Item
1.
Condensed
Consolidated Financial Statements
|
Page
|
Condensed
Consolidated Balance Sheet
|
3
|
Condensed
Consolidated Statements
of
Operation
|
4
|
Condensed
Consolidated Statements
of
Cash Flows
|
5
|
Statement
of
Stockholder’s
equity
for
six months ended
June 30, 2019 and 2018
|
6
|
Notes
to
Condensed
Consolidated
Financial Statements
|
7
|
Item
2.
Management’s
Discussion
and
Analysis
of
Financial
Condition and Results
of
Operations
|
32
|
Item
3.
Quantitative
and
Qualitative Disclosures
About
Market
Risk
|
71
|
Item
4.
Controls
and
Procedures
|
71
|
|
|
Part
II
Other
Information
|
|
|
|
Item
1.
Legal
Proceedings
|
72
|
Item
1A. Risk
Factors
|
72
|
Item
2.
Unregistered
Sales
of
Equity Securities and
Use of
Proceeds
|
72
|
Item
3.
Defaults
Upon
Senior Securities
|
73
|
Item
4.
Mine
Safety Disclosures
|
73
|
Item
5.
Other
Information
|
73
|
Item
6.
Exhibits
|
73
|
Signatures
|
74
|
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 2019 (Unaudited) and December 31, 2018
ASSETS
|
|
|
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
June 30, 2019
|
|
December 31, 2018
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
120,083
|
|
|
$
|
111,512
|
|
Inventory-net of allowance
|
|
|
123,954
|
|
|
|
131,542
|
|
Prepaid expenses
|
|
|
12,774
|
|
|
|
20,541
|
|
Total current assets
|
|
|
256,811
|
|
|
|
263,595
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Right-of-use asset - operating lease
|
|
|
525,451
|
|
|
|
—
|
|
Property and equipment, net
|
|
|
2,252,858
|
|
|
|
2,348,780
|
|
Deposits
|
|
|
31,523
|
|
|
|
31,523
|
|
Total other assets
|
|
|
2,809,832
|
|
|
|
2,380,303
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,066,643
|
|
|
$
|
2,643,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expense
|
|
$
|
651,958
|
|
|
$
|
562,016
|
|
Accounts payable and accrued expense-related parties
|
|
|
7,737
|
|
|
|
7,737
|
|
Accrued interest
|
|
|
883,814
|
|
|
|
659,169
|
|
Right-of-use liabiliy - operating lease
|
|
|
146,040
|
|
|
|
—
|
|
Convertible notes payable-net of discount
|
|
|
334,052
|
|
|
|
2,894,294
|
|
Notes payable
|
|
|
9,312
|
|
|
|
9,312
|
|
Derivative liabilities
|
|
|
10,644,017
|
|
|
|
19,783,034
|
|
Total current liabilities
|
|
|
12,676,930
|
|
|
|
23,915,562
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes payable-related party-net of discount
|
|
|
500,000
|
|
|
|
500,000
|
|
Convertible notes payable-net of discount
|
|
|
4,557,583
|
|
|
|
1,283,557
|
|
Notes payable-related party
|
|
|
250,000
|
|
|
|
250,000
|
|
Rights-of-use liability-operating lease
|
|
|
383,938
|
|
|
|
—
|
|
Total long term liabilities
|
|
|
5,691,521
|
|
|
|
2,033,557
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
18,368,451
|
|
|
|
25,949,119
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
Convertible preferred stock, Series C, par value $.001; 10,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
49,900 and 49,900 issued and outstanding at June 30, 2019 and December 31, 2018
|
|
|
50
|
|
|
|
50
|
|
, respectively
|
|
|
|
|
|
|
|
|
Common stock , par value $.001; 500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
173,598,080 shares issued as of June 30, 2019 and
|
|
|
|
|
|
|
|
|
165,812,128 shares issued as of December 31, 2018
|
|
|
173,598
|
|
|
|
165,812
|
|
Subscriptions payable
|
|
|
163,630
|
|
|
|
397,209
|
|
Additional paid in capital
|
|
|
17,384,679
|
|
|
|
17,100,137
|
|
Accumulated deficit
|
|
|
(31,811,640
|
)
|
|
|
(39,924,912
|
)
|
Non-controlling interest
|
|
|
(1,212,125
|
)
|
|
|
(1,043,517
|
)
|
Net stockholders' equity/(deficit)
|
|
|
(15,301,808
|
)
|
|
|
(23,305,221
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity/(deficit)
|
|
$
|
3,066,643
|
|
|
$
|
2,643,898
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
(Unudited)
|
|
|
|
|
|
|
|
|
|
|
For the three
|
|
For the three
|
|
For the six
|
|
For the six
|
|
|
months ended
|
|
months ended
|
|
months ended
|
|
months ended
|
|
|
June 30, 2019
|
|
June 30, 2018
|
|
June 30, 2019
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
249,121
|
|
|
$
|
291,133
|
|
|
$
|
512,879
|
|
|
$
|
546,498
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
92,719
|
|
|
|
118,420
|
|
|
|
238,231
|
|
|
|
221,011
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
156,402
|
|
|
|
172,713
|
|
|
|
274,648
|
|
|
|
325,487
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
145,119
|
|
|
|
172,331
|
|
|
|
190,969
|
|
|
|
1,358,059
|
|
Salaries and wages
|
|
|
114,415
|
|
|
|
102,192
|
|
|
|
260,870
|
|
|
|
235,632
|
|
General and administrative
|
|
|
217,197
|
|
|
|
175,158
|
|
|
|
460,220
|
|
|
|
339,246
|
|
Total operating expenses
|
|
|
476,731
|
|
|
|
449,681
|
|
|
|
912,059
|
|
|
|
1,932,937
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(320,329
|
)
|
|
|
(276,968
|
)
|
|
|
(637,411
|
)
|
|
|
(1,607,450
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(132,193
|
)
|
|
|
(137,784
|
)
|
|
|
(258,395
|
)
|
|
|
(283,808
|
)
|
Amortization of debt discount
|
|
|
(366,177
|
)
|
|
|
(544,357
|
)
|
|
|
(713,786
|
)
|
|
|
(1,124,122
|
)
|
Derivative liabilities expense
|
|
|
(115,253
|
)
|
|
|
(356,394
|
)
|
|
|
(562,148
|
)
|
|
|
(1,913,591
|
)
|
Gain (loss) on extinguishment of debt
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,000
|
)
|
|
|
—
|
|
Change in derivative liabilities expense
|
|
|
4,736,220
|
|
|
|
(256,374
|
)
|
|
|
10,141,165
|
|
|
|
16,105,145
|
|
Other income (expense)
|
|
|
14
|
|
|
|
—
|
|
|
|
238
|
|
|
|
—
|
|
Total other income (expense)
|
|
|
4,122,620
|
|
|
|
(1,294,909
|
)
|
|
|
8,582,075
|
|
|
|
12,783,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
3,802,291
|
|
|
|
(1,571,877
|
)
|
|
|
7,944,664
|
|
|
|
11,176,174
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributed to non-controlling interest
|
|
|
(61,449
|
)
|
|
|
(37,909
|
)
|
|
|
(168,608
|
)
|
|
|
(74,554
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to Kaya Holdings, Inc.
|
|
|
3,863,740
|
|
|
|
(1,533,968
|
)
|
|
|
8,113,272
|
|
|
|
11,250,728
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.02
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Basic
|
|
|
173,598,080
|
|
|
|
139,409,719
|
|
|
|
170,872,997
|
|
|
|
139,251,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
0.01
|
|
|
$
|
(0.01
|
)
|
|
$
|
0.02
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Diluted
|
|
|
423,656,593
|
|
|
|
139,409,719
|
|
|
|
420,931,510
|
|
|
|
139,251,765
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Kaya
Holdings, Inc. and Subsidiaries
Consolidated
Statement of Cashflows
(Unaudited)
|
|
For the six
|
|
For the six
|
|
|
months ended
|
|
months ended
|
|
|
June 30, 2019
|
|
June 30, 2018
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
8,113,272
|
|
|
$
|
11,250,728
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to non-controlling interest
|
|
|
(168,608
|
)
|
|
|
(74,554
|
)
|
Depreciation
|
|
|
115,590
|
|
|
|
43,149
|
|
Imputed interest
|
|
|
33,749
|
|
|
|
15,000
|
|
Loss (Gain) on Extinguishment of Debt
|
|
|
25,000
|
|
|
|
—
|
|
Derivative expense
|
|
|
562,148
|
|
|
|
1,913,591
|
|
Change in derivative liabilities
|
|
|
(10,141,165
|
)
|
|
|
(16,105,145
|
)
|
Amortization of debt discount
|
|
|
713,786
|
|
|
|
1,124,122
|
|
Stock issued for interest
|
|
|
—
|
|
|
|
—
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
7,767
|
|
|
|
(12,904
|
)
|
Inventory
|
|
|
7,588
|
|
|
|
(27,809
|
)
|
Right-of-use asset
|
|
|
113,142
|
|
|
|
—
|
|
Deposits
|
|
|
—
|
|
|
|
66,974
|
|
Accrued interest
|
|
|
224,645
|
|
|
|
238,881
|
|
Accounts payable and accrued expenses
|
|
|
89,940
|
|
|
|
974,251
|
|
Right-of-use liabilities
|
|
|
(108,615
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(411,761
|
)
|
|
|
(593,716
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(19,668
|
)
|
|
|
(114,655
|
)
|
Net cash used in investing activities
|
|
|
(19,668
|
)
|
|
|
(114,655
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from Common stock subscription
|
|
|
—
|
|
|
|
50,000
|
|
Proceeds from convertible debt
|
|
|
440,000
|
|
|
|
570,000
|
|
Payments on notes payable
|
|
|
—
|
|
|
|
(51,274
|
)
|
Net cash provided by financing activities
|
|
|
440,000
|
|
|
|
568,726
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
8,571
|
|
|
|
(139,645
|
)
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING BALANCE
|
|
|
111,512
|
|
|
|
318,462
|
|
|
|
|
|
|
|
|
|
|
CASH ENDING BALANCE
|
|
$
|
120,083
|
|
|
$
|
178,817
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
|
—
|
|
|
|
—
|
|
Interest paid
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING
|
|
|
|
|
|
|
|
|
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability to additional paid in capital
|
|
|
—
|
|
|
|
—
|
|
Value of accrued interest payable reclassified as principal
|
|
|
—
|
|
|
|
7,133
|
|
Adoption of lease standard ASC 842
|
|
|
638,593
|
|
|
|
—
|
|
Derivative liability on convertible note payable
|
|
|
440,000
|
|
|
|
—
|
|
Value of common shares issued for conversion of convertible
|
|
|
233,579
|
|
|
|
—
|
|
notes payable issued from stock payable
|
|
|
|
|
|
|
|
|
Value of common shares issued as payment of interest
|
|
|
—
|
|
|
|
12,499
|
|
The accompanying notes are an integral part of these consolidated financial statements.
Kaya
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Stockholders' Equity
For
the six months ended June 30, 2019 and 2018
(Unaudited)
|
|
Preferred Stock
|
|
|
|
Common Stock
|
|
|
|
Subscription Payable
|
|
Additional Paid-in Capital
|
|
Accumulated Deficit
|
|
Noncontrolling Interest
|
|
Total Stockholders' Equity
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
49,900
|
|
|
$
|
50
|
|
|
|
138,993,087
|
|
|
$
|
138,992
|
|
|
$
|
152,796
|
|
|
$
|
12,811,671
|
|
|
$
|
(44,672,209
|
)
|
|
$
|
(833,710
|
)
|
|
$
|
(32,402,410
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,500
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion and interest
|
|
|
—
|
|
|
|
—
|
|
|
|
416,632
|
|
|
|
417
|
|
|
|
—
|
|
|
|
12,082
|
|
|
|
—
|
|
|
|
—
|
|
|
|
12,499
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,450
|
|
|
|
—
|
|
|
|
—
|
|
|
|
57,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment on subscriptions payable
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(11,250,728
|
)
|
|
|
(74,554
|
)
|
|
|
(11,176,174
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
49,900
|
|
|
$
|
50
|
|
|
|
139,409,719
|
|
|
$
|
139,409
|
|
|
$
|
152,846
|
|
|
$
|
12,888,703
|
|
|
$
|
(33,421,481
|
)
|
|
$
|
(908,264
|
)
|
|
$
|
(21,148,737
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
49,900
|
|
|
$
|
50
|
|
|
|
165,812,128
|
|
|
$
|
165,812
|
|
|
$
|
397,209
|
|
|
$
|
17,100,137
|
|
|
$
|
(39,924,912
|
)
|
|
$
|
(1,043,517
|
)
|
|
$
|
(23,305,222
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,749
|
|
|
|
—
|
|
|
|
—
|
|
|
|
33,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion and interest
|
|
|
—
|
|
|
|
—
|
|
|
|
7,785,952
|
|
|
|
7,786
|
|
|
|
(233,579
|
)
|
|
|
225,793
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8,113,272
|
|
|
|
(168,608
|
)
|
|
|
7,944,664
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
49,900
|
|
|
$
|
50
|
|
|
|
173,598,080
|
|
|
$
|
173,598
|
|
|
$
|
163,630
|
|
|
$
|
17,384,679
|
|
|
$
|
(31,811,640
|
)
|
|
$
|
(1,212,125
|
)
|
|
$
|
(15,301,808
|
)
|
The accompanying notes are an integral part of these consolidated financial statements.
