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EX-10.2 - OPTION AGREEMENT - Amincor, Inc.ex10-2.txt
EX-32.2 - CFO SECTION 906 CERTIFICATION - Amincor, Inc.ex32-2.txt
EX-10.1 - LEASE AGREEMENT - Amincor, Inc.ex10-1.txt
EX-31.2 - CFO SECTION 302 CERTIFICATION - Amincor, Inc.ex31-2.txt
EX-31.1 - CEO SECTION 302 CERTIFICATION - Amincor, Inc.ex31-1.txt
EX-32.1 - CEO SECTION 906 CERTIFICATION - Amincor, Inc.ex32-1.txt

                                  UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                                    FORM 10-Q

[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

                  For the quarterly period ended: June 30, 2011

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
    ACT OF 1934

         For the transition period from: _____________ to _____________

                         Commission File No.: 000-28865


                                  AMINCOR, INC.
              (Exact name of registrant as specific in its charter)

             Nevada                                              88-0376372
  (State or Other Jurisdiction                                (I.R.S. Employer
of Incorporation or Organization)                            Identification No.)

                     1350 Avenue of the Americas, 24th Floor
                               New York, NY 10019
                    (Address of Principal Executive Offices)

                                 (347) 821-3452
              (Registrant's Telephone Number, Including Area Code)

Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding 12 months (or for such  shorter  period that the  registrant  was
required  to file  such  reports),  and  (2) has  been  subject  to such  filing
requirements for the past 90 days. Yes [X] No [ ]

Indicate by check mark whether the registrant has submitted  electronically  and
posted on its corporate Web site, if any, every  Interactive  Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter)  during the  preceding 12 months (or for such shorter  period that
the registrant was required to submit and post such files). Yes [ ] No [ ]

Indicate by check mark whether the registrant is a large  accelerated  filer, an
accelerated filer, a non-accelerated  filer or a smaller reporting company.  See
the definitions of "large  accelerated  filer,"  "accelerated  filer" and "small
reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer [ ]                        Accelerated filer [ ]

Non-accelerated filer [ ]                          Smaller reporting company [X]
(Do not check if a smaller reporting company)

Indicate by check mark whether the  registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]

As of August 15,  2011,  there were  7,478,409  shares of  Registrant's  Class A
Common  Stock  and  21,176,262  shares  of  Registrant's  Class B  Common  Stock
outstanding.

