NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2016 AND FOR THE
THREE MONTHS ENDED MARCH 31, 2016 AND 2015
UNAUDITED
NOTE 1 - ORGANIZATION AND BUSINESS
American Fiber Green Products, Inc. came into existence as a result of the following transactions:
In March of 1993, William Amour founded Amour Hydro Press, Inc. (AHP) to conduct research and development to commercialize proprietary technology that would allow the company to process waste fiberglass and resins into new commercially viable products.
In January of 1996 the Board of Directors authorized the merger of AHP with Amour Fiber Core, Inc. a Washington corporation. Each common share of Amour Hydro Press, Inc. was exchanged for 280 common shares of Amour Fiber Core, Inc. The authorized shares of Amour Fiber Core, Inc. were 5,000,000 shares. The company operated under this configuration until June 1998 when the Board of Directors approved a three for one forward split (3:1) increasing the authorized from 5,000,000 to 15,000,000 common shares. Amendments to the Articles of Incorporation were filed with the State of Washington. Although approved and recorded the 3:1 forward split was not reported to the transfer agent of the company. The resulting change in common stock was from 3,675,996 to 11,027,988 common shares issued and outstanding.
Within months of these actions, William Amour, founder and driving force behind the business was diagnosed with cancer and died in 1999. Attempts by the board to continue the operation of Amour Fiber Core, Inc. resulted in substantially more debt and ultimately the cessation of operations. The value of the company was in the exclusive rights to the proprietary technology, as well as the resources developed to source raw material and vendors and the ability to create viable products from waste material. There were 884 shareholders of record at the time of William Amour's passing and they remained committed to the success of the Company. The Company ceased operations in January 2000, however, management continued to search for investors to be able to restart production.
On September 15, 2001, after several months of discussion and negotiations, Kenneth McCleave incorporated American Leisure Products, Inc. a Florida corporation, of which he was the sole shareholder of the 100,000 issued and outstanding shares for the purpose of merger with Amour Fiber Core, Inc. The terms and conditions of said merger included Mr. McCleave's assistance in resolution of a number of problems restricting Amour. Litigation with the landlord and disgruntled note holders threatened the collapse of the company unless amicable resolution was achieved. The terms of the merger were established and the concerns were resolved over the subsequent 24 months.
In May of 2004, following appropriate shareholder consent and board action, Amour Fiber Core, Inc. (Washington) merged with a newly formed Nevada corporation of the same name and with the same issued and outstanding shares (11,027,988). Amour Fiber Core, Inc. (Nevada) has authorized 350,000,000 common and 5,000,000 preferred shares.
On May 24, 2004, Amour Fiber Core, Inc. (Nevada) then entered into an Agreement and Plan of Merger with American Leisure Products, Inc., a Florida corporation with a total issued and outstanding of 100,000 common shares. A 1:6 reverse split of the Amour Fiber Core, Inc. shares held by the AFC shareholders reduced the issued and outstanding common shares of AFC (Nevada) from 11,027,988 to 1,837,998. The merger called for each share of ALP to convert to 73.52 shares of Amour Fiber Core, Inc. (Nevada). The sole shareholder of ALP received 7,352,000 shares of Amour Fiber Core, Inc. (Nevada) in the merger (i.e. a conversion ratio of 73.52:1). Following this transaction, Amour Fiber Core, Inc. (Nevada) had 9,189,998 shares outstanding.
Following this merger and in keeping with the Shareholder Consent and subsequent board action, the name of Amour Fiber Core, Inc. (Nevada) was changed to American Fiber Green Products, Inc. American Leisure Products, Inc. (a Florida corporation) became a wholly owned subsidiary of American Fiber Green Products, Inc. The assets and opportunities of American Fiber Green Products, Inc. (f/k/a Amour Nevada and Amour Washington) were moved to a newly formed, Amour Fiber Core, Inc., (a Florida Corporation) as a wholly owned subsidiary. The resulting structure is American Fiber Green Products, Inc. (Nevada) holding 100% of the stock of American Leisure Products, Inc. (Florida) and Amour Fiber Core, Inc. (Florida).
