UNITED
      STATES SECURITIES AND EXCHANGE
COMMISSION
 WASHINGTON,
      D.C. 20549
 
 FORM
      10-K
 
 x           ANNUAL
REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
1934
 For the
fiscal year endedDecember 31, 2008
 
 Commission
      file number000-27419
 
 AMERICAN
      SECURITY RESOURCES CORPORATION
 (Exact
name of small business issuer as specified in its charter)
 
 19
      Briar Hollow Lane, Suite 125
                Houston,
      Texas 77027(Address
      of principal executive offices)
 
 Nevada
              90-0179050(State  of
      incorporation )
              (I.R.S.
      Employer Identification No.)
 Registrant’s
      telephone number, including area code:  (713)
      465-1001
 
 Securities
      registered pursuant to Section 12(b) of the Act: None
 
 Securities
      registered pursuant to Section 12(g) of the Act: $.001 Par Value
      Common
 
 Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities Act.  Yes o     No þ
 
 Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Securities
Act.  Yes o     No þ
 
 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 o
 
 Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T
(§ 229.405 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 o     No o
 
 Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the
best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.  þ
 
 Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check
one):
 
 Large
      accelerated filer o
              Accelerated
      filer o
              Non-accelerated
      filer o
              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 Act).  Yes o     No þ
 
 The
aggregate market value of the voting and non-voting common equity held by
non-affiliates as of December 31, 2008 is $952,223 (based on its reported last
sale price by the OTC Pink Sheets).
 
 The
number of shares outstanding of the Registrant's common stock as of December 31,
2008 was 502,704,604
 
 Documents
Incorporated By Reference:  None
  
  AMERICAN
SECURITY RESOURCES CORPORATION
 
 INDEX
TO FORM 10-KSB
 December
31, 2008
 
 
 Page
      No.Part
      I
              Item
      1.
              Description
      of Business
              1Item
      2.
              Description
      of Property
              2Item
      3.
              Legal
      Proceedings
              2Item
      4.
              Submission
      of Matters to a Vote of Security Holders
              2Part
      II
              Item
      5.
              Market
      for Common Equity and Related Stockholder Matters
              3Item
      6.
              Selected
      Financial Data
              6Item
      7.
              Management's
      Discussion and Analysis or Plan ofOperation
              6Item
      8.
              Financial
      Statements
              10Part
      III
              Item
      9.
              Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
              30Item
      9A.
              Controls
      and Procedures
              30Item
      10.
              Directors,
      Executive Officers, Promoters and Control Persons Compliance with Section
      16(a) of the Exchange Act Executive Compensation
              32Item
      11
              Executive
      Compensation
              33Item
      12.
              Security
      Ownership of Certain Beneficial Owners and Management
              34Item
      13.
              Certain
      Relationships and Related Party Transactions
              34Item
      14.
              Principal
      Accountant Fees and Services
              34Part
      IV
              Item
      15.
              Exhibits
      and Reports on Form 8-K
              35Signatures
              36
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  PART
I
 
 ITEM
1. DESCRIPTION OF BUSINESS
 
 Forward-Looking
Statements
 Certain
statements concerning the Company's plans and intentions included herein may
constitute forward-looking statements for purposes of the Securities Litigation
Reform Act of 1995 for which the Company claims a safe harbor under that Act.
There are a number of factors that may affect the future results of the Company,
including, but not limited to, (a) the ability of the company to obtain
additional funding for operations, (b) the continued availability of management
to develop the business plan, (c) regulatory acceptance of our products in
diverse localities and (d) successful development and market acceptance of the
company’s products.
 
 This
periodic report may contain both historical facts and forward-looking
statements.  Any forward-looking statements involve risks and
uncertainties, including, but not limited to, those mentioned
above.  Moreover, future revenue and margin trends cannot be reliably
predicted.
 
 Overview
 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 ishttp://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.”
 
 Organizational
History
 The
Company, previously known as Computer Automation Systems, Inc., was reorganized
and recapitalized in 2004 changing its name, first to Kahuna Network Security,
Inc. and in July 2004, to American Security Resources Corporation with a
business focus of acquiring companies in homeland security and national defense.
In October 2005, the Company changed its focus to the development and
commercialization of technologically advanced, high volume mass producible,
hydrogen fuel cells and related clean energy technologies.
 
 The
Company’s Products and Services
 The
Company is developing hydrogen fuel cells that it expects to begin delivering in
2009. Additionally, the Company is developing technologies to produce hydrogen
at a reduced cost.
 
 Employees
 As of
December 31, 2008, the Company had two contract management employees. None of
the Company’s employees are covered by any collective bargaining agreements.
Management believes that its relations with its employee contractors are good
and the Company has not experienced any work stoppages attributable to employee
disagreements.
  
  
 
 The
Company’s subsidiary, Hydra Fuel Cell Corporation, has approximately six
contractors working on the development of the Company’s proprietary HydraStaxTM
hydrogen fuel cells and other hydrogen related technologies.
 
 The
Company’s subsidiary, American Hydrogen Corporation, has approximately three
contractors working on the development of the Company’s hydrogen
generators.
 
 The
Company’s subsidiary, American Security Capital, currently does not have any
employees or contractors.
 
 
 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.
 
 Volatility
of Stock Market
 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
2. DESCRIPTION OF PROPERTY
 
 ASRC has
leased approximately 1,600 square feet of office space at 19Briar Hollow Lane, Ste
125, Houston, TX 77027, for approximately $2,650 per month through March 31,
2012. Additionally, the Company’s Hydra Fuel Cell subsidiary leases
approximately 5,000 square feet of office and light manufacturing space in
Portland, Oregon, for approximately $4,930 per month. The Company believes this
space will be sufficient for its needs for the term of the lease.
 
 
 ITEM
3. 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
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
 
 The
Company held a shareholder meeting in July 2008. The Company’s Articles and
By-Laws were amended and an employee incentive stock plan was
reauthorized.
 
  
  PART II
 
 Item 5. Market for Common Equity and
Related Stockholder Matters.
 
 Market
Information.
 The
Company’s common stock trades on Pink Sheets under the symbol “ARSC.PK”, and was
formerly listed on the OTC Bulletin Board under the symbol “ARSC”. The market
for the Company’s common stock on Pink Sheets and on the OTC Bulletin Board is
limited, sporadic and highly volatile.
 
 The
following quotations were provided by Pink Sheets and the OTC Bulletin Board for
the Company’s common stock for the last two years. The quotations represent
inter-dealer prices and do not necessarily represent actual transactions. These
quotations do not reflect dealer markups, markdowns or commissions.
 
 Quarter
      ended:
              High
              LowMarch
      31, 2008
              $
      0.033
              $
      0.025June
      30, 2008
              $
      0.074
              $
      0.0151September
      30, 2008
              $0.044
              $0.01December
      31, 2008
              $
      0.013
              $
      0.0019March
      31, 2007
              $
      0.10
              $
      0.03June
      30, 2007
              $
      0.06
              $
      0.04September
      30, 2007
              $
      0.04
              $
      0.04December
      31, 2007
              $
      0.05
              $
      0.03
 
 Holders
 The
number of record holders of the Company's securities as of the date of this
Report is approximately 331.
 
 Dividends
 The
Company has not declared any cash dividends with respect to its common stock,
and does not intend to declare cash dividends in the foreseeable future. On
April 7, 2009, the Company announced the plan to spinoff Hydra to its
shareholders through a special stock dividend. This will be accomplished through
a Proxy and shareholder vote in 2010. There are no material restrictions
limiting, or that are likely to limit, the Company's ability to pay dividends on
its securities.
 
 Recent
Sales of Unregistered Securities
 In June
2007, there was a cashless exercise of warrants resulting in 76,873 shares of
common stock being issued.
 
 In 2007,
ASRC granted options to purchase 46,850,000 shares of its common stock pursuant
to a consulting contract with an exercise price equal to 70% of the average
closing price of the lowest 8 days of the prior twenty trading days and were
exercisable for 90 days. The value of the options was computed using the
Black-Scholes pricing model using the following input values and assumption: (1)
Stock price: the closing price on the day previous to the grant date; (2)
warrant exercise price equal to 70% of the weighted average price of the lowest
eight days of the prior twenty trading days; (3) volatility ranging from 95.62%
to 195.42%; (4) discount rate of 4.72% to 4.91%; (5) term of 90 days and (6) a
zero dividend rate.  The amount of expense recognized during 2007 in
connection with these warrants was $1,240,307 and is included in general and
administrative expenses for the year ended December 31, 2007.  All of
these options were exercised, resulting in cash receipts of
$1,479,518.
 
 On
January 30, 2007 ASRC issued 500,000 shares of our common stock to our Board of
Directors as compensation for their service. These shares were valued at $42,000
based on their market value in these financial statements. The amount is equal
to the fair value of the shares at the time the Board authorized their
issuance.
 
 During
the year ended December 31, 2007, ASRC issued 2,181,818 shares of our
common stock to our Chairman and Chief Executive Officer, Frank Neukomm and our
President and Chief Operating Officer in lieu of compensation which were due to
them as of December 31, 2006.  These shares were valued at $74,182
based on their market value at the date of grant.  ASRC also issued
250,000 shares of stock to Frank Neukomm as compensation for a sales
bonus.  These shares were valued at $10,000.  The amount is
equal to the fair value of the shares at the time the Board authorized their
issuance.
 
 During
the year ended December 31, 2007, ASRC issued 8,031,407 common shares to
external parties in exchange for consulting and legal services and recorded a
total expense of $349,006.  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 year ended December 31, 2007, ASRC issued 11,289,917 shares of stock in lieu
of compensation to consultants for services rendered at Hydra Fuel
Cell.  These shares were valued at $510,151 based on their market
value at the time of issuance, as reflected in these financial
statements.
 
 On
January 25, 2008, we issued 100,000 shares to our board of directors for
services rendered.  These shares were valued at $27,000 based on their
market value at the time of issuance.
 
 On
January 25, 2008, we issued a total of 400,000 shares to Chairman and Chief
Executive Office, our President and Director, and our President of our
subsidiary, Hydra Fuel Cell for services rendered.  These shares were
valued at $12,000 based on their market value at the time of
issuance.
 
 On March
7, 2008, we issued 8,054,253 shares to our Chairman and Chief Executive Officer,
Frank Neukomm as indemnification for his pledging an equal number of shares on
the St. George Investments, LLC convertible debenture transaction in February
2008 and also guaranteeing the convertible debenture liability.  These
shares were valued at $225,519 based on their market value at the time of
issuance.
 
 On March
7, 2008, we issued 4,035,615 shares to our President and Director, Robert Farr
as indemnification for his pledging an equal number of shares on the St. George
Investments, LLC convertible debenture transaction in February 2008 and also
guaranteeing the convertible debenture liability.  These shares were
valued at $112,997 based on their market value at the time of
issuance.
 
 On May
20, 2008, we issued 2,000,000 shares each to our Chairman and Chief Executive
Officer Frank Neukomm and our President and Director, Robert Farr in lieu of
accrued compensation due them.  These shares were valued at $30,800
respectively based on their market value at the time of issuance.
 
 On August
7, 2008, we issued 2,000,000 shares each to our Chairman and Chief Executive
Officer Frank Neukomm and our President and Director, Robert Farr in lieu of
accrued compensation due them.  These shares were valued at $33,600
respectively based on their market value at the time of issuance.
 
 On August
20, 2008, we issued 1,700,680 shares to our Chairman and Chief Executive Officer
Frank Neukomm for settlement of a personal guarantee and pledge of his stock for
a debt of the Company.  These shares were valued at $34,014 based on
their market value at the time of issuance.
 
 On
November 21, 2008, we issued 3,116,883 shares each to our Chairman and Chief
Executive Officer Frank Neukomm and our President and Director, Robert Farr in
lieu of accrued compensation due them.  These shares were valued at
$24,000 respectively based on their market value at the time of
issuance.
 
 On
December 3, 2008, we issued 6,593,407 shares each to our Chairman and Chief
Executive Officer Frank Neukomm and our President and Director, Robert Farr in
lieu of accrued compensation due them.  These shares were valued at
$24,000 respectively based on their market value at the time of
issuance.
 
 On
December 15, 2008, we issued 24,000,000 shares to our President of our
subsidiary Hydra Fuel Cell Corporation, James Twedt, in lieu of accrued
compensation due him.  These shares were valued at $43,050 based on
their market value at the time of issuance.
 
