UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-QSB



xQUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



For the quarterly period endedDecember 31, 2006



oTRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934



Commission file number333-84565



AFV SOLUTIONS, INC.

(Exact name of small business issuer as specified in its charter)



Nevada
        90-0006843(State or other jurisdiction of incorporation or organization)
        (IRS Employer Identification No.)




9710 Research Drive

Irvine, CA 92618

(Address of principal executive offices)



(949) 748-6600

(Issuers telephone number)



(Former name, former address and former fiscal year, if changed since last report.)



Copies of Communications to:

Stoecklein Law Group

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883



Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the last 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. YesxNoo



Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YesoNox



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The number of shares of Common Stock, $0.001 par value, outstanding on February 12, 2007, was 22,915,300 shares.



Transitional Small Business Disclosure Format (check one):  Yeso
        Nox






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PART 1  FINANCIAL INFORMATION



Item 1.
        Financial Statements




AFV Solutions, Inc.

Consolidated Balance Sheet

(unaudited)



|                                                                                                                     | December 31, 2006          
|-------------------------------------------------------------------------------------------------------------------- | ---------------------------
|Assets                                                                                                               |                            
|                                                                                                                     |                            
|Current assets:                                                                                                      |                            
|Cash                                                                                                                 | $                1,386,780 
|Prepaid expenses                                                                                                     | 93,262                     
|Other current assets                                                                                                 | 237                        
|Total current assets                                                                                                 | 1,480,279                  
|                                                                                                                     |                            
|Fixed assets, net                                                                                                    | 1,069,779                  
|                                                                                                                     |                            
|Other assets:                                                                                                        |                            
|Deposits                                                                                                             | 513,477                    
|Other assets                                                                                                         | 2,502                      
|Total other assets                                                                                                   | 515,979                    
|                                                                                                                     |                            
|Total assets                                                                                                         | $              3,066,037   
|                                                                                                                     |                            
|Liabilities and Stockholders Equity                                                                                 |                            
|                                                                                                                     |                            
|Current liabilities:                                                                                                 |                            
|Accounts payable                                                                                                     | $                    70,603
|Accrued expenses                                                                                                     | 1,320                      
|Accrued expenses-related party                                                                                       | 18,000                     
|Accrued interest-related party                                                                                       | 42,250                     
|Line of credit                                                                                                       | 98,687                     
|Current maturities of notes payable                                                                                  | 16,582                     
|Total current liabilities                                                                                            | 247,442                    
|                                                                                                                     |                            
|Long term liabilities                                                                                                |                            
|Notes payable, net of current maturities                                                                             | 51,985                     
|Mortgages Payable                                                                                                    | 78,611                     
|Mortgages Payable  related party                                                                                    | 150,000                    
|Total long term liabilities                                                                                          | 280,596                    
|                                                                                                                     |                            
|Total liabilities                                                                                                    | 528,038                    
|                                                                                                                     |                            
|Stockholders equity                                                                                                 |                            
|Preferred stock, $.001 par value, 20,000,000 shares authorized, 28,334 shares issued and outstanding                 | 28                         
|Common stock, $.001 par value, 100,000,000 shares authorized; 22,910,577 issued and outstanding at December 31, 2006 | 22,911                     
|Stock subscription receivable                                                                                        | (10,000)                   
|Additional paid-in capital                                                                                           | 9,828,918                  
|Accumulated deficit                                                                                                  | (7,303,858)                
|Total stockholders equity                                                                                           | 2,537,999                  
|                                                                                                                     |                            
|Total liabilities and stockholders equity                                                                           | $3,066,037                 



See accompanying notes the consolidated  financial statements



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AFV Solutions, Inc.

Consolidated Statements of Operations

(unaudited)



For the three months ended December 31,
        For the six months ended December 31,2006
        2005
        2006
        2005Revenue
        $         24,855
        $       38,173
        $       61,296
        $       118,175Cost of sales
        1,777
        5,223
        3,902
        9,383Gross profit
        23,078
        32,950
        57,394
        108,792Expenses:General and administrative
        158,138
        265,196
        289,137
        458,201General and administrative expenses  related party
        1,500
        1,500
        3,000
        3,000Depreciation
        41,056
        10,918
        78,875
        21,468Consulting services
        254,877
        567,200
        483,600
        567,200Financing expenses
        -
        648,543
        100,000
        1,275,041Investor relations
        -
        -
        16,537
        -Professional fees
        87,311
        41,676
        295,325
        100,676Research and development
        -
        91,201
        5,000
        379,401Rent expense
        72,550
        -
        128,922
        -Promotional and marketing
        70,918
        -
        95,632
        -Salaries and wages
        185,210
        -
        330,313
        -Travel expense
        182,106
        -
        409,638
        -Impairment of intangible assets
        -
        -
        18,269
        -Total operating expenses
        1,053,666
        1,626,234
        2,254,248
        2,804,987Operating loss
        (1,030,588)
        (1,593,284)
        (2,196,854)
        (2,696,195)Other income (expenses):Interest income
        2,707
        1,441
        2,718
        2,210Interest expense
        (243)
        (1,276)
        (12,141)
        (3,955)Interest expense  related party
        (2,250)
        (3,000)
        (4,500)
        (6,000)Total other income (expense)
        214
        (2,835)
        (13,923)
        (7,745)Net loss
        $ (1,030,374)
        $ (1,596,119)
        $ (2,210,777)
        $ (2,703,940)Weighted average number of common shares outstanding  basic and  diluted
        22,910,577
        20,100,000
        22,879,883
        20,100,000Net loss per share  basic and  diluted
        $          (0.04)
        $          (0.14)
        $          (0.10)
        $          (0.14)






See accompanying notes to the consolidated  financial statements



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AFV Solutions, Inc.

