Attached files
U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K/A
(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, 2011
[ ] Transition report under Section 13 or 15 (d) of the Securities Exchange Act
of 1934 (No fee required)
For the transition period from _______________ to _______________
Commission file number 000-28865
AMINCOR, INC.
(Exact Name of Registrant as Specified in Its Charter)
Nevada 30-0658859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1350 Avenue of the Americas, 24th Floor, New York, New York 10019
(Address of Principal Executive Office) (Zip Code)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
(Former name, former address and former fiscal year,
if changed since last report)
Securities registered under Section 12(b) of the Act: None
Securities registered under Section 12(g) of the Act:
Class A Common Stock par value $.001 per share
Class B Common Stock par value $.001 per share
Indicate by check mark if the registrant is a well known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if the registrant has submitted electronically or posted
on its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulations S-T (ss.232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
definition of "large accelerated filer," "accelerated filer," and "smaller
reporting company" in Rule 12b-2 of the Exchange Act. Check one:
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act) Yes [ ] No [X]
To date, there has been no active trading market in Registrant's Stock and
therefore no market value has been computed.
As of April 30, 2012, 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....................................................... 14
ITEM 1B. UNRESOLVED STAFF COMMENTS.......................................... 22
ITEM 2. PROPERTIES......................................................... 23
ITEM 3. LEGAL PROCEEDINGS.................................................. 23
ITEM 4. (REMOVED AND RESERVED)............................................. 24
PART II
ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.................. 24
ITEM 6. SELECTED FINANCIAL DATA............................................ 25
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS.......................................... 26
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK......... 46
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA........................ 46
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL
DISCLOSURE......................................................... 46
ITEM 9A. CONTROLS AND PROCEDURES............................................ 46
ITEM 9B. OTHER INFORMATION.................................................. 49
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE............. 49
ITEM 11. EXECUTIVE COMPENSATION............................................. 53
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS.................................... 55
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE....................................................... 56
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES............................. 56
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES............................ 57
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EXPLANATORY NOTE
In this Annual Report on Form 10-K, unless the context indicates otherwise, the
terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to Amincor,
Inc., and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains forward-looking statements that involve
substantial risks and uncertainties. These forward-looking statements are not
historical facts, but rather are based on current expectations, estimates and
projections about us, our industry, our beliefs, and our assumptions. Words such
as "anticipates," "expects," "intends," "plans," "believes," "seeks,"
"estimates," "would," "should," "scheduled," "projects," and variations of these
words and similar expressions are intended to identify forward-looking
statements. These statements are not guarantees of future performance and are
subject to risks, uncertainties, and other factors, some of which are beyond our
control and difficult to predict and could cause actual results to differ
materially from those expressed or forecasted in the forward-looking statements.
The forward-looking statements in this Annual Report on Form 10-K speak only as
of the date hereof and caution should be taken not to place undue reliance on
any such forward-looking statements. Forward-looking statements are subject to
certain events, risks and uncertainties that may be outside of our control. When
considering forward-looking statements, you should carefully review the risks,
uncertainties and other cautionary statements in this Annual Report on Form 10-K
as they identify certain important factors that could cause actual results to
differ materially from those expressed in or implied by the forward-looking
statements. These factors include, among others, the risks described under Item
1A Risk Factors and elsewhere in this Annual Report on Form 10-K. We do not
undertake any obligation to update or reserve any forward looking statements.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file quarterly and annual reports and other information with
the United States Securities and Exchange Commission, ("SEC"). You may read and
copy this information, for a copying fee, at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room. Our SEC
filings will also be available to the public from commercial document retrieval
services, and at the Web site maintained by the SEC at http://www.sec.gov.
Our website is located at http://www.amincorinc.com. The website contains a link
to the SEC's Web site, where electronic copies of the materials we file with the
SEC are available for viewing (including annual reports on Form 10-K, quarterly
reports on Form 10-Q, current reports on Form 8-K and other required filings).
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PART I
ITEM 1. BUSINESS
AMINCOR, INC.
HISTORY OF THE COMPANY
Amincor, Inc. was incorporated under the laws of the state of Nevada on October
8, 1997 under the name GSE Group, Inc. GSE Group, Inc. was originally formed to
provide consulting services for reverse mergers to public shell corporations and
private companies seeking to gain access to the public markets. On October 20,
1997, GSE Group, Inc. changed its name to Global Stock Exchange Corp. and on
April 28, 2000, Global Stock Exchange Corp. changed its name to Joning Corp
("Joning"). In July 2000, Joning ceased its business activities. On March 8,
2002, Joning filed a Registration Statement on Form 10-SB under the Securities
Exchange Act of 1934 (the "Exchange Act") as a shell company with the purpose of
finding a suitable company for a reverse merger transaction. Joning ceased
filing periodic reports subsequent to its filing of its Form 10-QSB on October
24, 2004 as it did not have the personnel or resources to continue the filings
and there was no operating business or pending business transactions. Therefore
Joning, Inc. was delinquent in its Exchange Act reporting obligations from the
filing of its Form 10-Q for the quarter ended May 30, 2004 (which it filed on
October 25, 2004) until June 2, 2008 when it 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, Inc. is a holding company operating through its operating subsidiaries
Baker's Pride, Inc., Environmental Holding, Corp. and Tyree Holdings Corp.
Additionally, Amincor Contract Administrators, Inc. and Amincor Other Assets,
Inc. are subsidiaries with minimal operations. As of June 30, 2011, management
elected to discontinue the operations of Masonry Supply Holding Corp. and Tulare
Frozen Foods, LLC. As of September 30, 2011, management elected to discontinue
the operations of Epic Sports International, Inc.
Amincor's officers and directors are responsible for the strategic direction of
the operating subsidiaries. The Company accomplishes this through strategic
planning, raising capital for business expansion via internal growth or
acquisition based growth and exploring unique opportunities for each subsidiary.
The executive management team of each subsidiary company has substantial
experience in their respective fields and have responsibility for the operation
of their business unit subject to overall direction of Registrant's management.
Amincor's officers and directors are actively engaged with the management of
each subsidiary. Amincor is able to assist the subsidiaries in executing their
business plans and in making necessary financial and other resources available.
This is accomplished through frequent site visits, weekly and monthly conference
calls and various reporting requirements such as budget to actual comparisons,
cash flow monitoring, accounts payable and accounts receivable management,
credit and collections, and periodic reporting by the subsidiary management to
Amincor.
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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 19
full-time employees and 1 part-time employee including Messrs. John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson, who dedicate approximately 70% of their
time to Amincor business.
AMINCOR, INC.'S SUBSIDIARY COMPANIES
AMINCOR CONTRACT ADMINISTRATORS, INC.
Amincor Contract Administrators, Inc., a Delaware corporation, incorporated on
August 25, 2010, is a wholly owned subsidiary of Registrant formed to administer
various contracts, related to certain assets held by Amincor Other Assets, Inc.
and the subsidiary companies, including, but not limited to certain
international service contracts for Tyree Holdings Corp.
AMINCOR OTHER ASSETS, INC.
Amincor Other Assets, Inc., a Delaware corporation, incorporated on April 5,
2010, is a wholly owned subsidiary of Registrant formed to hold the rights to
certain physical assets, including plant, property and equipment, which were
foreclosed on or assigned to Amincor, Inc.
Amincor Other Assets, Inc. holds the title to the 360,000 square foot facility
where Allentown Metal Works, Inc. formerly operated. The site has fallen into
disrepair as a result of vandalism by local thieves. The buildings on site are
functionally obsolete and are not suitable as a modern manufacturing facility.
Any purchaser would have to raze the buildings on the 19 acre site and reclaim
the concrete, brick, wood and steel infrastructure. Estimates have ranged
between $750,000 and $1,000,000 to perform this work. The property, prior to
March 12, 2012, had been listed for sale for $3,000,000 and after six months of
being on the market the price was reduced to $2,250,000. The only offer received
during this period was for $200,000. The offer was declined and management
enlisted the services of an auction company to inspect the site in anticipation
of holding an absolute auction. After conducting a site visit with the auction
company the auction company declined to hold an absolute auction because of the
conditions of the buildings and the vandalism that has occurred. The site is
across the street from a police sub-station and due to its size there is no
adequate way to secure the property. All of the buildings on the complex were
locked, bolted and boarded up. There was evidence that the exterior siding had
been removed after which unknown persons entered the buildings, broke windows
and locks and left the buildings open. Management has expressed concern that
someone may inadvertently fall into one of the many machine pits that exist as a
result of the removal of the heavy machine and milling equipment that had been
sold, and injure themselves creating a liability issue for the owner. Based on
these events and the advice of the auction company, Management has listed the
property for sale for $500,000 plus all outstanding property taxes. To date two
offers were received, one from a private individual and the other from the
Allentown Economic Development Corporation. The private individual offered less
than the offering price and Management is conducting a tax search to counter
offer at the list price plus the taxes and the Allentown Economic Development
Corporation offered full price, payment in full of all taxes with certain
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warranties and representations that Management is not prepared to make.
Management intends on making counter offers to both parties once it has the
opportunity to confer with the commercial real estate broker who is marketing
the property.
BAKER'S PRIDE, INC.
OVERVIEW
Baker's Pride, Inc., a Delaware corporation, was incorporated on August 28,
2008.
Baker's Pride, Inc. ("BPI") consists of three operating entities; The Jefferson
Street Bakery, Inc. ("Jefferson Street Bakery"), The Mt. Pleasant Street Bakery,
Inc. ("Mt. Pleasant Street Bakery") and The South Street Bakery, Inc. ("South
Street Bakery").
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 34 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. In 2012, 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.
The final phase of the build-out of Mt. Pleasant Street Bakery's 260,000 square
foot facility is currently being studied for development which may include the
installation of a high-speed bun and bread production system. The bun system is
being designed to produce an average of 6,000 packages of buns per hour and the
bread system will produce an average of 6,260 loaves of bread per hour
(throughput). This throughput will enable BPI to respond to its current client's
request for additional products and volume. In addition, it will also provide
additional capacity to attract new clients and diversify its customer base. BPI
will require additional funding in order to complete this project.
In January 2012, BPI received a $2.75 million dollar bridge loan from Central
State Bank of State Center, Iowa. This capital will be used 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. Additionally, BPI is in
negotiations with lenders related to its application for a United States
Department of Agriculture (USDA) supported loan to complete the 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
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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.
As of August 12, 2011, the South Street Bakery is leasing certain property and
equipment located in Clear Lake, Iowa. Based on management's assessment of
profitability at the South Street Bakery during the one (1) year lease term,
management also has (i) an irrevocable option to purchase said property and
equipment by August 11, 2012; (ii) negotiate a lease/option extension; or (iii)
cease operations at the South Street Bakery.
The South Street Bakery currently produces gluten free and traditional cookies,
brownies and muffins. The South Street Bakery is presently marketing its
products to large retail supermarket chains, food service distributors and
private label customers serving these two markets. BPI intends to transition
from a specialty bakery to a full service commercial cookie and brownie bakery
featuring crispy long shelf life cookies, country style cookies, holiday
cookies, cookies with "better for you" recipes and trademarked brownie cakes.
The transition and diversification of products is anticipated for completion
during the second quarter of 2012.
CUSTOMERS
Currently BPI has significant concentration in one customer, Aldi, Inc., which
operates over 332 grocery stores in the Midwestern U.S., of which BPI services
approximately 200. BPI intends to expand its customer base through the
introduction of additional product categories. Aldi was responsible for
approximately 92.1%, 100.0% and 100% of BPI's revenues for the twelve months
ended December 31, 2011, 2010 and 2009 respectively.
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 recent purchase of the North
American Sara Lee Fresh Bakery business and its previous acquisition of Weston
Bakeries USA, will have the most impact on this trading area. BPI also competes
with Hostess Brands (which has recently filed for Chapter 11 Bankruptcy
protection), Campbell Soup Company (Pepperidge Farms) and Lewis Brothers
Bakeries, Inc., an independent regional bakery. BPI believes the efficiency it
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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 acquisition of Best Brands, Inc. and
Bake Mark, H.C. Brill. There are also several one category bakeries in larger
cities in the Midwest with which BPI competes.
INTELLECTUAL PROPERTY
BPI received approval from the USPTO for the trademark BROWNIE CAKES, as filed
with the USPTO under registration number 3995128, which will be used in the
development of its brownie business.
INGREDIENTS AND RAW MATERIALS
BPI's primary ingredients are various flours, sugars and other sweeteners;
soybean or other vegetable oil products; salt, yeast and other leavening agents
as well as commercial bakery pre-mixes. When it begins production of the donut,
cookie and brownie categories it will add eggs, chocolate, butter, raisins and
nutmeats to its primary ingredient list. BPI also uses a large amount of plastic
and other packaging materials to wrap its products to ensure freshness and
wholesomeness. BPI's facilities use natural gas for ovens and donut fryers as
well as electricity to power other equipment. Some fluctuations in the cost of
these items are normal because most are dependent on growing conditions and
demand by consumers. In most cases these normal fluctuations can be managed by
forward buying or fixed supply contracts.
REGULATION
BPI is a producer of bakery goods, therefore, its facilities are subject to
federal agencies such as the Food and Drug Administration, Department of
Agriculture, Federal Trade Commission, Department of Commerce and the
Environmental Protection Agency with respect to processes used for production,
quality of products, packaging, and labeling as well as storage and distribution
of products. Under various regulations and statues, these agencies prescribe
required and established standards for quality, wholesomeness and labeling.
Failure to comply with these agencies requirements may result in letters of
warning, fines, or product recall.
BPI's operations, like others in the baking industry, are subject to various
federal, state and local laws in regard to environmental matters. BPI believes
that compliance with existing environmental laws and regulation will not
materially affect its financial conditions or its competitive position. At
present BPI believes it is substantially in compliance with all material
environmental regulations.
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
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PERSONNEL
BPI currently has 102 full-time employees, 5 temporary 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 is expected to grow
significantly. BPI's executive officers are Ron Danko, Sr. who serves as the
Chief Executive Officer and Robert Brookhart, who serves as the President.
ENVIRONMENTAL HOLDING CORP.
OVERVIEW
On January 3, 2011, pursuant to a certain assignment and assumption agreement,
Amincor assumed all of the right, title and interest in and to certain loan
agreements and collateral of Environmental Testing Laboratories, Inc., a company
in the business of providing environmental testing and laboratory services
("Borrower").
Due to Borrower's failure to repay amounts due under the loan agreements,
Amincor and Borrower entered into a Surrender of Collateral, Strict Foreclosure
and Release Agreement (the "Foreclosure Agreement"), dated January 3, 2011,
pursuant to New York Commercial Code Sections 9-620 through 9-622, whereby
Amincor acquired all of the business assets of Borrower and assumed certain
liabilities (collectively, the "Business") in full satisfaction of Borrower's
debts to Amincor. Concurrently therewith, Amincor assigned the Business to
Environmental Quality Services, Inc.
Environmental Holding Corp., a Delaware corporation, was incorporated on
December 23, 2010, and is a wholly owned subsidiary of Amincor. Environmental
Quality Services, Inc. ("EQS"), a Delaware corporation was incorporated on
January 5, 2011, and is a wholly owned subsidiary of Environmental Holding Corp.
EQS provides environmental testing services in the northeast United States. EQS'
services include RCRA (resource conservation recovery act) and hazardous waste
characterization; TCLP (toxic characteristic leaching procedure) analyses;
underground storage tank analytical assessment; landfill/ground water
monitoring; NPDES (national pollution discharge elimination system) effluent
characteristics analysis; PCB (polychlorinated biphenyls) and PCB congener
analysis; lead paint testing; fingerprint categorization, petroleum analyses.
The client base of EQS ranges from the small engineering firms to well-know
petroleum companies. EQS customers require rapid response, accurate results and
the ability to provide our services on a 24/7 basis. EQS has had longstanding
relationships with major utilities, large petroleum companies and engineering
firms.
EQS also has the capability to provide its clients with specific data
deliverables in any required format. Its in-house computer programmer creates
the formats necessary for individual client needs. This service saves its
clients hours of data entry or re-formatting time.
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CUSTOMERS
EQS customers include petroleum companies, contractors, environmental consulting
firms, utilities and municipalities.
COMPETITION
There are thousands of facilities in the United States who classify themselves
as environmental testing laboratories. The scope of services provided range from
sample collection, analysis and report compilation to simple analysis. A number
of the companies in this business have multiple locations, all operating under
the same company name. Several of those operate as "national" labs wherein they
serve the US from one or two facilities and use overnight shipments to provide
the receipt and delivery of laboratory tests. These laboratories are typically
the low cost providers, but lack in the proximity, response and quality that EQS
provides to its customers through the Northeast. The unique service that EQS
provides is proven by the fact that most clients have been clients since its
founding.
Since EQS is a single laboratory, working with clients in the Northeast as
opposed to national accounts, our main competitors serve the same target market;
local regulatory authorities, consultants, engineers, and municipalities.
These local competitors include such companies as:
American Analytical Laboratories
Long Island Analytical Laboratories
H2M Laboratories
Analytical Chemists Laboratories, Inc
EcoTest Laboratories
There are several factors clients consider when evaluating a vendor in the
environmental analytical field. These factors typically include: labor,
equipment, technical support, pricing and the specific services available. In
this market, it is cost effective to have labor shifts to satisfy clients that
run emergency schedules, and have a need for services 24/7. Finding and keeping
the right personnel is also a challenge in a market that typically does not pay
the highest salaries. In an effort to fight turnover, recruiting at the college
level has proven to be beneficial - hiring competent technicians early, training
them, and offering benefits such as reimbursement for schooling, flexible hours
in an effort to ensure continuity of the employee base.
Pricing is fairly competitive. The marketable difference can be found in the
levels of product deliverables - meaning Quality Control packages - and
turnaround time - the time lapsed between sample submittal and delivered results
to a client. EQS' quick turnaround time is a key selling point with their
clients. Not many labs have the capability to turn out results in 24 or even 48
hours. Management of a project from the initial planning stages through the
final reporting, and updating the client as the project progresses is an
invaluable service, as critical decisions are made based on the analytical
results. In determining the client's needs and adapting and modifying techniques
and technology to meet and exceed the client's expectations, a satisfied client
is EQS best testimonial.
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PERSONNEL
EQS currently has 10 full time employees and believes that its employee
relations are good. Ms. Patricia Werner-Els serves as the President and Robert
F. Olson serves as Treasurer of EQS.
TYREE HOLDINGS CORP.
OVERVIEW
Tyree Holdings Corp., a Delaware corporation, was incorporated on January 7,
2008.
On January 17, 2008, Tyree Holdings Corp. ("Tyree") acquired certain business
assets and assumed certain liabilities of Tyree's predecessor companies, which
have continuously operated since 1930. Tyree is currently one of the largest
multi-faceted retail petroleum and environmental services providers of the
Northeast and Mid-Atlantic regions of the United States. Tyree Holdings Corp.
services over 3,000 gas stations from Maine to Maryland. Headquartered in Mt.
Laurel, New Jersey, Tyree has additional locations in New York, Connecticut,
Pennsylvania and Massachusetts, 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 business units including 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
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.
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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.
PERSONNEL
Tyree currently has 215 full-time employees, some of whom are represented by six
different collective bargaining agreements. Labor contracts are in place through
December 31, 2011 for five of the six bargaining units and the workforce has
continued to work while negotiations continue between management and union
representatives. Management believes that its employee relations are good.
12
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.
DISCONTINUED OPERATIONS
On June 30, 2011, management elected to discontinue the operations of Masonry
Supply Holding Corp. and Tulare Frozen Foods, LLC. On September 30, 2011,
management elected to discontinue the operations of Epic Sports International,
Inc. (See Item 7 below).
In accordance with Generally Accepted Accounting Principles of the United States
of America ("GAAP"), the combined results of Masonry Supply Holding Corp.,
Tulare Frozen Foods, LLC and Epic Sports International, Inc. have been presented
on our financial statements as discontinued operations. It is management's
intention to complete the liquidation of Masonry, Tulare and Epic's assets
within the next twelve months, if not sooner.
INTELLECTUAL PROPERTY/BRANDS
Amincor has submitted applications for the following trademarks with the United
States Patent and Trademark Office ("USPTO"):
Trademark Registration Number
--------- -------------------
Mommy's Little Secret Treats 85330721
Glu Senza Cookies 85403657
Senza Gluten Free Cookies 85403644
Clear Lake Farms 85330997
Black Bottom Cookies 85403632
Message Cookies 85331009
Certain brands are owned by Amincor, Inc. as a result of defaults by Whaling
Distributors, Inc. and Caffeine Culture, Inc. Amincor, Inc. through a series of
assignments, acquired the right, title and interest in the following trademarks
as recorded with the USPTO:
Trademark Registration/Serial Number
--------- --------------------------
CHARM AND LUCK Registration Number: 3205784
CHARM AND LUCK WORKING HARD
TO MAKE YOU CUTER Registration Number: 78848003
CATCH THE DRIFT Serial Number: 77713436
NEWPORT HARBOR REFLECTING
QUALITY SINCE 1969 Registration Number: 3764824
NEWPORT H A R B O R Registration Number: 2285443
NEWPORT HARBOR Serial Number: 75272295
NEWPORT HARBOR Registration Number: 1319471
S-Stimuli Registration Number: 2482282
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.
13
In January of 2012, Amincor assigned all of its worldwide right, title and
interest in and to the "Caffeine" trademark, serial numbers 77 709 244 and 77
979 922, to a certain individual, as settlement in full for certain previous
obligations.
ITEM 1A. RISK FACTORS
RISK FACTORS RELATING TO AMINCOR'S SECURITIES
OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE.
We are and will continue to be subject to the disclosure and reporting
requirements of applicable U.S. securities laws. Many of our principal
competitors are not subject to these disclosure and reporting requirements. As a
result, we may be required to disclose certain information and expend funds on
disclosure and financial and other controls that may put us at a competitive
disadvantage to our principal competitors.
SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO
THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD
BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT.
THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE
THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.
Our officers and directors directly own 6,426,320 shares of the total of
7,478,409 issued and outstanding Class A voting shares of our common stock (or
approximately 86% of our outstanding voting stock) and are in a position to
continue to control us. Such control enables our officers and directors to
control all important decisions relating to the direction and operations of the
Company without the input of our investors. Moreover, investors will not be able
to effect a change in our Board of Directors, business or management.
OUR STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR STOCK DUE TO THE ABSENCE OF
A PUBLIC TRADING MARKET.
There is presently no public trading market for our common stock. We intend in
the future to seek a market maker to apply to have our common stock quoted on
the Over-the-Counter Bulletin Board, but have not done so to date. Until there
is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES
BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY
STOCK RULES.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), impose sales practice and disclosure
requirements on broker-dealers who make a market in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
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
14
stock may be considered a "penny stock." In that case, purchases and sales of
our shares will be generally facilitated by broker-dealers who act as market
makers for our shares.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (as defined by the
Securities Act of 1933, as amended) must make a special suitability
determination for the purchaser and must receive the purchaser's written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
transaction is otherwise exempt. A broker-dealer is also required to disclose
commissions payable to the broker-dealer and the registered representative and
current quotations for the securities. Finally, a broker-dealer is required to
send monthly statements disclosing recent price information with respect to the
penny stock held in a customer's account and information with respect to the
limited market in penny stocks. The additional sales practice and disclosure
requirements imposed upon broker-dealers selling penny stock may discourage such
broker-dealers from effecting transactions in our shares, which could severely
limit the market liquidity of the shares and impede the sale of our shares in
the secondary market.
