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America West Resources, Inc. (867687) SEC Filing 10-Q Quarterly report for the period ending Thursday, March 31, 2011

America West Resources, Inc.

CIK: 867687

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-Q

(Mark One)


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


For the Quarterly Period Ended March 31, 2011


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


For the Transition Period from          to          .


Commission File Number: 0-19620


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AMERICA WEST RESOURCES, INC.

(Exact name of registrant as specified in its charter)


Nevada

   

84-1152135

(State or other jurisdiction of

   

(I.R.S. Employer

incorporation or organization)

   

Identification Number)


57 West 200 South, Suite 400

Salt Lake City, Utah 84101

(Address of principal executive offices)


(801) 521-3292

(Registrant's telephone number)


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


Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes      . No      .


Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check One):


Large accelerated filer

      .

Accelerated filer

      .

Non-accelerated filer

      . (Do not check if a smaller reporting company)

Smaller reporting company

  X .


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


APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY

PROCEEDINGS DURING THE PRECEDING FIVE YEARS:


Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes  X . No      .


APPLICABLE ONLY TO CORPORATE REGISTRANTS


The number of shares of common stock issued and outstanding as of May 13, 2011, is 44,780,675.




America West Resources, Inc.

Table of Contents


  

  

  

Page No.

Part I

Financial Information

 

  

  

  

 

  

Item 1.

Consolidated Financial Statements (Unaudited)

4

  

  

  

 

  

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

14

  

  

  

 

  

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

  

  

  

 

  

Item 4T.

Controls and Procedures

19

  

  

  

 

Part II

Other Information

 

  

  

  

 

  

Item 1.

Legal Proceedings

20

  

  

  

 

  

Item 1A.

Risk Factors

20

  

  

  

 

  

Item 2.

Unregistered Sale of Equity Securities and Use of Proceeds

20

  

  

  

 

  

Item 3.

Defaults Upon Senior Securities

20

  

  

  

 

  

Item 4.

Submission of Matters to a Vote of Security Holders

20

  

  

  

 

  

Item 5.

Other Information

21

  

  

  

 

  

Item 6.

Exhibits

21



2




PART I. FINANCIAL INFORMATION

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS (Unaudited)

 

America West Resources, Inc. and Subsidiary

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



 

Page

 

 

Consolidated Balance Sheets (Unaudited)

4

 

 

Consolidated Statements of Operations (Unaudited)

5

 

 

Consolidated Statements of Cash Flows (Unaudited)

6

 

 

Notes to Consolidated Financial Statements (Unaudited)

7





3



America West Resources, Inc. and Subsidiaries

CONSOLIDATED BALANCE SHEETS

(Unaudited)


 

 

March 31,

 

December 31,

 

 

2011

 

2010

Assets

 

 

 

 

Current assets:

 

 

 

 

  Cash and cash equivalents

$

280,549

$

65,003

  Restricted cash

 

4,010

 

4,010

  Accounts receivable

 

589,589

 

466,871

  Accounts receivable - related party

 

84,416

 

-

  Inventory

 

236,763

 

136,037

  Deferred financing costs

 

1,122,635

 

543,291

  Prepaid expenses

 

150,126

 

115,115

    Total current assets

 

2,468,088

 

1,330,327

Deposits

 

305,137

 

804,148

Property and equipment:

 

 

 

 

  Property and equipment

 

13,279,259

 

11,150,980

  Land and mineral properties

 

21,963,997

 

19,627,847

  Less: accumulated depreciation and depletion

 

(9,867,785)

 

(9,439,156)

Net property and equipment

 

25,375,471

 

21,339,671

Total assets

$

28,148,696

$

23,474,146

 

 

 

 

 

Liabilities and Stockholders’ Deficit

 

 

 

 

Current liabilities:

 

 

 

 

  Bank overdraft

$

-

$

180,733

  Accounts payable

 

3,262,924

 

3,077,428

  Accounts payable - related party

 

305,071

 

521,506

  Accrued expenses

 

3,132,228

 

4,567,572

  Deferred revenue

 

500,000

 

500,000

  Short-term debt – related party, net of unamortized discounts of $2,441 and $58,897

 

58,665

 

3,120,599

  Current maturities of long-term debt, net of unamortized discount of $1,743,253 and $2,197,251

 

9,567,538

 

17,772,358

  Current maturities of convertible debt-related party, net of unamortized discount of $30,381 and $0

 

70,888

 

-

  Current maturities of  convertible debt, net of unamortized discount of $414,316 and $0

 

966,737

 

-

  Capital lease obligation

 

127,139

 

 

  Derivative liabilities

 

1,164,327

 

1,594,370

    Total current liabilities

 

19,155,517

 

31,334,566

Long-term debt

 

693,662

 

1,114,450

Convertible debt-related party, net of unamortized discount of $206,447 and $0

 

481,711

 

-

Convertible debt net of unamortized discount of $2,815,436 and $0

 

6,569,350

 

-

Asset retirement obligation

 

134,969

 

134,969

Total liabilities

 

27,035,209

 

32,583,985

Stockholders’ deficit:

 

 

 

 

Preferred stock, $0.0001 par value; 2,500,000 shares authorized;

 

 

 

 

  none issued and outstanding

 

-

 

-

Common stock, $0.0001 par value; 300,000,000 shares authorized;

 

 

 

 

  43,015,675 and 33,459,440 shares issued and outstanding,

 

 

 

 

  respectively

 

4,302

 

3,346

Additional paid-in capital

 

46,746,000

 

29,994,056

Accumulated deficit

 

(45,636,815)

 

(39,107,241)

  Total stockholders’ deficit

 

1,113,487

 

(9,109,839)

Total liabilities and stockholders’ deficit

$

28,148,696

$

23,474,146


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



4



America West Resources, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)


 

 

Three Months Ended March 31

 

 

2011

 

2010

 

 

 

 

 

Coal sales

$

$  3,463,239

$

1,083,104

Machine repair services

 

22,705

 

17,817

  Total revenue

 

3,485,944

 

1,100,921

 

 

 

 

 

Cost of revenue:

 

 

 

 

  Coal production costs

 

2,423,174

 

1,271,348

  Depreciation, depletion and accretion

 

428,629

 

1,040,136

  Coal purchases

 

-

 

15,033

  Machine repair costs

 

2,599

 

112,650

    Total cost of revenue

 

2,854,402

 

2,439,167

 

 

 

 

 

Gross profit (loss)

 

631,542

 

(1,338,246)

 

 

 

 

 

Operating expenses:

 

 

 

 

  General and administrative

 

2,057,702

 

1,883,249

 

 

 

 

 

Loss from operations

 

(1,426,160)

 

(3,221,495)

 

 

 

 

 

Other income (expenses):

 

 

 

 

Gain on derivative liabilities

 

430,043

 

-

Interest income

 

1

 

54

Interest expense

 

(4,967,101)

 

(1,562,629)

Loss on extinguishment of debt and liabilities

 

(566,357)

 

(181,988)

  Total other expenses

 

(5,103,414)

 

(1,744,563)

 

 

 

 

 

Net loss

$

(6,529,574)

$

(4,966,058)

 

 

 

 

 

Basic and Diluted Net Loss Per Share

$

(0.19)

$

(0.23)

Weighted Average Shares Outstanding

 

