2. GOING CONCERN AND MANAGEMENT PLANS
The accompanying condensed consolidated financial statements have been prepared
assuming that the Company will continue as a going concern, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. The Company has suffered recurring net losses from
operations and had a working capital deficit of $39,591,042 and a stockholders'
deficiency of $22,266,098 as of September 30, 2014. In addition, the Company's
operating subsidiaries are heavily dependent on on-going funding from Capstone
Capital Group ("Capstone"), a related party, and Tyree continues to be involved
in legal matters and vendor payment disputes. These matters raise substantial
doubt about the Company's ability to continue as a going concern. The Company's
ability to continue as a going concern is dependent upon its ability to raise
additional funds through debt and equity financing, Capstone's willingness to
continue to fund operations, favorable outcomes regarding legal matters as
related to the operations of Tyree and the ability of Tyree to pay its
subcontractors timely for work performed. Management's plans to continue as a
going concern are as follows:
8
* Advanced Waste & Water Technology, Inc.
* Successfully selling large-scale waste water treatment equipment
through AWWT's established licensing agreement.
* Baker's Pride, Inc.
* Securing additional donut and bread customers to increase the
utilization of existing plant assets and place significant and
competitive bids to strategic players within the fresh bread
manufacturing industry, as well as increase revenues from its
existing customers,
* Increasing co-pack donut, bread and bun business once the
existing plant assets are operating at maximum capacity,
* Tyree Holdings Corp.
* Increasing sales of the environmental business unit to existing
customers and bid on additional jobs outside of Tyree's current
customer base. Tyree's ability to succeed in securing additional
environmental business depends on the ability of one of Tyree's
primary customers to secure remediation work by bidding on the
opportunity to remediate environmental liabilities currently
present on gasoline stations and referring this work to Tyree,
* Evaluating Tyree's construction business unit with respect to its
ability to increase margins and operate profitably,
* Amincor Other Assets, Inc.
* Liquidating assets held for sale to provide working capital to
the Company's subsidiaries,
* Leasing assets held for sale until they can be sold.
* Amincor, Inc.
* Securing new financing from a financial institution to provide needed
working capital to the subsidiary companies.
While management believes that it will be able to continue to raise capital from
various funding sources in order to sustain operations at the Company's current
levels through at least twelve months from the date of these financial
statements are issued, if the Company is not able to do so and if the Company is
unable to become profitable, the Company would likely need to modify its plans
and/or scale back its operations, liquidate certain assets, and/or file for
bankruptcy protection. If the Company raises additional funds through the
issuance of equity securities, substantial dilution to existing shareholders may
result. The condensed consolidated financial statements do not include any
adjustments that might be necessary if the Company is unable to continue as a
going concern.
9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
The condensed consolidated financial statements include the accounts of Amincor
and all of its consolidated subsidiaries (collectively, the "Company"). All
intercompany balances and transactions have been eliminated in consolidation.
As of September 30, 2014 and December 31, 2013, approximately 1% of Tyree is
controlled by a party unaffiliated with the Company. As a result, the Company
has presented the non-controlling interest's results from operations on the face
of the condensed consolidated financial statements.
USE OF ESTIMATES
The preparation of financial statements in conformity with U.S. 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
reserves and write-downs related to receivables and inventories, the
recoverability of long-lived assets, the valuation allowance relating to the
Company's deferred tax assets and the completion of contracts and loss
contingencies on particular uncompleted contracts. Actual results could differ
from those estimates. Certain of the Company's estimates, including the carrying
amount of the intangible assets, could be affected by external conditions,
including those unique to the Company and general economic conditions. It is
reasonably possible that these external factors could have an effect on the
Company's estimates and could cause actual results to differ from those
estimates.
REVENUE RECOGNITION
AWWT
AWWT provides water remediation and logistics services for its clients. AWWT
invoices clients based on bills of lading, which specify the quantity and type
of water treated. Revenue is recognized as water remediation services are
performed, prices are fixed and determinable, and collectability is reasonably
assured. Revenues are reduced for estimated discounts and other allowances, if
any.
BPI
Revenue is recorded net of discounts and is recognized when persuasive evidence
of an arrangement exists, delivery has occurred, the price to the customer is
fixed and determinable, and collection from the customer is reasonably assured.
The Company requires all of its product sales to be supported by evidence of a
sale transaction that clearly indicates the selling price to the customer,
shipping terms and payment terms. Evidence of an arrangement generally consists
of a contract or purchase order approved by the customer. The Company recognizes
revenue at the time it receives a confirmation that the goods were either
tendered at their destination when shipped "FOB destination," or transferred to
a shipping agent, when shipped "FOB shipping point." Delivery to the customer is
deemed to have occurred when the customer takes title to the product. Generally,
title passes to the customer upon shipment, but could occur when the customer
10
receives the product based on the terms of the agreement with the customer.
Customer sales discounts are accounted for as reductions of revenues in the same
period the related sales are recorded.
TYREE
Tyree provides environmental consulting, site assessment, analysis and
management of site remediation for owners and operators of property with
petroleum storage facilities. Revenue is recognized as services are provided,
prices are fixed and determinable, and collectibility is reasonably assured.
Revenues are reduced for estimated discounts and allowances, if any.
For the three and nine months ended September 30, 2014 and 2013, revenue
concentrations are as follows:
Percentage of Revenues for Percentage of Revenues for
Three Months Ended September 30, Nine Months Ended September 30,
-------------------------------- -------------------------------
2014 2013 2014 2013
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Customer A 45.9% 54.9% 43.3% 53.1%
|
ACCOUNTS RECEIVABLE
Accounts receivable represents amounts due from customers and is reported net of
an allowance for doubtful accounts. The allowance for doubtful accounts is based
on management's estimate of the amount of receivables that will actually be
collected after analyzing the credit worthiness of its customers and historical
experience, as well as the prevailing business and economic environment.
Accounts are written off when significantly past due and after exhaustive
efforts at collection. Recoveries of accounts receivables previously written off
are recorded as income when subsequently collected.
11
Tyree's accounts receivable for construction contracts are recorded at the
invoiced amount and do not bear interest. Tyree, BPI, and AWWT extend unsecured
credit to customers in the ordinary course of business but mitigate the
associated risks by performing credit checks and actively pursuing past due
accounts. Tyree follows the practice of filing statutory "mechanics" liens on
construction projects where collection problems are anticipated.
As of September 30, 2014 and December 31, 2013, accounts receivable
concentrations are as follows:
Percetage of Total
Accounts Receivable as of
-----------------------------------------
September 30, 2014 December 31, 2013
------------------ -----------------
Customer A 52.5% 50.7%
|
LOSS PER SHARE
Basic loss per share is computed by dividing net loss available to common
stockholders by the weighted-average number of common shares outstanding for the
period. Diluted 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.
The following securities are excluded from the calculation of the weighted
average dilutive common shares because their inclusion would have been
anti-dilutive for the three and nine months ended September 30, 2014 and 2013:
September 30,
2014 2013
---------- ----------
(unaudited) (unaudited)
Options 5,970,118 5,731,372
Convertible Preferred Stock 1,752,823 1,752,823
---------- ----------
Total potentially dilutive shares 7,722,941 7,484,195
========== ==========
|
For the nine months ended September 30, 2013, basic and diluted earnings per
share from the $199,942 gain from the sale of discontinued operations was $0.03
and $0.01 for Class A and Class B common stockholders, respectively.