Consolidated Statements of Cash Flows

(unaudited)



For the six months ended December 31,2006
        2005Cash flows from operating activitiesNet loss
        $ (2,210,777)
        $ (2,703,940)Adjustments to reconcile net loss to net cash used in operating activities:Depreciation
        78,875
        21,468Impairment of intangible assets
        18,269
        -Shares issued for services
        -
        85,200Warrants issued for financing
        -
        1,275,041Change in net operating assets:Prepaid expenses
        (19,462)
        -Accounts payable and accrued liabilities
        (20,470)
        4,681Interest payable  related party
        4,500
        6,049Accrued liabilities  related party
        3,000
        3,000Deposits and other assets
        (12,950)
        -Net cash used in operating activities
        (2,159,015)
        (1,308,501)Cash flows from investing activitiesPurchases of fixed assets
        (131,415)
        (7,354)Net cash used  in investing activities
        (131,415)
        (7,354)Cash flows from financing activitiesProceeds from notes payable  related party
        -
        200,000Payments on notes payable  related party
        -
        (200,000)Payment on installment loans
        (13,132)
        (10,729)Payment on mortgage
        (50,000)
        -Cash from issuance of common stock
        897,501
        1,500,000Subscriptions receivable
        -
        (10,000)Net cash provided by financing activities
        834,369
        1,479,271Net increase (decrease) in cash
        (1,456,061)
        163,416Cash  beginning of period
        2,842,841
        3,725Cash  end of period
        $    1,386,780
        $       167,141Supplemental disclosures:Interest paid
        $         12,141
        $          3,955




See accompanying notes to the consolidated  financial statements

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Note 1  Organization and Operations



We were originally incorporated in the State of Nevada in January of 2002 under the name Juris Travel. On March 17, 2003, we changed our name to Bed and Biscuit Inns of America, Inc., On March 24, 2003, we changed our name to Dogs International. On February 9, 2005, we changed our name from Dogs International to AFV Solutions, Inc. (AFV).



Operations

AFV intends to enter the alternative fuel industry through its wholly-owned subsidiary, AFV Research, Inc. (ARI). ARI intends to enter the business of manufacturing propane, natural gas, hydrogen and electrical conversion kits for trucks, automobiles and industrial equipment. Its customers are intended to include new vehicle manufacturers, major utilities, fleets, and a wide network of installation centers. In addition, ARI will also be a distributor of alternative fuel parts and components.



Note 2  Significant Accounting Policies



Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All material inter-company balances and transactions have been eliminated.



The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B of the Securities and Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles in the United States for complete financial statements.  Interim results are not necessarily indicative of the results to be expected for any subsequent quarter or the entire fiscal year.  These unaudited consolidated financial statements should be read in conjunction with the Company's audited financial statements and notes thereto and Managements Discussion and Analysis as included in the Company's Annual Report on Form 10-KSB for the transitional
period ended June 30, 2006.



Going Concern and Managements Plans

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred operating loses and negative operating cash flow since inception and future losses are anticipated. The Companys plan of operations, even if successful, may not result in cash flow sufficient to finance and expand its business.  These factors raise substantial doubt about the Companys ability to continue as a going concern. Realization of assets is dependent upon continued operations of the Company, which in turn is dependent upon managements plans to meet its financing requirements and the success of its future operations. The ability of the Company to continue as a going concern is dependent on improving the
Companys profitability and cash flow and securing additional financing. While the Company believes in the viability of its strategy to



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increase revenues and profitability and in its ability to raise additional funds, and believes that the actions presently being taken by the Company provide the opportunity for it to continue as a going concern, there can be no assurances to that effect. These financial statements do not include any adjustments related to the recoverability and classification of asset amounts or the amounts and classification of liabilities that might be necessary if the Company is unable to continue as a going concern.



Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements as well as the reported amount of revenues and expenses during the reported period. Actual results could differ from these estimates.



Reclassifications

Certain prior period amounts have been reclassified to conform with current period presentation.



Note 3  Stockholders equity



During the six-months ended December 31, 2006, the Company issued 1,352,500 shares of its par value common stock pursuant to subscription agreements issued in the previous year.



During the six-months ended December 31, 2006, the Company issued subscription agreements pursuant to a unit offering whereby each subscriber would receive 10,000 shares of $0.001 par value common stock at a price of $65,000 or $6.50 per share. The company sold a total of 178,077 shares for cash totaling $897,501.



On September 30, 2006, an officer of the company elected to donate the entire principal balance of their demand note in the amount of $46,500. Additionally the officer also elected to donate a separate note in the amount of $30,000 representing the entire principal balance to the Company. As of September 30, 2006, the Company recorded $76,500 in donated capital.



There have been no other issuances of common stock as of December 31, 2006.



Note 4  Related party transactions

During the six-months ended December 31, 2006 an Officer of the Company donated capital in the amount of $76,500.



The Company leases nine hundred square feet of office space from an officer and director of the Company at a fair market value of $500 per month. During the six-months ended December 31, 2006, the Company accrued rent expense to a related party in the amount of $3,000.



During the six-months ended December 31, 2006, the Company accrued interest on its mortgage due to a former officer of the Company in the amount of $4,500.



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Note 5  Subsequent Events

On January 23, 2007, the Company issued 4,723 shares of its par value common stock for the conversion of outstanding Series A preferred stock pursuant to its 2003 Real Estate Acquisition Agreement.



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FORWARD-LOOKING STATEMENTS



This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact are forward-looking statements for purposes of federal and state securities laws, including, but not limited to, any projections of earnings, revenue or other financial items; any statements of the plans, strategies and objections of management for future operations; any statements concerning proposed new services or developments; any statements regarding future economic conditions or performance; any statements or belief; and any statements of assumptions underlying any of the foregoing.



Forward-looking statements may include the words may, could, estimate, intend, continue, believe, expect or anticipate or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Except for our ongoing securities laws, we do not intend, and undertake no obligation, to update any forward-looking statement.



Although we believe that the expectations reflected in any of our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in any of our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and subject to inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to:



o
        increased competitive pressures from existing competitors and new entrants;


o
        increases in interest rates or our cost of borrowing or a default under any material debt agreements;


o
        deterioration in general or regional economic conditions;


o
        adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations;


o
        eventual successful operations in the alternative fuel industry;


o
        compliance with foreign corrupt trade practices;


o
        loss of customers or sales weakness;


o
        inability to achieve future sales levels or other operating results;


o
        unavailability of funds for capital expenditures and/or general working capital; and


o
        operational inefficiencies in distribution or other systems.




For a detailed description of these and other factors that could cause actual results to differ materially from those expressed in any forward-looking statement, please see Factors



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That May Affect Our Results of Operation in this document and in our Annual Report on Form 10-KSB for the year ended June 30, 2006.



Item 2.
        Managements Discussion and Analysis or Plan of Operation




OVERVIEW AND OUTLOOK



We were originally incorporated in the State of Nevada in January of 2002 under the name Juris Travel.  On March 24, 2003, we changed our name to Dogs International in connection with our acquisition of Bed & Biscuit Inns of America, Inc..  On February 9, 2005, we changed our name from Dogs International to AFV Solutions, Inc. in anticipation of our entering the alternative fuel industry with our wholly-owned subsidiary AFV Research, Inc (ARI).



