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EX-32.2 - Amincor, Inc.ex32-2.txt
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EX-32.1 - Amincor, Inc.ex32-1.txt
EXCEL - IDEA: XBRL DOCUMENT - Amincor, Inc.Financial_Report.xls

                                  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: June 30, 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 August 14,  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 JUNE 30, 2013 CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements................................................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations ("MD&A").......................................29 Item 3. Quantitative and Qualitative Disclosures About Market Risk...........47 Item 4. Controls and Procedures..............................................48 PART II - OTHER INFORMATION Item 1. Legal Proceedings....................................................50 Item 1A. Risk Factors.........................................................52 Item 5. Other Information....................................................64 Item 6. Exhibits.............................................................65 SIGNATURES....................................................................66 2
EXPLANATORY NOTE In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to Amincor, Inc., and its subsidiaries. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "should," "scheduled," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks and uncertainties many of which are outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this Quarterly Report on Form 10-Q as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described below under Item 1A Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. We do not undertake any obligation to update any forward looking statements. We undertake no obligation to revise or publicly release the results of any revisions to these forward-looking statements or information. You should carefully review documents we file from time to time with the Securities and Exchange Commission. A number of factors may materially affect our business, financial condition, operating results and prospects. These factors include but are not limited to those set forth in our Annual Report on Form 10-K and elsewhere in this Quarterly Report on Form 10-Q. Any one of these factors may cause our actual results to differ materially from recent results or from our anticipated future results. You should not rely too heavily on the forward-looking statements contained in this Quarterly Report on Form 10-Q, because these forward-looking statements are relevant only as of the date they were made. WHERE YOU CAN FIND MORE INFORMATION We are required to file quarterly and annual reports and other information with the United States Securities and Exchange Commission ("SEC"). You may read and copy this information, for a copying fee, at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its Public Reference Room. Our SEC filings will also be available to the public from commercial document retrieval services, and at the Web site maintained by the SEC at http://www.sec.gov. Our Company website is located at http://www.amincorinc.com. 3
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Amincor, Inc. and Subsidiaries Consolidated Condensed Balance Sheets June 30, December 31, 2013 2012 ------------ ------------ (unaudited) (audited) ASSETS Current assets: Cash $ 323,840 $ 357,029 Accounts receivable, net of allowance of $449,747 and $428,953 at June 30, 2013 and December 31, 2012, respectively 4,426,873 4,729,846 Due from factor - related party 559,981 8,618 Inventories, net 2,569,303 2,620,899 Costs and estimated earnings in excess of billings on uncompleted contracts 17,964 30,260 Prepaid expenses and other current assets 1,132,486 689,283 Current assets - discontinued operations 4,253 672,744 ------------ ------------ Total current assets 9,034,700 9,108,679 ------------ ------------ PROPERTY, PLANT AND EQUIPMENT, NET Property, plant and equipment, net - continuing operations 19,454,264 14,176,026 Property, plant and equipment, net - discontinued operations -- 348,798 ------------ ------------ Total property, plant and equipment, net 19,454,264 14,524,824 ------------ ------------ OTHER ASSETS: Mortgages receivable, net -- 6,000,000 Note receivable 500,000 -- Goodwill 22,241 22,241 Other intangible assets 2,609,000 2,609,000 Other assets 45,648 44,160 Assets held for sale 2,086,433 2,566,433 Other assets - discontinued operations -- 139,804 ------------ ------------ Total other assets 5,263,322 11,381,638 ------------ ------------ Total assets $ 33,752,286 $ 35,015,141 ============ ============ 4
Amincor, Inc. and Subsidiaries Consolidated Condensed Balance Sheets June 30, December 31, 2013 2012 ------------ ------------ LIABILITIES AND (DEFICIT) EQUITY CURRENT LIABILITIES: Accounts payable $ 12,359,182 $ 12,261,127 Assumed liabilities - current portion 1,123,246 1,123,594 Accrued expenses and other current liabilities 4,391,847 2,937,543 Loans payable to related party 4,189,840 1,289,036 Notes payable - current portion 6,100,700 6,057,595 Capital lease obligations - current portion 265,771 267,021 Billings in excess of costs and estimated earnings on uncompleted contracts 365,188 446,295 Deferred revenue 230,196 358,911 Current liabilities - discontinued operations 4,694,293 5,510,564 ------------ ------------ Total current liabilities 33,720,263 30,251,686 ------------ ------------ LONG-TERM LIABILITIES: Assumed liabilities - net of current portion 37,951 132,374 Capital lease obligations - net of current portion 236,816 432,600 Due to related party 764,604 902,397 Notes payable - net of current portion 1,258,409 1,318,672 Other long-term liabilities 13,429 13,429 Long-term liabilities - discontinued operations -- 130,625 ------------ ------------ Total long-term liabilities 2,311,209 2,930,097 ------------ ------------ Total liabilities 36,031,472 33,181,783 ------------ ------------ 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 86,827,693 86,549,323 Accumulated deficit (88,720,011) (84,342,834) ------------ ------------ Total Amincor shareholders' (deficit) equity (1,861,616) 2,237,191 ------------ ------------ NONCONTROLLING INTEREST DEFICIT: (417,570) (403,833) ------------ ------------ Total (deficit) equity (2,279,186) 1,833,358 ------------ ------------ Total liabilities and (deficit) equity $ 33,752,286 $ 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 and Six Months Ended June 30, 2013 and 2012 (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ Net revenues $ 7,044,554 $ 12,837,124 $ 14,012,601 $ 26,500,721 COST OF REVENUES 5,931,943 9,711,527 11,964,044 20,157,326 ------------ ------------ ------------ ------------ Gross profit 1,112,611 3,125,597 2,048,557 6,343,395 SELLING, GENERAL AND ADMINISTRATIVE 3,346,868 4,872,362 6,415,858 10,424,310 ------------ ------------ ------------ ------------ Loss from operations (2,234,257) (1,746,765) (4,367,301) (4,080,915) ------------ ------------ ------------ ------------ OTHER EXPENSES (INCOME): Interest expense, net 253,758 139,899 470,295 277,201 Other expense (income) 17,310 (48,180) (28,469) (146,165) ------------ ------------ ------------ ------------ Total other expenses (income) 271,068 91,719 441,826 131,036 ------------ ------------ ------------ ------------ Loss before provision for income taxes (2,505,325) (1,838,484) (4,809,127) (4,211,951) Provision for income taxes -- -- -- -- ------------ ------------ ------------ ------------ Net loss from continuing operations (2,505,325) (1,838,484) (4,809,127) (4,211,951) ------------ ------------ ------------ ------------ Loss from discontinued operations (100,453) (311,479) (281,729) (542,583) Gain from sale of discontinued operations 699,942 -- 699,942 -- ------------ ------------ ------------ ------------ Net loss (1,905,836) (2,149,963) (4,390,914) (4,754,534) ------------ ------------ ------------ ------------ Net loss attributable to non-controlling interests (7,084) (50,649) (13,737) (112,106) ------------ ------------ ------------ ------------ Net loss attributable to Amincor shareholders $ (1,898,752) $ (2,099,314) $ (4,377,177) $ (4,642,428) ============ ============ ============ ============ NET LOSS PER SHARE FROM CONTINUING OPERATIONS - BASIC AND DILUTED: Net loss from continuing operations $ (0.09) $ (0.06) $ (0.17) $ (0.15) ============ ============ ============ ============ Weighted average shares outstanding - basic and diluted 28,949,367 28,723,599 28,949,367 28,723,599 ============ ============ ============ ============ NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR SHAREHOLDERS - BASIC AND DILUTED: Net loss attributable to Amincor shareholders $ (0.07) $ (0.07) $ (0.15) $ (0.16) ============ ============ ============ ============ Weighted average shares outstanding - basic and diluted 28,949,367 28,723,599 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 Six Months Ended June 30, 2013 and 2012 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 June 30, 