UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

**FORM 10-QSB**

 

x           QUARTERLY REPORT UNDER SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2005

 

[   ]         TRANSITION REPORT PURSUANT TO SECTION 13 OR

15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Commission file number 333-84565

 

**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) | (I.R.S. Employer Identification No.) |

 

**408 S. Daytona**

**Flagler Beach, Florida 32136**

(Address of principal executive offices)

 

**(386) 439-4006**

(Issuer’s telephone number)

 

Copies of Communications to: 

 

Stoecklein Law Group 

402 West Broadway, Suite 400

San Diego, CA 92101

(619) 595-4882

Fax (619) 595-4883 

 

Check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 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.

 

Yes        X           No ____

 

The number of shares of Common Stock, $0.001 par value, outstanding on June 30, 2005, was 20,100,000 shares.

 

Transitional Small Business Disclosure Format (check one):

 

Yes               No       X      

----

 

**PART I -- FINANCIAL INFORMATION**

 

**Item 1. Financial Statements.**

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc.)**

**Balance Sheet**

(unaudited)

 

|                                        |                                                |                                                 |      |         | **June 30,** | **December 31,** |
|---------------------------------------------|-----------------------------------------------------|------------------------------------------------------|-----------|--------------|--------------|------------------|
|                                        |                                                |                                                 |      |         | **2005**     | **2004**         |
| **Assets**                                  |                                                |                                                 |      |         |         |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| Current assets:                             |                                                |                                                 |      |         |
|                                        | Cash                                                |                                                 | $         | 3,725        | $            | 19,799           |
|                                        | Prepaid Expenses                                    |                                                 | -         |         | 147          |
|                                        |                                                | Total current assets                                 |      | 3,725        |         | 19,946           |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| Fixed assets, net                           |                                                | 500,752                                              |      | 520,852      |
|                                        |                                                | Total fixed assets                                   |      | 500,752      |         | 520,852          |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| Other assets:                               |                                                |                                                 |      |         |
|                                        | Goodwill                                            |                                                 | 18,269    |         | 18,269       |
|                                        |                                                | Total other assets                                   |      | 18,269       |         | 18,269           |
|                                        |                                                |                                                 |      | Total assets | $            | 522,747          | $ | 559,067 |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| **Liabilities and Stockholders' (Deficit)** |                                                |                                                 |      |         |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| Current liabilities:                        |                                                |                                                 |      |         |
|                                        | Accrued expenses - related party                    | $                                                    | 9,000     | $            | 6,000        |
|                                        | Notes payable                                       |                                                 | 6,000     |         | 6,000        |
|                                        | Notes payable - related party                       |                                                 | 30,000    |         | -            |
|                                        |                                                | Total current liabilities                            |      | 45,000       |         | 12,000           |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| Long term liabilities:                      |                                                |                                                 |      |         |
|                                        | Installment loans                                   |                                                 | 29,839    |         | 36,215       |
|                                        | Mortgage payable                                    |                                                 | 176,412   |         | 174,757      |
|                                        | Mortgage payable - related party                    |                                                 | 200,000   |         | 200,000      |
|                                        | Interest payable - related party                    |                                                 | 25,750    |         | 19,750       |
|                                        |                                                | Total long term liabilities                          |      | 432,000      |         | 430,722          |
|                                        |                                                |                                                 |      |         |         |             |   |   |
| Stockholders' equity:                       |                                                |                                                 |      |         |
|                                        | Preferred stock, $0.001 par value 20,000,000 shares |                                                 |      |         |         |
|                                        |                                                | authorized, 28,334 shares issued and outstanding     |      | 28           |         | 28               |
|                                        | Common stock, $0.001 par value, 100,000,000 shares  |                                                 |      |         |         |
|                                        |                                                | authorized, 20,100,000 shares issued and outstanding |      | 20,100       |         | 20,100           |
|                                        | Stock subscription payable                          |                                                 | 130,966   |         | 130,966      |
|                                        | Additional paid-in capital                          |                                                 | 363,522   |         | 312,522      |
|                                        | Accumulated (deficit)                               |                                                 | (468,870) |         | (347,271)    |
|                                        |                                                |                                                 |      |         |         | 45,746           |   | 116,345 |
|                                        |                                                |                                                 |      |         | $            | 522,747          | $ | 559,067 |