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 three subsidiaries, Alternative Fuels Americas, Inc, a Florida corporation, which is wholly-owned, Marijuana Holdings
Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned and 34225 Kowitz Road, LLC, a wholly-owned
Oregon limited liability company which holds the Company’s recently acquired 26 acre property in Lebanon, Oregon on which
it plans to develop a legal cannabis cultivation and manufacturing facility. MJAI develops and operates the Company’s legal
cannabis retail operations in Oregon through controlling ownership interests in five Oregon limited liability companies: MJAI
Oregon 1 LLC, MJAI Oregon 2 LLC, MJAI Oregon 3 LLC, MJAI Oregon 4 LLC and MJAI Oregon 5 LLC (Inactive).
Nature
of the Business
In
January 2014, KAYS incorporated MJAI, a wholly-owned subsidiary, to focus on opportunities in the legal recreational and medical
marijuana in the United States. MJAI has concentrated its efforts in Oregon, where through controlled Oregon limited liability
companies, it initially secured licenses to operate a medical marijuana dispensary (an “MMD”) and following legalization
of recreational cannabis use in Oregon, has secured licenses to operate four retail outlets and purchased 26 acres for development
as a legal cannabis cultivation and manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail
operations.
On
July 3, 2014 opened its first Kaya Shack™ MMD in Portland, Oregon. In April 2015, KAYS commenced its own medical marijuana
grow operations for the cultivation and harvesting of legal marijuana thereby becoming the first publicly traded U.S. company
to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. In October 2015, concurrent
with Oregon commencing legal sales of recreational marijuana through MMDs, KAYS opened its second retail outlet in Salem, Oregon,
the Kaya Shack™ Marijuana Superstore. During 2015, the Company also consolidated its grow operations and manufacturing operations
into a single facility in Portland, Oregon.
In
2016, Oregon began the process to transition legal marijuana sales from Oregon Health Authority (“OHA”) licensed MMDs
and grow operations to Oregon Liquor Control Commission (“OLCC”) licensed recreational marijuana retailers and producer
and processing facilities. Effective January 1, 2017, all retailers of recreational marijuana were required to have a recreational
marijuana sales license issued by the OLLC for each retail outlet operated.
In
2016 the Company applied for OLLC licenses for its two initial Kaya Shack™ retail outlets (Portland, Oregon and South Salem,
Oregon), and also submitted license applications for its two new locations under construction and development at that time.
In
late December 2016, we received our OLCC recreational license for the South Salem Kaya Shack™ Marijuana Superstore (Kaya
Shack™ OLCC Marijuana Retailer License #1) and recreational and medical sales continued without interruption from 2016 through
the present at that location.
On
March 21, 2017, we received our North Salem Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #2) a
2,600-square foot Kaya Shack™ Marijuana Superstore in North Salem, Oregon, whereupon the location opened for business with
both recreational and medical sales.
On
May 2, 2017, we received our OLCC recreational license for our Portland Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana
Retailer License #3) after a delay of approximately four months. During that period, we were limited to solely medical sales at
the Portland location. Upon receipt of Kaya Shack™ OLCC Marijuana Retailer License #3, recreational sales recommenced at
that location. Our OLCC License for the Central Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana
Retailer License #4) has been filed and is pending completion, inspection and final licensing.
During
August of 2017, we purchased 26 acres in Lebanon, Oregon, for development as a legal cannabis cultivation and manufacturing facility.
The company is in the process of planning and permitting.
On
February 15, 2018, we received our OLCC recreational, medical and home delivery license for the Central Salem Kaya Shack
TM
outlet (Kaya Shack
TM
OLCC Marijuana Retailer License #4) a 3,100-square foot Kaya Shack
TM
Marijuana
Superstore in Central Salem, Oregon. After various construction and permitting delays, On April 12, 2018, the location opened
for business with both recreational and medical sales.
On
August 18, 2018, the Company had concluded the purchase of the Eugene, Oregon based Sunstone Farms manufacturing facility, which
is licensed by the OLCC for both the production of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles.
The purchase includes a 12,000 square foot building housing and indoor grow facility, as well as equipment for growing and extraction
activity. The facility can produce in excess of 800 pounds cannabis flower annually as currently outfitted.
As
part of planned expansion and renovations for the facility, the Company has begun the site improvements and is ramping up production
to feed the existing four OLCC licensed cannabis retail stores in Oregon.
NOTE
2 – LIQUIDITY AND GOING CONCERN
The
Company’s consolidated financial statements as of June 30, 2019 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 income of $8,113,272 for the six months ended June 30, 2019 and a net income of $11,250,728 for
the six months ended June 30, 2018. The decrease in net income is due to the changes in derivative liabilities and the
company continues to have operating losses. At June 30, 2019 the Company has a working capital deficiency of $12,420,119 and
is totally dependent on its ability to raise capital. The Company has a plan of operations and acknowledges that its plans
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:
•
|
|
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,
|
•
|
|
business
transactions to assure continuation of the Company’s development and operations,
|
•
|
|
development
of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded
name.
|
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis
of Presentation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally
accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.
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.
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
accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries.
All significant intercompany balances have been eliminated.
Wholly-owned
subsidiaries:
|
·
|
Alternative
Fuels Americas, Inc. (a Florida corporation)
|
|
·
|
34225
Kowitz Road, LLC (an Oregon LLC)
|
Majority-owned
subsidiaries:
|
·
|
Marijuana
Holdings Americas, Inc. (a Florida corporation)
|
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
consists 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 periodically reviews historical sales activity to determine potentially obsolete
items and also evaluates the impact of any anticipated changes in future demand. Total Value of Finished goods inventory
as of June 30, 2019 is $123,954 and $131,542 as of December 31, 2018. No allowance as necessary as of June 30, 2019 and December
31, 2018.
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 5-30 years
of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
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.
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.
Operating
Leases
We
lease our retail stores under non-cancellable operating leases. Most store leases include tenant allowances from landlords, rent
escalation clauses and/or contingent rent provisions. We recognize rent expense on a straight-line basis over the lease term,
excluding contingent rent, and record the difference between the amount charged to expense and the rent paid as a deferred rent
liability.
Deferred
Rent and Tenant Allowances
Deferred
rent is recognized when a lease contains fixed rent escalations. We recognize the related rent expense on a straight-line basis
starting from the date of possession and record the difference between the recognized rental expense and cash rent payable as
deferred rent. Deferred rent also includes tenant allowances received from landlords in accordance with negotiated lease
terms. The tenant allowances are amortized as a reduction to rent expense on a straight-line basis over the term of the lease
starting at the date of possession.
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 anti-dilutive, 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.
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:
•
|
|
Level
1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
•
|
|
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.
|
•
|
|
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.
|
|
Fair
Value Measurements at June 30, 2019
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
120,083
|
|
|
$
|
|
|
|
$
|
|
|
Total
assets
|
|
120,083
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures, net of discounts of $917,478
|
|
-
|
|
|
|
-
|
|
|
|
5,391,635
|
|
Short
term debt, net of discounts of $-0-
|
|
-
|
|
|
|
259,312
|
|
|
|
-
|
|
Derivative
liability
|
|
-
|
|
|
|
-
|
|
|
|
10,644,017
|
|
Total
liabilities
|
|
-
|
|
|
|
259,312
|
|
|
|
16,035,652
|
|
|
$
|
120,083
|
|
|
$
|
(259,312)
|
|
|
$
|
(16,035,652)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair
Value Measurements at December 31, 2018
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
111,512
|
|
|
$
|
|
|
|
$
|
|
|
Total
assets
|
|
111,512
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Convertible
debentures, net of discounts of $1,191,264
|
|
-
|
|
|
|
-
|
|
|
|
4,677,851
|
|
Short
term debt, net of discounts of $-0-
|
|
-
|
|
|
|
259,312
|
|
|
|
-
|
|
Derivative
liability
|
|
-
|
|
|
|
-
|
|
|
|
19,783,034
|
|
Total
liabilities
|
|
-
|
|
|
|
259,312
|
|
|
|
24,460,885
|
|
|
$
|
111,512
|
|
|
$
|
(259,312)
|
|
|
$
|
(24,460,885)
|
|
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 7.
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 Binomial 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.
In
July 2017, the FASB issued ASU 2017-11
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivative and Hedging (Topic 815).
The amendments in Part I of this Update change the classification analysis of certain
equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial
instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification
when assessing whether the instrument is indexed to an entity’s own stock. The amendment also clarify existing disclosure
requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion
option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round
feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share
(“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That
effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments
with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial
conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic
260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that
now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
Prior
to this Update, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified
as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine
whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated
to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope
exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are
deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement
such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results
in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required
to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure
at fair value initially and at each subsequent reporting date.
The
amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts
in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a
scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in
equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify,
freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with
down round features are no longer bifurcated.
For
entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a
numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder
of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on
an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
The
amendments in Part 1 of this Update are a cost savings relative to former accounting. This is because, assuming the required criteria
for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument
at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case
of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion
options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features
rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes
the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring
it at fair value each reporting period.
The
amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception.
This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the
guidance in Topic 480.
The
Company adopted this new standard on January 1, 2019; however, the Company needs to continue the derivative liabilities due to
variable conversion price on some of the convertible instruments. As such, it did not have a material impact on the Company’s
consolidated financial statements.
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.
The
fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing
valuation model. The ranges of assumptions for inputs are as follows:
•
|
|
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.
|
•
|
|
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.
|
•
|
|
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.
|
•
|
|
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.
|
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.
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 Binomial option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
•
|
|
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.
|
•
|
|
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.
|
•
|
|
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.
|
•
|
|
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.
|
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
Effective
January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes
revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following
steps: (1) identifying the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the
transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue
when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be
reported under ASC 605 – Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met:
(1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has
occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably
assured.
To
confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry”
basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt
of product via cash payment at our retail store; the transaction is recorded at the time of sale in our point of sale software
system. Revenue is only reported after product has been delivered to the customer and the customer has paid for the product with
cash.
To
date the only other revenue we have received is for ATM transactions and revenue from this activity is only reported after we
receive payment via check from the ATM service provider company.
Cost
of Sales
Cost
of sales represents costs directly related to the purchase of goods and third party testing of the Company’s products.
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.
Uncertain
Tax Positions
The
Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to
the provisions of Section 740-10-25 for the reporting period ended June 30, 2019.
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
From
time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company
as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards
that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon
adoption.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) (ASU 2016-02).
Under ASU No. 2016-2, an entity is required
to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements.
ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors
are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial
statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, the Company adopted
this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical
expedients in transition. The Company elected the package of practical expedients’, which permitted the Company not to reassess
under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all
of the new standard’s available transition practical expedients.
On
adoption, the Company recognized a right of use asset of $638,593, operating lease liabilities of $638,593, based on the present
value of the remaining minimum rental payments under current leasing standards for its existing operating lease.
The
new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease
recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize
ROU assets or lease liabilities.