AMINCOR, INC. REPORT ON FORM 10-Q FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2011 CONTENTS PART I - FINANCIAL INFORMATION Item 1. Financial Statements............................................. 4 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations........................................ 25 Item 3. Quantitative and Qualitative Disclosures About Market Risk....... 41 Item 4. Controls and Procedures.......................................... 41 PART II - OTHER INFORMATION Item 1. Legal Proceedings................................................ 43 Item 1A. Risk Factors..................................................... 44 Item 6. Exhibits......................................................... 50 SIGNATURES................................................................... 51 2
EXPLANATORY NOTE In this Quarterly Report on Form 10-Q, unless the context indicates otherwise, the terms "Amincor," "Company," "Registrant," "we," "us" and "our" refer to Amincor, Inc., and its subsidiaries. CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about us, our industry, our beliefs, and our assumptions. Words such as "anticipates," "expects," "intends," "plans," "believes," "seeks," "estimates," "would," "should," "scheduled," "projects," and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements. The forward-looking statements in this Quarterly Report on Form 10-Q speak only as of the date hereof and caution should be taken not to place undue reliance on any such forward-looking statements. Forward-looking statements are subject to certain events, risks and uncertainties many of which are outside of our control. When considering forward-looking statements, you should carefully review the risks, uncertainties and other cautionary statements in this Quarterly Report on Form 10-Q as they identify certain important factors that could cause actual results to differ materially from those expressed in or implied by the forward-looking statements. These factors include, among others, the risks described below under Item 1A Risk Factors and elsewhere in this Quarterly Report on Form 10-Q. We do not undertake any obligation to update any forward looking statements. WHERE YOU CAN FIND MORE INFORMATION We are required to file quarterly and annual reports and other information with the United States Securities and Exchange Commission, ("SEC"). You may read and copy this information, for a copying fee, at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for more information on its Public Reference Room. Our SEC filings will also be available to the public from commercial document retrieval services, and at the Web site maintained by the SEC at http://www.sec.gov. Our Company website is located at http://www.amincorinc.com. 3
PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS. Amincor, Inc. and Subsidiaries Consolidated Condensed Balance Sheets June 30, December 31, 2011 2010 ------------ ------------ (unaudited) (audited) ASSETS CURRENT ASSETS: Cash $ 1,239,490 $ 2,612,998 Accounts receivable, net of allowance of $518,883 and $608,325 in 2011 and 2010, respectively 10,283,093 8,596,583 Note receivable -- 522,501 Due from related party 1,683,940 1,717,233 Inventories, net 4,376,384 3,369,862 Costs and estimated earnings in excess of billings on uncompleted contracts 836,753 279,152 Prepaid expenses and other current assets 1,124,034 739,781 Current assets - discontinued operations 1,294,278 1,570,473 ------------ ------------ Total current assets 20,837,972 19,408,583 ------------ ------------ PROPERTY AND EQUIPMENT, NET 14,760,118 15,104,049 PROPERTY AND EQUIPMENT, NET - DISCONTINUED OPERATIONS 1,165,649 2,365,950 ------------ ------------ Total property and equipment, net 15,925,767 17,469,999 ------------ ------------ OTHER ASSETS: Mortgages receivable 6,180,000 6,180,000 Goodwill 15,746,397 15,538,400 Other intangible assets, net 12,837,990 13,534,890 Deferred financing costs, net 241,219 319,465 Other assets 145,415 157,571 Assets held for sale 2,730,000 6,575,000 Other assets - discontinued operations 291,667 1,234,367 ------------ ------------ Total other assets 38,172,688 43,539,693 ------------ ------------ Total assets $ 74,936,427 $ 80,418,275 ============ ============ 4
June 30, December 31, 2011 2010 ------------ ------------ (unaudited) (audited) LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 10,573,500 $ 8,359,899 Assumed liabilities - current portion 2,440,649 2,480,921 Accrued expenses and other current liabilities 3,142,549 3,966,462 Loans payable to related party 690,637 713,930 Notes payable - current portion 350,810 418,181 Capital lease obligations - current portion 106,666 138,474 Billings in excess of costs and estimated earnings on uncompleted contracts 1,416,364 536,825 Due to officer 144,592 144,592 Current liabilities - discontinued operations 4,354,755 4,372,176 ------------ ------------ Total current liabilities 23,220,522 21,131,460 ------------ ------------ LONG-TERM LIABILITIES: Assumed liabilities - net of current portion -- 28,375 Capital lease obligations - net of current portion 623,633 450,342 Notes payable - net of current portion 1,552,515 1,643,483 Other long-term liabilities 21,661 21,661 Long-term liabilities - discontinued operations 10,536 199,280 ------------ ------------ Total long-term liabilities 2,208,345 2,343,141 ------------ ------------ Total liabilities 25,428,867 23,474,601 ------------ ------------ COMMITMENTS AND CONTINGENCIES SHAREHOLDERS' EQUITY: AMINCOR SHAREHOLDERS' EQUITY: Convertible preferred stock, $0.001 par value per share; 3,000,000 authorized, 1,752,823 issued and outstanding 1,753 1,753 Common stock - class A; $0.001 par value; 22,000,000 authorized, 7,478,409 issued and oustanding 7,478 7,478 Common stock - class B; $0.001 par value; 40,000,000 authorized, 21,176,262 issued and oustanding 21,176 21,176 Additional paid-in capital 88,593,228 88,250,203 Accumulated deficit (37,460,281) (29,858,319) ------------ ------------ Total Amincor shareholders' equity 51,163,354 58,422,292 ------------ ------------ NONCONTROLLING INTEREST EQUITY (1,655,794) (1,478,617) ------------ ------------ Total equity 49,507,560 56,943,675 ------------ ------------ Total liabilities and shareholders' equity $ 74,936,427 $ 80,418,275 ============ ============ The accompanying notes are an integral part of these consolidated or combined condensed financial statements 5
Amincor, Inc. and Subsidiaries Consolidated or Combined Condensed Statements of Operations Six Months Ended June 30, 2011 and 2010 (Unaudited) Three Months Ended June 30, Six Months Ended June 30, 2011 2010 2011 2010 ------------ ------------ ------------ ------------ (consolidated) (combined) (consolidated) (combined) Net revenues $ 16,108,368 $ 18,878,645 $ 30,773,613 $ 36,704,691 COST OF REVENUES 11,804,357 14,476,237 22,635,865 27,071,197 ------------ ------------ ------------ ------------ Gross profit 4,304,011 4,402,408 8,137,748 9,633,494 SELLING, GENERAL AND ADMINISTRATIVE 5,273,032 4,725,791 10,983,080 9,142,902 ------------ ------------ ------------ ------------ (Loss) income from operations (969,021) (323,383) (2,845,332) 490,592 ------------ ------------ ------------ ------------ OTHER EXPENSES (INCOME): Interest expense, net 8,383 338,202 609,630 636,287 Other expenses (income) 40,515 127,579 (395,748) 106,503 ------------ ------------ ------------ ------------ Total other expenses (income) 48,898 465,781 213,882 742,790 ------------ ------------ ------------ ------------ Loss before provision for income taxes (1,017,919) (789,164) (3,059,214) (252,198) Provision for income taxes -- 120,000 -- 120,000 ------------ ------------ ------------ ------------ Net loss from continuing operations (1,017,919) (909,164) (3,059,214) (372,198) ------------ ------------ ------------ ------------ Loss from discontinued operations (3,797,134) (504,942) (4,719,926) (1,890,445) Net loss (4,815,053) (1,414,106) (7,779,140) (2,262,643) ------------ ------------ ------------ ------------ Net loss attributable to non-controlling interests (2,445) (120,364) (177,177) (85,823) ------------ ------------ ------------ ------------ Net loss attributable to Amincor stockholders $ (4,812,608) $ (1,293,742) $ (7,601,963) $ (2,176,820) ============ ============ ============ ============ NET LOSS PER SHARE FROM CONTINUING OPERATIONS - BASIC AND DILUTED: Net loss from continuing operations attributable to Amincor stockholders $ (0.04) $ (0.03) $ (0.11) $ (0.01) ============ ============ ============ ============ Weighted average shares outstanding - basic and diluted 28,654,671 35,303,082 28,654,671 28,283,237 ============ ============ ============ ============ NET LOSS PER SHARE ATTRIBUTABLE TO AMINCOR STOCKHOLDERS - BASIC AND DILUTED: Net loss attributable to Amincor stockholders $ (0.17) $ (0.04) $ (0.27) $ (0.08) ============ ============ ============ ============ Weighted average shares outstanding - basic and diluted 28,654,671 35,303,082 28,654,671 28,283,237 ============ ============ ============ ============ The accompanying notes are an integral part of these consolidated or combined condensed financial statements 6
Amincor, Inc. and Subsidiaries Consolidated or Combined Condensed Statement of Changes in Shareholders' Equity Six Months Ended June 30, 2011 and 2010 Amincor, Inc. and Subsidiaries ------------------------------------------------------------------- Convertible Common Stock - Common Stock - Preferred Stock Class A Class B ------------------ ------------------- ------------------- Shares Amount Shares Amount Shares Amount ------ ------ ------ ------ ------ ------ Balance at December 31, 2009 (audited) -- $ -- 14,126,820 $14,127 -- $ -- Prior period adjustment -- -- -- -- -- -- --------- ------ ---------- ------- ---------- ------- Balance at December 31, 2009, (as restated) -- -- 14,126,820 14,127 -- -- --------- ------ ---------- ------- ---------- ------- Issuance of preferred and common stock to investors in the limited partnerships that were lenders to the predecessor business of the Company's subsidiaries 1,752,823 1,753 -- -- 21,176,262 21,176 Net loss -- -- -- -- -- -- --------- ------ ---------- ------- ---------- ------- Balance at June 30, 2010 (unaudited) 1,752,823 1,753 14,126,820 14,127 21,176,262 21,176 --------- ------ ---------- ------- ---------- ------- Balance at December 31, 2010 (audited) 1,752,823 1,753 7,478,409 7,478 21,176,262 21,176 --------- ------ ---------- ------- ---------- ------- Issuance of stock options -- -- -- -- -- -- Net loss -- -- -- -- -- -- --------- ------ ---------- ------- ---------- ------- Balance at June 30, 2011 (unaudited) 1,752,823 $1,753 7,478,409 $ 7,478 21,176,262 $21,176 ========= ====== ========== ======= ========== ======= Amincor, Inc. and Subsidiaries -------------------------- Additional Paid-in Accumulated Non-controlling Total Capital Deficit Interest Equity ------- ------- -------- ------ Balance at December 31, 2009 (audited) $48,957,087 $(23,129,690) $(1,295,085) $24,546,439 Prior period adjustment -- 728,066 87,238 815,304 ----------- ------------ ----------- ----------- Balance at December 31, 2009, (as restated) 48,957,087 (22,401,624) (1,207,847) 25,361,743 ----------- ------------ ----------- ----------- Issuance of preferred and common stock to investors in the limited partnerships that were lenders to the predecessor business of the Company's subsidiaries (22,929) -- -- -- Net loss -- (2,176,820) (85,823) (2,262,643) ----------- ------------ ----------- ----------- Balance at June 30, 2010 (unaudited) 48,934,158 (24,578,444) (1,293,670) 23,099,100 ----------- ------------ ----------- ----------- Balance at December 31, 2010 (audited) 88,250,203 (29,858,319) (1,478,617) 56,943,674 ----------- ------------ ----------- ----------- Issuance of stock options 343,025 -- -- 343,025 Net loss -- (7,601,963) (177,177) (7,779,140) ----------- ------------ ----------- ----------- Balance at June 30, 2011 (unaudited) $88,593,228 $(37,460,281) $(1,655,794) $49,507,560 =========== ============ =========== =========== The accompanying notes are an integral part of these consolidated or combined condensed financial statements 7
Amincor, Inc. and Subsidiaries Consolidated or Combined Condensed Statements of Cash Flows Six Months Ended June 30, 2011 and 2010 (Unaudited) 2011 2010 ------------ ------------ (consolidated) (combined) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss from continuing operations $ (3,059,214) $ (372,198) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation and amortization of property and equipment 1,031,746 438,794 Amortization of intangible assets 993,900 977,700 Amortization of deferred financing cost 78,246 78,234 Stock based compensation 343,025 -- Gain on sale of equipment (49,330) -- Provision for doubtful accounts 83,475 51,741 Changes in assets and liabilities: Accounts receivable (1,769,984) (895,546) Due from factor - related party -- (389,885) Inventory (1,006,522) (149,851) Costs and estimated earnings in excess of billings on uncompleted contracts (557,601) (860,678) Construction in process -- 113,336 Prepaid expenses and other current assets (384,253) 92,962 Other assets 12,156 22,647 Accounts payable 2,171,875 1,995,978 Accrued expenses and other current liabilities (823,913) (179,278) Billings in excess of costs and estimated earnings on uncompleted contracts 879,539 1,597,490 Billings on construction -- (1,357,778) Other long-term liabilities -- 140,587 ------------ ------------ NET CASH (USED IN) PROVIDED BY OPERATIONS - CONTINUING OPERATIONS (2,056,855) 1,304,256 ------------ ------------ CASH FLOWS FROM INVESTING ACTIVITIES: Purchases of property and equipment (98,103) (102,466) Proceeds from sale of equipment 79,320 -- ------------ ------------ NET CASH USED IN INVESTING ACTIVITIES - CONTINUING OPERATIONS (18,783) (102,466) ------------ ------------ 8
2011 2010 ------------ ------------ (consolidated) (combined) CASH FLOWS FROM FINANCING ACTIVITIES: Net borrowings/repayments with related parties 10,000 (1,293,210) Net proceeds from loans with related parties -- 1,150,544 Principal payments of capital lease obligations (62,173) -- Net payments of notes payable (157,838) (325,558) Payments of assumed liabilities (425,964) (456,717) ------------ ------------ NET CASH (USED IN) FINANCING ACTIVITIES - CONTINUING OPERATIONS (635,975) (924,941) ------------ ------------ Net cash used in operating activities - discontinued operations (4,461,151) (9,029) Net cash provided by investing activities - discontinued operations 5,045,301 89,096 Net cash provided by (used in) financing activities - discontinued operations 753,956 (80,068) ------------ ------------ (Decrease) increase in cash (1,373,507) 276,848 Cash, beginning of period 2,612,998 339,049 ------------ ------------ Cash, end of period $ 1,239,491 $ 615,897 ============ ============ Supplemental disclosure of cash flow information: Cash paid during the six months ended June 30, Interest $ 172,348 $ 1,390,218 ============ ============ Income taxes $ 14,700 $ -- ============ ============ Non-cash investing activities: Acquisition of net assets of Environmental Quality Services, Inc. $ -- $ -- ============ ============ Acquisition of equipment by capital lease and notes payable $ 203,191 $ 660,808 ============ ============ The accompanying notes are an integral part of these condolidated or combined condensed financial statements 9
Amincor, Inc. and Subsidiaries Notes to Consolidated or Combined Condensed Financial Statements June 30, 2011 and 2010 1. ORGANIZATION AND NATURE OF BUSINESS Amincor, Inc. ("Amincor" or the "Company") was incorporated under the laws of the state of Nevada on October 8, 1997 under the name GSE Group, Inc. GSE Group, Inc. was originally formed to provide consulting services for reverse mergers to public shell corporations and private companies seeking to gain access to the public markets. On October 20, 1997, GSE Group, Inc. changed its name to Global Stock Exchange Corp. and on April 28, 2000, Global Stock Exchange Corp. changed its name to Joning Corp. ("Joning"). In July 2000, Joning ceased its business activities. On March 8, 2002, Joning filed a Registration Statement on Form10-SB under the Securities Exchange Act of 1934 (the "Exchange Act") as a shell company with the purpose of finding a suitable company for a reverse merger transaction. Joning ceased filing periodic reports subsequent to its filing of its Form 10-QSB on October 24, 2004 as it did not have the personnel or resources to continue the filings and there was no operating business or pending business transactions. On June 2, 2008, Joning filed a Form 15-12G to terminate its registration. On February 2, 2010 Joning changed its name to Amincor, Inc. The Company remained dormant until January 2010 at which time it entered into letters of intent to acquire all or a majority of the outstanding stock of the following companies: Tulare Holdings, Inc., Tyree Holdings Corp., Epic Sports International, Inc., Baker's Pride, Inc., Imperia Masonry Supply Corp., Whaling Distributors, Inc. and Allentown Metal Works, Inc. All of such letters of intent were subject to completion of satisfactory due diligence. After completion of its due diligence review the Company terminated the letters of intent to acquire Allentown Metal Works, Inc. and Whaling Distributors, Inc. and completed the acquisition of Tulare Holdings, Inc., Tyree Holdings Corp., Epic Sports International, Inc., Baker's Pride, Inc. and Imperia Masonry Supply Corp. As of June 30, 2011, Amincor operates the following entities as a result of the assignment of all the right, title and interest of the debt owed to the Lenders: Baker's Pride, Inc. ("BPI") Epic Sports International, Inc. ("ESI") Tyree Holdings Corp. ("Tyree") Environmental Quality Services, Inc. ("EQS") 10
