Washington, D.C. 20549
Indicate by check mark if the Registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
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No
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Indicate by check mark if the Registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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No
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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
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No
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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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes
x
No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant's knowledge, in the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
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No
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The number of shares outstanding of each of the issuer’s classes of equity as of April 16, 2013 is 1,917,894 shares of common stock and 1,000 shares of preferred stock.
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Some of the statements contained in this Form 10-K of American International Industries, Inc. (hereinafter “American”, the "Company" or the "Registrant") for its year ended December 31, 2012 discuss future expectations, contain projections of results of operations or financial condition or state other forward-looking information. These statements are subject to known and unknown risks, uncertainties, and other factors that could cause the actual results to differ materially from those contemplated by the statements. The forward-looking information is based on various factors and is derived using numerous assumptions. Important factors that may cause actual results to differ from projections include, for example:
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the success or failure of management's efforts to implement their business strategies for each subsidiary;
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the ability of the Company to raise sufficient capital to meet operating requirements of our subsidiaries;
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the ability of the Company to hire and retain quality management for our subsidiaries;
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the ability of the Company to compete with other established companies that operate in the same markets and segments;
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the effect of changing economic conditions impacting operations of our subsidiaries;
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the ability of the Company to successfully manage its subsidiaries and from time to time sell certain assets and subsidiaries to maximize value; and
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the ability of the Company to meet the other risks as may be described in future filings with the SEC.
American International Industries, Inc. - General
American International Industries, Inc., organized under the laws of the State of Nevada in September 1994, is a diversified corporation with interests in industrial companies, oil and gas interests, oilfield supply and service companies, and interests in undeveloped real estate in the Houston, TX area. The Company’s business strategy is to acquire controlling equity interests in undervalued companies and take an active role in its new subsidiaries to improve their growth, by providing its subsidiaries with access to capital, leveraging synergies and providing its subsidiaries with the Company's management expertise. The Company is sometimes referred to as "we", "us", "our", and other such phrases as provided in Regulation F-D (Fair Disclosure).
American International Industries, Inc. is a holding company and has three reporting segments and corporate overhead:
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Northeastern Plastics ("NPI") - a wholly-owned subsidiary, is a supplier of automotive after-market products and consumer durable goods products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets;
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American International Holdings Corp. (“AMIH”), formerly Delta Seaboard International ("Delta") - a 86.7% owned subsidiary, was an onshore rig-based well-servicing contracting company providing services to the oil and gas industry; As of December 31, 2012, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and formerly a subsidiary of Delta, was a wholly-owned subsidiary of AMIH.
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American International Texas Properties, Inc. ("AITP") - a wholly-owned real estate subsidiary, with real estate holdings in Harris, Galveston, and Waller Counties in Texas.
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Corporate overhead - American's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses. Corporate overhead also includes Brenham Oil & Gas Corp. ("BOG"), a division that currently owns minimal oil, gas and mineral royalty interests. Through Brenham Oil & Gas Corp., American is engaged in negotiations with financial institutions for the purpose of financing potential acquisitions of existing oil and gas properties and reserves. The Company is seeking to acquire a portfolio of oil and gas assets in North America and West Africa and large oil concessions in West Africa. American owns 58,680,074 shares of common stock, representing 53.2% of BOG’s total outstanding shares.
On April 3, 2012, AMIH entered into an Asset Purchase Agreement to sell the assets and liabilities of DSWSI (Notes 1 and 7). The assets and liabilities of DSWSI are classified as assets held for sale and associated liabilities of assets held for sale in the consolidated balance sheet as of December 31, 2011 in accordance with Presentation of Financial Statements - Discontinued Operations (ASC 205-20). Discontinued operations for the year ended December 31, 2012 include a gain on disposal of DSWSI’s assets and liabilities of $1,118,327 for the total consideration of $2,620,000 less DSWSI's assets and associated liabilities of $1,501,673 (Note 7). DSWSI's net losses of $922,517and $223,749for the years ended December 31, 2012 and 2011, respectively, are included in discontinued operations.
On April 22, 2011, American entered into a stock purchase agreement, whereby Joe Hoover, President of Downhole Completion Products, Inc. ("DCP), purchased for $5,000 American's 80% ownership of DCP's assets and associated liabilities. DCP's net loss of $4,410 for the year ended December 31, 2011 is included in discontinued operations. During the year ended December 31, 2011, American received the $5,000 for the purchase. This is included as income from discontinued operations for the year ended December 31,
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2011. American forgave the $55,000 promissory note owed by Joe Hoover and this is included as a loss in discontinued operations for the year ended December 31, 2011.
The historical financial statements of the Company include the acquisitions of acquired companies as of the effective dates of the purchases, and the results of those companies subsequent to closing, as these transactions were accounted for under the purchase method of accounting.
We intend to continue our efforts to grow through the acquisition of additional and complementary businesses and by expanding the operations of our existing businesses, especially in the energy sector. We will evaluate whether additional and complementary businesses can be acquired at reasonable terms and conditions, at attractive earnings multiples and which present opportunity for growth and profitability. These efforts will include the application of improved access to financing and management expertise afforded by synergistic relationships between the Company and its subsidiaries. Potential acquisitions are evaluated to determine that they would be accretive to earnings and equity, that the projected growth in earnings and cash flows are attainable and consistent with our expectations to yield desired returns to investors, and that management is capable of guiding the growth of operations, working in concert with others in the group to maximize opportunity. Periodically as opportunities present themselves, we may sell or merge the subsidiaries in order to bring value to the holding company and our shareholders and to enable the Company to acquire larger companies.
The Company’s real estate investment policy historically has been to acquire real estate for resale based upon our view of market conditions. Such properties are listed on the balance sheet as real estate acquired for resale. Real estate is not a segment of the Company's business.
We expect to face competition for acquisition candidates, which may limit the number of acquisition opportunities and may lead to higher acquisition prices. There can be no assurance that we will be able to identify, acquire or manage profitably of additional businesses or to integrate any acquired businesses into the Company without substantial costs, delays or other operational or financial problems. Further, acquisitions involve a number of risks, including possible adverse effects on our operating results, diversion of management's attention, failure to retain key personnel of the acquired business and risks associated with unanticipated events or liabilities. Some or all of which could have a material adverse effect on our business, financial condition and results of operations. The timing, size and success of our acquisition efforts and the associated capital commitments cannot be readily predicted. It is our current intention to finance future acquisitions by using shares of our common stock and other forms of financing as the consideration to be paid. In the event that the common stock does not have and maintain a sufficient market value, or potential acquisition candidates are otherwise unwilling to accept common stock as part of the consideration for the sale of their businesses, we may be required to seek other forms of financing in order to proceed with our acquisition program. If we do not have sufficient cash resources, our growth could be limited unless we are able to obtain additional equity or debt financing at terms acceptable to the Company.
Corporate overhead includes our investment activities for financing current operations and expansion of our current holdings, as well as evaluating the feasibility of acquiring additional businesses.
The Company's executive offices are located at 601 Cien Street, Suite 235, Kemah, Texas 77565 and its telephone number is (281) 334-9479. As of December 31, 2012, the Company had 6 employees at the executive offices.
Northeastern Plastics, Inc.
Northeastern Plastics, Inc. (NPI), a Texas corporation, is a wholly-owned subsidiary of the Company. NPI is a supplier of products to retailers and wholesalers in the automotive after-market and in the consumer durable electrical products markets. In June 1998, the Company acquired all the capital stock of Acqueren, Inc., a Delaware corporation, that owned 100% of Northeastern Plastics, Inc. The total purchase consideration for Acqueren was approximately $2,140,000. Northeastern Plastics was originally founded in 1986 as a New York Corporation. NPI is located at 14221 Eastex Freeway, Houston, TX 77032.
Products and Services
NPI's diversified products are sold in the automotive and consumer retail and after-market channels. NPI currently markets its diversified product assortment under the Good Choice® and MOTOR TREND® brand names.
The NPI MOTOR TREND® branded products include a variety of booster cables, portable and rechargeable hand lamps, lighting products, cord sets, and miscellaneous battery and other consumer automotive accessories. The NPI MOTOR TREND® program is supported through a national advertising campaign in MOTOR TREND® magazine.
The NPI Good Choice® branded product assortment not only matches in depth but exceeds the NPI MOTOR TREND® branded product assortment. In addition, the vast majority of the Good Choice® product line has been tested at the Good Housekeeping Institute and prominently carries the Good Housekeeping "Seal" on many of its products. The NPI Good Choice® product assortment includes a
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variety of portable lighting products, cord sets, residential household light bulbs, night lights, multiple outlet devices and other consumer products.
The NPI Good Choice® program is supported through a national advertising campaign in the newsstand issues of Good Housekeeping magazine and plans are being negotiated for additional brand advertising. The 2012 expected pass through readership rate for the upcoming Good Choice® 2013 ads are expected to exceed 21,000,000 potential viewings.
NPI products are available at stores such as Advanced Auto Parts, Family Dollar, Dollar Tree, H.E.B., Dollar General, Freds, Big Lots, Bi-Mart, and Publix, among others.
Virtually all of NPI's products are manufactured overseas. NPI's products are manufactured to meet or exceed NPI, UL, ETL, and CSA specifications and designs. NPI has no long-term agreements with any manufacturers for its products, but relies on its management's business contacts with manufacturers in renewing its short-term agreements. There is no assurance that NPI will be able to continue to renew its present agreements with manufacturers on terms economically favorable to NPI, if at all. Any inability or delay in NPI's renewal of its agreements at economically favorable terms could have a material adverse effect on NPI unless alternative supplies are available. NPI's management believes that if they are unable to utilize any of their present suppliers, it would be able to secure alternative manufacturers / suppliers at comparable terms.
Sales and Marketing
NPI has working vendor agreements with its major customers. NPI sells its products through the use of its in-house personnel and independent sales agents covered under sales and marketing agreements. NPI contracts with agents, who are responsible for contacting potential customers in a pre-determined sales area. NPI provides these agents with manuals, brochures, and other promotional materials, which are used in the selling process. After sales are completed through the use of an agent, NPI directly bills the customer, and all payments are made directly to NPI. Agents are compensated on a commission basis only, calculated on the net sales price of products invoiced to customers. No commissions are paid until NPI receives payment from customers.
NPI also sells a substantial percentage of its products under a direct import program that offers NPI customers the additional services of arranging for overseas manufacturing and delivery to overseas freight forwarders and, for additional cost, on-site factory product inspections prior to the container loading, ocean and domestic freight services, customs and brokerage services, as well as container unloading at the customer's facility. NPI can also arrange for the complete turn-key deliveries of its products to its customer’s place of business. Currently, NPI estimates approximately slightly more than 36% of its sales are made through the use of its direct import program and the remainder from warehouse sales.
