UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON,
D.C. 20549
 
 FORM
10-KSB/A
 
 x
              ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934
 For the
fiscal year ended December 31, 2007
 
 o
              TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF
      1934
 Commission
file number 000-27419
 
 AMERICAN
SECURITY RESOURCES CORPORATION
 (Exact
name of small business issuer as specified in its charter)
 
 Nevada
              
              90-0179050(State
      or other jurisdiction of incorporation or organization)
              
              (I.R.S.
      Employer Identification No.)9601
      Katy Freeway, Suite 220
                Houston,
      Texas
              
              77024(Address
      of principal executive offices)
              
              (Zip
      Code)
 
 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
 
 Check
whether the Issuer (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. (1) Yes X No (2) Yes X No





Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is not contained in this form, and no disclosure will 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-KSB
or any amendment to this Form 10-KSB. [X]





Issuer’s
revenues for the fiscal year ended December 31, 2007, were $0.00.





The
aggregate market value of the voting and non-voting common equity held by
non-affiliates of the Issuer as of December 31, 2007 based upon the average bid
and asked price as of such date on the OTC Bulletin Board was
$4,744,000.





The
Registrant’s common stock outstanding as of December 31, 2007 was 180,784,809
shares.





Transitional
Small Business Disclosure Format (Check One): Yes [ ] No [X]

















EXPLANATORY
NOTE





This
Amendment to the annual report on Form 10-KSB/A is being filed to amend our
annual report on Form 10-KSB for the year ended December 31, 2007 which was
originally filed on April 15, 2008.





We are
filing this Form 10-KSB/A to amend and restate Part II, Item 6 Management’s
Discussion and Analysis of Financial Condition and Results of
Operations and Part II, Item 7 Financial Statements.





As
previously reported in a current report on Form 8-K filed on August 19, 2008,
the Company concluded that, due to adjustments described below and in Note 2 of
the Note to the Financial Statements included herein, (1) our previously issued
financial statements and any related reports of our independent registered
public accounting firm for the year ended December 31, 2007 should no longer be
relied upon because of such error in those financial statements,
(2)  our earnings and press releases and similar communications should
no longer be relied upon to the extent that they relate to those financial
statements, (3) our financial statements and Form 10-KSB for the fiscal year
ended December 31, 2007 should be restated to reflect the correct accounting for
the expense related to warrants that had not been previously recorded, and (4)
our financial statements and Form 10-KSB for the fiscal year ended December 31,
2007 should be restated to reflect the write-off of our intangible assets
associated with our licensed patent from the University of Ohio.





In
preparing the financial statements for the quarter ended June 30, 2008, the
Company, through procedures performed by our independent auditors, determined
that it had failed to recognize an agreement dated December 17, 2007 with 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.   As the result of this error, we are restating our
financial statements and associated disclosures to include the cost associated
with the warrants.  The error resulted in the understatement of
non-cash expenses and a corresponding understatement of net loss by $719,022,
for the year ending December 31, 2007 and for the Period of Re-Entering the
Development Stage to December 31, 2007.  The restatement impacted certain
line items within cash flows from operations, but had no effect on total cash
flows from operations and did not impact cash flows from financing or investing
activities.  This restatement had no impact on the balance sheets,
statements of operations or the net decrease in cash and cash equivalents
reported in the statements of cash flows for any periods reported prior to
October 1, 2007.





On August
2, 2007 the Company entered into a license agreement with Ohio University for
technology relating to ammonia fuel cell electrolyzer.  Subsequent to
December 31, 2007, it was determined that the Company was in default of the
agreement due to non payment. Therefore, as part of the restatement in Note 2,
the Company has written-off the intangible asset and the associated liabilities
on all payments to be made after December 31, 2007, resulting in a loss on the
license fee of $198,571.  On August 12, 2008, the Company paid
Ohio University approximately $208,000 to bring current its
liabilities on the license fees and the sponsored
research payments.








For the
convenience of the reader, this Form 10-KSB/A, sets forth the Original Form
10-KSB in its entirety, as amended by this Form 10KSB/A.  However, this
Form 10-KSB/A amends only Item 6 and 7 of Part II in their entirety, in each
case, solely as a result of, and to reflect, the Restatement, and, except as
noted above, no other information in the Original Form 10-KSB is amended hereby.
 In addition, Item 15 of Part IV of this Form 10-KSB/A has been amended to
contain the currently-dated certifications from our Chief Executive Officer and
Chief Financial Officer required under Sections 302 and 906 of the
Sarbanes-Oxley Act of 2002.  These certifications are attached to this Form
10-KSB/A as Exhibits31.1, 31.2, 32.1, and 32.2.





This Form
10-KSB/A does not reflect events occurring after the filing of the Original Form
10-KSB, and does not modify or update the disclosures therein in any way other
than as required to reflect the adjustments described above.

















AMERICAN
SECURITY RESOURCES CORPORATION





INDEX
TO FORM 10-KSB/A


December
31, 2007








Part I
            
            Page
      No.Item
      1.
            Description
      of Business
            1Item
      2.
            Description
      of Property
            3Item
      3.
            Legal
      Proceedings
            3Item
      4.
            Submission
      of Matters to a Vote of Security Holders
            3Part IIItem
      5.
            Market
      for Common Equity and Related Stockholder Matters
            3Item
      6.
            Management’s
      Discussion and Analysis and Results of Operations and Financial Condition
      (Restated)
            6Item
      7.
            Financial
      Statements (Restated)
            10Item
      8.
            Changes
      in and Disagreements with Accountants on Accounting and Financial
      Disclosure
            30Item
      8A.
            Controls
      and Procedures
            30Part
      IIIItem
      9.
            Directors,
      Executive Officers, Promoters and Control Persons, Compliance with Section
      16(a) of the Exchange Act
            31Item
      10.
            Executive
      Compensation
            33Item
      11.
            Security
      Ownership of Certain Beneficial Owners and Management
            34Item
      12.
            Certain
      Relationships and Related Party Transactions
            34Item
      13.
            Principal
      Accountant Fees and Services
            34Part
      IVItem
      14.
            Exhibits
      and Reports on Form 8-K
            35

























Some of
the statements contained in this report discuss future expectations,
contain projections of results of operations or financial condition, or
state other "forward-looking" information. The words "believe," "intend,"
"plan," "expect," "anticipate," "estimate," "project" and similar expressions
identify such statement was made. These statements are subject to known and
unknown risks, uncertainties, and other factors that could cause the actual
results to differ materially from those contemplated by the statements. The
forward-looking information is based on various factors and is derived using
numerous assumptions:




- changes
      in general economic and business conditions affecting security
      technology;- technical
      developments that make the Company's products or services
      obsolete;- changes
      in the Company's business strategies;- the
      level of demand for the Company's products or services;- the
      Company's ability to develop or maintain strategic relationships; and
      global economic conditions.





The
Company does not promise to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements. Future events and actual results could materially differ from those
expressed in, contemplated by, or underlying such forward-looking
statements.

























PART
I





ITEM
1. DESCRIPTION OF BUSINESS




Overview





AMERICAN
SECURITY RESOURCES CORPORATION (the “Company” or ARSC) is a holding company with
three wholly owned subsidiaries.  Hydra Fuel Cell Corporation has
completed the initial development stage of the HydraStax® unit and testing for
certification is currently underway.  We have also formed two new
subsidiaries in the last twelve months to pursue the development of clean energy
sources. We formed American Wind Power Corporation that is negotiating the
acquisition of manufacturing and intellectual property for residential wind
turbines that spin in a horizontal plane. Additionally, we formed American
Hydrogen Corporation to develop and commercialize a technology to formulate
hydrogen that we hope will change the economics of producing hydrogen
sufficiently to enable the hydrogen economy. These two new technologies are
currently in the development stage and we expect to be able to assess their
costs and values some time later in the year.





Hydra
Fuel Cell Corporation completed the initial development stage 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 installed a HydraStax® fuel cell in a residence in Texas in
October 2007 and in Florida in December 2007, as “Beta Test demonstration
units”.  This is a milestone for Hydra and for the fuel cell industry.
Hydra continues to vigorously defend itself from claims of patent infringement
brought by a third party in 2006. Hydra’s fuel cell is original and Hydra
categorically denies that it infringes on any patents.  We estimate
that our Hydra Fuel Cell subsidiary will require approximately $2 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 a technology
to formulate hydrogen that we believe will change the economics of producing
hydrogen sufficiently to enable the hydrogen economy.  In August of
2007, American Hydrogen Corporation was granted a worldwide exclusive license
for patent pending ammonia-to-hydrogen catalytic electrolyzer technology (ACE)
by Ohio University that will be the basis of operations for AHC.  The
first ACE units will be matched to the fuel cells made by
Hydra.   AHC has also entered into a Sponsored Research Agreement
with Ohio University to develop larger commercial electrolyzer technology and to
develop an ammonia to hydrogen fueling system for
vehicles.  Subsequent to December 31, 2007, it was determined that the
Company was in default of the agreement due to non payment. As part of the
restatement in Note 2 to the December 31, 2007 included herein, the Company has
written-off the intangible asset and the associated liabilities on all payments
to be made after December 31, 2007, resulting in a loss on the license fee of
$198,571.   On August 12, 2008, the Company paid
Ohio University approximately $208,000 to bring current its
liabilities on the license fees and the sponsored
research payments.





