Kaya Holdings, Inc. - Quarter Report: 2014 March (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

FORM 10-Q

 [x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

 OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended March 31, 2014

OR

[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from

__________to __________

Commission File No.:     333-177532

ALTERNATIVE FUELS AMERICAS, INC.

(Exact name of registrant as specified in its charter)

305 S. Andrews Avenue

Suite 209

Ft. Lauderdale, Florida 33301

(Address of principal executive offices)

(954) 534-7895

(Issuer's telephone number)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [x] No [ ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes [ ] No [x]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.)

Yes [ ] No [x]

As of May 18, 2014, the Issuer had 71,009,325 shares of its common stock outstanding

ALERNATIVE FUELS AMERICAS, INC.

INDEX TO QUARTERLY REPORT

ON FORM 10-Q

See accompanying notes to unaudited condensed consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

See accompanying notes to unaudited condensed consolidated financial statements.

NOTE 1 – ORGANIZATION AND NATURE OF THE BUSINESS

 Organization

Alternative Fuels Americas, Inc. (“AFAI”, “Company”) is a development stage company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. A Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation).

The Company has three subsidiaries: Alternative Fuels Americas, Inc. (a Florida corporation) and Alternative Fuels Costa Rica AFA-CR, LTDA (located in Costa Rica) which are both wholly-owned, and as of 2014, Marijuana Holdings Americas, Inc. (a Florida corporation) which is a majority owned subsidiary. 

Nature of the Business  

The Company intends to be a “seed–to-pump” biofuels company. Operations will be in Latin America and will include growing plants suitable for conversion into biofuels, extraction of crude oil from plant matter, refining the crude oil into international grade biodiesel, and selling the refined oil to end users in countries where the oil is produced.

Additionally, the Company operates a subsidiary, Marijuana Holdings Americas, Inc., a Florida corporation, that intends to pursue medical and/or recreational licenses for the growing, processing and/or sale of marijuana in jurisdictions where it is legal and permissible under local laws. The subsidiary was formed in March 2014.

In March 2014 Marijuana Holdings Americas, Inc. (through local Oregon subsidiaries) began the application process to obtain licenses to operate medical marijuana dispensaries in Oregon. On March 21, 2014 the Company received notice from the Oregon Health Authority that MJAI Oregon 1 had been granted provisional licensing approval to operate their first Medical Marijuana Dispensary in Portland, Oregon.

Risks 

The Company has been operating with extremely limited available cash and desperately needs additional sources of financing. See Note 2 and Note 10. If such financing is not obtained, the Company may have to curtail its operations.

The Company is subject to all the risks inherent in an early stage company operating in the biodiesel industry and has numerous competitors globally. These competitors may have more substantial resources and be able to succeed in manufacturing products faster than those that are contemplated by the Company’s plan of operations. Many of these competitors have substantially greater financial and technical resources and production and marketing capabilities than the Company, primarily in other parts of the world. Reference is also made to the “Risk Factors” set forth in the Company’s Annual Report on Form 10-K for the year-ended December 31, 2013.

NOTE 2 - LIQUIDITY AND GOING CONCERN

The Company’s consolidated financial statements as of and for the three months ended March 31, 2014 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $417,090 for the year ended December 31, 2013 and $49,971 for the three months ended March 31, 2014. At March 31, 2014 the Company has a working capital deficiency of $ 1,143,705 and is totally dependent on its ability to raise capital. The Company acknowledges that its Plan of Operations may not result in generating positive working capital in the near future. Although management believes that it will be able to successfully execute its business plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this material uncertainty.

Management recognizes that the Company must generate additional funds to successfully develop its operations and activities to become a seed to pump Biofuels Company. Management plans include

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES AND BASIS OF PRESENTATION

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company and the notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The December 31, 2013 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto that are included in the Company’s Annual Report on form 10-K for the year ended December 31, 2013 filed with the SEC on April 22, 2014.

The information presented as of March 31, 2014 and for the three months ended March 31, 2014 has not been audited. In the opinion of management, the unaudited interim financial statements include all adjustments, consisting only of normal recurring adjustments, necessary to present fairly the Company’s financial position as of March 31, 2014, the condensed consolidated results of its operations for the three months ended March 31, 2014 and 2013, and its condensed consolidated changes in net capital deficiency and cash flows for the three months ended March 31, 2013. These results of operations for the three months ended March 31, 2014 and 2013 are not necessarily indicative of the results for the full year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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, and the differences could be material

Concentration of Credit Risk

 Financial instruments which potentially subject the Company to concentrations of credit risk consist principally of cash. Management believes the financial risks associated with these financial instruments are minimal. The Company places its cash with high credit quality financial institutions and makes short-term investments in high credit quality money market instruments of short-term duration. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits.