In addition to ARI, we operate another wholly owned subsidiary, Bed & Biscuit Inns of America, Inc. (Bed & Biscuit).  Under this subsidiary we operate a pet care facility under the name Bed & Biscuit Inn.  All of our current revenues are generated through Bed & Biscuit.  However, we have discontinued our previous plan of expanding the upscale pet care facilities and focus on the alternative fuel industry.  Due to the diversity of our subsidiaries we announced on May 5, 2006, our intention to spin off the Bed & Biscuit subsidiary to our stockholders of record as of May 10, 2006.



CURRENT OPERATIONS



Alternative fuels, as defined by the Energy Policy Act of 1992 (EPAct), include ethanol, natural gas, propane, hydrogen, biodiesel, electricity, methanol, and p-series fuels.  When ARI was incorporated it intended to target the alternative fuel industry with a focus on manufacturing of propane, natural gas, hydrogen and electrical conversion kits for trucks, automobiles and industrial equipment and this decision was largely influenced by our former CEO, Jeffrey Groscost, who suddenly passed away on November 3, 2006.  We subsequently appointed Mr. Richard Steele to serve as our interim Chief Executive Officer and have continued to reevaluate and reexamine ARIs direction and involvement in the production and distribution of alternative fuel conversion kits.  Furthermore, on December 1, 2006, STALK, LLC (STALK) terminated its consulting agreement which had provided
alternative fuel testing, consulting, training services, and EPA or CARB certified parts and components for the bifuel conversion systems.  Although STALKs consulting agreement was terminated, ARI still has certain assets that it acquired from STALK that are involved in the testing and analysis of alternative fuel conversion systems such as two dynamometers and emissions testing equipped bays.  ARI will have to seek personnel or consultants with the knowledge and expertise in the alternative fuel conversion industry if it intends to continue its progress in commercializing the conversion kits.



Prior to the occurrences mentioned above, we had previously received certificates of conformity from the U.S. Environmental Protection Agency for our gasoline/propane bifuel conversion system for the 2003, 2004, and 2005 Ford Motor Company 4.6 liter engine.  During the quarter ended December 31, 2006, we also received another certificate of conformity for our propane conversion system for the 2006 Ford Motor Company 4.6 liter engine.  Although receiving these certificates of conformity was a large step in our pursuit of entering the



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alternative fuel industry, we have yet to produce this system on a mass production basis.  We had anticipated selling these products as a conversion system, which could be installed in the Ford Crown Victoria, Lincoln Town Car, and Mercury Grand Marquis automobiles.  We are not affiliated with the Ford Motor Companies in any way.



In addition to the conversion kits, we intend to act as a distributor of hybrid electric, CNG and LPG buses through our Wu Zhou Longs Motors of China (WZL) agreement.  Through our agreement with WZL, we are the exclusive representative for sales, marketing, and distribution of these different types of buses in five countries, including the United States, Mexico, and India.  These buses use an electrical system, which recharges the batteries using excess electricity during peak operations as well as during deceleration and down hill operation.  We have paid a $500,000 nonrefundable deposit to WZL, which is to be allocated towards future bus purchases from WZL.



On November 5, 2006, we entered into an exclusive five year sales agreement with Guangzhou Baolong Group Automotive Manufacturing Corporation (Baolong) to act as the exclusive world-wide, excluding China, sales representative of their various buses and vans, hybrid buses and vans, CNG buses and vans, LPG buses and vans, and garbage truck and other related vehicles.  A copy of the Agreement is attached hereto as Exhibit 10.7.



On November 9, 2006, we entered into a non-binding Letter of Intent with Guangzhou Baolong Group L.V. Automotive Industry Co., Ltd. to acquire the Baolong factory currently located in Guangzhou, China.  Subject to completion of a final acquisition agreement, AFV intends to  acquire 100% of the Baolong factory  for $42 million U.S. dollars.  In conjunction with this agreement we issued a press release on November 20, 2006 discussing the potential to expand the production and assembly capacity of hybrid electric, CNG and LPG buses.  The press release is attached hereto as Exhibit 99.1.



On November 20, 2006, we entered into a Letter of Intent to enter into a joint venture with BBF International Automobile Technology Group Company, Ltd. and FAW-Hongta Automobile Company, Ltd.  FAW-Hongta is a joint venture company with FAW Group and China Hongta Group.  BBF is currently authorized from Matra Automobile to use ESPACE III manufacturing technology to produce multi purpose vehicles and automobiles.  We have agreed with BBF to invest funds to import the necessary tooling equipment to China.  Upon the tooling equipment arriving in China, BBF, FAW-Hongta and AFV will assess the viability of manufacturing ESPACE III vehicles whereby FAW-Hongta would be the manufacturer.  A copy of the press release announcing this joint venture is attached here to as Exhibit 99.2.



On December 6, 2006, we entered into a five-year Cooperation Agreement with China National Electric Equipment Corporation (CNEEC), whereby each company will represent the others products and services in an effort to find, establish, broker, and refer customers to each other.  CNEEC has the expertise and knowledge to designing and construct hydropower stations, thermal garbage power stations, and city waste treatment.  AFV has been granted the rights by CNEEC to the following countries and territories:  North and South America, India, Middle East, and the Philippines.



We are aggressively pursuing opportunities within the alternative fuel industry; however, at this point in time we have not been able to commercialize our new line of business.  We are hopeful of generating sales of our alternative fuel products or receiving fees associated with alternative vehicle sales from leads generated by us in the up coming year.



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In addition to pursuing the alternative fuel industry, our former CEO, Jeffrey Groscost, was evaluating the possible expansion of our operations into the automotive repair industry.  As a result of this pursuit, we incorporated another wholly-owned subsidiary titled AFV Systems, Inc. during the quarter ended December 31, 2006.  Due to Mr. Groscosts sudden passing, we have decided to cease all operations in the Arizona facility and are currently in the process of permanently vacating the facility.



Satisfaction of our cash obligations for the next 12 months.



We are aggressively pursuing opportunities within the alternative fuel industry and have discontinued our previous plan of seeking to build and/or acquire pet care facilities.  However, we do intend to continue operations of our current pet facility while we also pursue the alternative fuel industry and until our previously announced spin-off is effective.  Our cash obligations are anticipated to increase substantially over the next 12 months as we establish ourselves in the alternative fuel industry.  The cash would be utilized for operational expenses of retrofitting ourselves as a manufacturer and distributor of alternative fuel products as well as the potential acquisitions of the WZL and Baolong facilities.



We intend for these funding requirements to be fulfilled through either equity or debt financing.  During the year ended June 30, 2006, we closed various private placements for a total of approximately $4,930,000 in proceeds. We anticipate that these investments will help sustain some of our cash obligations but we may have future obligations that will be fulfilled by additional equity or debt financing.



