Commission File No. 000-27419
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
As of September 30, 2009, there were 4,334,844,295 shares outstanding of the registrant’s common stock.
PART I. FINANCIAL INFORMATION
FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM OCTOBER 1, 2005
The accompanying notes are an integral part of these financial statements.
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD FROM OCTOBER 1, 2005
The accompanying notes are an integral part of these financial statements.
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD FROM OCTOBER 1, 2005
For The Nine Months Ended September 30, 2009 And 2008 And The Period From October 1, 2005 (Re-Entering Of Development Stage) Through September 30, 2009 (unaudited)
NOTE 1 - BASIS OF PRESENTATION & CHANGES IN OR ADDITIONAL ACCOUNTING POLICIES
The accompanying consolidated financial statements of American Security Resources Corporation (“ASRC”, “the Company”, “we” or “us”) have been prepared by ASRC without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in conformity with generally accepted accounting principles have been omitted or condensed pursuant to such r ules and regulations. These statements should be read in conjunction with ASRC’s audited consolidated financial statements and notes thereto included in ASRC’s Form 10-K for the year ended December 31, 2008. In management’s opinion, these interim consolidated financial statements reflect all adjustments (consisting of normal and recurring adjustments) necessary for a fair presentation of the consolidated financial position and results of operations for each of the periods presented. The accompanying unaudited interim financial statements as of and for the nine months ended September 30, 2009 are not necessarily indicative of the results which can be expected for the entire year.
The consolidated financial statements of ASRC include the accounts of ASRC and its wholly-owned subsidiaries, Hydra Fuel Cell, Inc., American Hydrogen Corporation and American Wind Power Corporation. All significant inter-company transactions have been eliminated.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. Derivative financial instruments are initially measured at their fair value. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, the Company uses the Black-Scholes model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-cur rent based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
NOTE 2 - GOING CONCERN
As shown in the accompanying consolidated financial statements, ASRC incurred recurring losses from continuing operations of $22,679,528 since re-entering the development stage through September 30, 2009. This condition creates an uncertainty as to ASRC’s ability to continue as a going concern. Management is trying to raise additional capital through sales of common stock either through private placements or public offerings, as well as seeking other sources of funding. There are no assurances that ASRC will be able to achieve a level of revenues adequate to generate sufficient cash flow from operations or obtain the additional financing through private placements or public offerings to support the investment in Hydra’s fuel cell technology. If these funds are not available ASRC may not continue its operations or execute its b usiness plan. The conditions raise substantial doubt about ASRC’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of asset carrying amounts or the amount and classification of liabilities that might be necessary should ASRC be unable to continue as a going concern.
NOTE 3 – CONVERTIBLE DEBENTURE
At September 30, 2009, the Company had convertible debentures outstanding as follows;
| | Outstanding Balance of Convertible Debenture | | Unamortized Discount |
| | | | |
December 13, 2007 Debenture | $307,535 | | $103,738 |
February 28, 2008 Debenture | 83,980 | | |
Total Convertible Debentures at September 30, 2009 | $391,515 | | $103,738 |
Following is a description of each of the convertible debentures listed above:
December 13, 2007 Debenture
The Company entered into a Securities Purchase Agreement with an accredited investor on December 13, 2007for the sale of $1,500,000 in a convertible debenture bearing interest at 7.25% per annum, payable on or before December 12, 2010.
