Item 1. Description of Business
Executive Summary
Energy Holdings International, Inc. (“EHII”) is focused on acquiring, developing and managing energy assets across in the Middle East, Asia and the Americas. The Company is led by a group of executive officers and directors with extensive experience in sourcing, acquiring and managing assets across the globe. EHII is dedicated to finding new, long-term energy solutions that are safe, economically viable and environmentally friendly to enhance the future of countries and economies worldwide. It is responding to international, political, environmental and free market demands for investments in the Independent Power Project (IPP) market with safer, cleaner and more technologically advanced energy sources. The Company is dedicated to the task of providing the best management and advisory services available in the complex arena of international business and project development in oil and gas production and power generation. EHII’s management has been in active discussions with several potential companies, either to acquire, manage, or joint venture with these entities.
Background
The Company’s predecessor, Green Energy Corp. was originally organized as a Colorado corporation, referred to in this document as “Old Green Energy”, commenced operations in 2003 as a marketer of a specific gasification technology for commercial applications to produce fuels and chemicals. In December 2006, Old Green Energy reincorporated as a Nevada corporation and changed its name to Green Energy Holding Corp (“GEHC”).
On December 28, 2008, GEHC entered into a stock purchase agreement to issue 14,370,300 shares to accredited investors for $175,000, giving those outside investors approximately 96.5% controlling interest in the Company. An additional $325,000 was used for legal and accounting fees and expenses, as well as administrative fees and costs. The aggregate cost of the change in control totaled $500,000.
Following the sale of 96.5% of the Company’s capital stock at the end of calendar 2008, the Company decided to modify its focus, concentrating on acquiring, developing and managing cash producing oil and gas properties in the Middle East, Asia and the Americas, particularly in the middle region of the United States. It aspires to find new, long-term energy solutions that are safe, economically viable and environmentally friendly to enhance the future of countries and economies worldwide. It is responding to international, political, environmental and free market demands for investments in the Independent Power Project (IPP) market with safer, cleaner and more technologically advanced energy sources. The Company is dedicated to the task of providing the best management and advisory services available in the complex arena of international business and project development in oil and gas production and power generation.
On March 10, 2009, the Company amended the Articles of Incorporation to change its name from Green Energy Holding Corp. to Energy Holdings International, Inc.
EHII’S Business Strategy and Objectives
Oil & Gas Exploration
EHII’s acquisition and management strategy is focused on accumulating a portfolio of high cash generation producing assets across the oil and gas exploration and power generation sectors. Management has developed a pipeline of assets and secured preliminary terms for bank financing of potential acquisitions.
The Company’s specific strategies for value enhancement in the Power Generation sector are tailored to local requirements, but the company seeks to achieve the following:
· Optimize the operations of acquired power plants, which includes maintaining our assets to high standards of safety and operating performance, managing our assets on a portfolio basis, particularly with regard to contingency and strategic spare parts planning so as to minimize the loss of generation during planned and forced outages, and closely co-coordinating our plant operation with trading activity to maximize the value of un-contracted output; and standardizing management reporting for all investments;
· Leverage operational assets to enhance earnings in several ways, including financing at a variety of corporate, project and intermediate corporate levels, capturing operational, trading, and administrative economies of scale in asset aggregation; capitalizing on market knowledge derived through asset ownership, and leveraging off the skills, expertise and ideas of the management team;
· Grow trade assets to maximize value over time, and to seek to maximize the value of investments through dispositions if this generates a higher return, or if the management team determines, a comparable return can be obtained with lower risk elsewhere; and
· Seek effective routes to market in those geographical areas where it is appropriate.
Power generation demand will be driven by the growth in demand from emerging markets, redevelopment of aged assets in the developed world and finally incremental demand. The Company intends to acquire and build out power generation plants across the Middle East, North Africa, South America and Southeast Asian regions. However, EHII has not entered into any definitive agreements with any persons to acquire or build out such plants nor does it assure anyone that it will be able to do so.
The Oil & Gas and Power Generation Industry
The Independent Power Industry
Power generation is a strong and attractive global sector due to the significant demand growth in developing economies, replacement capacity required in many developed countries and tightening reserve requirements. EHII intends to focus power generation efforts in the Middle East and Africa regions.
The Middle East region offers stable governments, low country risk ratings and good credit ratings, which allows for the availability of long-term PWPAs (Power and Water Purchase Agreements) with attractive return on investment and the availability of capital needed for development and acquisitions. GDP growth rates average 5-8% per annum with power growth rates averaging 6-10% per annum.
There is pressure on development plans throughout the industry due to the global liquidity crisis. This creates a unique opportunity for firms that are well capitalized.
Revenue Source
EHII expects that it may derive revenues from equity positions in oil and gas and power projects and consulting engagements performed for external groups. It also anticipates that additional revenue could be in the form of development fees from Farm-In Agreements with new partners in EHII projects, carried and royalty interest from projects revenue, and when appropriate, in the form of capital gains from the sale of all or a portion of EHII ownership interest in a project.
Regulatory Approvals and Environmental Laws
EHII is subject to various federal, state and local environmental laws and regulations, including those relating to the discharge of materials into the air, water and ground; the generation, storage, handling, use, transportation and disposal of hazardous materials; and the health and safety of our employees. These laws, regulations and permits also can require expensive pollution control equipment or operational changes to limit actual or potential impacts to the environment. A violation of these laws and regulations or permit conditions can result in substantial fines, natural resource damage, criminal sanctions, permit revocations and/or facility shutdowns. We do not anticipate a material adverse effect on our business or financial condition as a result of our efforts to comply with these requirements. We also do not expect to incur material capital expenditures for environmental controls in this or the succeeding fiscal year.
There is a risk of liability for the investigation and cleanup of environmental contamination at each of the properties that we may own or operate and at off-site locations where we may have arranged for the disposal of hazardous substances. If these substances have been or are disposed of or released at sites that undergo investigation and/or remediation by regulatory agencies, we may be responsible under CERCLA or other environmental laws for all or part of the costs of investigation and/or remediation and for damage to natural resources. We may also be subject to related claims by private parties alleging property damage and personal injury due to exposure to hazardous or other materials at or from these properties. Some of these matters may require us to expend significant amounts for investigation and/or cleanup or other costs. We do not have material environmental liabilities relating to contamination at or from our facilities or at off-site locations where we have transported or arranged for the disposal of hazardous substances.
In addition, new laws, new interpretations of existing laws, increased governmental enforcement of environmental laws or other developments could require us to make additional significant expenditures. Continued government and public emphasis on environmental issues can be expected to result in increased future investments for environmental controls at our ongoing operations. Present and future environmental laws and regulations (and related interpretations) applicable to our operations, more vigorous enforcement policies and discovery of currently unknown conditions may require substantial capital and other expenditures. Our air emissions are subject to the federal Clean Air Act, the federal Clean Air Act Amendments of 1990 and similar state and local laws and associated regulations. The U.S. EPA has promulgated National Emissions Standards for Hazardous Air Pollutants, or NESHAP, under the federal Clean Air Act that could apply to facilities that we own or operate if the emissions of hazardous air pollutants exceed certain thresholds. If a facility we operate is authorized to emit hazardous air pollutants above the threshold level, then we are required to comply with the NESHAP related to our manufacturing process and would be required to come into compliance with another NESHAP applicable to boilers and process heaters by September 13, 2007. New or expanded facilities would be required to comply with both standards upon startup if they exceed the hazardous air pollutant threshold. In addition to costs for achieving and maintaining compliance with these laws, more stringent standards may also limit our operating flexibility. Because other domestic syngas manufacturers will have similar restrictions, however, we believe that compliance with more stringent air emission control or other environmental laws and regulations is not likely to materially affect our competitive position.
