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.
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.
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.
ITEM 1. FINANCIAL STATEMENTS.
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
June 30, 2014 and December 31, 2013
June 30, December 31,
2014 2013
-------------- --------------
(unaudited) (audited)
ASSETS
CURRENT ASSETS:
Cash $ 135,620 $ 295,793
Accounts receivable, net of allowance of $519,138 and $589,201
at June 30, 2014 and December 31, 2013, respectively 3,123,581 5,449,234
Inventories, net 894,200 838,164
Costs and estimated earnings in excess
of billings on uncompleted contracts 73,648 40,049
Prepaid expenses, deferred charges and other current assets 918,903 458,065
-------------- --------------
Total current assets 5,145,952 7,081,305
-------------- --------------
PROPERTY, PLANT AND EQUIPMENT, NET
Property, plant and equipment, net 11,407,371 12,260,857
Property held for investment 6,000,000 6,000,000
-------------- --------------
Total property, plant and equipment, net 17,407,371 18,260,857
-------------- --------------
OTHER ASSETS:
Loan receivable, net of allowance of $260,000 at June 30, 2014
and December 31, 2013 240,000 240,000
Goodwill 22,241 22,241
Other intangible assets 851,000 851,000
Other assets 45,463 53,648
Assets available for sale 2,086,433 2,086,433
-------------- --------------
Total other assets 3,245,137 3,253,322
-------------- --------------
Total assets $ 25,798,460 $ 28,595,484
============== ==============
|
4
Amincor, Inc. and Subsidiaries
Consolidated Condensed Balance Sheets
June 30, 2014 and December 31, 2013
June 30, December 31,
2014 2013
-------------- --------------
(unaudited) (audited)
LIABILITIES AND (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 12,278,311 $ 11,849,200
Assumed liabilities 1,297,419 1,409,295
Accrued expenses and other current liabilities 5,691,498 5,807,148
Loans payable to related party 10,672,386 8,493,689
Notes payable - current portion 8,117,248 7,957,909
Capital lease obligations - current portion 63,091 215,859
Billings in excess of costs and estimated earnings on
uncompleted contracts 504,829 675,786
Deferred revenue 15,562 101,675
Current liabilities - discontinued operations 4,993,447 5,001,665
-------------- --------------
Total current liabilities 43,633,791 41,512,226
-------------- --------------
LONG-TERM LIABILITIES:
Capital lease obligations - net of current portion 97,086 170,890
Due to related party 636,973 809,731
Notes payable - net of current portion -- 220,955
Other long-term liabilities -- 6,104
-------------- --------------
Total long-term liabilities 734,059 1,207,680
-------------- --------------
Total liabilities 44,367,850 42,719,906
-------------- --------------
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, 8,996,355 and 7,919,023 issued and outstanding
as of June 30, 2014 and December 31, 2013, respectively 8,996 7,913
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 87,640,570 87,201,076
Deficit (105,727,389) (100,852,132)
-------------- --------------
Total Amincor shareholders' (deficit) equity (18,054,784) (13,620,104)
-------------- --------------
NONCONTROLLING INTEREST DEFICIT: (514,606) (504,318)
-------------- --------------
Total (deficit) equity (18,569,390) (14,124,422)
-------------- --------------
Total liabilities and (deficit) equity $ 25,798,460 $ 28,595,484
============== ==============
|
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, 2014 and 2013
(Unaudited)
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013
------------ ------------ ------------ ------------
Net revenues $ 6,120,092 $ 7,044,554 $ 12,461,768 $ 14,012,601
COST OF REVENUES 5,339,940 5,931,943 10,952,665 11,964,044
------------ ------------ ------------ ------------
Gross profit 780,152 1,112,611 1,509,103 2,048,557
SELLING, GENERAL AND ADMINISTRATIVE 2,157,095 2,846,868 5,105,593 5,915,858
------------ ------------ ------------ ------------
Loss from operations (1,376,943) (1,734,257) (3,596,490) (3,867,301)
------------ ------------ ------------ ------------
OTHER EXPENSES (INCOME):
Interest expense, net 910,458 253,758 1,676,957 470,295
Other expense (income) (266,266) 17,310 (389,624) (28,469)
------------ ------------ ------------ ------------
Total other expenses (income) 644,192 271,068 1,287,333 441,826
------------ ------------ ------------ ------------
Loss before provision for income taxes (2,021,135) (2,005,325) (4,883,823) (4,309,127)
Provision for income taxes -- -- -- --
------------ ------------ ------------ ------------
Net loss from continuing operations (2,021,135) (2,005,325) (4,883,823) (4,309,127)
------------ ------------ ------------ ------------
Loss from discontinued operations (4,444) (100,453) (1,722) (281,729)
Gain from sale of discontinued operations -- 199,942 -- 199,942
------------ ------------ ------------ ------------
Net loss (2,025,579) (1,905,836) (4,885,545) (4,390,914)
------------ ------------ ------------ ------------
Net loss attributable to non-controlling interests (3,155) (7,084) (10,288) (13,737)
------------ ------------ ------------ ------------
Net loss attributable to Amincor shareholders $ (2,022,424) $ (1,898,752) $ (4,875,257) $ (4,377,177)
============ ============ ============ ============
NET LOSS PER SHARE FROM CONTINUING OPERATIONS -
BASIC AND DILUTED:
Net loss from continuing operations $ (0.07) $ (0.07) $ (0.16) $ (0.15)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 30,282,699 28,949,367 30,234,817 28,949,367
============ ============ ============ ============
NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR SHAREHOLDERS -
BASIC AND DILUTED:
Net loss attributable to Amincor shareholders $ (0.07) $ (0.07) $ (0.16) $ (0.15)
============ ============ ============ ============
Weighted average shares outstanding - basic and diluted 30,282,699 28,949,367 30,234,817 28,949,367
============ ============ ============ ============
|
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, 2014 and 2013
Amincor, Inc. and Subsidiaries
----------------------------------------------------------------------------
Convertible Common Stock - Common Stock -
Preferred Stock Class A Class B
-------------------- --------------------- ---------------------
Shares Amount Shares Amount Shares Amount
------ ------ ------ ------ ------ ------
Balances 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 -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balances at June 30, 2013 (unaudited) 1,752,823 $ 1,753 7,663,023 $ 7,663 21,286,344 $ 21,286
========= ======= ========= ======= ========== ========
Balances at December 31, 2013 (audited) 1,752,823 $ 1,753 7,913,023 $ 7,913 21,286,344 $ 21,286
========= ======= ========= ======= ========== ========
Issuance of shares to officers for cash -- -- 1,083,332 1,083 -- --
Share based compensation -- -- -- -- -- --
Net loss -- -- -- -- -- --
--------- ------- --------- ------- ---------- --------
Balances at June 30, 2014 (unaudited) 1,752,823 $ 1,753 8,996,355 $ 8,996 21,286,344 $ 21,286
========= ======= ========= ======= ========== ========
Amincor, Inc. and Subsidiaries
------------------------------
Additional Total
Paid-in Non-controlling (Deficit)
Capital Deficit Deficit Equity
------- ------- ------- ------
Balances at December 31, 2012 (audited) $86,549,322 $ (84,342,834) $(403,833) $ 1,833,357
=========== ============= ========= ============
Share based compensation 278,371 -- -- 278,371
Net loss -- (4,377,177) (13,737) (4,390,914)
----------- ------------- --------- ------------
Balances at June 30, 2013 (unaudited) $86,827,693 $ (88,720,011) $(417,570) $ (2,279,186)
=========== ============= ========= ============
Balances at December 31, 2013 (audited) $87,201,076 $(100,852,132) $(504,318) $(14,124,422)
=========== ============= ========= ============
Issuance of shares to officers for cash 128,917 -- -- 130,000
Share based compensation 310,577 -- -- 310,577
Net loss -- (4,875,257) (10,288) (4,885,545)
----------- ------------- --------- ------------
Balances at June 30, 2014 (unaudited) $87,640,570 $(105,727,389) $(514,606) $(18,569,390)
=========== ============= ========= ============
|
The accompanying notes are an integral part of these
consolidated condensed financial statements
7
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 2014 and 2013
(Unaudited)
2014 2013
------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss from continuing operations $ (4,883,823) $ (4,309,127)
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 861,057 925,980
Stock based compensation 310,577 278,371
Loss on disposal of equipment 168,232 --
Provision for doubtful accounts 15,917 3,402
Changes in assets and liabilities:
Accounts receivable 2,309,736 (251,792)
Inventories (56,036) 51,596
Costs and estimated earnings in excess of billings on
uncompleted contracts (33,599) 12,296
Prepaid expenses and other current assets (460,838) 491,016
Other assets 8,185 (1,488)
Accounts payable 429,111 254,020
Accrued expenses and other current liabilities (115,650) 1,454,304
Billings in excess of costs and estimated earnings
on uncompleted contracts (170,957) (81,107)
Deferred revenue (86,113) (128,715)
Other long-term liabilities (6,104) --
------------ ------------
NET CASH USED IN OPERATING ACTIVITIES - CONTINUING OPERATIONS (1,710,305) (1,301,244)
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (175,803) (163,717)
------------ ------------
NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (175,803) (163,717)
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds/loans from related parties 2,005,939 2,763,011
Proceeds from issuance of common stock 130,000 --
Principal payments of capital lease obligations (226,572) (197,034)
Repayments of notes payable (61,616) (1,147,844)
Assumed liabilities (111,876) (94,771)
------------ ------------
NET CASH PROVIDED BY FINANCING ACTIVITIES - CONTINUING OPERATIONS 1,735,875 1,323,362
------------ ------------
|
8
Amincor, Inc. and Subsidiaries
Consolidated Condensed Statements of Cash Flows
Six Months Ended June 30, 2014 and 2013
(Unaudited)
2014 2013
------------ ------------
NET CASH USED IN CONTINUING OPERATIONS (150,233) (141,599)
------------ ------------
Net cash used in / provided by operating activities - discontinued operations (9,940) 222,460
Net cash provided by investing activities - discontinued operations -- 16,575
Net cash used in financing activities - discontinued operations -- (130,625)
------------ ------------
NET CASH USED IN / PROVIDED BY DISCONTINUED OPERATIONS (9,940) 108,410
------------ ------------
Decrease in cash (160,173) (33,189)
Cash, beginning of period 295,793 357,029
------------ ------------
Cash, end of period $ 135,620 $ 323,840
============ ============
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 1,112,050 $ 621,744
============ ============
Non-cash investing and financing activities:
Financing of insurance by notes payable $ 940,713 $ 934,220
============ ============
Conversion of accounts payable to term notes payable $ -- $ 155,965
============ ============
Acquisition of equipment by notes payable $ -- $ 40,501
============ ============
|
The accompanying notes are an integral part of these
consolidated condensed financial statements
9
1. ORGANIZATION AND NATURE OF BUSINESS
Amincor, Inc. ("Amincor") is headquartered in New York, New York. As of June 30,
2014 and December 31, 2013 Amincor had the following operating subsidiaries:
Advanced Waste & Water Technology, Inc. ("AWWT")
Baker's Pride, Inc. ("BPI")
Tyree Holdings Corp. ("Tyree")
Amincor Other Assets, Inc. ("Other Assets")
AWWT
AWWT performs water remediation services in the Northeastern United States and
is headquartered in Farmingdale, New York. In addition to its fixed station
operations AWWT is working with impacted water producers to provide water
remediation equipment and services throughout the United States and select
international markets. The services include water testing and evaluation, system
engineering and design, system training servicing and maintenance.