INVESTORS THAT NEED TO RELY ON DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE
SHARES OF OUR COMMON STOCK.
We do not anticipate paying any dividends on our common stock for the
foreseeable future. Investors that need to rely on dividend income should not
invest in our common stock, as any income would only come from any rise in the
market price of our common stock, which is uncertain and unpredictable.
Investors that require liquidity should also not invest in our common stock.
There is no established trading market, and should one develop, it will likely
be volatile and such market may not be sustained.
HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE
FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON
STOCK AND AS A RESULT OF THE POSSIBLE EXERCISE OF HOLDERS OF OUR PREFERRED STOCK
TO CONVERT TO COMMON STOCK AFTER JANUARY 1, 2011.
We are authorized to issue up to 22,000,000 shares of Class A voting common
stock and 40,000,000 shares or Class B non-voting common stock and 3,000,000
shares of Preferred Stock. At present, there are 7,478,409 Class A common shares
and 21,176,262 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.
As of the date of this filing, 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
15
and there were 36 institutional shareholders of record owning all of the
1,752,823 issued and outstanding shares of our Preferred Stock.
FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
WE ARE SUBJECT TO THE PERIODIC REPORTING REQUIREMENTS OF THE EXCHANGE ACT THAT
WILL REQUIRE US TO INCUR AUDIT FEES AND LEGAL FEES IN CONNECTION WITH THE
PREPARATION OF SUCH REPORTS. THESE ADDITIONAL COSTS COULD REDUCE OR ELIMINATE
OUR ABILITY TO EARN A PROFIT.
We are required to file periodic reports with the SEC pursuant to the Exchange
Act and the rules and regulations promulgated thereunder. In order to comply
with these requirements, our independent registered public accounting firm will
have to review our financial statements on a quarterly basis and audit our
financial statements on an annual basis. Moreover, our legal counsel will have
to review and assist in the preparation of such reports. The costs charged by
these professionals for such services cannot be accurately predicted at this
time because factors such as the number and type of transactions that we engage
in and the complexity of our reports cannot be determined at this time and will
have a major affect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will obviously be an expense to
our operations and thus have a negative effect on our ability to meet our
overhead requirements and earn a profit. We may be exposed to potential risks
resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of
2002. If we cannot provide reliable financial reports or prevent fraud, our
business and operating results could be harmed, investors could lose confidence
in our reported financial information, and the trading price of our common
stock, if a market ever develops, could drop significantly.
POTENTIAL CONFLICTS OF INTEREST
The directors and officers of the Company have no obligation to devote full time
to the business of the Company. They are required to devote only such time and
attention to the affairs of the Company, as they may deem appropriate in their
sole discretion. It is anticipated that they will each spend approximately 70%
of their time on their duties related to Amincor but they are under no
obligation to continue to do so, nor are they restricted by an agreement not to
compete with the Company and they may engage in other activities or ventures
which may result in various conflicts of interest with the Company.
16
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
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
17
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.
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.
18
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
ONE CUSTOMER ACCOUNTED FOR 92.1% AND 100.0% OF BAKER'S PRIDE, INC.'S ("BPI")
REVENUE FOR THE YEARS ENDED DECEMBER 31, 2011 AND 2010, RESPECTIVELY. THE LOSS
OF THIS CUSTOMER COULD ADVERSELY AFFECT OUR RESULTS OF OPERATIONS, FINANCIAL
CONDITION, AND PROFITABILITY.
In the years ended December 31, 2011 and 2010, Aldi, Inc. accounted for a
significant portion of BPI's 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 Amincor 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.
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.
19
LOSS OF FACILITIES COULD ADVERSELY AFFECT BPI'S FINANCIAL AND OPERATIONAL
RESULTS.
BPI currently has three production facilities: the Jefferson Street Bakery, the
Mt. Pleasant Street Bakery, and South Street Bakery. The loss of any of these
facilities could have an adverse impact on BPI's operations, financial condition
and results of operations.
INCREASES IN LOGISTICS AND OTHER TRANSPORTATION-RELATED COSTS COULD MATERIALLY
ADVERSELY IMPACT BPI'S RESULTS OF OPERATIONS.
BPI's ability to competitively serve its customers depends on the availability
of reliable and low-cost transportation. BPI uses trucks to bring its products
to market. Disruption to the timely supply of these services or increases in
the
cost of these services for any reason, including availability or cost of fuel,
regulations affecting the industry, or labor shortages in the transportation
industry, could have an adverse effect on BPI's ability to serve its customer,
and could materially and adversely affect BPI's business, financial condition
and results of operations.
RISK FACTORS AFFECTING ENVIRONMENTAL QUALITY SERVICES, INC.
EQS' RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE
FACTORS OVER WHICH EQS HAS LITTLE OR NO CONTROL.
The factors listed below are outside of EQS's control and may cause EQS'
revenues and result of operations to fluctuate significantly, including, but not
limited to: (i) actions taken by regulatory bodies relating to the verification
and certification of EQS products/services; (ii) the timing and size of customer
purchases; and (iii) customer and/or distributors concerns about the stability
of EQS' business which could cause them to seek alternatives to EQS
products/services.
EQS FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS
PRODUCTS/SERVICES ARE EVALUATED.
EQS believes that due to the constant focus on the environmental standards
throughout the world, EQS may be required in the future to adhere to new and
more stringent government regulations. Governmental agencies constantly seek to
improve standards required for verification and/or certification of products
and/or services. In the event EQS' products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on EQS'
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
EQS' success depends to an extent upon the performance of its employees, some of
whom hold certain licenses, permits and certifications, including, but not
limited to Ms. Patricia Werner - Els. The loss or inability to replace these
employees holding the licenses, permits or certifications necessary to conduct
EQS' business, could adversely affect its business and prospects and operating
results and/or financial condition.
RISK FACTORS AFFECTING TYREE HOLDINGS CORP.
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.
20
Completion dates and performance standards may be important requirements to a
client on a given project. If Tyree is unable to complete a project within
specified deadlines or fails to meet performance criteria set forth by a client,
additional costs may be incurred by Tyree or the client may hold Tyree
responsible for costs they incur to rectify the problem. The uncertainty
involved in the timing of certain projects could also negatively affect the
Tyree's staff utilization, causing a drop in efficiency and reduced profits.
SUBCONTRACTOR PERFORMANCE AND PRICING COULD EXPOSE TYREE TO LOSS OF REPUTATION
AND ADDITIONAL FINANCIAL OR PERFORMANCE OBLIGATIONS THAT COULD RESULT IN REDUCED
PROFITS OR LOSSES.
Tyree often hires subcontractors for its projects. The success of these projects
depends, in varying degrees, on the satisfactory performance of its
subcontractors and Tyree's ability to successfully manage subcontractor costs
and pass them through to its customers. If Tyree's subcontractors do not meet
their obligations or Tyree is unable to manage or pass through costs, it may be
unable to profitably perform and deliver contracted services. Under these
circumstances, Tyree may be required to make additional investments and expend
additional resources to ensure the adequate performance and delivery of the
contracted services. In addition, the inability of its subcontractors to
adequately perform or Tyree's inability to manage subcontractor costs on certain
projects could hurt Tyree's competitive reputation and ability to obtain future
projects.
TYREE'S SERVICES COULD EXPOSE IT TO SIGNIFICANT LIABILITY NOT COVERED BY
INSURANCE.
The services provided by Tyree expose it to significant risks of professional
and other liabilities. In addition, Tyree sometimes assumes liability by
contract under indemnification provisions. Tyree is unable to predict the total
amount of such potential liabilities. Tyree has obtained insurance to cover
potential risks and liabilities. However, insurance may be inadequate or
unavailable in the future to protect Tyree for such liabilities and risks.
ENVIRONMENTAL AND POLLUTION RISKS COULD POTENTIALLY IMPACT TYREE'S FINANCIAL
RESULTS.
Tyree is exposed to certain environmental and pollution risks due to the nature
of some of the contract work it performs. Costs associated with pollution clean
up efforts and environmental regulatory compliance have not yet had a material
adverse impact on its capital expenditures, earnings, or competitive position.
However, the occurrence of a future environmental or pollution event could
potentially have an adverse impact.
TYREE INCURS SUBSTANTIAL COSTS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS.
FAILURE TO COMPLY WITH THESE REQUIREMENTS AND RELATED LITIGATION ARISING FROM AN
ACTUAL OR PERCEIVED BREACH OF SUCH REQUIREMENTS COULD ALSO SUBJECT TYREE TO
FINES, PENALTIES, JUDGMENTS AND IMPOSE LIMITS ON TYREE'S ABILITY TO EXPAND.
Tyree is subject to potential liability and restrictions under environmental
laws, including those relating to treatment, storage and disposal of gasoline,
discharges to air and water, and the remediation of contaminated soil, surface
water and groundwater. If Tyree does not comply with the requirements that apply
to a particular site or if it operates without necessary approvals or permits,
Tyree could be subject to civil, and possibly criminal, fines and penalties, and
may be required to spend substantial capital to bring an operation into
compliance or to temporarily or permanently discontinue activities, and/or take
21
corrective actions. Those costs or actions could be significant and impact
Tyree's results of operations, cash flows and available capital.
In addition to the costs of complying with environmental laws and regulations,
Tyree may incur costs defending against environmental litigation brought by
governmental agencies and private parties. Tyree may be in the future be a
defendant in lawsuits brought by parties alleging environmental damage, personal
injury, and/or property damage, which may result in Tyree incurring significant
liabilities.
ADVERSE WEATHER LESSENS DEMAND FOR TYREE'S SERVICES.
Demand for Tyree's services, decreases substantially during periods of cold
weather, when it snows or when heavy or sustained rains fall. Consequently,
demand for Tyree's services are significantly lower during the winter. High
levels of rainfall can also adversely impact operations during these periods as
well. Such adverse weather conditions can materially and adversely affect
Tyree's results of operations and profitability if they occur with unusual
intensity, during abnormal periods, or last longer than usual.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
Tyree's success depends to an extent upon the performance of its managers, some
of whom hold certain licenses, permits and certifications. The loss or inability
to replace these managers holding the licenses, permits or certifications
necessary to conduct Tyree's business, could adversely affect its business and
prospects and operating results and/or financial condition.
TYREE IS EXPOSED TO THE CREDIT RISK, INCLUDING BANKRUPTCY, OF ITS CUSTOMERS IN
THE ORDINARY COURSE OF BUSINESS.
Tyree has various credit terms with virtually all of its customers, and its
customers have varying degrees of creditworthiness. Although Tyree evaluates the
creditworthiness of each of its customers, Tyree may not always be able to fully
anticipate or detect deterioration in their creditworthiness and overall
financial condition, which could expose Tyree to an increased risk of nonpayment
or other default under its contracts and other arrangements with them. In the
event that a material customer or customers default on their payment obligations
to Tyree or file for bankruptcy protection, this could materially adversely
affect Tyree's financial condition, results of operations or cash flows.
On December 5, 2010, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Southern District of New York. As of that date, Tyree
has a pre-petition receivable of approximately $1,515,401.27. As an unsecured
creditor, Tyree may never collect or may only collect a small percentage of this
pre-petition amount owed. Additionally, Tyree has a post-petition administrative
claim for approximately $593,709.20. Tyree may never collect or may only collect
a small percentage of this post-petition amount owed. A Proof of Claim was filed
with the Bankruptcy court on Tuesday, April 10, 2012. GPMI's bankruptcy could
materially adversely affect Tyree's financial condition, results of operations
or cash flows.
ITEM 1B. UNRESOLVED STAFF COMMENTS
N/A
22
ITEM 2. PROPERTIES
a) Registrant occupies approximately 24,806 square feet in a suite
subleased by Capstone Business Credit, LLC and Capstone Capital Group
I, LLC at 1350 Avenue of the Americas, 24th Floor, New York, NY 10019.
This space is rented to the Registrant and is currently suitable for
the Registrant's operations.
b) Baker's Pride, Inc.'s corporate headquarters is located at 3400 Mt.
Pleasant St., Burlington, Iowa, which is an industrial warehouse
building baking facility. Additionally, Baker's Pride, Inc. has
locations at 834 Jefferson Street, Burlington, Iowa, a light
manufacturing baking facility, and 915 Maple Street, Burlington, Iowa,
a commercial building with unoccupied retail space. All three
locations are partially utilized and are currently suitable for
Baker's Pride, Inc.'s operations. Additionally, the South Street
Bakery, Inc. leases certain plant and equipment at 2205 6th Avenue,
South Clear Lake, IA 50428, which is partially utilized and currently
suitable for operations.
c) Tyree Holdings Corp.'s executive offices are located at 300 Midlantic
Drive, Unit 105, Mount Laurel, New Jersey under a lease agreement.
Tyree leases additional locations in New York, Connecticut,
Pennsylvania and Massachusetts, as well as a satellite office in
Southern California. Tyree Holdings Corp. believes that each of the
properties is currently suitable for its operations.
d) Environmental Quality Services, Inc.'s executive offices are located
at 208 Route 109 Farmingdale, NY under a lease agreement.
Environmental Quality Services, Inc. believes this property is
currently suitable for its operations.
ITEM 3. LEGAL PROCEEDINGS
In early 2011, counsel for the former President of Imperia Masonry Supply Corp.
indicated an intent to file suit against Imperia Masonry Supply Corp. The
allegations of such potential action are unknown to management at this point. To
date, no litigation regarding this matter has been filed. The Company will
disclose any litigation which results in the future. Management believes any
claims made by the former President will be deemed frivolous and will have
little or no impact on Imperia Masonry Supply Corp. or Amincor, Inc.
Capstone Business Credit, LLC, a related party, is the plaintiff (on behalf of
Amincor Other Assets, Inc.) in a foreclosure action against Imperia Family
Realty, LLC ("IFR"). IFR is related to the former owners of Masonry's business.
In November, 2011 a Judgment of Foreclosure was granted by the court ordering
that the IMSC property in Pelham Manor, New York (the "Property") be sold at
public auction. As of December 31, 2009, the mortgage related to this Property
was assigned to Amincor, Inc. and thereafter to Amincor Other Assets, Inc.
A former principal of Imperia Bros., Inc. (a predecessor company of Masonry)
filed a notice of appeal dated November 14, 2011 with the court contesting the
Judgment of Foreclosure. The Company believes that the appeal will not be upheld
by the court since the same appellate court, on February 16, 2010, issued an
order that granted CBC a motion of summary judgment and dismissed all of the
former principal's affirmative defenses.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder.
23
As of the report date, title to the Property has not been transferred due to a
title issue involving the notice of pendency ("Notice") that expired and was not
renewed at least 20 days prior to the Judgment of Foreclosure and Sale being
filed and entered. Since no title transfers or judgment/liens were filed against
the Property after the expiration of the Notice, the Company believes it is
likely a conditional title will be issued and after recording the deed, IFR will
no longer have any ownership interest in the property. Once a deed is issued,
title to the property will be held in the name of Amincor Other Assets, Inc.
Management believes any litigation described above will not have a material
impact on the Registrant or its related subsidiary companies.
Additionally, on December 5, 2010, Tyree's largest customer, Getty Petroleum
Marketing, Inc. ("GPMI") filed for Chapter 11 bankruptcy protection in the
United States Bankruptcy Court for the Southern District of New York. As of that
date, Tyree has a pre-petition receivable of approximately $1,515,401.27. As an
unsecured creditor, Tyree may never collect or may only collect a small
percentage of this pre-petition amount owed. Additionally, Tyree has a
post-petition administrative claim for approximately $593,709.20. Tyree may
never collect or may only collect a small percentage of this post-petition
amount owed. A Proof of Claim was filed with the Bankruptcy court on Tuesday,
April 10, 2012.
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 30, 2012, 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
24
were 36 institutional shareholders of record owning all of the 1,752,823 issued
and outstanding shares of our Preferred Stock.
Amincor's Class B Common and Preferred shares were issued to its stockholders
based upon their investments in the Capstone Funds, as of December 31, 2009. In
exchange for their interests in the Capstone Funds, the investors in the
Capstone Funds received shares in Amincor based on the net asset value of their
interests in the Capstone Funds. A share price of $100.00 for Preferred Stock
and of $10.00 for Class B non-voting common stock was established for the
purpose of issuing shares in Amincor to the investors of the Capstone Funds in
proportion to their respective interests in the Funds and was not indicative of
the actual value of the stock at the time of issuance.
DIVIDENDS
We have not paid any cash dividends to date and do not anticipate or contemplate
paying dividends in the foreseeable future. It is the present intention of
management to utilize all available funds for the development of our business.
ITEM 6. SELECTED FINANCIAL DATA
The following table sets forth our selected consolidated financial data derived
from the audited consolidated financials of the Company for the five years ended
December 31, 2011 (the Company was inactive in 2007) 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.
Year Ended December 31,
--------------------------------------------------------------------------------
2011 2010 2009 2008 2007
------------ ------------ ------------ ------------ ------------
(consolidated) (restated (restated (restated
and and and
combined) combined) combined)
Net revenues $ 62,297,683 $ 66,916,423 $ 70,894,139 $ 61,762,727 $ --
============ ============ ============ ============ ============
(Loss) income from operations $(13,371,286) $ (207,962) $ 336,131 $ 605,980 $ --
============ ============ ============ ============ ============
Net loss from continuing operations $(13,999,593) $ (441,097) $ (1,522,066) $ (1,838,618) $ --
============ ============ ============ ============ ============
Loss from discontinued operations $ (9,059,608) $ (6,534,123) $ (9,926,064) $ (9,220,795) $ --
============ ============ ============ ============ ============
Net loss $(23,059,201) $ (6,975,220) $(11,448,130) $(11,059,413) $ --
============ ============ ============ ============ ============
Net loss attributable to Amincor
shareholders $(21,962,850) $ (6,704,450) $(10,805,987) $(10,495,802) $ --
============ ============ ============ ============ ============
Per share information -
basic and diluted:
Net loss from continuing operations $ (0.49) $ (0.02) $ (0.05) $ (0.10) $ --
============ ============ ============ ============ ============
Net loss per share attributable to
Amincor shareholders $ (0.77) $ (0.23) $ (0.39) $ (0.54) $ --
============ ============ ============ ============ ============
Weighted average common shares
outstanding 28,654,671 28,654,671 27,701,869 19,334,254 7,476,809
============ ============ ============ ============ ============
25
Balance sheet data:
Total assets $ 62,201,251 $ 80,418,374 $ 86,903,280 $ 90,306,684 $ --
============ ============ ============ ============ ============
Total long-term obligations $ 3,448,135 $ 2,343,141 $ 2,234,273 $ 5,062,135 $ --
============ ============ ============ ============ ============
Because Tyree Holdings Inc had significant operations before it was included in
Amincor, Inc., Tyree Holdings Inc. is the predecessor company to Amincor, Inc.
All the Tyree financial information is combined and consolidated in this report.
Financial information before 2008 cannot be included because the financial
statements were not audited and the accuracy of the accounting is very
questionable. The information available is not proper from a GAAP perspective to
be included in a public company's SEC reports. Attached hereto are the pro forma
statements for the years for which historical financial statements are required,
including the years ended December 31, 2008 and 2009.
There are no known factors that materially affect the comparability of our
selected financial data and there are no known material uncertainties which
might cause the data not to be indicative of our future financial condition or
results of operations
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, INC.
During the year ended December 31, 2011, cash flows used in operating activities
from continuing operations were $1,278,216. This was principally due to a net
loss from continuing operations of approximately $14.0 million which was
partially offset by addbacks for depreciation of $1.9 million, amortization of
$3.6 million, provision for doubtful accounts of $4.1 million and accounts
payable of $4.5 million. Amortization expense was higher than expected in 2011
due to the reduction of the estimable lives of non-competition agreements of
Tyree's intangible assets from seven years to five years, with only one year
remaining. Accounts payable increased on Tyree by approximately $2.5 million and
accounts payable related to Amincor's corporate offices of approximately
$500,000 contributed to the increase in accounts payable. The provision for
doubtful accounts resulted from a write-off of $2.6 million of advances to
related parties that management deemed uncollectible in 2011 and the
establishment of a full reserve of $1.5 million against the receivable of
26
Tyree's largest customer who filed a voluntary petition for Chapter 11
reorganization in the United States Bankruptcy Court on December 5, 2011. The
net loss from continuing operations is discussed in greater detail in the
results from operations for the years ended December 31, 2011 and 2010 section
of management's discussion and analysis.
For the year ended December 31, 2011, cash flows used in investing activities
were negligible as the proceeds from sales of equipment were almost equal and
opposite to the purchases of property and equipment.
For the year ended December 31, 2011, used in financing activities was $870,040
mainly due to the pay down of assumed liabilities for approximately $600,000 and
payments towards notes payable for approximately $230,000.
For the year ended December 31, 2011, total cash provided by discontinued
operations was $827,269. Cash provided by discontinued operations is primarily
related to the liquidation of fixed assets which was offset by a net loss of
$9.0 million.
LIQUIDITY
The Company incurred losses for the years ended December 31, 2011, 2010, and
2009 as well as negative cash flows from operations for the year ended December
31, 2011. The results of the Company's cash flows from continuing operations for
the year ended December 31, 2011 have been adversely impacted by the customer
slowdown in infrastructure capital expenditures caused by the general downturn
of the economic conditions, severe weather related conditions, and cash flow
issues related to major customers. The Company has discontinued operations of
IMSC, Tulare and ESI in 2011 which had significant negative impact on the
Company's cash flows. As of December 31, 2011, the Company had a working capital
deficit of approximately $9.2 million and an accumulated deficit of
approximately $50.0 million. Amincor continues to seek new capital in the form
of equity and debt to support the operations and growth strategies of its
subsidiaries.
Since the beginning of the recession in 2008, the Company has not borrowed
through the end of December 31, 2011, from any bank, finance company, other
unrelated lender and has not received any private equity financing. Since 2008,
internally generated operating cash flows have been sufficient to meet the
Company's business operating requirements. However, operating cash flows have
not been sufficient to finance capital improvements or provide funds for the
substantial marketing efforts necessary for growing the businesses.
The Company's plan for future operations has several different aspects as
follows:
* The Company has significantly reduced its overhead costs by reducing
its workforce in order to achieve maximum utilization;
* Consolidating certain accounting roles from the subsidiary level to
the Company's headquarters, restructuring purchase agreements with
suppliers which will allow for leaner inventory operations and
reducing the warehousing costs;
* Renegotiating compensation arrangements and consolidating its
administrative location with operating offices in order to reduce rent
expenses.