 

 

 

  Basic and Diluted

 

34,646,063

 

21,801,246


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



5



America West Resources, Inc. and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

Three Months Ended March 31,

 

 

2011

 

2010

Cash Flows from Operating Activities:

 

 

 

 

  Net loss

$

(6,529,574)

$

(4,966,058)

  Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

 

 

 

 

    Depreciation and depletion

 

428,629

 

1,028,136

    Amortization of debt discounts

 

3,494,700

 

999,115

    Amortization of deferred financing costs

 

846,985

 

-

    Accretion of asset retirement obligation

 

-

 

12,000

    Common stock issued for services

 

77,821

 

332,010

    Warrant expense

 

130,000

 

614,096

    Option expense

 

270,087

 

106,184

    Loss on debt extinguishment

 

566,357

 

-

    Loss on write-off of property and equipment

 

-

 

50,094

    Loss (gain) on derivative liabilities

 

(430,043)

 

181,988

    Changes in current assets and liabilities:

 

 

 

 

      Accounts receivable

 

(122,718)

 

797,348

      Accounts receivable-related party

 

(84,416)

 

-

      Inventory

 

(100,726)

 

15,033

      Prepaid expenses

 

(35,011)

 

40,260

      Accounts payable

 

185,496

 

(56,756)

      Accounts payable-related party

 

(216,435)

 

20,500

      Deferred revenue

 

-

 

500,000

      Accrued liabilities

 

768,386

 

388,943

Net cash provided by (used in) operating activities

 

(750,462)

 

62,893

Cash Flows from Investing Activities:

 

 

 

 

  Purchase of property and equipment

 

(1,947,977)

 

(37,695)

  Capital expenditures for land and mineral properties

 

(2,336,150)

 

(987,209)

  Restricted cash

 

-

 

150,902

  Deposits

 

499,011

 

(45,000)

Net cash used in investing activities

 

(3,785,116)

 

(919,002)

Cash Flows from Financing Activities:

 

 

 

 

  Proceeds from issuance of common stock, net of issuance costs

 

2,799,967

 

-

  Proceeds from exercise of warrants

 

42

 

-

  Replenish bank overdraft

 

(180,733)

 

(581,539)

  Payment for debt financing costs

 

(44,850)

 

-

  Proceeds from related party debt

 

184,380

 

50,000

  Proceeds from debt

 

1,000,000

 

1,605,000

  Proceeds from convertible debt

 

2,000,000

 

-

  Payments on debt

 

(954,519)

 

(259,035)

  Payments made on capital lease obligations

 

(53,163)

 

-

Net cash provided by financing activities

 

4,751,124

 

814,426

Net increase (decrease) in cash and cash equivalents

 

215,546

 

(41,683)

Cash and cash equivalents at beginning of period

 

65,003

 

44,660

Cash and Cash Equivalents at End of Period

$

280,549

$

2,977

Supplemental cash flow information

 

 

 

 

  Cash paid for interest

$

106,420

$

124,390

  Cash paid for income taxes

 

-

 

-

Noncash Investing and Financing Activities

 

 

 

 

  Equipment acquired through capital lease

$

180,302

$

-

  Debt and interest converted to common shares

 

5,034,822

 

-

  Accrued interest converted to convertible debt

 

2,127,408

 

-

  Debt discount due to beneficial conversion feature

 

5,966,580

 

-

  Debt discount due to common stock issued with debt

 

609,602

 

999,115

  Warrants issued for debt issuance costs

 

1,123,979

 

-

  Debt financing costs accrued

 

257,500

 

 

  Common shares issued for liabilities

 

299,000

 

 

  Warrant reclassed to derivative liability

 

-

 

662,835


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



6



America West Resources, Inc. and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)


NOTE 1 –BASIS OF PRESENTATION


The accompanying unaudited interim consolidated financial statements as of March 31, 2011, have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the 2010’s Annual Report filed with the SEC on Form 10-K on April 15, 2011. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the consolidated financial statements which would substantially duplicate the disclosure contained in the audited consolidated financial statements for fiscal 2010 as reported in the Form 10-K on April 15, 2011 have been omitted.


Principles of Consolidation  


The unaudited consolidated financial statements include the financial information of America West Resources, Inc., and its wholly owned subsidiaries, Hidden Splendor Resources, Inc. (“Hidden Splendor”), America West Services, Inc. and America West Marketing, Inc. (collectively “America West”).  All significant inter-company accounts and transactions have been eliminated.


Reclassifications


Certain amounts for 2010 have been reclassified to conform to the 2011 presentation.


Recently Issued Accounting Pronouncements


From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board (FASB) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, America West believes that the impact of recently issued accounting pronouncements that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.


NOTE 2 – GOING CONCERN


As shown in the accompanying consolidated financial statements, America West had a working capital deficit of $16,687,429 and an accumulated deficit of $45,636,815 as of March 31, 2011. These conditions raise substantial doubt as to America West’s ability to continue as a going concern. Management is attempting to raise additional capital through sales of stock and enhance the operations of Hidden Splendor to achieve cash-positive operations. The unaudited consolidated financial statements do not include any adjustments that might be necessary if America West is unable to continue as a going concern.


NOTE 3 – DEBT


During the three months ended March 31, 2011 America West borrowed an aggregate of $1,000,000 from third parties.  The notes bear interest at 10% per annum and mature between March 15, 2011 and January 9, 2012.  A total of 716,666 common shares were issued in connection with the debt.  The relative fair value of these shares was $522,174 and was recorded as a debt discount.  The debt discount is amortized and recorded as interest expense over the term of the debt using the effective interest method.  Amortization for the three months ended March 31, 2011 was $311,398 while $59,789 was recorded as a loss on the extinguishment of debt due to the modification of various loans on March 31, 2011 as discussed below.  The unamortized discount on these notes was $150,987 as of March 31, 2011.


On February 11, 2011 America West borrowed $2,000,000 through the issuance of  a convertible promissory note.  The note bears interest at 10% per annum and matured on March 15, 2011.  At any time subsequent to fulfilling certain conditions, the creditor has the option to convert all or any portion of the unpaid balance of the note into shares of common stock at a conversion price equal to $1.00 per share. America West evaluated the terms of the note under FASB ASC 815-15 and determined that the note did not require derivative treatment. America West then evaluated the note under FASB ASC 470-20 and determined that the note contained a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $1,000,000 and was recorded as a discount on the debt. The discount was fully amortized to interest expense during the three months ended March 31, 2011 due to the entire note and related interest of $34,822 being converted into 2,000,000 common shares on March 31, 2011.    



7



America West incurred cash commissions associated with these notes of $302,350 which were recorded as deferred financing costs. During the three months ended March 31, 2011, $263,989 of these new costs and $149,111 of financing costs from 2010 were amortized to interest expense. The total unamortized cash deferred financing costs were $432,541 as of March 31, 2011.


Through multiple amendments between February 11, 2011 and March 31, 2011, all debt and interest owed to a third party was modified and consolidated into one convertible loan with a principal amount of $10,765,839.  This loan includes $9,125,088 of principal and $1,640,751 of accrued interest converted to principal.  The modified note bears interest at the rate of 8% per annum and matures on June 1, 2014. The modified note requires monthly principal and interest payments of $221,259 beginning on July 1, 2011 with a final payment upon maturity of the unpaid principal and interest.   The note is secured by essentially all of the assets of America West, subject to the Hidden Splendor bankruptcy security requirements.  As part of the loan agreement, the Company must comply with certain covenants which, among other matters, include restrictions in the amounts of capital stock and stock options that can be issued for each of the years 2011, 2012 and 2013.  America West is also not allowed to incur or assume any debt or contingent liabilities not provided for in the loan agreement.


