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 endedMarch 31, 2007



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)



Copies of Communications to:

Stoecklein Law Group

4695 MacArthur Court, 11th Floor

Newport Beach, CA 92660

(949) 798-5541

Fax (949) 258-5112



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



The number of shares of Common Stock, $0.001 par value, outstanding on June 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.

Condensed Consolidated Balance Sheet



March 31,2007AssetsCurrent assets:Cash
        $
        1,007,208Prepaid expenses
        
        93,513Other current assets
        
        237Total current assets
        
        1,100,958Fixed assets net of accumulated depreciation of $289,349
        
        1,037,634Other assets:Deposits
        
        513,477Intangible assets
        
        2,502Total other assets
        
        515,979Total assets
        $
        2,654,571Liabilities and Stockholders EquityCurrent liabilities:Accounts payable
        $
        92,910Accrued expenses
        
        1,681Accrued expenses  related party
        
        18,000Accrued interest  related party
        
        44,500Current portion of long-term debt
        
        17,735Line of credit
        
        97,742Total current liabilities
        
        272,568Long-term liabilitiesNotes and mortgage payable, net of current portion
        
        123,981Mortgage payable  related party
        
        150,000Total long-term liabilities
        
        273,981Stockholders equityPreferred stock, $0.001 par value, 20,000,000 shares authorized,none outstanding at March 31, 2007
        
        -Common stock,, $0.001 par value, 100,000,000 shares authorized,22,915,300 outstanding at March 31, 2007
        
        22,915Stock subscription receivable
        
        (10,000)Additional paid in capital
        
        9,828,942Accumulated (deficit)
        
        (7,733,835)Total stockholders equity
        
        2,108,022Total liabilities and equity
        $
        2,654,571




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



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AFV Solutions, Inc.

Condensed Consolidated Statements of Operations



Three months ended
        Nine months endedMarch 31,
        March 31,2007
        2006
        2007
        2006Revenue
        $
        29,617
        $
        29,731
        $
        90,913
        $
        147,906Cost of sales
        
        2,696
        
        1,941
        
        6,598
        
        11,324Gross profit
        
        26,921
        
        27,790
        
        84,315
        
        136,582Expenses:General and administrative
        
        50,089
        
        12,967
        
        336,226
        
        471,168General and administrative  related party
        
        -
        
        1,500
        
        3,000
        
        4,500Depreciation
        
        49,850
        
        10,918
        
        128,725
        
        32,386Consulting services
        
        65,934
        
        448,000
        
        549,534
        
        1,140,876Financing expense
        
        -
        
        -
        
        100,000
        
        1,275,041Investor relation
        
        -
        
        -
        
        16,537
        
        -Professional fees
        
        42,146
        
        36,500
        
        337,472
        
        36,500Research and development
        
        -
        
        290,250
        
        5,000
        
        669,651Rent expense
        
        56,051
        
        -
        
        187,972
        
        -Promotional and marketing
        
        15,451
        
        -
        
        111,082
        
        -Salaries and wages
        
        125,520
        
        -
        
        455,834
        
        -Travel expense
        
        47,356
        
        -
        
        456,993
        
        -Asset impairment
        
        -
        
        -
        
        18,269
        
        -Total operating expenses
        
        452,397
        
        800,135
        
        2,706,644
        
        3,630,122Net operating (loss)
        
        (425,476)
        
        (772,345)
        
        (2,622,329)
        
        (3,493,540)Other income (expense):Interest income
        
        415
        
        -
        
        3,133
        
        2,210Interest (expense)
        
        (2,666)
        
        (3,109)
        
        (14,807)
        
        (7,064)Interest (expense)  related party
        
        (2,250)
        
        (3,000)
        
        (6,750)
        
        (9,000)Total other
        
        (4,501)
        
        (6,109)
        
        (18,424)
        
        (13,854)Net (loss)
        $
        (429,977)
        $
        (778,454)
        $
        (2,640,753)
        $
        (3,507,394)Weighted average number ofcommon shares outstanding -basic and fully diluted
        
        22,914,985
        
        21,271,111
        
        22,891,413
        
        20,901,460Net (loss) per share -Basic and fully diluted
        $
        (0.02)
        $
        (0.04)
        $
        (0.12)
        $
        (0.17)




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



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AFV Solutions, Inc.

