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EX-31.2 - AMERICAS ENERGY CO. 10Q, CERTIFICATION 302, CFO - TREND TECHNOLOGY CORPaecoexh31_2.htm
EX-31.1 - AMERICAS ENERGY CO. 10Q, CERTIFICATION 302, CEO - TREND TECHNOLOGY CORPaecoexh31_1.htm
EX-32.1 - AMERICAS ENERGY CO. 10Q, CERTIFICATION 906, CEO - TREND TECHNOLOGY CORPaecoexh32_1.htm
EX-32.2 - AMERICAS ENERGY CO. 10Q, CERTIFICATION 906, CFO - TREND TECHNOLOGY CORPaecoexh32_2.htm
EXCEL - IDEA: XBRL DOCUMENT - TREND TECHNOLOGY CORPFinancial_Report.xls



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


(Mark One)
x
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the quarterly period ended June 30, 2011

o
TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
 
For the transition period from ___________ to ___________
 
Commission file number: 000-50978
 
Americas Energy Company-AECo
(Exact name of small business issuer as specified in its charter)
 
Nevada
98-0343712
(State or other jurisdiction of incorporation or organization)
(IRS Employer Identification No.)
 
243 N. Peter Road
Knoxville, Tennessee 37823
(Address of principal executive offices)
 
(865) 238-0668
(Registrants telephone number, including area code)
 
____________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
 
 
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act 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. x Yes o No
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes  o No
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company; as defined within Rule 12b-2 of the Exchange Act.
o Large accelerated filer              o Accelerated filer               o Non-accelerated filer               x Smaller reporting company
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o Yes x No
 
The number of shares outstanding of each of the issuer's classes of common equity as of July 13, 2011:  88,862,983 shares of common stock

 

 
1


Americas Energy Company
(Formerly Trend Technology Corporation)
 
 
 
Contents

   
Page
   
Number
     
 
     
 
 
 
 
 
     
 
     
 
     
 
     
19
     
     
     
 
     
     
     
     
     
     
     
27
 
 
 
 
 
 
 
 

 
 
 
Part II - OTHER INFORMATION
 
Item 1 - Financial Statements     
 
AMERICAS ENERGY COMPANY - AECo
 
(Formerly Trend Technology Corporation)
 
CONDENSED CONSOLIDATED BALANCE SHEETS
 
             
   
June 30,
   
March 31,
 
   
2011
   
2011
 
   
(Unaudited)
       
ASSETS
           
Current assets
           
Cash
  $ 202,870     $ 10,622  
Trade receivables
    4,857       -  
Other receivables
    10,000       10,000  
Prepaid expense
    33,448       23,329  
Total current assets
    251,175       43,951  
                 
Property, plant, and equipment - net
    5,086,329       5,233,106  
                 
Other assets
               
Capitalized mining properties
    17,540,028       17,628,588  
Investment in unconsolidated subsidiary
    250,000       250,000  
Certificates of deposit - pledged
    1,594,110       1,594,110  
Goodwill
    742,000       742,000  
Total other assets
    20,126,138       20,214,698  
                 
TOTAL ASSETS
  $ 25,463,642     $ 25,491,755  
                 
                 
LIABILITIES AND STOCKHOLDER'S EQUITY
               
Current liabilities
               
Accounts payable
  $ 322,080     $ 466,130  
Accrued expenses
    67,682       93,051  
Accrued interest
    20,768          
Line of credit
    225,683       277,419  
Notes payable - related party
    20,000       70,000  
Current maturities of long-term debt
    31,620       27,699  
Current portion of capital lease obligations
    8,492       13,943  
Loans payable
    1,198,685       1,198,685  
Total current liabilities
    1,895,010       2,146,927  
                 
Convertible debenture, net of discount
               
net of discount
    538,175       -  
Asset retirement obligations
    1,355,842       1,339,573  
Accrued officers' severance pay
    4,712,132       -  
Accrued royalty
    7,372,110       7,291,321  
Long-term portion of capital lease obligations
    20,104       18,060  
Long-term debt
    845,074       853,764  
Derivative and warrant liabilities
    467,096          
Total long-term liabilities
    15,310,533       9,502,718  
                 
Total liabilities
    17,205,543       11,649,645  
                 
Commitments and contingencies
    -       -  
                 
Stockholder's equity
               
Common stock; $0.0001par value; 100,000,000 shares
         
authorized; 87,862,983 issued and outstanding at June 30, 2011
    8,786       8,162  
and 81,619,595 shares issued and outstanding on March 31, 2011
 
Additional paid in capital
    26,988,126       24,836,380  
Retained deficit
    (18,739,439 )     (11,002,432 )
Total stockholder's equity
    8,257,473       13,842,110  
                 
TOTAL LIABILITIES AND STOCKHOLDER'S EQUITY
  $ 25,463,016     $ 25,491,755  
 
 
 
See accompanying notes.
 
 
 
AMERICAS ENERGY COMPANY - AECo
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
 
             
 
For the Three Months Ended
 
   
June 30,
 
   
2011
   
2010
 
             
REVENUES
           
Coal sales and related income
  $ 136,105     $ 3,615,819  
Other income
    5,796       15,481  
Total revenues
    141,901       3,631,300  
                 
OPERATING EXPENSES
               
Cost of sales (exclusive of  accretion, depreciation and depletion)
    284,531       3,194,737  
Accretion, depreciation and depletion
    192,350       161,666  
Compensation expense (including non-cash compensation of
               
 $6,432,715 in 2011 and $2,764,500  in 2010)
    6,610,885       3,061,686  
Professional fees
    192,348       89,084  
General and administrative expenses
    52,767       183,520  
Total operating expenses
    7,332,881       6,690,693  
                 
Loss from operations
    (7,190,980 )     (3,059,393 )
                 
OTHER INCOME (EXPENSES)
               
Interest income
    5,442       9,084  
Interest expense
    (91,171 )     (353,507 )
Gain on disposition of asset
    6,798       -  
Change in fair value of derivative and warrant liabilities
    (467,096 )     -  
Total other income (expenses)
    (546,027 )     (344,423 )
                 
LOSS BEFORE INCOME TAXES
    (7,737,007 )     (3,403,816 )
                 
PROVISION FOR INCOME TAXES
    -       (718,150 )
                 
NET LOSS
  $ (7,737,007 )   $ (4,121,966 )
                 
PER SHARE DATA
               
Basic and diluted loss per common share
  $ (0.09 )   $ (0.06 )
                 
Weighted average common shares outstanding
    85,889,961       71,428,716  
 
 
 
 
 
 
 
See accompanying notes.
 
