Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 2013
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from ___________ to ___________
Commission File No.: 000-28865
AMINCOR, INC.
(Exact name of registrant as specific in its charter)
Nevada 30-0658859
(State or Other Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
1350 Avenue of the Americas, 24th Floor
New York, NY 10019
(Address of Principal Executive Offices)
(347) 821-3452
(Registrant's Telephone Number, Including Area Code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [X] Smaller reporting company [ ]
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
As of May 15, 2013, there were 7,663,023 shares of Registrant's Class A Common
Stock and 21,286,344 shares of Registrant's Class B Common Stock outstanding.
AMINCOR, INC.
REPORT ON FORM 10-Q
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2013
CONTENTS
PART I - FINANCIAL INFORMATION............................................... 4
Item 1. Financial Statements.................................................. 4
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A")........................................28
Item 3. Quantitative and Qualitative Disclosures About Market Risk...........43
Item 4. Controls and Procedures..............................................43
PART II - OTHER INFORMATION..................................................45
Item 1. Legal Proceedings.....................................................45
Item 1A. Risk Factors.........................................................47
Item 6. Exhibits..............................................................60
SIGNATURES....................................................................61
2
EXPLANATORY NOTE
In this Quarterly Report on Form 10-Q, unless the context indicates otherwise,
the terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to
Amincor, Inc., and its subsidiaries.
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains forward-looking statements that
involve substantial risks and uncertainties. These forward-looking statements
are not historical facts, but rather are based on current expectations,
estimates and projections about us, our industry, our beliefs, and our
assumptions. Words such as "anticipates," "expects," "intends," "plans,"
"believes," "seeks," "estimates," "would," "should," "scheduled," "projects,"
and variations of these words and similar expressions are intended to identify
forward-looking statements. These statements are not guarantees of future
performance and are subject to risks, uncertainties, and other factors, some of
which are beyond our control and difficult to predict and could cause actual
results to differ materially from those expressed or forecasted in the
forward-looking statements.
The forward-looking statements in this Quarterly Report on Form 10-Q speak only
as of the date hereof and caution should be taken not to place undue reliance on
any such forward-looking statements. Forward-looking statements are subject to
certain events, risks and uncertainties many of which are outside of our
control. When considering forward-looking statements, you should carefully
review the risks, uncertainties and other cautionary statements in this
Quarterly Report on Form 10-Q as they identify certain important factors that
could cause actual results to differ materially from those expressed in or
implied by the forward-looking statements. These factors include, among others,
the risks described below under Item 1A Risk Factors and elsewhere in this
Quarterly Report on Form 10-Q. We do not undertake any obligation to update any
forward looking statements.
We undertake no obligation to revise or publicly release the results of any
revisions to these forward-looking statements or information. You should
carefully review documents we file from time to time with the Securities and
Exchange Commission. A number of factors may materially affect our business,
financial condition, operating results and prospects. These factors include but
are not limited to those set forth in our Annual Report on Form 10-K and
elsewhere in this Quarterly Report on Form 10-Q. Any one of these factors may
cause our actual results to differ materially from recent results or from our
anticipated future results. You should not rely too heavily on the
forward-looking statements contained in this Quarterly Report on Form 10-Q,
because these forward-looking statements are relevant only as of the date they
were made.
WHERE YOU CAN FIND MORE INFORMATION
We are required to file quarterly and annual reports and other information with
the United States Securities and Exchange Commission ("SEC"). You may read and
copy this information, for a copying fee, at the SEC's Public Reference Room at
100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for more information on its Public Reference Room. Our SEC
filings will also be available to the public from commercial document retrieval
services, and at the Web site maintained by the SEC at http://www.sec.gov.
Our Company website is located at http://www.amincorinc.com.
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PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
AMINCOR, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, December 31,
2013 2012
------------ ------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS
Cash $ 135,857 $ 359,728
Accounts receivable, net of allowance of $449,747 and $428,953
at March 31, 2013 and December 31, 2012, respectively 4,468,170 4,885,323
Due from factor - related party 467,733 84,699
Inventories, net 2,560,099 2,620,899
Costs and estimated earnings in excess of billings on uncompleted contracts 32,178 30,260
Prepaid expenses and other current assets 1,287,684 703,123
Current assets - discontinued operations 424,647 424,647
------------ ------------
TOTAL CURRENT ASSETS 9,376,368 9,108,679
------------ ------------
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net - continuing operations 14,108,482 14,524,824
------------ ------------
TOTAL PROPERTY, PLANT AND EQUIPMENT, NET 14,108,482 14,524,824
------------ ------------
OTHER ASSETS
Mortgages receivable, net 6,000,000 6,000,000
Goodwill 22,241 22,241
Other intangible assets, net 2,744,000 2,744,000
Other assets 48,964 48,964
Assets held for sale 2,566,433 2,566,433
------------ ------------
TOTAL OTHER ASSETS 11,381,638 11,381,638
------------ ------------
TOTAL ASSETS $ 34,866,488 $ 35,015,141
============ ============
4
AMINCOR, INC. AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
March 31, December 31,
2013 2012
------------ ------------
LIABILITIES AND (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts payable $ 12,768,261 $ 12,492,777
Assumed liabilities - current portion 1,324,516 1,324,863
Accrued expenses and other current liabilities 3,350,942 2,981,824
Loans payable to related party 2,666,855 1,289,036
Notes payable - current portion 6,659,334 6,057,595
Capital lease obligations - current portion 298,659 295,722
Billings in excess of costs and estimated earnings on
uncompleted contracts 232,078 446,295
Deferred revenue 322,795 358,911
Current liabilities - discontinued operations 5,002,723 5,004,664
------------ ------------
TOTAL CURRENT LIABILITIES 32,626,163 30,251,687
------------ ------------
LONG-TERM LIABILITIES
Assumed liabilities - net of current portion 208,772 208,772
Capital lease obligations - net of current portion 408,912 486,827
Due to related party 866,694 902,397
Notes payable - net of current portion 1,255,102 1,318,672
Other long-term liabilities 13,429 13,429
------------ ------------
TOTAL LONG-TERM LIABILITIES 2,752,909 2,930,097
------------ ------------
TOTAL LIABILITIES 35,379,072 33,181,784
------------ ------------
COMMITMENTS AND CONTINGENCIES
(DEFICIT) EQUITY
AMINCOR SHAREHOLDERS' (DEFICIT) EQUITY
Convertible preferred stock, $0.001 par value per share; 3,000,000
authorized, 1,752,823 issued and outstanding 1,753 1,753
Common stock - class A; $0.001 par value; 22,000,000
authorized, 7,663,023 issued and oustanding 7,663 7,663
Common stock - class B; $0.001 par value; 40,000,000
authorized, 21,286,344 issued and outstanding 21,286 21,286
Additional paid-in capital 86,688,461 86,549,322
Accumulated deficit (86,821,262) (84,342,834)
------------ ------------
TOTAL AMINCOR SHAREHOLDERS' (DEFICIT) EQUITY (102,099) 2,237,190
------------ ------------
NONCONTROLLING INTEREST DEFICIT: (410,485) (403,833)
------------ ------------
TOTAL (DEFICIT) EQUITY (512,584) 1,833,357
------------ ------------
TOTAL LIABILITIES AND (DEFICIT) EQUITY $ 34,866,488 $ 35,015,141
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements
5
AMINCOR, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
Three Months Ended March 31,
(Unaudited)
2013 2012
------------ ------------
NET REVENUES $ 7,193,160 $ 13,897,017
COST OF REVENUES 6,281,420 10,704,512
------------ ------------
GROSS PROFIT 911,740 3,192,505
SELLING, GENERAL AND ADMINISTRATIVE 3,187,811 5,695,027
------------ ------------
Loss from operations (2,276,071) (2,502,522)
------------ ------------
OTHER EXPENSES (INCOME)
Interest expense, net 250,842 155,942
Other expense (income) (48,087) (109,732)
------------ ------------
TOTAL OTHER EXPENSES (INCOME) 202,755 46,210
------------ ------------
Loss before provision for income taxes (2,478,826) (2,548,732)
Provision for income taxes -- --
------------ ------------
NET LOSS FROM CONTINUING OPERATIONS (2,478,826) (2,548,732)
------------ ------------
Loss From Discontinued Operations (6,254) (55,839)
------------ ------------
Net Loss (2,485,080) (2,604,571)
------------ ------------
Net loss attributable to non-controlling interests (6,652) (61,457)
------------ ------------
NET LOSS ATTRIBUTABLE TO AMINCOR SHAREHOLDERS $ (2,478,428) $ (2,543,114)
============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS - BASIC AND DILUTED:
Net loss from continuing operations $ (0.09) $ (0.09)
============ ============
Weighted average shares outstanding - basic and diluted 28,949,367 28,723,599
============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR SHAREHOLDERS - BASIC AND DILUTED:
Net loss attributable to Amincor shareholders $ (0.09) $ (0.09)
============ ============
Weighted average shares outstanding - basic and diluted 28,949,367 28,723,599
============ ============
The accompanying notes are an integral part of these consolidated
condensed financial statements
6
AMINCOR, INC. AND SUBSIDIARIES
Consolidated Condensed Statement of Changes in Shareholders' (Deficit) Equity
Three Months Ended March 31,
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, 2011
(audited) 1,752,823 $1,753 7,478,409 $7,478 21,245,190 $21,245
--------- ------ --------- ------ ---------- -------
Share based
compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at
March 31, 2012
(unaudited) 1,752,823 1,753 7,478,409 7,478 21,245,190 21,245
--------- ------ --------- ------ ---------- -------
Balance at
December 31, 2012
(audited) 1,752,823 1,753 7,663,023 7,663 21,286,344 21,286
--------- ------ --------- ------ ---------- -------
Share based
compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------ --------- ------ ---------- -------
Balance at
March 31, 2013
(unaudited) 1,752,823 $1,753 7,663,023 $7,663 21,286,344 $21,286
========= ====== ========= ====== ========== =======
Amincor, Inc. and Subsidiaries
------------------------------
Additional Total
Paid-in Accumulated Non-controlling (Deficit)
Capital Deficit Deficit Equity
------- ------- ------- ------
Balance at
December 31, 2011
(audited) $85,500,069 $(50,956,710) $(129,264) $34,444,571
----------- ------------ --------- -----------
Share based
compensation 78,798 -- -- 78,798
Net loss -- (2,543,114) (61,457) (2,604,571)
----------- ------------ --------- -----------
Balance at
March 31, 2012
(unaudited) 85,578,867 (53,499,824) (190,721) 31,918,798
----------- ------------ --------- -----------
Balance at
December 31, 2012
(audited) 86,549,322 (84,342,834) (403,833) 1,833,357
----------- ------------ --------- -----------
Share based
compensation 139,139 -- -- 139,139
Net loss -- (2,478,428) (6,652) (2,485,080)
----------- ------------ --------- -----------
Balance at
March 31, 2013
(unaudited) $86,688,461 $(86,821,262) $(410,485) $ (512,584)
=========== ============ ========= ===========
The accompanying notes are an integral part of these consolidated
condensed financial statements
7
AMINCOR, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
2013 2012
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (2,478,826) $ (2,548,732)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization of property, plant and equipment 477,447 382,164
Amortization of intangible assets -- 467,834
Amortization of deferred financing costs -- 39,123
Stock based compensation 139,139 78,798
Gain on sale of equipment -- (86,726)
Provision for doubtful accounts 3,402 15,590
Changes in assets and liabilities:
Accounts receivable 413,751 208,145
Due from factor - related party (383,034) --
Inventories 60,800 48,196
Costs and estimated earnings in excess of billings
on uncompleted contracts (1,918) (289,590)
Prepaid expenses and other current assets 349,659 181,103
Other assets -- (2,750)
Accounts payable 431,449 988,417
Accrued expenses and other current liabilities 369,118 (351,310)
Billings in excess of costs and estimated earnings
on uncompleted contracts (214,217) 426,887
Deferred revenue (36,116) 10,549
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES - CONTINUING OPERATIONS (869,346) (432,302)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (20,604) (549,947)
Proceeds from sale of equipment -- 86,726
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (20,604) (463,221)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from related parties 1,342,116 423,494
Principal payments of capital lease obligations (74,978) (51,115)
(Repayments) of borrowings from notes payable (592,517) 69,075
Payments of assumed liabilities (347) --
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS 674,274 441,454
------------ ------------
NET CASH USED IN CONTINUING OPERATIONS (215,676) (454,069)
------------ ------------
8
AMINCOR, INC. AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
Three Months Ended March 31,
(Unaudited)
2013 2012
------------ ------------
Net cash used in operating activities - discontinued operations (8,195) (95,011)
------------ ------------
NET CASH USED IN DISCONTINUED OPERATIONS (8,195) (95,011)
------------ ------------
Decrease in cash (223,871) (549,080)
Cash, beginning of period 359,728 1,286,240
------------ ------------
CASH, END OF PERIOD $ 135,857 $ 737,160
============ ============
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
CASH PAID DURING THE PERIOD FOR:
Interest $ 316,877 $ 90,726
============ ============
Income taxes $ -- $ 80,082
============ ============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Financing of insurance by notes payable $ 934,220 $ 90,726
============ ============
Conversion of accounts payable to term notes payable $ 155,965 $ 1,185,583
============ ============
Acquisition of equipment by notes payable $ 40,501 $ --
============ ============
The accompanying notes are an integral part of these
consolidated condensed financial statements
9
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor" or the "Company") was incorporated on October 8, 1997
and was dormant from 2002 through the end of 2009. Amincor is headquartered in
New York, New York. During 2011 and 2010, Amincor acquired all or a majority of
the outstanding stock of the following companies:
Baker's Pride, Inc. ("BPI")
Environmental Holdings Corp. ("EHC")
Epic Sports International, Inc. ("ESI")
Masonry Supply Holding Corp. ("Masonry" or "IMSC")
Tulare Holdings, Inc. ("Tulare Holdings", or "Tulare")
Tyree Holdings Corp. ("Tyree")
On November 5, 2012, the Company acquired all of the assets and assumed some of
the liabilities of Environmental Waste Treatment, LLC ("EWT Business"). The
Company assigned the EWT Business to Advanced Waste & Water Technology, Inc.