Condensed Consolidated Statements of Cash Flows



For the nine months endedMarch 31,2007
        2006Cash flows from operating activities:Net (loss)
        $
        (2,640,753)
        $
        (3,507,394)Depreciation
        
        128,725
        
        32,386Impairment of intangible asset
        
        18,269
        
        -Shares issued for services
        
        -
        
        425,600Warrants issued for financing
        
        -
        
        813,321Adjustments to reconcile net (loss) to net cash(used) by operating activitiesPrepaid expenses
        
        171
        
        (625)Accounts payable and accrued liabilities
        
        21,144
        
        1,238Interest payable  related party
        
        6,750
        
        9,000Accrued liabilities  related party
        
        3,000
        
        4,500Deposits and other assets
        
        (10,053)
        
        -Net cash (used) by operating activities
        
        (2,472,747)
        
        (2,221,974)Cash flows from investing activities:Purchase of fixed assets
        
        (264,598)
        
        (7,355)Net cash (used) by investing activities
        
        (264,598)
        
        (7,355)Cash flows used from financing activities:Proceeds from notes payable  related party
        
        -
        
        37,500Proceeds from notes payable
        
        67,342
        
        -Payments on notes payable
        
        (13,131)
        
        (12,088)Payments on mortgage payable  related party
        
        (50,000)
        
        -Cash from sales of common stock
        
        897,501
        
        2,083,718Donated capital
        
        -
        
        125,000Net cash provided by financing activities
        
        901,712
        
        2,234,130Net increase (decrease) in cash
        
        (1,835,633)
        
        4,801Cash beginning
        
        2,842,841
        
        3,725Cash ending
        $
        1,007,208
        $
        8,526Supplemental disclosures:Interest paid
        $
        14,807
        $
        7,064Income taxes paid
        $
        -
        $
        -




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



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AFV Solutions, Inc.

Notes to Interim Unaudited Condensed Consolidated Financial Statements



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.



The accompanying un-audited 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-QSBand 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 un-audited 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 increase revenues and profitability and in its ability to raise additional funds, and believes that



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AFV Solutions, Inc.

Notes to Interim Unaudited Condensed Consolidated Financial Statements



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 nine-months ended March 31, 2007, the Company issued 1,352,500 shares of its par value common stock pursuant to subscription agreements issued in the previous year.



During the nine-months ended March 31, 2007, 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 March 31, 2007, the Company recorded $76,500 in donated capital.



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.



Note 4  Related party transactions



During the nine-months ended March 31, 2007 an Officer of the Company donated capital in the amount of $76,500.



The Company previously leased nine hundred square feet of office space from an officer and director of the Company at a fair market value of $500 per month. As of March 31, 2007, the Company the Company has cancelled the lease and has accrued rent expense to a related party in the amount of $3,000.



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AFV Solutions, Inc.

Notes to Interim Unaudited Condensed Consolidated Financial Statements



During the nine-months ended March 31, 2007, the Company accrued interest on its mortgage due to an officer of the Company in the amount of $6,750.



Note 5  Notes payable



Notes payable consisted of the following at March 31, 2007:



March 31, 2007Note payable to a related party bearing interest at a rate of 6% per annum, accrued interest and principal maturing in 2008
        $
        150,000Mortgage payable bearing interest at a rate of 9.5% per annum, monthly principal and interest payments of $668, maturing May 1, 2033
        
        77,480$100,000 line of credit bearing interest at the prime lending rate plus 1%, currently 9.54%, monthly principal and interest payments, maturing March 1, 2010.
        