 
 
AMERICAS ENERGY COMPANY - AECo
 
(Formerly Trend Technology Corporation)
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 
             
   
For the Three Months Ended
 
   
June 30,
 
   
2011
   
2010
 
             
CASH FLOWS FROM OPERATING ACTIVITIES:
           
Net loss
  $ (7,737,007 )   $ (4,121,966 )
Adjustment to reconcile net loss to net cash
               
provided by (used in) operating activities:
               
Accretion, depreciation and depletion
    192,350       161,666  
Sharers issued for services
    1,720,583       2,764,500  
Amortization of discount on convertible debentures
    46,892       14,465  
Gain on disposition of assets
    (6,798 )        
Change in fair value of derivative and warrant liabilities
    467,096          
Changes in operating assets and liabilities:
               
(Increase)  in accounts receivable
    (4,857 )     (835,430 )
Decrease (increase) in prepaid expenses
    (10,120 )     9,614  
Decrease in deferred tax asset
            718,150  
Increase (decrease) in accounts payable
    (144,051 )     786,046  
Increase in accrued expenses
    4,788,321       80,090  
Accrued interest expense added to principal
    -       297,215  
Net cash used in operating activities
    (687,591 )     (125,650 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:
               
Proceeds on sale of assets
    100,000       -  
Purchase of equipment
    (10,000 )     (187,142 )
Purchase of building and improvements
    -       (32,599 )
Coal production costs
    (100,875 )     (520,004 )
Loans to unrelated third party
    -       (10,000 )
Other investment activities
    -       (160,000 )
Net cash used in investing activities
    (10,875 )     (909,745 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES:
               
Proceeds from convertible debt
    1,000,000       100,000  
Proceeds from note payable
    -       500,000  
Payment on related party loan
    (50,000 )     -  
Payment of obligation under capital lease
    (3,407 )     (6,412 )
Payments on accrued royalties payable
    -       (28,708 )
Payment on credit line
    (51,736 )     -  
Payment on note payable
    (4,769 )     (60,804 )
Net cash provided by financing activities
    890,088       504,076  
                 
NET (DECREASE) IN CASH AND CASH EQUIVALENTS
    191,622       (531,319 )
                 
CASH AND CASH EQUIVALENTS - beginning of period
    10,622       542,331  
                 
CASH AND CASH EQUIVALENTS - end of period
  $ 202,244     $ 11,012  
                 
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
         
                 
Interest paid
  $ 70,232     $ 34,443  
                 
Income taxes paid
  $ -     $ -  
 
 
See accompanying notes.
 
 
 
AMERICAS ENERGY COMPANY - AECo
(Formerly Trend Technology Corporation)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued
     
 
Supplemental disclosures of non-cash investing and financing activities:
     
   
 In April 2011, the Company received $1,000,000 through its convertible line of credit note.
   
 Under the terms of the agreement the Company issued warrants to purchase 1,000,000
   
 shares of its common stock at $0.14 per share, warrants to purchase 1,000,000 shares
   
 of common stock at  $0.20 per share, and warrants to purchase 1,000,000 shares of
   
 common stock at of $0.25 per share. Until the credit line is paid in full, the holder has the
   
 right to convert up to $2,000,000 of the indebtedness due into shares of the Company's
   
 common stock at a conversion price of $0.136815 per share.  The Company recorded
   
 a discount against the principal of $26,316 which was allocated to the beneficial conversion
   
 feature of the note. The discount is being amortized over the term of the indebtedness.
   
 During the three months ended June 30, 2011, amortization on the discount totaled
   
$46,892, which was charged to interest expense.
     
   
In April 2011, the Company sold all of its oil properties to RJCC Group 1 and
   
in accordance to the terms of the sale received the initial payment of $100,000.
   
RJCC Group 1 is wholly owned by family members of the Company's management
   
and therefore the recognized loss on the sale of $76,929 was charged to  equity.
     
   
In June 2011, the Company purchased mining equipment with a total cost of
   
$35,000. In the purchase, the Company paid $10,000 and traded in used
   
equipment valued at $25,000. The Company treated the trade-in as a sale and
   
recorded a gain of $6,798 on the transaction.
     
   
In May 2010, the Company purchased a commercial building for $975,000. Under the
   
terms of the agreement, the Company made a down payment of $20,956 (See Note 8).
     
   
In May 2010, the Company issued 25,000 shares of its common stock to a director
   
as interest in connection with a $100,000 loan he made to the Company. The 25,000
   
shares were valued at their respective market value on date of issuance totaling
   
$32,000 which being amortized and charged to operations over the six month term
   
of the loan. The director has the right to convert all or a portion of the $100,000
   
loan into common shares of the Company at a conversion price of $0.75 per share.
   
The Company recognized a beneficial conversion feature of $70,666 which was
   
accounted for a discount against the $100,000 principal balance of the note.
   
The discount is being amortized and charged to interest expense over the six
   
month term of the loan  In March 2011, the debt was cancelled in exchange
   
through the issuance of 400,000 shares of common stock.
     
   
In May 2010, the Company issued  a total of 1,425,000 shares of its common stock
   
for consulting services. The shares were valued on the date the shares were issued of
   
$2,764,500, which was charged top operations and included in compensation expense.
 
 
 
 
 
 
See accompanying notes.

 
6

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
NOTE 1ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Nature of Operations – Americas Energy Company – AECo (“the Company”) was incorporated under the name of Trend Technology Corporation in the State of Nevada on February 16, 2001. On October 14, 2009, the Company changed its name to Americas Energy Company-AECo in anticipation of the acquisition of Americas Energy Company “(AECO”).
 
Basis of Presentation – The accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of June 30, 2011, and the results of its operations and cash flows for the three months ended June 30, 2011 and 2010. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (the “Commission”). The Company believes that the disclosures in the unaudited condensed consolidated financial statements are adequate to make the information presented not misleading. However, the unaudited condensed consolidated financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended September 30, 2010 filed with the Commission on December 29, 2010.
 
The accompanying consolidated financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America.
 
Principles of Consolidation - The accompanying condensed consolidated financial statements include the accounts of Americas Energy Company – AECo and its wholly owned subsidiary, Evans Coal Corp. Intercompany transactions and balances have been eliminated in consolidation.

Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of coal, oil and gas reserves, asset retirement obligations, and impairment on unproved properties are inherently imprecise and may change materially in the near term.

Cash and Cash Equivalents – The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents.  The Company maintains cash balances at one financial institution that is insured by the Federal Deposit Insurance Corporation (“FDIC”) up to $250,000. As of June 30, 2011, the Company’s cash balances did not exceed the FDIC limits.

Accounts Receivable – Accounts receivable are recorded at the invoiced amount and do not bear interest.  The Company evaluates the need for an allowance for doubtful accounts based on review of historical write-off experience and industry data.  As of June 30, 2011 and 2010, there was no allowance for doubtful accounts, since all of the Company’s receivables were subsequently collected.