The Company has taken and will continue to take steps to increase revenues as
outlined below:
* Hired a new sales executive with extensive food industry background to
increase sales of existing and new products of the BPI;
* Increase its revenues from Tyree's second largest customer, based on
the improving relationship between Tyree and customer's management;
* Obtain new construction contracts based on aggressive bidding on jobs
from new customers;
* Expand services into new types of services for water purification;
27
* Expand services provided to the existing customers;
* Increase in customer orders is expected due to anticipated
construction needs that have been deferred in the last several years
due to the weak economy.
In addition, the Company intends or has done the following:
* In January 2012, BPI entered into a six-month bridge loan agreement
(the "Bridge Loan") of $2,750,000, which is secured by the Company's
equipment, and is negotiating to extend the term to three years (see
Note 21).
* Consolidated certain premises thereby reducing rents and is
negotiating for reduced rents with landlords;
* Sold equipment of IMSC in February 2012 for $426,000;
* In 2012, management expects to liquidate the property previously
occupied by Tulare Frozen Foods in Lindsay, California for
approximately $2 million;
* The Company expects to sell the Allentown, Pennsylvania property;
* The Company has termed out payments to certain vendors to ease cash
flow and have spoken to major vendors concerning regarding payment
terms;
* Once the Company is cleared by the SEC to sell its stock publicly, the
Company plans to create a market for the stock and obtain capital from
private and public investors.
If the Company's plans change, or its assumptions change or prove to be
inaccurate, or if available cash otherwise proves to be insufficient to
implement its business plans, the Company may require additional equity or debt
financing. Given the uncertain economic environment and the pressure that the
financial sector has been under, the Company cannot predict whether additional
funds will be available in adequate amounts. If funds are needed but not
available, the Company's business may need to be altered or curtailed.
Management believes that, even without the addition of the capital from stock
sales, that the Company will be able to generate sufficient cash flows through
December 31, 2012.
CONTINGENT LIABILITIES
CONTINGENT LIABILITY WITH EPIC
The Volkl license agreement was terminated in September 2011 and concurrently
the Strategic Alliance Agreement with Samsung America CT, Inc. ("Samsung") was
also terminated. Volkl is seeking a $400,000 royalty payment. Epic has initiated
counterclaims against the various parties seeking damages for, including but not
limited to infringement, improper use of company assets and breach of fiduciary
duty.
CONTINGENT LIABILITY WITH GPMI
On December 5, 2010, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Southern District of New York. As of that date, Tyree
has a pre-petition receivable of approximately $1,515,401.27. As an unsecured
creditor, Tyree may never collect or may only collect a small percentage of this
pre-petition amount owed. Additionally, Tyree has a post-petition administrative
claim for approximately $593,709.20. Tyree may never collect or may only collect
a small percentage of this post-petition amount owed. A Proof of Claim was filed
with the Bankruptcy court on Tuesday April 10, 2012.
28
CONTINGENT LIABILITY BPI
In order to secure Baker's Pride's USDA loan, BPI had a Phase I environmental
site assessment done on the property where the Mt. Pleasant Street Bakery, Inc.
resides as required by BPI's prospective lender. The study, completed on October
7, 2011, recommended a Phase II environmental site assessment on the grounds
that there were underground storage tanks on the premises that did not have any
record of being removed in addition to showing an environmental hazard on
property adjacent to the Mt. Pleasant Street Bakery caused by the operations of
the adjacent property. The Phase II environmental site assessment was completed
on October 31, 2011 and was submitted to the Iowa Department of Natural
Resources ("IDNR") for their review. IDNR requested a Tier 2 site cleanup report
be issued and completed in order to better understand what environmental hazard
exists on the property. The Tier 2 site cleanup report was completed on February
3, 2012 and was submitted to IDNR for further review. Management's latest
correspondence with IDNR, dated March 21, 2012, required revisions to the Tier 2
to be in compliance with IDNR's regulations. Management has retained the
necessary environmental consultants to become in compliance with IDNR's request,
but the potential liability is largely dependent on IDNR's recommended
remediation strategy. At this time, the potential liability is unknown and may
be insignificant or non-existent.
CONTINGENT LIABILITY TULARE
The City of Lindsay has invoiced Tulare Frozen Foods, LLC ("TFF) $533,571.58 for
outstanding delinquent amounts. A significant portion of the outstanding
delinquent amounts are penalties, interest and fees that have accrued. A
settlement proposal, whereby the City of Lindsay would retain TFF's $206,666.66
deposit as settlement and release in full of all outstanding obligations, was
sent to the City of Lindsay for review on March 29, 2012.
DISCONTINUED OPERATIONS
On June 30, 2011, management elected to discontinue the operations of Masonry
Supply Holding Corp. and Tulare Frozen Foods, LLC. On September 30, 2011,
management elected to discontinue the operations of Epic Sports International,
Inc.
With respect to Masonry, continued reduced demand for construction materials as
a result of the recession has made it difficult for Masonry to compete within
their industry. Competitors of Masonry have been selling their products below
their costs in an attempt to maintain a larger portion of the overall
diminishing market share. After an analysis of trends from January through May
of 2011, it became clear that for every additional dollar invested, Masonry was
only able to generate less than a dollar's worth of sales. The growth strategy
for Masonry was to acquire additional market share by supplying large quantities
of manufactured block and masonry supplies to dealers in addition to their
current customer base. However, management believed that the capital
expenditures necessary to follow the aforementioned strategy did not carry a
significantly high enough return on investment, due to the aforementioned loss
on sales, and the funds necessary to complete the capital expenditure projects
were not readily available. Management intends to sell the assets of Masonry and
29
settle its existing accounts payable, but does not believe there will be any
significant excess cash resulting from the liquidation that could be used for
other purposes.
Tulare has faced declining gross margins as a result of major competitors paying
higher amounts for raw product alongside selling their products at reduced
profit margins through June 2011. Tulare's management believes that competitors
are prepared to make significant capital expenditures to invest in new
facilities to regain lost customers in the food service distribution channel due
to deferred maintenance costs. Tulare shared the same issues with respect to its
plant and equipment deterioration and required similar capital expenditures to
continue to remain competitive within its industry. The combination of Tulare's
aging plant and equipment, higher raw product costs and the inability pass on
higher raw product costs onto its customers lead to negative cash flow.
Management believes that the trends seen with respect to Tulare are irreversible
without significant capital expenditures, and thus decided to cease operations.
The lack of availability of funds to provide capital expenditure to modernize
Tulare's production facility was a major factor in management's decision to
cease operations. Management intends to sell all the assets of Tulare Frozen
Foods, LLC to settle its existing accounts payable and apply any excess funds
generated from the liquidation of the assets to the other operations within
Amincor.
With respect to Epic, management determined, after reviewing the market
potential for the niche brand of Volkl Tennis, that it was highly unlikely that
Epic could sustain operations from its own cash flow without substantial
financial support from its parent. The decision to discontinue operations was
made after evaluating the impact that the Samsung financing and the additional
capital provided by its parent have had on operations over the last 12 months.
In accordance with Generally Accepted Accounting Principles of the United States
of America, the combined results of Masonry Supply Holding Corp., Tulare Frozen
Foods, LLC and Epic Sports International, Inc. have been presented on our
financial statements as discontinued operations. It is management's intention to
complete the liquidation of Masonry, Tulare and Epic's assets within the next
twelve months, if not sooner.
RESULTS FROM OPERATIONS FOR THE YEARS ENDED DECEMER 31, 2011 AND 2010
NET REVENUES
Net revenues for the year ended December 31, 2011 totaled $62,297,683 compared
to net revenues of $66,916,423 for year ended December 31, 2010, a decrease in
net revenues of $4,618,740 or approximately 6.9%. The primary reason for the
decrease in net revenues is related to Tyree's operations. Tyree's net revenues
decreased by over $8 million, but the difference was partially offset by an
increase in net revenues for Baker's Pride and the addition of EQS's net
revenues for the year ended December 31, 2011. A detailed analysis of ach
30
subsidiary company's individual net revenue can be found within their respective
management's discussions and analysis sections of this form 10-K.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2011 totaled $48,305,007 or
approximately 77.5% of net revenues compared to $51,406,007 or approximately
76.8% of net revenues for the year ended December 31, 2010. Cost of revenues was
relatively unchanged as a percentage of net revenues between the year ended
December 31, 2011 and December 31, 2010. A detailed analysis of each subsidiary
company's individual cost of revenues can be found within their respective
management's discussions and analysis sections of this form 10-K.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2011 totaled $27,363,962
compared to $15,718,378 for the year ended December 31, 2010, an increase in
operating expenses of $11,645,584 or approximately 74.1%. The primary reason for
the increase in operating expenses is related to the addition of Amincor's
corporate operating expenses in addition to an intangible impairment on Tyree.
Amincor's corporate operating expenses totaled approximately $10.0 million and
the impairment on Tyree's intangibles totaled approximately $1.7 million. A
detailed analysis of each subsidiary company's individual operating expenses can
be found within their respective management's discussions and analysis sections
of this form 10-K.
LOSS FROM OPERATIONS
Loss from operations for the year ended December 31, 2011 totaled $13,371,286
compared to loss from operations of $207,962 for the year ended December 31,
2010, an increase in loss from operations of $13,163,324. The primary reason for
the increase in loss from operations is related to the decreases in net revenues
and the increases in operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the year ended December 31, 2011 totaled $628,307 compared to
$48,885 for the year ended December 31, 2010, an increase in other expenses of
$579,422.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $13,999,593 for the year ended
December 31, 2011 compared to $441,097 for the year ended December 31, 2010, an
increase in net loss from continuing operations of $13,558,496. The primary
reasons for the increase in net loss from continuing operations is related to
the increases in operating expenses and the decrease in net revenues as
mentioned above.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $9,059,608 for the year ended
December 31, 2011 compared to $6,534,123 for the year ended December 31, 2010,
an increase in net loss of $2,525,485 or approximately 38.7%. The net loss from
discontinued operations related to Masonry Supply Holding Corp. was $3,918,111
for the year ended December 31, 2011 compared to $2,492,860 for the year ended
December 31, 2010, an increase in net loss of $1,425,251 or approximately 57.2%.
The primary reason for the increase in net loss was related to asset write downs
associated with the discontinuation of Masonry, including a write off of its
intangible assets, a write down of its property plant, and equipment to its
expected net realizable value, a write down of inventory to its expected net
realizable value and an increase in the reserve on Masonry's existing accounts
receivable. The net loss from discontinued operations related to Tulare Frozen
Foods, LLC was $3,001,639 for the year ended December 31, 2011 compared to a net
loss of $2,718,529 for the year ended December 31, 2010, an increase in net loss
of $283,110 or approximately 11.2%. The primary reason for the increase in net
loss related to the operations of Tulare Frozen Foods, LLC was the inability of
the Tulare to increase prices related to rising raw material costs. The net loss
31
from discontinued operations related to Epic Sports International, Inc. was
$626,677 for the year ended December 31, 2011 compared to a net loss of
$1,683,608 for the year ended December 31, 2010, a decrease in net loss of
$1,056,931 or approximately 62.8%. The primary reasons for the decrease in net
loss was due to overhead reductions related to marketing and promotions, a
reduction in staff and reductions in third party consulting. The remainder of
the net loss from discontinued operations related to Amincor Other Assets which
was $2,034,588 for the year ended December 31, 2011, compared to $471,344 for
the year ended December 31, 2010, an increase in net loss of $1,563,244 or
approximately 331.7%. The primary reason for the increase in net loss was a $1.9
million impairment of property and equipment held for sale in Allentown,
Pennsylvania in 2011.
NET LOSS
Net loss totaled $23,059,201 for the year ended December 31, 2011 compared to
$6,975,220 for the year ended December 31, 2010, an increase in net loss of
$16,083,981. The primary reasons for the increase in net loss is related to the
increases in operating expenses and the decreases in net revenues as mentioned
above. In addition, the additional losses incurred due to write offs and write
down on the discontinued operations further contributed to the decrease in net
increase s between the two periods.
RESULTS FROM OPERATIONS FOR THE YEARS ENDED DECEMER 31, 2010 AND 2009
NET REVENUES
Net revenues for the year ended December 31, 2010 totaled $66,916,423 compared
to $70,894,139 for the year ended December 31, 2009, a decrease in net revenues
of $3,977,716 or approximately 5.6%. The primary reason for the decrease in net
revenues is related to Tyree; Tyree's net revenues decreased by approximately
$3.9 million. A detailed analysis of each subsidiary company's individual net
revenues can be found within their respective management's discussion and
analysis sections of this Form 10-K.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2010 totaled $51,406,007 or
approximately 76.8% of net revenues compared to $56,103,034 or approximately
79.1% of net revenues for the year ended December 31, 2009. Cost of revenues
improved as a percentage of sales for the year ended December 31, 2010 as
Tyree's cost of goods sold as a percentage of its revenues decreased from 82.3%
for the year ended December 31, 2009 versus 79.6% for the year ended December
31, 2010. A detailed analysis of each subsidiary company's individual cost of
revenues can be found within their respective management's discussion and
analysis sections of this Form 10-K.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2010 totaled $15,718,378
compared to $14,454,974 for the year ended December 31, 2009, an increase in
operating expenses of $1,263,404 or approximately 8.7%. The primary reason for
the increase in operating expenses was related to expenses associated with
Amincor's corporate office which was not in operation for the year ended
December 31, 2009. The increase was partially offset by a reduction in operating
expenses of approximately $400,000 during the year ended December 31, 2010 on
Baker's Pride.
32
(LOSS) INCOME FROM OPERATIONS
Loss from operations for the year ended December 31, 2010 totaled ($207,962)
compared to income from operations of $336,131 for the year ended December 31,
2009, a decrease in income from operations of $544,093. The primary reason for
the decrease in income from operations is related to the increases in operating
expenses as noted above.
OTHER EXPENSES
Other expenses for the year ended December 31, 2010 totaled $48,885 compared to
$1,858,197 for the year ended December 31, 2009, a decrease in other expenses of
$1,809,312 or approximately 97.4%. The primary reason for the decrease in other
expenses is related to lower interest expense due to more intercompany financing
of debt in 2010.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations for the year ended December 31, 2010 totaled
$441,097 compared to $1,522,066 for the year ended December 31, 2009, a decrease
in net loss from operations of $1,080,969 or approximately 71.0%. The primary
reason for the decrease in net loss from operations is related to the decreases
in other expenses as noted above.
NET LOSS FROM DISCONTINUED OPERATIONS
Net loss from discontinued operations totaled $6,534,123 for the year ended
December 31, 2010 compared to a net loss from discontinued operations of
$9,926,064 for the year ended December 31, 2009, a decrease in net loss from
discontinued operations of $3,391,941 or approximately 34.2%. The net loss from
discontinued operations related to Masonry Supply Holding Corp. was $2,492,860
for the year ended December 31, 2010 compared to a net loss of $0 for the year
ended December 31, 2009, an increase in net loss of $2,492,860. The primary
reason for the increase in net loss was related Masonry becoming a subsidiary in
2010, as such there were no losses incurred during the year ended December 31,
2009. The net loss from discontinued operations related to Tulare Frozen Foods,
LLC was $2,718,529 for the year ended December 31, 2010 compared to a net loss
of $7,415,801 for the year ended December 31, 2009, a decrease in net loss of
$4,697,272 or approximately 63.3%. The primary reason for the decrease in net
loss was related to improvements in cost of sales and a more favorable interest
rate on Tulare's credit line. The net loss from discontinued operations related
to Epic Sports International, Inc. was $1,683,608 for the year ended December
31, 2010, compared to a net loss of $2,233,572 for the year ended December 31,
2009, a decrease in net loss of $549,964 or approximately 24.6%. The primary
reason for the decrease in net loss was related to a more favorable on ESI's
credit line. The remainder of the net loss from discontinued operations related
to Amincor Other Assets was $471,344 for the year ended December 31, 2010
compared to $756,691 for the year ended December 31, 2009, a decrease in net
loss of $285,347 or approximately 37.7% and related to Allentown property and
equipment designated as an asset held for sale as of June 30, 2010, thus no
depreciation was recorded for Allentown in the second half of 2010.
NET LOSS
Net loss for the year ended December 31, 2010 totaled $6,975,220 compared to
$11,448,130 for the year ended December 31, 2009, a decrease in net loss of
$4,472,910 or approximately 39.1%. The primary reason for the decrease in net
33
loss is related to the improvements in cost of goods sold and more favorable
interest rates as noted above.
BAKER'S PRIDE, INC.
SEASONALITY
During the year ended December 31, 2011, Baker's Pride began producing cookies
at its South Street Bakery facility. Seasonality influences the operations of
the South Street Bakery facility as cookie sales are typically higher during the
winter holiday season when compared to the summer season. Operations at the
Jefferson Street are not influenced by seasonality. However, the donut operation
at the Mt. Pleasant Street operation will greatly be affected by seasonality
once it is operational.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2011 AND 2010
NET REVENUES
Net revenues for the year ended December 31, 2011 totaled $15,968,945 compared
to $13,292,090 for the year ended December 31, 2010, an increase of $2,676,855
or approximately 20.1%. All revenue was generated by BPI's Jefferson Street and
South Street facilities as the Mt. Pleasant facility is awaiting funds to
complete the start-up of donut and brownie production.
Bread sales for the year ended December 31, 2011 totaled $13,565,216 compared to
$12,274,475 for the year ended December 31, 2010, an increase of $1,290,741 or
approximately 10.5%. Factors contributing to this increase were: Effective April
2011, the company was able to increase wholesale prices by approximately 7%. Due
to the April 2011 effective date of this increase an increase of 5.25% in sales
was realized for the year ended December 31, 2011 as related to bread sales. In
late July, BPI's customer wished to convert to granulated cane sugar from using
high fructose corn syrup in the bread BPI produces for them. This change
resulted in an increase of $0.025 in the wholesale price to compensate for the
additional cost of this change. Comparison of the bread category sales between
2010 and 2011 reflected two unusual events. In May 2010, production was halted
at the Jefferson Street Bakery due to a flash flood which resulted in a loss of
sales of $227,375. On December 24, 2010, a fire occurred at a neighboring
building to the Jefferson Street facility resulting in a loss of sales by
$23,695. The customer raised retail prices on some varieties of bread to
compensate for the wholesale price increase which in turn appears to have
resulted in reduction of sales and units produced at the Jefferson Street
facility.
Bread sales on a national level for the year ended December 31, showed a similar
trend as BPI's. Total bread sales for all stores according to Industrial
Research Institute ("IRI") data for all of 2011 indicated a sales increase of
only 1.4% and units showed a decrease of 4.3% for the year. The areas served by
our Jefferson Street Bakery, the Plains and Great Lakes Regions, showed a
decrease in total bread units of approximately the same percentage (4.3%) most
of which came from the Sara Lee and Wonder brands. Management believes that
customers are visiting their food stores less often due to higher gasoline
prices which has caused the aforementioned decrease in total bread units.
Donut sales for the year ended December 31, 2011 totaled $1,142,268 compared to
$1,018,107 for the year ended December 31, 2010, an increase of $124,161 or
approximately 12.2%. The company was able to justify an increase in donut
wholesale prices of 7.0% to compensate for the increases in input costs. Due to
the late April effective date of this price increase, donut sales dollars
34
increased by 5.0% for the year ending December 31, 2011. The amount of the sales
increase for 2011, due to increased unit sales when compared to 2010, amounted
to an increase of $68,162.
Cookie sales for the year ended December 31, 2011 totaled $1,260,243 compared to
$0 for the year ended December 31, 2010. Bakers Pride, Inc. took control of the
Clear Lake Iowa bakery operation in late August 2011.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2011 totaled $11,667,289 or
approximately 73.1% of net revenues compared to $9,120,205 or approximately
68.6% of net revenues for the year ended December 31, 2010, an increase of
$2,547,084 or approximately 27.9%. This was primarily due to the cost of
revenues and the costs related to acquisition and start up of the newly acquired
South Street Bakery. . Much of these increased costs will not be reoccurring
expenses.
Of this increase of $2,547,084 in cost of revenues, the South Street Bakery
generated an increase of $1,491,329 with net revenues of $1,260,243 and the
Jefferson Street Bakery had net sales of $13,292,092 and cost of revenues of
$10,175,961.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2011 totaled $4,853,875 or
approximately 30.4% of net revenues compared to $3,964,582 or 29.8% of net
revenues for the year ended December 31, 2010, an increase of $889,293 or
approximately 22.4%. This increase in operating expenses was primarily due to
the South Street Bakery, the new operation, which added approximately $607,957
to BPI's operating expenses for the 4 1/2 months that the bakery operated in
2011. Much of these expenses are non-reoccurring.
INCOME (LOSS) FROM OPERATIONS
Loss from operations for the year ended December 31, 2011 totaled ($552,219) or
approximately (3.5%) of net revenues compared to income from operations of
$207,303 or approximately 1.6% of net revenues for the year ended December 31,
2010, a decrease in income from operations of $759,522. The decrease in profit
from operations was primarily due to the increases in cost of revenues and
operating expenses associated with the startup of the South Street Bakery.
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2011 totaled $276,696 or
approximately 1.7% of net revenues compared to of $476,916 or approximately 3.6%
of net revenues for the year ended December 31, 2010, a decrease in other
expenses of $200,220 or approximately 42.0%.
Other income for the year ended December 31, 2011 totaled ($64,048) compared to
other income of ($102,776) for the year ended December 31, 2010, a decrease in
other income of $10,914 or approximately 14.6%. The primary reason for the
decrease in other income was a result of a one time insurance payment s due to a
flash flood that occurred in 2010.
Other expenses for the year ended December 31, 2011 totaled $340,743 compared to
other expenses of $579,692 for the year ended December 31, 2010, a decrease s of
$238,949 or approximately 41.2%. The primary reason for this decrease was due to
a decrease in the interest rate on financing agreements.
35
NET LOSS
Net loss for the year ended December 31, 2011 totaled $828,915 compared to a net
loss of $269,613 for the year ended December 31, 2010, an increase s of $559,302
or approximately 207.4%. Of the Company's net loss of $829,915, the South Street
Bakery, Inc. generated $834,904 of this net loss.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 AND 2009
NET REVENUES
Net revenues 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 revenues 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 approximately totaling $230,000; on December
24, 2010 a fire in a neighboring building to the Jefferson Street Bakery
resulted in lost production and sales of approximately $25,000. 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 %.
Bread sales for year ended December 31, 2010 totaled $12,274,475 compared to
$12,171,169 for year ended December 31, 2009, an 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 REVENUES
Cost of revenues for the year ending December 31, 2010 totaled $9,120,205 or
approximately 68.6% of net revenues compared to $9,154,517 or 68.6 % of net
revenues for the year ending December 31, 2009, a decrease of $34,312 or
approximately 0.4%. Cost of revenues 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 or approximately 3.3%.
Moderating input costs in the first half of the 2010 reduced cost of revenues
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
36
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 increase was instituted in March 2011.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2010 totaled $3,964,582 or
approximately 29.8% of net revenues compared to $4,319,410 or approximately
32.4% of net revenues 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 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
Income from operations for the year ended December 31, 2010 totaled $207,303 or
approximately 1.6% of net revenues compared to loss from operations of
($128,353) or approximately (1.0%) of net revenues for the year ended December
31, 2009, an increase in net income of $335,656. The decrease in loss from
operations was primarily due to aforementioned cost of revenues decreases and
general & administration expenses decreases.