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 June 30, 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 132,821 -- -- 132,821 Net loss -- (4,642,428) (112,106) (4,754,534) ----------- ------------ --------- ----------- Balance at June 30, 2012 (unaudited) $85,632,890 $(55,599,138) $(241,370) $29,822,858 =========== ============ ========= =========== Balance at December 31, 2012 (audited) $86,549,323 $(84,342,834) $(403,833) $ 1,833,358 ----------- ------------ --------- ----------- Share based compensation 278,370 -- -- 278,370 Net loss -- (4,377,177) (13,737) (4,390,914) ----------- ------------ --------- ----------- Balance at June 30, 2013 (unaudited) $86,827,693 $(88,720,011) $(417,570) $(2,279,186) =========== ============ ========= =========== 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 and Six Months Ended June 30, 2013 and 2012 (Unaudited) 2013 2012 ------------ ------------ CASH FLOWS FROM OPERATING ACTIVITIES: Net loss from continuing operations $ (4,809,127) $ (4,211,951) Adjustments to reconcile net loss to net cash from continuing operations (used in) provided by operating activities: Depreciation and amortization of property, plant and equipment 925,980 694,328 Amortization of intangible assets -- 935,668 Amortization of deferred financing costs -- 78,246 Stock based compensation 278,370 132,821 Gain on sale of equipment -- (97,126) Provision for doubtful accounts 3,402 3,159 Changes in assets and liabilities: Accounts receivable 299,571 (420,307) Due from factor - related party (551,363) -- Inventories 51,596 172,849 Costs and estimated earnings in excess of billings on uncompleted contracts 12,296 (246,391) Prepaid expenses and other current assets 491,017 447,347 Other assets (1,488) (2,749) Accounts payable 254,020 2,608,365 Accrued expenses and other current liabilities 1,454,304 (737,392) Billings in excess of costs and estimated earnings on uncompleted contracts (81,107) 882,866 Deferred revenue (128,715) (159,535) ------------ ------------ NET CASH (USED IN) PROVIDED BY OPERATING ACTIVITIES - CONTINUING OPERATIONS (1,801,244) 80,198 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (163,717) (2,233,163) Proceeds from sale of equipment -- 97,126 ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (163,717) (2,136,037) ------------ ------------ CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds from related parties 2,763,011 802,570 Principal payments of capital lease obligations (197,034) (79,532) Borrowings from (repayments of) notes payable (1,147,844) 942,445 Payments of assumed liabilities (94,771) (87,988) ------------ ------------ NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS 1,323,362 1,577,495 ------------ ------------ NET CASH USED IN CONTINUING OPERATIONS (641,599) (478,344) ------------ ------------ 8
Amincor, Inc. and Subsidiaries Consolidated Condensed Statements of Cash Flows Three and Six Months Ended June 30, 2013 and 2012 (Unaudited) 2013 2012 ------------ ------------ Net cash provided by (used in) operating activities - discontinued operations 722,460 (352,476) Net cash provided by investing activities - discontinued operations 16,575 -- Net cash used in financing activities - discontinued operations (130,625) (18,265) ------------ ------------ NET CASH PROVIDED BY (USED IN) DISCONTINUED OPERATIONS 608,410 (370,741) ------------ ------------ Decrease in cash (33,189) (849,085) Cash, beginning of period 357,029 1,274,361 ------------ ------------ Cash, end of period $ 323,840 $ 425,276 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the period for: Interest $ 621,744 $ 98,956 ============ ============ Income taxes $ -- $ 80,082 ============ ============ Non-cash investing and financing activities: Financing of insurance by notes payable $ 934,220 $ 1,003,993 ============ ============ Conversion of accounts payable to term notes payable $ 155,965 $ 1,548,655 ============ ============ Acquisition of equipment by notes payable $ 40,501 $ 64,303 ============ ============ Effective April 1, 2013, the Company sold the common stock of Environmental Quality Services, Inc. The Company finalized the foreclosure on the mortgages receivable related to the property in Pelham Manor, New York. The Company transferred $6,000,000 from mortgages receivable, net to property, plant and equipment. 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") is headquartered in New York, New York. During 2011 and 2010, Amincor acquired directly or indirectly all or a majority of the outstanding stock of the following companies: Advanced Waste & Water Technology, Inc. ("AWWT") Baker's Pride, Inc. ("BPI") Environmental Quality Services, Inc. ("EQS") 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 June 30, 2013, the following are operating subsidiaries of Amincor: Advanced Waste & Water Technology, Inc. Baker's Pride, Inc. Tyree Holdings Corp. Amincor Other Assets, Inc. ("Other Assets") AWWT AWWT performs water remediation services in the Northeastern United States, and is headquartered in Farmingdale, New York. 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 donuts in 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 June 30, 2013, BPI is seeking new customers and has bid with its former most significant customer to resume production in the fourth quarter of 2013. 10
TYREE Tyree performs maintenance, repair and construction services to customers with underground petroleum storage tanks and petroleum product dispensing equipment. Complimenting these services, Tyree is engaged in environmental consulting, site assessment, analysis and management of site remediation for owners and operators of property with petroleum storage facilities. Tyree markets its services throughout the Northeast and Mid-Atlantic regions of the United States to national and multinational enterprises, as well as to local and national governmental agencies and municipalities. The majority of Tyree's revenue is derived from customers in the Northeastern United States. Tyree's headquarters are located in Mt. Laurel, New Jersey. OTHER ASSETS Other Assets was incorporated to hold real estate, equipment and loan receivables. As of June 30, 2013, all of Other Assets' real estate and equipment are classified as held for sale. On April 30, 2013, Other Assets sold its 360,000 square foot facility located in Allentown, Pennsylvania. The property was sold for $500,000 less outstanding taxes and costs due and owing on the property for net sale proceeds of $232,497. DISCONTINUED OPERATIONS During 2011, Amincor adopted a plan to discontinue the operations of Masonry Supply Holding Corp., Tulare Holdings, Inc., and Epic Sports International, Inc. On April 1, 2013, Amincor sold the business of Environmental Quality Services, Inc. to a former manager of the company. 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. 11
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 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. EQS EQS formerly provided environmental and hazardous waste testing services in the Northeastern United States, and was headquartered in Farmingdale, 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; however, 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 Company's most recent 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 12
equipment, allowances for doubtful accounts and inventory obsolescence, estimates related to completion of contracts and loss contingencies on particular uncompleted contracts and the valuation allowance on deferred tax assets. Actual results could differ from those estimates. REVENUE RECOGNITION BPI Revenue is recognized from product sales when goods are delivered to 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. 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 the 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 December 31, 2012. In 2013, the Company gained title to the property and is included in property, plant and equipment as of June 30, 2013. The value of the mortgages was 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. 14
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 accompanying consolidated condensed financial statements of prior periods to conform to the current period's presentation. 3. GOING CONCERN The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern 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 $24,185,563 as of June 30, 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: * Advanced Waste & Water Technology, Inc. * Successfully sell large-scale waste water treatment equipment through AWWT's established licensing agreement. * 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, 16
