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 December 31, 2018 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 $4,747,297 for the year ended December 31, 2018 and a net loss of $14,881,793 for the year ended December 31,
2017. The increase in net income is due to the changes in derivative liabilities and the company continues to have operating losses.
At December 31, 2018 the Company has a working capital deficiency of $23,651,967 and is totally dependent on its ability to raise
capital. The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive
working capital in the near future. Even though management believes that it will be able to successfully execute its business
plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can
be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going
concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this material
uncertainty. Management recognizes that the Company must generate additional funds to successfully develop its operations and
activities. Management plans include:
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the
sale of additional equity and debt securities,
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•
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alliances
and/or partnerships with entities interested in and having the resources to support the further development of the Company’s
business plan,
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•
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business
transactions to assure continuation of the Company’s development and operations,
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•
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development
of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded
name.
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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:
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·
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Alternative
Fuels Americas, Inc. (a Florida corporation)
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·
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34225
Kowitz Road, LLC (an Oregon LLC)
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Majority-owned
subsidiaries:
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·
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Marijuana
Holdings Americas, Inc. (a Florida corporation)
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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 December 31, 2018 is $131,542 and $118,296 as of December 31, 2017. No allowance as necessary as of December 31, 2018 and
2017
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Depreciation
of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years
of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
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.
Real
Property or Land is stated at cost and not depreciated. It is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount not be recoverable.
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:
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Level
1 – Observable inputs that reflect quoted market prices in active markets
for
identical assets or liabilities.
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•
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Level
2 - Inputs reflect quoted prices for identical assets or liabilities in markets
that
are not active; quoted prices for similar assets or liabilities in active
markets;
inputs other than quoted prices that are observable for the assets
or
liabilities; or inputs that are derived principally from or corroborated by
observable
market data by correlation or other means.
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•
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Level
3 – Unobservable inputs reflecting the Company’s assumptions
incorporated
in valuation techniques used to determine fair value.
These
assumptions are required to be consistent with market participant
assumptions
that are reasonably available.
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Fair Value Measurements at December 31, 2018
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Level 1
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Level 2
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Level 3
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Assets
|
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|
|
|
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|
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Cash
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$
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111,512
|
|
|
$
|
|
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$
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Total assets
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111,512
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-
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-
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Liabilities
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Convertible debentures, net of discounts of $1,191,264
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-
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-
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4,677,851
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Short term debt, net of discounts of $-0-
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-
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259,312
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-
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Derivative liability
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-
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-
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19,783,034
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Total liabilities
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-
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259,312
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19,783,034
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$
|
111,512
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|
|
$
|
(259,312)
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|
$
|
24,460,885
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Fair Value Measurements at December 31, 2017
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Level 1
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Level 2
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Level 3
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Assets
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Cash
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$
|
318,462
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$
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$
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Total assets
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318,462
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-
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-
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Liabilities
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Convertible debentures, net of discounts of $2,620,341
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-
|
|
|
|
-
|
|
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2,410,206
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Short term debt, net of discounts of $-0-
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-
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314,782
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|
|
|
-
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Derivative liability
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-
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|
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-
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30,343,609
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Total liabilities
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-
|
|
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314,782
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|
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32,753,815
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$
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318,462
|
|
|
$
|
(314,782)
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|
$
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(32,753,815)
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The
carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets,
accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair
values because of the short maturity of these instruments.
The
Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 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.
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:
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Expected
term of share options and similar instruments: The expected life of options and similar instruments represents the period
of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting
Standards Codification the expected term of share options and similar instruments represents the period of time the options
and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments
and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated
value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified
method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time
its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or
the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable
basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its
business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term.
The Company uses the simplified method to calculate expected term of share options and similar instruments as the company
does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
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•
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Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The
Company uses the average historical volatility of the comparable companies over the expected contractual life of the share
options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of
weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility
calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid
and asked quotes and lack of consistent trading in the market.
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•
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Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the
contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The
expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend
yield for periods within the expected term of the share options and similar instruments.
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Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose
the range of risk-free rates used. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
|
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:
•
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Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards
Codification the expected term of share options and similar instruments represents the period of time the options and similar
instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s
expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical
data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares
of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected
term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide
a reasonable basis upon which to estimate expected term.
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•
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Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The
Company uses the average historical volatility of the comparable companies over the expected contractual life of the share
options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of
weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility
calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid
and asked quotes and lack of consistent trading in the market.
