NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
AS OF MARCH 31, 2014 AND FOR THE
THREE MONTHS ENDED MARCH 31, 2014 AND 2013
UNAUDITED
NOTE 1 - ORGANIZATION AND BUSINESS
American Fiber Green Products, Inc. (AFBG) 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 shares 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 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 the sale of sub-licensing agreements, 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
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, 2014 and 2013, (b) the financial position at March 31, 2014 and December 31, 2013, and (c) cash flows for the three months ended March 31, 2014 and 2013, 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, 2013. The results of operations for the three months ended March 31, 2014 and 2013 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 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.
NOTE 4 - NOTES RECEIVABLE
The Company has made loans to several companies, both owned by officers and stockholders of the Company and to unrelated parties. The purpose of these loans was to invest in other fiberglass manufacturing businesses in order to facilitate the development and production of fiberglass products. The Company does not expect repayment of these amounts to occur during the next 12 months.
Notes receivable are made up of the following:
|
|
2014
|
|
|
2013
|
|
|
|
|
|
|
|
|
|
|
Note receivable, related party, 10% interest, past maturity
|
|
$
|
53,599
|
|
|
$
|
53,599
|
|
Note receivable, related party, 10% interest, past maturity
|
|
|
20,253
|
|
|
|
20,253
|
|
Note receivable, related party, 8% interest, past maturity
|
|
|
14,700
|
|
|
|
14,700
|
|
Note receivable, related party, 8% interest, past maturity
|
|
|
3,000
|
|
|
|
3,000
|
|
Note receivable, related party, 8% interest
|
|
|
143,613
|
|
|
|
138,113
|
|
|
|
$
|
235,165
|
|
|
$
|
229,665
|
|
Less Current Portion
|
|
|
-
|
|
|
|
-
|
|
Based on rates and terms of the notes, the Company has recognized $5,058 and $2,097 of interest income for the months ended March 31, 2014 and 2013, respectively. The accumulated interest receivable, under these notes, is $101,826 and $96,768 as of March 31, 2014 and December 31, 2013, respectively.
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 5 - STOCKHOLDERS' EQUITY
Founder Shares
In May 2004, the Board of Amour Fiber Core Inc. a Washington corporation approved to reincorporate it in Nevada and reduce the number of shares outstanding. It merged into a newly organized Nevada corporation (also named "Amour Fiber Core, Inc."), and each share of Amour Fiber Core, Inc. (Washington) was converted into 1/6 of a share of Amour Fiber Core, Inc. (Nevada). As a result, the surviving corporation, Amour Fiber Core, Inc. (Nevada) has a total of (1,837,998) shares outstanding. Amour Fiber Core Inc. (Nevada) has 350 million shares of Common Stock authorized and 5 million shares of "blank check" preferred authorized.
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. The 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 this reverse merger. Following the transaction, Amour Fiber Core, Inc. (Nevada) had 9,189,998 shares outstanding. The assets of ALP (Tooling) were added to the assets of AFC in a purchase transaction with a corresponding capital contribution amount of $50,000 recorded as Additional Paid-In Capital.
At the time of this reverse merger, the smaller combining entity (ALP), a) holds a majority of the voting rights, (80.0%) of the combined company (AFC) common shares outstanding; and b) comprises the senior management of the combined company.
The Company issued 157,500 shares of common stock in exchange for services during the year ended December 31, 2012. These shares were valued at the fair market value of the stock at the date of grant, resulting in the recognition of $91,350 in compensation expense.