NPI markets its products through such major chains as Advanced Auto Parts, Family Dollar, Dollar Tree, Big Lots, Ocean State Jobbers, H.E.B., Freds, Publix, Bi-Mart, and Dollar General, among others. During our fiscal year ended December 31, 2012, NPI's large accounts accounted for 46% of NPI's revenues. The loss of any of these major customers could have a material adverse effect on NPI operating results. NPI's strategic plan for 2013 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Competition
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's Motor Trend products and sales, NPI competes against a large number of suppliers many of which have far greater financial resources than NPI and therefore NPI's ability to increase market share may be limited. NPI's management believes its primary competitors in the safety products market include Coleman Cable Company and East Penn among other large manufacturers and importers.
In the consumer durables electrical products market, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. NPI's management believes its primary competitors in the consumer durables market include Coleman Cable, General Electric (via a licensee), and American Tac and various other producers.
Price is the primarily significant factor in the safety products market and the consumer durables electrical products markets. Many of NPI's products are made to industry specifications, and are therefore essentially functionally substitutable with those of competitors. However, NPI believes that opportunities exist to differentiate all of its products on the basis of brand name, quality, reliability and customer service.
Intellectual Property
NPI has been issued the following trademarks: The Good Choice®, Jumpower™, expiring February 2009, and The Bitty Booster Cable™, which was renewed in August 2008 and extended through August 2018.
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Employees
As of December 31, 2012, NPI employed 7 persons, including its executive officer, as well as customer service and warehouse employees. No employees are covered by a collective bargaining agreement. NPI's management considers relations with its employees to be satisfactory.
Facilities
NPI operates from a Company-owned 38,500 square feet of warehouse and office facility located in Houston, TX. On November 22, 2010, a 17 acre tract was transferred to NPI from American's real estate held for sale. NPI plans to build new facilities on this site.
Brenham Oil & Gas, Corp.
Brenham Oil & Gas Inc. ("Brenham") was incorporated on November 7, 1997 under the laws of the State of Texas as a wholly-owned subsidiary of American. Brenham Oil and Gas Corp. ("Brenham"), a Nevada corporation, was incorporated on April 21, 2010 and Brenham Oil & Gas Inc. became a wholly-owned subsidiary of Brenham following the unanimous vote by American’s board of directors on April 8, 2010 approving the distribution of 10,297,019 shares of Brenham Common Stock, on a pro rata 1 for 1 basis, to the shareholders of American (the “Spin-Off Distribution”). Following the Spin-Off Distribution, American retained approximately 54% of Brenham's Common Stock. As of this filing, American owns 53.2% of Brenham's Common Stock.
Brenham’s Business
Brenham has owned an oil and gas mineral royalty interest on a 24 acre parcel of land located in Washington County, Texas since inception. The royalty interest is currently leased by Anadarko Petroleum Corporation for a term continuing until the covered minerals are no longer produced in paying quantities.
On July 22, 2011, Brenham entered into an asset purchase and sale agreement with Doug Pedrie, Davis Pedrie Associates, LLC and Energex Oil, Inc., pursuant to which Brenham acquired 700 acres of unproved property located in the oil producing Permian Basin near Abilene, Texas. Brenham issued 2,000,000 restricted shares of common stock,
$0.0001 par value (“Common Stock”)
valued at $8,400, with an additional 2,000,000 restricted shares of Common Stock, valued at $8,400, to be issued contingent upon realization of certain production targets in 2012. On March 8, 2012, this agreement was rescinded and replaced with an agreement that in consideration for the Brenham share issuance, Brenham has a 2.5% overriding royalty interest in all of the leases associated with this property and any properties acquired or renewed in the future within a ten-mile radius. In addition, the contingency to issue additional shares was removed.
In December 2012, Brenham Equatorial Guinea, LLC, a subsidiary of Brenham Oil & Gas Corp., executed a Production Sharing Contract with the Government of Equatorial Guinea in West Africa. Pursuant to the terms of the Agreement, Brenham received a 15% participating interest in newly-created Block Y, which consolidates four offshore exploration blocks into a single, half-million acre license. Xuan Energy is the operator of Block Y. Block Y is between and along a geologic trend with a large Okume and Ceiba oil and gas field complex (which peaked at more than 80,000 barrels of oil per day) and an undeveloped oil discovery in Block P to the north. The block awarded to Brenham is large and is in benign operating conditions and moderate water depths.
At present, Brenham is an exploration stage company and will continue to be so until commencement of substantial production from its oil and gas operations.
Brenham's Business Plan
Brenham's business plan is to become an independent oil and gas exploration and production company. Brenham intends to acquire additional oil and gas-related assets (“prospects”) in the United States and in certain international locations, with an initial focus on Africa. We believe that with our experienced management and technical team, equipped with industry data, newly available seismic technologies, industry contacts and adequate funding, Brenham will be in a position to acquire prospects.
After considering numerous global oil and gas-producing regions, Brenham's board of directors determined that our initial focus should be in West Africa, a region that offers largely realized and unrealized hydrocarbon resources. We believe that we can be successful in acquiring prospects and that our potential asset portfolio could be commercially viable, provided that we can secure sufficient financing at acceptable terms and conditions.
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The competition in Africa is intense and requires the ability of participants to establish and maintain business relationships with the governments and regulatory authorities within this region. We believe that an example of the intensity of this competition may be found in our recent experience involving our negotiations with the Republic of Togo for a certain deepwater concession. Brenham commenced a lawsuit against TGS-NOPEC and ENI, multi-national oil companies,
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the result of the defendants tortuous interference with Brenham's agreement to acquire participation rights to deepwater oil exploration in the Republic of Togo, which borders Ghana and is adjacent to the 1.2 billion barrel Jubilee Discovery. See “Legal Proceedings” below.
We believe that our data-intensive approach to potential Prospect analysis, coupled with the expertise of our management team, will hopefully allow us to capture a portion of the attractive prospects available in our target regions.
Brenham has recently received an invitation from the
Government of Equatorial Guinea in West Africa to propose and negotiate the terms and conditions for multiple deepwater exploration blocks together with four other major companies.
To date, other than our assertion of certain rights to the Block 2 deepwater concession off the Republic of Togo, which we are pursuing in our lawsuit against TGS-NOPEC and ENI, Brenham has no contractual rights in any other area in Africa. Brenham is dependent upon its ability to acquire such rights and to secure funding in adequate amounts to pursue its business plan. If we are not issued licenses by the applicable licensing authorities in a timely manner it may be expected that we will not be able to commence any exploration, development and production operations.
Brenham intends to develop strategic relationships and enter into long-term participation agreements with major oil and gas companies, in both domestic and international markets. We believe that such alliances will create a platform for exploration and development activities.
Competition
The oil and gas industry is highly competitive. Brenham will encounter strong competition from major oil and gas companies and from other independent operators in seeking to acquire prospects and hiring and retaining qualified personnel. Many, if virtually not all, of these competitors have far greater financial, technical and personnel resources and far longer operating histories than Brenham. As a result, Brenham's competitors are able to devote more financial and other resources to evaluate and acquire the more desirable prospects. Furthermore, Brenham's competitors are expected to better withstand the financial losses resulting from unsuccessful drill attempts, sustained periods of volatility in financial markets and generally adverse global and industry-wide economic conditions.
Brenham is also affected by competition for drilling rigs and the availability of related equipment. To the extent that in the future Brenham acquires and develops undeveloped properties, higher commodity prices generally increase the demand for drilling rigs, supplies, services, equipment and crews, and can lead to shortages of, and increasing costs for, drilling equipment, services and personnel. Over the past three years, oil and gas companies have experienced higher drilling and operating costs. Shortages of, or increasing costs for, experienced drilling crews and equipment and services could restrict our ability to drill wells and conduct our operations. There can be no assurance that Brenham will be able to compete successfully in all of the above areas.
Environmental Matters and Regulation
General
Virtually all aspects of oil and gas industry are subject to a vast array of laws and regulations, both domestically and internationally. In addition, it may be expected that in the future, new laws and regulations will be adopted that will limit certain operations and/or increase the costs of such operations. These laws and regulations either presently require or in the future may require, among other things:
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acquiring various permits before drilling commences;
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enjoining some or all of the operations of facilities deemed not in compliance with permits;
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restricting the types, quantities and concentration of various substances that can be released into the environment in connection with oil and gas and natural gas drilling, production and transportation activities;
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limiting or prohibiting drilling activities in certain locations lying within protected or otherwise sensitive areas; and
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requiring remedial measures to mitigate pollution from our operations
Compliance with these laws can be costly; the regulatory burden on the oil and gas industry increases the cost of doing business in the industry and consequently affects profitability.
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Moreover, public interest in the protection of the environment has increased significantly in recent years, notwithstanding the widely recognized public demand for “energy independence.” Offshore drilling in some areas has been opposed by regulatory agencies as well as environmental groups and, in other areas, has been restricted by regulations. Our operations could be adversely affected to the extent laws are enacted or other governmental action is taken that prohibits or restricts offshore drilling or imposes environmental requirements that result in increased costs to the oil and gas industry in general, such as more stringent or costly waste handling, disposal or cleanup requirements.
The following is a summary of some of the existing laws or regulatory issues to which Brenham and its business operations are or may be subject to in the future.
Oil and Gas Pollution Act of 1990
The U.S. Oil and Gas Pollution Act of 1990 ("OPA") and regulations thereunder impose liability on responsible parties for damages resulting from oil and gas spills into or upon navigable waters or in the exclusive economic zone of the U.S. Liability under the OPA is strict, joint and several and potentially unlimited. A "responsible party" under the OPA includes the lessee or permittee of the area in which an offshore facility is located. The OPA also requires the lessee or permittee of the offshore area in which a covered offshore facility is located to establish and maintain evidence of financial responsibility to cover potential liabilities related to an oil and gas spill for which such person would be statutorily responsible in an amount that depends on the risk represented by the quantity or quality of oil and gas handled by such facility. The MMS of the U.S. Department of the Interior ("DOI") has promulgated regulations that implement the financial responsibility requirements of the OPA. A failure to comply with the OPA's requirements or inadequate cooperation during a spill response action may subject a responsible party to civil, administrative and/or criminal enforcement actions.