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•
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Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the
contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The
expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend
yield for periods within the expected term of the share options and similar instruments.
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•
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Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose
the range of risk-free rates used. The risk-free interest rate is based on
the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
|
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. The Company believes that there are no material changes or financial impact to the 2017 Financials based on the adoption
of ASC 606 – Revenues from Contracts with Customers.
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 periods ended December 31, 2018 and 2017.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent
events. The Company will evaluate subsequent events through the date when the financial statements are issued.
Pursuant
to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued
when they are widely distributed to users, such as through filing them on EDGAR.
Recently
Issued Accounting Pronouncements
In
January 2017, the FASB issued ASU No. 2017-01,
Business Combinations (Topic 805): Clarifying the Definition of a Business
.
The amendments in this ASU clarify the definition of a business with the objective of adding guidance to assist entities with
evaluating whether transactions should be accounted for as acquisitions (or disposals) of businesses. The amendments in this ASU
provide a screen to determine when a set is not a business. If the screen is not met, it (1) requires that to be considered a
business, a set must include, at a minimum, an input and a substantive process that together significantly contribute to the ability
to create output and (2) removes the evaluation of whether a market participant could replace the missing elements. This ASU is
the final version of proposed ASU 2015-330
Business Combinations (Topic 805) – Clarifying the Definition of a Business
,
which has been deleted. The amendments in this ASU are effective for all entities for annual periods, and interim periods within
those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU does not have a material impact
on the Company’s financial statements.
In
May 2017, the FASB issued ASU 2017-09,
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
to
provide clarity and reduce both (1) diversity in practice and (2) cost and complexity when applying the guidance in Topic 718,
Compensation—Stock
Compensation
, to a change to the terms or conditions of a share-based payment award. The amendments in this ASU provide guidance
about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting
in Topic 718. This ASU is the final version of proposed ASU 2016-360—
Compensation—Stock Compensation (Topic 718)—Scope
of Modification Accounting
, which has been deleted. The amendments in this ASU are effective for all entities for annual periods,
and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted. This ASU does
not have a material impact on the Company’s financial statements.
In
February 2018, the FASB issued ASU No. 2018-02,
Reclassification of Certain Tax
Effects from Accumulated Other Comprehensive
Income
. The guidance permits entities
to reclassify tax effects stranded in Accumulated Other Comprehensive Income as a result of tax reform to retained earnings. This
new guidance is effective for annual and interim periods in fiscal years beginning after December 15, 2018. Early adoption is
permitted in annual and interim periods and can be applied retrospectively or in the period of adoption. The Company is currently
in the process of evaluating the impact of adoption on its consolidated financial statements.
In
March 2018, the FASB issued ASU No. 2018-05,
Income Taxes (Topic 740)
-
Amendments to SEC Paragraphs Pursuant to SEC Staff
Accounting Bulletin No. 118
. The amendment provides guidance on accounting for the impact of the Tax Cuts and Jobs Act (the “Tax Act”) and allows
entities to complete the accounting under ASC 740 within a one-year measurement period from the Tax Act enactment date. This standard
is effective upon issuance. The Tax Act has several significant changes that impact all taxpayers, including a transition tax,
which is a one-time tax charge on accumulated, undistributed foreign earnings. The calculation of accumulated foreign earnings
requires an analysis of each foreign entity’s financial results going back to
1986.
The Company does not expect the
adoption of this ASU to have a material impact on its consolidated financial statements.
In
June 2018, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”)
2018-07,
Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting
,
which
expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.
An entity should apply the requirements of Topic 718 to nonemployee awards except for specific guidance on inputs to an option
pricing model and the attribution of cost (that is, the period of time over which share-based payment awards vest and the pattern
of cost recognition over that period). The new guidance is effective for all entities for annual periods, and interim periods
within those annual periods,
beginning after December 15, 2017, with early adoption
permitted. The Company does not expect the adoption of this ASU to have a material impact on its consolidated financial statements.
In
August 2018, the FASB issued ASU 2018-13,
Fair Value Measurement (Topic 820), Disclosure Framework – Changes to the Disclosure
Requirements for Fair Value Measurement.
The amendments in this Update modify certain disclosure requirements of fair value
measurements and are effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2019. Early adoption is permitted. The Company is currently unable to determine the impact on its financial statements
of the adoption of this new accounting pronouncement.
Management
does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material
effect on the accompanying financial statements.
