Item 1. Financial Statements
The accompanying notes are an integral part of these financial statements.
Kaya Holdings, Inc. and Subsidiaries
NOTE 1 – ORGANIZATION AND NATURE OF THE BUSINESS
Organization
Kaya Holdings, Inc. FKA (Alternative Fuels
Americas, Inc.) is a holding 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.
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). Certificate of Amendment to the Certificate
of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation)
to Kaya Holdings, Inc.
The Company has two subsidiaries: Alternative
Fuels Americas, Inc. (a Florida corporation) which is wholly owned, and Marijuana Holdings Americas, Inc. a Florida corporation,
(“MJAI”) which is a majority owned subsidiary. Additionally, MJAI conducts operations in Oregon through ownership interests
in MJAI Oregon 1 LLC. , MJAI Oregon 2 LLC, MJAI Oregon 3 LLC and MJAI Oregon 4 LLC.
Nature of the Business
The Company operates a subsidiary, Marijuana
Holdings Americas, Inc., a Florida corporation, that pursues 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 and subsequently received full licensing
approval for the first “Kaya ShackTM” retail medical marijuana dispensary, which we began operating July 3, 2014.
In April 2015 KAYS commenced its own medical marijuana
grow operations for the cultivation and harvesting of legal marijuana, thereby becoming the first US publicly traded company to
own a majority interest in a vertically integrated legal marijuana enterprise in the United States. The Company opened its second
MMD (and first Kaya Shack™ Marijuana Superstore) in October 2015 in Salem, Oregon. During 2015, the Company also consolidated
its grow operations and manufacturing operations into a single facility in Portland, Oregon. In October 2015, Oregon commenced
legal recreational marijuana sales, which are initially being conducted solely through State Licensed MMDs, including those operated
by the Company. The Company plans to open at least two additional dispensaries in Oregon during 2016 and in April 2016 entered
into leases and filed increased applications for its next two planned retain outlets in Salem Oregon.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
NOTE 2 - LIQUIDITY AND GOING CONCERN
The Company’s consolidated financial statements as of and for the three
and six months ended June 30, 2016 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 $
400,923 for the three months ended June 30, 2016 and a net loss of $3,225,397 for the year ended December 31, 2015. At June
30, 2016 the Company has a working capital deficiency of $2,369,035 and is totally dependent on its ability to raise capital.
The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive
working capital in the near future. Even though 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. Management plans include:
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the sale of additional equity and debt securities,
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alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan,
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other business transactions to assure continuation of the Company’s development and operations,
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development of a unified brand and the pursuit of licenses to operate medical marijuana facilities under the branded name.
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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,
2015 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, 2015 filed with the SEC on May 5, 2016.
The accounting policies applied by the Company
in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial
statements as at and for the year ended December 31, 2015. The quarterly information presented should be read in conjunction with
the annual report filed on Form 10-K with the Securities and Exchange Commission.
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both
assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful
lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based
payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax
liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the financial statements, which management considered in formulating its estimate could change in the
near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.
Risks and Uncertainties
The Company’s operations are subject
to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business
failure.
The Company has experienced, and in the future
expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this
variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product,
(ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions and (iv) the
related volatility of prices pertaining to the cost of sales.
Fiscal Year
The Company’s fiscal year-end is December
31.
Principles of Consolidation
The consolidated financial
statements include the accounts of Kaya Holdings, Inc. and its subsidiary, Alternative Fuels Americas, Inc. (a Florida corporation)
and Marijuana Holdings Americas, Inc. (a Florida corporation) which is a majority owned subsidiary. All inter-company accounts
and transactions have been eliminated in consolidation.
Non-Controlling Interest
The company owns 55% of Marijuana Holdings
Americas, Inc.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost
and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments
with an original maturity of three months or less. The Company had no cash equivalents
Inventory
Inventory will consist of finished goods purchased,
which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method. The
Company will periodically review historical sales activity to determine potentially obsolete items and also evaluates the impact
of any anticipated changes in future demand.
Property and Equipment
Property and equipment is stated at cost, less
accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Depreciation of property and equipment is provided
utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective assets. Expenditures
for maintenance and repairs are charged to expense as incurred.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements
of operations.
Fair Value of Financial Instruments
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of
inputs to measure fair value:
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Level 1 – Observable inputs that reflect quoted market prices in active
markets for identical assets or liabilities.
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Level 2 - Inputs reflect quoted
prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in
active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived
principally from or corroborated by observable market data by correlation or other means.