BPI BPI manufactures bakery food products, primarily consisting of several varieties of sliced and packaged private label bread. ESI ESI is the worldwide licensee for the Volkl and Boris Becker Tennis brands and, in November 2010, became the exclusive sales representative for Samsung C&T America, Inc.'s ("Samsung") purchases of Volkl and Boris Becker & Co. tennis products. Under the agreement with Samsung C&T America, Inc. (the "Samsung Agreement"), ESI's primary focus has become designing and marketing these tennis branded products. Through October 2010, ESI was an importer, wholesale distributor, and brand manager of high-end performance and lifestyle apparel, tennis racquets, tennis bags, and sporting goods accessories. 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. EQS Environmental Quality Services, Inc. ("EQS") provides environmental and hazardous waste testing in the Northeast United States. As of June 30, 2011, Amincor has adopted a plan to discontinue operations at the following entities within the next twelve months: Masonry Supply Holding Corp. ("Masonry" or "IMSC") Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare") MASONRY Masonry formerly manufactured concrete, lightweight, and split face manufacturing block for the construction industry, supplied a wide array of other masonry and building products, and operated a retail home center, which sold hardware, masonry materials and building supplies to contractors and retail customers. 11
TULARE HOLDINGS Tulare formerly prepared frozen vegetables (primarily spinach) from produce purchased from growers which were sold to the food service industry under a private label and to food brokers and retail food stores under the Tulare Frozen Food label. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES BASIS OF PRESENTATION The accompanying unaudited consolidated or combined condensed financial statements of the Company have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") have been condensed or omitted pursuant to those rules and regulations, although the company believes that the disclosures are adequate to make the information not misleading. In the opinion of management, all adjustments necessary for a fair statement of the results of operations and financial position for the periods presented have been reflected as required by Regulation S-X. The results of operations for the interim period presented is not necessarily indicative of the results of operations to be expected for the year. These consolidated or combined condensed financial statements should be read in conjunction with the Form 10-K dated April 15, 2011 which includes the audited consolidated or combined financial statements for the three years ended December 31, 2010. PRINCIPLES OF CONSOLIDATION OR COMBINATION The consolidated or combined condensed financial statements include the accounts of Amincor, Inc. and all of its consolidated or combined subsidiaries (collectively the "Company"). All intercompany balances and transactions have been eliminated in consolidation or combination. The combined financial statements represents a period prior to the acquisition of the subsidiaries. USE OF ESTIMATES The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Significant estimates include the valuation of goodwill and intangible assets, the useful lives of tangible and intangible assets, depreciation and amortization, allowances for doubtful accounts and inventory obsolescence, estimates related to completion of contracts and loss contingencies on particular uncompleted contracts, and the valuation allowance on deferred tax assets. Actual results could differ from those estimates. 12
REVENUE RECOGNITION BPI Revenue is recognized from product sales when goods are delivered to the Company's shipping dock, and are made available for pick-up by the customer, at which point title and risk of loss pass to the customer. Customer sales discounts are accounted for as reductions in revenues in the same period the related sales are recorded. ESI Licensee revenue has been recognized upon the shipment of products with allowances, credits and other adjustments recorded in the period the related to the associated sales. Commission revenue earned under the Samsung Agreement is recognized when Samsung invoices and ships the product based on approved ESI sales orders. TYREE Maintenance and repair services for several retail petroleum customers are performed under multi-year, unit price contracts. Under these agreements, the customer pays a set price per contracted retail location per month and Tyree provides a defined scope of maintenance and repair services at these locations on an on-call or as scheduled basis. Revenue earned under these contracts is recognized each month at the prevailing per location unit price. Revenue from other maintenance and repair services is recognized as these services are rendered. Effective January 1, 2010, Tyree began using the percentage-of-completion method, which recognizes income as work on a contract progresses. The change to the percentage-of-completion method of accounting is believed to be desirable and Tyree has improved its ability to make estimates that are sufficiently dependable to justify its use. This change of method required an adjustment to the Company's accumulated deficit of $815,000 representing income on uncompleted contracts in prior years that would have been recognized in prior years had the percentage of completed method been in effect. As a result of the change to the percentage-of-completion method of accounting, the consolidated balance sheets reflects an asset account "Costs and estimated earnings in excess of billings on uncompleted contracts," which represents revenues recognized in excess of amounts billed. Also as a result of the change to the percentage-of-completion method of accounting, the consolidated balance sheets reflects a liability account, "Billing in excess of cost and estimated earnings on uncompleted contracts," which represents billings in excess of revenues recognized. EQS EQS provides environmental testing for its clients that range from smaller engineering and contractors to well known petroleum companies. Their customers require rapid results and accurate reporting. EQS submits an invoice with each report it distributes to its clients. Revenue is recognized as testing services are performed. 13
ACCOUNTS RECEIVABLE Accounts receivable are recorded net of an allowance for doubtful accounts. The credit worthiness of customers is analyzed based on historical experience, as well as the prevailing business and economic environment. An allowance for doubtful accounts is established and determined based on management's assessments of known requirements, aging of receivables, payment history, the customer's current credit worthiness and the economic environment. Accounts are written off when significantly past due and after exhaustive efforts at collection. Recoveries of accounts receivables previously written off are recorded as income when subsequently collected. INVENTORIES Inventories are stated at the lower of cost or market using the first-in, first-out method. Market is determined based on the net realizable value with appropriate consideration given to obsolescence, excessive levels and other market factors. An inventory reserve is recorded if the carrying amount of the inventory exceeds its estimated market value. PROPERTY, PLANT AND EQUIPMENT Property and equipment are stated at cost and the related depreciation is computed using the straight-line method over the estimated useful lives of the respective assets. Expenditures for repairs and maintenance are charged to operations as incurred. Renewals and betterments are capitalized. Upon the sale or retirement of an asset, the related costs and accumulated depreciation are removed from the accounts and any gain or loss is recognized in the results of operations. Construction in progress is not depreciated. Depreciation of the property begins when it is placed in service. Leasehold improvements are amortized over the lesser of the estimated life of the asset or the lease term. GOODWILL AND INTANGIBLE ASSETS Goodwill represents the cost of acquiring a business that exceeds the net fair value ascribed to its identifiable assets and liabilities. Goodwill and indefinite-lived intangibles are not subject to amortization but are tested for impairment annually and whenever events or circumstances change, such as a significant adverse change in the economic climate that would make it more likely than not that impairment may have occurred. If the carrying value of goodwill or an indefinite-lived intangible asset exceeds its fair value, an impairment loss is recognized. 14
Intangible assets with finite lives are recorded at cost less accumulated amortization. Finite-lived intangible assets are amortized on a straight-line basis over the expected useful lives of the respective assets. IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates the fair value of long-lived assets on an annual basis or whenever events or changes in circumstances indicate that its carrying amounts may not be recoverable. Accordingly, any impairment of value is recognized when the carrying amount of a long-lived asset exceeds its fair value. An impairment of $892,048 was recorded on the goodwill and other intangible assets of Masonry as of June 30, 2011. 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, which is reflected in the loss from discontinued operations. Diluted earnings (loss) per share considers the potential dilution that could occur if securities or other contracts to issue common stock were exercised or could otherwise cause the issuance of common stock, such as options, convertible notes and convertible preferred stock, were exercised or converted into common stock or could otherwise cause the issuance of common stock that then shared in earnings (loss). Such potential additional common shares are included in the computation of diluted earnings per share. Diluted loss per share is not computed because any potential additional common shares would reduce the reported loss per share and therefore have an anti-dilutive effect. 3. DISCONTINUED OPERATIONS Effective June 30, 2011 the Company discontinued the operations of Masonry Supply Holding Corp. and Tulare Holdings, Inc. As a result, losses from of Masonry and Tulare are included in the loss from discontinued operations in the accompanying financial statements for the three and six months ended June 30, 2011, respectively. Assets and liabilities related to discontinued operations are presented separately on the balance sheets as of June 30, 2011 and December 31, 2010, respectively. Changes in net cash from discontinued operations are presented in the accompanying statement of cash flows for the six months ended June 30, 2011 and 2010, respectively. All prior period information has been reclassified to conform to the current period presentation. The following amounts related to Masonry and Tulare have been segregated from continuing operations and reported as discontinued operations: 15
Three Months Ended June 30, Six Months Ended June 30, 2011 2010 2011 2010 ------------ ------------ ------------ ------------ Net revenue from discontinued operations $ 2,186,153 $ 4,616,726 $ 3,632,189 $ 9,235,910 Loss from discontinued operations $ (3,797,134) $ (504,942) $ (4,719,926) $ (1,890,445) The following is a summary of the assets and liabilities of the discontinued operations. The amounts were derived from historical financial information. June 30, December 31, 2011 2010 ------------ ------------ Accounts receivable $ 433,757 $ 281,774 Inventories 677,188 1,098,716 Prepaid expenses and other current assets 183,333 189,983 Property, plant and equipment, net 1,165,649 2,365,950 Goodwill and other intangible assets -- 942,700 Other assets 291,667 291,667 ------------ ------------ Total assets $ 2,751,594 $ 5,170,790 ============ ============ Accounts payable $ 3,874,213 $ 3,853,724 Accrued expenses and other current liabilities 235,360 402,706 Capital lease obligations 255,718 315,026 ------------ ------------ Total Liabilities $ 4,365,291 $ 4,571,456 ============ ============ Net (Liabilities) Assets $ (1,613,697) $ 599,334 ============ ============ The Company continues to provide administrative services and office facilities to these lines of business until such time that the liquidation of their assets is complete. 4. INVENTORIES Inventories consist of: * Baking ingredients, * Construction and service maintenance parts. A summary of inventory as of June 30, 2011 and December 31, 2010 is below. June 30, December 31, 2011 2010 ------------ ------------ Raw materials $ 4,141,081 $ 3,083,440 Ingredients 235,304 286,422 ------------ ------------ $ 4,376,384 $ 3,369,862 ============ ============ 5. PROPERTY, PLANT, AND EQUIPMENT At June 30, 2011 and December 31, 2010, property, plant, and equipment consisted of the following: 16
Range of Estimated June 30, December 31, Useful Lives 2011 2010 ------------ ------------ ------------ Land n/a $ 430,000 $ 917,054 Machinery and equipment 2 - 10 years 9,178,467 8,894,141 Furniture and fixtures 5 - 10 years 112,315 112,314 Building and leasehold improvements 10 years 4,613,695 3,679,424 Computer equipment and software 5 - 7 years 764,087 730,511 Construction in progress n/a 14,801 56,801 Vehicles 3 - 10 years 2,921,569 3,084,966 ------------ ------------ 18,034,935 17,475,211 Less accumulated depreciation 3,274,817 2,371,162 ------------ ------------ $ 14,760,118 $ 15,104,049 ============ ============ Property, plant, and equipment include items under capital leases of $863,999 as of June 30, 2011 and $660,808 as of December 31, 2010. Accumulated depreciation includes $94,401 and $47,201 related to those items as of June 30, 2011 and December 31, 2010, respectively. Total depreciation expense related to continuing operations for the six months ended June 30, 2011 and 2010, was $1,031,746 and $438,794, respectively. Total depreciation expense related to continuing operations for the three months ended June 30, 2011 and 2010 was $514,099 and $219,291, respectively. 6. INTANGIBLE ASSETS Intangible assets with finite useful lives are amortized on a straight-line basis over the useful lives of the assets and consist of the following at June 30, 2011 and December 31, 2010: Range of Estimated June 30, December 31, Useful Lives 2011 2010 ------------ ------------ ------------ Customer Relationships 5 - 10 years $ 9,138,700 $ 8,976,700 Non-Competition Agreements 7 years 5,886,300 5,886,300 Licenses and Permits 10.3 years 3,607,500 3,472,500 Service Contracts 5.3 years 354,400 354,400 ------------ ------------ 18,986,900 18,689,900 Less Accumulated Amortization 6,148,910 5,155,010 ------------ ------------ $ 12,837,990 $ 13,534,890 ============ ============ The above licenses and permits have renewal provisions which are generally one to four years. At June 30, 2011, the weighted-average period to the next renewal was thirteen months. The costs of renewal are nominal and are expensed when incurred. The Company intends to renew all licenses and permits currently held. 17
