inc. | ex21.txt |
| EX-3.9 - CERT OF INCORP OF ENVIRONMENTAL HOLDING - Amincor, Inc. | ex3-9.txt |
| EX-3.3 - CERT OF INCORP OF AMNICOR CONTRACT ADMIN - Amincor, Inc. | ex3-3.txt |
| EX-3.5 - CERT OF INCORP OF BAKERS PRIDE - Amincor, Inc. | ex3-5.txt |
| EX-3.6 - CERT OF INCORP OF MOUNT PLEASANT BAKERY - Amincor, Inc. | ex3-6.txt |
| EX-3.8 - CERT OF AMENDMENT OF EPIC SPORTS - Amincor, Inc. | ex3-8.txt |
| EX-3.7 - CERT OF INCORP OF JEFFERSON BAKERY - Amincor, Inc. | ex3-7.txt |
| EX-3.4 - CERT OF INCORP OF AMINCOR OTHER ASSESTS - Amincor, Inc. | ex3-4.txt |
| EX-3.12 - CERT OF INCORP OF IMPERIA MASONRY SUPPLY - Amincor, Inc. | ex3-12.txt |
| EX-3.15 - CERT OF INCORP OF TYREE HOLDINGS - Amincor, Inc. | ex3-15.txt |
| EX-14.1 - CODE OF ETHICS - Amincor, Inc. | ex14-1.txt |
| EX-3.14 - ARTICLES OF FORMATION TULARE FROZEN FOOD - Amincor, Inc. | ex3-14.txt |
| EX-3.13 - CERT OF INCORP OF TULARE HOLDING - Amincor, Inc. | ex3-13.txt |
| EX-31.1 - CEO SECTION 302 CERTIFICATION - Amincor, Inc. | ex31-1.txt |
| EX-3.10 - CERT OF INCORP OF ENVIRONMENTAL QUALITY - Amincor, Inc. | ex3-10.txt |
| EX-3.16 - CERT OF INCORP OF TYREE ENVIRONMENTAL - Amincor, Inc. | ex3-16.txt |
| EX-3.17 - CERT OF INCORP OF TYREE EQUIPMENT - Amincor, Inc. | ex3-17.txt |
| EX-32.1 - CEO SECTION 906 CERTIFICATION - Amincor, Inc. | ex32-1.txt |
| EX-31.2 - CFO SECTION 302 CERTIFICATION - Amincor, Inc. | ex31-2.txt |
| EX-3.11 - CERT OF INCORP OF MASONRY SUPPLY HOLDING - Amincor, Inc. | ex3-11.txt |
| EX-32.2 - CFO SECTION 906 CERTIFICATION - Amincor, Inc. | ex32-2.txt |
| EX-3.18 - CERT OF INCORP OF TYREE SERVICE - Amincor, Inc. | ex3-18.txt |
| EX-10.20 - TRANSITION SERVICES AGREEMENT - Amincor, Inc. | ex10-20.txt |
| EX-10.19 - LICENSE AGREEMENT - Amincor, Inc. | ex10-19.txt |
| EX-10.21 - AMENDMENT TO TRANSITION SERVICS AGREEMENT - Amincor, Inc. | ex10-21.txt |
| EX-10.18 - LOAN AND SECURITY AGREEMENT - Amincor, Inc. | ex10-18.txt |
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
(Mark One)
[X] Annual Report under Section 13 or 15 (d) of the Securities Exchange
Act of 1934
For the fiscal year ended December 31, 2010
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from _______________ to _______________
Commission file number 000-28865
AMINCOR, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 30-0658859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1350 Avenue of the Americas, 24th Floor, New York, New York 10019
(Address of Principal Executive Office) (Zip Code)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Class A Common Stock par value $.001 per share
Class B Common Stock par value $.001 per share
Indicate by check mark if the registrant is a well known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
To date, there has been no active trading market in Registrant's Stock and
therefore no market value has been computed.
As of April 15, 2011, there were 7,478,409 shares of Registrant's Class A Common
Stock and 21,176,262 shares of Registrant's Class B Common Stock outstanding.
TABLE OF CONTENTS
PART I
ITEM 1. BUSINESS........................................................... 4
ITEM 1A. RISK FACTORS....................................................... 15
ITEM 1B. UNRESOLVED STAFF COMMENTS.......................................... 28
ITEM 2. PROPERTIES......................................................... 28
ITEM 3. LEGAL PROCEEDINGS.................................................. 29
ITEM 4. (REMOVED AND RESERVED)............................................. 29
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................. 29
ITEM 6. SELECTED FINANCIAL DATA............................................ 30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................... 31
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......... 49
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................ 49
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE......................................................... 49
ITEM 9A. CONTROLS AND PROCEDURES............................................ 50
ITEM 9B. OTHER INFORMATION.................................................. 52
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE............. 52
ITEM 11. EXECUTIVE COMPENSATION............................................. 58
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.................................... 60
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE....................................................... 60
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES............................. 61
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES............................ 62
2
EXPLANATORY NOTE
In this Annual Report on Form 10-K, unless the context indicates otherwise, the
terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to Amincor,
Inc., and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve
substantial risks and uncertainties. These forward-looking statements are not
historical facts, but rather are based on current expectations, estimates and
projections about us, our industry, our beliefs, and our assumptions. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "would," "should," "scheduled," "projects," and variations of these
words and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
The forward-looking statements in this Annual Report on Form 10-K speak only as
of the date hereof and caution should be taken not to place undue reliance on
any such forward-looking statements. Forward-looking statements are subject to
certain events, risks and uncertainties that may be outside of our control. When
considering forward-looking statements, you should carefully review the risks,
uncertainties and other cautionary statements in this Annual Report on Form 10-K
as they identify certain important factors that could cause actual results to
differ materially from those expressed in or implied by the forward-looking
statements. These factors include, among others, the risks described under Item
1A Risk Factors and elsewhere in this Annual Report on Form 10-K. We do not
undertake any obligation to update or reserve any forward looking statements.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file quarterly and annual reports and other information with
the United States Securities and Exchange Commission, ("SEC"). You may read and
copy this information, for a copying fee, at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room. Our SEC
filings will also be available to the public from commercial document retrieval
services, and at the Web site maintained by the SEC at http://www.sec.gov.
Our website is located at http://www.amincorinc.com. The website contains a link
to the SEC's Web site, where electronic copies of the materials we file with the
SEC are available for viewing (including annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and other required filings).
3
PART I
ITEM 1. BUSINESS
AMINCOR, INC.
HISTORY OF THE COMPANY
Amincor, Inc. was incorporated under the laws of the state of Nevada on October
8, 1997 under the name GSE Group, Inc. GSE Group, Inc. was originally formed to
provide consulting services for reverse mergers to public shell corporations and
private companies seeking to gain access to the public markets. On October 20,
1997, GSE Group, Inc. changed its name to Global Stock Exchange Corp. and on
April 28, 2000, Global Stock Exchange Corp. changed its name to Joning Corp
("Joning"). In July 2000, Joning ceased its business activities. On March 8,
2002, Joning filed a Registration Statement on Form 10-SB under the Securities
Exchange Act of 1934 (the "Exchange Act") as a shell company with the purpose of
finding a suitable company for a reverse merger transaction. Joning ceased
filing periodic reports subsequent to its filing of its Form 10-QSB on October
24, 2004 as it did not have the personnel or resources to continue the filings
and there was no operating business or pending business transactions. On June 2,
2008 Joning filed a Form 15-12G to terminate its registration. On February 2,
2010, Joning changed its name to Amincor, Inc. On August 4, 2010, Amincor, Inc.
filed its Form 10 registration statement and became a public reporting company
on October 4, 2010.
OVERVIEW
Amincor is a holding company operating through various subsidiaries in two
operating divisions. The Environmental Services and Industrial Services Division
is comprised of Tyree Holdings Corp. and Masonry Supply Holding Corp. The
Consumer Products Division is comprised of Baker's Pride, Inc., Tulare Holdings,
Inc. and Epic Sports International, Inc.. Amincor Contract Administrators, Inc.
and Amincor Other Assets, Inc. are subsidiaries with minimal operations.
Amincor's officers and directors are responsible for the strategic direction of
the operating subsidiaries. The Company accomplishes this through strategic
planning, raising capital for business expansion via internal growth or
acquisition based growth and exploring unique opportunities for each subsidiary.
The executive management team of each subsidiary company has substantial
experience in their respective fields and have responsibility for the operation
of their business unit subject to overall direction of Registrant's management.
Amincor's officers and directors are actively engaged with the management of
each subsidiary. Amincor is able to assist the subsidiaries in executing their
business plans and in making necessary financial and other resources available.
This is accomplished through frequent site visits, weekly and monthly conference
calls and various reporting requirements such as budget to actual comparisons,
cash flow monitoring, accounts payable and accounts receivable management,
credit and collections, and periodic reporting by the subsidiary management to
Amincor.
INTELLECTUAL PROPERTY/BRANDS
Amincor through a series of assignments, from Capstone Business Credit, LLC and
Capstone Capital Group I, LLC acquired the right, title and interest in the
following trademarks as recorded with the United States Patent and Trademark
Office ("USPTO"):
4
Trademark Registration/Serial Number
--------- --------------------------
Caffeine Serial Number: 77709244
S-Stimuli Registration Number: 2482282
NEWPORT HARBOR REFLECTING
QUALITY SINCE 1969 Registration Number: 3764824
NEWPORT H A R B O R Registration Number: 2285443
NEWPORT HARBOR Serial Number: 75272295
NEWPORT HARBOR Registration Number: 1319471
CATCH THE DRIFT Serial Number: 77713436
CATCH THE DRIFT Serial Number: 77639185
Amincor has a license agreement with Brescia Apparel Corp. for the "Newport
Harbor" brand. The license agreement provides Brescia Apparel Corp. with the
exclusive North American rights for leather and textile goods in the outerwear
and rainwear categories initially through June 2012.
PERSONNEL
Pursuant to a transition services agreement with Capstone Capital Group I, LLC,
Capstone Business Credit, LLC, Capstone Capital Management, Inc. and Capstone
Trade Partners, Ltd. (collectively, "Capstone"), Amincor is provided with
personnel, office supplies, office equipment, office space and other materials
required for the performance of its business. Currently, Capstone has 14
full-time employees and five part-time employees including Messrs. John R. Rice
III, Joseph F. Ingrassia and Robert L. Olson, who dedicate approximately 70% of
their time to Amincor business.
AMINCOR SUBSIDIARY COMPANIES
----------------------------
AMINCOR CONTRACT ADMINISTRATORS, INC.
Amincor Contract Administrators, Inc., a Delaware corporation, incorporated on
August 25, 2010, is a wholly owned subsidiary of Registrant formed to administer
various contracts, related to certain assets held by Amincor Other Assets, Inc.
and the subsidiary companies, including, but not limited to certain
international service contracts for Tyree Holdings Corp.
AMINCOR OTHER ASSETS, INC.
Amincor Other Assets, Inc., a Delaware corporation, incorporated on April 5,
2010, is a wholly owned subsidiary of Registrant formed to hold the rights to
certain physical assets, including plant, property and equipment, which were
foreclosed on or assigned to Amincor, Inc.
BAKER'S PRIDE, INC.
OVERVIEW
Baker's Pride, Inc., a Delaware corporation, was incorporated on August 28,
2008.
5
Baker's Pride, Inc. ("BPI") consists of two operating entities; The Jefferson
Street Bakery, Inc. ("Jefferson Street Bakery") and The Mt. Pleasant Street
Bakery, Inc. ("Mt. Pleasant Street Bakery").
Jefferson Street Bakery produces several varieties of sliced and packaged
private label brand bread. Its entire annual production of 19 million loaves of
bread and over 1.1 million packages of donuts are sold to one client, Aldi,
Inc., for five distribution centers that services 332 stores in the Midwestern
U.S. Jefferson Street Bakery, through various predecessor entities, has
continuously supplied Aldi, Inc. for approximately 33 years. While no written
contract is in place, there is a six month notice of cancellation understanding
in effect between Jefferson Street Bakery and Aldi, Inc.
Mt. Pleasant Street Bakery anticipates manufacturing flash-frozen bakery goods
to be distributed to supermarket "in-store" bakery departments and food service
channels. Mt. Pleasant Street Bakery facility is scheduled to have advanced
logistics and frozen storage capacity, along with extensive room for several
additional product lines. Mt. Pleasant Street Bakery is currently in the final
stages of installing a state of the art donut production system that will
produce and freeze many varieties of donuts at an average production rate of
26,700 donuts per hour. This facility will also house a cookie production system
that will have an average production rate of 2,300 lbs. or 3,000 one dozen
package cookies per hour in a multitude of sizes, flavors and shapes. The
production of brownie and cake type bakery snack products will complete the
first phase of startup for Mt. Pleasant Street Bakery.
BPI requires capital to acquire additional equipment to complete the
installation and startup of its production and refrigeration machinery for the
new donut, cookie, brownie and cake production systems at Mt. Pleasant Street
Bakery. BPI is in negotiations with lenders related to its application for a
United States Department of Agriculture (USDA) supported loan to complete the
project.
The final phase of the build-out of Mt. Pleasant Street Bakery's 260,000 square
foot facility is currently being studied for development which may include the
installation of a high-speed bun and bread production system. The bun system is
being designed to produce an average of 6,000 packages of buns per hour and the
bread system will produce an average of 6,260 loaves of bread per hour
(throughput). This throughput will enable BPI to respond to its current client's
request for additional products and volume. In addition, it will also provide
additional capacity to attract new clients and diversify its customer base. BPI
will require additional funding in order to complete this project.
Major transitions are taking place in the baking industry. There is growing
utilization of frozen outsourced products rather than production from scratch at
each site in the "in-store" bakery and food service channels. In most bakery
goods market segments there is a very strong demand for products made with
"better for you" ingredients. This is a result of consumers' growing interest in
eating healthier while at the same time craving indulgent treats as a reward for
eating healthier. However, one primary factor remains constant in all markets
and in all categories: consumers are demanding value. BPI sees these major
transitions as opportunities to grow its business and diversify its product
portfolio and customer base.
6
CUSTOMERS
Currently BPI has one client, Aldi, Inc., which operates over 332 grocery stores
in the Midwestern U.S., of which BPI services approximately 200. BPI intends to
expand its customer base through the introduction of additional product
categories.
MARKETING
BPI's goal in all markets it serves is to help its customers to be successful by
providing marketing and merchandizing assistance gained over many years of
experience in the private label bakery business. The focus of its marketing
activities will be on its customers rather than consumers because in most
instances the products it produces are sold as private label brands.
Fresh bakery customers: Due to the freshness cycle, BPI markets directly to
fresh bakery customers because of the limited geographic area it serves.
Frozen bakery customers: BPI intends to use a network of food brokers to perform
the marketing duties for this market segment.
COMPETITION
The fresh packaged bread, bun and donut market is very competitive and is
dominated by large bakeries whose primary focus is branded bread, buns and
donuts. Of these, Grupo Bimbo SA de C.V. with its pending purchase of the North
American Sara Lee Fresh Bakery business and its previous acquisition of Weston
Bakeries USA, will have the most impact on this trading area. BPI also competes
with Hostess Brands, Campbell Soup Company (Pepperidge Farms) and Lewis Brothers
Bakeries, Inc., an independent regional bakery. BPI believes the efficiency it
offers as a dedicated baker of private label/ store branded bakery products
gives it a competitive advantage while delivering value to the consumer.
BPI's frozen products such as donuts, cookies and brownies will be designed for
supermarket "in-store" bakery departments and food service channels. These
frozen products will face competition from companies such as Dawn Foods,
Maplehurst Inc., Bake `n Joy, Inc. and CSM, a multinational company with an
increasing presence in the U.S. due to its recent acquisition of Best Brands,
Inc. as well as their Bake Mark, H.C. Brill divisions. There are also several
one category bakeries in larger cities in the Midwest with which BPI competes.
INTELLECTUAL PROPERTY
BPI recently received approval from the USPTO for the trademark BROWNIE CAKES TM
that will be used in the development of its brownie business.
INGREDIENTS AND RAW MATERIALS
BPI's primary ingredients are various flours, sugars and other sweeteners;
soybean or other vegetable oil products; salt, yeast and other leavening agents
as well as commercial bakery pre-mixes. When it begins production of the donut,
cookie and brownie categories it will add eggs, chocolate, butter, raisins and
nutmeats to its primary ingredient list. BPI also uses a large amount of plastic
and other packaging materials to wrap its products to ensure freshness and
wholesomeness. BPI's facilities use natural gas for ovens and donut fryers as
well as electricity to power other equipment. Some fluctuations in the cost of
these items are normal because most are dependent on growing conditions and
7
demand by consumers. In most cases these normal fluctuations can be managed by
forward buying or fixed supply contracts.
REGULATION
BPI is a producer of bakery goods, therefore, its facilities are subject to
federal agencies such as the Food and Drug Administration, Department of
Agriculture, Federal Trade Commission, Department of Commerce and the
Environmental Protection Agency with respect to processes used for production,
quality of products, packaging, and labeling as well as storage and distribution
of products. Under various regulations and statues, these agencies prescribe
required and established standards for quality, wholesomeness and labeling.
Failure to comply with these agencies requirements may result in letters of
warning, fines, or product recall.
BPI's operations, like others in the baking industry, are subject to various
federal, state and local laws in regard to environmental matters. BPI believes
that compliance with existing environmental laws and regulation will not
materially affect its financial conditions or its competitive position. At
present BPI believes it is substantially in compliance with all material
environmental regulations.
BPI's products, operations and facilities are subject to state and local
regulations which are monitored through licensing, enforcement by state health
and agriculture agencies of various local and state standards and inspections.
The cost of compliance with such laws and regulations has not adversely affected
on the BPI's business
PERSONNEL
BPI currently has 78 full-time employees and believes that its employee
relations are good. Once the donut, cookie and brownies product lines are at
full capacity the number of employees will grow to approximately 178 full-time
employees. If the bun and bread product lines are at maximum capacity, BPI will
employ a total of approximately 266 full-time employees. BPI's executive
officers are Ron Danko, Sr. who serves as the Chief Executive Officer and Robert
Brookhart, who serves as the President.
EPIC SPORTS INTERNATIONAL, INC.
OVERVIEW
Epic Sports International, Inc. ("ESI"), a Nevada corporation, was incorporated
on August 12, 2002.
ESI is the worldwide licensee for Volkl and Boris Becker Tennis and the
exclusive U.S. North American distributor for the Australian Klipspringer brand
of racquet strings and accessories.
Volkl is among the oldest ski and tennis brands in the world. Volkl has built
its reputation and market position with industry-leading technologies, superior
quality and state of the art engineering. Volkl Tennis is internationally
recognized as a technologically innovative tennis racquet manufacturer. ESI is
associated with Boris Becker, a widely recognized former top-ranked tennis
player and owner of Volkl Tennis from 1999 to 2008. Mr. Becker developed the
Boris Becker brand as part of Volkl. The Volkl/Boris Becker names are associated
with engineers and designers in Munich, Germany that are responsible for its
product design and quality.
8
The mass market presents an opportunity for the Boris Becker brand, especially
in China. As tennis continues to grow in popularity in China, ESI has been
approached by groups in China that are interested in launching Boris Becker
sporting goods and clothing stores. There has also been interest from other
developing markets, such as India and South Korea.
CUSTOMERS
ESI has three customer types:
Independent Specialty Retailers ("ISR"): In the USA, ESI works with
approximately 300 ISR's. These customers typically carry all major brands and
are either a freestanding location or associated with tennis courts (pro shops).
The top ISR's can have up to ten different locations. ESI's largest ISR's are
(i) Your Serve Tennis (eight locations in the Atlanta, GA metro area), (ii)
Paragon Sports (single location in New York, NY), (iii) The Racquet Doctor
(single location in the Los Angeles, CA metro area), and (iv) The Tennis and
Golf Company (single location near Ann Arbor, MI).
On-line Retailers: On-line retailers or "e-tailers", have typically started as a
free standing ISR and morphed into a major player in "e-tailing". These
customers feature the entire product selection from ESI (racquets, balls,
strings, grips, bags, etc.); they offer demo racquets through the mail, feature
shopping cart technology and typically offer aggressive customer acquisition
strategies. Our major customers are Tennis Warehouse, Tennis Express and Midwest
Sports.
International Distributors ("ID"): These are independent third party businesses,
who normally sell multiple brands within a given market. ID's will purchase
goods from ESI, at reduced prices compared with ISR's and E-Tailers, and resell
them to ISR's in their local markets. ID's are responsible for warehousing,
credit, shipping, service, and sales and marketing in their assigned
territories. These ID's will have annual minimums, to retain their exclusivity
on a given market and purchase products directly from the factory.
COMPETITION
The tennis industry is an approximately $1.0 billion global market, which
includes tennis racquets, balls, footwear, apparel, strings, grips, bags and
accessories. The approximate global market share among tennis racquet companies
is:
1. Wilson 22%
2. Babolat 20%
3. Head 18%
4. Prince 15%
5. Yonex 5%
6. Dunlop 5%
7. Volkl 3%
8. Other 12%
9
PERSONNEL
ESI currently has five full-time employees and believes that its employee
relations are good. ESI's executive officers are Jean Paul Lucas, who serves as
President, Sean Frost, who serves as the Vice-President of Sales Western
Division, and Brian Dillman, who serves as the Vice-President of Sales Eastern
Division. ESI also retains third party consultants/contractors to supply outside
services such as Information Technology, Research and Development and Sourcing.
MASONRY SUPPLY HOLDING CORP.
OVERVIEW
Masonry Supply Holding Corp., a Delaware corporation, and its subsidiary,
Imperia Masonry Supply Corp., a Delaware corporation, were both incorporated on
June 22, 2009.
Imperia Masonry Supply Corp. ("IMSC") consists of two primary business units:
(i) concrete, lightweight and split face block manufacturing; and (ii)
wholesaling a wide array of other masonry and building material products. IMSC
maintains a two-line block production plant which is capable of producing up to
32,000 blocks per day when operating at full capacity. IMSC is exploring
processes to add recovered or recyclable materials by including fly ash, glass
and/or concrete to the manufacturing mix in an effort to create an
environmentally "green" product line which will command higher profit margins.
The "green" product would allow end-users to quality for Leadership in
Environmental and Energy Design or LEED construction credits. The LEED
construction credits is a program devoted to certifying that a building or
community was designed and built using techniques and environmentally friendly
materials aimed to improve environmental and energy performance using
eco-friendly methods.
For the wholesale and supply business unit, IMSC enjoys numerous strategic
relationships with key manufacturers and in several cases regional exclusivity.
This affords IMSC with a competitive advantage and an ability to uniquely
provide certain materials and products in the marketplace. IMSC plans to
continue to expand these relationships and seek new ones to further position
itself as the supplier of choice for niche and innovative products in the
constantly evolving building materials marketplace.
IMSC is located in Southern Westchester County in New York State on the border
of the Bronx and is strategically positioned to supply all five boroughs of New
York City and the Hudson Valley area. Its location also provides IMSC the
capability to supply Bergen County, New Jersey and Fairfield County,
Connecticut. IMSC hopes to consolidate its market through a planned expansion to
at least three manufacturing locations in the region. IMSC hopes that this
expansion will enable it to better serve its customer base, leverage the
resultant economy of scale and be well positioned for the anticipated economic
rebound in 2011 and beyond.
For the manufacturing business unit, IMSC requires additional capital to expand
and improve its facilities and equipment and additional personnel to achieve
economies of scale needed to become more profitable. Equipment improvements,
including automated production lines and control systems, expansion into
architectural products and other value-added products that would enable IMSC to
reduce costs, increase market share, and diversify operations. A diversified
product line is essential, as seasonal conditions in any given year can have a
positive or negative impact on the outdoor construction industry, and ultimately
IMSC's revenues.
10
CUSTOMERS
Including its predecessor entity, which was in the marketplace for over 80
years, IMSC has an extensive customer list. Customers range from small to large
masonry contractors as well as numerous general contractors throughout the
region. IMSC has an expanding dealer network through which it intends to
distribute both its manufactured products and wholesale products. IMSC also
networks with various specifiers (architects and engineers) in the marketplace,
who have a significant influence on the procurement of building materials for
construction products.
COMPETITION
The marketplace for both concrete block manufacturers and masonry/building
material wholesalers is extensive and highly fragmented. A few block
manufactures in the region are part of vertically integrated large global
companies such as Old Castle, based in Ireland, with their local Anchor Block
operation. There are also several individual, largely family-owned, operations
are scattered throughout the greater New York metro area such as Philips,
Montfort, Clayton and Glenwood. Similarly, the wholesale supply market is
fragmented with numerous small to medium sized enterprises such as Casa, San
Marco, and Tilcon.
PERSONNEL
IMSC currently has 28 full time employees and believes that its employee
relations are good. IMSC's executive officers are David C. Raymes, who serves as
the President, and Janice Piszczatowski, who serves as the Chief Financial
Officer.
TULARE HOLDINGS, INC.
OVERVIEW
Tulare Holdings, Inc., a Delaware corporation, was incorporated on December 29,
2008 and operates through its wholly owned subsidiary Tulare Frozen Foods, LLC,
a California limited liability company formed on October 5, 2007, which
commenced its operations in frozen produce processing and marketing on January
9, 2008. Tulare Holdings, Inc. and Tulare Frozen Foods, LLC are collectively
referred to herein as "Tulare".
Tulare currently occupies a 35 acre site, in Lindsay, California, strategically
located in the San Joaquin Valley which provides an abundant supply of locally
grown vegetables for processing. The Tulare site includes 350,000 square feet of
buildings for warehousing, production, and manufacturing, with excess capacity
for future growth and product diversification. Tulare is located within close
proximity to the local railroad, with a rail line on the property and also owns
a water rights permit.
Tulare's current product line includes frozen spinach, southern greens,
broccoli, cauliflower, and peppers. These products are available in individual
quick freezing ("IQF") bulk, wet pack cartons, and two and three pound poly bags
for retail and foodservice markets. The Tulare customer base is approximately
80% food service, 15% retail, and five percent industrial. Frozen spinach
11
currently accounts for 75% of Tulare's volume, southern greens accounts for 20%,
and the remaining five percent consists of sales of broccoli and cauliflower.