OTHER EXPENSES (INCOME)
Other expenses (income) for the year ended December 31, 2010 totaled $476,916 or
approximately 3.6% of net revenues compared to other expenses (income) of
$654,844 or approximately 4.9% of net revenues for the year ended December 31,
2009, a decrease in 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 flash flood.
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.
37
NET LOSS
Net loss for the year ended December 31, 2010 totaled $269,613 compared to
$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 revenues 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.
ENVIROMENTAL QUALITY SERVICES, INC.
EQS was acquired on January 3, 2011 and as such has no historical information
for the year ended December 31, 2010 on which a formal Management's Discussion
and Analysis can be compared to. Management intends to file its first MD&A on
our Form 10-Q filing for the quarter ended March 31, 2012.
TYREE HOLDINGS, INC.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2011 AND 2010
BUSINESS CONDITIONS
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
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.
On December 5, 2011 Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court in the Southern District of New York. This bankruptcy filing
had a significant impact on Tyree operations and financial activities. Although
not finalized, losses from pre-petition accounts receivable is approximately
$1,500,000. Immediately following the bankruptcy filing of GPMI, all ongoing
work with this customer was significantly reduced and plans for Tyree's
restructuring began, including a reduction of approximately 15% in workforce
during the first quarter of 2012.
FINANCING
Tyree maintains a $15,000,000 revolving credit agreement with its Parent Amincor
which expires on January 17, 2013. Borrowings under this agreement are limited
to 70% of eligible accounts receivable and the lesser of 50% of eligible
inventory or $4,000,000. The balances outstanding under this agreement were
$4,629,981 and $4,128,408 as of December 31, 2011 and 2010, respectively.
Borrowings under this agreement are collateralized by a first lien security
interest in all tangible and intangible assets owned by Tyree. Tyree had
$10,370,019 and $10,871,592 of unused amounts available on the revolving credit
agreement at December 31, 2011 and 2010, respectively, subject to borrowing base
limitations. Availability of funding from Amincor is dependent on Amincor's
liquidity. The annual interest rate charged on this loan was approximately 5%
for the years ending December 31, 2011 and 2010.
38
LIQUIDITY
Tyree incurred losses for the year ended December 31, 2011 of ($7,737,817).
Tyree produced an after tax profit of $513,763 for the year ended December 31,
2010.
Weather related problems during the first quarter, coupled with Tyree's largest
customer filing bankruptcy in the fourth quarter, produced large losses and
resulted in corporate cash demands well in excess of available funding.
Management responded with a plan to term out all current vendors. Much was
accomplished during 2011 with $1.9 million moving from accounts payable to long
and short term debt. Management expects most of the remaining e vendors to agree
to terms early in 2012 thus addressing the cash shortfall produced in 2011,
while leaving some availability on Tyree's revolving credit line. Management
believes they have sufficient access to working capital to sustain operations
through December 31, 2012.
In October 2011, management completed a restructuring of operational overhead
that resulted in a reduction of $2.3m of overhead expenses. Eighteen additional
employees were terminated and their related expenses were no longer incurred.
In December 2011 GPMI, tyree's largest customer, filed for Chapter 11
bankruptcy protection as discussed in Item 3 above. In reaction to the same,
management reduced employee headcount by an additional 33 full time employees,
rescheduled AP, reduced management's salaries and continues to negotiate
reductions in its real estate expenses. Realized savings annualized are
approximately $2.8 million as a result of these actions. Total overhead
reductions for the last 6 months are approximately $5.1 million. During the
time, inventory and equipment were also sold. Management continues to analyze
the overhead expense and will continue to reduce it as it works to replace the
business lost as a result of the GPMI bankruptcy filing.
EXISTING CREDIT FACILITIES
Tyree's current revolving credit facility, with its parent Amincor, has an
available credit line of approximately $1,000,000. During 2011, Tyree drew
$1,100,000 early in the year and repaid $598,427 during the year resulting in an
increase in the amounts due to Amincor. The existing credit facility is
sufficient to support the existing business volume of Tyree, but growth will be
difficult until either new working capital is earned through profitable
operations or new equity is invested into Tyree to facilitate organic and
acquisition based growth. The existing credit facility expires on January 17,
2013 which will require management to put in place a new agreement during 2012.
NET REVENUES
Net revenues for the year ended December 31, 2011 totaled $45,311,720 compared
to $53,624,333 for the year ended December 31, 2010, a decrease of $8,312,613 or
approximately 15.5%. The decrease is primarily due to the difficult weather
conditions encountered during the first quarter and the Getty Petroleum
Marketing bankruptcy filing in the fourth quarter:
39
Revenues 2011 2010
-------- ------------ ------------
Service and Construction $ 31,274,327 $ 33,864,874
Environmental, Compliance and Engineering 13,478,242 19,102,598
Manufacturing / International 559,151 656,861
------------ ------------
Total $ 45,311,720 $ 53,624,333
============ ============
COST OF REVENUES
Cost of revenues for the year ended December 31, 2011 totaled $35,936,461 or
approximately 79.3% of net revenues compared to $42,677,354, or 79.6% of net
revenues for the year ended December 31, 2010. The cost of revenues was
basically the same on a percentage of sales basis.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2011 totaled $16,280,658, or
approximately 35.9% of net revenues compared to $10,539,820, or approximately
19.7% of net revenues for the year ended December 31, 2010, an increase of
$5,740,838 or approximately 54.5%. The increase in operating expenses during the
year ended December 31, 2011 was primarily due to one time accounting charges. A
charge was recorded for a provision for doubtful accounts of $1,454,213 to
reserve for pre-petition accounts receivable of Tyree's largest customer
(compared to a reduction of the allowance in 2010 of $512,352). In addition,
intangible assets were written down by $1,717,238 due to a reduction in the
estimated lives of non-compete agreements with officer's of Tyree.
(LOSS) INCOME FROM OPERATIONS
Loss from operations for the year ended December 31, 2011 totaled ($6,905,368),
or approximately (15.2%) of net revenues, compared to the profit from operations
of $407,159, or approximately 0.8% of net revenues for the year ended December
31, 2010, an increase in loss from operations of $7,312,527. The increase in
loss from operations was primarily due to a drastic drop in sales as previously
discussed with the corresponding reduction in operating expenses and the
increase in selling, general and administrative expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the year ended December 31, 2011 totaled $832,449, or
approximately 1.8% of net revenues compared to other income of ($290,854), or
approximately 0.5% of net revenues for the year ended December 31, 2010, an
increase in other expenses of $1,123,303. The increase in other expenses during
the year ended December 31, 2011 was primarily due accounting adjustments in
2010. The majority of the other income in 2010 was related to the reversal of an
opening balance sheet accrual for taxes due to New York state that settled in
late 2010 in addition to certain audit adjustments related to other assumed
liabilities also recorded on the opening balance sheet.
40
NET (LOSS) INCOME
Net loss for the year ended December 31, 2011 totaled ($7,737,817) compared to a
net income of $513,763 for the year ended December 31, 2010, an increase in net
loss of $8,251,580. The increase in net loss was primarily due to the factors
noted above.
RESULTS OF OPERATIONS FOR THE YEAR ENDED DECEMBER 31, 2010 AND 2009
NET REVENUES
Net revenues for the year ended December 31, 2010 totaled $53,624,333 compared
to $57,548,565 for the year ended December 31, 2009, a decrease of $3,924,232 or
approximately 6.8%. The decrease is primarily due to a customer slowdown in
infrastructure capital expenditures.
COST OF REVENUES
Cost of revenues for the year ended December 31, 2010 totaled $42,677,354 or
approximately 79.6% of net revenues compared to $47,340,069, or 82.3% of net
revenues for the year ended December 31, 2009, a decrease of $4,662,715 or
approximately 9.8%. The decrease in cost of revenues 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.
OPERATING EXPENSES
Operating expenses for the year ended December 31, 2010 totaled $10,539,820, or
approximately 19.7% of net revenues compared to $10,831,583, or approximately
18.8% of net revenues for the year ended December 31, 2009, a decrease of
$291,763 or approximately 2.7%. The decrease in operating expenses 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.
INCOME (LOSS) FROM OPERATIONS
Profit from operations for the year ended December 31, 2010 totaled $407,159, or
approximately 0.8% of net revenues, compared to the loss from operations of
($623,087), or approximately (1.1%) of net revenue for the year ended December
31, 2009, an increase in income from operations of $1,030,246. The increase in
profit from operations was primarily due to an improvement in operating margins
reflected in the gross profit, an improvement in managing the accounts
receivable and reductions in selling, general and administrative costs.
OTHER INCOME (EXPENSE)
Other income for the year ended December 31, 2010 totaled $290,854 compared to
other expense 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 tax liability for approximately $641,000 less
than its accrued liability, a refund of federal taxes of approximately $120,000,
and management fees of $740,000.
41
NET INCOME (LOSS)
Net income for the year ended December 31, 2010 totaled $513,763 compared to a
net loss of ($1,826,440) for the year ended December 31, 2009, an increase in
net income of $2,340,203. The increase in net income was primarily due to the
factors noted above net of the increase in income taxes of $184,250.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated financial statements, which have been
prepared in accordance with accounting principles generally accepted in the
United States of America. The preparation of our consolidated financial
statements in accordance with U.S. GAAP requires us to make certain estimates,
judgments and assumptions that affect the reported amount of assets and
liabilities as of the date of the financial statements, the reported amounts and
classification of revenues and expenses during the periods presented, and the
disclosure of contingent assets and liabilities. We evaluate our estimates and
assumptions on an ongoing basis and material changes in these estimates or
assumptions could occur in the future. Changes in estimates are recorded on the
period in which they become known. We base our estimates on historical
experience and various other assumptions that we believe to be reasonable under
the circumstances and at that time, the results of which form the basis for
making judgments about the carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ materially
from these estimates if past experience or other assumptions doe not turn out to
be substantially accurate.
We believe that the accounting policies described below are critical to
understanding out business, results of operations, and financial condition
because they involve significant judgments and estimates used in the preparation
of our consolidated financial statements. An accounting is deemed to be critical
if it requires a judgment or accounting estimate to be made based on assumptions
about matters that are highly uncertain , and if different estimates that could
have been used, or if changes in the accounting estimates that are reasonably
likely to occur periodically , could materially impact our consolidated
financial statements. Other significant accounting policies, primarily those
with lower levels of uncertainty than those discussed below, are also critical
to understanding our consolidated financial statements. The notes to our
consolidated financial statements contain additional information related to our
accounting policies and should be read in conjunction with this discussion.
BASIS OF PRESENTATION
The accompanying consolidated 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
42
intangible assets, depreciation and amortization of property and equipment,
allowances for doubtful accounts and inventory obsolescence, estimates related
to completion of contracts and loss contingencies on particular uncompleted
contracts, and the valuation allowance on deferred tax assets. Actual results
could differ from those estimates.
REVENUE RECOGNITON
BPI
Revenue is recognized from product sales when goods are delivered to the BPI's
shipping dock, and are made available for pick-up by the customer, at which
point title and risk of loss pass to the customer. Customer sales discounts are
accounted for as reductions in revenues in the same period the related sales are
recorded.
TYREE
Maintenance and repair services for several retail petroleum customers are
performed under multi-year, unit price contracts. 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.
Tyree uses the percentage-of-completion method on construction services,
measured by the percentage of total costs incurred to date to estimated total
costs for each contract. This method is used because management considers costs
to date to be the best available measure of progress on these contracts.
Provisions for estimated losses on uncompleted contracts are made in the period
in which overall contract losses become probable. Changes in job performance,
job conditions and estimated profitability, including those arising from final
contract settlements, may result in revisions to costs and income. These
revisions are recognized in the period in which it is probable that the customer
will approve the variation and the amount of revenue arising from the revision
can be reliably measured. An amount equal to contract costs attributable to
claims is included in revenues when negotiations have reached an advance stage
such that it is probable that the customer will accept the claim and the amount
can be measured reliably.
The asset account "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed.
The liability account, "Billings in excess of cost and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Certain revenues were recognized on fixed priced construction contracts and
modified fixed-priced construction contracts on the completed contract method
for the year ended December 31, 2009. 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
revisions, final contract settlements, change order claims, 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
43
that a loss was probable. In the event a provision for estimated losses was
deemed necessary, the entire estimated loss was recognized in the period in
which the determination arose.
EQS
EQS provides environmental testing for its clients that range from smaller
engineering and contractors to well known petroleum companies. EQS submits an
invoice with each report it distributes to its clients. Revenue is recognized as
testing services are performed.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts. The
credit worthiness of customers is analyzed based on historical experience, as
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree,
BPI and EQS extend unsecured credit to customers in the ordinary course of
business but 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.
MORTGAGES/LOANS RECEIVABLE
The mortgages receivable consist of commercial loans collateralized by property
in Pelham Manor, New York. The loans were non-performing and property was in the
process of foreclosure as of December 31, 2011. The value of the mortgages is
based on the fair value of the collateral.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to operations. A loan is
determined to be non-accrual when it is probable that scheduled payments of
principal and interest will not be received when due according to the
contractual terms of the loan agreement. When a loan is placed on non-accrual
status, all accrued yet uncollected interest is reversed from income. Payments
received on non-accrual loans are generally applied to the outstanding principal
balance. Loans are removed from non-accrual status when management believes that
the borrower will resume making the payments required by the loan agreement.
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
44
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived tangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value.
SHARE-BASED COMPENSATION
All share-based awards to employees are measured based on their grant date fair
values and are charged to expenses over the period during which an employee is
required to provide services 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.
RECENT ACCOUNTING PRONOUNCEMENTS
In July 2010, the FASB issued ASU 2010-20, "Receivables (Topic 310) -
Disclosures about the Credit Quality of Financing Receivables and the Allowance
for Credit Losses." The new disclosure guidance expands the existing
requirements and will lead to greater transparency into a company's exposure to
credit losses from lending arrangements. The new disclosures of information as
of the end of a reporting period became effective for both interim and annual
reporting periods ending on or after December 15, 2010. Specific disclosures
regarding activity that occurred before the issuance of the ASU, such as the
allowance roll forward and modification disclosures, is required for periods
beginning on or after December 15, 2010. The Company has included the required
disclosures in its consolidated financial statements.
In September 2011, the FASB issued ASU 2011-08, "Intangibles - Goodwill and
Other (Topic 350) -- Testing Goodwill for Impairment". This amendment allows an
entity to first assess qualitative factors to determine whether it is necessary
to perform the two-step quantitative impairment test. The amendments are
effective for annual and interim goodwill impairment tests performed for fiscal
years beginning after December 15, 2011 and early adoption is permitted. The
Company does not expect this amendment to have an impact on its financial
position, results of operations or cash flows.
The Company has implemented all new accounting pronouncements that are in effect
that are applicable. These pronouncements did not have any material impact on
the consolidated financial statements unless otherwise disclosed, and the
Company does not believe that there are any other new accounting pronouncements
that have been issued that might have a material impact on its financial
position or results of opera
45
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
The following table presents our commitments and contractual obligations as of
December 31, 2011, as well as our debt obligations:
Payments due by Period
---------------------------------------------------------------------------
Total 2012 2013-2014 2015-2016 Thereafter
---------- ---------- ---------- ---------- ----------
Long-term debt obligations $3,647,000 $1,847,000 $1,643,000 $ 157,000 $ --
Loan payable to related party 838,000 838,000 -- -- --
Capital lease obligations 914,000 282,000 501,000 131,000 --
Interest on debt obligations 310,000 157,000 140,000 13,000
Operating lease obligations 1,822,305 779,687 848,038 194,580 --
Other long-term obligations -- -- -- -- --
---------- ---------- ---------- ---------- ----------
Total $7,531,305 $3,903,687 $3,132,038 $ 495,580 $ --
========== ========== ========== ========== ==========
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet financing arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Amincor has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The full text of our audited consolidated financial statements for the three
years ended December 31, 2011 begins on F-1 of this Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS AND FINANCIAL DISCLOSURE
None.
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
46
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
* 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, 2011. Management understands that in
making this assessment, it should use the criteria set forth by the Committee of
47
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, 2011.
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.
* 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.
48
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 68 President and Director 2010
Joseph F. Ingrassia 53 Vice-President, Secretary and Director 2010
Robert L. Olson 68 Chief Financial Officer and Director 2010
Unless otherwise indicated in the biographical information below, there are no
family relationships among members of our management or Amincor, Inc.'s Board of
Directors (the "Board").
JOHN R. RICE III, PRESIDENT AND DIRECTOR
Mr. Rice is the President and a Director of Amincor, Inc. and is jointly
responsible, with Mr. Ingrassia, for monitoring the operation and the
performance of the operating subsidiaries, their management teams, execution of
their business plans and growth strategies, which includes identifying
opportunities, analyzing acquisition or roll up opportunities, divestitures and
investment in the operating subsidiaries since January 9, 2008. In addition to
his duties with his work at Amincor, Mr. Rice is a managing member and principal
of the Capstone group of companies which he co-founded with Joseph F. Ingrassia
in 1994. Mr. Rice was responsible for overseeing international marketing of
Capstone's programs and services to investors, joint venture partners and
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, Inc.
and is jointly responsible, with Mr. Rice, for monitoring the operation and the
performance of the operating subsidiaries, their management teams, execution of
their business plans and growth strategies, which includes identifying
opportunities, analyzing acquisition or roll up opportunities, divestitures and
investment in the operating subsidiaries since January 9, 2008. In addition to
his duties at Amincor, Mr. Ingrassia is a managing member and principal of the
Capstone group of companies which he co-founded with Mr. Rice in 1994. Mr.
Ingrassia was responsible for banking relationships, client and portfolio
management, supervision of due diligence and legal documentation, and accounting
and administration for the Capstone companies. Mr. Ingrassia received a Bachelor
of Arts Degree in psychology from Siena College, in 1980 and an MBA from Golden
Gate University in 1984.
49
ROBERT L. OLSON, CHIEF FINANCIAL OFFICER AND DIRECTOR ("CFO")
Mr. Olson is the Chief Financial Officer and a Director of Amincor, Inc. 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.
SUBSIDIARY COMPANIES' MANAGEMENT BIOGRAPHICAL INFORMATION
The business of Baker's Pride Inc. is managed by its officers:
RON DANKO, CHIEF EXECUTIVE OFFICER, 75
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
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, 58
Mr. Brookhart has been the President of Baker's Pride, Inc. since October 2008
and is responsible for managing and monitoring the operations of The Jefferson
Street Bakery and The Mt. Pleasant Street Bakery, developing operating budgets
to measure profitability, assisting departmental directors in obtaining
established goals, monitoring Food Safety Programs, federal, state and local
regulation compliance, negotiating commodity contracts, product development and
communicating with customers. Mr. Brookhart was responsible for baking
operations and held the position of Vice-President of The Baking Company of
Burlington from January 2007 to October of 2008. From 1983 through December
2006, Mr. Brookhart was the Director of Bakery Operations for Aldi, Inc. and
managed the bakery operation, monitored product quality, developed and monitored
the Fresh Bread Program for Aldi, Inc. and assisted in inspection and selection
of new bakery suppliers as the company expanded. Mr. Brookhart attended American
Institute of Baking Course in Bread Production in 1982 and the Aldi Management
System programs.
The business of Environmental Quality Services, Inc. is managed by its officers:
PATRICIA WERNER-ELS, PRESIDENT, 51
Ms. Werner-Els is the President of Environmental Quality Services, Inc. since
January 2011. She is responsible for the overall operational management of the
50
laboratory which includes the monitoring and review of financial statements to
decrease expenses; standards of performance in quality control and quality
assurance; the validity of the analyses performed and data generated in the
laboratory to assure reliable data. From 1990-2011, Ms. Werner-Els was employed
by Environmental Testing Laboratories, Inc., where she was responsible for
similar duties. From 2006 to 2011, Ms. Werner Els served as President of
Environmental Testing Laboratories, Inc. Ms. Werner-Els received a Bachelors
Degree in Environmental Sciences from Fairleigh Dickinson University, in
Madison, New Jersey in 1983.
The business of Tyree Holdings Corp. is managed by its officers:
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, 50
Mr. Tyree is President and Chief Operating Officer of Tyree Holdings Corp. and
oversees the performance of Sales and Marketing, Business Development groups as
well as the critical support functions of operations. Mr. Tyree is also
responsible for strategic planning and the overall profitability, functions,
development of the corporate business plan. Prior to his present position, he
had been Vice-President of Sales and Marketing and Chief Executive Officer of
The Tyree Organization, Hudson Valley Region, 1994-2001; Director of Remediation
Recovery for Tyree Brothers Environmental Services in Farmingdale, New York,
1985-1994, and Construction Worker for Tyree Brother Environmental Services in
Farmingdale, New York 1983-1985. Mr. Tyree received an A.A.S. degree in Liberal
Sciences from Dean College in 1981 and received a Bachelor of Arts degree in
English Literature and Journalism from Lynchburg College in 1983. Mr. Tyree's
professional affiliations include the American Management Association, the
National Ground Water Association and the New York State Transportation
Association.
WILLIAM M. TYREE, VICE-PRESIDENT, 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
51
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
(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
52
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, 2011.
ITEM 11. EXECUTIVE COMPENSATION
For the fiscal year ended December 31, 2011, Messrs. Rice, Ingrassia and Olson
each earned a salary of $160,000 for their service as executive officers of
Amincor plus the option awards discussed below. While Mr. Lucas is the President
of Epic Sports International, Inc., he does not receive any compensation from
Epic Sports International, Inc. and is currently compensated by the Capstone
group of companies in his role as Vice-President of Account Management.
The table below sets forth the compensation earned by the Chief Executive
Officers of Baker's Pride, Inc, and Tyree Holdings Corp. and the President of
Tulare Holdings, Inc. for the fiscal years ended December 31, 2009, 2010 and
2011. The compensation earned by the Presidents of Environmental Quality
Services, Inc. and Imperia Masonry Supply Corp., for the fiscal year ended
December 31, 2011 are included.
Change in
Pension
Value and
Non-Equity Nonqualified
Name and Incentive Deferred
Principal Stock Option Plan Compensation All Other
Position Year Salary($) Bonus($) Awards($) Awards($)* Compensation($) Earnings($) Compensation($) Totals($)
-------- ---- --------- -------- --------- --------- --------------- ----------- --------------- ---------
Ron Danko 2009 $269,418 None None None None None None $269,418
CEO 2010 $269,418 None None None None None None $269,418
2011 $270,000 None None None None None None $270,000
James 2009 $150,000 None None None None None None $150,000
Fikkert 2010 $150,000 None None None None None None $150,000
President 2010 $150,000 None None None None None None $150,000
53
Richard 2009 $339,690 None None None None None None $339,690
Oswald 2010 $334,179 None None None None None None $334,179
CEO 2011 $394,826 None None None None None None $394,826
David 2011 $165,000 None None None None None None $165,000
Raymes
President
Patricia 2011 $ 96,000 None None None None None None $ 96,000
Els
President
----------
* On April 1, 2011, the Board of Directors of the Registrant approved the grant
of options to purchase common stock to Danko (10,000), Fikkert (10,000), Oswald
(10,000), Els (7,000) and Raymes (5,000) with an exercise price of $1.88. On
each of September 1, 2011 and December 1, 2011, Board of Directors of the
Registrant approved the grant of options to purchase common stock to Danko
(10,000), Fikkert (10,000), Oswald (10,000) and Els (7,000) with an exercise
price of $1.73.