During the quarter ended September 30, 2006, we conducted a private placement generating proceeds of $1,157,500.  We have not closed this private placement but have issued a total of 178,077 shares as a result of this offering.  We anticipate that available cash at December 31, 2006 in the amount of $1,386,780 will not satisfy our cash obligations for the next 12 months and we will be required to raise additional equity or debt financing.



Summary of any product research and development that we will perform for the term of the plan.



During the quarter ended December 31, 2006 and the transitional year ended June 30, 2006 we spent $5,000 and $418,150, respectively, on research and development.  We are not anticipating significant research and development expenditures in the near future. We will continue implementing our revised business plan of alternative fuel.  However, at this time we cannot estimate the actual amounts to be allocated to research and development.



Expected purchase or sale of plant and significant equipment.



As a result of our intended spin-off of Bed & Biscuit we will not be purchasing or leasing any additional pet care facilities in the next twelve months.  As part of our moving into the alternative fuel industry we anticipate acquiring equipment and other assets related to this



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industry.  Under the acquisition agreement with STALK, LLC we purchased certain assets involved in the testing and analysis of alternative fuel systems such as two dynamometers and emissions testing equipped bays. However, at this point in time we are unable to accurately determine an estimate for the amount of funds needed for any additional purchases.



During the year ended June 30, 2006, we took delivery of a patented electric bus built by GYD of China.  We had the bus shipped to the United States for testing and to begin the process of gaining federal authorization to import busses into the United States market.  Additionally, during the period ended September 30, 2006 we paid a nonrefundable deposit of $500,000 to WZL, which is to be allocated towards future bus purchases.



Significant changes in number of employees.



The number of employees required to operate our business is currently 8 full time and 2 part time employees, which includes those required to maintain our operations of our pet facility in Florida as well as those pursing our move into the alternative fuel industry.  In addition to our employees, we currently utilize 3 consultants.  As a result of the change in our business plan establishing ourselves in the alternative fuel industry, we are anticipating a substantial change in the number of employees required to operate our facilities.  Additionally, we intend to use the services of independent consultants and contractors to perform various professional services, when appropriate.  We believe that this use of third-party service providers may enhance our ability to contain general and administrative expenses.



Results of Operations for the Three Months Ended December 31, 2006 and 2005 Compared.



The following tables summarize selected items from the statement of operations for the three months ended December 31, 2006 compared to the three months ended December 31, 2005.



INCOME:



Three months ended December 31, 2006
        Three months ended December 31, 2005
        Increase / (Decrease)$
        %Revenues
        $          24,855
        $             38,173
        $ (13,318)
        (34%)Cost of Sales
        1,777
        5,223
        (3,446)
        (66%)Gross Profit
        23,078
        32,950
        (9,872)
        (30%)Gross Profit Percentage of Revenue
        93%
        86%
        --
        7%




Revenues



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Revenues for the three months ended December 31, 2006 were $24,855 compared to revenues of $38,173 for the comparable three months ended December 31, 2005.  This resulted in a decrease in revenues of $13,318, from the previous year.  Although we plan to transition our business to the alternative fuel industry, we have not begun producing revenues in this industry.  We still maintain operations through the Bed & Biscuit Inn, which continues to generate the only revenues for the Company.  The decrease in revenues is a result of minimal marketing dollars being allocated towards the growth of the Bed & Biscuit facility in anticipation of completing the previously announced spin-off. We have continued to focus our operations in the alternative fuel industry.



Cost of sales



Cost of sales for the three months ended December 31, 2006 was $1,777, a decrease of $3,446 from $5,223 for the same period ended December 31, 2005.  Naturally as a result of our decrease in revenues we experienced a decrease in our cost of sales due to fewer pets boarding at our facility.  We have not had cost of sales associated with our new planned business in the alternative fuel industry.



Gross profit



Gross profit for the three months ended December 31, 2006 was $23,078, a decrease of $9,872 or 30% as compared to $32,950 for the comparable period of three months ended December 31, 2005.  Overall gross profit as a percentage of revenue increased from 86% for the three months ended December 31, 2005 to 93% for the comparable three months ended December 31, 2006.  Even though we had a decrease in revenues from our Bed & Biscuit Inn when compared to the same time last year, we were able to slightly increase our gross profit as a percentage of revenue by minimizing our cost of sales.



EXPENSES:



Three months ended December 31, 2006
        Three months ended December 31, 2005
        Increase / (Decrease)$
        %General and administrative expenses (total)
        $            159,638
        $           266,696
        $       (107,058)
        (40%)Research and development
        -0-
        91,201
        (91,201)
        --Consulting services
        254,877
        567,200
        (312,323)
        (55%)Financing expenses
        -0-
        648,543
        (648,543)
        --Salaries and wages
        185,210
        -0-
        185,210
        --Travel expenses
        182,106
        -0-
        182,106
        --


Total operating expenses
        1,053,666
        1,626,234
        (572,568)
        35%Net Loss
        $       (1,030,374)
        $     (1,596,119)
        $       (565,745)
        (35%)




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General and administrative expenses



General and administrative expenses were $159,638 for the three months ended December 31, 2006 versus $266,696 for the comparable period of three months ended December 31, 2005, which resulted in a decrease of $107,058.  The decrease in general and administrative expenses was primarily due to our reduction in overhead expenses.  During the same period last year, we were incurring substantially more general and administrative expenses as we were making a strong push in our pursuit of the alternative fuel industry.  Furthermore, during 2005 and in conjunction with our change in business focus we had relocated our corporate headquarters to Irvine, California, which was a large contributing factor to the increase of general and administrative expenses.  However, as compared to a year ago, we have stabilized our general and administrative expenses as we become more familiar with the
alternative fuel industry.



Research and development



We did not incur any research and development costs for the three months ended December 31, 2006 as compared to $91,201 for the comparable three months ended December 31, 2005.  During the same period last year, we had invested a lot of our resources in the bifuel conversion systems as we were in the beginning stages of testing.  However, at this point in time, we have achieved multiple certificates of conformity from the EPA for those conversion systems and are not incurring additional research and development expenses.  During the three months ended December 31, 2006, we experienced the sudden death of our CEO, who was a large contributor to the conversion systems, and terminated the consulting agreement with STALK, which had also contributed to our EPA certificates.  As a result of these occurrences, we have suspended operations in commercializing the conversion kits.