 

**The accompanying notes are an integral part of these financial statements**

 

1

----

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc.)**

**Statements of Operations**

(unaudited)

 

|                                                                           | **Three months ended** | **Six months ended** |
|--------------------------------------------------------------------------------|------------------------|----------------------|
|                                                                           | **June 30,**           | **June 30,**         |
|                                                                           | **2005**               | **2004**             | **2005** | **2004** |
|                                                                           |                   |                 |   |   |   |   |
|                                                                           |                   |                 |   |   |   |   |   |   |
|                                                                           |                   |                 |   |   |   |   |   |   |
|                                                                           |                   |                 |   |   |   |   |   |   |
| Revenue                                                                        | $                      | 36,631               | $ | 24,895 | $ | 68,191 | $ | 59,807 |
| Cost of sales                                                                  |                   | 1,730                |   | 1,062 |   | 4,167 |   | 3,401 |
|                                                                           |                   |                 |   |   |   |   |   |   |
| Gross profit                                                                   |                   | 34,901               |   | 23,832 |   | 64,024 |   | 56,405 |
|                                                                           |                   |                 |   |   |   |   |   |   |
| Expenses:                                                                      |                   |                 |   |   |   |   |   |   |
| General and administrative expenses                                            |                   | 57,397               |   | 38,157 |   | 98,205 |   | 65,949 |
| General and administrative expenses - related party                            |                   | 1,500                |   | 3,000 |   | 3,000 |   | 3,000 |
| Depreciation                                                                   |                   | 10,550               |   | 8,038 |   | 21,100 |   | 16,075 |
| Consulting fees                                                                |                   | -                    |   | 4,950 |   | - |   | 4,950 |
| Consulting fees - related party                                                |                   | -                    |   | 2,400 |   | - |   | 2,400 |
| Research and development                                                       |                   | 40,000               |   | - |   | 55,000 |   | - |
| Interest                                                                       |                   | 1,821                |   | 9,677 |   | 2,318 |   | 9,677 |
| Interest - related party                                                       |                   | 3,000                |   | 3,000 |   | 6,000 |   | 6,000 |
| Total expenses                                                                 |                   | 114,268              |   | 69,222 |   | 185,623 |   | 108,051 |
|                                                                           |                   |                 |   |   |   |   |   |   |
| Net (loss)                                                                     | $                      | (79,367)             | $ | (45,389) | $ | (121,599) | $ | (51,646) |
|                                                                           |                   |                 |   |   |   |   |   |   |
| Weighted average number of common shares outstanding - basic and fully diluted |                   | 20,100,000           |   | 20,100,000 |   | 20,100,000 |   | 20,100,000 |
|                                                                           |                   |                 |   |   |   |   |   |   |
| Net (loss) per share - basic and fully diluted                                 | $                      | (0.00)               | $ | (0.00) | $ | (0.01) | $ | (0.00) |

 

**The accompanying notes are an integral part of these financial statements**

 

2

----

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc,)**

**Statements ofStockholders' Equity**

(unaudited)

 

|                                                                     |  

Common  Stock | Preferred Stock   | Additional Paid-in Capital | Subscriptions Payable | Accumulated (Deficit)   | Total Stockholders’ Equity |
|--------------------------------------------------------------------------|-----------------------|-------------------|----------------------------|-----------------------|-------------------------|---------------------------------|
|                                                                     | Shares                | Amount            | Shares                     | Amount                |
| Balance, January 23, 2002                                                | -                     | $             -   | -                          | $             -       | $                 -     | $                 -             | $                  - | $                  - |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Shares issued for cash                                                   | 15,000,000            | 15,000            | -                          | -                     | (7,500)                 | -                               | - | 7,500 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Shares issued for cash                                                   | 5,000,000             | 5,000             | -                          | -                     | 20,000                  | -                               | - | 25,000 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Net (loss) for the year ended December 31, 2002                          |  