Advanced Mining Royalties – Lease rights to coal lands are often acquired in exchange for royalty payments. Advance mining royalties are advance payments made to lessors under terms of mineral lease agreements that are recoupable against future production. These advance payments are deferred and charged to operations as the coal reserves are mined. The Company regularly reviews recoverability of advance mining royalties and establishes or adjusts the allowance for advance mining royalties as necessary using the specific identification method. In instances where advance payments are not expected to be offset against future production royalties, the Company establishes a provision for losses on the advance payments that have been paid and the scheduled future minimum payments are expensed and recognized as liabilities. Advance royalty balances are charged off against the allowance when the lease rights are either terminated or expire. The Company did not have any advanced royalties at June 30, 2011.
 
 
 
 
7

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010



Property and Equipment – Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are calculated using the straight-line method and with useful lives used in computing depreciation ranging from 3 to 5 years. When property and equipment are retired or otherwise disposed of, the related cost and accumulated depreciation are removed from the respective accounts, and any gain or loss is included in operations. Expenditures for maintenance and repairs are charged to operations as incurred; additions, renewals and betterments are capitalized.

Coal PropertiesCosts incurred to purchase, lease or otherwise acquire mineral properties are capitalized when incurred. Mine development costs are recorded at cost as incurred. The Company’s coal reserves are controlled either through direct ownership or through leasing arrangements, which generally last until the recoverable reserves are depleted. Depletion of reserves and amortization of mine development costs is computed using the units-of-production method over the estimated proven and probable recoverable tons.

The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If impairment indicators are present and the future undiscounted cash flows are less than the carrying value of the assets, the carrying values are reduced to their estimated fair value.

Long-Lived Assets – The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, Formerly SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets."  ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an 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 or disposable value. As of June 30, 2011, the Company has determined that none of its long-term assets were impaired.

Intangible assetsGoodwill consists of the cost in excess of the fair value of the acquired net assets of the Company’s subsidiaries. Goodwill is subject to annual impairment tests which require the comparison of the fair value and carrying value of reporting units. The Company assesses the potential impairment of goodwill annually and on an interim basis whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Upon completion of such annual review, if impairment is found to have occurred, a corresponding charge will be recorded. The Company has determined that it has one reporting unit, and uses three generally accepted methods for estimating fair value of the reporting unit; the income approach, market approach and market capitalization to determine the overall fair value. There were no events or changes in circumstances during the three months ended June 30, 2011 that indicated to management that the carrying value of goodwill and the intangible asset may not be recoverable.

Asset Retirement Obligations –Minimum standards for mine reclamation have been established by various regulatory agencies and dictate the reclamation requirements at the Company’s operations. The Company’s asset retirement obligations consist principally of costs to reclaim acreage disturbed at surface operations and estimated costs to reclaim support acreage and perform other related functions at underground mines. The Company records these reclamation obligations at fair value in the period in which the legal obligation associated with the retirement of the long-lived asset is incurred. When the liability is initially recorded, the offset is capitalized by increasing the carrying amount of the related long-lived asset. Over time, the liability is accreted to its present value each period, and the capitalized cost is depreciated over the useful life of the related asset. To settle the liability, the obligation is paid, and to the extent there is a difference between the liability and the amount of cash paid, a gain or loss upon settlement is recorded. The Company annually reviews its estimated future cash flows for its asset retirement obligations. See Note 10 for further disclosures related to the Company’s asset retirement obligations.
 
 
 
 
8

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010



Income Taxes – Income taxes are accounted for under the asset and liability method in accordance with ASC Topic 740-10, formerly SFAS 109 "Accounting for Income Taxes."  Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss carryforwards.  Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.  The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.  When it is considered to be more likely than not that a deferred tax asset will not be realized, a valuation allowance is provided for the excess.

Revenue Recognition – The Company earns revenues primarily through the sale of coal, but also earns revenue from the leasing of its equipment. The Company recognizes revenues utilizing the following general revenue recognition criteria: 1) pervasive evidence of an arrangement exists; 2) delivery has occurred; 3) the price to the buyer is fixed or determinable; and 4) collectability is reasonably assured.

Delivery of coal sales is determined to be complete for revenue recognition purposes when title and risk of loss has passed to the customer in accordance with stated contractual terms and there is no future obligations related to the shipment. Title generally passes as the coal is loaded into transport carriers for delivery to the customer.

Pneumoconiosis (Black Lung) Benefits - The Company is required by federal and state statutes to provide benefits to employees for awards related to black lung. Charges are made to operations for state black lung claims. The Company recognizes on its balance sheet the amount of the Company’s unfunded Accumulated Benefit Obligation (“ABO”) at the end of the year. Amounts recognized in Accumulated other comprehensive income (loss) are adjusted out of Accumulated other comprehensive income (loss) when they are subsequently recognized as components of net periodic benefit cost.

Share-Based Compensation – The Company measures and records compensation expense for all share-based payment awards to consultants, employees and directors based on estimated fair values.  Additionally, compensation costs for share-based awards are recognized over the requisite service period based on the grant-date fair value.

Loss Per Share – The Company reports earnings (loss) per share in accordance with ASC Topic 260-10, formerly SFAS No. 128, "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share except that the denominator is increased to include the number of additional common shares that would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive. Potential common shares at June 30, 2011 comprised of 12,000,000 Warrants and $1,020,768 of debt convertible into 7,460,936 shares of the Company’s common stock.

Convertible Debentures - If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”).  A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense or equity (if the debt is due to a related party), over the life of the debt using the effective interest method.
 
 
 
 
9

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010



NOTE 2 – RECENT ACCOUNTING PRONOUNCMENTS
 
In June of 2011, Accounting Standards Codification Topic 220, Comprehensive Income was amended to increase the prominence of items reported in other comprehensive income. Accordingly, a company can present all non-owner changes in stockholders’ equity either in a single continuous statement of comprehensive income or in two separate but consecutive statements The Company plans to adopt this guidance as of January 1, 2012  and does not expect the adoption thereof to have a material effect on the Company’s condensed consolidated financial statements.
 
In May of 2011, Accounting Standards Codification Topic 820, Fair Value Measurement was amended to develop common requirements for measuring fair value and for disclosing information about fair value measurements in accordance with U.S. generally accepted accounting principles and International Financial Reporting Standards. The Company plans to adopt this guidance as of January 1, 2012 on a prospective basis and does not expect the adoption thereof to have a material effect on the Company’s condensed consolidated financial statements.
 
In March of 2010, Accounting Standards Codification Topic 605, Revenue Recognition was amended to define a milestone and clarify that the milestone method of revenue recognition is a valid application of the proportional performance model when applied to research or development arrangements. Accordingly, a company can make an accounting policy election to recognize a payment that is contingent upon the achievement of a substantive milestone in its entirety in the period in which the milestone is achieved. This guidance was adopted effective January 1, 2011 on a prospective basis and did not have a material effect on the Company’s condensed consolidated financial statements.
 
NOTE 3 – GOING CONCERN

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred a net loss of $7,736,381 for the three months ended June 30, 2011, In addition, at June 30, 2011, the Company had negative working capital of $1,643,835 and an accumulated deficit of $18,738,813.