Salaries and wages / Consulting services



Salaries and wages were $185,210 for the three months ended December 31, 2006 as compared to no salaries and wages expenses for the three months ended December 31, 2005.  As we broadened our operations and established facilities in California and Arizona in the alternative fuel industry, we hired additional employees associated with the operations of this line of business.  During the three months ended December 31, 2006, we incurred $254,877 in consulting expenses compared to $567,200 in consulting expenses for the three months ended December 31, 2005.  During the same period of 2005, we had a substantially larger amount of consulting expenses as we began the initial steps in the alternative fuel industry and specifically as we embarked on the bifuel conversion systems.  As a result of the suspension of the bifuel conversion systems during the three months ended December 31, 2006, we
have reduced our consulting expenses associated with these potential products.





13



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Travel expenses



Travel expenses were $182,106 for the three months ended December 31, 2006 versus $0 for the comparable period of three months ended December 31, 2005.  As a result of our WZL and Baolong agreements, we have greatly increased our travel to and from China.  During the three months ended December 31, 2005, we had only begun the initial steps in alternative fuel, which primarily related to the conversion kits.  However, as we began our relationship with WZL and needed to familiarize ourselves with their products, our travel expenses increased.  Additionally, as we expanded our relationship with Baolong this further increased our travel expenses for the three months ended December 31, 2006.  We expect that our travel expenses may continue in the upcoming months as we continue to cultivate our relationships in China and other countries.



Total operating expenses



Overall operating expenses were $1,053,666 for the three months ended December 31, 2006 versus $1,626,234 for the three months ended December 31, 2005, which resulted in a decrease of $572,568, or 35%.  This decrease is primarily due to our reduction in general and administrative expenses.  As compared to the same time period in 2005, we had substantial start up costs associated with our business change to the alternative fuel industry.  However, during the three months ended December 31, 2006, we were able to reduce our general and administrative expenses and consulting expenses as well as eliminate our research and development expenses and financing expenses.  All of these items contributed to lowering our total operating expenses.



Net loss



The net loss for the three months ended December 31, 2006 was $1,030,374, versus a net loss of $1,596,119 for the comparable period of three months ended December 31, 2005, a decrease in net loss of $565,745.  As mentioned above, although we are continuing our pursuit in the alternative fuel industry, we have been able to reduce some of our operating expenses and thereby slightly decrease our net loss.



The following tables summarize selected items from the statement of operations for the six months ended December 31, 2006 compared to the six months ended December 31, 2005.



INCOME:



Six months ended December 31, 2006
        Six months ended December 31, 2005
        Increase / (Decrease)$
        %Revenues
        $             61,296
        $           118,175
        $ (56,879)
        (48%)Cost of Sales
        3,902
        9,383
        (5,481)
        (58%)Gross Profit
        57,394
        108,792
        (51,398)
        (47%)


Gross Profit Percentage of Revenue
        94%
        92%
        --
        2%




14



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Revenues



Revenues for the six months ended December 31, 2006 were $61,296 compared to revenues of $118,175 for the comparable six months ended December 31, 2005.  This resulted in a decrease in revenues of $56,879 from the previous year.  Although we have begun to focus our operations in the alternative fuel industry, we have not begun producing revenues in this industry.  Therefore, we still maintain operations through the Bed & Biscuit Inn, which continues to generate the only revenues for the Company.  However, we have continued to experience a decrease in revenues over the last six months as a result of minimal marketing dollars being allocated towards the growth of the facility and a reduction of clientele.



Cost of sales



Cost of sales for the six months ended December 31, 2006 was $3,902, a decrease of $5,481 from $9,383 for the same period ended December 31, 2005.  As mentioned above, we have not experienced cost of sales associated with our new planned business in the alternative fuel industry.  Therefore, our decrease in cost of sales is a result of fewer pets boarding at our Bed & Biscuit Inn.  Furthermore, over the six months ended December 31, 2006, we have proportionally decreased our cost of sales more than the percentage decrease in revenues that we have experienced.



Gross profit



Gross profit for the six months ended December 31, 2006 was $57,394, a decrease of $51,398 or 41% as compared to $108,792 for the comparable period of six months ended December 31, 2005.  Overall gross profit as a percentage of revenue increased from 92% for the six months ended December 31, 2005 to 94% for the comparable six months ended December 31, 2006.  Even though we have experienced a decrease in our revenues from the Bed & Biscuit Inn when compared to same period last year, we were able to increase our gross profit as a percentage of revenue because of a proportionally larger decrease in our cost of sales.







15



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EXPENSES:



Six months ended December 31, 2006
        Six months ended December 31, 2005
        Increase / (Decrease)$
        %General and administrative expenses (total)
        $            292,137
        $           461,201
        $       (169,064)
        (37%)


Research and development
        5,000
        379,401
        (374,401)
        (99%)Consulting services
        483,600
        567,200
        (83,600)
        (15%)Financing expenses
        100,000
        1,275,041
        (1,175,041)
        (92%)Salaries and wages
        330,313
        -0-
        330,313
        --Travel expenses
        409,638
        -0-
        409,63
        --Total operating expenses
        2,254,248
        2,804,987
        (550,739)
        (20%)Net Loss
        $       (2,210,777)
        $     (2,703,940)
        $       (493,163)
        (18%)




General and administrative expenses



General and administrative expenses were $292,137 for the six months ended December 31, 2006 versus $461,201 for the comparable period of six months ended December 31, 2005, which resulted in a decrease of $169,064, or 37%.  When compared to the same period, a year ago, we have slightly stabilized and decreased our administrative expenses as we become more familiar with the alternative fuel industry.  Also during the same time period last year, we experienced higher than expected costs as we relocated our corporate headquarters to Irvine, California and established our facility in Arizona, which has been subsequently closed.



Research and development



Research and development costs were $5,000 for the six months ended December 31, 2006 as compared to $379,401 for the comparable six months ended December 31, 2005.  This resulted in a decrease of $374,401 or 99%.  During the six months ended December 31, 2005, we were in the beginning stages of our operations in the alternative fuel industry and therefore had invested a substantial amount of our resources towards the bifuel conversion systems.  As a result of achieving EPA certifications for the conversion systems, we have substantially reduced our research and development costs during the six months ended December 31, 2006.  Furthermore, we have suspended the operations relating to the commercialization of the conversion kits until we are able to determine its potential viability.



Salaries and wages / Consulting services



Salaries and wages were $330,313 for the six months ended December 31, 2006 as compared to no salary and wage expenses for the six months ended December 31, 2005.  As previously mentioned above, we broadened our operations and established facilities in California and Arizona in the alternative fuel industry, which required the hiring of additional employees associated with these facilities.  During the six months ended December 31, 2006, we also incurred consulting expenses of $483,600 as compared to $567,200 for the six months ended December 31, 2005.  Again, these consulting expenses were directly related to our operations in the alternative fuel business with a significant portion pertaining to the conversion systems.