-             |  

-         |  

-                  |  

-             |  

-               |  

-                       | (8,160) | (8,160) |
| Balance, December 31, 2002                                               | 20,000,000            | 20,000            | -                          | -                     | 12,500                  | -                               | (8,160) | 24,340 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Series A Convertible Preferred Stock issued for Asset Purchase Agreement |  

 

-     |  

 

- |  

 

28,334     |  

 

28    |  

 

169,972 |  

 

-               |  

 

- |  

 

170,000 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Shares issued for Intellectual Property                                  |  

100,000       |  

100       |  

-                  |  

-             |  

24,900          |  

-                       | - | 25,000 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Net (loss) for the year ended December 31, 2003                          |  

-             |  

-         |  

-                  |  

-             |  

           |  

                   |  

(129,926) |  

(129,926) |
| Balance, December 31, 2003                                               | 20,100,000            | 20,100            | 28,334                     | 28                    | 207,372                 | -                               | (138,086) | 89,414 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Subscription payable                                                     | -                     | -                 | -                          | -                     | -                       | 130,966                         | - | 130,966 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Donated Capital                                                          | -                     | -                 | -                          | -                     | 105,150                 | -                               | - | 105,150 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Net (loss) for the year ended December 31, 2004                          |  

-             |  

-         |  

-                  |  

-             |  

-               |  

-                       |  

(209,185) |  

(209,185) |
| Balance, December 31, 2004                                               | 20,100,000            | 20,100            | 28,334                     | 28                    | 312,522                 | 130,966                         | (347,271) | 116,345 |
|                                                                     |                  |              |                       |                  |                    |                            |   |   |
| Net (loss) for the six months ended June 30, 2005                        | -                     | -                 | -                          | -                     | 51,000                  | -                               | (121,599) | (70,509) |
| Balance, June 30, 2005                                                   | 20,100,000            | $      20,100     | 28,334                     | $             28      | $        363,522        | $        130,966                | $      (468,870) | $          45,746 |

 

**The accompanying notes are an integral part of these financial statements**

 

 

3

----

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc,)**

**Statements of Cash Flow**

(unaudited)

 

|                                      |                                            | **Six months ended** |
|-------------------------------------------|-------------------------------------------------|----------------------|
|                                      |                                            | **June 30,**         |
|                                      |                                            | **2005**             | **2004** |
|                                      |                                            |                 |   |   |   |
| **Cash flows from operating activities**  |                                            |                 |   |   |
| Net (loss)                                | $                                               | (121,599)            | $ | (51,646) |
| Depreciation                              |                                            | 21,100               |   | 16,075 |
| Donated capital                           |                                            | 51,000               |   | - |
| Adjustments to reconcile net (loss) to    |                                            |                 |   |   |
|                                      | net cash (used) by operating activities:        |                 |   |   |   |
|                                      | (Decrease) in cash overdraft                    |                 | - |   | (721) |
|                                      | (Decrease) in prepaid expenses                  |                 | 147 |   | - |
|                                      | Increase in interest payable - related party    |                 | 6,000 |   | 6,000 |
|                                      | Increase in accrued liabilities - related party |                 | 3,000 |   | 175 |
| Net cash (used) by operating activities   |                                            | (39,748)             |   | (30,116) |
|                                      |                                            |                 |   |   |   |
| **Cash flows from financing activities**  |                                            |                 |   |   |
| ** **                                | Installment loans payable                       |                 | (5,772) |   | (586) |
| ** **                                | Short term note payable                         |                 | 30,000 |   | - |
| ** **                                | Mortgages payable                               |                 | 51 |   | (1,179) |
| ** **                                | Subscriptions payable                           |                 | - |   | 130,966 |
| Net cash provided by financing activities |                                            | 23,674               |   | 129,201 |
|                                      |                                            |                 |   |   |   |
| Net increase (decrease) in cash           |                                            | (16,073)             |   | 99,085 |
| Cash - beginning                          |                                            | 19,799               |   | - |
| Cash - ending                             | $                                               | 3,726                | $ | 99,085 |
|                                      |                                            |                 |   |   |   |
| Supplemental disclosures:                 |                                            |                 |   |   |
|                                      | Interest paid                                   | $                    | 9,677 | $ | 9,677 |
|                                      | Income taxes paid                               | $                    | - | $ | - |