("AWWT") a subsidiary of EHC.
As of March 31, 2013, the following are operating subsidiaries of Amincor:
Baker's Pride, Inc.
Tyree Holdings Corp.
Environmental Holdings Corp.
Amincor Other Assets, Inc. ("Other Assets")
BPI
BPI manufactures bakery food products, primarily consisting of several varieties
of sliced and packaged private label bread in addition to fresh and frozen
varieties of cookies for a national supermarket and its food service channels
throughout the Midwest and Eastern region of the United States. BPI is
headquartered and operates facilities in Burlington, Iowa.
On October 31, 2012, BPI's most significant customer terminated its contract
with the Company due to BPI's inability to meet certain pricing, cost and
product offering needs. As of March 31, 2013, BPI is seeking new customers and
has a bid with its former most significant customer to resume production in the
fourth quarter of 2013.
TYREE
Tyree performs maintenance, repair and construction services to customers with
underground petroleum storage tanks and petroleum product dispensing equipment.
Complimenting these services, Tyree is engaged in environmental consulting, site
assessment, analysis and management of site remediation for owners and operators
of property with petroleum storage facilities. Tyree markets its services
throughout the Northeast and Mid-Atlantic regions of the United States to
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national and multinational enterprises, as well as to local and national
governmental agencies and municipalities. The majority of Tyree's revenue is
derived from customers in the Northeastern United States. Tyree's headquarters
are located in Mt. Laurel, New Jersey.
EHC
Through its wholly owned subsidiaries, Environmental Quality Services, Inc
("EQS") and Advanced Waste & Water Technology, Inc. ("AWWT"), EHC provides
environmental and hazardous waste testing and water remediation services in the
Northeastern United States, and is headquartered in Farmingdale, New York.
OTHER ASSETS
Other Assets was incorporated to hold real estate, equipment and loan
receivables. As of March 31, 2013, all of Other Assets' real estate and
equipment are classified as held for sale.
DISCONTINUED OPERATIONS
During 2011, Amincor adopted a plan to discontinue the operations of the
following entities:
Masonry Supply Holding Corp.
Tulare Holdings, Inc.
Epic Sports International, Inc.
MASONRY
Masonry manufactured and distributed concrete and lightweight block to the
construction industry. IMSC also operated a retail home center and showroom,
where it sold masonry related products, hardware and building supplies to
customers. Masonry's headquarters, showroom and operating facility were located
in Pelham Manor, New York.
TULARE HOLDINGS
Tulare prepared and packaged frozen vegetables (primarily spinach), from produce
supplied by growers, for the food service and retail markets throughout southern
California and the southwestern United States. Tulare sold to retailers under a
private label, and to food brokers and retail food stores under the Tulare
Frozen Foods label. Tulare's headquarters and processing facility was located in
Lindsay, California.
ESI
ESI was the worldwide licensee for the Volkl and Boris Becker Tennis brands. In
2010, ESI became the exclusive sales representative of Volkl and Becker products
for Samsung C&T America, Inc. ESI sold their products domestically through
11
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 unaudited consolidated condensed financial statements of the
Company have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. Certain information and note disclosures
normally included in annual financial statements prepared in accordance with
generally accepted accounting principles in the United States of America
("GAAP") have been condensed or omitted pursuant to those rules and regulations,
although the Company believes that the disclosures are adequate to make the
information not misleading. In the opinion of management, all adjustments
necessary for a fair statement of the results of operations and financial
position for the periods presented have been reflected as required by Regulation
S-X. The results of operations for the interim period presented is not
necessarily indicative of the results of operations to be expected for the year.
These consolidated condensed financial statements should be read in conjunction
with the Form 10-K which includes the audited consolidated or combined financial
statements for the three years ended December 31, 2012.
PRINCIPLES OF CONSOLIDATION
The consolidated condensed 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.
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REVENUE RECOGNITION
BPI
Revenue is recognized from product sales when goods are delivered to the BPI's
shipping dock, and are made available for pick-up by the customer, at which
point title and risk of loss pass to the customer. Customer sales discounts are
accounted for as reductions in revenues in the same period the related sales are
recorded.
TYREE
Maintenance and repair services for several retail petroleum customers are
performed under multi-year, unit price contracts ("Tyree Contracts"). Under
these agreements, the customer pays a set price per contracted retail location
per month and Tyree provides a defined scope of maintenance and repair services
at these locations on an on-call or as scheduled basis. Revenue earned under
Tyree Contracts is recognized each month at the prevailing per location unit
price. Revenue from other maintenance and repair services is recognized as these
services are rendered.
Tyree uses the percentage-of-completion method on construction services,
measured by the percentage of total costs incurred to date to estimated total
costs for each contract. This method is used because management considers costs
to date to be the best available measure of progress on these contracts.
Provisions for estimated losses on uncompleted contracts are made in the period
in which overall contract losses become probable. Changes in job performance,
job conditions and estimated profitability, including those arising from final
contract settlements, may result in revisions to costs and income. These
revisions are recognized in the period in which it is probable that the customer
will approve the variation and the amount of revenue arising from the revision
can be reliably measured. An amount equal to contract costs attributable to
claims is included in revenues when negotiations have reached an advance stage
such that it is probable that the customer will accept the claim and the amount
can be measured reliably.
The asset account "Costs and estimated earnings in excess of billings on
uncompleted contracts," represents revenues recognized in excess of amounts
billed.
The liability account, "Billings in excess of cost and estimated earnings on
uncompleted contracts," represents billings in excess of revenues recognized.
EQS
EQS provides environmental testing for its clients that range from smaller
engineering firms and contractors to well-known petroleum companies. EQS submits
an invoice with each report it distributes to its clients. Revenue is recognized
as testing services are performed.
13
AWWT
AWWT provides water remediation and logistics services for its clients which
include any business that produces waste water. AWWT invoices clients based on
bills of lading which specify the quantity and type of water treated. Revenue is
recognized as water remediation services are performed.
ACCOUNTS RECEIVABLE
Accounts receivable are recorded net of an allowance for doubtful accounts. The
credit worthiness of customers is analyzed based on historical experience, as
well as the prevailing business and economic environment. An allowance for
doubtful accounts is established and determined based on management's
assessments of known requirements, aging of receivables, payment history, the
customer's current credit worthiness and the economic environment. Accounts are
written off when significantly past due and after exhaustive efforts at
collection. Recoveries of accounts receivables previously written off are
recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree,
BPI, EQS, and AWWT extend unsecured credit to customers in the ordinary course
of business but mitigate the associated risks by performing credit checks and
actively pursuing past due accounts. Tyree follows the practice of filing
statutory "mechanics" liens on construction projects where collection problems
are anticipated.
MORTGAGES RECEIVABLE
The mortgages receivable consist of commercial loans collateralized by property
in Pelham Manor, New York. The loans were non-performing and property was in
foreclosure as of March 31, 2013. The value of the mortgages is based on the
fair value of the collateral.
ALLOWANCE FOR LOAN LOSSES
An allowance for loan losses is established as losses are estimated to have
occurred through a provision for loan losses charged to operations. A loan is
determined to be non-accrual when it is probable that scheduled payments of
principal and interest will not be received when due according to the
contractual terms of the loan agreement. When a loan is placed on non-accrual
status, all accrued yet uncollected interest is reversed from income. Payments
received on non-accrual loans are generally applied to the outstanding principal
balance. Loans are removed from non-accrual status when management believes that
the borrower will resume making the payments required by the loan agreement.
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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.
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
15
stock. Such contracts include stock options and convertible preferred stock,
which when exercised or converted into common stock would cause the issuance of
common stock that then would share in earnings (loss). Such potential additional
common shares are included in the computation of diluted earnings per share.
Diluted loss per share is not computed because any potential additional common
shares would reduce the reported loss per share and therefore have an
antidilutive effect.
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.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior year's consolidated
condensed financial statements to conform to the current year's presentation.
3. GOING CONCERN
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern that contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The Company has suffered recurring net losses from operations and
had a working capital deficit of $23,249,795 as of March 31, 2013, which raises
substantial doubt about the Company's ability to continue as a going concern.
The Company's ability to continue as a going concern is dependent upon its
capability to raise additional funds through debt and equity financing, and to
achieve profitable operations. Management's plans to continue as a going concern
and to achieve a profitable level of operations are as follows:
* Baker's Pride, Inc.
* Secure additional donut and bread customers to increase the
utilization of existing plant assets and place significant and
competitive bids to strategic players within the fresh bread
manufacturing industry, as well as increase revenues from its existing
customers,
* Increase co-pack donut, bread and bun business once the existing plant
assets are operating at maximum capacity,
* Negotiate to extend BPI's commercial bank bridge loan which matures on
May 31, 2013. An extension will allow continued interest only
financing on BPI's new donut equipment until operating cash flow is
sufficient to make principal payments.
16
* Environmental Holdings Corp.
* Complete the sale of EQS - see Note 13 - Subsequent Events,
* Successfully sell large-scale waste water treatment equipment through
AWWT's established licensing agreement.
* Tyree Holdings Corp.
* Increase sales of the environmental business unit to existing
customers and bid on additional jobs outside of Tyree's current
customer base. The success of one of Tyree's primary customers in
securing additional environmental remediation work should result in
referrals to Tyree,
* Evaluate Tyree's construction and maintenance business units with
respect to their ability to increase margins and operate profitably
independent of each other,
* Liquidate excess inventory to generate additional working capital.
* Amincor Other Assets, Inc.
* Rent assets held for sale to offset the costs of ownership until the
assets are liquidated,
* Liquidate assets held for sale to provide working capital to the
Company's subsidiaries.
* Amincor, Inc.
* Secure new financing from a financial institution to provide needed
working capital to the subsidiary companies.
While management believes that it will be able to continue to raise capital from
various funding sources in such amounts sufficient to sustain operations at the
Company's current levels through at least March 31, 2014, if the Company is not
able to do so and if the Company is unable to become profitable in 2013 and the
first quarter of 2014, the Company would likely need to modify its plans and/or
cut back on its operations. If the Company is able to raise additional funds
through the issuance of equity securities, substantial dilution to existing
shareholders may result. However, if management's plans are not achieved, if
significant unanticipated events occur, or if the Company is unable to obtain
the necessary additional funding on favorable terms or at all, management would
likely have to modify its business plans to continue as a going concern. The
condensed consolidated financial statements do not include any adjustments that
might be necessary if the Company is unable to continue as a going concern.
4. DISCONTINUED OPERATIONS
Effective June 30, 2011, the Company discontinued the operations of Masonry and
Tulare Holdings, Inc., and effective September 30, 2011 the Company discontinued
the operations of Epic Sports International, Inc. As a result, losses from
Masonry, Tulare and ESI are included in the loss from discontinued operations in
the accompanying consolidated condensed financial statements for the three
17
months ended March 31, 2013 and 2012, respectively. Assets and liabilities
related to discontinued operations related to discontinued operations are
presented separately on the consolidated balance sheets as of March 31, 2013 and
December 31, 2012, respectively. Changes in net cash from discontinued
operations are presented in the accompanying consolidated statements of cash
flows for the three months ended March 31, 2013 and 2012, respectively.
The following amounts related to Masonry, Tulare and ESI have been segregated
from continuing operations and reported as discontinued operations:
Results From Discontinued Operations:
Three Months Ended March 31
2013 2012
------------ ------------
Net revenues from discontinued operations $ -- $ 1,331
============ ============
Loss from discontinued operations $ (6,254) $ (55,839)
============ ============
The following is a summary of the assets and liabilities of the discontinued
operations, excluding assets held for sale (which are presented separately on
the consolidated condensed balance sheets). The other remaining assets consist
of:
March 31, December 31,
2013 2012
------------ ------------
Prepaid expenses and other current assets $ -- $ --
Property, plant and equipment, net -- --
Other assets 424,647 424,647
------------ ------------
TOTAL ASSETS 424,647 424,647
------------ ------------
Accounts payable 4,119,185 4,121,126
Accrued expenses and other current liabilities 883,538 883,538
------------ ------------
TOTAL LIABILITIES 5,002,723 5,004,664
------------ ------------
NET LIABILITIES $ (4,578,076) $ (4,580,017)
============ ============
TOTAL ASSETS $ 424,647 $ 424,647
============ ============
TOTAL LIABILITIES $ 5,002,723 $ 5,004,664
============ ============
The Company will continue to provide administrative services for the
discontinued operations until the liquidation of these discontinued entities is
completed.
