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)

 

Delaware		90-0898007
(State or other jurisdiction of  incorporation or organization)		(I.R.S. Employer Identification  Number)

 

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):

 

	Large accelerated filer [ ]	Accelerated filer [ ]
	Non-accelerated filer [ ]	Smaller reporting company [x]

 

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

 

 

	Part  I – Financial Information									Page
	Item 1.	Condensed Consolidated Financial Statements
						Condensed Consolidated Balance Sheet				1
						Condensed Consolidated Statements of Operation				2
						Condensed Consolidated Statements of Cash Flows				3
						Notes to Condensed Consolidated Financial Statements				4
	Item 2.			Management’s Discussion and Analysis of Financial Condition and Results of Operations						10
	Item 3.			Quantitative and Qualitative Disclosures About Market Risk.						14
	Item 4.			Controls and Procedures						14
	Part II - Other Information
										15
	Item 1.			Legal Proceedings						15
	Item 1A			Risk Factors						15
	Item 2.			Unregistered Sales of Equity Securities and Use of Proceeds						15
	Item 3.			Defaults Upon Senior Securities						15
	Item 4.			Mine Safety Disclosures						15
	Item 5.			Other Information						15
	Item 6.			Exhibits
	Signatures

 

 

 

Alternative Fuels Americas, Inc.

(A Development Stage Company)

Condensed Consolidated Balance Sheets

(Unaudited)

 

ASSETS
			March 31,				December 31,
			2014				2013
Current assets:
Cash		$	111,954				$                 185                          185
Total current assets			111,954				185
Prepaid Expenses			7,632				—
Receivable from third party			11,000				—
Property and equipment, net:			8,283				2,821
Security Deposit			3,000				—
Total Assets		$	141,869			$	3,006
LIABILITIES AND NET STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued expenses		$	458,359			$	514,926
Current Portion of Installment Agreement			—				5,000
Current Portion Loans Payable - Stockholders			47,300				796,900
Total current liabilities			505,659				1,316,826
Loan Payable - Stockholders			750,000				—
			750,000				—
Total Liabilities			1,255,659				1,316,826
Stockholders' deficit
Convertible preferred stock - Series C, $.001 par value; 10,000,000 shares authorized,
55,120 and 55,120 shares issued at March 31, 2013 and December 31, 2012 respectively			55				55
Common stock, $.001 par value; 250,000,000 shares authorized; 68,494,325 and 70,949,325
shares issued and outstanding at March 31, 2014 and December 31, 2013  , respectively			70,949				68,449
Additional paid-in capital			3,204,448				2,956,948
Deficit accumulated during the development stage			(4,365,908	)			(4,339,272	)
Non-Controlling Interest			(23,334	)
Net Stockholders' Deficit			(1,113,790	)			(1,313,820	)
Total Liabilities and Net Capital Deficiency		$	141,869			$	3,006

 

See accompanying notes to unaudited condensed consolidated financial statements.

Alternative Fuels Americas, Inc.
(A Development Stage Company)
Condensed Consolidated Statements of Operations
(Unaudited)
										Period from May 11,
		Three months ended March 31,								2007 (inception) to
		2014   2014				2013   2013				March 31, 2014
Revenue:
Sales		$	—			$	—			$	—
Cost of sales			—				—				—
Gross profit			—				—				—
Selling, general and administrative
Professional Fees			99,670				16,275				879,773
Salaries & Wages			—				4,065				85,105
Other			62,048				15,547				3,546,269
Loss from Operations			161,718				35,887				4,511,147
Other Income (Expenses)			90,995				—				471,660
Forgiveness of Debts			21,369				—				21,369
Loss from obligation settlement			—				—				(75,002	)
Gain on settlement of accounts payable			—				—				191,311
Interest			(616	)			(14,164	)			(487,432	)
Loss before Income tax			(49,970	)			(50,051	)			(4,389,241	)
Income Tax			—				—				—
Net Loss			(49,970	)			(50,051	)			(4,389,241	)
Net Loss Attribute to non-controlling interest			(23,334	)			—				(23,334	)
Net loss attributed to Alternative Fuels Americas, Inc.		$	(26,636	)		$	(50,050	)		$	(4,365,907	)
Basic and Diluted loss per share		$	(0.00	)		$	(0.00	)
Weighted shares of common stock outstanding			70,949,325				68,049,325

See accompanying notes to unaudited condensed consolidated financial statements.