America West evaluated the modification under FASB ASC 470-50 and determined that the modification was substantial due to a substantive conversion option being added and the revised terms constituted a debt extinguishment.  At any time prior to the full payment of the note, the creditor has the option to convert all or any portion of the unpaid balance of the note into shares of common stock. The first 50% of the debt is convertible at $1.00 per share, the next 25% is convertible at $1.25 per share and the last 25% is convertible at $1.50 per share. If the entire principal balance was converted, 9,330,394 shares of America West’s common stock would be issued.  America West evaluated the terms of the modified note under FASB ASC 815-15 and determined that the note did not require derivative treatment. America West then evaluated the note under FASB ASC 470-20 and determined that the note contained a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $3,229,752 and was recorded as a discount. The discount will be amortized and recorded as interest expense over the term of the debt using the effective interest method.  No amortization expense was required to be recorded for the three months ended March 31, 2011.


In connection with this loan modification, the vesting of certain common stock warrants previously issued to this note holder was accelerated. A total of 250,000 common stock warrants that originally vested monthly through May 2011 were modified whereby they vested in full on February 11, 2011. The total fair value associated with these warrants of $390,000 was included in the loss on extinguishment of debt. The total loss on extinguishment of debt associated with this loan modification during the three months ended March 31, 2011 was $449,789 consisting of the expense related to these modified warrants and the unamortized discounts on the extinguished debt.


A summary of the third party debt and convertible debt activity for the three months ended March 31, 2011 is as follows:


Balance, net at December 31, 2010

$

18,886,808

  Borrowings

 

3,000,000

  Principal payments

 

(954,519)

  Interest converted to principal  

 

1,640,751

  Converted to common stock

 

(2,000,000)

  Discounts

 

(4,751,926)

  Discounts amortized and extinguished

 

1,976,173

Balance, net at March 31, 2011

 

17,797,287

Less: current maturities, net

 

(10,534,275)

Long term, net debt at March 31, 2011

$

7,263,012


NOTE 4 – RELATED PARTY TRANSACTIONS


Debt Owed to Related Parties


During the three months ended March 31, 2011, America West borrowed an aggregate of $184,380 from an entity controlled by a Director of America West. The notes bear interest at 10% per annum and mature between January 20, 2011 and July 31, 2011. A total of 117,079 common shares were issued in connection with the debt.  The relative fair value of these shares was $87,428 and was recorded as a debt discount.  The debt discount will be amortized and recorded as interest expense over the term of the debt using the effective interest method.  Amortization for the three months ended March 31, 2011 was $19,419 while $65,568 was recorded as a loss on the extinguishment of debt due to the modification of various loans on March 31, 2011 as discussed below.  The unamortized discount on these notes was $2,441 as of March 31, 2011.



8



Through multiple amendments between February 11, 2011 and March 31, 2011, all debt and interest owed to an entity controlled by a Director of America West was modified and consolidated into two convertible loans amounting to $2,215,118 and $1,574,309.  The new loans include $3,302,770 of principal and $486,657 of accrued interest converted to principal.  The modified notes bear interest at the rate of 8% per annum and mature on June 1, 2014. The modified note requires monthly principal and interest payments of $8,531 and $7,693 beginning on July 1, 2011 with a final payment upon maturity of the unpaid principal and interest.  The note is secured by essentially all of the assets of America West, subject to the Hidden Splendor bankruptcy security requirements.  As part of the loan agreement, the Company must comply with certain covenants which, among other matters, include restrictions in the amounts of capital stock and stock options that can be issued for each of the years 2011, 2012 and 2013.  America West is also not allowed to incur or assume any debt or contingent liabilities not provided for in the loan agreement.


America West evaluated the modification under FASB ASC 470-50 and determined that the modification was substantial due to a substantive conversion option being added and the revised terms constituted a debt extinguishment.  At any time prior to the full payment of the notes, the creditors have the option to convert all or any portion of the unpaid balance of the notes into shares of common stock. The first $3,000,000 of the debt is convertible at $1.00 per share. After the first $3,000,000, 50% of the remaining debt is convertible at $1.00 per share, the next 25% is convertible at $1.25 per share and the last 25% is convertible at $1.50 per share. If the entire principal balance was converted, 3,684,170 shares of America West’s common stock would be issued. America West evaluated the terms of the modified note under FASB ASC 815-15 and determined that the note did not require derivative treatment. America West then evaluated the note under FASB ASC 470-20 and determined that the note contained a beneficial conversion feature. The intrinsic value of the beneficial conversion feature was determined to be $1,736,828 and was recorded as a discount. The discount is amortized and recorded as interest expense over the term of the debt using the effective interest method.  On March 31, 2011 $3,000,000 of the modified notes was converted into 3,000,000 common shares. The related discount   of $1,500,000 was fully amortized to interest expense during the three months ended March 31, 2011. The unamortized discount on the modified notes as of March 31, 2011 totaled $236,828. The total loss on extinguishment of debt for the three months ended March 31, 2011 associated with this modification was $65,568 consisting of the unamortized discounts on the extinguished debt.


A summary of the related party debt and related party convertible debt activity for the three months ended March 31, 2011 is as follows:


Balance, net at December 31, 2010

$

 3,120,599

  Borrowings

 

184,380

  Principal payments

 

-

  Interest converted to principal  

 

486,657

  Converted to common stock

 

(3,000,000)

  Discounts

 

(1,824,256)

  Discounts amortized and extinguished

 

1,643,884

Balance, net at March 31, 2011

$

    611,264

Less: current maturities, net

 

(129,553)

Long term, net debt at March 31, 2011

$

   481,711


Other Related Party Transactions


America West leases office space from an entity owned by certain stockholders of America West. In addition, Hidden Splendor leases certain water rights from the entity. As of March 31, 2011 and December 31, 2010, the total accrued liability for these items was $269,100 and $243,600, respectively.


America West receives transfer agent services from an entity controlled by a director of America West. The payable to this entity totaled $35,971 as of March 31, 2011 and December 31, 2010.


Hidden Splendor ships a portion of its coal utilizing a trucking company owned by America West's Chief Executive Officer. For the three months ended March 31, 2011 and 2010, Hidden Splendor incurred trucking fees amounting to $520,979 and $157,000, respectively which is included in coal production costs in the consolidated statements of operations. As of March 31, 2011, America West had overpaid its payable to this company resulting in a receivable owed to America West of $84,416 as of March 31, 2011. The amount payable to this trucking company as of December 31, 2010 totaled $241,935.


NOTE 5 – CAPITAL LEASE OBLIGATION


During February 2011, America West entered into a capital lease for the acquisition of equipment for $180,302. The lease requires 8 monthly payments of $18,163 through October 2011. The lease contains a bargain purchase option whereby the Company may purchase the equipment for $1 at the end of the lease term. The unpaid balance on the lease as of March 31, 2011 was $127,139.  

