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| AFBG.OB > SEC Filings for AFBG.OB > Form 10-K on 15-Apr-2009 | All Recent SEC Filings |
15-Apr-2009
Annual Report
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
THIS FILING CONTAINS FORWARD-LOOKING STATEMENTS. THE WORDS "ANTICIPATED,"
"BELIEVE," "EXPECT," "PLAN," "INTEND," "SEEK," "ESTIMATE," "PROJECT," "WILL,"
"COULD," "MAY," AND SIMILAR EXPRESSIONS ARE INTENDED TO IDENTIFY FORWARD-LOOKING
STATEMENTS. THESE STATEMENTS INCLUDE, AMONG OTHERS, INFORMATION REGARDING FUTURE
OPERATIONS, FUTURE CAPITAL EXPENDITURES, AND FUTURE NET CASH FLOW. SUCH
STATEMENTS REFLECT THE COMPANY'S CURRENT VIEWS WITH RESPECT TO FUTURE EVENTS AND
FINANCIAL PERFORMANCE AND INVOLVE RISKS AND UNCERTAINTIES, INCLUDING, WITHOUT
LIMITATION, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN FOREIGN,
POLITICAL, SOCIAL, AND ECONOMIC CONDITIONS, REGULATORY INITIATIVES AND
COMPLIANCE WITH GOVERNMENTAL REGULATIONS, THE ABILITY TO ACHIEVE FURTHER MARKET
PENETRATION AND ADDITIONAL CUSTOMERS, AND VARIOUS OTHER MATTERS, MANY OF WHICH
ARE BEYOND THE COMPANY'S CONTROL. SHOULD ONE OR MORE OF THESE RISKS OR
UNCERTAINTIES OCCUR, OR SHOULD UNDERLYING ASSUMPTIONS PROVE TO BE INCORRECT,
ACTUAL RESULTS MAY VARY MATERIALLY AND ADVERSELY FROM THOSE ANTICIPATED,
BELIEVED, ESTIMATED, OR OTHERWISE INDICATED. CONSEQUENTLY, ALL OF THE
FORWARD-LOOKING STATEMENTS MADE IN THIS FILING ARE QUALIFIED BY THESE CAUTIONARY
STATEMENTS AND THERE CAN BE NO ASSURANCE OF THE ACTUAL RESULTS OR DEVELOPMENTS.
The following discussion and analysis should be read in conjunction with the Company's consolidated financial statements and related notes thereto included elsewhere in this registration statement. Portions of this document that are not statements of historical or current fact are forward-looking statements that involve risk and uncertainties, such as statements of our plans, objectives, expectations and intentions. The cautionary statements made in this registration statement should be read as applying to all related forward-looking statements wherever they appear in this registration statement. Our actual results could differ materially from those anticipated in the forward-looking statements. Factors that could cause our actual results to differ materially from those anticipated include those discussed in "Risk Factors," "Business" and "Forward-Looking Statements."
The following management discussion should be read together with the AFGP's consolidated financial statements included in this registration statement See "Index to Financial Statements" at page F-1. Those consolidated financial statements have been prepared in accordance with generally accepted accounting principles of the United States of America.
General Overview
American Fiber Green Products, Inc.
From its inception, American Fiber Green Products, Inc. ( f/k/a Amour Hydro
Press, Inc; Amour Fiber Core, Inc. [Washington]; Amour Fiber Core, Inc.
[Nevada]) has had a focus on the production of Fiberglass Reinforced Plastic
(FRP) products to take to market, beginning with the patented recycling
technology developed by William Amour, the company's founder. After
spending millions of dollars on research and development and proving that the
technology could, in fact, recycle fiberglass waste and produce superior
fiberglass products, the Company was forced to suspend operations due to the
death of Mr. Amour in 1999. Several years of stagnation and distress left the
Company, its creditors and its nearly 850 shareholders on the verge of total
loss. In 2001 Kenneth McCleave started dialogue with the Management and
shareholders of the Company about merging with American Leisure Products, Inc.,
a company that would use virgin materials to produce vintage cars, boats and
other FRP products. These discussions resulted in a concerted effort by McCleave
and his team, as well as the Officers and Directors of the Company, to establish
support for and confidence in the proposed plan of merger. In May of 2004 after
much creditor negotiation, resolution of legal matters and personal visits with
hundreds of shareholders representing over 70% of the issued and outstanding
shares of the Company's common stock, the merger was completed between Amour
Fiber Core, Inc. (Nevada) and American Leisure Products, Inc. (Florida)
Simultaneously, the combined companies effected a name change to American Fiber
Green Products, Inc. (AFGP) The company established that the future operations
of the two merged companies would represent two divisions of AFGP. Amour Fiber
Core, Inc. (Florida) had been formed to be a subsidiary of American Fiber Green
Products, Inc. specifically fiberglass waste recycling. American Leisure
Products, Inc. (Florida) will produce fiberglass components from new materials.