Clean Water Act
The U.S. Federal Water Pollution Control Act of 1972, as amended, ("CWA") imposes restrictions and controls on the discharge of pollutants, produced waters and other oil and gas and natural gas wastes into waters of the U.S. These controls have become more stringent over the years, and it is possible that additional restrictions will be imposed in the future. Under the CWA, permits must be obtained to discharge pollutants into regulated waters. In addition, certain state regulations and the general permits issued under the federal National Pollutant Discharge Elimination System program prohibit discharge of produced waters and sand, drilling fluids, drill cuttings and certain other substances related to the oil and gas industry into certain coastal and offshore waters. The CWA provides for civil, criminal and administrative penalties for unauthorized discharges of oil and gas and other hazardous substances and imposes liability on parties responsible for those discharges for the costs of cleaning up related damage and for natural resource damages resulting from the release. Comparable state statutes impose liabilities and authorize penalties in the case of an unauthorized discharge of petroleum or its derivatives, or other hazardous substances, into state waters.
Marine Protected Areas
Executive Order 13158, issued in 2000, directs federal agencies to safeguard existing Marine Protected Areas ("MPAs") in the U.S. and establish new MPAs. The order requires federal agencies to avoid harm to MPAs to the extent permitted by law and to the maximum extent practicable. It also directs the U.S. Environmental Protection Agency ("EPA") to propose regulations under the CWA to ensure appropriate levels of protection for the marine environment. This order and related CWA regulations have the potential to adversely affect our operations by restricting areas in which we may carry out future development and exploration projects and/or causing us to incur increased operating expenses.
Consideration of Environmental Issues in Connection with Governmental Approvals
Our operations will frequently require licenses, permits and other governmental approvals. Several federal statutes, including the Outer Continental Shelf Lands Act ("OCSLA"), the National Environmental Policy Act ("NEPA"), and the Coastal Zone Management Act ("CZMA") require federal agencies to evaluate environmental issues in connection with granting such approvals or taking other major agency actions. OCSLA, for instance, requires the DOI to evaluate whether certain proposed activities would cause serious harm or damage to the marine, coastal or human environment, and gives the DOI authority to refuse to issue, suspend or revoke permits and licenses allowing such activities in certain circumstances, including when there is a threat of serious harm or damage to the marine, coastal or human environment. Similarly, NEPA requires DOI and other federal agencies to evaluate major agency actions having the potential to significantly impact the environment. In the course of such evaluations, an agency must prepare an environmental assessment and, potentially, an environmental impact statement. CZMA, on the other hand, aids states in developing a coastal management program to protect the coastal environment from growing demands associated with various uses, including offshore oil and gas and natural gas development. In obtaining various approvals from the DOI, we will have to certify that we will conduct our activities in a manner consistent with any applicable CZMA program. Violation of these requirements may result in civil, administrative or criminal penalties.
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Naturally Occurring Radioactive Materials
Wastes containing naturally occurring radioactive materials ("NORM") may also be generated in connection with our operations. Certain oil and gas and natural gas exploration and production activities may enhance the radioactivity of NORM. In the U.S., NORM is subject primarily to regulation under individual state radiation control regulations. In addition, NORM handling and management activities are governed by regulations promulgated by the Occupational Safety and Health Administration. These regulations impose certain requirements concerning worker protection; the treatment, storage and disposal of NORM waste; the management of waste piles, containers and tanks containing NORM; and restrictions on the uses of land with NORM contamination.
Resource Conservation and Recovery Act
The U.S. Resource Conservation and Recovery Act ("RCRA") and comparable state statutes regulate the generation, transportation, treatment, storage, disposal and cleanup of hazardous and non-hazardous wastes. Under the auspices of the EPA, individual states administer some or all of the provisions of RCRA, sometimes in conjunction with their own more stringent requirements. Drilling fluids, produced waters, and most of the other wastes associated with the exploration, development and production of crude oil and gas or natural gas are currently exempt from RCRA's requirements pertaining to hazardous waste and are regulated under RCRA's non-hazardous waste and other regulatory provisions. A similar exemption is contained in many of the state counterparts to RCRA. At various times in the past, proposals have been made to amend RCRA to rescind the exemption that excludes oil and gas and natural gas exploration and production wastes from regulation as hazardous waste. Accordingly, it is possible that certain oil and gas and natural gas exploration and production wastes now classified as non-hazardous could be classified as hazardous wastes in the future. Any such change could result in an increase in our costs to manage and dispose of wastes, which could have a material adverse effect on our results of operations and financial position. Also, in the course of our operations, we expect to generate some amounts of ordinary industrial wastes, such as waste solvents and waste oil and gas that may be regulated as hazardous wastes.
Air Pollution Control
The U.S. Clean Air Act ("CAA") and state air pollution laws adopted to fulfill its mandates provide a framework for national, state and local efforts to protect air quality. Our operations will utilize equipment that emits air pollutants subject to federal and state air pollution control laws. These laws require utilization of air emissions abatement equipment to achieve prescribed emissions limitations and ambient air quality standards, as well as operating permits for existing equipment and construction permits for new and modified equipment. Federal and state regulatory agencies can impose administrative, civil and criminal penalties for non-compliance with air permits or other requirements of the CAA and associated state laws and regulations, including the suspension or termination of permits and monetary fines.
Superfund
The U.S. Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, ("CERCLA") also known as "Superfund," imposes joint and several liability for response costs at certain contaminated properties and damages to natural resources, without regard to fault or the legality of the original act, on some classes of persons who are considered to be responsible for the release of a hazardous substance into the environment. These persons include the current or past owner or operator of the site where the release occurred and anyone who disposed or arranged for the disposal of a hazardous substance at the site. CERCLA also authorizes the EPA and, in some instances, third parties to act in response to threats to the public health or the environment and to seek to recover from the responsible classes of persons the costs they incur.
Protected Species and Habitats
The federal Endangered Species Act, the federal Marine Mammal Protection Act, and similar federal and state wildlife protection laws prohibit or restrict activities that could adversely impact protected plant and animal species or habitats. Oil and gas and natural gas exploration and production activities could be prohibited or delayed in areas where such protected species or habitats may be located. Additionally, expensive mitigation may be required to accommodate such activities.
Health and Safety
Our operations may become subject to the requirements of the federal Occupational Safety and Health Act ("OSH Act") and comparable state statutes. These laws and their implementing regulations strictly govern the protection of the health and safety of employees. The OSH Act hazard communication standard, EPA community right-to-know regulations under Title III of the Superfund Amendments and Reauthorization Act of 1986 and similar state statutes require that we organize and/or disclose information about hazardous materials used or produced in our operations. Such laws and regulations also require us to ensure our workplaces meet minimum safety standards and provide for compensation to employees injured as a result of our failure to meet these standards as well as civil and/or criminal penalties in certain circumstances.
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Accidental spills or releases may occur in the course of our future operations, and we cannot assure you that we will not incur substantial costs and liabilities as a result, including costs relating to claims for damage to property and persons. Moreover, environmental laws and regulations are complex, change frequently and have tended to become more stringent over time. Accordingly, we cannot assure you that we have been or will be at all times in compliance with such laws, or that environmental laws and regulations will not change or become more stringent in the future in a manner that could have a material adverse effect on our financial condition, results of operations or ability to make distributions to you.
Other Regulation Related to the Oil and Gas Industry
The oil and gas industry is regulated by numerous federal, state and local authorities. Legislation affecting the oil and gas industry is under constant review for amendment or expansion, frequently increasing the regulatory burden. Also, numerous departments and agencies, both federal and state, are authorized by statute to issue rules and regulations binding on the oil and gas industry and its individual members, some of which carry substantial penalties for failure to comply. Although the regulatory burden on the oil and gas industry may increase our cost of doing business by increasing the future cost of transporting our production to market, these burdens generally do not affect us any differently or to any greater or lesser extent than they affect other companies in the industry with similar types, quantities and locations of production.
Homeland Security Regulations
The Department of Homeland Security Appropriations Act of 2007 requires the Department of Homeland Security ("DHS") to issue regulations establishing risk-based performance standards for the security of chemical and industrial facilities, including oil and gas and natural gas facilities that are deemed to present "high levels of security risk." The DHS is currently in the process of adopting regulations that will determine whether our operations may in the future be subject to DHS-mandated security requirements. Presently, it is not possible to accurately estimate the costs we could incur, directly or indirectly, to comply with any such facility security laws or regulations, but such expenditures could be substantial.
U.S. Coast Guard and the U.S. Customs Service
In case we have to transport drilling rigs to potential sites in the U.S. Gulf of Mexico, our operation of such drilling rigs would become subject to the rules and regulations of the U.S. Coast Guard and the U.S. Customs Service. Such regulation sets safety standards, authorizes investigations into vessel operations and accidents and governs the passage of vessels into U.S. territory. We would be required by these agencies to obtain various permits, licenses and certificates with respect to these operations.
International Laws and Regulations
Our exploration and production activities that may occur in other nations, including those in West Africa, are subject to the laws and regulations of such nations. These regulations may govern licensing for drilling operations, mandatory involvement of local partners in our operations, taxation of our revenues, safety and environmental matters and our ability to operate in such jurisdictions as a foreign participant.
Failure to comply with these laws and regulations also may result in the suspension or termination of our operations and subject us to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that could substantially increase our costs.
Employees
As of December 31, 2012, Brenham had 5 employees. All employees are currently located in the U.S. None of these employees are represented by labor unions or covered by any collective bargaining agreement. Brenham's management considers relations with its employees to be satisfactory.
Offices
Brenham currently utilizes approximately 1,500 square feet of office space at the offices of American located at 601 Cien Street, Suite 235, Kemah, TX 77565-3077, which are provided to Brenham by American on a rent-free basis.
American International Holdings Corp.
American International Holdings Corp. (AMIH), formerly Delta Seaboard International, Inc. ("Delta"), is a 86.7% owned subsidiary of American. AMIH also has a wholly-owned subsidiary, Delta Seaboard Well Service, Inc. ("DSWSI"), a Texas corporation and formerly a subsidiary of Delta. Upon the execution of an Asset Purchase Agreement dated April 3, 2013, discussed under "General Background of AMIH" below, DSWSI became a non-operating company.
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On August 13, 2012, AMIH affected a reverse stock split whereby all outstanding shares of its common stock were subject to a reverse split on a one for one hundred (1:100) basis. All share and per share amounts contained in this Form 10-K have been adjusted retroactively to reflect the reverse stock split.
General Background of AMIH
From May 1, 2005 through April 16, 2009, AMIH had three subsidiaries. Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. were separate privately-owned Texas companies. In connection with the 2005 acquisition by AMIH, Hammonds Fuel Additives was merged into Hammonds Technical Services. In April 2005 and January 2006, respectively, Hammonds Fuel Additives and Hammonds Water Treatment Systems, respectively, were reincorporated as separate entities from Hammonds Technical Services, and all three entities were wholly-owned subsidiaries of AMIH. Hammonds manufactured engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries.