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following at December 31, 2018 and December 31, 2017:
|
|
December
31, 2018
|
|
December
31, 2017
|
(Audited)
|
(Audited)
|
ATM
Machine
|
|
$
|
11,000
|
|
|
$
|
8,300
|
|
Computer
|
|
|
22,736
|
|
|
|
15,833
|
|
Furniture
& Fixtures
|
|
|
49,408
|
|
|
|
39,655
|
|
HVAC
|
|
|
25,000
|
|
|
|
-
|
|
Land
|
|
|
697,420
|
|
|
|
516,076
|
|
Leasehold
Improvements
|
|
|
333,529
|
|
|
|
225,722
|
|
Machinery
and Equipment
|
|
|
405,233
|
|
|
|
143,661
|
|
Sign
|
|
|
43,594
|
|
|
|
43,594
|
|
Structural
|
|
|
1,017,359
|
|
|
|
-
|
|
Vehicle
|
|
|
79,744
|
|
|
|
79,744
|
|
Total
|
|
|
2,685,023
|
|
|
|
1,072,585
|
|
Less:
Accumulated Depreciation
|
|
|
(336,243
|
)
|
|
|
(175,020
|
)
|
Property,
Plant and Equipment - net
|
|
$
|
2,348,780
|
|
|
$
|
897,565
|
|
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 Company valued the shares at $1,417,200 based on the closing price of the stock the day the transaction closed.
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 acquired
Depreciation and amortization expense totaled $161,223 and $68,166
for the years ended December 31, 2018 and 2017, respectively.
Depreciation
and amortization expense total $161,223 and $68,166 for the years ended December 31, 2018 and 2017, respectively.
NOTE
5 – NON-CURRENT ASSETS
Other
assets consisted of the following at December 31, 2018 and December 31, 2017:
|
|
December
31, 2018
(Audited)
|
|
December
31, 2017
(Audited)
|
Construction
Deposits
|
|
$
|
-
|
|
|
$
|
50,800
|
|
Rent
Deposits
|
|
|
22,032
|
|
|
|
38,206
|
|
Security
Deposits
|
|
$
|
9,491
|
|
|
$
|
9,491
|
|
Non-Current
Assets
|
|
$
|
31,523
|
|
|
$
|
98,497
|
|
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 94.15% 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 $13,270,646 and $30,343,609 at December 31, 2018 and 2017, respectively.
See
Below Summary Table
Convertible
Debt Summary
|
|
Debt
Type
|
Debt
Classification
|
Interest
Rate
|
Due
Date
|
Ending
|
CT
|
LT
|
12.31.18
|
12.31.17
|
|
|
|
|
|
|
|
|
A
|
Convertible
|
X
|
|
10.0%
|
1-Jan-17
|
25,000
|
$ 25,000
|
B
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
65,700
|
65,700
|
C
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
32,850
|
32,850
|
D
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
209,047
|
209,047
|
O
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
109,167
|
109,167
|
P
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
52,767
|
52,767
|
Q
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
52,050
|
52,050
|
R
|
Convertible
|
X
|
|
8.0%
|
Converted
|
-
|
203,867
|
S
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
50,400
|
50,400
|
T
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
250,000
|
250,000
|
V
|
Convertible
|
X
|
|
8.0%
|
Converted
|
-
|
25,000
|
W
|
Convertible
|
X
|
|
8.0%
|
Converted
|
-
|
15,000
|
X
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
66,800
|
60,000
|
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-19
|
150,000
|
150,000
|
LL
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
600,000
|
600,000
|
MM
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
100,000
|
100,000
|
NN
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
500,000
|
500,000
|
OO
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
500,000
|
500,000
|
PP
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
500,000
|
500,000
|
QQ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
150,000
|
150,000
|
RR
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
500,000
|
500,000
|
SS
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
150,000
|
150,000
|
TT
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
300,000
|
-
|
UU
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
150,000
|
-
|
VV
|
Convertible
|
|
X
|
5.0%
|
1-Jan-20
|
100,333
|
80,000
|
XX
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
100,000
|
-
|
YY
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
155,000
|
-
|
ZZ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
150,000
|
-
|
AAA
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
95,000
|
-
|
BBB
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
80,000
|
-
|
CCC
|
Convertible
|
|
X
|
8.0%
|
1-Jan-20
|
25,000
|
-
|
Total
Convertible Debt
|
|
|
|
5,869,114
|
5,030,848
|
Less:
Discount
|
|
|
|
(1,191,263
)
|
(2,620,642)
|
Convertible
Debt, Net of Discounts
|
|
|
|
|
$ 4,677,851
|
$ 2,410,206
|
Convertible
Debt, Net of Discounts, Current
|
|
|
|
|
$ 2,894,294
|
$ 855,000
|
Convertible
Debt, Net of Discounts, Long-term
|
|
|
|
|
$ 1,783,557
|
$ 1,555,206
|
FOOTNOTES
FOR CONVERTIBLE DEBT SUMMARY TABLE
(1)
|
|
(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
94.15% 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 December 31, 2018 including accrued interest
and net of the discount amounted to $48,716.
