American Security Resources (ARSC) 10-Q 2010 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ          QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the quarterly period ended June 30, 2010

OR

            TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934.

For the transition period from __________ to __________

Commission File No. 000-27419

AMERICAN SECURITY RESOURCES CORPORATION

(Exact Name of Registrant in its Charter)

Nevada	90-0179050
(State or Other Jurisdiction of Incorporation)	(IRS Employer Identification No.)

19 Briar Hollow, Suite 125

Houston, TX  75027

(Address of Principal Executive Offices)(Zip Code)

(713) 465-1001

Registrant’s Telephone Number

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes þ    No 

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.

Large accelerated filer		Accelerated filer	
Non-accelerated filer		Smaller reporting company	þ
(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes     No þ

As of August 16, 2010, there were 14,766,038,120 shares outstanding of the registrant’s common stock.

INDEX

PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	CONSOLIDATED BALANCE SHEETS	3
	CONSOLIDATED STATEMENTS OF OPERATIONS	4
	CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY	5
	CONSOILIDATED STATEMENTS OF CASH FLOWS	9
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS	10
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	15
Item 4.	Controls and Procedures	16
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings	17
Item 1A.	Risk Factors	17
Item 3.	Defaults Upon Senior Securities	17
Item 4.	Submission of Matters to a Vote of Security Holders	17
Item 5.	Other Information	17
Item 6.	Exhibits	17

PART I. FINANCIAL INFORMATION

Item 1.  Financial Statements

AMERICAN SECURITY RESOURCES CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED BALANCE SHEETS

	June 30, 2010 (unaudited)	December 31, 2009
ASSETS
Cash in bank	$                  3,253	$                 12,399
Prepaid expenses	3,890	3,890
Total Current Assets	7,143	16,289
Equipment, net of accumulated depreciation of $131,569 and $119,413 respectively	31,588	43,744
Other assets	14,588	18,962
TOTAL ASSETS	$           53,319	$               78,995
LIABILITIES AND SHAREHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES
Accounts Payable	$           355,396	$               358,940
Other current liabilities	494,882	424,393
Convertible debentures (net of discount of $378,619 & $747,850 respectively	74,482	33,154
Accrued interest on convertible debentures	4,986	5,762
Derivative liability	661,248	971,270
Note Payable	40,850	-
Total Current Liabilities	1,631,844	1,793,519
Total Liabilities	1,631,844	1,793,519
SHAREHOLDERS' (DEFICIT)
Preferred Stock Series A - 1,000,000 shares authorized; $.001 par value; 1,000,000 shares issued and outstanding	1,000	1,000
Preferred Stock Series B - 1,000,000 shares authorized; $1 par value; 25,000 and -0- shares issued and outstanding respectively	-	-
Common stock – 17,999,999,999 shares authorized; $.001 par value; 11,986,223,120  & 5,420,381,610 shares issued and outstanding respectively	11,986,233	5,420,381
Additional paid in capital	43,132,996	48,485,093
Deficit accumulated during the development stage	(24,590,460)	(23,512,714)
Deficit accumulated from prior operations	(32,108,284)	(32,108,284)
Total Shareholder's (Deficit)	(1,578,525)	(1,714,524)
TOTAL LIABILITES AND SHAREHOLDERS' (DEFICIT)	$           53,319	$               78,995

