UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549



FORM 10-QSB



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



For the quarterly period endedDecember 31, 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)



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 February 13, 2008, was 23,045,300 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(unaudited)December 31,2007AssetsCurrent assets:Cash
        
        $
        8,240Prepaid expenses
        
        11,369Other current assets
        
        5,500Total current assets
        
        25,109Fixed assets, net of accumulated depreciation of $432,452
        
        894,531Other assets:Deposits
        
        5,926Total other assets
        
        5,926Total assets
        $
        925,566Liabilities and Stockholders' EquityCurrent liabilities:Accounts payable and accrued liabilities
        $
        118,599Accrued expenses - related party
        
        18,000Accrued interest  related party
        
        51,250Customer deposits
        
        10,000Note payable, current portion
        
        19,882Mortgage payable  related party
        
        150,000Line of credit
        
        96,824Total current liabilities
        
        464,555Long term liabilities:Note payable, net of current portion
        
        32,943Mortgage payable
        
        75,940Total long term liabilities
        
        108,883Stockholders' equity:Preferred stock, $0.001 par value 20,000,000 sharesauthorized, no shares issued and outstanding
        
        -Common stock, $0.001 par value, 100,000,000 shares






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authorized, 23,045,300 shares issued and outstanding
        
        23,045Prepaid share-based compensation
        
        (87,500)Additional paid-in capital
        
        10,042,312Accumulated (deficit)
        
        (9,625,729)352,128$
        925,566




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





































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AFV Solutions, Inc.Condensed Consolidated Statement of Operations(unaudited)For the three months ended December 31,
        For the six months ended December 31,2007
        2006
        2007
        2006Revenue
        $         34,605
        $         24,855
        $       54,882
        $       61,296Cost of sales
        2,229
        1,777
        5,078
        3,902Gross profit
        32,376
        23,078
        49,804
        57,394Expenses:General and administrative
        53,005
        158,138
        115,114
        289,137General and administrative    related
        -
        1,500
        -
        3,000Depreciation
        47,701
        41,056
        95,402
        78,875Consulting services
        4,870
        254,877
        19,062
        483,600Financing expenses
        -
        -
        -
        100,000Investor relations
        -
        -
        -
        16,537Professional fees
        50,940
        87,311
        117,590
        295,325Research and development
        2,502
        -
        2,502
        5,000Rent expense
        44,614
        72,550
        81,449
        128,922Promotional and marketing
        -
        70,918
        -
        95,632Salaries and wages
        81,192
        185,210
        165,265
        330,313Salaries and wages  Officers
        104,700
        -
        219,000
        -Travel expense
        46,660
        182,106
        132,558
        409,638Impairment of intangible assets
        -
        -
        -
        18,269Total operating expenses
        436,184
        1,053,666
        947,943
        2,254,248Operating loss
        (403,808)
        (1,030,588)
        (898,138)
        (2,196,854)Other income (expenses):Interest income
        13
        2,707
        21
        2,718Interest expense
        (3,987)
        (243)
        (6,409)
        (12,141)Interest expense  related party
        (2,250)
        (2,250)
        (4,500)
        (4,500)Total other income (expense)
        6,224
        214
        (10,888)
        (13,923)Net loss
        $ (410,032)
        $ (1,030,374)
        $    (909,026)
        $ (2,210,777)Weighted average number of common shares outstanding  basic and  diluted
        23,045,300
        22,910,577
        23,045,300
        22,879,883Net loss per share  basic and  diluted
        $          (0.02)
        $          (0.04)
        $          (0.04)
        $          (0.10)




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 Flow(unaudited)For the six months endedDecember 31,2007
        
        2006Cash flows from operating activitiesNet (loss)
        $
        (909,026)
        
        $
        (2,210,777)Depreciation
        
        95,402
        
        
        78,875Impairment of intangible assets
        
        -
        
        
        18,269Shares issued for services
        
        105,000
        
        
        -Adjustments to reconcile net (loss) tonet cash (used) by operating activities:Prepaid expenses
        
        5,473
        
        
        19,462Deposits and other assets
        
        5,290
        
        
        (12,950)Accounts payable and accrued liabilities
        
        18,850
        
        
        (20,470)Interest payable - related party
        
        4,500
        
        
        4,500Accrued liabilities - related party
        
        -
        
        
        3,000Customer deposits
        
        10,000
        
        
        -Net cash (used) by operating activities
        
        (664,511)
        