Amortization expense related to continuing operations for the six months ended June 30, 2011 and 2010 was $993,900 and $977,700, respectively. Amortization expense related to continuing operations for the three months ended June 30, 2011 and 2010 was $496,950 and $488,850, respectively. Goodwill and licenses and permits of $3,430,400 and $3,295,400 at June 30, 2011 and December 31, 2010, respectively have indefinite useful lives and are not amortized but tested for impairment annually. 7. LONG-TERM DEBT Long-term debt consists of the following at June 30, 2011 and December 31, 2010: June 30, December 31, 2011 2010 ------------ ------------ Equipment loans payable, collateralized by the assets purchased, and bearing interest at annual fixed rates ranging from 8.0% to 15.0% as of June 30, 2011 and December 31, 2010, with principal and interest payable in installments through July 2014 $ 834,940 $ 967,480 Promissory notes payable, with accrued interest, to three former stockholders of a predecessor company. These notes are unsecured and are subordinate to the Company's senior debt. The notes mature on December 31, 2012 and bear interest at an annual rate of 6.0% 500,000 500,000 Note payable to a commercial bank. Payable in monthly installments of principal and interest of $6,198 through March 2015. The annual interest rate is 7.25% 431,419 454,221 Bank loan payable, with an interest rate of 5.25% per annum and maturing in March 2014 73,940 75,885 Bank line of credit allowing for borrowings of up to $90,000. Interest at prime plus 4.25% per annum 63,025 64,078 Total 1,903,324 2,061,664 Less current portion 350,810 418,181 ------------ ------------ Long-term portion $ 1,552,515 $ 1,643,483 ============ ============ 8. LOANS FROM RELATED PARTIES Loans from related parties consists of the following at June 30, 2011 and December 31, 2010: 18
June 30, December 31, 2011 2010 ------------ ------------ Loan and security agreement with Capstone Capital Group, LLC which expires on November 1, 2013 bearing interest at 18% per annum. Maximum borrowing of $800,000 $ 690,637 $ 713,930 ------------ ------------ Total loans and amounts payable to related parties $ 690,637 $ 713,930 ============ ============ Interest expense for these loans amounted to approximately $95,043 and $0 for the six months ended June 30, 2011 and 2010, respectively. Interest expense for these loans amounted to approximately $54,330 and $0 for the three months ended June 30, 2011 and 2010, respectively. 9. EQUITY EQUITY INCENTIVE PLAN Effective April 1, 2011, the Company established the Amincor, Inc. 2011 Equity Incentive Plan (the "Plan") to motivate employees (the "Participants") to achieve the long-term goals of the Company. Under the terms of the Plan, the Company has authorized 1,000,000 shares of its common stock to be available for the exercise of stock options granted. Options granted may be either incentive stock options or non-qualified stock options under the purposes of determining their income tax treatment. A maximum of 100,000 shares of common stock may be granted to any one participant during a calendar year. Participants of the Plan include employees, employee directors and non-employee directors. Stock options may be granted within ten years of the effective date (five years for a ten percent stockholder of the Company). Under the Plan, the Company may grant stock appreciation rights and stock awards to the participants of the Plan. The Plan is subject to the approval of the Company's shareholders. On April 1, 2011 the Company's Board of Directors granted an aggregate of 472,000 common stock options to the President, Vice-President, CFO and certain management and employees of the Company and certain officers and employees of its subsidiary companies, all at an exercise price of $1.88, based on the estimated fair market value of the Company's share price at the date of the grant. The stock options vested immediately. The Company estimates the fair value of stock options on the date of grant using the Black-Scholes option model, which requires the input of subjective assumptions. These assumptions include the estimated volatility of the Company's common stock price of the expected term ("volatility"), the fair value of the Company's stock, the risk-free interest rate and the dividend yield. Changes in the subjective assumptions can materially affect the estimated fair value of stock-compensation. The Company determined the fair value of the options issued using the pricing model with the following assumptions: 5 years expiration period, stock price volatility of 40%, risk free interest rate of 2.24%, and dividend yield of 0%. 19
Stock based compensation cost of approximately $342,000 and $0 is reflected in selling, general and administrative expenses on the accompanying consolidated or combined condensed statements of operations for the three months ended June 30, 2011 and 2010, respectively and approximately $343,000 and $0 for the six months ended June 30, 2011, and 2010, respectively. 10. OPERATING SEGMENTS Operating subsidiaries are organized primarily by Amincor and its operating subsidiaries into nine operating segments: (1) Amincor, (2) Other Assets, (3) Contract Admin, (4) BPI, (5) EQS, (6) ESI, (7) Tyree, and (8) Disc. Ops. (where appropriate). Segment information is as follows: June 30, December 31, 2011 2010 ------------ ------------ TOTAL ASSETS: Amincor $ 2,516,225 $ 4,675,136 Other Assets 20,525,781 26,044,101 Contract Admin -- 197 BPI 15,652,399 14,945,020 EQS 1,170,409 -- ESI 588,680 581,334 Tyree 31,731,338 29,001,697 Disc. Ops 2,751,594 5,170,790 ------------ ------------ Total assets $ 74,936,426 $ 80,418,275 ============ ============ Three Months Ended June 30, Six Months Ended June 30, -------------------------- -------------------------- 2011 2010 2011 2010 -------- -------- -------- -------- TOTAL CAPITAL EXPENDITURES: Amincor $ -- $ -- $ -- $ -- Other Assets -- -- -- -- Contract Admin -- -- -- -- BPI 21,334 94,134 90,445 94,134 EQS -- -- -- -- ESI -- -- -- -- Tyree -- 5,297 7,658 8,332 -------- -------- -------- -------- Total capital expenditures $ 21,334 $ 99,431 $ 98,103 $102,466 ======== ======== ======== ======== 20
June 30, December 31, 2011 2010 ------------ ------------ TOTAL GOODWILL: Amincor $ -- $ -- Other Assets -- -- Contract Admin -- BPI 7,770,900 7,770,900 EQS 207,997 -- ESI 192,000 192,000 Tyree 7,575,500 7,575,500 ------------ ------------ Total goodwill $ 15,746,397 $ 15,538,400 ============ ============ June 30, December 31, 2011 2010 ------------ ------------ TOTAL INTANGIBLE ASSETS: Amincor $ -- $ -- Other Assets -- -- Contract Admin -- -- BPI 5,577,396 5,959,846 EQS 280,800 -- ESI 296,826 338,858 Tyree 6,682,968 7,236,186 ------------ ------------ Total intangible assets $ 12,837,990 $ 13,534,890 ============ ============ Three Months Ended June 30, Six Months Ended June 30, ----------------------------- ----------------------------- 2011 2010 2011 2010 ------------ ------------ ------------ ------------ NET REVENUES: Amincor $ -- $ -- $ -- $ -- Other Assets -- -- -- -- Contract Admin -- -- -- -- BPI 3,754,152 3,131,725 7,260,647 6,599,629 EQS 329,480 -- 517,662 -- ESI 412,188 1,037,833 939,530 2,432,926 Tyree 11,612,549 14,709,087 22,055,774 27,672,136 ------------ ------------ ------------ ------------ Net revenues $ 16,108,368 $ 18,878,645 $ 30,773,613 $ 36,704,691 ============ ============ ============ ============ 21
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------ 2011 2010 2011 2010 ------------ ------------ ------------ ------------ INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES: Amincor $ (1,139,108) $ -- $ (1,991,237) $ -- Other Assets (250,021) -- (493,302) -- Contract Admin -- -- 395 -- BPI 518,682 (224,894) 935,673 (186,572) EQS (153,529) -- (348,536) ESI 78,029 (506,964) 18,470 (709,263) Tyree (71,973) (177,305) (1,180,677) 643,638 ------------ ------------ ------------ ------------ Income (loss) before Provision for Income Taxes $ (1,017,920) $ (909,164) $ (3,059,214) $ (252,198) ============ ============ ============ ============ Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------ 2011 2010 2011 2010 ------------ ------------ ------------ ------------ DEPRECIATION OF PROPERTY AND EQUIPMENT: Amincor $ -- $ -- $ -- $ -- Other Assets 250,021 -- 500,042 -- Contract Admin -- -- -- -- BPI 1,571 -- 3,141 -- EQS 25,463 -- 50,927 -- ESI 1,059 36 2,118 284 Tyree 235,986 219,255 475,519 438,510 ------------ ------------ ------------ ------------ Total depreciation of property and equipment $ 514,099 $ 219,291 $ 1,031,746 $ 438,794 ============ ============ ============ ============ Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------ 2011 2010 2011 2010 ------------ ------------ ------------ ------------ AMORTIZATION OF INTANGIBLE ASSETS: Amincor $ -- $ -- $ -- $ -- Other Assets -- -- -- -- Contract Admin -- -- -- -- BPI 191,225 191,225 382,450 382,450 EQS 8,100 -- 16,200 -- ESI 21,016 21,016 42,032 42,032 Tyree 276,609 276,609 553,218 553,218 ------------ ------------ ------------ ------------ Total amortization of intangible assets $ 496,950 $ 488,850 $ 993,900 $ 977,700 ============ ============ ============ ============ 22
Three Months Ended June 30, Six Months Ended June 30, ------------------------------ ------------------------------ 2011 2010 2011 2010 ------------ ------------ ------------ ------------ INTEREST (INCOME) EXPENSE: Amincor $ (267,265) $ -- $ (484,914) $ -- Other Assets -- -- -- -- Contract Admin -- -- -- -- BPI 58,010 137,077 131,169 279,393 EQS 9,501 -- 12,572 -- ESI 174 19,767 5,269 68,728 Tyree 207,964 181,357 945,534 288,166 ------------ ------------ ------------ ------------ Total interest expense, net $ 8,383 $ 338,202 $ 609,630 $ 636,287 ============ ============ ============ ============ 11. CONTINGENCIES LEGAL PROCEEDINGS TYREE Tyree's services are regulated by federal, state, and local laws enacted to regulate discharge of materials into the environment, remediation of contaminated soil and groundwater or otherwise protect the environment. This ongoing regulation results in Tyree or Tyree's predecessor companies being put at risk at becoming a party to legal proceedings involving customers or other interested parties. The issues involved in such proceedings generally relate to alleged responsibility arising under federal or state laws to remediate contamination at properties owned or operated either by current or former customers or by other parties who allege damages. To limit its exposure to such proceedings, the Tyree purchases, for itself and Tyree's predecessor companies, site pollution, pollution, and professional liability insurance. Aggregate limits, per occurrence limits, and deductibles for this policy are $10,000,000, $5,000,000 and $50,000, respectively. Tyree and its subsidiaries are, from time to time, involved in ordinary and routine litigation. Management presently believes that the ultimate outcome of these proceedings individually or in the aggregate, will not have a material adverse effect on the Company's financial position, results of operations or cash flows. Nevertheless, litigation is subject to inherent uncertainties and unfavorable rulings could occur. An unfavorable ruling could include monetary damages and, in such event, could result in a material adverse impact on the Company's financial position, results of operations or cash flows for the period in which the ruling occurs. DISCONTINUED OPERATIONS Counsel for the former President of IMSC has indicated intent to file suit against IMSC. The allegations of this potential action are unknown to management at this point. Management believes any claims made by the former President will be deemed frivolous and will have little or no impact on the Company or IMSC. 23
CBC, a related party, is the plaintiff in a foreclosure action against Imperia Family Realty, LLC and has been granted a Judgment of Foreclosure. A former principal of Imperia Bros. Inc. (a predecessor company to IMSC) filed a countersuit in response to the foreclosure action. CBC believes this countersuit, which is being contested, is frivolous and will not be successful. Management believes the litigation described will have little or no impact on the Company and IMSC. 12. LIQUIDITY MATTERS Since the beginning of the recession in 2008, the Company has not borrowed from any bank, finance company, other unrelated lender and has not received any private equity financing. Since that time, internally generated operating cash flows have been sufficient to meet the Company's business operating requirements. However, operating cash flows have not been sufficient to finance capital improvements or provide funds for the substantial marketing efforts necessary for growing the businesses. For example, an outlay of about $2,000,000 is required to complete the frozen donut line for BPI. In addition, Tyree is ready to expand by entering new geographic areas. In 2011, management expects to mortgage or sell the property occupied by Tulare Frozen Foods in Lindsay, CA for $2,000,000. BPI has a USDA loan proposal of $7.5 million from an Iowa bank and is awaiting USDA approval. Once the Company is cleared to sell its stock publicly, the Company plans to create a market for the stock and obtain capital from private and public investors. Management believes that, even without the addition of the capital from loans and stock sales, that the Company will be able to generate sufficient cash flows through June 30, 2012. 13. SUBSEQUENT EVENTS The Company has evaluated subsequent events from the balance sheet date through the date of the accompanying consolidated or combined condensed financial statements became available to be issued. The following is a material subsequent event. On August 12, 2011, Baker's Pride, Inc., through its wholly owned subsidiary, The South Street Bakery, Inc.("SSB") entered into a lease agreement (the "Lease Agreement") with Corbi Properties, LLC, an Iowa limited liability company and Clear Lake Specialty Products, Inc., an Iowa corporation (collectively, the "Landlord"). Pursuant to the Lease Agreement, SSB is leasing from the Landlord certain property and equipment located in Clear Lake, Iowa. The term of the Lease Agreement is one (1) year, with the right of an automatic one (1) year extension if SSB has complied with the terms of the Lease Agreement. SSB shall pay the Landlord $360,000 per year or monthly installments of $30,000. In addition to the monthly installments, SSB paid a security deposit of $60,000. Concurrently with the signing of the Lease Agreement, the Landlord granted SSB an irrevocable option to purchase all of the Landlord's right, title and interest in and to the property, plant and assets, as set forth in that certain option agreement, dated August 12, 2011, by and among the Landlord and SSB (the "Option Agreement"). In consideration for the grant of the option, SSB paid the Landlord $275,000 in cash (the "Option Payment"). The exercise price of the option is $3,607,000 less the Option Payment, any payments made pursuant to the Lease Agreement and any profit participation payments made pursuant to the terms of the Option Agreement. The option may be exercised at anytime between August 12, 2011 and 5:30 p.m. New York City time on August 11, 2012. This summary of the Lease Agreement and the Option Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Lease Agreement and the Option Agreement filed as Exhibits 10.1 and Exhibit 10.2 hereto, respectively, and are incorporated by reference herein. 24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. AMINCOR, INC. Amincor, Inc. was incorporated under the laws of the state of Nevada on October 8, 1997 under the name GSE Group, Inc. GSE Group, Inc. was originally formed to provide consulting services for reverse mergers to public shell corporations and private companies seeking to gain access to the public markets. On October 20, 1997, GSE Group, Inc. changed its name to Global Stock Exchange Corp. and on April 28, 2000, Global Stock Exchange Corp. changed its name to Joning Corp ("Joning"). In July 2000, Joning ceased its business activities. On March 8, 2002, Joning filed a Registration Statement on Form 10-SB under the Securities Exchange Act of 1934 (the "Exchange Act") as a shell company with the purpose of finding a suitable company for a reverse merger transaction. On February 2, 2010, Joning changed its name to Amincor, Inc. Amincor is a holding company operating through various subsidiaries in two operating divisions. The Environmental Services and Industrial Services Division is comprised of Tyree Holdings Corp. and Masonry Supply Holding Corp. The Consumer Products Division is comprised of Baker's Pride, Inc., Tulare Holdings, Inc. and Epic Sports International, Inc. Amincor Contract Administrators, Inc. and Amincor Other Assets, Inc. are subsidiaries with minimal operations. As of June 30, 2011, Amincor owns the following operating entities: Baker's Pride, Inc. ("BPI") Epic Sports International, Inc. ("ESI") Environmental Quality Services, Inc. ("EQS") Masonry Supply Holding Corp. ("Masonry" or "IMSC") Tulare Holdings, Inc. ("Tulare Holdings" or "Tulare") Tyree Holdings Corp. ("Tyree") BPI BPI manufactures bakery food products, primarily consisting of several varieties of sliced and packaged private label bread. EQS EQS provides environmental testing services in the northeast United States. EQS' services include RCRA (resource conservation recovery act) and hazardous waste characterization; TCLP (toxic characteristic leaching procedure) analyses; underground storage tank analytical assessment; landfill/ground water monitoring; NPDES (national pollution discharge elimination system) effluent characteristics analysis; PCB (polychlorinated biphenyls) and PCB congener analysis; lead paint testing; fingerprint categorization; petroleum analyses. ESI ESI is the worldwide licensee for the Volkl and Boris Becker Tennis brands and, in November 2010, became the exclusive sales representative for Samsung C&T America, Inc.'s ("Samsung") purchases of Volkl and Boris Becker & Co. tennis 25