STOCK-BASED COMPENSATION
The Company measures the cost of services received in exchange for an award of
equity instruments based on the fair value of the award. For employees, the fair
value of the award is measured on the grant date and for non-employees, the fair
value of the award is generally re-measured on vesting dates and interim
financial reporting dates until the service period is complete. The fair value
amount is then recognized over the period during which services are required to
be provided in exchange for the award, usually the vesting period. The Company
estimates the fair value of the awards granted based on observations of the cash
sales prices of both restricted shares and freely tradable shares. Awards
granted to directors are treated on the same basis as awards granted to
employees.
12
RECLASSIFICATIONS
Certain reclassifications have been made to the accompanying condensed
consolidated financial statements of prior periods to conform to the current
period's presentation.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting
Standards Update ("ASU") No. 2014-09, "Revenue from Contracts with Customers,"
("ASU 2014-09"). ASU 2014-09 supersedes the revenue recognition requirements in
Accounting Standards Codification ("ASC") 605 - Revenue Recognition and most
industry-specific guidance throughout the ASC. The standard requires that an
entity recognizes revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the company
expects to be entitled in exchange for those goods or services. ASU 2014-09 is
effective on January 1, 2017 and should be applied retrospectively to each prior
reporting period presented or retrospectively with the cumulative effect of
initially applying ASU 2014-09 recognized at the date of initial application.
The Company is currently evaluating the impact of the adoption of ASU 2014-09 on
its condensed consolidated financial position and results of operations.
In June 2014, the FASB issued ASU 2014-11, Transfers and Servicing. The
amendments in this Update require that repurchase-to-maturity transactions be
accounted for as secured borrowings consistent with the accounting for other
repurchase agreements. In addition, the amendments require separate accounting
for a transfer of a financial asset executed contemporaneously with a repurchase
agreement with the same counterparty (a repurchase financing), which will result
in secured borrowing accounting for the repurchase agreement. The amendments
require an entity to disclose information about transfers accounted for as sales
in transactions that are economically similar to repurchase agreements, in which
the transferor retains substantially all of the exposure to the economic return
on the transferred financial asset throughout the term of the transaction. In
addition the amendments require disclosure of the types of collateral pledged in
repurchase agreements, securities lending transactions, and
repurchase-to-maturity transactions and the tenor of those transactions. This
Accounting Standards Update is the final version of Proposed Accounting
Standards Update 2013-10--Transfers and Servicing (Topic 860), which has been
deleted. The accounting changes in this Update are effective for the first
interim or annual period beginning after December 15, 2014. ASU 2014-11 is not
expected to have a material impact on the condensed consolidated financial
statements.
In June 2014, the FASB issued ASU No. 2014-12, "Compensation - Stock
Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of
an Award Provide that a Performance Target Could be Achieved after the Requisite
Service Period," ("ASU 2014-12"). The amendments in ASU 2014-12 require that a
performance target that affects vesting and that could be achieved after the
requisite service period be treated as a performance condition. A reporting
entity should apply existing guidance in ASC Topic No. 718, "Compensation -
Stock Compensation" as it relates to awards with performance conditions that
affect vesting to account for such awards. The amendments in ASU 2014-12 are
effective for annual periods and interim periods within those annual periods
13
beginning after December 15, 2015. Early adoption is permitted. Entities may
apply the amendments in ASU 2014-12 either: (a) prospectively to all awards
granted or modified after the effective date; or (b) retrospectively to all
awards with performance targets that are outstanding as of the beginning of the
earliest annual period presented in the financial statements and to all new or
modified awards thereafter. The Company does not anticipate that the adoption of
ASU 2014-12 will have a material impact on its condensed consolidated financial
statements.
The FASB has issued ASU No. 2014-15, Presentation of Financial Statements-Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability
to Continue as a Going Concern. The guidance, which is effective for annual
reporting periods ending after December 15, 2016, extends the responsibility for
performing the going-concern assessment to management and contains guidance on
how to perform a going-concern assessment and when going-concern disclosures
would be required under U.S. GAAP. The Company has elected to early adopt the
provisions of ASU 2014-15 in connection with the issuance of these unaudited
condensed consolidated financial statements. Management's evaluations of events
and conditions that raise substantial doubt regarding the Company's ability to
continue as a going concern have been disclosed in Note 2.
4. DISCONTINUED OPERATIONS
The following amounts have been segregated from continuing operations and
reported as discontinued operations on the condensed consolidated statements of
operations as a result of the Company's sale of Environmental Quality Services,
Inc. ("EQS"). All prior period information has been reclassified to conform to
the current period presentation.
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
-------- -------- -------- --------
(unaudited) (unaudited) (unaudited) (unaudited)
Results From Discontinued Operations:
Net revenues from discontinued operations $ -- $ -- $ -- $231,887
======== ======== ======== ========
Income (loss) from discontinued operations $495,450 $ 4,048 $493,728 $(77,739)
======== ======== ======== ========
|
Assets available for sale, which are recorded separately on the condensed
consolidated balance sheets, consists of two properties related to the Company's
discontinued operations from the sale of its former subsidiary, Tulare Holdings,
Inc. ("Tulare"), as follows as of September 30, 2014 (unaudited) and December
31, 2013:
Land and building - California $1,786,433
Land - New York 300,000
----------
$2,086,433
==========
|
Liabilities related to discontinued operations from EQS, Tulare, Masonry Supply
Holding, Corp and Epic Sports International, Inc. are presented separately on
the condensed consolidated balance sheets. The following is a summary of the
liabilities of the discontinued operations:
14
September 30, December 31,
2014 2013
---------- ----------
(unaudited)
Accounts payable $3,439,269 $3,945,632
Accrued expenses and other current liabilities 1,056,033 1,056,033
---------- ----------
Total liabilities $4,495,302 $5,001,665
========== ==========
|
Changes in net cash from discontinued operations are presented separately in the
accompanying condensed consolidated statements of cash flows for the nine months
ended September 30, 2014 and 2013. All prior period information has been
reclassified to conform to the current period presentation.
Pursuant to a Stock Purchase Agreement, effective April 1, 2013, Environmental
Holding Corp., a wholly-owned subsidiary of Amincor, Inc. sold all of its right,
title and interest in all of the common stock of Environmental Quality Services,
Inc. to Essential Environmental Technologies.
