During the nine months ended September 30, 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 nine months ended September 30, 2011 was $21,860 while $65,568 was recorded as a loss on the extinguishment of debt during the nine months ended September 30, 2011, due to the modification of various loans on March 31, 2011 as discussed below. The unamortized discount on these notes was $0 as of September 30, 2011.

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 notes require 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 notes are secured by essentially all of the assets of America West, subject to the Hidden Splendor bankruptcy security requirements. As part of the loan agreements, 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 nine months ended September 30, 2011. On July 14, 2011, $482,106 of the modified notes and $17,894 of accrued interest were converted into 500,000 common shares. The related discount of $20,501 was fully amortized to interest expense during the nine months ended September 30, 2011 and $119,774 was recorded as a loss on extinguishment of debt. Total amortization of these discounts for the nine months ended September 30, 2011 was $1,540,448 and the unamortized discount on the modified notes as of September 30, 2011 totaled $76,606.

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.

America West incurred cash commissions associated with these notes of $302,350 which were recorded as deferred financing costs. During the nine months ended September 30, 2011, $274,460 of these new costs and $290,540 of financing costs from 2010 were amortized to interest expense. In addition, $277,245 of the financing costs was expensed to loss on extinguishment of debt when the loan associated with these deferred costs were converted to equity on July 14, 2011. The total unamortized cash deferred financing costs were $3,396 as of September 30, 2011.

Through multiple amendments between February 11, 2011 and March 31, 2011, all debt and interest owed to a related 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. Amortization for the nine months ended September 30, 2011 was $551,608 and was recorded as interest expense while $883,787 was recorded as a loss on the extinguishment of debt due to the conversion of $3,600,000 of principal to 3,600,000 common shares. The unamortized discount on these notes was $1,794,357 as of September 30, 2011. The remaining principal balance was $7,165,839 as of September 30, 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 nine months ended September 30, 2011 was $449,789 consisting of the expense related to these modified warrants and the unamortized discounts on the extinguished debt.

On April 20, 2011, $500,000 of debt that was not originally issued as a convertible promissory note and $21,875 of accrued interest was converted into 550,000 shares of common stock at $1.10 per share. The fair value of the common stock issued was determined to be $605,000. As a result, $162,946 of unamortized debt discount and the $83,125 excess fair value of the common stock were recorded as loss on extinguishment of debt.

On May 24, 2011, debt owed to a related party was modified. The original debt terms required monthly payments of $21,360 from February 5, 2011 through January 5, 2013. The monthly payments under the note were modified to be payable as follows:


May 2011		$10,000
June 2011		$10,000
September 2011 – December 2012		$21,360 per month
January 2013		$108,163

In connection with this loan modification, America West issued the note holder 25,000 shares of common stock. America West evaluated the modification under FASB ASC 470-50 and determined that the modification was not substantial and therefore did not constitute a debt extinguishment. The fair value of the common shares issued was determined to be $31,250 and was recorded as a debt discount. The discount will be amortized to interest expense over the term of the debt using the effective interest method. Amortization for the nine months ended September 30, 2011 was $6,417 and the unamortized discount on this note was $24,833 as of September 30, 2011.

In June 2011, America West borrowed a total of $1,928,000 through the issuance of convertible promissory notes. The notes are secured by essentially all of the assets of America West, subject to the Hidden Splendor bankruptcy security requirements, bear interest at 8% per annum and mature on July 15, 2011. 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, 1,670,933 shares of America West’s common stock would be issued. America West evaluated the terms of the notes under FASB ASC 815-15 and determined that the notes do not require derivative treatment. America West then evaluated the notes under FASB ASC 470-20 and determined that the notes contain beneficial conversion features. The intrinsic value of the beneficial conversion features was determined to be $547,000 and was recorded as a discount. The discount is being amortized and recorded as interest expense over the term of the debt using the effective interest method. Amortization for the nine months ended September 30, 2011 was $547,000 and the unamortized discount on these notes was $0 as of September 30, 2011. The entire balance of the notes was converted on July 14, 2011 to 1,670,933 shares of common stock.

On July 8 and 14, 2011, America West borrowed a total of $762,130 through the issuance of convertible promissory notes. The notes are secured by essentially all of the assets of America West, subject to the Hidden Splendor bankruptcy security requirements, bear interest at 8% per annum and mature on July 15, 2011. 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, 660,513 shares of America West’s common stock would be issued. America West evaluated the terms of the notes under FASB ASC 815-15 and determined that the notes do not require derivative treatment. America West then evaluated the notes under FASB ASC 470-20 and determined that the notes contain beneficial conversion features. The intrinsic value of the beneficial conversion features was determined to be $21,160 and was recorded as a discount. The discount is being amortized and recorded as interest expense over the term of the debt using the effective interest method. Amortization for the nine months ended September 30, 2011 was $21,160. The entire balance of the notes was converted on July 14, 2011 to 660,513 shares of common stock.

On July 14, 2011, $4,465,000 of debt that was not originally issued as convertible promissory notes and $330,744 of accrued interest were converted into 4,911,500 shares of common stock at $1.00 per share. The original debt was issued between October and December 2010. The fair value of the common stock issued was determined to be $4,911,500. As a result, $316,383 of unamortized debt discount and the $115,756 excess fair value of the common stock were recorded as loss on extinguishment of debt. $100,000 of this issuance of debt remains after the July 14, 2011 conversion and has $10,386 of unamortized debt discount as of September 30, 2011. No principal or interest is due prior to December 31, 2011.

During June 2011, America West repaid $5,000 of related party debt owed to an entity controlled by a Director of America West.

In July 2011, America West borrowed a total of $800,000 from a major shareholder. The notes bear interest at 8% per annum and mature on December 31, 2011. The notes have no specific repayment schedule.

During August and September 2011, America West borrowed an aggregate of $4,200,000 from a major shareholder. The notes bear interest at 8% per annum and mature on December 31, 2011. A total of 4,200,000 common shares were issued in connection with the debt. The relative fair value of these shares was $1,727,129 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 nine months ended September 30, 2011 was $350,152. The unamortized discount on these notes as of September 30, 2011 was $1,376,977.

A summary of the related party debt and related party convertible debt activity for the nine months ended September 30, 2011 is as follows:



Balance, net at December 31, 2010	$	11,535,219
Borrowings		10,589,510
Principal payments		(145,000)
Interest converted to principal		2,127,408
Principal converted to common stock		(11,772,236)
Debt discounts		(8,694,456)
Debt discounts amortized and extinguished		5,640,881
Balance, net at September 30, 2011		9,281,326
Less: current maturities, net		(4,256,313)
Long term portion, net at September 30, 2011	$	5,025,013

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 September 30, 2011 and December 31, 2010, the total accrued liability for these items was $299,600 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 $61,471 and $35,971 as of September 30, 2011 and December 31, 2010, respectively.

Hidden Splendor ships a portion of its coal utilizing a trucking company owned by America West’s Chief Executive Officer. For the nine months ended September 30, 2011 and 2010, Hidden Splendor incurred trucking fees amounting to $1,681,637 and $587,000, respectively which is included in general and administrative expenses in the consolidated statements of operations. The amount payable to this trucking company as of September 30, 2011 and December 31, 2010 totaled $0 and $241,935, respectively.