The hazards and risks associated with producing and transporting our products, such as fires, natural disasters, explosions, abnormal pressures, blowouts and pipeline ruptures also may result in personal injury claims or damage to property and third parties. As protection against operating hazards, we maintain insurance coverage against some, but not all, potential losses. Our coverage includes physical damage to assets, employer’s liability, comprehensive general liability, automobile liability and workers’ compensation. We believe that our insurance is currently adequate, but losses could occur for uninsurable or uninsured risks or in amounts in excess of existing insurance coverage. We do not currently have pending material claims for damages or liability to third parties relating to the hazards or risks of our business.
The international, federal and state rules and regulations are constantly changing. There may be additional restrictions or requirements in the future to which EHII will be subject, which may adversely affect the business, as well as its revenues and profitability.
Employees
The Company currently has engaged a Chief Executive Officer, and a Chief Financial Officer and two part-time employee/contractors. To date, these individuals are consultants, but EHII anticipates that in the near future, it will enter into employment agreements with these individuals.
Item 1A.
Item 1A. Risk Factors
Important Risk Factors Concerning our Business.
You should carefully consider the following risk factors and all other information contained in this Annual Report in evaluating our business and prospects. The risks and uncertainties described below are not the only ones we face. Additional risks and uncertainties other than those we described below that are not presently known to us or that we believe are immaterial may also impair our business operations. If any of the following risks occur, our business and financial results could be harmed. You should also refer to the other information contained in this Annual Report, including our consolidated financial statements and the related notes.
Risks Related to Our Business and Industry
We have a limited operating history.
Since the inception of our current business operations, we have been engaged in organizational activities, including developing a strategic operating plan, entering into contracts, hiring personnel, developing processing technology, raising private capital and seeking acquisitions. Accordingly, we have a limited relevant operating history upon which an evaluation of our performance and future prospects can be made.
We have had a history of net losses.
We incurred a net consolidated loss of $1,379,517 for the year ended June 30, 2013, and have had accumulated total losses of $5,536,705 through June 30, 2013. Through June of 2013, we have been funding our operations primarily through our consulting contracts with trading partners in the Middle East, and sales of equity interests in our subsidiaries, but have also financed a portion of our operation through the sale of our securities and loans from directors and shareholders. We expect to continue to incur net losses for the foreseeable future as focus on seeking potential joint venture partners and acquisitions in the area of oil, gas, and alternative energy. Our ability to generate and sustain significant additional revenues or achieve profitability will depend upon the factors discussed elsewhere in this “Risk Factors” section. We cannot assure you that we will achieve or sustain profitability or that our operating losses will not increase in the future. If we do achieve profitability, we cannot be certain that we can sustain or increase profitability on a quarterly or annual basis in the future.
We will be forced to continue to seek financing partners, either through debt or equity, to achieve our business objectives.
As of June 30, 2013, we had unrestricted cash of $1,590. We will need significant capital expenditures and investments over the next twelve months related to our growth program. We are also currently evaluating potential joint venture partners. We do not plan to use a portion of our current cash to fund these site acquisitions or provide seed equity for the projects while we analyze financing options.
We are currently in discussions with several intermediaries, advisors and investors to structure and raise the funds to optimally finance potential projects. We are evaluating debt and equity placements at the corporate level as well as project specific capital opportunities. We have no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to use on commercially acceptable terms or at all. Our failure to raise capital as needed would significantly restrict our growth and hinder out ability to compete. We may need to curtail expenses, reduce planned investments in technology and research and development and forgo business opportunities. Additional equity financings are likely to be dilutive to holders of our common stock and debt financing, if available, may involve significant payment obligations and covenants that restrict how we operate our business.
Strategic acquisitions could have a dilutive effect on your investment. Failure to make accretive acquisitions and successfully integrate them could adversely affect our future financial results
As part of our growth strategy, we will seek to acquire or invest in complementary (including competitive) businesses, facilities or technologies and enter into co-location joint ventures in the oil & gas and power generation industries. Our goal is to make such acquisitions, integrate these acquired assets into our operations and reduce operating expenses. The process of integrating these acquired assets into our operations may result in unforeseen operating difficulties and expenditures, and may absorb significant management attention that would otherwise be available for the ongoing development of our business. We cannot assure you that the anticipated benefits of any acquisitions will be realized. In addition, future acquisitions by us could result in potentially dilutive issuances of equity securities, the incurrence of debt and contingent liabilities and amortization expenses related to goodwill and other intangible assets, any of which can materially and adversely affect our operating results and financial position.
We depend on our officers and key personnel and the loss of any of these persons could adversely affect our operations and results.
We believe that implementing our proposed expansion strategy and execution of our business plan to acquire, manage and develop power generation and oil & gas assets will depend to a significant extent upon the efforts and abilities of our officers and key personnel. Because the oil, gas and alternative energy industries are highly competitive, we believe that the personal contacts of our officers and key personnel within the industry and within the scientific community engaged in related businesses are a significant factor in our continued success. Our failure to retain our officers or key personnel, or to attract and retain additional qualified personnel, could adversely affect our operations and results. We do not currently carry key-man life insurance on any of our officers.
Because we are smaller and have fewer financial and other resources than energy focused companies, we may not be able to successfully compete in the very competitive industry.
There are significant competition among existing oil, gas, and alternative energy companies. Our business faces competition from a number of entities that have the financial and other resources that would enable them to expand their businesses. Even if we are able to enter into joint venture agreements, our competitors may be more profitable than us, which may make it more difficult for us to raise any financing necessary for us to achieve our business plan and may have a materially adverse effect on the market price of our common stock.
Risks Related to an Investment in Our Common Stock
Our common stock price has fluctuated considerably and stockholders may not be able to resell their shares at or above the price at which such shares were purchased.
The market price of our common stock has fluctuated in the past, and may continue to fluctuate significantly in response to factors, some of which are beyond our control. The stock market in general has experienced extreme price and volume fluctuations. The market prices of securities of fuel-related companies have experienced fluctuations that often have been unrelated or disproportionate to the operating results of these companies. Continued market fluctuations could result in extreme volatility in the price of our common stock, which could cause a decline in the value of our common stock. Price volatility might be intensified under circumstances where the trading volume of our common stock is low.
We may not be able to attract the attention of major brokerage firms for research and support which may adversely affect the market price of our common stock.
Securities analysts of major brokerage firms may not publish research on our common stock. The number of securities competing for the attention of such analysts is large and growing. Coverage of a security by analysts at major brokerage firms increases the investing public’s knowledge of and interest in the issuer, which may stimulate demand for and support the market price of the issuer’s securities. The failure of major brokerage firms to cover our common stock may adversely affect the market price of our common stock.
Future sales of common stock or other dilutive events may adversely affect prevailing market prices for our common stock.
We are currently authorized to issue up to 100 million shares of common stock, of which 38,956,006 shares were issued and outstanding as of October 10, 2013. Our board of directors and/or our executive management has the authority, without further action or vote of our stockholders, to issue any or all of the remaining authorized shares of our common stock that are not reserved for issuance and to grant options or other awards to purchase any or all of the shares remaining authorized. The board may issue shares or grant options or awards relating to shares at a price that reflects a discount from the then-current market price of our common stock. The options and awards referred to above can be expected to include provisions requiring us to issue increased numbers of shares of common stock upon exercise or conversion in the event of stock splits, redemptions, mergers or other transactions. If any of these events occur, the exercise of any of the options or warrants described above and any other issuance of shares of common stock will dilute the percentage ownership interests of our current stockholders and may adversely affect the prevailing market price of our common stock.
A significant number of our shares will be eligible for sale, and their sale could depress the market price of our common stock.