On February 3, 2010, AMIH and Delta completed a reverse merger pursuant to which Delta was merged with and into Hammonds and Hammonds’ name was changed to Delta Seaboard International, Inc.
On April 3, 2012, AMIH entered into an Asset Purchase Agreement (“Agreement”) by and among Delta Seaboard, LLC (the "Purchaser"), a Texas limited liability company that is owned and controlled by Robert W. Derrick, Jr. and Ronald D. Burleigh, who were AMIH's president and director and vice-president and director, respectively, on the date of the Agreement, DSWSI, and American. Pursuant to the terms of the Agreement, AMIH: (i) sold all of the assets of DSWSI to the Purchaser; (ii) Messrs. Derrick and Burleigh resigned as executive officers and as members of AMIH’s board of directors; (iii) Mr. Derrick resigned as a director of American; and (iv) Messrs. Derrick and Burleigh transferred and assigned all of their 319,258 AMIH shares to American. In consideration for the sale of the DSWSI assets to Purchaser, Purchaser paid AMIH $1,600,000 in cash and executed a 5 year note bearing interest at 5% per annum in the face amount of $1,400,000. On December 19, 2012, this note was sold to Messrs. Derrick and Burleigh for $1,020,000, of which $220,000 was paid prior to December 31, 2012. Total consideration for the sale was $2,620,000. On February 27, 2013, AMIH received $800,000 in payment of the balance due on the note receivable from Messrs. Derrick and Burleigh.
Upon the closing of the Asset Purchase Agreement on April 3, 2012, American then held an aggregate, including previous holdings, of 647,858 shares of AMIH's issued and outstanding common stock, representing approximately 86.7% of AMIH's shares. At the same date, AMIH ceased to be an operating company and became a non-operating "shell company", as that term is defined in Rule 144(i) under the Securities Act of 1933, as amended.
Description of AMIH’s Business
Current Status as a Shell Company
Since April 3, 2012, AMIH has been classified as a "shell company". Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act") defines "shell company," as a company (other than an asset-backed issuer), which has "no operations; and either no or nominal assets; assets consisting of solely cash and cash equivalents; or assets consisting of any amount of cash and cash equivalents and nominal other assets." The management of AMIH does not intend to undertake any efforts to cause a market to develop in its securities, either debt or equity, until AMIH has successfully concluded a business combination. AMIH intends to comply with the periodic reporting requirements of the Exchange Act for so long as it is subject to those requirements.
Business Objective
AMIH's current business objective is to become an operating company, by seeking a business combination with an operating company, acquiring assets or other means. Management intends to use AMIH's limited personnel but significant cash resources and liquidity resulting from the sale of DSWSI in connection with fulfilling its business objective. AMIH will utilize its capital stock, debt or a combination of capital stock and debt, together with its financial resources, in furtherance of its business objective.
It may be expected that entering into one or more transactions in pursuit of its business objective will involve the issuance of restricted shares of capital stock. The issuance of additional shares of its Common Stock or other capital stock that may be convertible into Common Stock:
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may significantly reduce the equity interest of its existing stockholders;
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may cause a change in control if a substantial number of its shares of Common Stock or other capital stock are issued and may also result in the resignation or removal of its present officers and directors; and
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may adversely affect the prevailing market price for its Common Stock.
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Similarly, if AMIH issued debt securities, it could result in:
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default and foreclosure on its assets if the operating revenues after a business combination were insufficient to pay its debt obligations;
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acceleration of obligations to repay the indebtedness even if AMIH has made all principal and interest payments when due if the debt security contained covenants that required the maintenance of certain financial ratios or reserves and any such covenants were breached without a waiver or renegotiations of such covenants;
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the immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; and
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AMIH’s inability to obtain additional financing, if necessary, if the debt security contained covenants restricting its ability to obtain additional financing while such security was outstanding.
Management currently plans to seek potential business combinations by investigating and, if such investigation warrants, acquiring a target company or business seeking the perceived advantages of being a publicly-held corporation and that understands the benefit of being able to employ AMIH’s funds in its business. The principal business objective of AMIH for the next 12 months and beyond will be to achieve long-term growth potential through a combination with a business (and/or an acquisition) rather than immediate, short-term earnings. Management will not restrict potential candidate target companies to any specific business, industry or geographical location and, thus, may acquire any type of business.
The investigation and analysis of new business opportunities has and will be undertaken by or under the supervision of AMIH’s officers and directors. As of the date of this filing, AMIH has not entered into any preliminary or definitive agreement with any party, nor have there been any specific discussions with any potential business combination candidates regarding business combination opportunities. In AMIH’s efforts to analyze potential acquisition targets, AMIH may consider the following kinds of factors:
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Potential for growth, indicated by new technology, anticipated market expansion or new products;
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Competitive position as compared to other firms of similar size and experience within the industry segment as well as within the industry as a whole;
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Strength and diversity of management, either in place or scheduled for recruitment;
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Capital requirements and anticipated availability of required funds, to be provided by AMIH or from operations, through the sale of additional securities, through joint ventures or similar arrangements or from other sources;
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The cost of participation by AMIH as compared to the perceived tangible and intangible values and potentials;
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The extent to which the business opportunity can be advanced;
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The accessibility of required management expertise, personnel, raw materials, services, professional assistance and other required items; and
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Other relevant factors.
In applying the foregoing criteria, no one of which will be controlling, AMIH’s management will attempt to analyze all factors and circumstances and make a determination based upon reasonable investigative measures and available data. Potentially available business opportunities may occur in many different industries, and at various stages of development, all of which will make the task of comparative investigation and analysis of such business opportunities extremely difficult and complex. Due to the limited capital AMIH has plans to allocate for investigation, AMIH may not discover or adequately evaluate adverse facts about the potential business opportunities that may be acquired.
Form of Acquisition
The manner and extent to which AMIH participates in a business combination opportunity will depend upon the nature of the opportunity, AMIH’s respective needs and desires as well as those of the principals of the opportunity, and the relative negotiating strength of AMIH and such principals.
It is likely that AMIH will effect a business combination through the issuance of common stock or other securities, which may result in a change of control. Although the terms of any such transaction cannot be predicted, it should be noted that in certain circumstances the criteria for determining whether or not an acquisition is a so-called "tax free" reorganization under Section 368(a)(1) of the Internal Revenue Code of 1986, as amended (the "Code"), depends upon the issuance to the stockholders of the acquired company of at least 80% of the common stock of the combined entities immediately following the reorganization. If a transaction were structured to take advantage of these provisions rather than other "tax free" provisions provided under the Code, present AMIH stockholders would, in such circumstances, retain 20% or less of the total issued and outstanding shares. Under other circumstances, depending upon the relative negotiating strength of the parties, present AMIH stockholders may retain substantially less than 20% of the total issued and outstanding shares. This could result in substantial additional dilution to the equity of those who were AMIH’s stockholders prior to such reorganization / business combination.
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AMIH’s present stockholders may not have control of a majority of the voting shares following a reorganization / business combination transaction. Further, as part of such a transaction, all or a majority of AMIH’s directors may resign and new directors may be appointed without any vote by stockholders.
In the case of an acquisition, the transaction may be accomplished upon the sole determination of AMIH’s management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving AMIH, it will likely be necessary to call a stockholders' meeting and obtain the approval of the holders of a majority of the outstanding shares. The necessity to obtain such stockholder approval may result in delay and additional expense in the consummation of any proposed transaction and will also give rise to certain appraisal rights to dissenting stockholders. It may be expected that AMIH’s management will seek to structure any such transaction so as not to require stockholder approval and the inherent delays and expenses.
It is anticipated that the investigation of specific business opportunities and the negotiation, preparation and execution of relevant agreements, disclosure documents and other instruments will require substantial management time and attention and substantial cost for accountants, attorneys and others. If a decision is made not to consummate a specific business combination opportunity after incurring the associated costs, the costs of the related investigation would not be recoverable.
AMIH presently has no employees apart from its officers and directors. Management expects no significant changes in the number of employees other than such changes, if any, that may result in connection with a business combination.
Corporate Transactions
On September 30, 2011, AITP sold the 287-acre property located in Dickinson, Texas, to Texas Community Bank, N.A. ("TXCB") as part of a settlement of lawsuit claims that American had against TXCB, for consideration of $3,701,824 in the form of a secured note receivable of $3,599,766 and interest receivable of $102,058. American and TXCB ("the parties") have signed a sales proceeds sharing agreement for the 287-acre property. In accordance with the sales proceeds sharing arrangement, if the 287-acre property is sold by TXCB at a minimum price of $5,000,000 to an unrelated third party on or before December 31, 2013, American will receive the difference between the first $5,000,000 in sales proceeds and $3,100,000 or $1,900,000. In the event that the sales price of the 287-acre property exceeds $5,000,000 such amount over the $5,000,000 consideration shall be divided on a 50/50 basis between American and TXCB, in addition to the $1,900,000. The settlement has resulted in a net gain of $3,476,824, which does not include the value of the sale proceeds sharing agreement. In November 2011, American foreclosed on the note receivable and obtained ownership of 17 condominium units at the waterfront Dawn Condominium complex located in Galveston, Texas. In connection with the foreclosure, American re-evaluated the net realizable value of the condominium units and adjusted the gain by $1,613,333 for a net gain of $1,863,491 during 2011. During the year ended December 31, 2012, six Dawn Condominium units were sold for $553,621, resulting in a loss on sale of assets of $169,352. The remaining 9 units are listed for sale with a broker. No assurance can be given on the likelihood of completing the sales.
On January 13, 2011, American entered into a letter of intent with Kemah Development Texas L.P. (“KDT”) which is owned by an entity which is controlled by the brother of Daniel Dror (Daniel Dror disclaims any ownership in or control over KDT), pursuant to which KDT agreed to sell 65 acres of land located in Galveston County, Texas to American in consideration for restricted shares of common stock. Subsequently, the agreement was amended to provide for the purchase price to be paid by the issuance of 146,000 restricted shares of common stock with a fair market value of $919,800. These shares were issued on June 10, 2011. American has received an appraisal of the property from an independent third-party appraiser which concluded that the property had an estimated fair market value of approximately $1,900,000. The purchase of the property closed on July 9, 2011, and American recorded the land at $520,382, the original cost to KDT of this property, and recorded share-based compensation of $399,418 in July 2011. American's present intention is that the property will be held for sale by its wholly-owned real estate subsidiary, American International Texas Properties, Inc.
During the year ended December 31, 2012, 14 acres of vacant commercial use land in Houston, Texas was granted to a third party to save on property taxes associated with holding this property, resulting in a loss of $160,925.