We plan to generate revenues from several areas: a technology and proprietary process for the recycling of fiberglass. Revenues can be produced from the following areas:
Amour Fiber Core primary focus will be to recycle fiberglass, produce products from recycled material and sell license agreements for its process. The Company has developed, tested and previously placed into limited commercial production, a new technology for fiberglass reclamation manufacturing. It has adapted this technology to establish a manufacturing business. From the research and development in Amour's early stages many different products have been prototyped and tested. Building on this foundation, management has determined that the pilot plant, anticipated to be constructed in Florida in 2009 will produce general planking or boards for marine decking and seawalls. Marketing the planking we will help to "brand" our name through park benches and picnic tables as part of our first line of finished goods.
We intend to offer contracts for our licensing of our patented technology. The Company believes that licensing its technology to businesses in foreign countries and the North American market can be an effective method to maximize the return on its investment in the continued development of its fiberglass recycling technology, without significant additional capital outlays. Additionally, such licensing agreements will increase the Company's public visibility and general awareness of its technology. The licensee will be required to pay an upfront fee for the sub-license, equipment and training prior to delivery and a royalty fee to the Company for each item produced by the licensee. If the wholesale price of the licensee's produced products are significantly below the production costs of products produced by the Company, the Company may also offer to purchase product from the licensees. The Company believes the establishment of licensees in various foreign countries is an effective means of introducing the Company's technology into new markets without major capital outlays.
American Leisure Products.
American Leisure Products (ALP) will produce FRP parts within the fiberglass industry. In addition the Company will produce parts from the company owned molds for the after market hot rod industry and the marine industry. ALP will produce and sell vintage car bodies, boats, and other fiberglass components in the leisure products line. The leisure market has been defined in recent years as one of the fastest growing market segments because of 'baby boomers' who have reached a point of financial affluence and increasing leisure time. Their desire to enjoy the 'fruits of their labor' has created a massive market that our products will feed. The company currently owns molds for several products, but will also be acquiring additional molds and tooling as funding is achieved through debt or equity or the combination.
Results of Operations
Revenues.
The Company had no revenue for the years ended December 31, 2008 and 2007. The Company has suspended all operations for the past several years while management effected the changes in corporate structure, built a management team, studied the market trends, and generated investment interest in the Company's business model and opportunity. The Company plans to build a pilot plant in 2009. The Company has begun the process of identifying a network of sub-licensees to collect and process waste fiberglass and to produce finished goods from that process. These sub-licenses will provide income to the Company in initial fees for acquiring the license as well as ongoing revenue from production royalties.
Expenses
The Company incurred interest expense for year ended December 31, 2008, of $87,507. Interest for the year ended December 31, 2007 was $114,457. Interest was charged based on the stated interest rates set forth in the notes. Marketing, general and administrative expenses for the same periods were $87,411 and $173,161 respectively. The decrease in marketing, general and administrative expenses is primarily due to prior year costs associated with corporate filings and registrations.
The Company has incurred net operating losses since inception. At December 31, 2008 the Company had a net operating loss carry forward of approximately $2,800,787. For U.S. tax purposes the net operating losses will begin expiring in twenty years. We have had a change of ownership as defined by the Internal Revenue Code section 382. As a result, a substantial annual limitation may be imposed upon the future utilization of our net operating loss carry forwards.
General Trends and Outlook
We believe that our immediate outlook is extremely favorable, as we believe there is no other company competing with us on a nationwide basis in our market niche for recycling fiberglass and only a limited numbers of companies competing with us in of our products within American Leisure Products. However, there is no assurance that such national competitor will not arise in the future. We do not anticipate any major changes in the Recycling industry. We believe that 2009 will be a significant growth year, and besides the operational business strategies discussed above, we intend to implement the following plans in 2009 in order to maintain and expand our opportunity.