A prospectus relates to the resale of the common stock underlying the convertible debenture. The terms of the convertible debenture calls for the investor to provide the Company with an aggregate of $1,500,000 as follows;
| w | $200,000 was disbursed on December 13, 2007, with aggregate additional funding of $575,000 during the year ended December 31, 2008. |
| $1,300,000 secured promissory note bearing interest at 7.75% per annum, due on demand at any time after February 1, 2011. The investor is obligated to make monthly periodic prepayments of $250,000 during each month that the promissory in outstanding. Interest is payable on a monthly basis, commencing January 15, 2008. The interest rate shall be increased by 0.25 percentage points per each Periodic Prepayment that is not paid by the investor, provided however that in no event shall the interest rate exceed an amount equal to 12.5%. During the year ended December 31, 2008, the Company received $575,000 under this promissory note. |
Accordingly, we have received a total of $794,000 pursuant to the Securities Purchase Agreement through September 30, 2009. Pursuant to the convertible debenture the investor may convert the amount paid towards the Securities Purchase Agreement into common stock of the Company at a conversion price equal to the lesser of (i) $0.25, or (ii) 80% of the average of the 5 lowest volume weighted average prices during the 20 trading days prior to investor’s election to convert (the percentage being a “Discount Multiplier”). If any portion of the principal or accrued interest on this convertible debenture is not pai d within ten (10) days of when it is due, the Discount Multiplier shall decrease by one percentage point (1%) for all conversions of the convertible debenture. If the investor elects to convert a portion of the convertible debenture and, on the day that the election is made, the volume weighted average price is below $0.01, we shall have the right to prepay that portion of the convertible debenture that investor elected to convert, plus any accrued and unpaid interest, at 150% of such amount. In the event that we elect to prepay that portion of the convertible debenture, investor shall have the right to withdraw its conversion notice.
We evaluated this agreement pursuant to FASB Statement No. 133 and due to the Company’s option to settle in cash if the weighted average price drops below a certain point and sufficient shares appear available, we determined no embedded derivatives existed and FASB No. 133 did not apply.
As required by Emerging Issues Task Force Issue 98-05 “Accounting for Convertible Securities with Beneficial Conversion Features”, we valued the beneficial conversion feature related to the outstanding debt which was treated as a loan discount and amortized to interest expense using the effective interest rate method over the life of the note.
During the three months ended September 30, 2009, the investor converted $7,100 of the outstanding principal into 22,673,870 shares of common stock of the Company. During the nine months ended September 30, 2009, the investor converted $148,665 of the outstanding principal into 185,000,792 shares of common stock of the Company. During the nine months ended September 30, 2009, $58,635 of discount was amortized and is reflected in interest expense.
In accordance with the option allowed in SFAS 155, the Company has elected to value the derivative separately at the fair value on the issuance date using the Black-Scholes valuation model and bifurcate the instrument. The result of the valuation is a discount on debt of $123,283 as of September 30, 2009. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 4 years; (2) a computed volatility rate from 132% to 197%(3) a discount rate of 2.10% and (4) zero dividends. The discount is equal to the value of the note issued, as it can only be discounted up to the value of the note and is being amortized over the life of the note using the effective interest method. For the nine months ended September 30, 2009 $58,635 was amortized and is included in interest expense.
In the event that we default on the payment of the convertible debenture, the investor shall have the right to declare the outstanding principal and accrued interest immediately due and payable in cash at a price of 150% of the outstanding principal and accrued interest. The company became in default on this debenture when we were unable to timely file required periodic and annual reports required to be filed pursuant to Section 12 or 15(d) of the 1934 Securities and Exchange Act. One of the requirements in our convertible debenture agreement was that the Company timely file all reports required As a result, the convertible debenture was callable by the holder at 150% of the unpaid principal balance. The Company also asserts that the investor breached its agreement resulting in the acceleration of the remaining balance plus a p enalty.
The Company has accrued an estimated penalty of $218,600 at September 30, 2009. The default also caused this convertible debenture to be treated as a current liability as it became payable on demand. The Company determined that the penalty should not be given derivative treatment, because in the event the penalty is called by the holder, it is to be paid in cash.
February 28, 2008 Debenture
On February 28, 2008, the Company entered into a Securities Purchase Agreement with an accredited investor for the sale of an aggregate of $515,000 in a convertible debenture bearing interest at 7.25% per annum, payable on or before February 28, 2012. There were $35,000 in financing costs for this debt issuance. The financing costs were deferred and amortized using the effective interest method. This expense was $2,376 for the three months ended September 30, 2009.
Pursuant to the convertible debenture the investor may convert the debenture into common stock of the Company at a conversion price equal to 80% of the volume weighted average price for three regular trading days selected by the debenture holder from twenty trading days ending on the trading day immediately before the conversion date.