These conditions give rise to doubt about the Company’s ability to continue as a going concern. These financial statements do not include adjustments relating to the recoverability and classification of reported asset amounts or the amount and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent upon its ability to obtain additional financing or sale of its common stock as may be required and ultimately to attain profitability.

NOTE 4 – CONCENTRATION OF CREDIT RISK

Significantly, all of the Company’s revenues during the three months ended June 30, 2011 were derived from two customers of whom one customer purchased approximately 87% Company’s total coal sales. During the three months ended June 30, 2010 significantly all of the Company’s revenues were derived from five customers of whom two customers purchased approximately 85% of the Company’s total coal sales for the period.

Trade receivable balance at June 30, 2011 of $4,857 is due from one customer.

All of the Company’s coal mining during the period was subcontracted to one operator.
 

 
10

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
NOTE 5 – PROPERTY, PLANT, EQUIPMENT AND MINING DEVELOPMENT
 
Property, plant, and equipment at June 30, 2011 consist of the following:

 
Useful
     
 
Life
     
         
Land
    $ 244,348  
Building and improvements
5 to 20 years
    768,886  
Mining and transportation equipment
5 to 10 years
    4,736,521  
Trucks held under capital leases
3 years
    49,439  
Office equipment
3 to 5 years
    21,299  
        5,820,493  
Less accumulated depreciation and depletion
      (734,164 )
      $ 5,086,329  

Depreciation expense for the months ended June 30, 2011 and 2010 totaled $160,124 and $123,495, respectively.
 
Mining properties at June 30, 2011 consisted of the following:
 
Mining properties
  $ 17,672,425  
Less accumulated depletion
    (132,397 )
    $ 17,540,028  
 
Depletion expense for the three months ended June 30, 2011 and 2010 totaled $2,361 and $10,621, respectively.

NOTE 6 – OTHER ASSETS

Investment in unconsolidated subsidiary

As of June 30, 2011, the Company owns 250,000 shares of Proton Power, Inc., and subsidiaries (“Proton”) that it acquired for $250,000. The 250,000 shares represent approximately 2.2% of the total outstanding shares of Proton. Proton is located in Lenoir City, Tennessee and is in the process of developing hydrogen based power systems that it will manufacture and sale to business customers with access to cellulosic biomass or cellulosic waste streams such as woody waste, agricultural by-products, and paper waste.

Proton is privately held and the Company is accounting for its $250,000 investment under the cost method pursuant to ACS 325-20 “Cost method investment”. As of March 31, 2011, the Company has not evaluated its investment in Proton for impairment.

Investment in certificate of deposits

On March 31, 2010, the Company acquired $1,580,508 in certificates of deposit in connection with its acquisition of Evans Coal Corp., which are offset against an assumed liability to the former president of Evans in the amount of $1,198,685.  The certificates of deposit are pledged as collateral for future reclamation costs attributable to the mining permits acquired through the aforementioned acquisition.  From the date of the modified purchase agreement of
 
 
 
 
11

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
Evans, all interest earned on the certificate of deposits is being distributed to the seller. During the year ended March 31 2011, the Company increased its investment in certificates of deposits by $13.600. The new certificates are also pledged as collateral for mining permits. The balance of the investments at June 30, 2011 totaled $1,594,110.

NOTE 7 – OBLIGATIONS UNDER CAPITAL LEASE

The Company is leasing two Ford F150 trucks under capital leases. The assets and related obligations have been recorded at the present value of the minimum lease payments. The capitalized costs of the trucks are $49,439, which is being depreciated over their estimated useful lives of 3 years. The leases are payable in payments of $3,883 per quarter. The imputed interest rate on the capital leases is 6%.  The discounted balance due on the leases at June 31, 2011 totaled $28,596. The net book of the value of these leased trucks as of June 30, 2011 amounted to $25,501, which is net of accumulated depreciation of $23,938.

Minimum future lease payments under the capital lease at June 30, 2011 and for each year of the lease are as follows:
 
2012
  $ 15,534  
2013
    9,653  
2014
     5,714  
Total minimum future lease payments
    30,901  
Less:  amount representing interest
    (2,305 )
         
Present value of minimum
       
    Future lease payments
  $ 28,596  
 
Imputed interest charged to operations on these leases for the three months ended June 30, 2011 and 2010 totaled $477 and $1,357, respectively. Depreciation expense on the leased trucks for the three months ended June 30, 2011 and 2010 totaled $4,120 and $4,120, respectively, and is included in accretion depreciation and depletion expense in the accompanying consolidated statement of operations.

NOTE 8 – NOTES AND LOANS PAYABLE

Evans Coal Corp.
On March 31, 2010, the Company finalized its acquisition of all of the outstanding shares of Evans Coal Corp (“Evans”). Pursuant to the terms of the purchase, the Company issued a $25,000,000 promissory note payable initially in consecutive monthly payments at the rate of ($5.00) Dollars per short ton of coal mined, sold and shipped by the Company with the first payment being due in April 2010. Commencing in March 2011, the Company was required to make monthly payments of the greater of $5.00 per short ton or a minimum quarterly payment of $500,000 through maturity. Further, Evans has stipulated in the agreement that in the event the Company was unable to obtain all coal mining regulatory permits on the leasehold area known as the Breathitt County Project by December 31, 2016, then the note shall be reduced in principal by $5,000,000. The assets acquired from Evan’s have been pledged as collateral on this obligation. Based on the terms of the Note, the face value of $25,000,000 was inclusive of imputed simple interest at the applicable Federal Rate of 4.37%. In accordance with ASC 835, the Company present valued the obligation utilizing a fair market rate of 6.34% to $18,974,900.

As part of the aforementioned Acquisition Agreement, the Company assumed a note payable to the former President of Evan’s in the amount of $1,198,685. The note is non-interest bearing and due on demand.
 
 
 
12

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010



The terms of the acquisition were modified effective September 28, 2010, and the $25,000,000 note was canceled.  Imputed interest charged to operation during the three months ended June 30, 2010 and 2011, totaled $0 and $22,935, respectively.
 
Bledsoe Acquisition – Related party
On July 27, 2009, the Company entered into an Assignment of Mineral Lease with RJCC#1 (“RJCC”), a Tennessee Partnership whereby RJCC agreed to assign their interest in mineral leases located in Bledsoe County Tennessee in exchange for $1,250,000. Pursuant to the terms of the agreement, $25,000 was paid upon the execution of the Agreement and the remaining balance was payable in 49 monthly installments of $25,000 each beginning on January 1, 2010. As the terms of the Agreement did not provide for interest on the installments, in accordance with ASC Topic 835, the Company imputed interest using an effective annual interest rate of 6% and discounted the balance due to $1,086,801.

On October 25, 2010, the Company agreed to issue 5,000,000 shares of its common stock valued at $2,300,000 to RJCC, a related party, in exchange for cancelling the remaining obligation of $1,168,163, inclusive of accrued imputed interest.  Imputed interest charged to operations for the period three months ended June 30, 2011 and 2010 totaled $0 and $15,077, respectively. RJCC is owned by family members of management.
 