The gain on the sale of EQS is summarized as follows:
Description Amount
----------- ----------
Purchase price promissory note $ 500,000
Liabilities assumed by the Buyer 668,171
----------
1,168,171
Assets transferred (968,229)
----------
Gain on the sale of EQS $ 199,942
==========
|
5. INVENTORIES
Inventories are maintained using the first in, first out method and consist of:
* Raw materials, construction and service maintenance parts
* Baking ingredients
* Finished bakery goods
A summary of inventory as of September 30, 2014 and December 31, 2013 is below:
September 30, December 31,
2014 2013
-------- --------
(unaudited)
Raw materials $ -- $510,922
Ingredients 311,532 254,492
Finished goods 164,433 72,750
-------- --------
Inventories $475,965 $838,164
======== ========
|
15
6. PROPERTY, PLANT AND EQUIPMENT
As of September 30, 2014 and December 31, 2013, property, plant and equipment
consisted of the following:
Useful Lives September 30, December 31,
(Years) 2014 2013
------------ ------------ ------------
(unaudited)
Land n/a $ 419,656 $ 430,000
Machinery and equipment 2-10 14,509,335 15,147,163
Furniture and fixtures 5-10 169,258 169,258
Building and leasehold improvements 10 3,378,526 3,443,598
Computer equipment and software 5-7 838,466 838,466
Property held for investment n/a 6,000,000 6,000,000
Vehicles 3-10 409,623 437,042
------------ ------------
25,724,864 26,465,527
Less accumulated depreciation (8,925,020) (8,204,670)
------------ ------------
$ 16,799,844 $ 18,260,857
============ ============
|
Total depreciation expense for the nine months ended September 30, 2014 and 2013
was $1,232,976 and $1,344,979, respectively. Total depreciation expense for the
three months ended September 30, 2014 and 2013 was $371,920 and $418,999,
respectively.
7. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Accrued expenses and Other Current Liabilities are as follows:
September 30, December 31,
2014 2013
---------- ----------
(unaudited)
Payroll Taxes Payable - Federal and State $2,268,608 $2,507,610
Sales Tax Payable 1,515,365 1,464,996
Accrued Workers' Compensation Payable 627,123 695,494
Union Payable 355,906 380,909
Other Accrued Expenses 2,707,658 2,559,018
---------- ----------
Total Accrued Expenses and Other Current Liabilities $7,474,660 $7,608,027
========== ==========
|
During the years ended December 31, 2013 and 2012, Tyree did not file certain
required payroll tax returns on a timely basis and did not timely pay its
payroll tax liabilities, including trust funds withheld on behalf of its
employees. Through the assistance of an outside payroll services company, Tyree
filed all delinquent payroll tax returns during the fourth quarter of 2013 and
is currently in negotiations with federal and various state authorities to
settle its past-due payroll tax obligations incurred in 2013 and earlier years.
At December 31, 2013, Tyree accrued approximately $2.5 million in connection
with this outstanding payroll tax liability, which includes penalties and
interest. Of this amount, $2.3 million remains accrued at September 30, 2014.
During the year ended December 31, 2013, Tyree did not file required sales tax
returns in various jurisdictions. Tyree subsequently filed the required returns
and is currently in negotiations with various state authorities to settle the
past-due sales tax incurred in 2013 and earlier years. At December 31, 2013,
Tyree accrued approximately $1.5 million in connection with this outstanding
16
sales tax liability, which includes penalties and interest. Such amount remains
accrued at September 30, 2014
8. LONG-TERM DEBT
Long-term debt consists of the following as of September 30, 2014 and December
31, 2013:
September 30, December 31,
2014 2013
----------- -----------
(unaudited)
Bridge loan (as amended) with a commercial
bank, collateralized by property, plant and
equipment located in Burlington, Iowa in
addition to assets purchased, and bearing
interest at 5.5% per annum with a monthly
principal and interest payment of $22,582.
The loan matures on September 1, 2019. $ 2,743,451 $ 2,749,985
Promissory note payable, collateralized by
property located in Pelham, New York. Payable
in monthly installments of interest only
bearing an interest rate of 12.00% per annum.
The loan matures on January 1, 2016 at which
time the entire unpaid principal amount and
all accrued interest is fully due and
payable. 1,500,273 1,500,273
Equipment loans payable, collateralized by
the assets purchased, and bearing interest at
annual fixed rates ranging from 8.00% to
15.00% as of September 30, 2014 and December
31, 2013. The loans matured and are in
default as of September 30, 2014. 241,237 355,056
Promissory notes converted from accounts
payable, with an imputed interest rate of
10%. Payment terms are from 12 to 36 months. 2,878,403 2,884,937
Promissory notes payable, with accrued
interest, to three former stockholders of a
predecessor company. These notes are
unsecured and are subordinate to the
Company's senior debt. The notes matured and
are in default as of September 30, 2014 and
bear interest at an annual fixed rate of
6.00%. 500,000 500,000
|
Note payable to insurance company, with
accrued interest. Payable in monthly
installments of principal and interest
through January 2015. The annual interest
rate is 4.78%. 58,868 --
----------- -----------
Total
7,922,232 7,990,251
Less current portion
(5,291,916) (7,957,909)
----------- -----------
$ 2,630,316 $ 32,342
=========== ===========
|
9. RELATED PARTY TRANSACTIONS
Related parties are natural persons or other entities that have the ability,
directly or indirectly, to control another party or exercise significant
influence over the other party in making financial and operating decisions.
Related parties include other parties that are subject to common control or that
are subject to common significant influences. The Company's President and Vice
President/Interim Chief Financial Officer own a majority of the Company's Class
A common voting stock. They also control Capstone Capital Group, LLC, and
Capstone Business Funding, LLC, the entities with which the Company has
outstanding loans payable and receivables factoring arrangements with as of
September 30, 2014 and December 31, 2013.
17
Loans from a related party consist of the following at:
September 30, December 31,
2014 2013
------------ ------------
(unaudited)
Revolving working capital line of credit with
Capstone Capital Group, LLC which matures and
is due in full on the earlier of (a) October
31, 2016 or (b) the date on which the lender
elects to demand repayment, bearing interest
at 18% per annum. Maximum borrowing of
$12,000,000. The loan is secured by a
subordinated interest in Baker's Pride's
assets. $ 9,951,058 $ 6,001,021
Short-term accounts receivable financing
arrangement with Capstone Business Funding,
LLC. No maturity date is specified. Interest
is charged at variable rates based upon
collection days outstanding. 2,611,718 2,060,730
Loan and security agreement with Capstone
Gapital Group, LLC, Capstone Business
Funding, LLC and Capstone Credit, LLC. No
maturity date or interest rate is specified 625,709 809,730
Loan and security agreement with Capstone
Capital Group, LLC which matures and is due
in full on May 15, 2015 bearing interest at
18% per annum. Maximum borrowing of
$1,000,000. The loan is secured by a
subordinated interest in Baker's Pride's
assets. 468,697 427,069
|
Note payable to a commercial bank. Payable in
monthly installments of principal and
interest of approximately $7,500 through
March 2015. The annual interest rate is
7.25%. 81,088 188,614
Loan and security agreement with Stephen
Tyree which matured on November 5, 2014
bearing interest at 5.0% per annum. -- 4,869
------------ ------------
Total loans and amounts payable to related
parties $ 13,738,270 $ 9,492,033
============ ============
|
Interest expense for these loans amounted to $1,893,643 and $670,804 for the
nine months ended September 30, 2014 and 2013, respectively. Interest expense
for these loans amounted to $590,895 and $319,080 for the three months ended
September 30, 2014 and 2013, respectively.
Factoring fees paid to related parties, as included in interest expense -
related party, amounted to $740,689 and $289,306 for the nine months ended
September 30, 2014 and 2013, respectively. Factoring fees paid to related
parties, as included in interest expense - related party, amounted to $146,202
and $166,307 for the three months ended September 30, 2014 and 2013,
respectively.