Tulare has developed a private label for wet pack spinach, which is sold to
retail food markets. Additional market growth is targeted in the packaging of
other leafy greens and peppers by establishing Tulare as the low cost producer.
To better align itself with the competition within its industry, Tulare hopes to
expand its current customer base on the east coast by importing frozen fruits
and vegetables from abroad. In addition, Tulare intends to acquire additional
market share associated with a new wet pack pouch design that would better cater
to its foodservice customers and to increase its market share beyond the east
coast to include other regions of the United States and Canada as well.
By expanding its presence, Tulare seeks to become a frozen food distributor
rather than just a frozen food processor. Management believes that the costs and
associated risks correlated with processing frozen fruits and vegetables
domestically will be mitigated by the shift towards imported produce as well as
costs associated with the lack of diversification of the current product mix.
Tulare intends to accomplish this by expanding its offerings to include value
added products and by building a new state of the art facility to handle
domestic production. In addition, Tulare may seek to acquire or merge with a
significant food processing and/or distribution company in an effort to
facilitate this goal should an opportunity to do so be made available.
Tulare requires additional capital to expand and improve its facilities and
equipment and additional personnel to achieve economies of scale needed to
become more profitable. Equipment improvements, including high-speed packaging
lines, expansion into rice, pasta and other products would enable the company to
reduce costs, increase market share, and diversify operations. A diversified
product line is essential, as environmental conditions in any given year can
have a positive or negative impact on a particular crop, and ultimately Tulare's
revenues.
CUSTOMERS
Tulare's customers are 100% represented through a broker - distributor network.
Currently, Versa Marketing, Allens Inc., Lakeside Foods, Inc. and CH Belt &
Associates, Inc. make up approximately 90% of Tulare's Sales. Food Service
customers which are serviced through this network include 2 of the top 3
distributors in the nation. Tulare utilizes it's "PIC-N-TIME" label for USDA bid
programs and the "Tulare" label for lower volume customers. Private label retail
is presently at approximately 30% of sales and continues to increase as a
percentage of total sales. Currently Tulare packs over 50 different retail Stock
Keeping Units. As business expands, Tulare intends to work more directly with
its customers starting with direct invoicing, then moving to program management
thus reducing the impact of broker involvement.
COMPETITION
Tulare's competition is divided into two segments: (i) Name Brands and (ii)
Private Labeled frozen fruit and vegetable products. The Name Brand segment
includes larger food processors such as Birds Eye Foods, LLC, which sells
vegetables under the "Birds Eye" brand. The Private Labeled segment includes
smaller food processors that package fruits and vegetables under a supermarket's
"in-store" brand name. Tulare's major customer base is found in the Private
Labeled segment of the industry and its current competitors are primarily in the
12
Private Labeled segment of the industry. The Private Labeled packer segment is
much more segmented and is generally comprised of smaller, privately owned
companies when compared to the Name Brand segment. There are approximately seven
companies that Tulare deems as its direct competitors, including Seneca Foods
Corporation, Patterson Frozen Foods, Inc. and National Frozen Foods Corporation.
Tulare's primary market is located on the east coast of the United States.
Tulare distributes its products to its end user customer through a broker
network.
PERSONNEL
Tulare currently has 13 full-time employees and believes that its employee
relations are good. Tulare's executive officers are James E. Fikkert, who serves
as the President, and Douglas Hagin, who serves as the Chief Financial Officer.
TYREE HOLDINGS CORP.
OVERVIEW
Tyree Holdings Corp., a Delaware corporation, was incorporated on January 7,
2008.
Tyree Holdings Corp. ("Tyree") is currently one of the largest multi-faceted
retail petroleum and environmental services providers of the Northeast and
Mid-Atlantic regions of the United States. Tyree Holdings Corp. services over
3,000 gas stations from Maine to Maryland. Headquartered in Mt. Laurel, New
Jersey, Tyree Holdings, Inc. has additional locations in New York, Connecticut,
Pennsylvania and Massachusetts, as well as a satellite office in Southern
California.
The U.S. petroleum refining and marketing industry is experiencing radical
changes, with most major petroleum companies divesting their marketing and
retail distribution divisions. This strategy is leading to the creation of many,
smaller, independent companies which own, in many cases, hundreds of gas
stations that need to have regulatory, maintenance, rehabilitation, and
environmental remediation work performed. This shift is opening a niche market
for companies able to provide these independent companies with strategic
guidance, compliance, installation, maintenance and environmental services.
Tyree is positioned to provide a variety of these services which includes
building new gas stations, maintaining existing gas stations, providing
environmental monitoring and remediation services, professional support
services, and decommissioning gas station and bulk storage facilities for change
in use.
Tyree is organized into five primary business units; Environmental,
Construction, Maintenance, Compliance/ Professional Services, and Parts
Distribution. The Maintenance business unit accounts for approximately 32% of
sales and performs the associated maintenance tasks needed to keep a gasoline
service station in operation. The Maintenance business unit performs about
50,000 service calls per year; the Environmental business unit accounts for 28%
of sales and performs the remediation services needed to clean ground water and
soil at sites where petroleum releases have occurred. The Environmental business
unit has about 350 locations in its portfolio; the Construction business unit
accounts for 27% of sales and manages 10 - 12 construction crews throughout the
year. Its primary focus is the removal and installation of petroleum storage and
delivery systems; the Parts Distribution business unit accounts for 8% of sales
and provides key service station parts both domestically and overseas; the
Compliance business unit accounts for 5% of sales and provides professional
compliance, engineering and permitting services.
To better secure its position in the northeast, Tyree is aggressively attempting
to expand its current customer base and increase market share. A two-fold
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approach is being rolled out involving improved organic growth and acquisitions.
In 2011, Tyree employee training coupled with capital investment in technology,
is being employed to target improved customer service. Tyree will also seek to
merge with or acquire one or two companies that would strategically improve its
service capability and yield top and bottom line improvements.
CUSTOMERS
Tyree's customers fall into four main categories:
1. Traditional Oil Companies, including Getty Marketing, Getty Realty,
Gulf/Cumberland Farms, Hess, Exxon, Shell, BP and Sunoco. Contracts
are typically multi-year and services are being provided by all Tyree
business units. This class of customer represents approximately 50% of
the company's total sales. Tyree has established strong client
relationships. The largest contracts are with Getty Marketing, which
accounts for approximately 25% of sales and Gulf/Cumberland Farms,
which accounts for approximately 17% of sales.
2. Oil Company Jobber/Distributors, including Arfa, Atlantic Management,
Capitol Petroleum, Leon, Green Valley and Wholesale Fuels. Contracts
are typically multi-year and services are being provided by all Tyree
business units. This class is growing as the Traditional Oil Companies
divest sites and represents approximately 20% of sales.
3. Prime Contractors, including GES, Kleinfelder, LIRO, Skanska, Whiting
Turner, and Tanknology. Contracts are typically job specific and the
result of being awarded a competitively bid project. Projects may be
large and carryover from year to year. This class of customer
represents approximately 20% of sales.
4. "One off" contracts, including various local and state governmental
agencies, private and public sector companies and agencies. Contracts
are typically job specific and the result of being awarded a
competitively bid project. This class of customer represents
approximately 10% of sales.
COMPETITION
Tyree's competition varies significantly by business unit and can be divided
into two segments: (i) Environmental and Compliance services and (ii) Pump &
Tank construction and maintenance services. The Environmental and Compliance
services segment includes professional services companies that tend to compete
throughout the marketplace. There are only a small number of competitors in
Tyree's market area and includes companies such as Delta Environmental, GES,
SAIC and Tanknology. The Pump & Tank service providers tend to be comprised of
smaller, privately owned companies that are very competitive in their respective
geographies. However, they tend not to stray from their immediate market area.
Many of these companies have been weakened by the recent economic slowdown. The
larger companies in Tyree's market area include Smith LaMountain/ LaMountain
Brothers in New England, Island Pump & Tank, Fenley & Nicol Environmental, and
Gem Star Construction in the New York City/ Long Island area, Salamone Bros.,
Inc in New Jersey, and Gateway Petroleum in the Philadelphia area.
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PERSONNEL
Tyree currently has 248 full-time employees, some of whom are represented by six
different collective bargaining agreements. Labor contracts are in place through
2011 for five of the six bargaining units. One contract, for The United Service
Works, Local 355, has expired. The workforce has continued to work while
negotiations continue. Management believes that its employee relations are good.
Tyree's executive officers are Richard Oswald, who serves as Chief Executive
Officer, Steven F. Tyree, who serves as the President and Chief Operating
Officer, and William M. Tyree, who serves as Vice-President of Business
Development.
RECENT ACQUISITION
------------------
ENVIRONMENTAL QUALITY SERVICES, INC.
On January 3, 2011, Amincor acquired all of the business assets and assumed
certain liabilities of Environmental Testing Laboratories, Inc., a company in
the business of providing environmental testing and laboratory services
(collectively, the "Business"). Concurrently therewith, Registrant assigned the
Business to Environmental Quality Services, Inc., a Delaware corporation,
wholly-owned by Environmental Holding Corp., a Delaware corporation, which is a
wholly-owned subsidiary of Registrant.
This summary above regarding Environmental Quality Services, Inc. is subject to,
and qualified in its entirety by, the full text of that certain Form 8-K filed
by the Registrant on January 26, 2011 which is incorporated by reference herein.
ITEM 1A. RISK FACTORS
RISK FACTORS RELATING TO AMINCOR'S SECURITIES
---------------------------------------------
OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE.
We are and will continue to be subject to the disclosure and reporting
requirements of applicable U.S. securities laws. Many of our principal
competitors are not subject to these disclosure and reporting requirements. As a
result, we may be required to disclose certain information and expend funds on
disclosure and financial and other controls that may put us at a competitive
disadvantage to our principal competitors.
SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO
THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD
BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT.
THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE
THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.
Our officers and directors directly own 6,426,320 shares of the total of
7,478,409 issued and outstanding Class A voting shares of our common stock (or
approximately 86% of our outstanding voting stock) and are in a position to
continue to control us. Such control enables our officers and directors to
control all important decisions relating to the direction and operations of the
Company without the input of our investors. Moreover, investors will not be able
to effect a change in our Board of Directors, business or management.
15
OUR STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR STOCK DUE TO THE ABSENCE OF
A PUBLIC TRADING MARKET.
There is presently no public trading market for our common stock. We intend in
the future to seek a market maker to apply to have our common stock quoted on
the Over-the-Counter Bulletin Board, but have not done so to date. Until there
is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES
BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY
STOCK RULES.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), impose sales practice and disclosure
requirements on broker-dealers who make a market in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on some national securities exchanges). Our shares
currently are not traded on any stock exchange nor are they quoted on the
Over-the-Counter Bulletin Board. We may in the future seek a market maker to
apply to have our common stock quoted on the Over-the-Counter Bulletin Board,
but have not done so to date. If we are successful in finding a market maker and
successful in applying for quotation on the Over-the-Counter Bulletin Board, our
stock may be considered a "penny stock." In that case, purchases and sales of
our shares will be generally facilitated by broker-dealers who act as market
makers for our shares.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (as defined by the
Securities Act of 1933, as amended) must make a special suitability
determination for the purchaser and must receive the purchaser's written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks. The additional sales practice and disclosure
requirements imposed upon broker-dealers selling penny stock may discourage such
broker-dealers from effecting transactions in our shares, which could severely
limit the market liquidity of the shares and impede the sale of our shares in
the secondary market.
INVESTORS THAT NEED TO RELY ON DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE
SHARES OF OUR COMMON STOCK.
We do not anticipate paying any dividends on our common stock for the
foreseeable future. Investors that need to rely on dividend income should not
invest in our common stock, as any income would only come from any rise in the
market price of our common stock, which is uncertain and unpredictable.
Investors that require liquidity should also not invest in our common stock.
16
There is no established trading market, and should one develop, it will likely
be volatile and such market may not be sustained.
HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE
FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON
STOCK AND AS A RESULT OF THE POSSIBLE EXERCISE OF HOLDERS OF OUR PREFERRED STOCK
TO CONVERT TO COMMON STOCK AFTER JANUARY 1, 2011.
We are authorized to issue up to 22,000,000 shares of Class A voting common
stock and 40,000,000 shares or Class B non-voting common stock and 3,000,000
shares of Preferred Stock. At present, there are 7,478,409 Class A common shares
and 21,176,262 Class B common shares and 1,752,823 shares of Preferred Stock
issued and outstanding. Our Board of Directors has the authority to cause us to
issue additional shares of Class A common stock without the consent of any of
our stockholders. Consequently, our stockholders may experience more dilution in
their percentage of ownership in the future.
Moreover, the conversion of our Preferred shares after January 1, 2011 on the
basis of ten Class B Common Shares for each Preferred Share would result in
dilution to our current holders of common stock and once our common stock is
trading could cause a significant decline in the market price for our common
stock.
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
17
overhead requirements and earn a profit. We may be exposed to potential risks
resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of
2002. If we cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our common
stock, if a market ever develops, could drop significantly.
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the Company have no obligation to devote full time
to the business of the Company. They are required to devote only such time and
attention to the affairs of the Company, as they may deem appropriate in their
sole discretion. It is anticipated that they will each spend approximately 70%
of their time on their duties related to Amincor but they are under no
obligation to continue to do so, nor are they restricted by an agreement not to
compete with the Company and they may engage in other activities or ventures
which may result in various conflicts of interest with the Company.
GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES
--------------------------------------------------------
AMINCOR MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO FUND THE GROWTH OF OUR
SUBSIDIARY COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE.
Amincor currently anticipates that its available capital resources and operating
income will be sufficient to meet the expected working capital and capital
expenditure requirements of its subsidiaries for at least the next 12 months.
However, there can be no assurance that such resources will be sufficient to
fund the long-term growth of the subsidiaries businesses. Amincor may raise
additional funds through public or private debt or equity financings. Amincor
cannot assure investors that any additional financing will be available on
favorable terms, or at all. If adequate funds are not available or are not
available on acceptable terms, Amincor may not be able to take advantage of
unanticipated opportunities, develop new products or otherwise respond to
competitive pressures, or may be forced to curtail its business. In any such
case, its business, operating results or financial condition would be materially
adversely affected.
OUR ABILITY TO RETAIN KEY PERSONNEL IN EACH OF OPERATING SUBSIDIARIES WILL BE AN
IMPORTANT FACTOR IN THE SUCCESS OF OUR BUSINESS AND A FAILURE TO RETAIN KEY
PERSONNEL MAY RESULT IN OUR INABILITY TO MANAGE AND IMPLEMENT OUR BUSINESS PLAN.
We are highly dependent upon the management personnel of our subsidiary
companies because of their experience in their respective industries. The
competition for qualified personnel in the market in which our subsidiaries
operate is intense and the loss of the services of one or more of these
individuals in any of these business segments may impair management's ability to
operate our subsidiaries. We have not purchased key man life insurance on any of
these individuals, which insurance would provide us with insurance proceeds in
the event of their death. Without key man life insurance, we may not have the
financial resources to develop or maintain an affiliated business until we could
replace such individual and replace any business lost by the departure of that
person.
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
18
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
revenue, margins and earnings. Additionally, the economic situation could have
an impact on our lenders or customers, causing them to fail to meet their
obligations to us. The occurrence of any of these risks could materially and
adversely affect our subsidiary businesses' financial condition and results of
operations.
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
Federal, state and local authorities subject some of our facilities and
operations to requirements relating to environmental protection. These
requirements can be expected to change and expand in the future, and may impose
significant capital and operating costs.
Environmental laws and regulations govern, among other things, the discharge of
substances into the air, water and land, the handling, storage, use and disposal
of hazardous materials and wastes and the cleanup of properties affected by
pollutants. If any of our subsidiary companies violate environmental laws or
regulations, they may be required to implement corrective actions and could be
subject to civil or criminal fines or penalties. There can be no assurance that
we will not have to make significant capital expenditures in the future in order
to remain in compliance with applicable laws and regulations. Contamination and
exposure to hazardous substances can also result in claims for damages,
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.
19
COMMODITY PRICE RISK.
Some of our subsidiaries purchase certain products which are affected by
commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors which are not considered
predictable or within our control. Although many of the products purchased are
subject to changes in commodity prices, certain purchasing contracts or pricing
arrangements have been negotiated in advance to minimize price volatility. Where
possible, we use these types of purchasing techniques to control costs. In many
cases, we believe we will be able to address commodity cost increases that are
significant and appear to be long-term in nature by adjusting our pricing.
However, long-term increases in commodity prices may result in lower operating
margins at some of subsidiaries.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of a Subsidiary's products are projected to be in line with
those from market competitors, there can be no assurance that they will not
decrease in the future. Competition may cause a subsidiary to lower prices in
the future. Moreover, it is difficult to raise prices even if internal costs of
production increase.
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
ONE CUSTOMER ACCOUNTED FOR 100% OF BAKER'S PRIDE, INC.'S ("BPI") REVENUE FOR THE
YEARS ENDED DECEMBER 31, 2010 AND 2009, RESPECTIVELY. THE LOSS OF THIS CUSTOMER
COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, FINANCIAL CONDITION, AND
PROFITABILITY.
In the years ended December 31, 2010 and 2009, Aldi, Inc. accounted for 100% of
revenue. The loss of Aldi, Inc. or a significant decline in its credit
worthiness would have a materially adverse effect on BPI's results of operations
and financial condition. At minimum, it would have a materially adverse effect
on operations during the short-term until BPI's was able to generate replacement
customers. Other than their relationship as a customer, Aldi, Inc. is not
affiliated with the Registrant or BPI.
DEPENDENCE ON KEY PERSONNEL.
BPI's success depends to an extent upon the performance of its management team,
which includes Ron Danko and Robert Brookhart, who are responsible for all
operations and sales of the business. The loss or unavailability of either Mr.
Danko or Mr. Brookhart could adversely affect its business and prospects and
operating results and/or financial condition.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of BPI's products are projected to be in line with those from
market competitors, there can be no assurance that they will not decrease in the
future. Competition may cause BPI to lower prices in the future. Moreover, it is
difficult to raise prices even if internal costs of production increase.
INCREASED COMMODITY PRICES AND AVAILABILITY MAY IMPACT PROFITABILITY.
20
BPI is dependent upon eggs, oils, and flour for ingredients. Many commodity
prices have experienced recent volatility. Increases in commodity prices and
availability could have an adverse impact on BPI's profitability.
CHANGE IN CONSUMER PREFERENCES MAY ADVERSELY AFFECT BPI'S FINANCIAL AND
OPERATIONAL RESULTS.
BPI's success is contingent upon its ability to forecast the tastes and
preferences of consumers and offer products that appeal to their preferences.
Consumer preference changes due to taste, nutritional content or other factors,
and BPI's failure to anticipate, identify or react to these changes could result
in reduced demand for its products, which could adversely affect its financial
and operational results. The current consumer focus on wellness may affect
demand for its products. BPI continues to explore the development of new
products that appeal to consumer preference trends while maintaining the product
quality standards.
PRODUCT RECALL OR SAFETY CONCERNS MAY ADVERSELY AFFECT FINANCIAL AND OPERATIONAL
RESULTS.
BPI may have to recall certain products should they be mislabeled, contaminated
or damaged or if there is a perceived safety issue. A perceived safety issue,
product recall or an adverse result in any related litigation could have a
material adverse effect on BPI's operations, financial condition and financial
results.
LOSS OF FACILITIES COULD ADVERSELY AFFECT BPI'S FINANCIAL AND OPERATIONAL
RESULTS.
BPI currently has two production facilities: the Jefferson Street Bakery and the
Mt. Pleasant Street Bakery. The loss of either of the 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 EPIC SPORTS INTERNATIONAL, INC.
IF EPIC SPORTS INTERNATIONAL, INC. ("ESI") FAILS TO MEET CERTAIN MILESTONES
RELATED TO ITS INTELLECTUAL PROPERTY LICENSES, ESI COULD FORFEIT LICENSE RIGHTS
WHICH ARE IMPORTANT TO ITS BUSINESS.
ESI relies on license agreements with Volkl and Boris Becker. If ESI is not able
to meet its obligations under these agreements and any agreement is terminated,
ESI would forfeit the licenses granted under such agreement. In such event, this
would have a material and adverse impact on its operations and profitability.
21
THE SUCCESS OF ESI DEPENDS TO A LARGE EXTENT ON THE NAME AND REPUTATION OF VOLKL
AND BORIS BECKER.
If either Mr. Becker's or Volkl's public image were to become tarnished or
damaged in any material way, it could have an adverse impact on the sales and
business of ESI.
ESI'S COMPETITORS MAY INDEPENDENTLY DEVELOP SIMILAR PRODUCTS AND TECHNOLOGIES.
ESI may not be able to prevent competitors from independently developing or
selling similar or duplicative products and services. There can be no assurance
that the resources invested by ESI will adequately deter misappropriation or
improper use ESI's technology. Also, there can be no assurances that ESI will be
able to obtain or re-new from third parties the licenses it needs in the future,
and there is no assurance that such licenses can be obtained on reasonable
terms.
CURRENCY FLUCTUATIONS MAY IMPACT FINANCIAL AND OPERATIONAL RESULTS.
ESI has entered into certain agreements which are payable in Euros ((euro)).
Currency fluctuations are often volatile and could have an impact on ESI's
financial and operational results.
POSSIBLE DECREASE IN THE AMOUNT OF TENNIS PLAYED BY CONSUMERS.
ESI's revenues are completely driven from sales of tennis related products and
the demand for these products is directly related to the number of tennis
players and the overall popularity of tennis. Tennis products are recreational
in nature and are therefore discretionary purchases for customers. Consumers are
generally more willing to make discretionary purchases of tennis products during
favorable economic conditions and when consumers are feeling confident and
prosperous. If there was a decrease in consumer spending and increase in
unemployment, tennis players may decrease the amount of tennis they play as well
as the amount of tennis-related products they purchase. If tennis participation
decreases, sales of our products may be adversely affected.
DEPENDENCE ON KEY PERSONNEL AND ENDORSEMENTS.
ESI's success depends to an extent upon the performance of Sean Frost and Brian
Dillman, who are responsible for all sales efforts. The loss or unavailability
of either Mr. Frost or Mr. Dillman could adversely affect ESI's business and
prospects. In addition, there is strong competition for qualified personnel in
the tennis racquet industry, and the inability to continue to attract, retain
and motivate key personnel could adversely affect ESI's business, operating
results and/or financial condition.
ESI has entered into endorsement agreements with tennis professionals such as
Liezel Huber, and others. The loss of one or more of these endorsement
arrangements could adversely affect its marketing and sales efforts and,
accordingly, ESI's business, operating results and/or financial condition. Poor
decisions by professionals sponsored by ESI could result in negative publicity.
No assurance can be given that ESI's business would not be adversely affected in
a material way by such negative publicity or by the failure of ESI's known
professional endorsers to carry and use its products.
22
EFFECTIVENESS OF MARKETING STRATEGY.
ESI has designed a marketing strategy to include advertising efforts in multiple
media avenues such as product education for the consumer through an internet
website, publications including periodicals and brochures and social media.
There can be no assurances that our marketing strategy will be effective or that
increases in the levels of investments in advertising spending will result in
material fluctuations in the sales of our products.
RISK FACTORS AFFECTING IMPERIA MASONRY SUPPLY CORP..
IMPERIA MASONRY SUPPLY CORP. ("IMSC") DEPENDS ON CONSTRUCTION ACTIVITY LEVELS.
IMSC's operating results depend on residential, commercial and governmental
construction activity and spending levels which tend to be cyclical.
Construction activity and spending levels are influenced by interest rates,
inflation, environmental laws and regulations, employment levels and the
availability of funds for construction projects. Economic downturns may lead to
recessions in the construction industry, either in individual markets or
nationally. These cyclical downturns in construction activity, which are beyond
IMSC's control, may significantly affect IMSC's business.
CONSTRUCTION IS DEPENDENT UPON THE OVERALL U.S. ECONOMY WHICH REMAINS WEAK AND
COULD WEAKEN FURTHER.
Commercial and residential construction levels generally move with economic
cycles; when the economy is strong, construction levels rise and when the
economy is weak, construction levels fall. The overall U.S. economy has been
hurt by changes in the financial services sector and the resulting constraints
on credit availability. The overall weakness in the economy and the uncertainty
in the credit markets could cause commercial and residential construction to
remain at low levels or weaken further, and thereby continue to adversely affect
IMSC's sales volumes and earnings. A recessionary economy can also increase the
likelihood IMSC will not be able to collect on its accounts receivable from its
customers.
ADVERSE WEATHER LESSENS DEMAND FOR IMSC PRODUCTS.
Construction activity, and thus demand for IMSC products, decreases
substantially during periods of cold weather, when it snows or when heavy or
sustained rains fall. Consequently, demand for IMSC products is significantly
lower during the winter, when winter weather significantly curtails construction
activity. IMSC's operations are seasonal, with sales generally peaking during
the second and third quarters because of normally better weather conditions.
However, high levels of rainfall can adversely impact IMSC's operations during
these periods as well. Such adverse weather conditions can materially and
adversely affect IMSC results of operations and profitability if they occur with
unusual intensity, during abnormal periods, or last longer than usual,
especially during peak construction periods.
LOSS OF FACILITIES COULD ADVERSELY AFFECT IMSC'S FINANCIAL AND OPERATIONAL
RESULTS.
IMSC currently has one production facility in Pelham Manor, NY. The loss of this
facility could have an adverse impact on IMSC's operations, financial condition
and results of operations.
23
RISK FACTORS AFFECTING TULARE FROZEN FOODS, LLC
FOUR CUSTOMERS ACCOUNTED FOR APPROXIMATELY 90% OF TULARE'S REVENUE FOR THE YEAR
ENDED DECEMBER 31, 2010 AND TWO CUSTOMERS ACCOUNTED FOR APPROXIMATELY 92% OF
TULARE'S REVENUE FOR THE YEAR ENDED DECEMBER 31, 2009. THE LOSS OF ANY OF THESE
CUSTOMERS COULD ADVERSELY AFFECT ITS RESULTS OF OPERATIONS, FINANCIAL CONDITION,
AND PROFITABILITY.