BPI
BPI manufactures bakery food products, consisting primarily of several varieties
of sliced and packaged private label bread in addition to fresh and frozen
varieties of donuts in the Midwest and Eastern region of the United States. BPI
is headquartered and operates facilities in Burlington, Iowa.
TYREE
Tyree performs maintenance, repair and construction services to customers with
underground petroleum storage tanks and petroleum product dispensing equipment.
Complimenting these services, Tyree is engaged in environmental consulting, site
assessment, analysis and management of site remediation for owners and operators
of property with petroleum storage facilities. Tyree markets its services
throughout the Northeast 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 Farmingdale, New York and its environmental services business
unit is located in Mt. Laurel, New Jersey.
OTHER ASSETS
Other Assets was incorporated to hold real estate, equipment and loan
receivables.
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.
10
On December 19, 2013, Other Assets entered into a $1.5 million mortgage on its
property located in Pelham Manor, New York. The mortgage provides for interest
only payments of $15,000 per month, with the full principal balance due on
January 1, 2015. The note carries an interest rate of 12.0% per annum.
DISCONTINUED OPERATIONS
On April 1, 2013, Amincor sold the business of a subsidiary, Environmental
Quality Services ("EQS") to a former manager of the Company. EQS provided
environmental and hazardous waste testing services in the Northeastern United
States.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The accompanying consolidated condensed financial statements of the Company have
been prepared in accordance with accounting principles generally accepted in the
United States of America ("GAAP").
PRINCIPLES OF CONSOLIDATION
The consolidated condensed financial statements include the accounts of Amincor
and all of its consolidated subsidiaries (collectively, the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amount of
assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements, and the reported amounts of revenues
and expenses during the reporting periods. Significant estimates include the
valuation of goodwill and intangible assets, the useful lives of tangible and
intangible assets, depreciation and amortization of property, plant and
equipment, allowances for doubtful accounts and inventory obsolescence,
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 recorded net of discounts and is recognized upon the sale of products
when title to the goods has passed, the price to the customer is fixed and
determinable, and collection from the customer is reasonably assured. Those
conditions are typically satisfied when goods are delivered to BPI's shipping
11
dock, and are made available for pick-up by the customer, at which point the
title passes to the customer. Customer sales discounts are accounted for as
reductions of 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 rate 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.
AWWT
AWWT provides water remediation and logistics services for its clients. 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 represents amounts due from customers and is reported net of
an allowance for doubtful accounts. The allowance for doubtful accounts is based
on management's estimate of the amount of receivables that will actually be
collected after analyzing the credit worthiness of its customers and historical
12
experience, as well as the prevailing business and economic environment.
Accounts are written off when significantly past due and after exhaustive
efforts at collection. Recoveries of accounts receivables previously written off
are recorded as income when subsequently collected.
Tyree's accounts receivable for maintenance and repair services and construction
contracts are recorded at the invoiced amount and do not bear interest. Tyree,
BPI, and 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.
ALLOWANCE FOR LOAN LOSSES
The Company performs ongoing credit evaluations of its loans receivable and
provides an allowance for loan losses based on the payee's credit evaluation,
current financial condition, and collection history. When it is determined that
it is more likely than not that the scheduled payments of principal and interest
under the terms of the loan will not be received when due, an allowance for loan
losses is established, based upon management's estimate of the amount of the
loan that will actually be collected.
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, less accumulated depreciation
and amortization. Depreciation is calculated using the straight-line method over
the estimated useful lives of the respective assets. Leasehold improvements are
amortized over the lesser of their estimated useful lives or the remaining lease
terms. 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.
PROPERTY HELD FOR INVESTMENT
Property held for investment consists of property in Pelham Manor, New York. A
defaulted loan was transferred from a related party with a value of $6,180,000.
The loan value was written down by $180,000 to $6,000,000. During 2013, the
Company took title to the property.
13
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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company reviews long-lived assets for impairment whenever events or changes
in circumstances indicate that the carrying value of the asset may not be
recoverable. The Company assesses recoverability by determining whether the net
book value of the related asset will be recovered through the projected
undiscounted future cash flows of the asset. If the Company determines that the
carrying value of the asset may not be recoverable, it measures any impairment
based on the asset's fair value as compared to the asset's carrying 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
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 for the three and six months ended June
30, 2014 and 2013 because any potential additional common shares would reduce
the reported loss per share and therefore have an antidilutive effect.
FAIR VALUE MEASUREMENT
Financial instruments and certain non-financial assets and liabilities are
measured at their fair value as determined based on the assets highest and best
use. GAAP has established a framework for measuring fair value that is based on
a hierarchy which requires that the valuation technique used be based on the
most objective inputs available for measuring a particular asset or liability.
There are three broad levels in the fair value hierarchy which describe the
degree of objectivity of the inputs used to determine the fair value. The fair
value hierarchy is set forth as below:
Level 1 - inputs to the valuation methodology and quoted prices (unadjusted) for
identical assets or liabilities in active markets.
14
Level 2 - inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the
asset or liability, either directly or indirectly, for substantially the full
term of the financial instrument.
Level 3 - inputs to the valuation methodology are unobservable and significant
to the fair value measurement. They are based on best information available in
the absence of level 1 and 2 inputs.
The fair value of all of the Company's financial instruments, which include cash
and cash equivalents, accounts receivable, accounts payable and debt, are
approximately the same as their carrying amounts.
SHARE-BASED COMPENSATION
Share-based awards to employees 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.
Non-employee share-based awards are measured at the fair value at the
performance completion date and are charged to expenses at the service
completion date.
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 condensed financial statements have been prepared
assuming that the Company will continue as a going concern, which 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 $38,380,774 and a (deficit)
equity of ($18,054,784) as of June 30, 2014, which raises substantial doubt
about the Company's ability to continue as a going concern. Our auditors have
stated, in their report dated April 15, 2014, 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 significant deficits in working
capital and equity. The Company's ability to continue as a going concern is
dependent upon its ability 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:
15
* Advanced Waste & Water Technology, Inc.
* Successfully selling large-scale waste water treatment equipment
through AWWT's established licensing agreement.
* Acquiring the company with which AWWT has established its
licensing agreement.
* Baker's Pride, Inc.
* Securing 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,
* Increasing co-pack donut, bread and bun business once the
existing plant assets are operating at maximum capacity,
* Negotiating with its commercial bank to commence paying principal
payments on its bridge loan, which matures on September 1, 2014,
when BPI's cash flow improves.
* Tyree Holdings Corp.
* Increasing 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,
* Evaluating Tyree's construction and maintenance business units
with respect to their ability to increase margins and operate
profitably independent of each other,
* Liquidating 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.
* Liquidating assets held for sale to provide working capital to
the Company's subsidiaries,
* Leasing assets held for sale until they can be sold.
* Amincor, Inc.
* Securing 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, 2015, if the Company is not
able to do so and if the Company is unable to become profitable for the next
twelve months through June 30, 2015, the Company would likely need to modify its
16
plans and/or cut back on its operations. If the Company raises 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
consolidated condensed 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
The Company discontinued the operations of EQS when it was sold on April 1, 2013
and the loss from discontinued operations in the accompanying consolidated
condensed financial statements for the six months ended June 30, 2013 primarily
relates to EQS. Liabilities related to EQS and previously discontinued
operations are presented separately on the consolidated condensed balance sheets
as of June 30, 2014 and December 31, 2013. Changes in net cash from discontinued
operations are presented in the accompanying consolidated condensed statements
of cash flows for the six months ended June 30, 2014 and 2013. All prior period
information has been reclassified to conform to the current period presentation.