Term Loan
 
On December 29, 2010, $300,039 due a vendor for equipment maintenance and acquisitions was converted into a line of credit with an available limit of $325,000. The line of credit, is assessed interest at an annual rate of 11.25% and is payable in monthly installments of $14,188 until the balance and accrued interest are fully paid.  As of June 30, 2011, the Company had available credit of $99,317 and an outstanding balance on this line of credit of $225,683. Interest charged to operations during the three months ended June 30, 2011 totaled $5,015
 
Mortgage Payable
 
On May 10, 2010, the Company acquired a commercial building where its corporate offices are now located. The property was purchased for $975,000 and included a down payment of $20,956. The remaining balance of $962,763 is assessed interest at an annual rate of 6% and is payable in 60 monthly installments of $6,985 commencing August 10, 2010. Per the terms of the note, the Company made an additional payment of $63,015 for the reduction of principal. The unamortized principal balance and accrued interest of approximately $744,385 will be fully due and payable on April 10, 2015. Interest charged to operations on this obligation for the three months ended June 30, 2011 and 2011 amounted to $13,345 and $8,718, respectively. The balance of the note at June 30, 2011 totaled $876,694.

The following are maturities of long-term debt for each of the next five years

June 30,
     
2012
  $ 31,620  
2013
    33,587  
2014
    35,679  
2015
    775,808  
Total
    876,694  
Less current portion
    (31,620 )
    $ 845,074  
 
Loan Payable – Related Party
 
During the year ended March 31, 2011, the Company borrowed a total of $70,000 from an officer. The loans bear interest at a rate of 8%, are unsecured, and due on demand. The balance of the loan at June 30, 2011 was $20,000. Interest charged to operations on this obligation for the three months ended June 30, 2011 totaled $617.
 
 
 
13

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
NOTE 9 – CONVERTIBLE NOTES PAYABLE

On April 20, 2011, the Company entered into an investment agreement with Hanhong (Hong Kong) New Energy Holdings Limited (“Hanhong”) whereby Hanhong will lend up to $2,000,000 to the Company as evidenced by a convertible line of credit note. Amounts borrowed on the credit line are assessed interest at a rate of 16.66%. The outstanding principal and accrued interest is payable in monthly installments equal to $3.00 per ton of coal sold and shipped in the previous month. Unless earlier converted into common shares, the outstanding principal and accrued interest shall be fully due and payable on October 12, 2012. Advances on the credit line are available through October 31, 2011. Prior to maturity date, Hanghong can choose to convert from time to time, up to, but to not exceed, $2,000,000 of any accrued but unpaid interest or principal then outstanding into shares of the Company's common stock at a conversion price of $0.136815 per share, The note is secured by all of the assets of the Company with the exception of the certificates of deposits totaling $1,594,110 that have been pledged against reclamation bonds. During the three months ended June 30, 2011, the Company received a total of $1,000,000 in advances under the credit note.

Under the terms of the investment agreement, the Company granted Hanhong warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $0.14 per share, warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $0.20 per share, and warrants to purchase up to 2,000,000 shares of the Company’s common stock at an exercise price of $0.25 per share.
 
Pursuant to ASC Topic 470-20, “Debt with Conversion and Other Options,” the convertible notes were recorded net of discounts of $508,717 that include the relative fair value of the warrants. The discounts are amortized and charged to operations over the life of the debt using the effective interest method.  The initial value of the warrants of $266,163 was calculated using the Black Scholes Option Model with a risk free interest rate of .69%, volatility of 152.75%, and trading price of $0.17 per share.  The balance of the convertible debt at June 30, 2011 including accrued interest, net discount of $461,825, was $558,942.
 
Interest charged to operations on the principal balance of the notes for the three months ended June 30, 2011totaled $20,768. Amortization of the discount that was charged to operation during the three months ended June 30, 2011 was $46,892.

NOTE 10 – ASSET RETIREMENT OBLIGATION

As of June 30, 2011, the Company had recorded asset retirement obligation accruals for mine reclamation and closure costs totaling $1,355,842. These regulatory obligations are secured by certificates of deposit.

Changes in the asset retirement obligations from continuing operations were as follows:
 
Total asset retirement obligation – April 1, 2011
  $ 1,339,574  
Accretion for the period
    29,865  
Sites acquired during the period
    -  
Less liabilities settled
    (13,596 )
Total asset retirement obligations at June 30, 2010
  $ 1,355,842  
Less current portion
    -0-  
Long-term portion
  $ 1,355,842  
 

 
14

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
NOTE 11 – OTHER NON-CURRENT LIABILITIES

Accrued Royalty

The Company is obligated to pay a royalty to the former shareholders of Evans under the modified terms of the acquisition agreement.  The royalty obligation is to be paid at a rate of $2 per ton on all coal produced from the leases acquired from Evans, excluding the Cardinal lease on which a royalty of $1 per ton will be paid. The fair value of the royalty obligation was discounted to its estimated present value. The balance at June 30, 2011 including accretion of accrued net royalties was $7,372,110. Included in the June 30, 2011 balance are royalties that accrued during the three months then ended of $83,750 net payment of $2,961 made during the three month period.

Accrued officers’ severance pay
 
On June 1, 2011, the Company entered into new employment agreements with three of its officers. Under the terms of the employment agreements, the Company agreed to pay each officer $2,000,000 in the event of termination by the Company for cause, without cause, or in the event the employee resigns for good reason. The Company valued the liability at June 1, 2011 by discounting the $6,000,000 total amount due over the five-year term of the contracts using a discount rate of 5%.

In addition, the employment contracts also provide compensation after death or disability. In the event of death or a debilitating disability while the employee is under contract, the Company is required to the respective officer or his legal representative, the employee’s base salary for the next two years in monthly installments, starting from the month after death or disability. Each of the three contracting officer’s annual salary is $120,000. Therefore in the event of death or disability, the Company would be required to pay $240,000 in equal monthly payments over 24 months. As the officers covered by the clause are of varying ages, the probability of death based on statistical averages is somewhat different per employee. Using a probability table, the Company determined that the fair value of its obligation for death and disability at June 1, 2011 was $3,658.

The present value of the total indicated liabilities of $6,003,658 at June 1, 2011 was $4,712,132 that was recorded as a liability with the offset being charged to operations as officers’ compensation. The liabilities accrete to their present value each period. During the one month ended June 30, 2011, the liabilities were increased by $39,695, which was charged to operations and included in officers’ compensation.

Derivative and warrant Liabilities

At June 30, 2011 (“the valuation date”), the Company recognized derivative and warrant liabilities and a correlating charge to operations in the amount of $467,096 pursuant to ASC 815-40-19 “Contracts in Entity's Own Equity” as the number of Company’s potential common shares and the number of actual common shares outstanding at the valuation date exceeded the number of common shares it currently is authorized to issue. The shortage in the number of committed shares over the number of authorized but unissued common shares at the valuation date totaled 7,323,919.