MANAGEMENT FEES
The Company provides administrative services for Capstone Capital Group, LLC to
provide office space, back office services and other various services from time
to time for a monthly fee. Management fees are due and payable monthly and the
Company recorded management fee income of $225,000 and $135,000 for the nine
months ended September 30, 2014 and 2013, respectively. The Company recorded
management fee income of $75,000 and $45,000 for the three months ended
September 30, 2014 and 2013, respectively. As of September 30, 2014, the Company
has an accrued management fee receivable of $200,000 and $0 as of September 30,
2014 and December 31, 2013, respectively which is included in accounts
receivable on the condensed consolidated balance sheets.
18
10. STOCKHOLDERS' DEFICIENCY
COMMON STOCK ISSUANCE
On July 16, 2014 the Company issued 3,848,484 shares of Class A Voting common
shares to each of the two officers of the Company in exchange for $127,000.
On January 9, 2014 the Company issued 1,083,332 shares of Class A Voting common
shares to each of the two officers of the Company in exchange for $130,000.
STOCK BASED COMPENSATION
The Company does not have a formally adopted share-based compensation plan.
Stock option grants have been made as determined by the Board of Directors. The
Company estimates the fair value of the stock options on the date of the grant
for employees and the performance completion date for non-employees using the
Black-Scholes option model, which requires the input of subjective assumptions.
These assumptions include the estimated volatility of the Company's common stock
price of the expected term, the fair value of the Company's stock, the risk-free
interest rate and the dividend yield. Changes in the subjective assumptions can
materially affect the estimated fair value of stock compensation.
In applying the Black-Scholes option pricing model to stock options granted, the
Company used the following weighted average assumptions:
Three Months Ended Nine Months Ended
September 30, September 30,
2014 2013 2014 2013
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
Expected life N/A 3.25 3.25 3.25
Risk-free interest rate N/A 0.63% 0.93% 0.67%
Expected volatility N/A 107.4% 128.2% 56.3%
Dividend yield N/A -- -- --
Average forefeiture rate N/A 7.4% 13.6% 1.8%
|
The weighted average estimated fair value of the options granted during the nine
months ended September 30, 2014 was $0.07 per share. There were no options
granted during the three months ended September 30, 2014. The weighted average
estimated fair value of the options granted during the three and nine months
ended September 30, 2013 was $0.10 and $0.03 per share, respectively.
During the nine months ended September 30, 2014, the Company's Board of
Directors granted a total of 1,190,000 Class A common stock options to the
President, Vice-President and Interim Chief Financial Officer, certain
management and employees of the Company, and certain officers and employees of
its subsidiary companies, and 80,000 Class A common stock options to certain
non-employees of the Company, at exercise prices of $0.50 and $0.25,
respectively. The options vest over two years and expire five years from the
grant date.
19
The following table summarizes the Company's stock options activity for the nine
months ended September 30, 2014:
Weighted
Weighted Average
Average Remaining Aggregate
Exercise Contractual Intrinsic
Shares Price Term (Years) Value
------ ----- ------------ -----
Options outstanding at December 31, 2013 5,731,372 $ 1.21 3.00 $ --
========= ======== ====== =====
Granted 1,270,000 0.38 4.55 --
Exercised -- -- -- --
Canceled, forfeited or expired (1,031,254) 1.11 3.15 --
---------- -------- ------ -----
Options outstanding at September 30, 2014 5,970,118 $ 1.05 3.30 $ --
========= ======== ====== =====
Options vested and exercisable at:
September 30, 2014 3,341,058 $ 1.36 3.30 $ --
========= ======== ====== =====
|
The following table summarizes information about stock options outstanding and
exercisable as of September 30, 2014:
Options Outstanding Options Exercisable
----------------------------------------------------------- ----------------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Exercise Contractual Exercise Exercise
Prices Outstanding Term (Years) Price Exercisable Price
------ ----------- ------------ ----- ----------- -----
$ 0.25 568,000 4.64 $ 0.25 -- $ --
0.50 1,096,000 4.24 0.50 264,000 0.50
0.65 330,000 3.25 0.65 165,000 0.65
1.00 1,798,121 3.66 1.00 899,061 1.00
1.13 330,000 3.00 1.13 165,000 1.13
1.21 319,890 2.75 1.21 309,890 1.21
1.29 309,890 2.50 1.29 319,890 1.29
1.73 653,890 2.04 1.73 653,890 1.73
1.88 311,000 1.50 1.88 311,000 1.88
2.80 253,327 1.25 2.80 253,327 2.80
-------- --------- ------- -------- --------- --------
$ 1.05 5,970,118 3.30 $ 1.05 3,341,058 $ 1.36
======== ========= ======= ======== ========= ========
|
Stock-based compensation expense totaled $466,021 and $432,869 for the nine
months ended September 30, 2014 and 2013, respectively. 50% of the employee
options vest and become exercisable on the first anniversary of the grant date
and the remaining 50% vest on the second anniversary of the grant date, provided
that the individual is employed by the Company or subsidiary on such anniversary
dates.
As of September 30, 2014, the total compensation cost related to nonvested
awards not yet recognized was approximately $288,000 and will be amortized over
a remaining weighted average period of 1.75 years.
11. OPERATING SEGMENTS
The Company is organized into five operating segments: (1) Amincor, (2) Other
Assets, (3) AWWT (4) BPI, and (5) Tyree. Segment information is as follows:
20
September 30, December 31,
2014 2013
------------ ------------
(unaudited)
Total Assets:
Amincor $ 465,652 $ 362,839
Other Assets 8,465,504 8,446,271
AWWT 349,280 354,264
BPI 10,867,628 11,313,853
Tyree 3,526,228 8,118,257
------------ ------------
Total assets $ 23,674,292 $ 28,595,484
============ ============
Three Months Ended September 30, Nine Months Ended September 30,
2014 2013 2014 2013
------------ ------------ ------------ ------------
(unaudited) (unaudited) (unaudited) (unaudited)
Net Revenues:
Amincor $ -- $ -- $ -- $ --
Other Assets -- -- -- --
AWWT 122,892 96,315 392,179 247,327
BPI 959,063 714,874 3,227,769 1,006,983
Tyree 2,063,537 5,900,236 11,987,312 19,469,716
------------ ------------ ------------ ------------
Net revenues $ 3,145,492 $ 6,711,425 $ 15,607,260 $ 20,724,026
============ ============ ============ ============
Net loss from continuing
operations
Amincor $ (699,702) $ (734,765) $ (2,415,908) $ (2,733,479)
Other Assets (94,070) (129,270) (277,712) 2,144
AWWT (4,133) (14,841) (17,650) (101,607)
BPI (1,449,572) (1,231,957) (4,032,791) (3,675,005)
Tyree (2,227,125) (320,828) (2,614,364) (232,842)
------------ ------------ ------------ ------------
Net loss from continuing
operations $ (4,474,602) $ (2,431,661) $ (9,358,425) $ (6,740,789)
============ ============ ============ ============
|
The Company's net losses from discontinued operations were not material for the
three and nine months ended September 30, 2014 and 2013.
12. COMMITMENTS AND CONTINGENCIES
Contingencies/Legal Matters:
The Company from time to time is 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 condensed consolidated financial position, results of operations or
cash flows. Nevertheless, litigation is subject to inherent uncertainties and
unfavorable rulings could occur. An unfavorable ruling could include monetary
damages and, in such event, could result in a material adverse impact on the
Company's financial position, results of operations or cash flows for the period
in which the ruling occurs.