AMERICAN SECURITY RESOURCES CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENTS OF OPERATIONS FOR THE THREE

MONTHS ENDED JUNE 30, 2010 AND 2009 AND THE PERIOD FROM

OCTOBER 1, 2005 (RE-ENTERING DEVELOPMENT STAGE) THROUGH JUNE 30, 2010

	Three months ended June 30,		Six months ended June 30,		Re-Entering Development Stage to
	2010	2009	2010	2009	June 30, 2010
General and administrative expenses	$277,974	$        393,101	$ 580,549	$    813,221	$         17,565,677
Depreciation and amortization expense	6,078	8,706	12,156	17,412	159,843
Research and development expenses	172,762	124,488	307,268	286,399	5,176,269
Operating Loss	(456,814)	(526,295)	(899,973)	(1,117,032)	(22,901,789)
Other Income (Expenses):
Interest income					76,221
Gain on stock payable
Permanent impairment of investment					(225,000)
(Gain) Loss on derivative liability	219,259	(167,421)	310,022	(260,790)	137,317
Loss on license fee					(482,071)
Penalty on debenture default					(297,375)
Interest expense	(321,645)	(54,920)	(487,795)	(130,346)	(897,763)
Net Loss	(559,200)	(748,636)	(1,077,746)	(1,508,168)	(24,590,460)
Other comprehensive loss:
Changes in unrealized loss on investment available for sale					(86,538)
	$     (559,200)	$(748,636)	$ (1,077,746)	$(1,508,168)	$(24,676,998)
Loss per share - basic and fully diluted	$          (0.01)	$        (0.01)	$          (0.00)	$       (0.00)
Weighted average number of shares outstanding	8,759,899,943	1,577,627,644	7,532,592,984	2,151,598,694

AMERICAN SECURITY RESOURCES CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2009 AND 2008 AND THE PERIOD FROM OCTOBER 1, 2005

 (RE-ENTERING OF DEVELOPMENT STAGE) THROUGH JUNE 30, 2010

	No. of Shares	Paid-in Capital and Par Value	Accumulated Deficit		Comprehensive Loss	Total
			Development Stage	Prior Operations
Balance at 12/31/04	35,319,977	$29,741,757	$ (29,652,400)	$ -	$ -	$ 89,357
Shares issued for:
Cash	2,000,000	77,000				77,000
director services	2,624,501	248,567				248,567
Services	8,231,288	1,429,304				1,429,304
warrant expense	-	1,505,897				1,505,897
Compensation	12,000,000	2,040,000				2,040,000
equity swap investment	1,500,000	225,000				225,000
Net loss			(5,384,548)			(5,384,548)
Other comprehensive loss					(86,538)	(86,538)
Balance, 12/31/05	61,675,766	35,267,525	(35,036,948)	-	(86,538)	144,039
Reclassification of accumulated deficit			32,108,284	(32,108,284)
Shares issued for:
Cash	23,744,250	1,905,990				1,905,990
director services	6,698,000	690,885				690,885
consulting service	14,786,051	1,724,639				1,724,639
accrued liabilities	633,292	132,539				132,539
cashless exercise of warrants	1,129,935	-				-
employee and contractor bonuses	37,500	42,188				42,188
Warrants issued for cash		150,000				150,000
Warrants issued for services		2,405,847				2,405,847
Modification of Warrants		1,127,998				1,127,998
Net loss			(8,599,770)			(8,599,770)
Other equity items		(84,070)			86,538	2,468
Balance, 12/31/06	109,604,794	43,363,541	(11,528,434)	(32,108,284)	-	(273,177)
Less: par value of common stock ($0.01)		109,604
Additional paid-in capital		$43,253,937

The accompanying notes are an integral part of these financial statements.

AMERICAN SECURITY RESOURCES CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD FROM OCTOBER 1, 2005

 (RE-ENTERING OF DEVELOPMENT STAGE) THROUGH JUNE 30, 2009

	No. of Shares	Paid-in Capital and Par Value	Accumulated Deficit		Comprehensive Loss	Total
			Development Stage	Prior Operations
Balance, 12/31/06	109,604,794	43,363,541	(11,528,434)	(32,108,284)	-	(273,177)
Shares issued for
Cash	46,850,000	1,479,518				1,479,518
O&D fees	2,931,818	126,435				126,435
Consulting service	8,031,407	1,068,028				1,068,028
accrued liabilities	11,289,917	510,151				510,151
cashless exercise of warrants	76,873	-				-
Technology  License	2,000,000	82,000				82,000
Warrants issued for services		1,303,221				1,303,221
Technology License		70,150				70,150
Beneficial conversion feature related to convertible note		34,509				34,509
Net loss			(5,486,135)			(5,486,135)
Balance, 12/31/07	180,784,809	48,037,553	(17,014,569)	(32,108,284)	-	(1,085,300)
Less: par value of common stock ($0.01)		180,785
Additional paid-in capital		$47,015,484

The accompanying notes are an integral part of these financial statements.