 

 

 

**The accompanying notes are an integral part of these financial statements**

 

4

----

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc.)**

**Notes to Financial Statements**

 

**Note 1 - Basis of Presentation**

 

The consolidated interim financial statements included herein, presented in accordance with United States generally accepted accounting principles and stated in US dollars, have been prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission.  Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading.

These statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary for fair presentation of the information contained therein.  It is suggested that these consolidated interim financial statements be read in conjunction with the financial statements of the Company for the year ended December 31, 2004 and notes thereto included in the Company's 10-KSB annual report.  The Company follows the same accounting policies in the preparation of interim reports.

Results of operations for the interim periods are not indicative of annual results. 

 

**Note 2 – Going concern**

 

The accompanying financial statements have been prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  For the Company to continue as a going concern the Company must seek additional sources of capital, and the Company must attain future profitable operations. The Company is currently initiating its business plan and is in the process of raising additional capital.  The accompanying financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern. 

 

**Note 3 – Goodwill**

 

Management periodically reviews the carrying value of acquired intangible assets to determine whether impairment may exist. The Company considers relevant cash flow and profitability information, including estimated future operating results in assessing whether the carrying value of the intangible can be recovered. If the Company determines that the carrying value will not be recovered from undiscounted future cash flows of the acquired business, the Company considers such carrying value as impaired and reduces them by a charge to operations in the amount of the impairment. As of June 30, 2005, management had determined impairment did not exist.  

 

 5

----

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc.)**

**Notes to Financial Statements**

 

**Note 4 – Fixed assets**

 

The Company records fixed assets at cost and computes depreciation using the straight-line method. The Company’s fixed assets consist of the following:

 

|                          | **June 30,**

**2005** |
|-------------------------------|------------------------|
| Land                          | $           137,000    |
| Vehicles                      | 135,864                |
| Furniture and fixtures        | 8,253                  |
| Operating equipment           | 11,650                 |
| Buildings and improvements    | 283,764                |
|                          |                   |
| Total fixed assets            | 576,532                |
| Less accumulated depreciation | (75,779)               |
|                          |                   |
| Total                         | $           500,752    |

 

The Company recorded depreciation expense of $21,100 during the six months ended June 30, 2005.

 

**Note 5 – Long Term Liabilities**

 

The Company has a 5-year note payable in the principal amount of $200,000 with an interest rate of 6% to the Company’s former President pursuant to the Real Estate Acquisition Contract for the purchase of the Bed & Biscuit InnTM facility in Flagler Beach.  During the six months ended June 30, 2005 the Company had accrued interest payable of $25,750.

 

The Company has a first mortgage payable on the Bed & Biscuit InnTM facility in Flagler Beach in the amount of $96,740 with an interest rate of prime plus one (currently 7.5%) per annum and monthly interest only payments. 

 

The Company has a second mortgage payable on the Bed & Biscuit InnTM facility in Flagler Beach in the amount of $78,244 with a stated interest rate of 9.5% per annum with monthly principal and interest payments in the amount of $669.

 

The Company expensed $8,318 in interest during the six months ended June 30, 2005.

 

**Note 6 – Stockholders’ equity**

 

The Company is authorized to issue 20,000,000 shares of $0.001 par value preferred stock and 100,000,000 shares of $0.001 par value common stock. 