In the year ended December 31, 2010, Versa Marketing, Allens Inc., Lakeside
Foods, Inc. and CH Belt & Associates, Inc. accounted for approximately 90% of
revenue. In the year ended December 31, 2009, Versa Marketing and Allens Inc.
accounted for approximately 92% of revenue. The loss of any of these customers
would have a materially adverse effect on results of operations and financial
condition. At minimum, it would have a materially adverse effect on Tulare's
operations during the short-term until it is able to generate replacement
customers. Other than their relationship as a customer, none of Versa Marketing,
Allens Inc., Lakeside Foods, Inc. and CH Belt & Associates, Inc. are affiliated
with the Registrant or Tulare.
LIMITED CURRENT SALES AND MARKETING CAPABILITY.
Though Tulare has key personnel with experience in sales, marketing and
distribution to market its products, Tulare must either retain and hire the
necessary personnel to distribute and market its products or enter into
collaborative arrangements or distribution agreements with third parties who
will market such products or develop their own marketing and sales force with
technical expertise and supporting distribution capability. There can be no
assurance that Tulare will be able to retain or hire the personnel with
sufficient experience and knowledge to distribute and market its products or be
able to enter into collaborative or distribution arrangements or develop its own
sales force, or that such sales and marketing efforts, including the efforts of
the companies with which Tulare has entered into collaborative agreements, will
be successful.
EXCESS CAPACITY IN THE VEGETABLE INDUSTRY MAY HAVE A DOWNWARD IMPACT ON SELLING
PRICE.
Tulare's financial performance and growth are related to conditions in the
United States' vegetable growing industry which is a mature industry with a
modest growth rate during the last 10 years. Its net sales are a function of
product availability and market pricing. In the vegetable farming industry,
product availability and market prices tend to have an inverse relationship:
market prices tend to decrease as more product is available and to increase if
less product is available. Product availability is a direct result of plantings,
growing conditions, crop yields and inventory levels, all of which vary from
year to year. Moreover, vegetable production outside the United States,
particularly in Europe, Asia and South America, is increasing at a time when
worldwide demand is being impacted by the global economic slowdown. These
factors may have a significant effect on supply and competition and create
downward pressure on prices. In addition, market prices can be affected by the
planting and inventory levels and individual pricing decisions of our
competitors. Generally, market prices in the vegetable industry adjust more
quickly to variations in product availability than an individual processor can
adjust its cost structure; thus, in an oversupply situation, a producer's
margins likely will weaken. Tulare typically has experienced lower margins
during times of industry oversupply.
GROWING CYCLES AND ADVERSE WEATHER CONDITIONS MAY DECREASE TULARE'S RESULTS FROM
OPERATIONS.
24
Tulare's operations are affected by the growing cycles of the vegetables it
processes. When the vegetables are ready to be picked, Tulare must harvest and
process them quickly or forego the opportunity to process fresh picked
vegetables for an entire year. Tulare sets its planting schedules without
knowing the effect of the weather on the crops or on the entire industry's
production. Weather conditions during the course of each vegetable crop's
growing season will affect the volume and growing time of that crop.
INCREASES IN LOGISTICS AND OTHER TRANSPORTATION-RELATED COSTS COULD MATERIALLY
ADVERSELY IMPACT TULARE'S RESULTS OF OPERATIONS.
Tulare's ability to competitively serve its customers depends on the
availability of reliable and low-cost transportation. Tulare uses multiple forms
of transportation to bring its products to market including rail cars and
trucks. 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 Tulare's ability to serve its
customers, and could materially and adversely affect Tulare's business,
financial condition and results of operations.
IF TULARE IS SUBJECT TO PRODUCT LIABILITY CLAIMS, TULARE MAY INCUR SIGNIFICANT
AND UNEXPECTED COSTS AND TULARE'S BUSINESS REPUTATION COULD BE ADVERSELY
AFFECTED.
A product liability judgment against Tulare could also result in substantial and
unexpected expenditures, affect consumer confidence in its products, and divert
management's attention from other responsibilities. Product liability claims may
also lead to increased scrutiny by federal and state regulatory agencies and
could have a material adverse effect on Tulare's financial condition and results
of operation. Although Tulare maintains product liability insurance coverage,
there can be no assurance that this level of coverage is adequate or that it
will be able to continue to maintain its existing insurance or obtain comparable
insurance at a reasonable cost, if at all. A product recall or a partially or
completely uninsured judgment against Tulare could materially and adversely
affect its business, financial condition and results of operations.
TULARE GENERATES AGRICULTURAL FOOD PROCESSING WASTES AND ARE SUBJECT TO
SUBSTANTIAL ENVIRONMENTAL REGULATION.
As a food processor, Tulare regularly disposes of produce wastes (silage) and
processing water as well as materials used in plant operation and maintenance,
and its plant boilers, which generate heat used in processing, produce generally
small emissions into the air. These activities and operations are regulated by
federal and state laws and the respective federal and state environmental
agencies. Occasionally, Tulare may be required to remediate conditions found by
the regulators to be in violation of environmental law or to contribute to the
cost of remediating waste disposal sites, which Tulare neither owned nor
operated, but in which, Tulare and other companies deposited waste materials,
usually through independent waste disposal companies. Future possible costs of
environmental remediation, contributions and penalties could materially and
adversely affect the business, financial condition and results of operations.
TULARE MAY UNDERTAKE ACQUISITIONS OR PRODUCT INNOVATIONS AND MAY HAVE
DIFFICULTIES INTEGRATING THEM OR MAY NOT REALIZE THE ANTICIPATED BENEFITS.
In the future, Tulare may undertake acquisitions of other businesses or
introduce new products, although there can be no assurances that these will
occur. Such undertakings involve numerous risks and significant investments.
25
There can be no assurance that Tulare will be able to identify and acquire
acquisition candidates on favorable terms, to profitably manage or to
successfully integrate future businesses it may acquire or new products it may
introduce without substantial costs, delays or problems. Any of these outcomes
could materially and adversely affect Tulare's business, financial condition and
results of operations.
TULARE IS DEPENDENT UPON ITS WORKFORCE AND ANY INABILITY TO HIRE SUFFICIENT
EMPLOYEES MAY ADVERSELY AFFECT ITS BUSINESS.
Tulare is located in a rural community that may not have sufficient labor pools,
requiring it to hire employees from other regions. An inability to hire and
train sufficient employees could materially and adversely affect Tulare's
business, financial condition and results of operations.
THE PERISHABLE AGRICULTURAL COMMODITIES ACT (PACA) OF 1930 LITIGATION MAY HARM
TULARE'S BUSINESS OR OTHERWISE DISTRACT ITS MANAGEMENT.
PACA regulates the buying and selling of fresh and frozen fruits and vegetables
to prevent unfair trading practices and to assure that sellers will be paid
promptly. Substantial, complex or extended PACA litigation could cause Tulare to
incur large expenditures and distract Tulare's management. PACA disputes from
time to time with customers or other third parties are not uncommon in Tulare's
industry, and there is no assurance that that Tulare will always be able to
resolve such disputes on favorable terms and the failure to do so could
materially and adversely affect Tulare's business, financial condition and
results of operations.
LOSS OF FACILITY COULD ADVERSELY AFFECT TULARE'S FINANCIAL AND OPERATIONAL
RESULTS.
Tulare currently has a production facility in Lindsay, California. The loss of
this facility would have an adverse impact on Tulare's operations, financial
condition and results of operations.
RISK FACTORS AFFECTING TYREE HOLDINGS CORP.
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
26
contracted services. In addition, the inability of its subcontractors to
adequately perform or Tyree's inability to manage subcontractor costs on certain
projects could hurt Tyree's competitive reputation and ability to obtain future
projects.
TYREE'S SERVICES COULD EXPOSE IT TO SIGNIFICANT LIABILITY NOT COVERED BY
INSURANCE.
The services provided by Tyree expose it to significant risks of professional
and other liabilities. In addition, Tyree sometimes assumes liability by
contract under indemnification provisions. Tyree is unable to predict the total
amount of such potential liabilities. Tyree has obtained insurance to cover
potential risks and liabilities. However, insurance may be inadequate or
unavailable in the future to protect Tyree for such liabilities and risks.
ENVIRONMENTAL AND POLLUTION RISKS COULD POTENTIALLY IMPACT OUR FINANCIAL
RESULTS.
Tyree is exposed to certain environmental and pollution risks due to the nature
of some of the contract work it performs. Costs associated with pollution clean
up efforts and environmental regulatory compliance have not yet had a material
adverse impact on its capital expenditures, earnings, or competitive position.
However, the occurrence of a future environmental or pollution event could
potentially have an adverse impact.
TYREE INCURS SUBSTANTIAL COSTS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS.
FAILURE TO COMPLY WITH THESE REQUIREMENTS AND RELATED LITIGATION ARISING FROM AN
ACTUAL OR PERCEIVED BREACH OF SUCH REQUIREMENTS COULD ALSO SUBJECT US 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 us incurring significant
liabilities.
ADVERSE WEATHER LESSENS DEMAND FOR TYREE'S SERVICES.
Demand for Tyree's services, decreases substantially during periods of cold
weather, when it snows or when heavy or sustained rains fall. Consequently,
demand for Tyree's services are significantly lower during the winter. High
levels of rainfall can also adversely impact operations during these periods as
well. Such adverse weather conditions can materially and adversely affect
Tyree's results of operations and profitability if they occur with unusual
intensity, during abnormal periods, or last longer than usual.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
27
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
N/A
ITEM 2. PROPERTIES
a) Registrant occupies space in a suite subleased by Capstone Business Credit,
LLC and Capstone Capital Group I, LLC at 1350 Avenue of the Americas, 24th
Floor, New York, NY 10019. This space is provided to the Registrant as part
of a management fee charge and is currently suitable for the Registrant's
operations.
b) Baker's Pride, Inc.'s corporate headquarters is located at 3400 Mt.
Pleasant St., Burlington, Iowa, which is an industrial warehouse building
baking facility. Additionally, Baker's Pride, Inc. has locations at 834
Jefferson Street, Burlington, Iowa, a light manufacturing baking facility,
and 915 Maple Street, Burlington, Iowa, a commercial building with
unoccupied retail space. All three locations are leased from Amincor Other
Assets, Inc., are partially utilized and are currently suitable for Baker's
Pride, Inc.'s operations.
c) Epic Sports International, Inc.'s sales office is located at 6450 Lusk
Boulevard, Suite D103 & E204, San Diego, California under a lease
agreement. Epic Sports International, Inc.'s property is currently suitable
for its operations.
d) Masonry Supply Holding Corp., through its subsidiary, Imperia Masonry
Supply Corp., operates a masonry retail store and block manufacturing plant
at 57 Canal Road, Pelham Manor, New York. Amnicor Other Assests, Inc. holds
the first mortgage on the property. Imperia Masonry Supply Corp. believes
that the property is currently suitable for its operations.
e) Tulare Holdings, Inc., through its subsidiary, Tulare Frozen Foods, LLC,
operates a vegetable processing facility on a 35 acre site located at 650
West Tulare Road, Lindsay, California. Tulare Frozen Foods, LLC operates
this facility under a lease agreement assigned to Amincor Other Assets,
Inc. expiring December 31, 2028 at an annual rent of $280,000. The lease is
at fair market rates. The facility is partially utilized and is currently
suitable for Tulare Frozen Foods, LLC's operations.
f) Tyree Holdings Corp.'s executive offices are located at 300 Midlantic
Drive, Unit 105, Mount Laurel, New Jersey under a lease agreement. Tyree
leases additional locations in New York, Connecticut, Pennsylvania and
Massachusetts, as well as a satellite office in Southern California. Tyree
Holdings Corp. believes that each of the properties is currently suitable
for its operations.
28
ITEM 3. LEGAL PROCEEDINGS
Counsel for the former President of Imperia Masonry Supply Corp. has indicated
an intent to file suit against Imperia Masonry Supply Corp. The allegations of
such potential action are unknown to management at this point. The Company will
disclose any litigation which results in the future. Management believes any
claims made by the former President will be deemed frivolous and will have
little or no impact on Imperia Masonry Supply Corp. or Amincor, Inc.
Capstone Business Credit, LLC, a related party, is the plaintiff in a
foreclosure action against Imperia Family Realty, LLC and has been granted a
Judgment of Foreclosure. A former principal of Imperia Bros. Inc. filed a
countersuit in response to the foreclosure action. Capstone Business Credit, LLC
believes this countersuit, which is being contested, is frivolous and will not
be successful.
Management believes the litigation described above will not have a material
impact on the Registrant or its related subsidiary companies.
Other than noted above, Registrant is not presently a party to any litigation,
claim or assessment against it, and is unaware of any unasserted claim or
assessment which will have a material effect on the financial position or future
operations of Registrant. No director, executive officer or affiliate of the
Registrant or owner of record or beneficially of more than five percent of the
Registrant's common stock is a party adverse to Registrant or has a material
interest adverse to Registrant in any proceeding.
ITEM 4. (REMOVED AND RESERVED)
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
There is currently no public market for our common stock. Our common stock is
not listed on any securities exchange or inter-dealer quotation system at the
present time. We are not certain whether a trading market will develop for our
common stock, or if it develops whether the trading market will be sustained.
Investors in our common stock must be prepared to bear the entire economic risk
of an investment in our common stock for an indefinite period of time.
HOLDERS
As of April 15, 2011, there were 52 Class A stockholders of record, owning all
of the 7,478,409 issued and outstanding shares of our Class A common stock;
there were 68 institutional shareholders of record owning all of the 21,176,262
issued and outstanding shares of our Class B non-voting common stock and there
were 36 institutional shareholders of record owning all of the 1,752,823 issued
and outstanding shares of our Preferred Stock.
29
Amincor's Class B Common and Preferred shares were issued to its stockholders
based upon their investments in the Capstone Funds, as of December 31, 2009. In
exchange for their interests in the Capstone Funds, the investors in the
Capstone Funds received shares in Amincor based on the net asset value of their
interests in the Capstone Funds. A share price of $100.00 for Preferred Stock
and of $10.00 for Class B non-voting common stock was established for the
purpose of issuing shares in Amincor to the investors of the Capstone Funds in
proportion to their respective interests in the Funds and was not indicative of
the actual value of the stock at the time of issuance.
DIVIDENDS
We have not paid any cash dividends to date and do not anticipate or contemplate
paying dividends in the foreseeable future. It is the present intention of
management to utilize all available funds for the development of our business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial data derived
from the audited consolidated financials of the Company for each of the years
ended December 31, 2008, 2009 and 2010 and should be read in conjunction with
those statements, which are included in this Annual Report on Form 10-K. The
consolidated financial statements have been audited by Rosen Seymour Shapss
Martin & Company LLP.
(In thousands, except for per share data)
Year Ended December 31,
--------------------------------------------------------
2010 2009 2008
------------ ------------ ------------
Net revenues $ 86,060 $ 82,129 $ 73,045
============ ============ ============
Loss from operations $ (6,447) $ (4,336) $ (6,316)
============ ============ ============
Net loss $ (7,727) $ (13,046) $ (11,309)
============ ============ ============
Net loss attributable to Amincor shareholders $ (7,456) $ (12,320) $ (10,740)
============ ============ ============
Per Share Information - basic and diluted
loss from operations:
Net loss per share $ (0.26) $ (0.87) $ (0.76)
============ ============ ============
Weighted average common shares outstanding $ 29,054,908 $ 14,126,820 $ 14,126,820
============ ============ ============
Balance Sheet Data:
Total assets $ 80,418 $ 63,742 $ 63,075
============ ============ ============
Total long-term obligations $ 2,342 $ 2,235 $ 5,062
============ ============ ============
30
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis should be read in conjunction with, and is
qualified in its entirety by, our financial statements and notes related
thereto, and other more detailed financial information appearing elsewhere in
this Annual Report on Form 10-K. Consequently, you should read the following
discussion and analysis of our financial condition and results of operations
together with such financial statements and other financial data included
elsewhere in this Annual Report on Form 10-K. Some of the information contained
in this discussion and analysis or set forth elsewhere in this Annual Report on
Form 10-K, including information with respect to our plans and strategy for our
business and includes forward-looking statements that involve risks and
uncertainties. You should review the "Risk Factors" section of this Annual
Report on Form 10-K for a discussion of important factors that could cause
actual results to differ materially from the results described in or implied by
the forward-looking statements contained in the following discussion and
analysis. We undertake no obligation to update or revise publicly any
forward-looking statements, whether as a result of new information, future
events or otherwise. Further information concerning our business, including
additional factors that could materially affect our financial results, is
included herein and in our other filings with the SEC.
AMINCOR CONTRACT ADMINISTRATORS, INC.
Amincor Contract Administrators, Inc. had minimal or no operations in 2010.
AMINCOR OTHER ASSETS, INC.
Amincor Other Assets, Inc. had minimal or no operations in 2010.
BAKER'S PRIDE, INC.
SEASONALITY
Seasonality does not influence revenue or results in BPI's present operation;
however, as BPI expands and diversifies into additional categories seasonality
will become more of a factor.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NET REVENUE
Net revenue for the year ended December 31, 2010 totaled $13,292,090 compared to
$13,345,574 for the year ended December 31, 2009, a decrease of $53,484 or
approximately 0.4%. All revenue was generated by BPI's Jefferson Street Bakery,
Inc. as the Mt. Pleasant facility is awaiting funds to complete start-up of
donut, brownie and cookie production.
There were two unusual events that negatively affected sales during the period:
a flash flood at the Jefferson Street Bakery on May 13, 2010 which resulted in 6
days of lost production and sales totaling $227,375; on December 24, 2010 a fire
in a neighboring building to the Jefferson Street Bakery resulted in lost
production and sales of $23,695. Had these unusual events not occurred sales for
the year ended December 31, 2010 would have been $13,543,160; an increase of
$197,586 or approximately 1.5%.
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Bread sales for year ended December 31, 2010 totaled $12,274,475 compared to
$12,171,169 for year ended December 31, 2009, a increase of $103,306 or
approximately 0.8%. This increase was primarily due to an increase in produced
units and less waste in manufacturing. Donut sales for year ended December 31,
2010 totaled $1,018,107 compared to $1,174,801 for the year ended December 31,
2009, a decrease of $156,694 or approximately 13.3%. This decrease was primarily
due to one of our clients divisions discontinued our donuts to test a
competitors donuts.
There was a great deal of increased competitive pressure in the markets we
service; as bakers of branded bread and bun products sought to take back market
share that they have lost to private label bakeries over the past several years.
Their announced strategy was to do this by running very aggressive promotions;
which proved to be very negative to their operating profits. This increase in
competitive pressure did not result in loss of BPI's bread sales; but did limit
pricing adjustments in the Fourth Quarter of 2010.
COST OF REVENUE
Cost of revenue for the year ending December 31, 2010 totaled $9,120,205 or
approximately 68.6% of net revenue compared to $9,154,517 or 68.6 % of net
revenue for the year ending December 31, 2009, a decrease of $34,312 or
approximately 0.4%. Cost of Revenue benefited from the following efficiencies: a
new benefit package was installed that required more employee cost participation
and modified work schedules at the Jefferson Street Bakery resulted in a
reduction of the number of employees and supervisors required. The resulting
savings for the year December 31, 2010 compared to the year ending December 31,
2009 for direct labor was $97,563 a reduction in direct labor of approximately
3.3%.
Moderating input costs in the first half of the 2010 reduced cost of revenue for
that period; but a drought in Russia and Ukraine in August of 2010 caused wheat,
grain and subsequently flour prices to surge dramatically. Even with BPI taking
a multi month flour position earlier in 2010 that offered price protection; the
benefit of the moderating input costs early in the year were effectively
negated.
In the fourth quarter of 2010, the weakness of the dollar, increased demand and
speculation added to price increases that were a result of the Russian drought
and added even more volatility to input costs. Additional input costs in late
October, November and December collectively amounted to approximately $110,000;
which BPI was not able to pass along to its customers due to competitive
pressure.
Prior to year end, BPI began the process of reviewing wholesale prices with
customers as Management sought to compensate for the increased input costs. A 7%
wholesale price was instituted in March 2011.
OPERATING EXPENSE
Operating expenses for the year ended December 31, 2010 totaled $3,964,582 or
approximately 29.8% of net revenue compared to $4,319,410 or approximately 32.4%
of net revenue for the year ended December 31, 2009, a decrease of $354,828 or
approximately 8.2%. The decrease in operating expenses during fiscal 2010 was a
primarily a result of a voluntary reduction in salary from the executive and
administration staff. Executive and administration salaries for the year ended
32
December 31, 2010 totaled $768,495 compared to $1,065,381 for the year ending
December 31, 2009, a decrease of $296,886 or approximately 27.9%.
INCOME (LOSS) FROM OPERATIONS
Profit from operations for the year ended December 31, 2010 totaled $207,303 or
approximately 1.6% of net revenue compared to loss from operations of ($128,353)
or approximately (0.1%) of net revenue for the year ended December 31, 2009, a
decrease in net loss of $335,656. The decrease in loss from operations was
primarily due to aforementioned cost of revenue decreases and general and
administration expenses decreases.
INTEREST AND OTHER EXPENSES (INCOME)
Interest and other expenses (income) for the year ended December 31, 2010
totaled $476,916 or approximately 3.6% of net revenue compared to interest and
other expenses (income) of $654,844 or approximately 4.9% of net revenue for the
year ended December 31, 2009, a decrease in interest and other expenses of
$177,928, or approximately 27.2%.
Other income for the year ended December 31, 2010 totaled ($102,776) compared to
other income of ($77,100) for the year ended December 31, 2009, an increase in
other income of $25,676 or approximately 33.3%. The increase in other income was
a result of insurance payments for a portion of the loss due to the flashflood.
Interest and other expenses for the year ended December 31, 2010 totaled
$579,692 compared to interest and other expenses of $731,944 for the year ended
December 31, 2009, a decrease of $152,252 or approximately 20.8%. The decrease
in interest and other expenses was primarily due to a decrease in the interest
rate on the financing agreements.
NET LOSS
Net loss for the year ended December 31, 2010 totaled $269,613 compared to net
loss of $783,197 for the year ended December 31, 2009, a decrease in net loss of
$513,584 or approximately 65.6%. The decrease in net loss was primarily due to
stable sales even with several unusual events, the aforementioned decrease in
cost of revenue as a result of efficiencies that more than offset the increase
in input costs, a decrease in operating expenses and an increase in other income
that more than offset the increase in other expenses.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Note: The Twelve Months Ended December 31, 2008 contains a 7.9 month stub period
from January 1, 2008 through August 28, 2008. Although the results include
operations from August 28, 2008, Baker's Pride, Inc. had no activity until
October 15, 2008. The Company was unable to obtain financials from the
predecessor company, whose books and records were in poor condition. As such,
the financials for the year ended December 31, 2008 have been annualized for the
purposes of comparison.
33
As Audited Annualized
2008 2008
------------ ------------
Net Sales $ 2,888,904 $ 13,506,564
Cost of Sales 2,189,976 10,238,849
% of Sales 75.8% 75.8%
------------ ------------
Gross Profit 698,928 3,267,715
% of Sales 24.2% 24.2%
SG&A Expenses 979,336 4,578,714
% of Sales 33.9% 33.9%
------------ ------------
Loss from Operations
(280,408) (1,310,998)
% of Sales -9.7% -9.7%
Other Expenses (Income) 73,903 345,521
% of Sales 2.6% 2.6%
------------ ------------
Net Loss $ (354,311) $ (1,656,519)
============ ============
% of Sales -12.3% -12.3%
NET REVENUE
Net revenue for the year ended December 31, 2009 totaled $13,345,574 compared to
$13,506,564 annualized amounts for the year ended December 31, 2008, a decrease
of $160,990 or approximately 1.2%.
COST OF REVENUE
Cost of revenue for the year ending December 31, 2009 totaled $9,154,517 or
approximately 68.6% of net revenue compared to $10,238,849 or 75.8% of the
annualized net revenue for the year ending December 31, 2008, a decrease of
$1,084,332 or approximately 10.6%.
OPERATING EXPENSE
Operating expenses for the year ended December 31, 2009 totaled $4,319,410 or
approximately 32.4% of net revenue compared to $4,578,714 or approximately 33.9%
of the annualized net revenue for the year ended December 31, 2008, a decrease
of $259,304 or approximately 5.7%.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2009 totaled $128,353 or
approximately 1.0% of net revenue compared to an annualized loss from operations
of $1,310,998 or approximately 9.7% of the annualized net revenue for the year
ended December 31, 2008, a decrease in net loss of $1,182,645 or approximately
90.2%.
34
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2009 totaled $654,844 or
approximately 4.9% of net revenue compared to other expenses (income) of
$345,521 or approximately 2.6% of the annualized net revenue for the year ended
December 31, 2008, an increase in other expenses (income) of $309,323, or
approximately 89.5%.
NET LOSS
Net loss for the year ended December 31, 2009 totaled $783,197 compared to an
annualized net loss of $1,656,519 for the year ended December 31, 2008, a
decrease in net loss of $873,322 or approximately 52.7%.
EPIC SPORTS INTERNATIONAL, INC.
SEASONALITY
The tennis industry is seasonal, based on the factors including the weather and
the various climates of the markets we serve. Internationally, the tennis season
peaks between March and November. The season is similar in the U.S., however it
starts earlier in the year, during February, for the Southern states. The
ordering cycle for the international markets occurs in the Fall for Spring
deliveries to retail accounts. In the U.S., pre-orders are taken 2 - 3 months
prior to products being available for delivery to retailers.
ESI's sales are typically front loaded in the year, with approximately 60% of
sales occurring in the first half and the remaining 40% in the second half.
Sales are also affected by the launch of new products and the timing of those
launches. There are typically two launch periods per year: Spring/ Summer and
Fall/ Winter. The Spring/ Summer launch is typically the larger of the two with
more products and marketing efforts when compared to the Fall/ Winter launch.