AMINCOR
On July 6, 2012, SFR Holdings, Ltd., Eden Rock Finance Master Limited, Eden Rock
Asset Based Lending Master Ltd., Eden Rock Unleveraged Finance Master Limited,
SHK Asset Backed Finance Limited, Cannonball Plus Fund Limited and Cannonball
Stability Fund, LP (collectively, the "Plaintiffs") commenced an action in the
Supreme Court of the State of New York County of New York against Amincor, Inc.,
21
Amincor Other Assets, Inc., their officers and directors, John R. Rice III,
Joseph F. Ingrassia and Robert L. Olson and various other entities affiliated
with or controlled directly or indirectly by John R. Rice III and Joseph F.
Ingrassia (collectively the "Defendants"). Plaintiffs allege that Defendants
engaged in wrongful acts, including fraudulent inducement, fraud, breach of
fiduciary duty, unjust enrichment, fraudulent conveyance and breach of contract.
Plaintiffs are seeking compensatory damages in an amount in excess of $150,000
to be determined at trial. Litigation is pending. Management believes that this
lawsuit has no merit or basis and is vigorously defending it and has not accrued
for these compensatory damages. Defendants have filed a motion to dismiss the
complaint in this action. Further proceedings in this action are stayed pending
determination of Defendants motion.
BPI
In connection with a United States Department of Agriculture ("USDA") loan
application, BPI had Environmental Site Assessments performed on the property
where its Mt. Pleasant Street Bakery, Inc. operates, as required by the
prospective lender. A Phase II Environmental Site Assessment was completed on
October 31, 2011 and was submitted to the Iowa Department of Natural Resources
("IDNR") for their review. IDNR requested that a Tier Two Site Cleanup Report
("Tier Two") be issued and completed in order to better understand what
environmental hazards exist on the property. The Tier Two was completed on
February 3, 2012 and was submitted to IDNR for further review. Management's
latest correspondence with IDNR, dated March 21, 2012, required additional
environmental remediation in order to be in compliance with IDNR's regulations.
Management has retained the necessary environmental consultants to become
compliant with IDNR's request. Due to the nature of the liability, the
remediation work is 100% eligible for refund from IDNR's Innocent Landowner
Fund. As such, there is no direct liability related to the cleanup of the
hazard. BPI is monitoring and remediating the environmental hazard in accordance
with the remediation plan as outlined by external consultants and with IDNR's
approval.
TYREE
On December 5, 2011, Tyree's largest customer, Getty Petroleum Marketing, Inc.
("GPMI") filed for Chapter 11 bankruptcy protection. As of that date, Tyree had
a pre-petition receivable of $1,515,401, which was subsequently written-off due
to the uncertainty of collection. Additionally, Tyree has a post-petition
administrative claim for $593,709. A Proof of Claim was filed with the
Bankruptcy court on Tuesday, April 10, 2012. On August 27, 2012, the United
States Bankruptcy Court for the Southern District of New York confirmed GPMI's
Chapter 11 plan of liquidation offered by its unsecured creditors committee. The
plan provides for all of the debtors' property to be liquidated over time and
for the proceeds to be allocated to creditors. On April 4, 2014, Tyree sold its
general and administrative claims to a third party for the aggregate sum of
$553,662.
In December 2013, Tyree Environmental Corp. and Tyree Service Corp. ("Tyree
entities") were sued by the liquidating trustee of GPMI for recovery of
22
preferential transfers in the respective amounts of $1,147,154 and $2,479,755.
On March 27, 2014, the bankruptcy liquidating trustee entered into forbearance
agreements with the Tyree entities with respect to the preference actions with
the understanding that the forbearance periods will be extended and the actions
will ultimately be dismissed if the Tyree entities continue to not voluntarily
assist Getty Realty in litigation against GPMI. Management believes that this
lawsuit has no merit or basis and will adhere to the terms of the forbearance
agreements such that further litigation will not occur.
On March 22, 2013 Fleetmatics USA, Inc. brought an action in the Supreme Court
in the State of New York, County of Suffolk against Tyree Equipment Corp. and
Tyree Services Corp. seeking $313,176 plus interest and costs for services
rendered. On June 26, 2013 a default judgment was entered against Tyree
Equipment Corp. and Tyree Services Corp. in the amount of $328,083. On February
24, 2014, All Safe Protection, Inc. brought action against Tyree Holdings, Corp.
and other Tyree entities for services rendered to Tyree in the amount of
$236,818 plus interest and costs. On March 3, 2014, American Express Travel
related Services Company brought suit in the Supreme Court in the State of New
York, County of Nassau against Tyree Holdings Corp. seeking the sum of $142,235
plus interest and cost for unpaid interest and charges. Management is attempting
to finalize settlement agreements for these obligations. Fleetmatics has agreed
to a five year payment plan based on a 60 month payment schedule with a balloon
payment at the end of the third year. American Express has not agreed to a
payment plan and negotiations are ongoing. Management has reached a settlement
agreement with All Safe which provides for monthly payments of less than $5,000
which, in the event of default allows entry of judgment against all Defendants
except Tyree Environmental Services, which effectively releases Tyree
Environmental Services from the All Safe claim. All of the above amounts are
accrued as September 30, 2014.
On September 22, 2014, Westchester Fire Insurance Company commenced an action
against Tyree Service Corp., Tyree Environmental Corp., Tyree Holdings Corp.,
Amincor, Inc. and Tyree Equipment Corp. to recover $310,312 in unpaid premiums
owed by Tyree and guaranteed by Amincor. The Company is negotiating a payment
plan to satisfy the obligation based on a five year amortization schedule with a
balloon payment after two years and anticipates that a payment plan will be
satisfactorily concluded.
Tyree has unpaid obligations for union dues of approximately $1.2 million
dollars which are included in accrued expenses at September 30, 2014. Tyree
management does not dispute that benefits are due and owing to the respective
unions and is negotiating payment plans with the various unions to satisfy these
obligations.
As of September 30, 2014 the Company owes approximately $2.9 million to
unsecured vendors which amount is reflected as liabilities on the Company's
condensed consolidated balance sheet. Although several of these unsecured
vendors have commenced actions to recover the outstanding monies due; the
majority of the unsecured creditors have not instituted suit. Each of these
outstanding obligations including the litigations is handled on a case by case
basis, with settlement and payment plans ranging from a few months for smaller
claims to up to five years for larger claims.
23
On September 9, 2014 a former employee of Tyree commenced a lawsuit in the
United States District Court for the Eastern District of New York against
Registrant its Tyree subsidiaries and their officers alleging various ERISA
violations and seeking class action certification. The alleged amounts in
controversy are not material and management believes that class action
certification will not be granted.
Tyree's services are regulated by federal, state and local laws enacted to
regulate discharge of materials into the environment, remediation of
contaminated soil and groundwater or otherwise protect the environment. The
regulations put Tyree or Tyree's predecessor companies at risk for becoming a
party to legal proceedings involving customers or other interested parties. The
issues involved in such proceedings generally relate to alleged responsibility
arising under federal or state laws to remediate contamination at properties
owned or operated either by current or former customers or by other parties who
allege damages.
EPIC SPORTS INTERNATIONAL, INC. ("ESI")
The Company discontinued the operations of ESI, a former subsidiary in 2011.
