ITEM 1. DESCRIPTION OF BUSINESS
American International Holdings Corp.
American International Holdings Corp. (“AMIH”) is a 93.2% owned subsidiary of American International Industries, Inc. (“American”) (OTCBB: AMIN).
Description of AMIH’s Business
Since April 3, 2012, we have 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.” Management does not intend to undertake any efforts to cause a market to develop in our securities, either debt or equity, until we have successfully concluded a business combination. The Company intends to comply with the periodic reporting requirements of the Exchange Act for so long as we are subject to those requirements.
Business Objective
The Company’s current business objective is to become an operating company, by seeking a business combination with an operating company, acquiring assets or other means. We intend to use the Company’s limited personnel but significant cash resources and liquidity resulting from the sale of DSWSI in connection with fulfilling its business objective. The Company 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 our Common Stock or other capital stock that may be convertible into Common Stock:
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may significantly reduce the equity interest of our existing stockholders;
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may cause a change in control if a substantial number of our shares of Common Stock or other capital stock are issued and may also result in the resignation or removal of our present officers and directors; and
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may adversely affect the prevailing market price for our Common Stock.
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Similarly, if we issued debt securities, it could result in:
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default and foreclosure on our assets if our operating revenues after a business combination were insufficient to pay our debt obligations;
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acceleration of our obligations to repay the indebtedness even if we have 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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our inability to obtain additional financing, if necessary, if the debt security contained covenants restricting our ability to obtain additional financing while such security was outstanding.
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our immediate payment of all principal and accrued interest, if any, if the debt security was payable on demand; and
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We currently plan to seek potential business combinations by investigating opportunities 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 our funds in its business. Our principal business objective 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. We will not restrict our 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 our officers and directors. As of the date of this filing, we have 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 for us. In our efforts to analyze potential acquisition targets, we 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 the Company 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 us 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, our 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 we have, plans to allocate for investigation, we 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 we participate in a business combination opportunity will depend upon the nature of the opportunity, our respective needs and desires as well as those of the principals of the opportunity, and the relative negotiating strength of us and such principals.
It is likely that we will affect 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, all 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 our stockholders prior to such reorganization / business combination.
Our present stockholders may not have control of a majority of our voting shares following a reorganization / business combination transaction. Further, as part of such a transaction, all or a majority of our 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 our management without any vote or approval by stockholders. In the case of a statutory merger or consolidation directly involving the Company, 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.
We presently have no employees apart from our officers and directors. We expect no significant changes in the number of our employees other than such changes, if any, that may result in connection with a business combination.
Risk Factors
Investing in our common stock will provide an investor with an equity ownership interest. Shareholders will be subject to risks inherent in our business. The performance of our shares will reflect the performance of our business relative to, among other things, general economic and industry conditions, market conditions and competition. The value of the investment may increase or decrease and could result in a loss. An investor should carefully consider the following factors as well as other information contained in this annual report on Form 10-K.
This annual report on Form 10-K also contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of many factors, including the risk factors described below and the other factors described elsewhere in this Form 10-K.
ITEM 1A. RISK FACTORS RELATED TO OUR BUSINESS
We have a limited operating history. We also have no commitments from any officers, directors, or shareholders to provide us with any funding. We have had no operations and generated no revenues.
We have a limited operating history, and have had no operations nor any revenues or earnings from operations since on or about April 2012. We have no significant assets or resources, other than the cash and receivable received in connection with the Asset Purchase Agreement. We 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 us incurring a net operating loss which will increase continuously until we can consummate a business combination with a target company. There is no assurance that we can identify a target company that our management deems desirable or be able to consummate a business combination with a desirable target company. In the event that we are unable to raise sufficient funds, we will be required to utilize our presently available cash resources in order to continue our administrative operations and remain as a current reporting company until we can consummate a business combination.
The nature of our proposed operations is highly speculative.
The success of our 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 we will be successful in locating candidates meeting such criteria. In the event we complete a business combination, of which there can be no assurance, the success of our operations will be dependent upon management of the target company and numerous other factors beyond our control.
The acquisition of material assets will require substantial additional capital.
In addition to seeking out a merger or acquisition candidate, our current management plans to seek out potential assets for the Company to purchase. The consideration for any acquisition may include shares of our common stock and will likely include substantial additional capital which, if it requires more than our available cash, we will need to raise. We may be unable to raise such capital and/or may be forced to raise such capital on unfavorable terms. Our failure to raise any required additional capital to complete an acquisition will prevent us from consummating any future planned acquisitions.
The competition for business opportunities and combinations is great.
We are 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 us. Nearly all such entities have significantly greater financial resources, technical expertise and managerial capabilities than us and, consequently, we will be at a competitive disadvantage in identifying possible business opportunities and successfully completing a business combination. Moreover, we will also compete with numerous other small public companies in seeking merger or acquisition candidates.