 



9




NOTE 6 – STOCKHOLDERS’ EQUITY


Common Stock


During the three months ended March 31, 2011, America West issued 200,000 common shares to repay an accrued liability of $299,000. The fair value of the shares was determined to be $350,000 resulting in a loss on the extinguishment of liabilities of $51,000.


During the three months ended March 31, 2011, America West issued 173,500 common shares for services rendered valued at $77,821.


During the three months ended March 31, 2011, America West issued 3,310,000 common shares for $2,799,967 cash, net of $510,033 of issuance costs.


During the three months ended March 31, 2011, America West issued 833,745 common shares with debt. The relative fair value of the shares was determined to be $609,602 and was recorded as a discount on the debt. See Notes 3 and 4 for details.


During the three months ended March 31, 2011, America West issued 5,034,822 common shares for the conversion of $5,000,000 of principal and $34,822 of accrued interest. See Notes 3 and 4 for details.


During the three months ended March 31, 2011, America West issued 4,167 common shares for the exercise warrants and received cash of $42.


Options


A summary of option transactions for the three months ended March 31, 2011 is as follows:


 

 

Options

 

Wtd. Avg

Exercise

Price

Outstanding at December 31, 2010

 

1,250,625

$

2.93

  Granted

 

-

 

-

  Exercised

 

-

 

-

  Forfeited

 

-

 

-

  Expired

 

-

 

-

Outstanding at March 31, 2011

 

1,250,625

$

2.93

Exercisable at March 31, 2011

 

1,250,625

$

2.93


During the three months ended March 31, 2011, the remaining fair value of the outstanding options of $270,087 was expensed.


At March 31, 2011, the range of exercise prices and the weighted average remaining contractual life of the options outstanding were $0.12 to $5.40 and 2.72 years, respectively. The intrinsic value of the exercisable options outstanding at March 31, 2011 was $170,750.


Warrants


On January 21, 2011, America West granted an entity controlled by a Director of America West warrants to purchase 548,708 common shares at an exercise price of $1.20.  The warrants vest immediately and have a term of 5 years.  The fair value of the warrants was determined to be $1,123,979 using the Black Scholes stock option valuation model.  The significant assumptions used in the valuation were: the exercise price noted above, the market value of America West’s common stock on January 21, 2011, $2.05, expected volatility of 291.71%, risk free interest rate of 3.4% and an expected term of 5 years.  The warrants were issued as a commission for various debt raises and the fair value of the warrants was recorded as deferred financing costs. During the three months ended March 31, 2011, $433,885 of these costs was amortized to interest expense. The unamortized deferred financing costs associated with these warrants totaled $690,094 as of March 31, 2011.


In addition, the remaining fair value of warrants issued in October 2009 was expensed during the three months ended March 31, 2011. $130,000 was recorded as warrant expense and $390,000 was included in the loss on extinguishment of debt due to the loan modification discussed in Note 3.




10



A summary of warrant transactions for the three months ended March 31, 2011 is as follows:


 

 

Options

 

Wtd. Avg

Exercise

Price

Outstanding at December 31, 2010

 

2,485,276

$

1.66

  Granted

 

548,708

 

1.20

  Exercised

 

4,167

 

0.01

  Forfeited

 

-

 

-

  Expired

 

-

 

-

Outstanding at March 31, 2011

 

3,029,817

 

1.58

Exercisable at March 31, 2011

 

3,029,817

$

1.58


At March 31, 2011, the range of exercise prices and the weighted average remaining contractual life of the warrants outstanding were $0.01 to $5.04 and 5.14 years, respectively. The intrinsic value of the warrants exercisable at March 31, 2011 was $1,911,204. The weighted average grant date fair value of the warrants granted during the three months ended March 31, 2011 was $2.05.


NOTE 7 – DERIVATIVES


As of March 31, 2011, America West has an aggregate of 911,564 outstanding warrants containing exercise price reset provisions which requires derivative treatment under FASB ASC 815-15.


The fair value of these liabilities as of March 31, 2011 totaled $1,164,327 and was calculated using the Black Scholes stock option valuation model..  The significant assumptions used in the March 31, 2011 valuation were: the exercise prices ranging from $0.12 to $3.60; the market value of America West’s common stock on March 31, 2011, $1.50; expected volatilities between 193.59% and 194.57%; risk free interest rates of 1.05% and 1.29%; and remaining contract terms between 2.59 and 2.78 years.


Fair value measurement  


America West values its derivative instruments under FASB ASC 820 which defines fair value, establishes a framework for measuring fair value, and expands disclosures about fair value measurements.


As defined in ASC 820, fair value is 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 (exit price). America West utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. America West classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).


The three levels of the fair value hierarchy defined by ASC 820 are as follows:


Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.


Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date.


Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.


America West uses Level 3 to value its derivative instruments.




11



The following table sets forth by level with the fair value hierarchy the Company’s financial assets and liabilities measured at fair value on March 31, 2011.


 

Level 1

 

Level 2

 

Level 3

 

Total

Assets

 

 

 

 

 

 

 

 

 

 

 

None

$

-

 

$

-

 

$

-

 

$

-

 

 

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

 

 

 

Derivative Financial instruments

$

-

 

$

-

 

$

1,164,327

 

$

1,164,327


The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments measured at fair value on a recurring basis using significant unobservable inputs:


 

 

Warrants

 

 

 

Balance at December 31, 2010

 

$

1,594,370

Unrealized gain included in other income (expense)

 

 

(430,043)

Balance at December 31, 2010

 

$

1,164,327


NOTE 8 – COMMITMENTS & CONTINGENCIES


Mining operations are subject to conditions that can impact the safety of our workforce or delay coal deliveries or increase the cost of mining for varying lengths of time. These conditions include mine collapses; fires and explosions from methane gas or coal dust; accidental mine water discharges; weather, flooding and natural disasters; unexpected maintenance problems; key equipment failures; variations in coal seam thickness; variations in the amount of rock and soil overlying the coal deposit; variations in rock and other natural materials and variations in geologic conditions.


Coal mining, especially underground coal mining, is inherently dangerous and great care must be taken to assure safe, continued operations. Past experiences of others in the industry indicate that lapses in safety practices can result in catastrophic collapse of a coal mining operation. Even when best mining practices are strictly observed, natural disasters such as an earthquake could possibly destroy a coal mine’s operations. Any catastrophic event at the coal mine which would close the mine for an extended period of time likely would cause the failure of operations. The Company maintains insurance policies that provide limited coverage for some of these risks, although there can be no assurance that these risks would be fully covered by these insurance policies. Despite the Company’s efforts, significant mine accidents could occur and have a substantial impact. Such impact resulting from accidents could take the form of increased premiums on insurance policies, litigation, fines and penalties imposed by regulating agencies.


In September 2010, Kenneth Rushton, the Chapter 7 Trustee for C.W. Mining Company dba Co-Op Mining Company in the Chapter 7 bankruptcy action on file in the United States District Bankruptcy Court in the District of Utah, brought an adversarial proceeding naming Hidden Splendor Resources, Inc. as a defendant. In this action, the trustee alleges that a $40,000 payment the debtor made to Hidden Splendor in 2007 is avoidable under 11 U .S.C. Section 548 and alleges that the Trustee may recover from Hidden Splendor the value of that payment. Hidden Splendor denies that the trustee is entitled to the relief he seeks and will file an answer to the complaint. America West believes the probability of incurring any losses associated with this claim to be minimal. As such, no expenses have been accrued.