Cash and Cash Equivalents

The Company considers all investments purchased with original maturities of three months or less to be cash and cash equivalents.

Fair Value of Financial Instruments

The Company follows the provisions of ASC 820. This Topic defines fair value, establishes and measurement framework and expands disclosures about fair value measurements. 

The carrying amount of financial instruments including cash, accounts payable and accrued expenses, and notes payable approximates fair value at December 31, 2013 and March 31, 2014.

Property and Equipment

Furniture, fixtures and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.

Long-Lived Assets

 The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows. In 2014 the Company terminated its agreement to purchase 40,000 Jatropha trees and will not be acquiring the trees or retaining those trees already purchased.

Earnings Per Share

In accordance with ASC 260, Earnings per Share, the Company calculates basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed if the Company has net income; otherwise it would be antidilutive, and would result from the conversion of a convertible note

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes.  Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

Re-Classifications

Certain amounts in 2013 were reclassified to conform to the 2014 presentation. These reclassifications had no effect on consolidated net loss for the periods presented.

 NOTE 5 – STOCKHOLDERS’ EQUITY

The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001, of which 100,000 shares have been designated as Series C convertible preferred stock (“Series C” or “Series C preferred stock”). The Board has the authority to issue the shares in one or more series and to fix the designations, preferences, powers and other rights, as it deems appropriate.

Each share of Series C has 433.9297 votes on any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 433.9297 shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the holder into 433.9297 shares of common stock.

The Company has 250,000,000 shares of common stock authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.

In 2011 the Company issued 3,570,000 shares of common stock to consultants. The shares were valued at $119,000, the fair value of the stock at the time. In 2012 the Company issued 300,000 shares of common stock to its directors and 3,043,194 shares of common stock to consultants. The shares were valued at $30,000 and $604,296, respectively, the fair value of the stock at the time.

The Company used a Level 3 fair value measurement to determine fair value, which are significant unobservable inputs as defined in ASC 820, previously SFAS No. 157 “Fair Value Measurements”. The 2011 shares were issued with a twelve-month right of rescission by the Company which resulted in discounts to the then market value of the common stock in of 75%. The 2012 shares were discounted 56% to market to reflect marketability and minority interest discounts. The then market value of the stock was determined by using the value of shares being sold under the Company’s private placement in 2011 and with respect to trading on the OTCC BB in 2012.

In January 2014 the Company issued 2,400,000 shares of common stock to consultants. The shares were valued at $96,000, the fair value of the stock at the time. Also during January, 2014 Marijuana Holdings Americas, Inc. agreed to issue 55 shares of Convertible Preferred shares to the Company, and 15 shares each to the Company's president and BMN Consultants, a company controlled by a shareholder. These shares are convertible to a number of shares which once issued will provide the shareholder an ownership interest in the outstanding common shares of 55%, 15% and 15%, for the Company, its president and a shareholder, respectively. Although none of the preferred shares have been converted at the date of this filing, the Company maintains effective majority control over the subsidiary.

NOTE 6 – LEASES

The Company is obligated under operating lease agreements for its corporate office in Fort Lauderdale, which expires March 2016. The Company concluded an agreement in March 2014 terminating its obligations for leases held for land in Tempate, Costa Rica. The Company concluded the term of its lease agreement for offices maintained in Hollywood, Florida. The Company signed 2 new leases that started in May 2014 and June 2014.

Minimum future lease commitments are:

Rent expense was $7,139 for the three months ended March 31, 2014, and $17,900 for the year ended December 31, 2013, respectively.

NOTE 7 – STOCK OPTION PLAN

In 2011 the Alternative Fuels America, Inc. 2011 Incentive Stock Plan (the “Plan”), which provides for equity incentives to be granted to the Company’s employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2011 Incentive Stock Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2011 Incentive Stock Plan is administered by the board of directors. 2,500,000 shares of our common stock are reserved for issuance pursuant to the exercise of awards under the 2011 Incentive Stock Plan. In January, 2014 the Company’s board of directors approved the issuance of 2,400,000 shares of our common stock to consultants of the company.