ITEM 1A. RISK FACTORS RELATED TO OUR BUSINESSES
General
We may experience adverse impacts on our results of operations as a result of adopting new accounting standards or interpretations
Our implementation of and compliance with changes in accounting rules, including new accounting rules and interpretations, could adversely affect our operating results or cause unanticipated fluctuations in our operating results in future periods. For example, we are required by the Sarbanes-Oxley Act of 2002 to file annual reports and quarterly reports disclosing the effectiveness of our internal controls and procedures. Although we believe our internal controls are operating effectively, and we have committed internal resources to ensure compliance, we cannot guarantee that we will not have any material weaknesses as reported by our auditors, or that such
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deficiencies will not be discovered through our internal reviews, and such determination could materially adversely affect our business or significantly increase our costs in order to establish effective controls and procedures.
Actual results could differ from the estimates and assumptions that we use to prepare our financial statements
To prepare financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions, as of the date of the financial statements, which affects the reported values of assets, liabilities, revenues and expenses and disclosures of contingent assets and liabilities. Areas requiring significant estimates by our management include:
- contract costs and profits and revenue recognition;
- provisions for uncollectible receivables and recoveries of costs from subcontractors, vendors and others;
- provisions for income taxes and related valuation allowances;
- recoverability of other intangibles and related estimated lives;
- accruals for estimated liabilities;
- timing of the introduction of new products and services and market acceptance of the same
Risks related to our NPI subsidiary
Dependence upon third-party manufacturers for its products
Virtually all of NPI's products, which include products sold in the automotive and consumer retail and after-market channels, are manufactured overseas. NPI has no long-term agreements with any manufacturers for its products, but relies on management's business contacts with manufacturers in renewing its short-term agreements. There is no assurance that NPI will be able to renew its present agreements with manufacturers on terms economically favorable to NPI, if at all. Any inability or delay in NPI's renewal of its agreements at economically favorable terms could have a material adverse effect on NPI unless alternative supplies are available.
Dependence upon third-party licenses
NPI markets its diversified product assortment under the Good Choice® and MOTOR TREND® brand names. Nearly all of the NPI Good Choice® product line has been tested at the Good Housekeeping Institute and prominently carries the Good Housekeeping "Seal" on the vast majority of its products. The NPI Good Choice® product assortment includes a variety of booster cables, portable hand lamps, lighting products, cord sets, residential household light bulbs, night lights, multiple outlet devices and other consumer products. The Good Choice® program is dependent upon a national advertising campaign in the newsstand issues of Good Housekeeping magazine, pursuant to an agreement with Good Housekeeping.
The NPI MOTOR TREND® branded products include a variety of booster cables, portable and rechargeable hand lamps, lighting products, cord sets, emergency road side kits and miscellaneous battery and other consumer automotive accessories. The NPI MOTOR TREND® program is a standard licensing program with Source Inter Link and MOTOR TREND® magazine. NPI’s business would be materially adversely affected if either the Good Housekeeping or MOTOR TREND® relationship was terminated.
Dependence upon major customers
NPI markets its products through such major chains as Advanced Auto Parts, Family Dollar, Dollar Tree, GBI - Dollar Tree, Ocean State Jobbers, Big Lots, H.E.B., Publix, Freds, Bi-Mart, and Dollar General, among others. During our fiscal year ended December 31, 2012, NPI's large accounts accounted for 46% of NPI's revenues. The loss of any of these major customers could have a material adverse effect on NPI operating results. NPI's strategic plan for 2013 includes targeting three or more additional large accounts and reducing its dependence upon major customers by adding more mid-size accounts.
Dependence upon independent sales agents and internal personnel for sales and marketing
NPI has working vendor agreements with its major customers. NPI sells its products through the use of its in-house personnel and independent sales agents covered under sales and marketing agreements. NPI contracts with agents, who are responsible for contacting potential customers in a pre-determined sales area. NPI provides these agents with manuals, brochures, and other promotional materials, which are used in the selling process. After sales are completed through the use of an agent, NPI directly bills the customer, and all payments are made directly to NPI. Agents are compensated on a commission basis only, calculated on the net sales price of products invoiced to customers. No commissions are paid until NPI receives payment from customers. NPI is not dependent upon its sales agents and would not be adversely affected if one or more sales agents having established relationships with NPI’s major customers terminated the relationship with NPI.
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NPI faces competition from larger companies
In the safety product category of the automotive after-market, which accounts for a significant portion NPI's Motor Trend products and sales, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. This competition may adversely affect NPI's ability to continue to increase revenues and market share. NPI's management believes its primary competitors in the safety products market include Coleman Cable Company and East Penn among other large manufacturers and importers. In the consumer durables electrical products market, NPI competes against a large number of suppliers, many of which have far greater financial resources than NPI. NPI's management believes its primary competitors in the consumer durables market include Coleman Cable, General Electric (via a licensee), and American Tac, among others.
Price is the primarily significant factor in the safety products market and the consumer durables electrical products markets. Many of NPI's products are made to industry specifications, and are therefore essentially functionally substitutable with those of competitors.
Risks related to our BOG subsidiary
Brenham has no proven reserves on its existing Permian Basin, Texas property and the prospects that Brenham may decide to pursue for exploration and development may not yield oil and gas in commercial quantities or quality, if at all, in which event Brenham will incur significant losses.
At present, Brenham has no proven reserves. Any future prospects may not prove to be commercially viable even if available seismic and geological information indicate the potential presence of oil and gas. As a result, any prospects that Brenham may decide to acquire and develop may not yield oil and gas in commercial quantities or quality, or at all. Evaluating prospects will require substantial seismic data reprocessing and interpretation. Even when properly used and interpreted, 2-D and 3-D seismic data and visualization techniques are only tools used to assist geoscientists in identifying subsurface structures and hydrocarbon indicators and do not enable the interpreter to know whether hydrocarbons are, in fact, present in those structures. We therefore do not know if any of our prospects will contain oil and gas in sufficient quantities or quality to recover drilling and completion costs or to be economically viable. Even if oil and gas is found on our prospects in commercial quantities, construction costs of oil and gas pipelines or floating production systems, as applicable, and transportation costs may prevent such prospects from being economically viable.
Brenham may face substantial uncertainties in connection with any prospects, which could significantly delay or even prevent our ability to act on our plan of operation.
In this filing, we provide statements in connection with Brenham's plan of operation. Statements in connection with this plan of operation may face substantial uncertainties. To date, Brenham has not yet identified any prospects. Any analogies drawn by us from other companies’ wells, prospects or producing fields may not prove to be indicators of the success of developing reserves from Brenham's prospects, notwithstanding the proximity of Brenham's prospects to other companies producing properties. Furthermore, evaluating the to-be-acquired data from wells or prospects produced by other parties which we may use may not lead to the results that we may expect.
It is possible that none of the future wells on Brenham's prospects’ properties will find commercially exploitable accumulations of oil and gas. Any significant variance between actual results and our assumptions could then materially and adversely affect the quantities of oil and gas attributable to any prospects.
Identifying prospects and drilling wells is speculative, often involving significant costs that may exceed our expectations and, further, may not result in any discoveries of future production or reserves in commercially exploitable quantities. Any material inaccuracies in future drilling costs, estimates or underlying assumptions will materially adversely affect Brenham's plan of operation and business objectives, thereby adversely affecting the value of our shares.
Seeking prospects, exploring for and developing oil and gas reserves involves a high degree of operational and financial risk, which precludes Brenham's ability to make any definitive estimates as to the time required and costs involved in reaching certain objectives. The actual costs of seeking prospects, drilling, completing and operating wells may exceed Brenham's budgeted costs and can increase significantly when drilling costs rise due to a tightening in the supply of various types of oil and gas field equipment and related services. Prospects may be unsuccessful for many reasons, including geological conditions, weather, cost overruns, equipment shortages and mechanical difficulties. Exploratory wells bear a much greater risk of loss than development wells. Moreover, the successful drilling of an oil and gas well does not necessarily result in a profit on investment. A variety of factors, both geological and market-related, can cause a well to become uneconomic or only marginally economic. Initial costs associated with identifying prospects and drilling wells require significant additional exploration and development, regulatory approval and commitments of resources prior to commercial development. If Brenham's actual costs are significantly more than any estimated costs, Brenham may not be able to continue its plan of operation and/or business objectives and would be forced to modify its plan of operation.
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Brenham's unidentified prospects and drilling locations may be scheduled out over several years, making them susceptible to uncertainties that could materially affect the occurrence or timing of any drilling, thereby hindering our ability to generate cash flow from operations, if any.
Brenham's ability to identify, drill and develop future drilling locations depends on a number of factors, including the availability of equipment and capital, seasonal conditions, regulatory approvals, oil and gas prices, costs and drilling results. The final determination on whether to drill any of these prospects will be dependent upon the factors described elsewhere in this annual report. Due to these uncertainties, we do not know if any presently unidentified Prospect that we may identify in the future will be drilled within a reasonable timeframe, or at all, or, if we will be able to economically produce oil and gas in commercially exploitable quantities from these or any other potential drilling locations. As such, Brenham's actual drilling activities may be materially different from its expectations, which could adversely affect its plan of operation and future financial condition.
Brenham expects not to be the operator on all or even many of its future prospects, and, therefore, will not be able to control the timing of exploration or development efforts, associated costs, or the rate of production of any non-operated assets, which could prevent Brenham from realizing any return targets that we may envision.
As Brenham carries out its exploration and development programs, Brenham may enter into arrangements with respect to future prospects that result in a greater proportion of its prospects being operated by others. As a result, Brenham may have limited ability to exercise influence over the operations of its future prospects that will be operated by potential partners. Dependence on third-party operators could prevent Brenham from realizing certain return targets for those co-operated prospects. The success and timing of identifying prospects, exploration and development activities will depend on a number of factors that will be largely outside of Brenham's control, including:
- the timing and amount of capital expenditures;
- the co-operator's expertise and financial resources;
- approval of other participants in drilling wells;
- selection of technology; and
- the rate of production of reserves, if any.
This limited ability to exercise control over the operations of some of Brenham's prospects may cause a material adverse effect on Brenham's results of operations and financial condition.
Brenham is dependent on the experience of members of its management and technical team and the loss of one or more such persons could significantly delay its plan of operation if Brenham is unable to replace such persons with qualified individuals on a timely basis, which could have an adverse effect on Brenham's results of operations.
Brenham must rely upon the ability, expertise, judgment and discretion of its management and the success of its technical team in identifying prospects and in discovering and developing oil and gas reserves. Brenham's performance and success are dependent, in part, upon key members of its management and technical team, and the departure of such key persons would be detrimental to its future success. There can be no assurance that Brenham's management will remain in place. We do not have any "key man" life insurance on any member of Brenham's team. The loss of any of Brenham's management and technical team members could have a material adverse effect on Brenham's results of operations and financial condition.