In September 2010, Kenneth Rushton, the Chapter 7 Trustee for C.W. Mining Company dba Co-Op Mining Company in the Chapter 7 bankruptcy action on file in the United States District Bankruptcy Court in the District of Utah, brought an adversarial proceeding naming America West Marketing, Inc. as a defendant. In this action, the trustee alleges that during 2009, America West Marketing purchased 5,795 tons of coal that was either: (1) mined by a third party under the authority of the debtor's operating permit and in violation of the automatic stay in the pending bankruptcy action; (2) mined by the debtor; or (3) purchased by a third party with coal sale proceeds generated by coal previously mined by the Debtor, and claims trustee is entitled to a judgment against America West Marketing in the amount of $204,077 in connection with the transfer of that coal. America West Marketing denies that the trustee is entitled to the relief he seeks and will file an answer to the complaint. America West believes the probability of incurring any losses associated with this claim to be minimal. As such, no expenses have been accrued.




12



Occasionally, Hidden Splendor is issued citations by the Mine Safety and Health Administration in connection with regular inspections of the Horizon Mine. At times, Hidden Splendor challenges citations, resulting in reductions to proposed penalties or administrative adjudications with no penalties. As of March 31, 2011, Hidden Splendor has challenges pending in several administrative actions. Such actions cover a total of approximately $1,200,000 of proposed, assessed penalties.   Management is unable to predict the outcome of these pending administrative actions. If America West is not successful in eliminating or significantly reducing such proposed penalties, such result could adversely affect the company’s financial condition and operations.


In December 2010, the Company agreed to serve as guarantor on $250,000 of debt payments owed by Wild West Trucking, a trucking company owned by America West's Chief Executive Officer, to its secured creditor Zions Bank.


NOTE 9 – SUBSEQUENT EVENTS


During April 2011, America West sold an aggregate of 1,190,000 common shares for cash proceeds of $1,035,300 net of issuance costs of $154,700.


On April 1, 2011 America West entered into a consulting agreement that ends June 30, 2011.  The monthly fee for this service is 12,500 shares of common stock. America West issued a total of 25,000 common shares under the agreement between April and May 2011.


In April 2011, America West entered into a debt settlement agreement with a third party lender pursuant to which America West issued the former 550,000 common shares as settlement of a total of $521,875 principal and accrued interest.   



13



ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS AND FINANCIAL CONDITION


This Management’s Discussion and Analysis should be read in conjunction with the unaudited consolidated financial statements of America West Resources, Inc. and its wholly-owned subsidiaries, Hidden Splendor Resources, Inc. (“Hidden Splendor”), America West Services and America West Marketing (collectively, the “Company”) and notes thereto set forth herein. Our auditor's report on our consolidated financial statements contained in our Annual Report filed on Form 10-K for the fiscal year ended December 31, 2010, expressed an opinion that substantial doubt exists as to whether we can continue as an on-going business. This means that there is substantial doubt that we can continue as an on-going business. The consolidated financial statements of the Company do not include any adjustments that might be necessary if we are unable to continue as a going concern.


Forward-Looking Statement Notice When used in this report, the words "may," "will," "expect," "anticipate," "continue," "estimate," "project," "intend," and similar expressions are intended to identify forward-looking statements regarding events, conditions, and financial trends that may affect the Company's future plans of operations, business strategy, operating results, and financial position. Persons reviewing this report are cautioned that any forward-looking statements are not guarantees of future performance and are subject to risks and uncertainties and those actual results may differ materially from those included within the forward-looking statements as a result of various factors.


Overview


The Company is an established domestic coal producer engaged in the mining of clean and compliant (low-sulfur) coal. The majority of our coal is sold to utility companies for use in the generation of electricity. During 2010, we have entered into contracts with four customers to deliver a certain quantity of coal at fixed prices, subject to other terms and conditions that are standard in the industry. With respect to customers not subject to long-term contracts, we have short-term or market delivery and price contracts that we negotiate and perform on a continuous basis. Our strategy is to have a combination of long-term and short-term delivery contracts. We operate the Horizon Mine located in Carbon County, Utah, and we plan to expand mining operations in this mine and acquire and develop additional mining properties.


The Horizon Mine is operated through our wholly-owned subsidiary Hidden Splendor Resources, Inc. Hidden Splendor’s only business is the coal mining operation at the Horizon Mine located approximately eleven miles west of Helper, Utah in Carbon County. This mine produces what is commonly known as “steam coal,” that is, coal used to heat water to create steam which, in turn, is used to turn turbine engines to produce electricity. While steam coal primarily is sold to power companies for use in coal-fired power plants, steam coal also can be used in the production process for concrete and often is sold in the western United States for this purpose. Since 2003, the market for the coal mined from the Horizon Mine has been sold to local utilities, other coal mining operations, a concrete producer and a coal broker.


Coal mined from the Horizon Mine is loaded into trucks which haul the coal either directly to end users of the coal or to distribution facilities known as loadouts where the coal is loaded into rail cars and transported via rail to customers. The Horizon Mine is located approximately eight miles from the nearest loadout facility and approximately sixteen miles from the loadout facility most commonly used to ship our coal to end users. Hidden Splendor sells the coal mined at the Horizon Mine on a “FOB the mine” or “FOB the railcar” basis. For the “FOB the mine” basis, Hidden Splendor earns payment for the coal mined from the Horizon Mine as that coal is loaded into trucks at the mine site. Once the coal is loaded into those trucks, the coal belongs to our customers. For the “FOB the railcar” basis, Hidden Splendor earns payment for the coal mined from the Horizon Mine as that coal is loaded into the railcar at the railroad loadout facility. Once the coal is loaded into those railcars, the coal belongs to our customers.


Hidden Splendor Bankruptcy & Plan of Reorganization


On October 15, 2007, Hidden Splendor filed a Chapter 11 Petition in the United States Bankruptcy Court for the District of Nevada as a debtor in possession. Hidden Splendor’s operations have continued since the petition, and the company has operated as a Debtor in Possession. On December 8, 2008, Hidden Splendor’s Plan of Reorganization (the “Plan”) was formally confirmed by the U.S. Bankruptcy Court for the District of Nevada to emerge from Chapter 11 bankruptcy protection. The Plan became effective on December 19, 2008, at which time the subsidiary officially emerged from bankruptcy. In connection with the Plan, the Company paid an initial $500,000 “administrative earmark contribution” payment and an initial $2,250,000 “Plan Funding Contribution” payment, which were allocated to the payment of professional fees, taxes, and initial settlement payments to various creditors. Additionally, the Plan provides for payments to creditors over time in an aggregate principal amount of not less than approximately $10,000,000 and up to approximately $10,700,000 over a period not exceeding seven years from the effective date of the Plan.