We evaluated this agreement pursuant to FASB Statement No. 133 and due to there being no minimum or fixed conversion price resulting in an indeterminate number of shares to be issued in the future, the Company determined an embedded derivative existed and FASB No. 133 applied.
In accordance with the option allowed in SFAS 155, the Company has elected to value the derivative separately at the fair value on the issuance date using the Black-Scholes valuation model and bifurcate the instrument. The result of the valuation is a derivative liability in the amount of $479,422 and an offsetting loss on derivative of $260,790 and discount on debt of $91,169 as of September 30, 2009. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 4 years; (2) a computed volatility rate from 132% to 197%(3) a discount rate of 2.10% and (4) zero dividends. The discount is equal to the value of the note issued, as it can only be discounted up to the value of the note and is being amortized over the life of the note u sing the effective interest method. For the six months ended September 30, 2009 $54,828 was amortized and is included in interest expense. The loss on derivative is equal to the difference between the discount on debt and the derivative liability. The instrument was re-valued at period end, and the resulting change for the year of $ was included in the statement of operations as a net loss on the derivative liability.
During the three months ended September 30, 2009, the investor converted $155,200 of the outstanding principal into 440,000,000 shares of common stock of the Company.
During the nine months ended September 30, 2009, the investor converted $411,020of the outstanding principal into 977,510,035 shares of common stock of the Company.
The company became in default on this debenture when we were unable to timely file required periodic and annual reports required to be filed pursuant to Section 12 or 15(d) of the 1934 Securities and Exchange Act. One of the requirements in our convertible debenture agreement was that the Company timely file all reports required As a result, the convertible debenture could be called by the holder for the unpaid principal balance at December 31, 2008. The default caused this convertible debenture to be treated as a current liability as it became payable on demand.
The Company evaluated all convertible debt and outstanding warrants to determine whether these instruments may be tainted from the aforementioned derivative. All warrants outstanding were considered tainted as a result of the derivative treatment. The Company valued these warrants using the Black-Scholes valuation model. The result of the valuation is a derivative liability in the amount of $27,781. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term ranging from 1.71 to 2.75 years; (2) a computed volatility rate ranging from 129% to 190% (3) a discount rate ranging from 0.37% to 1.79% and (4) zero dividends. The valuation of these warrants was treated the same way as the liability associated with the debt. There were no other instruments found to be tainte d by the derivative treatment.
| | Derivative Liability 9/30/09 | | Gain (Loss) on Derivative six months ended 9/30/09 |
| February 28, 2008 Debenture | $143,503 | | $(130,312) |
| May 16, 2008 Debenture | - | | 5,476 |
| Warrants Outstanding | 23,058 | | 49,488 |
| Derivative Liability | $166,561 | | $(75,348) |
NOTE 4 - COMMON STOCK
During the nine months ended September 30, 2009 ASRC issued 1,241,569,835 common shares to external parties in exchange for consulting and legal services recorded a total expense of $1,095,845. The expense is equal to the fair value of the shares based upon the closing price at the date that either a definitive agreement to issue the shares was reached with external parties or the date the Board authorized their issuance.
During the nine months ended September 30, 2009, ASRC issued 98,673,470 common shares in lieu of compensation to its Officers and Directors. The expense is equal to the fair value for services rendered. These shares were valued at $53,950 based on their market value at the time of issuance, as reflected in these financial statements.
During the nine months ended September 30, 2009, ASRC issued 485,488,636 of common shares pursuant to a wrap around agreement with an accredited investment firm. This agreement is a wrap-around agreement issued in exchange for accrued compensation due to the officers of ASRC
During the nine months ended September 30, 2009, ASRC issued 265,112,495 common shares for cash totaling $100,820.
NOTE 5 – PREFERRED STOCK
On March 12, 2009, the Company issued 25,000 shares of its Series B Preferred Stock for a total of $25,000. Subsequently, during the fourth quarter of fiscal 2009, the shareholder converted the Series B preferred stock into 75,000,000 shares of common stock of the Company.