 In
November 2008, pursuant to a Private Placement Memorandum, we issued 13,250,000
shares to certain accredited investors for cash totaling $178,000.
 
 As
consideration for a license agreement with Ohio University, the
Company, issued 2,000,000 shares of restricted stock and issued 2,000,000
warrants exercisable for a three year period at $0.041 per share (the closing
price on the transaction date).  This agreement was subsequently
terminated; however, the common stock and warrants issued remain
outstanding.
 
 The above
transactions were completed pursuant to either Section 4(2) of the Securities
Act or Rule 506 of Regulation D of the Securities Act or Rule 506 of Regulation
D of the Securities Act. With respect to issuances made pursuant to Section 4(2)
of the Securities Act, the transactions did not involve any public offering and
were sold to a limited group of persons. Each investor either received adequate
information about the Company or had access to such information. The Company
determined that each investor had such knowledge and experience in financial and
business matters that they were able to evaluate the merits and risks of an
investment in the Company.
 
 With
respect to issuances made pursuant to Regulation D of the Securities Act, the
Company determined that each purchaser was an “accredited investor” as defined
in Rule 501(a) under the Securities Act, or if such investor was not an
accredited investor, that such investor received the information required by
Regulation D.
  
  
 
 All sales
of the Company’s securities were made by officers of the Company who have
received no commission or other remuneration for the solicitation of any person
in connection with the respective sales of the securities described above. The
recipients of securities represented their intention to acquire the securities
for investment only and not with a view to sale, or for sale in connection with
any distribution thereof. Appropriate legends were affixed to the share
certificates issued in these transactions.
 
 Equity
Compensation Plan Information
 The
Company has a 2009 stock option plan, as filed on Form S-8 on January 30, 2009,
under which the Company is authorized to grant incentive stock options, to a
maximum of 200 million (200,000,000) shares, to key employees, officers,
directors, and consultants of the Company. The plan provides both for the direct
award or sale of shares and for the grant of options to purchase
shares.
 
 The
following table provides information as of December 31, 2008 regarding
compensation plans (including individual compensation arrangements) under which
equity securities are authorized for issuance:
 
 Plan
      Category
              
              Number
      of securities to be issued upon exercise of outstanding options, warrants
      and rights
              
              Weighted-average
      exercise price of outstanding options, warrants and rights
              
              Number
      of securities available for
      future issuance under equity compensation plans (excluding securities
      shown in first column)Equity
      compensation plans approved by shareholders(1)(2)
              
              0
              
              $0.00
              
              200,000,000Total
              
              0
              
              $0.00
              
              200,000,000
 
 (1) Consists
of shares of our common stock issued or remaining available for issuance under
our stock compensation plan.
 (2) Approved
by shareholders of American Security Resources Corporation.
 
 
 Item
6. Selected Financial Data
 
 The
following table contains certain financial and operating data and is qualified
by the more detailed consolidated financial statements and notes thereto
included elsewhere in this report. The balance sheet and statement of operations
data were derived from the consolidated financial statements and notes thereto
that have been audited by our independent registered certified public accounting
firms. The financial data shown below should be read in conjunction with the
consolidated financial statements and the related notes thereto and
“Management’s Discussion and Analysis of Financial Condition and Results of
Operations” included elsewhere in this report.
 Year
      Ended December 31,2004
              
              2005
              
              2006
              
              2007
              
              2008Statement
      of Operations Data:Revenue
              
              $             -
              
              $              -
              
              $             -
              
              $              -
              
              $              -Research
      and development costs
              
              -
              
              -
              
              1,767,084
              
              1,039,652
              
              1,528,081General
      and administrative
              
              28,035,760
              
              5,381,900
              
              6,579,160
              
              4,176,295
              
              1,604,224Loss
      from operations
              
              (28,087,593)
              
              (5,384,548)
              
              (8,368,581)
              
              (5,277,798)
              
              (3,132,305)Other
      income (expense), net
              
              -
              
              -
              
              (231,189)
              
              (208,337)
              
              (653,808)Net
      loss
              
              $(28,087,593)
              
              $(5,384,548)
              
              $
      (8,599,770)
              
              $(5,486,135)
              
              $(3,818,868)Net
      loss per common share
              
              $         (0.90)
              
              $        (0.13)
              
              $       (0.11)
              
              $        (0.04)
              
              $        (0.01)Weighted
      average common shares outstanding-basic and diluted
              
              31,284,330
              
              42,053,103
              
              80,723,597
              
              125,033,916
              
              271,793,646Balance
      Sheet Data:Current
      assets
              
              $      137,852
              
              $     154,062
              
              $    13,022
              
              $     21,473
              
              $    183,683Total
      assets
              
              147,687
              
              169,517
              
              146,143
              
              2,246,892
              
              276,187Current
      liabilities
              
              58,329
              
              25,478
              
              419,320
              
              1,677,299
              
              840,912Total
      liabilities
              
              58,329
              
              25,478
              
              419,320
              
              3,133,624
              
              1,993,624Stockholders'
      Equity (Deficit)
              
              89,358
              
              144,039
              
              (273,177)
              
              (886,732)
              
              (1,717,437)
  
  
 
 Item
7. Management's Discussion and Analysis or Plan of Operation
 
 Overview.
 
 Forward-Looking
Statements
 This
Management’s Discussion and Analysis of Financial Condition and Results of
Operations and other parts of this document contain forward-looking statements
that involve risks and uncertainties, as well as current expectations and
assumptions. From time to time, the Company may publish forward-looking
statements, including those that are contained in this report, relating to such
matters as anticipated financial performance, business prospects, technological
developments, new products, research and development activities and similar
matters. The Private Securities Litigation Reform Act of 1995 provides a safe
harbor for forward-looking statements. In order to comply with the terms of the
safe harbor, the Company notes that a variety of factors could cause the
Company’s actual results and experience to differ materially from the
anticipated results or other expectations expressed in the Company’s
forward-looking statements. The risks and uncertainties that may affect the
operations, performance, development and results of the Company’s business
include, but are not limited to, its ability to maintain sufficient liquidity to
meet its obligations, maintaining compliance with the terms of its credit
agreement, the ability to sell some or all of its business units and the amount
of proceeds from any such sales, the impact of the significant reduction in
research and development expenditures, limitations in its ability to fund
capital expenditures to remain competitive, adverse changes in the global
economy, sudden decreases in the demand for electronic products and
semiconductors, the impact of competition, delays in product development
schedules, delays due to technical difficulties related to developing and
implementing technology, delays in delivery schedules, the ability to attract
and maintain sufficient levels of people with specific technical talents, future
results related to changes in demand for the Company’s products and services and
the Company’s customers’ products and services, and other items discussed
elsewhere in this report. The Company’s actual results could differ materially
from those anticipated in these forward-looking statements, including those set
forth elsewhere in this report. The Company assumes no obligation to update any
such forward-looking statements.
 
 Plan
for Future Operations
 In 2005,
we acquired certain intellectual property and contracted with engineers to begin
our hydrogen fuel cell division.  Seven patent applications have been filed
covering some of the innovations incorporated in the HydraStax® and we intend to
file additional patent applications. In November 2008 the first of the patents
was issued.
 
 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.
 
 We have
had no revenue since beginning our Hydra subsidiary.  Although we expect
revenues from our HydraStaxTM unit during 2009, we do expect cash flows from
distribution of the unit to become self-funding during 2009.  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.
 
 Critical
Accounting Policies
 The
accompanying discussion and analysis of our financial condition and results of
operations are based upon our financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America (“US GAAP”). The preparation of these 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. These estimates form the basis for making judgments about the
carrying values of assets and liabilities that are not readily apparent from
other sources. We base our estimates and judgments on historical experience and
all available information. However, future events are subject to change, and the
best estimates and judgments routinely require adjustment. US GAAP requires us
to make estimates and judgments in several areas, including those related to
recording various accruals, income taxes, the useful lives of long-lived assets,
such as property and equipment and intangible assets, and potential losses from
contingencies and litigation. We believe the policies discussed below are the
most critical to our financial statements because they are affected
significantly by management’s judgments, assumptions and
estimates.
  
  
 Accounting
for Stock-Based Compensation
 Effective
December 15, 2005, we adopted the provisions of FASB Accounting Standards
Codification 718, “Compensation — Stock Compensation” (ASC 718), previously
referred to as Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” and applied the provisions of the Securities and Exchange
Commission Staff Accounting Bulletin No. 107 using the modified-prospective
transition method.  Under this transition method, compensation cost
recognized includes (a) the compensation cost for all share-based awards
granted prior to, but not yet vested, as of December 15, 2005, based on the
grant-date fair value estimated in accordance with the original provisions of
ASC 718 and (b) the compensation cost for all share-based awards granted
subsequent to December 15, 2005, based on the grant-date fair value estimated in
accordance with the provisions of ASC 718.  The Company had not issued
any options to employees in the prior periods thus; there was no impact of
adopting the new standard.
 
 Additionally,
we accounted for restricted stock awards granted using the measurement and
recognition provisions of ASC 718. We measure the fair value of the restricted
stock awards on the grant date and recognize them in earnings over the requisite
service period for each separately vesting portion of the
award.
 
 The
Company determines the value of stock options utilizing the Black-Scholes
option-pricing model. Compensation costs for share-based awards with pro rata
vesting are allocated to periods on a straight-line basis.
 
 Intangible
Assets
 Intangible
assets with estimable useful lives are amortized over respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with FASB Accounting Standards Codification 360, “Property, Plant and
Equipment” (ASC 360), previously referred to as Statement of Financial
Accounting Standards  No. 144, Accounting for Impairment or
Disposal of
 
 Off
Balance Sheet Arrangements
 The
Company has no off balance sheet arrangements.
 
 Recent
Accounting Pronouncements
 In
December 2007, the Financial Accounting Standards Board issued FASB Accounting
Standards Codification 805, “Business Combinations” (ASC 805), previously
referred to as Statement of Financial Accounting Standards No. 141R
“Business Combinations.” ASC 805 will require, among other things, the expensing
of direct transaction costs, in process research and development to be
capitalized, certain contingent assets and liabilities to be recognized at fair
value and earn-out arrangements may be required to be measured at fair value
recognized each period in earnings. In addition, certain material adjustments
will be required to be made to purchase accounting entries at the initial
acquisition date and will cause revisions to previously issued financial
information in subsequent filings. ASC 805 is effective for transactions
occurring after the beginning of the first annual reporting period beginning on
or after December 15, 2008 and may have a material impact on our
consolidated financial position, results from operations and cash flows should
we enter into a material business combination after the standards effective
date.
 
 In March
2008, the Financial Accounting Standards Board issued FASB Accounting Standards
Codification 815, “Derivatives and Hedging” (ASC 815), previously referred
to as Statement of Financial Accounting Standards No. 161, “Disclosures
about Derivative Instruments and Hedging Activities — An Amendment to
SFAS 133” (SFAS 161). SFAS 161 applies to all derivative
instruments accounted for under ASC 815 and requires entities to provide greater
transparency on how and why entities use derivative instruments, how derivative
instruments are accounted for under ASC 815, and the effect the derivative
instruments may have on the results of operations and cash flows. ASC 815 is
effective for fiscal years and interim periods beginning after November 15,
2008. Since ASC 815 only applies to disclosures it has not had a material impact
on our consolidated financial position, results from operations, and cash
flows.
 
 In June
2009, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 167, “Amendments to FASB Interpretation
No. 46(R)” (SFAS 167). SFAS 167, addresses the effects of
eliminating the qualifying special-purpose entity (QSPE) concept from Statement
of Financial Accounting Standards No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities” and addresses
certain key provisions of FIN 46(R), including transparency of enterprises’
involvement with variable interest entities (VIEs). SFAS 167 is effective
for fiscal years beginning after November 15, 2009 and interim periods
within those fiscal years. We are currently assessing the implications of this
standard and evaluating the impact of adopting SFAS 167 on our consolidated
financial statements.
 
 Financial
Condition and Results of Operations
 The
Company had no revenue during the calendar years ended December 31, 2008 and
2007.
 