In
July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception”
to simply the accounting for certain instruments
with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument
is indexed to its own stock, for purposes of determining liability or equity classification. Further, companies that provide earnings
per share (“EPS”) data will adjust the basic EPS calculation for the effect of the feature when triggered and will
also recognize the effect of the trigger within equity. The standard is effective for public companies for fiscal years, and interim
periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this new
standard on January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following at June 30, 2019 and December 31, 2018:
|
|
June
30, 2019
|
|
December
31, 2018
|
(Unaudited)
|
(Audited)
|
ATM
Machine
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
Computer
|
|
|
22,736
|
|
|
|
22,736
|
|
Furniture
& Fixtures
|
|
|
49,408
|
|
|
|
49,408
|
|
HVAC
|
|
|
41,768
|
|
|
|
25,000
|
|
Land
|
|
|
697,420
|
|
|
|
697,420
|
|
Leasehold
Improvements
|
|
|
333,529
|
|
|
|
333,529
|
|
Machinery
and Equipment
|
|
|
408,133
|
|
|
|
405,233
|
|
Sign
|
|
|
43,594
|
|
|
|
43,594
|
|
Structural
|
|
|
1,017,359
|
|
|
|
1,017,359
|
|
Vehicle
|
|
|
79,744
|
|
|
|
79,744
|
|
Total
|
|
|
2,704,691
|
|
|
|
2,685,023
|
|
Less:
Accumulated Depreciation
|
|
|
(451,833)
|
|
|
|
(336,243)
|
|
Property,
Plant and Equipment - net
|
|
$
|
2,252,858
|
|
|
$
|
2,348,780
|
|
Depreciation
expense totaled of $115,590 and $43,149 for the six months ended June 30, 2019 and 2018, respectively.
NOTE
5 – NON-CURRENT ASSETS
Other
assets consisted of the following at June 30, 2019 and December 31, 2018:
|
|
June 30,
2019
(Unaudited)
|
|
December 31, 2018
(Audited)
|
Construction Deposits
|
|
$
|
—
|
|
|
$
|
—
|
|
Rent Deposits
|
|
|
22,032
|
|
|
|
22,032
|
|
Security Deposits
|
|
$
|
9,491
|
|
|
$
|
9,491
|
|
Non-Current Assets
|
|
$
|
31,523
|
|
|
$
|
31,523
|
|
NOTE
6 – 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 Binomial Options Pricing
Model with a risk-free interest rate of ranging from 0.05% to 2.63%, volatility ranging from 84.63% to 243.37%, trading prices
ranging from $0.045 per share to $0.41 per share and a conversion price ranging from $0.03 per share to $0.10 per share. The total
derivative liabilities associated with these notes were $10,644,017 at June 30, 2019 and $19,783,034 at December 31, 2018.
See
Below Summary Table
Convertible
Debt Summary
|
|
Debt
Type
|
Debt
Classification
|
Interest
Rate
|
Due
Date
|
Ending
|
CT
|
LT
|
6.30.19
|
12.31.18
|
|
|
|
|
|
|
|
|
A
|
Convertible
|
X
|
|
10.0%
|
1-Jan-17
|
25,000
|
$ 25,000
|
B
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
65,700
|
65,700
|
C
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
32,850
|
32,850
|
D
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
209,047
|
209,047
|
O
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
109,167
|
109,167
|
P
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
52,767
|
52,767
|
Q
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
52,050
|
52,050
|
S
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
50,400
|
50,400
|
T
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
250,000
|
250,000
|
X
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
66,800
|
66,800
|
BB
|
Convertible
|
X
|
|
10.0%
|
1-Jan-19
|
50,000
|
50,000
|
CC
|
Convertible
|
X
|
|
10.0%
|
1-Jan-19
|
100,000
|
100,000
|
EE
|
Convertible
|
|
X
|
0.0%
|
31-Dec-21
|
500,000
|
500,000
|
KK
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
LL
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
600,000
|
600,000
|
MM
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
100,000
|
100,000
|
NN
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
OO
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
PP
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
QQ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
RR
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
SS
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
TT
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
300,000
|
300,000
|
UU
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
VV
|
Convertible
|
|
X
|
5.0%
|
31-Jan-20
|
100,333
|
100,333
|
XX
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
100,000
|
100,000
|
YY
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
155,000
|
155,000
|
ZZ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
AAA
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
95,000
|
95,000
|
BBB
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
80,000
|
80,000
|
CCC
|
Convertible
|
X
|
|
8.0%
|
1-Jan-20
|
25,000
|
25,000
|
DDD
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
70,000
|
-
|
EEE
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
-
|
FFF
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
15,000
|
-
|
GGG
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
75,000
|
-
|
HHH
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
35,000
|
-
|
III
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
25,000
|
-
|
JJJ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
50,000
|
-
|
KKK
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
20,000
|
-
|
Total
Convertible Debt
|
|
|
|
|
6,309,114
|
5,869,114
|
Less:
Discount
|
|
|
|
|
(917,479)
|
(1,191,263)
|
Convertible
Debt, Net of Discounts
|
|
|
|
$ 5,391,635
|
$ 4,677,851
|
Convertible
Debt, Net of Discounts, Current
|
|
|
$ 334,052
|
$ 2,894,294
|
Convertible
Debt, Net of Discounts, Long-term
|
|
|
$ 5,057,583
|
$ 1,783,557
|
FOOTNOTES
FOR CONVERTIBLE DEBT SUMMARY TABLE
(A)
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. The outstanding balance of this note is convertible into a variable number of the Company’s
common stock. 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 being 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 Binomial Options Pricing Model with a risk-free interest
rate of ranging from 0.18% to 2.63%, volatility ranging from 84.63% to 243.37%, trading prices ranging from $0.065 per share to
$0.45 per share and a conversion price ranging from $0.05 per share to $0.41 per share. The balance of the convertible note at
June 30, 2019 including accrued interest and net of the discount amounted to $50,576.
A
recap of the balance of outstanding convertible debt at June 30, 2019 is as follows:
Principal balance
|
|
$
|
25,000
|
|
Accrued interest
|
|
|
25,576
|
|
Balance maturing for the period ending:
|
|
|
|
|
June 30, 2019
|
|
$
|
50,576
|
|
The
Company valued the derivative liabilities at June 30, 2019 at $23,468. The Company recognized a change in the fair value of derivative
liabilities for the six months ended June 30, 2019 of $1,606 which were charged (credited) to operations. In determining
the indicated values at June 30, 2019, since the debt is in default, the company used the maximum value these embedded options
represent, with a trading price of $0.09, and conversion prices of $0.07 per share.
(B),
(C), (D)
All
these amended 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 is 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 Binomial Options
Pricing Model with a risk-free interest rate of ranging from 0.05% to 2.59%, volatility ranging from 84.63% to 243.23%, trading
prices ranging from $0.065 per share to $0.14 per share and a conversion price ranging from $0.03 per share to $0.04 per share.
In January 2019, the maturity date of the notes had been extended to January 1, 2021. The derivative liability associated with
this note as of June 30, 2019 were $550,015.
(O)
On
March 31, 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. In January 2019, the maturity date of the notes had been extended to January
1, 2021. 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 Binomial Options Pricing Model with a risk-free
interest rate of ranging from 0.41% to 2.59%, volatility ranging from 84.63% to 157.47%, trading prices ranging from $0.065 per
share to $0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note at June 30, 2019 including
accrued interest and net of the discount amounted to $131,091. The derivative liability associated with this note as of June 30,
2019 were $195,201.
(P)
On
July 13, 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. In January 2019, the maturity date of the notes had been extended to January
1, 2021. 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 Binomial Options Pricing Model with a risk-free
interest rate of ranging from 0.41% to 2.59%, volatility ranging from 84.63% to 157.47%, trading prices ranging from $0.065 per
share to $0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note at June 30, 2019 including
accrued interest and net of the discount amounted to $63,364. The derivative liability associated with this note as of June 30,
2019 were $94,352.
(Q)
On
August 30, 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. In January 2019, the maturity date of the notes had been extended to January
1, 2021. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model
with a risk-free interest rate of ranging from 0.41% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging
from $0.065 per share to $0.27 per share a conversion price of $0.03 per share. The balance of the convertible note at June 30,
2019 including accrued interest and net of the discount amounted to $62,503. The derivative liability associated with this note
as of June 30, 2019 were $93,071.
(S)
On
December 1, 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. In January 2019, the maturity date of the notes had been extended to January
1, 2021. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model
with a risk-free interest rate of ranging from 0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging
from $0.065 per share to $0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note at June
30, 2019 including accrued interest and net of the discount amounted to $60,522. The derivative liability associated with this
note as of June 30, 2019 were $90,120.
(T)
On
December 30, 2016 the Company received $250,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and
Interest is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended
to January 1, 2021. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing
Model with a risk-free interest rate of ranging from 1.08% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices
ranging from $0.065 per share to $0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note
at June 30, 2019 including accrued interest and net of the discount amounted to $300,320. The derivative liability associated
with this note as of June 30, 2019 were $447,192.
(X)
On
November 18, 2016 the Company received $60,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and
Interest is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended
to January 1, 2021. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing
Model with a risk-free interest rate of ranging from 0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices
ranging from $0.065 per share to $0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note
at June 30, 2019 including accrued interest and net of the discount amounted to $76,797. The derivative liability associated with
this note as of June 30, 2019 were $96,465.
(BB)
On
September 23, 2015 the Company received a total of $50,000 from an accredited investor in exchange for a two year note in the
aggregate amount of $50,000 with interest accruing at 10%. The note is convertible after September 23, 2015 and is 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 $0.078. The debt issued is a result of a financing transaction and contain a beneficial conversion
feature. The balance of the convertible note at June 30, 2019 including accrued interest and net of the discount amounted to $57,482.
The derivative liability associated with this note as of June 30, 2019 were $72,204.
(CC)
On
September 23, 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 is convertible after September 23, 2015 and is 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 $0.078. The debt issued is a result of a financing transaction and contain a beneficial conversion
feature. The balance of the convertible note at June 30, 2019 including accrued interest and net of the discount amounted to $114,965.
The derivative liability associated with this note as of June 30, 2019 were $144,409.
(EE)
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 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 Kaya Holdings Inc.,
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. As of June
30, 2019, the debt discount was amortized in full.
On
January 1, 2018 the holder of the note extended the due date until December 31, 2021.
As
of June 30, 2019, the balance of the debt was $500,000. 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 9% for calculation purposes. The
net balance of $250,000 of the non-convertible portion is reflected on the balance sheet.
The
derivative liability associated with this note as of June 30, 2019 was $812,519.
(KK)
On
January 4, 2017, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.04 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from
$0.065 per share to $0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note at June 30,
2019 including accrued interest and net of the discount amounted to $180,025. The derivative liability associated with this note
as of June 30, 2019 were $268,066.
(LL)
On
January 20, 2017, the Company received $600,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.07 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from
$0.065 per share to $0.31 per share. The balance of the convertible note at June 30, 2019 including accrued interest and net of
the discount amounted to $717,967. The derivative liability associated with this note as of June 30, 2019 were $1,069,091.
(MM)
On
January 31, 2017, the Company received $100,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.07 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.87% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from
$0.065 per share to $0.31 per share. The balance of the convertible note at June 30, 2019 including accrued interest and net of
the discount amounted to $119,417. The derivative liability associated with this note as of June 30, 2019 were $177,818.
(NN)
On
February 7, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.10 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.87% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from
$0.065 per share to $0.31 per share. The balance of the convertible note at June 30, 2019 including accrued interest and net of
the discount amounted to $596,306. The derivative liability associated with this note as of June 30, 2019 were $887,931.
(OO)
On
February 21, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and
Interest is convertible into common shares at $0.10 per share. In January 2019, the maturity date of the notes had been extended
to January 1, 2021. This note has a price adjustment provision. 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 Binomial Options
Pricing Model with a risk-free interest rate of ranging from 0.87% to 2.59%, volatility ranging from 84.63% to154.71%, trading
prices ranging from $0.065 per share to $0.30 per share. The balance of the convertible note at June 30, 2019 including accrued
interest and net of the discount amounted to $594,750. The derivative liability associated with this note as of June 30, 2019
were $885,615.
(PP)
On
May 11, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.05 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.87% to 2.59%, volatility ranging from 84.63% to 139.70%, trading prices ranging from
$0.065 per share to $0.27 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted
to $504,321, net of the discount of $81,652. The derivative liability associated with this note as of June 30, 2019 were $872,544.
(QQ)
On
July 17, 2017, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.05 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.87% to 2.63%, volatility ranging from 84.63% to 139.70%, trading prices ranging from
$0.065 per share to $0.27 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted
to $144,063, net of the discount of $29,395. The derivative liability associated with this note as of June 30, 2019 were $258,289.