The following amounts have been segregated from continuing operations and
reported as discontinued operations:
For The Three Months Ended June 30, For The Six Months Ended June 30,
----------------------------------- ---------------------------------
2014 2013 2014 2013
-------- -------- -------- --------
Results From Discontinued Operations:
Net revenues from discontinued operations $ -- $ (1,771) $ -- $231,887
======== ======== ======== ========
Income (loss) from discontinued operations $ (4,444) $ 99,489 $ (1,722) $(81,787)
======== ======== ======== ========
|
Assets held for sale (which is recorded separately on the consolidated condensed
balance sheets) consists of two properties related to the Company's discontinued
operations, as follows:
Land and building - California $1,786,433
Land - New York 300,000
----------
$2,086,433
==========
|
The following is a summary of the liabilities of the discontinued operations:
June 30, December 31,
2014 2013
---------- ----------
Accounts payable $3,937,414 $3,945,632
Accrued expenses and other current liabilities 1,056,033 1,056,033
---------- ----------
Total liabilities $4,993,447 $5,001,665
========== ==========
5. INVENTORIES
|
Inventories consist of:
* Raw materials, construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
17
A summary of inventory as of June 30, 2014 and December 31, 2013 is below:
June 30, December 31,
2014 2013
---------- ----------
Raw materials $1,221,846 $1,316,364
Ingredients 361,812 254,492
Finished goods 115,984 72,750
---------- ----------
1,699,642 1,643,606
Inventory reserves 805,442 805,442
---------- ----------
Inventories, net $ 894,200 $ 838,164
========== ==========
|
6. PROPERTY, PLANT AND EQUIPMENT
As of June 30, 2014 and December 31, 2013, property, plant and equipment
consisted of the following:
Useful Lives June 30, December 31,
(Years) 2014 2013
------- ------------ ------------
Land n/a $ 419,656 $ 430,000
Machinery and equipment 2-10 14,772,022 15,147,163
Furniture and fixtures 5-10 169,258 169,258
Building and leasehold improvements 10 3,378,525 3,443,598
Computer equipment and software 5-7 838,466 838,466
Property Held for Investment n/a 6,000,000 6,000,000
Vehicles 3-10 446,693 437,042
------------ ------------
26,024,620 26,465,527
Less accumulated depreciation 8,617,249 8,204,670
------------ ------------
$ 17,407,371 $ 18,260,857
============ ============
|
Total depreciation expense for the six months ended June 30, 2014 and 2013 was
$861,057 and $925,980, respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
During the years ended December 31, 2013 and 2012, Tyree did not file certain
required payroll tax returns on a timely basis and did not properly pay its
payroll tax liabilities, including trust funds withheld on behalf of its
employees. Through the assistance of an outside payroll services company, Tyree
filed all delinquent payroll tax returns during the fourth quarter of 2013 and
is currently in negotiations with federal and various state authorities to
settle its remaining payroll tax obligations. Tyree estimates that its
outstanding payroll tax liability, including penalties and interest, was
approximately $2.4 million as of June 30, 2014.
During the year ended December 31, 2013, Tyree did not file required sales tax
returns in various jurisdictions. Tyree subsequently filed the required returns
and is currently in negotiations with various state authorities to settle the
remaining sales tax liability. Tyree estimates that its outstanding sales tax
liability, including penalties and interest, is approximately $1.5 million as of
June 30, 2014.
18
8. LONG-TERM DEBT
Long-term debt consists of the following as of June 30, 2014 and December 31,
2013:
June 30, December 31,
2014 2013
----------- -----------
Bridge loan with a commercial bank,
collateralized by property, plant and
equipment located in Burlington, Iowa 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 September 1, 2014. $2,749,985 $2,749,985
Promissory note payable, collateralized by
property located in Pelham, New York. Payable
in monthly installments of interest only
bearing an interest rate of 12.00%. The loan
matures on January 1, 2015 at which time the
entire unpaid principal amount and all
accrued interest is fully due and payable. 1,500,273 1,500,273
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, 2014 and December 31,
2013. The loans matured and are indefault as
of July 31, 2014 244,405 355,056
Promissory notes converted from accounts
payable, with an imputed interest rate of
10%. Payment terms are from 12 to 36 months 2,825,468 2,884,937
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, 2014 and bear
interest at an annual fixed rate of 6.00% 500,000 500,000
|
Note payable to insurance company, with
accrued interest. Payable in monthly
installments of principal and interest
through January 2015. The annual interest
rate is 4.78% 216,028 --
Note payable to a commercial bank. Payable in
monthly installments of principal and
interest through March 2015. The annual
interest rate is 7.25% 81,089 188,613
---------- ----------
Total 8,117,248 8,178,864
Less current portion 8,117,248 7,957,909
---------- ----------
Long-term portion $ -- $ 220,955
========== ==========
|
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. The Company's President and Vice
President/Interim Chief Financial Officer own a majority of the Company's Class
19
A common voting stock. They also control Capstone Capital Group, LLC, and
Capstone Business Funding, LLC, the entities with which the Company has
outstanding loans payable as of June 30, 2014 and December 31, 2013.
LOANS PAYABLE
Loans from a related party consist of the following at:
June 30, December 31,
2014 2013
----------- -----------
Loan and security agreement with Capstone
Capital Group, LLC which matures on October
31, 2016 bearing interest at 18% per annum.
Maximum borrowing of $9,000,000. The loan is
securd by a subordinated interest in Baker's
Pride's assets. $ 8,508,145 $ 6,001,021
Loan and security agreement with Capstone
Capital Group, LLC which matures on May 15,
2015 bearing interest at 18% per annum.
Maximum borrowing of $1,000,000. The loan is
secured by a subordinated interest in Baker's
Pride's assets. 425,535 427,069
Short-term accounts receivable financing
arrangement with Capstone Business Funding,
LLC. No maturity date is specified. Interest
is charged at variable rates based upon
collection days outstanding. 1,738,706 2,060,730
Loan and security agreement with Stephen
Tyree which matures on November 5, 2014
bearing interest at 5.0% per annum. -- 4,869
----------- -----------
Total loans and amounts payable to related
parties $10,672,386 $ 8,493,689
=========== ===========
|
Interest expense for these loans amounted to $1,302,748 and $351,724 for the six
months ended June 30, 2014 and 2013, respectively.
MANAGEMENT FEES
The Company provides administrative services for Capstone Capital Group, LLC to
provide office space, back office services and other various services from time
to time for a monthly fee. Management fees are due and payable monthly and the
Company recorded management fee income of $150,000 and $90,000 for the six
months ended June 30, 2014 and 2013, respectively. As of June 30, 2014, the
Company has an accrued management fee receivable of $125,000 and $0 as of June
30, 2014 and December 31, 2013, respectively.
10. SHARES OF COMMON STOCK ISSUED
On January 9, 2014 the Company issued 1,083,332 shares of Class A Voting common
shares to certain officers of the Company in exchange for $130,000. The
Company's Class A shares were valued at $0.12, which was the market price for
the Company's Class A shares on January 9, 2014.
11. SHARE-BASED COMPENSATION
The Company does not have a formally adopted share-based compensation plan.
Stock option grants have been made as determined by the Board of Directors.
20
During the six months ended June 30, 2014, the Company's Board of Directors
granted a total of 1,190,000 common stock Class A options to the President,
Vice-President and Interim Chief Financial Officer, certain management and
employees of the Company, and certain officers and employees of its subsidiary
companies, and 80,000 common stock Class A options to certain non-employees of
the Company, at exercise prices of $0.50 and $0.25. During the six months ended
June 30, 2013, the Company's Board of Directors granted a total of 774,000
common stock Class A options to the President, Vice-President and Interim Chief
Financial Officer, certain management and employees of the Company, and certain
officers and employees of its subsidiary companies, and 20,000 common stock
Class A options to certain non-employees of the Company, at exercise price of
$1.00. Employee stock-based compensation expense totaled $305,126 and $274,865
for the six months ended June 30, 2014 and 2013, respectively. 50% of the
employee options vest and become exercisable on the first anniversary of the
grant date and the remaining 50% vest on the second anniversary of the grant
date, provided that the individual is employed by the Company on such
anniversary dates. Non-employee stock-based compensation expense for the six
months ended June 30, 2014 and 2013 was $5,451 and $3,506, respectively.
The Company estimates the fair value of the stock options on the date of the
grant for employees and the performance completion date for non-employees using
the Black-Scholes option model, which requires the input of subjective
assumptions. These assumptions include the estimated volatility of the Company's
common stock price of the expected term, the fair value of the Company's stock,
the risk-free interest rate and the dividend yield. Changes in the subjective
assumptions can materially affect the estimated fair value of stock
compensation.