16



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Travel expenses



Travel expenses were $409,638 for the six months ended December 31, 2006 versus no travel expenses for the comparable period of six months ended December 31, 2005.  Previously, we had not experienced travel expenses because we had begun our pursuit in alternative fuel with the bifuel conversion kits.  However, during the last twelve months and specifically during the six months ended December 31, 2006, we have increased our travel to China as we continue to develop our relationships with WZL and Baolong.  We expect our travel expenses to continue as we continue to pursue global relationships in the alternative fuel industry.



Total operating expenses



Overall operating expenses were $2,254,248 for the six months ended December 31, 2006 versus $2,804,987 for the six months ended December 31, 2005, which resulted in a decrease of $550,739, or 20%.  During the last twelve months we have transitioned into the alternative fuel industry, which initially caused substantial increases in professional fees, consulting fees, salaries and wages.  However, as we have continued with this transition, we have reduced these areas and therefore reduced our total operating expenses.  Although these mentioned areas have been reduced during the six months ended December 31, 2006, we have also experienced new expenses such as promotional and marketing expenses as well as investor relations, which only reduced our operating expenses by 20% when compared to the same period of December 31, 2005.



Net loss



The net loss for the six months ended December 31, 2006 was $2,210,777, versus a net loss of $2,703,940 for the comparable period of six months ended December 31, 2005, a decrease in net loss of $493,163.  As mentioned above, we are continuing our pursuit in the alternative fuel industry and have been able to reduce some of our operating expenses thereby slightly decreasing our net loss.  As this industry is a completely new line of business for us we may incur additional operational expenses and therefore can not guarantee that we will continue to reduce our net loss.



LIQUIDITY AND CAPITAL RESOURCES



The following table summarizes total current assets, liabilities and working capital at December 31, 2006 compared to the transitional year ended June 30, 2006.



December 31, 2006
        June 30, 2006
        Increase / (Decrease)$
        %Current Assets
        $      1,480,279
        $   2,939,791
        $ (1,459,512)
        (50%)Current Liabilities
        $         247,442
        $      219,934
        $        27,508
        13%


Working Capital
        $      1,232,837
        $   2,719,857
        $ (1,487,020)
        (55%)




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A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through equity and/or debt financing. Since inception, we have financed our cash flow requirements through issuances of common stock and cash generated from our operations. As we continue our activities, we anticipate experiencing net negative cash flows from operations, pending receipt of significant revenues.



We may require additional financing to fund operations through common stock offerings and bank borrowings, to the extent available, or to obtain additional financing to the extent necessary to augment our working capital.  In the event we cannot obtain the necessary capital to pursue our strategic plan, we may have to significantly curtail our operations. This would materially impact our ability to continue operations.



Existing capital at December 31, 2006 and revenues anticipated to be derived from our pet facility, are anticipated to only be sufficient to sustain our operations for approximately 4 to 5 months. We anticipate substantial increases in our cash requirements; which will require additional capital generated from either the sale of common stock, the sale of preferred stock, or debt financing.  No assurance can be made that such financing would be available, and if available it may take either the form of debt or equity. In either case, the financing could have a negative impact on our financial condition and our stockholders.



During the six-months ended December 31, 2006 we conducted a private placement of Investment Units whereby we raised an additional $897,501.



We anticipate that we will incur operating losses in the next twelve months. Our prospects must be considered in light of the risks, expenses and difficulties frequently encountered by companies in their early stage of development.  Such risks for us include, but are not limited to, an evolving and unpredictable business model and the management of growth. To address these risks, we must, among other things, expand our customer base, implement and successfully execute our business and marketing strategy, respond to competitive developments, and attract, retain and motivate qualified personnel. There can be no assurance that we will be successful in addressing such risks, and the failure to do so can have a material adverse effect on our business prospects, financial condition and results of operations.



Off-Balance Sheet Arrangements.



We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.





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Application of Critical Accounting Policies and Pronouncements



The preparation of our consolidated financial statements in conformity with accounting principles generally accepted in the United States requires us to make estimates and judgments that affect our reported assets, liabilities, revenues, and expenses, and the disclosure of contingent assets and liabilities. We base our estimates and judgments on historical experience and on various other assumptions we believe to be reasonable under the circumstances. Future events, however, may differ materially from our current expectations and assumptions. While there are a number of significant accounting policies affecting our consolidated financial statements; we believe the following critical accounting policies involve the most complex, difficult and subjective estimates and judgments:




        stock-based compensation



        revenue recognition




Stock-Based Compensation



In December 2004, the FASB issued SFAS No. 123 (revised 2004). Share-Based Payment, which is a revision of SFAS No. 123, Accounting for Stock-Based Compensation. SFAS No. 123(R) supersedes APB Opinion No. 25, Accounting for Stock Issued to Employees and amends SFAS No. 95, Statement of Cash Flows. Generally, the approach in SFAS No. 123(R) is similar to the approach described in SFAS No. 123. However, SFAS No. 123(R) requires all share-based payments to employees, including grants of employee stock options, to be recognized in the income statement based on their fair values. Pro forma disclosure is no longer an alternative.  The Company adopted SFAS No. 123 (R) in 2005.



Revenue Recognition



Revenue from boarding and care fees are recorded when pets are picked up and an invoice is given to the customer.  The cost of services, consisting of feed and supplies, is expensed as incurred.



Management  does  not  believe  that  any other recently  issued,  but  not  yet effective accounting  pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.



FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS



Risk Associated With Our Business and Marketplace



Our company has no operating history in the alternative fuel industry and there can be no assurance that we will be successful in entering the industry or that we will be able to develop our business plan to integrate this new line of business.



Our proposed operations are subject to all of the risks inherent in the establishment of a new business, including licensing risks, insufficient capital, unforeseen problems, and expenses and complications encountered with the early phases of operations in a business. Moreover, our lack of an operating history in the alternative fuel industry makes it impossible to predict whether or not the company will operate profitably if it is able to successfully enter such industry. There can be no assurances that we will be able to locate, hire and retain the necessary personnel to initiate, manage and operate this new line of business, develop and implement necessary systems, obtain contracts and obtain financing as contemplated in our business plan.



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We are uncertain as to our ability to obtain additional capital necessary to continue our business.



We have incurred an accumulated deficit as of December 31, 2006 of $7,303,858. As a result of these losses and negative cash flows from operations, our ability to continue operations will be dependent upon the availability of capital from outside sources unless and until we achieve profitability.  We have continued to conduct private placements and during the six-months ended December 31, 2006, we raised approximately $897,501 in additional proceeds to be used as general working capital. We anticipate current cash on hand, combined with minimal revenues from the pet facility, will only satisfy our working capital needs for 4 to 5 months.