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Level 3 – Unobservable
inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions
are required to be consistent with market participant assumptions that are reasonably available.
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The carrying amounts of the Company’s
financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses,
certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these
instruments.
The Company accounts for its derivative liabilities,
at fair value, on a recurring basis under level 3. See Note 6.
Embedded Conversion Features
The Company evaluates embedded conversion features
within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s)
should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded
in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC
470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative
instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments,
including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or
credits to income.
For option-based simple derivative
financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception
and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is re-assessed at the end of each reporting period.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
Beneficial Conversion Feature
For conventional convertible debt where the
rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and
related debt discount.
When the Company records a BCF, the relative
fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional
paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or
debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of
cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of
the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company
may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount,
reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Extinguishments of Liabilities
The Company accounts for extinguishments
of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized
and the gain or loss on the sale is recognized.
Stock-Based Compensation - Employees
The Company accounts for its stock based compensation
in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles
of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph
718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received
for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the
fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which
it is probable that performance will occur.
If the Company is a newly formed corporation
or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement
memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more
appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between
the bid and asked quotes and lack of consistent trading in the market.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
The fair value of share options and similar
instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions
for inputs are as follows:
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Expected term of share options and similar
instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected
to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of
share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding
taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment
termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1,
it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual
term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate
expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes
the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise
data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant
structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to
estimate expected term. The Company uses the simplified method to calculate expected term of share options
and similar instruments as the company does
not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
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Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
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Expected annual rate of
quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual
term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected
dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for
periods within the expected term of the share options and similar instruments.
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Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose
the range of risk-free rates used. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
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Generally, all forms of share-based payments,
including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value
on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments
is recorded in general and administrative expense in the statements of operations.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties
Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section 505-50-30, all transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The
measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance
is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation
or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement
memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily
price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack
of consistent trading in the market.
The fair value of share options and similar
instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions
for inputs are as follows:
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Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards
Codification the expected term of share options and similar instruments represents the period of time the options and similar
instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s
expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical
data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares
of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected
term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide
a reasonable basis upon which to estimate expected term.
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Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The
Company uses the average historical volatility of the comparable companies over the expected contractual life of the share
options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of
weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility
calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid
and asked quotes and lack of consistent trading in the market.
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Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
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Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the
contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The
expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend
yield for periods within the expected term of the share options and similar instruments.
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Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
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Pursuant to ASC paragraph 505-50-25-7, if fully
vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or
services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination
of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor
shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding
cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements
of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor
may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity
instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed
as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall
not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred
to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the
measurement date for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an
entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period
of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any
measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash
for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A
recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty
has the right to exercise expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1,
if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity
instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should
be recorded.
Revenue Recognition
Revenue is recorded when all of the following
have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer without further obligation,
(3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.
Cost of Sales
Cost of sales represents costs directly related to the purchase of goods and third party
testing of the Company’s products.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
Related Parties
The Company follows subtopic 850-10 of the
FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties
include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the
election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for
by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f.
other parties with which the Company may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall
include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other
similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of
consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature
of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts
were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to
an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each
of the periods for which income statements are presented and the effects of any change in the method of establishing the terms
from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented
and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material
loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that
such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated
results of operations or consolidated cash flows.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
Subsequent Events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate
subsequent events through the date when the financial statements are issued.
Pursuant to ASU 2010-09 of the FASB Accounting
Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed
to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
In May 2014, the FASB has issued ASU No. 2014-09,
“Revenue from Contracts with Customers (Topic 606)”. The guidance in this update supersedes the revenue recognition
requirements in Topic 605, “Revenue Recognition.” In addition, the existing requirements for the recognition
of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within
the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill
and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue)
in this Update. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services
to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods
or services. The amendments in ASU No, 2014-09 are effective for annual reporting periods beginning after December 15, 2016,
including interim periods within that reporting period. Early application is not permitted. We do not believe the adoption
of this update will have a material impact on our financial statements.
Management does not
believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect
on the accompanying financial statements.
Re-Classifications
Certain amounts in 2015 were reclassified to
conform to the 2016 presentation. These reclassifications had no effect on consolidated net loss for the periods presented.