The options exercise price is based on the estimated fair market value of the
Registrant's share price on the date of the grant. The options vest 50% on the
first anniversary of the grant date and 100% on the second anniversary of the
grant date, so long as the optionee is still employed by the Registrant or its
subsidiaries. The options are valid for five years from the grant date and shall
expire thereafter. Each optionee will sign a Non-Qualified Stock Option
Agreement with the Registrant which more fully details the terms and conditions
of the grant.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-ENDED DECEMBER 31, 2011.
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.
On each of April 1, 2011, September 1, 2011 and December 1, 2011, the Board of
Directors of the Registrant approved the grant of options to purchase common
stock to John R. Rice, III, President, Joseph F. Ingrassia, Vice-President and
Robert L. Olson, Chief Financial Officer and certain management and employees of
Registrant and certain officers and employees of its subsidiary companies.
Messrs. Rice, Ingrassia and Olson, were each granted 60,000
54
The options granted have an exercise price of $1.88, $1.73 and $1.73,
respectively, based on the estimated fair market value of the Registrant's share
price on the date of the grant. The options vest 50% on the first anniversary of
the grant date and 100% on the second anniversary of the grant date, so long as
the optionee is still employed by the Registrant or its subsidiaries. The
options are valid for five years from the grant date and shall expire
thereafter. Each optionee will sign a Non-Qualified Stock Option Agreement with
the Registrant which more fully details the terms and conditions of the grant.
COMPENSATION OF DIRECTORS
There was no compensation paid to any director during the fiscal year ended
December 31, 2011 in his capacity as such.
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 30, 2012 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 3,194,160 42.71%
14511 Legends Blvd. N
Ft. Meyers, Florida 33912
Robert L. Olson 38,000 0.51%
24 Brook Hill Lane
Norwalk, CT 06851
All Executive officers and 6,426,320 85.93%
Directors as a Group (3 persons)
55
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, Capstone Credit, LLC and Capstone Capital Group, LLC which
are asset based lenders.
RELATED PARTY TRANSACTIONS
Amincor, Inc. and Baker's Pride, Inc. entered into a loan and security
agreement, dated November 1, 2010, with Capstone Capital Group, LLC, a Delaware
limited liability company, an asset based lender pursuant to which Capstone
Capital Group, LLC provided Baker's Pride, Inc. an $1,000,000 credit line, with
an 18% interest rate, secured by the assets of Bakers' Pride, Inc. Messrs. Rice
and Ingrassia are also the owners and managing members of Capstone Capital
Group, LLC.
INDEPENDENCE OF DIRECTORS
Our current directors are John R. Rice, III, Joseph F. Ingrassia and Robert L.
Olson. We are not currently subject to corporate governance standards defining
the independence of our directors. We have not yet adopted an independence
standard or policy. Accordingly, our Board of Directors currently determines the
independence of each Director and nominee for election as a Director. The Board
of Directors has determined that none of our directors currently qualifies as an
independent director under the standards applied by current federal securities
laws, NASDAQ or the New York Stock Exchange.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table sets forth the fees for professional audit services paid by
us to Rosen Seymour Shapss Martin & Company LLP, our independent registered
public accounting firm for the year ended December 31, 2011:
Audit $289,700
Audit related 97,856
Tax 76,188
Other 2,237
--------
$465,981
========
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, 2010 and the review of our 2011 interim quarterly financial
56
statements included in our Quarterly Reports on Form 10-Q. Audit fees also
relate to the professional services rendered in connection to the audits of our
following operating subsidiaries for the years ended December 31, 2010: Baker's
Pride, Inc, Epic Sports International, Inc., Masonry Supply Holding Corp.,
Tulare Holdings, Inc. and Tyree Holdings Corp.
AUDIT-RELATED FEES
Audit-related fees relate to professional services provided for certain of our
regulatory filings, consultations regarding financial accounting and reporting
standards, and the 2010 audit fees of Tyree Holding Corp.'s employee benefits
plan.
TAX FEES
Tax fees relate to professional services provided in connection with the
preparation of federal, state and local consolidated tax returns of Amincor,
Inc. and our following operating subsidiaries: Baker's Pride, Inc, Epic Sports
International, Inc., Masonry Supply Holding orp., Tulare Holdings, Inc. and
Tyree Holdings Corp.
PRE-APPROVAL POLICIES AND PROCEDURES
Our Board of Directors has authorized, in accordance with the Sarbanes-Oxley Act
of 2002 requiring pre-approval of all auditing services and all audit related,
tax or other services not prohibited under Section 10A(g) of the Securities
Exchange Act of 1934, as amended, to be performed for us by our independent
auditor, subject to the de minimus exception described in Section 10A(i)(1)(B)
of the Exchange Act. The Board of Directors authorized our independent auditor
to perform audit services required in connection with the annual audit relating
to our fiscal years ended December 31, 2010 and December 31, 2011. Our Board of
Directors is responsible for granting pre-approvals of other audit,
audit-related, tax and other services to be performed for us by our independent
auditor.
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) (1) Financial statements and schedules filed as a part of this report are
listed on the "Index to Financial Statements" contained herein. All other
schedules are omitted because (i) they are not required under the instructions,
(ii) they are inapplicable or (iii) the information is included in the financial
statements.
(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)
57
3.3 Certificate of Incorporation of Amincor Contract Administrators,
Inc.(Incorporated by reference to Company's Form 10-K filed on April
18, 2011)
3.4 Certificate of Incorporation of Amincor Other Assets, Inc.
(Incorporated by reference to Company's Form 10-K filed on April 18,
2011)
3.5 Certificate of Incorporation of Baker's Pride, Inc. (Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.6 Certificate of Incorporation of the Mount Pleasant Street Bakery,
Inc.(Incorporated by reference to Company's Form 10-K filed on April
18, 2011)
3.7 Certificate of Incorporation of the Jefferson Street Bakery,
Inc.(Incorporated by reference to Company's Form 10-K filed on April
18, 2011)
3.8 Certificate of Amendment to the Articles of Incorporation of Epic
Sports International, Inc. (Incorporated by reference to Company's
Form 10-K filed on April 18, 2011)
3.9 Certificate of Incorporation of Environmental Holding
Corp.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.10 Certificate of Incorporation of Environmental Quality Services, Inc.
(Incorporated by reference to Company's Form 10-K filed on April 18,
2011)
3.11 Certificate of Incorporation of Masonry Supply Holding
Corp.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.12 Certificate of Incorporation of Imperia Masonry Supply
Corp.(Incorporated by reference to Company's Form 10-K filed on
April 18, 2011)
3.13 Certificate of Incorporation Tulare Holdings, Inc. (Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.14 Articles of Formation Tulare Frozen Foods, LLC(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.15 Certificate of Incorporation Tyree Holdings Corp.(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.16 Certificate of Incorporation Tyree Environmental Corp.(Incorporated
by reference to Company's Form 10-K filed on April 18, 2011)
3.17 Certificate of Incorporation Tyree Equipment Corp.(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.18 Certificate of Incorporation Tyree Service Corp.(Incorporated by
reference to Company's Form 10-K filed on April 18, 2011)
3.19 Certificate of Incorporation The South Street Bakery, Inc.*
58
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)
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)
59
10.14 Strategic Alliance Agreement, dated October 26, 2010, by and between
Epic Sports International, Inc and Samsung C&T America, Inc.
(Incorporated by reference to Company's Current Report on Form 8-K
filed on October 29, 2010)
10.15 Option Agreement, dated October 26, 2010, for Samsung to Purchase
Shares of Epic Sports International, Inc. (Incorporated by reference
to Company's Current Report on Form 8-K filed on October 29, 2010)
10.16 Form of Non-Qualified Stock Option Agreement, dated December 31,
2010 (Incorporated by reference to Company's Current Report on Form
8-K filed on January 26, 2011)
10.17 Surrender of Collateral, Strict Foreclosure and Release Agreement,
dated January 3, 2011 for the assets to be assigned to Environmental
Quality Services, Inc. (Incorporated by reference to Company's
Current Report on Form 8-K filed on January 26, 2011)
10.18 Loan and Security Agreement, dated November 1, 2010, by and among
Amincor, Inc., Baker's Pride, Inc. and Capstone Capital Group,
LLC(Incorporated by reference to Company's Form 10-K filed on April
18, 2011)
10.19 License Agreement, dated January 1, 2011, by and between Amincor,
Inc. and Brescia Apparel Corp.(Incorporated by reference to
Company's Form 10-K filed on April 18, 2011)
10.20 Transition Services Agreement, dated as of December 31, 2009, by and
among Capstone Capital Group I, LLC, Capstone Business Credit, LLC,
Capstone Capital Management, Inc., Capstone Trade Partners, Ltd. and
Joning, Corp.(Incorporated by reference to Company's Form 10-K filed
on April 18, 2011)
10.21 Amendment to Transition Services Agreement, dated as of December 31,
2010, by and among Capstone Capital Group I, LLC, Capstone Business
Credit, LLC, Capstone Capital Management, Inc., Capstone Trade
Partners, Ltd. and Joning, Corp. (Incorporated by reference to
Company's Form 10-K filed on April 18, 2011)
10.22 Loan Agreement, by and between South Street Bakery and Central State
Bank, dated January 27, 2012 (Incorporated by reference to Company's
Form 10-K filed on April 16, 2012)
14.1 Code of Ethics(Incorporated by reference to Company's Form 10-K
filed on April 18, 2011)
21 Organizational Chart of Amincor, Inc. and its
subsidiaries(Incorporated by reference to Company's Form 10-K filed
on April 18, 2011)
31.1 Chief Executive Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
31.2 Chief Financial Officer's Certificate, pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.*
32.1 Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
60
32.2 Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.*
99.1 Lease for Tulare Premises (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
99.2 Tulare Equipment Lease (Incorporated by reference to Company's
Registration Statement on Form 10 filed on August 4, 2010)
99.3 Amendment to Lease for Tulare Premises (Incorporated by reference to
Company's Registration Statement on Form 10 filed on August 4, 2010)
99.4 Amendment to Tulare Equipment Lease (Incorporated by reference to
Company's Registration Statement on Form 10 filed on August 4, 2010)
99.5 Organizational Chart - Capstone companies (Incorporated by reference
to Company's Registration Statement on Form 10 Amendment No. 2 filed
on January 7, 2011)
99.6 Organizational Chart - Tulare Holdings, Inc. (Incorporated by
reference to Company's Registration Statement on Form 10 Amendment
No. 2 filed on January 7, 2011)
99.7 Lease Agreement, dated August 12, 2011, by and among Corbi
Properties, LLC, Clear Lake Specialty Products, Inc. and The South
Street Bakery, Inc. (Incorporated by reference to Company's Form
10-Q filed on August 16, 2011)
99.8 Option Agreement, dated August 12, 2011, by and among Corbi
Properties, LLC, Clear Lake Specialty Products, Inc. and The South
Street Bakery, Inc. (Incorporated by reference to Company's Form
10-Q filed on August 16, 2011)
101 Interactive Data Files pursuant to Rule 405 of Regulation
S-T.(Incorporated by reference to Company's Form 10-K/A filed on
April 19, 2012)
* filed herewith
61
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 30, 2012
/s/ John R. Rice, III
--------------------------------------------
By: John R. Rice, III, President
Date: April 30, 2012
/s/ Robert L. Olson
--------------------------------------------
By: Robert L. Olson, Chief Financial Officer
BOARD OF DIRECTORS
Date: April 30, 2012
/s/ John R. Rice, III
--------------------------------------------
John R. Rice, III, Director
/s/ Joseph F. Ingrassia
--------------------------------------------
Joseph F. Ingrassia, Director
/s/ Robert L. Olson
--------------------------------------------
By: Robert L. Olson, Director
62
AMINCOR, INC. AND SUBSIDIARIES
INDEX TO CONSOLIDATED OR COMBINED FINANCIAL STATEMENTS
THREE YEARS ENDED DECEMBER 31, 2011
PAGE
----
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
CONSOLIDATED OR COMBINED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2011 and 2010 F-3
Consolidated or Combined Statements of Operations for the Three
Years Ended December 31, 2011 F-5
Consolidated or Combined Statements of Changes in Shareholders' Equity
for the Three Years Ended December 31, 2011 F-6
Consolidated or Combined Statements of Cash Flows for the Three
Years Ended December 31, 2011 F-7
Notes to Consolidated or Combined Financial Statements F-8
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
Amincor, Inc.
We have audited the accompanying consolidated balance sheets of Amincor, Inc.
and Subsidiaries (the "Company") as of December 31, 2011 and 2010, and the
related consolidated or combined statements of operations, changes in
stockholders' equity, and cash flows for each of the years in the three-year
period ended December 31, 2011. Amincor's management is responsible for these
financial statements. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform an audit of its internal control over
financial reporting. Our 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. Accordingly, we express no such opinion. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated or combined financial statements referred to
above present fairly, in all material respects, the financial position of the
Company as of December 31, 2011 and 2010, and the results of its operations and
its cash flows for each of the years in the three-year period ended December 31,
2011, 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 13, 2012
F-2
Amincor, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2011 and 2010
2011 2010
------------ ------------
ASSETS
CURRENT ASSETS:
Cash $ 1,286,240 $ 2,607,325
Accounts receivable, net of allowance of $1,903,626
and $450,000 in 2011 and 2010, respectively 8,005,935 8,596,583
Note receivable -- 522,501
Due from related parties -- 1,717,332
Inventories, net 4,473,245 3,369,862
Costs and estimated earnings in excess
of billings on uncompleted contracts 381,931 279,152
Prepaid expenses and other current assets 936,027 714,659
Current assets - discontinued operations 5,217 1,601,268
------------ ------------
Total current assets 15,088,595 19,408,682
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET 11,633,966 12,583,704
PROPERTY, PLANT AND EQUIPMENT, NET - DISCONTINUED OPERATIONS 598,106 2,379,035
------------ ------------
Total property, plant and equipment, net 12,232,072 14,962,739
------------ ------------
OTHER ASSETS:
Mortgages receivable, net of allowance for credit losses of
$180,000 and $0 in 2011 and 2010, respectively 6,000,000 6,180,000
Goodwill 15,882,388 15,346,400
Other intangible assets, net 9,742,458 13,196,032
Other assets 513,305 470,440
Assets held for sale 2,667,433 9,082,260
Other assets - discontinued operations 75,000 1,771,821
------------ ------------
Total other assets 34,880,584 46,046,953
------------ ------------
Total assets $ 62,201,251 $ 80,418,374
============ ============
F-3
Amincor, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2011 and 2010
2011 2010
------------ ------------
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable $ 10,206,720 $ 7,668,395
Assumed liabilities - current portion 2,088,899 2,480,921
Accrued expenses and other current liabilities 2,765,709 3,159,318
Loans payable to related party 838,485 713,930
Notes payable - current portion 1,846,565 333,764
Capital lease obligations - current portion 220,274 138,474
Billings in excess of costs and estimated earnings on
uncompleted contracts 1,105,741 536,825
Deferred revenue 666,558 474,000
Current liabilities - discontinued operations 4,569,594 5,625,834
------------ ------------
Total current liabilities 24,308,545 21,131,461
------------ ------------
LONG-TERM LIABILITIES:
Assumed liabilities - net of current portion 190,997 28,375
Capital lease obligations - net of current portion 543,617 450,342
Notes payable - net of current portion 1,800,371 1,587,937
Due to related party 894,837 --
Other long-term liabilities 18,313 21,661
Long-term liabilities - discontinued operations -- 254,826
------------ ------------
Total long-term liabilities 3,448,135 2,343,141
------------ ------------
Total liabilities 27,756,680 23,474,602
------------ ------------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
AMINCOR SHAREHOLDERS' EQUITY:
Convertible preferred stock, $0.001 par value per share; 3,000,000
authorized, 1,752,823 issued and outstanding 1,753 1,753
Common stock - class A; $0.001 par value; 22,000,000
authorized, 7,478,409 issued and oustanding 7,478 7,478
Common stock - class B; $0.001 par value; 40,000,000
authorized, 21,176,262 issued and oustanding 21,176 21,176
Additional paid-in capital 87,025,401 86,465,401
Accumulated deficit (50,038,363) (28,075,512)
------------ ------------
Total Amincor shareholders' equity 37,017,445 58,420,296
------------ ------------
NON-CONTROLLING INTEREST (2,572,874) (1,476,524)
------------ ------------
Total equity 34,444,571 56,943,772
------------ ------------
Total liabilities and shareholders' equity $ 62,201,251 $ 80,418,374
============ ============
The accompanying notes are an integral part of
these consolidated financial statements
F-4
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statements of Operations
Three Years Ended December 31, 2011
2011 2010 2009
------------ ------------ ------------
(consolidated) (restated and (restated and
combined) combined)
Net revenues $ 62,297,683 $ 66,916,423 $ 70,894,139
COST OF REVENUES 48,305,007 51,406,007 56,103,034
------------ ------------ ------------
Gross profit 13,992,676 15,510,416 14,791,105
SELLING, GENERAL AND ADMINISTRATIVE 27,363,962 15,718,378 14,454,974
------------ ------------ ------------
(Loss) income from operations (13,371,286) (207,962) 336,131
------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 459,793 1,022,725 1,935,297
Other expenses (income) 168,514 (973,840) (77,100)
------------ ------------ ------------
Total other expenses (income) 628,307 48,885 1,858,197
------------ ------------ ------------
Loss before provision for income taxes (13,999,593) (256,847) (1,522,066)
Provision for income taxes -- 184,250 --
------------ ------------ ------------
Net loss from continuing operations (13,999,593) (441,097) (1,522,066)
------------ ------------ ------------
Loss from discontinued operations (9,059,608) (6,534,123) (9,926,064)
Net loss (23,059,201) (6,975,220) (11,448,130)
------------ ------------ ------------
Net loss attributable to non-controlling interests (1,096,350) (270,770) (642,143)
------------ ------------ ------------
Net loss attributable to Amincor shareholders $(21,962,851) $ (6,704,450) $(10,805,987)
============ ============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS -
BASIC AND DILUTED:
Net loss from continuing operations $ (0.49) $ (0.02) $ (0.05)
============ ============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 28,654,671 27,701,869
============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR SHAREHOLDERS -
BASIC AND DILUTED:
Net loss attributable to Amincor shareholders $ (0.77) $ (0.23) $ (0.39)
============ ============ ============
Weighted average shares outstanding - basic and diluted 28,654,671 28,654,671 27,701,869
============ ============ ============
The accompanying notes are an integral part of
these consolidated or combined financial statements
F-5
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statements of Changes in Shareholders' Equity
Three Years Ended December 31, 2011
Amincor, Inc. and Subsidiaries
--------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
------------------ ------------------- -------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balance at December 31, 2008 -
restated and combined 1,673,740 $1,674 74,780,409 $7,478 20,220,843 $20,221
--------- ------ ---------- ------ ---------- -------
Acquisition of subsidiary by
the Capstone Group 79,083 79 -- -- 955,419 955
Conversion of loans from related parties -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------ ---------- -------
Balance at December 31, 2009 -
restated and combined 1,752,823 1,753 74,780,409 7,478 21,176,262 21,176
--------- ------ ---------- ------ ---------- -------
Conversion of loans from related parties -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------ ---------- -------
Balance at December 31, 2010 - consolidated 1,752,823 1,753 74,780,409 7,478 21,176,262 21,176
--------- ------ ---------- ------ ---------- -------
Acquisition of Environmental Quality Services, Inc -- -- -- -- -- --
Share-based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ ---------- ------ ---------- -------
Balance at December 31, 2011 - consolidated 1,752,823 $1,753 74,780,409 $7,478 21,176,262 $21,176
========= ====== ========== ====== ========== =======
Amincor, Inc. and Subsidiaries
------------------------------
Additional
Paid-in Accumulated Non-controlling Total
Capital Deficit Interest Equity
------- ------- -------- ------
Balance at December 31, 2008 -
restated and combined $58,493,248 $(10,565,075) $ (563,611) $ 47,393,935
----------- ------------ ----------- ------------
Acquisition of subsidiary by
the Capstone Group 2,760,797 -- -- 2,761,831
Conversion of loans from related parties 17,164,227 -- -- 17,164,227
Net loss -- (10,805,987) (642,143) (11,448,130)
----------- ------------ ----------- ------------
Balance at December 31, 2009 -
restated and combined 78,418,272 (21,371,062) (1,205,754) 55,871,863
----------- ------------ ----------- ------------
Conversion of loans from related parties 8,047,129 -- -- 8,047,129
Net loss -- (6,704,450) (270,770) (6,975,220)
----------- ------------ ----------- ------------
Balance at December 31, 2010 - consolidated 86,465,401 (28,075,512) (1,476,524) 56,943,772
----------- ------------ ----------- ------------
Acquisition of Environmental Quality Services, Inc 145,000 -- -- 145,000
Share-based compensation 415,000 -- -- 415,000
Net loss -- (21,962,851) (1,096,350) (23,059,201)
----------- ------------ ----------- ------------
Balance at December 31, 2011 - consolidated $87,025,401 $(50,038,363) $(2,572,874) $ 34,444,571
=========== ============ =========== ============
The accompanying notes are an integral part of
these consolidated or combined financial statements
F-6
Amincor, Inc. and Subsidiaries
Consolidated or Combined Statements of Cash Flows
Three Years Ended December 31, 2011
2011 2010 2009
------------ ------------ ------------
(consolidated) (restated and (restated and
combined) combined)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $(13,999,593) $ (441,097) $ (1,522,066)
Adjustments to reconcile net loss to net cash
(used in) provided by operating activities:
Depreciation and amortization of property, plant
and equipment 1,821,599 1,972,129 1,834,957
Amortization of intangible assets 3,589,075 1,871,336 1,871,340
Share based compensation 415,000 -- --
Gain on sale of equipment (79,272) (20,981) --
Provision for doubtful accounts (recovery of bad debts) 4,096,616 (296,675) 314,198
Provision for credit losses 180,000 -- --
Changes in assets and liabilities:
Accounts receivable (880,485) 1,459,422 781,247
Due from related parties -- 2,680,926 (2,680,926)
Inventories (1,103,383) (439,841) 350,513
Costs and estimated earnings in excess of billings
on uncompleted contracts (102,779) (165,816) (21,112)
Construction in process -- -- 6,251,783
Prepaid expenses and other current assets (284,877) (55,402) 84,942
Other assets (42,865) 148,468 138,014
Accounts payable 4,457,546 708,055 622,966
Accrued expenses and other current liabilities (102,924) 1,213,615 852,604
Billings in excess of costs and estimated earnings
on uncompleted contracts 568,916 (820,953) 1,272,796
Billings on construction -- -- (6,757,457)
Deferred revenue 192,558 -- (63,347)
Other long-term liabilities (3,348) (848) 22,509
------------ ------------ ------------
NET CASH (USED IN) PROVIDED BY OPERATIONS - CONTINUING OPERATIONS (1,278,216) 7,812,338 3,352,961
------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (135,644) (95,198) (1,839,390)
Proceeds from sale of equipment 135,546 37,454 --
------------ ------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (98) (57,744) (1,839,390)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) advances from related parties (13,312) (1,003,402) 821,202
Proceeds (payments) of loans with related parties 124,555 -- (324,071)
Principal payments of capital lease obligations (158,853) (71,992) --
Net (payments) proceeds from notes payable (230,832) 113,639 891,557
Payments of assumed liabilities (591,598) (1,772,486) (2,593,631)
------------ ------------ ------------
NET CASH USED IN FINANCING ACTIVITIES - CONTINUING OPERATIONS (870,040) (2,734,241) (1,204,943)
------------ ------------ ------------
Net cash used in operating activities - discontinued operations (5,332,732) (3,259,349) (18,027,073)
Net cash provided by (used in) investing activities -
discontinued operations 6,414,827 603,866 (1,347,814)
Net cash (used in) provided by financing activities -
discontinued operations (254,826) (82,904) 19,373,852
------------ ------------ ------------
(Decrease) increase in cash (1,321,085) 2,281,966 307,593
Cash, beginning of year 2,607,325 325,359 17,766
------------ ------------ ------------
Cash, end of year $ 1,286,240 $ 2,607,325 $ 325,359
============ ============ ============
Supplemental disclosure of cash flow information:
Cash paid during the year for:
Interest $ 1,100,817 $ 1,305,271 $ 5,546,571
============ ============ ============
Income taxes $ 57,640 $ 37,396 $ 116,387
============ ============ ============
Non-cash investing activities:
Acquisition of the assets and assumption of liabilities
of predecessor company to Masonry Supply Holding Corp. $ -- $ -- $ 2,760,797
============ ============ ============
Acquisition of the assets and assumption of liabilities
of predecessor company to Enviromental Quality Services, Inc. $ 145,000 $ -- $ --
============ ============ ============
Conversion of loans from related parties $ -- $ 8,047,129 $ 17,163,171
============ ============ ============
Acquisition of equipment by capital leases and notes payable $ 333,928 $ 660,808 $ --
============ ============ ============
The accompanying notes are an integral part of
these consolidated or combined financial statements
F-7
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor" or the "Company") was incorporated under the name GSE
Group, Inc. under the laws of the state of Nevada on October 8, 1997. GSE Group,
Inc. subsequently changed its name to Global Stock Exchange Corp. and on April
28, 2000, Global Stock Exchange Corp. changed its name to Joning Corp.