We will continue to depend on outside capital to pay for our deficit. Such outside capital may include the sale of additional stock, loans from our officer and director, and/or commercial borrowing. There can be no assurance that capital will continue to be available if necessary to meet these continuing operational costs or, if the capital is available, it will be on terms acceptable to our company. The issuances of additional equity securities by our company could result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, will increase our company's liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable, our business and future success may be adversely affected.



International operations increase our exposure to international laws and regulations, with some additional risks associated with doing business in China.



Foreign laws and regulations are often complex and subject to variation and unexpected changes.  This could result in potential litigation.  In addition, there are few additional risks associated with doing business in China such as:  complex set of licensing requirements and restrictions, currency fluctuation and exchange rate risks, protection of intellectual property, and difficulties and limitations on the repatriation of cash.



We anticipate some risks as a result of potential operations internationally.  These risks are a result of our sales, marketing, and distribution agreement with Wu Zhou Long Motors and Baolong to sell their CNG, LPG and hybrid buses in various countries.



We anticipate having operations outside of the United States and our success will depend, in part, on our ability to manage and expand these operations.  They will require significant management attention and financial resources.  Our operations will be subject to numerous and varied regulations.  Changes in exchange rates between foreign currencies and the U.S. dollar may adversely affect our anticipated operating margins.  There is also an additional risk if the currency is not freely traded.  Some currencies, such as the Chinese Renminbi, are subject to limitations on conversion into other currencies.  These future foreign exchange rates may have a material adverse effect on our anticipated business and operating results.





20



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Future acquisitions may strain our business and resources and may result in dilution to our stockholders.



We are seeking to acquire additional businesses, such as WZL and Baolong. In the event that we identify an appropriate acquisition candidate, we may not be able to negotiate the terms of any such acquisition successfully, finance such acquisition or integrate such acquired business, products or technologies into our existing business and operations. Further, the negotiation of potential acquisitions, as well as the integration of an acquired business, could cause significant diversions of management time and resources. Any potential acquisition, whether or not consummated, could seriously harm our business, operating results and financial condition. If we consummate one or more significant acquisitions in which the consideration consists of stock or other securities, our stockholders could suffer significant dilution of their interests. If we were to proceed with one or more significant
acquisitions in which the consideration included cash, we could be required to use a substantial portion of our available cash to consummate any such acquisition. Acquisition financing may not be available on favorable terms, or at all. In addition, we may be required to impair significant amounts of goodwill and other intangible assets in connection with future acquisitions, which may seriously harm our operating results.



The limited availability of alternative fuels can hinder our ability to market our products.



Alternative fuel engines have been commercially available in the past; however, the most significant impediment to the growth in the market for alternative fuel traditionally has been the limited availability of alternative fuel sources, such as natural gas and propane.  The success of engines based on alternative fuels will probably be directly affected by the development of the infrastructure of the natural gas industry and the widespread availability of such fuel sources.  However, we believe that with the development of the bifuel conversion systems, vehicles will not be tied exclusively to alternative fuels, but will have the option and ability to operate on standard fuel alone.  In all events, our business and the market for alternative fuel vehicles would benefit substantially from the growth of the infrastructure of the natural gas industry and the more widespread availability of
alternative fuels.



Historically and at the present time our sole revenue generating property is located in Florida and, accordingly, we could be disproportionately harmed by an economic downturn in this area of the country or a natural disaster, such as a hurricane.



Our sole revenue producing asset, the Bed and Biscuit Inn, is located in Flagler Beach, Florida. This concentration in Florida makes our business disproportionately affected by economic conditions, competition and real and personal property tax rates in Florida.  Natural disasters in Florida, such as hurricanes and/or tropical storms, would disproportionately affect our business operations.  A change in Florida laws applicable to the pet boarding industry or a change in zoning laws would have a greater impact on us than a change in comparable laws in another geographical area, due to our Florida concentration. Adverse developments in Florida could harm our revenue or increase our operating expenses.



Risk Factors Relating to Our Common Stock



If we fail to remain current on our reporting requirements, we could be removed from the OTC Bulletin Board which would limit the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.



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Companies trading on the OTC Bulletin Board, such as us, must be reporting issuers under Section 12 of the Securities Exchange Act of 1934, as amended, and must be current in their reports under Section 13, in order to maintain price quotation privileges on the OTC Bulletin Board.  More specifically, NASD has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission.  Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board.  As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of
broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.



Future sales of our common stock may result in a decrease in the market price of our common stock, even if our business is doing well.



The market price of our common stock could drop due to sales of a large number of shares of our common stock in the market or the perception that such sales could occur. This could make it more difficult to raise funds through future offerings of common stock.



Item 3. Controls and Procedures



We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the specified time periods.  As of the end of the period covered by this report, Mr. Richard Steele, our interim Chief Executive Officer and Suzanne Herring, our Chief Financial Officer evaluated the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15.  Mr. Steele and Ms. Herring, our interim Chief Executive Officer and Chief Financial Officer, concluded that as of December 31, 2006 there were no significant deficiencies or material weaknesses and our disclosure controls and procedures are effective in timely alerting them to material information required to be included in our periodic SEC filings. There were no
changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



It should be noted, however, that no matter how well designed and operated, a control system can provide only reasonable, not absolute, assurance that the objectives of the control system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems (including faulty judgments in decision making or breakdowns resulting from simple errors or mistakes), there can be no assurance that any design will succeed in achieving its stated goals under all potential conditions. Additionally, controls can be circumvented by individual acts, collusion or by management override of the controls in place.







22



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PART II--OTHER INFORMATION



Item 1.
        Legal Proceedings




On or about June 2, 2006, China Auto Worldwide (CAW), a Nevada corporation, filed a claim for breach of contract, interference with contractual relations and/or business expectations, fraud, and a declaratory judgment with the Superior Court of Arizona in Maricopa County, Arizona, against AFV Solutions, Inc., A. Energy, LLC, Jeffrey Groscost, Rick Steele, Jeffrey Stebbins, Nelson Barba, collectively (Defendants), alleging that the Defendants breached a Non-Disclosure contract and a Joint Venture Contract.  Additionally, CAW alleges Defendants interfered with its contractual relations and business expectancies with Nelson Barba and Chinese and Peruvian entities.  CAW is also seeking declaratory judgment of their interest in A. Energy, value of their interest in A. Energy, and the parties interest under the Joint Venture Contract.



The Company believes these claims have no merit and filed a counterclaim on September 20, 2006 against CAW alleging abuse of process, securities fraud and market manipulation, and interference with contractual relations.  As of the date of this filing, we are continuing to aggressively pursue our counterclaim and defend this action.