Alternative Fuels America, Inc. Condensed Consolidated Statements of Cash Flows
(Unaudited)
		Three months ended March 31,								Period from May, 11 2007 (Inception) to
		2014				2013				March 31, 2014
Cash flows from operating activities: Net loss		$	(49,970	)		$	(50,051	)		$	(4,389,242	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			373				1,259				12,184
Gain from derecognition of sale liabilities			—				—				(571,976	)
Gain from restructure Stockholder Loan			(92,364	)			(92,364	)
Equity-based compensation			—				—				149,000
Loss from obligation settlement			—				—				75,002
Merger-related costs			—				—				6,567
Changes in assets and liabilities:
Other assets			(21,632	)			—				(21,632	)
Accounts payable and accrued expenses			48,697				(5,991	)			1,651,475
Net cash used in operating activities			(114,896	)			(54,783	)			(3,180,986	)
Cash flows from investing activities:
Proceeds from Equipment disposal			(5,835	)			—				4,131
Purchase of property and equipment			(5,835	)			—				(24,599	)
Net cash used in investing activities			(5,835	)			—				(20,468	)
Cash flows from financing activities:
Proceeds from convertible promissory notes			—				18,000				650,000
Payments against installment agreement			(5,000	)			(10,000	)			(75,002	)
Payments to stock holder loan			(12,500	)			—				(12,500	)
Proceeds from stockholder loans			—				54,000				803,900
Proceeds from sale of common stock			250,000				—				1,947,010
Net cash provided by financing activities			232,500				62,000				3,313,408
Net increase (decrease) in cash			111,769				7,217				111,954
Cash at beginning of period			185				—				—
Cash at end of period		$	111,954			$	7,217			$	111,954
Supplemental cash flow information :
Value of common shares issued for settlement of accounts payable		$	—			$	—			$	8,689
Value of common shares issued for payment of services		$	—			$	—			$	607,639
Value of common shares issued for conversion of convertible promissory notes ($650,000) and accrued interest ($358,583)		$	—			$	—			$	1,008,583
Value of common shares issued in merger		$	—			$	—			$	6,567
Value of convertible preferred shares of subsidiary issued		$	—			$	—				$      _               -
Value of convertible preferred shares of subsidiary issued		$	96,000			$	—			$	96,000

 

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

 

•

The creation of Special Purpose Vehicles/Entities with which to generate capital for use in a geographic region;

•

the sale of additional equity and debt securities;

•

alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan;

•

other business transactions to assure continuation of the Company’s development and operations; and, development of a unified brand and the pursuit of licenses to operate medical marijuana facilities under the branded name.

 

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 4 – DEBT AND INSTALLMENT AGREEMENT		March 31, 2014				December 31, 2013
Loan payable - stockholder, 8%, due on demand, unsecured(4)		$	750,000			$	737,100
Loan payable- Stockholder, due on Nov 1,2014, unsecured ( 2)			7,500				10,000
Loan payable- Stockholder, unsecured ( 3)			14,800				24,800
Convertible note - stockholder, 10%, due April 30, 2013,unsecured (1)			25,000				25,000
		$	797,300			$	796,900

 

(1)

At the option of the holder the convertible note may be converted into shares of the Company’s common stock at the lesser of $0.40 or 20% discount to the market price, as defined, of the Company’s common stock. The Company is currently in discussions with the lender on a payment schedule.