(RR)
On
November 1, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 1.49% to 2.63%, volatility ranging from 84.63% to 138.23%, trading prices ranging from
$0.065 per share to $0.27 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted
to $446,883, net of the discount of $119,756. The derivative liability associated with this note as of June 30, 2019 were $843,756.
(SS)
On
December 21, 2017, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8% The Note and
Interest is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended
to January 1, 2021. This note has a price adjustment provision. 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 Binomial Options
Pricing Model with a risk-free interest rate of ranging from 1.49% to 2.63%, volatility ranging from 84.63% to 131.81%, trading
prices ranging from $0.065 per share to $0.27 per share. The balance of the convertible note at June 30, 2019 including accrued
interest amounted to $130,765, net of the discount of $37,560. The derivative liability associated with this note as of June 30,
2019 were $250,645.
(TT)
On
February 5, 2018, the Company received $300,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest
is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 1.49% to 2.63%, volatility ranging from 84.63% to 132.27%, trading prices ranging from
$.05 per share to $0.49 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted to
$266,628, net of the discount of $66,906. The derivative liability associated with this note as of June 30, 2019 were $496,650.
(UU)
On
March 23, 2018, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 1.49% to 2.63%, volatility ranging from 84.63% to 132.27%, trading prices ranging from
$0.065 per share to $0.14 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted
to $140,062, net of the discount of $25,193. The derivative liability associated with this note as of June 30, 2019 were $246,073.
(VV)
On
December 21, 2017 the Company received a total of $80,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $80,000 with interest accruing at 10% per year. The note is due January 1, 2019 with monthly payments of principal and
interest. On January 30, 2018, the accredited investor advanced an additional $20,000. The total $100,000 including $333 of unpaid
interest was exchanged for a convertible note (Note VV). Interest is stated at 5%. The Note and Interest is convertible into common
shares at $0.10 per share. Note is Due in January of 2020. This note has a price adjustment provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging from 1.49% to 2.59%, volatility
ranging from 84.63% to 132.27%, trading prices ranging from $0.065 per share to $0.14 per share. The balance of the convertible
note at June 30, 2019 including accrued interest amounted to $81,392, net of the discount of $26,033. The derivative liability
associated with this note as of June 30, 2019 were $140,030.
(XX)
On
May 29, 2018, the Company received $100,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 1.82% to 2.63%, volatility from 84.63% to 127.07%, trading prices ranging from $0.065
per share to $0.16 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted to $86,192,
net of the discount of $22,509. The derivative liability associated with this note as of June 30, 2019 were $161,862.
(YY)
On
July 18, 2018, the Company received $155,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 2.48% to 2.81%, volatility from 84.63% to 126.88%, trading prices ranging from $0.065
per share to $0.13 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted to $116,675,
net of the discount of $50,113. The derivative liability associated with this note as of June 30, 2019 were $248,357.
(ZZ)
On
August 13, 2018, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January
1, 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 2.48% to 2.81%, volatility from 84.63% to 126.90%, trading prices ranging from $0.065
per share to $0.13 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted to $117,272,
net of the discount of $43,281. The derivative liability associated with this note as of June 30, 2019 were $239,072.
(AAA)
On
September 24, 2018, the Company received $95,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and
Interest is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended
to January 1, 2021. This note has a price adjustment provision. 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 Binomial Options
Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.83%, volatility from 84.63% to 126.38%, trading price
at $0.065 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted to $79,516, net
of the discount of $21,293. The derivative liability associated with this note as of June 30, 2019 were $150,110.
(BBB)
On
November 23, 2018, the Company received $80,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and
Interest is convertible into common shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended
to January 1, 2021. This note has a price adjustment provision. 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 Binomial Options
Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.81%, volatility from 84.63% to 118.96%, trading price
at $0.065 per share. The balance of the convertible note at June 30, 2019 including accrued interest amounted to $57,305, net
of the discount of $26,535. The derivative liability associated with this note as of June 30, 2019 were $124,842.
(CCC)
On
December 21, 2018, the Company received $25,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and
Interest is convertible into common shares at $0.05 per share. On January 22, 2019, the ratchet provision was activated due to
issuance of another convertible note. As such, the conversion price was decreased from $0.05 per share to $0.03 per share. As
the change is greater than 10%, the discount of $25,000 was recorded as a loss on extinguishment. the maturity date of the notes
had been extended to January 1, 2021. This note has a price adjustment provision. 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 Binomial
Options Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.63%, volatility from 84.63% to 100.81%, trading
price of ranging from $0.065 to $0.11 per share. The balance of the convertible note at June 30, 2019 including accrued interest
amounted to $18,999, net of the discount of $7,048. The derivative liability associated with this note as of June 30, 2019 were
$33,996.
(DDD)
On
January 22, 2019, the Company received $70,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.03 per share. Note is due in January of 2021. This note has a price adjustment provision.
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 Binomial Options Pricing Model with a risk-free interest rate of ranging from
2.27% to 2.59%, volatility from 84.63% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the
convertible note at June 30, 2019 including accrued interest amounted to $31,854, net of the discount of $40,585. The derivative
liability associated with this note as of June 30, 2019 were $107,866.
(EEE)
On
February 11, 2019, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and
Interest is convertible into common shares at $0.03 per share. Note is due in January of 2021. This note has a price adjustment
provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging
from 2.27% to 2.48%, volatility from 84.63% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of
the convertible note at June 30, 2019 including accrued interest amounted to $32,468, net of the discount of $122,102. The derivative
liability associated with this note as of June 30, 2019 were $230,163.
(FFF)
On
March 20, 2019, the Company received $15,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $0.03 per share. Note is due in January of 2021. This note has a price adjustment provision.
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 Binomial Options Pricing Model with a risk-free interest rate of ranging from
2.27% to 2.40%, volatility from 82.70% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the
convertible note at June 30, 2019 including accrued interest amounted to $2,377, net of the discount of $12,958. The derivative
liability associated with this note as of June 30, 2019 were $22,835.
(GGG)
On
April 6, 2019 the Company received $75,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to
the May 2017 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.40%, volatility from 82.70%
to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the convertible note at June 30, 2019 including
accrued interest amounted to $11,421, net of the discount of $64,976. The derivative liability associated with this note as of
June 30, 2019 were $113,760.
(HHH)
On
April 22, 2019 the Company received $35,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the
January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.40%, volatility
from 82.70% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the convertible note at June 30,
2019 including accrued interest amounted to $4,424, net of the discount of $31,105. The derivative liability associated with this
note as of June 30, 2019 were $52,905.
(III)
On
May 6, 2019 the Company received $25,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the
January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.40%, volatility
from 82.70% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the convertible note at June 30,
2019 including accrued interest amounted to $2,570, net of the discount of $22,731. The derivative liability associated with this
note as of June 30, 2019 were $37,675.
(JJJ)
On
May 21, 2019 the Company received $50,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to
the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.40%, volatility
from 82.70% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the convertible note at June 30,
2019 including accrued interest amounted to $3,822, net of the discount of $46,616. The derivative liability associated with this
note as of June 30, 2019 were $75,105.
(KKK)
On
June 5, 2019 the Company received $20,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the
January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. 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 Binomial Options Pricing Model with a risk-free interest rate of ranging from 2.27% to 2.40%, volatility
from 82.70% to 100.81%, trading price of ranging from $0.065 to $0.11 per share. The balance of the convertible note at June 30,
2019 including accrued interest amounted to $978, net of the discount of $19,132. The derivative liability associated with this
note as of June 30, 2019 were $29,944.
NOTE
7 – NON-CONVERTIBLE DEBT
A-Non
Related Party
|
|
June 30,
2019
|
|
December 31, 2018
|
Note 3
|
|
|
-0-
|
|
|
|
-0-
|
|
Note 4
|
|
|
-0-
|
|
|
|
-0-
|
|
Note 5
|
|
|
9,312
|
|
|
|
9,312
|
|
Note 6
|
|
|
-0-
|
|
|
|
-0-
|
|
Total Non-Convertible Debt
|
|
|
9,312
|
|
|
|
9,312
|
|
(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
(5)
On September 16, 2016 the Company received a total of $31,661 to be used for equipment in exchange for a two year note in the
aggregate amount of $31,661 with interest accruing at 18% per year and a 10% loan fee. The note is default as of June 30, 2019.
(6)
On December 21, 2017 the Company received a total of $80,000 from an accredited investor in exchange for a two year note in the
aggregate amount of $80,000 with interest accruing at 10% per year The note is due January 1, 2019 with monthly payments of principal
and interest. On January 30, 2018 the accredited investor advanced an additional $20,000. The total $100,000 including $333 of
unpaid interest was exchanged for a convertible note (Note VV) due January 1, 2020
Loan
payable - Stockholder, 0%, Due December 31, 2021 (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 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 Kaya Holdings Inc., 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 year ended December 31,
2017 was $201,092. On January 1, 2018 the holder of the note extended the due date until January 1, 2021.
As
of June 30, 2019, the balance of the debt was $500,000. 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.
|
Summary
Notes Payable Schedule-All Debt
Balance December 31, 2018
|
|
$
|
6,128,424
|
|
New Notes Payable
|
|
|
440,000
|
|
Addition due to amendment
|
|
|
-0-
|
|
Repaid Notes Payable
|
|
|
-0-
|
|
Conversions
|
|
|
-0-
|
|
Balance June 30, 2019
|
|
$
|
6,568,424
|
|
NOTE
8 – 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 500,000,000 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
February of 2018 the Company authorized the issuance of 6,200,000 shares of common shares of Kaya Holdings Inc. for employee compensation
and consulting fees. The shares were valued at $942,400. As of December 31, 2018, all 6,200,000 shares were issued on July 6,
2018.
In
February of 2018, the Company authorized the issuance of 138,866 restricted common shares of Kaya Holdings, Inc. stock to an accredited
investor that is a current shareholder of the company. The restricted common shares were issued as payment of interest of $4,166.
In
February of 2018, the Company authorized the issuance of 277,766 restricted common shares of Kaya Holdings, Inc. stock to an accredited
investor that is a current shareholder of the company. The restricted common shares were issued as payment of interest of $8,333.
In
February of 2018, the Company authorized the issuance of 633,288 restricted common shares of Kaya Holdings, Inc. stock to an accredited
investor that is a current shareholder of the company. This was a conversion of a Note Payable and Interest with a total value
of $28,498, the Note Payable was due January 1, 2019.
In
February of 2018, the Company authorized the issuance of 563,566 restricted common shares of Kaya Holdings, Inc. stock to an accredited
investor that is a current shareholder of the company. This was a conversion of a Notes Payable and Interest with a total value
of $16,907 the Note Payable was due January 1, 2019.
In
June of 2018, the Company sold 500,000 shares of common stock for gross proceeds of $50,000.
In
May of 2018 the company filed a form S-8 this Registration Statement covers an additional 10,000,000 shares of common stock, par
value $0.001 per share of Kaya Holdings, Inc. (the “Company”), which may be offered pursuant to the Company’s
2011 Stock Incentive Plan (the “Plan”), as amended on November 24, 2014, September 22, 2016 and May 1, 2018.
In
June of 2018, the Company authorized the issuance of 1,000,000 shares of common shares of Kaya Holdings Inc. for legal service.
The shares were valued at $138,500. As of December 31, 2018, all shares were issued on July 6, 2018.
On
July 6, 2018, the Company issued 1,805,555 shares of common shares of Kaya Holdings Inc. that previously recorded as stock payable
in 2017 in satisfaction of promissory note due November 30, 2017 in the amount of $54,166, for principal and accrued but unpaid
interest, which is convertible at $0.03 per share. In addition, the Company authorized 3,200,000 shares of Kaya Holdings Inc.
for services at value of $301,510. As of December 31, 2018, 1,000,000 shares were unissued and valued at $65,000.
In
August of 2018, the Company sold 2,500,000 shares of common stock for gross proceeds of $250,000. As of September 30, 2018, all
shares were issued on August 24, 2018.
In
August of 2018, the Company issued total of 12,000,000 shares to acquire the OLCC licensed marijuana production and processing
facility, consisting of the building and equipment. The shares were valued at $1,417,200 (See Note 11).
In
September of 2018, the Company authorized the issuance of 7,785,952 restricted common shares of Kaya Holdings, Inc. stock to an
accredited investor of the company. This was a conversion of a Notes Payable and Interest with a total value of $233,579, the
Note Payable was due January 1, 2019.
In
September of 2018 the Company authorized the issuance of 100,000 shares of common shares of Kaya Holdings Inc. for professional
service. The shares were valued at $11,200 and the shares were issued on November 27, 2018.