NOTE 2 - GOING CONCERN
The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. The Company's continued existence is dependent upon the Company's ability to obtain additional debt and/or equity financing. The Company has incurred losses since inception, has an accumulated deficit, and negative cash flows from operating activities. These factors raise substantial doubt about the ability of the Company to continue as a going concern.
The Company anticipates beginning construction of a pilot plant within the next 12 months and expects to complete the project and to begin production of scrapped fiberglass reclamation as a raw material within the next 24 months. Although the cost of construction is not readily determinable, the Company estimates the cost to be approximately $550,000 for the pilot plant and as much as $1.6M for a full function plant. Management plans to raise additional funds through project financings or through future sales of their common stock, until such time as the Company's revenues are sufficient to meet its cost structure, and ultimately achieve profitable operations. There is no assurance that the Company will be successful in raising additional capital or achieving profitable operations. The consolidated financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 3 - FINANCIAL STATEMENTS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
In the opinion of management, all adjustments consisting only of normal recurring adjustments necessary for a fair statement of (a) the results of operations for the three months ended March 31, 2016 and 2015, (b) the financial position at March 31, 2016 and December 31, 2015, and (c) cash flows for the three months ended March 31, 2016 and 2015, have been made.
The unaudited financial statements and notes are presented as permitted by Form 10-Q. Accordingly, certain information and note disclosures normally included in the financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted. The accompanying financial statements and notes should be read in conjunction with the audited financial statements and notes of the Company for the fiscal year ended December 31, 2015. The results of operations for the three months ended March 31, 2016 and 2015 are not necessarily indicative of those to be expected for the entire year.
The accompanying consolidated financial statements include the activity of the Company and its wholly owned subsidiaries. All inter-company transactions have been eliminated in consolidation.
Basis of Presentation
The Financial Statements and related disclosures have been prepared pursuant to the rules and regulations of the SEC. The Financial Statements have been prepared using the accrual basis of accounting in accordance with Generally Accepted Accounting Principles ("GAAP") of the United States (See Note 2 regarding the assumption that the Company is a "going concern").
Principles of Consolidation
The consolidated financial statements include the accounts of American Fiber Green Products and its wholly-owned subsidiaries, American Leisure Products, Inc. (Florida) and Amour Fiber Core, Inc. (Florida). All material intercompany accounts and transactions are eliminated in consolidation. The year end for the Company and its subsidiaries is December 31.
Use of Estimates
The preparation of financial statements in conformity with GAAP 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 revenue and expenses during the reporting period. Actual results could differ from those estimates.
Financial Instruments
The Company's balance sheets include certain financial instruments, which include cash, accounts receivable, notes receivable, interest receivable, accounts payable, accrued expenses, and notes payable. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period of time between the origination of these instruments and their expected realization.
ASC 820, Fair Value Measurements and Disclosures, defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:
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·
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Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities
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·
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Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.
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·
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Level 3 - Inputs that are both significant to the fair value measurement and unobservable.
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Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of March 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments.
Cash and Cash Equivalents
The majority of cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Generally, these deposits may be redeemed on demand and, therefore, bear minimal risk. The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. At March 31, 2016 and December 31, 2015, there were no cash equivalents.
Accounts Receivable
The Company regularly reviews accounts receivable for any bad debts based on an analysis of the Company's collection experience, customer credit worthiness, and current economic trends. After all attempts to collect a receivable have failed, the receivable is written off against the allowance. Based on management's review of accounts receivable, we have determined that an allowance for doubtful accounts of $97,939 and $97,939 is considered necessary as of March 31, 2016 and December 31, 2015, respectively.
Property and Equipment
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. Property and equipment consist of mold tooling, with estimated useful lives of 10 years, and equipment, with estimated lives of 5 years.
Long-lived assets such as property, equipment and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may not be recoverable. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the risk associated with the recovery of the assets. We did not recognize any impairment losses for any periods presented.
Revenue Recognition
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.