NOTE 8 – RELATED PARTY TRANSACTIONS

The Company has agreements covering certain of its management personnel (See Note 11). Such agreements provide for minimum compensation levels and are subject to annual adjustment.

The Company’s Chief Executive Officer holds 50,000 shares of its Series C preferred stock. These shares can be converted into 21,696,485 shares of the Company’s common stock at his option.

The Company’s largest stockholder has from time to time provided unsecured loans to the Company which is due on demand and bear interest at 10%. At March 31, 2014 the aggregate amount of the loans was $750,000 and accrued but unpaid interest amounted to $0. See Note 4.

NOTE 9 – INCOME TAXES  

The Company has a deferred tax asset as shown in the following:  

A valuation allowance has been recognized to offset the deferred tax assets because realization of such assets is uncertain.  The Company has net operating loss carryforwards of approximately $4,264,300 at December 31, 2013 that expire beginning in 2025. However, utilization of these losses may be limited pursuant to Section 382 of the Internal Revenue Code due to a recapitalization in 2007 and subsequent stock issuances.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

None 

NOTE 11 – SUBSEQUENT EVENTS

In the second quarter of 2014, the Company raised funds $60,000 from the sale of units comprised of shares of the Company’s stock and shares of its majority owned subsidiary, Marijuana Holdings Americas, Inc (MJAI). Each unit consists of 1,000,000 shares of common stock of AFAI and 1,000,000 shares of common stock of MJAI.

A Cayman Islands based investment fund purchased .5 units for $50,000.00 (500,000 shares of AFAI restricted common stock and 500,000 shares of restricted common shares of MJAI). Additionally an accredited investor purchased .1 units for $10,000 (100,000 shares of AFAI restricted common stock and 100,000 shares of restricted common shares of MJAI). These shares were issued pursuant to the exemption from registration afforded by Section 4 (a) (2) of the Securities Act of 1933, as amended.

The Company has signed a new lease for office space. The two year lease requires the Company pay a monthly rental fee of $2,544.

In April, 2014 MJAI, through its wholly owned subsidiary , MJAI Oregon 1, LLC (MJAI Oregon 1) Oregon company, entered into a lease for space to operate their first medical marijuana dispensary in Portland, Oregon. The five-year lease requires MJAI Oregon 1to pay a monthly rental fee of $2,255.00 the first year with annual lease payment escalations of 4% and a security deposit of $12,000.00. The dispensary is located are located at 1719 SE Hawthorne Boulevard, Portland, Oregon and will operate under the proprietary brand name of “Kaya Shack “TM. As of May 15, 2014 the Company has expended approximately $25,000.00 in remodeling expenses and an incurred additional expenses of approximately $20,000 for security systems, personnel, local legal fees and other related expenses for this location.

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

In this Quarterly Report on Form 10-Q, “Alternative Fuels Americas Inc.”, “AFAI” and the terms “Company”, “we”, “us” and “our” refer to Alternative Fuels Americas Inc. and its subsidiaries, unless the context indicates otherwise.

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial condition, made in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including those risks described in our Annual Report on Form 10-K for the year ended December 31, 2013 filed with the Securities and Exchange Commission (“SEC”) on April 15, 2014, and the risks discussed in other SEC filings. These risks and uncertainties as well as other risks and uncertainties could cause our actual results to differ significantly from management’s expectations. The forward-looking statements included in this Quarterly Report on Form 10-Q reflect the beliefs of our management on the date of this report. We undertake no obligation to update publicly any forward-looking statements for any reason.

Market Overview

According to business intelligence provider, IntertechPira, the total value of clean technologies globally is expected to rise by over 250% to $525 billion in 2019.

According to Arcview, a market research firm focusing on the emerging legal marijuana market, the U.S. market for legal medicinal and recreational marijuana is expected to reach $2.3 billion in 2014 and exceed $10 billion by 2018.

Implementation

Advanced Biofuels

The Company’s advanced biofuels business plan has three stages that are expected to result AFAI and its operating entities having (a) early-stage revenues within 120 to 180 days of funding; (b) ownership of feedstock supplies that include emerging oil-rich opportunities; and (c) an integrated research and development program designed to provide proprietary intellectual property and improve operating margins for biodiesel manufacture. The three phases are:

To advance our implementation capabilities, AFAI has focused on the four critical components of biodiesel production: (a) ensuring reliable feedstock supply - through both wild feedstock and planting programs; (b) securing sources of independent crude biofuel extraction capability; (c) securing independent refining sources through identification of existing excess industry capacity while planning to develop Company-owned facilities; and (d) establishing sales and marketing directed at Costa Rican customers through off-take agreements that sell and distribute biodiesel to domestic Costa Rican markets.