12. OPERATING SEGMENTS
The Company is organized into five operating 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:
June 30, December 31,
2014 2013
------------ ------------
Total Assets:
Amincor $ 308,043 $ 362,839
Other Assets 8,455,504 8,446,271
AWWT 407,083 354,264
BPI 11,149,543 11,313,853
Tyree 5,478,287 8,118,257
------------ ------------
Total assets $ 25,798,460 $ 28,595,484
============ ============
June 30, December 31,
2014 2013
------------ ------------
Total Goodwill:
Amincor $ -- $ --
Other Assets -- --
AWWT 22,241 22,241
BPI -- --
Tyree -- --
------------ ------------
Total goodwill $ 22,241 $ 22,241
============ ============
21
|
June 30, December 31,
2014 2013
------------ ------------
Total Other Intangible Assets:
Amincor $ -- $ --
Other Assets -- --
AWWT -- --
BPI -- --
Tyree 851,000 851,000
------------ ------------
Total other intangible assets $ 851,000 $ 851,000
============ ============
|
Three Months Ended June 30, Six Months Ended June 30,
2014 2013 2014 2013
------------ ------------ ------------ ------------
Net Revenues:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
AWWT 154,784 97,794 269,287 151,012
BPI 1,061,411 237,301 2,268,707 292,109
Tyree 4,903,897 6,709,459 9,923,774 13,569,480
------------ ------------ ------------ ------------
Net revenues $ 6,120,092 $ 7,044,554 $ 12,461,768 $ 14,012,601
============ ============ ============ ============
Income (loss) before Provision
for Income Taxes:
Amincor $ (674,422) $ (907,451) $ (1,765,680) $ (1,998,713)
Other Assets (113,813) 161,540 (183,643) 131,414
AWWT 29,903 (40,293) (13,517) (86,766)
BPI (1,330,231) (1,278,950) (2,583,219) (2,443,048)
Tyree 17,953 59,829 (387,239) 87,986
------------ ------------ ------------ ------------
Income (loss) before Provision
for Income Taxes $ (2,070,610) $ (2,005,325) $ (4,933,298) $ (4,309,127)
============ ============ ============ ============
Depreciation of Property and Equipment:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
AWWT 12,225 11,817 24,450 23,635
BPI 298,972 294,174 595,332 588,475
Tyree 116,355 162,645 241,275 313,870
------------ ------------ ------------ ------------
Total depreciation of property and equipment $ 427,552 $ 468,636 $ 861,057 $ 925,980
============ ============ ============ ============
Interest Expense - net:
Amincor $ (88,611) $ (65,852) $ (131,868) $ (124,615)
Other Assets 35,000 (10,000) 70,000 (17,247)
AWWT -- (18) -- --
BPI 423,926 198,707 758,981 329,088
Tyree 540,143 130,921 979,844 283,069
------------ ------------ ------------ ------------
Total interest expense, net $ 910,458 $ 253,758 $ 1,676,957 $ 470,295
============ ============ ============ ============
|
22
13. COMMITMENTS AND CONTINGENCIES
CONTINGENCIES/LEGAL MATTERS:
Amincor 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.
AMINCOR
On July 6, 2012, SFR Holdings, Ltd., Eden Rock Finance Master Limited, Eden Rock
Asset Based Lending Master Ltd., Eden Rock Unleveraged Finance Master Limited,
SHK Asset Backed Finance Limited, Cannonball Plus Fund Limited and Cannonball
Stability Fund, LP (collectively, the "Plaintiffs") commenced an action in the
Supreme Court of the State of New York County of New York against Amincor, Inc.,
Amincor Other Assets, Inc., their officers and directors, John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson and various other entities affiliated
with or controlled directly or indirectly by John R. Rice III and Joseph F.
Ingrassia (collectively the "Defendants"). Plaintiffs allege that Defendants
engaged in wrongful acts, including fraudulent inducement, fraud, breach of
fiduciary duty, unjust enrichment, fraudulent conveyance and breach of contract.
Plaintiffs are seeking compensatory damages in an amount in excess of $150,000
to be determined at trial. Litigation is pending. Management believes that this
lawsuit has no merit or basis and is vigorously defending it.
BPI
In connection with a United States Department of Agriculture ("USDA") loan
application, BPI had Environmental Site Assessments performed on the property
where its Mt. Pleasant Street Bakery, Inc. operates, as required by the
prospective lender. A Phase II Environmental Site Assessment was completed on
October 31, 2011 and was submitted to the Iowa Department of Natural Resources
("IDNR") for their review. IDNR requested that a Tier Two Site Cleanup Report
("Tier Two") be issued and completed in order to better understand what
environmental hazards exist on the property. The Tier Two was completed on
February 3, 2012 and was submitted to IDNR for further review. Management's
latest correspondence with IDNR, dated March 21, 2012, required additional
environmental remediation in order 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 IDNR's Innocent Landowner
Fund. As such, there is no direct liability related to the cleanup of the
hazard.
23
TYREE
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection. 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. 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 clawback any amounts
paid to Tyree pre-petition. On April 4, 2014, Tyree sold its general and
administrative claims to a third party for the aggregate sum of $553,662.
In December 2013, Tyree Environmental Corp. and Tyree Service Corp. ("Tyree
entities") were sued by the liquidating trustee of GPMI for recovery of
preferential transfers in the respective amounts of $1,147,154 and $2,479,755.
On March 27, 2014, the bankruptcy liquidating trustee entered into forbearance
agreements with the Tyree entities with respect to the preference actions with
the understanding that the forbearance periods will be extended and the actions
will ultimately be dismissed if the Tyree entities continue to not voluntarily
assist Getty Realty in litigation against GPMI. Management believes that this
recovery of preferential transfers has no merit or basis.
On March 22, 2013 Fleetmatics USA, Inc. brought an action in the Supreme Court
in the State of New York, County of Suffolk against Tyree Equipment Corp. and
Tyree Services Corp. seeking $313,176 plus interest and costs for services
rendered. In June 26, 2013 a default judgment was entered against Tyree
Equipment Corp. and Tyree Services Corp. in the amount of $328,083. On February
24, 2014 All Safe Protection, Inc. brought action against Tyree Holdings, Corp.
and other Tyree entities for services rendered to Tyree in the amount of
$236,818 plus interest and costs. On March 3, 2014 American Express Travel
related Services Company brought suit in the Supreme Court in the State of New
York, County of Nassau against Tyree Holdings Corp. seeking the sum of $142,235
plus interest and cost for unpaid interest and charges. Management is attempting
to finalize settlement agreements for these obligations. Fleetmatics has agreed
to a five year payment plan based on a 60 month payment schedule with a balloon
payment at the end of the third year. American Express has not agreed to a
payment plan and negotiations are ongoing. Management has reached a settlement
agreement with All Safe which provides for monthly payments of less than $5,000
and which releases Tyree Environmental Corp. from the All Safe claim.
24
Tyree currently has 93 full-time employees and 3 part time employees, some of
whom are represented by different collective bargaining agreements. Tyree has
unpaid obligations for union dues of approximately $1.2 million. Tyree
management does not dispute that benefits are due and owing to the respective
unions. Labor contracts expired on December 31, 2012 for five of the six
bargaining units. Local 355 has entered into a 36 month payment agreement with
Tyree Services, Inc., to settle Tyree's obligation. The monthly payment is
$20,000 per month until paid in full. Local 200 has agreed to settle its claim
for a $25,000 down payment and monthly payments of $5,000 per month for 28
months. Tyree Services, Inc. will sign the settlement and Tyree Holdings, Inc.
will act as a guarantor. Local 99 has entered into a verbal settlement agreement
with Tyree Services, Inc. calling for monthly payments of $4,000 per month of
which 24 payments remain. Local 138 has entered into a verbal settlement
agreement with Tyree Services, Inc. which calls for monthly payments of $10,000
per month for 18 months. Local 25 has agreed to a continuance of its action
against Tyree while Tyree's counsel and Local 25 counsel draft a settlement
agreement.
A variety of unsecured vendors have filed suit for non-payment of outstanding
invoices totaling approximately $2.8 million as of June 30, 2014, which are
reflected as liabilities on the Company's consolidated balance sheet. Each of
these actions is handled on a case by case basis, with settlement and payment
plans ranging from a few months for smaller claims to up to five years for
larger claims.
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.
EPIC SPORTS INTERNATIONAL, INC. ("ESI")
The Company discontinued the operations of ESI, a former subsidiary in 2011.
Concurrently, a license agreement along with a Strategic Alliance Agreement with
Samsung America CT, Inc. ("Samsung") was terminated. The licensor, Volkl, is
seeking a $400,000 royalty payment. ESI has initiated counterclaims against the
various parties, including but not limited to Samsung, seeking damages for,
including but not limited to infringement, improper use of company assets and
breach of fiduciary duty. Volkl was successful in obtaining a judgment against
ESI and a confirmation of the Arbitration is presently pending in Federal Court.
Management believes that this matter and the Frost matter below will eventually
be settled out of court for less than the royalty and damages amounts sought.
25
On September 28, 2012, Sean Frost ("Frost"), the former President of Epic Sports
International, Inc., 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 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
due and owing. Frost is seeking among other things, damages, attorneys' fees and
costs and expenses. Frost initiated arbitration proceedings in April 2014. As of
June 30, 2014, the Defendants have answered the complaint and the lawsuit has
been dismissed pending parties' agreement to arbitrate the matter. Defendants
believe that this arbitration has no merit or basis and intend to vigorously
defend.
TULARE FROZEN FOODS, LLC ("TFF")
The City of Lindsay, California has invoiced TFF, a business whose operations
were discontinued in 2011, $533,571 for outstanding delinquent real estate
taxes, including a significant amount for 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 of TFF's outstanding
obligations with the City of Lindsay is under review by the city of Lindsay.
14. SUBSEQUENT EVENTS
On July 16, 2014 the Company issued 1,924,242 shares of Class A Voting common
shares to each of the two officers of the Company for a total of 3,848,484
valued at $127,000. The Company's Class A shares were valued at $0.033 per
share, which was the market price for the Company's Class A shares on July 16,
2014.
The Company has evaluated all other subsequent events up through August 14,
2014, the date which the financial statements were available to be issued. The
Company had no other material subsequent events requiring disclosure.