NOTE 6 - LEASES
ASRC leases office space and the terms provide for monthly rent of $2,365 to be paid through September 30, 2009. Additionally, ASRC’s subsidiary, Hydra Fuel Cell Corporation leases approximately 2,625 square feet in Portland, Oregon for monthly rent of $4,930.
NOTE 7 – COMMITMENTS AND CONTINGENCIES
In July 2006, ASRC issued warrants to purchase 50,000,000 shares to an investor for cash proceeds of $150,000 in contemplation of negotiating a further financing arrangement that ultimately did not occur. The warrants have a 3-year term and an exercise price of $0.01. ASRC estimated the fair market value of these warrants to be $4,113,000 using a Black-Scholes with key assumptions of (1) expected term of 3 years, (2) calculated volatility of 284.93%, (3) discount rate of 4.3% and (4) zero dividends. Included in the damages, was a potential to refund the $150,000 proceeds received. At the same time, a shareholder pledged 4,000,000 shares of his own stock in ASRC to the investor for collateral. ASRC evaluated these warrants for liability treatment under SFAS 133 and EITF 00-19 taking into consideration View A of EITF 05-04 and determined th at it was more economical to settle in “unregistered shares”, thus these instruments were not considered to be liabilities under the authoritative literature. As of September 30, 2009, we are considered to be in default under this warrant agreement because no registration statement was filed. As a result, we have accrued a contingent liability of $218,600.
The company will continue to evaluate further liquidated damages if necessary. The Company evaluated the liquidated damages to determine whether it qualified for derivative treatment. Based on FASB Staff Position No. EITF 00-19-2, it was determined that since the transfer of consideration under a registration payment arrangement becomes probable and can be reasonably estimated subsequent to the inception of the arrangement or if the measurement of a previously recognized contingent liability increases or decreases in a subsequent period, the initial recognition of the contingent liability or the change in the measurement of the previously recognized contingent liability shall be recognized in earnings. The entity would be required to deliver shares under a registration payment arrangement, (b) the transfer of that consideration is probable, and (c) the number of shares to be delive red can be reasonably estimated, the issuer’s share price at the reporting date shall be used to measure the contingent liability under Statement 5.
NOTE 8 – SUBSEQUENT EVENT
During the fourth quarter of fiscal 2009, the shareholder of 25,000 shares of Series B preferred stock converted those shares into 75,000,000 shares of common stock of the Company.
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.
Our Business
AMERICAN SECURITY RESOURCES CORPORATION (the “Company” or ARSC) is a holding company with three wholly owned subsidiaries. Hydra Fuel Cell Corporation has completed several development stages of the HydraStax® unit and testing for certification is currently underway. We have two additional subsidiaries. We formed American Security Capital Corporation that is to provide financing options for the sales of products created by Hydra Fuel Cell and American Hydrogen. American Hydrogen Corporation is developing technologies to formulate hydrogen that we hope will change the economics of producing hydrogen sufficiently to enable the hydrogen economy.
Hydra Fuel Cell Corporation completed the initial development stage and several advanced stages of the HydraStax® unit and testing for certification is currently underway. We believe that the HydraStax® unit's cost per kWh will be significantly below that of its competitors, giving them a competitive edge as a replacement for residential grid power. Thus, upon certification Hydra intends to aggressively market these units and the Company is actively pursuing financing to begin manufacturing and distribution.
Hydra successfully defended itself from claims of patent infringement brought by a third party in 2006. Hydra’s fuel cell is original and Hydra categorically denied that it infringed on any patents. The Federal Court in Portland, Oregon dismissed the plaintiff’s suit against Hydra in 2008. We estimate that our Hydra Fuel Cell subsidiary will require approximately $1 million to produce and sell HydraStax® units to cash flow self-sufficiency. There is no guarantee that management will be successful in obtaining these funds.
American Hydrogen Corporation (AHC) was created to develop and commercialize technologies to formulate hydrogen that we believe will change the economics of producing hydrogen sufficiently to enable the hydrogen economy. The first hydrogen formulator that AHC will vend is expected to produce hydrogen from natural gas and propane and will be designed to provide hydrogen for Hydra’s fuel cells.