Sales of a significant number of shares of our common stock in the public market could harm the market price of our common stock. Virtually all shares of our common stock may be offered from time to time in the open market, including the shares offered pursuant to this filing. These sales may have a depressive effect on the market for the shares of our common stock. Moreover, additional shares of our common stock, including shares that have been issued in private placements, may be sold from time to time in the open market pursuant to Rule 144. In general, a person who has held restricted shares for a period of one year may, upon filing with the SEC a notification on Form 144, sell into the market common stock in an amount equal to the greater of 1% of the outstanding shares or the average weekly number of shares sold in the last four weeks prior to such sale. Such sales may be repeated at specified intervals. Subject to satisfaction of a two-year holding requirement, non-affiliates of an issuer may make sales under Rule 144 without regard to the volume limitations and any of the restricted shares may be sold by a non-affiliate after they have been held two years. Sales of our common stock by our affiliates are subject to Rule 144.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 could have a material adverse effect on our business and operating results. In addition, as a consequence of such failure, current and potential stockholders could lose confidence in our financial reporting, which could have an adverse effect on our stock price.
Effective internal controls are necessary for us to provide reliable financial reports and effectively prevent fraud. If we cannot provide reliable financial reports or prevent fraud, we could be subject to regulatory action or other litigation and our operating results could be harmed.
During the course of our testing, we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to maintain the adequacy of our internal accounting controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404. Failure to achieve and maintain an effective internal control environment could cause us to face regulatory action and also cause investors to lose confidence in our reported financial information, either of which could have an adverse effect on our stock price.
Investors should not anticipate receiving cash dividends on our common stock.
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings to support operations and to finance expansion and, therefore, we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We may issue shares of preferred stock without stockholder approval that may adversely affect your rights as a holder of our common stock.
Upon our amending our certificate of incorporation authorizes us to issue up to 50 million shares of “blank check” preferred stock with such designations, rights and preferences as may be determined from time to time by our board of directors. Accordingly, our board of directors is empowered, without stockholder approval, to issue a series of preferred stock with rights to receive dividends and distributions upon liquidation in preference to any dividends or distributions upon liquidation to holders of our common stock and with conversion, redemption, voting or other rights which could dilute the economic interest and voting rights of our common stockholders. The issuance of preferred stock could also be used as a method of discouraging, delaying or preventing a change in control of our company or making removal of our management more difficult, which may not be in your interest as holders of common stock.
Provisions in our articles of incorporation and bylaws and under Nevada law could inhibit a takeover at a premium price.
Our bylaws limit who may call a special meeting of stockholders and establish advance notice requirements for nominations for election to our board of directors or for proposing matters that can be acted upon at stockholder meetings. Each of these provisions may have the effect to discouraging, delaying or preventing a change in control of our company or making removal of our management more difficult, which may not be in your interest as holders of common stock.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties
We lease approximately 2,338 square feet of office space in Houston, Texas as our corporate headquarters. This agreement went into effect on January 1, 2010 and is for a period of five years. Our rent is $4,091.50 per month.
In addition to our office in Houston, Texas, we lease office and apartment space in Dubai, United Arab Emirates. The office lease began February 19, 2013 and expires February 18, 2014 while the apartment lease began March 8, 2013 and expires March 7, 2014. The apartment lease is in the name of Jalal Alghani, our Chief Financial Officer.
Item 3.
Item 3. Legal Proceedings
We are not a party to any material pending legal proceedings and, to the best of our knowledge; no such action by or against us is contemplated, threatened or expected.
Item 4.
Item 4. Mine Safety Disclosures
Not applicable
PART II
Item 5.
Item 5. Market Price For Registrant’s Common Equity And Related Stockholder Matters
(a) Market Information
EHII Common Stock trades on the OTC Markets under the symbol: EGYH. The following sets forth the range of high and low trades for the periods indicated.
Our stock has traded thinly for the periods represented. For example, for the year ended June 30, 2013, our stock has experienced only 17 trading days with 440,900 shares traded on those days.
We currently have no outstanding stock options on our common stock or other equity compensation plans. However, as noted in Note 7 to the financial statements, we granted an investor an option to purchase 10% of our subsidiary which will own and operate the power plant in Bangladesh.
(b) Our Stockholders
As of June 30, 2013, there were approximately 218 holders of record of EHII common stock.
(c) Our Dividend Policy
We have never paid, and do not intend to pay, any cash dividends on our common stock for the foreseeable future. Therefore in all likelihood, an investor in this offering will only realize a profit on his investment, in the short term, if the market price of our common stock increases in value.
(d) Securities Authorized to be Issued Under our Equity Compensation Plans
We currently do not have any equity compensation plans.
Item 6.
Item 6. Selected Financial Data
Not applicable
Item 7.
Item 7. Management’s Discussions and Analysis of Financial Condition and Results of Operations
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and the related notes included in this report.
Overview and History
The Company’s predecessor, Green Energy Corp. was originally organized as a Colorado corporation, referred to in this document as “Old Green Energy”, commenced operations in 2003 as a marketer of a specific gasification technology for commercial applications to produce fuels and chemicals. In December 2006, Old Green Energy reincorporated as a Nevada corporation and changed its name to Green Energy Holding Corp.
On December 28, 2008, GEHC entered into a stock purchase agreement to issue 14,370,300 shares to accredited investors for $175,000, giving those outside investors approximately 96.5% controlling interest in the Company.
On March 10, 2009, the Company amended the Articles of Incorporation to change its name from Green Energy Holding Corp. to Energy Holdings International, Inc.
Our Business
The Company was originally organized in October 2003 to capitalize on the growing market for alternative fuels and its co-products. The Company acquired a non-exclusive license to a specific technology for the conversion of biomass to synthesis gas (“syngas”). The technology includes the ability to produce a consistent, high-quality syngas product that can be used for energy production or as a building block for other chemical manufacturing processes.
Through the end of calendar 2008, our growth strategy has encompassed a multi-pronged approach which is geared at ultimately developing production levels and lowering production costs, thereby driving profitability.
Following the sale of 96.5% of the Company’s capital stock at the end of calendar 2008, the Company decided to modify its focus, concentrating on acquiring, developing and managing cash producing oil and gas properties in the Middle East, Asia and the Americas, particularly in the middle region of the United States. It aspires to find new, long-term energy solutions that are safe, economically viable and environmentally friendly to enhance the future of countries and economies worldwide. It is responding to international, political, environmental and free market demands for investments in the Independent Power Project (IPP) market with safer, cleaner and more technologically advanced energy sources. The Company is dedicated to the task of providing the best management and advisory services available in the complex arena of international business and project development in oil and gas production and power generation.
Our corporate headquarters is located at 12012 Wickchester Lane, Suite 130, Houston, Texas 77079, and our telephone number is (281) 752-7314. You can locate us on the web at http://www.energyhii.com.
Results of Operations
Year Ended June 30, 2013 versus 2012
We incurred a net loss $1,379,517 for the year ended June 30, 2013, (or $0.04 per share), versus a net loss of $1,260,614 in the same period in 2012 ($0.04 per share).
Revenues - We had no revenue for the twelve months ended June 30, 2013 and 2012.
General and Administrative Expenses - We incurred general and administrative expenses of $1,354,100 for the year ended June 30, 2013, compared to $1,513,714 for the same period in 2012, an 11% decrease, owing mostly to our reduction of personnel costs.
Depreciation - depreciation expense was unchanged from the previous year. All of the assets are being depreciated using the straight line method. Therefore, the amount of expense does not change from period to period.
Our ability to achieve profitable operations depends on developing revenue through additional consulting contracts and from the operation of oil & gas and power generation facilities both domestically and abroad. We do not expect to be profitable until we acquire our first oil and gas property. However, given the uncertainties surrounding the timing and nature of such acquisitions, we cannot assure you that we will show profitable results at any time.
Liquidity and Capital Resources
As of June 30, 2013, we had unrestricted cash and cash equivalents totaling $1,590.
Net cash used in operating activities was $787,597 for the twelve months ended June 30, 2013 compared to net cash used of $1,039,066 for the same period in 2012. The difference (and increase of $251,469) is mostly due to changes in operating assets and liabilities.