The
Company continues to review acquisition opportunities that would enhance
its fuel cell offerings and expand its offerings in alternative energy
production.





Hydra is
concentrating on a Proton Exchange Membrane (PEM) fuel cell which utilizes a
specialized flexible membrane which allows the electron which is split from the
Hydrogen atom to pass through the membrane onto the “Cathode”. This stream of
electrons develops a continuous flow that becomes the electrical power output of
the fuel cell.





Hydra’s
fuel cell is a unique design which utilizes a board that has thousands of tiny
holes. The design also includes a proprietary gasket and manifold that supplies
Hydrogen across the entire area of the PEM, thus significantly increasing the
efficiency of the unit. Hydra’s target markets are stationary fuel cells between
500 watts and 40 kW and can be used as either backup power sources or primary
power sources.





The
Company’s Internet address is http://www.americansecurityresources.com.
Information contained on the Company’s web site is not a part of this report.
The Company’s stock is traded on the OTC Bulletin Board under the symbol
“ARSC.”







1














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
2008. Additionally, the Company is developing technology to produce hydrogen at
a reduced cost.




Employees


As of
December 31, 2007, the Company had two full-time employees. None of the
Company’s employees are covered by any collective bargaining agreements.
Management believes that its relations with its employees 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 proprietary hydrogen
generator.





The
Company’s subsidiary, American Wind Power Corporation, 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 two 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.













2














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 network security
services markets and homeland security services, resulting in changes in the
market price of the stock 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 1,800 square feet of office space at 9601 Katy Freeway, Ste
220, Houston, TX 77024, for approximately $2,365 per month through March 31,
2009. Additionally, the Company’s Hydra Fuel Cell subsidiary leases
approximately 2,625 square feet of office 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 pending litigation
for alleged patent infringement by a third party regarding their patent. The
Company has made attempts to seek settlement of this matter with the opposing
party, however, the Company affirmatively defends its position that it has not
infringed on the third party patent. An evaluation of the likelihood of an
unfavorable outcome regarding the above mentioned matter is too preliminary at
this time to determine. The Company will continue to assess the impact in future
periods.





ITEM
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


No
shareholder meetings were held during the calendar year ended December 31,
2007.








PART
II





Item 5. Market for Common Equity and
Related Stockholder Matters.





Market
Information.


The
Company’s common stock trades on the OTC Bulletin Board under the symbol “ARSC”.
The market for the Company’s common stock on the OTC Bulletin Board is limited,
sporadic and highly volatile.





The
following quotations were provided by 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, 2006
            $
      0.610
            $
      0.150June
      30, 2006
            $
      0.310
            $
      0.120September
      30, 2006
            $0.155
            $0.075December
      31, 2006
            $
      0.095
            $
      0.031March
      31, 2007
            $
      0.10
            $
      0.03June
      30, 2007
            $
      0.06
            $
      0.04September
      30, 2007
            $
      0.04
            $
      0.04December
      31, 2007
            $
      0.05
            $
      0.03







3














Holders


The
number of record holders of the Company's securities as of the date of this
Report is approximately 321.





Dividends


The
Company has not declared any cash dividends with respect to its common stock,
and does not intend to declare dividends in the foreseeable future. The future
dividend policy of the Company cannot be ascertained with any certainty, and if
and until the Company completes any acquisition, reorganization or merger, no
such policy will be formulated. 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


On March
31, 2006 we issued 820,999 shares to the management team of out Hydra Fuel Cell
subsidiary for achieving certain milestones relating to the development of our
fuel cell unit. Also on March 31, 2006, we issued 300,000 shares to Robert Farr,
Robert Wilson and Frank Neukomm for Directors’ fees. Also on March 31, 2006, we
issued 300,000 shares to Randall Newton, CPA as compensation for his role as the
Company Chief Financial Officer.





On
February 2, 2006, we issued 879,935 shares to James Carrol as a cashless
exercise of warrants.





On March
2, 2006, pursuant to a consulting agreement, we issued 500,000 shares to John
Anderson.





On March
24, 2006, pursuant to a Private Placement Memorandum, we issued 2,938,000 shares
to a series of accredited investors and received $419,500.





On April
11, 2006, pursuant to a consulting agreement, we issued 100,000 shares to John
Wilkinson. Also on April 11, 2006, we issued 600,000 shares to CEOCast pursuant
to our contract for their services.





On May 1,
2006, we issued 56,382 shares to Bob Schafer and 82,979 shares to Ed Davis in
lieu of salaries.





On May 1,
2006, we issued 121,277 shares to Creative Equities in lieu of salary payable to
Robert Farr, a Director of the Company. Mr. Farr is a principal of Creative
Equities.





On June
6, 2006, we issued 100,000 shares to Joe Grace, the previous Chief Executive
Officer of American Security Resources in lieu of a contractual obligation of
the Company resulting from Mr. Grace’s departure as CEO.





On June
22, 2006, pursuant to a Private Placement Memorandum, we issued 300,000 shares
to an accredited investor for $30,000 in cash.





On June
27, 2006, pursuant to a consulting agreement, we issued 200,000 shares to
Colebrook.





On July
31, 2006, pursuant to a consulting arrangement, we issued 1,100,000 shares to
Crescent Fund.





On August
31, 2006, pursuant to an authorization of the Board of Directors, we issued
4,298,000 to Robert Farr, Frank Neukomm and Edward Davis as milestone incentive
payments.





On
October 19, 2006, we issued 100,000 shares each to Alvie T. Merril and James
Twedt as a Directors’ fees. Also on October 19, we issued 281,250 shares as an
“equity kicker” to certain accredited investors relating to our Private
Placement Memorandum.





On
October 20, 2006, pursuant to a consulting agreement, we issued 1,500,000 shares
to George Miller Co.





On
December 12, 2006, pursuant to a Private Placement Memorandum with certain
accredited investors, we issued 1,475,000 shares and received $32,745 in
cash.





On
December 7, 2006, pursuant to a consulting agreement, we issued 2,000,000 shares
to Audio Stocks. Also on that date, we issued 937,500 shares to certain
contractors of our Hydra Fuel Cell subsidiary as bonuses.





On
December 22, 2006, pursuant to a Private Placement Memorandum, we issued
3,000,000 shares to certain accredited investors for $76,570 in cash that was
received in January, 2007.





4














On
December 22, 2006, we issued 1,500,000 shares to Frank Neukomm as a
bonus.





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, all which in the aggregate the
Company valued at $819,300.





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.













5
















Item 6. 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 contracted with engineers to begin our hydrogen fuel cell division. 
Through 2006, our subsidiary Hydra Fuel Cell, Inc.  (“Hydra”) continued the
development and testing of its HydraStax® hydrogen electric generators. 
Seven patent applications have been filed covering some of the innovations
incorporated in the HydraStax® and we intend to file additional patent
applications.




Our Hydra
Fuel Cell subsidiary completed the initial development stage of the HydraStax®
unit and testing for certification is currently underway. We believe that the
HydraStax® unit's cost per kilowatt hour will be significantly below that of our
competitors, giving us a competitive edge. Thus, upon certification we intend to
aggressively market these units.  We are actively pursuing financing
to begin manufacturing and distribution.





We formed
two new subsidiaries in 2007 to pursue the development of clean energy sources.
We formed American Wind Power Corporation that is negotiating the acquisition of
manufacturing and intellectual property for residential wind turbines that
spin in a horizontal plane.  Additionally, we formed American Hydrogen
Corporation to develop and commercialize a technology to formulate hydrogen that
we hope will change the economics of producing hydrogen sufficiently to enable
the hydrogen economy.





All three
of the Company’s subsidiaries had significant events in 2007.





Our Hydra
Fuel Cell subsidiary completed the initial development stage 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 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 are milestones for Hydra and for the fuel
cell industry. Hydra continues to vigorously defend itself from claims of patent
infringement brought by a third party in 2006.  Hydra’s fuel cell is
original and Hydra categorically denies that it infringes on any
patents.





American
Wind Power Corporation is in the process of acquiring two companies with
vertical axis wind turbine technologies.  The Company has engaged NW
Financial of Jersey City, NJ to arrange the financing for these
acquisitions.










6

















American
Hydrogen Corporation (AHC) was formed to develop and commercialize a technology
to formulate hydrogen that we believe will change the economics of producing
hydrogen sufficiently to enable the hydrogen economy.  In August 0f
2007, American Hydrogen Corporation was granted a worldwide exclusive license
for patent pending ammonia-to-hydrogen catalytic electrolyzer technology (ACE)
by Ohio University that will be the basis of operations for AHC.  The
first ACE units will be matched to the fuel cells made by
Hydra.    AHC has also entered into a Sponsored Research
Agreement with Ohio University to develop larger commercial electrolyzer
technology and to develop an ammonia to hydrogen fueling system for
vehicles.  Subsequent to December 31, 2007, it was determined that the
Company was in default of the agreement due to non payment. As part of the
restatement in Note 2 to the December 31, 2007 included herein, the Company has
written-off the intangible asset and the associated liabilities on all payments
to be made after December 31, 2007, resulting in a loss on the license fee of
$198,571.   On August 12, 2008, the Company paid
Ohio University approximately $208,000 to bring current its
liabilities on the license fees and the sponsored
research payments.