Other spikes in tennis product sales occur around the Grand Slam Tournaments,
which occur in January, May, July and September. Media exposure and tennis
participation both increase between 35% - 50% during these periods.
DUE FROM FACTOR (RECEIVABLES)
In February 2007 ESI entered into a factoring agreement with Capstone Business
Credit, LLC. ("Factor"). Under the terms of the agreement the Factor agreed to
purchase the eligible receivables at the calculated borrowing base (80% of the
aggregate value of all eligible receivables) for the then immediately preceding
calculation period.
A 2% commission was charged on all receivables purchased by the Factor. The
annual minimum commission under the agreement was $131,200 in all years.
The factoring agreement was terminated in November 2010, when ESI entered into a
strategic alliance agreement with Samsung C&T America, Inc. Under the terms of
the agreement, ESI acts as a brand manager and sales agent for Boris Becker and
Volkl products, while Samsung will purchase and ship inventory, bill for product
sales and collect the resulting receivables. As compensation for the services to
be rendered by ESI, it will be paid a commission on a monthly basis equal to 21%
of the net invoice amount billed to customers after certain adjustments and
chargebacks, as defined in the agreement, have been applied.
35
In exchange for its services, Samsung will earn 10% of the gross invoice amount
on domestic orders and 6% of the gross invoice amount on international orders.
INVENTORY
There was no inventory as of December 31, 2010, having been sold in November
2010 to Samsung under the financing arrangement. Prior to November 2010,
inventory consisted of finished goods, and was valued at the lower of cost or
market using the first-in, first-out method. Market was determined based on net
realizable value with appropriate consideration given to obsolescence, excessive
levels and other market factors. An inventory reserve was recorded wherever the
carrying amount of the inventory exceeded its estimated market value.
LIQUIDITY
ESI has incurred losses and negative cash flows from operations for the years
ended December 31, 2010, 2009 and 2008. As a result, ESI has taken steps to
improve its liquidity including converting to a more efficient Xperia accounting
system, partnering with Samsung C&T America, consolidating operations and
seeking additional operational efficiencies where available. ESI has proven to
possess the ability to generate sales when products are available and in stock.
During the period between July and September of 2010, ESI had over $800,000
worth of orders in house, but were unable to deliver based on the cash flow
difficulties and lack of available working capital. These shortages resulted in
cancelled orders, a delayed start to the 2011 season and damaged vendor
relationships.
CAPITAL RESOURCES
On September 30, 2008, the ESI entered into an amended purchase order financing
agreement with a related party ("lender") which matures on September 30, 2013.
Under the agreement, ESI is allowed to take advances in an amount equal to the
lesser of (a) $1,165,976 or (b) the borrowing base for the then immediately
preceding calendar month.
Payment on advances are due on the earlier of sixty days from the date of an
advance or the day on which any of the goods paid for by an advance are shipped
to a customer. The advances bear interest at a rate of 16% per annum (over a 360
day period) and do not begin to accrue any interest until the 31st day following
the date on which such advance was made. If ESI is in default of the agreement,
the advances bear interest at a rate of 24% per annum (over a 360 day period).
The purchase money advances are secured by a promissory note from ESI covering
the entire amount.
Additionally, under the terms of the agreement the lender may issue letters of
credit in favor of ESI's suppliers in order to enable ESI to acquire
merchandise. The letters of credit bear interest at annual rates of 1.50% for
the first 30 days that the letter of credit is outstanding and 0.75% for every
14 days thereafter that such letter of credit remains outstanding.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NET REVENUE
Net revenue for the year ended December 31, 2010 totaled $3,233,925 compared to
$3,803,853 for the year ended December 31, 2009, a decrease of $569,928 or
approximately 15.0%. The decrease is primarily due to cash flow constraints
which has led some of ESI's main suppliers to hold back products for which there
36
were customer orders. In addition, for November and December 2010, ESI earned
commissions of only $128,537 due to the implementation of the Samsung C&T
Strategic Alliance Agreement. As a result of the cash flow constraints, there
has not been a sufficient amount of product to sell and international orders
have been filled from the U.S. supply. During 2010, some markets including the
U.K., Spain, and Germany were in constant need of additional products. Due to
the lack of available product and steady growth of new distributors in Europe,
demand slowed as products were sought from competitors. The effect of this on
2010's business was a loss of sales and a projected three month delay to the
beginning of the Spring 2011 season.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2010 totaled $2,496,242 or
approximately 77.2% of net revenue compared to $2,654,319, or 69.8% of net
revenue for the year ended December 31, 2009, a decrease of $158,077 or
approximately 6.0%. The decrease in the dollar amount was due to a lower net
revenue figure in 2010 than was seen in 2009. Despite the decrease in dollar
amount, cost of revenue as a percent of net revenues increased by 9.3% due to an
higher level of international sales which is typically carry a lower profit
margin when compared to its domestic counterpart. The ratio of sales to
distributors outside of the U.S. is higher when compared to sales to
distributors within the U.S. which indicates greater competition in the market
abroad and is reflected in lower per unit product prices and higher freight
expenses.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
2010 totaled $2,251,570, or approximately 69.6% of net revenue compared to
$2,416,120 or approximately 63.5% of net revenue for the year ended December 31,
2009, a decrease of $164,550 or approximately 6.8%. The decrease in selling,
general and administrative expenses during the year ended December 31, 2010 was
primarily due to an initiative to control spending; more specifically with
emphasis on expenditures related to marketing and promotion expenses.
Accordingly, marketing and promotion expenses totaled $62,316 and $229,944 for
the years ended December 31, 2010 and 2009, respectively, a decrease of $167,677
or approximately 5.2% of net revenues.
Further reductions in expense are attributable to the relocation of ESI's
headquarters from Fall River, Massachusetts to New York, New York enabling
efficiencies resulting in the consolidation of back office operations and
personnel. Despite the decrease in dollar amount, selling, general and
administrative expenses as a percent of net revenues increased by 7.1% due to
increased expenses associated with travel expenditures for Sean Frost and Brian
Dillman. Travel and entertainment expenses totaled $192,034 and $108,729, for
the years ended December 31, 210 and 2009, respectively, an increase of $83,305
or approximately 77.0%. The increase in travel and entertainment expenses is due
to the higher costs associated with traveling internationally as reflective in
higher international sales during 2010. In addition, royalty fees for Volkl
totaled $192,890 and $89,024 for the years ended December 31, 2010 and 2009,
respectively, an increase of $103,866 or approximately 116.7%. The increase in
royalty fees for Volkl is due to the increase in royalty rates and minimum
royalty payments in accordance with the licensing agreement ESI holds with
Volkl.
37
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2010 totaled $1,513,887, or
approximately 46.8% of net revenue, compared to a loss from operations of
$1,266,586 or approximately 33.3% of net revenue for the year ended December 31,
2009, an increase in loss from operations of $247,301 or approximately 19.5%.
The increase in loss from operations was primarily due to increased
international sales and the increase of selling, general, and administrative
expenses as a percent of net revenues as noted above.
OTHER EXPENSES
Other expenses for the year ended December 31, 2010 totaled $169,721 compared to
other expenses of $966,985 for the year ended December 31, 2009, a decrease in
other expenses of $797,264 or approximately 82.4%. The decrease in other
expenses was due to decreases attributed to interest payments and fees connected
to ESI's purchase order financing agreement in conjunction with a debt to equity
conversion that took place on December 31, 2009. Due to this debt to equity
conversion, purchase order interest expense on the purchase order financing
agreement decreased to $21,286 from $801,290 for the years ended December 31,
2010 and 2009, respectively, a decrease of $780,004 or approximately 97.3%.
NET LOSS
Net loss for the year ended December 31, 2010 totaled $1,683,608 compared to a
net loss of $2,233,571 for the year ended December 31, 2009, an improvement of
$549,963 or approximately 24.6%. As a percentage of total revenues, the net loss
for the year ended December 31, 2010 was approximately 52.1% compared to a
percentage of total sales of approximately 58.7% for the year ended December 31,
2009, an improvement of approximately 6.7%. The decrease in net loss is
attributable to the decrease in selling, general and administrative expenses as
well as the decrease in other expenses as noted above.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Note: The Twelve Months Ended December 31, 2008 contains an 8.5 month stub
period from January 1, 2008 through September 18, 2008. For comparison purposes,
we have included the financials of Epic Sports International, Inc. for the
predecessor period January 1, 2008 to September 17, 2008, prior to the
acquisition of Epic Sport International, Inc.
NET REVENUE
Net revenue for the year ended December 31, 2009 totaled $3,803,853 compared to
$3,315,489 for the year ended December 31, 2008, an increase of $488,364 or
approximately 14.7%.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2009 totaled $2,654,319 or
approximately 69.8% of net revenue compared to $2,524,915 or 76.2% of net
revenue for the year ended December 31, 2008, an increase of $129,404 or
approximately 5.1%. The primary reason for this increase was due to a higher
sales volume in 2009 when compared to 2008. As a percentage of sales, cost of
38
revenue decreased by approximately 6.2% due to a better mix of inventory in 2009
when compared to 2008. The starting inventory at ESI's inception was sold at a
lower margin in order to turn over the existing old inventory and replace it
with faster moving inventory.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
2009 totaled $2,416,120, or approximately 63.5% of net revenue compared to
$1,958,164 or approximately 59.1% of net revenue for the year ended December 31,
2008, an increase of $457,956 or approximately 23.4%.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2009 totaled $1,266,586, or
approximately 33.3% of net revenue, compared to a loss from operations of
$1,167,590 or approximately 35.2% of net revenue for the year ended December 31,
2008, a decrease in loss from operations of $98,996 or approximately 8.5%.
OTHER EXPENSES
Other expenses for the year ended December 31, 2009 totaled $966,985 compared to
other expenses of $1,350,229 for the year ended December 31, 2008, a decrease in
other expenses of $383,244 or approximately 28.4%.
NET LOSS
Net loss for the year ended December 31, 2009 totaled $2,233,571 compared to a
net loss of $2,517,819 for the year ended December 31, 2008, a decrease in net
loss of $284,248 or approximately 11.3%. As a percentage of total sales, the net
loss for the year ended December 31, 2009 was approximately 58.7% compared to a
percentage of total sales of approximately 75.9% for the year ended December 31,
2008, an improvement of approximately 17.2%.
MASONRY SUPPLY HOLDING CORP.
Note: The below comparative statements compare Masonry Supply Holding Corp. and
its subsidiary, Imperia Masonry Supply Corp. (together "IMSC") to Imperia Bros.,
Inc., IMSC's predecessor entity. Although Imperia Bros., Inc. is a separate
operating entity from IMSC, Management believes that the two operations are
similar enough in nature that comparative statements can be made between the
years ending December 31, 2010 and 2009.
OUR BUSINESS
IMSC's business primarily involves the operation and management of two business
units: 1) the manufacturing and sale of concrete block products, and 2) the
wholesaling & distribution of other masonry and building materials and supplies.
IMSC was incorporated on June 22, 2009 and it assumed assets and certain
liabilities of its predecessor entity, Imperia Bros, Inc., on December 31, 2009
in order to restructure and operate as a new and different business concern
going forward. As part of IMSC's operational structure and to facilitate a
turnaround of operations, IMSC's management changed throughout 2010. This
management change had a material effect on operations as the majority of the
former senior management team was replaced by a new management team by the end
39
of 2010. The former management team was responsible for deficient inventory
management which resulted in a $300,000 write down of inventory value and a
reserve of $321,000 for slow moving and obsolete inventory. In addition, the
prior management team did not promote preventive maintenance and only allocated
funds for repairs when the plant could no longer operate. Additional financial
controls were put into place towards the end of 2010 after the majority of the
management team was replaced, to rectify deficiencies within the financial
controls put into place by the prior management team.
SEASONALITY
IMSC's revenues are generally greater between March and November due to the
demand for masonry products having a direct correlation with the outdoor
construction season in the Northeast. IMSC produces heavily during this period
in an effort to keep the proper amount of inventory on hand to meet demand while
utilizing the slower season to make improvements and maintain machinery. The
demand for concrete blocks and bricks is also heavily dependent on the demands
of construction, which is principally driven by trends in residential,
commercial and industrial real estate development.
IMSC intends to mitigate some of the seasonality of its business by entering
into a hardware cooperation agreement with a notable retail hardware supplier
(the "Hardware Supplier") which will assist in promoting sales throughout the
year. Management believes that by working with the Hardware Supplier, IMSC will
create greater consumer and contractor demand for hardware products offered
through the Hardware Supplier and it is anticipated that demand for masonry
supplies will increase as well. It is also management's belief that the Hardware
Supplier's customers who purchase paint or plumbing supplies in the winter will
take notice of IMSC's masonry displays and return in the spring, summer or fall
for their masonry related projects. The additional advertising that will occur
as a result of the relationship with the Hardware Supplier will also increase
IMSC's visibility to the public and result in increased over all sales.
Moreover, IMSC's sales force will be able to sell the Hardware Supplier's
products to its existing and new commercial accounts. Any increase in sales will
help distribute overhead that has been concentrated in the masonry supply and
block manufacturing divisions which should assist in generating additional
income.
INVENTORY
IMSC's inventory consists of raw materials and finished goods, and is valued at
the lower of cost or market using the average cost method. The inventory account
totaled $380,568 and $1,022,057 as of December 31, 2010 and 2009, respectively,
a decrease of $641,489 or approximately 62.8%. Inventory amounts are net of an
inventory obsolescence reserve of $135,747 and $0 as of December 31, 2010 and
2009, respectively. The decrease is primarily due to cash flow constraints which
resulted in some of IMSC's suppliers withholding raw materials and other
products needed to produce new inventory and stock third party inventory. As a
result, key inventory products and raw materials have been out of stock which
has restricted IMSC's ability to produce concrete block and the reselling of
other masonry supplies, deterring customers from utilizing IMSC as their
one-stop-shop of choice. Additional decreases were due to an obsolete inventory
write-off of $199,769 in September of 2010.
40
LIQUIDITY
IMSC has incurred losses and negative cash flows from operations for the years
ended December 31, 2010 and 2009. IMSC has suffered from a lack of liquidity
because its plant and equipment are aging and costly to maintain. These
additional costs have been reflected in the cost of revenue. It is management's
intention is to raise sufficient capital to upgrade the plant and equipment,
allowing IMSC to be more competitive within the industry. IMSC has secured a
line of credit with Amincor for approximately $1.5 million and is seeking
alternative sources of financing for capital expenditures. With the achievement
of revenue goals, management believes it has sufficient access to working
capital to sustain operations through December 31, 2011.
EXISTING CREDIT FACILITIES
IMSC had entered into an asset based loan with Amincor which bore interest at
16% per annum from January 1, 2010 through September 30, 2010. As of October 1,
2010 the interest rate was reduced to 8.32% per annum. IMSC's asset based loan
had an outstanding balance of approximately $1,500,000 as of December 31, 2010.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NET REVENUE
Net revenue for the year ended December 31, 2010 totaled $5,834,782 compared to
$10,126,542 for the year ended December 31, 2009, a decrease of $4,291,760 or
approximately 42.4%. The decrease is primarily due to the lack of new large
projects coupled with cash flow constraints and a change in management. Some of
IMSC's suppliers have withheld raw materials and other products as a result of
delay in payment. Accordingly, key inventory products and raw materials have
been consistently out of stock which has restricted IMSC's ability to produce
concrete block and to resell other masonry products which has deterred customers
from utilizing IMSC as their one-stop-shop.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2010 totaled $4,965,070 or
approximately 85.1% of net revenue compared to $9,642,659, or 95.2% of net
revenue for the year ended December, 2009, a decrease of $4,677,589 or
approximately 48.5%. The gross profit margin for the year ended December 31,
2010 was approximately 14.9% as compared to 4.8% for the prior year, a 10.1%
improvement in margin. During 2010, the monthly rent charged was reduced as
Amincor assumed responsibility as lessor to IMSC. Rent expense totaled $307,531
and $1,275,017 for the years ended December 31, 2010 and 2009, respectively, a
decrease of $967,536, or approximately 75.8%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
2010 totaled $2,997,878, or approximately 51.4% of net revenue compared to
$3,132,827 or approximately 30.9% of net revenue for the year ended December 31,
2009, a decrease of $134,949 or approximately 4.3%. The decrease in sales,
general and administrative costs during the year ended December 31, 2010 was
41
primarily due to vehicle cost reductions associated with the decrease in
customer deliveries and the amount of fleet vehicles utilized.
LOSS FROM OPERATIONS
The loss from operations for the year ended December 31, 2010 totaled
$2,128,166, or approximately 36.5% of net revenue, compared to loss from
operations of $2,648,944, or approximately 26.2% of net revenue for the year
ended December 31, 2009, a decrease in loss from operations of $520,778 or
approximately 19.7%. The decrease in loss from operations was primarily due to
decreased selling, general and administrative expenses as noted above and an
improvement in operating margins reflected in gross profit.
OTHER EXPENSES (INCOME)
Other expenses for the year ended December 31, 2010 totaled $364,694 compared to
other expenses of $6,888,710 for the year ended December 31, 2009, a decrease in
other expenses of $6,524,016, or approximately 94.7%. The decrease resulted from
the cessation of IMSC's factoring agreement in conjunction with a debt to equity
conversion which both occurred on December 31, 2009.
NET LOSS
Net loss for the year ended December 31, 2010 totaled $2,492,860 compared to a
net loss of $9,537,654 for the year ended December 31, 2009, a decrease of
$7,044,794 or approximately 73.9%. The decrease of net loss is primarily
attributable to the decrease in selling, general and administrative expenses as
well as the decrease in other expenses as noted above.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
An analysis of the year ended December 31, 2009 versus the year ended December
31, 2008 is not available for Masonry Supply Holding Corp. as the first year of
operations for IMSC was the year ended December 31, 2010. A comparative
statement of operations for the fiscal years ended 2009 and 2008 for IMSC would
be solely that of its predecessor entity which is no longer in operation.
TULARE HOLDINGS, INC.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2010 AND 2009
NET REVENUE
Net revenue for the year ended December 31, 2010 totaled $10,074,442 compared to
$11,324,456 for the year ended December 31, 2009, a decrease of $1,250,014 or
approximately 11.0%. The decrease in revenues is attributed to two main factors,
continued pressure from import business and a reduced availability of raw
product. The continued pressure from imported produce resulted in Tulare's
competitors reducing their prices. The price reduction had the largest effect on
Tulare's food service related sales which decreased to $7,725,594 for the year
ending December 31, 2010 from $9,275,078, a decrease of $1,549,484 or 16.7%.
Weather conditions over the course of the year ended December 31, 2010 resulted
42
in below average temperatures and above average rainfall in California region.
The end result of the weather resulted in a lower quantity of harvested product.
In addition, Tulare had planned to shift its contracted fall pack spinach
business to open market spinach in order to meet sales objectives; this endeavor
was affected by the same adverse weather conditions and was unsuccessful as a
result.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2010 totaled $9,524,221 or
approximately 94.5% of net revenue compared to $10,919,274, or 96.4% of net
revenue for the year ended December 31, 2009, a decrease of $1,395,053 or
approximately 12.8%. The decrease in the dollar amount was due to reduced
production in both spinach and southern greens volume along with favorable cost
improvements. Management estimates the cost improvements due to additional
machinery efficiency totaled approximately $350,000. The improvements in
efficiency were partially offset due to the reduced availability of raw product,
forcing Tulare to purchase raw product on the open market and an increase in
direct labor costs due to switching staffing agencies. Tulare purchased
additional raw product on the open market which negatively affected gross profit
by approximately $0.02 per pound purchased, for an aggregate of approximately
$90,000. The cost improvements include improved plant efficiency which reduced
cost on a per pound basis for all input costs, including raw product, utilities
and direct labor. In September 2010, Tulare's direct labor staffing company went
out of business which forced Tulare to switch to a more expensive competitor for
its direct labor needs. Approximately 80% of the production team was retained in
the transition, but the associated direct costs increased by approximately 6%.
The entirety of the payroll switch, increased payroll expenses by approximately
$45,000 between the years ended December 31, 2010 and 2009. In February 2010,
Tulare experienced a power failure which affected the frozen warehouse within
Tulare's facility; it was later discovered that the failure was due to
incorrectly installed equipment. Tulare has sent a demand for compensation to
the company which incorrectly installed the equipment; there has been no
repayment of damages to date. An associated insurance claim has been submitted
however the matter will not be resolved until 2011. Calculations of the
associated damages from the incident totaled approximately $158,000.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
2010 totaled $2,423,496, or approximately 24.1% of net revenue compared to
$1,936,173, or approximately 17.1% of net revenue for the year ended December
31, 2009, an increase $487,323 or approximately 25.2%. The increase in selling,
general and administrative expenses for the year ended December 31, 2010 was
primarily due to increased audit expenses related to the 2010 and 2009 financial
statement audits. Audit expense totaled $290,685 and $0 for the years ended
December 31, 2010 and 2009, respectively.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2010 totaled $1,873,275, or
approximately 18.6% of net revenue, compared to loss from operations of $
1,530,991, or approximately 13.5% of net revenue for the year ended December 31,
2009, an increase in loss from operations of $342,284 or approximately 22.4%.
The increase in loss from operations was primarily due to increased selling,
general and administrative expenses as noted above.
43
OTHER EXPENSES
Other expenses for the year ended December 31, 2010 totaled $845,254 compared to
other expenses of $5,884,810 for the year ended December 31, 2009, a decrease in
other expenses of $5,039,556, or approximately 85.6%. The Other expenses
category consists entirely of interest expenses. The decrease in the interest
expense between the years ending December 31, 2010 and December 31, 2009 was the
result of a debt to equity conversion which took place on December 31, 2009.
NET LOSS
Net loss for the year ended December 31, 2010 totaled $2,718,529, or
approximately 27.0% of net revenue, compared to a net loss of $7,415,801, or
approximately 65.5% of net revenue for the year ended December 31, 2009, a
decrease in net loss of $4,697,272 or approximately 63.3%. The decrease in net
loss was primarily due to the decrease in other expenses as noted above.
RESULTS OF OPERATIONS FOR THE TWELVE MONTHS ENDED DECEMBER 31, 2009 AND 2008
Note: The Twelve Months Ended December 31, 2008 contains a one week stub period
from January 1, 2008 through January 8. 2008. There was no significant activity
or transactions that took place during this period. The results of operations
for this stub period are not included in the year ended December 31, 2008
performance as discussed below.
NET REVENUE
Net revenue for the year ended December 31, 2009 totaled $11,324,456 compared to
$11,369,141 for the year ended December 31, 2008, a decrease of $44,685 or
approximately 0.4%. Net revenues were relatively unchanged for the years 2009
versus 2008. The net revenues of the spinach line decreased by $561,000 in 2009
as compared to 2008 due to lower tonnage sold in 2009 due to less availability
of the spinach crop in 2009. The net revenues of the greens increased by
$494,000 in 2009 as compared to 2008 due to higher selling prices and Tulare
concentrated on selling greens as a replacement for the broccoli and cauliflower
lines. The net revenues of broccoli increased by $164,000 in 2009 as compared to
2008, and the net revenues of cauliflower decreased by $42,000 in 2009 as
compared to 2008. Tulare halted the sales of broccoli and cauliflower in October
2009 and June 2009, respectively, since each of these product lines were not
profitable. The broccoli line was reopened for the period January through June
2010 for a program for a specific customer, which was profitable to Tulare.
Management believes the decrease of $44,685 was due to a decrease in market
demand for frozen vegetables during 2009.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2009 totaled $10,919,274 or
approximately 96.4% of net revenue compared to $15,490,647, or 136.3% of net
revenue for the year ended December 31, 2008, a decrease of $4,571,373 or
approximately 29.5%. This decrease was due to improved processes, product
quality, and increased recovery rates of raw product, as a result of plant and
management improvements in 2009. Raw product purchases were approximately $4.7
million in 2008 as opposed to $3.2 million in 2009, a reduction of $1.5 million.
This reduction was the result of negotiated terms with the growers and
reductions in raw product losses. Further, reductions in utilities ($2.2 million
in 2008, $1.4 million in 2009, a reduction of $800,000), packaging ($2.4 million
in 2008, $2.0 million in 2009, a reduction of $400,000) and general expenses
($1.5 million in 2008, $1.1 million in 2009, a reduction of $400,000)
44
contributed to the overall reduction in cost of goods sold, increasing gross
profit. Product quality increases associated with the installation of new
blancher controls allowed Tulare to better regulate the time required to and
temperature at which product was processed, yielding a more efficient use of
plant utilities and machinery while increasing the consistency of Tulare's
products. Finally, Tulare's raw product recovery rate increased from
approximately 70.66% in 2008 to approximately 79.26% in 2009. While still
slightly under the industry standard of 80%, the increase associated with the
recovery rate translates into approximately 8.6% more finished product utilizing
the same raw product inputs.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses for the year ended December 31,
2009 totaled $1,936,173, or approximately 17.1% of net revenue compared to
$1,740,050, or approximately 15.3% of net revenue for the year ended December
31, 2008, an increase $196,123 or approximately 11.3%.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2009 totaled $1,530,991, or
approximately 13.5% of net revenue, compared to loss from operations of $
5,861,556, or approximately 51.6% of net revenue for the year ended December 31,
2008, a decrease in loss from operations of $4,330,565 or approximately 73.9%.
This improvement is the result of improved processes, product quality, and
increased recovery rates of raw product, as a result of plant and management
improvements in 2009.
OTHER EXPENSES
Other expenses for the year ended December 31, 2009 totaled $5,884,810 compared
to other expenses of $2,100,760 for the year ended December 31, 2008, an
increase in other expenses of $3,784,050, or approximately 180.1%. The increase
in other expenses is primarily the result of carrying a higher loan balance over
the course of the twelve months ended December 31, 2009 when compared to the
twelve months ended 2008. The higher carrying balance is not immediately evident
due to a debt to equity conversion which took place on December 31, 2009 which
reduced the loan balance and accrued interest by $13,049,804, for a new total of
$4,258,720 due on the loan.