The Company continues to review acquisition opportunities that would enhance its fuel cell offerings and expand its offerings in alternative energy production.
The Company’s Internet address is http://www.americansecurityresources.com. Information contained on the Company’s web site is not a part of this report. The Company’s stock is traded on Pink Sheets under the symbol “ARSC.PK.”
Plan of Operations
Our Hydra Fuel Cell subsidiary completed several development stages of the HydraStax® unit and testing for certification is currently underway. We believe that the HydraStax® unit's cost per kWh will be significantly below that of its competitors, giving it a competitive edge as a replacement for residential grid power. Thus, upon certification, Hydra intends to aggressively market these units. The Company is actively pursuing financing to begin manufacturing and distribution. Hydra installed two of its HydraStax® fuel cells in residences, one in Texas in October 2007 and one in Florida in December 2007, as “Beta Test demonstration units”. These were milestones for Hydra and for the fuel cell industry.
American Hydrogen Corporation (AHC) was formed to develop and commercialize technologies to formulate hydrogen that we believe will change the economics of producing hydrogen sufficiently to enable the hydrogen economy.
The Company continues to review acquisition opportunities that would enhance its fuel cell offerings, expand its offerings in alternative energy production or represent opportunities in homeland security or national defense.
Results of Operation
Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008
The Company had $0 revenues for the nine months ended September 30, 2009. Expenses for the nine months totaled $1,117,032 resulting in an operating loss of $1,117,032. Expenses for the nine months consisted of legal and professional fees of $250,443; $649,842 consulting services; $286,399 research and development; and $482,130 of other general and administrative expenses.
The Company had $0 revenues for the nine months ended September 30, 2008. Expenses for the six months totaled $2,281,556 resulting in a operating loss of $2,281,556. Expenses for the ninee months consisted of $548,538 of contracted services; $295,119 legal expenses; $669,216 officers, directors and professional expense; and $147,976 for general and administrative expenses.
Capital Resources and Liquidity
As of September 30, 2009 we had $8,446 in cash.
We believe that we will need additional funding to satisfy our cash requirements for the next twelve months. Completion of our plan of operations is subject to attaining adequate revenue or financing. We cannot assure investors that we will generate the revenues needed or that additional financing will be available. In the absence of attaining adequate revenue or additional financing, we may be unable to proceed with our plan of operations.
We have had no revenue since beginning our Hydra subsidiary; although, we expect revenues from our HydraStax™ unit in the near future, we do expect cash flows from distribution of the unit to become self-funding sometime after we complete deliveries of our product. We estimate that our Hydra Fuel Cell subsidiary will require approximately $1 million to produce and sell HydraStax® units to cash flow self-sufficiency. There is no guarantee that management will be successful in obtaining these funds.
We anticipate that our operational, and general and administrative expenses for the next 12 months will be consistent with prior periods as we continue to develop, market, and deliver our products to our customers. We anticipate we will require to purchase and/or lease manufacturing facilities and equipment along with sufficient labor force for the completion and delivery of our products. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. The exact allocation, purposes and timing of any monies raised in subsequent private financings may vary significantly depending upon the exact amount of funds raised and our progress with the execution of our business plan. We anticipate that depending on market conditions and our plan of operations, we may incur op erating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern.
Critical Accounting Policies
The Company’s financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“GAAP”). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including
information regarding contingencies, risk and financial condition. We believe our use if estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statement.
Our significant accounting policies are summarized in Note 1 of our financial statements. While all of these significant accounting policies impact the Company’s financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on the Company and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause effect on our financial position or liquidity, results of operations or cash flows for the periods presented.
Off Balance Sheet Transactions
We have no off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been significant fluctuations in the market price for the Company's common stock. Factors such as variations in the Company's revenues, earnings, if any, and cash flow and announcements of innovations or acquisitions by the Company or its competitors could cause the market price of the common stock to fluctuate substantially. In addition, the stock market has experienced price and volume fluctuations that have particularly affected companies in the alternative energy business resulting in changes in the market price of the stocks of many companies which may not have been directly related to the operating performance of those companies. Such broad market fluctuations may adversely affect the market price of the Company’s common stock.