|
A
recap of the balance of outstanding convertible debt at December 31, 2018 is as follows:
Principal balance
|
|
$
|
25,000
|
|
Accrued interest
|
|
|
23,716
|
|
Balance maturing for the period ending:
|
|
|
|
|
December 31, 2018
|
|
$
|
48,716
|
|
|
|
|
|
|
The
Company valued the derivative liabilities at December 31, 2018 at $21,862. The Company recognized a change in the fair value of
derivative liabilities for the year ended December 31, 2018 of $(2,523) which were charged (credited) to operations. In
determining the indicated values at December 31, 2018, since the debt is in default, the company used the maximum value these
embedded options represent, with a trading price of $0.11, and conversion prices of $0.09 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 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 0.05% to 2.59%, volatility ranging from 94.15% 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. The derivative liability associated with this note as
of December 31, 2018 and 2017 were $1,038,039 and $2,706,447, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 157.47%, trading prices ranging from $0.07 per share to $0.27 per share and a conversion price of $0.03
per share. The accrual interest associated with this note as of December 31, 2018 was $17,594. The derivative liability associated
with this note as of December 31, 2018 and 2017 were $368,402 and $961,155, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 157.47%, trading prices ranging from $0.07 per share to $0.27 per share and a conversion price of $0.03
per share. The accrual interest associated with this note as of December 31, 2018 was $8,504. The derivative liability associated
with this note as of December 31, 2018 and 2017 were $178,071 and $464,583, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.07 per share to $0.27 per share a conversion
price of $0.03 per share. The accrual interest associated with this note as of December 31, 2018 was $8,389. The derivative liability
associated with this note as of December 31, 2018 and 2017 were $175,652 and $458,273, respectively.
(R)
On
November 3, 2016 the Company received $200,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and
Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2019 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 0.81% to 2.56%, volatility ranging from 126.29% to 154.71%, trading prices ranging from $0.10 per share to $0.27 per share
a conversion price of $0.03 per share. The Note and Interest was converted to common shares on September 16, 2018. The derivative
liability associated with this note as of December 31, 2018 and 2017 were $-0- and $1,794,939, respectively.
(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. Note is Due in January of 2019 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 94.15% to 154.71%, trading prices ranging from $0.14 per share to $0.27 per share and a conversion
price of $0.03 per share. The accrual interest associated with this note as of December 31, 2018 was $8,123. The derivative liability
associated with this note as of December 31, 2018 and 2017 were $170,084 and $443,745, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.11 per share to $0.27 per share
and a conversion price of $0.04 per share. The accrual interest associated with this note as of December 31, 2018 was $40,402.
The derivative liability associated with this note as of December 31, 2018 and 2017 were $843,993 and $1,597,089, respectively.
(V)
On
September 13, 2016 the Company received $25,000 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. Note is Due in January of 2018. 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 1.49%, volatility ranging from 134.12% to 154.71%, trading prices ranging from $0.07 per share to $0.27 per share
a conversion price of $0.03 per share. The Note and Interest was converted to common shares on July 6, 2018. The derivative liability
associated with this note as of December 31, 2018 and 2017 were $0 and and $142,717, respectively.
(W)
On
October 16, 2016 the Company received $15,000 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. Note is Due in January of 2018. 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 1.49%, volatility ranging from 129.92% to 154.71%, trading prices ranging from $0.12 per share to $0.27 per share and a conversion
price of $0.03 per share. As of December 31, 2018 the note holder requested that the debt be converted to common stock. The Note
and Interest was converted to common shares on July 6, 2018. The derivative liability associated with this note as of December
31, 2018 and 2017 were $0 and and $135,756, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.08 per share to $0.27 per share
and a conversion price of $0.03 per share. The accrual interest associated with this note as of December 31, 2018 was $6,684.