14



After all payments under the Plan are made, certain classified creditors will receive a total principal amount of approximately $8,300,000 as follows: (i) secured creditors will receive an aggregate principal amount of approximately $6,000,000 amortized in equal monthly installments of $94,879 per month, maintaining a lien on the Horizon Mine as collateral for the obligations; (ii) the Internal Revenue Service and certain State of Utah tax authorities will collectively receive an aggregate principal amount $1,800,000 amortized in equal quarterly payments of $162,156 to be paid over a period continuing to the earlier of sixty months from the petition date or forty-six months from the effective date of the Plan; and (iii) the Howard Kent, Inc. Profit Sharing Plan will receive an aggregate principal amount of $475,000 to be paid (A) in interest only payments at 8.1% for the first 24 months immediately following the effective date of the Plan, and (B) after 24 months of interest only payments, commencing in the 25 th month immediately following the effective date of the Plan, in payments of both principal and interest fully amortizing for a period of an additional 24 months.


Hidden Splendor’s general unsecured creditors were owed approximately $3,400,000 as of the date of the Plan. Under the Plan, general unsecured creditors will receive no less than 50% and up to 70% of their respective allowed claims, or a minimum principal amount of approximately $1,700,000 and a maximum principal amount of approximately $2,380,000. On the effective date of the Plan, general unsecured creditors received an initial distribution of 10% of their respective allowed claims from the Plan Funding Contribution, or approximately $340,000. Thereafter, assuming the general unsecured creditors receive 70% of their respective allowed claims, the general unsecured creditors will receive semi-annual payments from a disbursing agent continuing for the duration of the Plan term. Hidden Splendor will pay the disbursing agent in equal quarterly installments of approximately $190,000 per quarter over the Plan term. If, however, Hidden Splendor pays the general unsecured creditors 60% of the allowed general unsecured creditor claims within twenty-four months following the effective date of the Plan, then no additional payments will be due and owing to the general unsecured creditors. Hidden Splendor has not made any payments to general unsecured creditors in excess of the aforementioned required quarterly payments as of the date of this Report. Insider claims will receive no distributions. As of March 31, 2011, the balance owed to the general unsecured creditors under the Plan is $445,374.


Hidden Splendor has not made the April 2011 or May 2011 payment to the Howard Kent Profit Sharing Plan as of the date of this Report.  In addition, Hidden Splendor has not made the May 2011 payment, due on May 5, 2011, to its secured creditor as of the date of this Report. Hidden Splendor is also delinquent on the $162,156 quarterly payments due March 31, 2010 and June 30, 2010 and September 30, 2010 and December 31, 2010 and March 31, 2011 to the Internal Revenue Service and the State of Utah tax authorities as of the date of this Report. Further, Hidden Splendor has not made the $190,000 payment due March 31, 2011 to the general unsecured creditors as of the date of this Report. The Company is currently working to remedy the aforementioned defaults. As of the date of this Report, only the Howard Kent Profit Sharing Plan had provided the Company a notice default.   As of the date of this Report no party to the Plan has filed a notice of default under the Plan with the bankruptcy court.


Company Obligations under the Plan . Under the Plan, America West must pay all of Hidden Splendor’s post-petition liabilities that Hidden Splendor cannot pay, in the ordinary course of business, in an amount not to exceed $1,560,000. In the event the Company borrows money or otherwise incurs a liability to fund capital expenditures after Hidden Splendor’s Plan becomes effective, Hidden Splendor may make payments to service such debt up to $13,500 for every $1,000,000 dollars borrowed and made available to Hidden Splendor. Hidden Splendor may make additional payments to the Company provided certain Plan repayment benchmarks are achieved.



15



Results of Operations for the Three Months Ended March 31, 2011 Compared to March 31, 2010


Material changes in financial statement line items


The following table presents statements of operations data for each of the periods indicated and presents the percentage of change in each line item from one period to the next.

   

  

Three Months Ended

  

Percentage

  

March 31,

  

Increase

   

2011

   

2010

   

(Decrease)

   

  

  

  

 

  

  

Coal sales

$

3,463,239

  

$

1,083,104

  

220%

Machine repair services

  

22,705

  

  

17,817

  

27%

  Total revenue

  

3,485,944

  

  

1,100,921

  

217%

   

  

  

  

  

  

  

  

Coal production costs

 

2,423,174

 

 

1,271,348

 

91%

Depreciation, depletion and accretion

  

428,629

  

  

1,040,136

  

(59%)

Coal purchases

 

-

 

 

15,033

 

(100%)

Machine repair costs

 

2,599

 

 

112,650

 

(98%)

  Total cost of revenue

  

2,854,402

  

  

2,439,167

  

17%

   

  

  

  

  

  

  

  

Gross profit (loss)

  

631,542

  

  

(1,338,246)

  

(147%)

   

  

  

  

  

  

  

  

Operating expenses:

  

  

  

  

  

  

  

  General and administrative expenses

 

2,057,702

 

 

1,883,249

 

9%

Loss from operations

 

(1,426,160)

 

 

(3,221,495)

 

(56%)

   

  

  

  

  

  

  

  

Other income (expenses):

  

  

  

  

  

  

  

  Interest income    

  

1

  

  

54

  

(98%)

  Interest expense

 

(4,967,101)

 

 

(1,562,629)

 

218%

  Loss on extinguishment of debt and liabilities

 

(566,357)

 

 

(181,988)

 

211%

  Gain on derivative liabilities

  

430,043

  

  

-

  

-

    Total other income (expenses)

 

(5,103,414)

 

 

(1,744,563)

 

193%

   

  

  

  

  

  

  

  

Net loss

$

(6,529,574)

 

$

(4,966,058)

 

31%


We had revenue for the three months ended March 31, 2011 of approximately $3.5 million, a 217% increase from revenues of $1.1 million for the same three month period in 2010. The increase in revenues was attributable to an approximate 98% increase in coal production in 2011 compared to 2010 due to 1) the Company deploying a second continuous miner in February 2011, and 2) the Company intermittently idling the mine in the first quarter of 2010 due to lower demand for coal at that time. All coal sales revenue during the first quarter of 2011 was related to coal produced from our Horizon coal mine operations by our wholly-owned subsidiary, Hidden Splendor Resources, Inc.


Our production costs during the three months ended March 31, 2011 were approximately $2.4 million, an increase of 91% over the production costs of approximately $1.3 million reported for the three months ended March 31, 2010.  The 91% increase in production costs was due to approximately 98% higher production volume in the first quarter of 2011 compared to the same period in 2010.


We had a gross profit of approximately $0.6 million for the three months ended March 31, 2011, representing a favorable variance of 147% from the approximate $1.3 million gross loss recognized during the three months ended March 31, 2010. The variance is primarily attributed to higher coal production in the first quarter of 2011 compared to 2010 for the reasons stated above.


Operating expenses for the three months ended March 31, 2011 totaled approximately $2.1 million, an increase of approximately $0.17 million, or 9%, from operating expenses of approximately $1.9 million in the prior year’s comparable three month period. The increase is primarily attributed to an approximate $0.6 million increase in MSHA compliance legal expenses in the first quarter of 2011 compared to 2010, partially offset by an approximate $0.4 million decrease in royalty expense associated with the cancellation of royalties previously accrued, which are no longer due to third parties.    The Company’s legal expenses in the first quarter of 2011 are fees related to MSHA compliance and are expected to be significantly lower going forward.

  

Loss from operations decreased approximately $1.8 million or 56%, due to the aforementioned increase in revenues offset by the increase in operating expenses.