5. INVENTORIES
Inventories consist of:
* Construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
A summary of inventory as of March 31, 2013 and December 31, 2012 is below:
18
March 31, December 31,
2013 2012
---------- ----------
Raw materials $2,953,687 $3,058,645
Ingredients 146,025 108,673
Finished goods 7,847 454
---------- ----------
3,107,559 3,167,772
Inventory reserves 547,460 546,873
---------- ----------
INVENTORIES, NET $2,560,099 $2,620,899
========== ==========
6. PROPERTY, PLANT AND EQUIPMENT
As of March 31, 2013 and December 31, 2012 property, plant and equipment from
continuing operations consisted of the following:
Useful Lives March 31, December 31,
(Years) 2013 2012
------- ------------ ------------
Land n/a $ 430,000 $ 430,000
Machinery and equipment 2-10 16,461,246 16,407,366
Furniture and fixtures 5-10 110,439 110,439
Building and leasehold improvements 10 3,376,869 3,376,869
Computer equipment and software 5-7 854,554 847,329
Construction in progress n/a -- --
Vehicles 3-10 408,080 408,080
------------ ------------
21,641,188 21,580,083
Less accumulated depreciation 7,532,706 7,055,259
------------ ------------
$ 14,108,482 $ 14,524,824
============ ============
Total depreciation expense related to continuing operations for the three months
ended March 31, 2013 and 2012 was $447,447 and $382,164, respectively.
7. GOODWILL AND INTANGIBLE ASSETS
Goodwill of $22,241 as of March 31, 2013 and 2012, and licenses and permits (an
intangible asset) of $2,744,000 as of March 31, 2013 and December 31, 2012,
respectively, have indefinite useful lives and are not being amortized but
tested for impairment annually or whenever an event occurs that may indicate a
significant decrease in the fair value of the asset has taken place.
The aforementioned licenses and permits have renewal provisions which are
generally one to four years. As of March 31, 2013, the weighted-average period
to the next renewal was ten months. The costs of renewal are nominal and are
expensed when incurred. The Company intends to renew all licenses and permits
currently held.
Amortization expense used in continuing operations for the three months ended
March 31, 2013 and 2012 was $0 and $467,834 respectively. As of March 31, 2013,
all intangible assets subject to amortization were fully amortized.
19
8. LONG-TERM DEBT
Long-term debt consists of the following as of March 31, 2013 and December 31,
2012:
March 31, December 31,
2013 2012
----------- -----------
Equipment loans payable, collateralized by
the assets purchased, and bearing interest at
annual fixed rates ranging from 8.00% to
15.00% as of March 31, 2013 and December 31,
2012 with principal and interest payable in
installments through July 2014 $ 710,564 $ 748,293
Promissory notes payable, with zero interest
to current accounts payable vendors. Payment
terms are from 12 to 36 months 3,755,303 3,135,840
Promissory notes payable, with accrued
interest, to three former stockholders of a
predecessor company. These notes are
unsecured and are subordinate to the
Company's senior debt. The notes matured and
are in default as of March 31, 2013 and bear
interest at an annual fixed rate of 6.00% 500,000 500,000
Note payable to a commercial bank. Payable in
monthly installments of principal and
interest through March 2015. The annual
interest rate is 7.25% 198,584 242,149
Bridge loan with a commercial bank,
collateralized by property, plant and
equipment in addition to assets purchased,
and bearing interest at 2.75% above the U.S.
Prime Rate with a floor of 5.00% and a
ceiling of 7.00%. The loan matures on May 31,
2013 2,749,985 2,749,985
----------- -----------
Total 7,914,436 7,376,267
Less current portion 6,659,334 6,057,595
----------- -----------
Long-term portion $ 1,255,102 $ 1,318,672
=========== ===========
9. RELATED PARTY TRANSACTIONS
Related parties are natural persons or other entities that have the ability,
directly or indirectly, to control another party or exercise significant
influence over the other party in making financial and operating decisions.
Related parties include other parties that are subject to common control or that
are subject to common significant influences.
DUE FROM FACTOR
In 2013, BPI, Tyree and EHC entered into spot factoring agreements with a
related party ("Factor"), which shares common ownership and management with the
Company, under which certain eligible accounts receivable are factored. The
Factor assumes credit risk for all credit-approved accounts. The Company
initially receives an advance of 70% of the eligible receivable. The Factor
provides rebates from 1% to 27% of the purchased invoice based on the repayment
date on a sliding scale of collection dates from 30 to 180 days. In 2012, BPI
had a discount factoring agreement with the Factor and received advances of 70%.
The Company paid the Factor a commission on each accounts receivable purchased
equal to (a) 3% for each 30 days that such accounts receivable is outstanding,
(b) after the initial 30 day period, an additional 1% for the next 10 day period
or part thereof that such accounts receivable is outstanding and (c) after the
20
initial 60 day period, an additional 2% for the next 10 day period or part
thereof that such accounts receivable is outstanding. The factor agreements are
secured by accounts receivable purchased by the Factor. Factor fees amounted to
$131,876 and $24,632 for the three months ended March 31, 2013 and 2012,
respectively.
LOANS PAYABLE
Loans from a related party consist of the following at:
March 31, December 31,
2013 2012
---------- ----------
Loan and security agreement with Capstone
Capital Group, LLC which expires on November
1, 2013 bearing interest at 18% per annum.
Maximum borrowing of $2,500,000 $2,015,924 $ 764,799
Loan and security agreement with Capstone
Capital Group, LLC which expires on May 15,
2015 bearing interest at 18% per annum.
Maximum borrowing of $1,000,000 625,146 473,820
Loan and security agreement with Stephen
Tyree which expires on November 5, 2014
bearing interest at 5.0% per annum.
25,785 50,417
---------- ----------
Total loans and amounts payable to related
parties $2,666,855 $1,289,036
========== ==========
Interest expense for these loans amounted to $85,512 and $79,833 for the three
months ended March 31, 2013 and 2012, respectively.
10. CORRECTION OF SHARES OF COMMON STOCK ISSUED
On June 27, 2012, the Company issued 68,928 shares of Class B common shares as a
correction of the amount of shares issued on the Company's Payment in Kind date.
As a result, the amount of Class B shares outstanding and the weighted average
shares outstanding for the three months ended March 31, 2012 have been restated.
This correction is de minimus and had no discernable effect on previously
reported loss per share.
11. OPERATING SEGMENTS
The Company is organized into six operating segments: (1) Amincor, (2) Other
Assets, (3) BPI, (4) EHC, and (5) Tyree. Assets related to discontinued
operations ("Disc. Ops") are also presented below where relevant. Segment
information is as follows:
21
March 31, December 31,
2013 2012
------------ ------------
TOTAL ASSETS:
Amincor $ 317,986 $ 298,792
Other Assets 8,566,433 8,566,433
BPI 11,830,887 12,051,571
EHC 993,652 1,144,626
Tyree 12,732,883 12,529,072
Disc. Ops 424,647 424,647
------------ ------------
TOTAL ASSETS $ 34,866,488 $ 35,015,141
============ ============
March 31, December 31,
2013 2012
------------ ------------
TOTAL GOODWILL:
Amincor $ -- $ --
Other Assets -- --
BPI -- --
EHC 22,241 22,241
Tyree -- --
------------ ------------
TOTAL GOODWILL $ 22,241 $ 22,241
============ ============
March 31, December 31,
2013 2012
------------ ------------
TOTAL INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
BPI -- --
EHC 135,000 135,000
Tyree 2,609,000 2,609,000
------------ ------------
TOTAL INTANGIBLE ASSETS $ 2,744,000 $ 2,744,000
============ ============
Three Months Ended March 31,
2013 2012
------------ ------------
NET REVENUES:
Amincor $ -- $ --
Other Assets -- --
BPI 54,808 4,144,288
EHC 278,330 233,420
Tyree 6,860,022 9,519,309
------------ ------------
NET REVENUES $ 7,193,160 $ 13,897,017
============ ============
22
Three Months Ended March 31,
2013 2012
------------ ------------
INCOME (LOSS) BEFORE PROVISION FOR
INCOME TAXES:
Amincor $ 196,909 $ (182,201)
Other Assets (30,126) 6,895
BPI (1,750,171) (854,158)
EHC (230,205) (173,493)
Tyree (665,233) (1,345,775)
------------ ------------
INCOME (LOSS) BEFORE PROVISION
FOR INCOME TAXES $ (2,478,826) $ (2,548,732)
============ ============
Three Months Ended March 31,
2013 2012
------------ ------------
DEPRECIATION OF PROPERTY AND EQUIPMENT:
Amincor $ -- $ --
Other Assets -- --
BPI 294,031 206,550
EHC 32,191 22,857
Tyree 151,225 152,756
------------ ------------
TOTAL DEPRECIATION OF PROPERTY AND
EQUIPMENT $ 477,447 $ 382,164
============ ============
Three Months Ended March 31,
2013 2012
------------ ------------
AMORTIZATION OF INTANGIBLE ASSETS:
Amincor $ -- $ --
Other Assets -- --
BPI -- 191,225
EHC -- --
Tyree -- 276,609
------------ ------------
TOTAL AMORTIZATION OF INTANGIBLE ASSETS $ -- $ 467,834
============ ============
Three Months Ended March 31,
2013 2012
------------ ------------
INTEREST EXPENSE - NET:
Amincor $ (183,309) $ (80,715)
Other Assets (7,247) (6,895)
BPI 169,327 100,819
EHC 59,184 18,640
Tyree 212,887 124,093
------------ ------------
Total interest expense, net $ 250,842 $ 155,942
============ ============
23
12. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES:
BPI
In connection with Baker's Pride's USDA loan application, BPI had Environmental
Site Assessments done on the property where one of its bakeries is located as
required by the prospective lender. A Phase II Environmental Site Assessment was
completed on October 31, 2011 and was submitted to the Iowa Department of
Natural Resources ("IDNR") for their review. IDNR requested that a Tier Two Site
Cleanup Report ("Tier Two") be issued and completed in order to better
understand what environmental hazards exist on the property. The Tier Two was
completed on February 3, 2012 and was submitted to IDNR for further review.
Management's latest correspondence with IDNR, dated March 21, 2012, required
additional environmental remediation to be in compliance with IDNR's
regulations. Management has retained the necessary environmental consultants to
become compliant with IDNR's request. Due to the nature of the liability, the
remediation work is 100% eligible for refund from INDR's Innocent Landowner
Fund. As such there is no direct liability related to the clean up of the
hazard.
TYREE
One of Tyree's largest customers, Getty Petroleum Marketing, Inc. ("GPMI") filed
for bankruptcy protection on December 5, 2011. As of that date, Tyree had a
pre-petition receivable of $1,515,401. Additionally, Tyree has a post-petition
administrative claim for $593,709. A Proof of Claim was filed with the
Bankruptcy court on Tuesday, April 10, 2012. On August 27, 2012, the United
States Bankruptcy Court for the Southern District of New York confirmed GPMI's
Chapter 11 plan of liquidation offered by its unsecured creditors committee,
overruling the remaining objections. The plan provides for all of the debtors'
property to be liquidated over time and for the proceeds to be allocated to
creditors. Any assets not distributed by the effective date will be held by a
liquidating trust and administered by a liquidation trustee, who will be
responsible for liquidating assets, resolving disputed claims, making
distributions, pursuing reserved causes of action and winding up GPMI's affairs.
As an unsecured creditor, Tyree may never collect or may only collect a small
percentage of the pre and post petition amounts owed. To date, Tyree has not
been notified of any intent by the United States Bankruptcy Court for the
Southern District of New York to claw back any amounts paid to Tyree
pre-petition.
Tyree management continues to negotiate with Local Union 1, Local Union 25,
Local Union 99, Local Union 138, Local Union 200 and Local Union 355 over unpaid
benefits that are due to each of the respective unions. Tyree's records indicate
approximately $1 million of unpaid benefits due as of December 31, 2012. Tyree
management does not dispute that benefits are due to the respective unions,
however, settlement and payment plan discussions are ongoing. The Local Unions
have filed suit to enforce their rights as to the unpaid benefits as of March
2013.
24
A variety of unsecured vendors have filed suit for non-payment of outstanding
invoices. Each of these actions is handled on a case by case basis, to determine
the settlement and payment plan.
ESI (A DISCONTINUED OPERATION)
The Volkl license agreement was terminated in September 2011 and concurrently
the Strategic Alliance Agreement with Samsung America CT, Inc. ("Samsung") was
also terminated. Volkl is seeking a $400,000 royalty payment. ESI has initiated
counterclaims against the various parties, including but not limited to Samsung,
seeking damages for, including but not limited to infringement, improper use of
company assets and breach of fiduciary duty. Volkl was successful in obtaining a
judgment against ESI and a confirmation of the Arbitration is presently pending
in Federal Court. Management believes that this matter and the Frost matter
below will eventually be settled out of court for less than the royalty and
damages amounts sought.
On September 28, 2012, Sean Frost ("Frost"), the former President of Epic Sports
International, Inc., filed a complaint against Epic Sports International Inc.,
Amincor, Inc. and Joseph Ingrassia (collectively, the "Defendants"). The first
cause of action of the complaint is a petition to compel arbitration for unpaid
compensation and benefits pursuant to Frost's employment agreement. The second
cause of action of the complaint is for breach of contract for alleged
non-payment of expenses, vacation days and assumption of certain debts. The
third cause of action of the complaint is for violation of the California Labor
Code for failure to pay wages. In addition, Frost is seeking among other things,
damages, attorneys' fees and costs and expenses.
LEGAL PROCEEDINGS
AMINCOR
On July 6, 2012, SFR Holdings, Ltd., Eden Rock Finance Master Limited, Eden Rock
Asset Based Lending Master Ltd., Eden Rock Unleveraged Finance Master Limited,
SHK Asset Backed Finance Limited, Cannonball Plus Fund Limited and Cannonball
Stability Fund, LP (collectively, the "Plaintiffs") commenced an action in the
Supreme Court of the State of New York County of New York against Amincor, Inc.,
Amincor Other Assets, Inc., their officers and directors, John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson and various other entities affiliated
with or controlled directly or indirectly by John R. Rice III and Joseph F.