* 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. 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, * 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 that will not be utilized in the normal course of operations during the next six months to generate additional working capital. * Amincor Other Assets, Inc. * Liquidate assets held for sale to provide working capital to the Company's subsidiaries, * Rent out assets held for sale to offset the costs of ownership of those assets wherever possible, if the assets cannot be liquidated. * 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 June 30, 2014, if the Company is not able to do so and if the Company is unable to become profitable in 2013 and the first half 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., effective September 30, 2011 the Company discontinued the operations of Epic Sports International, Inc and effective April 1 2013 the Company discontinued the operations of Environmental Quality Services, Inc. As a result, losses from Masonry, Tulare, EQS and ESI are included in the loss from 17
discontinued operations in the accompanying consolidated condensed financial statements for the three and six months ended June 30, 2013 and 2012, respectively. Assets and liabilities related to discontinued operations are presented separately on the condensed consolidated balance sheets as of June 30, 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 six months ended June 30, 2013 and 2012, respectively. The following amounts related to Masonry, Tulare, EQS and ESI have been segregated from continuing operations and reported as discontinued operations: Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ---------- ---------- ---------- ---------- Results From Discontinued Operations: Net revenues from discontinued operations $ (1,771) $ 273,072 $ 231,887 $ 543,841 ========== ========== ========== ========== Loss from discontinued operations $ (100,453) $ (311,479) $ (281,729) $ (542,583) ========== ========== ========== ========== The following is a summary of the assets and liabilities of the discontinued operations, excluding assets held for sale (which is recorded separately on the consolidated condensed balance sheets). June 30, December 31, 2013 2012 ------------ ------------ Cash $ 2,285 $ 2,699 Accounts receivable 1,968 231,558 Prepaid expenses and other current assets -- 13,840 Property, plant and equipment, net -- 348,798 Goodwill and other intangible assets -- 135,000 Other assets -- 429,451 ------------ ------------ Total assets $ 4,253 $ 1,161,346 ------------ ------------ Accounts payable $ 3,810,755 $ 4,350,376 Accrued expenses and other current liabilities 883,538 1,160,188 Other long term liabilities -- 130,625 ------------ ------------ Total liabilities $ 4,694,293 $ 5,641,189 ------------ ------------ Net liabilities $ (4,690,040) $ (4,479,843) ============ ============ The Company will continue to provide administrative services for the discontinued operations until the liquidation of these discontinued entities is completed. Pursuant to a Stock Purchase Agreement, effective April 1, 2013, Environmental Holding Corp., a wholly-owned subsidiary of Amincor, Inc. sold all of its right, title and interest in all of the common stock of EQS to Essential Environmental Technologies. The gain on the sale of EQS is summarized as follows: 18
Description Amount ----------- ----------- Purchase price promissory note $ 500,000 Liabilities assumed by the Buyer 668,171 ----------- 1,168,171 Assets transferred (468,229) ----------- Gain on the sale of EQS $ 699,942 =========== The $500,000 promissory note has a maturity date of April 1, 2018 and is secured by the assets sold. The annual interest rate on the note is 8% with the first two years interest only and, subsequently, the note is amortized over a three year period. 5. INVENTORIES Inventories consist of: * Construction and service maintenance parts * Baking ingredients * Finished bakery goods A summary of inventory as of June 30, 2013 and December 31, 2012 is below: June 30, December 31, 2013 2012 ---------- ---------- Raw materials $2,685,322 $3,058,645 Ingredients 187,044 108,673 Finished goods 34,633 454 ---------- ---------- 2,906,999 3,167,772 Inventory reserves 337,696 546,873 ---------- ---------- Inventories, net $2,569,303 $2,620,899 ========== ========== 6. PROPERTY, PLANT AND EQUIPMENT As of June 30, 2013 and December 31, 2012 property, plant and equipment from continuing operations consisted of the following: 19
Useful Lives June 30, December 31, (Years) 2013 2012 ------- ------------ ------------ Land n/a $ 6,430,000 $ 430,000 Machinery and equipment 2-10 15,996,507 15,893,600 Furniture and fixtures 5-10 169,258 110,439 Building and leasehold improvements 10 3,443,598 3,376,869 Computer equipment and software 5-7 843,314 827,191 Construction in progress n/a -- -- Vehicles 3-10 340,350 408,080 ------------ ------------ 27,223,027 21,046,179 Less accumulated depreciation 7,768,763 6,870,153 ------------ ------------ $ 19,454,264 $ 14,176,026 ============ ============ Total depreciation expense related to continuing operations for the six months ended June 30, 2013 and 2012 was $925,980 and $694,328, respectively. 7. GOODWILL AND INTANGIBLE ASSETS GOODWILL AND INTANGIBLE ASSETS Goodwill of $22,241 as of June 30, 2013 and 2012, and licenses and permits (an intangible asset) of $2,609,000 as of June 30, 2013 and December 31, 2012, respectively, have indefinite useful lives and are not being amortized but are instead tested for impairment annually or whenever an event occurs that may indicate a significant decrease in the fair value of the assets has taken place. The aforementioned licenses and permits have renewal provisions which are generally one to four years. As of June 30, 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 related to continuing operations for the six months ended June 30, 2013 and 2012 was $0 and $935,668 respectively. As of June 30, 2013, all intangible assets subject to amortization were fully amortized. 8. LONG-TERM DEBT Long-term debt consists of the following as of June 30, 2013 and December 31, 2012: 20
June 30, 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 June 30, 2013 and December 31, 2012 with principal and interest payable in installments through July 2014 $ 620,823 $ 748,293 Promissory notes payable, with zero interest to current accounts payable vendors. Payment terms are from 12 to 36 months 3,301,582 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 June 30, 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% 186,719 242,149 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 February 1, 2014. 2,749,985 2,749,985 ---------- ---------- Total 7,359,109 7,376,267 Less current portion 6,100,700 6,057,595 ---------- ---------- Long-term portion $1,258,409 $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 AWWT, BPI & Tyree have entered into discount factoring agreements with a related party ("Factor"), which shares common ownership and management with the Company, under which eligible accounts receivable will be factored. The Factor assumes credit risk for all credit-approved accounts. The Company pays to the Factoring a commission on each accounts receivable purchased equal to (a) 1% for each 60 days that such accounts receivable is outstanding and (b) after the initial 15 day period, an additional 1% for each 30 days or part that such accounts receivable is outstanding. The Company can request advances of up to 80% of factored accounts based on the customer credit limit under the terms of the factor agreements which controls the activity under the agreement. The factor agreement is secured by the eligible accounts receivable. The factor fees amounted to $124,013 and $0 for the six months ended June 30, 2013 and 2012, respectively. 21
LOANS PAYABLE Loans from a related party consist of the following at: June 30, 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 $4,000,000 $3,662,306 $ 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 $1,000,000 512,270 473,820 Loan and security agreement with Stephen Tyree which expires on November 5, 2014 bearing interest at 5.0% per annum. 15,264 50,417 ---------- ---------- Total loans and amounts payable to related parties $4,189,840 $1,289,036 ========== ========== Interest expense for these loans amounted to $237,014 and $165,879 for the six months ended June 30, 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 six months ended June 30, 2012 have been restated. This correction is de minimus and had no discernable effect on previously reported loss per share. 11. SEGMENTS The Company is organized into six segments: (1) Amincor, (2) Other Assets, (3) AWWT (4) BPI, and (5) Tyree. Assets related to discontinued operations ("Disc. Ops") are also presented below where relevant. Segment information is as follows: 22
June 30, December 31, 2013 2012 ------------ ------------ Total Assets: Amincor $ 375,123 $ 298,792 Other Assets 8,596,433 8,566,433 AWWT 361,144 1,144,626 BPI 11,768,258 12,051,571 Tyree 12,647,075 12,529,072 Disc. Ops 4,253 424,647 ------------ ------------ Total assets $ 33,752,286 $ 35,015,141 ============ ============ June 30, December 31, 2013 2012 ------------ ------------ Total Goodwill: Amincor $ -- $ -- Other Assets -- -- AWWT 22,241 22,241 BPI -- -- Tyree -- -- ------------ ------------ Total goodwill $ 22,241 $ 22,241 ============ ============ June 30, December 31, 2013 2012 ------------ ------------ Total Intangible Assets: Amincor $ -- $ -- Other Assets -- -- AWWT -- -- BPI -- -- Tyree 2,609,000 2,609,000 ------------ ------------ Total intangible assets $ 2,609,000 $ 2,609,000 ============ ============ Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ Net Revenues: Amincor $ -- $ -- $ -- $ -- Other Assets -- -- -- -- AWWT 97,794 3,250 151,012 3,250 BPI 237,301 4,227,696 292,109 8,371,984 Tyree 6,709,459 8,606,178 13,569,480 8,125,487 ------------ ------------ ------------ ------------ Net revenues $ 7,044,554 $ 12,837,124 $ 14,012,601 $ 26,500,721 ============ ============ ============ ============ 23
Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ Income (loss) before Provision for Income Taxes: Amincor $ (907,343) (1,348,574) $ (1,998,713) $ (2,982,428) Other Assets (338,460) (70,274) (368,586) (70,275) AWWT (40,311) (330) (86,766) (330) BPI (1,278,950) (137,216) (2,443,048) (274,381) Tyree 59,739 (282,090) 87,986 (884,537) ------------ ------------ ------------ ------------ Income (loss) before Provision for Income Taxes $ (2,505,325) $ (1,838,484) $ (4,809,127) $ (4,211,951) ============ ============ ============ ============ Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ Depreciation of Property and Equipment: Amincor $ -- $ -- $ -- $ -- Other Assets -- -- -- -- AWWT 11,818 -- 23,635 -- BPI 294,444 207,751 588,475 414,301 Tyree 162,645 127,270 313,870 280,027 ------------ ------------ ------------ ------------ Total depreciation of property and equipment $ 468,907 $ 335,021 $ 925,980 $ 694,328 ============ ============ ============ ============ Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ Amortization of Intangible Assets: Amincor $ -- $ -- $ -- $ -- Other Assets -- -- -- -- AWWT -- -- -- -- BPI -- 191,225 -- 382,450 Tyree -- 276,609 -- 553,218 ------------ ------------ ------------ ------------ Total amortization of intangible assets $ -- $ 467,834 $ -- $ 935,668 ============ ============ ============ ============ Three Months Ended June 30, Six Months Ended June 30, 2013 2012 2013 2012 ------------ ------------ ------------ ------------ Interest Expense - net: Amincor $ (174,124) $ (87,420) $ (333,243) $ (168,134) Other Assets (10,000) (6,980) (17,247) (13,875) AWWT 671 2 1,360 2 BPI 245,461 127,318 414,788 228,137 Tyree 191,750 106,979 404,637 231,071 ------------ ------------ ------------ ------------ Total interest expense, net $ 253,758 $ 139,899 $ 470,295 $ 277,201 ============ ============ ============ ============ 24
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 the Mt. Pleasant Street Bakery, Inc. resides 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 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 cleanup 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, which was subsequently written-off due to the uncertainty of collection. Additionally, Tyree has a post-petition administrative claim for $593,709. A Proof of Claim was filed with the Bankruptcy court on Tuesday, April 10, 2012. On August 27, 2012, the United States Bankruptcy Court for the Southern District of New York confirmed GPMI's Chapter 11 plan of liquidation offered by its unsecured creditors committee, 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. As of the date of this filing, Tyree management has negotiated settlements with Local Unions 99, 138 and 355. Tyree management continues to negotiate with Local Unions 1, 25 and 200 over unpaid benefits that are due to each of the respective unions. As of June 30, 2013, Tyree had approximately $950,000 in unpaid benefits. Tyree management does not dispute that benefits are due and owing to each of the respective unions, however, settlement and payment plan discussions are ongoing. Local Unions 1 and 200 have each filed suit in the United States 25
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 filed a claim with the National Labor Relations Board ("NLRB") alleging that Tyree Service Corp violated the National Labor Relations Act. By a letter dated May 31, 2013, the NLRB dismissed all charges against Tyree Service Corp. due to insufficient evidence to establish a violation. Local 200 intends to appeal the NLRB decision. A variety of unsecured vendors have filed suit for non-payment of outstanding invoices totaling approximately $2.6 million as of June 30, 2013, which are reflected as liabilities on the Company's consolidated condensed balance sheet. Each of these actions is handled on a case by case basis, to determine the settlement and payment plan. 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. Epic 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 Epic Sports International, Inc. 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, 26
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. 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, 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 the date of this filing, the deed to the Property has been recorded in the name of Amincor Other Assets, Inc. with the office of the Westchester County Clerk. 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. On June 19, 2013, the parties in the above action 27
agreed to a settlement in principle, which resolves the remaining causes of action and dismisses the third party complaint and the declaratory judgment complaint, with prejudice 13. SUBSEQUENT EVENTS On July 25, 2013, Amincor Other Assets, Inc. entered into a lease agreement to rent the Pelham Manor, New York property for an initial lease term of one year at an annual fixed rent of $240,000. The Company has evaluated all other subsequent events after the report date and there were no significant subsequent events requiring disclosure. 28
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 six months ended June 30, 2013, cash flows used in continuing operations was $1,801,244. This was principally due to a net loss from continuing operations of $4,809,127 which was partially offset by an increase in accrued expenses and other current liabilities of approximately $1.5 million and non-cash depreciation expenses of approximately $926,000. The net loss from continuing operations is discussed in greater detail in the results from operations for the six months ended June 30, 2013 and 2012 section of this MD&A. For the six months ended June 30, 2013, cash flows used in investing activities from continuing operations of $163,717 were primarily due to purchases of additional equipment at Baker's Pride, Inc. For the six months ended June 30, 2013, cash flows provided by financing activities from continuing operations of $1,323,362 was primarily due to proceeds received on loans from related parties. For the six months ended June 30, 2013, total cash flows provided by discontinued operations was $608,362. Cash provided by discontinued operations was primarily related to the Amincor Other Assets' sale of its 360,000 square foot facility in Allentown, Pennsylvania on April 30, 2013. 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 $4,809,127 and $4,211,951 for the six months ended June 30, 2013 and 2012, respectively. We had a working capital deficit of $24,685,563 and an accumulated deficit of $88,720,011 as of June 30, 2013. The results of the Company's cash flows from continuing operations for the six months ended June 30, 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 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: 29
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 extended its bridge loan financing with its lender, Central State Bank to February 1, 2014, which will allow 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 June 30, 2013, Tyree has a working capital deficit of approximately $11.9 million exclusive of amounts owed to Amincor and recorded a net loss of approximately $1.3 million for the six months ended June 30, 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 AWWT, management has recently 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. 30
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. 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 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 31
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. 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 $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. As of June 30, 2013, Tyree had approximately $950,000 in unpaid benefits. 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 ("NLRB") alleging that Tyree Service Corp violated the National Labor Relations Act. By a letter dated May 31, 2013, the NLRB dismissed all charges against Tyree Service Corp. due to insufficient evidence to establish a violation. Local 200 intends to appeal the NLRB decision. 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. 32
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 cleanup 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 SIX MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the six months ended June 30, 2013 totaled $14,012,601 as compared to net revenues of $26,500,721 for the six months ended June 30, 2012, a decrease in net revenues of $12,488,120 or approximately 47.1%. 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 $4.6 million and BPI's net revenues decreased by approximately $8.1 million during the six months ended June 30, 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 six months ended June 30, 2013 totaled $11,964,044 or approximately 85.4% of net revenues as compared to $20,157,326 or approximately 76.1% of net revenues for the six months ended June 30, 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 33