On
March 5, 2019, total of 7,785,952 shares of common stock had been issued from stock payable to settle the conversion dated on
September 16, 2018.
NOTE
9 DERIVATIVE LIABILITIES
Effective
January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified
as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine
whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated
to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope
exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are
deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement
such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results
in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required
to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure
at fair value initially and at each subsequent reporting date.
However,,
due to a recognition of tainting, due to variable conversion price on some of the convertible notes, 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 Binomial Options Pricing Model with
a risk-free interest rate of ranging from 0.05% to 2.63%, volatility ranging from 84.63% to 243.22%, trading prices ranging from
$0.045 per share to $0.41 per share and a conversion price ranging from $0.03 per share to $0.10 per share.
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 December 31, 2018
|
|
$
|
19,783,034
|
|
Initial
|
|
|
1,002,148
|
|
Change in Derivative Values
|
|
|
(10,141,165
|
)
|
Conversion of debt-reclass to APIC
|
|
|
-0-
|
|
Balance as of June 30, 2019
|
|
$
|
10,644,017
|
|
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 the amortization of debt discount of $366,177 and $713,786 for the three and six months ended June 30, 2019,
respectively.
The
Company recorded derivative liability expense of $115,254 and $562,148 for the three and six months ended June 30, 2019, respectively.
The
Company recorded a change in the value of embedded derivative liabilities income of $4,736,229 and $10,141,165 for the three and
six months ended June 30, 2019, respectively.
NOTE
10 – DEBT DISCOUNT
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.
Debt
discount amounted to $917,479 as of June 30, 2019.
The
Company recorded the amortization of debt discount of $366,177 and $713,786 for the three and six months ended June 30, 2019,
respectively.
NOTE
11 – RELATED PARTY TRANSACTIONS
At
December 31, 2014, 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 and no interest accrued until December 31, 2015. $500,000
of the debt is convertible into 50,000 Series C Convertible Preferred Shares of KAYS. The remaining $250,000 is not convertible.
On
December 31, 2015, the Company entered into an agreement to extend the debt until December 31, 2017 with no additional interest
for the extension period. On January 1, 2018 the Company entered into an agreement to further extend the debt until December 31,
2021 with no additional interest for the extension period.
At
December 2017, the company was indebted to Craig Frank, Chairman, CEO and Acting CFO for KAYS, in the amount of $7,737.00 for
travel and miscellaneous expenses incurred by Mr. Frank from travel and related activities in Oregon.
In
each of 2017 and 2018, the Company issued stock grants to Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock for
their service as board members. The stock was issued from Treasury as restricted stock and carries a one-year restriction before
it can be registered for resale pursuant to Rule 144.
In
2017 and 2018, the Company issued stock grants to Craig Frank for 2,000,000 and 3,000,00 shares of KAYS stock respectively, pursuant
to his employment agreement via board resolution. Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock. The stock
was issued from Treasury as restricted stock and carries a one year restriction before it can be registered for resale pursuant
to Rule 144.
In
August, 2018 KAYS entered into an agreement with Bruce Burwick, (who subsequently joined the Board of Directors and became an
affiliate of the Company) to purchase the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed
by the OLCC for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles.
The purchase includes a 12,000 square foot building housing an indoor grow facility, as well as equipment for growing and extraction
activity. KAYS paid Bruce Burwick $1,300,000.00 for the real property and schedule of equipment that was and is used to operate
the facility.
Bruce
Burwick acquired the property for satisfaction of a promissory note due him for $1,433,000.00. The purchase price of $1.3 million
for the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the
issuance of 12 million shares of KAYS restricted stock to the seller at closing. The shares carry a lock-up-restriction that allows
for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS. Additionally,
the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds
from the sale of those shares were and are being used for acquisition related expenses, transitional operating costs and facility
capital improvements with respect to the production and processing facility we purchased.
NOTE
12 – 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.
NOTE
13 – WARRANTS
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. As of June 30, 2019, the note was paid in full.
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. As of June 30, 2019, the note was paid in full.
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. As of
June 30, 2019, the note was paid in full.
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. As of
June 30, 2019, the note was paid in full.
Warrants
issued to Non-Employees
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
Weighted
|
|
|
|
|
Average
|
Average
|
|
|
|
Warrants
|
Exercise
|
Contract
|
|
|
|
Issued
|
Price
|
Terms
Years
|
Balance
as of December 31, 2018
|
11,065,540
|
0.0316297
|
3.8
|
Granted
|
|
|
-0-
|
-0-
|
-0-
|
Exercised
|
|
|
-0-
|
-
|
-
|
Expired
|
|
|
-0-
|
-
|
-
|
Balance
as of June 30, 2019
|
11,065,540
|
0.0316297
|
3.55
|
NOTE
14 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company has several operating leases for an office and store lease in Fort Lauderdale, Florida and several locations in Oregon
under arrangements classified as leases under ASC 842.
Effective
June 12, 2017, the Company leased the office space in Fort Lauderdale, Florida under a 5-year operating lease expiring June 30,
2022. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with
monthly payments of $4,017 and culminating in a monthly payment of $4,839. The total amount of rental payments due over the lease
term is being charged to rent expense according to the straight-line method over the term of the lease. The lease was terminated
on July 3, 2019 and the Company agreed to issue landlord 500,000 shares of common stock as penalty for early termination.
Effective
June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31,
2021. The rental payment is $1,802 per month. The total amount of rental payments due over the lease term is being charged to
rent expense according to the straight-line method over the term of the lease.
Effective
May 15, 2014, the Company leased an unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019,
the lease had been extended to May 15, 2024. The lease provides for increases in future minimum annual rental payments based on
defined annual increase beginning with monthly payments of $2,250 and culminating in a monthly payment of $2,632. The total amount
of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term
of the lease. The lease is now on a month-to-month basis.
Effective
June 1, 2015, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. The lease provides
for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $3,584
and culminating in a monthly payment of $4,034. The total amount of rental payments due over the lease term is being charged to
rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective
April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease
provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments
of $4,367 and culminating in a monthly payment of $4,915. The total amount of rental payments due over the lease term is being
charged to rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month
basis.
Effective
April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease
provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments
of $4,617 and culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being
charged to rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month
basis.
The
Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is
readily determinable. The Company used an estimated incremental borrowing rate of 9.32% to estimate the present value of the right
of use liability.
The
Company has right-of-use assets of $525,451 and operating lease liabilities of $529,978 as of June 30, 2019. Operating lease expense
for the three and six months ended June 30, 2019 was $75,789 and $139,325, respectively. The Company had cash used in operating
activities related to leases of $45,830 and $101,878 during the three and six months ended June 30, 2019, respectively.
Maturity of Lease Liabilities at June 30, 2019
|
|
Amount
|
|
2019 (excluding the six months ended June 30, 2019)
|
|
|
$
|
146,040
|
|
|
2020
|
|
|
|
237,635
|
|
|
2021
|
|
|
|
154,856
|
|
|
2022
|
|
|
|
54,688
|
|
|
Later years
|
|
|
|
—
|
|
|
Total lease payments
|
|
|
|
593,219
|
|
|
Less: Imputed interest
|
|
|
|
(63,241
|
)
|
|
Present value of lease liabilities
|
|
|
$
|
529,978
|
|
NOTE
15 – SUBSEQUENT EVENTS
On July 2, 2019 the Company received $75,000.00 from the
issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the May 2017 Finance Agreement, as amended. Interest
is stated at 8%. The Note and Interest is convertible at $0.03 per share. The Note is Due in January of 2021.
On July 30, 2019 the Company announced that they had signed
an Agreement with The Franchise Academy, a Leading Canadian Franchise Development and Sales Group, to establish and implement the
Kaya
Shack™ Retail Cannabis Store Franchise Program in Canada Targeting 75-100 Kaya Shack™ retail cannabis stores
in Canada by 2024, subject to regulatory approval and market acceptance.
In
this Quarterly Report
on Form 10-Q,
the terms
“Kaya
Holdings,”
“KAYS,”
“the
Company,”
“we,”
“us” and
“our” refer to Kaya Holdings,
Inc.
and
its subsidiaries, unless the context indicates otherwise.
Cautionary
Note
Regarding
Forward Looking
Statements
Information
contained in this Quarterly
Report
on Form 10-Q
contains “forward-looking statements” within
the
meaning
of
Section
27A of
the Securities Act
of 1933, as
amended
(the
“Securities
Act”)
and
Section
21E of the
Securities
Exchange Act
of 1934, as
amended (the ‘Exchange Act”). These forward-looking
statements are generally identifiable
by use of
the
words
“may,”
“will,” “should,” “expect,” “anticipate,”
“estimate,” “believe,” “intend”
or
“project”
or the
negative
of
these
words
or
other variations
on
these
words or
comparable
terminology.
The
forward-looking statements herein represent
our
expectations, beliefs, plans, intentions
or
strategies
concerning
future
events.
Our
forward-looking
statements
are
based
on
assumptions
that may
be
incorrect,
and
there can
be no
assurance that any projections
or
other
expectations included in
any
forward-looking statements will come
to
pass.
Moreover,
our
forward-looking statements
are
subject
to various
known and unknown
risks, uncertainties and other factors that may
cause our
actual results, performance
or
achievements
to be
materially different
from future
results,
performance
or
achievements expressed
or
implied
by any
forward-looking statements.
Except
as
required
by
applicable laws,
we
undertake
no
obligation
to
update publicly any forward-looking
statements
for any
reason, even if
new
information
becomes available
or
other events
occur in
the
future.
Available
Information
We
file annual,
quarterly
and
special
reports
and
other information with the Securities
and
Exchange
Commission (“SEC”) that
are
available
through the
SEC’s
Electronic Data Gathering Analysis
and
Retrieval
System,
known as
EDGAR,
through
the
SEC’s
website (www.sec.gov).
Item
2.
Management’s Discussion
and
Analysis
of
Financial Condition
and
Results
of
Operations.
Business
Overview
PART
I
Item
1. Business.
Overview
Kaya Holdings, Inc., “KAYS” or the “Company”
a Delaware corporation, is a vertically integrated legal marijuana enterprise that produces, distributes, and/or sells a full
range of premium cannabis products including flower, oils, vape cartridges and cannabis infused confections, baked goods and beverages
through a fully integrated group of subsidiaries and companies supporting highly distinctive brands.
Current Oregon Operations
In Oregon, all of the Company’s operations are licensed by the
Oregon Liquor Control Commission (the “OLCC’), which has jurisdiction over legal medical and recreational cannabis
grow, production and retail operations. The Company originally commenced operations in Oregon in July 2014, operating medical
marijuana dispensaries (“MMDs”) when only medical marijuana sales had been legalized. However, this afforded the Company
to be in position to rapidly move into the grow, production and retailing of recreational marijuana when legalization of recreational
cannabis sales followed shortly thereafter in October 2015.
The Company currently operates
a chain of three Kaya Shack™ retail outlets and has developed its own proprietary Kaya Farms™ strains of cannabis,
which it grows and produces (together with edibles and other cannabis products) at its Eugene, Oregon Sunstone Farms indoor cannabis
grow and production facility, which KAYS acquired in October 2018 and is presently operating under a Management Agreement pending
transfer of the licenses by the OLCC to the Company, upon completion of a satisfactory compliance review.
Additionally, the Company also
owns a 26-acre parcel in Lebanon, Linn County, Oregon, which it purchased in August 2017 on which it intends to construct a cannabis
cultivation and manufacturing complex, which will initially consist of an 85,000-square foot Kaya Farms™ greenhouse grow
and production facility. The Company maintains a genetics library of over 30 strains of cannabis it has developed and has also
formulated various cannabis-infused edibles, marijuana cigarettes and other cannabis derivatives under its proprietary “Kaya”
brand names.