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 2008, we do not expect cash flows from
distribution of the unit to be self-funding during 2008.  We estimate that
our Hydra Fuel Cell subsidiary will require approximately $2 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





Accounting
for Stock-Based Compensation





ASRC
accounts for stock-based employee compensation arrangements using the fair value
method in accordance with the provisions of Statement of Financial Accounting
Standards no.123(R) or SFAS No. 123(R), Share-Based Payments, and Staff
Accounting Bulletin No. 107, or SAB 107, Share-Based Payments. The company
accounts for the stock options issued to non-employees in accordance with the
provisions of Statement of Financial Accounting Standards No. 123, or SFAS No.
123, Accounting for Stock-Based Compensation, and Emerging Issues Task Force No.
96-18, Accounting for Equity Instruments with Variable Terms That Are Issued for
Consideration other Than Employee Services Under FASB Statement No. 123. The
fair value of stock options and warrants granted to employees and non-employees
is determined using the Black-Scholes option pricing model.





Intangible
Assets





Intangible
assets with estimable useful lives are amortized over respective estimated
useful lives, and reviewed for impairment in accordance with FASB Statement No.
142,Goodwill and
Other Intangible Assets .





Off
Balance Sheet Arrangements


The
Company has no off balance sheet arrangements.





Recent
Accounting Pronouncements


In
September 2006, the FASB issued FASB Statement 157 “Fair Value Measurements”
(“SFAS No. 157”) that defines and measures fair value and expands
disclosures about fair value measurements. The statement emphasizes that fair
value is a market-based measurement and not an entity-specific measurement. The
provisions of SFAS No. 157 are effective for fiscal years beginning after
November 15, 2007.





In
February 2007, the FASB issued SFAS No. 159,The Fair Value Option for Financial
Assets and Financial Liabilities , which permits entities to choose to
measure many financial instruments and certain other items at fair value. 
The objective is to improve financial reporting by providing entities with the
opportunity to mitigate volatility in reported earnings caused by measuring
related assets and liabilities differently without having to apply complex hedge
accounting provisions.  SFAS No. 159 applies to all entities and is
effective for fiscal years beginning after November 15, 2007.





ASRC does
not expect the adoption of any other recently issued accounting pronouncements
to have a significant impact on their consolidated financial position, results
of operations or cash flow.








7

















Results
of Operations


The
Company had no revenue during the calendar years ended December 31, 2007 and
2006.





The
Company had no gross profit during the 2007 and 2006. General and administrative
expenses were $ 4,176,295 and $6,579,160 for the years ended December 31, 2007
and 2006 respectively. Principal general and administrative expenses included
contracted services ($2,940,232 and $4,821,371, respectively); legal expenses
($460,167and $22,816, respectively); payroll and contractors ($682,964 and
$1,573,089 respectively); and rent ($92,932 and $29,063,
respectively).





Significant
components of contracted services for 2007 and 2006 were:


2007
            2006Fair
      value of warrants issued for services
            $1,959,329
            $2,405,847Stock
      issued for officers and directors' services
            126,435
            690,885Stock
      issued for outside consultants
            854,468
            1,724,639Totals
            $2,940,232
            $4,821,371





Research
and development expenses were $1,039,652 and $1,767,084 for the calendar years
ended December 31, 2007 and 2006, 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.





The
Company had net operating losses of $5,486,135 and $8,368,581 for the years
ended December 31, 2007 and 2006, respectively.








Liquidity and Capital
Resources.


We had no
revenues for the years ended December 31, 2007 and 2006.





Our
working capital deficit increased by $606,025 to ($1,012,323) at December 31,
2007 compared to ($406,298) at December 31, 2006. 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.





Our cash
flows from operations were negative during the years ended December 31, 2007 and
2006, 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 resulting in total cash provided by financing
activities of $1,684,519.





We
consumed $1,651,405 in cash from operating activities for the year ended
December 31, 2007 compared with $1,902,417 for the year ended December 31,
2006.





We had a
net comprehensive loss of $5,486,135 and $8,599,770, or $0.04 and $0.11 per
share for the years ended December 31, 2007 and 2006, 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.










8














Additionally,
we will need to raise additional capital to fully develop the Hydrogen
Formulator. We are currently evaluating the levels of capital and operating
expenditures required to fully develop and exploit this new
technology.





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.







9






















ITEM
7 - FINANCIAL STATEMENTS








AMERICAN
SECURITY RESOURCES CORPORATION





INDEX
TO FINANCIAL STATEMENTS







PageReport
      of Independent Registered Public Accounting Firm
            11Report
      of Independent Registered Public Accounting Firm
            12Financial
      StatementsConsolidated
      Balance Sheet at December 31, 2007 (Restated)
            13Consolidated
      Statements of Operations for the years ended December 31, 2007 and 2006
      and the period from October 1, 2005 (Re-entering of Development Stage)
      Through December 31, 2007 (Restated)
            14Consolidated
      Statement of Shareholders’ Equity for the years ended December 31, 2007
      and 2006 and the period from October 1, 2005 (Re-entering of
      Development Stage) through December 31, 2007 (Restated)
            15Consolidated
      Statements of Cash Flows for the years ended December 31, 2007 and 2006
      and the period from October 1, 2005 (Re-entering of Development Stage)
      Through December 31, 2007 (Restated)
            16Notes
      to Consolidated Financial Statements (Restated)
            17









10

















REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM







To the
Board of Directors and Management of


American
Security Resources Corporation


(A
Development Stage Enterprise)


Houston,
Texas





We have
audited the accompanying consolidated balance sheet of American Security
Resources Corporation as of December 31, 2007 and the related consolidated
statements of operations, stockholders' equity (deficit) and cash flows for the
year ended December 31, 2007.  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 for the period October 1, 2005 (Re-entering Development
Stage) through December 31, 2006, were audited by other auditors whose reports
expressed unqualified opinions on those statements.





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, 2007, 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 3 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 3. The financial
statements do not include any adjustments that might result from the outcome of
this uncertainty.





As
discussed in Note 2 to the financial statements, the Company has restated its
financial statements as of and for the year ended December 31, 2007 to correct
errors in its accounting for warrants to purchase common stock issued in
December 2007 and errors in accounting for impairment of intangible assets
purchased in 2007.








/s/
McElravy, Kinchen & Associates, P.C.


www.mkacpas.com


Houston,
Texas


April 7,
2008, except for Note 2, 5, 10, and 15 which is August 14, 2008.













11














REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM











To the
Board of Directors and Shareholders of


American
Security Resources Corporation


(A
Development Stage Enterprise)


Houston,
Texas








We have
audited the accompanying consolidated statements of operations, shareholders’
deficit and cash flows of American Security Resources Corporation as of December
31, 2006 and the period from October 1, 2005 (Re-entering Development Stage)
through December 31, 2006. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.





We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit also includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, 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 provide a reasonable
basis for our opinion.





In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the results of operations of American Security
Resources Corporation for the year ended December 31, 2006 , and its cash flows
for the year ended December 31, 2006, in conformity with accounting principles
generally accepted in the United States of America.





The
accompanying consolidated financial statements have been prepared assuming that
American Security Resources Corporation will continue as a going concern. As
discussed in Note 2 to the consolidated financial statements American Security
Resources Corporation suffered recurring losses from operations and has a
working capital deficiency, which raises substantial doubt about its ability to
continue as a going concern. Management’s plans regarding those matters also are
described in Note 2. The consolidated financial statements do not include any
adjustments that might result from the outcome of this uncertainty.