It will be impracticable for us to conduct an exhaustive investigation prior to any business combination, which may lead to a failure to meet our fiduciary obligations to our shareholders.
To the extent that we are limited to our available cash, which we will continue to utilize to continue as a public company, and the fact that we only have 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 we had more funds available to us, would be desirable. We 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 us and our stockholders due to the impracticability of completing thorough due diligence of a target company. By our failure to complete a thorough due diligence and exhaustive investigation of a target company, we are more susceptible to derivative litigation or other stockholder suits. In addition, this failure to meet our fiduciary obligations increases the likelihood of plaintiff success in such litigation.
We have no current agreements in place for a business combination or other transaction, and we currently have no standards for potential business combinations, and as a result, our management has sole discretion regarding any potential business combination.
We have no current arrangement, agreement or understanding with respect to engaging in a business combination with a specific entity. There can be no assurance that we will be successful in identifying and evaluating suitable business opportunities or in concluding a business combination. Our officers and directors and controlling shareholders, have complete control and discretion over whether or not we will enter into a business combination. Management has not identified any particular industry or specific business within an industry for evaluation by us. There is no assurance that we will be able to negotiate a business combination on terms favorable to us. We have not established a specific length of operating history or a specified level of earnings, assets, net worth or other criteria which we will require a target company to have achieved, or without which we would not consider a business combination with such business entity. Accordingly, we 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 Exchange Act requires reporting companies such as us, to provide certain information on Form 8-K/12G 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 us. 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.
We have not conducted any market research regarding any potential business combinations.
We have neither conducted, nor have others made available to it, market research indicating that demand exists for the transactions contemplated by us. Even in the event demand exists for a transaction of the type contemplated by us, there is no assurance we will be successful in completing any such business combination.
We do not plan to diversify our operations in the event of a business combination.
Our proposed operations, even if successful, will in all likelihood result in our engaging in a business combination with only one target company. Consequently, our activities will be limited to those engaged in by the business entity which we will merge with or acquire. Our inability to diversify our activities into a number of areas may subject us to economic fluctuations within a particular business or industry and therefore increase the risks associated with our operations.
A business combination may result in a change in control in our management.
A business combination involving the issuance of our common stock may result in shareholders of a target company obtaining a controlling interest in the Company. Any such business combination may require our shareholders to sell or transfer all or a portion of their common stock. The resulting change in control of the Company, if such change in control occurs, will likely result in removal of our current officers and directors and a corresponding reduction in or elimination of their participation in the future affairs of the Company.
A business combination may result in a reduction of percentage share ownership.
Our primary plan of operation is based upon a business combination with a business entity which, in all likelihood, will result in our 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 our present shareholders and could therefore result in a change in control of our management.
Federal and state taxation rules could adversely affect any business combination we may undertake.
Federal and state tax consequences will, in all likelihood, be major considerations in any business combination we 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. We intend to structure any business combination so as to minimize the federal and state tax consequences to both us 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.
We are required as a reporting company under the Exchange Act to be provided audited financial statements in connection with any business combination.
We 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, we 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.
Our business will have no revenues unless and until we merge with or acquire an operating business or assets.
We have had no revenues from operations for approximately the past three years. We may not realize any revenues unless and until we successfully merge with or acquire an operating business or material assets, of which there can be no assurance.
The Company may issue more shares in connection with a merger or acquisition, which would result in substantial dilution.
Our Certificate of Incorporation authorizes the issuance of a maximum of 195,000,000 shares of common stock. Any merger or acquisition effected by us may result in the issuance of additional securities without stockholder approval and may result in substantial dilution in the percentage of our common stock held by our 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 our management, resulting in an additional reduction in the percentage of common stock held by our then existing stockholders. Our 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 our stockholders will occur and the rights of the holders of common stock might be materially adversely affected.
We cannot assure you that following a business combination with an operating business that we will be able to quote our common stock on the OTCBB.
Following a business combination, we may seek the listing of our common stock on the OTCBB. After completing a business combination, until our common stock is listed on the OTC Bulletin Board, our common stock will be listed on the “pink sheets,” where our stockholders may find it more difficult to dispose of shares or obtain accurate quotations as to the market value of our common stock. In addition, we 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 our common stock, which may further affect its liquidity. This would also make it more difficult for us to raise additional capital following a business combination. Additionally, there can be no assurances that we will be able to obtain listing on the OTC Bulletin Board, which failure could cause our common stock become worthless.
Principal stockholders may engage in a transaction to cause the Company to repurchase their shares of common stock.
In order to provide control of the Company to a third party, our principal stockholders may choose to cause the Company to sell Company securities to third parties, with the proceeds of such sale being utilized for the Company to repurchase shares of common stock held by such principal stockholders. As a result of such transaction, our management, principal stockholders and Board of Directors may change.
RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK
The Company’s officers and directors own or control over 90% of issued shares of Common Stock, a controlling interest in the Company, and thus may influence certain actions requiring stockholder vote.