AMERICAN SECURITY RESOURCES CORPORATION

(A DEVELOPMENT STAGE ENTERPRISE)

CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD FROM OCTOBER 1, 2005

 (RE-ENTERING OF DEVELOPMENT STAGE) THROUGH JUNE 30, 2009

		No. of Shares	Paid-in Capital and Par Value	Accumulated Deficit		Comprehensive Loss	Total
				Development Stage	Prior Operations
Balance, 12/31/07		180,784,809	48,037,553	(17,014,569)	(32,108,284)	-	(1,085,300)
	Shares issued for
	Cash	13,250,000	178,000				178,000
	O&D fees	66,311,128	658,780				658,780
	Consulting service	54,373,998	510,746				510,746
	Accrued liabilities	47,984,818	983,945				983,945
	Cashless exercise of warrants	18,584,615	-				-
	Cashful Warrants	27,011,375	173,290				173,290
Compensation expense			27,000				27,000
Warrants issued for services			196,170				196,170
Beneficial conversion feature related to convertible note		94,403,861	457,800				457,800
Net loss				(3,818,868)			(3,818,868)
Balance, 12/31/08		502,704,604	51,223,284	(20,833,437)	(32,108,284)	-	(1,718,437)
Less: par value of common stock ($0.01)			502,705
Additional paid-in capital			$50,720,579
Plus 1,000,000 shares of Preferred Stock at .001 par value							1,000
Total stockholders’ equity							(1,717,437)

Balance 12/31/08	502,704,604	51,223,284	(20,833,437)	(32,108,284)	-	(1,718,437)
Shares issued for:
Cash	238,791,067	111,945				111,945
Officer & Director fees	189,336,735	87,550				87,550
Consulting services	2,116,514,414	1,488,450				1,488,450
Cashless exercise of warrants	28,036,255	-				-
Cashful Warrants	55,000,000	28,111				28,111
Conversion of Series B Preferred	75,000,000	25,000				25,000
Accrued officer compensation pursuant to wrap around agmt.	935,079,111
Beneficial conversion feature related to convertible note	1,279,919,424	734,685				734,685
Net loss			(2,676,277)			(2,679,277)
Balance 12/31/09	5,420,381,610	53,905,474	(23,512,714)	(32,108,284)	-	(1,715,524)
Less par value of common stock $.001		(5,420,381)
Additional paid-in-capital		$48,485,093
Plus 1,000,000 shares of Preferred Stock Series A at $.001 par value						1,000
Total Stockholders' Equity						(1,714 524)

Balance 12/31/09	5,420,381,610	53,905,474	(23,512,714)	(32,108,284)	-	(1,715,524)
Shares issued for:
Cash	318,811,459	56,253				56,253
Consulting services	2,740,363,385	586,492				586,492
Accrued officer compensation pursuant to wrap around agreement	666,666,666	75,000				75,000
Beneficial conversion feature related to convertible note	2,840,000,000	496,000				496,000
Net loss			(1,077,746)			(1,077,746)
Balance 6/30/810	11,986,223,120	55,119,219	(24,590,460)	(32,108,284)	-	(1,579,525)
Less par value of common stock $.001		11,986,223
Additional paid-in-capital		$43,132,996
Plus 1,000,000 shares of Preferred Stock Series A at $.001 par value						1,000
Total Stockholders' Equity						(1,578,525)

American Security Resources Corporation

A Development Stage Enterprise

CONSOLIDATED STATEMENTS OF CASH FLOWS

For The Six Months Ended June 30, 2010 And 2009 And The Period From October 1, 2005 (Re-Entering Of Development Stage) Through June 30, 2010 (unaudited)