16



Total net other expenses totaled approximately $5.1 million for the first three months of 2011, compared to net other income of $1.7 million for the first three months of 2010. The negative variance between periods of approximately $3.4 million was primarily due to an approximate $3.4 million increase in interest expense.   Interest expense increased due to an approximate $2.5 million one-time charge associated with the amortization of debt discount in relation to the restructure of loans with shareholders.


We incurred an approximate $6.5 million net loss for the three months ended March 31, 2011, compared to an approximate $5.0 million net loss for the three months ended March 31, 2010. The negative variance between the periods of $1.6 million, or 31%, is primarily attributed to the $3.4 million variance in net other expenses, partially offset by the approximate $1.8 million positive variance in loss from operations as described in detail above.


Of the $6.5 million net loss for the three months ended March 31, 2011, approximately $4.5 million is associated with expenses that are one-time charges and/or non-cash items, composed of the following:


·

$2.5 million – one-time non-cash charge to interest expense associated with the restructure of shareholder loans

·

$0.6 million –legal expenses related to MSHA compliance which are not expected to be recurring

·

$0.6 million - non-cash charge on extinguishment of debt associated with extension of loans and issuance of stock for liabilities

·

$0.4 million – non-cash charge for the amortization of deferred financing costs associated with warrants issued in relation to a previous financing

·

$0.4 - non-cash charge associated with previous issuance of stock options to management and employees, as well as warrants previously issued to third parties for services


Liquidity and Capital Resources.


Our current liquidity position has allowed us to meet our ongoing Plan payment obligations and nominal working capital requirements to date. Due to delinquency of payments to certain creditors by our Company in 2011 and through the date of this Report, certain debts to both related and third parties are in default. As a result, a total of approximately $6.4 million associated with Hidden Splendor’s Bankruptcy Plan of Reorganization is in default and due upon demand, of which approximately $4.7 million was previously scheduled to mature subsequent to 2011. The Company is working to remedy these defaults and, as of the date of this Report, no creditors have filed a default under the Plan with the bankruptcy court. The Company has not received a notice of default of any of the aforementioned debt as of the date of this Report. In addition, we have accrued unpaid federal taxes of approximately $1.1 million related to 2009 and 2010, which is subject to a payment plan of $50,000 per month over the next approximate three years.


Our cash flows from operations during 2010 and through the date of this Report have not been sufficient to meet all our obligations. Historically, we have funded the Company’s cash shortfalls with ad hoc loans from related parties and third parties. However, these loans have not been enough to fund our expansion plans nor refinance our debt.  As a result, we will likely be required to raise at least $3 million in capital to meet the aforementioned obligations and fund expected working capital to expand our mining operation in 2011. Management’s plan is to complete a financing to deploy additional equipment, which we expect to escalate our rate of production and, as a result, our cash flows from operations. Should the Company receive a notice of default and demand for immediate payment on any of the aforementioned debts, we will likely be required to raise up to a total of approximately $23 million. Our inability to obtain immediate financing from third parties will negatively impact our ability to fund operations and execute our business plan. Any failure to obtain such financing could force us to abandon or curtail our operations. There is no assurance that we can raise additional capital from external sources, the failure of which could cause us to sell assets or curtail operations. We have no credit facilities in place, and as the Company has no debt or equity funding commitments, we will need to rely upon best efforts financings. Accordingly, we cannot identify or predict what external sources may provide financing, nor what terms any prospective financing may have.   Our auditors have issued a going concern opinion for our consolidated financial statements due to the substantial doubt about our ability to continue as a going concern.


Trends, events or uncertainties which could impact either liquidity or revenues.


Several of the matters discussed in this report contain forward-looking statements that involve risks, trends and uncertainties. Factors associated with the forward-looking statements that could cause actual results to differ materially from those projected or forecast are included in the statements below. In addition to other information contained in this report, readers should carefully consider the cautionary statements contained in Item 1 of Part I above.

  

Off-Balance Sheet Arrangements


As of March 31, 2011, the Company had no off-balance sheet arrangements.



17



Critical Accounting Policies


Use of Estimates – The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect certain reported amounts and disclosures. Accordingly, actual results could differ from those estimates.


Cash and Cash Equivalents – For purposes of reporting cash flows, America West considers all investments purchased with a maturity of three months or less to be cash equivalents. America West maintains its cash in bank deposit accounts which, at times, have exceeded federally insured limits.


Accounts Receivable – The Company’s receivables are mainly from the Company’s coal broker and are collected within a few weeks of production and shipment. As such no allowance for doubtful accounts is considered necessary.

  

Inventory – Inventory consists of consumable materials and is valued at the lower of cost (first-in, first out) or market.


Property and Equipment – Property and equipment are carried at cost and include expenditures for new facilities and those expenditures that substantially increase the productive lives of existing equipment. The Company accounts for equipment exchanges in accordance with FASB ASC 845-10. Maintenance and repair costs are expensed as incurred. Mineral rights and development costs are amortized based upon estimated recoverable proven and probable reserves.


Property and equipment are depreciated on a straight-line basis over the assets’ estimated useful lives. Fully depreciated property and equipment still in use are not eliminated from the accounts.


The Company assesses the carrying value of its property and equipment for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability is measured by comparing estimated undiscounted cash flows expected to be generated from such assets to their net book value. If net book value exceeds estimated cash flows, the asset is written down to fair value. When an asset is retired or sold, its cost and related accumulated depreciation and amortization are removed from the accounts. The difference between the net book value of the asset and proceeds on disposition is recorded as a gain or loss.

  

Mine development costs are capitalized and amortized by the units of production method over estimated total developed recoverable proven and probable reserves. Amortization of mineral rights is provided by the units of production method over estimated total recoverable proven and probable reserves.


Asset Retirement Obligations – FASB ASC 410-20 addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The Company’s asset retirement obligation (“ARO”) liabilities primarily consist of estimated costs related to reclaiming mines and related facilities in accordance with federal and state reclamation laws as defined by each mining permit.


The Company estimates its ARO liabilities for final reclamation and mine closure based upon detailed engineering calculations of the amount and timing of the future costs for a third party to perform the required work. Cost estimates are escalated for inflation, and then discounted at the credit-adjusted risk-free rate. The Company records an ARO asset associated with the initial recorded liability.


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 amortized based on the units of production method over the estimated recoverable and probable reserves at the related mine. Accretion expense is included in the cost of produced coal. To the extent there is a difference between the liability recorded and the cost incurred, a gain or loss upon settlement is recognized.


The reclamation plan calls for a bonding and insurance requirement. The bond is the deed to residential property owned personally by the shareholders.


Income Taxes – Income taxes are provided for the tax effects of transactions reported in the consolidated financial statements and consist of taxes currently due plus deferred taxes. Deferred taxes are recognized for differences between the bases of assets and liabilities for financial statement and income tax purposes. The deferred tax assets and liabilities represent the future tax return consequences of those differences, which will either be taxable or deductible when the assets and liabilities are recovered or settled. Deferred taxes also are recognized for operating losses and tax credits that are available to offset future taxable income and income taxes.