The Company continues to seek funding which will allow us to staff our facility in Tampa, Florida, with customer service representatives and logistical support personnel, to build our Pilot Plant and complete our tooling requirements. Currently this facility is limited in staff. The Tampa plant will serve as the selling platform for the sub-licensing of Amour Fiber Core's patented technology. Additionally, we will utilize this facility to directly distribute American Leisure's products to the market.
As we gain strength and stability in the U.S. domestic market, we intend to expand our influence and market in other areas of the world through our license agreements. Inquiries about acquiring use of the Amour recycling technology have been received from Japan, Australia, England, France, Turkey, Egypt, the African continent, Indonesia, Ireland, the Caribbean basin and Canada.
Liquidity and Capital Resources
During the years ended December 31, 2008 and 2007 the Company used cash from operating activities of $86,973 and $123,154, respectively. This use of cash is primarily due to operating losses for both periods and partially offset by deferred compensation.
During the years ended December 31, 2008 and 2007 the Company provided cash from investing activities of $-0- and $546,656, respectively. The decrease in cash flows from investing activities is primarily due to prior year's reclassification of interest payable from short term to long term. We believe this to be a more appropriate presentation since our priorities are to focus on the business growth and profitability.
During the years ended December 31, 2008 and 2007 the Company (used) provided cash from financing activities of $86,926 and (423,511), respectively. This increase of cash provided by financing activities is primarily due to prior year's reclassification of interest payable from short term to long term and issuance of common stock to relieve notes payable and accrued interest.
The aggregate value of outstanding loans as of December 31, 2008 is $522,227. This amount is comprised of notes payable to shareholders of $298,035 and long-term payables of $224,192. Notes payable to shareholders are due on demand, together with accumulated interest on a compound basis at rates specified in each note.
Long-term payables are comprised of amounts due to PAC, a related party, of $224,192 of which $221,148 bears interest with terms similar to those of the notes payable to shareholders. The remaining balance of long-term payables of $3,044 has no specified terms or conditions.
Cash flows from operations have been derived primarily from increased liabilities and issuance of equity. As of December 31, 2008, working capital deficit was $328,807. As current operating cash flow is insufficient to finance the Company's planned growth, we will continue to seek additional financing from alternative sources, including bank loans, supplier agreements and other financing arrangements. The Company has engaged the services of an unaffiliated third party on a performance basis to locate both short term and long term funding in both debt and equity. Preliminary results have produced anticipation of short term financing in the second quarter of 2009 and long term funding in the third quarter.
The planned construction of the Pilot Plant is expected to cost approximately $525,000. The Company plans to acquire funding for the construction from outside investors, establishment of license agreements, government grants or through a stock offering.
Unpredictability of future revenues; Potential fluctuations in quarterly operating results; Seasonality
As a result of the Company's limited operating history, the Company is unable to accurately forecast its revenues. The Company's current and future expense levels are based largely on its investment plans and estimates of future revenues and are to a large extent fixed and expected to increase.
Sales and operating results generally depend on the volume of, timing of and ability to fulfill the number of orders received and the ability to obtain raw materials at a reasonable price. The Company may be unable to adjust spending in a timely manner to compensate for any unexpected revenue shortfall. Accordingly, any significant shortfall in revenues in relation to the Company's planned expenditures would have an immediate adverse effect on the Company's business, prospects, financial condition and results of operations. Further, as a strategic response to changes in the competitive environment, the Company may from time to time make certain pricing, service or marketing decisions which could have a material adverse effect on its business, prospects, financial condition and results of operations.
The Company expects to experience significant fluctuations in its future
quarterly operating results due to a variety of factors, many of which are
outside the Company's control. Factors that may adversely affect the Company's
quarterly operating results include (i) the Company's ability to retain
customers, attract new customers at a steady rate and maintain customer
satisfaction, we cannot be sure that we will be able to attract sufficient
customers to maintain or grow revenue and consequently our long term growth and
success may be negatively impacted (ii) the announcement or introduction of new
technology by the Company and its competitors, we cannot be sure that our
competition will not significantly impact our customer base, and thereby
negatively impact our revenues, with new and improved technology; (iii) price
competition or higher prices in the industry we cannot be sure that we will be
able to maintain our current pricing structure and gross margins to be able to
compete with new competitors at reasonable prices; (iv) the Company's ability to
upgrade and develop its systems and infrastructure and attract new personnel in
a timely and effective manner, the Company cannot be sure that it will be able
to raise sufficient capital in order for it to grow its infrastructure;
(v) governmental regulation, the Company must comply with regulations from
several governmental agencies to ensure compliance of products, recycling
processes and manufacturing facilities, but there is no assurance that the
regulations will not change or become more restrictive in the future, thereby
limiting the ability of the Company to produce cost effective products.