Brenham's future development and exploration operations require substantial capital, and Brenham may be unable to obtain needed capital or financing on satisfactory terms, or at all, which would delay or even prevent Brenham from successfully pursuing and fully developing its business plan and its ability to generate revenues in both the short and long term.
The oil and gas industry is capital intensive and we anticipate that Brenham will need to raise significant amounts of capital to meet its funding requirements, in amounts that we have not yet determined. Brenham expects its capital outlays and operating expenditures to increase substantially over at least the next several years as Brenham starts its operations. Identifying prospects, obtaining seismic data and commencing exploration and production are all very expensive and we expect that Brenham will need to raise substantial capital, through future private or public equity offerings, strategic alliances or debt financing, before we achieve commercialization of any of Brenham's prospects.
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Brenham's future capital requirements will depend on many factors, including:
- the scope, rate of progress and cost of exploration and production activities;
- oil and gas and natural gas prices;
- Brenham's ability to locate and acquire prospects;
- Brenham's ability to produce oil and gas or natural gas from those reserves;
- the terms and timing of any drilling and other production-related arrangements that Brenham may enter into;
- the cost and timing of governmental approvals and/or concessions; and
- the effects of competition by larger companies operating in the oil and gas industry.
Brenham does not currently have any commitments for external funding and does not expect to generate any significant revenue from production for several years, or at all. Additional financing may not be available on favorable terms, or at all. Even if Brenham succeeds in selling additional securities to raise funds, the sale of additional equity securities would dilute the ownership percentage of Brenham's existing shareholders and new investors may demand rights, preferences or privileges senior to those of existing holders of Brenham's Common Stock. If we raise additional capital through debt financing, the financing may involve covenants that restrict Brenham's business activities. If we choose to offer interests in our prospects to third-party operators, Brenham may lose operating control over such prospects.
Brenham's working capital needs are difficult to forecast and may vary significantly, which could require us to seek additional financing that we may not be able to obtain on satisfactory terms, or at all. The failure or any significant delay in raising capital as needed may be expected to materially reduce or eliminate Brenham's opportunity for success.
At present, Brenham's working capital needs are extremely difficult to predict. This difficulty is due primarily to not having identified actual prospects and therefore we lack the ability to estimate with any degree of accuracy the costs associated with identifying and acquiring prospects, the timing and costs related to Brenham's exploration and development efforts, the availability of personnel and equipment necessary for such efforts, fluctuations in the price of oil and gas, the costs and timing of regulatory approvals and the number of prospects we determine to pursue. Brenham may therefore be subject to significant and rapid increases in our working capital needs that could require us to seek additional financing sources and there can be no assurance in our ability to secure additional financing at acceptable terms, if at all. Restrictions in any debt agreements that we may enter into may impair our ability to obtain other sources of financing.
Brenham will be dependent upon its ability to enter into arrangements for financing with third parties and any delay or failure to enter into such arrangements could adversely affect the Brenham's operating results.
Brenham's ability to identify and acquire prospects will depend upon its ability to identify and enter into financing arrangements in sufficient amounts at acceptable terms, of which there can be no assurance. This will include strategic relationships with existing oil and gas development and exploration companies, public or private sales of equity or debt securities as well as from other funding sources and/or joint ventures with third parties. Due to our long-term capital requirements, we may seek to access the public or private equity markets if and when conditions are favorable. We do not have any committed sources of financing at this time, and it is uncertain whether additional funding will be available when we need it on terms that will be acceptable to us, or at all. If we raise funds by selling additional shares of Brenham's Common Stock or other securities convertible into Brenham's Common Stock, the ownership interest of Brenham's existing shareholders will be diluted. If we are not able to obtain financing when needed, Brenham may be unable to successfully carry out our business plan. As a result, we may have to significantly limit our operations for the foreseeable future and, as a result, our business, financial condition and results of operations would be materially adversely affected.
Current economic and credit conditions could adversely affect Brenham's plan of operation and could result in significant losses for the foreseeable future.
Brenham's ability to secure additional financing and satisfy its financial obligations and indebtedness outstanding from time to time will depend upon future operating performance, which is subject to the prevailing general economic and credit market conditions, including interest rate levels and the availability of credit generally, and financial, business and other factors, most of which will be beyond our control. The prolonged continuation or worsening of current credit market conditions would have a material adverse effect on Brenham's ability to secure financing on favorable terms, if at all.
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The development schedule of any oil and gas projects that Brenham may identify, including the availability and cost of drilling rigs, equipment, supplies, personnel and oil and gas field services, is subject to delays and cost overruns.
Historically, most oil and gas projects have experienced delays and capital cost increases and overruns due to, among other factors, the unavailability or high cost of drilling rigs and other essential equipment, supplies, personnel and oil and gas field services. The cost to develop prospects has not been fixed and remains dependent upon a number of factors, including the completion of detailed cost estimates and final engineering, contracting and procurement costs. Construction and operation schedules may not proceed as planned and may experience delays or cost overruns. Any delays may increase the costs of the projects, requiring additional capital, and such capital may not be available in a timely and cost-effective fashion.
Non-U.S. operations may be adversely affected by political and economic circumstances in the countries in which Brenham may operate, in which event Brenham may experience delays or be prevented from commencing or continuing operations in such countries.
Non-U.S. oil and gas exploration, development and production activities are subject to political and economic uncertainties (including but not limited to changes, sometimes frequent or marked, in energy policies or the personnel administering them), expropriation of property, cancellation or modification of contract rights, foreign exchange restrictions, currency fluctuations, royalty and tax increases and other risks arising out of foreign governmental sovereignty over the areas in which Brenham's operations are conducted, as well as risks of loss due to civil strife, acts of war, guerrilla activities and insurrection. These risks may be higher in the developing countries in which Brenham intends to conduct activities, including Africa.
Potential operations in these areas increase Brenham's exposure to risks of war, local economic conditions, political disruption, civil disturbance and governmental policies that may:
- disrupt our operations;
- restrict the movement of funds or limit repatriation of profits;
- lead to U.S. government or international sanctions; and
- limit access to markets for periods of time.
Several countries in Africa are presently experiencing or have experienced political instability in the past. Disruptions may occur in the future, and losses caused by these disruptions may occur that will not be covered by insurance, if, indeed, any insurance is available at costs that Brenham can afford.
Consequently, Brenham's non-U.S. exploration, development and production activities may be substantially affected by factors which could have a material adverse effect on Brenham's financial condition and results of operations. Furthermore, in the event of a dispute arising from non-U.S. operations, Brenham may be subject to the exclusive jurisdiction of courts outside the U.S. or may not be successful in subjecting non-U.S. persons to the jurisdiction of courts in the U.S., which could adversely affect the outcome of such dispute.
The oil and gas industry, including the acquisition of exploratory acreage in Africa, is intensely competitive and unless Brenham is able to compete effectively, its plan of operation will have to be modified and its ability to pursue prospects could be materially, adversely effected.
The international oil and gas industry, including in the U.S. and Africa, is highly competitive in all aspects, including the exploration for, and the development of, new sources of supply. Brenham expects to operate in a highly competitive environment for acquiring exploratory prospects and hiring and retaining trained personnel. Many of Brenham's competitors possess and employ financial, technical and personnel resources substantially greater than Brenham, which can be particularly important in the areas in which Brenham operates. These companies may be able to pay more for productive oil and gas properties and prospects and to evaluate, bid for and purchase a greater number of properties and prospects than Brenham's financial or personnel resources permit. Furthermore, these companies may also be better able to withstand the financial pressures of unsuccessful drill attempts, sustained periods of volatility in financial markets and generally adverse global and industry-wide economic conditions, and may be better able to absorb the burdens resulting from changes in relevant laws and regulations, which would adversely affect Brenham's competitive position. Brenham's ability to acquire additional prospects and to find and develop reserves in the future will depend on its ability to evaluate and select suitable properties and to consummate transactions in a highly competitive environment. Also, there is substantial competition for available capital for investment in the oil and gas industry. As a result of these and other factors, Brenham may not be able to compete successfully in an intensely competitive industry, which could cause a material adverse effect on Brenham's results of operations and financial condition.
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Participants in the oil and gas industry are subject to complex laws that can affect the cost, manner or feasibility of doing business and could result in unanticipated costs and delays that could adversely affect Brenham's financial condition.
Exploration and production activities in the oil and gas industry are subject to extensive local, state, federal and international regulations. Brenham may be required to make large expenditures to comply with governmental regulations, particularly in respect of the following matters:
- licenses for drilling operations;
- royalty increases, including retroactive claims;
- drilling and development bonds;
- reports concerning operations;
- the spacing of wells;
- unitization of oil and gas accumulations;
- remediation or investigation activities for environmental purposes; and
- taxation.
Under these and other laws and regulations, Brenham could be liable for personal injuries, property damage and other types of damages. Failure to comply with these laws and regulations also may result in the suspension or termination of Brenham's operations and subject Brenham to administrative, civil and criminal penalties. Moreover, these laws and regulations could change in ways that could substantially increase Brenham's costs. Any such liabilities, penalties, suspensions, terminations or regulatory changes could have a material adverse effect on Brenham's financial condition and results of operations.
Brenham's future operations are subject to numerous environmental, health and safety regulations which may result in material liabilities and costs that we do not anticipate or that we may not be able to adequately fund; any inability to fund material liabilities and related costs could result in a discontinuation of Brenham's operations.
Brenham's future operations will be, subject to various international, foreign, federal, state and local environmental, health and safety laws and regulations governing, among other things, the emission and discharge of pollutants into the ground, air or water, the generation, storage, handling, use and transportation of regulated materials and the health and safety of our employees. Brenham is required to obtain environmental permits from governmental authorities for certain of Brenham's operations, including drilling permits for wells. There is a risk that Brenham will not be in complete compliance with these permits and the environmental laws and regulations to which Brenham is subject at all times. If Brenham violates or fails to comply with these laws, regulations or permits, Brenham could be fined or otherwise sanctioned by regulators, including through the revocation of permits or the suspension or termination of operations. If Brenham fails to obtain permits in a timely manner or at all (due to opposition from community or environmental interest groups, governmental delays, or any other reasons), such failure could impede Brenham's operations, which could have a material adverse effect on Brenham's results of operations and financial condition.