        
        (2,159,015)Cash flows from investing activitiesPurchase of fixed assets
        
        -
        
        
        (131,415)Net cash (used) by investing activities
        
        -
        
        
        (131,415)Cash flows from financing activitiesPayment on  installment loans
        
        (8,316)
        
        
        (13,132)Payment on mortgage
        
        (283)
        
        
        -Payment on mortgage  related party
        
        -
        
        
        (50,000)Donated capital
        
        29,000
        
        
        -Cash from issuance of common stock
        
        -
        
        
        897,501Net cash provided by financing activities
        
        20,401
        
        
        834,369Net (decrease) in cash
        
        (644,110)
        
        
        (1,456,061)Cash  beginning
        
        652,350
        
        
        2,842,841Cash  ending
        $
        8,240
        
        $
        1,386,780Supplemental disclosures:Interest paid
        $
        6,409
        
        $
        12,141Income taxes paid
        $
        -
        
        $
        -






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



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AFV Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Note 1 Basis of Presentation



The unaudited condensed consolidated financial statements have been prepared in accordance with United States generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and reflect all adjustments, which in the opinion of management, are necessary for a fair presentation. All such adjustments are of a normal recurring nature. The results of operations for the interim period are not necessarily indicative of the results to be expected for a full year. Certain amounts in the prior year statements have been reclassified to conform to the current year presentations. The statements should be read in conjunction with the financial statements and footnotes thereto included in our Form 10-KSB for the year ended June 30, 2007.



Note 2 - Going Concern



The accompanying condensed consolidated financial statements have been prepared assuming that we will continue as a going concern. Our ability to continue as a going concern is dependent upon attaining profitable operations based on the development of products that can be sold. We intend to use borrowings and security sales to mitigate the affects 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 in existence.



Note 3  Stockholders equity



On July 27, 2007, we issued 30,000 shares of common stock previously authorized.



On August 27, 2007, we issued 100,000 shares of our common stock previously authorized, to our CEO. The shares have been issued pursuant to his employment agreement.



During the six-month period ended December 31, 2007, we received a total of $29,000 in donated capital from our Chairman.



Note 4  Related party transactions



During the six-months ended December 31, 2007, we accrued interest in the amount of $4,500 in connection with our mortgage due to the President of our wholly owned subsidiary.



Note 5  Customer deposits



On November 20, 2007, we received a deposit for $10,000 to purchase five hybrid buses for a total purchase price of $297,000. We anticipate shipment of the completed order on or before June 30, 2008.





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AFV Solutions, Inc.

Notes to Condensed Consolidated Financial Statements

(unaudited)



Note 6  Notes payable



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



Note payable to a related party bearing interest at a rate of 6% per annum, accrued interest and principal maturing in 2009
        
        $
        150,000Mortgage payable bearing interest at a rate of 9.54% per annum, monthly principal and interest payments of $668, maturing May 1, 2033
        
        
        76,744$100,000 line of credit bearing interest at the prime lending rate plus 1%, with monthly interest payments, maturing March 1, 2010.
        
        
        96,824Auto loan payable bearing interest at a rate of 7%, monthly principal and interest payments of $1,127, maturing September 28, 2011
        
        
        44,466Auto loan payable bearing interest at a rate of 5.25% with monthly principal and interest payments of $625, maturing October 15, 2008.
        
        
        7,555Total
        
        
        375,589Less current portion
        
        
        (266,706)Total
        
        $
        108,883


Interest expense for the six-months ended December 31, 2007 totaled $6,409 and $4,500 to related parties.





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FORWARD-LOOKING STATEMENTS



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



Forward-looking statements may include the words may, could, estimate, intend, continue, believe, expect or anticipate or other similar words. These forward-looking statements present our estimates and assumptions only as of the date of this report. Accordingly, readers are cautioned not to place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We do not undertake to update forward-looking statements to reflect the impact of circumstances or events that arise after the dates they are made. You should, however, consult further disclosures we make in future filings of our Annual Report on Form 10-KSB, Quarterly Reports on Form 10-QSB and Current Reports on Form 8-K.



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
        ability to successfully broker bus orders;


o
        ability to raise sufficient funds to satisfy our working capital needs;


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 and bus brokerage industry;


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;


o
        risks and differences encountered when conducting international sales and operations;


o
        operational inefficiencies in distribution or other systems; or




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o
        the other risks and uncertainties detailed in this report.


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, 2007.