The fair value of the warrants on the date
of issuance and on each re-measurement date of those warrants classified as liabilities is estimated using the Black-Scholes option
pricing model using the following assumptions: contractual life according to the remaining terms of the warrants, no dividend yield,
weighted average risk-free interest rate of .59% at June 30, 2016 and weighted average volatility of 141%. For this liability,
the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value.
This method of valuation involves using inputs such as the fair value of the Company's various classes of preferred stock, stock
price volatility, the contractual term of the warrants, risk free interest rates and dividend yields. Due to the nature of these
inputs, the valuation of the warrants is considered a Level 3 measurement. The warrant liability is recorded in other liabilities
on the Company's Consolidated Balance Sheets. The warrant liability is marked-to-market each reporting period with the change in
fair value recorded on the Consolidated Statement of Operations and Comprehensive Loss until the warrants are exercised, expire
or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
NOTE 4- CONVERTIBLE DEBT
These debts have a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The
derivative component of the obligation are initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining
the indicated value of the convertible note issued, the Company used the Black Scholes Option Model with a risk
-free
interest rate of ranging from 0.05% to 1.06%, volatility ranging from 141% of 221%, trading prices ranging from $.056 per share
to $0.1 per share and a conversion price ranging from $0.03 per share to $0.04 per share. The total derivative liabilities associated
with these notes are $3,164,025 at June 30, 2016.
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June 30, 2016
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December 31, 2015
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Convertible note - related party, Due December 31, 2017 (2)
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500,000
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|
|
500,000
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
58,556
|
|
|
|
58,556
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
28,278
|
|
|
|
28,278
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
186,316
|
|
|
|
186,316
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
-0-
|
|
|
|
126,000
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
117,113
|
|
|
|
117,113
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
117,113
|
|
|
|
117,113
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
55,895
|
|
|
|
55,895
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
67,074
|
|
|
|
67,074
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
23,442
|
|
|
|
23,442
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
23,442
|
|
|
|
23,442
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
27,116
|
|
|
|
27,116
|
|
Convertible note - 12% due January 1, 2017 (3)
|
|
|
116,966
|
|
|
|
116,966
|
|
Convertible note – 10% due January 1, 2017 (3)
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible note – 10% due January 1, 2017 (6)
|
|
|
50,000
|
|
|
|
-0-
|
|
Convertible note – 10% due January 1, 2017 (5)
|
|
|
100,000
|
|
|
|
-0-
|
|
Convertible note – 10% due September 21, 2017 (4)
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible note – 10% due September 21, 2017 (4)
|
|
|
100,000
|
|
|
|
100,000
|
|
Convertible note – 10% due September 21, 2017 (4)
|
|
|
50,000
|
|
|
|
50,000
|
|
Convertible note - stockholder, 10%, due April 30, 2013, unsecured (1)
|
|
|
25,000
|
|
|
|
25,000
|
|
Convertible note – 10% due April, 1, 2016 (7)
|
|
|
23,500
|
|
|
|
23,500
|
|
Totals
|
|
|
1,745,811
|
|
|
|
1,721,811
|
|
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
(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.
Accrued interest on this note
that was charged to operations for the quarter ended June 30, 2016 totaled approximately $935. The balance of the convertible note
at June 30, 2016 including accrued interest and net of the discount amounted to $14,325.
The Company valued the derivative
liabilities at June 30, 2016 at $18,477. The Company recognized a change in the fair value of derivative liabilities for the three
months ended June 30, 2015 of $1,788, which were credited to operations. In determining the indicated values at June 30,
2016, the Company used the Black Scholes Option Model with risk-free interest rates ranging from 0.018% to 0.02%, volatility ranging
from 141% to 336%, a trading price of $.07, and conversion prices ranging from $.05 per share.
|
(2)
|
|
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, 2017. $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 two-year note in the aggregate amount of $500,000 is convertible into the Company’s preferred stock at a conversion rate of $10.00 per share of preferred. At a conversion rate of 433.9297 common shares to 1 preferred share, this would result in a total of 21,696,485 common shares issued if all debt was converted. The market value of the stock at the date of issuance of the debt was $0.04. The debt issued is a result of a financing transaction and contain a beneficial conversion feature valued at $500,000 to be amortized over the life of the debt. Total amortization for the quarter ended June 30, 2016 was $49,727. As of June 30, 2016, the balance of the debt was $500,000. The net balance reflected on the balance sheet is $199,454. The remaining $250,000 is not convertible. The company has imputed interest on both the convertible debt and the non-convertible debt. The company used an interest rate of 4% for calculation purposes. The net balance of $250,000 of the non-convertible portion is reflected on the balance sheet.
|
(3)
|
|
On December 31, 2015 the Company
renegotiated twelve (12) convertible and non-convertible notes payable. The Total face value of the notes issued was $888,500 the
six month notes were due on December 31, 2015. The new notes are convertible after January 1, 2016 and are convertible into the
Company’s common stock at a conversion rate of $0.03 per share. The market value of the stock at the date when the debt becomes
convertible was $0.087. The debt was issued is a result of a financing transaction and contain a derivative liability feature.