Cash flows provided by financing activities was $778,673 for the twelve months ended June 30, 2013 compared to $998,616 for the same period in 2012. Most of our financing in the current year is from common stock or common stock commitments whereas in 2012, we raised $998,616 via a sale of equity in our subsidiary.
We anticipate funding any capital expenditures over the next 12 months through the issuance of equity or debt. We are continuing to evaluate both oil & gas and power generation assets.
We are currently in discussions with several intermediaries, advisors and investors to structure and raise the funds to optimally finance various potential projects. We are evaluating debt and equity placements at the corporate level as well as project specific capital opportunities. At the present time, we have no commitments for any additional financing, and there can be no assurance that, if needed, additional capital will be available to use on commercially acceptable terms or at all. Our failure to raise capital as needed would significantly restrict our growth and hinder out ability to compete. We may need to curtail expenses, and forgo business opportunities. Additional equity financings are likely to be dilutive to holders of our common stock and debt financing, if available, may involve significant payment obligation and covenants that restrict how we operate our business.
If we are unable to secure funds to finance various potential projects, we may examine other possibilities, including, but not limited to, mergers or acquisitions.
Off-Balance Sheet Arrangements
We currently have three leases for office space and corporate apartments in Dubai and in Houston. Our office lease in Houston runs until December 31, 2015 and is approximately $4,000 per month. In Dubai, there is a corporate apartment lease under the name of our Chief Financial Officer, Jalal Alghani, which runs until March, 2014 and is approximately $32,000 per year. Our office space in Dubai runs until February 18, 2014, and is approximately $68,000 per year.
The obligations above are operating leases and, as such, are not recorded as liabilities on our balance sheet. See Note 10 for a summary of these payouts over the next four years.
We have not entered into any transactions with unconsolidated entities in which we have financial guarantees, subordinated retained interests, derivative instruments or other contingent arrangements that expose us to material continuing risks, contingent liabilities or any other obligations under a variable interest in an unconsolidated entity that provides us with financing, liquidity, market risk or credit risk support.
Critical Accounting Policies
Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
The accounting policies that we follow are set forth in Note 1 to our financial statements as included in this filing. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the financial statements.
Fair Value Measurements
On July 1, 2010, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on July 1, 2010, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
·Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
·Level 2 -Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.
·Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect the Company's own assumptions about the inputs that market participants would use.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
The fair value of the derivatives is estimated using a lattice-binomial option pricing model and the Black-Scholes option pricing model. These models utilize a series of inputs and assumptions to arrive at a fair value at the date of inception and each reporting period. An option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the warrant and discount rates.
Revenue recognition
Revenue is comprised principally of service and consulting revenue from work performed for customers under master service arrangements. Revenue is recognized over the period of the agreement as it is earned as such policy complies with the following criteria: (i) persuasive evidence of an arrangement exists; (ii) the services have been provided; (iii) the fee is fixed and determinable, (iv) collectability is reasonably assured. In the event that a customer pays up front, deferred revenue is recognized for the amount of the payment in excess of the revenue earned.
Stock-Based Compensation
The Company is required to recognize expense of options or similar equity instruments issued to employees using the fair-value-based method of accounting for stock-based payments in compliance with ASC 718 - Compensation - Stock Compensation and ASC 505-50 - Equity Based Payments to Non-Employees. ASC 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance -based awards, share appreciation rights, and employee share purchase plans. Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking over the expected term of the award. The Company typically uses the lattice model to value options and similar equity instruments.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
·Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
·Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 has not had a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 has not had a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
As a "smaller reporting company" as defined by Item 10 of Regulation S-K, EHII is not required to provide this information.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements and supplemental data required by this Item 8 follow the index of financial statements that appears at the end of Part I of this Form 10-K.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Energy Holdings International, Inc.
12012 Wickchester Lane, Suite 130
Houston, Texas 77079
We have audited the accompanying consolidated balance sheets of Energy Holdings International, Inc. (A Development Stage Enterprise) (the “Company”) as of June 30, 2013 and 2012 and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for each of the twelve month periods then ended, and for the period from re-entry to the development stage (April 1, 2012) until June 30, 2013. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Energy Holdings International, Inc. as of June 30, 2013 and 2012 and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company suffered net losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
October 15, 2013
ENERGY HOLDINGS INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONSOLIDATED BALANCE SHEETS
The accompanying notes are an integral part of the consolidated financial statements.
ENERGY HOLDINGS INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF OPERATIONS
The accompanying notes are an integral part of the consolidated financial statements.
ENERGY HOLDINGS INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)
The accompanying notes are an integral part of the consolidated financial statements.
ENERGY HOLDINGS INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
ENERGY HOLDINGS INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
ENERGY HOLDINGS INTERNATIONAL, INC.
(A Development Stage Enterprise)
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
The accompanying notes are an integral part of the consolidated financial statements.
ENERGY HOLDINGS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ORGANIZATION, OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Energy Holdings International, Inc. (the “Company”), was incorporated in the State of Nevada on November 30, 2006 as a successor corporation to Green Energy Corp. which was incorporated in the State of Colorado on October 14, 2003. Green Energy Corp. acquired Green Energy Holding Corp. on December 18, 2006.
On March 10, 2009, the Company amended the Articles of Incorporation to change its name from Green Energy Holding Corp. to Energy Holdings International, Inc.
The Company is a holding company that also provides consulting services and is currently exploring various opportunities in the energy area. EHII’s management has been in active discussions with several potential companies, either to acquire, manage, or joint venture with these entities. However, as of the date of this filing, no definitive agreements or arrangements have been finalized.
The Company has consolidated the accounts of Energy Holdings International - Middle East/North Africa DMCC (“EHII - MENA”), formerly Advance Energy DMCC, a firm in Dubai, United Arab Emirates, into its financial statements.
Fiscal year
The Company employs a fiscal year ending June 30.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and cash equivalents
The Company considers all highly liquid investments with an original maturity of three months or less as cash equivalents. There are no cash equivalents at June 30, 2013 or 2012.
At June 30, 2012, we had $40,068 on deposit with our financial institution which was a compensating balance for our credit cards which we used to travel to and from the Middle East. This amount was shown on the balance sheet as “Cash and equivalents - restricted”. This amount was released during the year ended June 30, 2013 and we no longer have such restrictions.
At June 30, 2012, we had the U.S. Dollar equivalent of $514 on deposit at Emirates Bank in Dubai, United Arab Emirates (the “UAE”). At this time, the UAE does not provide deposit coverage equivalent to that provided by the Federal Deposit Insurance Corporation (“FDIC”).
Foreign currencies
The Company maintains bank accounts in Dubai whose balances and transactions are denominated in Dirhams of the United Arab Emirates (AED). The AED is tied to the US Dollar and, as such, there are no foreign currency gains or losses.
The Company’s functional currency is the US Dollar.
Concentration of Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk are cash and cash equivalents. The Company places its cash and temporary cash investments with credit quality institutions. At times, such investments may be in excess of FDIC insurance limits.
Net income (loss) per share
The net income (loss) per share is computed by dividing the net income (loss) by the weighted average number of shares of common outstanding. Warrants, stock options, and common stock issuable upon the conversion of the Company's preferred stock (if any), are not included in the computation if the effect would be anti-dilutive and would increase the earnings or decrease loss per share. The weighted average shares outstanding for the year ended June 30, 2013 and 2012 were 35,765,107 and 33,740,949, respectively. The earnings per share on a basic and diluted basis for the year ended June 30, 2013 and 2012 was ($0.04) for both years.
In presenting net income (loss) per share, we segregate net income or loss as resulting from normal operations, extraordinary items and discontinued operations.