The derivative liability associated with this note as of December 31, 2018 and 2017 were $213,567 and $538,856, respectively.
(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 accrual interest associated with this note as of December 31, 2018 was $5,003. The derivative liability associated
with this note as of December 31, 2018 and 2017 were $159,855 and $441,215, respectively.
(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 accrual interest associated with this note as of December 31, 2018 was $10,006. The derivative liability associated
with this note as of December 31, 2018 and 2017 were $319,711 and $882,436, respectively.
(DD)
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, 2017 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 derivative liability associated with this
note as of December 31, 2018 and 2017 were $-0- and $227,501, respectively.
(EE)
(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,
2018 and 2017 were $-0- and $201,092, respectively.
On
January 1, 2018 the holder of the note extended the due date until December 31, 2021.
As
of December 31, 2018, 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.
The
derivative liability associated with this note as of December 31, 2018 and 2017 were $2,183,530 and $5,401,445, respectively.
|
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.11 per share to $0.27 per share and
a conversion price of $0.04 per share. The accrual interest associated with this note as of December 31, 2018 was $24,074. The
derivative liability associated with this note as of December 31, 2018 and 2017 were $505,910 and $957,269, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.11 per share to $0.31 per share. The
accrual interest associated with this note as of December 31, 2018 was $94,164. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $2,017,445 and $1,985,839, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.11 per share to $0.31 per share. The
accrual interest associated with this note as of December 31, 2018 was $15,450. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $335,530 and $330,222, respectively.
(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. Note is Due in January of 2019. 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 94.15% to 154.71%, trading prices ranging from $0.11 per share to $0.31 per share. The
accrual interest associated with this note as of December 31, 2018 was $76,470. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $1,675,391 and $1,060,065, respectively.
(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. Note is Due in January of 2019. 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 94.15% to154.71%, trading prices ranging from $0.11 per share to $0.30 per share.
The accrual interest associated with this note as of December 31, 2018 was $74,915. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $1,670,870 and $1,056,990, respectively.
(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. 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
0.87% to 2.59%, volatility ranging from 94.15% to 139.70%, trading prices ranging from $0.11 per share to $0.27 per share. The
accrual interest associated with this note as of December 31, 2018 was $66,137. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $1,685,826 and $2,517,262, respectively.
(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. 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
0.87% to 2.63%, volatility ranging from 94.15% to 139.70%, trading prices ranging from $0.11 per share to $0.27 per share. The
accrual interest associated with this note as of December 31, 2018 was $17,508. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $498,964 and $743,654, respectively.
(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. 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 2.63%, volatility ranging from 94.15% to 138.23%, trading prices ranging from $0.11 per share to $0.27 per share. The
accrual interest associated with this note as of December 31, 2018 was $46,804. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $1,628,794 and $4,249,584, respectively.
(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. 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 2.63%, volatility ranging from 94.15% to 131.81%, trading prices ranging from $0.11 per share to $0.27 per share.
The accrual interest associated with this note as of December 31, 2018 was $12,374. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $483,674 and $1,252,183, respectively.
(TT)
On
February 5, 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. 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 2.63%, volatility ranging from 94.15% to 132.27%, trading prices ranging from $.05 per share to $0.49 per share. The
accrual interest associated with this note as of December 31, 2018 was $21,633. The derivative liability associated with this
note as of December 31, 2018 and 2017 were $958,065 and $-0-, respectively.
(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. 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 2.63%, volatility ranging from 94.15% to 132.27%, trading prices ranging from $0.11 per share to $0.14 per share. The
accrual interest associated with this note as of December 31, 2018 was $9,304. The derivative liability associated with this note
as of December 31, 2018 and 2017 were $474,528 and $-0-, respectively.
(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 94.15% to 132.27%, trading prices ranging from $0.11 per share to $0.14 per share. The accrual interest associated
with this note as of December 31, 2018 was $4,604. The derivative liability associated with this note as of December 31, 2018
and 2017 were $313,881 and $-0-, respectively.
(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. 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
1.82% to 2.63%, volatility from 94.15% to 127.07%, trading prices ranging from $0.11 per share to $0.16 per share. The accrual
interest associated with this note as of December 31, 2018 was $4,734. The derivative liability associated with this note as of
December 31, 2018 and 2017 were $311,978 and $-0-, respectively.
(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. 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
2.48% to 2.81%, volatility from 94.15% to 126.88%, trading prices ranging from $0.11 per share to $0.13 per share. The accrual
interest associated with this note as of December 31, 2018 was $5,639. The derivative liability associated with this note as of
December 31, 2018 and 2017 were $480,494 and $-0-, respectively.