Brenham could be held liable for all environmental, health and safety costs and liabilities arising out of its actions and omissions as well as those of potential third-party contractors. To the extent Brenham does not address these costs and liabilities or is otherwise in breach of lease requirements, Brenham's future leases could be suspended or terminated. Brenham intends to hire third parties to perform the majority of the drilling and other services related to its operations. There is a risk that Brenham may contract with third parties with unsatisfactory environmental, health and safety records or that Brenham's contractors may be unwilling or unable to cover any losses associated with their acts and omissions. Accordingly, Brenham could be held liable for all costs and liabilities arising out of the acts or omissions of its contractors, which could have a material adverse effect on Brenham's results of operations and financial condition.
Brenham may be required to maintain bonding or insurance coverage for certain risks relating to its operations, including environmental risks. Even under such policies, Brenham may not be insured against certain risks. Brenham's insurance may not cover any or all environmental claims that might arise from its operations or those of third-party contractors. If a significant accident or other event occurs and is not fully covered by Brenham's insurance, or Brenham's third-party contractors have not agreed to bear responsibility, such accident or event could have a material adverse effect on Brenham's results of operations and financial condition. In addition, Brenham may not be able to obtain required bonding or insurance coverage at all or in time to meet its anticipated startup schedule for each well, and if we fail to obtain this bonding or coverage, such failure could have a material adverse effect on Brenham's results of operations and financial condition.
In addition, Brenham expects continued attention to climate change issues. Various countries and U.S. states and regions have agreed to regulate emissions of greenhouse gases, including methane (a primary component of natural gas) and carbon dioxide, a byproduct of oil and gas and natural gas combustion. The U.S. federal government, as well as the U.S. Environmental Protection Agency, are currently considering national greenhouse gas regulation. Each have proposed bills or rules which would require or result in greenhouse gas emissions reductions. Final laws or regulations could be adopted this or next year. The regulation of greenhouse gases in the areas in which Brenham intends to operate could adversely impact Brenham's operations.
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Environmental, health and safety laws are complex, change frequently and have tended to become increasingly stringent over time. Brenham's costs of complying with current and future environmental, health and safety laws, and Brenham's liabilities arising from releases of, or exposure to, regulated substances may adversely affect Brenham's results of operations and financial condition. See "Description of Business - Environmental Matters and Regulation."
Brenham may be exposed to liabilities under the Foreign Corrupt Practices Act, and any determination that Brenham violated the Foreign Corrupt Practices Act could have us subject to civil or criminal liability and that could have a material adverse effect on Brenham's business and prevent Brenham from operating in one or more jurisdictions.
Brenham is subject to the Foreign Corrupt Practices Act ("FCPA") and other laws that prohibit improper payments or offers of payments to foreign governments and their officials and political parties for the purpose of obtaining or retaining business. Brenham may do business in the future in countries and regions in which we may face, directly or indirectly, corrupt demands by officials, tribal or insurgent organizations, or private entities. Thus, we face the risk of unauthorized payments or offers of payments by one of Brenham's employees or consultants, even though these parties are not always subject to Brenham's control. Brenham's existing safeguards and any future improvements may prove to be less than effective, and Brenham's employees and consultants may engage in conduct for which we might be held responsible. Violations of the FCPA may result in severe criminal or civil sanctions, and we may be subject to other liabilities, which could negatively affect Brenham's business, operating results and financial condition. In addition, the government may seek to hold us liable for successor liability FCPA violations committed by companies in which we invest or that we acquire.
Risks related to our AMIH subsidiary
AMIH has a limited operating history. AMIH also has no commitments from any officers, directors, or shareholders to provide additional funding. AMIH has had no operations and generated no revenues since April 2012.
AMIH has a limited operating history, and has had no operations nor any revenues or earnings from operations since in or about April 2012. AMIH has no significant assets or resources, other than the cash and receivable received in connection with the Asset Purchase Agreement. AMIH will sustain operating expenses in connection with being a public reporting company under the Securities Exchange Act of 1934 (the "Exchange Act"), without corresponding revenues, at least until the consummation of a business combination. No officer, director or shareholder has agreed to provide us funding in the future. This may result in incurring a net operating loss which will increase continuously until AMIH can consummate a business combination with a target company. There is no assurance that AMIH can identify a target company that its management deems desirable or be able to consummate a business combination with a desirable target company. In the event that AMIH is unable to raise sufficient funds, AMIH will be required to utilize its presently available cash resources in order to continue its administrative operations and remain as a current reporting company until AMIH can consummate a business combination.
The nature of AMIH’s proposed operations is highly speculative.
The success of AMIH’s proposed plan of operation will depend to a great extent on the operations, financial condition and management of the identified target company. While management will prefer a business combination with one or more entities having established operating histories, there can be no assurance that AMIH will be successful in locating candidates meeting such criteria. In the event AMIH completes a business combination, of which there can be no assurance, the success of its operations will be dependent upon management of the target company and numerous other factors beyond the control of AMIH.
The acquisition of material assets will require substantial additional capital.
In addition to seeking out a merger or acquisition candidate, AMIH’s current management plans to seek out potential assets for the AMIH to purchase. The consideration for any acquisition may include shares of AMIH’s common stock and will likely include substantial additional capital which, if it requires more than its available cash, AMIH will need to raise. AMIH may be unable to raise such capital and/or may be forced to raise such capital on unfavorable terms. The failure of AMIH to raise any required additional capital to complete an acquisition will prevent AMIH from consummating any future planned acquisitions.
The competition for business opportunities and combinations is great.
AMIH is and will continue to be an insignificant participant in the business of seeking mergers with and acquisitions of business entities and assets. A large number of established and well-financed entities, including venture capital firms, are active in mergers and acquisitions of companies which may be merger or acquisition target candidates for AMIH. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than AMIH and, consequently, AMIH will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, AMIH will also compete with numerous other small public companies in seeking merger or acquisition candidates.
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It will be impracticable for AMIH to conduct an exhaustive investigation prior to any business combination, which may lead to a failure to meet its fiduciary obligations to its shareholders.
To the extent that AMIH is limited to its available cash, which AMIH will continue to utilize to continue as a public company, and the fact that AMIH only has three officers and directors will likely make it impracticable to conduct a complete and exhaustive investigation and analysis of a target company. The decision to enter into a business combination, therefore, will likely be made without detailed feasibility studies, independent analysis, market surveys or similar information which, if AMIH had more funds available, would be desirable. AMIH will be particularly dependent in making decisions upon information provided by the principals and advisors associated with the business entity seeking our participation. Management may not be able to meet its fiduciary obligation to AMIH and AMIH stockholders due to the impracticability of completing thorough due diligence of a target company. By AMIH’s failure to complete a thorough due diligence and exhaustive investigation of a target company, AMIH is more susceptible to derivative litigation or other stockholder suits. In addition, this failure to meet its fiduciary obligations increases the likelihood of plaintiff success in such litigation.
AMIH has no current agreements in place for a business combination or other transaction, and currently has no standards for potential business combinations, and as a result, the management of AMIH has sole discretion regarding any potential business combination.
AMIH has no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity. There can be no assurance that AMIH will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. The officers and directors and controlling shareholders of AMIH has complete control and discretion over whether or not AMIH will enter into a business combination. Management has not identified any particular industry or specific business within an industry for evaluation. There is no assurance that AMIH will be able to negotiate a business combination on favorable terms. AMIH has not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria which it will require a target company to have achieved, or without which AMIH would not consider a business combination with such business entity. Accordingly, AMIH may enter into a business combination with a business entity having no significant operating history, losses, limited or no potential for immediate earnings, limited assets, negative net worth or other negative characteristics.
Reporting requirements may delay or preclude an acquisition.
The Act requires reporting companies such as AMIH, to provide certain information on Form 8-K / 12-G about significant acquisitions including audited financial statements for the company acquired and a detailed description of the business operations and risks associated with such company's operations. The time and additional costs that may be incurred by some target companies to prepare such financial statements and descriptive information may significantly delay or essentially preclude consummation of an otherwise desirable acquisition by AMIH. Additionally, acquisition prospects that do not have or are unable to obtain the required audited statements may not be appropriate for acquisition so long as the reporting requirements of the Exchange Act are applicable.
AMIH has not conducted any market research regarding any potential business combinations.
AMIH has neither conducted, nor have others made available to it, market research indicating that demand exists for the transactions contemplated by AMIH. Even in the event demand exists for a transaction of the type contemplated by AMIH, there is no assurance AMIH will be successful in completing any such business combination.
AMIH does not plan to diversify its operations in the event of a business combination.
AMIH’s proposed operations, even if successful, will in all likelihood result in AMIH engaging in a business combination with only one target company. Consequently, AMIH’s activities will be limited to those engaged in by the business entity which AMIH will merge with or acquire. AMIH’s inability to diversify its activities into a number of areas may subject AMIH to economic fluctuations within a particular business or industry and therefore increase the risks associated with AMIH’s operations.
A business combination may result in a change in control in the management of AMIH.
A business combination involving the issuance of AMIH’s common stock may result in shareholders of a target company obtaining a controlling interest in the AMIH. Any such business combination may require AMIH shareholders to sell or transfer all or a portion of their common stock. The resulting change in control of the AMIH, if such change in control occurs, will likely result in removal of AMIH’s current officers and directors and a corresponding reduction in or elimination of their participation in the future affairs of the AMIH.
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A business combination may result in a reduction of percentage share ownership.
AMIH’s primary plan of operation is based upon a business combination with a business entity which, in all likelihood, will result in AMIH issuing securities to shareholders of such business entity. The issuance of previously authorized and unissued common stock would result in a reduction in percentage of shares owned by AMIH’s present shareholders and could therefore result in a change in control of AMIH’s management.
Federal and state taxation rules could adversely affect any business combination AMIH may undertake.
Federal and state tax consequences will, in all likelihood, be major considerations in any business combination AMIH may undertake. Currently, such transactions may be structured so as to result in tax-free treatment to both companies, pursuant to various federal and state tax provisions. AMIH intends to structure any business combination so as to minimize the federal and state tax consequences to both AMIH and the target company; however, there can be no assurance that such business combination will meet the statutory requirements of a tax-free reorganization or that the parties will obtain the intended tax-free treatment upon a transfer of stock or assets. A non-qualifying reorganization could result in the imposition of both federal and state taxes which may adversely affect both parties to the transaction.
AMIH is required as a reporting company under the Exchange Act to be provided audited financial statements in connection with any business combination.
AMIH will require audited financial statements from any business entity we propose to acquire. No assurance can be given that a desirable target company will have available audited financials prior to the intended date of a business combination. In cases where audited financials are unavailable, AMIH will not be able to comply with the provisions of the Exchange Act which requires the filing of a Form 8-K/12G requiring full disclosure equivalent to that contained in a Form 10 together with audited financial statements within 4 business days of the execution of the agreement consummating a business combination transaction.
AMIH’s business will have no revenues unless and until it merges with or acquire an operating business or assets.