Item 2. Changes in Securities



Recent Sales of Unregistered Securities



During the six-months ended December 31, 2006, we conducted a private placement of investment units at $65,000 per unit.  Each unit consists of 10,000 shares of common stock.  At the end of the period we had sold approximately 14 units to 12 accredited investors for approximate proceeds of $897,501.  We have not closed this placement but on October 12, 2006 we issued a total of 138,077 pursuant to this offering.  We believe that the sale of the units was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Sections 4(2), and/or Regulation D, Rule 506. The units were sold directly by us to accredited investors and did not involve a public offering or general solicitation. The purchasers of the units were afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make
their investment decision, including our financial statements and 34 Act reports. We reasonably believed that the purchasers, immediately prior to selling the shares, had such knowledge and experience in our financial and business matters that they were capable of evaluating the merits and risks of their investment. The purchasers had the opportunity to speak with our management on several occasions prior to their investment decision.



On December 11, 2006, we authorized the conversion of the outstanding Series A Preferred Stock into 4,723 shares of our common stock.  Pursuant to the Real Estate Acquisition Agreement, dated as of April 7, 2003, which granted the Series A Preferred Stock, it was to be automatically converted upon the first day of the 18th month following the date of issuance.  The shares were subsequently issued on January 23, 2007.  We believe the issuance of the shares was exempt from registration and prospectus delivery requirements of the Securities Act of 1933 by virtue of Section 4(2).  The shares were issued directly by us to the recipient and did not involve a public offering or general solicitation.  The recipient of the shares was afforded an opportunity for effective access to files and records of our company that contained the relevant information needed to make her investment
decision, including our financial statements and 34 Act reports.  We reasonably believed that the recipient, immediately prior to issuance of the shares, had such knowledge and experience in our financial and business matters that she was capable of
evaluating the merits and risks of her investment. The recipient had the
opportunity to speak with our management on several occasions prior to the
issuance of the shares.



23



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Item 3.
        Defaults by the Company upon its Senior Securities




None.




Item 4.
        Submission of Matters to a Vote of Security Holders




None.

Item 5.
        Other Information




On November 1, 2006, STALK, LLC gave notice of its intention to terminate our consulting agreement with it and as of December 1, 2006, our consulting agreement with STALK was terminated.



On November 3, 2006, Mr. Jeffrey Groscost, AFVs Chief Executive Officer, Secretary, Treasurer and Director, died suddenly.  On November 13, 2006, we appointed Mr. Richard Steele to serve in these capacities in the interim time period.



Item 6.
        Exhibits and Reports on 8-K.




Exhibit
        Description2
        Real Estate Acquisition Contract, (Filed as an exhibit to the Current Report on Form 8-K, dated April 9, 2003 and incorporated herein by reference).3(i)a**
        Articles of Incorporation of Juris Travel filed on January 23, 2002.3(i)b***
        Certificate of Amendment changing name from Juris Travel to Bed and Biscuit Inns of America, Inc.3(i)c***
        Certificate of Amendment changing name from Bed and Biscuit Inns of America, Inc. to Dogs International.3(i)d****
        Articles of Incorporation of Bed & Biscuit Inns of America, Inc.3(i)e*****
        Articles of Incorporation of AFV Research, Inc.3(i)f******
        Articles of Incorporation of AFV Systems, Inc.3(ii)a**
        Bylaws of Juris Travel filed on January 23, 2002.3(ii)b***
        Bylaws of Bed and Biscuit Inns of America, Inc.3(ii)c*****
        Bylaws of AFV Reseach, Inc.3(ii)d******
        Bylaws of AFV Systems, Inc.10.1***
        Travel Agency Agreement with Global Travel International10.2
        Commission Schedule (Filed as an exhibit to SB-2/A, dated May 14, 2003 and incorporated herein by reference).10.3
        Intellectual Property Assignment Agreement (Filed as an exhibit to the Current Report on Form 8-K, dated March 28, 2003 and incorporated herein by reference).10.4
        Commercial Office Lease, dated July 1, 2003 (Filed as an exhibit to the Current Report on Form 8-K, dated July 24, 2003 and incorporated herein by reference).10.5
        Purchase Agreement between AFV Solutions, Inc. and STALK, LLC, dated June 30, 2006 (Filed as an exhibit to the Current Report on Form 8-K, dated July 27, 2006 and incorporated herein by reference)10.6
        Consulting Agreement between AFV Solutions, Inc. and STALK, LLC, dated June 30, 2006 (Filed as an exhibit to the Current Report on Form 8-K, dated July 27, 2006 and incorporated herein by reference)16.1
        Letter on change in certifying accountant, dated March 10, 2005 (Filed as an exhibit to the Current Report on Form 8-K, dated March 15, 2006 and incorporated herein by reference).






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16.2
        Letter on change in certifying accountant, dated July 17, 2006 (Filed as an exhibit to the Current Report on Form 8-K, dated July 27, 2006 and incorporated herein by reference)16.3
        Letter on change in certifying accountant, dated January 29, 2007 (Filed as an exhibit to the Amended Current Report on Form 8-K/A, dated January 30, 2007 and incorporated herein by reference)31.1*
        Certification of Richard Steele Pursuant to Section 302 of Sarbanes-Oxley Act of 200231.2*
        Certification of Suzanne Herring Pursuant to Section 302 of Sarbanes-Oxley of 200232.2*
        Certification of Richard Steele Pursuant to Section 906 of Sarbanes-Oxley Act of 200232.2*
        Certification of Suzanne Herring Pursuant to Section 906 of Sarbanes-Oxley Act of 200299.1*
        AFV Press Release announcing Opening of Hybrid Bus Factory in China, dated November 20, 2006.99.2*
        AFV Press Release announcing Joint Venture with FAW-Hongta for Vehicle Production and Manufacturing, dated November 28, 2006.


________________________

*
        Filed herewith


**
        Incorporated by reference in Form SB-2 filed March 19, 2002


***
        Incorporated by reference in Form 10-KSB filed on April 2, 2003.


****
        Incorporated by reference in Form 10-QSB/A filed on May 15, 2003


*****
        Incorporated by reference in Form 10-QSB, dated December 23, 2004.


******
        Incorporated by reference in Form 10-QSB, dated November 20, 2006.




Reports on Form 8-K



Form 8-K filed on November 9, 2006; Items 5.02, 8.01, 9.01



SIGNATURES



Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.



AFV SOLUTIONS, INC.

(Registrant)





By:/s/
			Suzanne Herring


Suzanne Herring, Chief Financial Officer


(On behalf of the Registrant and as
			principal accounting officer)






Date: February 20, 2007



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