Item 2.  Managements Discussion and Analysis



OVERVIEW AND OUTLOOK



AFV Solutions primary business focus is to broker hybrid electric, CNG and LPG buses manufactured in China.  Revenues have continued to be generated through our wholly owned subsidiary, Bed & Biscuit, a pet boarding facility located in Flagler Beach, Florida. On May 5, 2006, we announced our intention to spin off Bed & Biscuit to our stockholders, this was a result of our decision to focus on the alternative fuel industry.



CURRENT OPERATIONS



On July 11, 2007, Mr. Steele, our interim Chief Executive Officer resigned and we appointed Carlos Zalduondo as our new Chief Executive Officer, who has continued our focus and emphasis to the brokerage of buses manufactured in China. Mr. Steele has continued as our Board Chairman.



Through our agreement with Wuzhoulong, we are the exclusive representative for sales, marketing, and distribution of commercial hybrid buses in five countries. We have received our first sales order for five (5) commercial hybrid buses from a commercial transportation company located in Lima, Peru. The order requires delivery of four (4) CNG buses and one (1) diesel hybrid. The total purchase price of the buses is $297,000USD. We received the initial deposit of $10,000 on November 20, 2007 and anticipate full payment and delivery on or before June 30, 2008. Mr. Zalduondo continues to focus sales efforts in South America and Asia.



Satisfaction of our cash obligations for the next 12 months.



Our cash obligations are anticipated to stabilize over the next 12 months. We are continuing to establish ourselves in the alternative fuel industry with more focused efforts. As a result, we expect our expenses for travel and consulting to decrease substantially. Our cash will be utilized for sales and operational expenses. Our available cash at December 31, 2007, was $8,240 and will not be sufficient to satisfy our obligations for the next 12 months. Due to our limited financial resources, we will be required to raise additional cash through sales or equity and/or debt financing.



Going Concern



Our financial statements are prepared using 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.  Our ability to continue as a going concern is



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dependent upon us attaining profitable operations based on the development of products that can be sold.  We intend to use borrowings and security sales to mitigate the affects of our cash position.



Expected purchase or sale of plant and significant equipment.



As we continue to emphasize brokering of hybrid buses, we have chosen to eliminate our research and development facility located in Mesa, Arizona. It is our anticipation to sell all excess machinery and equipment currently located at the facility and sub-lease the property for the remainder of our commitment.



Significant changes in number of employees.



The number of employees required to operate our business is currently 6 full time employees, which includes those required to maintain our operations of our pet facility in Florida as well as those pursing our move into the alternative fuel industry. Additionally, we intend to use the services of independent consultants and contractors to perform various professional services, when appropriate.  We believe that this use of third-party service providers may enhance our ability to contain general and administrative expenses.



Results of Operations for the Three Months Ended December 31, 2007, and 2006 Compared.



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



INCOME (Derived Solely from the Bed & Biscuit Inn Facility):



Three months ended December 31, 2007
        Three months ended December 31, 2006
        Increase / (Decrease)$
        %Revenues
        $             34,605
        $             24,855
        $    9,750
        39%Cost of Sales
        2,229
        1,777
        452
        25%Gross Profit
        32,376
        23,078
        9,298
        40%Gross Profit Percentage of Revenue
        94%
        93%
        --
        1%




Revenues



Revenues for the three months ended December 31, 2007 were $34,605 compared to revenues of $24,855 for the comparable three months ended December 31, 2006.  Our increased revenue from the pet care facility of $9,750 is the result of additional advertising during the



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three-month period. We will continue to advertise locally in an effort to maintain stable cash flow and cover operating expenses.



Cost of sales and Gross profit



Our cost of sales increased $452 over the previous year as expected due to our increased revenue. As our revenue increases or decreases, we anticipate our costs to follow suit. We do not anticipate any near market changes in the direct costs associated with the pet care industry.  Our gross profit remained consistent, increasing 1% over the previous period to 94%.