 The
Company had no gross profit during fiscal years2008 and 2007. General and
administrative expenses were $ 1,677,876 and $4,176,295for the years ended
December 31, 2008 and 2007 respectively. Principal general and administrative
expenses included contracted services ($222,245 and $2,940,232, respectively);
legal expenses ($352,066 and $460,167, respectively); payroll and contractors
($760,530 and $1,529,569 respectively); and rent ($96,384 and $92,932,
respectively).
  
  
 
 
 Research
and development expenses were $1,528,081and $1,039,652 for the calendar years
ended December 31, 2008 and 2007, respectively for costs incurred in its Hydra
Fuel Cell and American Hydrogen subsidiaries relating to the development of its
HydraStax® hydrogen fuel and hydrogen generator.
 
 Significant
      components of operating expenses for 2008 and 2007
  were:
 
 2008
              
              2007Fair
      value of warrants issued for services
              $72,546
              
              $1,959,329Stock
      issued for officers and directors' services
              658,780
              
              126,435Stock
      issued to outside consultants
              510,746
              
              854,468Totals
              $1,242,072
              
              $2,940,232
 
 The
Company had net operating losses of $3,818,868 and $5,486,135 for the years
ended December 31, 2008 and 2007, respectively.
 
 Liquidity and Capital
Resources.
 We had no
revenues for the years ended December 31, 2008 and 2007.
 
 Our
working capital deficit increased by $797,618to ($1,809,941) at December 31,
2008 compared to ($1,012,323) at December 31, 2007. This deficit is primarily
due to lack of revenues while we are in development stage and we continue to
incur ordinary research and development and operating expenses as well as
reflecting our outstanding debenture balances as current liabilities as a result
of defaults under SEC filing provisions in those debenture
agreements.
 
 Our cash
flows from operations were negative during the years ended December 31, 2008 and
2007, respectively, due to our lack of revenues and the continuation of research
and development and operating costs. Our primary funding source was the exercise
of stock options for cash, issuance of stock for cash, and proceeds from new
convertible debentures resulting in total cash provided by financing activities
of $1,587,697.
 
 We
consumed $1,290,195 in cash from operating activities for the year ended
December 31, 2008 compared with $1,651,405 for the year ended December 31,
2007.
 
 We had a
net comprehensive loss of $3,818,868 and $5,486,135 or $0.01 and $0.04 per share
for the year ended December 31, 2008 and 2007, respectively.
 
 Our
financial statements are prepared using principles applicable to a going
concern, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business. However, we do not have
significant cash or other material liquid assets, nor do we have an established
source of revenue sufficient to cover our operating costs and to allow us to
continue as a going concern. We may, in the future, experience significant
fluctuations in our results of operations. If we are required to obtain
additional debt and equity financing or our illiquidity could suppress the value
and price of our shares if and when trading in those shares develops. However,
our future offerings of securities may not be undertaken, and if undertaken, may
not be successful or the proceeds derived from these offerings may be less than
anticipated and/or may be insufficient to fund operations and meet the needs of
our business plan. Our current working capital is not sufficient to cover
expected cash requirements for 2008 or to bring us to a positive cash flow
position. If we do not raise sufficient capital to execute our business plan, it
is possible that we will not be able to continue as a going
concern.
 
 We are
attempting 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 business plan.
 
  
  
 ITEM 8 - FINANCIAL STATEMENTS
 
 
 AMERICAN
SECURITY RESOURCES CORPORATION
 
 
 INDEX
      TO FINANCIAL STATEMENTS
 
 
 PageReport
      of Independent Registered Public Accounting Firm
              11Financial
      StatementsConsolidated
      Balance Sheets at December 31, 2008
              12Consolidated
      Statements of Operations for the years ended December 31, 2008 and 2007
      and the period from October 1, 2005 (Re-entering of Development Stage)
      Through December 31, 2008
              13Consolidated
      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 December 31, 2008
              14Consolidated
      Statements of Cash Flows for the years ended December 31, 2008 and 2007
      and the period from October 1, 2005 (Re-entering of Development Stage)
      Through December 31, 2008
              17Notes
      to Consolidated Financial Statements
              18
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
  
  
 
 REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
 To the
Board of Directors and Management of
 American
Security Resources, Inc.
 Houston,
Texas
 
 We have
audited the accompanying consolidated balance sheet of American Security
Resources Corporation as of December 31, 2008 and the related consolidated
statements of income, cash flows and stockholders' equity for the year ended
December 31, 2008.  These financial statements are the responsibility
of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit. The financial
statements of American Security Resources Corporation as of December 31, 2007,
were audited by other auditors whose report dated April 14, 2009, on those
statements included an explanatory paragraph describing conditions that raised
substantial doubt about the Company’s ability to continue as a going
concern.
 
 We
conducted our audit of these financial statements in accordance with the
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.  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 financial statements referred to above present fairly, in all
material respects, the financial position of American Security Resources
Corporation as of December 31, 2008, and the results of its operations and its
cash flows for the period then ended in conformity with accounting principles
generally accepted in the United States of America.
 
 The
accompanying 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 has suffered significant losses and will require
additional capital to develop its business until the Company either (1) achieves
a level of revenues adequate to generate sufficient cash flows from operations;
or (2) obtains additional financing necessary to support its working capital
requirements.  These conditions raise substantial doubt about the
Company's ability to continue as a going concern.  Management's plans
in regard to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.
 
 PS
STEPHENSON & CO, P.C.
 
 Wharton,
Texas
 February
28, 2010
 
 
 
 
 
 
  
  
 AMERICAN
SECURITY RESOURCES CORPORATION
 (A
DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED
BALANCE SHEET
 December
31, 2008
 
 
 
 ASSETSCash
      in bank
              
              $
      25,121Prepaid
      expenses
              
              139,562Note
      Receivable
              
              19,000Total
      Current Assets
              
              183,683Equipment,
      net of accumulated depreciation of $89,615
              
              73,542Other
      assets
              
              18,962TOTAL
      ASSETS
              
              $
      276,187LIABILITIES
      AND SHAREHOLDERS' (DEFICIT) EQUITYCURRENT
      LIABILITIESAccounts
      payable
              
              $393,776Other
      current liabilities
              
              263,466Convertible
      debentures (net of discounts of $584,605)
              
              397,595Accrued
      interest on convertible debentures
              
              53,539Derivative
      liability
              
              522,648Contingent
      penalty  on convertible debentures
              
              218,600Contingent
      liability on debentures
              
              19,000Stock
      payable
              
              125,000Total
      Current Liabilities
              
              1,993,624Long
      Term Liabilities
              
              -Total
      Liabilities
              
              1,993,624SHAREHOLDERS'
      (DEFICIT)Preferred
      stock - 1,000,000 shares authorized; $.001 par
      value;  1,000shares issued or outstanding
              
              1,000Common
      stock - 200,000,000 shares authorized; $.001 par value; 502,704,604 shares
      issued and outstanding
              
              502,705Additional
      paid-in capital
              
              50,720,579Deficit
      accumulated during the development stage
              
              (20,833,437)Deficit
      accumulated from prior operations
              
              (32,108,284)Total
      Shareholders' (Deficit)
              
              (1,717,437)TOTAL
      LIABILITIES AND SHAREHOLDERS' (DEFICIT)
              
              $
      276,187
 
 The
accompanying notes are an integral part of these financial
statements.
 
  
  AMERICAN
SECURITY RESOURCES CORPORATION
 (A
DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED
STATEMENTS OF OPERATIONS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD FROM OCTOBER 1,
2005
 (RE-ENTERING
OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2008
 
 
 Year
      Ended December 31, 2008
              
              Year
      Ended December 31, 2007 (restated)
              
              Re-entering
      Development Stage to 12/31/08General
      and administrative expenses
              1,604,224
              
              4,176,295
              
              15,286,299Depreciation
              32,755
              
              61,851
              
              117,889Research
      and development expenses
              1,528,081
              
              1,039,652
              
              4,335,916Operating
      Loss
              (3,165,060)
              
              (5,277,798)
              
              (19,740,104)Other
      Income (Expense):Interest
      income
              71,253
              
              4,968
              
              76,221Loss
      on derivative liability
              (73,652)
              
              -
              
              (73,652)Permanent
      impairment of investment
              
              
              
              
              (225,000)Loss
      on license fee
              (283,500)
              
              (198,571)
              
              (482,071)Penalty
      on debenture default
              (218,600)
              
              
              
              (218,600)Interest
      expense
              (149,309)
              
              (14,734)
              
              (170,231)Net
      Loss
              (3,818,868)
              
              (5,486,135)
              
              (20,833,437)Other
      Comprehensive Loss:Change
      in unrealized loss on investment available for sale
              -
              
              -
              
              (
      86,538)Comprehensive
      Loss
              $(3,818,868)
              
              $(5,486,135)
              
              $(20,919,975)Loss
      per share - basic and fully diluted
              $
      (0.01)
              
              $
      (0.04)Weighted
      average no. of shares outstanding
              271,793,646
              
              125,033,916
 
 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 DECEMBER 31, 2008
 
 
 No.
      of Shares
              Paid-in
      Capital and Par Value
              Accumulated
      Deficit
              Comprehensive
      Loss
              TotalDevelopment
      Stage
              Prior
      OperationsBalance
      at 12/31/04
              35,319,977
              $
      29,741,757
              $
      (29,652,400)
              $
      -
              $
      -
              $
      89,357Shares
      issued for:Cash
              2,000,000
              77,000
              
              
              
              77,000director
      services
              2,624,501
              248,567
              
              
              
              248,567Services
              8,231,288
              1,429,304
              
              
              
              1,429,304warrant
      expense
              -
              1,505,897
              
              
              
              1,505,897Compensation
              12,000,000
              2,040,000
              
              
              
              2,040,000equity
      swap investment
              1,500,000
              225,000
              
              
              
              225,000Net
      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)
              144,039Reclassification
      of accumulated deficit
              
              
              32,108,284
              (32,108,284)Shares
      issued for:Cash
              23,744,250
              1,905,990
              
              
              
              1,905,990director
      services
              6,698,000
              690,885
              
              
              
              690,885consulting
      service
              14,786,051
              1,724,639
              
              
              
              1,724,639accrued
      liabilities
              633,292
              132,539
              
              
              
              132,539cashless
      exercise of warrants
              1,129,935
              -
              
              
              
              -employee
      and contractor bonuses
              37,500
              42,188
              
              
              
              42,188Warrants
      issued for cash
              
              150,000
              
              
              
              150,000Warrants
      issued for services
              
              2,405,847
              
              
              
              2,405,847Modification
      of Warrants
              
              1,127,998
              
              
              
              1,127,998Net
      loss
              
              
              (8,599,770)
              
              
              (8,599,770)Other
      equity items
              
              (84,070)
              
              
              86,538
              2,468Balance,
      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)
              
              109,604Additional
      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 DECEMBER 31, 2008
 
 
 No.
      of Shares
              Paid-in
      Capital and Par Value
              Accumulated
      Deficit
              Comprehensive
      Loss
              TotalDevelopment
      Stage
              Prior
      OperationsBalance,
      12/31/06
              109,604,794
              43,363,541
              (11,528,434)
              (32,108,284)
              -
              (273,177)Shares
      issued forCash
              46,850,000
              1,479,518
              
              
              
              1,479,518O&D
      fees
              2,931,818
              126,435
              
              
              
              126,435Consulting
      service
              8,031,407
              1,068,028
              
              
              
              1,068,028accrued
      liabilities
              11,289,917
              510,151
              
              
              
              510,151cashless
      exercise of warrants
              76,873
              -
              
              
              
              -Technology  License
              2,000,000
              82,000
              
              
              
              82,000Warrants
      issued for services
              
              1,303,221
              
              
              
              1,303,221Technology
      License
              
              70,150
              
              
              
              70,150Beneficial
      conversion feature related to convertible note
              
              34,509
              
              
              
              34,509Net
      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)
              
              180,785Additional
      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 DECEMBER 31, 2008
 
 No.
      of Shares
              Paid-in
      Capital and Par Value
              Accumulated
      Deficit
              Comprehensive
      Loss
              TotalDevelopment
      Stage
              Prior
      OperationsBalance,
      12/31/07
              180,784,809
              48,037,553
              (17,014,569)
              (32,108,284)
              -
              (1,085,300)Shares
      issued forCash
              13,250,000
              178,000
              
              
              
              178,000O&D
      fees
              66,311,128
              658,780
              
              
              
              658,780Consulting
      service
              54,373,998
              510,746
              
              
              
              510,746Accrued
      liabilities
              47,984,818
              983,945
              
              
              
              983,945Cashless
      exercise of warrants
              18,584,615
              -
              
              
              
              -Cashful
      Warrants
              27,011,375
              173,290
              
              
              
              173,290Compensation
      expense
              27,000
              
              
              
              27,000Warrants
      issued for services
              196,170
              
              
              
              196,170Beneficial
      conversion feature related to convertible note
              94,403,861
              457,800
              
              
              
              457,800Net
      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)
              502,705Additional
      paid-in capital
              $50,720,579Plus
      1,000,000 shares of Preferred Stock at .001 par value
              
              
              
              
              1,000Total
      stockholders’ equity
              
              
              
              
              (1,717,437)
 
 
 
 
 
 The
accompanying notes are an integral part of these financial
statements.
 