Concurrently, a license agreement along with a Strategic Alliance Agreement with
Samsung America CT, Inc. ("Samsung") was terminated. The licensor, Volkl, is
seeking a $400,000 royalty payment. ESI has initiated counterclaims against the
various parties, including but not limited to Samsung, seeking damages for,
including but not limited to infringement, improper use of company assets and
breach of fiduciary duty. Volkl was successful in obtaining a judgment against
ESI and a confirmation of the Arbitration is presently pending in Federal Court.
Management believes that this matter and the Frost matter below will eventually
be settled out of court for less than the royalty and damages amounts sought.
On September 28, 2012, Sean Frost ("Frost"), the former President of Epic Sports
International, Inc., filed a complaint to compel arbitration regarding breach of
employment contract and related breach of labor code claims and for an award of
compensatory damages in the Superior Court of the State of California, County of
San Diego against Epic Sports International Inc., Amincor, Inc. and Joseph
Ingrassia (collectively, the "Defendants"). Frost is seeking among other things,
damages, attorneys' fees and costs and expenses. Frost initiated arbitration
proceedings in April 2014. As of September 30, 2014, the Defendants have
answered the complaint and the lawsuit has been dismissed pending parties'
agreement to arbitrate the matter. Defendants believe that this arbitration has
no merit or basis and intend to vigorously defend and therefore has not accrued
for a loss in relation to this matter.
24
TULARE FROZEN FOODS, LLC ("TFF")
The City of Lindsay, California had invoiced TFF, a business whose operations
were discontinued in 2011, $533,571 for outstanding delinquent real estate
taxes, including a significant amount for penalties, interest and fees that had
accrued. A settlement pursuant to which the City of Lindsay would retain TFF's
$206,666 deposit as settlement and release in full of all of Tulare's
outstanding obligations to the City of Lindsay was executed on July 25, 2014.
Tulare had formerly written-off its $206,666 deposit and as such Tulare recorded
a gain of $497,331 as a result of this transaction during the three and nine
month period ended September 30, 2014.
13. SUBSEQUENT EVENTS
The Company has evaluated all subsequent events up through the date which the
condensed consolidated financial statements were issued. The Company had no
other material subsequent events requiring disclosure.
25
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS ("MD&A")
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 in Item 1A of our Form 10-K filed with the U.S. Securities
and Exchange Commission ("SEC") on April 15, 2014, as amended on April 17, 2014
and July 2, 2014. We do not undertake any obligation to update any forward
looking statements.
We undertake no obligation to revise or publicly release the results of any
revisions to these forward-looking statements or information. You should
carefully review documents we file from time to time with the Securities and
Exchange Commission. A number of factors may materially affect our business,
financial condition, operating results and prospects. These factors include but
are not limited to those set forth in our Annual Report on Form 10-K and
elsewhere in this Quarterly Report on Form 10-Q. Any one of these factors may
cause our actual results to differ materially from recent results or from our
anticipated future results. You should not rely too heavily on the
forward-looking statements contained in this Quarterly Report on Form 10-Q,
because these forward-looking statements are relevant only as of the date they
were made.
26
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.
AMINCOR (CONSOLIDATED BASIS)
GOING CONCERN / LIQUIDITY AND CAPITAL RESOURCES
During the nine months ended September 30, 2014, cash flows used in operating
activities from continuing operations were $3,348,748. This was principally due
to a net loss from continuing operations of $9,358,425 which was partially
offset by a decrease in accounts receivable of approximately $3.0 million,
including aggregate non-cash expenses of approximately $2.6 million and an
increase in accounts payable of approximately $1.1 million. During the nine
months ended September 30, 2013, cash flows used in operating activities from
continuing operations were $2,107,866. This was principally due to a net loss
from continuing operations of $6,740,789 which was partially offset by an
increase in accrued expenses and other current liabilities of approximately $1.3
million and aggregate non-cash expenses of approximately $1.8 million. The net
loss from continuing operations is discussed in greater detail in the results
from operations for the nine and three months ended September 30, 2014 and 2013
section of this MD&A.
For the nine months ended September 30, 2014 and 2013, cash flows used in
investing activities from continuing operations of $58,545 and $152,116,
respectively, were primarily due to the purchase of additional machinery at BPI
and AWWT.
For the nine months ended September 30, 2014 and 2013, cash flows provided by
financing activities from continuing operations of $3,253,924 and $1,919,438,
respectively, was primarily due to proceeds received from loans with related
parties.
For the nine months ended September 30, 2014, total cash flows used in
discontinued operations was $12,635. For the nine months ended September 30,
2013, total cash flows provided by discontinued operations was $117,333 was
principally due to the sale of EQS.
The accompanying condensed consolidated financial statements included elsewhere
in this Form 10-Q have been prepared on a going concern basis, which
contemplates the realization of assets and settlement of liabilities and
commitments in the normal course of business. However, we recorded a net loss
27
from continuing operations of $9,358,425 for the nine months ended September 30,
2014, we had a working capital deficit of $39,591,042 and an accumulated deficit
of $109,682,204 as of September 30, 2014, which raises substantial doubt
regarding the Company's ability to continue as a going concern.
With respect to BPI, management has successfully negotiated a contract in 2014
for co-packing frozen donut products to one of the world's largest family owned
food companies which is a global supplier to the food service and in store
bakery retail industries. Management believes that this contract will pave the
way for additional contracts from other significant food companies in addition
to increased business from the newly acquired customer, although no assurance
can be provided of this. BPI has entered the frozen food segment and is also
positioning itself to re-enter the fresh bread manufacturing industry by placing
significant and competitive bids to strategic players within the fresh bread
markets. Management was able to extend the BPI bridge loan financing with
Central State Bank in the third quarter of 2014 which will allow for BPI to
extend its interest only financing payments until such time BPI is able through
its cash flow to make principal payments.
With respect to Tyree, management is projecting an increase in its environmental
business through the end of 2014 and 2015 although no assurance cam be provided
of this. Tyree Environmental division's ability to succeed in securing
additional environmental business depends on the ability of one of Tyree's
primary customers to secure remediation work by bidding environmental
liabilities currently present on gasoline stations and referring this work to
Tyree. Management is in the process of evaluating the profitability of Tyree's
construction division and intends to continue construction operations provided
that they continue to be profitable. Management concluded that Tyree's
maintenance service line was not profitable in August 2014 and discontinued
Tyree's maintenance operations. As a result, all of Tyree's inventory was
written-down as of September 30, 2014. Management continues to seek
opportunities to liquidate the remaining maintenance inventory and intends to
utilize cash flows generated from this endeavor as additional working capital.
Since Tyree's largest customer Getty Petroleum Marketing, Inc. ("GPMI") filed
bankruptcy in December 2011, Tyree has been incurring significant cash flow
losses. Management has been successful in working with Tyree's vendors in
converting previously outstanding payables into note payable obligations. At
September 30, 2014 $2,878,403 is outstanding relating to converted payables.