NET LOSS
Net loss for the year ended December 31, 2009 totaled $7,415,801, or
approximately 65.5% of net revenue, compared to a net loss of $7,962,316, or
approximately 70.0% of net revenue for the year ended December 31, 2008, a
decrease in net loss of $546,515 or approximately 6.9%.
TYREE HOLDINGS CORP.
SEASONALITY
Historically, Tyree's revenues tend to be lower during the first quarter of the
year as Tyree's customers complete their planning for the upcoming year. Another
contributing factor to this trend is that the severe weather experienced in
Tyree's primary market area prohibits some work from being performed due to
weather related conditions. Approximately 30% of Tyree's revenue comes from new
45
capital investments of its customers. This spending is cyclical and tends 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 is able to earn income. The
highest revenue generation occurs from late in the second quarter through the
third quarter.
REVOLVING CREDIT AGREEMENT
Tyree maintains a $15,000,000 revolving credit agreement with Amincor which
expires on January 17, 2013. Borrowings under this agreement are limited to 70%
of eligible accounts receivable and the lesser of 50% of eligible inventory or
$4,000,000. The balances outstanding under this agreement were $4,128,408 and
$5,577,670 as of December 31, 2010 and 2009, respectively. Borrowings under this
agreement are collateralized by a first lien security interest in all tangible
and intangible assets owned by Tyree. Tyree had approximately $10,871,000 and
$9,422,000 of unused amounts available on the revolving credit agreement at
December 31, 2010 and 2009, respectively, subject to borrowing base limitations.
The annual interest rate charged on this loan was approximately 5% and 16% for
the years ending December 31, 2010 and 2009, respectively.
LIQUIDITY
Tyree incurred losses for the year ended December 31, 2009 of ($2,614,164).
Tyree produced an after tax profit of $513,763 for the year ended December 31,
2010. In addition, Tyree posted prior period gains of $815,305 to Retained
Earnings in 2010 due to the change in accounting method for construction
projects from the Completed Contract method to the Percentage of Completion
method.
During 2010, management was unsuccessful in obtaining a new credit facility for
use in the growth of Tyree. Cash demands on Tyree were mitigated as assumed
liabilities were reduced by approximately $942,000, and the borrowing base by
approximately $1,449,000. This was partially offset by the one-time costs
associated with becoming a subsidiary of a public company of approximately
$640,000 and an increase of approximately $524,000 in accounts payable.
Management is currently seeking a new asset based lender that will provide a new
credit facility to support the growth of Tyree. Although management is confident
that it will succeed in negotiating a new credit facility for Tyree, there are
no assurances that they will be successful. Management believes they have
sufficient access to working capital to sustain operations through December 31,
2011.
EXISTING CREDIT FACILITIES
Tyree's current revolving credit facility has an available credit line of
$2,175,000. During 2010, Tyree reduced the total amount due on the facility by
$1,449,000, however the eligible collateral also was reduced by approximately
the same amount. This was a result of improved collections efforts which reduced
the accounts receivable balance by $1,403,000 to approximately $6,745,000 in
2010 from approximately $8,148,000 in 2009. The existing credit facility is
sufficient to support the existing business volume of Tyree, but growth will
depend on Tyree's ability to increase its working capital, through a new credit
facility and/or new equity investment.
46
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2010 AND 2009
NET REVENUE
Net revenue for the year ended December 31, 2010 totaled $53,624,332 compared to
$53,654,956 for the year ended December 31, 2009, a decrease of $30,623 or
approximately 0.1%. Below is an analysis of revenue by business unit for the
years ending December 31, 2010 and December 31, 2009:
Revenues 2010 2009
-------- ----------- -----------
Service and Construction $33,864,873 $32,959,644
Environmental, Compliance and
Engineering 19,102,598 20,695,312
Manufacturing / International 656,861 0
----------- -----------
Total $53,624,332 $53,654,956
=========== ===========
On January 1, 2010, Tyree changed its accounting method on construction
contracts from the completed contract method to the percentage-of-completion
method. This change of method required a one time adjustment to retained
earnings of $815,305, representing income on uncompleted contracts in prior
years that would have been recognized in prior years had the
percentage-of-completion method been in effect.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2010 totaled $42,677,354 or
approximately 79.6% of net revenue compared to $44,234,184, or 82.4% of net
revenue for the year ended December 31, 2009, a decrease of $1,556,830 or
approximately 3.5%. The decrease in cost of revenue reflects Tyree's increased
efforts at improving margin. The most notable improvement occurred within the
Service and Construction Business Unit as its gross profit margin for the year
ended December 31, 2010 was 13.7% compared to 8.8% for the year ended December
31, 2009.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses for the year ended December 31,
2010 totaled $10,539,820, or approximately 19.7% of net revenue compared to
$10,831,583, or approximately 20.2% of net revenue for the year ended December
31, 2009, a decrease of $291,763 or approximately 2.7%. The decrease in selling,
general and administrative costs during the year ended December 31, 2010 was
primarily due to cost reductions realized by self-insuring the employees'
medical plan, resulting in savings of approximately $155,000, and management's
focus on reducing corporate overhead, resulting in savings of approximately
$732,000. In addition, provisions for bad debts (recovery) for the year ended
December 31, 2010 totaled ($455,000) or approximately (0.8%) of net revenue as
compared to a provision for bad debts of $314,198, or approximately 0.6% of net
revenue for the year ended December 31, 2009, a decrease of $769,198. The
decrease in provisions for bad debts during the year ended December 31, 2010 was
primarily due to increased management emphasis on collections of accounts
receivable and more careful analysis of potential customer creditworthiness.
47
Increase in selling, general and administrative expenses includes penalties and
interest paid to government entities for late tax filings and payment of taxes
due in prior years.
INCOME (LOSS) FROM OPERATIONS
Income from operations for the year ended December 31, 2010 totaled $407,159, or
approximately 0.8% of net revenue, compared to the loss from operations of
($1,410,811), or approximately (2.6%) of net revenue for the year ended December
31, 2009, an increase in profit from operations of $1,817,970. The increase in
income from operations was primarily due to an improvement in operating margins
of 20.4% in 2010 and 17.6% in 2009, an improvement in managing the accounts
receivable and reductions in selling, general and administrative costs.
OTHER INCOME (EXPENSES)
Other income (expenses) for the year ended December 31, 2010 totaled $290,854 as
compared to other income (expenses) of $(1,203,353) for the year ended December
31, 2009, an increase in other income of $1,494,207. The primary increases in
other income resulted from the settlement of a prior year sales tax liability
for approximately $641,000 less than its accrued assumed liability. Interest
expense for the year ended December 31, 2010 totaled $579,934 as compared to
interest expense of $1,203,353, a decrease of $623,419 or 51.8%, due to a
decrease in the interest rates from 16.0% to 5.0% and a lower average balance
outstanding on Tyree's revolving credit facility.
NET INCOME (LOSS)
Net income for the year ended December 31, 2010 totaled $513,763 compared to a
net loss of ($2,614,164) for the year ended December 31, 2009, an increase in
net income of $3,127,927. The increase in net income was primarily due to the
factors noted above net of the increase in income taxes of $184,250.
RESULTS OF OPERATIONS FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008
Note: The Twelve Months Ended December 31, 2008 contains a 2 week stub period
from January 1, 2008 through January 17, 2008. The results of operations for
this stub period are not included in the year ended December 31, 2008
performance as discussed below.
NET REVENUE
Net revenue for the year ended December 31, 2009 totaled $53,654,956 as compared
to $58,208,639 for the year ended December 31, 2008, a decrease of $4,553,683 or
approximately 7.8%. The decrease is primarily the result of a management focus
on margin improvement, resulting in a reduction of sales with low margin work
primarily affecting the construction business.
COST OF REVENUE
Cost of revenue for the year ended December 31, 2009 totaled $44,234,184 or
approximately 82.4% of net revenue compared to $45,482,278, or 78.1% of net
revenue for the year ended December 31, 2008, a decrease of $1,248,094 or
approximately 2.7%. The increase in the total cost of revenue is primarily
48
attributable to the completed contract method of construction accounting which
required the recognition of lower margin projects from prior years that were
completed in 2009
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE
Selling, general and administrative expenses for the year ended December 31,
2009 totaled $10,831,583, or approximately 20.2% of net revenue compared to
$12,094,130, or approximately 20.8% of net revenue for the year ended December
31, 2008, a decrease of $1,262,547 or approximately 10.4%. The decrease in
selling, general and administrative costs during the year ended December 31,
2009 was primarily due to management's focus on reducing corporate overhead.
Provisions for bad debts for the year ended December 31, 2009 totaled $905,000
or approximately 1.7% of net revenue compared to $590,802, or approximately 1.0%
of net revenue for the year ended December 31, 2008, an increase of $314,198 or
approximately 53.2%.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the year ended December 31, 2009 totaled ($1,410,811),
or approximately (2.6%) of net revenue as compared to the income from operations
of $632,231, or approximately 1.1% of net revenue for the year ended December
31, 2008, a decrease in income from operations of $2,043,042.
OTHER EXPENSES
Other expenses for the year ended December 31, 2009 totaled $1,203,353 as
compared to other expenses of $2,370,695 for the year ended December 31, 2008, a
decrease in other expenses of $1,167,342 or 49.2% due to a decrease in interest
expense as the result of a reduction of Tyree's debt balance.
NET LOSS
Net loss for the year ended December 31, 2009 totaled $2,614,164 compared to a
net loss of $1,738,464 for the year ended December 31, 2008, an increase in net
loss of $875,700.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Amincor has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The full text of our audited consolidated financial statements as of December
31, 2010 and 2009 begin on F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
49
ITEM 9A. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
We maintain "disclosure controls and procedures" as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating
our disclosure controls and procedures, our management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer 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(f) of the Securities
Exchange Act of 1934. Our internal control system was designed to provide
reasonable assurance to our management and the Board of Directors regarding the
preparation and fair presentation of published financial statements. Our
internal control over financial reporting includes those policies and procedures
that:
* pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our
assets,
* provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that our receipts
and expenditures are being made only in accordance with authorization
of management and directors, and
50
* provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on our financial statements.
Because of its inherent limitations, internal control over financial reporting
may not prevent or detect misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or the degree of compliance with
the policies or procedures may deteriorate.
Our management has not assessed the effectiveness of our internal control over
financial reporting as of December 31, 2010. Management understands that in
making this assessment, it should use the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Although an assessment using those criteria has
not been performed, our management believes that the Company's internal control
over financial reporting was not effective at December 31, 2010.
As of the date of this report, we have been unable to complete a full assessment
and adequately test our internal control over financial reporting and
accordingly lack the documented evidence that we believe is necessary to support
an assessment that our internal control over financial reporting is effective.
Without such testing, we cannot conclude whether there are any material
weaknesses, nor can we appropriately remediate any such weaknesses that might
have been detected.
Therefore, there is a possibility that misstatements which could be material to
our annual or interim financial statements could occur that would not be
prevented or detected.
There have been no changes in our internal control over financial reporting
during our fourth fiscal quarter that has materially affected, or is reasonably
likely to materially affect, our internal control over financial reporting.
We will complete our assessment of internal control over financial reporting and
take the remediation steps detailed below to enhance our internal control over
financial reporting and reduce control deficiencies. With regards to the
improvement of our internal controls over financial reporting, we believe the
following steps will assist in reducing our deficiencies, but will not
completely eliminate them. We will continue to work on the elimination of
control weaknesses and deficiencies noted.
Management of the Company takes very seriously the strength and reliability of
the internal control environment for the Company. Going forward, the Company
intends to implement new internal policies and undertake additional steps
necessary to improve the control environment including, but not limited to:
* Implementing an internal disclosure policy to govern the disclosure of
material, non-public information in a manner designed to provide full
and fair disclosure of information about the Company. This disclosure
policy is intended to ensure that management and employees of the
Company and its subsidiaries comply with applicable laws including the
U.S, Securities Exchange Commission ("SEC") Fair Disclosure Rules
(Regulation FD) governing disclosure of material, non-public
information to the public.
51
* Strengthening the effectiveness of corporate governance through the
implementation of standard policies and procedures and training
employees.
* Establishing an audit committee of the Board.
* Assigning additional members of the management team to assist in
preparing and reviewing the ongoing financial reporting process.
Management is committed to and acknowledges its responsibility for internal
controls over financial reporting and seeks to continually improve these
controls. In order to eventually achieve compliance with Section 404 of the
Sarbanes Oxley Act, we intend to perform the system and process evaluation
needed to comply with Section 404 of the Sarbanes Oxley Act as soon as
reasonably possible.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Amincor's business will be managed by its officers and directors. The following
persons are the officers and directors of Amincor:
Director
Name Age Position Since
---- --- -------- -----
John R. Rice III 67 President and Director 2010
Joseph F. Ingrassia 52 Vice-President, Secretary and Director 2010
Robert L. Olson 67 Chief Financial Officer and Director 2010
Unless otherwise indicated in the biographical information below, there are no
family relationships among members of our management or Amincor, Inc.'s Board of
Directors (the "Board").
JOHN R. RICE III, PRESIDENT AND DIRECTOR
Mr. Rice is the President and a Director of Amincor and is jointly responsible,
with Mr. Ingrassia, for monitoring the operation and the performance of the
operating subsidiaries, their management teams, execution of their business
plans and growth strategies, which includes identifying opportunities, analyzing
acquisition or roll up opportunities, divestitures and investment in the
operating subsidiaries since January 9, 2008. In addition to his duties with his
work at Amincor, Mr. Rice is a managing member and principal of the Capstone
group of companies which he co-founded with Joseph F. Ingrassia in 1994. Mr.
Rice was responsible for overseeing international marketing of Capstone's
programs and services to investors, joint venture partners and
52
various parties who originated business opportunities for Capstone and was
jointly responsible with Mr. Ingrassia for banking relationships, client and
portfolio management, supervision of due diligence and legal documentation and
accounting and administration. Mr. Rice studied liberal arts and business at the
University of Miami.
JOSEPH F. INGRASSIA, VICE-PRESIDENT, SECRETARY AND DIRECTOR
Mr. Ingrassia is the Vice-President, Secretary and a Director of Amincor and is
jointly responsible, with Mr. Rice, for monitoring the operation and the
performance of the operating subsidiaries, their management teams, execution of
their business plans and growth strategies, which includes identifying
opportunities, analyzing acquisition or roll up opportunities, divestitures and
investment in the operating subsidiaries since January 9, 2008. In addition to
his duties at Amincor, Mr. Ingrassia is a managing member and principal of the
Capstone group of companies which he co-founded with Mr. Rice in 1994. Mr.
Ingrassia was responsible for banking relationships, client and portfolio
management, supervision of due diligence and legal documentation, and accounting
and administration for the Capstone companies. Mr. Ingrassia received a Bachelor
of Arts Degree in psychology from Siena College, in 1980 and an MBA from Golden
Gate University in 1984.
ROBERT L. OLSON, CHIEF FINANCIAL OFFICER AND DIRECTOR ("CFO")
Mr. Olson is the Chief Financial Officer and a Director of Amincor with
responsibility for financial projections, preparation of financial reports and
required schedules and analysis for the Company's auditors. In addition to his
work at Amincor, since 2006 Mr. Olson has been the Chief Financial Officer
responsible for preparing financial statements in connection with the management
of the various companies to which the Capstone group of companies had made
loans. Mr. Olson supervises the accounting staff, monitors and reviews client
account statements, accounts receivable reports, inventory reports, cash flow
and other asset based loans and is responsible for accounts payable management,
cash management, bank relationship management, general ledger management and
audit coordination. Mr. Olson has been chief financial officer for private and
publicly held corporations for more than 27 years. Mr. Olson received a Bachelor
of Science Degree in accounting from Long Island University in 1965.
Mr. Rice, Mr. Ingrassia and Mr. Olson will each devote as much time as required
to their duties as officer and directors of Amincor. It is anticipated that they
will spend approximately seventy percent (70%) of their time on their
responsibilities related to Amincor. The remaining thirty percent (30%) of their
time will be spent managing the business operations of the Capstone group of
companies.
SUBSIDIARY COMPANIES' MANAGEMENT BIOGRAPHICAL INFORMATION
THE BUSINESS OF BAKER'S PRIDE INC. IS MANAGED BY ITS OFFICERS:
RON DANKO, CHIEF EXECUTIVE OFFICER, 73
Mr. Danko has served as Chief Executive Officer of Baker's Pride, Inc, since
it's inception in October, 2008. Previously, Mr. Danko served as Vice-President
of Summit Industries Inc., a Sedona, AZ based consulting firm, during which time
he focused on many baking industry projects. Mr. Danko was US Agent for Pierre
Herme' Paris from 2006 to 2007 and was responsible for developing the famed
53
French Patisserie Chef's brand in the United States. Mr. Danko served as
Vice-President of Bakery, Wegmans Food Markets, Inc. from 1998 until his
retirement in 2005. Prior to that Mr. Danko served as Director of Bakery
Operations, Wegmans Food Markets, Inc. from 1973 to 1998.
ROBERT BROOKHART, PRESIDENT, 57
Mr. Brookhart has been the President of Baker's Pride, Inc. since October 2008
and is responsible for managing and monitoring the operations of The Jefferson
Street Bakery and The Mt. Pleasant Street Bakery, developing operating budgets
to measure profitability, assisting departmental directors in obtaining
established goals, monitoring Food Safety Programs, federal, state and local
regulation compliance, negotiating commodity contracts, product development and
communicating with customers. Mr. Brookhart was responsible for baking
operations and held the position of Vice-President of The Baking Company of
Burlington from January 2007 to October of 2008. From 1983 through December
2006, Mr. Brookhart was the Director of Bakery Operations for Aldi, Inc. and
managed the bakery operation, monitored product quality, developed and monitored
the Fresh Bread Program for Aldi, Inc. and assisted in inspection and selection
of new bakery suppliers as the company expanded. Mr. Brookhart attended American
Institute of Baking Course in Bread Production in 1982 and the Aldi Management
System programs.
THE BUSINESS OF EPIC SPORTS INTERNATIONAL, INC. IS MANAGED BY ITS OFFICERS:
JEAN PAUL LUCAS, PRESIDENT, 58
Mr. Lucas has been the President of Epic Sports International, Inc. since March
2011 and is responsible for monitoring operations and the performance, its
management team, execution of the business plan and growth strategies, which
includes identifying opportunities, analyzing acquisition or roll up
opportunities, divestitures and investments. In addition to his position at ESI,
Mr. Lucas is also the Vice-President of Account Management of the Capstone group
of companies. Mr. Lucas has over 27 years experience in factoring, asset based
lending, and trade financing. Prior to joining the Capstone group of companies
Mr. Lucas served as president of Time & Money, Inc. where he administered the
financing of over 100 domestic and international manufacturers through factoring
and letters of credit. Mr. Lucas has also worked for Bankers Trust and Chase
Manhattan Bank as a senior credit officer in their factoring division. Mr. Lucas
earned a Bachelor of Science degree from Manhattan College in 1974.
SEAN FROST, VICE-PRESIDENT WESTERN DIVISION, 41
Mr. Frost joined Epic Sports International, Inc. in 2002 and is currently its
Vice-President of Sales Western Division, where he is responsible for oversight
of the direction and development of the Volkl Tennis and Boris Becker Tennis
brands. Prior to ESI, Mr. Frost was the territory sales manager for the Sean
Frost Rep Group in San Diego, California where he managed sales and reintroduced
sporting good brands to the US market. Mr. Frost received his degree in Business
Administration from Mira Costa College, in San Diego, CA in 1992.
54
BRIAN DILLMAN, VICE-PRESIDENT EASTERN DIVISION, 43
Mr. Dillman joined Epic Sports International, Inc. in July 2009. As
Vice-President Eastern Division he is responsible for international
distributors, marketing and Far East sourcing relationships. Prior to joining
ESI, Dillman served as the Executive in Residence at Winona Capital Management.
During his time there, he analyzed more than 50 companies and conducted the due
diligence for the Peter Millar acquisition, which closed in May 2009. Mr.
Dillman joined Power Plate in 2006 as the Chief Marketing Officer and Executive
Vice-President. In July 2007, he took on the role of President of Power Plate
North America, establishing distribution networks within the retail, specialty
fitness, commercial dealer and specialty markets. Prior to joining Power Plate,
Mr. Dillman spent 14 years at Wilson Sporting Goods and Amer Sports, where, in
his last role was General Manager of the Global Racquet Sports business. During
his tenure, he helped solidify Wilson as the #1 Racquet Sports Brand in the
world in sales and profitability. Mr. Dillman graduated from the University of
Illinois with a Bachelor of Arts degree in Speech Communications in 1990.
THE BUSINESS OF IMPERIA MASONRY SUPPLY CORP. IS MANAGED BY ITS OFFICERS:
DAVID RAYMES, PRESIDENT, 49
Mr. Raymes is the President of IMSC and is responsible for business strategy,
plan execution and turning around all aspects of company performance. His
responsibilities also include the development of the company's new management
team and strategic acquisitions or roll up opportunities to sustainably grow the
company in the marketplace. Mr. Raymes became President of IMSC in January 2011.
Prior to IMSC, Mr. Raymes was a Vice-President with Kleinfelder, Inc. an
international architectural, engineering and consulting firm for over eight
years. His responsibilities ranged from strategic acquisition identification and
development, profit and loss of business units within Kleinfelder, and the
growth and development of key client accounts in the oil and gas, real estate,
industrial, commercial and legal industries. Mr. Raymes received a Bachelor of
Science in Geophysical Engineering from the Colorado School of Mines in 1984.
JANICE PISZCZATOWSKI, CHIEF FINANCIAL OFFICER, 48
Ms. Piszczatowski joined IMSC as Chief Financial Officer in May 2010. She has
more than 24 years experience in the accounting and finance industry and
currently assists with operations as well as oversees the finance department of
ISMC. Ms. Piszczatowski is assisting with the restructuring of operations in
order to improve financial, operational, and internal controls while boosting
efficiencies. From 2005 to 2010, Ms. Piszczatowski served as controller of Tyree
Holdings Corp. where she managed the finance department. Prior to joining Tyree
Holdings Corp., Ms. Piszczatowski had served in key accounting roles while
working for several small to mid-sized public accounting firms in New York. Ms.
Piszczatowski received a Bachelor of Arts degree in Accounting from Adelphi
University in 1985.
55
THE BUSINESS OF TULARE FROZEN FOODS, LLC IS MANAGED BY ITS OFFICERS:
JAMES E. FIKKERT, PRESIDENT, 58
Mr. Fikkert has been President of Tulare Frozen Foods, LLC since January, 2008
and of Holdings since December 30, 2008. Mr. Fikkert has an extensive background
in the frozen food business with over 25 years of experience. Mr. Fikkert has a
strong background in corporate, plant and field operations, planning, team
building, supply chain management, and project management. Prior to his position
at Tulare, Mr. Fikkert held various managerial positions at The Larsen Company,
Birds Eye Foods, Inc., and Flexo Solutions, LLC. until March 2007 and joined
Tulare in October 4, 2007. Mr. Fikkert received his Bachelor of Science degree
from the University of Wisconsin in 1974.
DOUGLAS HAGIN, CHIEF FINANCIAL OFFICER, 63
Mr. Hagin was the acting CFO of Tulare on a consulting basis from October 2008
to March 1, 2010 at which time he became Tulare's fulltime CFO. Mr. Hagin is
responsible for all financial projections and assists in completing the
company's monthly financial reports. In addition, Mr. Hagin is responsible for
assisting the Tulare's President in the company's strategic planning. Prior to
his position at Tulare, Mr. Hagin spent 25 years working in the frozen vegetable
industry in various roles from the Vice-President of sales at Bellingham Frozen
Foods to a logistics manager at Birds Eye Frozen Foods, Inc. Mr. Hagin received
his Bachelor of Science degree in Business Administration from the University of
Puget Sound in 1969.
THE BUSINESS OF TYREE HOLDINGS CORP. IS MANAGED BY ITS OFFICERS:
RICHARD OSWALD, CHIEF EXECUTIVE OFFICER, 58
Mr. Oswald joined Tyree in March 2008 as President and Chief Operating Officer.
He assumed the Chief Executive Officer position in early 2010. Prior to joining
Tyree, Mr. Oswald spent 33 years with Sunoco, Inc. (formerly Sun Oil Company)
and its subsidiaries, in positions of increasing responsibility in its
downstream retail and wholesale distribution businesses, where in his final
position, as Director of Marketing Technical Services, he managed Sunoco's
construction, maintenance, engineering, compliance and environmental activities
for all 1,450 + Sunoco retail gasoline selling locations in the Northeast. Mr.
Oswald earned a Bachelor of Science degree in Civil Engineering from Drexel
University in 1975. Also, he has an advanced quality certification from Crosby's
Quality College and OSHA emergency response and incident command certification
from the SEA Group.
STEVEN TYREE, PRESIDENT AND CHIEF OPERATING OFFICER, 49
Mr. Tyree is President and Chief Operating Officer of Tyree Holdings Corp. and
oversees the performance of Sales and Marketing, Business Development groups as
well as the critical support functions of operations. Mr. Tyree is also
responsible for strategic planning and the overall profitability, functions,
development of the corporate business plan. Prior to his present position, he
had been Vice-President of Sales and Marketing and Chief Executive Officer of
The Tyree Organization, Hudson Valley Region, 1994-2001; Director of Remediation
Recovery for Tyree Brothers Environmental Services in Farmingdale, New York,
1985-1994, and Construction Worker for Tyree Brother Environmental Services in
56
Farmingdale, New York 1983-1985. Mr. Tyree received an A.A.S. degree in Liberal
Sciences from Dean College in 1981 and received a Bachelor of Arts degree in
English Literature and Journalism from Lynchburg College in 1983. Mr. Tyree's
professional affiliations include the American Management Association, the
National Ground Water Association and the New York State Transportation
Association.