Fair Value Measurements
On July 1, 2010, the Company adopted guidance which defines fair value, establishes a framework for using fair value to measure financial assets and liabilities on a recurring basis, and expands disclosures about fair value measurements. Beginning on July 1, 2010, the Company also applied the guidance to non-financial assets and liabilities measured at fair value on a non-recurring basis, which includes goodwill and intangible assets. The guidance establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. Observable inputs are inputs that market participants would use in pricing the asset or liability developed based on market data obtained from sources independent of the Company. Unobservable inputs are inputs that reflect the Company’s assumptions of what market participants would use in pricing the asset or liability developed based on the best information available in the circumstances. The hierarchy is broken down into three levels based on the reliability of the inputs as follows:
·Level 1 - Valuation is based upon unadjusted quoted market prices for identical assets or liabilities in active markets that the Company has the ability to access.
·Level 2 -Valuation is based upon quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in inactive markets; or valuations based on models where the significant inputs are observable in the market.
·Level 3 - Valuation is based on models where significant inputs are not observable. The unobservable inputs reflect the Company's own assumptions about the inputs that market participants would use.
The following table presents assets and liabilities that are measured and recognized at fair value as of June 30, 2013 and 2012 on a recurring and non-recurring basis:
At June 30, 2012, the Company had derivative liabilities as a result of a 2011 convertible promissory note that includes embedded derivatives. These liabilities were valued with the assistance of a valuation consultant and consisted of level 3 valuation techniques.
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities and long-term debt. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. The carrying value of long-term debt also approximates fair value since their terms are similar to those in the lending market for comparable loans with comparable risks.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks.
The Company reviews the terms of the common stock, warrants and convertible debt it issues to determine whether there are embedded derivative instruments, including embedded conversion options, which are required to be bifurcated and accounted for separately as derivative financial instruments. In circumstances where the host instrument contains more than one embedded derivative instrument, including the conversion option, that is required to be bifurcated, the bifurcated derivative instruments are accounted for as a single, compound derivative instrument.
Bifurcated embedded derivatives are initially recorded at fair value and are then revalued at each reporting date with changes in the fair value reported as non-operating income or expense. When the equity or convertible debt instruments contain embedded derivative instruments that are to be bifurcated and accounted for as liabilities, the total proceeds received are first allocated to the fair value of all the bifurcated derivative instruments. The remaining proceeds, if any, are then allocated to the host instruments themselves, usually resulting in those instruments being recorded at a discount from their face value.
The discount from the face value of the convertible debt is amortized over the life of the instrument through periodic charges to interest expense, using the effective interest method.
The fair value of the derivatives is estimated using a Monte Carlo simulation model, lattice-binomial option pricing model and the Black-Scholes option pricing model. These models utilize a series of inputs and assumptions to arrive at a fair value at the date of inception and each reporting period. An option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, the Company’s expected stock price volatility over the term of the warrant and discount rates.
Revenue recognition
Revenue is comprised principally of service and consulting revenue from work performed for customers under master service arrangements. Revenue is recognized over the period of the agreement as it is earned as such policy complies with the following criteria: (i) persuasive evidence of an arrangement exists; (ii) the services have been provided; (iii) the fee is fixed and determinable, (iv) collectability is reasonably assured. In the event that a customer pays up front, deferred revenue is recognized for the amount of the payment in excess of the revenue earned.
Financial instruments
The carrying amounts of the Company’s financial instruments as of June 30, 2013 and 2012 approximate their respective fair values because of the short-term nature of these instruments. Such instruments consist of cash, accounts payable and accrued expenses.
Stock-Based Compensation
The Company is required to recognize expense of options or similar equity instruments issued to employees using the fair-value-based method of accounting for stock-based payments in compliance with ASC 718 - Compensation - Stock Compensation and ASC 505-50 - Equity Based Payments to Non-Employees. ASC 718 covers a wide range of share-based compensation arrangements including share options, restricted share plans, performance -based awards, share appreciation rights, and employee share purchase plans. Application of this pronouncement requires significant judgment regarding the assumptions used in the selected option pricing model, including stock price volatility and employee exercise behavior. Most of these inputs are either highly dependent on the current economic environment at the date of grant or forward-looking over the expected term of the award. The Company typically uses the lattice model to value options and similar equity instruments.
Property and equipment
Property and equipment are recorded at cost and depreciated under the straight line method over each item's estimated useful life.
Income tax
The Company accounts for income taxes under ASC 740 - Income Taxes. Under ASC 740 deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss carry-forwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
Development Stage Enterprise
As of April 1, 2012, the Company re-entered the development stage. The financial statements have been updated to reflect this change as of this date.
Reclassifications
Certain information reported for previous periods has been reclassified for consistency with current financial information.
Recently Issued Accounting Pronouncements
In February 2013, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income, to improve the transparency of reporting these reclassifications. Other comprehensive income includes gains and losses that are initially excluded from net income for an accounting period. Those gains and losses are later reclassified out of accumulated other comprehensive income into net income. The amendments in the ASU do not change the current requirements for reporting net income or other comprehensive income in financial statements. All of the information that this ASU requires already is required to be disclosed elsewhere in the financial statements under U.S. GAAP. The new amendments will require an organization to:
·Present (either on the face of the statement where net income is presented or in the notes) the effects on the line items of net income of significant amounts reclassified out of accumulated other comprehensive income - but only if the item reclassified is required under U.S. GAAP to be reclassified to net income in its entirety in the same reporting period; and
·Cross-reference to other disclosures currently required under U.S. GAAP for other reclassification items (that are not required under U.S. GAAP) to be reclassified directly to net income in their entirety in the same reporting period. This would be the case when a portion of the amount reclassified out of accumulated other comprehensive income is initially transferred to a balance sheet account (e.g., inventory for pension-related amounts) instead of directly to income or expense.
The amendments apply to all public and private companies that report items of other comprehensive income. Public companies are required to comply with these amendments for all reporting periods (interim and annual). The amendments are effective for reporting periods beginning after December 15, 2012, for public companies. Early adoption is permitted. The adoption of ASU No. 2013-02 is not expected to have a material impact on our financial position or results of operations.
In January 2013, the FASB issued ASU No. 2013-01, Balance Sheet (Topic 210): Clarifying the Scope of Disclosures about Offsetting Assets and Liabilities, which clarifies which instruments and transactions are subject to the offsetting disclosure requirements originally established by ASU 2011-11. The new ASU addresses preparer concerns that the scope of the disclosure requirements under ASU 2011-11 was overly broad and imposed unintended costs that were not commensurate with estimated benefits to financial statement users. In choosing to narrow the scope of the offsetting disclosures, the Board determined that it could make them more operable and cost effective for preparers while still giving financial statement users sufficient information to analyze the most significant presentation differences between financial statements prepared in accordance with U.S. GAAP and those prepared under IFRSs. Like ASU 2011-11, the amendments in this update will be effective for fiscal periods beginning on, or after January 1, 2013. The adoption of ASU 2013-01 is not expected to have a material impact on our financial position or results of operations.
In October 2012, the FASB issued Accounting Standards Update ASU 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 has not had a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU 2011-12, “Deferral of the Effective Date for Amendments to the Presentation of Reclassifications of Items out of Accumulated Other Comprehensive Income in Accounting Standards Update No. 2011-05. This update defers the requirement to present items that are reclassified from accumulated other comprehensive income to net income in both the statement of income where net income is presented and the statement where other comprehensive income is presented. The adoption of ASU 2011-12 has not had a material impact on our financial position or results of operations.
In December 2011, the FASB issued ASU No. 2011-11 “Balance Sheet: Disclosures about Offsetting Assets and Liabilities” (“ASU 2011-11”). This Update requires an entity to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position. The objective of this disclosure is to facilitate comparison between those entities that prepare their financial statements on the basis of U.S. GAAP and those entities that prepare their financial statements on the basis of IFRS. The amended guidance is effective for annual reporting periods beginning on or after January 1, 2013, and interim periods within those annual periods. The Company is currently evaluating the impact, if any, that the adoption of this pronouncement may have on its results of operations or financial position.