 

 6

----

 

**AFV Solutions, Inc.**

**(formerly Dogs International, Inc.)**

**Notes to Financial Statements**

 

**Note 6 – Stockholders’ equity (Continued)**

 

On April 23, 2004, the Company received $130,966 in cash from an officer and stockholder, for the purchase of 52,386 shares of the Company’s $0.001 par value common stock, at a price of $2.50 per share. As of June 30, 2005, the Company had not issued the shares and a subscription payable was recorded in the amount of $130,966.

 

There were no stock issuances during the six months ended June 30, 2005. 

 

**Note 7 – Related party transactions**

 

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 June 30, 2005, the Company accrued rent expense to a related party in the amount of $3,000.

 

An Officer and director of the Company donated capital in the amount of $51,000 during the three-month period ended June 30, 2005.

 

During the three months ended June 30, 2005, an officer lent the Company $30,000, which is non-interest bearing and due on demand.

7

----

 

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 inherent risks and uncertainties.  The factors impacting these risks and uncertainties include, but are not limited to: 

-  increased competitive pressures from existing competitors and new entrants; 
-  increases in interest rates or our cost of borrowing or a default under any material debt agreements; 
-  deterioration in general or regional economic conditions; 
-  adverse state or federal legislation or regulation that increases the costs of compliance, or adverse findings by a regulator with respect to existing operations; 
-  loss of customers or sales weakness; 
-  inability to achieve future sales levels or other operating results; 
-  the unavailability of funds for capital expenditures; and 
-  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 December 31, 2004.

 

8

 

**Item 2. Management’s Discussion and Analysis of Financial Condition and results of Operations.**

 

**Overview**

 

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.”, however, following close scrutiny we felt that establishing a holding company structure for us would be the best business strategy. Therefore, 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”) The name change was effected through an amendment to our articles of incorporation and approved by our board of directors and by a majority consent of our stockholders. A copy of the certificate of amendment to the articles of incorporation was attached as exhibit 3(i)(a) to a Form 8-K filed on March 24, 2005. We changed our name to AFV because we are looking to enter thealternative fuel industry with our 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.

 

Subsequent to Quarter End

 

On July 13, 2005, we appointed a new president, Jeffrey Groscost, to assist us in our strategic planning and focus our corporate efforts on entering the alternative fuel industry. Mr. Groscost has begun to implement a strategic plan for the Company, which includes analyzing the timing and best method for potentially spinning-off our Bed and Biscuit Inns of America subsidiary.  During the third quarter, management will continue to investigate the most effective way to structure the subsidiary for a distribution of shares to our stockholders.

 

**Critical Accounting Policies**

 

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 markedly 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 

9

 

**Stock-Based Compensation**

 

In December 2002, the FASB issued SFAS No. 148 - Accounting for Stock-Based Compensation - Transition and Disclosure. This statement amends SFAS No. 123 - Accounting for Stock-Based Compensation, providing alternative methods of voluntarily transitioning to the fair market value based method of accounting for stock based employee compensation. FAS 148 also requires disclosure of the method used to account for stock-based employee compensation and the effect of the method in both the annual and interim financial statements. The provisions of this statement related to transition methods are effective for fiscal years ending after December 15, 2002, while provisions related to disclosure requirements are effective in financial reports for interim periods beginning after December 31, 2002.

 

The Company elected to continue to account for stock-based compensation plans using the intrinsic value-based method of accounting prescribed by APB No. 25, "Accounting for Stock Issued to Employees," and related interpretations. Under the provisions of APB No. 25, compensation expense is measured at the grant date for the difference between the fair value of the stock and the exercise price.

 

**Revenue Recognition**

 

For revenue from product sales, the Company recognizes revenue in accordance with SEC Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements” (“SAB 101”).  SAB 101 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectibility is reasonably assured. Determination of criteria (3) and (4) are based on management’s judgments regarding the fixed nature of the selling prices of the products delivered and the collectibility of those amounts.  Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company defers any revenue for which the product has not beendelivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.

 

***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 upscale pet care facilities. 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, including the cash needed to pursue the activities of ARI and acquisition. We intend for these funding requirements to be fulfilled through either equity or debt financing.