Capital Stock
Preferred Stock
Although the board has authorized 5,000,000 shares of preferred stock, par value $.001, none has been issued.
Capital expenditures.
We expect to incur capital expenditures in the future. Since our inception, the research and development has been completed. For each division in 2009-2010, we expect to have total capital expenditures of $525,000.00 - Amour Fiber Core $250,000 for the pilot plant and American Leisure Products $275,000.
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.
Significant Accounting Policies
The accounting policies of the Company are in accordance with generally accepted accounting principles of the United States of America, and their basis of application is consistent. Outlined below are those policies considered particularly significant:
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Common stock transactions for services are recorded at either the fair value of the stock issued or the fair value of the services rendered, whichever is more evident on the day that the transactions are executed. The certificates must be issued subsequent to the transaction date.
Research and development costs are charged to operations when incurred and are included in operating expenses.
The accompanying consolidated financial statements include the activity of the Company and its wholly owned subsidiaries. All intercompany transactions have been eliminated in consolidation.
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and the reported amounts of revenues and expenses during the reported periods. Actual results could materially differ from those estimates.
For purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Inventory is valued at the lower of cost or market. All inventory will be evaluated periodically for excess amounts on hand and obsolescence. If necessary, appropriate reserves will be established.
Property and equipment are stated at cost and are depreciated over their estimated useful lives. Depreciation is currently recorded as Marketing, General and Administrative expense. At such time as assets are transferred to revenue generating production, their associated depreciation will be recorded as Cost of Sales.
The Company recognizes revenues from 1) tipping fees in the acquisition of scrap fiberglass, 2) sale of products produced with reclaimed fiberglass, 3) fees charged for licensing and installation of the proprietary reclamation and manufacturing processes, 4) royalties charged to licensees for revenues generated by using our licensed processes, 5) sales of other fiberglass products (reproduction cars, boats). Revenue is recorded when products and services are provided to the customer.
Project development costs are expensed as incurred. The cost of equipment that will be acquired or constructed for project development activities, and that have alternative future uses, both in project development, marketing or sales, will be classified as property and equipment and depreciated over their estimated useful lives. To date, project development costs include the development, engineering, and marketing expenses related to the Company's fiberglass reclamation process and associated product development.
Effect of Inflation
We do not believe that inflation has had a material effect on our business, results of operations or financial condition during the past two years.
In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161, Disclosures About Derivative Instruments and Hedging Activities. ("SFAS 161"). SFAS 161 requires additional disclosures related to the use of derivative instruments, the accounting derivatives and the financial statement impact of derivatives. SFAS No. 161 is effective for fiscal years beginning after November 15, 2008. The adoption of SFAS 161 will not have a material impact on the Company's consolidated financial statements.
In April 2008, the FASB issued FASB Staff Position (FSP) FAS 142-3, Determination of the Useful Life of Intangible Assets. FSP FAS 142-3 amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of a recognized intangible asset under FASB Statement No. 142, Goodwill and Other Intangible Assets. FSP FAS 142-3 is effective for fiscal years beginning after December 15, 2008 and early adoption is prohibited. The adoption of this statement will not have a material effect on the Company's financial statements.
In May 2008, the FASB issued SFAS No. 162, The Hierarchy of Generally Accepted Accounting Principles. SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements of nongovernmental entities that are presented in conformity with generally accepted accounting principles in the United Statements. It is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, The Meaning of Present Fairly in Conformity With Generally Accepted Accounting Principles. The adoption of this statement will not have a material effect on the Company's financial statements.
Other recent accounting pronouncements issued by the FASB (including its EITF), the AICPA, and the SEC did not or are not believed by management to have a material impact on the Company's present or future financial statements.
ITEM 7A.
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