(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. 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
2.48% to 2.81%, volatility from 94.15% to 126.90%, trading prices ranging from $0.11 per share to $0.13 per share. The accrual
interest associated with this note as of December 31, 2018 was $4,603. The derivative liability associated with this note as of
December 31, 2018 and 2017 were $462,437 and $-0-, respectively.
(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. 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 2.48% to 2.83%, volatility from 94.15% to 126.38%, trading price at $0.11 per share. The accrual interest associated with
this note as of December 31, 2018 was $2,041. The derivative liability associated with this note as of December 31, 2018 and 2017
were $290,261 and $-0-, respectively.
(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. 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 2.48% to 2.81%, volatility from 94.15% to 118.96%, trading price at $0.11 per share. The accrual interest associated with
this note as of December 31, 2018 was $666. The derivative liability associated with this note as of December 31, 2018 and 2017
were $241,284 and $-0-, respectively.
(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. 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 2.48% to 2.63%, volatility from 94.15% to 94.19%, trading price of ranging from $0.10 to $0.11 per share. The accrual interest
associated with this note as of December 31, 2018 was $55. The derivative liability associated with this note as of December 31,
2018 and 2017 were $74,942 and $-0-, respectively.
NOTE
7 – NON-CONVERTIBLE DEBT
A-Non
Related Party
|
|
December 31, 2018
|
|
December 31, 2017
|
Note 3
|
|
|
-0-
|
|
|
|
26,313
|
|
Note 4
|
|
|
-0-
|
|
|
|
24,963
|
|
Note 5
|
|
|
9,312
|
|
|
|
13,506
|
|
Note 6
|
|
|
-0-
|
|
|
|
-0-
|
|
Total Non-Convertible Debt
|
|
|
9,312
|
|
|
|
64,782
|
|
(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 December 31,
2018.
(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
B-Related
Party
|
|
|
|
|
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 December 31, 2018, 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, 2017
|
$5,358,339
|
New
Notes Payable
|
1,075,000
|
Addition
due to amendment
|
7,133
|
Repaid
Notes Payable
|
(51,274)
|
Conversions
|
(260,774)
|
Balance
December 31, 2018
|
$6,128,424
|
|
|
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 $149,000. As of December 31, 2018, all shares were issued on July 6, 2018.
In June of 2018 , the Company sold 50,000 shares of common stock
for gross proceeds of $50,000. The shares were issued 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 1,100,000 shares of Kaya Holdings Inc.
for services at value of $163,810. 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 authorized the issuance of 100,000
shares of common stock of Kaya Holdings, Inc. for professional services valued at $11,810. The shares were issued 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. As of December 31, 2018, the shares have not been issued by the transfer agent.
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.
NOTE
9 DERIVATIVE LIABILITIES
The
Company identified conversion features embedded within convertible debt and issued in 2013 and subsequent periods. The Company
has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted
for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available
to settle all potential future conversion transactions.
Additionally,
due to a recognition of tainting, due to shares not being held in reserve in 2014 all convertible notes are considered to have
a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to
discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining
the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest
rate of ranging from 0.05% to 2.63%, volatility ranging from 94.15% 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, 2017
|
|
$
|
30,343,609
|
|
|
|
|
|
|
Initial
|
|
|
4,524,958
|
|
Change in Derivative Values
|
|
|
(13,900,712
|
)
|
Conversion of debt-reclass to APIC
|
|
|
(1,184,821
|
)
|
|
|
|
|
|
Balance as of December 31, 2018
|
|
$
|
19,783,034
|
|
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 derivative liability expense of $3,370,329 and $18,377,623 for the years ended December 31, 2018 and 2017, respectively
The
Company recorded a change in the value of embedded derivative liabilities income/ (expense) of $13,900,712 and $8,221,485 for
the years ended December 31, 2018 and 2017, 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 $1,191,263 as of December 31, 2018 and $2,620,342 as of December 31, 2017.
The
Company recorded $2,583,712 and $2,267,026 for the years ended December 31, 2018 and 2017, respectively for amortization of debt
discount expense.
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 2018, the company was indebted to Craig Frank, Chairman, CEO and Acting CFO for KAYS, in the amount of $7,737 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.