NOTE 2. GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As shown in the accompanying financial statements, we had losses of $1,379,517 and $1,260,614, respectively, in 2013 and 2012 and had accumulated deficits of $5,536,705 as of June 30, 2013.
These conditions raise substantial doubt as to our ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.
Management plans to finance our continuing operations by selling common stock or issuance of debt.
NOTE 3. RELATED PARTY TRANSACTIONS
During the years ended June 30, 2013 and 2012, we accrued and paid the following to our officers:
During the year ended June 30, 2012, our Chief Executive Officer, John Adair made advances to the Company $1,630, paid company expenses totaling $1,995 and was reimbursed $12,253. During the year ended June 30, 2013, Mr. Adair made advances to the Company of $3,945, paid expenses on behalf of the Company of $2,874 and was reimbursed $6,819.
During the year ended June 30, 2013, our Chief Financial Officer, Jalal Alghani paid expenses on behalf of the Company of $102,707 and was repaid $141,676.
Our Chief Executive Officer, John Adair and our Chief Financial Officer, Jalal Alghani are collectively owed $756,794 in salaries, cash contributions made into the Company and expenses paid on behalf of the company as of June 30, 2013.
Other related parties are collectively owed $267,500 in salaries, cash contributions made into the Company and expenses paid on behalf of the company as of June 30, 2013.
On October 17, 2011, we issued 100,000 shares to a board member for services rendered. We valued the shares at the grant date fair value, charging general and administrative expenses with $40,000.
On March 15, 2011, we issued 200,000 common shares to John Adair, our Chief Executive Officer, and 100,000 shares to Jalal Alghani, Our Chief Financial Officer. We valued the shares at the closing price on the grant date ($0.04) and charged general and administrative expenses with $12,000.
On May 22, 2011, we entered into a stock subscription agreement with a member of our board of directors to sell 1 million shares for $140,000.
On February 6, 2012, we issued 150,000 shares to Alex Adair, the son of our Chief Executive Officer and a senior geologist, in exchange for engineering consulting. We valued the shares at the grant date and charged general and administrative expenses with $15,000.
Also on February 6, 2012, we issued 100,000 shares to the daughter of our Chief Financial Officer for services. We valued the shares at the grant date and charged general and administrative expenses with $10,000.
On April 25, 2012, we again issued 50,000 shares to the daughter of our Chief Financial Officer for services. We valued the shares at the grant date and charged general and administrative expenses with $5,000.
On January 1, 2013, we entered into an agreement with a former Director to reacquire him as a Director. Under this agreement, the Director was granted 100,000 shares for rejoining, and 25,000 per quarter from April 1, 2013 to March 31, 2014. We valued the shares at the closing price on the grant date, increasing Additional Paid in Capital with the value of 125,000 of these shares (the initial 100,000 and the 25,000 shares that had been issued as of June 30, 2013), or $7,500, increased Common Stock Committed with the value of 75,000 shares which had not been issued (or $4,500), and recorded an expense for the entire 200,000 shares ($12,000).
NOTE 4. PROPERTY, PLANT AND EQUIPMENT
At June 30, 2013 and 2012, our property, plant and equipment consisted of the following:
NOTE 5. INCOME TAXES
Deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. Deferred tax assets and valuation allowances for the years ended June 30, 2013 and 2012 are summarized in the following table:
We adopted ASC 740 - Income Taxes for accounting for uncertainty in income taxes, including unrecognized tax benefits as of June 30, 2013. The adoption had no effect on our financial position or results of operations. We did not have significant unrecognized tax benefits resulting from differences between positions taken in tax returns and amounts recognized in the financial statements as of June 30, 2013 or 2012. The net operating losses begin to expire in 2024.
NOTE 6. NOTES PAYABLE
On April 7, 2011, we issued a convertible promissory note in the amount of $42,500 in exchange for cash. The note bears interest at 8% and matures January 11, 2012, with interest due on any defaulted balances after the maturity date at 22%.
The promissory note can be converted into common stock according to the following terms:
·Period of conversion eligibility: October 4, 2011 until fully paid.
·Conversion price: 58% of the average of the lowest three days’ closing price during the previous 10 trading days leading up to the date of conversion.
On October 26, 2011, the creditor converted $6,000 of the unpaid principal into 206,897 shares. As of June 30, 2012, we had $36,500 of unpaid principal and $6,139 of unpaid interest due on the note. In addition to the nominal interest accrued on the note, we amortized $15,620 of the note’s discount to interest expense.
On September 25, 2012, we paid this note in its entirety, extinguishing all principal, interest and derivative liabilities associated with this instrument. The derivative liability in the amount of $23,847 was recorded as additional paid in capital (see Note 8 for a discussion of the derivative liability).
On June 4, 2013, we entered into a promissory note with an investor in the Middle East to provide us $100,000 of working capital. As is required by Sharia law, the promissory note bears no interest and has the following repayments terms: $25,000 due on September 1, 2013; $25,000 due on December 1, 2013; $25,000 due on April 1, 2014 and $25,000 on July 1, 2014. As of the filing of this report, the September 1, 2013 payment has not yet been made. We calculated an imputed amount of interest due on this note and deemed it to be immaterial.
NOTE 7. STOCKHOLDERS' EQUITY
Common stock
Stock transactions during the year ended June 30, 2012
During the year ended June 30, 2012, we issued 3,541,897 shares as follows:
We issued the second tranche of stock (250,000 shares) to a consulting group pursuant to our contract which we signed on March 1, 2011. We valued the shares at the closing price on the grant date (March 1, 2011) and charged general and administrative expenses with $12,500.
We issued 15,000 shares of common stock to a consultant for services, extinguishing $15,000 of debt for previous services rendered. We valued the shares at the closing price on the grant date, recorded an increase in Additional Paid in Capital of $975, and a gain on extinguishment of debt of $14,025.
We issued 100,000 shares to a director for services. We valued the shares at the closing price on the grant date and charged general and administrative expense with $40,000.
We issued 500,000 shares to a consultant in Saudi Arabia. 300,000 of these shares were to extinguish advances to the Company occurring during 2010 and 2011 totaling $299,975. These 300,000 shares were in exchange for the extinguishment of that obligation. 200,000 shares were in exchange for services related to our Bangladesh project. We valued the 500,000 shares at the closing price on the grant date which resulted in an increase in Additional Paid in Capital of $200,000. We charged General and Administrative Expenses with $80,000 of consulting costs, reduced the $299,975 debt to zero, and recognized a gain on extinguishment of debt of $179,975.
We received $140,000 in cash for 1 million shares. At our previous fiscal year end of June 30, 2011, these shares had not yet been issued and were included in Common Stock Committed. On October 17, 2011, we issued these 1 million shares and reduced our obligation in Common Stock Committed by $140,000.
On October 26, we issued 206,897 shares to convert $6,000 of a $42,500 convertible promissory note. See Note 7 and the explanation below under “Convertible Securities Outstanding”.
On January 18, 2012, we entered into an agreement with an accredited investor in Saudi Arabia to provide $1 million in cash for operating capital. As part of that agreement, we agreed to issue the investor 1 million common shares. In addition to these shares, we agreed to provide an option to acquire 10% of the equity of our subsidiary that will be formed to own and operate the two 225 megawatt power plants in Bangladesh. The option is exercisable only upon financial close of the Bangladesh project (defined as the point in time when the financial commitments needed to fund the project are placed into escrow and the project is considered fully funded). Once the option becomes exercisable, the option holder has 60 days to exercise the option by rendering 10% of the cash equity requirements. For example, if the project requires a total of $40 million to fund the power plants, and we are successful at raising 75% (or $30 million) through debt offerings, then this option holder may acquire a 10% interest in the subsidiary by rendering $1 million ($40 million times (100% minus 75%, or 25%) times 10% equity requirement. Since this option is not exercisable until financial close, we deemed it to have no value as the contingency has not been resolved.