EXPENSES:



Three months ended
December 31, 2007
        Three months ended
December 31, 2006
        Increase / (Decrease)Operating expenses:
        
        
        $
        %General and administrative
        $                53,005
        $             159,638
        $ (106,633)
        (67%)Depreciation
        47,701
        41,056
        6,645
        16%Consulting/Professional services
        55,810
        342,188
        (286,378)
        (84%)Research and development
        2,502
        -
        2,502
        --Rent expense
        44,614
        72,550
        (27,936)
        (39%)Promotional and marketing
        -0-
        70,918
        (70,918)
        --Salaries and wages (total)
        185,892
        185,210
        682
        --Travel expenses
        46,658
        182,106
        (135,448)
        (74%)Total operating expenses
        436,184
        1,053,666
        (617,482)
        (59%)Net operating (loss)
        $           (403,808)
        $        (1,030,588)
        $ (626,780)
        (61%)




General and administrative expenses



As we have focused our efforts towards brokering and distributing alternative fuel buses, we have been able to eliminate a significant portion of our overhead. We experienced a savings of $106,633 in our general and administrative expenses. The majority of our savings was attributable to a decrease in travel meals and entertainment of approximately $28,000 and telephone expense of $23,000. As we continue to focus on a core brokering, there is a limited expectation of these costs increasing in the near future.



Depreciation expense



Our depreciation expense will remain constant over the upcoming year. The fluctuation from the comparable period is due to normal depreciation calculated on a straight-line basis from the minimal assets acquired during the period of January 1, 2007 and December 31, 2007. We currently do not have plans to acquire significant assets though we may experience a decline in depreciation expense as we liquidate our excess machinery and equipment from our Arizona facility.



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Consulting services / Professional fees



We encountered our greatest savings of $286,378 in consulting and professional fees. During the three month period of December 31, 2006, we incurred extraordinary legal fees in connection the due diligence requirements arising from our financing agreement with Sanders, Morris and Harris. This non-recurring fee represented approximately $33,000 of the reduction in costs during the same period in 2007. Additionally, we paid consulting fees to our previous CEO totaling $250,000 in the previous comparable period. During the next fiscal year, our consulting and professional fees will be limited to ordinary course of business. We will continue to pay legal fees for services related to our regulatory requirements as well as the associated accounting and auditing fees. Our consulting fees are primarily related to foreign translation services.



Research and development



We expensed $2,502 in research and development costs which represented fees related to EPA certifications for our bi-fuel conversion kits. This is a non-recurring expense and we do expect any further research and development costs as we continue our focus towards the brokering of alternative fuel buses.



Rent expense



During the period subsequent to December 31, 2006, we have reduced our monthly lease expense through the elimination of our Hong Kong facility and a reduction in our leased square footage in our Arizona facility. The accumulated savings due to the reduction was $27,936 for the three-month period ended December 31, 2007.



Salaries and wages



Salaries and wages, which include those of our officers, remained constant at $185,000. Due to our limited cash resources, we were unable to issue payment to our officers for the months of November and December. We have recorded an accrual for the outstanding compensation in the amount of $36,800. We currently do not anticipate a reduction in our salaries and wage expense though continued payment is dependent on our future sales.



Travel expenses



As our focus has shifted towards the sales and marketing of alternative fuel buses, we have had the opportunity to narrow our scope of activities required while traveling. As a result, our travel expenses have decreased by $135,446 compared to the same period in 2006. We anticipate continued travel costs associated with our sales activities, which would include monthly travel to Peru and China.





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Total operating expenses



Our total operating expenses for the three-month period ended December 31, 2007, was $436,184 compared to $1,053,666 for the three months ended December 31, 2006. The most significant savings were represented by our reduction in consulting services, professional fees, and travel expenses. As we continue to focus our operations on brokering and distribution of alternative fuel buses, we will also continue to maintain lower operating costs.



Net operating loss



The net operating loss decrease by 61% for the three-months ended December 31, 2007. We have been able to substantially reduce our operating expenses and thereby decrease our net operating loss.



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



INCOME:



Six months ended December 31, 2007
        Six months ended December 31, 2006
        Increase / (Decrease)$
        %Revenues
        $             54,882
        $           61,296
        $ (6,414)
        (10%)Cost of Sales
        5,078
        3,902
        1,176
        30%Gross Profit
        49,804
        57,394
        (7,590)
        (13%)Gross Profit Percentage of Revenue
        91%
        94%
        --
        (3%)




Revenues



We experienced an overall decline of $6,414 in revenues from our pet facility during the six-month period ended December 31, 2007 despite our increased revenue during our second fiscal quarter ending December 31, 2007. We believe the significant loss of revenue that occurred in our previous quarter was the result of limited marketing. During our second fiscal quarter, we initiated various local advertisements, which resulted in an increase in our revenue for that period. Due to these positive advertising results, we are planning to continue with all existing advertisements.