        97,742Auto loan payable bearing interest at a rate of 7.5%, monthly principal and interest payments of $1,127, maturing September 28, 2011
        
        52,030Auto loan payable bearing interest at a rate of 6% with monthly principal and interest payments of $625, maturing October 15, 2008.
        
        12,206Total
        $
        389,458




Interest expense for the nine-months ended March 31, 2007 and 2006 totaled $18,424 and $13,854, respectively.



Note 6  Non-Reliance on Previously Issued Financial Statements



Pursuant to internal management review, our management and outside independent accountant, Weaver & Martin, LLC have concluded that our accounting for certain assets and expenses for the year ended June 30, 2006 was incorrect.



These matters affect our Annual Report on Form 10-KSB for the year ended June 30, 2006 and our Quarterly Reports on Form 10-QSB for the quarters ended September 30, 2006 and December 31, 2006.



Following completion of this current filing of our Form 10-QSB for the period ended March 31, 2007, we will file the following amended filings: Form 10-KSB for the year ended June 30, 2006 with amended financial statements for the interim year ended June 30, 2006; and Form 10-QSB for the quarters ended September 30, 2006 and December 31, 2006 with amended financial reports for the comparable prior year period.



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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 or 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
        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 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.



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Item 2.  Managements Discussion and Analysis



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 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 decided to 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.



CURRENT OPERATIONS



Alternative fuels, as defined by the Energy Policy Act of 1992 (EPAct), include ethanol, natural gas, propane, hydrogen, bio-diesel, 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.



In addition to the conversion kits and reinforced by the fact that we are reevaluating this line of business at all, we intend to focus our attention to brokering and assisting in the distribution of hybrid electric, CNG and LPG buses such as those produced by Wu Zhou Longs Motors of China (WZL) and Guangzhou Baolong Group Automotive Manufacturing Corporation (Baolong).  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.
In November 2006, we entered into an exclusive five year sales agreement with 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.



8



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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.



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 design 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.



Satisfaction of our cash obligations for the next 12 months.



We are aggressively pursuing opportunities to broker buses and other alternative fuel vehicles 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 continue to establish ourselves in the alternative fuel industry.  The cash would be utilized for operational expenses of retrofitting ourselves as a broker and distributor of alternative fuel vehicles.



We intend for our funding requirements to be fulfilled through either equity or debt financing.  We anticipate that available cash at March 31, 2007 in the amount of $1,007,208 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 nine-months ended March 31, 2007 and 2006 we spent $5,000 and $669,651 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 industry.  At this point in time we are unable to accurately determine an estimate for the amount of funds needed for any additional purchases.



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During the year ended June 30, 2006, we took delivery of a patented electric bus built by GYD of China.  The was bus shipped to the United States for testing and we anticipate beginning the process of gaining federal authorization to import busses into the United States market in the upcoming quarters.  In addition 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 4 full time and 1 part time employee, 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 for our operations.  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 March 31, 2007 and 2006 Compared.



The following tables summarize selected items from the statement of operations for the three months ended March 31, 2007 compared to the three months ended March 31, 2006.



INCOME:



Three months ended March 31, 2007
        Three months ended March 31, 2006
        Increase / (Decrease)$
        %Revenues
        $       29,617
        $       29,731
        $         114
        --Cost of Sales
        2,696
        1,941
        755
        39%Gross Profit
        26,921
        27,790
        (869)
        --Gross Profit Percentage of Revenue
        91%
        93%
        --
        (2%)




Revenues



Revenues for the three months ended March 31, 2007 were $29,617 compared to revenues of $29,731 for the comparable three months ended March 31, 2006.  This resulted in an increase in revenues of $114, 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 limited increase 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.