Ingrassia (collectively the "Defendants"). Plaintiffs allege that Defendants
engaged in wrongful acts, including fraudulent inducement, fraud, breach of
fiduciary duty, unjust enrichment, fraudulent conveyance and breach of contract.
Plaintiffs are seeking compensatory damages in an amount in excess of $150,000
to be determined at trial. Litigation is pending. Management believes that this
lawsuit has no merit or basis and intends to vigorously defend it.
25
TYREE
Tyree's services are regulated by federal, state and local laws enacted to
regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. The
regulations put Tyree or Tyree's predecessor companies at risk for becoming a
party to legal proceedings involving customers or other interested parties. The
issues involved in such proceedings generally relate to alleged responsibility
arising under federal or state laws to remediate contamination at properties
owned or operated either by current or former customers or by other parties who
allege damages. To limit its exposure to such proceedings, Tyree purchases, for
itself and Tyree's predecessor companies, site pollution, pollution and
professional liability insurance. Aggregate limits, per occurrence limits and
deductibles for this policy are $10,000,000, $5,000,000 and $50,000,
respectively.
Tyree and its subsidiaries are, from time to time, involved in ordinary and
routine litigation. Management presently believes that the ultimate outcome of
these proceedings individually or in the aggregate, will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows. Nevertheless, litigation is subject to inherent uncertainties and
unfavorable rulings could occur. An unfavorable ruling could include monetary
damages and, in such event, could result in a material adverse impact on the
Company's financial position, results of operations or cash flows for the period
in which the ruling occurs.
IMSC/OTHER ASSETS
Capstone Business Credit, LLC ("CBC"), a related party, is the plaintiff in a
foreclosure action against Imperia Family Realty, LLC ("IFR"). IFR is related to
the former owners of Masonry's business. In November 2011 a Judgment of
Foreclosure was granted by the court ordering that the IMSC property in Pelham
Manor, New York (the "Property") be sold at public auction.
A former principal of Imperia Bros., Inc. (a predecessor company of Masonry)
filed a notice of appeal dated November 14, 2011 with the court contesting the
Judgment of Foreclosure. The Company believes that the appeal will not be upheld
by the court since the same appellate court, on February 16, 2010, issued an
order that granted CBC a motion of summary judgment and dismissed all of the
former principal's affirmative defenses.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. CBC, on behalf of Amincor, bid the amount
of their lien and was the successful bidder. CBC then assigned its bid to
Amincor.
As of the filing date, title to the Property has not been transferred due to a
title issue involving the notice of pendency ("Notice") that expired and was not
renewed at least 20 days prior to the Judgment of Foreclosure and Sale being
filed and entered. Since no title transfers or judgment/liens were filed against
the Property after the expiration of the Notice, the Company believes it is
likely a conditional title will be issued and after recording the deed, IFR will
no longer have any ownership interest in the property.
26
13. SUBSEQUENT EVENTS
On April 26, 2013, effective April 1, 2013, EHC, a wholly owned subsidiary of
the Company sold all of its EQS's common stock for $500,000, which included the
sale and transfer of certain EQS assets and assuming certain of its liabilities.
A seller's note of $500,000 was agreed upon with an annual interest rate of 8%.
The note will be interest only for its first two years, and thereafter be
amortized over a five-year period. The note will be secured by the assets of the
acquiring company.
On April 30, 2013 the sale of the property in Allentown, PA was completed with
the Allenton Economic Development Corporation. The Company netted approximately
$232,000 from the sale.
The Company had no additional significant subsequent events requiring
disclosure.
27
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
AMINCOR (CONSOLIDATED BASIS)
GOING CONCERN/LIQUIDITY AND CAPITAL RESOURCES
During the three months ended March 31, 2013, cash flows used in continuing
operations was $869,346. This was principally due to a net loss from continuing
operations of $2,478,826 which was partially offset by a reduction in accounts
receivable of approximately $414,000, increase in accounts payable of
approximately $431,000, depreciation expense of approximately $477,000, an
increase in accrued expenses and other current liabilities of approximately
$369,000 and a decrease in prepaid expenses and other current assets of
approximately $350,000. The net loss from continuing operations is discussed in
greater detail in the results from operations for the three months ended March
31, 2013 and 2012 section of this MD&A.
For the three months ended March 31, 2013, cash flows used in investing
activities from continuing operations of $20,604 were primarily due to
immaterial purchases of additional equipment at Baker's Pride, Inc.
For the three months ended March 31, 2013, cash flows provided by financing
activities from continuing operations of $674,274 was primarily due to proceeds
received on loans from related parties.
For the three months ended March 31, 2013, total cash flows used in discontinued
operations was $8,195. Cash used in discontinued operations was primarily
related to the winding down of entities classified as discontinued operations.
The accompanying consolidated condensed financial statements have been prepared
on a going concern basis, which contemplates the realization of assets and
settlement of liabilities and commitments in the normal course of business.
However, as reflected in the accompanying consolidated condensed financial
statements, we recorded a net loss from continuing operations of $2,478,826 and
$2,548,732 for the three months ended March 31, 2013 and 2012, respectively. We
had a working capital deficit of $23,249,795 and an accumulated deficit of
$86,821,262 as of March 31, 2013. The results of the Company's cash flows from
continuing operations for the three months ended March 31, 2013 have been
adversely impacted by the loss of Baker's Pride's most significant customer
Aldi, Inc. The Company's primary focus is to achieve profitable operations and
positive cash flow of its operations of its long established niche businesses -
Tyree and Baker's Pride.
Our auditors, Rosen Seymour Shapss Martin & Company LLP, have stated in their
audit report dated December 31, 2012 that there is substantial doubt on the
Company's ability to continue operations as a going concern due to our recurring
net losses from operations, and the Company has a significant working capital
deficit. Our ability to continue as a going concern is dependent upon our
28
capability to raise additional funds through debt and equity financing, and to
achieve profitable operations. Our plans to continue as a going concern and to
achieve a profitable level of operations are as follows:
With respect to BPI, management has successfully negotiated a contract for
co-packing frozen donut products to one of the world's largest family owned food
companies which is a global supplier to the food service and in store bakery
retail industries. Management believes that this contract will pave the way for
additional contracts from other significant food companies in addition to
increased business from the newly acquired customer. BPI has entered the frozen
segment and is also positioning itself to enter back into the fresh bread
manufacturing industry by placing significant and competitive bids to strategic
players within the fresh bread markets. Management believes that by September
2013, its facilities will be operationally capable of supporting themselves on
internally generated cash flows. Management has had verbal conversations with
its lender, Central State Bank, regarding the bridge loan financing which will
allow for BPI to extend its interest only financing on the new donut equipment
until such time that BPI is able through its cash flow to make principal
payments.
With respect to Tyree, management is projecting an increase in its environmental
business through the end of 2013 and 2014. Tyree's ability to succeed in
securing additional environmental business depends on the ability of one of
Tyree's primary customers to secure remediation work by bidding environmental
liabilities currently present on gasoline stations and referring this work to
Tyree. Management is in the process of evaluating the profitability of Tyree's
other divisions and intends to continue these operations provided that they
continue to be profitable. In addition, Tyree's management believes that Tyree
is currently holding greater level of inventory than is necessary for operations
and will seek to liquidate or cease additional purchases of similar inventory on
a going forward basis. Management intends to utilize cash flows generated from
this decrease in inventory as additional working capital.
Tyree's management is working to secure additional available capital resources
and turnaround Tyree's operations to generate operating income. As of March 31,
2013, Tyree has a working capital deficit of approximately $10.5 million
exclusive of amounts owed to Amincor and recorded a net loss of approximately
$660,000 for the three months ended March 31, 2013. Tyree has entered into
settlement agreements and continues to negotiate with creditors to pay off its
outstanding debt obligations. However, without additional capital resources,
Tyree may not be able to continue to operate and may be forced to curtail its
business, liquidate assets and/file for bankruptcy protection. In any such case,
its business, operating results or financial condition would be materially
adversely affected.
With respect to EHC, one of EQS' managers has signed a letter of intent to
purchase EQS in exchange for the assumption of the accounts payable and a
$500,000 note to Amincor Other Assets, Inc. which is collateralized with a
secured lien on all of the lab equipment of EQS. Management believes that this
will increase the cash flows of EHC as EQS had historically received cash to
cover expenses for operations from its sister company, AWWT. AWWT has recently
29
signed a licensing agreement with a Denver based water technology company which
will allow AWWT to sell waste water treatment equipment to large municipal,
industrial, agricultural and commercial generators of waste water. Management is
currently in discussion with multiple customers in this market and believes that
there is a significant opportunity for consistent and reliable cash flows from
placing systems in use with these customers.
With respect to Amincor Other Assets, there are significant assets currently
residing on Amincor Other Asset's balance sheet related to the discontinued
operations of Imperia and Tulare are included in assets held for sale.
Management intends to liquidate these assets as soon as they are able to do so
profitably. Management believes there is more value in these assets than is
currently shown on our balance sheet and an attempt to liquidate these assets
quickly will decrease their value to, or below, what is currently showing on our
balance sheet. In the meantime, management is utilizing these assets to the best
of their ability by offsetting the costs associated with owning those assets by
generating income from renting these properties out when possible.
With respect to Amincor, Inc.'s corporate offices, Management continues to seek
new financing from a financial institution in order to provide more working
capital to its subsidiary companies. Management has had discussions with many
financial institutions of different types and has narrowed down eligible
candidates to only a few. Management expects that by executing on the above
plans for the subsidiary companies and by acquiring new financing for working
capital for its subsidiary companies, Baker's Pride, Tyree and AWWT will become
profitable and be able to generate enough internal cash flow to operate
independently of one another.
CONTINGENT LIABILITIES:
ESI
The Volkl license agreement was terminated in September 2011 and concurrently
the Strategic Alliance Agreement with Samsung America CT, Inc. ("Samsung") was
also terminated. Volkl is seeking a $400,000 royalty payment. ESI has initiated
counterclaims against the various parties, including but not limited to Samsung,
seeking damages for, including but not limited to infringement, improper use of
company assets and breach of fiduciary duty. The counterclaim against Samsung
has been settled and ESI has moved to have Samsung dismissed Samsung from any
further claims.
Volkl was successful in obtaining a judgment against ESI and a confirmation of
the Arbitration is presently pending in Federal Court. Management believes that
this matter and the Frost matter below will eventually be settled out of court
for less than the royalty and damages amounts sought.
On September 28, 2012, Sean Frost ("Frost"), the former President of ESI, filed
a Complaint to Compel Arbitration Regarding Breach of Employment Contract and
Related Breach of Labor Code Claims and For an Award of Compensatory Damages in
30
the Superior Court of the State of California, County of San Diego against Epic
Sports International Inc., Amincor, Inc. and Joseph Ingrassia (collectively, the
"Defendants"). The first cause of action is a petition to compel arbitration for
unpaid compensation and benefits pursuant to Frost's employment agreement. The
second cause of action is for breach of contract for alleged non-payment of
expenses, vacation days and assumption of certain debts. The third cause of
action is for violation of the California Labor Code for failure to pay wages
due and owing. Frost is seeking among other things, damages, attorneys' fees and
costs and expenses.
As of the date this filing, the case continues to be litigated and Management
will update accordingly.
TYREE
One of Tyree's largest customers, Getty Petroleum Marketing, Inc. ("GPMI") filed
for bankruptcy protection on December 5, 2011. As of that date, Tyree had a
pre-petition receivable of $1,515,401.27. Additionally, Tyree has a
post-petition administrative claim for $593,709.20. A Proof of Claim was filed
with the Bankruptcy court on Tuesday, April 10, 2012. On August 27, 2012, the
United States Bankruptcy Court for the Southern District of New York confirmed
GPMI's Chapter 11 plan of liquidation offered by its unsecured creditors
committee, overruling the remaining objections. The plan provides for all of the
debtors' property to be liquidated over time and for the proceeds to be
allocated to creditors. Any assets not distributed by the effective date will be
held by a liquidating trust and administered by a liquidation trustee, who will
be responsible for liquidating assets, resolving disputed claims, making
distributions, pursuing reserved causes of action and winding up GPMI's affairs.
As an unsecured creditor, Tyree may never collect or may only collect a small
percentage of the pre and post petition amounts owed. To date, Tyree has not be
notified of any intent by the United States Bankruptcy Court for the Southern
District of New York to claw back any amounts paid to Tyree pre-petition.
Tyree management has negotiated settlements with Local Union 99, Local Union 138
and Local Union 355. Tyree management continues to negotiate with Local Union 1,
Local Union 25, and Local Union 200 over unpaid benefits that are due and owing
to each of the respective unions. Tyree records indicate approximately
$1,100,000 of unpaid benefits due. Tyree management does not dispute that
benefits are due and owing to the respective unions, however, settlement and
payment plan discussions are ongoing. The Local Union 1 and Local Union 200 have
each filed suit in the United States District Court Eastern District of New York
to enforce their rights as to the unpaid benefits due and owing from Tyree, and
as guarantor of certain amounts due and owing, Amincor, Inc. is also a named
party in these lawsuits. Local Union 200 has also filed a claim with the
National Labor Relations Board.