On February 6, 2012, we issued a total of 370,000 shares to three consultants. We valued the shares at the closing price on the grant date and charged general and administrative expenses with $37,000.
During the three months ended June 30, 2012, we issued 100,000 shares to two consultants. We valued the shares at the grant date closing price and charged general and administrative costs with $7,500.
Stock transactions during the year ended June 30, 2013
At the beginning of the fiscal year, July 1, 2012, we had 35,154,006 shares issued and outstanding. During the fiscal year ended June 30, 2013, we had the following stock transactions:
·We issued 677,000 shares for cash, raising $427,000 in operating capital
·We issued 825,000 shares to consultant and directors for services. We valued the shares at their grant date fair values and charged general and administrative expense collectively with $48,160.
·We entered into a subscription agreement with an accredited investor in Saudi Arabia to sell 500,000 shares for $1 per share. We received 948,936 UAE Dirhams (US $258,311) as an advance against this subscription. Since we will issue the shares only when all of the subscription is paid in full, we recorded the cash receipt as a stock payable.
Preferred stock
At June 30, 2013 and 2012, the Company had 25 million shares of authorized preferred stock, to have such preferences as the Board of Directors may set from time to time, $.001 par value, with no shares issued and outstanding.
Stock options and other dilutive securities
Non-employee stock options
The Company accounts for non-employee stock options under ASC 718 - Compensation - Stock Compensation and ASC 505-50 - Equity-Based Payments to Non-Employees , whereby option costs are recorded based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
Common Stock Payable
On November 22, 2012 we received a payment in the amount of $258,311 from an investor in Saudi Arabia pursuant to a subscription agreement for the sale of 500,000 shares at $1. As of June 30, 2013, we had not yet issued any shares to this investor. The entire amount of $258,311 is included in Common Stock Committed.
On January 1, 2013, we granted 100,000 shares to a Director for serving on the Board of Directors from April 1, 2013 to March 31, 2014. In addition, we granted this Director an additional 25,000 shares per quarter. We valued all 200,000 shares at the fair value on the grant date (January 1, 2013) and charged General and Administrative Expense $12,000, increased Additional Paid in Capital for those shares issued during the fiscal year (100,000 plus the first 25,000 stock payment, or $7,500), and increasing Common Stock Committed for those shares that had not (75,000 shares, or $4,500).
On May 1, 2013, we granted 1 million shares to a consultant in the Middle East to serve on our Advisory Board. We valued the shares at the fair value on the grant date, charging General and Administrative Expense with $100,000 and increasing Additional Paid in Capital with the same amount.
Sale of shares of stock and 10% option to purchase equity of subsidiary
On July 21, 2011, we signed an agreement with PriSe Power and Energy Limited (“PriSe”), a local Bangladesh company, to sell 25% of our yet-to-be-formed subsidiary which will own the rights to the two 225 MW combined-cycle power plants in Bangladesh (the “Bangladesh subsidiary”) in exchange for $4 million upon obtaining the Power Purchase Agreement (“PPA”) . ”). The PPA has not been obtained as of the date of this filing and no cash has been funded to the company out of the total $4 million that is promised. In addition, PriSe has agreed to complete the PPA and Implementation Agreement for the project and obtain all necessary approvals with the controlling authorities within the government of Bangladesh as partial EHII compensation for the 25% interest in the project.
In addition, we conveyed an option to purchase 10% of the operating subsidiary to an investor as part of our agreement to raise $1 million in operating capital (see above in this explanatory note and Note 8 ). The 10% equity is contingent upon financial close of the project.
As of the date of this report, we have not yet closed the project on the Bangladesh power plant.
NOTE 8. DERIVATIVE LIABILITY
The following assumptions were used in valuing the derivative liability using the Monte Carlo Simulation model associated with the Convertible Promissory Note of April 7, 2011 and June 30, 2011:
·Volatility ranged from 151% to 161%;
·The risk free rate ranged from 0.12% to 0.10%; and
·The conversion date is estimated as the maturity date.
The following assumptions were used in valuing the derivative liability using the Lattice model associated with the Convertible Promissory Note at June 30, 2012:
·The stock price would fluctuate with the Company projected volatility;
·The projected volatility curve for each valuation period was based on the average of 16 comparable Oil/Gas/Energy companies for historical volatility. Volatilities used in the 2012 valuations ranged from 194% to 454%. An event of default for the Convertible Note would occur 0% of the time, increasing 1.00% per month to a maximum of 5% prior to maturity and following maturity increased to 50% growing by 5% per month to 75% with a 6 month extension.
·Alternative financing for the Convertible Note would be initially available to redeem the note 0% of the time and increase monthly by 1% to a maximum of 10%;
·The trading volume limits would be based on the greater of the monthly averages for the last 6 months or $50,000 per month and would increase at 1% per month; and
·The Holders would automatically convert the notes at the greater of 2 times the conversion price or stock price if the registration was effective and the company was not in default.
The following assumptions were used in valuing the derivative liability using the Black Scholes model associated with the Tainted Warrants of April 7, 2011, June 30, 2011and 2012:
·Volatility ranged from 464% to 565%;
·Exercise price was $0.50;
·Initial term of the warrants was 1 year; and
·Discount rate ranged from 0.02% to 0.27%.
Based on the above assumptions, the derivative liability at June 30, 2012 is $22,371. The warrants expired during the period and have a value of $0 at June 30, 2012. On September 25, 2012, the underlying convertible note was paid in full, extinguishing both the note balance and all derivative liabilities.
At September 25, 2012 (the date the convertible promissory note was paid, extinguishing the liabilities), the fair value of the derivative was $23,847 using the following assumptions:
The following assumptions were used in valuing the derivative liability at September 25, 2012 (the date the convertible note was extinguished), using the Lattice model:
·Volatility ranged from 217% to 465%;
·The risk free rate ranged from 0.12% to 0.10%; and
·The conversion date is estimated as the maturity date.
The following shows the changes in the level three derivative liability measured on a recurring basis for the years ended June 30, 2013, 2012 and 2011:
NOTE 9. COMMITMENTS AND CONTINGENCIES
Payouts on our existing office and apartment leases in Dubai and Houston over the next four years are as follows:
NOTE 10. SUBSEQUENT EVENTS
Subsequent to June 30, 2013, we issued 2,300,000 common shares. 300,000 of these shares were for cash, and 2,000,000 shares were for services. Of the 2,000,000 shares issued for services, 1,250,000 shares were recorded in periods prior to June 30, 2013 and were included in “Common Stock Committed”.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None
Item 9A.
Item 9A. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
We have adopted and maintain disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act, is recorded, processed, summarized and reported within the time periods required under the SEC’s rules and forms and that the information is gathered and communicated to our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), as appropriate, to allow for timely decisions regarding required disclosure.
As required by SEC Rule 15d-15(b), our Chief Executive Officer and Chief Financial Officer carried out an evaluation under the supervision and with the participation of our management, of the effectiveness of the design and operation of our disclosure controls and procedures pursuant to Exchange Act Rule 15d-14 as of the end of the period covered by this report.
Our management has evaluated the effectiveness of our disclosure controls and procedures as of June 30, 2013 (under the supervision and with the participation of the Chief Executive Officer and the Principal Accounting Officer), pursuant to Rule13a-15(b) promulgated under the Exchange Act. As part of such evaluation, management considered the matters discussed below relating to internal control over financial reporting. Based on this evaluation, our Company's Chief Executive Officer and Principal Accounting Officer have concluded that our Company's disclosure controls and procedures were not effective as of June 30, 2013 due to lack of employees to segregate duties related to preparing the financial reports. Management is attempting to correct this weakness by raising additional funds to hire additional employees. Management with the assistance of its Securities Counsel will closely monitor all future filings to ensure that the company filings are made on a timely manner.