for the six month period ended June 30, 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 six months ended June 30, 2013 totaled $6,415,858 as compared to $10,424,310 for the six months ended June 30, 2012, a decrease in operating expenses of $4,008,452 or approximately 38.5%. 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 $1.5 million and Tyree's operating expenses decreased by $2.4 million during the six months ended June 30, 2013 as compared to the six months ended June 30, 2012. 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 six months ended June 30, 2013 totaled $4,367,301 as compared to $4,080,915 for the six months ended June 30, 2012, an increase in loss from operations of $286,386 or approximately 7.0%. The primary reason for the increase in loss from operations is related to the decrease in net revenues as noted above. OTHER EXPENSES (INCOME) Other expenses (income) for the six months ended June 30, 2013 totaled $441,826 as compared to $131,036 for the six months ended June 30, 2012, an increase in other expenses of $310,790. The primary reason for the increase in other expenses (income) is related to increased interest expense resulting from factoring receivables of Tyree 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 $4,809,127 for the six months ended June 30, 2013 as compared to $4,211,951 for the six months ended June 30, 2012, an increase in net loss from continuing operations of $597,176 or approximately 14.2%. The primary reason for the decrease in net loss from continuing operations is related to the decreases in net revenues as noted above. LOSS FROM DISCONTINUED OPERATIONS Loss from discontinued operations totaled $281,729 for the six months ended June 30, 2013 as compared to $542,583 for the six months ended June 30, 2013, a decrease in loss from discontinued operations of $260,854 or approximately 48.1%. The net loss of Masonry was $360 for the six months ended June 30, 2013 34
as compared to $72,561 for the six months ended June 30, 2012, a decrease in net loss of $72,201. The net loss of Tulare was $81,828 for the six months ended June 30, 2013 as compared to a net loss $95,090 for the six months ended June 30, 2012, a decrease in net loss of $13,262. The net loss of ESI was $2,984 for the six months ended June 30, 2013 as compared to $26,921 for the six months ended June 30, 2012 a decrease in net loss of $23,937. The net loss of EQS was $196,557 for the six months ended June 30, 2013 as compared to $348,011 for the six months ended June 30, 2012, a decrease in net loss of $151,454. Gain from sale of discontinued operations for the six months ended June 30, 2013 was $699,942 as compared to $0 for the six months ended June 30, 2012. The gain from sale of discontinued operations is related to the sale of EQS which effectively took place on April 1, 2013. NET LOSS Net loss totaled $4,390,914 for the six months ended June 30, 2013 as compared to $4,754,534 for the six months ended June 30, 2012, a decrease in net loss of $363,620 or approximately 7.6%. The primary reason for the decrease in net loss during the six months ended June 30, 2013 was due to the aforementioned gain on sale of discontinued operations. RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the three months ended June 30, 2013 totaled $7,044,554 as compared to net revenues of $12,837,124 for the three months ended June 30, 2012, a decrease in net revenues of $5,792,570 or approximately 45.1%. 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 $1.9 million and BPI's net revenues decreased by approximately $4.0 million during the three months ended June 30, 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 June 30, 2013 totaled $5,931,943 or approximately 84.2% of net revenues as compared to $9,711,527 or approximately 75.7% of net revenues for the three months ended June 30, 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 for the three month period ended June 30, 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. 35
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative ("SG&A") expenses for the three months ended June 30, 2013 totaled $3,346,868 as compared to $4,872,362 for the three months ended June 30, 2012, a decrease in operating expenses of $1,525,494 or approximately 31.3%. 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 $765,000 and Tyree's operating expenses decreased by approximately $896,000 during the three months ended June 30, 2013 as compared to the three months ended June 30, 2012. 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 June 30, 2013 totaled $2,234,257 as compared to $1,746,765 for the three months ended June 30, 2012, an increase in loss from operations of $487,492 or approximately 27.9%. The primary reason for the increase in loss from operations is related to the decrease in net revenues as noted above. OTHER EXPENSES (INCOME) Other expenses (income) for the three months ended June 30, 2013 totaled $271,068 as compared to $91,719 for the three months ended June 30, 2012, an increase in other expenses of $179,349. The primary reason for the increase in other expenses (income) is related to increased interest expenses resulting from factoring receivables of Tyree and AWWT alongside a higher carrying balance on BPI's bridge loan. A detailed analysis of each subsidiary company's individual other expenses 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 $2,505,325 for the three months ended June 30, 2013 as compared to $1,838,484 for the three months ended June 30, 2012, an increase in net loss from continuing operations of $666,841 or approximately 36.3%. The primary reason for the decrease in net loss from continuing operations is related to the decreases in net revenues as noted above. INCOME (LOSS) FROM DISCONTINUED OPERATIONS Loss from discontinued operations totaled ($100,453) for the three months ended June 30, 2013 as compared to ($311,479) for the three months ended June 30, 2012, a decrease in loss from discontinued operations of $211,026 or approximately 67.7%. The net income of Masonry was $6,335 for the three months ended June 30, 2013 as compared to a net loss of ($62,324) for the three months ended June 30, 2012, a decrease in net loss of $68,659. The net loss of Tulare was ($82,269) for the three months ended June 30, 2013 as compared to a net loss ($49,487) for the three months ended June 30, 2012, an increase in net loss of 36
$32,782. The net loss of ESI was ($2,984) for the three months ended June 30, 2013 as compared to ($26,921) for the three months ended June 30, 2012 a decrease in net loss of $23,937. The net loss of EQS was ($21,535) for the three months ended June 30, 2013 as compared to ($172,747) for the three months ended June 30, 2012, a decrease in net loss of $151,212. Gain from sale of discontinued operations for the three months ended June 30, 2013 was $699,942 as compared to $0 for the three months ended June 30, 2012. The gain from sale of discontinued operations was related to the sale of EQS which effectively took place on April 1, 2013. NET LOSS Net loss totaled $1,905,836 for the three months ended June 30, 2013 as compared to $2,149,963 for the three months ended June 30, 2012, a decrease in net loss of $244,127 or approximately 11.4%. The primary reason for the decrease in net loss during the three months ended June 30, 2013 was due to the aforementioned gain on sale of discontinued operations. ADVANCED WASTE & WATER TECHNOLOGY, INC. SEASONALITY AWWT's sales are typically higher during the second and fourth quarters of its fiscal year as they correlate to peak wet and rainy periods of the season. The third quarter of the year is usually affected by hot and dry weather conditions during which time periods of rain are infrequent. The first quarter of AWWT's fiscal year is affected by frigid temperatures combined with the possibility of extreme weather which tends to discourage projects from being scheduled during the winter months. RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the six months ended June 30, 2013 totaled $252,872 as compared to $3,251 for the six months ended June 30, 2012, an increase of $249,621. The large increase in net revenues is related to the purchase of AWWT's plant assets which took place on November 2, 2012. Operations during the six months ended June 30, 2012 were limited to a sales arrangement whereby AWWT was able to bring water into AWWT's predecessor entity for a small commission. COST OF REVENUES Cost of revenues for the six months ended June 30, 2013 totaled $172,801 or approximately 68.3% of net revenues as compared to $3,322, or 102.2% for the six 37