A variety of unsecured vendors have filed suit for non-payment of outstanding
invoices, as noted in Tyree's financial statements under accounts payable and
notes payable. Each of these actions is handled on a case by case basis, with
settlement and payment plan.
31
BPI
In connection with Baker's Pride's USDA loan application, BPI had Environmental
Site Assessments done on the property where one of its bakeries is located as
required by BPI's prospective lender. A Phase II Environmental Site Assessment
was completed on October 31, 2011 and was submitted to the Iowa Department of
Natural Resources ("IDNR") for their review. IDNR requested that a Tier Two Site
Cleanup Report ("Tier Two") be issued and completed in order to better
understand what environmental hazards exist on the property. The Tier Two was
completed on February 3, 2012 and was submitted to IDNR for further review.
Management's latest correspondence with IDNR, dated March 21, 2012, required
revisions to the Tier Two to be in compliance with IDNR's regulations.
Management has retained the necessary environmental consultants to become
compliant with IDNR's request. Due to the nature of the liability, the
remediation work is 100% eligible for refund from INDR's Innocent Landowner
Fund. As such there is no direct liability related to the clean up of the
hazard.
TULARE
The City of Lindsay, California has invoiced Tulare Frozen Foods, LCC ("TFF")
$533,571 for outstanding delinquent amounts. A significant portion of the
outstanding delinquent amounts are penalties, interest and fees that have
accrued. A settlement proposal, whereby the City of Lindsay would retain TFF's
$206,666 deposit as settlement and release in full of all outstanding
obligations was sent to the City of Lindsay for review on March 29, 2012. As of
the date of this filing, no settlement has been reached.
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
NET REVENUES
Net revenues for the three months ended March 31, 2013 totaled $7,193,160 as
compared to net revenues of $13,897,017 for the three months ended March 31,
2012, a decrease in net revenues of $6,703,857 or approximately 48.2%. The
primary reason for the decrease in net revenues is related to Tyree's and BPI's
operations. Tyree's net revenues decreased by approximately $2.7 million and
BPI's net revenues decreased by approximately $4.1 million during the three
months ended March 31, 2013. A detailed analysis of each subsidiary company's
individual net revenues can be found within their respective MD&A sections of
this Form 10-Q.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2013 totaled $6,281,420 or
approximately 87.3% of net revenues as compared to $10,704,512 or approximately
77.0% of net revenues for the year ended March 31, 2012. The primary reason for
the increase in cost of revenues as a percentage of net revenues is related to
BPI's operations. BPI incurred fixed costs well in excess of its net revenues
32
for the three month period ended March 31, 2013 due to the loss of a material
customer A detailed analysis of each subsidiary company's individual cost of
revenues can be found within their respective MD&A sections of this Form 10-Q.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the three months ended
March 31, 2013 totaled $3,187,811 as compared to $5,695,027 for the three months
ended March 31, 2012, a decrease in operating expenses of $2,507,216 or
approximately 44.0%. The primary reason for the decrease in SG&A expenses was
related to BPI's and Tyree's operations. BPI's operating expenses decreased by
approximately $740,000 and Tyree's operating expenses decreased by $1.5 million
during the three months ended March 31, 2013 as compared to the three months
ended March 31, 2013. A detailed analysis of each subsidiary company's
individual operating expenses can be found within their respective MD&A sections
of this Form 10-Q.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2013 totaled
$2,276,071 as compared to $2,502,522 for the three months ended March 31, 2012,
a decrease increase in loss from operations of $226,451 or approximately 9.0%.
The primary reason for the decrease in loss from operations is related to the
decrease in operating expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the three months ended March 31, 2013 totaled $202,755 as
compared to $46,210 for the year ended December 31, 2012, an increase in other
expenses of $156,545. The primary reason for the increase in other expenses is
related to increased interest expenses resulting from factoring receivables of
Tyree, EQS and AWWT alongside a higher carrying balance on BPI's bridge loan. A
detailed analysis of each subsidiary company's individual other expenses
(income) can be found within their respective MD&A sections of this Form 10-Q.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $2,478,826 for the three months
ended March 31, 2013 as compared to $2,548,732 for the three months ended March
31, 2012, a decrease in net loss from continuing operations of $69,906 or
approximately 4.2%. The primary reason for the decrease in net loss from
continuing operations is related to the decreases in SG&A expenses as noted
above.
33
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Loss from discontinued operations totaled ($6,254) for the three months ended
March 31, 2013 as compared to ($55,839) for the three months ended March 31,
2013, a decrease in loss from discontinued operations of $49,585 or
approximately 88.8%. The net loss of Masonry was ($6,695) for the three months
ended March 31, 2013 as compared to ($10,236) for the three months ended March
31, 2012, an increase in net loss of $46,044. The net income of Tulare was $411
for the three months ended March 31, 2013 as compared to a net loss ($45,603)
for the three months ended March 31, 2012, a decrease in net loss of $46,044.
The net income of ESI was $0 for the three months ended March 31, 2013 and 2012.
NET LOSS
Net loss totaled $2,485,080 for the three months ended March 31, 2013 as
compared to $2,604,571 for the three months ended March 31, 2012, a decrease in
net loss of $119,491 or approximately 4.6%. The primary reason for the decrease
in net loss during the three months ended March 31, 2013 was due to the
aforementioned decreases in SG&A expenses.
BAKER'S PRIDE, INC.
SEASONALITY
Seasonality influenced 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 facility are not
influenced by seasonality. However, when donut production commences at the Mt.
Pleasant Street facility, it will greatly be affected by seasonality. For the
three months ended March 31, 2013 and 2012, none of the operations of Baker's
Pride were influenced by seasonality.
LOSS OF MATERIAL CUSTOMER
On July 16, 2012, BPI was notified that Aldi, BPI's primary customer would be
terminating its contract with the Company as of the end of October 2012 due to
BPI's inability to meet certain pricing, cost and product offering needs. As
such, BPI performed an impairment study and concluded that BPI's goodwill and
intangible assets were fully impaired as of September 30, 2012.
Net revenues generated from Aldi comprised 0.0% and 92.2% of net revenues for
the three months ended March 31, 2013 and 2012, respectively. All Aldi revenues
generated in the first three months of 2012 were from BPI's Jefferson Street
facility. The balance of net revenues generated in the first three months of
2012 were in BPI's South Street facility. On November 30, 2012, BPI terminated
the equipment and facility lease which allowed for production at the South
Street facility. It is management's intention to enter into a co-packing
agreement for all of the products formerly produced internally with other
34
bakeries in order to continue to provide the same product offerings without
operating the facility. Management has moved all equipment owned but formerly
residing at the South Street facility to the Mt. Pleasant Street facility.
Management intends to return to its business plan of operating the Mt. Pleasant
Street facility thereby reducing fixed overhead and variable costs by using
cross trained personnel and providing its customer base the opportunity to
purchase one, two or all three of its product types in less than trailer load
quantities but obtain cost effective logistics through a combined load of all
products offered by BPI.
Effective November 2, 2012, BPI has stopped production at the Jefferson Street
facility. As such, there were layoffs of production personnel and wage
reductions of remaining personnel in order to minimize losses until production
resumes at the Jefferson Street facility. Production is currently underway with
low volume regional companies with plans to increase product offerings and grow
the business. Discussions are active for co-packing arrangements to enable BPI
to broaden its offerings for new business opportunities. Discussions continue
with major branded food products companies with BPI operating as the producer;
however, as of the time of filing BPI has not yet secured a significant contract
with a new bread customer but has secured a significant contract with a donut
customer.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012
NET REVENUES
Net revenues for the three months ended March 31, 2013 totaled $54,808 as
compared to $4,144,288 for the three months ended March 31, 2012, a decrease of
$4,089,480 or approximately 98.7%. The primary reason for the decrease in net
revenues is related to the loss of BPI's customer Aldi on November 2, 2012. Of
the approximate $4.1 million decrease in net revenues, Aldi's business was
responsible for $3.8 million of this decrease. The remaining decrease in net
revenues is related to the termination of the equipment and facility lease that
allowed for production at the South Street facility.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2013 totaled $554,650 as
compared to $3,080,600 for the three months ended March 31, 2012, a decrease of
$2,525,950 or approximately 82.0%. The Company had a 98.7% decrease in net
revenues against an 82.0% decrease in cost of revenues in 2013 as compared to
2012. The primary reason for the decrease in cost of revenues is related to the
Jefferson Street facility not operating at 100% capacity during the three months
ended March 31, 2013 due to the loss of Aldi as compared to operating at 100%
capacity during the three months ended March 31, 2012. Certain fixed costs are
incurred by BPI regardless of the production levels at BPI's facilities which
were incurred during the three months ended March 31, 2013 but were not offset
by sales as they were during the three months ended March 31, 2012.
35
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
S,G&A expenses for the three months ended March 31, 2013 totaled $1,081,017 as
compared to $1,820,333 for the three months ended March 31, 2012, a decrease of
$739,316 or approximately 40.6%. The primary reason for the decrease in 2013 is
related to the termination of the equipment and facility lease that allowed for
production at the South Street facility (savings of approximately $405,000), the
absence of non-cash intangible amortization expense due to the impairment of
intangible assets as of September 30, 2012 (savings of approximately $191,000)
and temporary decreases in management's salaries at BPI until production levels
return to normal (savings of approximately $50,000).
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2013 totaled
$1,580,859 as compared to $756,645 for the three months ended March 31, 2012, an
increase in loss from operations of $824,214 or approximately 108.9%. The
increase in loss from operations was primarily due to the decreases in net
revenues as noted above.
OTHER EXPENSES
Other expenses for the three months ended March 31, 2013 totaled $169,312 as
compared to $97,513 for three months ended March 31, 2012, an increase of
$71,799. The primary reason for this increase in 2012 is higher interest expense
due to a larger loan balances on BPI's working capital line the bridge loan
financing used to purchase new equipment for the Mt. Pleasant Street facility.
NET LOSS
Net loss for the three months ended March 31, 2013 totaled $1,750,171 as
compared to $854,158 for the three months ended March 31, 2012, an increase in
net loss of $896,013. The primary reason for this increase in net loss is
related to the decrease in net revenues as noted above.
ENVIRONMENTAL HOLDING CORP.
SEASONALITY
EQS's sales are typically higher during the second and third quarters of its
fiscal year. The fourth quarter of the year is usually affected by a slow down
at the holiday season and year end. In addition, frigid temperatures combined
with the possibility of extreme weather tend to discourage projects from being
scheduled during the winter months.
AWWT's sales are typically higher during the second and third quarters of its
fiscal year. The fourth and first quarters of the year are usually affected by
inclement weather which makes it difficult to process liquid streams due to
freezing.
36
NET REVENUES
Net revenues for the three months ended March 31, 2013 totaled $325,981 as
compared to $269,438 for the three months ended March 31, 2012, an increase of
$56,543 or approximately 17.3%.
EQS's net revenues for the three months ended March 31, 2013 was $233,658 as
compared to $269,438 for the three months ended March 31, 2012, a net revenues
decrease of $35,780 or approximately 13.2%. The primary reason for this decrease
was related to discontinuing business with specific customers of EQS due to
non-payment and one-time business coming in from a large project taking place in
March and April of 2012 that did not repeat in 2013.
AWWT's net revenues for the three months ended March 31, 2013 was $92,323 as
compared to $0 for the three months ended March 31, 2012, an increase in net
revenues of $92,363. The primary reason for this increase is related to the
acquisition of AWWT's plant assets on November 2, 2012.
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2013 totaled $326,832 or
approximately 100.3% of net revenues as compared to $258,712 or approximately
96.0% for the three months ended March 31, 2012, an increase in cost of revenues
of $68,120 or approximately 26.3%.
EQS's cost of revenues for the three months ended March 31, 2013 was $249,319 or
approximately 106.7% of EQS's net revenues as compared to $258,712 or
approximately 96.0% of EQS's net revenues for the three months ended March 31,
2012. EQS recorded a decrease in cost of sales of 3.6% against a decrease in net
revenues of 13.3% for the three months ended March 31, 2013. The primary reason
for the increase in cost of revenues as a percentage of net revenues is related
to fixed costs that are incurred from running EQS's lab regardless of the sales
volume. EQS was better able to offset these fixed costs during the three months
ended March 31, 2012 with higher net revenues than it was during the three
months ended March 31, 2013.
AWWT's cost of revenues for the three months ended March 31, 2013 was $77,513 or
approximately 84.0% of AWWT's net revenues as compared to $0 for the three
months ended March 31, 2013. The primary reason for this increase in cost of
revenues is related to the acquisition of AWWT's plant assets on November 2,
2012.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A expenses for the three months ended March 31, 2013 totaled $170,171 or
approximately 52.2% of net revenues as compared to $165,579 or 61.5% of net
revenues for the three months ended March 31, 2012, a decrease of $4,592 or
approximately 2.8%.
37
EQS's SG&A expenses for the three months ended March 31, 2013 totaled $141,321
or approximately 60.5% of EQS's net revenues as compared to $165,579 or
approximately 61.5% of EQS's net revenues, a decrease in EQS's operating
expenses of $24,258 or approximately 14.7%. The primary reason for this decrease
in operating expenses was related to the allocation of certain management
personnel at EQS's salaries to AWWT.
AWWT's operating expenses for the three months ended March 31, 2013 totaled
$28,850 or approximately 31.2% of AWWT's net revenues as compared to $0 for the
three months ended March 31, 2012. The primary reason for this increase in
operating expenses is related to the acquisition of AWWT's plant assets on
November 2, 2012.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2013 totaled $171,022
or approximately 52.5% of net revenues as compared to $154,853 or approximately
57.5% for the three months ended March 31, 2012, an increase in loss from
operations of $16,169 or approximately 10.4%.