(b) Management’s Annual Report on Internal Control over Financial Reporting.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act. Our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes, in accordance with generally accepted accounting principles. Because of inherent limitations, a system of internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate due to change in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management conducted an evaluation of the effectiveness of our internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on its evaluation, our management concluded that there is a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The material weakness relates to the lack of segregation of duties in financial reporting, as accounting functions in Dubai are performed by individuals lacking appropriate oversight by those with accounting and financial reporting expertise. The officers of the Company do not possess accounting expertise and our company does not have an audit committee. This weakness is due to the company’s lack of working capital to hire additional staff. To remedy this material weakness, management is considering hiring additional staff or outsourcing some or all of the Company’s accounting functions to those with the appropriate level of accounting expertise.
This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to the attestation by the Company’s registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.
The Company’s management carried out an assessment of the effectiveness of the Company’s internal control over financial reporting as of June 30, 2013. The Company’s management based its evaluation on criteria set forth in the framework in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that assessment, management has concluded that the Company’s internal control over financial reporting was not effective as of June 30, 2012.
Item 9B.
Item 9B. Other Information
None
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Directors and Executive Officers
The following tables set forth information regarding the Company’s current executive officers and directors and the proposed executive officers and directors of the Company:
Term of Office	
Our Company’s directors are appointed for one-year term to hold office until the next annual general meeting of the Company’s stockholders or until removed from office according to our bylaws and the provisions of the Nevada Revised Statutes.
The Company’s officers are appointed by the Company’s Board of Directors and hold office until they resign or are removed.
Legal Proceedings Involving Directors, Executive Officers and Certain Beneficial Owners.
The Company is not aware of any executive officer or director having been convicted in any criminal proceeding (excluding traffic violations) or is the subject of a criminal proceeding which is currently pending. Additionally, the Company is not aware of any pending legal proceedings in which any of its executive officers or directors is a party
Family Relationships
There are no family relationships between our officers and directors. Each director is elected at our annual meeting of stockholders and holds office until the next annual meeting of stockholders, or until his successor is elected and qualified.
Compliance with Section 16(a) of the Exchange Act
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, and to the best of our knowledge, all executive officers, directors and persons holding greater than 10% of our issued and outstanding stock have filed the required reports in a timely manner during fiscal year ended June 30, 2013.
Code of Ethics and Business Conduct
EHII has not yet adopted a code of ethics applicable to our chief executive officer, who is our principal executive officer, our chief financial officer, principal accounting officer or controller or persons performing similar functions. The Board of Directors intends to adopt a Code of Ethics in the near future, which will be filed with the Securities and Exchange Commission.
Directors Independence
The Company’s common stock is quoted on the OTC Bulletin Board inter-dealer quotation system, which does not have director independence requirements. Under NASDAQ Rule 4200(a)(15), a director is not considered to be independent if he or she is also or has been an executive officer or employee of the corporation. As such, currently none of the Company’s directors are classified as independent directors under this definition.
Committees of the Company’s Board of Directors.
We currently do not have standing audit, nominating or compensation committees of its Board of Directors. Currently our entire Board performs these functions. The Company does not have charters for any of the above committees.
Meetings of Directors
There were no meetings of the Board of Directors during the last full fiscal year and all actions taken by the Board of Directors were taken by consent resolution. The Company did not hold an annual meeting of the Company’s security holders during the prior fiscal year and does not have a policy requiring attendance by members of the Board of Directors.
Item 11.
Item 11. Executive Compensation
Summary Compensation
The following table shows the compensation paid or accrued during the fiscal years ended June 30, 2012 and 2011, to our corporate officers.
The above compensation amounts include amounts paid and accrued. However, not all compensation amounts have been paid at June 30, 2013 or 2012. On those dates, Messrs. Adair and Alghani are collectively owed $740,000 and $393,000 in unpaid salaries, respectively.
Outstanding Equity Awards at Fiscal Year-End
There were no outstanding equity awards at June 30, 2013.
Employment Contracts
On January 1, 2011, the Company entered into consulting agreements with our Chief Executive Officer, and with Jalal Alghani, Our Chief Financial Officer, to formalize the Company’s arrangement. The term of the contract is four years unless terminated by either party. Compensation for both Messrs. Adair and Alghani are set at $20,000 per month and can be paid either in cash or restricted stock at the option of Messrs. Adair and Alghani.
Director Compensation
We currently have no formal plan for compensating our directors for their services in their capacity as directors. However, we compensated a director for services for the year ended June 30, 2012 by issuing 100,000 shares. We valued the shares at the grant date fair value and recorded $40,000 of administrative costs.
For the year ended June 30, 2013, we compensated the same director by granting 200,000 shares. We valued the shares at the grant date fair value and recorded $12,000 of administrative costs.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
At October 15, 2013 we had 38,956,006 shares of our common stock issued and outstanding, of which 20,077,000 we owned by beneficial owners. The following table sets forth information regarding the beneficial ownership of our common stock as of October 15, 2013, by:
·	 each person known by us to be the beneficial owner of more than 5% of our common stock;
·	 each of our directors;
·	 each of our named executive officers; and
·	 our named executive officers, directors and director nominees as a group.
Unless otherwise indicated, the business address of each person listed is 12012 Wickchester Lane, Suite 130, Houston, Texas 77079. The percentages in the table have been calculated on the basis of treating as outstanding for a particular person, all shares of our common stock outstanding on that date and all shares of our common stock issuable to that holder in the event of exercise of outstanding options, warrants, rights or conversion privileges owned by that person at that date which are exercisable within 60 days of that date. Except as otherwise indicated, the persons listed below have sole voting and investment power with respect to all shares of our common stock owned by them, except to the extent that power may be shared with a spouse.
(1) Mr. Alghani’s shareholdings include (a) 3.2 million shares held individually; and (b) 1.0 million shares held each by (A) MENA Investment Trust and (B) GCC Trust. Mr. Alghani is the principal of these two trusts. It also includes 300,000 shares held by his wife.
(2) Mr. Sunaid’s address is P.O. Box 17605, Riyadh, Kingdom of Saudi Arabia 114934.
(3) Mr. Bu-Nuhayah’s address is P.O. Box 86602, Riyadh, Kingdom of Saudi Arabia 11632
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
None.
Item 14.
Item 14. Principal Accounting Fees and Services
Audit Fees
The aggregate fees billed by our principal accountant for the audit of our annual financial statements, review of financial statements included in the quarterly reports and other fees that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for the fiscal years ended June 30, 2013 and 2012 were $24,650 and $19,000, respectively.
Policy on Audit Committee Pre-Approval of Audit and Permissible Non-Audit Services of Independent Auditors
The Company currently does not have a designated Audit Committee, and accordingly, the Company’s Board of Directors’ policy is to pre-approve all audit and permissible non-audit services provided by the independent auditors. These services may include audit services, audit-related services, tax services and other services. Pre-approval is generally provided for up to one year and any pre-approval is detailed as to the particular service or category of services and is generally subject to a specific budget. The independent auditors and management are required to periodically report to the Company’s Board of Directors regarding the extent of services provided by the independent auditors in accordance with this pre-approval, and the fees for the services performed to date. The Board of Directors may also pre-approve particular services on a case-by-case basis.
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a) Documents filed as part of this report:
(1) Financial Statements
Reference is made to the Index to Consolidated Financial Statements of Energy Holdings International, Inc. under Item 8 of Part II hereof.
(2) Consolidated Financial Statement Schedules
(i) Report Of Independent Registered Public Accounting Firm on Financial Statement Schedule:
M&K CPAS, PLLC, as of June 30, 2013 and the year then ended.
(3) Exhibits
Signatures
In accordance with Section 13 or 15(d) of the Exchange Act of 1934, the Company caused this Registration Statement to be signed on its behalf by the undersigned thereunto duly authorized.