  
  
 AMERICAN
SECURITY RESOURCES CORPORATION
 (A
DEVELOPMENT STAGE ENTERPRISE)
 CONSOLIDATED
STATEMENTS OF CASH FLOWS
 FOR
THE YEARS ENDED DECEMBER 31, 2008 AND 2007 AND THE PERIOD FROM OCTOBER 1,
2005
 (RE-ENTERING
OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2008
 
 Year
      Ended December 31, 2008
              
              Year
      Ended December 31, 2007 (restated)
              
              Re-entering
      Development Stage to 12/31/08CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              $
      (3,818,868)
              
              $
      (5,486,135)
              
              $
      (20,833,437)Adjustments
      to reconcile net loss to net cash from operating
    activities:Depreciation
      and amortization
              51,743
              
              61,851
              
              136,879Contingent
      penalty
              218,600
              
              -
              
              218,600Common
      stock issued for services
              1,732,669
              
              395,695
              
              8,566,178Preferred
      stock issued for services
              28,000
              
              
              
              28,000Loss
      on derivatives
              73,652
              
              -
              
              73,652Discount
      on convertible debenture, net
              -
              
              834
              
              834Stock
      option and warrant expense
              72,546
              
              2,022,243
              
              4,552,501Permanent
      impairment of investment available for sale
              -
              
              -
              
              225,000Contingent
      liquidated damages expense
              -
              
              -
              
              150,000Change
      in operating assets and liabilities:Prepaid
      expenses
              (158,823)
              
              (2,336)
              
              (159,576)Accrued
      interest receivable
              4,968
              
              -
              
              4,968Deferred
      finance costs
              (26,252)
              
              -
              
              (26,252)Accounts
      payable
              (17,883)
              
              285,475
              
              336,288Loss
      on license fee
              283,500
              
              198,571
              
              482,071Accrued
      liabilities
              212,414
              
              872,397
              
              1,275,553Accrued
      interest
              53,539
              
              -
              
              53,539Net
      cash used in operating activities
              (1,290,195)
              
              (1,651,405)
              
              (4,915,202)CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
              (1,571)
              
              (1,998)
              
              (151,832)Purchase
      of License Agreement
              (283,500)
              
              (25,001)
              
              (308,501)Net
      cash provided from (used in) investing activities
              (285,071)
              
              (26,999)
              
              (460,333)CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the sale of common stock
              303,000
              
              -
              
              2,124,920Shareholders
      loans
              (26,659)
              
              5,000
              
              (1,659)Paydown
      on note receivable
              575,000
              
              
              
              575,000Proceeds
      from convertible note
              665,000
              
              200,000
              
              865,000Net
      borrowings/(pay downs) on line of credit
              -
              
              -
              
              45,490Settlement
      of derivative liabilities
              (101,934)
              
              -
              
              (101,934)Proceeds
      from issuance of warrants
              173,290
              
              1,479,519
              
              1,802,809Net
      cash provided from financing activities
              1,587,697
              
              1,684,519
              
              5,309,626Net
      change in cash and cash equivalents
              12,431
              
              6,115
              
              (65,909)Cash
      and cash equivalents, beginning of period
              12,690
              
              6,575
              
              91,030Cash
      and cash equivalents, end of period
              25,121
              
              $
      12,690
              
              $
      25,121Supplemental
      disclosure of non-cash financing activities:Stock
      issued for accrued expenses
              $
      686,748
              
              $
      132,539
              
              $
      819,287Cashless
      exercise of warrants
              $18,585
              
              $
      1,130
              
              $
      19,715Cash
      paid for interest and income taxes
              $
      113,005
              
              $
      -
              
              $
      113,005
 
 The
accompanying notes are an integral part of these financial
statements
  
  AMERICAN
SECURITY RESOURCES CORPORATION
 (A
DEVELOPMENT STAGE ENTERPRISE)
 NOTES
TO FINANCIAL STATEMENTS
 
 NOTE
1 - ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
 Organization
 
 The
Company was incorporated in Nevada in 1998. It began operations as Computer
Automation Systems, Inc. In January of 2004, the Company was recapitalized and
its name was changed to Kahuna Network Security Inc. On July 2, 2004, the Board
of Directors voted to change the name of the Company to American Security
Resources Corporation (“ASRC” or “the Company”), a change that was ratified by a
majority of the Company’s shareholders in July of 2004.
 
 Significant Accounting
Policies
 
 Basis of
presentation
 
 The
consolidated financial statements include the accounts of American Security
Resources Corporation and its wholly-owned subsidiaries. Significant
inter-company accounts and transactions have been eliminated. Management
determined that ASRC, upon embarking on the new business plan of development and
marketing of the HydraStax hydrogen fuel cell, has re-entered the development
stage as defined in Statement of Financial Accounting Standards No. 7,
“Accounting and Reporting by Development Stage Enterprises”. Consequently, ASRC
has presented these financial statements in accordance with that Statement,
including losses incurred from October 1, 2005 (re-entering of development
stage) to December 31, 2008.
 
 Use
of Estimates
 The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect certain 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
 For
purposes of the statement of cash flows, ASRC considers all highly liquid
investments purchased with an original maturity of three months or less to be
cash equivalents.
 
 Property
and Equipment is valued at cost.
 Additions
are capitalized and maintenance and repairs are charged to expense as incurred.
Gains and losses on dispositions of equipment are reflected in operations.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets.
 
 Impairment
of Long-Lived Assets
 ASRC
reviews the carrying value of its long-lived assets annually or whenever events
or changes in circumstances indicate that the historical cost-carrying value of
an asset may no longer be appropriate. ASRC assesses recoverability of the
carrying value of the asset by estimating the future net cash flows expected to
result from the asset, including eventual disposition. If the future net cash
flows are less than the carrying value of the asset, an impairment loss is
recorded equal to the difference between the asset’s carrying value and fair
value.
 
 Intangible
Assets
 Intangible
assets with estimable useful lives are amortized over respective estimated
useful lives to their estimated residual values, and reviewed for impairment in
accordance with FASB Accounting Standards Codification 360, “Property, Plant and
Equipment” (ASC 360), previously referred to as Statement of Financial
Accounting Standards  No. 144, Accounting for Impairment or
Disposal of Long-Lived Assets.
 
 Research
and Development Costs
 All
research and development costs are expensed as incurred, including primarily
contracting costs.
  
  
 
 Income
Taxes
 The
Company accounts for income taxes in accordance with FASB Accounting Standards
Codification 740, “Income Taxes” (ASC 740), previously referred to as Statement
of Financial Accounting Standards No. 109, “Accounting for Income Taxes,”
and Financial Accounting Standard Board Interpretation No. 48, “Accounting
for Uncertainty in Income Taxes.” Under ASC 740, we recognize deferred tax
assets and liabilities for the future tax consequences attributable to temporary
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax basis. We measure deferred tax assets
and liabilities using enacted tax rates expected to apply to taxable income in
the years in which we expect those temporary differences to be recovered or
settled. We record valuation allowances to reduce our deferred tax assets to the
amount expected to be realized by considering all available positive and
negative evidence.
 
 Pursuant
to ASC 740, we must consider all positive and negative evidence regarding the
realization of deferred tax assets, including past operating results and future
sources of taxable income. Under the provisions of ASC 740-10, we
determined that our net deferred tax asset needed to be fully reserved given
recent results of operations.
 
 In June
2006, the Financial Accounting Standards Board issued Interpretation No. 48
(FIN 48), Accounting for Uncertainty in Income Taxes, also included in ASC
740. The Interpretation clarifies the accounting for uncertainty in income taxes
recognized in an enterprise’s financial statements and prescribes a recognition
threshold and measurement attributes of income tax positions taken or expected
to be taken on a tax return. Under FIN 48, the impact of an uncertain tax
position taken or expected to be taken on an income tax return must be
recognized in the financial statements at the largest amount that is
more-likely-than-not to be sustained upon audit by the relevant taxing
authority. An uncertain income tax position will not be recognized in the
financial statements unless it is more likely than not of being
sustained.
 
 Basic and Diluted Net Loss Per
Share
 The basic
net loss per common share is computed by dividing the net loss by the weighted
average number of common shares outstanding. Diluted net loss per common share
is computed by dividing the net loss adjusted on an "as if converted" basis, by
the weighted average number of common shares outstanding plus potential dilutive
securities. For the years ended December 31, 2008 and 2007, potential dilutive
securities had an anti-dilutive effect and were not included in the calculation
of diluted net loss per common share. The number of potentially dilutive
securities that were not included in the computation of diluted EPS because to
do so would have been antidilutive was 41,826,702 common stock potentially
issuable under outstanding options/warrants.
 
 Stock
Based Compensation
 Effective
December 15, 2005, we adopted the provisions of FASB Accounting Standards
Codification 718, “Compensation — Stock Compensation” (ASC 718), previously
referred to as Statement of Financial Accounting Standards No. 123R,
“Share-Based Payment” and applied the provisions of the Securities and Exchange
Commission Staff Accounting Bulletin No. 107 using the modified-prospective
transition method.  Under this transition method, compensation cost
recognized includes (a) the compensation cost for all share-based awards
granted prior to, but not yet vested, as of December 15, 2005, based on the
grant-date fair value estimated in accordance with the original provisions of
ASC 718 and (b) the compensation cost for all share-based awards granted
subsequent to December 15, 2005, based on the grant-date fair value estimated in
accordance with the provisions of ASC 718.  The Company had not issued
any options to employees in the prior periods thus; there was no impact of
adopting the new standard.
 
 Additionally,
we accounted for restricted stock awards granted using the measurement and
recognition provisions of ASC 718. We measure the fair value of the restricted
stock awards on the grant date and recognize them in earnings over the requisite
service period for each separately vesting portion of the
award.
 
 The
Company determines the value of stock options utilizing the Black-Scholes
option-pricing model. Compensation costs for share-based awards with pro rata
vesting are allocated to periods on a straight-line basis.
 
 Fair
Value of Financial Instruments
 The
Company’s financial instruments consist primarily of cash and cash equivalents,
accounts receivable and accounts payable. Management believes that the carrying
values of these assets and liabilities are representative of their respective
fair values based on their short-term nature.
  
  
 
 Recently issued accounting
pronouncements
 In
December 2007, the Financial Accounting Standards Board issued FASB Accounting
Standards Codification 805, “Business Combinations” (ASC 805), previously
referred to as Statement of Financial Accounting Standards No. 141R
“Business Combinations.” ASC 805 will require, among other things, the expensing
of direct transaction costs, in process research and development to be
capitalized, certain contingent assets and liabilities to be recognized at fair
value and earn-out arrangements may be required to be measured at fair value
recognized each period in earnings. In addition, certain material adjustments
will be required to
 be made
to purchase accounting entries at the initial acquisition date and will cause
revisions to previously issued financial information in subsequent filings. ASC
805 is effective for transactions occurring after the beginning of the first
annual reporting period beginning on or after December 15, 2008 and may
have a material impact on our consolidated financial position, results from
operations and cash flows should we enter into a material business combination
after the standards effective date.
 