 

***Summary of any product research and development that we will perform for the term of the plan.***During the 6 months ended June 30, 2005 we spent $55,000 on research and development. We anticipate significant research and development expenditures in the future as we move into implementing our revised business plan.

 

***Expected purchase or sale of plant and significant equipment.***We do not anticipate 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 his 

 

10

 

industry. However, at this point in time we are unable to accurately determine an estimate for the amount of funds needed for these purchases. 

 

***Significant changes in number of employees.***The number of employees required to operate our business is currently 7 full-time individuals. As a result of our change in our business plan we are anticipating a substantial change in the number of employees required to operate our facilities. These increases will occur concurrent with our acquisition and/or lease of facilities; however, we will require a substantial infusion of capital prior to commencement of such acquisition.

 

**Results of Operations for the Three and Six Months Ended June 30, 2005 and 2004 Compared.**

 

 

Three Months Ended June 30, 2005

Three Months Ended June 30, 2004

Six Months Ended June 30, 2005

Six Months Ended June 30, 2004

Revenues

$       36,631

$       24,895

$        68,191

$       59,807

 

 

 

 

 

Cost of Goods Sold

1,730

1,062

4,167

3,401

 

 

 

 

 

Operating Expenses

109,447

56,545

177,305

92,374

 

 

 

 

 

Other Expense

4,821

12,677

8,318

15,677

 

 

 

 

 

Net Loss

$     (79,367)

$    (45,389)

$    (121,599)

$    (51,646)

 

**Revenues**

*** ***

 

2005

 

2004

**Increase/(decrease)**

$

%

For the three months ended June 30:

 

 

 

 

Revenue

$   36,631

$   24,895

$     11,736

47%

 

 

 

 

 

For the six months ended June 30:

 

 

 

 

Revenue

$   68,191

$   59,807

$     8,384

14%

 

Revenues for the three months ended June 30, 2005 were $36,631 compared to revenues of $24,895 in the three months ended June 30, 2004. Revenues for the six months ended June 30, 2005 were $68,191 compared to revenues of $59,807 in the six months ended June 30, 2004. This resulted in an increase in revenues of $11,736, from the same period one year ago. The increase in revenues was due to the reopening during last quarter, of the Bed & Biscuit InnTM facility in Flagler Beach, Florida which was closed for a several weeks for minor remodeling of the facility.

 

**Cost of sales**

 

*** ***

 

2005

 

2004

**Increase/(decrease)**

$

%

For the three months ended June 30:

 

 

 

 

Cost of sales

$      1,730

$      1,062

$     668

63%

 

 

 

 

 

For the six months ended June 30:

 

 

 

 

Cost of sales

$      4,167

$      3,401

$     766

23%

 

11

 

Cost of sales for the three months ended June 30, 2005 was $1,730, an increase of $668 from $1,062 for the same period ended June 30, 2004.  Cost of sales for the six months ended June 30, 2005 was $4,167, an increase of $766 from $3,401 for the same period ended June 30, 2004.  The increase in cost of sales was due to the reopening during last quarter, of the Bed & Biscuit InnTM facility in Flagler Beach, Florida which was closed for a several weeks for minor remodeling of the facility.

 

**General and Administrative expenses**

 

*** ***

 

2005

 

2004

**Increase/(decrease)**

$

%

For the three months ended June 30:

 

 

 

 

General & Administrative expenses

$     58,897

$      56,545

$        2,352

4%

 

 

 

 

 

For the six months ended June 30:

 

 

 

 

General & Administrative expenses

$   101,205

$      68,949

$      32,256

47%

 

General and administrative expenses were $58,897 for the three months ended June 30, 2005 versus $56,545 for the three months ended June 30, 2004, which resulted in an increase of $2,352. General and administrative expenses were $101,205 for the six months ended June 30, 2005 versus $68,949 for the six months ended June 30, 2004, which resulted in an increase of $32,256. The increase in selling and administrative expenses was primarily due to the increase in the Company adding additional operational and administrative personnel, legal and other professional assistance with our plan to locate and negotiate with a business entity or seek other opportunities for ARI, our wholly owned subsidiary.