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Cost of sales



Cost of sales for the three months ended March 31, 2007 was $2,696, an increase of $755 from $1,941 for the same period ended March 31, 2006.  The slight increase was due to overall increase in our cost of pet supplies.  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 March 31, 2007 was $26,921, a decrease of $869 or 2% as compared to $27,790 for the comparable period of three months ended March 31, 2006.  Overall gross profit as a percentage of revenue decreased from 93% for the three months ended March 31, 2006 to 91% for the comparable three months ended March 31, 2007.  Even though we had an increase in revenues from our Bed & Biscuit Inn when compared to the same time last year, we had a slight increase in our cost of sales which caused an overall 2% decrease in our gross profit as a percentage of revenue.



EXPENSES:

Three months ended
March 31, 2007
        Three months ended
March 31, 2006
        Increase / (Decrease)$
        %General and administrative expenses (total)
        $          50,089
        $          14,467
        $35,622
        246%Depreciation
        49,850
        10,918
        38,932
        356%Research and development
        -0-
        290,250
        (290,250)
        -Consulting services
        65,934
        448,000
        (382,066)
        (85%)Professional fees
        42,146
        36,500
        5,646
        15%Rent expense
        56,051
        -
        56,051
        -Promotional and marketing
        15,451
        -
        15,451
        -Salaries and wages
        125,520
        -
        125,520
        -Travel expenses
        47,356
        -
        47,356
        -Total operating expenses
        452,397
        800,135
        (347,738)
        (43%)


Net operating loss
        $     (425,476)
        $     (772,345)
        $     (346,869)
        (45%)






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General and administrative expenses



General and administrative expenses, which included those of a related party, were $50,089 for the three months ended March 31, 2007 versus $14,467 for the comparable period of three months ended March 31, 2006, which resulted in an increase of $35,622. The increase in general and administrative expenses was primarily due to the additional overhead incurred with the addition of our alternate fuel business.  During the same period last year, we were incurring substantially less general and administrative expenses as we were had not fully begun 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, we believe we have stabilized our general and
administrative expenses as we become more familiar with the alternative fuel industry.



Depreciation expense



Depreciation expense was $49,850 for the three months ended March 31, 2007 compared to $10,918 for the three months ended March 31, 2006. The increase is the result of our recent acquisitions of fixed assets purchased in connection with the opening of our Irvine office.



Research and development



We did not incur any research and development costs for the three months ended March 31, 2007 as compared to $290,250 for the comparable three months ended March 31, 2006.  During the same period last year, we invested a substantial amount of resources in the bi-fuel conversion systems as we were in the beginning stages of testing.  However, at this point in time, we have suspended operations in commercializing the conversion kits.



Salaries and wages / Consulting services



Salaries and wages were $125,520 for the three months ended March 31, 2007 as compared to no salaries and wages expenses for the three months ended March 31, 2006.  As we broadened our operations and established facilities in California and Arizona in the alternative fuel industry, we hired employees associated with the operations of this line of business.  During the three months ended March 31, 2007, we incurred $65,934 in consulting expenses compared to $448,000 in consulting expenses for the three months ended March 31, 2006.  During the same period of 2006, 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 bi-fuel conversion systems.  As a result of the suspension of the bi-fuel conversion systems during the three months ended March 31, 2007, we have reduced our consulting
expenses associated with this line of business.



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Professional fees



Professional fees were $42,146 compared to $36,500 for the three months ended March 31, 2007 and 2006, respectively. The increase is primarily due to our increased legal fees associated with our business development activities in China.



Travel expenses



Travel expenses were $47,356 for the three months ended March 31, 2007 versus $-0- for the comparable period of three months ended March 31, 2006.  As a result of our WZL and Baolong agreements, we have greatly increased our travel to and from China.  During the three months ended March 31, 2006, 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 March 31, 2007.  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 $452,397 for the three months ended March 31, 2007 versus $800,135 for the three months ended March 31, 2006, which resulted in a decrease of $347,738 or 43%.  This decrease is primarily due to our reduction in consulting fees.  As compared to the same time period in 2006, we had substantial consulting fees associated with our business change to the alternative fuel industry.  However, during the three months ended March 31, 2007, we were able to reduce our outside consulting service fees as well as eliminate our research and development expenses and financing expenses.  All of these items contributed to lowering our total operating expenses.