	Six Months Ended June 30,		Re-entering Development Stage to
CASH FLOWS FROM OPERATING ACTIVITIES	2010	2009	30-Jun-10
Net loss	$(1,077,746)	$(1,508,168)	$(24,590,460)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization	12,156	17,412	178,833
Amortization of debt discount and deferred financing cost	289,383	98,292	392,348
(Gain) Loss on derivatives	(235,022)	260,790	(62,317)
Loss on license fee	-	-	482,071
Accretion of capital lease obligation	-		-
Contingent penalty	-		297,375
Common stock issued for services	531,273	770,503	10,847,651
Preferred stock issued for services		-	28,000
Discounts on convertible debenture	-	-
Stock option and warrant expense	-		4,552,501
Gain on stock payable
Permanent impairment of investment sale	-	-	225,000
Contingent liquidated damages expense	-	-	150,000
Change in operating assets and liabilities:
Prepaid expenses	4,374	77,976	(19,530)
Accrued interest receivable	-		4,968
Deferred finance costs		-	(26,252)
Accounts payable	(3,544)	(51,991)	297,908
Stock payable		20,000
Accrued liabilities	250,943	165,046	1,893,872
Accrued interest	(776)	29,028	26,093
Net cash used in operating activities	(228,959)	(121,112)	(5,321,939)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment	-		(151,832)
License agreement	-		(308,501)
Net cash used in investing activities	-		(460,333)
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from the sale of common stock	56,253	36,075	2,318,118
Proceeds from the sale of preferred stock		25,000
Proceeds from convertible debentures	150,000		1,015,000
Shareholder loans	13,560		11,901
Paydown on note receivable		19,000	575,000
Net borrowings/(pay downs) on line of credit	-		45,490
Settlement of derivative liabilities			(101,934)
Proceeds from the exercise of warrants		20,236	1,830,920
Net cash provided from financing activities	219,813	100,311	5,694,495
Net change in cash and cash equivalents	(9,146)	(20,801)	(87,780)
Cash and cash equivalents, beginning of period	12,399	25,121	91,033
	$3,253	$4,320	$3,253
Supplemental disclosure on non-cash financing activities:
Stock issued for accrued expenses	$32,743	$65,949	$885.236
Stock issued for conversion of debt	$496,000	572,385
Obligation to pay capital leases	$
Cash paid for interest and income taxes	$	$3,026
Cashless exercise of warrants			19,715

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, 2009. 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 six months ended June 30, 2010 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 th e balance sheet as current or non-current 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 $24,590,460since re-entering the development stage through June 30, 2010. 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 busines s 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 June 30, 2010, the Company had convertible debentures outstanding as follows;

	Outstanding Balance of Convertible Debenture	Unamortized Discount
December 13, 2007 Debenture	$350,000	$350,000
February 28, 2008 Debenture	182,949	28,916
Total Convertible Debentures at June 30, 2010	$542,004	$378,916

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.

In 2010, the Company and the investor reached a settlement agreement whereby both parties agreed to dismiss their respective claims against the other, and mutually agreed the outstanding principal due under the original convertible debenture to the investor of $350,000 would be paid though a stock conversion program, with interest of 7 ¼% from May 1, 2010 until the outstanding principal is fully converted.  The settlement agreement provides for daily trading limits of the Company’s common stock by the investor, as well as penalties for violations of the trading restrictions.

As the settlement agreement resulted in a modification of the principal outstanding, payment terms and due dates, 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 $436,066 and an offsetting loss on derivative of $2 ,867 and discount on debt of $350,000. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of 1 year; (2) a computed volatility rate from 568 % (3) a discount rate of 0.45% 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.

The instrument was re-valued at period end, and the resulting change of $18,477 was included in the statement of operations as a reduction of the derivative liability.

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 was $35,000 in financing costs for this debt issuance. The financing costs were deferred and amortized using the effective interest method.

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.

Effective November 17, 2009, the Company and the Investor entered into a settlement agreement whereby the Investor agreed to a settlement amount of $431,004, including all unpaid principal, interest and penalties, to be paid in cash or common stock of the Company, subject to an ownership limitation, as defined in the settlement agreement.  Interest on the settlement amount will accrue at 8.75% beginning November 6, 2009, and all unpaid principal and accrued interest is due on or before December 31, 2010.The Company is subject to certain covenants and reporting requirements.  The Company recorded a penalty charge in the fourth quarter of $78,775 in connection with the settlement agreement.

As the settlement agreement resulted in a modification of the principal outstanding, payment terms and due dates, 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 $220,474 and an offsetting gain on derivative of $313,593 and discount on debt of $28,916. We estimated the fair value of the derivative using the Black-Scholes valuati on method with assumptions including: (1) term of 1 year; (2) a computed volatility rate from 568% (3) a discount rate of 0.45% 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.