 

**Net Loss**

 

*** ***

 

2005

 

2004

**Increase/(decrease)**

$

%

For the three months ended June 30:

 

 

 

 

Net loss

$           79,367

$       45,389

$     33,978

75%

 

 

 

 

 

For the six months ended June 30:

 

 

 

 

Net loss 

$         121,599

$       51,646

$     69,953

135%

 

The net loss for the three months ended June 30, 2005 was $79,367, versus a net loss of $45,389 for the three months ended June 30, 2004, a change in net loss of $33,978.  The net loss for the six months ended June 30, 2005 was $121,599, versus a net loss of $51,646 for the six months ended June 30, 2004, a change in net loss of $69,953.  The increase in the net loss was primarily due to the increase in Research and Development costs associated with our plan to locate opportunity in the alterative fuel industry.

 

**Going Concern**

 

The financial statements included in this filing have been prepared in conformity with generally accepted accounting principles that contemplate the continuance of us as a going 

 

12

 

concern. Our cash position may be inadequate to pay all of the costs associated with our operations. We intend to use borrowings and security sales to mitigate the effects of our cash position, however no assurance can be given that debt or equity financing, if and when required will be available. The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets and classification of liabilities that might be necessary should we be unable to continue existence. 

 

**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.

 

**Liquidity and Capital Resources at June 30, 2005.**

 

The following table summarizes total assets, accumulated deficit and stockholders’ equity.

 

 

June 30, 2005

June 30, 2004

Total Assets

$          522,746

$          529,556

Accumulated Deficit

$       (468,870)

$       (390,107)

Stockholders’ Equity

$            45,746

$            73,509

 

 

 

Working Capital 

$         (41,275)

$            87,999                     

 

A critical component of our operating plan impacting our continued existence is the ability to obtain additional capital through additional 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 may continue to experience net negative cash flows from operations, pending receipt of significant revenues.

 

Additionally, we anticipate obtaining 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 cease or significantly curtail our operations. This would materially impact our ability to continue operations. 

 

We believe that existing capital and anticipated funds from operations will not be sufficient to sustain operations and expansion over the next twelve 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. Consequently, we will be required to seek additional capital in the future to fund operations and expansion, if any, through additional equity or debt financing or credit facilities. 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. We currently have no agreements which would provide for either loans to us, or the sale of our securities.

 

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 

 

13

 

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.

 

**FACTORS THAT MAY AFFECT OUR RESULTS OF OPERATIONS**

 

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

 

We have incurred an accumulated deficit for the six months ended June 30, 2005 of $468,870. 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 will depend almost exclusively on outside capital to pay for the deficit in our working capital. Such outside capital may include the sale of additional stock, loans from our officers and directors, 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.

 

***Since our shares are thinly traded, and trading on the OTC Bulletin Board may be sporadic because it is not an exchange, stockholders may have difficulty reselling their shares.***

 

Our common shares are currently quoted for public trading on the Over-the-Counter Bulletin Board. The trading price of our common shares has been subject to wide fluctuations. Trading prices of our common shares may fluctuate in response to a number of factors, many of which will be beyond our control. The stock market has generally experienced extreme price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies with limited business operations. There can be no assurance that trading prices and price earnings ratios previously experienced by our common shares will be matched or maintained. These broad market and industry factors may adversely affect the market price of our common shares, regardless of our operating performance.

 

In the past, following periods of volatility in the market price of a company's securities, securities class-action litigation has often been instituted. Such litigation, if instituted, could result in substantial costs for us and a diversion of management's attention and resources.

 

***Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.***

  

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Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10.  Those rules require broker-dealers, before effecting transactions in any penny stock, to:
-  Deliver to the customer, and obtain a written receipt for, a disclosure document; 
-  Disclose certain price information about the stock; 
-  Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; 
-  Send monthly statements to customers with market and price information about the penny stock; and 
-  In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. 

Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.

 

***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. It is also possible that because of our Florida concentration, a change in Florida laws applicable to the pet boarding industry or a change in zoning laws may have a greater impact on us than a change in comparable laws in another geographical area. Adverse developments in Florida could harm our revenue or increase our operating expenses.

 

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

 

While we are not currently a party to any agreements or commitments and have no understandings with respect to any acquisitions, we may find it necessary to acquire additional businesses, to remain competitive. 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 orother securities, our stockholders could suffer significant dilution of their interests in us. 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 

 

15

 

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.

 

**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, our former sole officer evaluated the effectiveness of our disclosure controls and procedures which was subsequently evaluated by Jeffrey Groscost, our new President and Principal Accounting Officer, following his appoint on July 13, 2005. Based on the evaluation, which disclosed no significant deficiencies or material weaknesses, our former sole officer concluded that our disclosure controls and procedures are effective and Mr. Groscost concurred. There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that havematerially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

**PART II--OTHER INFORMATION**

 

**Item 1.**

**Legal Proceedings.**

 

We may become involved in various routine legal proceedings incidental to our business. However, to our knowledge as of the date of this report, there are no material pending legal proceedings to which we are a party or to which any of its property is subject.

 

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

 

None

 

**Item 3.**

**Defaults Upon Senior Securities.**

 

None.

 

**Item 4.**

**Submission of Matters to a Vote of Security Holders.**

 

None.

 

**Item 5.**

**Other Information.**

 

Effective July 13, 2005, Rosemary Williams resigned from her position as President of the Company.  Ms. Williams remains as Chairman of the Board, Secretary and Treasurer of the Company. Concurrent with Ms. Williams’ resignation, Jeffrey Groscost was appointed President of the Company.

 

**Jeffrey Groscost**

 

Mr. Groscost served in the Arizona House of Representatives from 1993 until he was term limited out in 2001.  As a legislator he served as majority whip, chairman of the tax writing, House Ways and Means committee, and from 1997 to 2001 Groscost served as the youngest 

 

16

 

speaker of the house in the United States. While serving as speaker, Groscost presided over the sixth largest agency in the state (legislative operations as a budget unit), and was recognized for making the House of Representatives more accessible for the general public and more user friendly and efficient for its members. 

 

Groscost has been recognized for several areas of expertise as a legislator. Receiving local and national honors and accolades for his work in launching the concept of charter schools, bringing competition to the electric industry through deregulation and for working for cleaner air and energy independence through the use of alternative fuels for transportation. Groscost has lectured extensively, testified before Congress, and received numerous awards in each of these areas. 

 

Since leaving the legislature, Groscost has worked as a consultant with a focus on political, campaign and public relations. He has worked on behalf of Wal-Mart, Banner Health, Target, Vestar, Harkins Theatres, SRP, The Disney Heirs trust, State School Superintendent Tom Horne, State Treasurer David Petersen, United States Sen. John McCain, and many others. 

 

Groscost is active in his community, serving as a member of the board of directors for the Mesa United Way, The Grand Canyon Council of the Boy Scouts of America and the Mesa Southern Little League. He is also chairman of the board for the Navajo Code Talker Memorial Foundation, chairman of the District 18 Republican Party, and serves on the Mesa Community College Commission on Excellence. 

 

**Item 6.**

**Exhibits and Reports on Form 8-K.**

 

**a) Exhibits**

 

31*

Certification pursuant to Section 302 of the Sarbanes-Oxley Act

32*

Certification pursuant to Section 906 of the Sarbanes-Oxley Act

*Filed herewith

 

**b) Reports on Form 8-K**

Form 8-K filed on August 9, 2005 – Appointment of Jeffrey Groscost as President.

17

 

**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/			Jeffrey Groscost                              			

      Jeffrey Groscost,
      President and Principal Accounting Officer
      (On behalf of the registrant and as
      principal accounting officer)
 
Date: August15, 2005 

 

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