Malone
& Bailey, PC


www.malone-bailey.com


Houston,
TX


March 28,
2007










12




















AMERICAN
SECURITY RESOURCES CORPORATION


(A
DEVELOPMENT STAGE ENTERPRISE)


CONSOLIDATED
BALANCE SHEET (Restated)


December
31, 2007




ASSETSCash
      in bank
            $             12,690Prepaid
      expenses
            3,815Accrued
      Interest Receivable
            4,968Total
      Current Assets
            21,473Equipment,
      net of accumulated depreciation of $68,238
            93,348Note
      Receivable
            1,300,000TOTAL
      ASSETS
            $       1,414,821LIABILITIES
      AND SHAREHOLDERS' DEFICITCURRENT
      LIABILITIESAccounts
      payable
            $          411,659Other
      current liabilities
            440,603Accrued
      contingent liability and interest
            154,875Notes
      payable and accrued interest – shareholders
            26,659Total
      Current Liabilities
            1,033,796Long
      Term LiabilitiesConvertible
      Debenture, net of discount of $33,675
            166,325Contingent
      Liability
            1,300,000Total
      Liabilities
            2,500,121SHAREHOLDERS'
      DEFICITPreferred
      stock - 1,000,000 shares authorized; $.001 par value; no shares issued or
      outstanding
            -Common
      stock - 200,000,000 shares authorized; $.001 par value; 180,784,809 shares
      issued and outstanding
            180,785Additional
      paid-in capital
            47,856,768Deficit
      accumulated during the development stage
            (17,014,569)Deficit
      accumulated from prior operations
            (32,108,284)Total
      Shareholders' Deficit
            (1,085,300)TOTAL
      LIABILITIES AND SHAREHOLDERS' DEFICIT
            $       1,414,821




The
accompanying notes are an integral part of these financial
statements






13
















AMERICAN
SECURITY RESOURCES CORPORATION


(A
DEVELOPMENT STAGE ENTERPRISE)


CONSOLIDATED
STATEMENTS OF OPERATIONS


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND THE PERIOD FROM OCTOBER 1,
2005


(RE-ENTERING
OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2007








Year
      Ended
              December
      31, 2007 (Restated)
            
            Year
      Ended
              December
      31, 2006
            
            Re-entering
      Development Stage to 12/31/07 (Restated)General
      and administrative expenses
            $       4,176,295
            
            $      6,579,160
            
            $      13,577,177Depreciation
      & Amortization expenses
            61,851
            
            22,337
            
            93,812Research
      and development expenses
            1,039,652
            
            1,767,084
            
            2,807,835Operating
      Loss
            (5,277,798)
            
            (8,368,581)
            
            (16,478,824)Other
      Income (Expense):Interest
      income
            4,968
            
            -
            
            -Permanent
      impairment of investment
            -
            
            (225,000)
            
            (225,000)Loss
      on license fee
            (198,571)
            
            
            
            (198,571)Interest
      expense
            (14,734)
            
            (6,189)
            
            (69,238)Net
      Loss
            (5,486,135)
            
            (8,599,770)
            
            (16,971,633)Other
      Comprehensive Loss:Change
      in unrealized loss on investment available for sale
            -
            
            -
            
            (
      86,538)Comprehensive
      Loss
            $   (5,486,135)
            
            $   (8,599,770)
            
            $   (17,058,171)Loss
      per share - basic and fully diluted
            $            (0.04)
            
            $            (0.11)Weighted
      average no. of shares outstanding
            125,033,916
            
            80,723,597




The
accompanying notes are an integral part of these financial
statements











14


























AMERICAN
SECURITY RESOURCES CORPORATION


(A
DEVELOPMENT STAGE ENTERPRISE)


CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND THE PERIOD FROM OCTOBER 1,
2005


(RE-ENTERING
OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2007




No.
      of Shares
            Paid-in
      Capital
              and
      Par Value
            Accumulated
      Deficit
            Comprehensive
      LossShares
            Capital
            Development
      Stage
            Prior
      Operations
            Other
            TotalBalance
      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
      fees
            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
            937,500
            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 (1)
            -
            (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













15

















AMERICAN
SECURITY RESOURCES CORPORATION


(A
DEVELOPMENT STAGE ENTERPRISE)


CONSOLIDATED
STATEMENT OF SHAREHOLDERS’ EQUITY (DEFICIT)


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND THE PERIOD FROM OCTOBER 1,
2005


(RE-ENTERING
OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2007




No.
      of Shares
            Paid-in
      Capital
              and
      Par Value
            Accumulated
      Deficit
            Comprehensive
      LossShares
            Capital
            Development
      Stage
            Prior
      Operations
            Other
            TotalBalance,
      12/31/06
            109,604,794
            43,363,541
            (11,528,434)
            (32,108,284)
            -
            (273,177)Shares
      issued for:Cashless
      exercise of warrants
            76,873
            -
            -
            -
            -
            -Warrants
      issued for cash
            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
            -
            -
            -
            510,151Technology  License
            2,000,000
            82,000
            -
            -
            -
            82,000Warrants
      issued for services
            
            1,303,221
            -
            -
            -
            1,303,221Warrants
      issued for:Technology
      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 (Restated)
            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
            
            $  47,856,768





(1) Other
Equity Items:


$84,070
subtraction from Paid In Capital results from subscription receivable for cash
received subsequent to 12/31/06


$86,538
addition to “Other Comprehensive Loss” results from the reclassification of loss
on investment from temporary to permanent.





The
accompanying notes are an integral part of these financial
statements







16











AMERICAN
SECURITY RESOURCES CORPORATION


(A
DEVELOPMENT STAGE ENTERPRISE)


CONSOLIDATED
STATEMENTS OF CASH FLOWS


FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2006 AND THE PERIOD FROM OCTOBER 1,
2005


(RE-ENTERING
OF DEVELOPMENT STAGE) THROUGH DECEMBER 31, 2007





Year
      Ended
                December
      31, 2007
                (Restated)
              
              Year
      Ended
                December
      31, 2006
              
              Re-entering
      Development
                Stage
      to 12/31/07 (Restated)CASH
      FLOWS FROM OPERATING ACTIVITIES:Net
      loss
              $  (5,486,135)
              
              $  (8,599,770)
              
              $
      (16,971,633)Adjustments
      to reconcile net loss to net cash from operating
    activities:Depreciation
      and amortization
              61,851
              
              22,337
              
              85,133Common
      stock issued for services
              395,695
              
              2,457,712
              
              7,653,614Discount
      on convertible debenture
              834
              
              
              
              834Stock
      option and warrant expense
              2,022,243
              
              3,533,845
              
              4,486,184Permanent
      impairment of investment available for sale
              -
              
              225,000
              
              225,000Contingent
      liquidated damages expense
              -
              
              150,000
              
              150,000Change
      in operating assets and liabilities:Prepaid
      expenses
              (2,336)
              
              (2,432)
              
              (753)Accounts
      payable
              285,475
              
              60,746
              
              354,174Loss
      on license fee
              198,571
              
              
              
              198,571Accrued
      liabilities
              872,397
              
              250,746
              
              193,875Net
      cash used in operating activities
              (1,651,405)
              
              (1,902,417)
              
              (3,625,001)CASH
      FLOWS FROM INVESTING ACTIVITIES:Purchases
      of property and equipment
              (1,998)
              
              (140,003)
              
              (150,270)Purchase
      of License Agreement
              (25,001)
              
              -
              
              (25,001)Net
      cash used in investing activities
              (26,999)
              
              (140,003)
              
              (175,271)CASH
      FLOWS FROM FINANCING ACTIVITIES:Proceeds
      from the sale of common stock
              -
              
              1,821,920
              
              1,821,920Shareholders
      loans
              5,000
              
              20,000
              
              25,000Proceeds
      from convertible note
              200,000
              
              -
              
              200,000Net
      borrowings/(paydowns) on line of credit
              -
              
              45,490
              
              45,490Proceeds
      from issuance of warrants
              1,479,519
              
              150,000
              
              1,629,519Net
      cash provided from financing activities
              1,684,519
              
              2,037,410
              
              3,721,929Net
      change in cash and cash equivalents
              6,115
              
              (5,010)
              
              (78,343)Cash
      and cash equivalents, beginning of period
              6,575
              
              11,585
              
              91,033Cash
      and cash equivalents, end of period
              $     12,690
              
              $        6,575
              
              $     12,690Supplemental
      disclosure of non-cash financing activities:Stock
      issued for accrued expenses
              $   
      589,897
              
              $    132,539
              
              $ 
           722,436Cashless
      exercise of warrants
              $                -
              
              $        1,130
              
              $  
              1,130Cash
      paid for interest and income taxes
              $       
              -
              
              $                -
              
              $   
                    -Note
      issued for convertible debenture
              $ 1,300,000
              
              $  
                   -
              
              $
        1,300,000Purchase
      of intangible asset for liability and equity
              $  
       827,150
              
              $      
               -
              
              $   
        827,150





The
accompanying notes are an integral part of these financial
statements







17

















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), 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, 2007.





Use
of Estimates


In
preparing financial statements, management makes estimates and assumptions that
affect the reported amounts of assets and liabilities in the balance sheet and
revenue and expenses in the statement of expenses. 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. There were no cash equivalents at December 31,
2007.





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, which is estimated at five years for office
furniture and three to seven years for other equipment.





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.





During
2005, ASRC exchanged 1,500,000 of its common stock for 46,154 shares of common
stock of Strategic Growth Ventures, Inc., which trades under the symbol:
SGWV.PK. During the year ended December 31, 2006, ASRC determined that its
investment classified as available for sale had an “other than temporary”
decline in value according to Statement of Financial Accounting Standards No.
115. The entire investment was impaired and a non-cash charge was recorded in
the amount of $225,000.





Intangible
Assets


Intangible
assets with estimable useful lives are amortized over respective estimated
useful lives, and reviewed for impairment in accordance with FASB Statement No.
142,Goodwill and
Other Intangible Assets .