The
Company’s business strategy seeks to achieve four fundamentals objectives:
|
·
|
maintaining
direct access to customers (to own the relationship with end-users);
|
|
·
|
effecting
vertical integration to control the supply chain (to control cost, selection and quality);
|
|
·
|
introducing
strong brands in tradition and innovative categories (to control asset development);
and
|
|
·
|
creating
the capacity to expand nationally and internationally as regulations and opportunities
permit.
|
Domestic and International
Plans for Expansion
The
Company is focusing its efforts on expanding its operations both domestically and internationally by:
|
·
|
replicating
its Kaya Shack™ brand retail outlets through franchising, initially in Canada,
where the production and use of marijuana for both medical and recreational purposes
is legal nationwide and ultimately into U.S. states where medical and recreational marijuana
production and use is legal or expected to become legal in the near term;
|
|
·
|
retaining
Franchise Academy, Inc., a franchise consulting group, to assist it, together with Garfinkle
Biderman LLP, a Canadian law firm specializing in the franchise arena, in the development,
planning, launch and implementation of its retail franchise program in Canada;
|
|
·
|
utilizing
its marijuana grow, processing, manufacturing and production facilities (which have the
capability to grow and process up to 100,000 pounds of cannabis annually) to support
its planned franchised outlets, in order to both maintain quality control and offer customers
a consistent customer experience while reducing costs of goods to franchisees;
|
|
·
|
developing,
producing and marketing, additional cannabis products, including flower, concentrates,
extracts, cannabis-infused edibles, topicals, marijuana cigarettes and other specialty
cannabis derivatives using its proprietary Kaya Shack™ and Kaya Farms™ brands
edibles, marijuana cigarettes, extracts, and topicals;
|
|
·
|
establishing
a branch in Israel, where it will seek to grow and export legal medical and recreational
cannabis to European and Asian countries, as regulations permit; and
|
|
·
|
ultimately,
taking advantage of anticipated regulatory changes to export cannabis and cannabis products
from Oregon to other jurisdictions where medical and recreational cannabis use is legal.
|
The Company has formed
Kaya Brands International, Inc. (“
Kaya International
”), a new Florida subsidiary, to undertake its planned
Canadian retail franchise operations and other planned operations outside the U.S.
Corporate
Information
Our
corporate office is located at 915 Middle River Drive, Suite 316, Fort Lauderdale, Florida, 33304. Our telephone number is 954-892-6911
and our corporate website is www.kayaholdings.com. Information contained on our corporate website does not constitute part of
this Memorandum.
Market
Overview
According
to Arcview Market Research and its research partner BDS Analytics, over the next 10 years, the legal cannabis industry will see
much progress around the globe. Spending on legal cannabis worldwide is expected to hit $57 billion by 2027. The adult-use (recreational)
market will cover 67% of the spending; medical marijuana will take up the remaining 33%.
The
largest single market of cannabis buyers will be in North America, going from $9.2 billion in 2017 to $47.3 billion a decade later.
The largest growth spread, however, is predicted within the rest-of-world markets, from $52 million spent in 2017 to a projected
$2.5 billion in 2027.
While
the U.S. market is expected to be dominated by recreational sales, the European market may have greater medical sales due to the
inclusion of cannabis in the government subsidized healthcare systems. The European market is expected to be the single largest
arena for medical marijuana.
The
worldwide adult recreational cannabis market remains hampered by the United Nations and its 1961 Single Convention on Narcotic
Drugs. The Arcview and BDS report believes nothing will be done to change the U.N. attitude until U.S. federal laws legalize marijuana
something many industry experts and pundits believes will happen after the 2020 presidential election.
Important Industry
Considerations
|
·
|
The
initial decision by many U.S. states and Canada to create medical-only cannabis regulations
prompted many other countries to act similarly. This increased further after California
and Canada legalized adult recreational use.
|
|
·
|
South
America has some of the most liberal medical cannabis programs. Led by Brazil, Argentina,
Peru and Uruguay (the only country in the world in which adult recreational use is legal
for all its citizens), the South American medical cannabis market may grow from $125
million in 2018 to $776 million in 2027.
|
|
·
|
Germany
is poised to be the leader of the European cannabis market, and Italy is expected to
be second with $1.2 billion in sales by 2027. Overall, however, the European cannabis
market is not expected to grow as stridently as its potential suggests.
|
|
·
|
Australia’s
legal cannabis market is forecast to grow from $52 million in 2018 to $1.2 billion in
2027, the 5th largest in the world.
|
|
·
|
Israel
has a small population and a long history of legal medical marijuana use. It continues
as a leader with years in the development of cannabis pharmaceuticals.
|
|
·
|
Canada
is among the few countries where investors have already shown confidence in the future
legality of the cannabis industry; they are betting with billions of dollars pouring
into public equity investments.
|
Source:
www.forbes.com |
Legal Cannabis Industry Poised For Big Growth, In North America And Around The World
| Thomas Pellechia
| March 1, 2018.
The
Kaya™ Family of Brands
Kaya Holdings,
Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana enterprise
that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges and
cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting
highly distinctive brands.
Currently
Operational Brands (2014-2019)
Next
Stage Traditional (2019-2021)
Next
Stage Innovative (2019-2021)
Note:
The “Next Stage Traditional” and “Next Stage Innovative” brands are all targeted for release over the
6-18 months. The Company is currently awaiting the status of the license transfer at the Kaya Farms Indoor Marijuana Grow, Processing
& Cannaceutical Production Facility in Eugene, Oregon, and the pending license issuance of the Kaya Farms Ag Facility in Lebanon,
Oregon to finalize the release dates for these brands in Oregon. In the event that the license transfer at the Eugene facility
and/or the licensing approval and construction timeline of the Lebanon facility is delayed or experiences difficulties, the Company
has sourced other alternatives to expedite the release of the brands and will update shareholders accordingly as to revised brand
rollout dates (if any).
The
Kaya
Shack™
Brand
Kaya
Holdings operates
the
Kaya Shack™
brand of
legal medical and recreational retail marijuana retail stores.
Kaya
Holdings operates
three
recreational marijuana
retail outlets
and
medical marijuana dispensaries in Oregon under the
Kaya
Shack™ brand.
Dubbed
by
the mainstream
press as
the “Starbucks
of
Marijuana” after
our
first
outlet opened in July
2014, our
operating concept
is
simple:
to
deliver
a
consistent customer experience
(quality products, fair prices
and
superior customer service) to
a
broad
and
diverse base
of
customers. Kaya
Shack™ meets the quality needs
of the
“marijuana enthusiast”, the
comfort and atmosphere
of
all including “soccer moms” and the price sensitivities
of
casual smokers.
Additionally,
Kaya Holdings maintains an active fourth OLCC Marijuana Retail License which it is seeking to move to its Eugene, Oregon Kaya
Farms Indoor Production and Processing Facility so that the Company may offer a “Kaya Farm Store” and also serve as
a retail delivery hub for Eugene, Oregon.
The
Kaya Shack™
brand
communicates
positive thinking and
joy,
with signs
adorning
the
walls that read
“It’s
a Good Day
to
have a Good
Day,”
“Some
of our
Happiest Days Haven’t
Even Happened
Yet,”
and our
signature
“Be
Kind.”
Kaya
Shack™ retail outlets
are open 7
days
a
week- Monday through Saturday
from
8:00
am
to 10:00 pm,
and Sunday
8:00
AM
to
9:00 PM.
Operations follow an operational
manual that details procedures
for 18
areas
of
operation
including
safety,
compliance, store opening,
store
closing, merchandising, handling
of cash,
inventory
control, product intake, store appearance
and
employee conduct.
In
compliance with regulations, all marijuana
and
marijuana
infused products sold through
our stores
are quality tested
by
independent
labs to assure adherence
to
strict quality
and OLCC
regulations.
The
Company is exploring opportunities to expand its operations beyond Oregon
by
replicating its
Kaya Shack™ brand
retail
outlets
through
franchising in other states
where
recreational
cannabis
use
is legal
or
expected
to
become legal in the near term,
as
well as
in Canada,
where it
is legal nationwide.
KAYS
also is targeting opening corporate owned marijuana production
and
processing
facilities to
support
the envisioned franchised outlets, and
to
both
maintain quality control
and
offer customers
a
consistent
customer experience while reducing costs
of goods to
franchisees.
Kaya
Shack™ Retail Outlets
All
stores feature
a
check
out
stand
wrapped to feature the
Company’s
proprietary
brand of
pre-rolls, Kaya Buddies.
The
Buddies
program
is
an exciting
and
popular pre-roll
offering, featuring
a
wide selection
(15-15
strains
of
pre-rolls)
and
featuring
our
special Kaya Saying in each Buddies tube.
A
glass
display
case showcases
at least
25
strains
of
marijuana flower, which the
stores serve
to
customers “deli style”, weighing straight
from
the jar
to
the
customer’s take-out tube.
An
additional display case with
a
varied
selection
of
oils, concentrates
and
topicals
rounds out the
cannabis product
display.
The
stores also feature standing display cases with cannabis intended glassware
under
the
Company’s
brand
Really
Happy
Glass,
as
well as
a rack of
proprietary
t-shirt
designs marketed under the Company brand Kaya
Gear.
The
store also
has a
hospitality area
that offers free
water,
coffee, tea and
hot
cocoa.
As
required
by
law,
all products containing marijuana are either behind locked glass
or
behind
the
counter
and out of
customer reach.
|
I.
|
Kaya
Shack™ , 1719 SE Hawthorne Blvd.,
Portland,
Oregon.
|
Our
first
Kaya
Shack™
OLCC
licensed
marijuana store (located in
the heart of
the trendy Hawthorne district in southeast
Portland, the “Greenwich
Village”
of
the
West
Coast)
opened
for
business
July
03, 2014. The
store is located
next door to a
cell
phone
repair
shop,
and near to
Devil’s
Dill restaurant and
No Fun
pub.
There are also
a
McMenamins restaurant,
tattoo parlor, convenience store, hair/nail salon and
a
soccer sports
bar.
The
area
around
the
shop
is
mixed
use
(commercial and residential)
and has a
footprint
of
approximately
700
square
feet
and is
the
model
for the
Company’s
small
urban shops.
|
II.
|
Kaya
Shack
™
Marijuana Superstore,
South
Salem,
Oregon.
|
Our
second Kaya Shack™
OLCC
licensed marijuana
store (located in South Salem,
Oregon)
opened
for
business
on
October
17, 2015.
The
store
is
located
in a
strip mall alongside
a
Caesar’s Pizza,
Aaron’s
furniture,
a
convenience store,
a
tanning
salon,
and a
nail salon.
The
plaza also
has
a
Subway,
a
sports
bar
and
a
laundromat. The area
around
the
shop is
primarily commercial with residential complexes
under
construction
and
has
a
footprint
of
approximately
2,100 square
feet
and
|
III.
|
Kaya
Shack™ Marijuana Superstore, Central Salem, Oregon.
|
Our
third
Kaya
Shack™ (located in Central
Salem,
Oregon) opened for
business February
15, 2018. The
store
is
located
in a
strip mall directly
behind Carl
Jr.
and
Popeye’s
Chicken restaurants and alongside
a
microbrewery
sports
bar,
laundromat,
and
Hawaiian
sandwich
shop.
The area around
the shop
is
primarily commercial with residential complexes ready to open Summer
2018. It
has
a
footprint
of
approximately
3100
square feet and utilizes the Kaya Shack™ Marijuana Superstore model.
Kaya
Shack™
Car
Fleet
and Home
Delivery
The
Company
is
licensed
by
the
OLCC for
home delivery
for
all
four
stores.
The
Company
is interested in developing its delivery service and
has a
fleet
of 4
Kaya
Cars (wrapped Fiat
500s
featuring the
Company’s
branding logos
and
colors
and
outfitted with safes
and
security)
at
the
ready,
and
once the support
software enabling compliant delivery is released
Kaya
Shack™
will commence with its
home
delivery service.
We
expect delivery to extend
our
visibility,
assist in
building
brand
awareness,
and
allow the Company to service
a
broader
geographic
territory.
The
Company
has
developed the website www.kayadelivers.com to advance the
growth of
its
delivery service.
To
make
use of the
cars
while the Company waits to launch delivery service, the cars are currently
used for
promotional
purposes
at
community fairs
and roving
billboards.
Kaya
Farms™
Lebanon,
Linn County,
Oregon Marijuana Grow
and
Manufacturing Complex
In
early
2015,
KAYS
commenced
its
own
medical marijuana
grow
operations
for
the cultivation
and
harvesting
of
legal marijuana thereby becoming the first publicly traded
U.S.
company
to
own a
majority interest in
a
vertically
integrated legal marijuana enterprise in the United States. Since that time
KAYS
has operated various
grow
facilities to
feed the Kaya
Shack Supply Chain,
and
in
August 2017,
KAYS
acquired its first property
for a
large scale facility-
a
26-acre
parcel in Lebanon, Linn
County,
Oregon,
where
we
intend to develop
an 85,000-square foot
Kaya
Farms™
Farm
and greenhouse facility
Management
believes that the acquisition
and
development
of
the property will position the
Company
for
future growth and expansion, including increased Marijuana Canopy production
to the maximum extent allowed
by
law through
use of
both
greenhouse and
outdoor grows,
as well
as
expansion
of
its production capabilities with brands
in
oils,
vape
cartridges, concentrates,
a
selection
of
edibles, and
infused
creams and lotions.