products. Under the agreement with Samsung C&T America, Inc. (the "Samsung Agreement"), ESI's primary focus has become designing and marketing these tennis branded products. Through October 2010, ESI was an importer, wholesale distributor, and brand manager of high-end performance and lifestyle apparel, tennis racquets, tennis bags, and sporting goods accessories. MASONRY Masonry manufactured concrete, lightweight, and split face manufacturing block for the construction industry, supplies a wide array of other masonry and building products, and operates a retail home center, which sells hardware, masonry materials and other building supplies to contractors and retail customers. As of June 30, 2011, as discussed in more detail below, Amincor management made the decision to discontinue the operations of Masonry due to lack of profitability. TULARE HOLDINGS Tulare prepared frozen vegetables (primarily spinach) from produce purchased from growers which are sold to the food service industry under a private label. As of June 30, 2011, as discussed in more detail below, Amincor management made the decision to discontinue the operations of Tulare due to lack of profitability. 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 properties with petroleum storage facilities. AMINCOR, INC. LIQUIDITY AND CAPITAL RESOURCES Amincor continues to seek new capital in the form of equity and debt to support the operations of its subsidiaries. Management believes that until there is a market for Amincor's securities, raising additional capital will remain a challenge. Management is engaged in several projects to raise capital at this time. Reducing the impact of negative cash flows associated with under performing assets such as those of Masonry and Tulare may have a positive impact on the consolidating operations of the remaining operating subsidiaries and as a result increase the attractiveness of Amincor as an investment opportunity. Management continues to work with Baker's Pride's management towards the completion of a USDA loan through an Iowa based financial institution which will increase products offered to the market and increase cash flow once implemented. Management continues to work with Tyree's management to further reduce overhead expenditures so it can better manage its accounts payable and serve its customers better. 26
DISCONTINUED OPERATIONS On June 30, 2011, management adopted a plan to discontinue the operations of Masonry Supply Holding Corp. and Tulare Holdings, Inc. Our decision to discontinue the operations of Masonry was based upon several factors, including (but not limited to) a continued decline in demand for construction materials as a result of the recession alongside diminishing market share as a result of competitors who were better positioned to sell their products below Masonry's costs and maintain a larger portion of the market share. After an analysis of trends from January through May of 2011, management determined that for every additional dollar invested, Masonry was only able to generate less than a dollar's worth of sales. The growth strategy for Masonry was to acquire additional market share by supplying large quantities of manufactured block and masonry supplies to dealers in addition to Masonry's current customer base. However, management believed that the capital expenditures necessary to follow the aforementioned strategy did not carry a significantly high enough return on investment, and the funds necessary to complete the capital expenditure projects were not readily available. Management intends to sell the assets of Masonry and settle its existing accounts payable, but does not believe there will be any significant excess cash resulting from the liquidation that could be used for other purposes. Tulare has faced declining gross margins as a result of increased raw material costs combined with having to lower selling prices to remain competitive. Tulare's management believes that competitors are prepared to make significant capital expenditures to invest in new facilities to regain lost customers in the food service distribution channel due to deferred maintenance costs. Tulare shared the same issues with respect to its plant and equipment deterioration and required similar capital expenditures to continue to compete competitively within its industry. The combination of Tulare's aging plant and equipment, higher raw product costs and the inability pass on higher raw product costs onto its customers lead to negative cash flow. Management believes that the trends seen with respect to Tulare are irreversible without significant capital expenditures, and thus decided to cease operations. The lack of availability of funds to provide capital expenditure to modernize Tulare's production facility was a major factor in management's decision to cease operations. Management intends to sell all the assets of Tulare Frozen Foods, LLC to settle its existing accounts payable and apply any excess funds generated from the liquidation of the assets to the other operations within Amincor. In accordance with Generally Accepted Accounting Principles, the combined results of Masonry and Tulare have been presented on our financial statements as discontinued operations. It is management's intention to complete the liquidation of Masonry and Tulare's assets within the next twelve months, if not sooner. RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 and 2010 NET REVENUE Net revenue for the six month period ended June 30, 2011 totaled $30,773,613 compared to net revenues of $36,704,691 for the six month period ended June 30, 2010, a decrease in net revenue of $5,931,078, or approximately 16.2%. The 27
primary reason for the decrease in net revenues is related to Tyree and Epic. Tyree and Epic's net revenues decreased by over $6 million, but the difference was partially offset by an increase in net revenues for Baker's Pride and the addition of EQS's net revenues for the six months ended June 30, 2011. A breakout of net revenue by subsidiary company can be found on the footnotes to the financial statements as filed with this Form 10-Q. COST OF REVENUE Cost of revenue for the six month period ended June 30, 2011 totaled $22,635,865 or approximately 73.6% of net revenues compared to $27,071,197 or approximately 73.8% of net revenues for the six month period ended June 30, 2010. Cost of revenue was relatively unchanged as a percentage of net revenues between the six month period ended June 30, 2011 and June 30, 2010. A detailed analysis of each subsidiary company's individual cost of revenue can be found within their respective management's discussions and analysis sections of this Form 10-Q. OPERATING EXPENSES Operating expenses for the six month period ended June 30, 2011 totaled $10,983,080 compared to $9,142,902 for the six month period ended June 30, 2010, an increase in operating expenses of $1,840,178, or approximately 20.1%. The primary reason for the increase in operating expenses is related to Amincor's corporate headquarters which has been included in the six months ended June 30, 2011 results but was not included in the six months ended June 30, 2010 as there were no material operations within Amincor during the period ended June 30, 2010. (LOSS) INCOME FROM OPERATIONS Loss from operations for the six month period ended June 30, 2011 totaled ($2,845,332) compared to an income from operations of $490,592 for the six month period ended June 30, 2010, an increase in loss from operations of $3,335,924. The primary reason for the increase in loss from operations is related to the decreases in net revenues and the increases in operating expenses as noted above. OTHER EXPENSES (INCOME) Other expenses (income) for the six month period ended June 30, 2011 totaled $213,882 compared to $742,790 for the six month period ended June 30, 2010, a decrease in other expenses of $528,908, or approximately 71.2%. The primary reason for the decrease in other expenses is related to interest expense eliminated in consolidation (amounts due to Amincor, Inc.) in the preparation of the 2011 financial statements that were not able to be eliminated in the 2010 financial statements (amounts were due to related parties). NET LOSS FROM CONTINUING OPERATIONS Net loss from continuing operations totaled $3,059,214 for the six month period ended June 30, 2011 compared to $372,198 for the six month period ended June 30, 2010, an increase in net loss from continuing operations of $2,687,016, or approximately 721.9%. The primary reason for the increase in net loss from continuing operations is related to the increases in operating expenses alongside the decreases in net revenues as mentioned above. 28
NET LOSS FROM DISCONTINUED OPERATIONS Net loss from discontinued operations totaled $4,719,926 for the six months ended June 30, 2011 compared to $1,890,445 for the six months ended June 30, 2010, an increase in net loss of $2,829,481, or approximately 149.8%. The net loss from discontinued operations related to Masonry Supply Holding Corp. was $3,349,547 for the six months ended June 30, 2011 compared to $1,380,231 for the six months ended June 30, 2010, an increase in net loss of $1,872,861, or approximately 135.7%. The primary reason for the increase in net loss was related to asset write- downs associated with the discontinuation of Masonry, including a write off of its intangible assets, a write-down of its property plant, and equipment to its expected net realizable value, a write down of inventory to its expected net realizable value and an increase in the reserve on Masonry's existing accounts receivable. The net loss from discontinued operations related to Tulare Frozen Foods, LLC was $1,466,834 for the six months ended June 30, 2011 compared to a net loss of $510,214 for the six months ended June 30, 2010, an increase in net loss of $956,620, or approximately 187.5%. The primary reason for the increase in net loss was related to the operations of Tulare Frozen Foods, LLC and the inability of the company to increase prices related to rising raw material costs. NET LOSS Net loss totaled $7,779,140 for the six month period ended June 30, 2011 compared to $2,262,643 for the six month period ended June 30, 2010, an increase in net loss of $5,516,497, or approximately 243.8%. The primary reason for the increase in net loss is related to the increases in operating expenses alongside the decreases in net revenues as mentioned above. In addition, the additional losses incurred due to the write offs on the discontinued operations further contributed to the decrease in net loss between the two periods. RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 and 2010 NET REVENUES Net revenue for the three month period ended June 30, 2011 totaled $16,108,368 compared to $18,878,645 for the three month period ended June 30, 2010, a decrease in net revenues of $2,270,277, or approximately 14.7%. The primary reason for the decrease in net revenues is related to Tyree and Epic. Tyree and Epic's net revenues decreased by over $4 million, but the difference was partially offset by an increase in net revenues for Baker's Pride and the addition of EQS's net revenues for the three months ended June 30, 2011. A breakout of net revenue by subsidiary company can be found on the footnotes to the financial statements as filed with this Form 10-Q. COST OF REVENUES Cost of revenues for the three month period ended June 30, 2011 totaled $11,804,357, or approximately 73.3% of net revenues compared to $14,476,237 or approximately 76.7% of net revenues for the three month period ended June 30, 2010. A detailed analysis of each subsidiary company's individual cost of revenue can be found within their respective management's discussions and analysis sections of this Form 10-Q. 29
OPERATING EXPENSES Operating expenses for the three month period ended June 30, 2011 totaled $5,273,032 compared to $4,725,791 for the three month period ended June 30, 2010, an increase in operating expenses of $547,241, or approximately 11.6%. The primary reason for the increase in operating expenses is related to Amincor's corporate headquarters which has been included in the six months ended June 30, 2011 figures but was not included in the six months ended June 30, 2010 as there were no material operations within Amincor as of June 30, 2010. LOSS FROM OPERATIONS Loss from operations for the three month period ended June 30, 2011 totaled $969,021 compared to $323,383 for the three month period ended June 30, 2010, an increase in loss from operations of $645,638, or approximately 199.7%. The primary reason for the increase in loss from operations are related to the decreases in net revenue and the increases in operating expenses as noted above. OTHER EXPENSES (INCOME) Other expenses for the three month period ended June 30, 2011 totaled $48,898 compared to $465,781 for the three month period ended June 30, 2010, a decrease in other expenses of $416,883, or approximately 89.5%. The primary reason for the decrease in other expenses is related to interest expense eliminated in consolidation (amounts due to Amincor, Inc.) in the preparation of the 2011 financial statements that were not able to be eliminated in the 2010 financial statements (amounts were due to related parties). NET LOSS FROM CONTINUING OPERATIONS Net loss from continuing operations for the three month period ended June 30, 2011 totaled $1,107,919 compared to $909,164 for the three month period ended June 30, 2010, an increase in loss from operations of $108,755, or approximately 12.0%. The primary reason for the increase in loss from operations is related to the decrease in net revenues alongside the increase in operating expenses being partially offset by the decreases in other expenses in the three months ended June 30, 2011 when compared to the three months ended June 30, 2010. NET LOSS FROM DISCONTINUED OPERATIONS Net loss from discontinued operations totaled $3,797,134 for the three months ended June 30, 2011 compared to a net loss of $504,942 for the three months ended June 30, 2011, an increase in net loss of $3,292,192, or approximately 652.0%. The net loss from discontinued operations related to Masonry Supply Holding Corp. was $2,785,100 for the three month period ended June 30, 2011 compared to a net loss of $310,834 for the three month period ended June 30, 2010, an increase in net loss of $2,474,266, or approximately 796.0%. The primary reason for the increase in net loss was related to asset write downs associated with the discontinuation of Masonry, including a write- off of its intangible assets, a write down on its property, plant and equipment to its expected net realizable value, a write-down of inventory to its expected net realizable value and an increase in the reserve on Masonry's existing accounts receivable. The net loss from discontinued operations related to Tulare Frozen Foods, LLC was $1,012,034 for the three months ended June 30, 2011 compared to a net loss of $194,108 for the three months ended June 30, 2010, an increase in 30
net loss of $817,926, or approximately 421.4%. The primary reason for the increase in net loss was related to the operations of Tulare Frozen Foods, LLC and the inability of the company to increase prices related to rising raw material costs. NET LOSS Net loss for the three month period ended June 30, 2011 totaled $4,815,053 compared to $1,414,106 for the three month period ended June 30, 2010, an increase in net loss of $3,518,866, or approximately 272.0%. The primary reason for the increase in net loss is related to the increases in operating expenses alongside the decreases in net revenues as mentioned above. In addition, the additional losses incurred due to the write offs on the discontinued operations further contributed to the decrease in net loss between the two periods. BAKER'S PRIDE, INC. SEASONALITY Seasonality does not influence revenue or results in our present operation; however, as we expand and diversify into additional categories seasonality will become more of a factor. RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND 2010 NET REVENUE Net revenue for the six month period ended June 30, 2011 totaled $7,260,647 compared to $6,599,629 for the six month period ended June 30, 2010, an increase of $661,018, or approximately 10.0%. All revenue was generated by Bakers Pride's Jefferson Street Bakery, Inc. as the company's Mt. Pleasant Street Bakery, Inc. is awaiting funds to complete start-up of donut, brownie and cookie production. Bakers Pride's bread category sales for the six month period ended June 30, 2011 totaled $6,682,801 compared to $6,086,243, an increase of $596,558, or approximately 9.8%. The increase was due to increase in units produced as well as increase in wholesale prices. The negotiated increase of BPI's wholesale prices occurred in late March 2011; as an offset to higher input costs that occurred in the fourth quarter 2010 and first quarter 2011. Bakers Pride's donut category for the six month period ended June 30, 2011 totaled $577,846 compared to $513,386 for the six month period ended June 30, 2010 an increase of $64,460, or approximately 12.6%. COST OF REVENUE Cost of revenue for the six month period ended June 30, 2011 totaled $5,077,367, or approximately 69.9% of net revenue, compared to $4,450,317, or approximately 67.4% of net revenue for the six month period ended June 30, 2010. Cost of revenue was affected by broad based inflation related expenses such as energy costs, vehicle expenses and operating supplies. Repairs and Maintenance expense increased due to upgrades to BPI's Jefferson Street facility. 31