("Joning"). On February 2, 2010 Joning changed its name to Amincor, Inc.
In January 2010, Amincor entered into letters of intent to acquire all or a
majority of the outstanding stock of the following companies: Tulare Holdings,
Inc., Tyree Holdings Corp., Epic Sports International, Inc., Baker's Pride Inc.,
Imperia Masonry Supply Corp., Whaling Distributors, Inc. and Allentown Metal
Works, Inc. All of such letters of intent were subject to completion of
satisfactory due diligence. After completion of its due diligence review,
Amincor terminated the letters of intent to acquire Allentown Metal Works, Inc.
and Whaling Distributors, Inc. and completed the acquisition of Tulare Holdings,
Inc., Tyree Holdings Corp., Epic Sports International, Inc., Baker's Pride Inc.
and Imperia Masonry Supply Corp.
Amincor is headquartered in New York, New York. As of December 31, 2011, the
following are operating subsidiaries of Amincor:
Baker's Pride, Inc. ("BPI")
Tyree Holdings Corp. ("Tyree")
Environmental Quality Services, Inc. ("EQS")
Amincor Other Assets, Inc. ("Other Assets")
Amincor Contracts Administrators, Inc. ("Contract Admin")
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread in addition to fresh and frozen
varieties of cookies for a national supermarket and its food service channels
throughout the Midwest and Eastern region of the United States. BPI operates
facilities in Burlington and Clear Lake, Iowa and is headquartered in
Burlington, Iowa.
TYREE
Tyree performs maintenance, repair and construction services to customers with
underground petroleum storage tanks and petroleum product dispensing equipment.
Complimenting these services, Tyree is engaged in environmental consulting, site
assessment, analysis and management of site remediation for owners and operators
of property with petroleum storage facilities. Tyree markets its services
throughout the Northeast, Mid-Atlantic and Southern California regions of the
United States to national and multinational enterprises, as well as to local and
national governmental agencies and municipalities. The majority of the Tyree's
F-8
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
revenue is derived from customers in the Northeastern United States. Tyree's
headquarters are located in Mt. Laurel, New Jersey.
EQS
EQS provides environmental and hazardous waste testing in the Northeastern
United States, and is headquartered in Farmingdale, New York.
OTHER ASSETS
Other Assets was incorporated to hold real estate, equipment and loan
receivables. As of December 31, 2011, all of Other Assets' real estate and
equipment are classified as held for sale.
CONTRACT ADMIN
Contract Admin was incorporated to manage contracts which were entered into by
Amincor but performed by Tyree.
DISCONTINUED OPERATIONS
During the year ended December 31, 2011, Amincor adopted a plan to discontinue
the operations of the following entities within the next twelve months:
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings", or "Tulare")
Epic Sports International, Inc. ("ESI")
MASONRY
Up to the date operations were discontinued, Masonry manufactured and
distributed concrete and lightweight block to the construction industry. IMSC
also operated a retail home center and showroom, where they sold masonry related
products, hardware and building supplies to customers. Masonry's headquarters,
showroom and operating facility were located in Pelham Manor, New York.
TULARE HOLDINGS
Up to the date operations were discontinued, Tulare prepared and packaged frozen
vegetables (primarily spinach), from produce supplied by growers, for the food
service and retail markets throughout southern California and the southwestern
United States. Tulare sold to retailers under a private label, and to food
brokers and retail food stores under the Tulare Frozen Foods label. Tulare's
headquarters and processing facility was located in Lindsay, California.
F-9
ESI
Up to the date operations were discontinued, ESI was the worldwide licensee for
the Volkl and Boris Becker Tennis brands. In 2010, ESI became the exclusive
sales representative of Volkl and Becker products for Samsung C&T America, Inc.
ESI sold their products domestically through retailers located throughout the
United States, and internationally through International Distributors who would
sell to retailers in their local markets and on-line retailers. ESI was
headquartered in New York, New York.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated 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 of property, plant and
equipment, allowances for doubtful accounts and inventory obsolescence,
estimates related to completion of contracts and loss contingencies on
particular uncompleted contracts, and the valuation allowance on deferred tax
assets. Actual results could differ from those estimates.
REVENUE RECOGNITON
BPI
Revenue is recognized from product sales when goods are delivered to the BPI's
shipping dock, and are made available for pick-up by the customer, at which
point title and risk of loss pass to the customer. Customer sales discounts are
accounted for as reductions in revenues in the same period the related sales are
recorded.
TYREE
Maintenance and repair services for several retail petroleum customers are
performed under multi-year, unit price contracts ("Tyree Contracts"). Under
F-10
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
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.
Tyree uses the percentage-of-completion method on construction services,
measured by the percentage of total costs incurred to date to estimated total
costs for each contract. This method is used because management considers costs
to date to be the best available measure of progress on these contracts.
Provisions for estimated losses on uncompleted contracts are made in the period
in which overall contract losses become probable. Changes in job performance,
job conditions and estimated profitability, including those arising from final
contract settlements, may result in revisions to costs and income. These
revisions are recognized in the period in which it is probable that the customer
will approve the variation and the amount of revenue arising from the revision
can be reliably measured. An amount equal to contract costs attributable to
claims is included in revenues when negotiations have reached an advance stage
such that it is probable that the customer will accept the claim and the amount
can be measured reliably.
The asset account "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed.
The liability account, "Billings in excess of cost and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
Revenues on fixed priced construction contracts and modified fixed-priced
construction contracts started before January 1, 2009 were recognized on the
completed contract method. All such contracts were completed before December 31,
2009. 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 revisions, final contract settlements, change order
claims, other contract revisions were recognized at the completion of the
contract. Provision for estimated losses on uncompleted contracts was made when
it had been determined that a loss was probable. In the event a provision for
estimated losses was deemed necessary, the entire estimated loss was recognized
in the period in which the determination arose.
EQS
EQS provides environmental testing for its clients that range from smaller
engineering and contractors to well known petroleum companies. EQS submits an
invoice with each report it distributes to its clients. Revenue is recognized as
testing services are performed.
F-11
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
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 is analyzed based on historical experience, as
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree,
BPI and EQS extend unsecured credit to customers in the ordinary course of
business but mitigate the associated risks by performing credit checks and
actively pursuing past due accounts. Tyree follows the practice of filing
statutory "mechanics" liens on construction projects where collection problems
are anticipated.
MORTGAGES RECEIVABLE
The mortgages receivable consist of commercial loans collateralized by property
in Pelham Manor, New York. The loans were non-performing and property was in the
process of foreclosure as of December 31, 2011. The value of the mortgages is
based on the fair value of the collateral.
ALLOWANCE FOR LOAN LOSES
The allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to operations. A loan is
determined to be non-accrual when it is probable that scheduled payments of
principal and interest will not be received when due according to the
contractual terms of the loan agreement. When a loan is placed on non-accrual
status, all accrued yet uncollected interest is reversed from income. Payments
received on non-accrual loans are generally applied to the outstanding principal
balance. Loans are removed from non-accrual status when management believes that
the borrower will resume making the payments required by the loan agreement.
F-12
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
INVENTORIES
Inventories are stated at the lower of cost or market using the first-in,
first-out method. Market is determined based on the net realizable value with
appropriate consideration given to obsolescence, excessive levels and other
market factors. An inventory reserve is recorded if the carrying amount of the
inventory exceeds its estimated market value.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost and the related depreciation is
computed using the straight-line method over the estimated useful lives of the
respective assets. Expenditures for repairs and maintenance are charged to
operations as incurred. Renewals and betterments are capitalized. Upon the sale
or retirement of an asset, the related costs and accumulated depreciation are
removed from the accounts and any gain or loss is recognized in the results of
operations.
Leasehold improvements are amortized over the lesser of the estimated life of
the asset or the lease term.
GOODWILL AND INTANGIBLE ASSETS
Goodwill represents the cost of acquiring a business that exceeds the net fair
value ascribed to its identifiable assets and liabilities. Goodwill and
indefinite-lived intangibles are not subject to amortization but are tested for
impairment annually and whenever events or circumstances change, such as a
significant adverse change in the economic climate that would make it more
likely than not that impairment may have occurred. If the carrying value of
goodwill or an indefinite-lived intangible asset exceeds its fair value, an
impairment loss is recognized.
Intangible assets with finite lives are recorded at cost less accumulated
amortization. Finite-lived tangible assets are amortized on a straight-line
basis over the expected useful lives of the respective assets.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company evaluates the fair value of long-lived assets on an annual basis or
whenever events or changes in circumstances indicate that its carrying amounts
may not be recoverable. Accordingly, any impairment of value is recognized when
the carrying amount of a long-lived asset exceeds its fair value.
INCOME TAXES
The Company accounts for income taxes using the liability method, which provides
for an asset and liability approach to accounting for income taxes. Under this
method, deferred tax assets and liabilities are recorded for future tax effects
F-13
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
of temporary differences between the financial reporting and tax basis of assets
and liabilities, and measured when using the current tax rates and laws that are
expected to be in effect when the underlying assets or liabilities are
anticipated to be recovered or settled. Valuation allowances are established,
when necessary, to reduce deferred tax assets to the amount of tax benefits
expected to be realized.
GAAP requires that, in applying the liability method, the financial statement
effects of an uncertain tax position be recognized based on the outcome that is
more likely than not to occur. Under this criterion the most likely resolution
of an uncertain tax position should be analyzed based on technical merits and on
the outcome that would likely be sustained under examination.
FAIR VALUE MEASUREMENT
Financial instruments and certain non-financial assets and liabilities are
measured at their fair value as determined based on the assets highest and best
use. GAAP has established a framework for measuring fair value that is based on
a hierarchy which requires that the valuation technique used be based on the
most objective inputs available for measuring a particular asset or liability.
There are three board levels in the fair value hierarchy which describe the
degree of objectivity of the inputs used to determine fair value. The fair value
hierarchy is set forth as below:
Level 1 - inputs to the valuation methodology and quoted prices (unadjusted) for
identical assets or liabilities in active markets.
Level 2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are
observable for the asset or liability, either directly or indirectly,
for substantially the full term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement. They are based on best information
available in the absence of level 1 and 2 inputs.
The fair value of all Company's financial instruments is approximately the same
as their carrying amounts.
EARNINGS (LOSS) PER SHARE
Basic earnings (loss) per share is computed by dividing net income (loss)
available to common stockholders by the weighted-average number of common shares
outstanding for the period. Diluted earnings (loss) per share considers the
potential dilution that could occur if securities or other contracts to issue
common stock were exercised or could otherwise cause the issuance of common
stock. Such contracts include stock options, convertible notes and convertible
preferred stock, which when exercised or converted into common stock would cause
the issuance of common stock that then would share in earnings (loss). Such
potential additional common shares are included in the computation of diluted
F-14
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
earnings per share. Diluted loss per share is not computed because any potential
additional common shares would reduce the reported loss per share and therefore
have an antidilutive effect.
SHARE-BASED COMPENSATION
All share-based awards are measured based on their grant date fair values and
are charged to expenses over the period during which the required services are
provided in exchange for the award (the vesting period). Share-based awards are
subject to specific vesting conditions. Compensation cost is recognized over the
vesting period based on the grant date fair value of the awards and the portion
of the award that is ultimately expected to vest.
ADVERTISING COSTS
Advertising costs are charged to expense as incurred and are included in
selling, general and administrative costs on the consolidated combined
statements of operations. Advertising expenses were approximately $74,000,
$104,000 and $68,000 for the years ended December 31, 2011, 2010 and 2009,
respectively.
3. BUSINESS COMBINATIONS
The Company's acquisition of five of its subsidiaries (BPI, Tyree, Masonry,
Tulare, and ESI) in 2010 has been accounted for using the pooling-of-interest
method because they were all under common control. Therefore, as required by
GAAP for business combinations for entities under common control, the financial
statements presented reflect a combination of the financial statements for each
subsidiary since it came under common control.
The Company acquired the assets, assumed certain liabilities and began operating
the business of Masonry Supply Holding Corp. on December 31, 2009. The
acquisition was accounted for using the acquisition method which requires the
acquirer to recognize the assets acquired, the liabilities assumed, and any
non-controlling interest in the acquiree at their acquisition date their fair
values. Under the acquisition method acquisition costs, such as legal,
accounting or consulting fees which are incurred in connection with the
acquisition are charged to expenses. Acquisition costs incurred in connection
with the acquisition of Masonry's business were negligible.
In connection with the acquisitions, the Company assumed liabilities for the
payment of certain delinquent accounts payable, income taxes, litigation
settlements and other specified liabilities. The Company has since negotiated
repayment terms with the majority of the parties owed. The remaining amounts due
are non-interest bearing and have terms ranging in duration from 1 to 48 months.
The balance of these assumed liabilities totaled approximately $2,280,000 and
$2,510,000 as of December 31, 2011 and 2010, respectively.
F-15
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
EQS
On January 3, 2011, the Company acquired all of the assets and assumed some of
the liabilities of Environmental Testing Laboratories, Inc. ("ETL Business"), a
company in the business of providing environmental testing and laboratory
services in exchange for forgiving the debt of the former owner. The Company
assigned the ETL Business to EQS.
The Company accounted for the EQS acquisition as a business combination and the
total consideration of $145,000 has been allocated to the net assets acquired
and liabilities assumed based on their respective estimated fair values at
January 3, 2011 as follows:
Amount
----------
Equipment $ 395,054
Other intangibles 135,000
Accounts payable (36,844)
Assumed liabilities (362,198)
Note payable (522,000)
----------
Total identifiable net liabilities assumed (390,988)
----------
Goodwill 535,988
----------
Net assets acquired $ 145,000
==========
Since the acquisition date, the revenues and net loss of EQS was approximately
$1,251,000 and $461,000, respectively, which are included in the accompanying
2011 consolidated statement of operations.
Pro forma information for the operations of EQS for the periods prior to
acquisition is not presented since EQS was not material to the Company's
consolidated results of operations and earnings per share.
MASONRY
The acquisition date fair values of the assets acquired and liabilities assumed
from the predecessor of Masonry during the year ended December 31, 2009 were as
follows:
F-16
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Amount
------------
Cash, receivables and other current assets $ 188,764
Inventory 1,022,057
Fixed assets and other non-current assets 2,101,930
Brand name intangible 1,013,000
Current liabilities assumed (1,078,459)
Long-term liabilities (442,258)
Other non-current liabilities (75,087)
------------
Total identifiable net assets acquired 2,729,947
------------
Goodwill 31,000
------------
Net assets acquired $ 2,760,947
============
Masonry's revenues and net loss included in the Company's combined and restated
statement of operations for the year ended December 31, 2009 are presented
below:
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 $ 10,126,542
============
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 $ (9,537,654)
============
4. DISCONTINUED OPERATIONS
Effective June 30, 2011 the Company discontinued the operations of Masonry
Supply Holding Corp., and Tulare Holdings, Inc., and effective September 30,
2011 the Company discontinued the operations of Epic Sports International, Inc.
As a result, losses from Masonry, Tulare and ESI are included in the loss from
discontinued operations in the accompanying consolidated or combined and
restated financial statements for the years ended December 31, 2011, 2010 and
2009, respectively. Assets and liabilities related to discontinued operations
are presented separately in the consolidated balance sheets as of December 31,
2011 and 2010, respectively. Changes in net cash from discontinued operations
F-17
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
are presented in the accompanying consolidated or combined and restated
statements of cash flows for the years ended December 31, 2011, 2010 and 2009,
respectively. All prior period information has been reclassified to conform to
the current period presentation.
As part of determining whether to discontinue the operations of Masonry, Tulare
Holdings and ESI, the Company evaluated the carrying value of the assets of
those companies as of December 31, 2011 and determined that the carrying value
of such assets was not recoverable. Therefore, the Company recorded an
impairment charge of approximately $2.9 million for the year ended December 31,
2011, of which approximately $1.2 million related to the reduction of the
carrying value of property and equipment to the estimated fair value,
approximately $1.4 million related to the write off of intangible assets, and
approximately $0.3 million related to impairment of other assets.
ASSETS HELD FOR SALE
During 2011, the Company sold certain assets held for sale for their approximate
carrying value and received proceeds of approximately $4.5 million. The Company
recorded an impairment charge of approximately $1.8 million on the remainder of
the assets held for sale as of December 31, 2011, which is included in the loss
from discontinued operations in the consolidated statement of operations.
The following amounts relating to the operations of Masonry, Tulare, ESI have
been segregated from continuing operations and reported as discontinued
operations:
For the Years Ended December 31,
---------------------------------------------------
2011 2010 2009
------------ ------------ ------------
Net revenues from discontinued operations $ 4,854,062 $ 19,143,149 $ 15,128,309
============ ============ ============
Loss from discontinued operations $ (9,059,608) $ (6,534,123) $ (9,926,064)
============ ============ ============
The following is a summary of the assets and liabilities of the discontinued
operations, excluding assets held for sale (which is recorded separately on the
consolidated balance sheets).
F-18
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010
------------ ------------
Accounts receivable $ -- $ 303,364
Inventories -- 1,098,716
Prepaid expenses and other current assets 5,217 199,188
Property, plant and equipment, net 598,106 2,379,035
Goodwill and other intangible assets -- 1,473,558
Other assets 75,000 298,263
------------ ------------
Total assets 678,323 5,752,124
Accounts payable 3,661,771 4,723,243
Accrued expenses and other current liabilities 907,823 902,591
Other long-term liabilities -- 254,826
------------ ------------
Total liabilities 4,569,594 5,880,660
------------ ------------
Net liabilities $ (3,891,271) $ (128,536)
============ ============
The Company continues to provide administrative services for the discontinued
operations until the liquidation of these assets is completed.
5. MORTGAGES RECEIVABLE
The mortgages receivable consist of two notes collateralized by property in
Pelham Manor, New York, which were in the process of foreclosure as of December
31, 2011. The value of the mortgages is based on the fair value of the
collateral.
As of December 31, 2011 and 2010, the mortgages receivable, designated as
non-performing loans, totaled $6,180,000 for each year. The Company has
established an allowance for loan losses of $180,000 and $0 for the years ended
December 31, 2011 and 2010, respectively.
The following table presents mortgages receivable and the related allowance for
loan losses as of December 31, 2011 and 2010:
F-19
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010
------------ ------------
Mortgage loans:
Secured by commercial real-estate $ 6,180,000 $ 6,180,000
Less:
Allowance for loan losses (180,000) --
------------ ------------
Total loans receivable $ 6,000,000 $ 6,180,000
============ ============
The changes to the allowance for loan losses for the years ended December 31,
2011 and 2010 is summarized as follows:
2011 2010
---------- ----------
Beginning balance $ -- $ --
Charge-offs -- --
Recoveries -- --
Provisions 180,000 --
---------- ----------
Ending balance $ 180,000 $ --
========== ==========
Ending balance: individually evaluated
for impairment $ -- $ --
========== ==========
Ending balance: collectively evaluated
for impairment $ 180,000 $ --
========== ==========
Loans:
Ending balance: individually evaluated
for impairment $ -- $ --
========== ==========
Ending balance: collectively evaluated
for impairment $6,000,000 $6,180,000
========== ==========
6. INVENTORIES
Inventories consist of:
* Construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
A summary of inventories as of December 31, 2011 and 2010 is below:
F-20
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010
---------- ----------
Raw materials $4,321,380 $3,303,800
Ingredients 637,153 286,422
Finished goods 91,405 --
---------- ----------
5,049,938 3,590,222
Inventory reserves 576,693 220,360
---------- ----------
Inventories, net $4,473,245 $3,369,862
========== ==========
7. PROPERTY, PLANT AND EQUIPMENT
At December 31, 2011 and 2010 property, plant and equipment consisted of the
following:
Useful Lives
(Years) 2011 2010
------------ ------------ ------------
Land n/a $ 430,000 $ 430,000
Machinery and equipment 2-10 10,319,247 9,541,157
Building and leasehold improvements 10 3,226,010 3,136,633
Vehicles 3-10 2,733,134 3,084,966
Computer equipment and software 5-7 804,010 706,162
Furniture and fixtures 5-10 110,439 110,438
Construction in progress n/a 14,801 56,801
------------ ------------
17,637,641 17,066,157
Less accumulated depreciation 6,003,675 4,482,453
------------ ------------
$ 11,633,966 $ 12,583,704
============ ============
Property, plant and equipment include items under capital leases of $864,464 and
$660,808 as of December 31, 2011 and 2010, respectively. Accumulated
depreciation includes $103,181 and $47,201 related to those items as of December
31, 2011 and 2010, respectively.