AMIH has had no revenues from operations for approximately the past nine months. AMIH may not realize any revenues unless and until it successfully merges with or acquire an operating business or material assets, of which there can be no assurance.
AMIH may issue more shares in connection with a merger or acquisition, which would result in substantial dilution.
AMIH’s Certificate of Incorporation authorizes the issuance of a maximum of 195,000,000 shares of common stock. Any merger or acquisition effected by AMIH may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of AMIH’s common stock held by the then existing stockholders. Moreover, the common stock issued in any such merger or acquisition transaction may be valued on an arbitrary or non-arm's-length basis by AMIH’s management, resulting in an additional reduction in the percentage of common stock held by the then existing stockholders. AMIH’s Board of Directors has the power to issue any or all of such authorized but unissued shares without stockholder approval. To the extent that additional shares of common stock or preferred stock are issued in connection with a business combination or otherwise, dilution to the interests of AMIH’s stockholders will occur and the rights of the holders of common stock might be materially adversely affected.
AMIH cannot assure that following a business combination with an operating business that it will be able to quote our common stock on the OTCBB.
Following a business combination, AMIH may seek the listing of its common stock on the OTCBB. After completing a business combination, until AMIH’s common stock is listed on the OTC Bulletin Board, its common stock will be listed on the "pink sheets," where AMIH’s stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of AMIH’s common stock. In addition, AMIH would be subject to an SEC rule that, if it failed to meet the criteria set forth in such rule, imposes various practice requirements on broker-dealers who sell securities governed by the rule to persons other than established customers and accredited investors. Consequently, such rule may deter broker-dealers from recommending or selling AMIH’s common stock, which may further affect its liquidity. This would also make it more difficult for AMIH to raise additional capital following a business combination. Additionally, there can be no assurances that AMIH will be able to obtain listing on the OTC Bulletin Board, which failure could cause its common stock become worthless.
Principal stockholders may engage in a transaction to cause AMIH to repurchase their shares of common stock.
In order to provide control of AMIH to a third party, AMIH’s principal stockholders may choose to cause AMIH to sell securities to third parties, with the proceeds of such sale being utilized for AMIH to repurchase shares of common stock held by such principal stockholders. As a result of such transaction, AMIH’s management, principal stockholders and Board of Directors may change.
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RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK
Market prices of our equity securities can fluctuate significantly
The market prices of our common stock may change significantly in response to various factors and events beyond our control, including the following:
- the other risk factors described in this Form 10-K;
- changing demand for our products and services and ability to develop and generate sufficient revenues;
- any delay in our ability to generate operating revenue or net income from new products and services;
- general conditions in markets we operate in;
- general conditions in the securities markets;
- issuance of a significant number of shares, whether for compensation under employee stock options, conversion of debt, potential acquisitions, stock dividends and additional financing using equity securities or otherwise.
Possible issuance of additional securities
Our Articles of Incorporation authorize the issuance of 50,000,000 shares of common stock, par value $0.001 and 1,000,000 shares of preferred stock, par value $0.001. At December 31, 2012, we had 1,619,714 shares of common stock issued and 1,000 preferred shares issued. To the extent that additional shares of common stock are issued, our shareholders would experience dilution of their respective ownership interests in the Company. The issuance of additional shares of common stock may adversely affect the market price of our common stock and could impair our ability to raise capital through the sale of our equity securities.
Compliance with Penny Stock Rules
As the result of the fact that the market price for our common stock has been below $5 per share, our common stock is considered a "penny stock" as defined in the Exchange Act and the rules thereunder. Unless our common stock is otherwise excluded from the definition of "penny stock," the penny stock rules apply with respect to that particular security. The penny stock rules require a broker-dealer prior to a transaction in penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document prepared by the SEC that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its sales person in the transaction, and monthly account statements showing the market value of each penny stock held in the customer's account. In addition, the penny stock rules require that the broker-dealer, not otherwise exempt from such rules, must make a special written determination that the penny stock is suitable for the purchaser and receive the purchaser's written agreement to the transaction. These disclosure rules have the effect of reducing the level of trading activity in the secondary market for a stock that becomes subject to the penny stock rules. So long as the common stock is subject to the penny stock rules, it may become more difficult to sell such securities. Such requirements, if applicable, could additionally limit the level of trading activity for our common stock and could make it more difficult for investors to sell our common stock.
Shares eligible for future sale
As of December 31, 2012, the Registrant had 1,619,714 shares of common stock issued, 550,409 shares are "restricted" as that term is defined under the Securities Act, and in the future may be sold in compliance with Rule 144 under the Securities Act. Rule 144 generally provides that a person holding restricted securities for a period of one year may sell every three months in brokerage transactions and/or market-maker transactions an amount equal to the greater of one (1%) percent of (a) the Company's issued and outstanding common stock or (b) the average weekly trading volume of the common stock during the four calendar weeks prior to such sale. Rule 144 also permits, under certain circumstances, the sale of shares without any quantity limitation by a person who has not been an affiliate of the Company during the three months preceding the sale and who has satisfied a two-year holding period. However, all of the current shareholders of the Company owning 5% or more of the issued and outstanding common stock are subject to Rule 144 limitations on selling.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
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ITEM 2. DESCRIPTION OF PROPERTY
The Company owns the 38,500 square foot warehouse and office facility utilized by NPI. On November 22, 2010, a 17 acre tract was transferred to NPI from American's real estate held for sale (see notes 4 and 9). NPI plans to build new facilities on this site.
The Company's executive offices which consist of 1,892 square feet are leased from an unaffiliated third party for $3,476 per month.
The Company believes its various facilities are adequate to meet current business needs, and that its properties are adequately covered by insurance.
ITEM 3. LEGAL PROCEEDINGS
American International Industries, Inc. v. William W. Botts.
American filed this lawsuit against William W. Botts (“Botts”) seeking damages as a result of a Stock Purchase Agreement and Consulting Agreement that American entered into with Botts on September 12, 2007. Under the Stock Purchase Agreement, American gave Botts $1,000,000 in cash and 28,800 shares of restricted AMIN stock (24,000 original shares plus a 20% stock dividend) for 170,345 shares of OI Corporation. As part of the original agreement, Botts had the right to sell the 28,800 shares back to American for $41.70 per share. Under the Consulting Agreement, American agreed to pay Botts $14,000 per month, plus expenses for performing consulting services. On or about November 5, 2008, American paid Botts $100,000 to terminate the Consulting Agreement to stop the accrual of monthly consulting payments to Botts. Effective February 25, 2011, the parties settled the proceedings against each other, pursuant to which American paid Botts $1,250,000 and executed a $400,000 one year promissory note (note 10) with 5% annual interest paid in monthly installments to Botts due by February 1, 2012. The 28,800 restricted American shares in Botts name were transferred to the Dror Family Trust in consideration for the cash payment to American of approximately $1,400,000 and the issuance to certain Dror related entities and an entity controlled by Mr. Dror's brother, of 110,000 restricted American shares. The cash proceeds from the restricted share sale were used to fund the settlements to Botts.
On July 1, 2012, the parties reached another settlement, pursuant to which American paid Botts $115,000, of which $65,719 was for payment of the balance of the note. The remaining $49,281 was recorded as Botts lawsuit settlement expense during the year ended December 31, 2012.
American International Industries, Inc. v. Rubicon Financial Incorporated.
On March 5, 2010, American filed suit against Rubicon Financial Corporation (OTCBB: RBCF.OB), a Nevada corporation with offices in Irvine, CA ("Rubicon"), and Rubicon's control person, chief executive officer and primary financial officer, Joe Mangiapane, Jr., in the District Court, 281st Judicial District, Harris County, TX, for breach of contract, rescission, fraudulent inducement, common law fraud and fraud in the sale of securities. The action related to the acquisition by American on November 27, 2007, of 1,000,000 restricted shares of Rubicon's common stock for a $1,000,000 cash payment and the issuance of 20,000 restricted shares of American's common stock, valued at $49.00 per common share based upon the closing market price on the date of acquisition.
On August 19, 2011, American was granted a default judgment for fraud and breach of contract against Rubicon in the amount of $2,000,000 plus attorney's fees and accrued interest at 5% per annum by the 281st District Court, following which American, through California counsel, commenced a separate proceeding seeking to enforce the judgment against Rubicon in a court of competent jurisdiction in Orange County, CA.
Rubicon has filed a separate action with the same District Court in Harris County, TX, seeking to have the judgment vacated and seeking sanctions against American. On May 1, 2012, the default judgment was vacated by the District Court but Rubicon's demand for sanctions was denied. The District Court determined that American would not suffer injury.
On May 24, 2012, American filed a motion seeking an order in effect rescinding its May 1, 2012 order that had vacated the default judgment against Rubicon. On July 12, 2012, the Court granted American's motion and ordered a new trial on the issue of whether Rubicon was negligent in failing to appear before the Court in the proceeding that resulted in the grant of the $2 million default judgment on August 19, 2011.
As a result of the July 12, 2012 order, American has been informed by its Texas counsel that the default judgment against Rubicon remains in full force and effect. American has also been informed by its California counsel that it plans to file a motion seeking a stay in the California proceeding pending the final determination of the District Court in Harris County, TX. American believes that it will prevail on the merits in this proceeding against Rubicon in the District Court, Harris County, and that it will be able to successfully enforce a final judgment of approximately $2 million plus interest in California.
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Consumer Advocacy Group, Inc. v. Northeastern Plastics, Inc. and American International Industries, Inc
. In October 2012, NPI and American entered into a settlement agreement with Consumer Advocacy Group, Inc., whereby NPI agreed to cease distribution and/or sales of the Bitty Booster Cable 10 Gauge 10 ft. product in California and to pay $54,000 in attorney’s fees and $1,000 in lieu of a civil penalty. The amount of $55,000 was recorded as the NPI settlement during the year ended December 31, 2012.
Shumate Machine Works, Inc. v. American International Industries, Inc.
In September 2012, American entered into a settlement agreement with Shumate Machine Works, Inc. relating to a tax liability issue associated with American’s purchase of Shumate Machine Works, Inc. in 2008, whereby American agreed to pay $40,000 to HII Technologies, Inc. Under the agreement, American paid $20,000 in cash and entered into a promissory note agreement for the remaining $20,000, with interest of 4% per year, payable in installments of $1,000 monthly through March 2014. Additionally, American transferred its 296,000 shares of HII Technologies, Inc. common stock for attorney’s fees, which were recorded at $0 on American’s balance sheet. Previously, American had fully recognized trading losses associated with these shares. The $40,000 settlement amount was recorded as the Shumate settlement during the year ended December 31, 2012.
ITEM 4. MINE SAFETY DISCLOSURES
None.