In accordance with the employment agreement of the officer, provision is made for the issuance of 100,000 options. The Company has valued the options, using the Black Scholes Method, resulting in compensation expense in the amount of $42,250. The following assumptions were used in the calculation:
Weighted Average:
|
|
|
|
Dividend rate
|
|
|
.0
|
%
|
Risk-free interest rate
|
|
|
.062
|
%
|
Expected lives (years)
|
|
|
3.0
|
|
Expected price volatility
|
|
|
213.6
|
%
|
Forfeiture Rate
|
|
|
0.0
|
%
|
NOTE 6 - RELATED PARTY TRANSACTIONS
The Company is currently operating in a facility leased and operated by Tampa Fiberglass Inc. (TFI). TFI is owned by Ken McCleave, Chairman of AFGP. No occupancy cost has been charged to AFGP by TFI during 2014 or 2013. 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 agreement with a key employee. The employment agreement is for a period of three years, with prescribed percentage increases beginning in 2007. Increases for 2007 and 2008 were waived. A 5% increase was effective 1/1/09 for a total annual rate under the employment agreement of $63,000. The employment contract has been continued without change, on agreement with parties involved, and is expected to be renewed in 2013. The Company expects to renegotiate the terms and conditions of the contract. Compensation is currently accrued (see footnote “Deferred Wages”), as specified within the terms of the employment contract. The contract specifies minimum bonus of $15,000 (other than minimum is at discretion of the Board of Directors) and annual options (100,000 options, effective June 1st, at a strike price of average closing price of prior month). Both the bonus and options were waved in prior years, due to lack of revenue producing activity. Effective January 1, 2014, the Board of Director’s approved an increase in annual salary to $100,000.
The Company also entered into an employment contract with another key employee on January 1, 2014 under like terms and conditions including a $100,000 salary. Specifics will be determined by the Compensation Committee and approved by the Board of Directors.
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 7 - DEFERRED SALARIES
The Company has accrued salaries owed to four individuals. Three of the individuals' employment contracts are expired. 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. An S-8 registration will be filed in the second quarter of 2014 to register common stock for the conversion of a portion of the accrued debt to equity.
Deferred wages are $1,058,298 and $1,008,298 as of March 31, 2014 and December 31, 2013, respectively.
NOTE 8 - CONVERTIBLE NOTES PAYABLE
The Company has issued convertible notes payables to the following individuals:
|
|
March 31,
2014
|
|
|
December 31,
2013
|
|
Three notes payable to Robert Chipala 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.
|
|
|
133,000
|
|
|
|
133,000
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
101,500
|
|
|
|
101,500
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes
|
|
|
284,500
|
|
|
|
284,500
|
|
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 $.05 per share, the then fair market value of the shares. The total original amount of the loans still outstanding at March 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 March 31, 2014.
As of March 31, 2014 and December 31, 2013, the above notes had accrued interest payable of $646,810 and $639,855, respectively.
NOTE 9 - 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.
|
|
March 31,
2014
|
|
|
December
31,
2013
|
|
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
|
|
$
|
332,629
|
|
|
$
|
351,764
|
|
|
|
|
|
|
|
|
|
|
Note Payable to ICF, interest rate at 8%, payable on demand
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
|
|
|
|
|
|
Two notes payable to Due to Nimble Boat Works, interest rate at 8% payable on demand
|
|
|
(13,630)
|
|
|
|
(13,380)
|
|
|
|
|
|
|
|
|
|
|
Three notes to Due to Dan Hefner, interest rate at 8%, payable on demand
|
|
|
48,778
|
|
|
|
67,971
|
|
|
|
|
|
|
|
|
|
|
Four notes to Due to Kenneth McCleave, interest rate at 8%, payable on demand
|
|
|
17,119
|
|
|
|
3,388
|
|
|
|
|
|
|
|
|
|
|
Total other long-term payables
|
|
$
|
391,896
|
|
|
$
|
416,743
|
|
On February 20, 2014, the Company exchanged 2,521,008 shares of common stock for $300,000 of accrued interest.
Interest accrued on the above loans is $50,048 and $341,484 at March 31, 2014 and December 31, 2013, respectively.
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, 2014.
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 - SUBSEQUENT EVENTS
On April 7, 2014, the Company filed an S-8 registering and issuing 2,100,493 shares of common stock for the purpose of converting $374,938 of debt outstanding.