OPERATING EXPENSE Operating expense for the six month period ended June 30, 2011 totaled $2,211,966 compared to $1,941,959 for six month period ended June 30, 2010; an increase of $270,007, or approximately 13.9%. Operating expenses as a percentage of sales are expected to decrease with the start up of the company's Mt. Pleasant Street facility and as other business development projects come on line. INCOME (LOSS) FROM OPERATIONS Loss from operations for the six month period ended June 30, 2011 totaled ($28,686), or approximately 0.4 % of net revenue, compared to income of $207,352 or 3.1% of net revenue for the six month period ended June 30, 2010. This decrease in income from operations for the six month period ending June 30, 2011 was due primarily to higher input costs in the first quarter of 2011 and the inability to improve wholesale pricing until late March 2011. In the second quarter of 2011, average wholesale pricing increased adequately to offset higher input costs. Loss from operations for the six month period ending June 30, 2011 was 0.4% as a percentage of net revenues compared to a loss of 2.0 % for the three month period ending March 31, 2011. OTHER EXPENSE (INCOME) Other expense for the six month period ended June 30, 2011 totaled $129,894 compared to other expense of $393,924 for the six month period ended June 30, 2010, a decrease of $264,031, or approximately 67.0%. The decrease in other expense is primarily due to an unusual charge of $148,495 related to flash flood that occurred in May 2010 and a continuing reduction in interest expense as a result of renegotiated interest rate on the company's loans due to its parent. Other income for the six month period ending June 30, 2011 totaled ($26,859) compared to other income of ($33,964) for the six month period ending June 30, 2011, a decrease of $7,105, or approximately 20.9%. The decrease in other income was primarily due a non recurring payment of $11,753 during the six month period ending June 30, 2010. NET LOSS Net loss for the six month period ending June 30, 2011 totaled $158,579, compared to net loss of $186,572 for the six month period ending June 30, 2010 a decrease in net loss of $27,992, or approximately 15.0%. This decrease in net income was primarily due to higher cost of goods and improvement in facilities with delayed wholesale pricing increases to offset higher cost of goods. RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND 2010 NET REVENUE Net revenue for the three month period ended June 30, 2011 totaled $3,754,152 compared to $3,131,725 for the three month period ended June 30, 2010, an increase of $622,426, or approximately 19.9 %. The increase in net revenue was primarily the result of increase in unit sales of 12.0% as well as increase to the average wholesale prices of approximately 7%. The 12% increase in the three month period ending June 30, 2011 as compared to the three month period ending June 30, 2010 was due to the loss of production in May 2010 due to a flash flood 32
that resulted in 5 days of lost sales. All revenue was generated by Bakers Pride's Jefferson Street Bakery, Inc. as the company's Mt. Pleasant Street Bakery, Inc. is awaiting funds to complete start-up of donut, brownies and cookie production. Bakers Pride's bread category sales for the three month period ended June 30, 2011 totaled $3,446,637 compared to $2,888,259 for the three month period ended June 30, 2010, an increase of $558,378, or approximately 19.3%. Bakers Pride's donut category sales for the three month period ended June 30, 2011 totaled $307,515, compared to $243,466 for the three month period ended June 30, 2010 an increase of $64,049, or approximately 26.3%. Increases in both categories were attributed to loss of production and corresponding sales in May 2010 and increased wholesale prices when compared to the three month period ending June 30, 2010. COST OF REVENUE Cost of revenue for the three month period ended June 30, 2011 totaled $2,601,549, or approximately 69.3% of net revenue, compared to $2,201,497, or approximately 70.3% of net revenue for the three month period ended June 30, 2010. The increase in the cost of revenue dollars was primarily the result of Bakers Pride's direct materials costs (ingredients and packaging) increasing as well as incremental costs related to producing additional units. Cost of revenue also increased due to inflation in energy related expenses. OPERATING EXPENSE Operating expenses for the three month period ended June 30, 2011 totaled $1,109,891 compared to $886,417 for three month period ended June 30, 2010, an increase of $223,473, or approximately 25.2%. The increase in operating expense was primarily due to additional production days in comparison to prior year, increase in professional expenses and other business building initiatives. Operating expenses as a percentage of sales are expected to decrease with the start up of the company's Mt. Pleasant Street facility and as other business development projects come on line. INCOME FROM OPERATIONS Income from operations for the three month period ended June 30, 2011 totaled $42,712, or approximately 1.1 % of net revenue, compared to income of $ $43,811, or approximately 1.4% of net revenue for the three month period ended June 30, 2010. This decrease in net income from operations for the three month period ending June 30, 2011 compared to the three month period ending June 30, 2010 was due primarily to higher operating expenses. OTHER EXPENSE (INCOME) Other expense for the three month period ending June 30, 2011 totaled $71,156 compared to other expense of $268,706 for the period ending June 30, 2010, a decrease of $ 197,550, or approximately 73.5%. The decrease in other expense was primarily due to difference in insurance payments versus actual payments for expenses related to flash flood in May 2010. Other income for the three month period ending June 30, 2011 totaled ($12,436), compared to other income of ($16,867) for the three month period ending June 30, 2010, a decrease of $4,431, or approximately 26.3%. The decrease to other income was primarily due a reduction in rental income. 33
NET LOSS Net loss for the three month period ending June 30, 2011 totaled $28,444 compared to net loss of $224,894 for the three month period ended June 30, 2010, a decrease in net loss of $196,451, or approximately 73.5%. The decrease in net loss was a primarily a result of increased revenue, as well as an increase in gross profit as outlined above EPIC SPORTS INTERNATIONAL, INC. Note: The three and six months ended June 30, 2010's performance varied significantly when compared to the three and six months ended June 30, 2011 due to the signing of the Samsung C&T Strategic Alliance Agreement on October 26, 2010. As a result, Epic's revenue stream significantly decreased after the signing of the agreement. Epic now only recognizes revenue through commission income paid from Samsung and does not incur physical product expenses related to cost of goods sold. RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND 2010 NET REVENUE Net revenue for the six month period ended June 30, 2011 totaled $939,530 compared to $2,432,926 for the six month period ended June 30, 2010, a decrease of $1,493,396, or approximately 61.4%. At the Samsung level, gross sales totaled $2,774,720 for the six month period ended June 30, 2011 compared to $2,432,926 for the six month period ended June 30, 2010, an increase of $341,794, or approximately 14.0%. The primary reason for this increase in gross sales was due to the launch of its new "Organix" product line and the increased consumer demand for this product during the six month period ended June 30, 2011 when compared to the six month period ended June 30, 2010. COST OF REVENUE Cost of revenue for the six month period ended June 30, 2011 totaled $0 compared to $1,480,151, or approximately 60.8% of net revenues for the six month period ended June 30, 2010, a decrease of $1,480,151. The reason for the significant decrease in cost of revenue is related to the agreement with Samsung signed in October 2010. OPERATING EXPENSES Operating expenses for the six month period ended June 30, 2011 totaled $915,971, or approximately 97.5% of sales compared to $1,593,310, or approximately 65.5% of sales for the six month period ended June 30, 2010, a decrease of $677,518, or approximately 42.5%. The decrease in operating expenses for the six month period ended June 30, 2011 was primarily due to an initiative to control spending; more specifically with emphasis on expenditures related to marketing and promotion, a reduction in staff and on third party consulting. 34
INCOME (LOSS) FROM OPERATIONS Income from operations for the six month period ended June 30, 2011 totaled $23,739, or approximately 2.5% of net revenues compared to a loss from operations of ($640,535) or 26.3% of sales for the six month period ended June 30, 2010, an increase in income from operations of $664,274. The primary reason for this increase is related to the agreement with Samsung signed in October 2010 alongside management initiatives to reduce operating expenses. INTEREST EXPENSE Interest expense for the six month period ended June 30, 2011 totaled $5,269 compared to $68,728 for the six month period ended June 30, 2011, a decrease of $63,459, or approximately 92.3%. The decrease in interest expense was attributed to a lower carrying balance on Epic's purchase order financing agreement in addition to a reduction in the interest rate on the purchase order financing agreement from 16% to 8.32% per annum. Further reductions in interest expense are attributable to a reduction in factor fees due to Samsung collecting receivables on behalf of ESI. NET INCOME (LOSS) Net income for the six month period ended June 30, 2011 totaled $18,470, or approximately 2.0% of net revenues compared to a net loss of ($709,263) for the six month period ended June 30, 2010, or approximately 29.2% of net revenues, an increase in net income of $727,733. The increase in net income is primarily the result of the new financing received from Samsung along with the signing of the aforementioned agreement in October 2010, and the previously mentioned operating expense reductions. RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND 2010 NET REVENUE Net revenue for the three month period ended June 30, 2011 totaled $412,188 compared to $1,037,833 for the three month period ended June 30, 2010, a decrease of $625,646, or approximately 60.3%. At the Samsung level, gross sales totaled $1,268,678 for the three month period ended June 30, 2011 compared to $1,037,833 for the three month period ended June 30, 2010, an increase of $230,845, or approximately 22.2%. The primary reason for this increase in gross sales was due to the launch of its new "Organix" product line and the increased consumer demand for this product during the three month period ended June 30, 2011 when compared to the three month period ended June 30, 2010. COST OF REVENUE Cost of revenue for the three month period ended June 30, 2011 totaled $0 compared to $616,038, or approximately 59.4% of net revenue for the three month period ended June 30, 2010, a decrease of $616,013. The reason for the significant decrease in cost of revenue is related to the agreement with Samsung signed in October 2010. 35
OPERATING EXPENSES Operating expenses for the three month period ended June 30, 2011 totaled $333,985, or approximately 81.0% of net revenues compared to $908,992, or approximately 87.6% of net revenues for the three month period ended June 30, 2010, a decrease of $575,007, or approximately 63.3%. The decrease in operating expenses for the three month period ended June 30, 2011 was primarily due to an initiative to control spending; more specifically with emphasis on expenditures related to marketing and promotion, reduction in staff, and third party consulting. INCOME (LOSS) FROM OPERATIONS Income from operations for the three month period ended June 30, 2011 totaled $78,203, or approximately 19.0% of net revenues compared to a loss from operations of ($487,197), or approximately 46.9% of net revenues for the three month period ended June 30, 2010, an increase in income from operations of $565,400. The increase in income from operations was primarily related to the aforementioned initiatives to control spending in addition to the agreement with Samsung signed in October 2010. INTEREST EXPENSE Interest expense for the three month period ended June 30, 2011 totaled $174 compared to $19,767 for the three month period ended June 30, 2010, a decrease of $19,593 or 99.1%. The decrease in interest expense was attributed to a lower carrying balance on Epic's purchase order financing agreement in addition to a reduction in the interest rate on the purchase order financing agreement from 16% to 8.32% per annum. Further reductions in interest expense are attributable to a reduction in factor fees due to Samsung collecting receivables on behalf of Epic. NET INCOME (LOSS) Net income for the three month period ended June 30, 2011 totaled $78,029, or approximately 18.9% of net revenue, compared to a net loss of $(506,964), or approximately 48.8% of net revenue for the three month period ended June 30, 2010, an increase in net income of $584,993. The increase in net income is primarily the result of the new financing received from Samsung along with the signing of the aforementioned agreement in October 2010. TYREE HOLDINGS CORP. SEASONALITY Historically, Tyree's revenues tend to be lower during the first quarter of the year as Tyree's customers complete their planning for the upcoming year. In 2011, another contributing factor to lower first quarter revenues was the severe weather experienced in the Northeast, Tyree's primary market area, which prohibited some work from being performed. Approximately 30% of Tyree's revenue comes from new capital investments of its customers. This spending is cyclical and tends to mirror the condition of the economy. During normal conditions, Tyree will need to draw from its borrowing base early in the year and then pay 36
down the borrowing base as the year progresses and it is able to earn income. The highest revenue generation occurs from late in the second quarter through the third quarter. AMOUNT DUE FROM FACTOR AND INVENTORY Tyree maintains a $15,000,000 revolving credit agreement with its parent, Amincor, Inc. which expires on January 17, 2013. Borrowings under this agreement are limited to 70% of eligible accounts receivable and the lesser of 50% of eligible inventory or $4,000,000. The balances outstanding under this agreement were $5,092,618 and $4,154,058 as of June 30, 2011 and 2010, respectively. Borrowings under this agreement are collateralized by a first lien security interest in all tangible and intangible assets owned by Tyree. Tyree had approximately $9,907,382 and $10,845,942 of unused amounts available on the revolving credit agreement at June 30, 2011 and 2010, respectively, subject to borrowing base limitations. The annual interest rate charged on this loan was approximately 5% for the six months ended June 30, 2011 and 2010, respectively. LIQUIDITY Management is currently seeking a new asset based lender that will provide a new credit facility to support the growth of Tyree. Recent activity in this search has been encouraging. Although Management is confident that it will succeed in negotiating a new credit facility for Tyree, there are no assurances that it will be successful. Management believes they have sufficient access to working capital to sustain operations through June 30, 2012. EXISTING CREDIT FACILITIES Tyree's current revolving credit facility has an available credit line of $2,163,000. During 2010, Tyree reduced the total amount due on the facility by $1,449,000, however the eligible collateral also was reduced by approximately the same amount. The existing credit facility is sufficient to support the existing business volume of Tyree, but growth will be difficult until either new working capital is earned through retained earnings or new equity is invested into Tyree to facilitate organic and acquisition based growth. RESULTS FROM OPERATIONS FOR THE SIX MONTH PERIOD ENDED JUNE 30, 2011 AND 2010 NET REVENUE Net revenue for the six months ended June 30, 2011 totaled $22,055,774 compared to $27,672,136 for the six months ended June 30, 2010, a decrease of $5,616,362, or approximately 20.3%. The decrease is due to the extremely harsh weather endured by the Northeast region of the US during the first quarter, the continued sluggish US economy and the affect of higher oil prices on Tyree's major customers. To preserve cash, Tyree slowed payments to vendors. This further reduced revenues especially on time and materials billings for the Construction and Environmental business units. Below is an analysis of revenue by business unit for the six months ending June 30, 2011 and June 30, 2010. 37