 In March
2008, the Financial Accounting Standards Board issued FASB Accounting Standards
Codification 815, “Derivatives and Hedging” (ASC 815), previously referred
to as Statement of Financial Accounting Standards No. 161, “Disclosures
about Derivative Instruments and Hedging Activities — An Amendment to
SFAS 133” (SFAS 161). SFAS 161 applies to all derivative
instruments accounted for under ASC 815 and requires entities to provide greater
transparency on how and why entities use derivative instruments, how derivative
instruments are accounted for under ASC 815, and the effect the derivative
instruments may have on the results of operations and cash flows. ASC 815 is
effective for fiscal years and interim periods beginning after November 15,
2008. Since ASC 815 only applies to disclosures it has not had a material impact
on our consolidated financial position, results from operations, and cash
flows.
 
 In June
2009, the Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 167, “Amendments to FASB Interpretation
No. 46(R)” (SFAS 167). SFAS 167, addresses the effects of
eliminating the qualifying special-purpose entity (QSPE) concept from Statement
of Financial Accounting Standards No. 140, “Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities” and addresses
certain key provisions of FIN 46(R), including transparency of enterprises’
involvement with variable interest entities (VIEs). SFAS 167 is effective
for fiscal years beginning after November 15, 2009 and interim periods
within those fiscal years. We are currently assessing the implications of this
standard and evaluating the impact of adopting SFAS 167 on our consolidated
financial statements.
 
 
 NOTE
2 - GOING CONCERN
 As shown
in the accompanying consolidated financial statements, ASRC incurred recurring
losses from continuing operations of $3,818,868 and $5,486,135 in the years
ended 2008 and 2007, respectively. 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 business 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 - PROPERTY AND EQUIPMENT
 Property
and equipment consisted of the following at December 31, 2008:
 
 Description
              Life
              Amount
              Accumulated
      Depreciation
              Net
      Book ValueOffice
      furniture and equipment
              Generally
      5 years
              $43,199
              $
      22,739
              $
      20,460Equipment
              From
      3 to 7 years
              119,958
              66,876
              53,082Totals
              
              $
      163,157
              $
      89,615
              $73,542
 
 
 NOTE
4- INTANGIBLE ASSETS
 At
December 31, 2007, the Company’s intangible asset consisted of a license with
Ohio University for Hydrogen technology. Pursuant to the License Agreement dated
August 2, 2007 between the Company and Ohio University (the “License
Agreement”), the Company had a revocable, exclusive, royalty-bearing, worldwide
license in and to technology relating to ammonia fuel cell
electrolyzer.
  
  
 
 The
License Agreement has an initial term equal to the remaining life of Ohio
University’s patent, which was approximately 17 years.  At December
31, 2007, the Company has recorded $20,080 in amortization expense based on the
straight line method over the 17 years left on the initial 20 year life of the
patent.
 
 As
consideration for the license from Ohio University, the Company paid
$100,000, issued 2,000,000 shares of restricted stock, issued 2,000,000
warrants exercisable for a three year period at $0.041 per share (the closing
price on the transaction date) and agreed to provide the University with
$600,000 in sponsored research on the patent, all which in the aggregate the
Company valued at $819,300.   The Company determined the fair
value of the 2,000,000 shares of restricted stock by using the closing price
($.041 per share) of the stock on the Agreement. The warrants were valued at
$37,300 using the Black Scholes model as described in Note 9. Additionally, the
Agreement calls for the Company to pay a royalty of 4% of annual sales of
manufactured ammonia Electrolyzer units, 8% of net sales of Hydrogen fuel and
other products and services based on the Licensed Technology, Company
improvements or joint improvements.  The Company shall also pay Ohio
University 30% of the upfront fees, milestone fees, royalties and/or other
compensation or consideration received by the Company in exchange for the grant
of sublicense rights in any portion of the Licensed Technology, Company
improvements or joint improvements to persons or entities not party to the
License Agreement.  The Company has agreed to pay Ohio University an
annual development budget of $25,000 until the annual royalties due Ohio
University exceed $25,000.  A failure to comply with any of the above
requirements could result in the termination of the License Agreement by Ohio
University.
 
 At March
31, 2008, the Company was in default of the agreement due to non payment. . On
August 12, 2008, the Company paid Ohio University approximately $208,000 to
bring current its liability on the license fees and sponsored research
payments.
 During
the fourth quarter 2008, the Company was again in default and opted to terminate
its agreement with Ohio University and determined that the License Agreement did
not have any future economic benefit or any substantial value; as a result, the
Company wrote of the remaining balance of the intangible resulting in a loss of
$283,500.
 
 NOTE
5 – CONVERTIBLE DEBENTURE
 
 At
December 31, 2008, the Company had convertible debentures outstanding as
follows:
 
 Outstanding
      Balance of Convertible Debenture
              Unamortized
      DiscountDecember
      13, 2007 Debenture
              $437,200
              $162,373January
      17, 2008 Debenture
              -
              -February
      28, 2008 Debenture
              495,000
              401,817May
      16, 2008 Debenture
              50,000
              20,415Total
      Convertible Debentures at September 30, 2008
              $982,200
              $584,605
 
 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;
 
 ·
              $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 $575,000 and $200,000 pursuant to the Securities
Purchase Agreement during the years 2008 and 2007
respectively.  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 paid 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
2008 the investor converted $337,800 of the outstanding principal into
81,189,562 shares of common stock of the Company.  The Company also
received $575,000 in principal payments on the secured promissory note during
2008.
 
 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 at December 31, 2008. The Company also asserts that the
investor breached its agreement resulting in the acceleration of the remaining
balance plus a penalty (Note 14).
 
 The
Company has accrued an estimated penalty of $218,600 at December 31, 2008. 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.
 
 January
17, 2008 Debenture
 On
January 17, 2008, the Company entered into a Convertible Debenture Agreement
with an accredited investor for a $100,000 convertible debenture bearing
interest at 10% per annum, payable on or before November 30, 2008. There were
$10,000 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 debenture holder did  not have the
right to convert the debenture  until June 1, 2008, at which he
has  the right to convert at 80% of the average closing share price of
the five (5) trading days prior to conversion.  Prior to the
conversion date, the Company reserves the right to pay back the full amount of
principal plus any interest due at that time.  In the event that the
Company pays the debenture on or before May 31, 2008, a bonus (Conversion Bonus)
of share per dollar of principal will be paid to the debenture holder. The
Company found that this bonus results in a beneficial conversion feature which
was valued at $2,900. This feature was expensed on the date of
issuance.
 
 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 $14,282 and an offsetting
discount on debt of $14,282. We estimated the fair value of the derivative using
the Black-Scholes valuation method with assumptions including: (1) term of .2 –
3.4 years; (2) a computed volatility rate of 47.36% to750.34 % (3) a discount
rate of 1.37% 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.
  
  
 
 In July
2008, the investor converted the outstanding principal into 5,360,161 shares of
common stock of the Company.
 
 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 $7,292 for the year ended December 31, 2008.
 
 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 $558,412 and an offsetting loss on derivative of $43,412 and discount
on debt of $515,000. 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 year ended
December 31, 2008, $93,183 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 $9,507 was included in the statement of
operations as a net gain on the derivative liability.
 
 During
fiscal 2008, the investor converted $20,000 of the outstanding principal into
7,854,138 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.
 
 May
16, 2008 Debenture
 On May
16, 2008, the Company entered into a Convertible Debenture Agreement with an
accredited investor for a $50,000 convertible debenture bearing interest at 10%
per annum, payable on or before May 14, 2009.
 
 Pursuant
to the convertible debenture the debenture holder did  not have the
right to convert the debenture  until June 1, 2008, at which he
has  the right to convert at the lower of $0.20 per share or 80% of
the average closing share price of the five (5) trading days prior to
conversion.  Prior to the conversion date, the Company reserves the
right to pay back the full amount of principal plus any interest due at that
time. 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 $48,996 and an offsetting
discount on debt of $48,996. 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 of 132% (3) a discount rate of 2.17% 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 year ended
December 31, 2008, $28,581 was amortized and is included in interest expense.
The instrument was re-valued at year end, and the resulting change of $23,105
was included in the statement of operations as a reduction of the derivative
liability.
 
 Subsequent
to December 31, 2008, the holder of this convertible debenture converted the
outstanding principal and accrued interest into 39,772,727 shares of common
stock of the Company.
  
  
 
 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
$72,546. 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 tainted by the
derivative treatment.
 Derivative
      Liability 12/31/2008
              
              Gain
      (Loss) on Derivative Year Ended 12/31/08February
      28, 2008 Debenture
              $424,211
              
              $(24,211)May
      16, 2008 Debenture
              25,891
              
              23,105Warrants
      Outstanding
              72,546
              
              (72,546)Derivative
      Liability
              $522,648
              
              $(73,652)
 
 
 NOTE
6 - PREFERRED STOCK
 On
February 15, 2008, the board of directors and shareholders representing a
majority of the voting rights voted to amend its articles of incorporation to
designate its existing authorized 1,000,000 preferred shares, par value $0.001
as Series A Preferred Stock, par value $0.001 and establish a Series B Preferred
Stock, 1,000,000 shares authorized, par value $0.001.
 
 On
February 15, 2008, the Company’s directors and shareholders representing a
majority of the voting rights, voted to amended its articles of incorporation to
designate the existing 1,000,000 shares of preferred stock, par value $0.001 to
Preferred Series A Super Voting Convertible Preferred with voting rights equal
to five hundred (500) to one (1) on matters requiring a vote of the common stock
shareholders and further authorized the creation of 1,000,000 shares of Series B
Preferred Stock, par value $0.001.
 
 On
February 15, 2008, the board of directors and shareholders representing a
majority of the voting rights voted to issue Frank Neukomm, CEO, 666,667 shares
of Series A Preferred Stock and Robert Farr, President, 333,333 shares of Series
A Preferred Stock in return for their encumbering their personal share holdings
of approximately 12 million shares and for them  personally
guaranteeing a $400,000 convertible debenture agreement with an accredited
investor that the Company closed on February 29, 2008, that could possibly reach
$2,000,000 if further advances are made to the Company.  These Series
A Preferred shares are convertible into common stock on a 1 to 1 basis and
entitled to 500 to 1 Super Voting Rights on any issue requiring a shareholder
vote.  These Super Voting Rights shall expire with the expiry of the
obligations under the convertible debenture or at such time as holder of the
Series A Preferred Shares convert to common stock. The shares were valued at
market price at the date of issuance and expensed as compensation to executives.
The valuation of these shares was $28,000.
 
 There are
no Series B Preferred Shares issued and outstanding as of December 31,
2008.
 
 
 NOTE
7 - COMMON STOCK
 In 2005,
ASRC issued 2,624,501 shares of common stock to directors for services valued at
the then market price totaling $248,567 and issued 8,231,288 shares of common
stock to outsiders for services valued at the then market price totaling
$1,429,304.
 
 On June
30, 2005, we issued warrants to purchase 6,000,000 common shares to an outside
consultant. As such we recorded an expense of $1,505,897 during the quarter that
was estimated using the Black Scholes pricing model. Significant assumptions
used were (1) 2 year term, (2) volatility of 149.80%, (3) risk-free rate of 3.5%
and (4) dividends of zero.. Subsequently, the consultant exercised warrants to
purchase 2,000,000 shares for $77,000 in cash. The market value at the time of
the exercise was $780,000, but appropriately, there was no additional
compensation expense recorded. The remaining warrants were then cancelled. The
warrants contained no cashless provision.
 
 In 2005,
ASRC hired the original design engineers of eGo Designs, Inc. ("eGo") by issuing
12,000,000 shares as a hiring bonus for the design engineers to work for ASRC
and continue their development of the hydrogen fuel cell proto-type technology.
Although legally, this transaction was structured as a purchase agreement of the
outstanding shares of eGO Designs, ASRC examined the requirements under SFAS
141, “Accounting for Business Combinations,” and EITF 98-3, “Determining Whether
Nonmonetary Transactions Involve Receipt of Productive Assets or of a Business,”
to conclude that eGo Design, Inc was not a “business,” As such the transaction
was accounted for as a “hiring bonus,” and recorded as compensation expense
during 2005 in the amount of $2,040,000 which was equal to the market value of
the shares issued by ASRC to the original design engineers.
  
  In 2005,
ASRC issued 1,500,000 shares as an equity swap for 46,154 shares of common stock
of Strategic Growth Ventures, Inc. (the shares were issued to Wall Street
Insider Report), valued at the then market price totaling $225,000.
 
 In 2006,
ASRC issued 6,698,000 shares of common stock to officers and directors for
services valued at the closing price on the day before the issuance. As a result
of these issuances, we recognized a total expense of $690,885.
 