As of December 31, 2015, the balance was $947,311. The beneficial conversion feature in the amount of $947,311 will be expensed
as interest over the term of the note (one year). In determining the indicated value of the convertible note issued, the Company
used the Black Scholes Option Model with a risk-free interest rate of ranging from 0.05% to 1.06%, volatility ranging from 141%
of 221%, trading prices ranging from $.056 per share to $0.1 per share and a conversion price ranging from $0.03 per share to $0.04
per share. The total derivative liabilities associated with these notes are $3,449,588 at June 30, 2016
|
(5)
|
|
On March 31 of 2016 the Company received $100,000 from the issuance of convertible debt. Interest is stated at 12% The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2017.
|
(6)
|
|
In January of 2016 the Company received $50,000 from the issuance of convertible debt. Interest is stated at 12% The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2017.
|
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
(7)
|
|
On July 27, 2015 the company issued
a note payable for $28,500 The Company agrees to pay to the Holder $28,500 plus accrued interest pursuant to the following schedule:
An initial payment of $5,000 is due
no later than December 1, 2015. This amount represents the balance of the security deposit due for the lease of Commercial/Manufacturing
Space occupied by MJAI Oregon 1, LLC, a majority-owned subsidiary of the company.
A final payment of $23,500 principal,
plus any accrued Interest at 10% is due no later than April 1, 2016. This amount represents the balance of accrued rent due for
the initial monthly lease payments from August 1, 2015 through June 30, 2016
The note is convertible after June
30, 2016 and is convertible into the Company’s common stock at a conversion rate of $0.10 per share or 20% discount to the
thirty day moving average stock price.
|
Note 5 NOTES PAYABLE
A)
Non-Related Party
|
|
|
30-Jun-16
|
|
|
|
31-Dec-15
|
|
Note
1
|
|
|
77,188
|
|
|
|
95,422
|
|
Note 2
|
|
|
77,188
|
|
|
|
95,422
|
|
Note 3
|
|
|
75,000
|
|
|
|
-0-
|
|
Note
4
|
|
|
75,000
|
|
|
|
-0-
|
|
Total
Notes Payable
|
|
|
304,376
|
|
|
|
190,844
|
|
|
1)
|
On September 8, 2015 the Company received a total of $100,000 from an accredited investor in exchange
for a two year note in the aggregate amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe
for and purchase from the company 3,161,583 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share
(the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain
$100,000 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in
“The Note” or September 9, 2017.
|
|
2)
|
On September 9, 2015 the Company received a total of $100,000 from an accredited investor in exchange
for a two year note in the aggregate amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe
for and purchase from the company 3,161,583 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share
(the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain
$100,000 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in
“The Note” or September 9, 2017.
|
|
3)
|
On
May 17, 2016 the Company received a total of $75,000
from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The
note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of the Common Stock
at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from
the earlier of such time as that certain $75,000, 10% promissory note due May 17 2018 has been fully repaid or the start of the
Acceleration Period as defined in “The Note” or May 17, 2018.
|
|
4)
|
On May 9, 2016 the Company received a total of $75,000 from an accredited investor in exchange
for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe
for and purchase from the company 2,371,187 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share
(the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain
$75,000, 10% promissory note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The
Note” or May 9, 2018.
|
B) Related Party
|
|
June
30,
2016
|
|
December
31,
2015
|
|
|
|
|
|
|
|
|
|
Loan payable - related party , Due December 31, 2017 (1)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
(1)
|
|
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, 2017. $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 two-year note in the aggregate amount of $500,000 is convertible into the Company’s preferred stock at a conversion rate of $10.00 per share of preferred. At a conversion rate of 433.9297 common shares to 1 preferred share, this would result in a total of 21,696,485 common shares issued if all debt was converted. The market value of the stock at the date of issuance of the debt was $0.04. The debt issued is a result of a financing transaction and contain a beneficial conversion feature valued at $500,000 to be amortized over the life of the debt. Total amortization for the quarter ended June 30, 2016 was $49,727. As of June 30, 2016, the balance of the debt was $500,000. The net balance reflected on the balance sheet is $199,454. The remaining $250,000 is not convertible. The company has imputed interest on both the convertible debt and the non-convertible debt. The company used an interest rate of 4% for calculation purposes. The net balance of $250,000 of the non-convertible portion is reflected on the balance sheet.
|
NOTE 6 –
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.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
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 January of 2016 the Company received $100,000
from the sale of 2,222,222 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder
of the company.