Tyree's management is working to secure additional available capital resources
and turnaround Tyree's operations to generate operating income although no
assurance can be provided that capital will be obtained. As of September 30,
2014, Tyree had a working capital deficit of approximately $22.1 million
exclusive of amounts owed to Amincor and recorded a net loss of approximately
$3.5 million for the nine months ended September 30, 2014. Tyree has entered
into settlement agreements and continues to negotiate with creditors to pay off
its outstanding debt obligations. However, without additional capital resources,
28
Tyree may not be able to continue to operate and may be forced to curtail its
business, liquidate assets and/file for bankruptcy protection. In any such case,
its business, operating results or financial condition would be materially
adversely affected. Going forward, Tyree's growth will be difficult to attain
until either (i) new working capital is available through profitable operations
or (ii) new equity is invested into Tyree to facilitate organic and acquisition
based growth.
With respect to AWWT, management continues to market water technology under a
licensing agreement executed in 2012. AWWT seeks to sell waste water treatment
equipment to large municipal, industrial, agricultural and commercial generators
of waste water. Management is currently in discussion with multiple customers in
this market and believes that there is a significant opportunity for consistent
and reliable cash flows from placing systems in use with these customers.
With respect to Amincor Other Assets, there are significant assets currently
residing on Amincor Other Asset's balance sheet related to the discontinued
operations of Imperia and Tulare, in addition to assets held for sale.
Management is currently in negotiations regarding the sale of assets related to
Tulare.
SEASONALITY
AWWT's sales are typically higher during periods of peak wet and rainy
conditions of the season which generally can occur during the second and third
quarters of its fiscal year. The first and fourth quarters of the year are
usually affected by cold and inclement weather which makes it difficult to
process liquid streams due to issues with freezing. The effect of freezing
impacts the entire wastewater treatment industry including AWWT's customers,
suppliers and vendors.
Operations at the Jefferson Street location at BPI are not influenced by
seasonality as fresh bread sales are relatively consistent throughout the year.
Operations at the Mt. Pleasant Street operation are affected by seasonality and
sales are typically higher during the Spring and late Fall as compared to other
periods of the year due to certain hilidays falling in those seasons. Due to
co-packing and a limited customer base for the nine months ended September 30,
2014, Jefferson Street and Mt. Pleasant Street operations were not as affected
by seasonality as they will be when the facilities operate at higher volumes.
Tyree's revenues tend to be lower during the first half of the year as Tyree's
customers complete their planning for the upcoming year. Approximately 30% of
Tyree's revenues are earned from new customer capital expenditures. Customer's
capital expenditures are cyclical and tend to mirror the condition of the
economy. During normal conditions, Tyree will need to draw from its borrowing
base early in the year and then pay down the borrowing base as the year
progresses when it generates positive cash flows. The highest revenue generation
occurs from early in the third quarter through the fourth quarter of the year.
29
RESULTS FROM OPERATIONS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
NET REVENUES
Net revenues for the nine months ended September 30, 2014 totaled $15,607,260 as
compared to net revenues of $20,724,026 for the nine months ended September 30,
2013, a decrease in net revenues of $5,116,766 or approximately 24.7%. The
primary reason for the decrease in net revenues is related to Tyree's
operations. Tyree's net revenues decreased by approximately $7.5 million but was
partially offset by an increase in revenue by BPI of approximately $2.2 million
during the nine months ended September 30, 2014.
During the three months ended March 31, 2014, Tyree experienced unseasonably
harsh weather conditions which adversely impacted Tyree's ability to complete
work and therefore generate revenue. As a result, Tyree's revenue decreased by
approximately $1.8 million during the three months ended March 31, 2014 as
compared to the three months ended March 31, 2013. In addition, there was a loss
of revenue by Tyree's environmental business due to insufficient cash flows
necessary to perform on contracts. Revenue for Tyree's environmental business
decreased by $3.6 million during the nine months ended September 30, 2014 as
compared to the nine months ended September 30, 2013 due to the aforementioned
decrease in revenues earlier in 2014 which decreased the amount of invoicing
available to factor and thus affected Tyree's ability to pay its subcontractors.
With respect to BPI, the primary reason for the increase in net revenues is due
to a significant increase in volume from one customer and the addition of
another large customer in 2014. Net revenues from the existing customer were
approximately $1.7 million for the nine months ended September 30, 2014 as
compared to approximately $1.0 million for the nine months ended September 30,
2013 and revenues for the newly acquired customer were approximately $884,000
for the nine months ended September 30, 2014 as compared to $0 for the nine
months ended September 30, 2013. These two customers comprised approximately
$1.5 million of the year over year $2.2 million increase in revenues.
COST OF REVENUES
Cost of revenues for the nine months ended September 30, 2014 totaled
$15,093,965 or approximately 96.7% of net revenues as compared to $17,990,248 or
approximately 86.8% of net revenues for the nine months ended September 30,
2013. The higher cost of revenues as a percentage of total sales is primarily
related to the operations of Tyree and BPI.
With respect to Tyree, The cost of revenues in 2014 was 9.5% higher than it was
in 2013 as the maintenance business operated at a negative gross profit during
the nine months ended September 30, 2014 due to costs associated with the
30
maintenance service line continuing even though the service line was formally
discontinued in August 2014. Costs associated with this discontinuation included
the write down of inventory related to Tyree's maintenance service line of
approximately $415,000. Decreased revenues also contributed to the increase in
cost of revenues as a percentage of total sales for the nine months ended
September 30, 2014 as compared to the nine months ended September 30, 2013.
BPI had a 220.5% increase in net revenues against a 70.4% increase in cost of
revenues in 2014 as compared to 2013. The primary reason for the increase in
cost of revenues is related to increases in production at both the Jefferson
Street facility and the Mt. Pleasant Street facility during the nine months
ended September 30, 2014 due to the aforementioned increase in volume from
existing and new customers. Certain fixed costs are incurred by BPI regardless
of the production levels at BPI's facilities which were incurred during the nine
months ended September 30, 2014 and 2013 which contributed to the negative gross
margin reported for both periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative ("SG&A") expenses for the nine months ended
September 30, 2014 totaled $7,867,505 as compared to $8,772,922 for the nine
months ended September 30, 2013, a decrease in operating expenses of $905,417 or
approximately 10.3%. The primary reason for the decrease in SG&A expenses was
related to Tyree's operations. Tyree's operating expenses decreased by
approximately $1.2 million during the nine months ended September 30, 2014 as
compared to the nine months ended September 30, 2013.
Tyree's SG&A expenses decreased during the nine months ended September 30, 2014
as administrative labor and benefits were reduced by approximately $589,000 due
to a reduction in management positions, rent expenses at Tyree's offices were
reduced by approximately $94,000 as Tyree moved offices to more cost effective
locations, professional and consulting was reduced by approximately $89,000, and
telephone costs were reduced by approximately $41,000 due to a change in the way
Tyree's cell phone policy is handled.
LOSS FROM OPERATIONS
Loss from operations for the nine months ended September 30, 2014 totaled
$7,354,210 as compared to $6,039,144 for the nine months ended September 30,
2013, an increase in loss from operations of $1,315,066 or approximately 21.8%.
The primary reason for the increase in loss from operations is related to the
decrease in net revenues as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the nine months ended September 30, 2014 totaled $2,004,215
as compared to $701,645 for the nine months ended September 30, 2013, an
increase in other expenses of $1,302,570 or approximately 185.6%. The primary
31
reason for the increase in other expenses is related to increased interest
expense associated with BPI's working capital loan, for which the principal
amount oustanding increased by approximately $3.9 million between September 30,
2014 and September 30, 2013. In addition, Tyree increased the volume of
receivables factored during the nine months ended September 30, 2014 as compared
to the nine months ended September 30, 2013 which also contributed to the
increase in other expense as noted above.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $9,358,425 for the nine months ended
September 30, 2014 as compared to $6,740,789 for the nine months ended September
30, 2013, an increase in net loss from continuing operations of $2,617,636 or
approximately 38.8%. The primary reason for the increase in net loss from
continuing operations is related to the decrease in net revenues and the
increase in other expenses as noted above.