WILLIAM M. TYREE, VICE-PRESIDENT, 59
Mr. Tyree is responsible for identification of new business opportunities and
development of strategies to bring those opportunities to closure. Prior to his
present position, Mr. Tyree was Chief Operating Officer of The Tyree
Organization, 1996-2000, responsible for sales projections and overall
profitability, development of the corporate business plan and final approval of
the company budget. Prior to becoming Chief Operating Officer, Mr. Tyree was
Division Manager of Company divisions in New England, New Jersey and California
from late 1980 to 1996. Mr. Tyree earned a Bachelor of Arts degree from
Gettysburg College in 1973. His professional affiliations include: Petroleum
Equipment Institute, Long Island Association; Nassau/ Suffolk Contractors
Association; Worcester (Massachusetts.) Chamber of Commerce; New England
Petroleum Council; New Jersey Fuel Merchants Association; Pennsylvania Petroleum
Association; New York State Transportation Association; National Water Works
Association; National Groundwater Association; New York State Superintendents
Association.
FAMILY RELATIONSHIPS
There are no family relationships between any directors or named executive
officers of the Company, either by blood or by marriage.
DIRECTORSHIPS
No Director of the Company or person nominated or chosen to become a Director
holds any other directorship in any company with a class of securities
registered pursuant to section 12 of the Exchange Act or subject to the
requirements of Section 15(d) of the Exchange Act or any other company
registered as an investment company under the Investment Company Act of 1940, as
amended.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, no present or former director, executive officer or
person nominated to become a director or an executive officer of the Company:
(1) was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy or
two years prior to that time;
(2) was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
(3) was subject to any order, judgment or decree, not subsequently
reversed, suspended or vacated, of any court of competent jurisdiction,
permanently or temporarily enjoining, barring, suspending or otherwise limiting
his involvement in any type of business, securities or banking activities; or
57
(4) was found by a court of competent jurisdiction (in a civil action), the
Securities and Exchange Commission or the Commodity Futures Trading Commission
to have violated a Federal or state securities or commodities law, and the
judgment has not been reversed, suspended or vacated.
COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors is the acting Audit Committee. Our Board of Directors has
determined that Robert L. Olson, CFO, on our Board of Directors qualifies as an
audit committee financial expert as that term is defined by applicable
Securities and Exchange Commission rules. However, Mr. Olson does not meet the
independence standards of the Securities Exchange Commission rules. The Board of
Directors believes that obtaining the services of an independent audit committee
financial expert is not economically feasible at this time in light of the costs
associated with identifying and retaining an individual who would qualify as an
independent audit committee financial expert.
There are no other committees of the Board of Directors. The Board of Directors
believes that obtaining the services of additional directors is not economically
feasible at this time in light of the costs associated retaining such
individuals. As the financial resources become available and qualified
individuals are identified, the Board of Directors intends to add additional
directors as well as form the committees required under applicable securities
laws and listing standards.
CODE OF ETHICS
We have adopted a code of ethics applicable to all employees, officers and
directors. The code of ethics will be made available through our website,
www.amincorinc.com. We will disclose on our website amendments to or waivers
from the codes of ethics in accordance with all applicable laws and regulations.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based upon a review of the filings furnished to us pursuant to Rule 16a-3(e)
promulgated under the Exchange Act and on representations from its executive
officers, directors and persons who beneficially own more than 10% of the Common
Stock, all filing requirements of such persons under Section 16(a) of the
Exchange Act were complied with during the fiscal year ended December 31, 2010.
ITEM 11. EXECUTIVE COMPENSATION
To date, Messrs. Rice, Ingrassia and Olson have not received any compensation
for their service as executive officers of Amincor. While Mr. Lucas is the
President of Epic Sports International, Inc., he does not receive any
compensation from Epic Sports International, Inc. and is currently compensated
by the Capstone group of companies in his role as Vice-President of Account
Management. David Raymes became the President of Imperia Masonry Supply Corp. in
January of 2011, therefore he received no compensation in the fiscal year ended
December 31, 2010.
The table below sets forth the compensation earned by the Chief Executive
Officers of Baker's Pride, Inc and Tyree Holdings Corp. and the President of
Tulare Holdings, Inc. for the fiscal years ended December 31, 2010 and December
31, 2009.
58
Change in
Pension
Value and
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($) Compensation($) Earnings($) Compensation($) Totals($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- ---------
Ron Danko 2008 $ 65,950 None None None None None None $ 65,950
CEO 2009 $269,418 None None None None None None $269,418
2010 $269,418 None None None None None None $269,418
James 2008 $145,982 None None None None None None $145,982
Fikkert 2009 $150,000 None None None None None None $150,000
President 2010 $150,000 None None None None None None $150,000
Richard 2008 $206,471 None None None None None None $206,471
Oswald 2009 $339,690 None None None None None None $339,690
CEO 2010 $334,179 None None None None None None $334,179
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDED DECEMBER 31, 2010.
On December 31, 2010, the Board of Directors of the Registrant approved the
grant of options to purchase common stock to John R. Rice, III, President,
Joseph F. Ingrassia, Vice-President and Robert L. Olson, Chief Financial Officer
and certain management and employees of Registrant and certain officers and
employees of its subsidiary companies. Messrs. Rice and Ingrassia, were each
granted 42,017 options and Mr. Olson was granted 36,765 options.
The options granted have an exercise price of $2.80, based on the estimated fair
market value of the Registrant's share price on the date of the grant. The
options vest 50% on the first anniversary of the grant date and 100% on the
second anniversary of the grant date, so long as the optionee is still employed
by the Registrant or its subsidiaries. The options are valid for five years from
the grant date and shall expire thereafter. Each optionee will sign a
Non-Qualified Stock Option Agreement with the Registrant which more fully
details the terms and conditions of the grant.
COMPENSATION OF DIRECTORS
There was no compensation paid to any director during the fiscal year ended
December 31, 2010.
59
Directors serve without compensation and there are no standard or other
arrangements for their compensation. There are no employment contracts,
compensatory plans or arrangements, including payments to be received from the
Company with respect to any Director that would result in payments to such
person because of his or her resignation with the Company, or its subsidiaries
or any change in control of the Company. There are no agreements or
understandings for any Director to resign at the request of another person. None
of our Directors or executive officers acts or will act on behalf of or at the
direction of any other person.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
The following table sets forth information regarding the beneficial ownership of
our Class A voting common stock by (a) each person known to be a beneficial
owner of more than 5% of our voting common stock as of April 15, 2011 by (b)
each of our officers and directors; (c) all our officers and directors as a
group. Unless otherwise indicated, we believe that all persons named in the
table have sole voting and investment power with respect to all shares of common
stock beneficially owned by them.
Number of Percentage of
Class A Voting Class A Voting
Name and Address Shares Owned Shares Owned
---------------- ------------ ------------
John R. Rice III 3,194,160 42.71%
1 Makamah Beach Road
Fort Salonga, New York 11768
Joseph F. Ingrassia
14511 Legends Blvd. N
Ft. Meyers, Florida 33912 3,194,160 42.71%
Robert L. Olson
24 Brook Hill Lane
Norwalk, CT 06851 38,000 0.51%
All Executive officers and
Directors as a Group (3 persons) 6,426,320 85.93%
The shares of Common Stock in the foregoing table have not been pledged or
otherwise deposited as collateral, are not the subject matter of any voting
trust or other similar agreement and are not the subject of any contract
providing for the sale or other disposition of securities.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE
In addition to being officers and directors of Amincor, Inc., Messrs. John R.
Rice, III and Joseph F. Ingrassia are the controlling shareholders of Capstone
Capital Management, Inc., which was the General Partner of both the Capstone
Cayman Special Purpose Fund, L.P. and the Capstone Special Purpose Fund, L.P.
(collectively, the "Capstone Funds"). Messrs. Rice and Ingrassia are also the
owners and managing members of Capstone Business Credit, LLC and Capstone
Capital Group I, LLC, which are asset based lenders.
60
RELATED PARTY TRANSACTIONS
Amincor and BPI entered into a loan and security agreement, dated November 1,
2010, with Capstone Capital Group, LLC, a Delaware limited liability company, an
asset based lender pursuant to which Capstone Capital Group, LLC provided BPI an
$850,000 credit line, with an 18% interest rate, secured by the assets of BPI
Messrs. Rice and Ingrassia are also the owners and managing members of Capstone
Capital Group, LLC.
INDEPENDENCE OF DIRECTORS
Our current directors are John R. Rice, III, Joseph F. Ingrassia and Robert L.
Olson. We are not currently subject to corporate governance standards defining
the independence of our directors. We have not yet adopted an independence
standard or policy. Accordingly, our Board of Directors currently determines the
independence of each Director and nominee for election as a Director. The Board
of Directors has determined that none of our directors currently qualifies as an
independent director under the standards applied by current federal securities
laws, NASDAQ or the New York Stock Exchange.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees for professional audit services paid by
us to Rosen Seymour Shapss Martin & Company LLP, our independent registered
public accounting firm:
2010 2009 2008
---------- ---------- ----------
Audit Fees $1,516,000 $ -- $ --
Audit-Related Fees 209,000 -- --
Tax Fees 228,000 -- --
All Other Fees -- -- --
---------- ---------- ----------
$1,953,000 $ -- $ --
========== ========== ==========
AUDIT FEES
Audit fees relate to professional services rendered in connection with the
audits of our annual consolidated financials included on Form 10-K for the years
ended December 31, 2009 and 2008, the review of our 2010 interim quarterly
financial statements included in our Quarterly Reports on Form 10-Q, and
professional services provided to us for our Form 10 filings. Audit fees also
relate to the professional services rendered in connection to the audits of our
following operating subsidiaries for the years ended December 31, 2009 and 2008:
Baker's Pride, Inc, Epic Sports International, Inc., Masonry Supply Holding
Corp., Tulare Holdings, Inc. and Tyree Holdings Corp.
AUDIT-RELATED FEES
Audit-related fees relate to professional services provided for certain of our
regulatory filings, consultations regarding financial accounting and reporting
standards, and the audits of the employee benefits plans of Tyree Holdings Corp.
TAX FEES
Tax fees relate to professional services provided in connection with the
preparation of tax returns of our following operating subsidiaries: Baker's
Pride, Inc, Epic Sports International, Inc., Masonry Supply Holding Corp.,
Tulare Holdings, Inc. and Tyree Holdings Corp.
61
PRE-APPROVAL POLICIES AND PROCEDURES
Our Board of Directors has authorized, in accordance with the Sarbanes-Oxley Act
of 2002 requiring pre-approval of all auditing services and all audit related,
tax or other services not prohibited under Section 10A(g) of the Securities
Exchange Act of 1934, as amended, to be performed for us by our independent
auditor, subject to the de minimus exception described in Section 10A(i)(1)(B)
of the Exchange Act. The Board of Directors authorized our independent auditor
to perform audit services required in connection with the annual audit relating
to our fiscal year ended December 31, 2009 and December 31, 2010. Our Board of
Directors is responsible for granting pre-approvals of other audit,
audit-related, tax and other services to be performed for us by our independent
auditor.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial statements and schedules filed as a part of this report are
listed on the "Index to Financial Statements" contained herein. All other
schedules are omitted because (i) they are not required under the instructions,
(ii) they are inapplicable or (iii) the information is included in the financial
statements.
(b) Exhibits.
Exhibit No. Description
----------- -----------
3.1 Articles of Incorporation of Amincor, Inc. (Incorporated by
reference to Company's Registration Statement on Form 10 filed on
August 4, 2010)
3.2 Amincor, Inc. By-Laws (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
3.3 Certificate of Incorporation of Amincor Contract Administrators,
Inc.*
3.4 Certificate of Incorporation of Amincor Other Assets, Inc. *
3.5 Certificate of Incorporation of Baker's Pride, Inc. *
3.6 Certificate of Incorporation of the Mount Pleasant Street Bakery,
Inc.*
3.7 Certificate of Incorporation of the Jefferson Street Bakery, Inc.*
3.8 Certificate of Amendment to the Articles of Incorporation of Epic
Sports International, Inc. *
3.9 Certificate of Incorporation of Environmental Holding Corp.*
3.10 Certificate of Incorporation of Environmental Quality Services,
Inc. *
3.11 Certificate of Incorporation of Masonry Supply Holding Corp.*
3.12 Certificate of Incorporation of Imperia Masonry Supply Corp.*
62
3.13 Certificate of Incorporation Tulare Holdings, Inc. *
3.14 Articles of Formation Tulare Frozen Foods, LLC*
3.15 Certificate of Incorporation Tyree Holdings Corp.*
3.16 Certificate of Incorporation Tyree Environmental Corp.*
3.17 Certificate of Incorporation Tyree Equipment Corp.*
3.18 Certificate of Incorporation Tyree Service Corp.*
10.1 Share Exchange Agreement between Amincor, Inc. and Tulare Frozen
Foods Inc. (Incorporated by reference to Company's Registration
Statement on Form 10 filed on August 4, 2010)
10.2 Letter of Intent for Acquisition of Tulare Holdings, Inc.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.3 Discount Factoring Agreement between Capstone Business Credit, LLC
and Tulare Frozen Foods, Inc. (Incorporated by reference to
Company's Registration Statement on Form 10 Amendment No. 2 filed
on January 7, 2011)
10.4 Purchase Order Financing Agreement between Tulare Frozen Foods,
Inc. and Capstone Capital Group I, LLC (Incorporated by reference
to Company's Registration Statement on Form 10 Amendment No. 2
filed on January 7, 2011)
10.5 Amendment to Purchase Order Financing Agreement between Tulare
Frozen Foods, Inc. and Capstone Capital Group I, LLC (Incorporated
by reference to Company's Registration Statement on Form 10
Amendment No. 2 filed on January 7, 2011)
10.6 Letter of Intent for the acquisition of Baker's Pride, Inc.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.7 Letter of Intent for the acquisition of Imperia Masonry Supply
Corp. (Incorporated by reference to Company's Registration
Statement on Form 10 Amendment No. 2 filed on January 7, 2011)
10.8 Letter of Intent for the acquisition of Klip America, Inc.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.9 Letter of Intent for the acquisition of Tyree Holdings Corp.
(Incorporated by reference to Company's Registration Statement on
Form 10 Amendment No. 2 filed on January 7, 2011)
10.10 Stock Purchase Agreement, dated October 18, 2010, by and among
Registrant, Hammond Investments, Ltd. and Capstone Special Purpose
Fund, LP for the purchase of Tyree Holdings Corp. (Incorporated by
reference to Company's Current Report on Form 8-K filed on October
19, 2010)
63
10.11 Stock Purchase Agreement, dated October 18, 2010, by and among
Registrant, Hammond Investments, Ltd. and Capstone Special Purpose
Fund, LP for the purchase of Masonry Supply Holding Corp.
(Incorporated by reference to Company's Current Report on Form 8-K
filed on October 19, 2010)
10.12 Stock Purchase Agreement, dated October 18, 2010, by and among
Registrant, Hammond Investments, Ltd. and Capstone Special Purpose
Fund, LP for the purchase of Baker's Pride, Inc. (Incorporated by
reference to Company's Current Report on Form 8-K filed on October
19, 2010)
10.13 Stock Purchase Agreement, dated October 18, 2010, by and between
Registrant and Universal Apparel Holdings, Inc. for the purchase of
Epic Sports International, Inc. (Incorporated by reference to
Company's Current Report on Form 8-K filed on October 19, 2010)
10.14 Strategic Alliance Agreement, dated October 26, 2010, by and
between Epic Sports International, Inc and Samsung C&T America,
Inc. (Incorporated by reference to Company's Current Report on Form
8-K filed on October 29, 2010)
10.15 Option Agreement, dated October 26, 2010, for Samsung to Purchase
Shares of Epic Sports International, Inc. (Incorporated by
reference to Company's Current Report on Form 8-K filed on October
29, 2010)
10.16 Form of Non-Qualified Stock Option Agreement, dated December 31,
2010 (Incorporated by reference to Company's Current Report on Form
8-K filed on January 26, 2011)
10.17 Surrender of Collateral, Strict Foreclosure and Release Agreement,
dated January 3, 2011 for the assets to be assigned to
Environmental Quality Services, Inc. (Incorporated by reference to
Company's Current Report on Form 8-K filed on January 26, 2011)
10.18 Loan and Security Agreement, dated November 1, 2010, by and among
Amincor, Inc., Baker's Pride, Inc. and Capstone Capital Group, LLC*
10.19 License Agreement, dated January 1, 2011, by and between Amincor,
Inc. and Brescia Apparel Corp.*
10.20 Transition Services Agreement, dated as of December 31, 2009, by
and among Capstone Capital Group I, LLC, Capstone Business Credit,
LLC, Capstone Capital Management, Inc., Capstone Trade Partners,
Ltd. and Joning, Corp.*
10.21 Amendment to Transition Services Agreement, dated as of December
31, 2010, by and among Capstone Capital Group I, LLC, Capstone
Business Credit, LLC, Capstone Capital Management, Inc., Capstone
Trade Partners, Ltd. and Joning, Corp.*
14.1 Code of Ethics*
21 Organizational Chart of Amincor, Inc. and its subsidiaries*
64
31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
32.1 Chief Executive Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
32.2 Chief Financial Officer's Certificate, pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.*
99.1 Lease for Tulare Premises (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
99.2 Tulare Equipment Lease (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
99.3 Amendment to Lease for Tulare Premises (Incorporated by reference
to Company's Registration Statement on Form 10 filed on August 4,
2010)
99.4 Amendment to Tulare Equipment Lease (Incorporated by reference to
Company's Registration Statement on Form 10 filed on August 4,
2010)
99.5 Organizational Chart - Capstone companies (Incorporated by
reference to Company's Registration Statement on Form 10 Amendment
No. 2 filed on January 7, 2011)
99.6 Organizational Chart - Tulare Holdings, Inc. (Incorporated by
reference to Company's Registration Statement on Form 10 Amendment
No. 2 filed on January 7, 2011)
----------
* filed herewith
65
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
AMINCOR, INC.
Date: April 15, 2011
/s/ John R. Rice, III
---------------------------------------------
By: John R. Rice, III, President
Date: April 15, 2011
/s/ Robert L. Olson
---------------------------------------------
By: Robert L. Olson, Chief Financial Officer
BOARD OF DIRECTORS
Date: April 15, 2011
/s/ John R. Rice, III
---------------------------------------------
By: John R. Rice, III, Director
/s/ Joseph F. Ingrassia
---------------------------------------------
By: Joseph F. Ingrassia, Director
/s/ Robert L. Olson
---------------------------------------------
By: Robert L. Olson, Director
66
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AND
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-1
AMINCOR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
Page
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-3
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2010 and 2009 F-4
Consolidated Statements of Operations for the Three Years Ended
December 31, 2010 F-6
Consolidated Statements of Shareholders' Equity for the Three
Years Ended December 31, 2010 F-7
Statements of Cash Flows for the Three Years Ended December 31, 2010 F-9
Notes to Consolidated Financial Statements F-11
F-2
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Amincor, Inc.
We have audited the accompanying consolidated balance sheets of Amincor, Inc.
and Subsidiaries (the "Company") as of December 31, 2010 and 2009, and the
related consolidated statements of operations, shareholders' equity, and cash
flows for each of the three years ended December 31, 2010. These financial
statements are the responsibility of the Company's management. Our
responsibility is to report on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the Company's internal control over financials
reporting. An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Amincor, Inc. and Subsidiaries as of December 31, 2010 and 2009 and the results
of their operations and their cash flows for each of the three years ended
December 31, 2010 in conformity with accounting principles generally accepted in
the United States of America.
/s/ ROSEN SEYMOUR SHAPSS MARTIN & COMPANY LLP
New York, New York
April 15, 2011
F-3
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
2010 2009
----------- -----------
ASSETS
CURRENT ASSETS:
Cash $ 2,643,000 $ 391,000
Accounts receivable, net of allowance of
$608,000 and $905,000, respectively 8,878,000 8,361,000
Note receivable 523,000 --
Due from factor - related party -- 4,640,000
Due from related party 1,717,000 1,400,000
Inventories, net 4,469,000 5,711,000
Costs and estimated earnings in excess
of billings on uncompleted contracts 279,000 --
Construction in process -- 3,857,000
Prepaid expenses and other current assets 900,000 789,000
----------- -----------
Total current assets 19,409,000 25,149,000
----------- -----------
PROPERTY, PLANT AND EQUIPMENT, NET 17,470,000 5,678,000
OTHER ASSETS:
Mortgages receivable 6,180,000 --
Goodwill 15,569,000 15,569,000
Other intangible assets, net 14,447,000 16,503,000
Deferred financing costs, net 319,000 476,000
Other assets 449,000 367,000
Assets held for sale 6,575,000 --
----------- -----------
Total other assets 43,539,000 32,915,000
----------- -----------
Total assets $80,418,000 $63,742,000
=========== ===========
The accompanying notes are an integral part of
these consolidated financial statements.
F-4
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
2010 2009
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,214,000 $ 9,615,000
Assumed liabilities - current portion 2,481,000 3,983,000
Accrued expenses and other current liabilities 4,307,000 3,255,000
Loans payable to related party 714,000 13,451,000
Notes payable - current portion 418,000 440,000
Capital lease obligations - current portion 254,000 139,000
Billings in excess of costs and estimated earnings
on uncompleted contracts 537,000 --
Billings on construction -- 5,917,000
Due to officer / shareholder 207,000 160,000
------------ ------------
Total current liabilities 21,132,000 36,960,000
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 28,000 299,000
Capital lease obligations - net of current portion 638,000 303,000
Notes payable - net of current portion 1,643,000 1,535,000
Other long-term liabilities 33,000 98,000
------------ ------------
Total long-term liabilities 2,342,000 2,235,000
------------ ------------
Total liabilities 23,474,000 39,195,000
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
AMINCOR SHAREHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value per share;
3,000,000 authorized, 1,752,823 issued and outstanding 2,000 --
Common stock - class A; $0.001 par value; 22,000,000
authorized, 7,478,409 issued and oustanding 7,000 --
Common stock - class B; $0.001 par value; 40,000,000
authorized, 21,176,262 issued and oustanding 21,000 14,000
Additional paid-in capital 88,250,000 48,957,000
Accumulated deficit (29,857,000) (23,129,000)
------------ ------------
Total Amincor shareholders' equity 58,423,000 25,842,000
------------ ------------
Non-controlling interest equity (1,479,000) (1,295,000)
------------ ------------
Total shareholders' equity 56,944,000 24,547,000
------------ ------------
Total liabilities and shareholders' equity $ 80,418,000 $ 63,742,000
============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-5
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three Years Ended December 31, 2010
--------------------------------------------------------------------------------
2010 2009 2008
------------ ------------ ------------
NET REVENUES $ 86,060,000 $ 82,129,000 $ 73,045,000
COST OF REVENUES 68,515,000 66,962,000 63,974,000
------------ ------------ ------------
Gross profit 17,545,000 15,167,000 9,071,000
SELLING, GENERAL AND ADMINISTRATIVE 24,012,000 19,503,000 15,387,000
------------ ------------ ------------
Loss from operations (6,467,000) (4,336,000) (6,316,000)
OTHER EXPENSE (INCOME):
Interest expense, net 2,050,000 8,787,000 4,995,000
Other income (974,000) (77,000) (2,000)
------------ ------------ ------------
Total other expenses (income) 1,076,000 8,710,000 4,993,000
------------ ------------ ------------
Loss before provision for income taxes (7,543,000) (13,046,000) (11,309,000)
Provision for income taxes 184,000 -- --
------------ ------------ ------------
Net loss (7,727,000) (13,046,000) (11,309,000)
------------ ------------ ------------
Net loss attributable to non-controlling interests (271,000) (726,000) (569,000)
------------ ------------ ------------
Net loss attributable to Amincor shareholders $ (7,456,000) $(12,320,000) $(10,740,000)
============ ============ ============
LOSS PER SHARE - BASIC AND DILUTED
Net loss attributable to Amincor shareholders $ (0.26) $ (0.87) $ (0.76)
============ ============ ============
Weighted average shares outstanding - basic and diluted 29,054,908 14,126,820 14,126,820
============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-6
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 2010
--------------------------------------------------------------------------------
Amincor, Inc. and Subsidiaries
-----------------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
------------------ --------------------- -------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at January 1, 2008 -- $ -- 14,126,820 $14,000 -- $ --
Acquisition of businesses
by the Capstone Funds -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at December 31, 2008 -- -- 14,126,820 14,000 -- --
Acquisition of businesses
by the Capstone Funds -- -- -- -- -- --
Conversion of loans from
related parties -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at December 31, 2009 -- -- 14,126,820 14,000 -- --
Prior period adjustment -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at December 31, 2009,
as restated -- -- 14,126,820 14,000 -- --
---------- ------ ---------- ------- ---------- -------
Issuance of preferred and
common stock to investors
in the limited partnerships
that were lenders to the
predecessor business of the
Company's subsidiaries 1,752,823 2,000 -- -- 21,176,262 21,000
Amincor, Inc. and Subsidiaries
------------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Balance at January 1, 2008 $ 55,000 $ (69,000) $ -- $ --
Acquisition of businesses
by the Capstone Funds 28,976,000 -- -- 28,976,000
Net loss -- (10,740,000) (569,000) (11,309,000)
----------- ------------ ----------- ------------
Balance at December 31, 2008 29,031,000 (10,809,000) (569,000) 17,667,000
Acquisition of businesses
by the Capstone Funds 2,761,000 -- -- 2,761,000
Conversion of loans from
related parties 17,165,000 -- -- 17,165,000
Net loss -- (12,320,000) (726,000) (13,046,000)
----------- ------------ ----------- ------------
Balance at December 31, 2009 48,957,000 (23,129,000) (1,295,000) 24,547,000
Prior period adjustment -- 728,000 87,000 815,000
----------- ------------ ----------- ------------
Balance at December 31, 2009,
as restated 48,957,000 (22,401,000) (1,208,000) 25,362,000
----------- ------------ ----------- ------------
Issuance of preferred and
common stock to investors
in the limited partnerships
that were lenders to the
predecessor business of the
Company's subsidiaries (23,000) -- -- --
The accompanying notes are an integral part of
these consolidated financial statements.