Cost of sales and Gross profit



During the six-months ended December 31, 2007, our cost of sales escalated by $1,176. We attribute the rise to an overall price increase in pet food. During the last three-month period, we have noticed stabilization in pricing and do not anticipate further increases. Our decline in



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revenue coupled with the increase in direct costs resulted in a decline in gross profit percentage of revenue of 3%.



SELECTED OPERATING EXPENSES:



Six months ended December 31, 2007
        Six months ended December 31, 2006
        Increase / (Decrease)Operating expenses:
        
        
        $
        %General and administrative
        $            115,114
        $           292,137
        $       (177,023)
        (61%)Consulting/Professional services
        136,652
        778,925
        (642,273)
        (82%)Financing expenses
        -
        100,000
        (100,000)
        --Rent expense
        81,449
        128,922
        (47,473)
        (37%)Salaries and wages
        384,265
        330,313
        53,952
        16%Travel expenses
        132,558
        409,638
        (277,079)
        (68%)Subtotal and total linesNet Loss
        $       (909,026)
        $     (2,210,777)
        $    (1,301,751)
        (59%)




General and administrative expenses



We have reduced our general and administrative costs by $177,023 during the six-month period ended December 31, 2007 compared to the same period in the previous year. The significant reductions are a result of the decrease in overseas travel. Our telephone expense declined $25,000; postage and delivery fees $11,000; office expense $39,000 and travel meals and entertainment declined $35,000. It is our plan to continue to utilize our resources in a focused effort towards sales development while continuing to minimize overhead.



Consulting services / Professional fees



Our most significant cost reduction has occurred in the consulting and professional fees we paid during the respective periods. As we were molding our business towards the alternative fuel industry, we incurred significant non-recurring professional and consulting fees. Legal fees paid in connection with our 2006 financing arrangements totaled approximately $85,000 while consulting fees to our interim CEO totaled $268,000. There are no plans during the current year to pay or incur any consulting of professional fees outside the scope of ordinary course of business. During the six-month period ended December 31, 2007, we expensed $136,652 in consulting and professional fees. We believe this to be a fair representation of the fees we will incur during the remaining six months of our fiscal year.



Financing expense



During the six-month period ended December 31, 2006 we entered into a financing agreement with Sanders, Morris and Harris for the purpose of obtaining funding for the acquisition of a manufacturing facility located in China. This was a one-time engagement fee.



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Due to our limited liquid resources, we may incur additional financing fees during the current year.



Rent expense



As stated above, we have reduced our monthly lease expense through the elimination of our Hong Kong facility and a reduction in our leased square footage in our Mesa facility. The accumulated savings was $47,473 for the six-month period ended December 31, 2007.



Salaries and wages



Oursalaries and wages, which include those of our officers, increased $53,952 for the six-month period ended December 31, 2007,compared to the same period in the previous year. In July 2007, we entered into an employment agreement with our current CEO, Mr. Zalduondo. Per his agreement, we grant shares of our common stock as partial consideration for his services. The value of the amortizable portion of his grant is the primary increase to our overall salaries and wages.



Travel expenses



As our focus has shifted towards the sales and marketing of alternative fuel buses, we have had the opportunity to narrow our scope of activities required while traveling. As a result, our travel expenses have decreased by $277,079 compared to the same period in 2006. We anticipate continued travel costs associated with our sales activities, which would include monthly travel to Peru and China.



Net operating loss



Our net operating loss decreased by 59% for the six-months ended December 31, 2007. We have been able to substantially reduce our operating expenses and thereby decrease the losses.



LIQUIDITY AND CAPITAL RESOURCES



The following table summarizes total current assets, liabilities and working capital at December 31, 2007 compared to the twelve months ended June 30, 2007.



December 31, 2007
        June 30, 2007
        Increase / (Decrease)$
        %Current Assets
        $25,109
        $669,928
        $(644,819)
        (96%)Current Liabilities
        $464,555
        $232,514
        $    30,791
        13%Working Capital (Deficit)
        $(439,446)
        $437,414
        $(876,860)
        (200%)






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



We will 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 influence our ability to continue operations. As of the date of this filing, we have no prospects for capitalizing our operations.



Existing capital at the six-months ended December 31, 2007 and revenues from our pet facility will not be sufficient to sustain our operations. We anticipate minor decreases in our cash requirements though not significant and subsequently we 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.



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 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



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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:



Revenue Recognition



Revenue from boarding and care fees are recorded when pets are picked up and an invoice is given to the customer.