Stock Based Compensation
In December 2004, the FASB issued FASB ASC No. 718, Compensation – Stock Compensation ("ASC 718"). Under ASC 718, companies are required to measure the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation arrangements include stock options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As such, compensation cost is measured on the date of grant at their fair value. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments ("instruments") issued to other than employees are recorded on the basis of the fair value of the instruments, as required by FASB ASC 718. FASB ASC No. 505, Equity Based Payments to Non-Employees ("ASC 505") defines the measurement date and recognition period for such instruments. In general, the measurement date is (a) when a performance commitment, as defined, is reached or (b) when the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant as defined in the ASC 505.
Advertising
The costs of advertising are expensed as incurred. Advertising expense was $0 for each of the three months ended March 31, 2016 and 2015.
Research and Development Costs
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.
Deferred Income Taxes and Valuation Allowance
The Company accounts for income taxes under ASC 740 Income Taxes. Under the asset and liability method of ASC 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statements carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period the enactment occurs. A valuation allowance is provided for certain deferred tax assets if it is more likely than not that the Company will not realize tax assets through future operations. No deferred tax assets or liabilities were recognized as of March 31, 2016 and December 31, 2015.
Earning / Loss per Share
The Company computes basic and diluted earnings per share amounts in accordance with ASC Topic 260, Earnings per Share. The Company presents basic loss per share ("EPS") and diluted EPS on the face of the consolidated statement of operations. Basic loss per share is computed as net loss divided by the weighted average number of common shares outstanding for the period. Diluted EPS reflects the potential dilution that could occur from common shares issuable through stock options, warrants, and other convertible securities.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, we believe that the impact of recently issued standards that are not yet effective will not have a material impact on our financial position or results of operations upon adoption.
NOTE 4 - PROPERTY AND EQUIPMENT
Components of property and equipment are as follows:
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March 31, 2016
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December 31, 2015
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(unaudited)
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Molds and Tooling
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$
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50,000
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$
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50,000
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Machinery and Equipment
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44,015
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44,015
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Less: Accumulated Depreciation
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(61,378
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)
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(59,973
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)
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$
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32,637
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|
|
$
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34,042
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Depreciation for the three months ended March 31, 2016 and 2015 was $1,405 and $1,955, respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
The Company is currently operating in a facility leased and operated by Tampa Fiberglass Inc. (TFI). TFI is owned by Kenneth McCleave, Chairman of AFGP. No occupancy cost has been charged to AFGP by TFI during 2016 or 2015 there is no assurance that this favorable treatment will continue in the future if AFGP begins to facilitate operations at that site.
The Company entered into an employment contract with two key employees on January 1, 2015 under like terms and conditions including a $100,000 salary, stock options and profit-sharing - specifics to be determined by the Compensation Committee and approved by the Board of Directors. For the three month's ended March 31, 2016 and 2015, no stock options or profit sharing were recorded or accrued.
The above related party transactions are not necessarily indicative of the terms and amounts that would have been incurred had comparable agreements been made with independent parties.
NOTE 6 - DEFERRED SALARIES
The Company has accrued salaries owed to four individuals. Two of the individuals' employment contracts are expired and the other two contracts are for two officers. All balances due are fixed without any interest or other escalating cost. The Company does not expect to make any payments on these deferred wages during the next twelve months, but the balances are classified as current liabilities.
Deferred wages are $927,087 and $875,932 as of March 31, 2016 and December 31, 2015, respectively.
NOTE 7 - CONVERTIBLE NOTES PAYABLE
The Company has issued convertible notes payables to the following individuals:
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March 31, 2016
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December 31, 2015
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Three notes payable to Robert Chlipala or assigns dated June 4, 1998, July 10, 1999 and December 11, 1999, interest rate at 10.5%, 10.5% and 0% respectively principle and interest payable on demand, convertible to common stock at $0.05 per share.
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133,000
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133,000
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|
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One note payable to Gerald Rau or assigns, dated 4/1/2000, interest rate at 8.75%, past due and convertible to common stock at $0.05 per share
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101,500
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|
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101,500
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|
|
|
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Three notes payable to Les Smyth or assigns, dated September 15, 1998, June 14, 1999 and June 14, 1999, interest rates at 14%, past due and convertible to common stock at $0.05 per share
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50,000
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50,000
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Total convertible notes
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284,500
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284,500
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The Company acquired the above notes as of the date of merger, May 24, 2004. In the negotiations, the original notes were modified to include a conversion feature, in exchange for indefinitely extending the payment date. At the time of the debt modification, the conversion rate was based on the then fair market value of the stock. The Company examined the agreement and based on calculations determined that there was no beneficial conversion at that time, as the face value was equivalent to the conversion. The Conversion feature was extended to interest accrued, through the date of the modification only.