F-7
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Three Years Ended December 31, 2010
--------------------------------------------------------------------------------
Amincor, Inc. and Subsidiaries
-----------------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
------------------ --------------------- -------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Retirement of common stock to
achieve parity among investors
in the limited partnerships
that were lenders to the
predecessor businesses of
the Company's subsidiaries -- -- (7,056,856) (7,000) -- --
Common stock reissued
from above retirements -- -- 406,845 -- -- --
Issuance of common stock in
share exchange with Tulare
Holdings, Inc. -- -- 1,600 -- -- --
Contribution of assets acquired -- -- -- -- -- --
Net loss -- -- -- -- -- --
---------- ------ ---------- ------- ---------- -------
Balance at December 31, 2010 1,752,823 $2,000 7,478,409 $ 7,000 21,176,262 $21,000
========== ====== ========== ======= ========== =======
Amincor, Inc. and Subsidiaries
------------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Retirement of common stock to
achieve parity among investors
in the limited partnerships
that were lenders to the
predecessor businesses of
the Company's subsidiaries 7,000 -- -- --
Common stock reissued
from above retirements -- -- -- --
Issuance of common stock in
share exchange with Tulare
Holdings, Inc. 332,000 -- -- 332,000
Contribution of real property
acquired with the purchases
of the subsidiaries
businesses 38,977,000 -- -- 38,977,000
Net loss -- (7,456,000) (271,000) (7,727,000)
----------- ------------ ----------- ------------
Balance at December 31, 2010 $88,250,000 $(29,857,000) $(1,479,000) $ 56,944,000
=========== ============ =========== ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-8
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2010
--------------------------------------------------------------------------------
2010 2009 2008
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (7,727,000) $(13,046,000) $(11,309,000)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization of property and equipment 1,553,000 833,000 584,000
Amortization of intangible assets 2,056,000 1,955,000 1,266,000
Amortization of deferred financing cost 156,000 156,000 1,558,000
(Gain) loss on sale of equipment (21,000) -- 233,000
(Recovery of bad debt) / Provision for doubtful accounts (297,000) 314,000 591,000
Changes in assets and liabilities:
Accounts receivable 1,391,000 735,000 (1,336,000)
Due from factor - related party 4,640,000 (721,000) (3,205,000)
Due from related party (317,000) (1,400,000) --
Inventory 1,242,000 838,000 (473,000)
Costs and estimated earnings in excess of billings
on uncompleted contracts (279,000) -- --
Construction in process 113,000 3,125,000 2,594,000
Prepaid expenses and other current assets (111,000) 54,000 513,000
Other assets (82,000) 44,000 (404,000)
Accounts payable 2,599,000 1,346,000 3,282,000
Accrued expenses and other current liabilities 1,051,000 1,127,000 (1,328,000)
Billings in excess of costs and estimated earnings
on uncompleted contracts 537,000 -- --
Billings on construction (1,358,000) (1,591,000) (4,201,000)
Other long-term liabilities (64,000) 23,000 (106,000)
------------ ------------ ------------
Net cash provided by (used in) operations 5,082,000 (6,208,000) (11,741,000)
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash acquired in acquisition -- 40,000 17,000
Purchases of property and equipment (339,000) (1,941,000) (966,000)
Proceeds from sales of equipment 38,000 -- 25,000
------------ ------------ ------------
Net cash used in investing activities (301,000) (1,901,000) (924,000)
------------ ------------ ------------
The accompanying notes are an integral part of
these consolidated financial statements.
F-9
AMINCOR, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Years Ended December 31, 2010
--------------------------------------------------------------------------------
2010 2009 2008
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net payments/proceeds from loans with related parties (680,000) 11,650,000 18,732,000
Principal payments of capital lease obligations (211,000) -- --
Net proceeds/payments from notes payable 87,000 (537,000) (470,000)
Due to officer / shareholder 47,000 28,000 132,000
Proceeds from issuance of stock -- -- 10,000
Payments of assumed liabilities (1,772,000) (2,690,000) (5,690,000)
------------ ------------ ------------
Net cash (used in) provided by financing activities (2,529,000) 8,451,000 12,714,000
------------ ------------ ------------
Increase in cash 2,252,000 342,000 49,000
CASH, beginning of year 391,000 49,000 --
------------ ------------ ------------
CASH, end of year $ 2,643,000 $ 391,000 $ 49,000
============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 941,000 $ 5,547,000 $ 2,172,000
============ ============ ============
Income taxes $ 37,000 $ 116,000 $ --
============ ============ ============
NON-CASH INVESTING ACTIVITIES:
Acquisition of businesses by the Capstone Funds $ -- $ 2,761,000 $ 28,951,000
============ ============ ============
Conversion of loans from related parties $ -- $ 17,163,000 $ --
============ ============ ============
Contribution of assest acquired $ 39,293,000 $ -- $ --
============ ============ ============
Acquisition of equipment by capital lease and notes
payable $ 661,000 $ -- $ --
============ ============ ============
The accompanying notes are an integral part of
these consolidated financial statements.
F-10
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor" or the "Company") was incorporated under the laws of
the state of Nevada on October 8, 1997 under the name GSE Group, Inc. GSE Group,
Inc. was originally formed to provide consulting services for reverse mergers to
public shell corporations and private companies seeking to gain access to the
public markets. On October 20, 1997, GSE Group, Inc. changed its name to Global
Stock Exchange Corp. and on April 28, 2000, Global Stock Exchange Corp. changed
its name to Joning Corp ("Joning"). In July 2000, Joning ceased its business
activities. On March 8, 2002, Joning filed a Registration Statement on Form
10-SB under the Securities Exchange Act of 1934 (the "Exchange Act") as a shell
company with the purpose of finding a suitable company for a reverse merger
transaction. Joning ceased filing periodic reports subsequent to its filing of
its Form 10-QSB on October 24, 2004 as it did not have the personnel or
resources to continue the filings and there was no operating business or pending
business transactions. On June 2, 2008, Joning filed a Form 15-12G to terminate
its registration. On February 2, 2010 Joning changed its name to Amincor, Inc.
Amincor remained dormant until January 2010 at which time it was used by two
limited partnerships which are related to each other by a common general
partner. The general partner, Capstone Capital Management, Inc. ("CCM") entered
into financing agreements on behalf of Capstone Cayman Special Purpose Fund,
L.P. ("CCSPF") and Capstone Special Purpose Fund, L.P. ("CSPF"), and together
with CCM, CCSPF, collectively, the "Capstone Funds") transferred the Company to
the limited partners and creditors of the Capstone Funds. In connection with
such transfers, the Company was assigned all of the right, title and interest of
the debt owed to the Capstone Funds by Capstone Business Credit, LLC ("CBC") and
Capstone Capital Group I, LLC ("CCGI"), which were asset based lenders
(collectively, the "Lenders"). Subsequently, the Lenders assigned to the Company
their security interests in substantially all of their assets.
As of 12/31/10, Amincor operates the following entities as a result of the
assignment of all the right, title and interest of the debt owed to the Lenders:
Baker's Pride, Inc. ("BPI")
Epic Sports International, Inc. ("ESI")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare")
Tyree Holdings Corp. ("Tyree")
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread.
ESI
ESI is the worldwide licensee for the Volkl and Boris Becker Tennis brands and,
in November 2010, became the exclusive sales representative for Samsung C&T
America, Inc.'s ("Samsung") purchases of Volkl and Boris Becker & Co. tennis
products. Under the agreement with Samsung C&T America, Inc. (the "Samsung
Agreement"), ESI's primary focus has become designing and marketing these tennis
branded products.
Through October 2010, ESI was an importer, wholesale distributor, and brand
manager of high-end performance and lifestyle apparel, tennis racquets, tennis
bags, and sporting goods accessories.
MASONRY
Masonry manufactures concrete, lightweight, and split face manufacturing block
for the construction industry, supplies a wide array of other masonry and
building products, and operates a retail home center, which sells hardware,
masonry materials and other building supplies to contractors and retail
customers.
TULARE HOLDINGS
Tulare prepares frozen vegetables (primarily spinach) from produce purchased
from growers which are sold to the food service industry under a private label.
F-11
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
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.
The limited partners of CCSPF and CSPF each became shareholders of the Company
with the subsequent acquisitions of the above subsidiaries by the Company in
2010. The Company's shares have been distributed to the limited partners in
proportion to their interest in the partnerships.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRESENTATION AND BASIS OF FINANCIAL STATEMENTS
The accompanying consolidated financial statements have been prepared in
accordance with accounting principles generally accepted in the United States of
America ("GAAP"). These consolidated financial statements include the accounts
of Amincor, Inc. and all of its consolidated subsidiaries (collectively the
"Company"). All intercompany balances and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Significant estimates include the
valuation of goodwill and intangible assets, the useful lives of tangible and
intangible assets, depreciation and amortization, allowances for doubtful
accounts and inventory obsolescence, estimates related to completion of
contracts and loss contingencies on particular uncompleted contracts, and the
valuation allowance on deferred tax assets. Actual results could differ from
those estimates.
REVENUE RECOGNITION
BPI
Revenue is recognized from product sales when goods are delivered to the
Company's shipping dock, and are made available for pick-up by the customer, at
which point title and risk of loss pass to the customer. Customer sales
discounts are accounted for as reductions in revenues in the same period the
related sales are recorded.
ESI
Licensee revenue has been recognized upon the shipment of products with
allowances, credits and other adjustments recorded in the period the related to
the associated sales. Commission revenue earned under the Samsung Agreement is
recognized when Samsung invoices and ships the product based on approved ESI
sales orders.
TULARE AND IMSC
Revenue is recognized upon the shipment of products. Allowances, credits and
other adjustments are recorded in the period the related sales occur.
TYREE
Maintenance and repair services for several retail petroleum customers are
performed under multi-year, unit price contracts. Under these agreements, the
customer pays a set price per contracted retail location per month and Tyree
provides a defined scope of maintenance and repair services at these locations
on an on-call or as scheduled basis. Revenue earned under these contracts is
recognized each month at the prevailing per location unit price. Revenue from
other maintenance and repair services is recognized as these services are
rendered.
Revenue was recognized on fixed-priced construction contracts and modified
fixed-priced construction contracts on the completed contract method for the
years ended December 31, 2009 and 2008. Under the completed contract method
revenues and costs from construction projects were recognized only when a
project had been substantially completed. Contract costs included 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 were recognized at the completion of the contract. Provisions for
estimated losses on uncompleted contracts were made when it had been determined
that a loss was probable. In the event a provision for estimated losses was
F-12
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
deemed necessary, the entire estimated loss was recognized in the period in
which the determination arose. The asset "Construction in process" on the
consolidated balance sheet as of December 31, 2009, represented the direct cost
on uncompleted contracts and the liability "Billings on construction" on the
consolidated balance sheet as of December 31, 2009, represented customer billing
on uncompleted contracts.
Effective January 1, 2010, Tyree began using the percentage-of-completion
method, which recognizes income as work on a contract progresses. The change to
the percentage-of-completion method of accounting is believed to be desirable
and Tyree has improved its ability to make estimates that are sufficiently
dependable to justify its use. This change of method required an adjustment to
the Company's accumulated deficit of $815,000 representing income on uncompleted
contracts in prior years that would have been recognized in prior years had the
percentage of completed method been in effect.
As a result of the change to the percentage-of-completion method of accounting,
the consolidated balance sheet as of December 31, 2010 reflects an asset account
"Costs and estimated earnings in excess of billings on uncompleted contracts,"
which represents revenues recognized in excess of amounts billed. Also as a
result of the change to the percentage-of-completion method of accounting, the
consolidated balance sheet as of December 31, 2010 reflects a liability account,
"Billing in excess of cost and estimated earnings on uncompleted contracts,"
which represents billings in excess of revenues recognized.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid financial instruments purchased with an
original maturity of three months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts. The
credit worthiness of customers are analyzed based on historical experience, as
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree
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. Tyree follows the practice of filing statutory "mechanics"
liens on construction projects where collection problems are anticipated.
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 and equipment are stated at cost and the related depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Expenditures for repairs and maintenance are charged to
operations as incurred. Renewals and betterments are capitalized. Upon the sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the results of
operations.
Construction in progress is not depreciated. Depreciation of the property begins
when it is placed in service.
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost of acquiring a business that exceeds the net fair
value ascribed to its identifiable assets and liabilities. Goodwill and
indefinite-lived intangibles are not subject to amortization but are tested for
impairment annually and whenever events or circumstances change, such as a
significant adverse change in the economic climate that would make it more
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
F-13
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived intangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value. No impairment
losses have been recognized.
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.
INCOME TAXES
The Company accounts for income taxes using the liability method, which provides
for an asset and liability approach to accounting for income taxes. Under this
method, deferred tax assets and liabilities are recorded for future tax effects
of temporary differences between the financial reporting and tax basis of assets
and liabilities, and measured using the current tax rates and laws that are
expected to be in effect when the underlying assets or liabilities are
anticipated to be recovered or settled. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount of tax benefits
expected to be realized.
GAAP requires that, in applying the liability method, the financial statement
effects of an uncertain tax position be recognized based on the outcome that is
more likely than not to occur. Under this criterion the most likely resolution
of an uncertain tax position should be analyzed based on technical merits and on
the outcome that would likely be sustained under examination. These requirements
became effective for annual financial statements beginning after December 15,
2008 and the Company adopted them as of January 1, 2009.
FAIR VALUE MEASUREMENT
Financial instruments and certain non-financial assets and liabilities are
measured at their fair value as determined based on the assets highest and best
use. GAAP has established a framework for measuring fair value that is based on
a hierarchy which requires that the valuation technique used be based on the
most objective inputs available for measuring a particular asset or liability.
There are three broad levels in the fair value hierarchy which describe the
degree of objectivity of the inputs used to determine fair value. The fair value
hierarchy is set forth below:
Level 1 -- inputs to the valuation methodology are quoted prices (unadjusted)
for identical assets or liabilities in active markets.
Level 2 -- inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
Level 3 -- inputs to the valuation methodology are unobservable and significant
to the fair value measurement. They are based on best information
available in the absence of level 1 and 2 inputs.
The fair value of all Company's financial instruments is approximately the same
as their carrying amounts.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share considers the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or could otherwise cause the issuance of common
stock, such as options, convertible notes and convertible preferred stock, were
exercised or converted into common stock or could otherwise cause the issuance
of common stock that then shared in earnings (loss). Such potential additional
common shares are included in the computation of diluted earnings per share.
Diluted loss per share is not computed because any potential additional common
shares would reduce the reported loss per share and therefore have an
antidilutive effect.
STOCK-BASED COMPENSATION
All share-based awards to employees are to be measured based on their fair
values and charged to expenses over the period during which an employee is
required to provide service in exchange for the award (the vesting period).
Employee share-based awards under the Company's Stock Compensation Plan 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.
F-14
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and are included in
selling, general and administrative costs on the consolidated statements of
operations. Advertising expenses were approximately $158,000, $103,000 and
$37,000, for the years ended December 31, 2010, 2009 and 2008, respectively.
3. BUSINESS COMBINATIONS
As discussed above, the Amincor corporate shell company was used by the Capstone
Funds for the purpose of consolidating the five operating businesses which are
now subsidiaries, each of which had defaulted under their factoring or financing
agreements. Those factoring or financing agreements were all made by CBC and
CCGI; therefore, it was and is considered most equitable to the limited partners
of CBC and CCGI to consolidate the business risks associated with each business.
In this way, a diversity of investment risk is achieved. The consideration paid
by the Capstone Funds to acquire each business was the forgiveness of their debt
under the factoring or financing agreements with CBC and CCGI. However, in each
case, the Capstone Funds did not believe that the amount of debt forgiven was a
reasonable indicator of value. The investments made by CBC and CCGI, in the form
of loans, were made in view of the Capstone Fund's assessment of the risk of the
investments. Such risks include market risks that are not related to the
underlying value supporting the investment. Due to the Capstone Funds market
risk assessment, the underlying enterprise value of each of these businesses was
believed to be the best indicator of the fair value of these businesses. In each
case, the amounts of the loans forgiven exceeded the decline in value when
measured as being the difference between the principal amount of those loans and
the underlying enterprise value of each business. The Company believes that the
additional loss sustained, equal to the difference between the amounts of the
loans forgiven and the enterprise value of each of these businesses, represents
a decline due to market factors that is akin to a decline in the stock market
value of an equity investment. Therefore, the Company believes that that
additional loss should be borne by the Capstone Funds investors. For these
reasons, the consideration paid for each acquisition is equal to the enterprise
values of each business. Such values have been determined by independent
valuation experts along with the fair values of the assets acquired and the
liabilities assumed as well as the value of the goodwill for each business.
The Company's acquisition of each of its subsidiaries in January 2010 has been
accounted for using the pooling-of-interest method because the Company and each
of the subsidiaries were under the common control of the Capstone Funds.
Therefore, as required by GAAP for business combinations for entities under
common control, the financial statements presented reflect a combination of the
financial statements for each subsidiary since it was acquired by the Capstone
Funds.
Each of the Capstone Funds' acquisitions taking place before December 31, 2008
has been accounted for using the purchase method as prescribed by GAAP, and, in
accordance with GAAP, the Capstone Funds' acquisition which took place after
December 31, 2008 has been accounted for using the acquisition method. Thus, the
acquisitions of the predecessor businesses of BPI, ESI, Tulare, and Tyree were
accounted for using the purchase method of accounting, while the acquisition of
the predecessor business of Masonry was accounted for using the acquisition
method of accounting. The purchase method of accounting required the cost of an
acquisition to be allocated to the individual assets acquired and liabilities
assumed based on their estimated fair values; whereas, under the acquisition
method, the acquirer must recognize the assets acquired, the liabilities
assumed, and any non-controlling interest in the acquiree at their acquisition
date their fair values. The purchase method required the acquirer to include the
costs incurred to effect the acquisition in the cost of the acquisition, while
those costs are recognized separately under the acquisition method. Acquisition
costs, such as legal, accounting or consulting fees, of approximately $2,191,000
were incurred in connection with the acquisition of the Tyree business and are
included in the price allocation, under the purchase method of accounting.
Acquisition costs incurred in connection with the acquisitions of BPI, ESI,
Tulare, and Masonry were negligible.
BPI was incorporated by the general partner of the Capstone Funds and assumed
the business operations of its predecessor company on October 15, 2008. BPI is a
wholly owned subsidiary of Amincor.
ESI's controlling equity interest was acquired by the Capstone Funds on
September 18, 2008 and subsequently transferred to the Company. An 80% voting
interest in ESI was acquired with the Company's purchase of all of ESI's
outstanding shares of Series A Convertible Preferred Stock. The remaining 20%
voting interest is owned by ESI's prior 100% stockholder, as evidenced by his
ownership of 100% of ESI's outstanding common stock. The fair value of the 20%
voting interest is owned by ESI's prior 100% stockholder has been determined to
be 20% of the enterprise value determined by the above mentioned independent
valuation experts.
MASONRY SUPPLY HOLDING CORP. was incorporated by the by the general partner of
the Capstone Funds and, on December 31, 2009, the Company acquired the assets,
assumed certain liabilities and began operating the business of its predecessor
company on that date. MASONRY SUPPLY HOLDING CORP. is a wholly owned subsidiary
of Amincor.
F-15
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
TULARE HOLDINGS, INC. was incorporated by the general partner of the Capstone
Funds and assumed the business operations of its predecessor company on January
8, 2008. TULARE HOLDINGS, INC. is a wholly owned subsidiary of Amincor.
TYREE HOLDINGS CORP. was incorporated by the general partner of the Capstone
Funds and acquired the assets and assumed certain liabilities of its predecessor
company in January 2008. TYREE HOLDINGS CORP. assumed the business operations of
its predecessor company on January 17, 2008. Tyree is a majority owned
subsidiary of Amincor for which the fair value has been determined by the above
mentioned independent valuation experts.
In connection with the acquisitions, the Company assumed liabilities for the
payment of certain delinquent accounts payable, income taxes, litigation
settlements and other specified liabilities. The Company has since negotiated
repayment terms with the majority of the parties owed. The remaining amounts due
are non-interest bearing and have terms ranging in duration from 1 to 24 months.
The balance of these assumed liabilities totaled $2,510,000 and $4,282,000 as of
December 31, 2010 and 2009, respectively.
The consideration paid and the acquisition date fair values of the assets
acquired and liabilities assumed related to the predecessors of the companies
indicated below during the year ended December 31, 2008 are as follows:
BPI ESI Tulare Tyree Totals
------------ ------------ ------------ ------------ ------------
Cash, receivables and other current assets $ -- $ 1,139,000 $ -- $ 9,462,000 $ 10,601,000
Inventory 261,000 974,000 539,000 3,279,000 5,053,000
Construction contract work in progress -- -- -- 9,575,000 9,575,000
Fixed and other non-current assets -- 12,000 -- 4,530,000 4,542,000
Customer relationship intangible 7,649,000 -- -- 1,328,000 8,977,000
Licenses & patents intangible -- 553,000 -- 3,295,000 3,848,000
Noncompetition agreements -- -- -- 5,886,000 5,886,000
Goodwill 7,771,000 192,000 -- 7,576,000 15,539,000
Current liabilities assumed (415,000) (672,000) (232,000) (17,533,000) (18,852,000)
Billings on contract work in progress -- -- -- (11,709,000) (11,709,000)
Deferred revenues -- -- -- (1,403,000) (1,403,000)
Loans from related parties -- (1,345,000) -- -- (1,345,000)
Other long-term debt -- -- -- (1,637,000) (1,637,000)
Other non-current liabilities -- (106,000) -- -- (106,000)
------------ ------------ ------------ ------------ ------------
$ 15,266,000 $ 747,000 $ 307,000 $ 12,649,000 $ 28,969,000
============ ============ ============ ============ ============
The acquisition date fair values of the assets acquired and liabilities assumed
related to the predecessor of Masonry during the year ended December 31, 2009 is
as follows:
Masonry
-----------
Cash, receivables and other current assets $ 189,000
Inventory 1,022,000
Fixed and other non-current assets 2,102,000
Brand name intangible 1,013,000
Goodwill 31,000
Current liabilities assumed (1,079,000)
Long-term liabilities (442,000)
Other non-current liabilities (75,000)
-----------
$ 2,761,000
===========
The amounts related to each of the acquired companies revenue and earnings
included in the Company's consolidated statement of income for the year ended
December 31, 2008 are indicated below:
F-16
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
** BPI ESI Tulare Tyree
Acquisition Date 10/15/08 9/18/2008 1/8/2008 1/17/2008 Totals
---------------- ------------ ------------ ------------ ------------ ------------
Actual revenues from acquisition date to
December 31, 2008 $ 2,889,000 $ 578,000 $ 11,369,000 $ 58,209,000 $ 73,045,000
Supplemental pro forma revenues from
January 1, 2008 to December 31, 2008 $ 2,889,000 $ 3,315,000 $ 11,369,000 $ 59,755,000 $ 77,328,000
Actual net loss attributable to Amincor
stockholders from acquisition date to
December 31, 2008 $ (354,000) $ (1,003,000) $ (7,962,000) $ (1,420,000) $(10,739,000)
Supplemental pro forma net loss attributable
to Amincor stockholders from
January 1, 2008 to December 31, 2008 $ (354,000) $ (2,014,000) $ (7,962,000) $ (1,559,000) $(11,889,000)
** The Company was unable to obtain the revenue and net income amounts from
BPI's predecessor company due to the poor condition of the predecessor
company's books and records.
The amounts of Masonry's revenue and earnings included in the Company's
consolidated statement of income for the years ended December 31, 2009 and 2008
are indicated below:
Masonry
Acquisition Date 12/31/2009
---------------- -------------
Actual revenues from acquisition date to
December 31, 2009 $ --
Supplemental pro forma revenues from
January 1, 2009 to December 31, 2009 $ 10,127,000
Supplemental pro forma revenue from
January 1, 2008 to December 31, 2008 $ 9,361,000
Actual net loss attributable to Amincor
stockholders from acquisition date to
December 31, 2009 $ --
Supplemental pro forma net loss attributable
to Amincor stockholders from
January 1, 2009 to December 31, 2009 $ (9,538,000)
Supplemental pro forma net loss attributable
to Amincor stockholders from
January 1, 2008 to December 31, 2008 $ (6,909,000)
4. DUE FROM FACTOR
At December 31, 2009 several of the subsidiaries had factoring agreements with a
related party, CBC (also referred to as the "Factor"). Under the factoring
agreements, eligible accounts receivable were factored, the Factor assumed
credit risks for all credit-approved accounts, and the subsidiaries having
factoring agreements paid factoring fees based on a percentage of the gross
amount of factored receivables. The factoring agreements permitted the
subsidiaries to request advances of up to 80% of factored accounts subject to a
credit limit. From August and October 2010, the factoring agreements were
assigned to Amincor and since then all necessary accounts receivable financing
has been done through intercompany lending.
F-17
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
5. INVENTORIES
Inventories consist of:
* baking ingredients,
* sporting goods,
* masonry supplies, masonry and building materials,
* frozen produce and related packaging materials, and
* construction and service maintenance parts.
A summary of inventory as of December 31, 2010 and 2009 is below.
2010 2009
---------- ----------
Finished goods $ 443,000 $1,543,000
Raw materials 3,351,000 3,424,000
Packaging supplies 389,000 479,000
Ingredients 286,000 265,000
---------- ----------
$4,469,000 $5,711,000
========== ==========
6. PROPERTY, PLANT, AND EQUIPMENT
At December 31, 2010 and 2009 property, plant, and equipment consisted of the
following:
Range of
Estimated
Useful Lives 2010 2009
------------ ----------- ----------
Land n/a $ 917,000 $ --
Machinery and equipment 2 - 10 years 10,045,000 1,653,000
Furniture and fixtures 5 - 10 years 161,000 136,000
Building and leasehold improvements 10 years 4,726,000 1,314,000
Computer equipment and software 5 - 7 years 730,000 695,000
Construction in progress n/a 57,000 33,000
Vehicles 3 - 10 years 3,714,000 3,232,000
----------- ----------
20,350,000 7,063,000
Less accumulated depreciation 2,880,000 1,385,000
----------- ----------
$17,470,000 $5,678,000
=========== ==========
Property, plant, and equipment include items under capital leases of $1,242,000
and $581,000 as of December 31, 2010 and 2009, respectively. Accumulated
depreciation includes $163,000 and $ 0 related to those items as of December 31,
2010 and 2009, respectively.