When Federal Prohibition
of
marijuana
ends and
national
and
international cannabis trade can begin,
we
believe
that
Oregon
is uniquely positioned
to
become
America’s
“pot
basket”
due
to its
superior
climate
and
state
history
involving generations
of
Oregonian Cannabis
Growers;
ideal weather
+
extensive generational knowledge
=
superior,
lower
cost
cannabis products
for
export.
We
filed
for
zoning
and land
use approval in
early
2018, and
after
numerous regulatory challenges and delays,
we
finally received zoning and land
use
approval
in early
2019
to build
on
the
property.
We
are
presently
in
the
final planning stages
and
are
awaiting
the
culmination
of
the OLCC
licensing process to begin construction.
Under present
laws the property can easily
deliver
6-8,000 pounds of
cannabis each
year;
if
future regulations permit
we
believe that
we
can
expand that capability
to
approximately
100,000 pounds of
cannabis
each
year.
Kaya
Farms
Indoor
Marijuana
Grow,
Processing
&
Cannaceutical
Production Facility
On
October
23, 2018
KAYS
announced
that
it had
concluded the purchase
of
the
Eugene, Oregon based Sunstone Farms
grow
and manufacturing
facility,
which is licensed
by the
OLCC
for
both the production
(growing) of
medical
and
recreational marijuana flower and the processing
of
cannabis
concentrates/extracts/edibles.
The
purchase includes
a 12,000 square foot
building housing
an indoor grow
facility,
as
well
as
equipment
for
growing
and
extraction
activity.
The
facility can
produce
in excess
of 800 pounds
cannabis
flower annually
as
currently outfitted,
as
well
as a
substantial amount
of
manufactured
extracts
and
related cannabis products.
The
purchase price
of $1.3
million
for the
OLCC licensed marijuana production
and
processing
facility,
consisting
of
the
building
and
equipment
was
paid
for by
the issuance
of 12
million
shares
of
KAYS
restricted stock
to
the
seller
at
closing. The shares carry
a
lock-up-restriction
that allows
for
their staged eligibility
for
resale
over a
61-month period
from the
date
of
the
purchase of
the facility
by
KAYS.
Additionally,
the
seller
purchased
2.5
million restricted shares
for $250,000
in
cash in
a
private transaction with
the
Company.
The proceeds
from the
sale
of
those shares
were and
are being
used
for
acquisition related expenses, transitional operating
costs
and
facility capital improvements with respect to the production and processing facility
we
purchased.
KAYS
intends
to
utilize
the
processing facilities to
grow
their
own
top-shelf, connoisseur-grade marijuana flower,
produce
various
brands of
oils, edibles, concentrates
and
extracts,
and develop medical
grade
laboratory facilities
for
the
production
of a
proprietary Kaya Cannaceuticals™ line
of both CBD and
CBD/THC products
for
the health, skincare
and
medical industries.
Pursuant
to
an
interim Management Agreement entered
into between
the
parties, the Company
has
assumed
operations
of
the 12,000-square
foot
facility
pending transfer
of the
licenses
by
the
OLCC
to
the
Company,
upon
completion
of a
satisfactory compliance
review.
As
part
of
planned expansion
and
renovations
for the
facility,
KAYS
began site improvements and has begun supplying its
three Kaya
Shack™
retail outlets with Kaya Farms™ cannabis and cannabis products
from
the facility
Acquisition
of the
Eugene,
Oregon
facility has enabled the Company to recommence its
Kaya
Farms™
cannabis
grow,
processing and manufacturing
operations. Please see the following
pages for
copies
of
testing
results
and
pictures
of
various aspects
of
production.
Kaya
Farms™
-
Cannabis
and
Cannabis Products
Kaya
Buddie™
Strain
Specific
Cannabis
Cigarettes
In
2016
the Company introduced
a
signature line
of
strain-specific connoisseur-grade, pre-rolled cannabis cigarettes branded
as “Kaya
Buddies™”.
Kaya
Buddies™
cannabis cigarettes have been
very
well received
by
medical
patients
and
recreational users, with the
Company
selling
over
100,000
Kaya Buddies™ since launching
the
brand
in January
2016.
The
brand,
marketed
under
the tagline “Buds with Benefits”, features over
50
different
strains
of
connoisseur-grade,
high
quality
cannabis and proprietary specialty blends. Many cannabis retailers produce prerolls,
but none
that
we know of
offer strain specific preroll made
from
the
buds of
the
flower.
Potential
Expansion
The
Company is focusing its efforts on expanding its operations both domestically and internationally by:
·
replicating its Kaya Shack™ brand retail outlets through franchising, initially in Canada, where the production and use
of marijuana for both medical and recreational purposes is legal nationwide and ultimately into U.S. states where medical and
recreational marijuana production and use is legal or expected to become legal in the near term;
·
retaining Franchise Academy, Inc., a franchise consulting group, to assist it, together with Garfinkle Biderman LLP, a Canadian
law firm specializing in the franchise arena, in the development, planning, launch and implementation of its retail franchise
program in Canada;
·
utilizing its marijuana grow, processing, manufacturing and production facilities (which have the capability to grow and process
up to 100,000 pounds of cannabis annually) to support its planned franchised outlets, in order to both maintain quality control
and offer customers a consistent customer experience while reducing costs of goods to franchisees;
·
developing, producing and marketing, additional cannabis products, including flower, concentrates, extracts, cannabis-infused
edibles, topicals, marijuana cigarettes and other specialty cannabis derivatives using its proprietary Kaya Shack™ and Kaya
Farms™ brands edibles, marijuana cigarettes, extracts, and topicals;
·
establishing a branch in Israel, where it will seek to grow and export legal medical and recreational cannabis to European and
Asian countries, as regulations permit; and
·
ultimately, taking advantage of anticipated regulatory changes to export cannabis and cannabis products from Oregon to other jurisdictions
where medical and recreational cannabis use is legal.
Domestic and International
Plans for Expansion
The
Company has formed Kaya Brands International, Inc. (“Kaya International”), a new Florida subsidiary, to undertake
its planned Canadian retail franchise operations and other planned operations outside the U.S.
Growth
Strategy
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 in accordance with State and Local Laws
and
Federal
Enforcement Policies
and
Priorities as
it
relates
to Marijuana
(as
outlined in the Justice Department's Cole Memo dated
August 29, 2013, US
Attorney General Jeff Sessions Memo dated
January 4, 2018,
and subsequent commentary
from US
Attorney
for
the District
of
Oregon Billy
Williams).
|
·
|
|
The
Company
will seek to operate in
a
vertically
integrated manner
(grow,
process
and
sell) wherever permitted
by
law.
In
states
or
countries 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 shall
work
with law enforcement
and
government officials to insure compliance
with
all
regulations.
|
Marketing
and
Sales
The
Company will only market its legal marijuana
as
in
compliance with applicable state
law.
The Company employs
a
marketing campaign consisting
of four
cornerstones:
|
·
|
Promoting
and
establishing
the Kaya Shack™
brand.
|
|
·
|
A
positive and active online presence.
|
|
·
|
Daily
specials
and
promotions.
|
|
·
|
Quirky
and fun
holiday
specials.
|
Our
core
strategic marketing objectives include:
|
|
Establishing
and
Enhancing the Kaya
Shack™ Brand
–
positioning the
Company’s
brand to
have
positive
and
value
related associations with all prospective
and
existing customers.
|
|
|
Operating
Cooperatively
-
cooperation,
as a
strategy,
helps develop
a
network
of
suppliers and marketing channels
able to promote
Kaya
Shack™.
|
|
|
Delivering
Value
-
customer
value
is
achieved
when
the perceived
value
of
what
we
sell along with
the value
of
the experience
we
deliver
exceeds the price
we
charge.
|
|
|
Driving
Customer
Traffic
-
the only two
ways to
increase
store
income is
to
sell more to
our
existing
customers
and
attract
new
customers.
Programs are
in
place to accomplish both tasks.
|
Government
Regulation
We
are
subject
to
general business regulations and laws, as well as regulations and laws directly
applicable
to our
operations.
As we
continue
to
expand
the scope
of our
operations,
the
application
of
existing laws
and
regulations could include matters such as pricing, advertising, consumer protection,
quality
of
products,
and
intellectual
property ownership.
In
addition,
we
will
also
be
subject to
new
laws and regulations
directly applicable
to our
activities.
Any
existing
or new
legislation applicable
to us
could expose
us
to substantial
liability,
including significant expenses necessary
to
comply with such laws
and
regulations,
which could hinder
or
prevent
the
growth
of our
business.
Federal,
state
and
local
laws
and
regulations governing legal recreational and medical marijuana
use
are broad
in
scope and are
subject to evolving
interpretations, which could require
us
to incur substantial costs associated with
compliance.
In
addition, violations
of
these
laws
or
allegations
of
such violations
could
disrupt our
planned business
and
adversely
affect
our
financial condition and results
of
operations.
In
addition, it
is
possible that additional
or
revised federal, state
and
local
laws
and
regulations may
be
enacted
in the future governing
the
legal marijuana
industry.
There can
be no
assurance that
we
will
be
able to comply with
any such
laws
and
regulations
and
its
failure
to do so
could significantly harm
our
business,
financial condition
and
results
of
operations.
Competition
The
legal marijuana sector
is
rapidly
growing
and
the Company faces significant competition in
the
operation
of
retail outlets,
MMDs
and
grow
facilities. Many
of
these competitors will
have
far
greater experience,
more
extensive
industry contacts
and
greater financial resources than the
Company.
There can
be no
assurance that
we
can adequately compete to succeed in
our
business
plan.
Employees
As
of
the date as
of
this
Report,
our
Oregon
operations have
a
total
of
15-20
part-time store employees including budtenders, trimmers, growers, and
6
full-time
employees, consisting
of 3
store managers,
a
Vice
President
of
Marketing
and
Brand development, the
Senior
Vice
President
of
Cannabis
Operations and
a
Vice
President
of
Cultivation.
Additionally,
we
engage
several consultants to
assist
with
daily duties and business plan implementation and execution. Additional employees will
be
hired
and other consultants engaged
in
the
future
as
our
business
expands.
Results of Operations
Three months ended June 30, 2019 compared to three months
ended June 30, 2018
Revenues
We had revenues of $249,121 for the three months
ended June 30, 2019 as compared to revenues of $291,133 for the three months ended June 30, 2018. The slight decrease in revenue
during the current period was due to the normal fluctuation in the market.
Cost of Goods Sold
Our cost of goods sold for the three months
ended June 30, 2019 was $92,719 compared to cost of goods sold of $118,420 for the three months ended June 30, 2018. The slight
decrease in cost of goods sold during the current period was due to normal fluctuation in the wholesale cannabis market.
Salaries and Wages
Salaries and Wages increased to $114,415 for
the three months ended June 30, 2019 as compared to $102,192 for the three months ended June 30, 2018. The increase in salaries
and wages during the current period was due to normal increase in labor cost.
Selling, General and Administrative Expenses
Selling, general and administrative increased
to $217,197 for the three months ended June 30, 2019 as compared to $175,158 for the three months ended June 30, 2018. This increase
reflects the fact that some of the expenses associated with this category have increased over time.
Professional Fees
Professional fees were $145,119 for the three
months ended June 30, 2019, as compared to $172,331 for the three months ended June 30, 2018. Our professional fees were primarily
attributable to accounting, auditing and legal fees associated with maintaining our public markets listing.
Interest Expense
Interest expense and debt amortization expense
decreased to $498,370 for the three months ended June 30, 2019 from $682,141 for the three months ended June 30, 2018. These decreases
were due to lesser debt incurred over the past 12 months to acquire land and fund expansion of our operations.
Derivative Liabilities Expense
Derivative liabilities expense decreased to
$115,253 for the three months ended June 30, 2019 from $356,394 for the three months ended June 30, 2018. These decreases were
due to change in stock price as well as the volatility factors used in the derivative calculations.
Change in Fair Value of Embedded Derivative Liabilities
We had gain of $4,736,229 from change in fair
value of embedded derivative liabilities for the three months ended June 30, 2019, compared to loss of $256,374 from change in
fair value of embedded derivative liabilities for the three months ended June 30, 2018. These gain were due to change in stock
price as well as the volatility factors used in the derivative calculations.