On August
2, 2007 the Company entered into a license agreement with Ohio University for
technology relating to ammonia fuel cell electrolyzer.  Subsequent to
December 31, 2007, it was determined that the Company was in default of the
agreement due to non payment. Therefore, as part of the restatement in Note 2,
the Company has written-off the intangible asset and the associated liabilities
on all payments to be made after December 31, 2007, resulting in a loss on the
license fee of $198,571.





18
















Research
and Development Costs


All
research and development costs are expensed as incurred, including primarily
contracting costs.





Income
Taxes


ASRC
recognizes deferred tax assets and liabilities based on differences between the
financial reporting and tax bases of assets and liabilities using the enacted
tax rates and laws that are expected to be in effect when the differences are
expected to be recovered. ASRC provides a valuation allowance for deferred tax
assets for which it does not consider realization of such assets to be more
likely than not.





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, 2007 and 2006, 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 anti-dilutive was 120,192,377 common stock potentially
issuable under outstanding options/warrants.





Stock
Based Compensation


ASRC
accounts for stock-based employee compensation arrangements using the fair value
method in accordance with the provisions of Statement of Financial Accounting
Standards no.123(R) or SFAS No. 123(R), Share-Based Payments, and Staff
Accounting Bulletin No. 107, or SAB 107, Share-Based Payments. The company
accounts for the stock options issued to non-employees in accordance with the
provisions of Statement of Financial Accounting Standards No. 123, or SFAS No.
123, Accounting for Stock-Based Compensation, and Emerging Issues Task Force No.
96-18, Accounting for Equity Instruments with Variable Terms That Are Issued for
Consideration other Than Employee Services Under FASB Statement No. 123. The
fair value of stock options and warrants granted to employees and non-employees
is determined using the Black-Scholes option pricing model. The Company has
adopted SFAS 123(R) and applied it in the period presented.  The
Company had not issued any options to employees in the prior periods thus; there
was no impact of adopting the new standard.




Recently
Issued Accounting Pronouncements


ASRC does
not expect the adoption of recently issued accounting pronouncements to have a
significant impact on their consolidated financial position, results of
operations or cash flow.





NOTE
2 – RESTATEMENT


In
preparing the financial statements for the quarter ended June 30, 2008, the
Company (through procedures performed by its independent auditors) determined
that it had failed to recognize an agreement dated December 17, 2007 with 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.   As the result of this error, we are restating our
financial statements (“The Restatement”) and associated disclosures to include
the cost associated with the warrants.  The error resulted in the
understatement of non-cash expenses and a corresponding understatement of net
loss by $719,022, for the year ending December 31, 2007 and for the Period of
Re-Entering the Development Stage to December 31, 2007.





Additionally
in this restatement, the Company has restated its December 31, 2007 financial
statements to reflect subsequent determination that it was in default on an
agreement with Ohio University for technology relating to ammonia fuel cell
electrolyzer.  Therefore, as part of the restatement in Note 2, the
Company has written-off the intangible asset and the associated liabilities on
all payments to be made after December 31, 2007, resulting in a loss on the
license fee of $198,571.  On August 12, 2008, the Company paid
Ohio University approximately $208,000 to bring current its
liabilities on the license fees and the sponsored
research payments.





The
restatement impacted certain line items within cash flows from operations, but
had no effect on total cash flows from operations and did not impact cash flows
from financing or investing activities.  This restatement had no impact on
the balance sheets, statements of operations or the net decrease in cash and
cash equivalents reported in the statements of cash flows for any periods
reported prior to October 1, 2007.





The
restatement also affected Note 10.




19

















The
effect of the restatement on specific items in the balance sheet is as
follows:




December
      31, 2007As
      Previously Reported
              
              Adjustments
              
              As
      RestatedSTOCKHOLDERS'
      EQUITY:Additional
      paid-in capital
              $
          47,137,746
              
              $
        719,022
              
              $
      47,856,768Retained
      earnings (deficit)
              (16,096,976)
              
              (917,593)
              
              (17,014,569)Total
      Stockholders' Equity
              (886,729)
              
              (198,571)
              
              (1,085,300)







The
effect of the restatement on specific items in the statements of operations is
as follows:




Year
      ended December 31, 2007As
      Previously Reported
              
              Adjustments
              
              As
      RestatedCOSTS
      AND EXPENSES:General
      and administrative
              $
         3,457,273
              
              $
        719,022
              
              $
        4,176,295LOSS
      FROM OPERATIONS
              (4,558,776)
              
              (719,022)
              
              (5,277,798)NET
      LOSS
              (4,568,542)
              
              (917,593)
              
              (5,486,135)COMPREHENSIVE
      LOSS
              (4,568,542)
              
              (917,593)
              
              (5,486,135)







Re-entering
      Development
                Stage
      to December 31, 2007As
      Previously Reported
              
              Adjustments
              
              As
      RestatedCOSTS
      AND EXPENSES:General
      and administrative
              $
       12,858,155
              
              $
        719,022
              
              $13,577,177LOSS
      FROM OPERATIONS
              (15,759,802)
              
              (719,022)
              
              (16,478,824)NET
      LOSS
              (16,054,040)
              
              (917,593)
              
              (16,971,633)COMPREHENSIVE
      LOSS
              (16,096,976)
              
              (917,593)
              
              (17,014,569)








The
effect of the restatement on specific items in the statements of cash flows is
as follows:




Year
      ended December 31, 2007As
      Previously Reported
              
              Adjustments
              
              As
      RestatedOPERATING
      ACTIVITIES:Net
      Loss
              $
         (4,568,542)
              
              $
       (917,593)
              
              $(5,486,135)Adjustments
      to reconcile net loss to net cashStock
      options and warrant expense
              1,303,221
              
              719,022
              
              2,022,243Loss
      on license fee
              -
              
              198,571
              
              198,571Net
      cash used in operating activities
              (1,651,405)
              
              -
              
              (1,651,405)











20















Re-entering
      Development
                Stage
      to December 31, 2007As
      Previously Reported
              
              Adjustments
              
              As
      RestatedOPERATING
      ACTIVITIES:Net
      Loss
              $ (16,054,040)
              
              $
       (917,593)
              
              $(17,690,655)Adjustments
      to reconcile net loss to net cashStock
      options and warrant expense
              3,760,933
              
              719,022
              
              4,479,955Loss
      on license fee
              -
              
              198,571
              
              198,571Net
      cash used in operating activities
              (3,625,001)
              
              -
              
              (3,625,001)





NOTE
3 - GOING CONCERN





As shown
in the accompanying consolidated financial statements, ASRC incurred recurring
losses from continuing operations of $5,486,135 and $8,599,770 in the years 2007
and 2006, 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
4 - PROPERTY AND EQUIPMENT





Property
and equipment consisted of the following at December 31, 2007:


Description
            Life
            Amount
            Accumulated
      Depreciation
            Net
      Book ValueOffice
      furniture and equipment
            Generally
      5 years
            $
      38,380
            $
      15,792
            $
      22,588Equipment
            From
      3 to 7 years
            123,206
            52,446
            70,760Totals
            
            $
      161,586
            $
      68,238
            $
      93,348





NOTE
5- INTANGIBLE ASSETS





The
Company’s intangible asset consists of a license with Ohio University, for
Hydrogen technology.





Pursuant
to the License Agreement dated as of August 2, 2007 between the Company and Ohio
University (the “License Agreement”), the Company has a revocable, exclusive,
royalty-bearing, worldwide license in and to technology relating to ammonia fuel
cell electrolyzer.  See discussions below concerning presumed default
subsequent to December 31, 2007 and the subsequent payment to bring the
agreement back into compliance.





The
License Agreement has an initial term equal to the remaining life of Ohio
University’s patent, which at December 31, 2007 is 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 10. Additionally, the
Agreement calls for the Company to pay a royalty of 4% of annual sales of
manufactured ammonia Electrolyer units,








21














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.





As
described in Note 2 above, these restated December 31, 2007 financial statements
reflect a subsequent determination by the Company that it was in default on an
agreement with Ohio University for technology relating to ammonia fuel cell
electrolyzer.  Therefore, as part of the restatement in Note 2, the
Company has written-off the intangible asset and the associated liabilities on
all payments to be made after December 31, 2007, resulting in a loss on the
license fee of $198,571.  Note 15 discloses that on August 12, 2008,
the Company paid Ohio University approximately $208,000 to
bring current its liabilities on the the license fees and the sponsored
research payments.





NOTE
6 – CONVERTIBLE DEBENTURE





The
Company entered into a Securities Purchase Agreement with an accredited investor
on December 13, 2007 for 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
            $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%.





Accordingly,
we have received a total of $200,000 pursuant to the Securities Purchase
Agreement.  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.





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.





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 $200,000 in outstanding debt at $50,000 which
was treated as a loan discount and are amortizing  to interest expense
using the effective interest method over the life of the note.