Depreciation and amortization expense for the years ended December 31, 2010,
2009 and 2008 was $1,553,000, $833,000 and $584,000, respectively.
PROPERTY AND EQUIPMENT HELD FOR SALE
The Capstone Funds contributed property and equipment to the Company that it had
received in connection with defaults under factoring and financing agreements
with CBC and CCGI that had been the property of a business other than the
businesses that are now Amincor subsidiaries. Those assets were transferred to
the Company because the Capstone Funds acquired them in the same manner as it
F-18
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
acquired the assets of the other businesses that were acquired; that is, because
of defaults under factoring and financing agreements with CBC and CCGI. As a
result, the limited partners the Capstone Funds who have become the Company's
stockholders, retain their interest in these assets. However, some of these
assets are not related to any business operations conducted by any of the
Amincor subsidiaries.
Although this property and equipment does not relate to any discontinued
operations, it is classified as Asset held for sale in non-current assets on the
accompanying balance sheet and is carried at its fair value net of the estimated
cost to sell it.
7. INTANGIBLE ASSETS
Intangible assets with finite useful lives are amortized on a straight-line
basis over the useful lives of the assets and consist of the following at
December 31, 2010 and 2009:
Range of
Estimated
Useful Lives 2010 2009
------------ ----------- ----------
Customer relationships 5 - 10 years $ 8,977,000 $ 8,977,000
Non-competition agreements 7 years 5,886,000 5,886,000
Licenses and permits 10.3 years 177,000 177,000
Service contracts 5.3 years 354,000 354,000
Brand name 10 years 1,013,000 1,013,000
----------- -----------
16,407,000 16,407,000
Less accumulated depreciation 5,256,000 3,200,000
----------- -----------
$11,151,000 $13,207,000
=========== ===========
The above licenses and permits have renewal provisions which are generally one
to four years. At December 31, 2010, the weighted-average period to the next
renewal was thirteen months. The costs of renewal are nominal and are expensed
when incurred. The Company intends to renew all licenses and permits currently
held.
Amortization expense for the years ended December 31, 2010, 2009 and 2008 was
$2,056,000, $1,955,000 and $1,266,000, respectively. Future amortization expense
for intangible assets subject to amortization is as follows:
Year Ending December 31,
2011 $ 2,056,000
2012 2,056,000
2013 1,802,000
2014 1,791,000
2015 904,000
Thereafter 2,542,000
-----------
$11,151,000
===========
Goodwill and $3,296,000 of licenses and permits have an indefinite useful life
and are not amortized but are tested for impairment annually. No impairment
losses have been recognized during the three years ended December 31, 2010.
8. MORTGAGES RECEIVABLE
The Company acquired mortgages from the Capstone Funds in connection with
defaults under financing agreements with CBC. These mortgages were transferred
through assignment to the Company by the Capstone Funds. As a result, the
limited partners of the Capstone Funds, who have become the Company's
stockholders, retain their interest in these assets. The mortgage receivables
represent two notes collateralized by property in Pelham, Manor, New York which
were in the process of foreclosure as of December 31, 2010. The value of the
mortgages was based on the fair value of the collateral, net of the estimated
cost to sell it.
F-19
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
9. TYREE CONTRACTS
COSTS AND ESTIMATED EARNINGS ON UNCOMPLETED CONTRACTS
At December 31, 2010
Costs incurred on uncompleted contracts $ 4,073,000
Estimated earnings 1,324,000
5,397,000
Less: Billings to date (5,655,000)
-----------
$ (258,000)
===========
Included in accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on uncompleted contracts $ 279,000
Billings in excess of costs and estimated earnings on uncompleted contracts (537,000)
-----------
$ (258,000)
===========
10. INCOME TAXES
The Company records the income tax effect of transactions in the same year that
the transactions occur to determine net income, regardless of when the
transactions are recognized for tax purposes. Deferred taxes are provided to
reflect the income tax effects of amounts included in the Company's financial
statements in different periods than for tax purposes, principally bad debt
allowances for accounts receivables, and depreciation and amortization expenses
for income tax purposes. The provision for income taxes for the years ended
December 31, 2010, 2009 and 2008 is below:
Years Ended December 31,
--------------------------------------------
2010 2009 2008
-------- -------- --------
Current:
Federal $ -- $ -- $ --
States 184,000 -- --
-------- -------- --------
184,000 -- --
-------- -------- --------
Deferred:
Federal -- -- --
States -- -- --
-------- -------- --------
-- -- --
-------- -------- --------
Total provision for income taxes $184,000 $ -- $ --
======== ======== ========
Valuation allowances have been established for deferred tax assets based on a
more likely than not threshold. 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.
F-20
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
The tax effect of temporary differences that give rise to the deferred tax asset
as of December 31, 2010, 2009 and 2008 are presented below:
December 31,
-----------------------------
2010 2009
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 8,991,000 $ 5,540,000
Accounts receivable 244,000 397,000
Inventory 68,000 49,000
Intangible assets 1,080,000 774,000
Contract revenue recognition -- 326,000
Accrued expenses and other current liabilities 98,000 275,000
Property and equipment 11,000 --
------------ ------------
10,492,000 7,361,000
Deferred tax liabilites:
Goodwill 1,090,000 654,000
Intangible assets 264,000 176,000
Property and equipment 348,000 111,000
------------ ------------
Subtotal 1,702,000 941,000
Less deferred tax valuation allowance 8,790,000 6,420,000
------------ ------------
Net deferred income tax asset $ -- $ --
============ ============
The Company's effective tax rate differs from the statutory Federal income tax
rate of 34%, primarily due to the effect of state and local income taxes and the
impact of recording a valuation allowance if it is determined that the Company
may not realize some or all of the future tax benefits from deferred tax assets,
which primarily consist of the potential future tax benefits from net operating
loss carryforwards. The following is a reconciliation of the income tax expense
that would result from applying the U.S. Federal statutory income tax rate to
the Company's recorded income tax expense for the years ended December 31, 2010,
2009 and 2008:
Years Ended December 31,
---------------------------------------------
2010 2009 2008
------------ ------------ ------------
Income tax expense at federal
statutory rate $ (2,267,000) $ (4,436,000) $ (1,039,000)
State taxes (280,000) (783,000) (183,000)
Permanent differences 361,000 (166,000) 187,000
Change in deferred tax valuation
allowances 2,370,000 5,385,000 1,035,000
------------ ------------ ------------
$ 184,000 $ -- $ --
============ ============ ============
F-21
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
11. LONG-TERM LIABILITIES
LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2010 and 2009:
2010 2009
---------- ----------
Equipment loans payable, collateralized by the assets purchased, and bearing
interest at annual fixed rates ranging from 8.0% to 15.0% as of December 31,
2010 and 2009, with principal and interest payable in installments through
July 2014. $ 967,000 $1,186,000
Promissory notes payable, with accrued interest, to three former stockholders
of a predecessor company. These notes are unsecured and are subordinate to
the Company's senior debt. The notes mature on December 31, 2012 and bear
interest at an annual rate of 6.0%. 500,000 500,000
Note payable to a commercial bank. Payable in monthly installments of
principal and interest of $6,198 through March 2015. The annual interest
rate is 7.25%. 454,000 63,000
Bank loan payable, with an interest rate of 5.25% per annum and maturing in
March 2014. 76,000 89,000
Bank line of credit allowing for borrowings of up to $90,000. Interest at
prime plus 4.25% per year. 64,000 77,000
Note payable to a former stockholder of a predecessor company payable in
monthly installments of principal and interest of $9,709 through July 2010
with interest at prime plus 1.5% per year. -- 60,000
---------- ----------
2,061,000 1,975,000
Less current portion 418,000 440,000
---------- ----------
$1,643,000 $1,535,000
========== ==========
Future minimum principal payments on long-term debt are below:
Year Ending December 31,
2011 $ 418,000
2012 840,000
2013 373,000
2014 286,000
2015 144,000
-----------
$ 2,061,000
===========
CAPITAL LEASE OBLIGATIONS
The Company is obligated under various capital lease agreements for machinery
and equipment. The terms of the leases have a term of one to five years, with
effective interest rates that range from 5.0% to 22.7%.
F-22
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
Future minimum lease payments under the capital lease obligations at December
31, 2010 are as follows:
Year Ending December 31,
2011 $ 341,000
2012 326,000
2013 256,000
2014 149,000
1,072,000
Less amount representing interest 180,000
----------
$ 892,000
==========
12. RELATED PARTY LOANS AND 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 the parties that are subject to common control or
that are subject to common significant influences.
LOANS FROM RELATED PARTIES
Loans from related parties consists of the following at December 31, 2010 and
2009:
2010 2009
----------- -----------
Purchase order financing agreement with CCGI which expires on January 17, 2013
On August 2, 2010 this agreement was assumed and extended through
August 2, 2013 $ -- $ 4,259,000
Revolving credit agreement with CBC which expires on October 18, 2013. At
December 31, 2010 the agreement bears interest at 5% per annum -- 5,578,000
Loans from a related party - non-interest bearing -- 10,000
Loans from CBC for rent incurred under operating lease -- 3,604,000
Loan and security agreement with Capstone Capital Group, LLC which expires on
November 1, 2013 bearing interest at 18% per annum. Maximum borrowing of
$800,000 714,000 --
----------- -----------
Total loans and amounts payable to related parties $ 714,000 $13,451,000
=========== ===========
Interest expense for these loans amounted to approximately $1,598,000,
$8,274,000 and $3,784,000 for the years ended December 31, 2010, 2009 and 2008,
respectively.
RELATED PARTY TRANSACTIONS
Tyree receives consulting services from an entity controlled by the relatives of
certain stockholders under a consulting agreement. The agreement expires on
January 18, 2015. Tyree makes payments of $16,000 per month during the term of
the agreement. As of December 31, 2010, Tyree owes this entity $79,000
representing payments in arrears.
F-23
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
13. EQUITY
STOCK ISSUANCES
Prior to the acquisition of the subsidiaries, the Company issued 21,176,262
restricted shares of Class B non-voting common stock and 1,752,823 shares of
preferred stock to the investors in CCSPF and CSPF as payment-in-kind for their
interests in the factor and financing loans made to the predecessor businesses
of the Amincor subsidiaries. Concurrent with these stock issuances, 7,056,856
shares of Class A common stock owned by the principals of Amincor were retired.
As a result of these share issuances and retirements, the individual investors
having interests in the factor and financing loans made to the predecessor
businesses of the Amincor subsidiaries received proportionate interests in
Amincor equivalent to their underlying proportionate interests in the assets
(primarily loans receivable) the Capstone Funds.
LOSS PER SHARE
The Company had no common stock equivalents that were required to be included in
the earnings per share computation for the years ended December 31, 2010, 2009,
or 2008.
STOCK-BASED COMPENSATION
On December 31, 2010, the Board of Directors approved the issue and grant of
stock options to certain of the Company's officers. The grant was for options to
purchase an aggregate 120,799 shares of class A common stock an exercise price
of $2.80. 50% of the options vest and become exercisable on the first
anniversary of the grant date and the remaining 50% on the second anniversary of
the grant date, provided that the individual is employed by the Company on the
anniversary date.
The Company determined the fair value of the award using the Black Scholes
option pricing model based on the 5 year expiration period of the award,
assuming a risk free interest rate of 5.2% and a stock price volatility of 27%
based on comparable public companies, a 0% forfeiture rate, and no common stock
dividends over the expected lives of the option awards. All of the 120,799
options to purchase shares of class A common stock were outstanding at December
31, 2010. As of December 31, 2010, the total compensation cost related to
nonvested awards not yet recognized is approximately $11,000.
OPTION TO PURCHASE COMMON STOCK OF SUBSIDIARY COMPANY
On October 26, 2010, concurrently with the signing of the Samsung Agreement,
Samsung was given an option to purchase shares of ESI's common stock equal to
10% of the aggregate number of ESI's shares deemed outstanding on the exercise
date of October 26, 2010. The options have an exercise price of $80 per share
and expire on December 31, 2014.
F-24
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
14. OPERATING SEGMENTS
Operating subsidiaries are organized primarily by Amincor and its operating
subsidiaries into seven operating segments: (1) Amincor, (2) Other Assets, (3)
BPI, (4) ESI, (5) IMSC, (6) Tulare, and (7) Tyree. Segment information is as
follows:
As of December 31,
-----------------------------------
2010 2009
------------ ------------
TOTAL ASSETS:
Amincor $ 2,454,000 $ --
Other Assets 25,393,000 --
BPI 16,215,000 17,863,000
ESI 606,000 1,997,000
IMSC 3,683,000 4,357,000
Tulare 3,065,000 4,588,000
Tyree 29,002,000 34,937,000
------------ ------------
Total assets $ 80,418,000 $ 63,742,000
============ ============
TOTAL CAPITAL EXPENDITURES:
Amincor $ -- $ --
Other Assets -- --
BPI 62,000 26,000
ESI 1,000 17,000
IMSC 151,000 --
Tulare 92,000 85,000
Tyree 33,000 1,813,000
------------ ------------
Total capital expenditures $ 339,000 $ 1,941,000
============ ============
TOTAL GOODWILL:
Amincor $ -- $ --
Other Assets -- --
BPI 7,771,000 7,771,000
ESI 192,000 192,000
IMSC 31,000 31,000
Tulare -- --
Tyree 7,575,000 7,575,000
------------ ------------
Total goodwill $ 15,569,000 $ 15,569,000
============ ============
TOTAL INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
BPI 5,960,000 6,725,000
ESI 339,000 423,000
IMSC 912,000 1,013,000
Tulare -- --
Tyree 7,236,000 8,342,000
------------ ------------
Total intangible assets $ 14,447,000 $ 16,503,000
============ ============
F-25
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
As of December 31,
----------------------------------------------------------
2010 2009 2008
------------ ------------ ------------
NET REVENUES:
Amincor $ -- $ -- $ --
Other Assets -- -- --
BPI 13,292,000 13,346,000 2,889,000
ESI 3,234,000 3,804,000 578,000
IMSC 5,835,000 -- --
Tulare 10,075,000 11,324,000 11,369,000
Tyree 53,624,000 53,655,000 58,209,000
------------ ------------ ------------
Net revenues $ 86,060,000 $ 82,129,000 $ 73,045,000
============ ============ ============
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES:
Amincor $ (1,481,000) $ -- $ --
Other Assets 404,000 -- --
BPI (270,000) (783,000) (354,000)
ESI (1,683,000) (2,233,000) (1,254,000)
IMSC (2,493,000) -- --
Tulare (2,718,000) (7,416,000) (7,962,000)
Tyree 698,000 (2,614,000) (1,739,000)
------------ ------------ ------------
Income (loss) before Provision for Income Taxes $ (7,543,000) $(13,046,000) $(11,309,000)
============ ============ ============
DEPRECIATION OF PROPERTY AND EQUIPMENT:
Amincor $ -- $ -- $ --
Other Assets 247,000 -- --
BPI 4,000 1,000 --
ESI 4,000 5,000 1,000
IMSC 261,000 -- --
Tulare 110,000 94,000 44,000
Tyree 927,000 733,000 539,000
------------ ------------ ------------
Total depreciation of property and equipment $ 1,553,000 $ 833,000 $ 584,000
============ ============ ============
AMORTIZATION OF INTANGIBLE ASSETS:
Amincor $ -- $ -- $ --
Other Assets -- -- --
BPI 765,000 765,000 160,000
ESI 84,000 84,000 46,000
IMSC 101,000 -- --
Tulare -- -- --
Tyree 1,106,000 1,106,000 1,060,000
------------ ------------ ------------
Total amortization of intangible assets $ 2,056,000 $ 1,955,000 $ 1,266,000
============ ============ ============
INTEREST (INCOME) EXPENSE:
Amincor $ (489,000) $ -- $ --
Other Assets -- -- --
BPI 579,000 732,000 76,000
ESI 170,000 967,000 448,000
IMSC 365,000 -- --
Tulare 845,000 5,885,000 2,101,000
Tyree 580,000 1,203,000 2,370,000
------------ ------------ ------------
Total interest expense, net $ 2,050,000 $ 8,787,000 $ 4,995,000
============ ============ ============
F-26
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
15. COMMITMENTS AND CONTINGENCIES
WARRANTY RESERVE
Tyree's contracts with its customers usually contain a written or implied
warranty on workmanship for one year. Subcontractors and parts suppliers used by
Tyree generally warrant the parts they supply or services they perform for a
similar period. At project or service completion, customers provide written or
verbal acceptance of the Tyree's work. Warranty related cost experienced by the
Tyree typically consists of minor adjustments or calibration work. Tyree has
accrued $100,000 and $53,000 at December 31, 2010 and 2009, respectively for
estimated warranty costs related to completed contracts.
LEASE COMMITMENTS
The Company leases office and warehouse space under non-cancelable operating
leases that expire at various dates through 2014. Some of the leases carry
renewal provisions and some require the Company to pay maintenance costs or a
share of real estate taxes and other costs. Rental payments may be adjusted for
increases in taxes and insurance.
Rent expense on leases containing scheduled rent increases is recognized by
amortizing the aggregate lease payments on a straight-line basis over the lease
term. This has resulted in deferred rent liabilities of $22,000 and $23,000 as
of December 31, 2010 and 2009, respectively which are included in other
liabilities.
Rent expense totaled $3,551,000, $4,277,000, and $3,138,000 for the years ended
December 31, 2010, 2009 and 2008, respectively, which includes related party
rent of $2,374,000, $3,129,000, and $2,000,000 for the years ended December 31,
2010, 2009 and 2008, respectively.
At December 31, 2010, the future minimum lease commitments under non-cancelable
operating leases, including leases with related parties, are as follows:
Year Ending December 31,
2011 $ 473,000
2012 247,000
2013 178,000
2014 57,000
---------
$ 955,000
=========
EMPLOYMENT AGREEMENTS
The Chief Executive Officer ("CEO") of Tyree 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 Tyree meets all of the annual objectives
established by the Board of Directors.
The Chief Operating Officer and President ("COO") and the Vice President,
Business Development ("VP") of Tyree each entered into employment agreements for
the period commencing on January 17, 2008 and ending on December 31, 2012. The
COO and VP agreements provide for annual compensation of $320,000 plus certain
other benefits. The COO's and VP's annual compensation may be reduced at the
discretion of the Board of Directors in the event that Tyree's Earnings Before
Interest, Taxes, Depreciation, and Amortization ("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 Tyree 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 minimum base compensation commitments under these Employment Agreements are
approximately:
Year Ending December 31,
2011 $ 880,000
2012 880,000
----------
$1,760,000
==========
F-27
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
LICENSING AGREEMENTS
On October 1, 2008, the ESI entered in to a five-year licensing agreement with
Volkl GmbH with the option to renew for two additional five-year periods. Under
the agreement, the Company has the right to sell merchandise under the licensed
name worldwide without any restrictions. In exchange for the right to sell the
licensed merchandise, the Company is to pay royalty fees in the amount of 2.5%,
5.0%, and 7.0% of net sales during years one, two, and three and thereafter,
respectively.
Minimum royalty payments under the agreement are as follows:
Amount Exchange Rate Amount
Year Ending December 31, (in Euros) (12/31/10) (in Dollars)
------------------------ ---------- ---------- ------------
2011 (euro) 200,000 1.3292 $ 266,000
2012 256,000 1.3292 340,000
2013 303,000 1.3292 403,000
------- ----------
(euro) 759,000 $1,009,000
======= ==========
On January 1, 2009, the ESI entered in to a three-year licensing agreement with
Boris Becker & Co. Under the agreement, the ESI has the right to sell tennis
rackets, tennis bags, and tennis accessories worldwide (with the exception of
China) under the licensed name. In exchange for the right to sell the licensed
merchandise, ESI is to pay royalty fees of 5.0% of net sales during the term of
the agreement.
During the years ended December 31, 2010, 2009 and 2008 royalty expense under
both agreements amounted to $207,000, $112,000, and $0, respectively.
EMPLOYEE BENEFIT PLANS
BPI
BPI established a 401(k) retirement plan (the "BPI Plan") effective January 1,
2009. The Plan covers employees of the Company who have completed three months
(250 hours) of service and have attained the age of twenty-one. All employees
hired prior to January 1, 2009, entered the Plan immediately. The BPI Plan
permits participants to chose either a traditional pre-tax salary deferral plan
or a Roth after-tax deferral plan. BPI does not make matching or discretionary
contributions.
IMSC
IMSC sponsors a profit sharing plan (the "IMSC Plan") pursuant to Section 401(k)
of the Internal Revenue Code (the "Code", whereby participants can contribute up
to 12% of their compensation, but not in excess of the maximum allowed under the
Code. IMSC's may make discretionary matching contributions; however, no matching
contribution was made for the year ended December 31, 2010.
TYREE
Tyree has established The Tyree Holdings 401(k) Retirement Plan (the "Tyree
Plan"), which covers all eligible non-union employees. The Tyree Plan provides
for voluntary contributions by eligible employees up to a maximum of 85% of
their eligible compensation, subject to the applicable federal limitations.
Tyree has the option to make a discretionary contribution each year, but did not
make any contributions for the years ended December 31, 2010, 2009 and 2008.
Tyree has collective bargaining agreements with certain labor unions. These
agreements expire at varying dates through April 30, 2012. In accordance with
its collective bargaining agreements, Tyree participates in several
multi-employer pension plans. These plans provide benefits to substantially all
union employees. Payments made under these plans were $2,153,000, $1,620,000,
and $2,014,000 for the years ended December 31, 2010, 2009 and 2008,
respectively. Tyree funds these plans on a monthly basis in accordance with the
provisions of the negotiated labor contracts.
F-28
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
CONTINGENCIES
LEGAL PROCEEDINGS
TYREE
Tyree's services are regulated by federal, state, and local laws enacted to
regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. This
ongoing regulation results in Tyree or Tyree's predecessor companies being put
at risk at becoming a party to legal proceedings involving customers or other
interested parties. The issues involved in such proceedings generally relate to
alleged responsibility arising under federal or state laws to remediate
contamination at properties owned or operated either by current or former
customers or by other parties who allege damages. To limit its exposure to such
proceedings, the Tyree purchases, for itself and Tyree's predecessor companies,
site pollution, pollution, and professional liability insurance. Aggregate
limits, per occurrence limits, and deductibles for this policy are $10,000,000,
$5,000,000 and $50,000, respectively.
Tyree and its subsidiaries are, from time to time, involved in ordinary and
routine litigation. Management presently believes that the ultimate outcome of
these proceedings individually or in the aggregate, will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. Nevertheless, litigation is subject to inherent uncertainties and
unfavorable rulings could occur. An unfavorable ruling could include monetary
damages and, in such event, could result in a material adverse impact on the
Company's financial position, results of operations or cash flows for the period
in which the ruling occurs.
IMSC
Counsel for the former President of IMSC has indicated an intent to file suit
against IMSC. The allegations of this potential action are unknown to management
at this point. Management believes any claims made by the former President will
be deemed frivolous and will have little or no impact on the Company or IMSC.
CBC, a related party, is the plaintiff in a foreclosure action against Imperia
Family Realty, LLC and has been granted a Judgment of Foreclosure. A former
principal of Imperia Bros. Inc. (a predecessor company to IMSC) filed a
countersuit in response to the foreclosure action. CBC believes this
countersuit, which is being contested, is frivolous and will not be successful.
Management believes the litigation described will have little or no impact on
the Company and IMSC.
CONCENTRATIONS OF CREDIT RISK
CASH
The Company places its cash balances with various stable financial institutions,
which may at times exceed the Federal Deposit Insurance Corporation ("FDIC")
limit. The Company believes its risk of loss is negligible, and, as of December
31, 2010 and 2009, the Company's cash balances did not exceed the FDIC insurance
limit.
MAJOR CUSTOMERS
Two customers accounted for approximately $36,500,000 or 42% and $35,900,000 or
39% of the consolidated gross sales for the years ended December 31, 2010 and
2009, respectively. One customer accounted for approximately $29,700,000 or 34%
of the consolidated gross sales for the year ended December 31, 2008.
16. LIQUIDITY MATTERS
Since the beginning of the recession in 2008, the Company has not borrowed from
any bank, finance company, other unrelated lender and has not received any
private equity financing. Since that time, internally generated operating cash
flows have been sufficient to meet the Company's business operating
requirements. However, operating cash flows have not been sufficient to finance
capital improvements or provide funds for the substantial marketing efforts
necessary for growing the businesses. For example, an outlay of about $2,000,000
is required to complete the frozen donut line for BPI and another $1,500,000 is
required to overhaul Masonry's Block Plant. In addition, Tyree is ready to
expand by entering new geographic areas.
F-29
AMINCOR, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2010 and 2009
--------------------------------------------------------------------------------
In 2011, management expects to mortgage the property occupied by Tulare Frozen
Foods in Lindsay, CA for $2,000,000 and also expects to receive a $7,000,000
USDA guaranteed loan for BPI in Burlington, IA.
Once the Company is cleared to sell its stock publicly, the Company plans to
create a market for the stock and obtain capital from private and public
investors.
Management believes that, even without the addition of the capital from loans
and stock sales, that the Company will be able to generate sufficient cash flows
through December 31, 2011.
16. SUBSEQUENT EVENTS
On January 3, 2011, the Company acquired all of the business assets and assumed
certain liabilities of Environmental Testing Laboratories, Inc., a company in
the business of providing environmental testing and laboratory services
(collectively, the "ETL Business"), in exchange for the forgiveness of debt by
the former owner. Concurrently, the Company assigned the ETL Business to
Environmental Quality Services, Inc., a Delaware corporation, wholly-owned by
Environmental Holding Corp., which is wholly-owned subsidiary of the Company.
The Company had no additional significant subsequent events requiring
disclosure.
F-3