If there is an annual meeting, as a consequence of the controlling interest of the Company’s management, it has broad discretion regarding proposals submitted to a vote by shareholders. Accordingly, the Company’s existing directors will continue to exert substantial control.
Your percentage ownership of our Common Shares will be diluted by future share issuances.
Our Articles of Incorporation authorize the issuance of 195,000,000 shares of common stock, par value $0.0001 and 5,000,000 shares of preferred stock, par value $0.0001. At December 31, 2016, we had 747,355 shares of common stock issued and 0 shares of preferred stock issued. We may issue additional shares of common stock in connection with any future acquisitions of operating businesses or assets or to raise additional funding for our operations. 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.
We do not intend to pay future cash dividends.
We currently do not anticipate paying cash dividends on our Common Stock at any time in the near future. We may never pay cash dividends or distributions on our Common Stock. Any credit agreements which we may enter into with institutional lenders may restrict our ability to pay dividends. Whether we pay cash dividends in the future will be at the discretion of our Board of Directors and will be dependent upon our financial condition, results of operations, capital requirements and any other factors that the Board of Directors decides is relevant.
Our Common Stock is illiquid and should a market for our securities develop the price of our securities may be volatile.
Our Common Stock is currently subject to quotation on the pink sheets and the trading market for our securities may likely remain illiquid. This means that as an investor you will likely have a difficult time selling our Common Stock at market. Furthermore, because of the small amount of shares that will represent the public float, and notwithstanding the Reverse Split of our shares, the market price of our Common Stock may experience significant volatility. Other factors that may contribute to volatility should a market for our Common Stock develop are, our quarterly results, announcements by us or our competitors regarding acquisitions or dispositions, loss of existing clients, new procedures or technology, litigation, changes in general conditions in the economy and general market conditions could cause the market price of the Common Stock to fluctuate substantially. In addition, the stock market has experienced significant price and volume fluctuations that have particularly affected the trading prices of equity securities of many companies. Frequently, these price and volume fluctuations have been unrelated to the operating performance of the affected companies.
Future sales of our common stock may depress our stock price.
If our controlling stockholders sell substantial amounts of our Common Stock in the public market at any time in the future, the market price of our Common Stock could fall. Existing non-affiliate Shareholders beneficially hold approximately 77,903 shares of Common Stock of which approximately 61,314 shares are in the public float and are eligible to be sold free of any restrictions. All other shares are “restricted” as defined in Rule 144 under the Securities Act (“Rule 144”). Since the Company has previously been designated a shell company, the restricted shares issued during the Company’s status as shell Company must be held for one year from the date of this filing prior to being eligible to be sold pursuant to Rule 144. The Company can make no prediction as to the effect, if any, that sale of shares, or the availability of shares for future sale, will have on the market price of the shares prevailing from time to time. Sales of substantial amounts of shares in the public market, or the perception that such sales could occur, could depress prevailing market prices for the shares. Such sales may also make it more difficult for the Company to sell equity securities or equity-related securities in the future at a time and price which it deems appropriate.
Broker-Dealers may be discouraged from effecting transactions in our Common Stock because they may be considered a “Penny Stock” and are subject to the applicable Penny Stock rules.
Rules 15g-1 through 15g-9 promulgated under the Exchange Act impose sales practice and disclosure requirements on certain brokers-dealers who engage in certain transactions involving a “penny stock.” Subject to certain exceptions, a penny stock generally includes any non-NASDAQ equity security that has a market price of less than $5.00 per share. There is currently no established price quotation for our shares, however, we expect that initial quotations will not exceed $5.00 and there is the possibility that the quoted shares price may never exceed $5.00, and that our Common Stock will be deemed penny stock for the purposes of the Exchange Act. The additional sales practice and disclosure requirements imposed upon brokers-dealers may discourage broker-dealers from effecting transactions in our Common Stock, which could severely limit the market liquidity of the stock and impede the sale of our stock in the secondary market. Specifically, any broker-dealer selling penny stock to anyone other than an established customer or “accredited investor,” generally, an individual with net worth in excess of $1,000,000 or an annual income exceeding $200,000, or $300,000 together with his or her spouse, must make a special suitability determination for the purchaser and must receive the purchaser’s written consent to the transaction prior to sale, unless the broker-dealer or the transaction is otherwise exempt. In addition, the penny stock regulations require the broker-dealer to deliver, prior to any transaction involving a penny stock, a disclosure schedule prepared by the United States Securities and Exchange Commission relating to the penny stock market, unless the broker-dealer or the transaction is otherwise exempt. A broker-dealer is also required to disclose commissions payable to the broker-dealer and the registered representative and current quotations for the securities. Finally, a broker-dealer is required to send monthly statements disclosing recent price information with respect to the penny stock held in a customer’s account and information with respect to the limited market in penny stocks.