26
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, 2014, cash flows used in operating
activities from continuing operations were $1,710,305. This was principally due
to a net loss from continuing operations of $4,883,823 which was partially
offset by a decrease in accounts receivable of approximately $2.3 million and
depreciation and amortization of property, plant and equipment of approximately
$861,000. The net loss from continuing operations is discussed in greater detail
in the results from operations for the six and three months ended June 30, 2014
and 2013 section of this MD&A.
For the six months ended June 30, 2014, cash flows used in investing activities
from continuing operations of $175,803 were primarily due the purchase of
additional machinery at BPI and AWWT.
For the six months ended June 30, 2014, cash flows provided by financing
activities from continuing operations of $1,735,875 was primarily due to
proceeds received from loans with related parties.
For the six months ended June 30, 2014, total cash flows used in discontinued
operations was $9,940.
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 $4,883,823 for
the six months ended June 30, 2014. We had a working capital deficit of
$38,487,839 and an accumulated deficit of $105,727,389 as of June 30, 2014. The
results of the Company's cash flows from continuing operations for the six
months ended June 30, 2014 have been adversely impacted by the customer slowdown
in infrastructure capital expenditures caused by the general downturn of the
economic conditions and cash flow issues related to major customers. 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 for the three fiscal years ended December 31, 2013 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 having
a significant deficits in working capital and equity. Our ability to continue as
a going concern is dependent upon our ability 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:
27
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, with its lender, Central
State Bank, extended the bridge loan financing which will allow for BPI to
extend its interest only financing on the new donut equipment until such time
that BPI is able through its cash flow to make principal payments.
With respect to Tyree, management is projecting an increase in its environmental
business through the end of 2014 and 2015. 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 it is
currently holding greater level of inventory than is necessary for operations
and has attempted to liquidate or cease additional purchases of similar
inventory. As a result, inventory is significantly lower year over year between
2014 and 2013. There was a significant increase in the reserve for obsolete
inventory as of June 30, 2014. Management continues to seek opportunities to
liquidate excess inventory and 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,
2014, Tyree has a working capital deficit of approximately $20.0 million
exclusive of amounts owed to Amincor and recorded a net loss of approximately
$1.0 million for the six months ended June 30, 2014. 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 continues to market water technology under a
licensing agreement executed in 2012. AWWT seeks 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.
28
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 in addition to assets held for sale. Management
is currently in negotiations regarding the sale of assets related to Tulare.
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.
RESULTS FROM OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the six months ended June 30, 2014 totaled $12,461,768 as
compared to net revenues of $14,012,601 for the six months ended June 30, 2013,
a decrease in net revenues of $1,550,833 or approximately 11.1%. The primary
reason for the decrease in net revenues is related to Tyree's operations.
Tyree's net revenues decreased by approximately $3.6 million but was partially
offset by an increase in revenue by BPI of approximately $2.0 million during the
six months ended June 30, 2014. 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, 2014 totaled $10,952,665 or
approximately 87.9% of net revenues as compared to $11,964,044 or approximately
85.4% of net revenues for the six months ended June 30, 2013. 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, 2014 totaled $5,105,593 as compared to $5,915,858 for the six months
ended June 30, 2013, a decrease in operating expenses of $810,265 or
approximately 13.7%. The primary reason for the decrease in SG&A expenses was
related to Tyree's operations. Tyree's operating expenses decreased by
approximately $1.8 million during the six months ended June 30, 2014 as compared
29
to the six months ended June 30, 2013. A detailed analysis of each subsidiary
company's individual operating expenses can be found within their respective
MD&A sections of this Form 10-Q.
LOSS FROM OPERATIONS
Loss from operations for the six months ended June 30, 2014 totaled $3,596,490
as compared to $3,867,301 for the six months ended June 30, 2013, a decrease in
loss from operations of $270,811 or approximately 7.0%. The primary reason for
the decrease in loss from operations is related to the decrease in SG&A expenses
as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the six months ended June 30, 2014 totaled $1,287,333 as
compared to $441,826 for the six months ended June 30, 2013, an increase in
other expenses of $845,507 or approximately 191.4%. The primary reason for the
increase in other expenses is related to increased interest expense associated
with BPI's working capital loan which increased by approximately $4.8 million
between June 30, 2014 and June 30, 2013.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $4,883,823 for the six months ended
June 30, 2014 as compared to $4,309,127 for the six months ended June 30, 2013,
an increase in net loss from continuing operations of $574,696 or approximately
13.3%. The primary reason for the increase in net loss from continuing
operations is related to the increase in other expenses as noted above.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations decreased to $1,722 for the six months ended
June 30, 2014 as compared to a loss from discontinued operations of $281,729 for
the six months ended June 30, 2013, primarily because the operations of EQS were
discontinued on April 1, 2013. The sale of the assets related to EQS was
recorded as a gain from sale of discontinued operations for $199,942 during the
six months ended June 30, 2013.
NET LOSS
Net loss totaled $4,885,545 for the six months ended June 30, 2014 as compared
to $4,390,914 for the six months ended June 30, 2013, an increase in net loss of
$494,631 or approximately 11.3%. The primary reason for the increase in net loss
is due to the increases in other expenses as noted above.
30
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended June 30, 2014 totaled $6,120,092 as
compared to net revenues of $7,044,554 for the three months ended June 30, 2013,
a decrease in net revenues of $924,462 or approximately 13.1%. The primary
reason for the decrease in net revenues is related to Tyree's operations.
Tyree's net revenues decreased by approximately $1.8 million, but were partially
offset by an increase in revenue by BPI of approximately $824,000 during the
three months ended June 30, 2014. 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, 2014 totaled $5,339,940 or
approximately 87.3% of net revenues as compared to $5,931,943 or approximately
84.2% of net revenues for the three months ended June 30, 2013. 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
SG&A expenses for the three months ended June 30, 2014 totaled $2,157,095 as
compared to $2,846,868 for the three months ended June 30, 2013, a decrease in
operating expenses of $689,773 or approximately 24.2%. The primary reason for
the decrease in SG&A expenses was related to Tyree's operations. Tyree's
operating expenses decreased by approximately $1.1 million during the three
months ended June 30, 2014 as compared to the three months ended June 30, 2013.
A detailed analysis of each subsidiary company's individual operating expenses
can be found within their respective MD&A sections of this Form 10-Q.
LOSS FROM OPERATIONS
Loss from operations for the three months ended June 30, 2014 totaled $1,376,943
as compared to $1,734,257 for the three months ended June 30, 2013, a decrease
in loss from operations of $357,314 or approximately 20.6%. The primary reason
for the decrease in loss from operations is due to the decreases in SG&A
expenses as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the three months ended June 30, 2014 totaled $644,192 as
compared to $271,068 for the three months ended June 30, 2013, an increase in
other expenses of $373,124 or approximately 137.6%. The primary reason for the
31
increase in other expenses is related to increased interest expense associated
with BPI's working capital loan which increased by approximately $4.8 million
between June 30, 2014 and June 30, 2013.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $2,021,135 for the three months
ended June 30, 2014 as compared to $2,005,325 for the three months ended June
30, 2013, an increase in net loss from continuing operations of $15,810 or
approximately 0.8%. The net loss from continuing operations was relatively
stable between the three months ended June 30, 2014 and the three months ended
June 30, 2013.
LOSS FROM DISCONTINUED OPERATIONS
Loss from discontinued operations decreased to $4,444 for the three months ended
June 30, 2014 as compared to a loss from discontinued operations of $100,453 for
the three months ended June 30, 2013, primarily because the operations of EQS
were discontinued on April 1, 2013. The sale of the assets related to EQS was
recorded as a gain from sale of discontinued operations for $199,942 during the
three months ended June 30, 2013.
NET LOSS
Net loss totaled $2,025,579 for the three months ended June 30, 2014 as compared
to $1,905,836 for the three months ended June 30, 2013, an increase in net loss
of $119,743 or approximately 6.3%. The primary reason for the increase in net
loss is due to the one time gain on sale of discontinued operations which
affected the three months ended June 30, 2013 but did not affect the three
months ended June 30, 2014 related to EQS on April 1, 2013 as noted above.
ADVANCED WASTE & WATER TECHNOLOGY, INC.
SEASONALITY
AWWT's sales are typically higher during periods of peak wet and rainy
conditions of the season which generally can occur during the second and third
quarters of its fiscal year. The first and fourth quarters of the year are
usually affected by cold and inclement weather which makes it difficult to
process liquid streams due to issues with freezing. The effect of freezing
impacts the entire wastewater treatment industry including AWWT's customers,
suppliers and vendors.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the six months ended June 30, 2014 totaled $330,193 as compared
to $252,872 for the six months ended June 30, 2013, an increase of $77,321 or
approximately 30.6%. The primary reason for the increase is due to an overall
32
volume increase in wastewater gallons processed in 2014 as compared to 2013
despite the severe winter weather conditions that occurred during in 2014 as
compared to 2013, when winter weather conditions were not as severe. Gallons
processed during the six months ended June 30, 2014 compared to June 30, 2013
increased by approximately 33.8%.
COST OF REVENUES
Cost of revenues for the six months ended June 30, 2014 totaled $209,867 or
approximately 63.6% of net revenues as compared to $172,801 or approximately
68.3% of net revenues for the six months ended June 30, 2013. Gross profit
margins improved during the six months ended June 30, 2014 as compared to the
six months ended June 30, 2014 due to fixed costs being offset by higher net
revenues. The gross margin improvements were partially offset by a higher cost
of disposal of waste product incurred during the six months ended June 30, 2014.