INCOME (LOSS) FROM DISCONTINUED OPERATIONS
Income from discontinued operations totaled $493,728 for the nine months ended
September 30, 2014 as compared to a loss from discontinued operations of
$277,681 for the nine months ended September 30, 2013, primarily due to the
settlement of a liability with the City of Lindsay which was negotiated in July
2014 on behalf of Tulare. The sale of the assets related to EQS was recorded as
a gain from sale of discontinued operations for $199,942 during the nine months
ended September 30, 2013.
NET LOSS
Net loss totaled $8,830,072 for the nine months ended September 30, 2014 as
compared to $6,794,684 for the nine months ended September 30, 2013, an increase
in net loss of $2,035,388 or approximately 30.0%. The primary reason for the
increase in net loss is due to the decrease in net revenues and the increase in
other expenses as noted above.
RESULTS FROM OPERATIONS FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2014 AND 2013
NET REVENUES
Net revenues for the three months ended September 30, 2014 totaled $3,145,492 as
compared to net revenues of $6,711,425 for the three months ended September 30,
2013, a decrease in net revenues of $3,565,933 or approximately 53.1%. The
primary reason for the decrease in net revenues is related to Tyree's
operations. Tyree's net revenues decreased by approximately $3.8 million, but
were partially offset by an increase in revenue at BPI of approximately $244,000
during the three months ended September 30, 2014.
During the third quarter, Tyree's net revenues was adversely affected by a loss
of revenue in the maintenance service line and the discontinuation of that
32
business in August 2014. Management decided to discontinue the maintenance
service line due to the decline in maintenance revenue resulting from the
reduction in gas stations owned by Getty Realty Inc. and by never being able to
replace a historically unprofitable Cumberland Farms contract. Tyree's
maintenance service line revenue decreased by approximately $541,000 during the
three months ended September 30, 2014 as compared to the three months ended
September 30, 2013 due to the discontinuation of that service line. Tyree's
environmental business revenue decreased by approximately $1.8 million during
the three months ended September 30, 2014 as compared to the three months ended
September 30, 2013 due to the inability of Tyree to pay subcontractors for work
performed resulting from decreased revenue as reported earlier in 2014.
The aforementioned decreases in Tyree's net revenues was partially offset by an
increase in revenue of BPI and AWWT which combined for approximately $250,000
for the three months ended September 30, 2014 as compared to the three months
ended September 30, 2013.
COST OF REVENUES
Cost of revenues for the three months ended September 30, 2014 totaled
$4,141,300 or approximately 131.7% of net revenues as compared to $6,026,203 or
approximately 89.8% of net revenues for the three months ended September 30,
2013. The higher cost of revenues as a percentage of total sales is primarily
related to the operations of Tyree and BPI.
Tyree's maintenance service line operated at a negative gross profit during the
nine months ended September 30, 2014 due to costs associated with the
maintenance service line continuing even though the service line was formally
discontinued in August 2014. Costs associated with this discontinuation included
the write down of inventory related to Tyree's maintenance service line of
approximately $415,000. Decreased revenues also contributed to the increase in
cost of revenues as a percentage of total sales for the nine months ended
September 30, 2014 as compared to the nine months ended September 30, 2013.
BPI had a 34.2% increase in net revenues against a 7.9% increase in cost of
revenues in 2014 as compared to 2013. The primary reason for the increase in
cost of revenues is related to increases in production at both the Jefferson
Street facility and the Mt. Pleasant Street facility during the three months
ended September 30, 2014 due to the aforementioned increase in volume from
existing and new customers. Certain fixed costs are incurred by BPI regardless
of the production levels at BPI's facilities which were incurred during the
three months ended September 30, 2014 and 2013 which contributed to the negative
gross margin reported for both periods.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
SG&A expenses for the three months ended September 30, 2014 totaled $2,761,912
as compared to $2,857,064 for the three months ended September 30, 2013, a
33
decrease in operating expenses of $95,152 or approximately 3.3%. The primary
reason for the decrease in SG&A expenses was related to Tyree's operations and
was offset by an increase in SG&A expenses related to BPI's operations.
Tyree's SG&A expenses decreased by approximately $75,000 during the three months
ended September 30, 2014 as compared to the three months ended September 30,
2013. Tyree's administrative labor decreased by approximately $120,000 and rent
was reduced by approximately $46,000. The aforementioned decreases in operating
expenses were partially offset by an increase in bad debt expense of
approximately $201,000 as related to prior year write offs of accounts
receivables which were not fully reserved.
BPI's SG&A expenses increased due to an increase in management payroll of
approximately $69,000. This increase was due to the increase in business and
re-staffing the required management necessary to operate both the Jefferson
Street facility and the Mt. Pleasant Street facility concurrently. The increase
in management payroll was partially offset by small reductions in other
operating expenses.
LOSS FROM OPERATIONS
Loss from operations for the three months ended September 30, 2014 totaled
$3,757,720 as compared to $2,171,842 for the three months ended September 30,
2013, an increase in loss from operations of $1,585,878 or approximately 73.0%.
The primary reason for the increase in loss from operations is due to the
decreases in net revenues as noted above.
OTHER EXPENSES (INCOME)
Other expenses for the three months ended September 30, 2014 totaled $716,882 as
compared to $259,819 for the three months ended September 30, 2013, an increase
in other expenses of $457,063 or approximately 175.9%. The primary reason for
the increase in other expenses is related to increased interest expense
associated with BPI's working capital loan which increased by approximately $3.9
million between September 30, 2014 and September 30, 2013. In addition, Tyree
increased the volume of receivables factored during the three months ended
September 30, 2014 as compared to the three months ended September 30, 2013
which also contributed to the increase in other expense as noted above.
NET LOSS FROM CONTINUING OPERATIONS
Net loss from continuing operations totaled $4,474,602 for the three months
ended September 30, 2014 as compared to $2,431,661 for the three months ended
September 30, 2013, an increase in net loss from continuing operations of
$2,042,941 or approximately 84.0%. The primary reason for the increase in net
loss from continuing operations is related to the decrease in net revenues and
the increase in other expenses between the three months ended September 30, 2014
and the three months ended September 30, 2013 as noted above.
34
INCOME FROM DISCONTINUED OPERATIONS
Income from discontinued operations totaled $495,450 for the three months ended
September 30, 2014 as compared to an income from discontinued operations of
$4,048 for the three months ended September 30, 2013 is primarily attributable
to an agreed upon settlement of a liability with the City of Lindsay which was
negotiated in July 2014 on behalf of Tulare.
NET LOSS
Net loss totaled $3,979,152 for the three months ended September 30, 2014 as
compared to $2,427,613 for the three months ended September 30, 2013, an
increase in net loss of $1,551,539 or approximately 63.9%. The primary reason
for the increase in net loss is due to the decrease in net revenues and increase
in other expenses as noted above.