The Company intends to develop a vertically integrated biofuel enterprise, whereby the feedstock is farmed and harvested, the oil is extracted and refined and the fuel is brought to market by the Company. This vertical approach eliminates costs and enables the Company to bring green oil to market at a competitive price.

Legal Recreational and Medical Marijuana

The Company began operations in the legal marijuana sector in January 2014. With the passing of the referendum that decriminalized recreational marijuana use in Colorado, AFAI began to apply its understanding of agronomy and its strategic competences to develop a business plan that would enable the Company to enter the legal marijuana sector. Following the successful introduction of legal recreational marijuana use in Colorado and Washington, the Company incorporated MJAI to operate as a grower, processor, distributor and/or retailer of legal recreational and/or medical marijuana in jurisdictions where it has been or is expected to be approved.

MJAI intends to seek licensing opportunities in states which have legalized recreational and/or medical marijuana use and join advocacy and lobbying efforts in select states where legalization is pending or is otherwise under consideration. The Company plans to establish a unified look and brand to its retail and grow operations and, where permitted by law, supply its retail dispensaries with marijuana it grows.

AFAI believes that through its subsidiary, MJAI, it has established the foundation for the operation of Medical Marijuana Facilities (“MMFs”) and Grow Facilities. In March 2014, the Company applied for and was awarded a license to operate a MMF in Oregon. MJAI is also seeking to become active in the movement to legalize medical marijuana use in the states of Florida and New York.

The Company has established a well-defined strategy for entering and maintaining a strong presence in the legal marijuana sector. The cornerstones of this strategy include:

In addition to these immediate target states, activities, the Company intends to establish a presence in other states, such as New Jersey, Washington, Colorado, Illinois, Ohio, Texas, Louisiana and Arizona, by incorporating subsidiaries in those states, thereby positioning MJAI to meet residency requirements if and when recreational and/or medical marijuana use is legalized and licensing opportunities arise.

All operations are expected to be conducted through subsidiary entities formed in the state within which business activities are taking place.

Initial Oregon Medical Marijuana Footprint

Oregon recently legalized medical marijuana use, which is subject to significant state regulation. The Company also believes that Oregon may shortly legalize recreational marijuana uses, as Washington, its neighboring state, has recently done. In addition, to MMF license, the Company plans to apply for licenses to operate Grow Facilities. In March 2014, MJAI, through an Oregon subsidiary, applied for and was awarded a provisional license to operate an MMF in Portland, Oregon. Pursuant to consultation with Oregon based legal counsel, in order to comply with Oregon state residential and licensing requirements for MMF’s MJAI’s Oregon subsidiaries will operate in conjunction with local Oregon resident(s) who serve as the legally required Person Responsible for Facility (PRF).

 Florida Cannabis Industry Association

The state of Florida, MJAI’s home state, is set to have a voter referendum on legal medical marijuana November 2014 ballot. The Company has been actively monitoring events and has become active in the emerging cannabis sector in Florida. The Company should be well positioned if the referendum passes in helping to shape the legislation and obtain licenses to operate in Florida.

MJAI has established a firm position in the emerging Florida market through founding and sponsoring of the Florida Cannabis Industry Association. Judging from the experiences in other states, such as Colorado, Oregon and Nevada, the local Cannabis Industry Association is a leading force in the construction and passage of the legislation that decriminalizes marijuana and permits its legal cultivation, distribution, possession and sale for recreational and/or medicinal purposes. Through MJAI’s leadership efforts in the Florida Cannabis Industry Association, the Company expects to be well positioned as the highly coveted Florida market, if medical marijuana use is legalized.

 New York Lobbyists

New York State also appears to be moving rapidly toward the legalization of medical marijuana use. The Company believes that New York, like Florida, represents an excellent opportunity for the Company to gain significant market share by helping shape legislation and being among the first to enter the market. The Company plans to retain lobbyists in New York to help draft the legal medical marijuana legislation and to secure ample licensing opportunities to MJAI. The Company intends to pursue a sponsorship of the New York Cannabis Industry Association.

 We cannot assure that we will be successful in raising additional capital to implement our business plan. Further, we cannot assure, assuming that we raise additional funds, that we will achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability and positive cash flow, our operating business, financial condition, cash flows and results of operations may be materially and adversely affected.