EQS's loss from operations for the three months ended March 31, 2013 totaled
$156,981 or approximately 67.2% of EQS's net revenues as compared to $154,853 or
approximately 57.5% of EQS's net revenues, an increase in EQS's loss from
operations of $2,128 or approximately 1.4%. The primary reason for this increase
in loss from operations was related to the decrease in EQS's net revenues as
noted above.
AWWT's loss from operations for the three months ended March 31, 2013 totaled
$14,041 or approximately 15.2% of AWWT's net revenues as compared to $0 for the
three months ended March 31, 2012. The primary reason for this net loss from
operations is related to a lower net revenue figure than originally projected
for the three months ended March 31, 2013.
OTHER EXPENSES
Other expenses for the three months ended March 31, 2013 totaled $59,184 or
approximately 18.2% of net revenues as compared to $18,640 or approximately 6.9%
of net revenue for three months ended March 31, 2012, an increase in other
expenses of $40,543.
EQS's other expenses for the three months ended March 31, 2013 totaled $56,186
or approximately 24.0% of EQS's net revenues as compared to $18,640 or
approximately 6.9% of EQS's net revenues for the three months ended March 31,
2012, an increase in EQS's other expenses of $37,546. The primary reason for
this increase is related to increased interest expenses due to EQS factoring
receivables during the three months ended March 31, 2013 in addition to a higher
interest expense on a larger loan balance on EQS's working capital line which
carried loan balances of $834,632 and $635,279, as of March 31, 2013 and 2012,
respectively.
38
AWWT's other expenses for the three months ended March 31, 2013 totaled $2,997
or approximately 3.2% of AWWT's net revenues as compared to $0 for the three
months ended March 31, 2012. Similar to EQS, AWWT also factors receivables with
a factor in addition to accruing interest on a working capital line.
NET LOSS
Net loss for the three months ended March 31, 2013 totaled $230,205 as compared
to a net loss of $173,493 for the three months ended March 31, 2012, an increase
of $56,712 or approximately 32.7%.
EQS's net loss for the three months ended March 31, 2013 totaled $213,167 as
compared to a net loss of $173,493 for the three months ended March 31, 2012, an
increase in net loss of 39,674 or approximately 22.9%. The primary reason for
the increase in net loss as related to EQS was related to the decrease in net
revenues as noted above.
AWWT's net loss for the three months ended March 31, 2013 totaled $17,038 as
compared to $0 for the three months ended March 31, 2012. The primary reason for
the net loss on AWWT was related to the lower than expected net revenue figure
as noted above.
TYREE HOLDINGS, INC.
SEASONALITY AND BUSINESS CONDITIONS
Historically, Tyree's revenues are lower during the first quarter of the year as
Tyree's customers complete their planning for the remainder of the year.
Approximately 26% of Tyree's revenues are earned from customer capital
expenditures. Customers' capital expenditures are cyclical and tend to mirror
the condition of the economy and the weather patterns.. During normal
conditions, Tyree will need to draw from its borrowing base early in the year
and then pay down the borrowing base as the year progresses when it generates
positive cash flows. The highest revenue generation occurs from late in the
second quarter through the beginning of the fourth quarter of the year.
On December 5, 2011 Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court in the Southern District of New York. This bankruptcy filing
had a significant and lasting impact on Tyree's operations and financial
activities. Immediately following the bankruptcy filing of GPMI, all ongoing
work with GPMI was significantly reduced and plans for Tyree's restructuring
began which included a reduction of approximately 15% in workforce during the
first quarter of 2012. In June 2012 Green Valley Oil, LLC ("GVO") a subtenant of
GPMI and customer of Tyree went out of business. Tyree made additional expense
reductions and reduced its workforce by approximately 35.0% by the end of 2012
39
Tyree maintains a $15,000,000 revolving credit agreement with its Parent
(Amincor) which expires on January 1, 2016. Borrowings under this agreement are
limited to 70% of eligible accounts receivable and the lesser of 50% of eligible
inventory or $4,000,000. The balances outstanding under this agreement were
$4,752,171 and $4,819,829 as of March 31, 2013 and December 31, 2012,
respectively. Borrowings under this agreement are collateralized by a first lien
security interest in all tangible and intangible assets owned by Tyree.
Availability of funding from Amincor is dependent on Amincor's liquidity. The
annual interest rate charged on this loan was approximately 5% for the three
months ending March 31, 2013 and 2012. Starting in January 2013, Tyree began
factoring certain accounts receivables with a related party.
Going forward, Tyree's growth will be difficult to attain until either (i) new
working capital is available through profitable operations or (ii) new equity
invested into Tyree to facilitate organic and acquisition based growth.
LIQUIDITY
Tyree incurred net losses of $665,233 and $1,345,774 for the three months ended
March 31, 2013 and 2012, respectively. Tyree's largest customer filing for
bankruptcy in December 2011 produced large write-offs of receivables and
reductions in revenues which resulted in corporate cash demands well in excess
of receipts from revenues, thus stressing the available funding on the existing
credit facility. In the fourth quarter of 2011, management responded with a plan
to term out all current vendors. Much was accomplished during 2011 with $1.9
million of accounts payable converted to long and short term debt, at March 31,
2013 this amounted to $2,662,000. Most of the remaining vendors have agreed to
term notes early in 2012, thus addressing the cash shortfall produced in 2011,
while leaving some availability on Tyree's revolving credit line. In reaction to
the GPMI Bankruptcy filing, management reduced employee headcount by an
additional 72 full time employees, rescheduled accounts payable, reduced
management's salaries and reduced its rent commitments. Tyree has been
successful in securing several new customers but has not yet been able to
replace all of the lost business from GPMI and GVO. Management continues to
analyze Tyree's overhead expenses and will continue to reduce its work force as
necessary until it is able to replace the business lost as a result of the GPMI
bankruptcy filing and the Green Valley business cessation.
NET REVENUES
Net revenues for the three months ended March 31, 2013 totaled $6,860,022 as
compared to $9,519,309 for the three months ended March 31, 2012, a decrease of
$2,659,287 or approximately 27.9%. The decrease in revenues in 2013 can
primarily be attributable to service revenues lost when GPMI and GVO went out of
business have never been completely replaced. In addition, in November 2012,
Tyree did not renew its fixed-fee maintenance contract with Cumberland Farms as
it yielded a negative gross profit in 2012. The Service operating division
billed approximately $2,250,000 less during the three months ended March 31,
2013 as compared to the three months ended March 31, 2012. Additional decreases
40
in revenue are attributable to Tyree's Construction division. Tyree's
Construction business unit completed two very large jobs in 2012 which were not
replaced with jobs of equal size in 2013. The Construction business unit billed
approximately $570,000 less during the three months ended March 31, 2013 than it
did during the three months ended March 31, 2012. Revenues by operating
divisions for the three months ended March 31, 2013 and March 31, 2012 were as
follows:
Revenues 2013 2012
---------- ----------
Service and Construction $3,288,315 $6,395,568
Environmental, Compliance and Engineering 3,571,707 2,925,202
Manufacturing / International -- 198,539
---------- ----------
TOTAL $6,860,022 $9,519,309
========== ==========
COST OF REVENUES
Cost of revenues for the three months ended March 31, 2013 totaled $5,447,589 or
approximately 79.4% of net revenues as compared to $7,401,217, or 77.7% for the
three months ended March 31, 2012. The gross profit percentage decreased by 1.7%
period to period due to under estimating the cost of several construction jobs
in New Jersey. The effect of this under estimation resulted in a drop of
approximately 7.0% or $105,000 in the Construction business unit's gross profit.
OPERATING EXPENSES
Operating expenses for the three months ended March 31, 2013 totaled $1,863,281,
or approximately 27.2% of net revenues compared to $3,351,628, or approximately
35.2% of net revenues for the three months ended March 31, 2012, a decrease in
operating expenses of $1,488,347 or approximately 44.4%. The decrease in
operating expenses in 2013 was primarily attributed to the reduction in Tyree's
work force over the course of 2012 (a reduction of approximately $667,000) and
the absence of intangible amortization due to the impairment of intangible
assets in 2012 (a reduction of approximately $277,000) alongside other smaller
expense reductions across all of Tyree's expense categories.
LOSS FROM OPERATIONS
Loss from operations for the three months ended March 31, 2013 totaled $450,849,
or approximately 6.5% of net revenues as compared to $1,233,537, or
approximately 13.0% of net revenues for the three months ended March 31, 2012, a
decrease in loss from operations of $782,688 or approximately 63.4%. The
decrease in loss from operations was primarily due to the decrease in operating
expenses as noted above.
41
OTHER EXPENSES
Other expenses for the three months ended March 31, 2013 totaled $214,384, or
approximately 3.1% of net revenues as compared to other expenses of $112,238, or
approximately 1.2% of net revenues for the three months ended March 31, 2012, an
increase in other expenses of $102,146 or approximately 91.0%. The increase in
other expenses during the three months ended March 31, 2013 was primarily due to
an increase in interest expense due to a Tyree factoring certain accounts
receivables to improve cash flow.
NET LOSS
Net loss for the three months ended March 31, 2013 totaled $665,233 as compared
to $1,345,774 for the three months ended March 31, 2012, a decrease of $680,541
or approximately 50.6%. The decrease in net loss is primarily related to the
decrease in operating expenses as noted above.
CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES
Our Management's Discussion and Analysis of Financial Condition and Results of
Operations is based upon our consolidated condensed financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States of America (GAAP). The preparation of our consolidated
condensed financial statements in accordance with GAAP requires us to make
certain estimates, judgments and assumptions that affect the reported amounts of
assets and liabilities as of the date of the financial statements, the reported
amounts and classification of revenues and expense 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 in 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
do not turn out to be substantially accurate.
Please refer to our Note 2 of our consolidated condensed financial statements
contained in this Quarterly Report on Form 10-Q, and our Management's Discussion
and Analysis of Financial Condition and Results of Operation contained in Part
II, Item 7 of our Annual Report on Form 10-K for our fiscal year ended December
31, 2011 and Note 2 of our consolidated condensed financial statements contained
therein for a more complete discussion of our critical accounting policies and
use of estimates.
42
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Amincor has not entered into, and does not expect to enter into, financial
instruments for trading or hedging purposes.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
We maintain "disclosure controls and procedures" as such term is defined in Rule
13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating
our disclosure controls and procedures, our management recognized that
disclosure controls and procedures, no matter how well conceived and operated,
can provide only reasonable, not absolute, assurance that the objectives of
disclosure controls and procedures are met. Additionally, in designing
disclosure controls and procedures, our management necessarily was required to
apply its judgment in evaluating the cost-benefit relationship of possible
disclosure controls and procedures. The design of any disclosure controls and
procedures is also based in part upon certain assumptions about the likelihood
of future events, and there can be no assurance that any design will succeed in
achieving its stated goals under all potential future conditions.
Our management, including our Chief Executive Officer and our Chief Financial
Officer, has evaluated the effectiveness of our disclosure controls and
procedures as of the end of the period covered by this report. Based on such
evaluation, and as discussed in greater detail below, our Chief Executive
Officer and Chief Financial Officer have concluded that, as of the end of the
period covered by this report, our disclosure controls and procedures were not
effective:
* to give reasonable assurance that the information required to be
disclosed by us in reports that we file under the Securities Exchange
Act of 1934 is recorded, processed, summarized and reported within the
time periods specified in the Securities and Exchange Commission's
rules and forms, and
* to ensure that information required to be disclosed in the reports
that we file or submit under the Securities Exchange Act of 1934 is
accumulated and communicated to our management, including our CEO and
our CFO, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
Our management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15 of the Securities
Exchange Act of 1934. Our internal control system was designed to provide
reasonable assurance to our management and the Board of Directors regarding the
preparation and fair presentation of published financial statements. Our
43
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.
Our management has not assessed the effectiveness of our internal control over
financial reporting as of March 31, 2013. Management understands that in making
this assessment, it should use the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in its Internal
Control-Integrated Framework. Although an assessment using those criteria has
not been performed, our management believes that the Company's internal control
over financial reporting was not effective at March 31, 2013.
As of the date of this report, we have been unable to complete a full assessment
and adequately test our internal control over financial reporting and
accordingly lack the documented evidence that we believe is necessary to support
an assessment that our internal control over financial reporting is effective.
Without such testing, we cannot conclude whether there are any material
weaknesses, nor can we appropriately remediate any such weaknesses that might
have been detected.
Therefore, there is a possibility that misstatements which could be material to
our annual or interim financial statements could occur that would not be
prevented or detected.
There have been no changes in our internal control over financial reporting
during this fiscal quarter that has materially affected, or is reasonably likely
to materially affect, our internal control over financial reporting.
We will complete our assessment of internal control over financial reporting and
take the remediation steps detailed below to enhance our internal control over
financial reporting and reduce control deficiencies. With regards to the
improvement of our internal controls over financial reporting, we believe the
following steps will assist in reducing our deficiencies, but will not
completely eliminate them. We will continue to work on the elimination of
control weaknesses and deficiencies noted.
44
Management of the Company takes very seriously the strength and reliability of
the internal control environment for the Company. Going forward, the Company
intends to implement new internal policies and undertake additional steps
necessary to improve the control environment including, but not limited to:
* Implementing an internal disclosure policy to govern the disclosure of
material, non-public information in a manner designed to provide full
and fair disclosure of information about the Company. This disclosure
policy is intended to ensure that management and employees of the
Company and its subsidiaries comply with applicable laws including the
SEC's Fair Disclosure Rules (Regulation FD) governing disclosure of
material, non-public information to the public.