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 2014 totaled $90,938 or
approximately 27.5% of net revenues as compared to $74,762 or approximately
29.6% of net revenues for the six months ended June 30, 2013, an increase of
$16,176 or approximately 21.6%. The primary reason for the increase is related
to administrative payroll expenses which were allocated to both EQS and AWWT
during the three months ended June 30, 2013, but were not allocated during the
three months ended June 30, 2014 as management discontinued the operations of
EQS on April 1, 2013. Administrative payroll expenses were approximately $47,000
for the six months ended June 30, 2014 as compared to approximately $32,000 for
the six months ended June 30, 2013, an increase of approximately $15,000 or
46.9%.
INCOME FROM OPERATIONS
Income from operations for the six months ended June 30, 2014 totaled $29,389 or
approximately 8.9% of net revenues as compared to $5,308 or approximately 2.1%
of net revenues for the six months ended June 30, 2013, an increase in income
from operations of $24,081 or approximately 453.7%. The increase in income from
operations was primarily due to the increase in net revenues as noted above.
OTHER EXPENSES
Other expenses for the six months ended June 30, 2014 totaled $2,124 or
approximately 0.6% of net revenues as compared to other expenses of $9,574 or
approximately 3.8% of net revenue for six months ended June 30, 2013, a decrease
in other expenses of $7,450.16 or approximately 77.8%. The primary reason for
the decrease in other expenses is related to a decrease in financing fees as
AWWT did not finance any receivables during the six months ended June 30, 2014.
33
NET INCOME (LOSS)
Net income for the six months ended June 30, 2014 totaled $27,265 as compared to
a net loss of ($4,266) for the six months ended June 30, 2013, an increase in
net income of $31,531. The increase in net income is primarily attributable to
the aforementioned increase in net revenues as noted above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended June 30, 2014 totaled $191,451 as
compared to $160,548 for the three months ended June 30, 2013, an increase of
$30,903 or approximately 19.2%. The primary reason for the increase is due to an
overall volume increase in wastewater gallons processed in 2014 as compared to
2013. Gallons processed during the three months ended June 30, 2014 compared to
the three months ended June 30, 2013 increased by approximately 18.6%,
comparatively similar to the increase in revenue.
COST OF REVENUES
Cost of revenues for the three months ended June 30, 2014 totaled $86,201 or
approximately 45.0% of net revenues as compared to $95,288 or approximately
59.4% of net revenues for the three months ended June 30, 2013. The primary
reason for the decrease in cost of revenues is related to a change in accounting
method which now amortizes the cost of licensing and permits over the period in
which they are in effect. Costs related to the licenses and permits
approximately $1,000 for the three months ended June 30, 2014 as compared to
approximately $6,000 for the three months ended June 30, 2013, a decrease of
approximately $5,000.
OPERATING EXPENSES
Operating expenses for the three months ended June 30, 2014 totaled $47,680 or
approximately 24.9% of net revenues as compared to $45,912 or approximately
28.6% of net revenues for the three months ended June 30, 2013, an increase of
$1,768 or approximately 3.9%. Operating expenses remained relatively stable
between three month periods ended June 30, 2014 and June 30, 2013.
INCOME FROM OPERATIONS
Income from operations for the three months ended June 30, 2014 totaled $57,570
or approximately 30.1% of net revenues as compared to $19,349 or approximately
12.1% of net revenues for the three months ended June 30, 2013, an increase in
income from operations of $38,221 or approximately 197.5%. The increase in
34
income from operations was primarily due to the increase in net revenues and the
decrease in cost of revenues as noted above.
OTHER EXPENSES
Other expenses for the three months ended June 30, 2014 totaled $1,072 or
approximately 0.6% of net revenues as compared to $6,577 or approximately 4.1%
of net revenue for three months ended June 30, 2013, a decrease in other
expenses of $5,505 or approximately 83.7%. The primary reason for the decrease
in other expenses is related to a decrease in financing fees as AWWT did not
finance any receivables during the three months ended June 30, 2014.
NET INCOME
Net income for the three months ended June 30, 2014 totaled $56,499 as compared
to $12,772 for the three months ended June 30, 2013, an increase in net income
of $43,727 or approximately 342.4%. The increase in net income is primarily
attributable to the aforementioned increase net revenues and the decrease in
cost of revenues and other expenses as noted above.
BAKER'S PRIDE, INC.
SEASONALITY
Operations at the Jefferson Street are not influenced by seasonality. Operations
at the Mt. Pleasant Street operation are affected by seasonality and sales are
typically higher during the Spring and late Fall as compared to other periods of
the year. Due to co-packing and a limited customer base for the six months ended
June 30, 2014, Jefferson Street and Mt. Pleasant Street operations were not as
affected by seasonality as they will be when the facilities operate at higher
volumes.
POTENTIAL NEW BUSINESS
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.
35
Discussions continue with additional bread and donut customers to operate as
their producer, as well as opportunities for BPI branded products at both the
Jefferson Street and Mt. Pleasant Street facilities. However, as of the time of
filing BPI is still seeking significant business from new customers. Contract
negotiations with additional significant customers are ongoing.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the six months ended June 30, 2014 totaled $2,268,707 as
compared to $292,109 for the six months ended June 30, 2013, an increase of
$1,976,598. The primary reason for the increase in net revenues is due to a
significant increase in volume from one customer. Net revenues from this
customer were approximately $1.2 million for the six months ended June 30, 2014
as compared to approximately $60,000 for the six months ended June 30, 2013. The
remainder of the increase in net revenues was related to the acquisition of new
customers in 2013.
COST OF REVENUES
Cost of revenues for the six months ended June 30, 2014 totaled $2,945,992 as
compared to $1,301,039 for the six months ended June 30, 2013, an increase of
$1,644,953 or approximately 126.4%. The Company had a 676.7% increase in net
revenues against a 126.4% increase in cost of revenues in 2014 as compared to
2013. The primary reason for the increase in cost of revenues is related to
increases in production at both the Jefferson Street facility and the Mt.
Pleasant Street facility during the six months ended June 30, 2014 due to the
aforementioned increase in volume from existing and new customers. 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, 2014 and
2013 which contributed to the negative gross margin reported for both periods.
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A expenses for the six months ended June 30, 2014 totaled $2,316,631 as
compared to $2,166,196 for the six months ended June 30, 2013, an increase of
$150,435 or approximately 6.9%. The primary reason for the increase in 2014 is
related to an increase in management payroll of approximately $130,000. This
increase was due to the increase in business and re-staffing the required
management necessary to operate both the Jefferson Street facility and the Mt.
Pleasant Street facility concurrently.
LOSS FROM OPERATIONS
Loss from operations for the six months ended June 30, 2014 totaled $2,993,916
as compared to $3,175,126 for the six months ended June 30, 2013, a decrease in
36
loss from operations of $181,210 or approximately 5.7%. The decrease in loss
from operations was primarily due to the increase in net revenues as noted
above.
OTHER EXPENSES
Other expenses for the six months ended June 30, 2014 totaled $830,584 as
compared to $447,875 for six months ended June 30, 2013, an increase of $382,709
or approximately 85.4%. The primary reason for this increase in 2014 is a higher
interest expense incurred due to a larger loan balances on BPI's working capital
line.
NET LOSS
Net loss for the six months ended June 30, 2014 totaled $3,824,500 as compared
to $3,623,001 for the six months ended June 30, 2013, an increase in net loss of
$201,499 or approximately 5.6%. The primary reason for this increase in net loss
is related to the increase in other expenses as noted above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended June 30, 2014 totaled $1,061,411 as
compared to $237,301 for the three months ended June 30, 2013, an increase of
$824,110. The primary reason for the increase in net revenues is related to the
acquisition of two new customers in 2013. The primary reason for the increase in
net revenues is due to a significant increase in volume from one customer. Net
revenues from this customer were approximately $500,000 for the three months
ended June 30, 2014 as compared to approximately $100,000 for the three months
ended June 30, 2013. The remainder of the increase in net revenues was related
to the acquisition of new customers in 2013.
COST OF REVENUES
Cost of revenues for the three months ended June 30, 2014 totaled $1,416,709 as
compared to $746,389 for the three months ended June 30, 2013, an increase of
$670,320 or approximately 89.8%. The Company had a 347.3% increase in net
revenues against a 89.8% increase in cost of revenues in 2014 as compared to
2013. The primary reason for the increase in cost of revenues is related to
increases in production at both the Jefferson Street facility and the Mt.
Pleasant Street facility during the three months ended June 30, 2014 due to the
aforementioned increase in volume from existing and new customers. 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, 2014 and
2013 which contributed to the negative gross margin reported for both periods.
37
SELLING, GENERAL & ADMINISTRATIVE EXPENSES
SG&A expenses for the three months ended June 30, 2014 totaled $1,173,559 as
compared to $1,085,179 for the three months ended June 30, 2013, an increase of
$88,381 or approximately 8.1%. The primary reason for the increase in 2014 is
related to an increase in management payroll of approximately $70,000. This
increase was due to the increase in business and re-staffing the required
management necessary to operate both the Jefferson Street facility and the Mt.
Pleasant Street facility concurrently.
LOSS FROM OPERATIONS
Loss from operations for the three months ended June 30, 2014 totaled $1,528,857
as compared to $1,594,267 for the three months ended June 30, 2013, a decrease
in loss from operations of $65,409 or approximately 4.1%. The decrease in loss
from operations was primarily due to the increase in net revenues as noted
above.
OTHER EXPENSES
Other expenses for the three months ended June 30, 2014 totaled $424,239 as
compared to $278,563 for three months ended June 30, 2013, an increase of
$145,676 or approximately 52.3%. The primary reason for this increase in 2014 is
a higher interest expense incurred due to a larger loan balances on BPI's
working capital line.