NOTE
7- INVESTMENT, AVAILABLE FOR SALE





During
2005, ASRC exchanged 1,500,000 of its common stock for 46,154 shares of common
stock of Strategic Growth Ventures, Inc., which trades under the symbol:
SGWV.PK. During the year ended December 31, 2006, ASRC determined that its
investment classified as available for sale had an “other than temporary”
decline in value according to Statement of Financial Accounting Standards No.
115. The entire investment was impaired and a non-cash charge was recorded in
the amount of $225,000.





22
















NOTE
8 - 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.





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.





23

















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, all which in the aggregate the
Company valued at $819,300.





NOTE
9 - STOCK-BASED COMPENSATION





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 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 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 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.








NOTE
10 –WARRANTS AND OPTIONS





In March
of 2004, ASRC completed a private placement of 2.5 million Units consisting of
one share of its common stock and seven warrants to purchase additional shares
of common stock at a prices ranging from $0.30 to $0.90. The warrants’ original
expiration date was December 31, 2006. On July 1, 2006, ASRC extended the
expiration dates of these 17,500,000 warrants to December 31, 2007. The fair
value of the warrants was first calculated for the warrants under the initial
terms using the Black-Scholes pricing model with assumptions including: (1)
remaining term of 6 months; (2) computed volatility of 171%; (3) discount rate
of 5.31% and (4) zero expected dividends. A comparison was made to the fair
market values of the warrants incorporating the extension of the terms using the
Black-Scholes pricing model with assumptions including: (1) new extended terms
of 1.5 years; (2) computed volatility of 220%; (3) a discount rate of 5.17% and
(4) zero dividends. The difference between these two estimates was $1,127,998
and was recorded as additional value given by the company and is included in
general and administrative expenses for the year ended December 31,
2006.





ASRC has
consulting agreements with two consultants providing legal and promotional
services whereby the consultants are compensated with warrants to purchase
common stock at a discount. Under the terms of the agreements, warrants granted
have a strike price equal to 80% of the average closing price of the previous 7
days and exercisable for 90 days. During 2006, the number of options issued
under these agreements totaled 15,250,000, all of which were exercised. The
value of the options was computed using the Black-Scholes pricing model using
the following input values:





Stock
price: the closing price on the day previous to the grant date




Warrant
strike price: calculated per agreement. Typically 80% of the average closing
price for the previous 7 days




Volatility:
Ranging from 101.53% to 126.04%





24

















Risk-free
rate: 4.3%




Months to
maturity: 3





The
amount of expense recognized during 2006 in connection with these warrants was
$1,367,484.





In
January 2006, ASRC issued options to purchase 5.5 million shares to certain
officers and directors. The options contain an exercise price of $0.19, contain
a cashless provision, and expire January 23, 2011. The value of these options
was computed using the Black-Scholes pricing model assuming (1) a 5-year term;
(2) computed volatility of 240%; (3) discount rate of 4.7% and (4) zero expected
dividends. The amount of expense recognized in connection with these options was
$1,038,363. The cashless exercise provision allows the Holder to receive common
stock according to the formula:





S = W - [
( $0.19 / C ) * W ], where





S = The
number of shares received using the cashless provision


W = the
number of warrants granted


C = the
closing bid price on the date of exercise





In
January 2006, ASRC issued warrants to purchase 838,000 shares of common stock
pursuant to a Private Placement Memorandum dated January 27, 2006 whereby
subscribers purchased one share of common stock and received one warrant to
purchase one common share with a strike price of $0.50 for total proceeds of
$210,000. The warrants expire in five years from the grant date. The Company
allocated $113,849 of the proceeds to the warrants based on the estimated
relative fair value of the warrants. The fair value was estimated using
Black-Scholes with key assumptions of (1) calculated volatility of 240.93%, (2)
expected term of 5 years, (3) discount rate of 4.7% and (4) zero expected
dividends.





In
October, 2006, ASRC issued 281,250 shares in a private placement and warrants to
purchase an additional 281,250 shares for total proceeds of $22,500. The
warrants have an exercise price of $0.15 and expire on December 31, 2008. The
proceeds were allocated to the warrants based on the calculated relative fair
value of $ 7,309. The fair market value of these warrants was computed using the
Black-Scholes pricing model assuming (1) an expiration date of December 31,
2006; (2) computed volatility of 159.13%; (3) discount rate of 5.09% and (4)
zero expected dividends.





In July
2006, ASRC issued warrants to purchase 50,000,000 shares to an investor for cash
proceeds of $150,000 in contemplation of negotiating a further financing
arrangement which ultimately did not occur. The warrants have a 3 year term and
an exercise price of $0.01. ASRC estimated the fair market value of these
warrants to be $4,113,000 using a Black-Scholes with key assumptions of (1)
expected term of 3 years, (2) calculated volatility of 284..93%, (3) discount
rate of 4.3% and (4) zero dividends. The terms of the warrants included maximum
liquidated damages in the amount of $680,000, in the event that the company did
not file an effective registration statement within six months of the execution
of the agreement. Included in the damages, was a potential to refund the
$150,000 proceeds received. At the same time, a shareholder pledged 4,000,000
shares of his own stock in ASRC to the investor for collateral. ASRC evaluated
these warrants for liability treatment under SFAS 133 and EITF 00-19 taking into
consideration View A of EITF 05-04 and determined that it was more economical to
settle in “unregistered shares”, thus these instruments were not considered to
be liabilities under the authoritative literature. Subsequent to December 31,
2006, the ASRC is considered to be in default under this warrant agreement
because no registration statement was filed. As a result, ASRC has accrued a
contingent liability of $150,000 for the original proceeds received and has
recorded a corresponding expense. ASRC will continue to evaluate further
liquidated damages if necessary.





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 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 value of $37,300
is included in the total value of the patent asset discussed in Note
4.





25




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.
 
 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.
 
 Restatement
of Warrants and Options
 
 In
preparing the financial statements for the quarter ended June 30, 2008, the
Company (through procedures performed by our independent auditors) determined
that it had failed to recognize an agreement dated December 17, 2007 with a
distributor for 40,000,000 warrants, that are exerciseable 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.   As the result of this error, we are restating our
financial statements (“The Restatement”) and associated disclosures to include
the cost associated with the warrants.  The error resulted in the
understatement of non-cash expenses and a corresponding understatement of net
loss by $719,022, for the year ending December 31, 2007 and for the Period of
Re-Entering the Devlopment Stage to December 31, 2007.  The restatement
impacted certain line items within cash flows from operations, but had no effect
on total cash flows from operations and did not impact cash flows from financing
or investing activities.  This restatement had no impact on the balance
sheets, statements of operations or the net decrease in cash and cash
equivalents reported in the statements of cash flows for any periods reported
prior to October 1, 2007.
 
 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.
 
 We used
the Black-Scholes option-pricing model (“Black-Scholes model”) to value our
stock options with the following assumptions:
 
 Volatility
              148.00%Risk-Fee
      Interest Rate
              3.31%Dividend
      Yield
              0.00%Expected
      Term (years)
              1.00
 
 
 26
 
  
  
 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
                -
                -
                19,500,0002005
      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:Granted
      pursuant to warrant agreement
                $
      0.03
                -
                46,850,000
                -
                46,850,000
                -Options
      granted to directors
                $
      0.07
                -
                3,500,000
                -
                -
                3,500,000Granted
      pursuant to private placements
                $
      0.15
                -
                650,000
                -
                -
                650,000Cashless
      exercise of warrants
                
                -
                -
                -
                76,873
                (76,873)Warrants
      granted for patent
                $
      0.04
                
                2,000,000
                -
                -
                2,000,000Granted
      pursuant to warrant agreement
                $0.03
                
                40,000,000
                
                
                40,000,000December
      31, 2007 (Restated)
                $
      0.0302
                74,119,250
                93,000,000
                -
                46,926,873
                120,192,377
 
 NOTE
11- 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 2005 and 2004, ASRC incurred net losses and,
therefore, has no tax liability. The net deferred tax asset generated by the
loss carry-forward has been fully reserved. The cumulative net operating loss
carry-forward is approximately $15,800,000 at December 31, 2007 and will expire
in the years 2018 and 2026.
 
 At
December 31, 2007, deferred tax assets consisted of the following:
 Net
      operating losses
              $
      5,486,135Less:
       valuation allowance
              (5,486,135)Net
      deferred tax asset
              $
                  -
 
 NOTE
12 - RELATED PARTY TRANSACTIONS
 During
2006, ASRC's Chief Executive Officer and Chief Operating Officer both made loans
to the Company of $10,000 each. During the year ended December 31, 2007, they
made additional loans of $5,000. These loans pay interest at 6 percent and were
due  November 12, 2007 and were paid in full in February
2008.  As of December 31, 2007, the total principal due was $25,000
and the accrued interest payable was $1,659.
 
 As
described above, 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 that
were due to them as of December 31, 2006. These shares were valued at
$74,182based 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.
 
 27











Also on
January 16, 2007, ASRC issued 113,636 shares of our common stock to the
President of our Hydra Fuel Cell subsidiary, who is also a board member of
American Security Resources, in lieu of salaries that were due to him as of
December 31, 2006. These shares have been valued at $3,977 in these financial
statements.