REVENUES 2011 2010 ------------ ------------ Service and Construction $ 15,192,921 $ 18,255,243 Environmental, Compliance and Engineering 6,610,044 9,008,566 Manufacturing / International 252,809 408,327 ------------ ------------ Total $ 22,055,774 $ 27,672,136 ============ ============ COST OF REVENUE Cost of revenue for the six months ended June 30, 2011 totaled $17,132,775, or approximately 77.7% of net revenue compared to $21,140,728, or 76.4% of net revenue for the six months ended June 30, 2010, a decrease of $4,007,953, or approximately 19.0%. The decrease in cost of revenue reflects the decrease in revenue discussed in the revenue section above, plus continued success with Tyree's efforts at improving margins. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the six months ended June 30, 2011 totaled $5,310,945, or approximately 24.1% of net revenue compared to $5,607,633, or approximately 20.3% of net revenue for the six months ended June 30, 2010, a decrease of $296,687, or approximately 5.3%. The decrease in selling, general and administrative costs during the six months ended June 30, 2011 was due to cost reductions related to personnel layoffs at the end of first quarter. Management expects the costs to remain at this reduced level for the balance of the year. INCOME (LOSS) FROM OPERATIONS The loss from operations for the six months ended June 30, 2011 totaled ($387,946), or approximately (1.4%) of net revenue, compared to the profit from operations of $923,775, or approximately 3.3% of net revenue for the six months ended June 30, 2010, a decrease in profit from operations of ($1,311,721). The decrease in profit from operations was primarily due to the revenue shortfall noted above, even though profit margins for the second quarter increased and selling, general and administrative expenses were reduced. INTEREST EXPENSE Interest expense for the six months ended June 30, 2011 totaled $945,534, or approximately 3.4% of net revenue compared to $288,166, or approximately 1.0% of net revenue for the six months ended June 30, 2010, an increase of $657,368, or approximately 228.1%. The increase in interest expense during the six months ended June 30, 2011 was primarily due to an increase in borrowings from the credit facilities early in the period noted above. 38
OTHER INCOME Other income for the six months ended June 30, 2011 totaled $13,254 compared to other income of $8,029 for the six months ended June 30, 2010, an increase in other income of $5,225, or approximately 65.1%. This income mainly comes from the sale of obsolete equipment and scrap materials. NET INCOME (LOSS) Net loss for the six months ended June 30, 2011 totaled ($1,320,226) compared to a net income of $643,638 for the six months ended June 30, 2010, a decrease in net income of $1,963,864. The decrease in net profit was primarily due to the factors noted above net of the increase in income taxes of $120,000. RESULTS FROM OPERATIONS FOR THE THREE MONTH PERIOD ENDED JUNE 30, 2011 AND 2010 NET REVENUE Net revenue for the three months ended June 30, 2011 totaled $11,612,549 compared to $14,709,087 for the three months ended June 30, 2010, a decrease of $3,096,538, or approximately 21.1%. The decrease is primarily due to the continued sluggish US economy and the affect of higher oil prices on Tyree's petroleum marketing customers. The situation was compounded by a work slowdown by one of Tyree's major customers. To preserve cash, Tyree slowed payments to vendors. This further reduced revenues especially on time and materials billings for the Construction and Environmental business units. Below is an analysis of revenue by business unit for the three months ending June 30, 2011 and June 30, 2010. REVENUES 2011 2010 ------------ ------------ Service and Construction $ 7,878,382 $ 9,799,753 Environmental, Compliance and Engineering 3,560,151 4,679,479 Manufacturing / International 174,016 229,855 ------------ ------------ Total $ 11,612,549 $ 14,709,087 ============ ============ COST OF REVENUE Cost of revenue for the three months ended June 30, 2011 totaled $8,930,106, or approximately 76.9% of net revenue compared to $11,658,701, or 79.3% of net revenue for the three months ended June 30, 2010, a decrease of $2,728,595, or approximately 23.4%. The decrease in cost of revenue reflects the decrease in revenue discussed in the revenue section above, plus continued success with Tyree's efforts at improving margins. 39
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses for the three months ended June 30, 2011 totaled $2,611,900, or approximately 22.5% of net revenue compared to $2,930,383, or approximately 19.9% of net revenue for the three months ended June 30, 2010, a decrease of $318,482, or approximately 10.9%. The decrease in selling, general and administrative costs during the three months ended June 30, 2011 was due to cost reductions related to personnel layoffs at the end of the first quarter. Management expects the costs to remain at this reduced level for the balance of the year. INCOME FROM OPERATIONS Income from operations for the three months ended June 30, 2011 totaled $70,543, or approximately 0.6% of net revenue, compared to the income from operations of $120,003, or approximately 0.8% of net revenue for the three months ended June 30, 2010, a decrease in income from operations of $49,460, or approximately 41.2%. The decrease in income from operations was primarily due to the revenue shortfall noted above, even though profit margins increased, and selling, general and administrative expenses were reduced. INTEREST EXPENSE Interest expense for the three months ended June 30, 2011 totaled $207,964, or approximately 1.8% of net revenue compared to $181,357, or approximately 1.2% of net revenue for the three months ended June 30, 2010, an increase of $26,607, or approximately 14.7%. The increase in interest expense during the three months ended June 30, 2011 was primarily due to an increase in borrowing from the credit facilities noted above early in the period. OTHER INCOME Other income for the three months ended June 30, 2011 totaled $5,665 compared to other income of $4,049 for the three months ended June 30, 2010, an increase in other income of $1,616, or approximately 39.9%. This income mainly comes from the sale of obsolete equipment and scrap materials. NET INCOME (LOSS) Net loss for the three months ended June 30, 2011 totaled ($131,756) compared to a net loss of ($177,305) for the three months ended June 30, 2010, a decrease in net loss of $45,549, or approximately 25.7%. The decrease in net loss was primarily due to the factors noted above net of the increase in income taxes of $120,000. 40
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. Amincor has not entered into, and does not expect to enter into, financial instruments for trading or hedging purposes. ITEM 4. CONTROLS AND PROCEDURES. EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES. We maintain "disclosure controls and procedures" as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934. In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met. Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Our management, including our Chief Executive Officer and our Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on such evaluation, and as discussed in greater detail below, our Chief Executive Officer and Chief Financial Officer have concluded that, as of the end of the period covered by this report, our disclosure controls and procedures were not effective: * to give reasonable assurance that the information required to be disclosed by us in reports that we file under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and * to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is accumulated and communicated to our management, including our CEO and our CFO, to allow timely decisions regarding required disclosure. CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING. Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15 of the Securities Exchange Act of 1934. Our internal control system was designed to provide reasonable assurance to our management and the Board of Directors regarding the preparation and fair presentation of published financial statements. Our internal control over financial reporting includes those policies and procedures that: * pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, 41
* provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of management and directors, and * provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Our management has not assessed the effectiveness of our internal control over financial reporting as of June 30, 2011. Management understands that in making this assessment, it should use the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in its Internal Control-Integrated Framework. Although an assessment using those criteria has not been performed, our management believes that the Company's internal control over financial reporting was not effective at June 30, 2011. As of the date of this report, we have been unable to complete a full assessment and adequately test our internal control over financial reporting and accordingly lack the documented evidence that we believe is necessary to support an assessment that our internal control over financial reporting is effective. Without such testing, we cannot conclude whether there are any material weaknesses, nor can we appropriately remediate any such weaknesses that might have been detected. Therefore, there is a possibility that misstatements which could be material to our annual or interim financial statements could occur that would not be prevented or detected. There have been no changes in our internal control over financial reporting during our first fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. We will complete our assessment of internal control over financial reporting and take the remediation steps detailed below to enhance our internal control over financial reporting and reduce control deficiencies. With regards to the improvement of our internal controls over financial reporting, we believe the following steps will assist in reducing our deficiencies, but will not completely eliminate them. We will continue to work on the elimination of control weaknesses and deficiencies noted. Management of the Company takes very seriously the strength and reliability of the internal control environment for the Company. Going forward, the Company intends to implement new internal policies and undertake additional steps necessary to improve the control environment including, but not limited to: * Implementing an internal disclosure policy to govern the disclosure of material, non-public information in a manner designed to provide full and fair disclosure of information about the Company. This disclosure policy is intended to ensure that management and employees of the Company and its subsidiaries comply with applicable laws including the 42
U.S, Securities Exchange Commission ("SEC") Fair Disclosure Rules (Regulation FD) governing disclosure of material, non-public information to the public. * Strengthening the effectiveness of corporate governance through the implementation of standard policies and procedures and training employees. * Establishing an audit committee of the Board. * Assigning additional members of the management team to assist in preparing and reviewing the ongoing financial reporting process. Management is committed to and acknowledges its responsibility for internal controls over financial reporting and seeks to continually improve these controls. In order to eventually achieve compliance with Section 404 of the Sarbanes Oxley Act, we intend to perform the system and process evaluation needed to comply with Section 404 of the Sarbanes Oxley Act as soon as reasonably possible. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. Counsel for the former President of Masonry has indicated an intent to file suit against Imperia Masonry Supply Corp. The allegations of such potential action are unknown to management at this point. The former President signed a generally release of all claims and, accordingly, management believes any claims made by the former President have no merit or basis in law. Amincor, as an assignee of Capstone Business Credit, LLC, a related party, is the plaintiff in a foreclosure action against Imperia Family Realty, LLC and has been granted a Judgment of Foreclosure. A former principal of Imperia Bros. Inc. filed a countersuit in response to the foreclosure action. Amincor believes this countersuit, which is being contested, is frivolous and will not be successful. Management believes the litigation described above will not have a material impact on the Registrant or its related subsidiary companies. Other than noted above, Registrant is not presently a party to any litigation, claim or assessment against it, and is unaware of any unasserted claim or assessment which will have a material effect on the financial position or future operations of Registrant. No director, executive officer or affiliate of the Registrant or owner of record or beneficially of more than five percent of the Registrant's common stock is a party adverse to Registrant or has a material interest adverse to Registrant in any proceeding. 43
ITEM 1A. RISK FACTORS. RISK FACTORS RELATING TO AMINCOR'S SECURITIES OUR STATUS AS A PUBLIC REPORTING COMPANY MAY BE A COMPETITIVE DISADVANTAGE. We are and will continue to be subject to the disclosure and reporting requirements of applicable U.S. securities laws. Many of our principal competitors are not subject to these disclosure and reporting requirements. As a result, we may be required to disclose certain information and expend funds on disclosure and financial and other controls that may put us at a competitive disadvantage to our principal competitors. SHAREHOLDERS WILL HAVE LITTLE INPUT REGARDING OUR MANAGEMENT DECISIONS DUE TO THE LARGE OWNERSHIP POSITION HELD BY OUR EXISTING MANAGEMENT AND THUS IT WOULD BE DIFFICULT FOR SHAREHOLDERS TO MAKE CHANGES IN OUR OPERATIONS OR MANAGEMENT. THEREFORE, SHAREHOLDERS WILL BE SUBJECT TO DECISIONS MADE BY MANAGEMENT WHO ARE THE MAJORITY SHAREHOLDERS, INCLUDING THE ELECTION OF DIRECTORS. Our officers and directors directly own 6,426,320 shares of the total of 7,478,409 issued and outstanding Class A voting shares of our common stock (or approximately 86% of our outstanding voting stock) and are in a position to continue to control us. Such control enables our officers and directors to control all important decisions relating to the direction and operations of the Company without the input of our investors. Moreover, investors will not be able to effect a change in our Board of Directors, business or management. OUR STOCKHOLDERS MAY HAVE DIFFICULTY RESELLING THEIR STOCK DUE TO THE ABSENCE OF A PUBLIC TRADING MARKET. There is presently no public trading market for our common stock. We intend in the future to seek a market maker to apply to have our common stock quoted on the Over-the-Counter Bulletin Board, but have not done so to date. Until there is an established trading market, holders of our common stock may find it difficult to sell their stock or to obtain accurate quotations for the price of the common stock. Even if a market for our common stock does develop, our stock price may be volatile, and such market may not be sustained. BROKER-DEALERS MAY BE DISCOURAGED FROM EFFECTING TRANSACTIONS IN OUR SHARES BECAUSE THEY MAY BE CONSIDERED PENNY STOCKS AND MAY BE SUBJECT TO THE PENNY STOCK RULES. Rules 15g-1 through 15g-9 promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), impose sales practice and disclosure requirements on broker-dealers who make a market in "penny stocks." Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on some national securities exchanges). Our shares currently are not traded on any stock exchange nor are they quoted on the Over-the-Counter Bulletin Board. We may in the future seek a market maker to apply to have our common stock quoted on the Over-the-Counter Bulletin Board, but have not done so to date. If we are successful in finding a market maker and successful in applying for quotation on the Over-the-Counter Bulletin Board, our stock may be considered a "penny stock." In that case, purchases and sales of our shares will be generally facilitated by broker-dealers who act as market makers for our shares. 44