The total liabilities of $467,095 at the valuation date are based upon the fair value of the 12,000,000 granted warrants using the Black Scholes Option Model. The conversion feature of the convertible debt was not included in the June 30, 2011 derivative obligation as its conversion price per share was higher than the trading price of the Company’s common stock at the valuation date.
 

 
15

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
NOTE 12 – FAIR VALUE OF ASSETS AND LIABILITIES
 
Determination of Fair Value
 
The Company’s financial instruments consist of notes payable and loans payable. The Company believes all of the financial instruments’ recorded values approximate their fair values because of their nature and respective durations.
 
The Company complies with the provisions of ASC No. 820-10 (ASC 820-10), “Fair Value Measurements and Disclosures.”  ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.
 
ASC 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:
 
Level 1.     Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.
 
Level 2.     Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
Level 3.   Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.
 
Application of Valuation Hierarchy

A financial instrument's categorization within the valuation hierarchy is based upon the lowest level of input that is significant to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well as the general classification of such instruments pursuant to the valuation hierarchy.
 
Notes Payable.   The Company assessed that the fair value of these liabilities to approximate its carrying value based on the effective yields of similar obligations.
 
Loans Payable - Other.     The Company assessed that the fair value of this liability approximates its carrying value due to its short-term nature.
 

 
16

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
The methodology described above may produce a current fair value calculation that may not be indicative of net realizable value or reflective of future fair values. If readily determined market values became available or if actual performance were to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other market participants. However, the use of different methodologies or different assumptions to value certain financial instruments could result in a different estimate of fair value.
 
The following table presents the fair value of financial instruments that are measured and recognized on a non-recurring basis classified under the appropriate level of the valuation hierarchy described above, as of June 30, 2011:
 
 
Liabilities measured at fair value at
June 30, 2011
 
Level 1
   
Level 2
   
Level 3
   
Total
 
Nonrecurring:
                       
Line of credit
  $ -0-     $ 225,683     $ -0-     $ 225,683  
Notes payable
    -0-     $ 846,694     $ -0-     $ 846,694  
Loans payable - other
    -0-       1,198,685       -0-       1,198,685  
Derivative and   warrant liabilities
    -0-       467,096       -0-       467,096  

NOTE 13 – STOCKHOLDERS EQUITY

Common share issuances

On May 1, 2011, the Company issued 5,243,388 shares of its common stock to its employees and officers. The shares were valued at $1,520,583 and were charged to operations as compensation.

On June 1 2011, the Company issued 1,000,000 shares of its common stock to its chief financial officer as compensation valued at $200,000.

Warrants

The following is a schedule of warrants outstanding:

   
 
Warrants
Outstanding
   
Weighted
Average Exercise
Price
 
Weighted
Average Remaining Life
 
Aggregate
Intrinsic Value
 
Balance, March 31, 2011
    9,000,000     $ 0.75  
3 Years -
  $ -  
Warrants granted
    3,000,000       0.20  
2 Years
    -  
Warrants expired
    -       -         -  
Balance, June 30, 2011
    12,000,000     $ 0.62  
2.5 Years
  $ -  
 
All the warrants are available for exercise at June 30, 2011.
 
 
 
17

AMERICAS ENERGY COMPANY- AECo.
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2011 AND 2010


 
NOTE 14 – INCOME TAXES

At June 30, 2011, the Company has a net operating loss carryover of approximately $6,500,000 available to offset future income for income tax reporting purposes, which will expire in various years through 2031, if not previously utilized. However, the Company’s ability to use the carryover net operating loss may be substantially limited or eliminated pursuant to Internal Revenue Code Section 382.
 
We adopted the provisions of FIN 48, “Accounting for Uncertainty in Income Taxes.” We had no material unrecognized income tax assets or liabilities for the three months ended June 30, 2011.
 
Our policy regarding interest and penalties assessed on income tax is to expense those items as general and administrative expense. During the three months ended June 30, 2011 and 2010, there were no income tax interest and penalty items in the income statement, or as a liability on the balance sheet. We file income tax returns in the U.S. federal jurisdiction and various state jurisdictions. We are no longer subject to U.S. federal or state income tax examination by tax authorities for years before 2004. We are not currently involved in any income tax examinations.
 
NOTE 15 – COMMITMENTS AND CONTINGENCIES

Liabilities for loss contingencies, arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment and/or remediation can be reasonably estimated.

NOTE 16 – SUBSEQUENT EVENTS

Pursuant to the terms of his employment agreement, on July 1, 2011, the Company issued 1,000,000 shares of its common stock to an officer, who is also a director of the Company as compensation valued at the shares’ market value on date of issuance of $180,000.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
18


Americas Energy Company- Aeco
 
 
 
Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations
 
The following contains forward-looking statements that involve risks and uncertainties, as described below.
 
Americas Energy Company-AECo (the “Company”, “we”, “us” or “our”) actual results could differ materially from those anticipated in these forward-looking statements. The following discussion should be read in conjunction with the unaudited financial statements and notes thereto and the Plan of Operation included in this Quarterly report on Form 10-Q for the three-month period ended June 30, 2011.
 
Our financial statements are stated in United States Dollars and are prepared in accordance with accounting principles generally accepted in the United States of America.
 
Forward-Looking Statements
 
This quarterly report may contain forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as "may", "should", "expects", "plans", "anticipates", "believes", "estimates", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
 
Critical Accounting Policies and Estimates
 
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. The reported financial results and disclosures were determined using the significant accounting policies, practices and estimates described below.
 
Coal Properties – Costs incurred to purchase, lease or otherwise acquire mineral properties are capitalized when incurred. Mine development costs are recorded at cost as incurred. The Company’s coal reserves are controlled either through direct ownership or through leasing arrangements, which generally last until the recoverable reserves are depleted. Depletion of reserves and amortization of mine development costs is computed using the units-of-production method over the estimated proven and probable recoverable tons.
 
The Company reviews its long-lived assets for impairment when events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. If impairment indicators are present and the future undiscounted cash flows are less than the carrying value of the assets, the carrying values are reduced to the estimated fair value.
 
Revenue Recognition – Revenues include sales to customers of Company-produced coal and oil. The Company recognizes revenue when title or risk of loss passes to the common carrier or customer.
 
Asset Retirement Obligations –The Surface Mining Control and Reclamation Act of 1977 and similar state statutes require mine properties to be restored in accordance with specified standards. Accounting Standards Codification (“ASC”) Topic 410-20, formerly Statement of Financial Accounting Standards No. 143 (“SFAS No. 143”) requires recognition of an asset retirement obligation (“ARO”) for eventual reclamation of disturbed acreage remaining after mining has been completed. The Company records its reclamation obligations on a permit-by-permit basis using requirements as determined by the Office of Surface Mining of the U.S. Department of the Interior (“OSM”). The liability is calculated based upon the reclamation activities remaining after coal removal ceases, assuming that reclamation activities have been contemporaneous within state and federal guidelines during mining. A liability is recorded for the estimated future cost that a third party would incur to perform the required reclamation and mine closure discounted at the Company’s credit-adjusted risk-free rate. A corresponding increase in the asset carrying value of mineral rights is also recorded. The ARO asset is amortized on the units-of-production method over the proven and probable reserves associated with that permit. These expenses are included in depreciation, depletion, amortization, and accretion in the operating expenses section of the statement of operations.
 