The loans are convertible into shares of common stock at a rate of $0.05 per share, the then fair market value of the shares. The total original amount of the loans still outstanding at December 31, 2014 is $284,500 plus previously accrued interest of $222,655, through the date of modification. The total common shares, if converted, would be approximately 10,143,000 shares as of December 31, 2014.
As of March 31, 2016 and December 31, 2015, the above notes had accrued interest payable of $395,497 and $388,542, respectively.
NOTE 8 - NOTES PAYABLE - RELATED PARTIES
Related party notes payables are due to PAC (Public Acquisition Company (a wholly owned business of Kenneth McCleave and Daniel Hefner), Nimble Boat Works (a wholly owned business of Kenneth McCleave), and Daniel L. Hefner (President and Chief Executive Officer of AFGP) for cash advances made to AFGP.
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March 31, 2016
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December 31, 2015
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Eight notes payable Due to PAC, dated May 14, 2004, through December 2012, interest rates at 10% and 8%, principle and interest due on demand
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$
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125,639
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$
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135,153
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Two notes payable to Due to Nimble Boat Works, interest rate at 8% payable on demand
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(18,630
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)
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(18,630
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)
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Three notes to Due to Dan Hefner, interest rate at 8%, payable on demand
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1,857
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1,857
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Three notes to Due to Kenneth McCleave, interest rate at 8%, payable on demand
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14,710
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14,710
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Total
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$
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123,576
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$
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133,090
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Interest accrued on the above loans is $372,323 and $368,947 at March 31, 2016 and December 31, 2015, respectively.
NOTE 9 - NOTES PAYABLE
During the year ended December 31, 2014, the Company signed a note payable with two individuals. The note is for $85,000, secured, due November 2016 and bears interest at 18% per annum. Monthly interest payments are required on the unpaid principle balance, which balloons at the maturity of the note. The Company has accrued $3,825 of unpaid interest at March 31, 2016.
NOTE 10 - COMMITMENTS AND CONTINGENCIES
The Company follows ASC 450-20, Loss Contingencies, to report accounting for contingencies. Liabilities for loss contingencies arising from claims, assessments, litigation, fines and penalties and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. There were no commitments or contingencies as of March 31, 2016 and 2015.
The Company's operations are subject to production of a new processing technology. Significant technical and regulatory changes can have a dramatic effect on product opportunities. Design and development of new processes are critical elements to achieve and maintain profitability in the Company's new industry segment.
The Company operates under several storage leases for its operations. Currently, all arrangements have been made on a month to month basis. Terms are expected to be defined upon the production at those sights.
The Company may be subject to federal, state and local environmental laws and regulations. The Company does not anticipate expenditures to comply with such laws and does not believe that regulations will have a material impact on the Company's financial position, results of operations, or liquidity. The Company believes that its operations comply, in all material respects, with applicable federal, state, and local environmental laws and regulations.
In the normal course of business, the Company may become a party to litigation matters involving claims against the Company. The Company's management is unaware of any pending or threatened assertions and there are no current matters that would have a material effect on the Company's financial position or results of operations.
NOTE 11 - COST OF
SALES A
CCOUNTING CORRECTION
The Company did not accrue labor costs of $33,477 in the original first quarter filing, but were paid in the second quarter. These costs have been included in these financial statements for the three months ended March 31, 2015 which resulted in an increase in cost of sales from $45,998 to $79,475. Therefore, net income for the three months ended March 31, 2015 decreased from $149,609 to $101,413.
NOTE 12 - SUBSEQUENT EVENTS
The Company has evaluated events and transactions subsequent to March 31, 2016 through the date of filing with the Securities and Exchange Commission (date available for issuance) that would require reporting.