Net Income attributed to Kaya Holdings Inc.
We incurred net income of $3,863,740 attributed
to Kaya Holdings Inc. for the three months ended June 30, 2019, as compared to a net loss of $1,533,968 for the three months ended
June 30, 2018.
The majority of our net income during the
three-month period ending June 30, 2019 was a result of the derivative liabilities associated with our Convertible Debt and a
reduction in our stock price as well as the less volatility factors used in the derivative calculations. The net
loss attributed to non-controlling interest for the three months ended June 30, 2019 and 2018 were $61,449 and $37,909,
respectively.
Six months ended June 30, 2019 compared
to six months ended June 30, 2018
Revenues
We had revenues of $512,879 for the six months
ended June 30, 2019, as compared to revenues of $546,498 for the six months ended June 30, 2018. The slight decrease in revenue
during the current period was due to the normal fluctuation in the market.
Cost of Goods Sold
Our cost of goods sold for the six months ended
June 30, 2019 was $238,231 compared to cost of goods sold of $221,011 for the six months ended June 30, 2018. The slight increase
in cost of goods sold during the current period was due to normal fluctuation in the wholesale cannabis market.
Salaries and Wages
Salaries and Wages increased to $260,870 for
the six months ended June 30, 2019 as compared to $235,632 for the six months ended June 30, 2018. The increase in salaries and
wages was due to normal increase in labor cost.
Selling, General and Administrative Expenses
Selling, general and administrative increased
to $460,220 for the six months ended June 30, 2019, as compared to $339,246 for the six months ended June 30, 2018. This increase
reflects the fact that some of the expenses associated with this category have increased over time.
Professional Fees
Professional fees were $190,969 for the six
months ended June 30, 2019, as compared to $1,358,059 for the six months ended June 30, 2018. The decrease in professional fees
was a result of stock issuance in exchange for professional services and the shares were valued at market price on issuance date.
Interest expense
Interest expense and debt amortization expense
decreased to $972,181 for the six months ended June 30, 2019 from $1,407,930 for the six months ended June 30, 2018. These decreases
were due to lesser debt incurred over the past 12 months to acquire land and fund expansion of our operations.
Derivative Liabilities Expense
Derivative liabilities expense decreased to
$562,148 for the six months ended June 30, 2019 from $1,913,591 for the six months ended June 30, 2018. These decreases were due
to change in stock price as well as the volatility factors used in the derivative calculations.
Loss on extinguishment of debt
Loss on extinguishment of debt was $25,000
for the six months ended June 30, 2019 as compared to $-0- for the six months ended June 30, 2018. The loss was due to ratchet
provision, which is change in conversion price on one of the convertible notes issued in 2018.
Change in Fair Value of Embedded Derivative Liabilities
Changes in Fair Value in Embedded Derivative Liabilities
Gain from change in fair value of embedded
derivative liabilities decreased to $10,141,165 for the six months ended June 30, 2019 from $16,105,145 for the six months ended
June 30, 2018. These decreases were due to change in stock price as well as the volatility factors used in the derivative calculations.
Net Income attributed to Kaya Holdings Inc.
We incurred net income of $8,113,272
attributed to Kaya Holdings Inc. for the six months ended June 30, 2019, as compared to a net income of $11,250,728 for the
six months ended June 30, 2018.
The majority of our net income during the
six-month period ending June 30, 2019 was a result of the derivative liabilities associated with our Convertible Debt and a
reduction in our stock price as well as the less volatility factors used in the derivative calculations. The net loss
attributed to non-controlling interest for the six months ended June 30, 2019 and 2018 were $168,608 and $74,554,
respectively.
Liquidity and Capital Resources
May 2017 Financing
On May 11, 2017, we entered into a second financing
agreement with Cayman Venture Capital Fund (the “Institutional Investor”) which had previously completed approximately
$3.3 Million in in financing as listed in the 2018 10-K and previous filings to provide the Company with up to an additional $5.8
million in convertible note funding (the “
May 2017 Notes
”) through July 31, 2018 (the “
May
2017 Financing Agreement
”). The May 2017 Financing Agreement was amended as of July 31, 2017, to increase the amount
of funding available to the Company thereunder to $6.3 million and to extend the time period for such funding to May 31, 2019 and
was subsequently amended as of November 15, 2017 and as of March 31, 2018, to further increase the amount of funding available
to the Company thereunder to $7.75 million and to provide for the remaining $5.8million in principal amount of May 2017 Notes
to be (a) convertible into shares of the Company’s common stock at conversion prices ranging from $0.03 to $0.11 pursuant
to the terms of each May 2017 Note as described below; and (b) to extend the time period for such funding to April 30, 2020.
Pursuant to an additional agreement reached
as of March 31, 2018, KAYS and the Institutional Investor agreed that effective as of January 1, 2019, (a) the maturity date of
all then outstanding Company promissory notes held by the Institutional Investor and its affiliate, NWP Finance LTD, will be extended
from January 1, 2019 to January 1, 2020; (b) all of the $1.75 million in principal amount of May 2017 Notes currently outstanding
and the remaining $5.8 million in principal amount of May 2017 Notes which may be issued under the Agreement, as amended, are to
be secured by a mortgage lien on the Company’s 26-acre Lebanon, Oregon property, substantially similar in form and substance
to the mortgage securing the $500,000 in principal amount of $0.03 Secured Notes purchased by the Institutional Investor, with
the caveat that the property, improvements or rights to utilize them cannot be directly or indirectly leased, assigned or otherwise
pledged to any entity without approval of the Institutional Investor, and in the event that there is a change in control of the
Company or its subsidiaries the May 2017 Notes become immediately due and payable; and (c) the Institutional Investor was be granted
piggy-back registration rights with respect to shares of the Company’s common stock it may hold or is issuable upon conversion
of any Notes it or its Assigns may hold in the event the Company files a Registration Statement on Form S-1 with the Securities
and Exchange Commission under the Securities Act of 1933, as amended to sell shares of its common stock or permit the resale by
shareholders of previously issued shares of common stock, up to a maximum of 30% of the shares registered under such registration
statement.
Moreover, effective as of January 20, 2019,
the Agreement was further amended to: (a) extend the due dates for funding due under the Agreement for each of the remaining trenches
(including the $420,000 remaining “$0.03” Notes that were due to expire December 31, 2018) by six (6) months; (b) agree
to extend the maturity date all then outstanding Company promissory notes held by the Institutional Investor and its affiliate,
NWP Finance LTD, from January 1, 2020 to January 1, 2021; and (c) pursuant to price adjustment features in the outstanding Notes
held by the Institutional Investor, the Company confirmed that all outstanding Notes with a conversion price greater than $0.03
held by the Institutional Investor would be lowered to $0.03 per share at time of conversion.
As of the date of this Quarterly report, the
Institutional Investor has purchased an aggregate of $2,625,000 in principal amount of May 2017 Notes from the Company under the
May 2017 Financing Agreement, as amended to date, of which are (i) convertible into shares of the Company’s common stock
at a conversion price of $0.03; and (ii) secured by a mortgage lien on the Company’s 26 acre Lebanon, Oregon property (the
“
$0.03 Secured Notes
”).
January 2018 Financing
Effective January 22, 2018, and amended as
of July 31, 2018 we entered into a financing agreement with a high net worth investor (the “
HNW Investor
”)
to provide the Company with up to $1.4 million in convertible note funding (the “
January 2018 Notes
”)
through July 31, 2018 (the “
January 2018 Financing Agreement
”). Pursuant to the January 2018 Financing
Agreement, upon execution of the January 2018 Financing Agreement, the HNW Investor purchased $100,000 in principal amount of January
2018 Notes, which are convertible into shares of the Company’s common stock at a conversion price of $0.10 per share (the
“$0.10 Notes
”).
While the January 2018 Financing Agreement
granted the HNW Investor the right to acquire additional January 2018 Notes by certain deadlines if additional funding was provided,
no additional $0.10 Notes were purchased until the January 2018 Financing Agreement was amended in December, 2018 to allow the
HNW investor the right to purchase an additional $25,000 of January 2018 Notes, which are convertible into shares of the Company’s
common stock at a conversion price of $0.05 per share (the
“$0.05 Notes
”). In January 2019 the Agreement was
further amended to lower the conversion price of the previously purchased $0.10 Note to $0.05, and to modify terms of the $0.10
Note to make them consistent with the May 2017 Financing Agreement executed with the Institutional Investor, and to allow for the
right of the HNW Investor to acquire an additional $200,000 of January 2018 Notes, which are convertible into shares of the Company’s
common stock at a conversion price of $0.03 per share (the
“$0.03 Notes
”).
In March, 2019 the agreement was further amended
to lower the conversion prices of the previously issued $0.05 Notes to $0.03. As of the date of this Quarterly report, the HNW
Investor has purchased an additional aggregate of $75,000 in principal amount of the $0.03 Notes and has indicated he will purchase
the remaining $125,000 of the $0.03 Notes.
All the above securities were issued pursuant
to the exemption from registration under the Securities Act afforded by Section 4(a)(2) thereof and Regulation D thereunder.
Use of Proceeds
The proceeds from the offer and sale of the
$2.1M Notes, the May 2017 Notes and the January 2018 notes and are and will be used to fund the Company’s growth plan, including
the expansion of our chain of Kaya Shack™ Marijuana Superstores in Oregon, the acquisition and development of our Lebanon,
Oregon legal cannabis cultivation and manufacturing facility, the operation and development of our Eugene, Oregon 12,000 square
foot indoor legal marijuana grow and manufacturing facility and the development and introduction of new Kaya Shack™ branded
cannabis products.
Plan of Operations
Management believes that consummation of the
proceeds received and expected to be received from the above described financings as well as any other financing transactions that
it may enter into, combined with existing and anticipated revenues, has alleviated the Company’s financial difficulties to
a significant extent and will allow the Company to meet its anticipated working capital needs for a period of between twelve and
eighteen months from the date of this report. However, there can be no assurance that the balance of the $7.75 million financing
will be completed, or that management’s belief will be correct and that the Company will not sooner require additional financing
to meet its working capital needs prior to achieving profitability or positive cash flow. Moreover, we may not be successful in
raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition,
cash flows and results of operations may be materially and adversely affected.
Note Conversion
On March 5, 2019, a total of 7,785,952 shares
of common stock were issued to Cayman Venture Capital Fund in consideration of settlement a total of $233,579 in principal and
interest pursuant to a Note Conversion. The Note was reported as converted on September 16, 2018 when the documents were submitted
but the shares were not issued until March 5, 2019. The shares have now been issued and are in electronic format in an account
at the transfer agent pending delivery to the Cayman Venture Capital Fund. For more information see Footnote “R” to
Convertible Debt Summary in Note 6 to the Financials.
Future Employee Stock Plan Issuances and Director and
Officer Restricted Stock issuances
On December 28, 2018 KAYS informed she staff
of the Kaya Shack Operations that they had been allocated a total of 2,050,000 shares of stock from the KAYS 2011 Employee Stock
Plan (the “Plan”) for their service to the Company. The shares are subject to final approval of and confirmation by
the Board of Directors to determine that the potential share issuances are valid according to the terms of the plan and other limitations,
and will be reviewed at the next Board Meeting. Upon confirmation of eligibility and issuance from the Board of Directors, the
recipients will be issued an account statement evidencing their shares along with instructions as how to effect delivery from the
transfer agent.
Pursuant to consulting agreements entered into
on February 19, 2018 via Board Stipulation, BMN Consultants is scheduled to receive 3,000,000 shares of KAYS stock in Q-1 from
the KAYS 2011 Employee Stock Plan (the “Plan”) for W. David Jones’s service to the Company during 2019. The shares
are considered to be fully paid when issued.
Pursuant to consulting agreements entered into
on February 19, 2018 via Board Stipulation, Tudog Consultants is scheduled to receive 3,000,000 shares of KAYS restricted stock
in Q-1 for Craig Frank’s service to the Company during 2019. The shares are considered to be fully paid when issued.
Pursuant to annual compensation schedules,
each of the three (3) Board Members is scheduled to receive 100,000 shares of KAYS restricted stock in Q-1 for their service to
the Company during 2019. The shares are considered to be fully paid when issued.
The above awards are all subject to final
approval of and confirmation by the Board of Directors to determine that the potential share issuances are valid according to
the terms of the plan and other qualifications and will be reviewed at the next Board Meeting.