On August 24, 2018 the Company entered into
a Consulting Agreement with Bruce Burwick and paid him 100,000 shares of KAYS stock via a stock grant from the 2011 Employee Stock
Incentive Plan for services rendered to the Company through December 31. 2018. The stock was valued by the Company at $11,810.
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 Company valued the shares at $1,417,200 based on the closing price of the stock the day the transaction closed.
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 acquired
Depreciation and amortization expense totaled $161,223 and $68,166
for the years ended December 31, 2018 and 2017, respectively.
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 December 31, 2018, 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 December 31, 2018, 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
December 31, 2018, 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 December 31, 2018, 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, 2017
|
11,065,540
|
0.0316297
|
4.8
|
Granted
|
|
|
-0-
|
-0-
|
-0-
|
Exercised
|
|
|
-0-
|
-
|
-
|
Expired
|
|
|
-0-
|
-
|
-
|
Balance
as of December 31, 2018
|
11,065,540
|
0.0316297
|
3.8
|
NOTE
14 – COMMITMENTS AND CONTINGENCIES
The
Company is, from time to time involved in litigation in the normal course of business. While it is not possible at this time to
establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings,
management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not
have a material adverse effect on the Company’s financial position.
Pleases see paragraphs below for results of
legal proceedings during 2017 and 2018; there are no currently pending proceedings:
A. On June 22, 2016, Daniel A. Goldin and
Wally Goldin commenced an action in Oregon Circuit Court, Multnomah County, against the Company, MJAI, its direct majority-owned
subsidiary, Craig Frank, our Chairman, President and Chief Executive Officer, William David Jones, a consultant to our Company
and BMN Capital Group, LLC (the “
Action
”). The plaintiffs alleged breach of contract, state securities fraud
and state racketeering claims against the defendants arising from alleged misrepresentations made in subscription agreements with
the Company entered into in October 2015 and January 2016 by Daniel A. Goldin and Wally Goldin, respectively, pursuant to which
they each purchased 2,222,222 “
restricted
” shares of our common stock for $100,000 in a private transaction.
In addition, Daniel A. Goldin alleged that the Company breached a purported employment agreement with him pursuant to which he
was purportedly to be compensated for working in our Oregon operations through a combination of cash and stock. The plaintiffs
are sought in excess of $1.7 million in damages.
The Company believed that not only was
the Action without merit, but that it had various counterclaims against the plaintiffs, particularly Daniel L. Goldin. The Company
defended against the Action and pursued its counterclaims both in the Action and in a separate lawsuit commenced against the plaintiffs
in the U.S. District Court for the Southern District of Florida in which the Company alleged fraud by the plaintiffs and sought
damages and the return of the common stock issued to the Company’s treasury
In September 2017, the parties entered
in a settlement agreement, pursuant to which Mr. Goldin waived any rights to a total of 1.2 million shares of KAYS stock (200,000
shares of our common stock which were already issued in his name and an additional 1,000,000 shares which were to be issued) and
$40,000 in cash compensation payable to him under the employment agreement. The Company paid the plaintiffs the sum of $247,500,
in exchange for the return of the stock and the waiver of claims against any further stock or cash, all litigation was dismissed
by the parties and the parties exchanged mutual releases.
In entering into the settlement agreement,
the Company also took into consideration that legal fees and litigation costs incurred in proceeding further might very well exceed
any judgment that would be awarded to the Company and the other defendants, and that even if a judgment were awarded, that there
was significant doubt of the collectability of any such judgment from the Goldins.
B. On February 9, 2018 KAYS submitted
a site plan review for the Company’s envisioned 101,000 square foot OLCC licensed Kaya Farms™ Marijuana Grow and Manufacturing
Complex and an application for a conditional use permit for marijuana processing on the Company owned 26.50-acre property zoned
Exclusive Farm Use (EFU) with the Linn County, Oregon Planning and Building Department.
On March 9, 2018 the Company was notified
by the Linn County, Oregon Planning and Building Department (the “
Department
”) that the application
was deemed complete and received an official letter of completeness with respect to the application. The formal “
Letter
of Completeness
,” sent March 9, 2018 by a Linn County Senior Planner, confirmed the eligibility of the Company’s
26-acre plot for the purposes of growing legal cannabis, as well as the eligibility of the property for a special purpose exemption
for the Company’s proposed manufacturing operations.