* Strengthening the effectiveness of corporate governance through the
implementation of standard policies and procedures and training
employees.
* Establishing an audit committee of the Board.
* Assigning additional members of the management team to assist in
preparing and reviewing the ongoing financial reporting process.
Management is committed to and acknowledges its responsibility for internal
controls over financial reporting and seeks to continually improve these
controls. In order to eventually achieve compliance with Section 404 of the
Sarbanes Oxley Act, we intend to perform the system and process evaluation
needed to comply with Section 404 of the Sarbanes Oxley Act as soon as
reasonably possible.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In early 2011, counsel for the former President of Imperia Masonry Supply Corp.
indicated intent to file suit against Imperia Masonry Supply Corp. The
allegations of such potential action are unknown to management at this point. To
date, no litigation regarding this matter has been filed. The Company will
disclose any litigation which results in the future. Management believes any
claims made by the former President will be deemed frivolous and will have
little or no impact on Imperia Masonry Supply Corp. or Amincor, Inc.
Capstone Business Credit, LLC, a related party, is the plaintiff (on behalf of
Amincor Other Assets, Inc.) in a foreclosure action against Imperia Family
Realty, LLC ("IFR"). IFR is related to the former owners of Masonry's business.
In November, 2011 a Judgment of Foreclosure was granted by the court ordering
that the IMSC property in Pelham Manor, New York (the "Property") be sold at
public auction. As of December 31, 2009, the mortgage related to this Property
was assigned to Amincor, Inc. and thereafter to Amincor Other Assets, Inc.
45
A former principal of Imperia Bros., Inc. (a predecessor company of Masonry)
filed a notice of appeal dated November 14, 2011 with the court contesting the
Judgment of Foreclosure. The Company believes that the appeal will not be upheld
by the court since the same appellate court, on February 16, 2010, issued an
order that granted CBC a motion of summary judgment and dismissed all of the
former principal's affirmative defenses.
In accordance with the Judgment of Foreclosure a public auction sale of the
Property was held on January 10, 2012. Capstone Business Credit, LLC, on behalf
of Amincor Other Assets, Inc., bid the amount of their lien and was the
successful bidder.
As of the report date, title to the Property has been transferred to Amincor
Other Assets, Inc., and the issuance of the deed is pending completion of
filling with the Westchester County Clerk.
Management believes any litigation described above will not have a material
impact on the Registrant or its related subsidiary companies.
Additionally, on December 5, 2011, Tyree's largest customer, Getty Petroleum
Marketing, Inc. ("GPMI") filed for Chapter 11 bankruptcy protection in the
United States Bankruptcy Court for the Southern District of New York. As of that
date, Tyree has a pre-petition receivable of approximately $1,515,401.27. As an
unsecured creditor, Tyree may never collect or may only collect a small
percentage of this pre-petition amount owed. Additionally, Tyree has a
post-petition administrative claim for approximately $593,709.20. Tyree may
never collect or may only collect a small percentage of this post-petition
amount owed. A Proof of Claim was filed with the Bankruptcy court on Tuesday,
April 10, 2012.
On August 27, 2012, the United States Bankruptcy Court for the Southern District
of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its
unsecured creditors committee, overruling the remaining objections. The plan
provides for all of the debtors' property to be liquidated over time and for the
proceeds to be allocated to creditors. Any assets not distributed by the
effective date will be held by a liquidating trust and administered by a
liquidation trustee, who will be responsible for liquidating assets, resolving
disputed claims, making distributions, pursuing reserved causes of action and
winding up GPMI's affairs. As an unsecured creditor, Tyree may never collect or
may only collect a small percentage of the pre-petition amounts owed.
On July 6, 2012, SFR Holdings, Ltd., Eden Rock Finance Master Limited, Eden Rock
Asset Based Lending Master Ltd., Eden Rock Unleveraged Finance Master Limited,
SHK Asset Backed Finance Limited, Cannonball Plus Fund Limited and Cannonball
Stability Fund, LP (collectively, the "Plaintiffs") commenced an action in the
Supreme Court of the State of New York County of New York against Amincor, Inc.,
Amincor Other Assets, Inc., their officers and directors, John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson and various other entities affiliated
with or controlled directly or indirectly by John R. Rice III and Joseph F.
46
Ingrassia (collectively the "Defendants"). Plaintiffs allege that Defendants
engaged in wrongful acts, including fraudulent inducement, fraud, breach of
fiduciary duty, unjust enrichment, fraudulent conveyance and breach of contract.
Plaintiffs are seeking compensatory damages in an amount in excess of $150,000
to be determined at trial. Defendants believe that this lawsuit has no merit or
basis and intend to vigorously defend it.
On September 28, 2012, Sean Frost ("Frost") filed a Complaint to Compel
Arbitration Regarding Breach of Employment Contract and Related Breach of Labor
Code Claims and For an Award of Compensatory Damages in the Superior Court of
the State of California, County of San Diego against Epic Sports International
Inc., Amincor, Inc. and Joseph Ingrassia (collectively, the "Defendants"). The
first cause of action is a petition to compel arbitration for unpaid
compensation and benefits pursuant to Frost's employment agreement. The second
cause of action is for breach of contract for alleged non-payment of expenses,
vacation days and assumption of certain debts. The third cause of action is for
violation of the California Labor Code for failure to pay wages due and owing.
Frost is seeking among other things, damages, attorneys' fees and costs and
expenses. Defendants believe that this lawsuit has no merit or basis and intend
to vigorously defend.
As of the date of this filing, Tyree management has negotiated settlements with
Local Union 99, Local Union 138 and Local Union 355. Tyree management continues
to negotiate with Local Union 1, Local Union 25, and Local Union 200 over unpaid
benefits that are due and owing to each of the respective unions. Tyree records
indicate approximately $1,100,000 of unpaid benefits due. Tyree management does
not dispute that benefits are due and owing to the respective unions, however,
settlement and payment plan discussions are ongoing. The Local Union 1 and Local
Union 200 have each filed suit in the United States District Court Eastern
District of New York to enforce their rights as to the unpaid benefits due and
owing from Tyree, and as guarantor of certain amounts due and owing, Amincor,
Inc. is also a named party in these lawsuits. Local Union 200 has also filed a
claim with the National Labor Relations Board.
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 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
47
result, we may be required to disclose certain information and expend funds on
disclosure and financial and other controls that may put us at a competitive
disadvantage to our principal competitors.
SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO
THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD
BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT.
THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE
THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS.
Our officers and directors directly own 6,610,934 shares of the total of
7,663,023 issued and outstanding Class A voting shares of our common stock (or
approximately 86% of our outstanding voting stock) and are in a position to
continue to control us. Such control enables our officers and directors to
control all important decisions relating to the direction and operations of the
Company without the input of our investors. Moreover, investors will not be able
to effect a change in our Board of Directors, business or management.
OUR CLASS A COMMON AND CLASS B COMMON SHARES ARE NOW QUOTED ON THE OVER THE
COUNTER BULLETIN BOARD UNDER THE SYMBOLS "AMNC" AND "AMNCB", RESPECTIVELY.
While the shares are now quoted on the Over the Counter Bulletin Board, until
there is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES
BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY
STOCK RULES.
Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934,
as amended (the "Exchange Act"), impose sales practice and disclosure
requirements on broker-dealers who make a market in "penny stocks." Penny stocks
generally are equity securities with a price of less than $5.00 (other than
securities registered on some national securities exchanges). On the
Over-the-Counter Bulletin Board, our stock may be considered a "penny stock."
Purchases and sales of our shares are generally facilitated by broker-dealers
who act as market makers for our shares.
Under the penny stock regulations, a broker-dealer selling penny stock to anyone
other than an established customer or "accredited investor" (as defined by the
Securities Act of 1933, as amended) must make a special suitability
determination for the purchaser and must receive the purchaser's written consent
to the transaction prior to sale, unless the broker-dealer or the transaction is
otherwise exempt.
In addition, the penny stock regulations require the broker-dealer to deliver,
prior to any transaction involving a penny stock, a disclosure schedule prepared
by the SEC relating to the penny stock market, unless the broker-dealer or the
48
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 7,663,023 Class A common shares
and 21,286,344 Class B common shares and 1,752,823 shares of Preferred Stock
issued and outstanding. Our Board of Directors has the authority to cause us to
issue additional shares of Class A common stock without the consent of any of
our stockholders. Consequently, our stockholders may experience more dilution in
their percentage of ownership in the future.
Moreover, the conversion of our Preferred shares after January 1, 2011 on the
basis of ten Class B Common Shares for each Preferred Share would result in
dilution to our current holders of common stock and once our common stock is
trading could cause a significant decline in the market price for our common
stock.
As of the date of this filing, there were 55 Class A stockholders of record,
owning all of the 7,663,023 issued and outstanding shares of our Class A common
stock; there were 88 institutional shareholders of record owning all of the
21,286,344 issued and outstanding shares of our Class B non-voting common stock
and there were 36 institutional shareholders of record owning all of the
1,752,823 issued and outstanding shares of our Preferred Stock.
49
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.
50
GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES
AMINCOR NEEDS ADDITIONAL CAPITAL IN THE FUTURE TO FUND THE OPERATIONS AND GROWTH
OF OUR SUBSIDIARY COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE. IN THE
EVENT SUCH ADDITIONAL CAPITAL IS NOT AVAILABLE, AMINCOR MAY NEED TO FILE FOR
BANKRUPTCY PROTECTION.
Amincor's Management is working to secure additional available capital resources
and turnaround the subsidiary companies to generate operating income. Amincor
may raise additional funds through public or private debt or equity financings.
However, there can be no assurance that such resources will be sufficient to
fund the operations of Amincor or the long-term growth of the subsidiaries
businesses. Amincor cannot assure investors that any additional financing will
be available on favorable terms, or at all. Without additional capital
resources, Amincor may not be able to continue to operate, take advantage of
unanticipated opportunities, develop new products or otherwise respond to
competitive pressures, and be forced to curtail its business, liquidate assets
and/or file for bankruptcy protection. In any such case, its business, operating
results or financial condition would be materially adversely affected.
Amincor's independent registered public accounting firm has expressed
substantial doubt about Amincor's ability to continue as a going concern in the
audit report on the Company's audited financial statements for the three fiscal
years ended December 31, 2012 included herein. (See Item 7 - "Management's
Discussion and Analysis of Financial Condition and Results of Operations" as
filed with the Company's Form 10-K on April 17, 2013 with the United States
Securities and Exchange Commission)
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.
51
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
revenue, margins and earnings. Additionally, the economic situation could have
an impact on our lenders or customers, causing them to fail to meet their
obligations to us. The occurrence of any of these risks could materially and
adversely affect our subsidiary businesses' financial condition and results of
operations.
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
Federal, state and local authorities subject some of our facilities and
operations to requirements relating to environmental protection. These
requirements can be expected to change and expand in the future, and may impose
significant capital and operating costs.
Environmental laws and regulations govern, among other things, the discharge of
substances into the air, water and land, the handling, storage, use and disposal
of hazardous materials and wastes and the cleanup of properties affected by
pollutants. If any of our subsidiary companies violate environmental laws or
regulations, they may be required to implement corrective actions and could be
subject to civil or criminal fines or penalties. There can be no assurance that
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
52
enforcement, or the discovery of currently unknown contamination, may give rise
to remediation liabilities or other claims that may be material.
Environmental requirements may become stricter or be interpreted and applied
more strictly in the future. These future changes or interpretations, or the
indemnification for such adverse environmental conditions, could result in
environmental compliance or remediation costs not anticipated by us, which could
have a material adverse effect on our business, financial condition or results
of operations.
COMMODITY PRICE RISK.
Some of our subsidiaries purchase certain products which are affected by
commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors which are not considered
predictable or within our control. Although many of the products purchased are
subject to changes in commodity prices, certain purchasing contracts or pricing
arrangements have been negotiated in advance to minimize price volatility. Where
possible, we use these types of purchasing techniques to control costs. In many
cases, we believe we will be able to address commodity cost increases that are
significant and appear to be long-term in nature by adjusting our pricing.
However, long-term increases in commodity prices may result in lower operating
margins at some of subsidiaries.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of a Subsidiary's products are projected to be in line with
those from market competitors, there can be no assurance that they will not
decrease in the future. Competition may cause a subsidiary to lower prices in
the future. Moreover, it is difficult to raise prices even if internal costs of
production increase.
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
ON OCTOBER 31, 2012, BAKER'S PRIDE, INC. ("BPI") LOST ITS PRIMARY CUSTOMER. THE
LOSS OF THIS CUSTOMER ADVERSELY AFFECTED OUR RESULTS OF OPERATIONS, FINANCIAL
CONDITION, AND PROFITABILITY.
Aldi, Inc. accounted for 89.5%, 92.1% and 100.0% of revenue for the years ended
December 31, 2012, 2011 and 2010, respectively. BPI was advised verbally on July
12, 2012 and by written notice on July 16, 2012 that effective October 31, 2012,
Aldi, Inc., BPI's most significant customer, would be terminating BPI as a
supplier to Aldi, Inc. due to BPI's inability to meet certain pricing, cost and
product offering needs. The loss of Aldi, Inc. has had a materially adverse
effect on BPI's results of operations and financial condition in 2012 and in
2013 up to the date of this report.