NOTE
13 - LEASES





ASRC
leased office space under an operating lease during 2007 and 2006. The lease
agreement provided for monthly rent of $2,365 to be paid through March 31, 2009.
Additionally, ASRC’s subsidiary, Hydra Fuel Cell Corporation leases
approximately 2,625 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, 2007:





Year
Ending December 31,


2008
            $28,3802009
            $  7,095Total
            $35,475





Total
rent expense was $92,932 and $46,087 during 2007 and 2006,
respectively.





NOTE
14 – 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. While, the final
outcome is not known at this time, and management does not believe it will have
a material impact on its financial position or results of operations.








In July
2006, ASRC issued warrants to purchase 50,000,000 shares to an investor for cash
proceeds of $150,000 in contemplation of negotiating a further financing
arrangement that ultimately did not occur. The warrants have a 3-year term and
an exercise price of $0.01. ASRC estimated the fair market value of these
warrants to be $4,113,000 using a Black-Scholes with key assumptions of (1)
expected term of 3 years, (2) calculated volatility of 284.93%, (3) discount
rate of 4.3% and (4) zero dividends. The terms of the warrants included maximum
liquidated damages in the amount of $680,000, in the event that the company did
not file an effective registration statement within six months of the execution
of the agreement. Included in the damages, was a potential to refund the
$150,000 proceeds received. At the same time, a shareholder pledged 4,000,000
shares of his own stock in ASRC to the investor for collateral. ASRC evaluated
these warrants for liability treatment under SFAS 133 and EITF 00-19 taking into
consideration View A of EITF 05-04 and determined that it was more economical to
settle in “unregistered shares”, thus these instruments were not considered to
be liabilities under the authoritative literature. As of December 31, 2007, we
are considered to be in default under this warrant agreement because no
registration statement was filed. As a result, we have accrued a contingent
liability of $150,000 for the original proceeds received and estimated
liquidated damages of $35,000 and have recorded a corresponding expense. The
company will continue to evaluate further liquidated damages if necessary.
 The Company evaluated the liquidated damages to determine whether it
qualified for derivative treatment. Based on FASB Staff Position No. EITF
00-19-2, it was determined that since the transfer of consideration under a
registration payment arrangement becomes probable and can be reasonably
estimated subsequent to the inception of the arrangement or if the measurement
of a previously recognized contingent liability increases or decreases in a
subsequent period, the initial recognition of the contingent liability or the
change in the measurement of the previously recognized contingent liability
shall be recognized in earnings. The entity would be required to deliver shares
under a registration payment arrangement, (b) the transfer of that consideration
is probable, and (c) the number of shares to be delivered can be reasonably
estimated, the issuer’s share price at the reporting date shall be used to
measure the contingent liability under Statement 5.





NOTE
15 – SUBSEQUENT EVENT





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.





28

















On
February 15, 2008, the board of directors and shareholders representing a
majority of the voting rights voted to increase the authorized common shares
from 200,000,000 shares, par value of $0.001 to 500,000,000 shares, 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 preferred stock and Robert Farr, President, 333,333 shares of preferred stock
in return for their encumbering their personal share holdings and for personally
guaranteeing a $2,000,000 convertible debenture agreement with an accredited
investor that the Company closed on February 29, 2008.  These
preferred shares are convertible into common stock on a 1 to 1 basis and shall
be entitled to 500 to 1 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
preferred shares convert to common stock.





On
February 29, 2008, the Company entered into a 7.75% convertible debenture and
warrant purchase agreement with an accredited investor for up to $2,000,000 in
convertible debenture notes.  The Company received $400,000 as the
first advance on the convertible debenture agreement and is due on February 29,
2012.  The convertible debenture by the holder at a 20% discount to
the market price of the Company’s common stock.  The agreements also
give the investor, for $15,000 cash, the ability to purchase a warrant agreement
for 15,000,000 shares of the Company’s common stock.  The warrants are
exercisable at 110% of the market price of the Company’s common
stock.





On August
12, 2008, the Company paid Ohio University approximately $208,000 to
bring current its liabilities on the license fees and the sponsored
research payments.
















29













ITEM
8. Changes In and Disagreements with Accountants on Accounting and Financial
Disclosure.





On July
25, 2007, Malone & Bailey, P.C. was dismissed as the independent auditor for
American Security Resources Corporation Malone & Bailey, P.C. had served as
the independent auditor of ARSC's annual financial statements since the audit of
the calendar year ended December 31, 2001. From the date on which Malone
& Bailey, P.C. was engaged until the date they were dismissed, there were no
disagreements with Malone & Bailey, 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 Malone
& Bailey, P.C., would have caused Malone & Bailey, 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.




ASRC
provided Malone & Bailey, P.C. with a copy of the foregoing disclosure, and
requested that Malone & Bailey, P.C. furnish ASRC with a letter addressed to
the Securities and Exchange Commission stating whether or not it agreed with
such disclosure. ASRC filed as an Exhibit to the Form 8-K, a copy of
the letter from Malone & Bailey, P.C. as required by Item 304 of
Regulation S-B. On July 30, 2007, Malone & Bailey, P.C. provided a
letter agreeing with the foregoing disclosure in ARSC’s Form 8K-A
filing.




On July
25, 2007, ASRC executed an engagement letter with McElravy, Kinchen &
Associates, P.C. ("MKA") to assume the role of its new certifying accountant.
MKA was asked to perform the quarterly reviews of ASRC for the quarters ended
June 30, 2007 and September 30, 2007 and the audit for the year ended
December 31, 2007.




During
the periods ended December 31, 2001 through 2006 and the subsequent interim
period ended March 31, 2007, and through the date of the firm's engagement,
ASRC did not consult with MKA with regard to:




(i)
            the
      application of accounting principles to a specified transaction, either
      completed or proposed; or the type of audit opinion that might be rendered
      on ARSC's financial statements; or(ii)
            any
      matter that was either the subject of a disagreement or a reportable event
      (as described in Item 304(a) (1) (iv) of
    Regulation S-B.




The
engagement of the new principal auditor was recommended and approved by the
Board of Directors of ARSC.




Other
than the changes described above, there were no changes in the Company’s
internal control over financial reporting that occurred during the Company’s
fiscal year ended December 31, 2007 that have materially affected, or are
reasonably likely to materially affect, the Company’s internal controls over
financial reporting.







Item
8A. Controls and Procedures.


Evaluation
of Disclosure Controls and Procedures





We
carried out an evaluation, under the supervision and with the participation of
our management, including our principal executive officer and principal
financial officer, of the effectiveness of our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and
15d-15(e)).  Based upon that evaluation, our principal executive
officer and principal financial officer concluded that, as of the end of the
period covered in this report, our disclosure controls and procedures were not
effective to ensure that information required to be disclosed in reports filed
under the Securities Exchange Act of 1934 is recorded, processed, summarized and
reported within the required time periods and is accumulated and communicated to
our management, including our principal executive officer and principal
financial officer, as appropriate to allow timely decisions regarding required
disclosure.





Our
management, including our principal executive officer and principal financial
officer, does not expect that our disclosure controls and procedures or our
internal controls will prevent all error or 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.  Due to 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, have been detected. To
address the material weaknesses, we performed additional analysis and other
post-closing procedures in an effort to ensure our consolidated financial
statements included in this annual report have been prepared in accordance with
generally accepted accounting principles. Accordingly, management believes that
the financial statements included in this report fairly present in all material
respects our financial condition, results of operations and cash flows for the
periods presented.




30

















Management’s
Report on Internal Control Over Financial Reporting.





Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting as defined in Rule 13a-15(f) under the
Securities Exchange Act, as amended.  Our management assessed the
effectiveness of our internal control over financial reporting as of December
31, 2007. In making this assessment, our management used the criteria set forth
by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”)
in Internal Control-Integrated Framework.  A material weakness is a
deficiency, or a combination of deficiencies, in internal control over financial
reporting, such that there is a reasonable possibility that a material
misstatement of the company's annual or interim financial statements will not be
prevented or detected on a timely basis.  We have identified the
following material weaknesses.




1.
            As
      of December 31, 2007, we did not maintain effective controls over the
      control environment.  Specifically, we have not formally adopted
      a written code of business conduct and ethics that governs to the
      Company’s employees, officers and directors.  Additionally, we
      have not developed and effectively communicated to our employees its
      accounting policies and procedures.  This has resulted in
      inconsistent practices.  Further, the Board of Directors does
      not currently have any independent members and no director qualifies as an
      audit committee financial expert as defined in Item 407(d)(5)(ii) of
      Regulation S-B.  Since these entity level programs have a
      pervasive effect across the organization, management has determined that
      these circumstances constitute a material weakness.2.
            As
      of December 31, 2007, we did not maintain effective controls over
      financial statement disclosure.  Specifically, controls were not
      designed and in place to ensure that all disclosures required were
      originally addressed in our financial statements.   Accordingly,
      management has determined that this control deficiency constitutes a
      material weakness.3.
            As
      of December 31, 2007, we did not maintain effective controls over equity
      transactions.  Specifically, controls were not designed and in
      place to ensure that equity transactions were properly reflected.
      Accordingly, management has determined that this control deficiency
      constitutes a material weakness.