NET LOSS
Net loss for the three months ended June 30, 2014 totaled $1,953,097 as compared
to $1,872,830 for the three months ended June 30, 2013, an increase in net loss
of $80,267 or approximately 4.3%. The primary reason for this increase in net
loss is related to the increase in other expenses as noted above.
TYREE HOLDINGS CORP.
SEASONALITY AND BUSINESS CONDITIONS
Historically, Tyree's revenues tend to be lower during the first half of the
year as Tyree's customers complete their planning for the upcoming year.
Approximately 30% of Tyree's revenues are earned from new customer capital
expenditures. Customer's capital expenditures are cyclical and tend to mirror
the condition of the economy. During normal conditions, Tyree will need to draw
from its borrowing base early in the year and then pay down the borrowing base
as the year progresses when it generates positive cash flows. The highest
revenue generation occurs from late in the second quarter through the third
quarter of the year.
38
FINANCING
Tyree maintains a $15,000,000 revolving credit agreement with its Parent Amincor
which expires on January 1, 2016. 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 ended June 30, 2014 and 2013.
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 is
invested into Tyree to facilitate organic and acquisition based growth.
LIQUIDITY
Tyree incurred net losses of $1,016,081 and $1,313,987 for the six months ended
June 30, 2014 and 2013, respectively. Since Tyree's largest customer Getty
Petroleum Marketing, Inc. ("GPMI") filed bankruptcy in December 2011, Tyree has
been having significant cash flow problems. Significantly reduced revenues and
old accounts payable settlement payments have put stress on the available
funding and the existing credit facility. In the fourth quarter of 2011 and the
first quarter of 2012, management responded with a plan to term out all current
vendors. Many vendors agreed to long term payouts, so Tyree converted a portion
of accounts payable to long and short term debt. At June 30, 2014 this amounted
to $2,796,061. In reaction to the GPMI Bankruptcy filing, management reduced
employee headcount, rescheduled accounts payable, reduced management's salaries
and reduced its rent commitments. Management continues to analyze Tyree's
overhead expenses and will continue to reduce its works force as necessary until
it is able to replace the business lost as a result of the GPMI bankruptcy
filing.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the six months ended June 30, 2014 totaled $9,923,774 as
compared to $13,569,480 for the six months ended June 30, 2013, a decrease of
$3,645,706 or approximately 26.9%. The decrease in revenues in 2014 can
primarily be attributable to the harsh weather conditions experienced during the
three months ended March 31, 2014. The winter season was irregularly adverse
which impacted Tyree's ability to complete work and therefore generate revenue.
Revenues by operating division for the six months ended June 30, 2014 and 2013
were as follows:
2014 2013
------------ ------------
Revenues
Service and Construction $ 5,015,727 $ 6,409,944
Environmental, Compliance and Engineering 4,908,047 7,159,536
------------ ------------
Total $ 9,923,774 $ 13,569,480
============ ============
|
39
COST OF REVENUES
Cost of revenues for the six months ended June 30, 2014 totaled $7,857,713 or
approximately 79.2% of net revenues as compared to $10,600,610, or 78.1% for the
six months ended June 30, 2013. The cost of revenues in 2014 is only 1.1% higher
than it was in 2013, because the accounts payable was reduced by approximately
$539,000 based on the Company's verification of vendor balances. While the
Environmental cost of revenue was relatively stable year over year as a
percentage of sales, the Service and Construction cost of revenues increased
year over year due to a reduction in sales which exceeded our ability to reduce
the fixed costs associated with those business units.
OPERATING EXPENSES
Operating expenses for the six months ended June 30, 2014 totaled $1,992,864, or
approximately 20.1% of net revenues compared to $3,804,505, or approximately
28.0% of net revenues for the six months ended June 30, 2013, a decrease in
operating expenses of $1,811,641 or approximately 47.6%. During the six months
ended June 30, 2014, administrative labor and benefits were reduced by
approximately $470,000, reserve for bad debts was reduced by approximately
$496,000 due to the net recoveries of bad debts previously written off from
Getty Petroleum Marketing, professional and consulting was reduced by
approximately $52,000, rent was reduced by approximately $48,000 and telephone
costs were reduced by approximately $30,000
INCOME (LOSS) FROM OPERATIONS
Income from operations for the six months ended June 30, 2014 totaled $73,197 or
approximately 0.7% of net revenues as compared to a loss from operations of
($835,635), or approximately (6.2%) of net revenues for the six months ended
June 30, 2013, an increase in income from operations of $908,832. The increase
in income from operations was primarily due to decreases in operating expenses
as noted above.
OTHER EXPENSES
Other expenses for the six months ended June 30, 2014 totaled $1,089,278 or
approximately 11.0% of net revenues as compared to other expenses of $478,352,
or approximately 3.5% of net revenues for the six months ended June 30, 2013, an
increase in other expenses of $610,926 or approximately 127.7%. Interest expense
for the six months ended June 30, 2014 was $1,097,780 as compared to $404,637
for the six months ended June 30, 2013, an increase of $693,143 or approximately
171.3%. The primary reason for this increase is due to an increase in the volume
of receivables financed during the six months ended June 30, 2014 as compared to
the six months ended June 30, 2013.
40
NET LOSS
Net loss for the six months ended June 30, 2014 totaled $1,016,081 as compared
to $1,313,987 for the six months ended June 30, 2013, a decrease in net loss of
$297,906 or approximately 22.7%. The decrease in net loss was primarily due to
the decrease operating expenses as discussed above.
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended June 30, 2014 totaled $4,903,897 as
compared to $6,709,459 for the three months ended June 30, 2013, a decrease of
$1,805,562 or approximately 26.9%. During the second quarter revenue was
adversely affected by a loss of revenue in the Maintenance Business. The decline
in maintenance revenue was a result of the loss of gas stations to service
because of the reduction in gas stations owned by Getty Realty Inc. and by never
being able to replace the unprofitable Cumberland Farms contract. While the
construction revenue increased by approximately $640,000 in the quarter, the
maintenance revenue declined by almost $1,500,000. The Environmental Revenue
decreased by $952,000 because of the inability to pay subcontractors for work
performed. Revenues by operating division for the three months ended June 30,
2014 and 2013 were as follows:
2014 2013
----------- -----------
Revenues
Service and Construction $2,268,575 $3,121,629
Environmental, Compliance and Engineering 2,635,322 3,587,830
---------- ----------
Total $4,903,897 $6,709,459
========== ==========
|
COST OF REVENUES
Cost of revenues for the three months ended June 30, 2014 totaled $3,873,697 or
approximately 79.0% of net revenues as compared to $5,153,020, or 76.8% for the
three months ended June 30, 2013. The cost of revenues was greater in the second
quarter of 2014 as the maintenance division's cost of revenue exceeded their
revenue by approximately $184,000. The maintenance division's revenue declined
faster than the necessary cost reductions could be made.
OPERATING EXPENSES
Operating expenses for the three months ended June 30, 2014 totaled $742,274, or
approximately 15.1% of net revenues compared to $1,941,224, or approximately
28.9% of net revenues for the three months ended June 30, 2013, a decrease in
operating expenses of $1,198,950 or approximately 61.8%. During the second
quarter administrative labor decreased by approximately $294,000, the management
41
fees paid to Amincor were reduced by approximately $285,000, rent was reduced by
approximately $31,000, professional fees were reduced by approximately $18,000,
telephone expenses were reduced by approximately $14,000, sales commissions
decreased by approximately $8,000 and there were about $53,000 in other
miscellaneous reductions.
INCOME (LOSS) FROM OPERATIONS
Income from operations for the three months ended June 30, 2014 totaled $287,926
or approximately 5.9% of net revenues as compared to a loss from operations of
($384,786), or approximately (5.7%) of net revenues for the three months ended
June 30, 2013, an increase in income from operations of $672,712. The increase
in income from operations was primarily due to the aforementioned decrease in
operating expenses.
OTHER EXPENSES
Other expenses for the three months ended June 30, 2014 totaled $590,643 or
approximately 12.0% of net revenues as compared to other expenses of $263,968,
or approximately 3.9% of net revenues for the three months ended June 30, 2013,
an increase in other expenses of $326,675 or approximately 123.8%. Interest
expense for the three months ended June 30, 2014 was $599,145 as compared to
$191,750 for the three months ended June 30, 2013, an increase of $407,395 or
approximately 212.5%. The primary reason for this increase is due to an increase
in the volume of receivables financed during the three months ended June 30,
2014 as compared to the three months ended June 30, 2013.
NET LOSS
Net loss for the three months ended June 30, 2014 totaled $302,717 as compared
to $648,754 for the three months ended June 30, 2013, a decrease in net loss of
$346,037 or approximately 53.3%. The decrease in net loss was primarily due to
the decrease in operating expenses as discussed above.
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 11,542,750 shares of the total of
12,844,839 issued and outstanding Class A voting shares of our common stock (or
approximately 89.9% of our outstanding voting stock) and are in a position to
continue to control us. Such control enables our officers and directors to
control all important decisions relating to the direction and operations of the
Company without the input of our investors. Moreover, investors will not be able
to effect a change in our Board of Directors, business or management.
OUR CLASS A COMMON AND CLASS B COMMON SHARES ARE NOW QUOTED ON THE OVER THE
COUNTER BULLETIN BOARD UNDER THE SYMBOLS "AMNC" AND "AMNCB", RESPECTIVELY.
While the shares are now quoted on the Over the Counter Bulletin Board, until
there is an established trading market, holders of our common stock may find it
difficult to sell their stock or to obtain accurate quotations for the price of
the common stock. Even if a market for our common stock does develop, our stock
price may be volatile, and such market may not be sustained.