In February of 2016 the Company issued 4,200,000
restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company. As
a conversion of $126,000 Note Payable due January 1, 2017.
In February of 2016 the Company issued
|
·
|
An aggregate of 200,000 shares to our two non-employee
directors (100,000 shares each) for services as directors;
|
|
·
|
An aggregate of 1,435,000 shares to consultants for
services rendered.
|
In April of 2016 the Company issued 150,000
restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company. As
a payment of interest on a Note Payable due January 1, 2017.
In April of 2016 the Company issued 1,200,249
common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company. As a conversion
of preferred stock of 2,766 shares. On the same date the shareholder returned 2,454 preferred shares to be cancelled.
In June of 2016 the Company authorized the
issuance of 100,000 restricted common shares of Kaya Holdings, Inc. stock as payment of consulting fees. The shares were valued
at $7,610.
Note 7 Derivative Liabilities
The Company identified conversion features
embedded within convertible debt and issued in 2013 and subsequent periods. The Company has determined that the features associated
with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability,
as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.
Additionally, due to a recognition of tainting,
due to shares not being held in reserve in 2014 all convertible notes are considered to have a derivative liability, therefore
the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component
of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt.
Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of
the convertible note issued, the Company used the Black Scholes Option Model with a risk-free interest rate of ranging from 0.05%
to 1.06%, volatility ranging from 141% of 221%, trading prices ranging from $.056 per share to $0.1 per share and a conversion
price ranging from $0.03 per share to $0.04 per share.
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
As a result of the application of ASC No. 815,
the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow:
Balance as of March 31, 2016
|
|
$
|
3,446,588
|
|
|
|
|
|
|
Change in Derivative Values
|
|
|
(282,563
|
)
|
|
|
|
|
|
Balance as of June 30, 2016
|
|
$
|
3,164,025
|
|
The fair value at the commitment and re-measurement
dates for the Company’s derivative liabilities were based upon the following management assumptions as June 30, 2016:
The Company recorded the
debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability,
as it exceeded the gross proceeds of the note.
The Company recorded a derivative
expense of $-0- and $129,340 for the three and six months ended June 30, 2016
The Company recorded a change
in the value of embedded derivative liabilities income/(expense) of $ 282,563 and $ 1,713,670 for the three and six months ended
June 30, 2016, respectively.
NOTE 8 WARRANTS
On May 9, 2016 the Company received a total
of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing
at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of
the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or
the start of the Acceleration Period as defined in “The Note” or May 9, 2018.
On May 17, 2016 the Company received a total
of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing
at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of
the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17 2018 has been fully repaid or
the start of the Acceleration Period as defined in “The Note” or May 17, 2018.
Warrants issued to Non-Employees
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
Weighted
|
|
|
|
|
Average
|
Average
|
|
|
|
Warrants
|
Exercise
|
Contract
|
|
|
|
Issued
|
Price
|
Terms Years
|
Balance as of December 31, 2015
|
6,323,166
|
0.0316297
|
1.75
|
Granted
|
|
|
4,742,374
|
0.0316297
|
2.00
|
Exercised
|
|
|
-
|
-
|
-
|
Expired
|
|
|
-
|
-
|
-
|
Balance as of June 30, 2016
|
11,065,540
|
0.0316297
|
1.79
|
Kaya Holdings, Inc. and Subsidiaries
June 30, 2016
NOTE 9 RELATED PARTY TRANSACTIONS
The Company has agreements covering certain
of its management personnel. 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%. See Note 4 and 5 for the detail of the
convertible and non-convertible debt with a face value of $750,000
NOTE 10 SUBSEQUENT EVENTS
On July 19 of 2016 the Company received
$50,000 from the issuance of convertible debt. Interest is stated at 12% The Note and Interest is convertible into common shares
at $0.03 per share. Note is Due in January of 2017