Under the penny stock regulations, a broker-dealer selling penny stock to anyone other than an established customer or "accredited investor" (as defined by the Securities Act of 1933, as amended) must make a special suitability determination for the purchaser and must receive the purchaser's written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the SEC relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer's account and information with respect to the limited market in penny stocks. The additional sales practice and disclosure requirements imposed upon broker-dealers selling penny stock may discourage such broker-dealers from effecting transactions in our shares, which could severely limit the market liquidity of the shares and impede the sale of our shares in the secondary market. INVESTORS THAT NEED TO RELY ON DIVIDEND INCOME OR LIQUIDITY SHOULD NOT PURCHASE SHARES OF OUR COMMON STOCK. We do not anticipate paying any dividends on our common stock for the foreseeable future. Investors that need to rely on dividend income should not invest in our common stock, as any income would only come from any rise in the market price of our common stock, which is uncertain and unpredictable. Investors that require liquidity should also not invest in our common stock. There is no established trading market, and should one develop, it will likely be volatile and such market may not be sustained. HOLDERS OF OUR COMMON STOCK MAY INCUR IMMEDIATE DILUTION AND MAY EXPERIENCE FURTHER DILUTION BECAUSE OF OUR ABILITY TO ISSUE ADDITIONAL SHARES OF COMMON STOCK AND AS A RESULT OF THE POSSIBLE EXERCISE OF HOLDERS OF OUR PREFERRED STOCK TO CONVERT TO COMMON STOCK AFTER JANUARY 1, 2011. We are authorized to issue up to 22,000,000 shares of Class A voting common stock and 40,000,000 shares or Class B non-voting common stock and 3,000,000 shares of Preferred Stock. At present, there are 7,478,409 Class A common shares and 21,176,262 Class B common shares and 1,752,823 shares of Preferred Stock issued and outstanding. Our Preferred Shares are convertible into 10,752,823 shares of Common Stock. Accordingly, The conversion of our Preferred Stock would result in dilution to our current holders of common stock and once our common stock is trading could cause a significant decline in the market price for our common stock. FINANCIAL INDUSTRY REGULATORY AUTHORITY SALES PRACTICE REQUIREMENTS MAY ALSO LIMIT A STOCKHOLDER'S ABILITY TO BUY AND SELL OUR STOCK. In addition to the "penny stock" rules described above, the Financial Industry Regulatory Authority, or FINRA, has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information 45
about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares. WE ARE SUBJECT TO THE PERIODIC REPORTING REQUIREMENTS OF THE EXCHANGE ACT THAT WILL REQUIRE US TO INCUR AUDIT FEES AND LEGAL FEES IN CONNECTION WITH THE PREPARATION OF SUCH REPORTS. THESE ADDITIONAL COSTS COULD REDUCE OR ELIMINATE OUR ABILITY TO EARN A PROFIT. We are required to file periodic reports with the SEC pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major affect on the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. We may be exposed to potential risks resulting from new requirements under Section 404 of the Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly. POTENTIAL CONFLICTS OF INTEREST The directors and officers of the Amincor parent company have no obligation to devote full time to the business of the Company. They are required to devote only such time and attention to the affairs of the Company, as they may deem appropriate in their sole discretion. It is anticipated that they will each spend approximately 70% of their time on their duties related to Amincor but they are under no obligation to continue to do so, nor are they restricted by an agreement not to compete with the Company and they may engage in other activities or ventures which may result in various conflicts of interest with the Company. GENERAL RISK FACTORS RELATING TO AMINCOR'S SUBSIDIARIES AMINCOR MAY NEED ADDITIONAL CAPITAL IN THE FUTURE TO FUND THE GROWTH OF OUR SUBSIDIARY COMPANIES AND THIS NEW CAPITAL MAY NOT BE AVAILABLE. Amincor currently anticipates that its available capital resources and operating income will be sufficient to meet the expected working capital and capital expenditure requirements of its subsidiaries for at least the next 12 months. However, there can be no assurance that such resources will be sufficient to fund the long-term growth of the subsidiaries businesses. Amincor may raise additional funds through public or private debt or equity financings. Amincor cannot assure investors that any additional financing will be available on favorable terms, or at all. If adequate funds are not available or are not available on acceptable terms, Amincor may not be able to take advantage of 46
unanticipated opportunities, develop new products or otherwise respond to competitive pressures, or may be forced to curtail its business. In any such case, its business, operating results or financial condition would be materially adversely affected. OUR ABILITY TO RETAIN KEY PERSONNEL IN EACH OF OPERATING SUBSIDIARIES WILL BE AN IMPORTANT FACTOR IN THE SUCCESS OF OUR BUSINESS AND A FAILURE TO RETAIN KEY PERSONNEL MAY RESULT IN OUR INABILITY TO MANAGE AND IMPLEMENT OUR BUSINESS PLAN. We are highly dependent upon the management personnel of our subsidiary companies because of their experience in their respective industries. The competition for qualified personnel in the market in which our subsidiaries operate is intense and the loss of the services of one or more of these individuals in any of these business segments may impair management's ability to operate our subsidiaries. We have not purchased key man life insurance on any of these individuals, which insurance would provide us with insurance proceeds in the event of their death. Without key man life insurance, we may not have the financial resources to develop or maintain an affiliated business until we could replace such individual and replace any business lost by the departure of that person. OUR SUBSIDIARIES FACE COMPETITION FROM LARGER AND BETTER-ESTABLISHED COMPANIES. The market for products in our subsidiary businesses is highly competitive. Many of their competitors may have longer operating histories, greater financial, technical and marketing resources, and enjoy existing name recognition and customer bases. Competitors may be able to respond more quickly to technological change, competitive pressures, or changes in consumer demand. As a result of their advantages, competitors may be able to limit or curtail our ability to compete successfully. These competitive pressures could materially adversely affect our subsidiary businesses', financial condition, and results of operations. GLOBAL ECONOMIC CONDITIONS MAY MATERIALLY AND ADVERSELY AFFECT OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS. Unfavorable economic conditions, including the impact of recessions in the United States and throughout the world, may negatively affect our business and financial results. These economic conditions could negatively impact (i) consumer demand for our products, (ii) the mix of our products' sales, (iii) our ability to collect accounts receivable on a timely basis, (iv) the ability of suppliers to provide the materials required in our operations and (v) our ability to obtain financing or to otherwise access the capital markets. The strength of the U.S. dollar versus other world currencies could result in increased competition from imported products and decreased sales to our international customers. A prolonged recession could result in decreased revenue, margins and earnings. Additionally, the economic situation could have an impact on our lenders or customers, causing them to fail to meet their obligations to us. The occurrence of any of these risks could materially and adversely affect our subsidiary businesses' financial condition and results of operations. SOME OF OUR OPERATING SUBSIDIARIES MAY BE SUBJECT TO ENVIRONMENTAL LAWS AND REGULATIONS THAT MAY RESULT IN ITS INCURRING UNANTICIPATED LIABILITIES, WHICH COULD HAVE AN ADVERSE EFFECT ON OUR OPERATING PERFORMANCE. 47
Federal, state and local authorities subject some of our facilities and operations to requirements relating to environmental protection. These requirements can be expected to change and expand in the future, and may impose significant capital and operating costs. Environmental laws and regulations govern, among other things, the discharge of substances into the air, water and land, the handling, storage, use and disposal of hazardous materials and wastes and the cleanup of properties affected by pollutants. If any of our subsidiary companies violate environmental laws or regulations, they may be required to implement corrective actions and could be subject to civil or criminal fines or penalties. There can be no assurance that we will not have to make significant capital expenditures in the future in order to remain in compliance with applicable laws and regulations. Contamination and exposure to hazardous substances can also result in claims for damages, including personal injury, property damage, and natural resources damage claims. Future events, such as changes in existing laws or policies or their enforcement, or the discovery of currently unknown contamination, may give rise to remediation liabilities or other claims that may be material. Environmental requirements may become stricter or be interpreted and applied more strictly in the future. These future changes or interpretations, or the indemnification for such adverse environmental conditions, could result in environmental compliance or remediation costs not anticipated by us, which could have a material adverse effect on our business, financial condition or results of operations. COMMODITY PRICE RISK. Some of our subsidiaries purchase certain products which are affected by commodity prices and are, therefore, subject to price volatility caused by weather, market conditions and other factors which are not considered predictable or within our control. Although many of the products purchased are subject to changes in commodity prices, certain purchasing contracts or pricing arrangements have been negotiated in advance to minimize price volatility. Where possible, we use these types of purchasing techniques to control costs. In many cases, we believe we will be able to address commodity cost increases that are significant and appear to be long-term in nature by adjusting our pricing. However, long-term increases in commodity prices may result in lower operating margins at some of subsidiaries. CHANGES OF PRICES FOR PRODUCTS. While the prices of a Subsidiary's products are projected to be in line with those from market competitors, there can be no assurance that they will not decrease in the future. Competition may cause a subsidiary to lower prices in the future. Moreover, it is difficult to raise prices even if internal costs of production increase. RISK FACTORS AFFECTING ENVIRONMENTAL QUALITY SERVICES, INC. EQS' RESULTS MAY FLUCTUATE DUE TO CERTAIN REGULATORY, MARKETING AND COMPETITIVE FACTORS OVER WHICH EQS HAS LITTLE OR NO CONTROL. The factors listed below are outside of EQS's control and may cause EQS' revenues and result of operations to fluctuate significantly, including, but not limited to: (i) actions taken by regulatory bodies relating to the verification 48
and certification of EQS products/services; (ii) the timing and size of customer purchases; and (iii) customer and/or distributors concerns about the stability of EQS' business which could cause them to seek alternatives to EQS products/services. EQS FACES CONSTANT CHANGES IN GOVERNMENTAL STANDARDS BY WHICH ITS PRODUCTS/SERVICES ARE EVALUATED. EQS believes that due to the constant focus on the environmental standards throughout the world, EQS may be required in the future to adhere to new and more stringent government regulations. Governmental agencies constantly seek to improve standards required for verification and/or certification of products and/or services. In the event EQS' products/services fail to meet these ever changing standards, some or all of its products/services may become obsolete or de-listed from government verification having a direct negative effect on EQS' ability to generate revenue and remain profitable. DEPENDENCE ON KEY PERSONNEL HOLDING LICENSES, PERMITS AND CERTIFICATIONS. EQS' success depends to an extent upon the performance of its employees, some of whom hold certain licenses, permits and certifications, including, but not limited to Ms. Patricia Els. The loss or inability to replace these employees holding the licenses, permits or certifications necessary to conduct EQS' business, could adversely affect its business and prospects and operating results and/or financial condition. THE FACTORS ABOVE ARE NOT EXHAUSTIVE. FOR A MORE COMPLETE LIST OF RISK FACTORS AFFECTING THE COMPANY AND ITS SUBSIDIARIES, PLEASE REFER TO THE COMPANY'S FORM 10-K FILED WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION ON APRIL 18, 2011, AND ANY AMENDMENTS THERETO. ITEM 5. OTHER INFORMATION. On August 12, 2011, Baker's Pride, Inc., through its wholly owned subsidiary, The South Street Bakery, Inc.("SSB") entered into a lease agreement (the "Lease Agreement") with Corbi Properties, LLC, an Iowa limited liability company and Clear Lake Specialty Products, Inc., an Iowa corporation (collectively, the "Landlord"). Pursuant to the Lease Agreement, SSB is leasing from the Landlord certain property and equipment located in Clear Lake, Iowa. The term of the Lease Agreement is one (1) year, with the right of an automatic one (1) year extension if SSB has complied with the terms of the Lease Agreement. SSB shall pay the Landlord $360,000 per year or monthly installments of $30,000. In addition to the monthly installments, SSB paid a security deposit of $60,000. Concurrently with the signing of the Lease Agreement, the Landlord granted SSB an irrevocable option to purchase all of the Landlord's right, title and interest in and to the property, plant and assets, as set forth in that certain option agreement, dated August 12, 2011, by and among the Landlord and SSB (the "Option Agreement"). In consideration for the grant of the option, SSB paid the Landlord $275,000 in cash (the "Option Payment"). The exercise price of the option is $3,607,000 less the Option Payment, any payments made pursuant to the Lease Agreement and any profit participation payments made pursuant to the terms of the Option Agreement. The option may be exercised at anytime between August 12, 2011 and 5:30 p.m. New York City time on August 11, 2012. 49
This summary of the Lease Agreement and the Option Agreement does not purport to be complete and is subject to, and qualified in its entirety by, the full text of the Lease Agreement and the Option Agreement filed as Exhibits 10.1 and Exhibit 10.2 hereto, respectively, and are incorporated by reference herein. ITEM 6. EXHIBITS. 10.1+ Lease Agreement, dated August 12, 2011, by and among The South Street Bakery, Inc., Corbi Properties, LLC and Clear Lake Specialty Products, Inc. 10.2+ Option Agreement, dated August 12, 2011, by and among The South Street Bakery, Inc., Corbi Properties, LLC and Clear Lake Specialty Products, Inc. 31.1+ Chief Executive Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2+ Chief Financial Officer's Certificate, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1+ Chief Executive Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. 32.2+ Chief Financial Officer's Certificate, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. ---------------- + Filed Herewith 50
SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. AMINCOR, INC. Date: August 16, 2011 By: /s/John R. Rice, III ---------------------------------------- John R. Rice, III, President Date: August 16, 2011 By: /s/ Robert L. Olson ---------------------------------------- Robert L. Olson, Chief Financial Officer 5