46
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.
We do not anticipate paying any dividends on our common stock for the
foreseeable future. Investors that need to rely on dividend income should not
invest in our common stock, as any income would only come from any rise in the
market price of our common stock, which is uncertain and unpredictable.
Investors that require liquidity should also not invest in our common stock.
There is no established trading market, and should one develop, it will likely
be volatile and such market may not be sustained.
HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE
FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON
STOCK AND AS A RESULT OF THE POSSIBLE EXERCISE OF HOLDERS OF OUR PREFERRED STOCK
TO CONVERT TO COMMON STOCK AFTER JANUARY 1, 2011.
47
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 12,844,839 Class A common
shares and 21,286,341 Class B common shares and 1,752,823 shares of Preferred
Stock (which since January 1, 2011 have been convertible into Class B common
shares on the basis of ten Class B common shares for each Preferred Share)
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 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 48 Class A stockholders of record,
owning all of the 12,844,839 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 35 institutional shareholders of record owning all of the
1,752,823 issued and outstanding shares of our Preferred Stock.
FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO
LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK.
In addition to the "penny stock" rules described above, the Financial Industry
Regulatory Authority, or FINRA, has adopted rules that require that in
recommending an investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that customer. Prior
to recommending speculative low priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information
about the customer's financial status, tax status, investment objectives and
other information. Under interpretations of these rules, FINRA believes that
there is a high probability that speculative low priced securities will not be
suitable for at least some customers. The FINRA requirements make it more
difficult for broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our stock and have an
adverse effect on the market for our shares.
WE ARE SUBJECT TO THE PERIODIC REPORTING REQUIREMENTS OF THE EXCHANGE ACT THAT
WILL REQUIRE US TO INCUR AUDIT FEES AND LEGAL FEES IN CONNECTION WITH THE
PREPARATION OF SUCH REPORTS. THESE ADDITIONAL COSTS COULD REDUCE OR ELIMINATE
OUR ABILITY TO EARN A PROFIT.
We are required to file periodic reports with the SEC pursuant to the Exchange
Act and the rules and regulations promulgated thereunder. In order to comply
with these requirements, our independent registered public accounting firm will
have to review our financial statements on a quarterly basis and audit our
financial statements on an annual basis. Moreover, our legal counsel will have
to review and assist in the preparation of such reports. The costs charged by
48
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 turn around the subsidiary companies to generate operating income. Amincor
may raise additional funds through public or private debt or equity financings.
However, there can be no assurance that such resources will be sufficient to
fund the operations of Amincor or the long-term growth of the subsidiaries
businesses. Amincor cannot assure investors that any additional financing will
be available on favorable terms, or at all. Without additional capital
resources, Amincor may not be able to continue to operate, take advantage of
unanticipated opportunities, develop new products or otherwise respond to
competitive pressures, and be forced to curtail its business, liquidate assets
and/or file for bankruptcy protection. In any such case, its business, operating
results or financial condition would be materially adversely affected.
Amincor's independent registered public accounting firm has stated that there is
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, 2013.
49
OUR ABILITY TO RETAIN KEY PERSONNEL IN EACH OF OPERATING SUBSIDIARIES WILL BE AN
IMPORTANT FACTOR IN THE SUCCESS OF OUR BUSINESS AND A FAILURE TO RETAIN KEY
PERSONNEL MAY RESULT IN OUR INABILITY TO MANAGE AND IMPLEMENT OUR BUSINESS PLAN.
We are highly dependent upon the management personnel of our subsidiary
companies because of their experience in their respective industries. The
competition for qualified personnel in the market in which our subsidiaries
operate is intense and the loss of the services of one or more of these
individuals in any of these business segments may impair management's ability to
operate our subsidiaries. We have not purchased key man life insurance on any of
these individuals, which insurance would provide us with insurance proceeds in
the event of their death. Without key man life insurance, we may not have the
financial resources to develop or maintain an affiliated business until we could
replace such individual and replace any business lost by the departure of that
person.
OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES.
The market for products in our subsidiary businesses is highly competitive. Many
of their competitors may have longer operating histories, greater financial,
technical and marketing resources, and enjoy existing name recognition and
customer bases. Competitors may be able to respond more quickly to technological
change, competitive pressures, or changes in consumer demand. As a result of
their advantages, competitors may be able to limit or curtail our ability to
compete successfully. These competitive pressures could materially adversely
affect our subsidiary businesses', financial condition, and results of
operations.
GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS,
FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Unfavorable economic conditions, including the impact of recessions in the
United States and throughout the world, may negatively affect our business and
financial results. These economic conditions could negatively impact (i)
consumer demand for our products, (ii) the mix of our products' sales, (iii) our
ability to collect accounts receivable on a timely basis, (iv) the ability of
suppliers to provide the materials required in our operations and (v) our
ability to obtain financing or to otherwise access the capital markets. The
strength of the U.S. dollar versus other world currencies could result in
increased competition from imported products and decreased sales to our
international customers. A prolonged recession could result in decreased
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.
50
SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND
REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH
COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE.
Federal, state and local authorities subject some of our facilities and
operations to requirements relating to environmental protection. These
requirements can be expected to change and expand in the future, and may impose
significant capital and operating costs.
Environmental laws and regulations govern, among other things, the discharge of
substances into the air, water and land, the handling, storage, use and disposal
of hazardous materials and wastes and the cleanup of properties affected by
pollutants. If any of our subsidiary companies violate environmental laws or
regulations, they may be required to implement corrective actions and could be
subject to civil or criminal fines or penalties. There can be no assurance that
we will not have to make significant capital expenditures in the future in order
to remain in compliance with applicable laws and regulations. Contamination and
exposure to hazardous substances can also result in claims for damages,
including personal injury, property damage, and natural resources damage claims.
Future events, such as changes in existing laws or policies or their
enforcement, or the discovery of currently unknown contamination, may give rise
to remediation liabilities or other claims that may be material.
Environmental requirements may become stricter or be interpreted and applied
more strictly in the future. These future changes or interpretations, or the
indemnification for such adverse environmental conditions, could result in
environmental compliance or remediation costs not anticipated by us, which could
have a material adverse effect on our business, financial condition or results
of operations.
COMMODITY PRICE RISK.
Some of our subsidiaries purchase certain products which are affected by
commodity prices and are, therefore, subject to price volatility caused by
weather, market conditions and other factors which are not considered
predictable or within our control. Although many of the products purchased are
subject to changes in commodity prices, certain purchasing contracts or pricing
arrangements have been negotiated in advance to minimize price volatility. Where
possible, we use these types of purchasing techniques to control costs. In many
cases, we believe we will be able to address commodity cost increases that are
significant and appear to be long-term in nature by adjusting our pricing.
However, long-term increases in commodity prices may result in lower operating
margins at some of subsidiaries.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of a Subsidiary's products are projected to be in line with
those from market competitors, there can be no assurance that they will not
decrease in the future. Competition may cause a subsidiary to lower prices in
51
the future. Moreover, it is difficult to raise prices even if internal costs of
production increase.
RISK FACTORS AFFECTING BAKER'S PRIDE, INC.
DEPENDENCE ON KEY PERSONNEL.
BPI's success depends to an extent upon the performance of its management team,
which includes Robert Brookhart, who is responsible for all operations and sales
of the business. The loss or unavailability of Mr. Brookhart could adversely
affect its business and prospects and operating results and/or financial
condition.
CHANGES OF PRICES FOR PRODUCTS.
While the prices of BPI's products are projected to be in line with those from
market competitors, there can be no assurance that they will not decrease in the
future. Competition may cause BPI to lower prices in the future. Moreover, it is
difficult to raise prices even if internal costs of production increase.
INCREASED COMMODITY PRICES AND AVAILABILITY MAY IMPACT PROFITABILITY.
BPI is dependent upon eggs, oils, and flour for ingredients. Many commodity
prices have experienced recent volatility. Increases in commodity prices and
availability could have an adverse impact on BPI's profitability.
CHANGE IN CONSUMER PREFERENCES MAY ADVERSELY AFFECT BPI'S FINANCIAL AND
OPERATIONAL RESULTS.
BPI's success is contingent upon its ability to forecast the tastes and
preferences of consumers and offer products that appeal to their preferences.
Consumer preference changes due to taste, nutritional content or other factors,
and BPI's failure to anticipate, identify or react to these changes could result
in reduced demand for its products, which could adversely affect its financial
and operational results. The current consumer focus on wellness may affect
demand for its products. BPI continues to explore the development of new
products that appeal to consumer preference trends while maintaining the product
quality standards.
PRODUCT RECALL OR SAFETY CONCERNS MAY ADVERSELY AFFECT FINANCIAL AND OPERATIONAL
RESULTS.
BPI may have to recall certain products should they be mislabeled, contaminated
or damaged or if there is a perceived safety issue. A perceived safety issue,
product recall or an adverse result in any related litigation could have a
material adverse effect on BPI's operations, financial condition and financial
results.
LOSS OF FACILITIES COULD ADVERSELY AFFECT BPI'S FINANCIAL AND OPERATIONAL
RESULTS.
52
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 ADVANCED WASTE & WATER TECHNOLOGY, INC.
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, it may be required in the future to adhere to new and more
stringent government regulations. Governmental agencies constantly seek to
improve standards required for verification and/or certification of products
and/or services. In the event AWWT's products/services fail to meet these ever
changing standards, some or all of its products/services may become obsolete or
de-listed from government verification having a direct negative effect on AWWT's
ability to generate revenue and remain profitable.