Net operating loss



The net operating loss for the three months ended March 31, 2007 was $425,476, versus $772,345 for the comparable period last year, a decrease of $346,869 or 45%.  As mentioned above, although we are continuing our pursuit in the alternative fuel industry, we have been able to substantially reduce some of our operating expenses and thereby decrease our net operating loss.



Results of Operations for the Nine Months Ended March 31, 2007 and 2006 Compared.



The following tables summarize selected items from the statement of operations for the nine months ended March 31, 2007 compared to the nine months ended March 31, 2006.







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INCOME:

Nine months ended March 31, 2007
        Nine months ended March 31, 2006
        Increase / (Decrease)$
        %Revenues
        $                90,913
        $         147,906
        $    (56,993)
        (39%)Cost of Sales
        6,598
        11,324
        (4,726)
        (42%)Gross Profit
        84,315
        136,582
        (52,267)
        (38%)Gross Profit Percentage of Revenue
        93%
        92%
        --
        1%




Revenues



Revenues for the nine months ended March 31, 2007 were $90,913 compared to revenues of $147,906 for the comparable nine months ended March 31, 2006.  This resulted in a decrease in revenues of $56,993 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 our only revenues.  However, we have continued to experience a decrease in revenues over the last nine 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 nine months ended March 31, 2007 was $6,598, a decrease of $4,726 from $11,324 for the same period ended March 31, 2006.  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 nine months ended March 31, 2007, 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 nine months ended March 31, 2007 was $84,315, a decrease of $52,267 or 38% as compared to $136,582 for the comparable period of nine months ended March 31, 2006.  Overall gross profit as a percentage of revenue increased from 92% for the nine months ended March 31, 2006 to 93% for the comparable nine months ended March 31, 2007.  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.



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EXPENSES:

Nine months ended March 31, 2007
        Nine months ended March 31, 2006
        Increase / (Decrease)$
        %General and administrative expenses (total)
        $     339,226
        $       475,668
        $     (136,442)
        (29%)Depreciation
        128,725
        32,386
        96,339
        297%Consulting services
        549,534
        1,140,876
        (591,342)
        (52%)Financing expense
        100,000
        1,275,041
        (1,175,041)
        (92%)Investor relation
        16,537
        -0-
        167,537
        100%Professional fees
        337,472
        36,500
        300,972
        825%Research and development
        5,000
        669,651
        (664,651)
        (99%)Rent expense
        187,972
        -0-
        187,972
        -Promotional expense
        111,082
        -0-
        111,082
        -Salaries and wages
        455,834
        -0-
        455,834
        -Travel expenses
        456,993
        -0-
        456,993
        -Asset impairment
        18,269
        -0-
        18,269
        -Total operating expenses
        2,706,644
        3,630,122
        (923,478)
        (25%)Net operating loss
        $(2,622,329)
        $  (3,493,540)
        $     (871,211)
        (25%)




General and administrative expenses



General and administrative expenses were $339,226 for the nine months ended March 31, 2007 versus $475,668 for the comparable period of nine months ended March 31, 2006, which resulted in a decrease of $136,442, or 29%.  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



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higher than expected costs as we relocated our corporate headquarters to Irvine, California and established our facility in Arizona, which has been subsequently closed.



Depreciation



Depreciation expense totaled $128,725 for the nine months ended March 31, 2007 compared to $32,386 for the previous period. The increase in depreciation expense is attributable to the acquisition of substantial assets required for the Irvine office and our alternative fuel development. We do not anticipate any extraordinary acquisition of assets in the upcoming months and therefore we also expect our depreciation expense to normalize over future periods based on our existing fixed asset base.