As part of the settlement agreement, the investor agreed to fund the Company $50,000 in January 2010, with subsequent monthly funding of $25,000 for the next 8 months, and the Company agreed to issue  new convertible debentures (the “new debentures”) for each funding under the same terms and conditions of the original debentures, with each new debenture issued due on or before December 31, 2010. During the six months ended June 30, 2010, the Company received proceeds of $150,000 from the investor for new debentures issued. 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 th e 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 $220,474 and an offsetting gain on derivative of $313,593 and discount on debt of $28,916. We estimated the fair value of the derivative using the Black-Scholes valuation method with assumptions including: (1) term of .75 to 1 year; (2) a computed volatility rate from 372% (3) a discount rate of 0.45% 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 six months ended June 30, 2010, $368,934 was amortized and is included in interest expense.

These instruments were re-valued at period end, and the resulting change of $310,022 was included in the statement of operations as a reduction of the derivative liability.

Derivative Liability

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 $661,248. 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 taint ed by the derivative treatment.

	Derivative Liability 6/30/10	Gain (Loss) on Derivative six months ended 6/30/10
February 28, 2008 Debenture	$436,066	$2,867
May 16, 2008 Debenture	220,474	(313,593)
Warrants Outstanding	4,708	704
Derivative Liability	$661,248	$(310,022)

NOTE 4 - COMMON STOCK

During the six months ended June 30, 2010 ASRC issued 2,840,363,385 common shares to external parties in exchange for consulting and legal services recorded a total expense of $531,273. 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 six months ended June 30, 2010, ASRC issued 2,840,000,000 common shares pursuant to the conversion features of outstanding debentures.

During the six months ended June 30, 2010, ASRC issued 666,666,666 of common shares pursuant to a wrap around agreement issued in exchange for accrued compensation due to the officers of ASRC

During the six months ended June 30, 2010, ASRC issued 318,811,459 common shares for cash totaling $56,253.

NOTE 6 - LEASES

ASRC leases office space and the terms provide for monthly rent of $2,365.  Additionally, ASRC’s subsidiary, Hydra Fuel Cell Corporation leases approximately 2,625 square feet in Portland, Oregon for monthly rent of $4,930.

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.   Hydra is now ready to move the Fuel Cell Product into production and has been seeking funding to begin production.  Recently, an existing funder, St George has committed to provide funding to allow production to begin.

In June 2010, ARSC accepted a proposal from a European Investors groupto fund and spin-off Hydra Fuel Cell to ARSC shareholders.  ARSC is currently negoiating this transaction with the investors.  This will require a proxy for ARSC shareholders when the transaction is complete.  This is anticipated in late summer or fall 2010.

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

Six Months Ended June 30, 2010 Compared to the Six Months Ended June 30, 2009

The Company had $0 revenues for the six months ended June 30, 2010. Expenses for the six months totaled $899,973 resulting in an operating loss of $899,973. Expenses for the six months consisted of legal and professional fees of $136,469; $177,352 consulting services; $307,268 research and development; and $266,728 of other general and administrative expenses.

The Company had $0 revenues for the six months ended June 30, 2009. Expenses for the six months totaled $1,117,032 resulting in an operating loss of $1,117,032. Expenses for the six months consisted of legal and professional fees of $66,407; $501,228 consulting services; $279,259 research and development; and $273,472 of other general and administrative expenses.

Capital Resources and Liquidity

As of June 30, 2010 we had $3,253 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. Ac tual 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 effective 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 disclos ure. 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 June 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 June 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 and Management  evaluates each case based on its merits and expected outcome and risk.  As of June 30, 2010, Management believes the Company can successfully defend or settle the existing lawsuits and does not believe the outcome will have a material effect on the financial statements.  Consequently, no contingent accrual is required to be disclosed or accrued and all legal expenses are expensed as incurred.

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 six months ended June 30, 2010, ASRC issued 318,811,459 common shares for cash totaling $56,253.

Item 3.   Defaults Upon Senior Securities

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 June 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: August 16, 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