Item 4. Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures. Our Chief Executive Officer and Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, our Chief Executive and Chief Financial Officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were inffective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms and (ii) accumulated and communicated to our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding disclo sure. The failure to timely file this quarterly report leads to the conclusion that the disclosure controls and procedures were not effective. As of the date of this report, the Company has added the further step of fully discussing with its outside advisors whether they are aware of any new SEC rules and regulations affecting our disclosure requirements and whether each report being filed is compliant with current rules and regulations. A controls system cannot provide absolute assurance, however, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected.
Our management is Our Chief Executive Officer, and Chief Financial Officer who are responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives. Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.
Our Chief Executive Officer, and Chief Financial Officer evaluated the effectiveness of the Company's internal control over financial reporting as of September 30, 2009. In making this assessment, our Chief Executive Officer, Chief Accounting Officer, and Chief Financial Officer used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control - Integrated Framework. Based on this evaluation, Our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2009, our internal control over financial reporting was effective.
(b) Changes in Internal Control over Financial Reporting. There were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
LACK OF SEGREGATION OF DUTIES
Management is aware that there is a lack of segregation of duties at the Company due to the small number of employees dealing with general administrative and financial matters. However, at this time management has decided that considering the abilities of the employees now involved and the control procedures in place, the risks associated with such lack of segregation are low and the potential benefits of adding employees to clearly segregate duties do not justify the substantial expenses associated with such
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, the Company may become involved in litigation arising in the ordinary course of its business. The Company is presently involved in litigation with Golden State Equity, formerly known as Golden Gate Investors, over funding agreements. Golden State brought suit in December of 2009 alleging default under the terms of the agreements. ARSC counter sued in January and changed jurisdictions to Federal Court in San Diego. While it is too early in the process to accurately predict an outcome, the Company does not believe that the ultimate resolution of the suit will yield a result materially different than the amounts previously called for in the agreements.
Item 1A. Risk Factors
Limited History
The Company is a startup with limited operating history and faces challenges typical of new businesses in highly competitive markets with many other providers of the same or essentially the same products and services.
No Revenue and Limited Resources
The Company is a start up business. There is no assurance that the Company will be able to finance its development, or that the Company will be able profitably to operate such business.
Limited Staff
The Company has two officers and five additional directors charged with the responsibility of executing the Company’s business strategy. Any death, injury or other incapacity of one or more of them could adversely affect the Company’s ability to complete its business strategy.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the nine months ended September 30, 2009, ASRC issued 265,112,495 common shares for cash totaling $100,820.
Item 3. Defaults Upon Senior Securities
As previously disclosed in Note 3, ASRC was in default with a Securities Purchase Agreement with an accredited investor at December 31, 2008. The Company has accrued an estimated contingent liability of $218,600 representing an estimated penalty due according to the Purchase Agreement.
Item 4. Submission of Matters to a Vote of Security Holders
There were no matters submitted for a vote of our security holders during the period ended September 30, 2009.
Item 5. Other Information
There is no other information required to be disclosed under this item which was not previously disclosed.
Item 6. Exhibits
Exhibit Number | Description of Document |
| 31.1 | Rule 13a-14(a)/ 15d-14(a) Certification of Frank Neukomm, Principal Executive Officer of the Company. |
| | |
| 32.1 | Certification Pursuant to 18 U.S.C. section 1350 of Frank Neukomm, Principal Executive Officer of the Company. |
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| | American Security Resources Corporation |
| | | |
| Date: April 30, 2010 | By: | /s/Frank Neukomm |
| | | President and Chief Executive Officer, Principal Executive Officer |
| | | |
| | By: | /s/ John A. Wilkinson |
| | | Chief Financial Officer |
| | | |
| | By: | /s/ Robert Farr |
| | | Principal Accounting Officer |
| | | |