18



Since January 1, 2007, the Company accounts for uncertain tax positions in accordance with the authoritative guidance issued by the FASB on income taxes which addresses how we should recognize, measure and present in our financial statements uncertain tax positions that have been taken or are expected to be taken in a tax return. Pursuant to this guidance, the Company can recognize a tax benefit only if it is “more likely than not” that a particular tax position will be sustained upon examination or audit. To the extent the “more likely than not” standard has been satisfied, the benefit associated with a tax position is measured as the largest amount that is greater than 50% likely of being realized upon settlement. No liability for unrecognized tax benefits was recorded as of March 31, 2011 and December 31, 2010.


Revenue Recognition – Hidden Splendor’s revenues are generated under sales contracts with three coal customers. The terms of the contract are “FOB the mine” or “FOB the railcar”. Revenues from coal sales are recognized when the coal is loaded onto the delivery truck or railcar contracted by the customers. In addition, the customer may apply a penalty against invoices relating to deviations in delivered coal quality per the contract terms. Variances between estimated revenue and actual payment are recorded in the month the payment is received; however, differences have been minimal.


ITEM 3: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

  

Cash and Cash Equivalents


We have historically invested our cash and cash equivalents in short-term, fixed rate, highly rated and highly liquid instruments which are reinvested when they mature throughout the year. Although our existing investments are not considered at risk with respect to changes in interest rates or markets for those instruments, our rate of return on short-term investments could be affected at the time of reinvestment as a result of intervening events.


We do not issue or invest in financial instruments or their derivatives for trading or speculative purposes. Our operations are conducted primarily in the United States and are not subject to material foreign currency exchange risk. Although we have outstanding debt and related interest expense, market risk of interest rate exposure in the United States is currently not material.


ITEM 4T : CONTROLS AND PROCEDURES


(a) Evaluation of Disclosure Controls Procedures.


We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit to the SEC under the Securities Exchange Act of 1934 (“Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified by the SEC’s rules and forms, and that information is accumulated and communicated to our management, including our principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

  

The Company’s management, with the participation of the chief executive officer and chief financial officer, carried out an evaluation of the effectiveness of the Company's “disclosure, controls and procedures” (as defined in the Exchange Act) Rules 13a-15(3) and 15-d-15(3) as of the end of the period covered by this report (the “Evaluation Date”). Based upon that evaluation, the chief executive officer and chief financial officer concluded that, as of the Evaluation Date, the Company’s disclosure, controls and procedures are not effective at providing them with material information relating to the Company as required to be disclosed in the reports the Company files or submits under the Exchange Act on a timely basis. The following material weaknesses were noted in the evaluation of our disclosure controls and procedures:


1)

There are inadequate controls over the creation and posting of journal entries to ensure they are authorized, accurate, and complete. In addition, there are no controls to ensure that all authorized journal entries have been posted and that the postings reflected the authorized journal entry.

2)

The Company has not established an Audit Committee independent of management.

3)

There are inadequate controls to ensure that subjective analyses (e.g. impairment analysis of assets) are prepared and reviewed by appropriate personnel.

4)

The Company does provide access to a technical accounting research database for personnel involved in financial reporting.


These material weaknesses have been disclosed to our Board of Directors and we are continuing our efforts to improve and strengthen our control processes and procedures. Our management and directors will continue to work with our auditors to ensure that our controls and procedures are adequate and effective.



19



(b) Changes in Internal Controls.


There were no changes in the Company’s internal controls over financial reporting, known to the chief executive officer or to the chief financial officer that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.


PART II. OTHER INFORMATION


ITEM 1. LEGAL PROCEEDINGS


There have been no material changes in the status of legal proceedings previously reported in the Company’s 2010 Annual Report on Form 10-K, excepted as noted in this Item 1 under Part II.


Occasionally, Hidden Splendor is issued citations by the Mine Safety and Health Administration in connection with regular inspections of the Horizon Mine. At times, Hidden Splendor challenges citations, resulting in reductions to proposed penalties or administrative adjudications with no penalties. As of March 31, 2011, Hidden Splendor has challenges pending in several administrative actions. Such actions cover a total of approximately $1,200,000 of proposed, assessed penalties.   We are unable to predict the outcome of these pending administrative actions. If the Company is not successful in eliminating or significantly reducing such proposed penalties, such result could adversely affect our financial condition and operations.


ITEM 1A. RISK FACTORS


This Report should be read in conjunction with “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2010.


ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


Set forth below is certain information concerning issuances and pending obligations of issuances of common stock that were not registered under the Securities Act of 1933 (“Securities Act”) that occurred, but were not reported in the Form 10-K filed with the SEC on April 15, 2011 for the fiscal year ended December 31, 2010, during the first quarter of fiscal 2011 and to date:


In April 2011, we issued Uptick Capital LLC 25,000 shares of the Company’s Common Stock pursuant to the extension of a consulting agreement.  Such shares were valued at $34,000.


In April 2011, we entered into a debt settlement agreement with a third party lender pursuant to which we issued the third party lender a total of 550,000 shares of the Company’s Common Stock as settlement of a total of $521,875 principal and accrued interest.   


During April 2011, we issued a total of 1,190,000 shares of the Company’s Common Stock for cash consideration aggregating $1,035,300. A commission of $154,700 was paid to John Thomas Financial Inc. in connection with the sales of these shares.


The issuance of these equity securities were consummated pursuant to Section 4(2) of the Securities Act and the rules and regulations promulgated thereunder on the basis that such transactions did not involve a public offering and the offerees were sophisticated, accredited investors with access to the kind of information that registration would provide. The recipient of these securities represented its intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and other instruments issued in such transactions. Unless otherwise noted, no sales commissions were paid.


ITEM 3. DEFAULTS UPON SENIOR SECURITIES


None


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


None



20



ITEM 5. OTHER INFORMATION


None


ITEM 6. EXHIBITS


Exhibits


Exhibit

 

Description

 

Location of Exhibit

  

 

  

 

  

31.1

 

Chief Executive Officer Section 302 Certification pursuant to Sarbanes-Oxley Act.

 

Included with this filing.

  

 

  

 

  

31.2

 

Chief Financial Officer Section 302 Certification pursuant to Sarbanes-Oxley Act.

 

Included with this filing.

  

 

  

 

  

32.1

 

Chief Executive Officer Section 906 Certification pursuant to Sarbanes-Oxley Act.

 

Included with this filing.

  

 

  

 

  

32.2

 

Chief Financial Officer Section 906 Certification pursuant to Sarbanes-Oxley Act.

 

Included with this filing



21




SIGNATURES



In accordance with the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned thereunto duly authorized.


 

 

 

 

  

AMERICA WEST RESOURCES, INC.

  

  

  

  

  

  

  

  

  

Dated: May 13, 2011

By:

/s/ Dan R. Baker

  

  

  

Dan R. Baker

  

  

Chief Executive Officer

  

  

  

  

By:

/s/ Brian E. Rodriguez

  

  

  

Brian E. Rodriguez

  

  

Chief Financial Officer




22



EXHIBIT INDEX

  

Exhibit

Number

 

Description

  

 

  

31.1

 

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  

 

  

31.2

 

Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

  

 

  

32.1

 

Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

  

 

  

32.2

 

Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002




23


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CIK: 867687
Form Type: 10-Q Quarterly Report
Accession Number: 0001078782-11-001361
Submitted to the SEC: Fri May 13 2011 5:28:04 PM EST
Accepted by the SEC: Fri May 13 2011
Period: Thursday, March 31, 2011
Industry: Bituminous Coal And Lignite Mining

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