months ended June 30, 2012. The primary reason for this increase in cost of revenues is related to the acquisition of AWWT's plant assets on November 2, 2012. OPERATING EXPENSES Operating expenses for the six months ended June 30, 2013 totaled $74,762, or approximately 29.6% of net revenues compared to $258, or approximately 7.9% of net revenues for the six months ended June 30, 2012, an increase in operating expenses of $74,504. The primary reason for this increase in operating expenses is related to the acquisition of AWWT's plant assets on November 2, 2012. In addition, effective April 1, 2013 a new manager of AWWT was hired which increased operating expenses. INCOME (LOSS) FROM OPERATIONS Income from operations for the six months ended June 30, 2013 totaled $5,308, or approximately 2.1% of net revenues as compared to a loss from operations of ($330), or approximately 10.2% of net revenues for the six months ended June 30, 2012, an increase in income from operations of $5,638. The decrease in loss from operations was primarily due to the increase in revenues and corresponding cost of sales as noted above. OTHER EXPENSES (INCOME) Other expenses (income) for the six months ended June 30, 2013 totaled $9,574, or approximately 3.8% of net revenues as compared to other expenses (income) of $2, or approximately 0.1% of net revenues for the six months ended June 30, 2012, an increase in other expenses of $9,572. The increase in other expenses (income) during the six months ended June 30, 2013 was primarily due to fees incurred from factoring AWWT's accounts receivable which were incurred during the six months ended June 30, 2013 but not incurred during the six months ended June 30, 2012 as well as an increase in the carrying balance of AWWT's inter-company loan with its Parent. NET LOSS Net loss for the six months ended June 30, 2013 totaled $4,266 as compared to $332 for the six months ended June 30, 2012, an increase in net loss of $3,934. The decrease in net loss is primarily related to the increase in other expenses as noted above. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the three months ended June 30, 2013 totaled $160,548 as compared to $3,251 for the three months ended June 30, 2012, an increase of $157,298. The large increase in net revenues is related to the purchase of AWWT's plant assets which took place on November 2, 2012. Operations during the 38
three months ended June 30, 2012 were limited to a sales arrangement whereby AWWT was able to bring water into AWWT's predecessor entity for a small commission. COST OF REVENUES Cost of revenues for the three months ended June 30, 2013 totaled $95,288 or approximately 59.4% of net revenues as compared to $3,322, or 102.2% for the three months ended June 30, 2012. The primary reason for this increase in cost of revenues is related to the acquisition of AWWT's plant assets on November 2, 2012. OPERATING EXPENSES Operating expenses for the three months ended June 30, 2013 totaled $45,912, or approximately 28.6% of net revenues compared to $258, or approximately 7.9% of net revenues for the three months ended June 30, 2012, an increase in operating expenses of $45,654. The primary reason for this increase in operating expenses is related to the acquisition of AWWT's plant assets on November 2, 2012. INCOME (LOSS) FROM OPERATIONS Income from operations for the three months ended June 30, 2013 totaled $19,349, or approximately 12.1% of net revenues as compared to a loss from operations of ($330), or approximately 10.2% of net revenues for the three months ended June 30, 2012, an increase in income from operations of $19,679. The decrease in loss from operations was primarily due to the increase in revenues and corresponding cost of sales as noted above. OTHER EXPENSES Other expenses for the three months ended June 30, 2013 totaled $6,577, or approximately 4.1% of net revenues as compared to other expenses of $2, or approximately 0.1% of net revenues for the three months ended June 30, 2012, an increase in other expenses of $6,575. The increase in other expenses during the three months ended June 30, 2013 was primarily due to fees incurred from factoring AWWT's accounts receivable which were incurred during the three months ended June 30, 2013 but not incurred during the three months ended June 30, 2012 as well as an increase in the carrying balance of AWWT's inter-company loan with its Parent. NET INCOME (LOSS) Net income for the three months ended June 30, 2013 totaled $12,772 as compared to a net loss of ($332) for the three months ended June 30, 2012, a decrease in net loss of $13,104. The increase in net income is primarily related to the increase in net revenues and the corresponding cost of sales as noted above. 39
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 significant donut production commences at the Mt. Pleasant Street facility, it will greatly be affected by seasonality. For the six months ended June 30, 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 92.1% of net revenues for the six months ended June 30, 2013 and 2012, respectively. All Aldi revenues generated in the first six months of 2012 were from BPI's Jefferson Street facility. The balance of net revenues generated during the six months ended June 30, 2012 was related to 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 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. 40
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the six months ended June 30, 2013 totaled $292,109 as compared to $8,371,984 for the six months ended June 30, 2012, a decrease of $8,079,875 or approximately 96.5%. 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 $8.1 million decrease in net revenues, Aldi's business was responsible for $7.7 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 six months ended June 30, 2013 totaled $1,301,039 as compared to $6,197,458 for the six months ended June 30, 2012, a decrease of $4,896,419 or approximately 79.0%. The Company had a 96.5% decrease in net revenues against a 79.0% 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 six months ended June 30, 2013 due to the loss of Aldi as compared to operating at 100% capacity during the six months ended June 30, 2012. Certain fixed costs are incurred by BPI regardless of the production levels at BPI's facilities which were incurred during the six months ended June 30, 2013 but were not offset by sales as they were during the six months ended June 30, 2012. SELLING, GENERAL & ADMINISTRATIVE EXPENSES SG&A expenses for the six months ended June 30, 2013 totaled $2,166,196 as compared to $3,670,820 for the six months ended June 30, 2012, a decrease of $1,504,624 or approximately 41.0%. 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 $705,000), the absence of non-cash intangible amortization expense due to the impairment of intangible assets as of September 30, 2012 (savings of approximately $383,000) and temporary decreases in management's salaries at BPI until production levels return to normal (savings of approximately $291,000). LOSS FROM OPERATIONS Loss from operations for the six months ended June 30, 2013 totaled $3,175,126 as compared to $1,496,294 for the six months ended June 30, 2012, an increase in loss from operations of $1,678,832 or approximately 112.2%. The increase in loss from operations was primarily due to the decreases in net revenues as noted above. 41
OTHER EXPENSES Other expenses for the six months ended June 30, 2013 totaled $447,875 as compared to $214,789 for six months ended June 30, 2012, an increase of $233,086 or approximately 108.5%. The primary reason for this increase in 2012 is higher interest expense due to a larger loan balances on BPI's working capital line and the bridge loan financing used to purchase new equipment for the Mt. Pleasant Street facility. NET LOSS Net loss for the six months ended June 30, 2013 totaled $3,623,001 as compared to $1,711,083 for the six months ended June 30, 2012, an increase in net loss of $1,911,917 or approximately 111.7%. The primary reason for this increase in net loss is related to the decrease in net revenues as noted above. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the three months ended June 30, 2013 totaled $237,301 as compared to $4,227,696 for the three months ended June 30, 2012, a decrease of $3,990,395 or approximately 94.4%. 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 $4.0 million decrease in net revenues, Aldi's business was responsible for $3.9 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 June 30, 2013 totaled $746,389 as compared to $3,116,857 for the three months ended June 30, 2012, a decrease of $2,370,468 or approximately 76.1%. The Company had a 94.4% decrease in net revenues against a 76.1% 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 June 30, 2013 due to the loss of Aldi as compared to operating at 100% capacity during the three months ended June 30, 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 June 30, 2013 but were not offset by sales as they were during the three months ended June 30, 2012. SELLING, GENERAL & ADMINISTRATIVE EXPENSES SG&A expenses for the three months ended June 30, 2013 totaled $1,085,179 as compared to $1,850,487 for the three months ended June 30, 2012, a decrease of $765,308 or approximately 41.4%. The primary reason for the decrease in 2013 is 42