Consulting services



During the nine months ended March 31, 2007, we also incurred consulting expenses of $549,534 as compared to $1,140,876 for the nine months ended March 31, 2006, a decrease of 52%.  Again, these consulting expenses were directly related to our operations in the alternative fuel business with a significant portion pertaining to the conversion systems.



Financing



Financing costs for the nine months ended March 31, 2007 were $100,000 compared to $1,275,041 for the same period in the previous year. During the previous year, we were actively pursuing financing for the development of our alternate fuel business. The fees experienced were a direct result of these activities and have not re-occurred in the current year.



Professional fees



Professional fees were $337,472 for the period ended March 31, 2007 compared to $36,500 for the period ended March 31, 2006. The increase in professional fees is directly attributable to our business development.



Research and development



Research and development costs were $5,000 for the nine months ended March 31, 2007 as compared to $669,651 for the comparable nine months ended March 31, 2006.  This resulted in a decrease of $664,651 or 99%.  During the previous nine months ended March 31, 2006, 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 bi-fuel conversion systems.  As a result of achieving EPA certifications for the conversion systems, we have substantially reduced our research and development costs during the nine months ended March 31, 2007.  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



Salaries and wages were $455,834 for the nine months ended March 31, 2007 as compared to no salary and wage expenses for the nine months ended March 31, 2006.  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.





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Travel expenses



Travel expenses were $456,993 for the nine months ended March 31, 2007 versus no travel expenses for the comparable period of nine months ended March 31, 2006.  Previously, we had not experienced travel expenses because we had not begun our pursuit in alternative fuel industry.  However, during the last twelve months and specifically during the nine months ended March 31, 2007, 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 $2,706,644 for the nine months ended March 31, 2007 versus $3,630,122 for the nine months ended March 31, 2006, which resulted in a decrease of $923,478 or 25%.  During the last nine 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 nine months ended March 31, 2007, we have also experienced new expenses such as promotional and marketing expenses as well as investor relations, which only reduced our operating expenses by 25% when compared to the same period of March 31, 2006.



Net operating loss



The net loss for the nine months ended March 31, 2007 was $2,622,329, versus a net loss of $3,493,540 for the comparable period of nine months ended March 31, 2006, a decrease in net loss of $871,211. 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 March 31, 2007 compared to the transitional year ended June 30, 2006.



March 31, 2007
        June 30, 2006
        Increase / (Decrease)$
        %Current Assets
        $1,100,958
        $   2,939,791
        $(1,838,833)
        (63%)


Current Liabilities
        $   272,568
        $      219,934
        $        52,634
        24%Working Capital
        $   828,390
        $   2,719,857
        $ (1,891,467)
        (70%)




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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 March 31, 2007 and revenues anticipated to be derived from our pet facility are anticipated to only be sufficient to sustain our operations for approximately 3 to 4 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 nine-months ended March 31, 2007 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.



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



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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 March 31, 2007 of $7,733,835. 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 nine-months ended March 31, 2007, 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.



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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.



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.



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



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to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board.  This quarterly filing is considered late as we were unable to meet the filing grace period as defined under Rule 12b-25.  Therefore, we must not have two more late filings within the next two years or we will be in jeopardy of being dequoted from the OTC Bulletin Bard.  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 as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commissions rules and forms, including to ensure that information required
to be disclosed by us in the reports filed or submitted by under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal accounting officer, or persons performing similar functions, as appropriate to allow timely decisions regarding disclosure.  Based upon their evaluation, Mr. Steele and Ms. Herring concluded that as of March 31, 2007, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.



A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management had identified the following material weakness, which caused management to conclude that, as of March 31, 2007, our disclosure controls and procedures were not effective at the reasonable assurance level:



1.
        We were unable to meet our requirement to timely file our quarterly report on Form 10-QSB for the period ended March 31, 2007.  Management evaluated the impact of our inability to timely file periodic reports with the Securities and Exchange Commission on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted in the inability to timely make these filings represented a material weakness.