Total depreciation expense related to continuing operations for the years ended
December 31, 2011, 2010, and 2009 was $1,821,599, $1,972,129, and $1,834,957,
respectively.
8. GOODWILL AND INTANGIBLE ASSETS
Goodwill of $15,882,388 and $15,346,400, and licenses and permits of $3,430,400
and $3,295,400 at December 31, 2011 and 2010, respectively, have indefinite
F-21
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
useful lives and are not amortized but tested for impairment annually.
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, 2011 and 2010:
Estimated
Useful Lives
(Years) 2011 2010
------------ ------------ ------------
Intangible assets subject to amortization:
Customer relationships 5-10 $ 8,976,700 $ 8,976,700
Non-competition agreements 5 5,886,300 5,886,300
------------ ------------
14,863,000 14,863,000
Less accumulated amortization 8,550,942 4,962,368
------------ ------------
Intangible assets subject to amortization, net 6,312,058 9,900,632
------------ ------------
Intangible assets not subject to amortization:
Licenses and permits 3,430,400 3,295,400
------------ ------------
$ 9,742,458 $ 13,196,032
============ ============
The above licenses and permits have renewal provisions which are generally one
to four years. At December 31, 2011, the weighted-average period to the next
renewal was eighteen months. The costs of renewal are nominal and are expensed
when incurred. The Company intends to renew all licenses and permits currently
held.
Prior to December 31, 2011, the Company amortized the non-compete intangible
asset using the contractual term of the underlining agreements. However, based
on the contractual revisions, the Company determined that the non-compete
intangible asset has a shorter life than previously estimated. As a result, the
Company changed the estimate of amortizable lives for the non-compete intangible
asset to 5 years. The purpose of this change was to more accurately reflect the
useful life of this asset. In accordance with GAAP, the change in life has been
accounted for as a change in accounting estimate on a prospective basis from
December 31, 2011. As a result of the change in the estimated life of the
non-compete intangible asset, both selling and general administrative expenses
and net loss were higher by $1,717,238 for the year ended December 31, 2011.
Amortization expense related to continuing operations for the years ended
December 31, 2011, 2010, and 2009 was $3,589,075, $1,871,336, and $1,871,340,
respectively. Future amortization expense for intangible assets subject to
amortization is as follows:
F-22
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Amount
----------
Years Ended December 31,
2012 $1,871,340
2013 775,572
2014 764,900
2015 764,900
2016 764,900
Thereafter 1,370,446
----------
$6,312,058
==========
9. TYREE CONTRACTS
Tyree's contracts are as follows:
At December 31, 2011 2010
------------ ------------
Costs incurred on uncompleted contracts $ 9,030,273 $ 4,073,135
Estimated earnings 2,616,311 1,323,766
------------ ------------
11,646,584 5,396,901
Less: Billings to date (12,370,394) (5,654,574)
------------ ------------
$ (723,810) $ (257,673)
============ ============
Included in the accompanying consolidated
balance sheets under the following captions:
Costs and estimated earnings in excess of
billings on uncompleted contracts $ 381,931 $ 279,152
Billings in excess of costs and estimated
earnings on uncompleted contracts (1,105,741) (536,825)
------------ ------------
$ (723,810) $ (257,673)
============ ============
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, and principally relate to
bad debt allowances for accounts receivables, equity compensation charges,
depreciation, and amortization expenses. The provision for the income taxes for
the years ended December 31, 2011, 2010 and 2009 is as follows:
F-23
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010 2009
-------- -------- --------
Current:
Federal $ -- $ -- $ --
States -- 184,250 --
-------- -------- --------
-- 184,250 --
-------- -------- --------
Deferred:
Federal -- -- --
States -- -- --
-------- -------- --------
-- -- --
-------- -------- --------
Total provision for income taxes $ -- $184,250 $ --
======== ======== ========
Deferred tax assets represent the future income tax benefit from amounts that
have been recognized as expenses for financial statement purposes in the current
period which may not be deducted for income tax purposes until future years.
Likewise, deferred tax liabilities represent the current income tax benefit from
amounts that may be deducted for income tax purposes but have not yet been
recognized as expenses for financial statement purposes.
The Company evaluates deferred income taxes quarterly to determine if it is more
likely than not that the future tax benefits from deferred tax assets will be
realized in future years. Valuation allowances are established if it is
determined that the Company may not realize some or all of such future tax
benefits. The Company assesses whether valuation allowances against the deferred
tax assets should be established or adjusted based on consideration of all
available evidence, both positive and negative, using the more likely than not
standard. This assessment considers, among other matters, the nature, frequency
of recent income and losses, forecasts of future profitability and the duration
of statutory carryforward periods. In making such judgments, significant weight
is given to evidence that can be objectively verified.
The tax effect of temporary differences that give rise to the deferred tax
assets and liabilities as of December 31, 2011 and 2010 are presented below:
F-24
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010
------------ ------------
Deferred tax assets:
Net operating loss carryforwards $ 10,121,000 $ 8,665,000
Accounts receivable 833,000 244,000
Inventory 298,000 68,000
Intangible assets 1,821,000 1,080,000
Accrued expenses and other current liabilities 276,000 98,000
Property and equipment -- 11,000
------------ ------------
Total deferred tax assets 13,349,000 10,166,000
------------ ------------
Deferred tax liabilities:
Goodwill 1,513,000 1,090,000
Intangible assets 352,000 264,000
Property and equipment 417,000 348,000
------------ ------------
Total deferred tax liabilities 2,282,000 1,702,000
------------ ------------
11,067,000 8,464,000
Less valuation allowance 11,067,000 8,464,000
------------ ------------
Net deferred tax assets $ -- $ --
============ ============
As of December 31, 2011, the Company's federal net operating losses were
approximately $25 million. These net operating loss carryforwards expire from
the years ended 2028 to 2031. These net operating loss carryforwards may be
limited in accordance with the Internal Revenue Code ("IRC") based on certain
changes in ownership that have occurred, or could occur in the future.
The Company'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 the deferred tax
assets, which primarily consist of the potential future tax benefits from net
operating loss carryforwards. The following is a reconciliation of the income
tax expense that would result from applying the U.S. Federal statutory income
tax rate to the Company's recorded income tax expense for the years ended
December 31, 2011, 2010, and 2009:
F-25
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010 2009
------------ ------------ ------------
Income tax expense at federal statutory rate $ (7,840,000) $ (2,372,000) $ (3,892,000)
State taxes (1,384,000) (419,000) (687,000)
Permanent differences 1,227,000 432,000 (491,000)
Loss of NOL's due to IRC rules 5,394,000 -- --
Change in deferred tax calculation allowances 2,603,000 2,359,000 5,070,000
------------ ------------ ------------
$ -- $ -- $ --
============ ============ ============
11. LONG-TERM DEBT
Long-term debt consists of the following at December 31, 2011 and 2010:
2011 2010
---------- ----------
Equipment loans payable, collateralized by $ 820,251 $ 967,480
the assets purchased, and bearing interest
at annual fixed rates ranging from 8.0% to
15.0% with principal and interest payable in
installments through July 2014.
Promissory notes payable to current accounts 1,956,068 -
payable vendors including imputed interest
of $225,672 calculated using annual rate of
8.8%. Payment terms are from 12 to 36
months.
Promissory notes payable to three former 500,000 500,000
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%
Liability under a guarantee agreement for a 370,617 454,221
note payable of an entity related to
minority stockholders to a commercial bank
in monthly installments of principal of
$5,932 and interest payable through December
31, 2015. The annual intrerest rate is 8%.
Total 3,646,936 1,921,701
Less current portion 1,846,565 333,764
---------- ----------
Long-term portion $1,800,371 $1,587,937
========== ==========
Future minimum principal payments on long-term debt are as follows:
F-26
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Years Ended Amount
----------- ----------
2012 $1,846,565
2013 1,123,081
2014 520,231
2015 157,058
----------
$3,646,935
==========
CAPITAL LEASE OBLIGATIONS
The Company is obligated under various capital lease agreements for machinery
and equipment. The terms of the leases range from one to five years and have
effective interest rates that range from 5.0% to 11.1%.
Future minimum lease payments under the capital lease obligations at December
31, 2011 are as follows:
Years Ended Amount
----------- ----------
2012 $ 282,335
2013 266,453
2014 234,972
2015 87,216
2016 43,546
----------
914,522
Less amount representing interest 150,631
----------
$ 763,891
==========
12. RELATED PARTY LOANS
Related parties are natural persons or other entities that have the ability,
directly or indirectly, to control another party or exercise significant
influence over the other party in making financial and operating decisions.
Related parties include other parties that are subject to common control or that
are subject to common significant influences.
F-27
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Loans from related parties consist of the following at December 31, 2011, and
2010:
2011 2010
---------- ----------
Loan and security agreement with Capstone $ 338,908 $ 713,930
Capital Group, LLC which expires on November
1, 2013 bearing interest at 18% per annum.
Maximum borrowing of $850,000
Loan and security agreement with Capstone 499,577 --
Capital Group, LLC which expires on August ---------- ----------
15, 2014 bearing interest at 18% per annum.
Maximum borrowing of $600,000
Total loans and amounts payable to related $ 838,485 $ 713,930
parties ========== ==========
Interest expense for these loans amounted to $200,893, $16,928, and $0 for the
years ended December 31, 2011, 2010 and 2009, respectively.
13. STOCKHOLDERS' EQUITY
Prior to the acquisition by the Company, the businesses of each of the companies
acquired were borrowers under financing agreements with several interrelated
partnerships. Due to their failure to make payments under their financing
agreements, the lending partnerships exercised their right to take control of
these borrowing businesses. Upon taking control, new corporate entities were
formed to own and operate each of these businesses and capital stock of each of
the new corporations was distributed to the partners of the lenders in
proportion to their partnership interests. Following these takeovers, the
Company acquired these businesses and then the stockholders of the newly formed
corporations received Amincor capital stock, in proportion to their former
partnership interests.
Upon completion of these acquisitions, the general partners of the lending
partnerships referred to above received Amincor Class A voting common stock and
the limited partners received Amincor Class B non-voting or convertible
preferred stock. Convertible preferred stock was issued to those limited
partners who had placed redemption requests before the defaults and subsequent
takeovers discussed above. Except for the voting rights, Class A and Class B
common stock are identical.
As a result, the Company's stockholders each have an ownership interest in
Amincor that is equivalent to their rights and interest in the above mentioned
lending partnerships.
F-28
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
CONVERTIBLE PREFERRED STOCK
The Company may at any time or from time to time redeem on a pro rata basis
issued and outstanding preferred shares by paying the holders of preferred stock
$100 for each share redeemed. In the event of liquidation, dissolution, or
winding up of the Company, the preferred shares are entitled to a payment of
$100 per share before any payment is made to or set aside for the holders of
common shares.
On or after January 1, 2011, any holders of the convertible preferred shares are
entitled to convert their shares into Class B common shares on the basis of 10
shares of common stock for each preferred share.
For the year ended December 31, 2011, no preferred stock was converted into
Class B common shares.
COMMON STOCK
The holders of both Class A and Class B common shares are entitled to dividends,
if declared by the Board of Directors, however no dividends can be paid on
common stock until all shares of convertible preferred stock have been redeemed
or converted to common stock. The holders of Class B common stock do not have
any voting rights. In the event of liquidation, the holders of both classes are
entitled to share ratably in all assets remaining after payment of all
liabilities and any preferences on preferred stock that may be then outstanding.
The common stockholders do not have any cumulative or preemptive rights.
14. SHARE-BASED COMPENSATION
The Company does not have a formally adopted share-based compensation plan.
Stock option grants have been made as determined by the Board of Directors.
On December 31, 2010, the Board of Directors approved the issuance and granting
of stock options to certain of the Company's officers. The grant was for options
to purchase an aggregate 120,799 shares of Class A common stock at an exercise
price of $2.80. 50% of the options vest and become exercisable on the first
anniversary of the grant date and remaining 50% on the second anniversary of the
grant date, provided that the individual is employed by the Company on the
anniversary date.
F-29
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
On April 1, September 1, and December 1, 2011 the Company's Board of Directors
granted common stock Class A options to the President, Vice-President, CFO and
certain management and employees of the Company and certain officers and
employees of its subsidiary companies, all at various exercise prices, based on
the estimated fair market value of the Company's share price at the date of the
grant. The options granted on April 1, 2011 vested and became exercisable
immediately. For the September 1, 2011 and December 1, 2011 grants, 50% of the
options 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 estimates the fair value of stock options on the date of grant using
the Black-Scholes option model, which requires the input of subjective
assumptions. These assumptions include the estimated volatility of the Company's
common stock price of the expected term, the fair value of the Company's stock,
the risk-free interest rate and the dividend yield. Changes in the subjective
assumptions can materially affect the estimated fair value of stock
compensation. The following assumptions were used in 2011 and 2010:
Valuation Assumptions 2011 2010
--------------------- ---- ----
Expected life 5 5
Risk-free interest rate 0.9% - 2.24% 5.20%
Expected volatility 40% 27%
Dividend yield -- --
Forfeiture rate 0% 0%
Share based compensation cost of approximately $415,000, $0, and $0 is reflected
in selling, general and administrative expenses on the accompanying consolidated
or combined and restated statements of operations for the years end December 31,
2011, 2010 and 2009, respectively.
The following table summarizes the Company's stock options activity as of
December 31, 2011 and 2010:
F-30
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Weighted
Weighted Average
Average Remaining
Exercise Contractual
Shares Price Term (Years)
------ ----- ------------
Options outstanding at January 1, 2010
Granted 120,799 $2.80 4.00
Exercised -- -- --
Canceled, forfeited or expired -- -- --
--------- ----- ----
Options outstanding at December 31, 2010 120,799 2.80 4.00
Granted 1,389,890 1.78 4.60
Exercised -- -- --
Canceled, forfeited or expired -- -- --
--------- ----- ----
Options outstanding at December 31, 2011 1,510,689 $1.86 4.55
========= ===== ====
Options vested at December 31, 2011 532,399 $1.98 4.22
========= ===== ====
Options exercisable at:
December 31, 2010 -- $ -- --
========= ===== ====
December 31, 2011 532,399 $1.98 4.22
========= ===== ====
The following table summarizes information about stock options outstanding and
exercisable as of December 31, 2011:
F-31
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Options Outstanding Options Exercisable
--------------------------------------------------- ------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Life Exercise Exercise
Prices Outstanding (Years) Price Exercisable Price
------ ----------- ------- ----- ----------- -----
$1.73 917,890 4.78 $1.73 -- $0.00
$1.88 472,000 4.25 $1.88 472,000 $1.88
$2.80 120,799 4.00 $2.80 60,399 $2.80
--------- ---------
1,510,689 532,399
========= =========
As of December 31, 2011, the total compensation cost related to nonvested awards
not yet recognized was approximately $556,000 and this expense is expected to be
recognized over a remaining weighted-average period of 4.73 years.
15. LOSS PER SHARE
The calculation of net loss per share is as follows:
F-32
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Year Ended December 31,
-------------------------------------------------
2011 2010 2009
------------ ------------ ------------
Numerator for loss per share:
Net loss from continuing operations $(13,999,593) $ (441,097) $ (1,522,066)
Net loss from discontinued operations (9,059,608) (6,534,123) (9,926,064)
------------ ------------ ------------
Net loss $(23,059,201) $ (6,975,220) $(11,448,130)
============ ============ ============
Denominator for loss per share:
Basic and diluted weighted-average shares: 28,654,671 28,654,671 27,701,869
============ ============ ============
Loss per share:
Basic and diluted
Net loss from continuing operations $ (0.49) $ (0.02) $ (0.05)
============ ============ ============
Net loss from discontinuing operations $ (0.31) $ (0.22) $ (0.36)
============ ============ ============
Net loss $ (0.80) $ (0.24) $ (0.41)
============ ============ ============
The Company's loss attributable to common stockholders, along with the dilutive
effect of potentially issuable common stock due to outstanding options and
convertible securities causes the normal computation of diluted loss per share
to be smaller than the basic loss per share; thereby yielding a result that is
counterintuitive. Consequently, the diluted loss per share amount presented does
not differ from basic loss per share due to this "anti-dilutive" effect.
At December 31, 2011, 2010 and 2009, the Company had potentially dilutive common
shares attributable to the following:
Year Ended December 31,
-------------------------------------------------
2011 2010 2009
------------ ------------ ------------
Stock options 1,510,689 120,799 --
Convertible preferred stock 17,528,230 17,528,230 16,691,544
------------ ------------ ----------
19,038,919 17,649,029 16,691,544
============ ============ ==========
16. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company has recorded the following restatements:
F-33
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
1) The Company reexamined all contracts in progress as of December 31,
2009 and 2008, and determined that some of these contracts should have
been accounted for on a percentage of completion basis, rather on a
completed contract method,
2) The Company determined that the business of Amincor Other Assets was
under common control of the Company beginning in the year 2008,
instead of as previously reported in 2010,
3) The Company determined that the issuance of common and preferred stock
in 2010 related to the acquisition of five business entities (BPI,
Tyree, Tulare, and ESI in 2008, and Masonry in 2009) should have been
reflected in the years 2008 and 2009 to account for acquisition of the
businesses and the capital stock as if the stock of each of these new
corporations was distributed to the partners of the lenders in
proportion to their partnership interests due to their common control
by the Company.
The following tables show the effects of these restatements (after reflecting
adjustments for discontinued operations):
December 31, 2010
----------------------------------------------------
As previously
reported Adjustment As restated
------------- ------------- -------------
CONSOLIDATED BALANCE SHEET
Additional paid in capital 88,250,202 $ (1,784,801) $ 86,465,401
Accumulated deficit $ (29,860,313) $ 1,784,801 $ (28,075,512)
Year Ended December 31, 2010
----------------------------------------------------
As previously
reported Adjustment As restated
------------- ------------- -------------
CONSOLIDATED OR COMBINED STATEMENTS OF OPERATIONS
Net revenues $ -- $ -- $ --
Cost of revenues $ 51,715,985 $ (309,978) $ 51,406,007
Gross profit $ 15,200,438 $ 309,978 $ 15,510,416
Selling, general and administrative $ 16,346,827 $ (628,449) $ 15,718,378
Loss from operations $ (1,146,389) $ 938,427 $ (207,962)
Net loss from continuing operations $ (1,379,524) $ 938,427 $ (441,097)
Loss from discontinued operations $ (6,347,941) $ (186,182) $ (6,534,123)
Net loss $ (7,727,465) $ 752,245 $ (6,975,220)
Loss per share - basic and diluted
Net loss attributable to Amincor stockholders $ (0.26) $ 0.03 $ (0.23)
Weighted average shares outstanding -
basic and diluted 29,054,908 (400,237) 28,654,671
F-34
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Year Ended December 31, 2009
----------------------------------------------------
As previously
reported Adjustment As restated
------------- ------------- -------------
CONSOLIDATED OR COMBINED STATEMENTS OF OPERATIONS
Net revenues $ 67,000,530 $ 3,893,609 $ 70,894,139
Cost of revenues $ 53,388,701 $ 2,714,333 $ 56,103,034
Gross profit $ 13,611,829 $ 1,179,276 $ 14,791,105
Selling, general and administrative $ 15,150,993 $ (696,019) $ 14,454,974
Income from operations $ (1,539,164) $ 1,875,295 $ 336,131
Net loss from continuing operations $ (3,397,361) $ 1,875,295 $ (1,522,066)
Loss from discontinued operations $ (9,649,372) $ (276,692) $ (9,926,064)
Net loss $(13,046,733) $ 1,598,603 $(11,448,130)
Loss per share - basic and diluted
Net loss attributable to Amincor stockholders $ (0.87) $ 0.48 $ (0.39)
Weighted average shares outstanding -
basic and diluted 14,126,820 13,575,049 27,701,869
Year Ended December 31, 2010
----------------------------------------------------
As previously
reported Adjustment As restated
------------- ------------- -------------
CONSOLIDATED OR COMBINED STATEMENTS OF CASH FLOWS
Net loss from continuing operations $ (1,379,524) $ 938,427 $ (441,097)
Depreciation and amortization of property
and equipment $ 1,100,557 $ 871,572 $ 1,972,129
Costs and estimated earnings in excess of billings
on uncompleted contracts $ (279,152) $ 113,336 $ (165,816)
Construction in process $ 113,336 $ (113,336) $ --
Billings in excess of costs and estimated earnings
on uncompleted contracts $ 536,825 $ (1,357,778) $ (820,953)
Billings on construction $ (1,357,778) $ 1,357,778 $ --
Net cash provided by operating activities
- continuing operations $ 9,622,337 $ 1,809,999 $ 7,812,338
Net cash used in operating activities
- discontinued operations $ (3,544,510) $ 285,161 $ (3,259,349)
Year Ended December 31, 2009
----------------------------------------------------
As previously
reported Adjustment As restated
------------- ------------- -------------
CONSOLIDATED OR COMBINED STATEMENTS OF CASH FLOWS
Net loss from continuing operations $ (3,397,361) $ 1,875,295 $ (1,522,066)
Depreciation and amortization of property
and equipment $ 734,024 $ 1,100,933 $ 1,834,957
Costs and estimated earnings in excess of billings
on uncompleted contracts $ -- $ (21,112) $ (21,112)
Construction in process $ 3,124,788 $ 3,126,995 $ 6,251,783
Billings in excess of costs and estimated earnings
on uncompleted contracts $ -- $ 1,272,795 $ 1,272,795
Billings on construction $ (1,591,054) $ (5,166,403) $ (6,757,457)
Net cash provided by operating activities
- continuing operations $ 5,541,464 $ 2,188,503 $ 3,352,961
Net cash used in operating activities
- discontinued operations $ (18,507,073) $ 480,000 $ (18,027,073)
17. OPERATING SEGMENTS
The Company is organized into six operating segments: (1) Amincor, (2) Other
Assets, (3) Contract Admin, (4) BPI, (5) EQS, and (6) Tyree. Assets related to
discontinued operations ("Disc. Ops") are also presented below. Segment
information is as follows:
F-35
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
December 31,
------------------------------------
2011 2010
------------ ------------
ASSETS:
Amincor $ 536,061 $ 5,326,013
Other Assets 8,667,433 15,784,760
Contract Admin -- 197
BPI 24,851,264 24,553,583
EQS 1,298,597 --
Tyree 26,169,574 29,001,697
Disc. Ops 678,322 5,752,124
------------ ------------
Total assets $ 62,201,251 $ 80,418,374
============ ============
December 31,
------------------------------------
2011 2010
------------ ------------
CAPITAL EXPENDITURES:
Amincor -- $ --
Other Assets -- --
Contract Admin -- --
BPI 58,644 62,225
EQS -- --
Tyree 77,000 32,973
------------ ------------
Total capital expenditures $ 135,644 $ 95,198
============ ============
December 31,
------------------------------------
2011 2010
------------ ------------
GOODWILL:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 7,770,900 7,770,900
EQS 535,988 --
Tyree 7,575,500 7,575,500
------------ ------------
Total goodwill $ 15,882,388 $ 15,346,400
============ ============
F-36
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
December 31,
------------------------------------
2011 2010
------------ ------------
INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
Contract Admin -- --
BPI 5,194,946 5,959,846
EQS 135,000 --
Tyree 4,412,512 7,236,186
------------ ------------
Total intangible assets $ 9,742,458 $ 13,196,032
============ ============
Years Ended December 31,
2011 2010 2009
------------ ------------ ------------
NET REVENUES:
Amincor $ -- $ -- $ --
Other Assets -- -- --
Contract Admin -- -- --
BPI 15,968,945 13,292,090 13,345,574
EQS 1,017,017 -- --
Tyree 45,311,721 53,624,333 57,548,565
------------ ------------ ------------
Net revenues $ 62,297,683 $ 66,916,423 $ 70,894,139
============ ============ ============
Years Ended December 31,
2011 2010 2009
------------ ------------ ------------
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES:
Amincor $ (6,194,254) $ (1,832,938) $ --
Other Assets 1,221,966 1,147,494 1,087,571
Contract Admin 395 197 --
BPI (828,915) (269,613) (783,197)
EQS (460,968) -- --
Tyree (7,737,817) 698,013 (1,826,440)
------------ ------------ ------------
(Loss) income before provision
for income taxes $(13,999,593) $ (256,847) $ (1,522,066)
============ ============ ============
F-37
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Years Ended December 31,
2011 2010 2009
------------ ------------ ------------
DEPRECIATION OF PROPERTY
AND EQUIPMENT:
Amincor $ -- $ -- $ --
Other Assets 813,300 1,041,010 1,100,933
Contract Admin -- -- --
BPI 9,873 3,875 669
EQS 93,768 -- --
Tyree 904,658 927,244 733,355
------------ ------------ ------------
Total depreciation of
property and equipment $ 1,821,599 $ 1,972,129 $ 1,834,957
============ ============ ============
Years Ended December 31,
2011 2010 2009
------------ ------------ ------------
AMORTIZATION OF INTANGIBLE
ASSETS:
Amincor $ -- $ -- $ --
Other Assets -- -- --
Contract Admin -- -- --
BPI 764,900 764,900 764,900
EQS -- -- --
Tyree 2,824,175 1,106,436 1,106,440
------------ ------------ ------------
Total amortization of
intangible assets $ 3,589,075 $ 1,871,336 $ 1,871,340
============ ============ ============
Years Ended December 31,
2011 2010 2009
------------ ------------ ------------
INTEREST (INCOME) EXPENSE:
Amincor $ (688,220) $ (136,901) $ --
Other Assets (26,732) -- --
Contract Admin -- -- --
BPI 285,279 579,692 731,944
EQS 58,102 -- --
Tyree 831,364 579,934 1,203,353
------------ ------------ ------------
Total interest expense,
net $ 459,793 $ 1,022,725 $ 1,935,297
============ ============ ============
F-38
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
18. 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 Tyree's work. Warranty related costs experiences by Tyree
typically consist of minor adjustments or calibration work. Tyree has accrued
approximately $50,000 and $100,000 at December 31, 2011 and 2010, 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 2015. Some of the leases carry
renewal provisions and some require the Company to pay maintenance costs or a
share of real estate taxes and other costs. Rental payments may be adjusted for
increases in taxes and insurance.