related to the termination of the equipment and facility lease that allowed for production at the South Street facility (savings of approximately $349,000), 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 $137,000). LOSS FROM OPERATIONS Loss from operations for the three months ended June 30, 2013 totaled $1,594,267 as compared to $739,649 for the three months ended June 30, 2012, an increase in loss from operations of $854,618 or approximately 115.5%. The increase in loss from operations was primarily due to the decreases in net revenues as noted above. OTHER EXPENSES (INCOME) Other expenses for the three months ended June 30, 2013 totaled $278,563 as compared to $117,276 for three months ended June 30, 2012, an increase of $161,287 or approximately 137.5%. The primary reason for this increase in 2012 is higher interest expense due to a larger loan balances on BPI's working capital line and the bridge loan financing used to purchase new equipment for the Mt. Pleasant Street facility. NET LOSS Net loss for the three months ended June 30, 2013 totaled $1,872,830 as compared to $856,925 for the three months ended June 30, 2012, an increase in net loss of $1,015,905 or approximately 118.6%. The primary reason for this increase in net loss is related to the decrease in net revenues 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 43
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 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 $4,754,750 and $4,819,829 as of June 30, 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 six months ending June 30, 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 $1,313,987 and $2,336,967 for the six months ended June 30, 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 June 30, 2013 this amounted to $2.7 million. 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. 44
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the six months ended June 30, 2013 totaled $13,569,480 as compared to $18,125,487 for the six months ended June 30, 2012, a decrease of $4,556,007 or approximately 25.1%. 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. Revenues by operating divisions for the six months ended June 30, 2013 and June 30, 2012 were as follows: Revenues 2013 2012 -------- ----------- ----------- Service and Construction $ 6,409,944 $11,884,201 Environmental, Compliance and Engineering 7,156,717 6,046,977 Manufacturing / International 2,819 194,309 ----------- ----------- Total $13,569,480 $18,125,487 =========== =========== COST OF REVENUES Cost of revenues for the six months ended June 30, 2013 totaled $10,600,610 or approximately 78.1% of net revenues as compared to $14,042,862, or 77.5% for the six months ended June 30, 2012. The gross profit percentage decreased by 0.6% period to period. OPERATING EXPENSES Operating expenses for the six months ended June 30, 2013 totaled $3,804,505, or approximately 28.0% of net revenues compared to $6,189,233, or approximately 34.1% of net revenues for the six months ended June 30, 2012, a decrease in operating expenses of $2,384,727 or approximately 38.5%. The decrease in operating expenses in 2013 was primarily attributed to $1,035,000 in payroll reductions, a $631,000 reduction in non-cash amortization expense, a $139,000 reduction in rent expenses, a $75,000 reduction in professional and consulting fees and a $59,000 reduction in auto expense alongside smaller expense reductions across all of Tyree's expense categories. LOSS FROM OPERATIONS Loss from operations for the six months ended June 30, 2013 totaled $835,635, or approximately 6.2% of net revenues as compared to $2,106,608, or approximately 11.6% of net revenues for the six months ended June 30, 2012, a decrease in loss 45
from operations of $1,270,973 or approximately 60.3%. The decrease in loss from operations was primarily due to the decrease in operating expenses as noted above. OTHER EXPENSES (INCOME) Other expenses (income) for the six months ended June 30, 2013 totaled $478,352, or approximately 3.5% of net revenues as compared to other expenses (income) of $230,360, or approximately 1.3% of net revenues for the six months ended June 30, 2012, an increase in other expenses of $247,992 or approximately 107.7%. The increase in other expenses (income) during the six months ended June 30, 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 six months ended June 30, 2013 totaled $1,313,987 as compared to $2,336,967 for the six months ended June 30, 2012, a decrease of $1,022,980 or approximately 43.8%. The decrease in net loss is primarily related to the decrease in operating expenses as noted above. RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2013 AND 2012 NET REVENUES Net revenues for the three months ended June 30, 2013 totaled $6,709,459 as compared to $8,606,178 for the three months ended June 30, 2012, a decrease of $1,896,719 or approximately 22.0%. 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. Revenues by operating divisions for the three months ended June 30, 2013 and June 30, 2012 were as follows: Revenues 2013 2012 -------- ----------- ----------- Service and Construction $ 3,121,629 $ 5,488,633 Environmental, Compliance and Engineering 3,585,011 3,121,775 Manufacturing / International 2,819 (4,230) ----------- ----------- Total $ 6,709,459 $ 8,606,178 =========== =========== COST OF REVENUES Cost of revenues for the three months ended June 30, 2013 totaled $5,153,020 or approximately 76.8% of net revenues as compared to $6,641,645, or 77.2% for the three months ended June 30, 2012. The gross profit percentage decreased by 0.4% period to period. 46
OPERATING EXPENSES Operating expenses for the three months ended June 30, 2013 totaled $1,941,224, or approximately 28.9% of net revenues compared to $2,837,604, or approximately 33.0% of net revenues for the three months ended June 30, 2012, a decrease in operating expenses of $896,380 or approximately 31.6%. The decrease in operating expenses in 2013 was primarily attributed to payroll reductions of $318,000, non-cash amortization expense reductions of $315,732 and rent reductions of $131,146 alongside smaller expense reductions across all Tyree expense categories. LOSS FROM OPERATIONS Loss from operations for the three months ended June 30, 2013 totaled $384,786, or approximately 5.7% of net revenues as compared to $873,071, or approximately 10.1% of net revenues for the three months ended June 30, 2012, a decrease in loss from operations of $488,285 or approximately 65.9%. The decrease in loss from operations was primarily due to the decrease in operating expenses as noted above. OTHER EXPENSES (INCOME) Other expenses (income) for the three months ended June 30, 2013 totaled $263,968, or approximately 3.9% of net revenues as compared to other expenses (income) of $118,122, or approximately 1.4% of net revenues for the three months ended June 30, 2012, an increase in other expenses (income) of $145,846 or approximately 123.5%. The increase in other expenses during the three months ended June 30, 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 June 30, 2013 totaled $648,754 as compared to $991,193 for the three months ended June 30, 2012, a decrease of $342,439 or approximately 34.6%. The decrease in net loss is primarily related to the decrease in operating expenses as noted above. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Amincor has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. 47
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 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, 48
* 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 June 30, 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 June 30, 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. 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: 49
* 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. To date, no litigation regarding this matter has been filed. The Company will disclose any litigation which may result in the future. 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 the date of this filing, the deed to the Property has been recorded in the name of Amincor Other Assets, Inc. with the office of the Westchester County Clerk. 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. On June 19, 2013, the parties in the above action agreed to a settlement in principle, which resolves the remaining causes of action and dismisses the third party complaint and the declaratory judgment complaint, with prejudice. 50
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. 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. 51
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. As of June 30, 2013, Tyree had approximately $950,000 in unpaid benefits. 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 filed a claim with the National Labor Relations Board ("NLRB") alleging that Tyree Service Corp violated the National Labor Relations Act. By letter dated May 31, 2013, the NLRB dismissed all charges against Tyree Service Corp. due to insufficient evidence to establish a violation. Local 200 intends to appeal the NLRB decision. 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 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 52