 In 2006,
ASRC issued 14,786,051 shares of common stock to outsiders for services. These
shares were valued at the closing price on the day before the issuance and, as a
result of these issuances, we recognized expenses totaling
$1,724,639.
 
 In 2006,
ASRC issued 1,570,792 common shares to contractors for incentives and bonuses.
We recognized expense of $174,727 related to these shares.
 
 In 2006,
ASRC issued 1,129,935 shares of common stock upon the cashless exercise of
warrants held by Goldbridge Capital.
 
 In 2006,
ASRC issued 23,744,250 shares of common stock for cash totaling $1,905,990.
$84,070 of this amount was not received until subsequent to December 31, 2006
and was deducted from additional paid in capital at December 31, 2006. Out of
the total shares issued for cash, 15,750,000 shares were related to his exercise
of warrants for cash proceeds of $1,324,675.
 
 In June
2007, there was a cashless exercise of warrants resulting in 76,873 shares of
common stock being issued.
 
 In 2007,
ASRC granted options to purchase 46,850,000 shares of its common stock pursuant
to a consulting contract with an exercise price equal to 70% of the average
closing price of the lowest 8 days of the prior twenty trading days and were
exercisable for 90 days. The value of the options was computed using the
Black-Scholes pricing model using the following input values and assumption: (1)
Stock price: the closing price on the day previous to the grant date; (2)
warrant exercise price equal to 70% of the weighted average price of the lowest
eight days of the prior twenty trading days; (3) volatility ranging from 95.62%
to 195.42%; (4) discount rate of 4.72% to 4.91%; (5) term of 90 days and (6) a
zero dividend rate.  The amount of expense recognized during 2007 in
connection with these warrants was $1,240,307 and is included in general and
administrative expenses for the year ended December 31, 2007.  All of
these options were exercised, resulting in cash receipts of
$1,479,518.
 
 On
January 30, 2007 ASRC issued 500,000 shares of our common stock to our Board of
Directors as compensation for their service. These shares were valued at $42,000
based on their market value in these financial statements. The amount is equal
to the fair value of the shares at the time the Board authorized their
issuance.
 
 During
the year ended December 31, 2007, ASRC issued 2,181,818 shares of our
common stock to our Chairman and Chief Executive Officer, Frank Neukomm and our
President and Chief Operating Officer in lieu of salaries which were due to them
as of December 31, 2006. These shares were valued at $74,182 based on their
market value at the date of grant.  ASRC also issued 250,000 shares of
stock to Frank Neukomm as compensation for a sales bonus.  These
shares were valued at $10,000.  The amount is equal to the fair value
of the shares at the time the Board authorized their issuance.
 
 During
the year ended December 31, 2007, ASRC issued 8,031,407 common shares to
external parties in exchange for consulting and legal services and recorded a
total expense of $349,006.  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 year ended December 31, 2007, ASRC issued 11,289,917 shares of stock in lieu
of compensation to consultants for services rendered at Hydra Fuel
Cell.  These shares were valued at $510,151 based on their market
value at the time of issuance, as reflected in these financial
statements.
 
 As
consideration for the license from Ohio University, the Company paid
$100,000, issued 2,000,000 shares of restricted stock, issued 2,000,000
warrants exercisable for a three year period at $0.041 per share (the closing
price on the transaction date) and agreed to provide the University with
$600,000 in sponsored research on the patent,.
 
 During
the year ended ending December 31, 2008, ASRC issued 13,250,000 common shares
for cash proceeds from private placements of $178,000.
 
 During
the year ended ending December 31, 2008, ASRC issued 19,611,375 common shares
for cash proceeds from warrant exercises of $86,290.
  
  
 
 During
the year ended December 31, 2008, ASRC granted options to purchase
7,400,000  shares of its common stock pursuant to a consulting
contract with an exercise price equal to 70% of the average closing price of the
lowest 8 days of the prior twenty trading days and were exercisable for 90 days.
The value of the options was computed using the Black-Scholes pricing model
using the following input values and assumption: (1) Stock price: the closing
price on the day previous to the grant date; (2) warrant exercise price equal to
70% of the weighted average price of the lowest eight days of the prior twenty
trading days; (3) volatility of 92% - 190%; (4) discount rate of  0.37
to 3.02%; (5) term of .2 to 3.4 years and (6) a zero dividend
rate.  The amount of expense recognized during the year ended 2008
with these warrants was $72,546 and is included in general and administrative
expenses.  All of these options were exercised, resulting in cash
receipts of $87,000.
 
 During
the year ended ending December 31, 2008, ASRC issued 28,113,618 common shares to
external parties in exchange for consulting and legal services and recorded a
total expense of $593,993.  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 year ended December 31, 2008 ASRC issued 74,245,198 shares of stock in lieu
of compensation to consultants for services rendered at Hydra Fuel Cell and
American Hydrogen.  These shares were valued at $900,698 based on
their market value at the time of issuance, as reflected in these financial
statements.
 
 During
the year ended December 31, 2008, there was a cashless exercise of 45,584,425
warrants resulting in the issuance of 18,584,615 shares of common
stock.
 
 During
the year ended ending December 31, 2008, ASRC issued 54,221,260 common shares
for officers and directors fees.  These shares were valued at $320,264
based on their market value at the time of issuance, as reflected in these
financial statements.
 
 
 During
the year ended December 31, 2008, ASRC issued 8,054,253 shares to our Chairman
and Chief Executive Officer, Frank Neukomm as indemnification for his pledging
an equal number of shares on the St. George Investments, LLC convertible
debenture transaction in February 2008 and also guaranteeing the convertible
debenture liability.  These shares were valued at $225,519 based on
their market value at the time of issuance.
 
 During
the year ended December 31, 2008, ASRC issued 4,035,615 shares to our President
and Director, Robert Farr as indemnification for his pledging an equal number of
shares on the St. George Investments, LLC convertible debenture transaction in
February 2008 and also guaranteeing the convertible debenture
liability.  These shares were valued at $112,997 based on their market
value at the time of issuance.
 
 
 NOTE
8 - STOCK-BASED COMPENSATION
 During
the year ended December 31, 2008, ASRC issued a total of 64,510,448 shares
of our common stock to our Chairman and Chief Executive Officer, Frank Neukomm,
our President and Chief Operating Officer, Robert Farr, and the President of our
subsidiary Hydra Fuel Cell, in lieu of compensation which were due to them.
These shares were valued at $619,780 based on their market value at the date of
grant.
 
 During
the year ended December 31, 2008, ASRC issued 500,000 shares of our common stock
to our Board of Directors as compensation for their service. These shares were
valued at $39,000 based on their market value in these financial statements. The
amount is equal to the fair value of the shares at the time the Board authorized
their issuance.
 
 During
the year ended December 31, 2008, ASRC issued 74,245,198shares of stock in lieu
of compensation to consultants for services rendered at Hydra Fuel
Cell.  These shares were valued at $900,698 based on their market
value at the time of issuance, as reflected in these financial
statements.
 
 During
the year ended December 31, 2008, ASRC issued 28,113,618 common shares to
external parties in exchange for consulting and legal services and recorded a
total expense of $593,993.  The expense is equal to the fair value of
the shares 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.
 
 
  
  
 NOTE
9 –WARRANTS AND OPTIONS
 In 2007,
ASRC granted options to purchase 46,850,000shares of its common stock pursuant
to a consulting contract with an exercise price equal to 70% of the average
closing price of the lowest 8 days of the prior twenty trading days and were
exercisable for 90 days. The value of the options was computed using the Black
Scholes pricing model using the following input values and assumption: (1) Stock
price: the closing price on the day previous to the grant date; (2) warrant
exercise price equal to 70% of the weighted average price of the lowest eight
days of the prior twenty trading days; (3) volatility ranging from 95.62% to
195.42%; (4) discount rate of 4.72% to 4.91%; (5) term of 90 days and (6) a zero
dividend rate.  The amount of expense recognized during 2007 in
connection with these warrants was $1,240,307 and is included in general and
administrative expenses for the year ended December 31, 2007.  All of
these options were exercised, resulting in cash receipts of
$1,471,049.
 
 On August
2, 2007, the Company issued Ohio University 2,000,000 warrants exercisable over
a three year period at the closing price of the Company’s common stock on the
closing date, which was $0.041 on August 2, 2007.  The Company valued
the warrants at $37,500 by using the Black Scholes model with assumptions
including: (1) three years: (2) a computed volatility rate of 117.24%: (3) a
discount rate of 4.57% and (4) zero dividends.  This amount was
written off in conjunction with the Company’s termination of the Ohio Agreement
(Note 4)
 
 In 2007,
ASRC issued 650,000 shares and granted warrants to purchase 650,000 shares of
our common stock pursuant to a Private Placement Memorandum with two accredited
investors whereby the investors purchased 650,000 Investment Units consisting of
(a) 1 share of common stock, (b) 1⁄2 of one option to purchase a share of our
common stock at $0.10 and (c) 1⁄2 of one option to purchase a share of our common
stock at $0.20. These warrants vested immediately and had a term of three years.
We allocated the proceeds of $32,500 to the warrants and common stock based on
the relative fair value of each. We estimated the fair value of these warrants
using the Black Scholes method with assumptions including: (1) term of 3 years;
(2) a computed volatility rate of 194.65% (3) a discount rate of 4.78 % and (4)
zero dividends. The relative fair value of these options was estimated to be
$18,931 and is included in general and administration expenses for the year
ended December 31, 2007.
 
 In 2007,
ASRC granted options to purchase 500,000 shares to each member of our Board of
Directors, to the Chief Technology Officer of our Hydra Fuel Cell subsidiary,
and our Chief Financial Officer with an exercise price equal to $0.071. The
options vested immediately and expire on December 31, 2011. We estimated the
fair value of these options using the Black Scholes method with assumptions
including: (1) term of 5 years; (2) a computed volatility 217% (3) a discount
rate of 4.78% and (4) zero dividends. The fair value of these options was
estimated to be $332,123 and is included in general and administrative expenses
for the year ended December 31, 2007.
 
 In 2007,
ASRC granted a distributor for 40,000,000 warrants, that are exercisable at the
lower of $0.03 or the lowest closing price at any time prior to the exercise of
any or all of the warrants that have a expiration date of December 18,
2008.  We estimated the fair value of these options using the Black Scholes
method with assumptions including: (1) term of 1 year; (2) a computed volatility
117% (3) a discount rate of 4.5% and (4) zero dividends. Based on the warrant
agreement, consulting expense of $719,022 was recorded as general and
administrative expense for the valuation of the warrants as of December 31,
2007.  During the year ended December 31, 2008, 19,611,489 warrants
were exercised for cash proceeds of $86,290.
 
 In 2008,
the Company granted warrants to purchase 15,000,000 shares of our common stock
pursuant to a Securities Purchase Agreement for cash proceeds of
$15,000.  The warrants are exercisable over a seven year period at a
closing price equal to $0.0297 per share, which was calculated based on 110% of
the VWAP on the trading day immediately before the closing date, as defined in
the agreement.  We estimated the fair value of these options using the
Black Scholes method with assumptions including: (1) term of 7 years; (2) a
computed volatility 190% (3) a discount rate of 1.2% and (4) zero
dividends.  The warrant agreement provided for a cashless exercise,
and during the year ended December 31, 2008, the holder of the warrants received
8,584,615 shares of common stock of the Company.
 
 In 2008,
the Company granted warrants to purchase an aggregate 10,000,000 shares of
common stock pursuant to a consulting agreement.  The warrants are
exerciseable over a one year period at an exercise price of $0.005 per
share.  We estimated the fair value of these options using the Black
Scholes method with assumptions including: (1) term of 1 year; (2) a computed
volatility 285% (3) a discount rate of 4.3% and (4) zero
dividends.  The fair value of these options was estimated to be
$11,826  and is included in general and administrative expenses for
the year ended December 31, 2008.
 