 
19


Americas Energy Company- Aeco
 
 
 
Long-Lived Assets – The Company accounts for its long-lived assets in accordance with ASC Topic 360-10, Formerly SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset may no longer be appropriate. The Company assesses recoverability of the carrying value of an 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 or disposable value. Share-Based Compensation – The Company measures and records compensation expense for all share-based payment awards to consultants, employees and directors based on estimated fair values. Additionally, compensation costs for share-based awards are recognized over the requisite service period based on the grant-date fair value.
 
Convertible Debentures
 
If the conversion feature of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (“BCF”).  A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 “Debt with Conversion and Other Options.” In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense or equity (if the debt is due to a related party), over the life of the debt using the effective interest method.
 
Use of Estimates – The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Estimates of coal, oil and gas reserves, asset retirement obligations, and impairment on unproved properties are inherently imprecise and may change materially in the near term.
 
 
 
 
 
 
 
 
 
 
 

 
20


Americas Energy Company- Aeco
 
 
 
Financial Condition and Results of Operations
 
The following should be read in conjunction with our Consolidated Financial Statements and related Notes thereto included elsewhere in this Annual Report on Form 10-K.
 
Results of Operations
 
Three-Months Ended June 30, 2011  Compared to the Three-Months Ended June 30, 2010
 
During the three-months ended June 30, 2011, we have generated $141,901 in total revenue which is comprised primarily from sales of coal compared to our total sales during the three-month period  ended June 30, 2010 of $3,631,300. The total coal production sold during our first quarter of 2011 was 1,736 tons as compared to 25,109 tons ((excluding brokered coal) sold in the prior year’s first quarter. We sold our oil properties in March 2011. However oil production was minimal during the three months ended June 30, 2010.  We did not have any brokered coal sales during the three months ended June 30, 2011. The decrease in revenue for the three months ended June 30, 2011 as compared to the same period in the prior year of $3,489,399 was due to severe weather conditions that caused interruption of surface mining operations and our required shift from production to reclamation as ordered by the State of Kentucky, Office of Surface Mining. We believe we have completed the required reclamation deficiency and began limited auger production on August 1, 2011, but are were unable to sell that coal until the suspension order was cleared by State of Kentucky, Office of Surface Mining on August 15, 2011. We are now able to transport coal for sale and have resumed auger and surface mining at prior production rates. In addition, we are investigating the costs and potential for recover for claims against the mining contractor that failed, in our opinion, to perform the necessary reclamation under its mining agreement with us causing the reclamation deficiency and related suspension of production.
 
The following table presents the Company’s consolidated revenues and operating results for the three-months ended June 30, 2011 and 2010:
 
   
The Three-Months Ended
       
   
June 30,
   
Increase (Decrease)
 
   
2011
   
2010
      $    
%
 
REVENUES
                         
Coal sales and related income
  $ 136,105     $ 3,615,819     $ (3,479,714 )     (96 %)
Other income
    5,796       15,481       (9,685 )     (63 %)
Total revenues
    141,901       3,631,300       (3,489,399 )     (96 %)
                                 
OPERATING EXPENSES
                               
Cost of sales (exclusive of  accretion,
                               
depreciation and depletion)
    284,531       3,194,737       (2,910,206 )     (91 %)
Accretion, depreciation and depletion
    192,350       161,666       30,684       19 %
Compensation expense
    6,610,885       3,061,686       3,549,199       116 %
Professional fees
    192,348       89,084       103,264       116 %
General and administrative expenses
    52,767       183,520       (130,753 )     (71 %)
Total operating expenses
    7,332,881       6,690,693       642,188       10 %
Loss from operations
    (7,190,980 )     (3,059,393 )     4,131,587       135 %
OTHER INCOME (EXPENSES)
                               
Interest income
    5,442       9,084       (3,642 )     (40 %)
Interest expense
    (91,171 )     (353,507 )     262,336       (74 %)
Gain on disposition of asset
    6,798       -       6,798       100 %
Change in fair value of derivative and warrant liabilities
    (467,096 )     -       (467,096 )     (100 %)
Total other income (expenses)
    (546,027 )     (344,423 )     (201,604 )     59 %
                                 
INCOME (LOSS) BEFORE INCOME TAXES
  $ (7,737,007 )   $ (3,403,816 )   $ (4,333,191 )     127 %
 


 
21


Americas Energy Company- Aeco
 
 
 
The net loss of $7,737,007 that we incurred during the three months ended June 30, 2011 included compensation expense of $6,432,715 and a loss of $467,096 from changes in the fair value of our derivative and warrant liabilities. Excluding these costs, our loss for June 30, 2011 would have been $837,196. Of the $6,432,715, $1,720,583 relates to the fair value of the issuance of 6,243,388 shares of the Company’s common stock to employees, officers, and directors, and $4,712,132 relates to the present value of the severance pay that the Company is obligated under its employment agreement with three of its officers (See Note 11 to the accompanying unaudited financial statements). Our derivative and warrant obligations are due to the number of our potential common shares that we are committed to issue under our warrant grants and convertible debt and the number of actual common shares outstanding at June 30, 2011 that exceed the number of common shares we currently are authorized to issue (See Note 11 to the accompanying unaudited financial statements).
 
Interest expense for the three months ended June 30, 2011 of $91,171 includes is $46,892 of amortization on the discount pertaining to our convertible debt with Hanhong New Energy Holdings, and $20,768 of accrued interest on the related $1,000,000 principal owed of the convertible debt (See Note 9 to the accompanying unaudited financial statements).  Interest expense for the three months ended June 30, 2010 of $353,507 included imputed interest of  $301,027 on our then $25,000,000 obligation due to the Evans family on our purchase of Evans Coal Company.  We were relieved of this indebtedness in September 2010.
 
Liquidity and Capital Resources
 
During the fiscal three-months ended June 30, 2011, net cash used by operating activities totaled $687,591. Net cash used in investing activities totaled $10,875 of which $100,875 was paid in the development of mineral properties and $10,000 was incurred in the purchase of equipment used in our operations. Our total investment expenditures of $110,875 were subsidized by the $100,000 we received from the sale of our oil properties to RJCC Group I (a related party).  Financing activities provided during the three months totaled $890,088 of which the $1,000,000 advance we received during the three month period from Hanhong was netted against the $50,000 payment we made against the debt we owed to an officer, $3,407 in principal payments on a capital lease obligations, $51,736 in principal payments on our credit line and $4,769 in principal payments on notes payable. The resulting change in cash for the period was an increase of $191,622. The cash balance at the beginning of the fiscal three-months was $10,622. The cash balance at the end of the fiscal three-months totaled $202,244.
 