Because
of these material weaknesses, management has concluded that the Company did not
maintain effective internal control over financial reporting as of December 31,
2007, based on the criteria established in "Internal Control-Integrated
Framework" issued by the COSO.




Changes
in Internal Control Over Financial Reporting.





No change
in the Company’s internal control over financial reporting occurred during the
quarter ended December 31, 2007, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





This
annual report does not include an attestation report of the Company’s registered
public accounting firm regarding internal control over financial
reporting.  Management’s report was not subject to attestation by the
Company’s registered public accounting firm pursuant to temporary rules of the
Securities and Exchange Commission that permit the Company to provide only
management’s report in this annual report.





No change
in the Company’s internal control over financial reporting occurred during the
quarter ended December 31, 2007, that materially affected, or is reasonably
likely to materially affect, the Company’s internal control over financial
reporting.





PART
III





ITEM
9. Directors, Executives Officers, Promoters and Control Persons, Compliance
with Section 16(a) of the Exchange Act





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.








31

















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)
            
            07/05/07Alvie
      T. Merril
            
            Director
            
            10/11/06James
      R. Twedt
            
            Director
            
            10/11/06





(1) Mr.
Williford performs the Chief Financial Officer duties for the Company on a
contract basis.





Business
Experience





Frank
Neukomm (58), 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 (62), 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.





Marlin
Williford (50), Vice President – Chief Financial Officer.Mr. Williford has
been our Vice President – Chief Financial Officer since November,
2007.   Mr. Williford also serves as President of CapNet
Risks Management, Inc. since 2006, where he directs the activities of CapNet
Risk Management and performs various CFO functions and acts as a principal in
investment banking transactions.  Mr. Williford served as Chief
Financial Officer and was a principal in Quality Signs, Inc., a commercial sign
manufacturer in the South Texas area.  Mr. Williford served as
President and a Principal in The Williford Group, Inc., a real estate
acquisition, construction and service company in the South Texas
area.  Mr. Williford graduated in 1979 from Lamar University
with a Business Administration Degree in Finance with a minor in
Economics.





Robert J
Wilson , Director, is a CPA and an independent Director who serves as Audit
Committee Chairman.





Alvie T.
Merril, 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.





32

















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 10. Executive
Compensation.





Messrs.
Robert Farr, Director and Chief Operating Officer, and Frank Neukomm, Chairman
and Chief Executive Officer, each had $12,000 per month salary accrued during
2007 and 2006 for a total annual salary of $144,000, respectively. Of that
amount each was paid $90,000 and $93,000 in cash in 2007 and 2006,
respectively.  Mr. Newton, Chief Financial Officer, received no cash
compensation during 2007 and 2006, but received 450,000 shares of common stock
in 2006, respectively.





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
            2007
            $
      144,000
            $
      -
            $
      -
            $
      -2006
            144,000
            -
            190,000
            755,1732005
            10,200
            -
            -
            -Frank
      Neukomm
            Chief
      Executive Officer
            2007
            144,000
            -
            -
            -2006
            144,000
            30,000
            190,000
            188,7932005
            35,000Randall
      Newton
            Chief
      Financial Officer
            2007
            -
            -
            -
            -2006
            -
            -
            135,200
            -2005
            -
            -
            -
            -Marlin
      Williford
            Chief
      Financial Officer
            2007
            -
            -
            25,000
            4,500





On 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 2007 and 2006 for
attending meetings and for work performed.


Total
stock awarded was 500,000 shares in 2007 and 2006, 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.








33




















Item 11.
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 180,784,809


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
              9601
      Katy Freeway, Suite 220
              Houston,
      TX 77024
            Personal
            8,884,012
            4.9%Edward
      L. Davis
              9601
      Katy Freeway, Suite 220
              Houston,
      TX 77024
            Personal
            7,921,312
            4.4%Robert
      Farr
              9601
      Katy Freeway, Suite 220
              Houston,
      TX 77024
            Personal
            3,627,186
            2.0%James
      Twedt
              9601
      Katy Freeway, Suite 220
              Houston,
      TX 77024
            Personal
            1,718,636
            1.0%Marlin
      Williford
              9601
      Katy Freeway, Suite 220
              Houston,
      TX 77024
            Personal
            500,000
            0.3%





*Mr.
Neukomm’s share number includes 162,500 shares held by The Neukomm Children’s
Trust for which he is the trustee.







Item 12. 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.





Item
13. Principal Accountant Fees and Services





AUDIT
FEES





McElravy,
Kinchen, Associates, PC were the Company’s auditors for the fiscal year ended
December 31, 2007.  For their audit of our annual financial statements
and for their review of our Quarterly Reports on Form 10-Q, McElravy, Kinchen,
Associates, PC billed us a total of $25,050 for the fiscal year ended December
31, 2007.





Malone
& Bailey were the Company’s auditors for the fiscal years ended December 31,
2006.  For their audit of our annual financial statements and for
their review of our Quarterly Reports on Form 10-Q, Malone & Bailey billed
us a total of $34,200 for the fiscal year ended December 31, 2006.





34

















The
Board of Directors Pre-approval Policy and Procedures





We do not
have a separate Audit Committee. Our full Board of Directors performs the
functions of an Audit Committee. During fiscal year 2003, the Board of Directors
adopted policies and procedures for the pre-approval of audit and non-audit
services for the purpose of maintaining the independence of our independent
auditors. We may not engage our independent auditors to render any audit or
non-audit service unless either the service is approved in advance by the Board
of Directors or the engagement to render the service is entered into pursuant to
the Board of Director's pre-approval policies and procedures. On an annual
basis, the Board of Directors may pre-approve services that are expected to be
provided to us by the independent auditors during the following 12 months. At
the time such pre-approval is granted, the Board of Directors must (1) identify
the particular pre-approved services in a sufficient level of detail so that
management will not be called upon to make judgment as to whether a proposed
service fits within the pre-approved services and (2) establish a monetary limit
with respect to each particular pre-approved service, which limit may not be
exceeded without obtaining further pre-approval under the policy.





Item
14. Exhibits and Reports on Form 8-K.





Reports
on Form 8-K.


None





Index of
Exhibits:


Incorporated
      by referenceNo.
              Name
      of Exhibit
              Filed
                Herewith
              Form
              Period
                Ending
              Exhibit
              Filing
      Date3.1
              Initial
      Articles of Incorporation filed in the State of
Utah.
              
              10-SB
              
              3.1
              09/22/993.2
              Initial
      Articles of Incorporation filed in the State of
    Nevada.
              
              10-SB
              
              3.1
              09/22/993.3
              Articles
      of Merger to change the Company's domicile filed in the State of Utah and
      Nevada and effecting a one for four reverse split of the outstanding
      securities of The Company.
              
              10/SB/12GA
              
              3.3
              09/02/993.5
              By-Laws
              
              10/SB/12GA
              
              3.5
              02/02/0010.1
              Purchase
      agreement - eGO Design
              
              10-KSB/A
              12/31/05
              10.1
              11/01/0610.2
              2.0
      Million Warrants issued
              
              10-KSB/A
              12/31/05
              10.1
              11/01/0610.3
              2.5
      Million-Unit Warrants
              
              10-KSB/A
              12/31/05
              10.1
              11/01/0610.4
              Employment
      Agreement - Joe Grace
              
              10-KSB
              12/31/04
              14B
              03/31/0510.5
              Form
      of Warrant Agreement
              
              10-KSB/A
              12/31/05
              10.1
              11/01/0621
              Subsidiaries
      of Registrant
              
              10-KSB/A
              12/31/05
              10.1
              11/01/0631.1
              Certification
      of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002
              X31.2
              Certification
      of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley
      Act of 2002
              X32.1
              Certification
      of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002
              X32.2
              Certification
      of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley
      Act of 2002
              X99.1
              Code
      of Business Conduct and Ethics
              
              10-KSB/A
              12/31/05
              10.1
              11/01/06






35



















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.




AMERICAN
      SECURITY RESOURCES CORPORATIONDated:
      September 3, 2008
            By:
      /s/Frank
      NeukommName:
      Frank Neukomm
              Title:
      CEO




In
accordance with the Securities Act, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the
dates indicated.




AMERICAN
      SECURITY RESOURCES CORPORATIONDated:
      September 3, 2008
            By:  /s/Frank
      NeukommName: 
      Frank Neukomm
              Title:
      Chief Executive Officer and Chairman
              (Principal
      Executive Officer)Dated:
      September 3, 2008
            By:  /s/Robert C.
      FarrName:
      Robert C. Farr
              Title:
      President, Chief Operating Officer and DirectorDated:
      September 3, 2008
            By:  /s/Marlin
      WillifordName:
      Marlin Williford
              Title:
      Chief Financial Officer and DirectorDated:
      September 3, 2008
            By:  /s/Robert J.
      WilsonName:
      Robert J. Wilson
              Title:
      Director















36