 In 2008,
the Company granted options to purchase 7,400,000 shares of its common stock
pursuant to a consulting contract with an exercise price equal to 70% of the
average closing price of the lowest 8 days of the prior twenty trading days and
were exercisable for 90 days. The value of the options was computed using the
Black Scholes pricing model using the following input values and assumption: (1)
Stock price: the closing price on the day previous to the grant date; (2)
warrant exercise price equal to 70% of the weighted average price of the lowest
eight days of the prior twenty trading days; (3) volatility ranging from 92% to
190%; (4) discount rate of 1.26% to 3.02%; (5) term of 90 days and (6) a zero
dividend rate.  The amount of expense recognized during 2008 in
connection with these warrants was $72,546 and is included in general and
administrative expenses for the year ended December 31, 2008.  All of
these options were exercised, resulting in cash receipts of
$87,000.
  
  The
Company evaluated all 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 $72,546. 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 of 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 liabilityassociated with the debt.
There were no other instruments found to be tainted by the derivative
treatment.
 
 Summary
of warrant and options information is as follows:
 
 Weighted
      Avg. Exercise Price
              Outstanding
      Beginning of Period
              New
      Grants
              Forfeitures
      and Cancellations
              Exercises
              Outstanding
      End of PeriodYear
      ended December 31, 2004
              $0.58
              -
              19,500,000
              -
              -
              19,500,000December
      31, 2004
              
              
              19,500,000
              -
              -
              19,500,0002005 Activity:2005
      Grants
              $0.30
              
              1,000,000
              -
              -
              1,000,0002005
      Grants
              $0.30
              
              5,000,000
              -
              -
              5,000,000Exercised
      for cash
              $0.04
              
              -
              -
              2,000,000
              (2,000,000)Cancelled
              $0.30
              
              -
              4,000,000
              -
              (4,000,000)December
      31, 2005
              $
      0.60
              19,500,000
              6,000,000
              4,000,000
              2,000,000
              19,500,0002006 Activity:Granted
      pursuant to consulting arrangements
              $
      0.08
              
              15,250,000
              -
              15,250,000
              -Forfeitures
      and cashless exercise
              $
      0.13
              
              -
              500,000
              1,500,000
              (2,000,000)Options
      granted to directors
              $
      0.19
              
              5,500,000
              -
              -
              5,500,000Granted
      pursuant to private placements
              $
      0.41
              
              1,119,250
              -
              -
              1,119,250Granted
      pursuant to warrant agreement
              $
      0.01
              
              50,000,000
              -
              -
              50,000,000December
      31, 2006
              $
      0.13
              19,500,000
              71,869,250
              500,000
              16,750,000
              74,119,2502007 Activity:Options
      granted to directors
              $0.07
              
              3,500,000
              
              
              3,500,000Grants
      pursuant to consulting agreements
              $.003
              
              87,500,000
              
              46,850,000
              40,650,000Cash
      less exercise
              
              
              
              
              76,873
              (76,873)Forfeits
              $0.03
              
              
              17,500,000
              
              (17,500,000)New
      grant
              $0.04
              
              2,000,000
              
              
              2,000,000December
      31, 2007
              
              74,119,250
              93,000,000
              17,500,000
              46,926,873
              102,692,3772008 Activity:Forfeitures
      and cashless exercise
              $0.0021
              
              
              20,669,761
              30,584,425
              (51,254,186)Grant
      to accredited investor
              $0.0017
              
              15,000,000
              
              15,000,000Grants
      for legal services
              $0.012
              
              7,400,000
              
              7,400,000Grants
      to consultants
              $0.005
              
              10,000,000
              
              
              10,000,000Exercised
      by consultants
              $0.044
              
              
              
              19,611,489December
      31, 2008
              
              102,692,377
              32,400,000
              (20,669,761)
              (72,595,914)
              41,826,702
 
 
  
  
 NOTE
10- INCOME TAXES
 ASRC uses
the liability method, where deferred tax assets and liabilities are determined
based on the expected future tax consequences of temporary differences between
the carrying amounts of assets and liabilities for financial and income tax
reporting purposes. During fiscal 2008 and 2007, ASRC incurred net losses and,
therefore, has no tax liability. The net deferred tax asset generated by the
loss carry-forward and temporary differences has been fully reserved. The
cumulative net operating loss carry-forward is approximately $15,800,000 at
December 31, 2008 and will expire in the years 2018 and 2026. The resulting
deferred tax asset arising from NOL carry forwards of $6,043,200 has been fully
reserved.
 
 
 NOTE
11 - RELATED PARTY TRANSACTIONS
 As
described in Note 7 above, during the year ended December 31, 2008, ASRC
issued a total of 64,510,448 shares of our common stock to our Chairman and
Chief Executive Officer, Frank Neukomm, our President and Chief Operating
Officer, Robert Farr, and the President of our subsidiary Hydra Fuel Cell, in
lieu of compensation which were due to them . These shares were valued at
$619,780 based on their market value at the date of
grant.
 
 During
the year ended December 31, 2008, ASRC issued 500,000 shares of our common stock
to our Board of Directors as compensation for their service. These shares were
valued at $39,000 based on their market value in these financial statements. The
amount is equal to the fair value of the shares at the time the Board authorized
their issuance.
 
 
 NOTE
12 - LEASES
 ASRC
leased office space under an operating lease during 2008 and 2007. The lease
agreement provided for monthly rent of $2,650 to be paid through March 31, 2012.
Additionally, ASRC’s subsidiary, Hydra Fuel Cell Corporation leases
approximately 5,000 square feet in Portland, Oregon for monthly rent of
$4,930.
 
 Minimum
lease payments due under non-cancelable leases over the next five years and
thereafter are as follows as of December 31, 2008:
 
 Year
      Ending December 31,2009
              $  31,8002010
              31,8002011
              31,8002012
              7,950Total
              $103,350
 
 
 Total
rent expense was $96,384 and $92,932 during 2008 and 2007,
respectively.
 
 
 NOTE
13 – COMMITMENTS AND CONTINGENCIES
 ASRC is
involved in pending litigation for alleged patent infringement by a third party
related to its hydrogen fuel cell technology. ASRC affirmatively defends its
position that it has not infringed on the third party patent. On August 14,
2008, the Company received a judgment in the United States District Court for
the District of Oregon that the plaintiff’s claims against the Company were
dismissed and the Company was awarded costs against the plaintiff in the amount
of $11,517.
 
 On
January 7, 2008, the Company entered into a lease/purchase agreement with Meigs
County Community Improvement Corporation of Pomeroy, Ohio on a 10,000 square
foot building and approximately 3 acres of property in Tuppers Plains,
Ohio.  The Company shall commence monthly payments of $7,049.89 on
February 1, 2009 for the fifteen-year term of the lease.  The Company
shall have an option to purchase the building and property during the term of
the lease for a sum of $800,000 less the amount of principal that has been paid
to date of closing based on a 6% interest rate.  During the fourth
quarter of 2008, we determined that this lease did not suite our operating needs
and negotiated a complete cancellation of the agreement effective in February
2009.  Both parties agreed no money or liability is due by us or the
lessor.  Consequently, we wrote off the capitalized asset and
corresponding lease obligation during 2008.
 
 As
previously mentioned, in Note 5, 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.
  
  NOTE
14 – SUBSEQUENT EVENTS
 In
February 2009, the holder of a $50,000 convertible debenture converted the
outstanding principal and accrued interest into 39,772,727 shares of common
stock of the Company.
 
 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.
 
 PART
III
 
 ITEM
9. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.
 On
November 13, 2008, McElravy, Kinchen Associates, P. C. was dismissed as the
independent auditor for the Company.
 
 McElravy,
Kinchen Associates, P. C. has served as the independent auditor  of
the Company’s annual financial statements from the period ending December 31,
2007 through the subsequent interim periods ended June 30, 2008.  From
the date on which McElravy, Kinchen Associates, P. C. was engaged until the date
they were dismissed, there were no disagreements with McElravy, Kinchen
Associates, P. C. on any matter of accounting principles or practices, financial
statement disclosure, or auditing scope or procedure, which disagreements, if
not resolved to the satisfaction of McElravy, Kinchen Associates, P. C., would
have caused McElravy, Kinchen Associates, P. C. to make reference to the subject
matter of the disagreements in connection with any reports it would have issued,
and there were no “reportable events” as that term is defined in Item 304(a) (1)
(iv) of Regulation S-B.
 
 McElravy,
Kinchen Associates, P.C.’s report on the Company’s financial statements for year
ended December 31, 2007, did not contain adverse opinions or disclaimers of
opinion, nor were they qualified or modified as to uncertainty, audit scope or
accounting principles.
 
 On
October 27, 2008, the Company executed an engagement letter with Clay Thomas, P.
C. to assume the role of its new certifying accountant. Clay Thomas P. C. has
been asked to perform the quarterly review of the Company for the quarter ended
September 30, 2008.
 
 On May
18, 2009, Clay Thomas PC resigned as the independent auditor for the
Company.
 
 Clay
Thomas PC served as the independent auditor of the Company’s financial
statements beginning from the period ending September 30, 2008 and restated
quarterly reports for the period ended March 31, 2008 and June 30,
2008.  From the date on which Clay Thomas PC was engaged until the
date they resigned, there were no disagreements with Clay Thomas PC on any
matter of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Clay Thomas PC., would have caused Clay Thomas PC to make
reference to the subject matter of the disagreements in connection with any
reports it would have issued, and there were no “reportable events” as that term
is defined in Item 304(a) (1) (iv) of Regulation S-B.  Clay Thomas PC
did not prepare any reports on the Company’s financial statement.
 
 On
January 19, 2010, PS Stephenson & Co., P. C. was appointed as the
independent auditor for American Security Resources Corporation (the
“Registrant”).
 
 The
Company had no discussions with PS Stephenson & Co., P. C., prior to their
appointment, regarding application of accounting principles to any transaction
completed or proposed, or the type of audit opinion that might be rendered on
the Company’s financial statements, nor was any discussion held on any matter
that is subject of a disagreement or a reportable event.
  
 Item 9A (T). Controls and
Procedures.
 
 Evaluation
of Disclosure Controls and Procedures
 The
Company maintains disclosure controls and procedures that are designed to ensure
that material information required to be disclosed by us in Securities Exchange
Act reports is recorded, processed, summarized and reported within the time
periods specified in the Securities and Exchange Commission’s rules and forms,
and that such information is accumulated and communicated to our management,
including the Chief Executive Officer and Chief Financial Officer, as
appropriate, to allow timely decisions regarding required
disclosure.
 
  
 Our Chief
Executive Officer and Chief Financial Officer have evaluated the effectiveness
of the design and operation of our disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act
of 1934) as of the end of the period covered by this
report.  Based on that evaluation, our Principal Executive Officer and
Principal Financial Officer concluded that, as of the end of the period covered
by this Annual Report, our disclosure controls and procedures were
ineffective.  The failure to timely file this annual report for 2008
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. Our management has concluded that the financial statements included
in this Form 10-K present fairly, in all material respects our financial
position, results of operations and cash flows for the periods presented in
conformity with generally accepted accounting principles.
 
 Changes in Internal
Controls
 During
the quarter ended December 31, 2008, there were no changes in our internal
controls over financial reporting that materially affected, or were reasonably
likely to materially affect, our internal control over financial
reporting.
 
 Limitations on the Effectiveness of
Controls
 Our
management, including our CEO and CFO, does not expect that our disclosure
controls and internal controls will prevent all errors and all fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative
to their costs. Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all control issues
and instances of fraud, if any, within the company have been detected. These
inherent limitations include the realities that judgments in decision-making can
be faulty, and that breakdowns can occur because of simple error or mistake.
Additionally, controls can be circumvented by the individual acts of some
persons, by collusion of two or more people, or by management override of the
control. The design of any system of controls also is based in part upon certain
assumptions about the likelihood of future events, and there can be no assurance
that any design will succeed in achieving its stated goals under all potential
future conditions; over time, a control may become inadequate because of changes
in conditions, or the degree of compliance with the policies or procedures may
deteriorate. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and not be
detected.
 
 CEO and CFO
Certifications
 Exhibits 31.1
and 31.2 are the Certifications of the CEO and the CFO, respectively. The
Certifications are required in accordance with Section 302 of the
Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of
this report, which you are currently reading is the information concerning the
Evaluation referred to in the Section 302 Certifications and this
information should be read in conjunction with the Section 302
Certifications for a more complete understanding of the topics
presented.
 
 Management’s
Report on Internal Control Over Financial Reporting
 Management
is responsible for establishing and maintaining adequate internal control over
our financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of the
Exchange Act). 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 of
America.
 