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2.
        We had particular difficulty in assessing whether certain of our assets needed to be capitalized rather than expensed due to impairment as of June 30, 2006.




To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.



Remediation of Material Weaknesses



To remediate the material weaknesses in our disclosure controls and procedures identified above, in addition to working with our independent auditors, we engaged Accuity Financial Services, Inc., a consulting firm of which Ms. Herring, our chief financial officer, is President that provides expertise in accounting matters and performs accounting services on an outsourced basis, to supplement our internal accounting and bookkeeping capabilities.  Additionally, Accuity Financial has agreed to assist us in the implementation of internal control enhancement policies and procedures.



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.



Changes in Internal Control over Financial Reporting



Except as noted above, there were no changes in our internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, during our most recently completed fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



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



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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.  Both parties have submitted initial disclosure statements and Defendants, Mr. Stebbins and Mr. Steele; have filed motions of summary judgment in their individual capacities.  As of the date of this filing, we are continuing to aggressively pursue our counterclaim and defend this action.



On or about April 5, 2007 the Company was served with a Countersuit, wherein the Company was named as Third Party Defendants in a dispute which was initiated between two of its stockholders. Primary parties are Coperture, Ltd. as Plaintiff and Lawrence Ryckman as Defendant, with AFV Solutions, Inc. as a co-defendant amongst over 25 other co-defendants. The suit was initiated in the Superior Court of the State of Arizona, Case No. CV2007-000676. Although the Countersuit contains 17 causes of action, the Company believes, based upon the Counterclaim filed that the Counterdefendants are alleging an interest in AFV Solutions, Inc., a Nevada corporation as a result of their alleged introduction of the Company to the alternative fuel industry. Counterdefendants are requesting relief in the form of a judgment for an unspecified sum to be proven at trial, in addition to a preliminary
injunction and punitive damages. There are currently ongoing discussions relating to a resolution of disputed issues between the primary parties involved in the litigation.



Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds



Recent Sales of Unregistered Securities



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 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.



Item 3.
        Defaults Upon Senior Securities




None.



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




None.



Item 5.
        Other Information




Item 4.02 Non-Reliance on Previously Issued Financial Statements or a Related Audit Report or Completed Interim Review.



On June 11, 2007, our management, in consultation with our new independent registered public accounting firm, Weaver & Martin, LLC, concluded that the previously issued financial statements contained in our Annual Report on Form 10-KSB for the year ended June 30, 2006 and our Quarterly Reports on Forms 10-QSB for the quarters ended September 30, 2006 and December 31, 2006 should not be relied upon for the reasons set forth below and that we will restate these financial statements to make the necessary accounting corrections.



In the process of reviewing our financial statements in comparison to accounting pronouncements and the disclosures of other entities, our chief financial officer identified that certain reclassifications were necessary to properly meet the disclosure requirements under generally accepted accounting principles. Primarily, certain assets were expensed rather than capitalized.



We have reviewed and discussed these issues as well as the required accounting treatment and disclosure with Weaver & Martin. We have determined that the impact of the errors reported in our previously reported financial statements would be material if the errors were not corrected. As a result, we intend to amend our Annual Report on Form 10-KSB for the year ended June 30, 2006 and our Quarterly Reports on Forms 10-QSB for the periods ended September 30, 2006 and December 31, 2006 to restate our financial statements to correct the errors in the period in which they originated.



Item 5.02 Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.



(b) On May 29, 2007, Mr. Richard Steele resigned his position as our president concurrent with the appointment of Mr. Carlos Zalduondo as our new president and chief operating officer, described below. Mr. Steele will remain as our chief executive officer and a member of our board of directors. Mr. Steeles resignation was not a result of any disagreement with us or our management.



(c) On May 29, 2007, our Board of Directors appointed Mr. Carlos Zalduondo as the new President and Chief Operating Officer of the Registrant.