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 $18,313 and $21,661 as
of December 31, 2011 and 2010, respectively which are included in other
liabilities on the consolidated balance sheets.
Rent expense totaled $1,802,985, $805,035 and $1,071,732 for the years ended
December 31, 2011, 2010 and 2009, respectively, which includes related party
rent of $1,073,317, $264,520, and $460,531 for the years ended December 31,
2011, 2010 and 2009, respectively.
At December 31, 2011, the future minimum lease commitments under non-cancelable
operating leases, including leases with related parties, are as follows:
Amount
-----------
Years Ended December 31,
2012 $ 779,687
2013 469,204
2014 378,834
2015 194,580
-----------
$ 1,822,305
===========
For the year ended December 31, 2011, the Company paid $616,300 to a related
party on a month-to-month basis for the rent of its headquarters and
administrative offices.
F-39
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
EMPLOYMENT AGREEMENT
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's agreement provides for annual minimum base 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 CEO's agreement
also provides a non-competition covenant for the term of the CEO's employment
and a subsequent two-year period.
LICENSING AND STRATEGIC ALLIANCE AGREEMENTS
On October 1, 2008, ESI entered into a five-year licensing agreement with Volkl
GmbH ("Volkl") which granted ESI exclusive use of the licensed marks and the
unrestricted worldwide sales of licensed products. In return, ESI was
responsible for paying Volkl royalty fees in the amount of 2.5%, 5.0%, and 7.0%
of net sales during years one, two three and thereafter, respectively. The
agreement also provided for an annual minimum guaranteed royalty ranging from
(euro) 60,700 in contract year one to (euro) 500,000 in contract year ten. The
year ended December 31, 2011 represents contract year three and the minimum
guaranteed royalty under the contract is (euro) 200,000. As of December 31,
2011, the Company has paid (euro) 100,000 of the annual guaranteed minimum
royalty and recorded the unpaid balance as an accrued liability. On September 9,
2011 Volkl terminated the licensing agreement with ESI as a result of ESI's
alleged non-compliance with certain clauses under the agreement. In the year of
termination, the agreement provides for a minimum guaranteed payment of (euro)
400,000; which is (euro) 200,000 in excess of the guaranteed minimum royalty.
Management believes this additional minimum guaranteed payment is without merit
and is committed to contesting any claims by Volkl for additional minimum
guaranteed amounts. Therefore, no additional amount related to minimum
guaranteed payments has been accrued as of December 31, 2011.
On January 1, 2009, ESI entered into a three-year licensing agreement with Boris
Becker & Co. ("Becker"). The agreement granted ESI exclusive use of the licensed
marks and the unrestricted worldwide sales (with the exception of China) of
licensed products. In return, ESI was responsible for paying Becker royalty fees
in the amount of 5.0%, of net sales during the term of the agreement. Effective
September 30, 2011, the licensing agreement with Becker was terminated
concurrently with management's decision to discontinue the operations of ESI. As
of December 31, 2011, amounts owing to Becker are immaterial and no additional
required minimum payments, as a result of termination, have been identified
under the agreement. Therefore the Company has not recorded any additional
amounts related to the terminating the agreement as of December 31, 2011.
During the years ended December 31, 2011, 2010 and 2009, royalty expense under
both agreements amounted to $285,532, $207,283 and $111,759, respectively.
F-40
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
In October 2010, ESI entered into a strategic alliance agreement with Samsung
C&T America, Inc. ("Samsung") whereby ESI acted as a brand manager and sales
agent for Boris Becker and Volkl products, and Samsung purchased and managed
inventory, fulfilled orders, invoiced customers and collected the resulting
receivables. On September 21, 2011, Samsung terminated the strategic alliance
agreement with ESI upon notification that Volkl GmbH had terminated its
licensing agreement with ESI. Upon termination, the strategic alliance agreement
specifies a disposal period whereby ESI will assist Samsung in selling any
inventory and collecting any accounts receivable for 180 days and 240 days,
respectively from the termination date. During the disposal period, commissions
payable to ESI are held in reserve by Samsung. At the end of the disposal
period, unsold inventory and uncollected accounts receivable will be charged
back to ESI against the commission reserve. In the event the chargebacks exceed
the commission reserve, ESI is required under the agreement to pay Samsung the
excess within 10 business days after the disposal period ends. As of December
31, 2011, management does not believe it is likely that chargebacks will exceed
the commission reserve. An estimate of liabilities resulting from terminating
the strategic alliance agreement with Samsung cannot be made since the disposal
period has not ended. Therefore, no amount has been accrued in these financial
statements as of December 31, 2011 for any such contingent liabilities.
EMPLOYEE BENEFIT PLANS
BPI
BPI established a 401(k) retirement plan (the "BPI Plan") effective January 1,
2009. The Plan covers employees of the Company who have completed three months
(250 hours) of service and have attained the age of twenty-one. All employees
hired prior to January 1, 2009, entered the Plan immediately. The BPI Plan
permits participants to choose either a traditional pre-tax salary deferral plan
or a Roth after-tax deferral plan. BPI does not make matching or discretionary
contributions.
TYREE
Tyree has established the Tyree Holdings 401(k) Retirement Plan (the "Tyree
Plan"), which covers all eligible non-union employees. The Tyree Plan provides
for voluntary contributions by eligible employees up to a maximum of 85% of
their eligible compensation, subject to the applicable federal limitations.
Tyree has the option to make a discretionary contribution each year, but did no
make any contributions for the years ended December 31, 2011, 2010 and 2009.
Tyree has collective bargaining agreements with labor unions. These agreements
expire at varying dates through April 30, 2012. In accordance with its
collective bargaining agreements, Tyree participates in two multi-employer
pension plans and one defined contribution (401k) Plan. These plans provide
benefits to substantially all union employees. Such plans are usually
administered by a board of trustees comprised of the management of the
F-41
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
participating companies and labor representatives. The net pension cost of the
pension plans is equal to the annual contribution determined in accordance with
the provisions of negotiated labor contracts. Assets contributed to such pension
plans are not segregated or otherwise restricted to provide benefits only to the
Tyree's employees. The risks of participating in these multiemployer pension
plans are different from single-employer plans in the following aspects: 1)
assets contributed to the multi-employer pension plan by one employer may be
used to provide benefits to employees of other participating employers; 2) if a
participating employer stops contributing to the plan, the unfunded obligations
of the plan may be borne by the remaining participating employers; and 3) if
Tyree chooses to stop participating in some of its multi-employer pension plans,
Tyree may be required to pay those plans an amount based on the underfunded
status of the plan, which is referred to as a withdrawal liability.
Tyree's participation in these pension plans for the annual period ended
December 31, 2011, 2010, and 2009 is outlined in the table below. The
"EIN/Pension Plan Number" column provides the Employee Identification Number
("EIN") and the three-digit plan number. Unless otherwise noted, the most recent
Pension Protection Act ("PPA") zone status available in 2011, 2010, and 2009 is
for the plan's year-end at December 31, 2011, 2010, and 2009 respectively. The
zone status is based on information that Tyree received from the plan and is
certified by the plan's actuary. Among other factors, plans in the red zone are
generally less than 65 percent funded, plans in the yellow zone are less than 80
percent funded, and plans in the green zone are at least 80 percent funded. The
"FIP/RP Status Pending/Implemented" column indicates plans for which a financial
improvement plan ("FIP") or a rehabilitation plan ("RP") is either pending or
has been implemented. The last column lists the expiration dates of the
collective-bargaining agreements to which the plans are subject.
Expiration
Pension Protection FIP/RP Date of
Act Zone Status Status Tyree Contributions Collective-
EIN/Pension -------------------------- Pending / ------------------------ Surcharge Bargaining
Pension Fund Plan Number 2011 2010 2009 Implemented 2011 2010 2009 Imposed Agreement
------------ ----------- ---- ---- ---- ----------- ---- ---- ---- ------- ---------
I.B.E.W. Local
No.25 Pension
Fund 11-6038558/001 Green Green Green NA $ 52,577 $ 55,158 $ 55,149 No 4/30/2012
Plumbers Local
Union No. 200
Pension Fund 11-3125387/001 Green(1) Yellow(1) Green(1) Yes 260,000 607,672 374,149 No 4/30/2012
-------- -------- --------
Total contributions: $312,576 $662,830 $429,298
======== ======== ========
----------
(1) Plan years ended June 30, 2011, 2010, and 2009
F-42
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Tyree's contributions to the multiemployer defined contribution (401k) plan
totaled to approximately $127,000, $147,000, and $141,000 for the years ended
December 31, 2011, 2010, and 2009, respectively.
CONTINGENCIES
In connection with Baker's Pride's USDA loan application, BPI had a Phase I
Environmental Site Assessment done on the property where the Mt. Pleasant Street
Bakery, Inc. resides as required by BPI's prospective lender. The study,
completed on October 7, 2011, recommended a Phase II Environmental Site
Assessment on the grounds that there were underground storage tanks on the
premises for which there was no record of being removed. In addition, the study
shows an environmental hazard on property adjacent to the Mt. Pleasant Street
Bakery caused by the operations of the adjacent property. The Phase II
Environmental Site Assessment was completed on October 31, 2011 and was
submitted to the Iowa Department of Natural Resources ("IDNR") for their review.
IDNR requested that a Tier Two Site Cleanup Report ("Tier Two") be issued and
completed in order to better understand what environmental hazards exist on the
property. The Tier Two was completed on February 3, 2012 and was submitted to
IDNR for further review. Management's latest correspondence with IDNR, dated
March 21, 2012, required revisions to the Tier Two to be in compliance with
IDNR's regulations. Management has retained the necessary environmental
consultants to become compliant with IDNR's request, but the potential liability
is largely dependent on IDNR's recommended remediation strategy and is
undeterminable as of the report date.
Tyree's largest customer filed a voluntary petition for Chapter 11
reorganization in the United States Bankruptcy Court (the "Bankruptcy Court") on
December 5, 2011. In its "first-day motion," this customer designated Tyree as a
"critical vendor," thus providing Tyree with the first priority to receive
payment along with other critical vendors. Critical vendor status allows Tyree
to be paid for services provided prior to the bankruptcy filing to the extent
made after its designation as a critical vendor. Tyree is a party to two
executory contracts with this customer that require it to provide operations,
maintenance and environmental services. The monthly charges under these
contracts exceed $1 million; however, Tyree has not received any pre-petition
critical vendor payments. As of the date of the bankruptcy petition, Tyree had a
pre-petition accounts receivable balance of approximately $1.5 million against
which Tyree has provided a full allowance for doubtful accounts. As a critical
vendor, Tyree may have a priority to receive payment of its pre-petition
receivable balance; but still may never collect or may only collect a small
percentage of the balance.
The above noted customer has paid Tyree for all post-petition charges for 2011.
Tyree is currently providing services on a post-petition basis. The management
of Tyree and Amincor are working diligently with outside counsel to ensure that
Tyree is paid on a timely basis for post-petition charges and that Tyree's
post-petition credit exposure is as limited as possible.
F-43
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
A Proof of Claim was filed for unsecured claims with the Bankruptcy Court on
April 10, 2012. Unsecured claims have the lowest priority in the bankruptcy
cases and there is no guaranty or degree of certainty that the Company will
recover all or a portion of its unsecured claim. Post-petition administrative
claims have senior priority to all claims but secured claims. Accordingly, it is
more likely that post-petition administrative claims be paid, although depending
upon the facts and circumstances of the claims there is no guaranty that the
Company will recover all of its administrative claims.
Payments from this customer within the 90 day period prior to Petition Date may
constitute preferential transfers subject to avoidance by the Bankruptcy Court.
Under the Bankruptcy Code there are several statutory defenses to an action for
recovery of preferential transfers, including, among other potential defenses,
whether the transfers at issue were in the ordinary course of business or
constituted new value. If the Bankruptcy Court finds that there have been such
preferential transfers, the Company would have to pay such amounts to the
bankruptcy estate. The Company's management believes that it has adequate
statutory defenses to these preferential claims, and has not recorded any
reserves for preferential claims.
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 involved from time to time, 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.
F-44
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
IMSC/OTHER ASSETS
Capstone Business Credit, LLC, a related party, is the plaintiff (on behalf of
Amincor Other Assets, Inc.) in a foreclosure action against Imperia Family
Realty, LLC ("IFR"). IFR is related to the former owners of Masonry's business.
In November, 2011 a Judgment of Foreclosure was granted by the court ordering
that the IMSC property in Pelham Manor, New York (the "Property") be sold at
public auction. As of December 31, 2009, the mortgage related to this Property
was assigned to Amincor, Inc. and thereafter to Amincor Other Assets, Inc.
A former principal of Imperia Bros., Inc. (a predecessor company of Masonry)
filed a notice of appeal dated November 14, 2011 with the court contesting the
Judgment of Foreclosure. The Company believes that the appeal will not be upheld
by the court since the same appellate court, on February 16, 2010, issued an
order that granted CBC a motion of summary judgment and dismissed all of the
former principal's affirmative defenses.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder.
As of the report date, title to the Property has not been transferred due to a
title issue involving the notice of pendency ("Notice") that expired and was not
renewed at least 20 days prior to the Judgment of Foreclosure and Sale being
filed and entered. Since no title transfers or judgment/liens were filed against
the Property after the expiration of the Notice, the Company believes it is
likely a conditional title will be issued and after recording the deed, IFR will
no longer have any ownership interest in the property. Once a deed is issued,
title to the property will be held in the name of Amincor Other Assets, Inc.
19. 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, 2011 and 2010, the Company's cash balances did not exceed FDIC insurance
limits.
MAJOR CUSTOMERS
A substantial portion of the Company's revenues are from a limited number of
customers. For the years ended December 31, 2011, 2010, and 2009, and as of
December 31, 2011 and 2010, revenue and accounts receivable concentrations are
as follows:
F-45
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
2011 2010 2009
---------------------------- --------------------------- -------------
Percentage of
---------------------------------------------------------------------------
Consolidated Restated and Consolidated Restated and
Consolidated Accounts Combined Accounts Combined
Revenues Receivable Revenues Receivable Revenues
Customer A 23.6 16.3 19.9 18.3 18.8
Customer B 20.8 29.3 27.9 26.4 36.4
Customer C 12.8 10.9 11.1 -- 11.3
Customer D -- 12.1 -- -- --
----- ----- ----- ----- -----
57.2 68.6 58.9 44.7 66.5
===== ===== ===== ===== =====
----------
Customer A relates to BPI segment, customers B,C, and D relate to Tyree segment.
20. LIQUIDITY MATTERS / GOING CONCERN
The Company incurred losses for the years ended December 31, 2011, 2010, and
2009 as well as negative cash flows from operations for the year ended December
31, 2011. The results of the Company's cash flows from continuing operations for
the year ended December 31, 2011 have been adversely impacted by the customer
slowdown in infrastructure capital expenditures caused by the general downturn
of the economic conditions, severe weather related conditions, and cash flow
issues related to major customers. The Company has discontinued operations of
IMSC, Tulare and ESI in 2011 which had significant negative impact on the
Company's cash flows. The Company's primary focus is to achieve profitable
operations and positive cash flow of its operations of its long established
niche businesses - Tyree and Baker's Pride.
Since the beginning of the recession in 2008, the Company has not borrowed
through the end of December 31, 2011, from any bank, finance company, or other
unrelated lender and has not received any private equity financing. Since 2008,
internally generated operating cash flows have been sufficient to meet the
Company's business operating requirements. However, operating cash flows have
not been sufficient to finance capital improvements or provide funds for the
substantial marketing efforts necessary for growing the businesses.
The Company's plan for improving future continuing operations has several
different aspects as follows:
* Lowering its overhead costs by reducing its workforce in order to
achieve maximum utilization;
F-46
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
* Consolidating certain accounting roles from the subsidiary level to
the Company's headquarters, restructuring purchase agreements with
suppliers which will allow for leaner inventory levels and reducing
the warehousing costs;
* Renegotiating compensation arrangements and consolidating its
administrative location with operating offices in order to reduce rent
expenses.
The Company has taken and will continue to take steps to increase revenues from
continuing operations as outlined below:
* Hiring a new sales executive with extensive food industry background
to increase sales of existing and new products of the BPI;
* Increasing its revenues from the Tyree's second largest customer,
based on the improving relationship between Tyree and customer's
management;
* Obtaining new construction contracts based on aggressive bidding on
jobs from new customers;
* Expanding services into new types of services for water purification;
* Expanding services provided to the existing customers;
* Increasing in customer orders is expected due to anticipated
construction needs that have been deferred in the last several years
due to the weak economy.
In addition, the Company intends or has done the following:
* Entered into a six-month bridge loan agreement for BPI (the "Bridge
Loan") of $2,750,000, in January 2012, which is secured by the BPI's
equipment, and is negotiating to extend the term to three years (see
Note 21).
* Consolidate certain premises thereby reducing rents and is negotiating
for reduced rents with landlords;
* Sold equipment of IMSC (a discontinued entity) in February 2012 for
$426,000;
* Liquidate the property previously occupied by Tulare (a discontinued
entity) in Lindsay, California for approximately $2 million;
* Sell its property in Allentown, Pennsylvania;
* Term out certain material payments to vendors to ease cash flow. The
Company has spoken to major vendors concerning regarding payment
terms;
* Sell its stock publicly once the Company is cleared by the SEC. The
Company plans to create a market for the stock and obtain capital from
private and public investors.
If the Company's plans change, or its assumptions change or prove to be
inaccurate, or if available cash otherwise proves to be insufficient to
implement its business plans, the Company may require additional equity or debt
financing. Given the uncertain economic environment and the pressure that the
financial sector has been under, the Company cannot predict whether additional
funds will be available in adequate amounts. If funds are needed but not
available, the Company's business may need to be altered or curtailed.
F-47
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Management believes that, even without the addition of the capital from stock
sales, that the Company will be able to generate sufficient cash flows through
December 31, 2012.
21. SUBSEQUENT EVENTS
In January 2012, BPI entered into a six-month bridge loan agreement (the "Bridge
Loan") of $2,750,000. Management intends to purchase additional plant machinery
to complete its donut line and begin manufacturing donuts. The Bridge Loan bears
an annual interest rate of 1.75% above the U.S. Prime Rate (3.25% as of December
31, 2011).
The Company had no additional significant subsequent events requiring
disclosure.
F-48
Amincor, Inc. and Subsidiaries
Notes to Consolidated or Combined Financial Statements
Three years ended December 31, 2011
Schedule II - Valuation and Qualifying Accounts and Reserves
Fiscal Years Ended December 31, 2011, 2010, and 2009
Beginning Ending
Balance Additions Deductions Balance
------- --------- ---------- -------
2011
Allowance for doubtful accounts $ 450,000 $ 1,466,864 $ (13,238) $ 1,903,626
=========== =========== ============ ===========
Inventory allowance $ 220,360 $ 356,333 $ -- $ 576,693
=========== =========== ============ ===========
Deferred tax asset valuation allowance $ 8,464,000 $ 2,603,000 $ -- $11,067,000
=========== =========== ============ ===========
2010
Allowance for doubtful accounts $ 905,000 $ -- $ (455,000) $ 450,000
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Inventory allowance $ -- $ 220,360 $ -- $ 220,360
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Deferred tax asset valuation allowance $ 6,105,000 $ -- $ 2,359,000 $ 8,464,000
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2009
Allowance for doubtful accounts $ 590,802 $ 314,198 $ -- $ 905,000
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Inventory allowance $ -- $ -- $ -- $ --
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Deferred tax asset valuation allowance $ 1,035,000 $ 5,070,000 $ -- $ 6,105,000
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F-4