On April 20, 2018 the Company was notified
by the Department that the site plan review for the indoor and outdoor marijuana operation on the 26.50-acre property (which encompasses
approximately 86,000 square feet of the Company’s 101,000 square feet of the Company’s submitted buildings) had been
approved. However, the conditional use permit for marijuana processing (which encompasses approximately 15,000 square feet of
the Company’s 101,000 square feet of the Company’s submitted buildings) had been denied, largely due to the scale
and coverage of the proposed processing operation. Additionally, local residents requested a hearing to appeal the approval of
the site plan based on concerns that a portion of the approved site plan that supports the 36,000 square feet of green houses
for outdoor growing is not eligible for the Irrigation rights that the Company possesses for the Property.
On June 12, 2018 the Linn County Planning
Commission held a hearing and adopted a motion to Deny the previously approved site plan, citing that the proposed site plan does
not comply with the odor and waste management standards set forth in Section 940.400 of the Linn County Development Code.
On August 7, 2018 KAYS filed a Notice
of Appeal with the State of Oregon Land Use Board of Appeals (LUBA).
On October 9, 2018, Larkins Vacura Kayser
LLP (“LVKLAW”), Oregon Counsel, received a letter from Linn County’s Attorney notifying them that Linn County
did not intend to file a response brief or appear at the State of Oregon Land Use Board of Appeals (“LUBA”) hearing,
and shortly thereafter LUBA cancelled the LUBA Hearing.
On November 13, 2018 LUBA issued its FINAL
OPINION AND ORDER (the “Order”). The Order reversed the County’s decision and ordered the County to approve
the Company’s Land Use Application for the to-be-built 85,000-square foot Kaya Farms & Greenhouse Facility in Lebanon,
Oregon.
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 is now on a month-to-month
basis.
Effective May 15, 2014,
the Company leased an unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. 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.
|
|
|
Year Ending December 31,
|
|
Amount
|
|
2019
|
|
|
$
|
249,775
|
|
|
2020
|
|
|
|
184,234
|
|
|
2021
|
|
|
|
79,337
|
|
|
2022
|
|
|
|
25,371
|
|
|
Thereafter
|
|
|
|
—
|
|
|
|
|
|
$
|
538,737
|
|
Rent expense was $310,193
and $310,171 for the years ended December 31, 2018 and 2016, respectively.
Note 15- Income
Taxes
On December 22, 2017, the U.S. enacted the
Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S.
tatutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously
deferred foreign income.
The Act also created a new minimum tax on
certain future foreign earnings. The impact of the Act decreased the Company’s deferred tax asset related to the Company’s
net operating loss by approximately $6,500,000 and decreased the Company’s valuation allowance by approximately $6,500,000
resulting in no impact to the Company’s financials.
We record tax positions as liabilities in
accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information
not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment
that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected
as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2018,
and 2017 we have not recorded any uncertain tax positions in our financial statements.
The effective US Federal Income Corporate
Tax Rates for 2018 and 2017 are 21% and 35%, respectively.
The Company has
net operating loss carry forwards of approximately $7,240,687 at December 31, 2018 that expire beginning in 2026. However, utilization
of these losses may be limited pursuant to Section 382 of the Internal Revenue Code due to a recapitalization in 2007 and subsequent
stock issuances.
The Company has a deferred
tax asset as shown in the following:
|
|
|
|
|
|
|
|
|
Year Ending December 31, 2018
|
|
|
Year Ending December 31, 2017
|
|
Deferred Tax Asset
|
|
|
1,520,544
|
|
|
|
1,544,462
|
|
Valuation Allowance
|
|
|
-1,520,544
|
|
|
|
-1,544,462
|
|
Net Deferred Tax Asset
|
|
$
|
—
|
|
|
$
|
—
|
|
NOTE
16 – SUBSEQUENT EVENTS
May
2017 Financing Agreement
Effective
January 20, 2019 KAYS and the Institutional Investor further agreed to amend the May 2017 Financing Agreement 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.
Since
January 1, 2019 the Institutional Investor has purchased an additional $295,000 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 “the $0.03 Secured Notes”).
January
2018 Financing Agreement
Additionally,
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
”).
Since
January 1, 2019 the HNW Investor has purchased an additional aggregate of $50,000 in principal amount of the $0.03 Notes and has
indicated he will purchase the remaining $150,000 of the $0.03 Notes.
For
more information on the Agreements relating to these issuances please refer to Item 5, Market for Registrant’s Common equity
and Related Stockholder Matters, recent Sales of Unregistered Securities. 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.
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. 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 to be held prior to April 30, 2018.
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
to be held prior to April 30, 2018.