Impairment of long-lived assets



The Company reviews its long-lived assets and intangibles periodically to determine potential impairment by comparing the carrying value of the long-lived assets with the estimated future cash flows expected to result from the use of the assets, including cash flows from disposition. Should the sum of the expected future cash flows be less than the carrying value, the Company would recognize an impairment loss. An impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the long-lived assets and intangibles.



Deferred Income Taxes



Our valuation allowance is an estimate based on our current expectations of utilization of our income tax operating loss carry forwards.



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 the entry into 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. While we have brought on management that is familiar with this 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.



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



We have incurred an accumulated deficit as of December 31, 2007 of $9,625,729. As a result of these losses and negative cash flows from operations, our ability to continue operations



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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 year ended June 30, 2007, we raised approximately $897,501 in additional proceeds to be used as general working capital.



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 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.



In addition, our ability to continue as a going concern is dependent on our ability to raise funds to finance ongoing operations; however we may not be able to raise sufficient funds to do so. Our independent auditors have indicated that there is substantial doubt about our ability to continue as a going concern over the next twelve months. Because of these factors, an investor cannot determine if and when we will become profitable and therefore runs the risk of losing their investment.



We anticipate some risks as a result of potential operations internationally.  These risks are a result of our sales, marketing, and distribution agreement with WZL 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.



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.



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Historically and at this 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, FINRA has enacted Rule 6530, which determines eligibility of issuers quoted on the OTC Bulletin Board by requiring an issuer to be current in its filings with the Commission. Pursuant to Rule 6530(e), if we file our reports late with the Commission three times in a two-year period or our securities are removed from the OTC Bulletin Board for failure to timely file twice in a two-year period then we will be ineligible for quotation on the OTC Bulletin Board. Our quarterly filing of March 31, 2007 was considered late, as we were unable to meet the filing grace period as defined under Rul!
e
12b-25. Additionally, we filed the extension in connection with the annual filing of June 30, 2007 late resulting in our second late filing. Therefore, we must not have one more late filing within the two-year period or we will be in jeopardy of being dequoted from the OTC Bulletin Board. As a result, the market liquidity for our securities could be severely adversely affected by limiting the ability of broker-dealers to sell our securities and the ability of stockholders to sell their securities in the secondary market.



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



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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.



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.



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.



FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.



In addition to the penny stock rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status,



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investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.



Item 3. Controls and Procedures



Our Chief Executive Officer, Carlos Zalduondo, and our Chief Financial Officer, Suzanne Herring, have evaluated the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this Report.  Based on the evaluation, Mr. Zalduondo and Ms. Herring concluded that our disclosure controls and procedures are effective in timely alerting them to material information relating us (including our consolidated subsidiaries) required to be included in our periodic SEC filings.



There were no other changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



PART II--OTHER INFORMATION



Item 1.
        Legal Proceedings




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



The Company believes these claims have no merit and filed a counterclaim on September 20, 2006 against CAW alleging abuse of process, securities fraud and market manipulation, and interference with contractual relations. 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.



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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 requested 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.  On or about July 19, 2007, the Court found that the Counterclaim and Third Party Claims should be dismissed, thereby dismissing the action as to AFV Solutions and other parties listed in the suit.



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



Recent Sales of Unregistered Securities



There were no sales of unregistered securities during the quarter ended December 31, 2007.



Issuer Repurchases of Equity Securities.



We did not repurchase any of our securities during the quarter ended December 31, 2007.




Item 3.
        Defaults Upon Senior Securities




None.



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




None.



Item 5.
        Other Information




None.



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
        04/02/03






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3(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
        09/30/04
        3(i)
        12/23/043(i)f
        Articles of Incorporation of AFV Systems, Inc.
        
        10-QSB
        09/30/06
        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-QSB/A
        03/31/03
        3b
        05/15/033(ii)c
        Bylaws of AFV Research, Inc.
        
        10-QSB
        09/30/04
        3(ii)
        12/23/043(ii)d
        Bylaws of AFV Systems, Inc.
        
        10-QSB
        09/30/06
        3(ii)d
        11/20/0610.8
        Employment Agreement between AFV Solutions, Inc. and Carlos Zalduondo, dated June 1, 2007
        
        8-K
        
        10.8
        07/17/0731.1
        Certification of Carlos Zalduondo 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 Carlos Zalduondo 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




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/ Carlos Zalduondo


Carlos Zalduondo, Chief Executive Officer


(On behalf of the Registrant)






Date: February 12, 2008



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