For the three month period ended June 30, 2010, net cash used in operating activities totaled $125,650. Net cash used in investing activities totaled $909,745, which included $187,142 to purchase equipment used in our operations. Financing activities provided a total of $504,076, which included $500,000 in proceeds from a note payable, $100,000 in proceeds from convertible note, less ($60,804) in payments on a note payable obligation. The resulting change in cash for the period was an decrease of $531,319; Cash at the beginning of the period totaled $542,331, the decrease resulted in $11,012 in cash at the end of the period ending June 30, 2010.
 
Critical components of our operating plan impacting our continued existence are the net revenue generated from the production and sale of coal and the ability to obtain additional capital through additional equity and/or debt financing.
 
Going Concern
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Based upon current operating levels and obligations, we may require additional capital to sustain our operations for the foreseeable future. The financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might be necessary should we be unable to continue as a going concern. Our continuation as a going concern is dependent upon our ability to generate sufficient cash flow to meet our obligations on a timely basis and ultimately to attain profitability.
 

 
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Americas Energy Company- Aeco
 
 
 
Plan of Operation
 
Americas Energy Company-AECo with offices located in Knoxville, Tennessee currently operates surface mines in southeastern Kentucky. Americas Energy Company holds Evans Coal Corp. as a wholly owned subsidiary. The company owns or controls by lease mineral rights and currently operates two surface mines in Bell County and one in Knox County, Kentucky. The primary product is a high BTU, mid-sulfur steam coal.
 
Evans Coal Corp. was organized in Kentucky on July 9, 1987 and is engaged in the business of mining high grade coal from its property located in Bell County, Kentucky. The company holds various leases and permits to mine those lease rights. The company owns a variety of mining equipment consisting of trucks, loading, drilling, dozers and other heavy equipment for use in its mining operations.
 
Americas Energy Company currently has two mining complexes, located in Kentucky and Tennessee. A mining complex is defined as all mines that supply a single wash plant. These complexes blend, process and ship coal that is produced from one or more mines. Americas Energy Company presently uses two distinct extraction techniques: dozer and front-end loader surface mining and auger mining. In 2011 we primarily shipped coal via truck to various locations for purchase.
 
In addition to direct production, the company on occasion, has brokered coal and may continue to do so when profitable opportunities exist.
 
Mining Operations Summary
 
Our mining operations during the majority of the three month period covered by this report on Form 10Q were suspended pending the satisfactory completion of certain reclamation work by order of the State of Kentucky, Office of Surface Mining. As of the date of this report we have cleared the suspension order and resumed surface mining on the Artemus Property in the Lily and Jellico seams at an approximate production rate of 12,000 tons per month with surface mining on the HWY 92 Property in the Fireclay and Dean seams expected produce approximately 1,800-2,000 tons per month.
 
Until recently we utilized contract miners for all of our mining operations. We have now begun to mine utilizing our own employees and equipment. We believe that on a going forward basis this decision will give us more control over operations, better profitability, better control over the maintenance of our equipment and help us avoid costly delays as encountered this period due to the issues with timely reclamation.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements or financing activities with special purpose entities.
 
 
 
 


 
23


Americas Energy Company- Aeco
 
 
 
Item 3 - Quantitative and Qualitative Disclosures About Market Risk
 
We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.
 
Item 4 - Controls and Procedures
 
Evaluation of Disclosure Controls and Procedures
 
The Company’s management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
 
In accordance with Exchange Act Rules 13a-15 and 15d-15, an evaluation was completed under the supervision and with the participation of the Company’s management, including the Company’s principal executive officer and principal financial officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report.
 
Based on that evaluation, the Company’s management including the principal executive officer and principal financial officer, concluded that the Company’s disclosure controls and procedures were not effective in providing reasonable assurance that information required to be disclosed in the Company’s reports filed or submitted under the Exchange Act was recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms because there exist material weaknesses affecting our internal control over financial reporting described in our annual report for the year ended March 31, 2011 on Form 10-K.
 
Due to the present scale of our operations and limited financial resources, we do not intend to, immediately take any action to remediate the material weaknesses identified beyond those actions already identified in our annual report for the year ended March 31, 2011.
 
Changes in Internal Controls over Financial Reporting
 
During the period covered by this report, there was no change in our internal controls over financial reporting or in other factors that materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.
 
 
 
 
 


 
24


Americas Energy Company- Aeco
 
 
 
Part II - OTHER INFORMATION
 
Item 1 - Legal Proceedings
 
No legal proceedings were initiated or served upon the Company in the three month period ending June 30, 2011.
 
From time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could reasonably be expected to have a material adverse effect on its business and financial condition.
 
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
 
No disclosure required
 
Item 3 - Defaults upon Senior Securities
 
No disclosure required
 
Item 4 - (Removed and Reserved)
 
 
Item 5 - Other Information
 
No disclosure required
 
 
 
 
 
 
 
 
 
25


Americas Energy Company- Aeco
 
 
 
Item 6 - Exhibits
 
Americas Energy Company- AECo includes by reference the following exhibits:
 
 
3.1
Articles of Incorporation (1)
 
3.2
Bylaws (1)
 
3.3
Amended Articles of Incorporation - Name Change to Americas Energy Company,
   
filed October 14, 2009 (2)
 
4.1
Form of Warrant - filed on Form 10-K as Exhibit 4.1 on July14, 2010
 
4.2
Americas Energy Company-AECo 2010 Employee and Consultant Stock Plan - filed on Form S-8 as Exhibit 4.1 on August 13, 2010
 
10.1
Agreement – Letter of Intent, between Americas Energy Company and Hanhong (Hong Kong) New Energy Holdings Limited, dated April 20, 2011; Received signed by Hanhong on  April 27, 2011; includes Promissory Note, Security Agreement and form of warrants. (3)
     
  (1) Filed with the Registrant’s Registration Statement on Form 10SB, October 07, 2004
  (2) Filed with Registrant’s Current Report on Form 8K, January 27, 2010
  (3) Filed with Registrant’s Quarterly Report on Form 8-K/A, June 13, 2011
 
Americas Energy Company- AECo includes herewith the following exhibits:
 
 
 
 
 
 
 
 
 
 
 
 
 
 

 
26


Americas Energy Company- Aeco
 
 
 
SIGNATURES
 
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  Americas Energy Company  
       
       
Date: August 16, 2011
By:
/s/ Christopher L. Headrick   
    Christopher L. Headrick, President  
   
Principal Executive Officer
 
       
       
Date: August 16, 2011 By: /s/ Hong Duan  
   
Hong Duan, CFO
 
    Principal Financial Officer  
 
 
 
 
 
 
 
 
 
 
 
 
 
 
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