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Carlos Zalduondohas served as a board member of the Registrant since June 2006.  For the last six years, Mr. Zalduondo has been retired and performed selective management consulting work.  Prior to his retirement, Mr. Zalduondo was the General Manager and President of Allergan-Lok Produtos Farmaceuticos Ltda. in San Paulo, Brazil for 9 years.  During his time there he successfully managed a turn around of this Brazilian company to become cash positive and profitable business while also expanding throughout Latin America.  Mr. Zalduondo also worked as the General Manager of Allergan Puerto Rico, Inc. from 1982-1991 where he directed all facets of Allergans Eye Care line in Puerto Rico, Central and South America markets, encompassing sales, marketing, finance and operations. Mr. Zalduondo first began his career in marketing with Eli Lilly, S.A.



Mr. Zalduondo graduated from the University of Puerto Rico with a Finance degree and has received management training from the University of California Los Angeles.  Mr. Zalduondo is also fluent in English, Spanish, and Portuguese.



Item 6.  Exhibits



Incorporated by referenceExhibit
        Exhibit Description
        Filed herewith
        Form
        Period ending
        Exhibit
        Filing date2.1
        Real Estate Acquisition Contract
        
        8-K
        
        2
        04/09/033(i)a
        Articles of Incorporation of Juris Travel
        
        SB-2
        
        3(i)
        03/19/033(i)b
        Certificate of Amendment changing name from Juris Travel to Bed and Biscuit Inns of America, Inc.
        
        10-KSB
        
        3(i)b
        04/02/033(i)c
        Certificate of Amendment changing name from Bed and Biscuit Inns of America, Inc. to Dogs International.
        
        10-KSB
        
        3(i)c
        04/02/033(i)d
        Articles of Incorporation of Bed & Biscuit Inns of America, Inc.
        
        10-QSB/A
        
        3a
        05/15/033(i)e
        Articles of Incorporation of AFV Research, Inc.
        
        10-QSB
        
        3(i)
        12/23/043(i)f
        Articles of Incorporation of AFV Systems, Inc.
        
        10-QSB
        
        3(i)f
        11/20/063(ii)a
        Bylaws of Juris Travel
        
        SB-2
        
        3(ii)
        03/19/023(ii)b
        Bylaws of Bed and Biscuit Inns of America, Inc.
        
        10-KSB
        
        3b
        05/15/033(ii)c
        Bylaws of AFV Research, Inc.
        
        10-QSB
        
        3(ii)
        12/23/043(ii)d
        Bylaws of AFV Systems, Inc.
        
        10-QSB
        
        3(ii)d
        11/20/0610.1
        Travel Agency Agreement with Global Travel International
        
        SB-2
        
        10
        03/19/0210.2
        Commission Schedule
        
        SB-2/A
        
        10.2
        05/15/0210.3
        Intellectual Property Assignment Agreement
        
        8-K
        
        10
        03/28/0310.4
        Commercial Office Lease, dated July 1, 2003
        
        8-K
        
        10
        07/24/03






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|        |                     |                | Incorporated by reference
|------- | ------------------- | -------------- | -------------------------
|Exhibit | Exhibit Description | Filed herewith | Form                     

10.5
        Purchase Agreement between AFV Solutions, Inc. and STALK, LLC, dated June 30, 2006
        
        8-K
        
        10.5
        07/26/0610.6
        Consulting Agreement between AFV Solutions, Inc. and STALK, LLC, dated June 30, 2006
        
        8-K
        
        10.6
        07/26/0631.1
        Certification of Richard Steele Pursuant to Section 302 of Sarbanes-Oxley Act of 2002
        X31.2
        Certification of Suzanne Herring Pursuant to Section 302 of Sarbanes-Oxley of 2002
        X32.1
        Certification of Richard Steele Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
        X32.2
        Certification of Suzanne Herring Pursuant to Section 906 of Sarbanes-Oxley Act of 2002
        X






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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: June 15, 2007



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