 Our
internal control over financial reporting includes those policies and procedures
that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of our assets,
(ii) provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with accounting
principles generally accepted in the United States of America, and that our
receipts and expenditures are being made only in accordance with authorizations
of our management and directors, and (iii) provide reasonable assurance
regarding prevention or timely detection of unauthorized acquisition, use or
disposition of our assets that could have a material effect on the financial
statements.
 
 Because
of its inherent limitations, 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 because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate. Our management, with the
participation of our Principal Executive Officer and Principal Financial
Officer, conducted an evaluation of the effectiveness of our internal control
over financial reporting based on the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Based on this evaluation, our Principal Executive Officer and
Principal Financial Officer concluded that, as of the end of the period covered
by this Annual Report, our internal control over financial reporting was
effective.
 
 This
Annual Report does not include an attestation report of our independent
registered public accounting firm regarding internal control over financial
reporting. Management's report was not subject to attestation by our independent
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit us to provide only management's report in
this Annual Report.
  
 ITEM
10 - Directors, Executives Officers, Promoters and Control Persons
 
 The
Company has adopted a Code of Ethics that applies to all of its Directors,
Officers (including its CEO, CFO and chief accounting officer and any person
performing similar functions) and all employees. The Code is attached hereto by
reference.
 
 Directors
and Executive Officers
 The
following table sets forth the names of all current directors and executive
officers of the Company as of December 31, 2007. These persons will serve until
the next annual meeting of the stockholders or until their successors are
elected or appointed and qualified, or their prior resignation or
termination.
 Name
              
              Positions
      Held
              
              Date
      of Election or DesignationRobert
      C. Farr
              
              President/COO
              
              11/23/05Director
              
              10/27/04Frank
      Neukomm
              
              Director
              
              02/25/04Secretary
              
              11/08/04Chairman/CEO
              
              11/21/05Robert
      J. Wilson
              
              Director
              
              07/21/05Marlin
      Williford
              
              CFO
      (1)
              
              07/05/07Sam
      Lindsey
              
              CFO
      (1)
              
              11/1/08John
      A. Wilkinson
              
              CFO
      (1)
              
              04/08/09Alvie
      T. Merrill
              
              Director
              
              10/11/06James
      R. Twedt
              
              Director
              
              10/11/06R.
      Brian Klock
              
              Director
              
              01/10/09
 
 (1)
              Mr.
      Williford performed the Chief Financial Officer duties for the Company on
      a contract basis until he was replaced by Mr. Lindsey. Mr. Lindsey was
      replaced by John A, Wilkinson CPA in April
2009.
 
 Business
Experience
 Frank
Neukomm (60), Chairman/ CEO, has an extensive background in finance, mergers and
acquisitions, and sales and marketing. Mr. Neukomm has served as a senior
executive of brokerage and M & A companies, software companies and telecom
companies. Mr. Neukomm has been instrumental in purchasing or starting companies
in industries as diverse as insurance, consumer retail goods, industrial
services and wireless telecommunications. Since 1995, Mr. Neukomm has served as
President of NeuHaus Advisors, Inc., a consulting firm to the telecommunications
industry.
 
 Robert
Farr (64), President/COO has extensive Fortune 500 management experience in a
variety of industries. His experience extends to domestic and international
finance, marketing, manufacturing and distribution. He is the Principal of
Creative Equity Strategies.
 
 John A.
Wilkinson, CPA, CFO, has over twenty years public accounting experience and CFO
experience. He previously served as chief accounting officer of Computer
Automation Systems Inc., a predecessor enterprise to ARSC.
 
 Robert J
Wilson , Director, is a CPA and an independent Director who serves as Audit
Committee Chairman.
 
 Alvie T.
Merrill, Director, is Chairman of Merrill-Zurich Inc., a diversified real estate
management and consulting firm. Mr. Merrill is also President of A. T. Merrill
Business Consulting that has advised over 200 public and private companies since
1980. Mr. Merrill has extensive public company experience from his consulting
activities and is active in numerous civic and charitable organizations in
hometown of Lake Jackson, Texas.
  
 James R.
Twedt, Director, has over forty years of public and private company accounting
and management experience. He has been the President and CEO of Hydra Fuel Cell
Corp. since inception and has led the subsidiary from startup to production in
less than twelve months. He previously served as CFO of Computer Automation
Systems, Inc., a predecessor enterprise to American Security Resources
Corp.
 
 R. Brian
Klock, Director, is a retired Naval officer with significant experience in
intelligence and financial matters.
 
 Compliance
with Section 16(a) of the Exchange Act
 Each of
the Company's directors and executive officers filed a Form 3 Initial Statement
of Beneficial Ownership of Securities with the Securities and Exchange
Commission. To the best knowledge of management, all reports required to be
filed by members of management under Section 16(a) of the 1934 Act have been
filed.
 
 Item 11. Executive
Compensation.
 Messrs.
Robert Farr, Director and Chief Operating Officer, and Frank Neukomm, Chairman
and Chief Executive Officer, each had $12,000 per month compensation accrued
during 2008 and 2007 for a total annual amount of $144,000, respectively. Of
that amount, Frank Neukomm was paid $108,500 and Robert Farr was paid $96,500 in
cash during 2008.  Both Frank Neukomm and Robert Farr were paid
$66,000 in 2007.  Mr. Newton, Chief Financial Officer, received no
cash compensation during 2008 and 2007.
 
 Additionally,
Messrs. Farr and Neukomm received 4 million and 1 million warrants,
respectively, to purchase common shares of the Company. The option strike price
is $0.19, expire on January 23, 2011 and contain a cashless provision. These
warrants make up the value in the “All Other” column in the table
below.
 
 Executive
compensation for 2007, 2006 and 2005 were as follows:
 
 Name
              Position
      or Title
              Year
              Salary
              Bonus
              Stock
      Awards
              All
      OtherRobert
      Farr
              Chief
      Operating Officer
              2008
              $
      144,000
              $
      -
              $
      -
              $
      -2007
              $144,000
              -
              -
              -2006
              144,000
              -
              190,000
              755,1732005
              10,200
              -
              -
              -Frank
      Neukomm
              Chief
      Executive Officer
              2008
              144,000
              -
              -
              -2007
              144,000
              -
              -
              -2006
              144,000
              30,000
              190,000
              188,7932005
              35,000Randall
      Newton
              Chief
      Financial Officer
              2008
              -2007
              -
              -
              -
              -2006
              -
              -
              135,200
              -2005
              -
              -
              -
              -Marlin
      Williford
              Chief
      Financial Officer
              2007
              -
              -
              25,000
              4,500On
      May 1, 2006, Mr. Farr received 121,277 shares, and Mr. Neukomm received
      114,891 shares in settlement of unpaid salary accrued but not paid at
      March 31, 2006.
 
 Except as
set forth above, no cash compensation, deferred compensation or long-term
incentive plan awards were issued or granted to the Company's management during
the calendar years ended December 31, 2007 and 2006.
 
 Compensation
of Directors
 Certain
Directors were compensated with restricted stock during 2008 and 2007 for
attending meetings and for work performed.  Total stock awarded was
500,000 shares in 2008 and 2007, respectively. Additionally, one director was
awarded warrants to purchase common shares of the Company. The option strike
price is $0.19, expire on January 23, 2011 and contain a cashless
provision.
 
  
 Item 12. Security Ownership of
Certain Beneficial Owners and Management.
 
 Security Ownership of Certain
Beneficial Owners.
 The
following table sets forth the share holdings of officer, directors and those
persons who own more than five percent
 of the
Company's common stock, including stock options, outstanding as of the date of
this Report, assuming 7,349,975,068
 shares
are outstanding (the number outstanding at the date of this
report):
 Name
      and Address
              Type
      of Ownership
              No.
      of Shares Beneficially Owned
              Percent
      of ClassFrank
      Neukomm
                19
      Briar Hollow Lane, Suite 125
                Houston,
      TX 77027
              Personal
              162,879,116
              2.2%Robert
      Farr
                19
      Briar Hollow Lane, Suite 125
                Houston,
      TX 77027
              Personal
              189,352.948
              2.58%James
      Twedt
                19
      Briar Hollow Lane, Suite 125
                Houston,
      TX 77027
              Personal
              25,718,636
              .0035%
 
 *Mr.
Neukomm’s share number includes 162,500 shares held by The Neukomm Children’s
Trust for which he is the trustee.
 
 
 Item 13. Certain Relationships and
Related Transactions.
 
 There
have been no material transactions, series of similar transactions, currently
proposed transactions, or series of similar transactions, to which the Company
and any director, executive officer, five percent stockholder or associate of
any of these persons is or was a party.
 
 Mr.
Robert Farr, President and COO is in a social relationship with MS Diane
Lundell, P & L Solutions, which provides Peachtree advisory services and
consults on bookkeeping matters with the Company.  Ms Lundell has no
control or involvement with the Company’s cash or financial decision
making.
 
 
 Item
14. Principal Accountant Fees and Services
 
 (1)  Audit
Fees
 The
aggregate fees billed for each of the last two fiscal years for professional
services rendered by the principal accountant for the audit of the registrant's
annual financial statements and review of financial statements included in the
registrant's Form 10-Q or services that are normally provided by the accountant
in connection with statutory and regulatory filings or engagements for the
fiscal years ending December 31, 2008 and 2007 were: $22,000 and $25,050
respectively.
 
 (2) Audit-Related
Fees
 The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountant that are reasonably related to the
performance of the audit or review of the registrant's financial statements and
are not reported under item (1) for the fiscal years ending December 31, 2008
and 2007 were: $0 and $0, respectively.
 
 The
nature of the services comprising the fees herein disclosed are: none
provided.
 
 (3) Tax Fees
 The
aggregate fees billed for professional services rendered by the principal
accountant for tax compliance, tax advice, and tax planning for the fiscal years
ending December 31, 2008 and 2007 were: $0 and $0, respectively.
 
 The
nature of the services comprising the fees herein disclosed are: none
provided
 
 (4) All Other Fees
 No
aggregate fees were billed for professional services provided by the principal
accountant, other than the services reported in items (1) through (3) for the
fiscal years ending December 31, 2008 and 2007.
 
  
  (5) Audit Committee
 The
registrant's Audit Committee, or officers performing such functions of the Audit
Committee, have approved the principal accountant's performance of services for
the audit of the registrant's annual financial statements and review of
financial statements included in the registrant's Form 10-Q or services that are
normally provided by the accountant in connection with statutory and regulatory
filings or engagements for the fiscal year ending December 31, 2008.
Audit-related fees, tax fees, and all other fees, if any, were approved by the
Audit Committee or officers performing such functions of the Audit
Committee.
 
 (6) Work Performance by
others
 None
 
 PART
IV
 
 Item
15. Exhibits and Reports on Form 8-K.
 
 Reports
on Form 8-K. --   None
 
 31.1
              Certifications
      of the Chief Executive Officer and Chief Financial Officer required by
      Rule 13A-14 or Rule 15D-14 under the Securities Exchange Act of 1934, As
      Amended32.1
              Certification
      of the Chief Executive Officer and Chief Financial Officer Pursuant to 18
      U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the
      Sarbanes-Oxley Act of 2002
  
  
 Signatures
  Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
  
  Signature
              
              Title
              
              Date/s/Frank
      Neukomm
              
              Chief
      Executive Officer
              
              March
      4, 2010Frank
      Neukomm
 
  Pursuant
to the requirements of the Securities Exchange Act of 1934, as amended, this
report has been signed below by the following persons in the capacities and on
the dates indicated.
  
  Signature
              
              Title
              
              Date/s/Frank
      Neukomm
              
              Chief
      Executive Officer and Chairman
              
              March
      4, 2010Frank
      Neukomm
              
              (Principal
      Executive Officer)/s/Robert C.
      Farr
              
              President,
      Chief Operating Officer and Director
              
              March
      4, 2010Robert
      C. Farr/s/John
      A Wilkinson
              
              Chief
      Financial Officer
              
              March
      4, 2010John
      A Wilkinson/s/Robert
      J. Wilson
              
              Director
              
              March
      4, 2010Robert
      J. Wilson/s/Alvie
      T. Merrill
              
              Director
              
              March
      4, 2010Alvie
      T. Merrill/s/James
      R. Twedt
              
              Director
              
              March
      4, 2010James
      R. Twedt