Critical Accounting Estimates

The following are deemed to be the most significant accounting estimates affecting us and our results of operations. 

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures 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, and the differences could be material.

Cash and Cash Equivalents

The Company considers all investments purchased with original maturities of three months or less to be cash and cash equivalents.

Fair Value of Financial Instruments

The Company follows the provisions of ASC 820. This Topic defines fair value, establishes and measurement framework and expands disclosures about fair value measurements.

Property and Equipment

Furniture, fixtures and equipment are stated at cost. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets, which range from three to five years. Routine maintenance and repairs are charged to expense as incurred and major renovations or improvements are capitalized.

Long-Lived Assets

The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows. During the year ended December 31, 2013 and the three months ended March 31, 2014, there were no deemed impairments of long-lived assets.

Results of Operations

Three months ended March 31, 2014 compared to three months ended March 31, 2013.

We had no revenue for the three months ended March 31, 2014 and 2013. Management believes the most informative presentation is to present and comment on expenses and increased access to Capital Resources and cash reserves held by the Company.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $125,832 to $155,075 in first quarter 2014 compared to the same period in 2013. The increase results from the Company’s entrance into the Medical Marijuana market and expenses associated with obtaining their first dispensary license in Portland, Oregon.

Liquidity and Capital Resources

In the first quarter of 2014 the Company raised $250,000 from a Cayman Islands based investment fund for the sale of 2.5 units comprised of shares of the AFAI’s stock and shares of its majority-owned subsidiary, Marijuana Holdings Americas, Inc (MJAI). Each unit consists of 1,000,000 shares of common stock of AFAI and 1,000,000 shares of common stock of MJAI. These shares were issued pursuant to the exemption from registration afforded by Section 4 (a) (2) of the Securities Act of 1933, as amended.

Accordingly, even with increased expenses associated with the launch of the Medical Marijuana business plan the Company’s cash reserves as of March 31, 2014 were $11,954 versus $185 for the same period. While the Company believes that they will continue to have increased access to investment capital to develop its Medical Marijuana and Legal Recreational Marijuana business plan, there can be no assurance that this will be so.

There are no current revenues, and the Company acknowledges that its Plan of Operations may not result in generating positive working capital in the near future. Although management believes that it will be able to successfully execute its business plan, which includes third-party financing and the raising of capital to meet the Company’s future liquidity needs, there can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this material uncertainty.

Going Concern

The Company’s financial statements as of and for the three months ended March 31, 2014 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a total net loss of $4,389,242 from inception through the year ended March 31, 2014. The Company had a net loss of $49,971 for the three months ended March 31, 2014. At March 31, 2014 the Company had a working capital deficiency of $1,143,705, an accumulated deficit of $4,389,242 and a net capital deficiency of $ 1,113,790. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this material uncertainty.

No assurances can be given that the Company will be successful in raising additional capital as discussed above. Further, there can be no assurance, assuming the Company successfully raises additional funds, that the Company will achieve profitability or positive cash flow. If the Company is not able to timely and successfully raise additional capital and/or achieve positive cash flow, its business, financial condition, cash flows and results of operations will be materially and adversely affected.

Recently Issued Accounting Pronouncements

Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants (“AICPA”), and the Securities and Exchange Commission ("SEC") did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

Off-Balance Sheet Arrangements

There are no 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.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not applicable.

Item 4. Controls and Procedures

Following the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of Craig Frank, our Chairman of the Board, President and Chief Executive Officer, and Ronen Ben-Harush, our Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act) as of March 31, 2014.

the end of the period covered by this report. Based on this evaluation, our Chairman of the Board, President and Chief Executive Officer and our Chief Financial Officer concluded that at March 31, 2014 our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or

There was no change in our internal controls or in other factors that could affect these controls during the quarter ended March 31, 2013 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We do not anticipate any changes to our internal controls at this time.

PART II – OTHER INFORMATION

Item 1. Legal Proceedings

None.

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

In the first quarter of 2014 the Company raised $250,000 from a Cayman Islands based investment fund for the sale of 2.5 units comprised of shares of the AFAI’s stock and shares of its majority-owned subsidiary, Marijuana Holdings Americas, Inc (MJAI). Each unit consists of 1,000,000 shares of common stock of AFAI and 1,000,000 shares of common stock of MJAI. These shares were issued pursuant to the exemption from registration afforded by Section 4 (a) (2) of the Securities Act of 1933, as amended.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures.

None.

Item 5. Other Information

Item 6. Exhibits

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.