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 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. 53
We do not anticipate paying any dividends on our common stock for the foreseeable future. Investors who 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. 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 54
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 effect 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. 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 55
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. 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) 56
consumer demand for our products, (ii) the mix of our products' sales, (iii) our ability to collect accounts receivable on a timely basis, (iv) the ability of suppliers to provide the materials required in our operations and (v) our ability to obtain financing or to otherwise access the capital markets. The strength of the U.S. dollar versus other world currencies could result in increased competition from imported products and decreased sales to our international customers. A prolonged recession could result in decreased revenue, margins and earnings. Additionally, the economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us. The occurrence of any of these risks could materially and adversely affect our subsidiary businesses' financial condition and results of operations. SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE. Federal, state and local authorities subject some of our facilities and operations to requirements relating to environmental protection. These requirements can be expected to change and expand in the future, and may impose significant capital and operating costs. Environmental laws and regulations govern, among other things, the discharge of substances into the air, water and land, the handling, storage, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. If any of our subsidiary companies violate environmental laws or regulations, they may be required to implement corrective actions and could be subject to civil or criminal fines or penalties. There can be no assurance that we will not have to make significant capital expenditures in the future in order to remain in compliance with applicable laws and regulations. Contamination and exposure to hazardous substances can also result in claims for damages, including personal injury, property damage, and natural resources damage claims. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to remediation liabilities or other claims that may be material. Environmental requirements may become stricter or be interpreted and applied more strictly in the future. These future changes or interpretations, or the indemnification for such adverse environmental conditions, could result in environmental compliance or remediation costs not anticipated by us, which could have a material adverse effect on our business, financial condition or results of operations. 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 57
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. 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. 58
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. 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. 59
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. 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 60
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. 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 61
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 cleanup efforts and environmental regulatory compliance have not yet had a material adverse impact on its capital expenditures, earnings, or competitive position. However, the occurrence of a future environmental or pollution event could potentially have an adverse impact. TYREE INCURS SUBSTANTIAL COSTS TO COMPLY WITH ENVIRONMENTAL REQUIREMENTS. FAILURE TO COMPLY WITH THESE REQUIREMENTS AND RELATED LITIGATION ARISING FROM AN ACTUAL OR PERCEIVED BREACH OF SUCH REQUIREMENTS COULD ALSO SUBJECT TYREE TO FINES, PENALTIES, JUDGMENTS AND IMPOSE LIMITS ON TYREE'S ABILITY TO EXPAND. Tyree is subject to potential liability and restrictions under environmental laws, including those relating to treatment, storage and disposal of gasoline, discharges to air and water, and the remediation of contaminated soil, surface water and groundwater. If Tyree does not comply with the requirements that apply to a particular site or if it operates without necessary approvals or permits, Tyree could be subject to civil, and possibly criminal, fines and penalties, and may be required to spend substantial capital to bring an operation into compliance or to temporarily or permanently discontinue activities, and/or take corrective actions. Those costs or actions could be significant and impact Tyree's results of operations, cash flows and available capital. In addition to the costs of complying with environmental laws and regulations, Tyree may incur costs defending against environmental litigation brought by governmental agencies and private parties. Tyree may be in the future be a defendant in lawsuits brought by parties alleging environmental damage, personal injury, and/or property damage, which may result in Tyree incurring significant liabilities. 62
ADVERSE WEATHER LESSENS DEMAND FOR TYREE'S SERVICES. Demand for Tyree's services, decreases substantially during periods of cold weather, when it snows or when heavy or sustained rains fall. Consequently, demand for Tyree's services are significantly lower during the winter. High levels of rainfall can also adversely impact operations during these periods as well. Such adverse weather conditions can materially and adversely affect Tyree's results of operations and profitability if they occur with unusual intensity, during abnormal periods, or last longer than usual. DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS. Tyree's success depends to an extent upon the performance of its managers, some of whom hold certain licenses, permits and certifications. The loss or inability to replace these managers holding the licenses, permits or certifications necessary to conduct Tyree's business, could adversely affect its business and prospects and operating results and/or financial condition. TYREE IS EXPOSED TO THE CREDIT RISK, INCLUDING BANKRUPTCY, OF ITS CUSTOMERS IN THE ORDINARY COURSE OF BUSINESS. Tyree has various credit terms with virtually all of its customers, and its customers have varying degrees of creditworthiness. Although Tyree evaluates the creditworthiness of each of its customers, Tyree may not always be able to fully anticipate or detect deterioration in their creditworthiness and overall financial condition, which could expose Tyree to an increased risk of nonpayment or other default under its contracts and other arrangements with them. In the event that a material customer or customers default on their payment obligations to Tyree or file for bankruptcy protection, this could materially adversely affect Tyree's financial condition, results of operations or cash flows. On December 5, 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 63
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. sold all of its right, title and interest in 150 shares of Common Stock, par value $0.001 of Environmental Quality Services, Inc. ("EQS"), a Delaware corporation to Essential Environmental Technologies. The Shares represent 100% of the issued and outstanding shares of Environmental Quality Services, Inc. on a fully diluted basis. The gain on the sale of EQS is summarized as follows: Description Amount ----------- ----------- Purchase price promissory note $ 500,000 Liabilities assumed by the Buyer 668,171 ----------- 1,168,171 Assets transferred (468,229) ----------- Gain on the sale of EQS $ 699,942 =========== The $500,000 promissory note has a maturity date of April 1, 2018 and is secured by the assets sold. The annual interest rate on the note is 8% with the first two years interest only and, subsequently, the note is amortized over a three year period. 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 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. 64
On July 25, 2013, Amincor Other Assets, Inc. entered into a lease agreement with Van Trans, LLC, pursuant to which Van Trans, LLC will be leasing the property located at 670 Hillside Road and the vacant land located at the end of Canal Road, both in Pelham Manor, NY for an initial lease term of one (1) year at an annual fixed rent of $240,000, payable in monthly installments of $20,000. 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 65
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMINCOR, INC. Date: August 14, 2013 By: /s/John R. Rice, III ---------------------------------- John R. Rice, III, President Date: August 14, 2013 By: /s/ Joseph F. Ingrassia ---------------------------------- Joseph F. Ingrassia, Interim Chief Financial Officer 6