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DEPENDENCE ON KEY PERSONNEL.
BPI's success depends to an extent upon the performance of its management team,
which includes Robert Brookhart, who is responsible for all operations and sales
of the business. The loss or unavailability of Mr. Brookhart could adversely
affect its business and prospects and operating results and/or financial
condition.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of BPI's products are projected to be in line with those from
market competitors, there can be no assurance that they will not decrease in the
future. Competition may cause BPI to lower prices in the future. Moreover, it is
difficult to raise prices even if internal costs of production increase.
INCREASED COMMODITY PRICES AND AVAILABILITY MAY IMPACT PROFITABILITY.
BPI is dependent upon eggs, oils, and flour for ingredients. Many commodity
prices have experienced recent volatility. Increases in commodity prices and
availability could have an adverse impact on BPI's profitability.
CHANGE IN CONSUMER PREFERENCES MAY ADVERSELY AFFECT BPI'S FINANCIAL AND
OPERATIONAL RESULTS.
BPI's success is contingent upon its ability to forecast the tastes and
preferences of consumers and offer products that appeal to their preferences.
Consumer preference changes due to taste, nutritional content or other factors,
and BPI's failure to anticipate, identify or react to these changes could result
in reduced demand for its products, which could adversely affect its financial
and operational results. The current consumer focus on wellness may affect
demand for its products. BPI continues to explore the development of new
products that appeal to consumer preference trends while maintaining the product
quality standards.
PRODUCT RECALL OR SAFETY CONCERNS MAY ADVERSELY AFFECT FINANCIAL AND OPERATIONAL
RESULTS.
BPI may have to recall certain products should they be mislabeled, contaminated
or damaged or if there is a perceived safety issue. A perceived safety issue,
product recall or an adverse result in any related litigation could have a
material adverse effect on BPI's operations, financial condition and financial
results.
LOSS OF FACILITIES COULD ADVERSELY AFFECT BPI'S FINANCIAL AND OPERATIONAL
RESULTS.
BPI currently has two production facilities: the Jefferson Street Bakery and the
Mt. Pleasant Street Bakery. The loss of either of these facilities could have an
adverse impact on BPI's operations, financial condition and results of
operations.
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INCREASES IN LOGISTICS AND OTHER TRANSPORTATION-RELATED COSTS COULD MATERIALLY
ADVERSELY IMPACT BPI'S RESULTS OF OPERATIONS.
BPI's ability to competitively serve its customers depends on the availability
of reliable and low-cost transportation. BPI uses trucks to bring its products
to market. Disruption to the timely supply of these services or increases in the
cost of these services for any reason, including availability or cost of fuel,
regulations affecting the industry, or labor shortages in the transportation
industry, could have an adverse effect on BPI's ability to serve its customer,
and could materially and adversely affect BPI's business, financial condition
and results of operations.
RISK FACTORS AFFECTING ENVIRONMENTAL HOLDINGS CORP.
EQS' RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE
FACTORS OVER WHICH EQS HAS LITTLE OR NO CONTROL.
The factors listed below are outside of EQS's control and may cause EQS'
revenues and result of operations to fluctuate significantly, including, but not
limited to: (i) actions taken by regulatory bodies relating to the verification
and certification of EQS products/services; (ii) the timing and size of customer
purchases; and (iii) customer and/or distributors concerns about the stability
of EQS' business which could cause them to seek alternatives to EQS
products/services.
EQS FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS
PRODUCTS/SERVICES ARE EVALUATED.
EQS believes that due to the constant focus on the environmental standards
throughout the world, EQS may be required in the future to adhere to new and
more stringent government regulations. Governmental agencies constantly seek to
improve standards required for verification and/or certification of products
and/or services. In the event EQS' products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on EQS'
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
EQS' success depends to an extent upon the performance of its employees, some of
whom hold certain licenses, permits and certifications, including, but not
limited to Ms. Patricia Werner - Els. The loss or inability to replace these
employees holding the licenses permits or certifications necessary to conduct
EQS' business, could adversely affect its business and prospects and operating
results and/or financial condition.
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AWWT'S RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND
COMPETITIVE FACTORS OVER WHICH AWWT HAS LITTLE OR NO CONTROL.
The factors listed below are outside of AWWT's control and may cause AWWT's
revenues and result of operations to fluctuate significantly, including, but not
limited to: (i) actions taken by regulatory bodies relating to the verification
and certification of AWWT products/services; (ii) the timing and size of
customer purchases; and (iii) customer and/or distributors concerns about the
stability of AWWT's business which could cause them to seek alternatives to AWWT
products/services.
AWWT FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS
PRODUCTS/SERVICES ARE EVALUATED.
AWWT believes that due to the constant focus on the environmental standards
throughout the world, EQS may be required in the future to adhere to new and
more stringent government regulations. Governmental agencies constantly seek to
improve standards required for verification and/or certification of products
and/or services. In the event AWWT's products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on AWWT's
ability to generate revenue and remain profitable.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
AWWT's success depends to an extent upon the performance of its employees, some
of whom hold certain licenses, permits and certifications, including, but not
limited to Ms. Patricia Werner - Els. The loss or inability to replace these
employees holding the licenses, permits or certifications necessary to conduct
AWWT's business, could adversely affect its business and prospects and operating
results and/or financial condition. Additionally, AWWT holds a license for
patented electrocoagulation technologies, which is critical to its business
operations. The loss of this license could adversely affect its business and
prospects and operating results and/or financial condition
RISK FACTORS AFFECTING TYREE HOLDINGS CORP.
TYREE NEEDS ADDITIONAL CAPITAL TO FUND THE OPERATIONS AND GROWTH OF THE COMPANY
AND THIS NEW CAPITAL MAY NOT BE AVAILABLE. IN THE EVENT SUCH ADDITIONAL CAPITAL
IS NOT AVAILABLE, TYREE MAY NEED TO FILE FOR BANKRUPTCY PROTECTION.
Tyree management is working to secure additional available capital resources and
turnaround Tyree's operations to generate operating income. However, without
additional capital resources, Tyree may not be able to continue to operate and
may be forced to curtail its business, liquidate assets and/or file for
bankruptcy protection. In any such case, its business, operating results or
financial condition would be materially adversely affected.
56
FAILURE TO COMPLETE A PROJECT TIMELY OR FAILURE TO MEET A REQUIRED PERFORMANCE
STANDARD ON A PROJECT COULD CAUSE TYREE TO INCUR A LOSS WHICH MAY AFFECT OVERALL
PROFITABILITY.
Completion dates and performance standards may be important requirements to a
client on a given project. If Tyree is unable to complete a project within
specified deadlines or fails to meet performance criteria set forth by a client,
additional costs may be incurred by Tyree or the client may hold Tyree
responsible for costs they incur to rectify the problem. The uncertainty
involved in the timing of certain projects could also negatively affect the
Tyree's staff utilization, causing a drop in efficiency and reduced profits.
SUBCONTRACTOR PERFORMANCE AND PRICING COULD EXPOSE TYREE TO LOSS OF REPUTATION
AND ADDITIONAL FINANCIAL OR PERFORMANCE OBLIGATIONS THAT COULD RESULT IN REDUCED
PROFITS OR LOSSES.
Tyree often hires subcontractors for its projects. The success of these projects
depends, in varying degrees, on the satisfactory performance of its
subcontractors and Tyree's ability to successfully manage subcontractor costs
and pass them through to its customers. If Tyree's subcontractors do not meet
their obligations or Tyree is unable to manage or pass through costs, it may be
unable to profitably perform and deliver contracted services. Under these
circumstances, Tyree may be required to make additional investments and expend
additional resources to ensure the adequate performance and delivery of the
contracted services. In addition, the inability of its subcontractors to
adequately perform or Tyree's inability to manage subcontractor costs on certain
projects could hurt Tyree's competitive reputation and ability to obtain future
projects.
TYREE'S SERVICES COULD EXPOSE IT TO SIGNIFICANT LIABILITY NOT COVERED BY
INSURANCE.
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.
57
TYREE INCURS SUBSTANTIAL COSTS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS.
FAILURE TO COMPLY WITH THESE REQUIREMENTS AND RELATED LITIGATION ARISING FROM AN
ACTUAL OR PERCEIVED BREACH OF SUCH REQUIREMENTS COULD ALSO SUBJECT TYREE TO
FINES, PENALTIES, JUDGMENTS AND IMPOSE LIMITS ON TYREE'S ABILITY TO EXPAND.
Tyree is subject to potential liability and restrictions under environmental
laws, including those relating to treatment, storage and disposal of gasoline,
discharges to air and water, and the remediation of contaminated soil, surface
water and groundwater. If Tyree does not comply with the requirements that apply
to a particular site or if it operates without necessary approvals or permits,
Tyree could be subject to civil, and possibly criminal, fines and penalties, and
may be required to spend substantial capital to bring an operation into
compliance or to temporarily or permanently discontinue activities, and/or take
corrective actions. Those costs or actions could be significant and impact
Tyree's results of operations, cash flows and available capital.
In addition to the costs of complying with environmental laws and regulations,
Tyree may incur costs defending against environmental litigation brought by
governmental agencies and private parties. Tyree may be in the future be a
defendant in lawsuits brought by parties alleging environmental damage, personal
injury, and/or property damage, which may result in Tyree incurring significant
liabilities.
ADVERSE WEATHER LESSENS DEMAND FOR TYREE'S SERVICES.
Demand for Tyree's services, decreases substantially during periods of cold
weather, when it snows or when heavy or sustained rains fall. Consequently,
demand for Tyree's services are significantly lower during the winter. High
levels of rainfall can also adversely impact operations during these periods as
well. Such adverse weather conditions can materially and adversely affect
Tyree's results of operations and profitability if they occur with unusual
intensity, during abnormal periods, or last longer than usual.
DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS.
Tyree's success depends to an extent upon the performance of its managers, some
of whom hold certain licenses, permits and certifications. The loss or inability
to replace these managers holding the licenses, permits or certifications
necessary to conduct Tyree's business, could adversely affect its business and
prospects and operating results and/or financial condition.
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.
58
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection in the United States
Bankruptcy Court for the Southern District of New York. As of that date, Tyree
has a pre-petition receivable of approximately $1,515,401.27. As an unsecured
creditor, Tyree may never collect or may only collect a small percentage of this
pre-petition amount owed. Additionally, Tyree has a post-petition administrative
claim for approximately $593,709.20. Tyree may never collect or may only collect
a small percentage of this post-petition amount owed. A Proof of Claim was filed
with the Bankruptcy court on Tuesday, April 10, 2012. GPMI's bankruptcy could
materially adversely affect Tyree's financial condition, results of operations
or cash flows.
On August 27, 2012, the United States Bankruptcy Court for the Southern District
of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its
unsecured creditors committee, overruling the remaining objections. The plan
provides for all of the debtors' property to be liquidated over time and for the
proceeds to be allocated to creditors. Any assets not distributed by the
effective date will be held by a liquidating trust and administered by a
liquidation trustee, who will be responsible for liquidating assets, resolving
disputed claims, making distributions, pursuing reserved causes of action and
winding up GPMI's affairs. As an unsecured creditor, Tyree may never collect or
may only collect a small percentage of the pre-petition amounts owed.
THE FACTORS ABOVE ARE NOT EXHAUSTIVE. FOR A MORE COMPLETE LIST OF RISK FACTORS
AFFECTING THE COMPANY AND ITS SUBSIDIARIES, PLEASE REFER TO THE COMPANY'S ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012 FILED WITH THE
UNITED STATES SECURITIES AND EXCHANGE COMMISSION ON APRIL 17, 2013, AND ANY
AMENDMENTS THERETO.
ITEM 5. OTHER INFORMATION
Pursuant to a Stock Purchase Agreement, effective April 1, 2013, Environmental
Holding Corp., a Delaware corporation, and wholly owned subsidiary of Amincor,
Inc. ("Seller") sold all of its right, title and interest in 150 shares of
Common Stock, par value $0.001 of Environmental Quality Services, Inc., a
Delaware corporation (the "Shares") to Essential Environmental Technologies (the
"Buyer"). The Shares represent 100% of the issued and outstanding shares of
Environmental Quality Services, Inc. on a fully diluted basis. The purchase
price for the sale and transfer of the Shares by Seller to Buyer was $500,000 to
be paid by Buyer pursuant to a promissory note in the principal amount of the
purchase price and shall be secured by the provisions of that certain Pledge
Agreement. Buyer has assumed all assets and liabilities. However, as part of the
sale of the Shares, Amincor, Inc., the parent company of the Seller, also agreed
to unconditionally write off certain loan amounts due and owing by Environmental
Quality Services, Inc. to Amincor, Inc.
On April 30, 2013, Amincor Other Assets, Inc. sold the 360,000 square foot
facility where Allentown Metal Works, Inc. formerly operated located at 606 S.
10th Street, Allentown, PA 18103. The property was sold to the Allentown
59
Economic Development Corporation for $500,000 less outstanding taxes and costs
due and owing on the property, for net sale proceeds of $232,496.64.
ITEM 6. EXHIBITS
31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
101* Interactive data files pursuant to Rule 405 of Regulation S-T.
----------
+ Filed Herewith
* To be provided by Amendment
60
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AMINCOR, INC.
Date: May 15, 2013 By: /s/John R. Rice, III
----------------------------------
John R. Rice, III, President
Date: May 15, 2013 By: /s/ Joseph F. Ingrassia
----------------------------------
Joseph F. Ingrassia, Interim Chief
Financial Officer
6