(2)

On July 1, 2013 the company received $10,000 loan from a shareholder. In consideration for Payee making the loan to AFAI, AFAI extended to Payee an option (the “Option”) to purchase Five Hundred Thousand (500,000) shares of common stock in AFAI for a price of $.10 per share (the “Exercise Price”) for a period of three (3) years from the date of this note (the “Option Life”). In the event that AFAI completes a sale of stock at a price lower than $.10 per share during the Option Life (whether via a bona fide public offering, or a sale of restricted stock pursuant to rule 504 or any other form of exemption available to the company) then the Exercise Price of the option shall be adjusted to that price for the duration of the term of the Option Life. On October 31, 2013 the maturity date of the note was extended to November 31, 2014 with four quarterly payments of $2500.00 due March 31, 2014, June 30, 2014, September 30, 2014 and November 30, 2014. Additionally, the option was surrendered to the company in exchange for 100,000 shares of AFAI stock as full payment for all interest due through November 30, 2014.

(3)

In 3rd Qtr of 2013 a stockholder of the company agree to loan the company up to $25,000 for expenses on an as needed, non-interest bearing basis.

(4)

At December 31, 2013 the Company was indebted to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal and $103,895 accrued interest, with interest accruing at 10%. On January 2,2014 the Company entered into a Debt Modification Agreement whereby the total amount of the debt was reduced to $750,000.00 and there is no accrued interest or principal due until December 31, 2015. $500,000 of the debt is convertible into 50,000 Series C Convertible Preferred Shares of AFAI, which if converted are subject to resale restrictions through December 31, 2015. The remaining $250,000 is not convertible.

 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:

	Year	Amount
	2014	36,646
	2015	58,158
	2016	36,367
	2017	29,885
	2018	25,816

 

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:  

		2013				2012
Tax loss carry-forward		$	1,509,625			$	1,169,000
Valuation allowance			(1,509,625	)			(1,169,000	)
		$	-			$	$           -

 

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:

 

·		Phase One – generates early-stage revenues by utilizing feedstock from oil-rich crops that are growing wild on private lands. AFAI has negotiated long-term contracts with private landowners that will provide steady and secure access to this wild feedstock for up to 10 years. To date AFAI has secured contracts with 150 farmers in the Palmar area of Costa Rica, accounting for approximately 20,000 hectares (48,000 acres) of land. This phase includes construction of scalable refining capacity.
·		Phase Two - establishes control over AFAI’s long-term feedstock needs through the implementation of a wide-scale planting and farming program of second-generation oil-rich crops. This will provide the Company with the ability to maintain stable production and control costs.
·		Phase Three – inclusion of third-generation feedstock for additional efficiencies and feedstock yield expansion. This includes consideration of alternate biofuel sources and/or technologies.

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:

 

·		All operations are to be conducted based upon written legal opinions that rule as to the legality of the operations in accordance with state and local laws and regulations.
·		The Company will seek to operate in a vertically integrated manner (grow and sell) wherever permitted by law. In states where vertical integration is not permitted, the Company plans to determine which of the permitted activities offers the most potential for growth and value creation.
·		The Company will seek to engage, sponsor or lead local advocacy and lobbying groups that have a significant impact on the evolution and character of laws and the regulations under which legal marijuana operations are implemented in select markets.
·		The Company plans to work with law enforcement and government officials to insure compliance with all regulations.

 

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

 

(a)

Evaluation of disclosure 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

 

(b)

Changes in internal controls

 

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

 

Exhibit No.		Description
31.1		Certification of Craig Frank, Chief Executive Officer and President, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2		Certification of Ronen Ben-Harush, Chief Financial Officer, pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
32.1		Certification of Craig Frank, Chief Executive Officer and President, pursuant to 18 U.S.C. 1350.
32.2		Certification of Ronen Ben-Harush, Chief Financial Officer, pursuant to 18 U.S.C. 1350.

 

 

 

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.

 

Dated: May 28, 2014		ALTERNATIVE FUELS AMERICAS, INC.
	By:	/s/ Craig Frank
		Craig Frank, Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer )
	By:	/s/ Ronen Ben-Harush
		Ronen Ben-Harush, Chief Financial Officer ( Principal Financial and Accounting Officer)