UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

 

FORM 10-Q

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

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period ended June 30, 2020

OR

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

 

For the transition period from

__________to __________

 

Commission File No.: 333-177532

 

KAYA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 

 

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

 

 

915 Middle River Drive, Suite 316

Ft. Lauderdale, Florida 33304

(Address of principal executive offices)

 

(954)-892-6911

(Issuer's telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
None        

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes [X ] No [ ]

 

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

 

 

 

Large Accelerated Filer [ ] Accelerated Filer [ ]
Non-accelerated Filer [ ] Smaller reporting company [X]
  Emerging growth company [X]

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes [ ] No [X]

 

As of August 17, 2020, the Issuer had 187,503,812 shares of its common stock outstanding.

 

 
 

KAYA HOLDINGS, INC.

 

INDEX TO QUARTERLY REPORT ON FORM 10 Q

 

Part I – Financial Information Page

 

 

Item 1. Condensed Consolidated Financial Statements  Page
  Condensed Consolidated Balance Sheet  1
  Condensed Consolidated Statements of Operation  2
  Condensed Consolidated Statements of Cash Flows  3
  Statement of Stockholder’s equity for six months ended June 30, 2020 and 2019  4
  Notes to Condensed Consolidated Financial Statements  5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  
Item 3. Quantitative and Qualitative Disclosures About Market Risk 108
Item 4. Controls and Procedures  108
   
Part II Other Information  
  109
Item 1. Legal Proceedings  110
Item 1A. Risk Factors 110
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  110
Item 3. Defaults Upon Senior Securities 110
Item 4. Mine Safety Disclosures 110
Item 5. Other Information 110
Item 6. Exhibits  110
  Signatures 110
   111

 

 

 

 
 

 

 

 

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

 

Cautionary Note Regarding Forward Looking Statements

 

Information contained in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

 

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

 

Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

Available Information

 

We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”) that can be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as EDGAR, through the SEC’s website (www.sec.gov).

 

 
 

 

 

 

Part I,

 

Item 1 Condensed Consolidated Financial Statements

 

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

June 30, 2020 and December 31, 2019

             

 

ASSETS
    (Unaudited)   (Audited)
    June 30, 2020   December 31, 2019
CURRENT ASSETS:                
Cash and equivalents   $ 55,505     $ 86,967  
Inventory-net of allowance     87,131       108,008  
Prepaid expenses     7,046       7,774  
Total current assets     149,682       202,749  
                 
NON-CURRENT ASSETS:                
Right-of-use asset - operating lease     462,851       284,042  
Property and equipment, net     2,028,982       2,140,331  
Deposits     27,523       27,523  
Total other assets     2,519,356       2,451,896  
                 
Total assets   $ 2,669,038     $ 2,654,645  
                 
                 
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)                
                 
CURRENT LIABILITIES:                
Accounts payable and accrued expense   $ 761,443     $ 698,452  
Accounts payable and accrued expense-related parties     588,930       417,733  
Accrued interest     337,269       633,064  
Right-of-use liabiliy - operating lease     152,282       167,529  
Convertible notes payable-net of discount     404,943       303,710  
Notes payable     9,312       9,312  
Derivative liabilities     9,125,009       7,817,081  
Total current liabilities     11,379,188       10,046,881  
                 
LONG TERM LIABILITIES:                
Convertible notes payable-related party-net of discount     250,000       250,000  
Convertible notes payable-net of discount     6,325,335       5,727,874  
Right-of-use liabiliy - operating lease     322,683       121,370  
Total long term liabilities     6,898,018       6,099,244  
                 
Total liabilities     18,277,206       16,146,125  
                 
STOCKHOLDERS' EQUITY (DEFICIT):                
Convertible preferred stock, Series C, par value $.001; 10,000,000 shares authorized;                
100,000 and 100,000 issued and outstanding at June 30, 2020 and December 31, 2019     100       100  
, respectively                
Common stock , par value $.001;  500,000,000 shares authorized;                
187,503,812 shares issued as of June 30, 2020 and                
  187,503,812 shares issued as of December 31, 2019     187,504       187,504  
Subscriptions payable     163,880       163,630  
Additional paid in capital     19,627,354       19,603,854  
Accumulated deficit     (34,203,449 )     (32,120,787 )
Non-controlling interest     (1,383,557 )     (1,325,781 )
Net stockholders' deficit     (15,608,168 )     (13,491,480 )
                 
Total liabilities and stockholders' deficit   $ 2,669,038     $ 2,654,645  

 

The accompanying notes are an integral part of these consolidated financial statements.  

  1  

 

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

 

    (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
    For The Three   For The Three   For The Six   For The Six
    Months Ended   Months Ended   Months Ended   Months Ended
    June 30, 2020   June 30, 2019   June 30, 2020   June 30, 2019
                 
Net sales   $ 263,862     $ 249,121     $ 499,173     $ 512,879  
      —                            
Cost of sales     59,900       92,719       108,787       238,231  
                                 
Gross profit     203,962       156,402       390,386       274,648  
                                 
Operating expenses:                                
Professional fees     204,165       145,119       379,471       190,969  
Salaries and wages     93,167       114,415       234,847       260,870  
General and administrative     164,871       217,197       364,429       460,220  
Total operating expenses     462,203       476,731       978,747       912,059  
                                 
Operating loss     (258,241 )     (320,329 )     (588,361 )     (637,411 )
                                 
Other income(expense):                                
Interest expense     (162,483 )     (132,193 )     (299,933 )     (258,395 )
Amortization of debt discount     24,560       (366,177 )     (114,216 )     (713,786 )
Derivative liabilities expense     (143,282 )     (115,253 )     (172,169 )     (562,148 )
Gain (loss) on extinguishment of debt     —         —         —         (25,000 )
Change in derivative liabilities expense     (890,989 )     4,736,229       (965,759 )     10,141,165  
Other income (expense)     —         14       —         239  
Total other income (expense)     (1,172,194 )     4,122,620       (1,552,077 )     8,582,075  
                                 
Net income (loss)     (1,430,435 )     3,802,291       (2,140,438 )     7,944,664  
                                 
Net (loss) attributed to non-controlling interest     (5,540 )     (61,449 )     (57,776 )     (168,608 )
                                 
Net income (loss) attributed to Kaya Holdings, Inc.     (1,424,895 )     3,863,740       (2,082,662 )     8,113,272  
                                 
Basic net income (loss) per common share   $ (0.01 )   $ 0.02     $ (0.01 )   $ 0.05  
                                 
Weighted average number of common shares outstanding - Basic     187,503,812       173,598,080       187,503,812       170,872,997  
                                 
Diluted net income per common share   $ (0.01 )   $ 0.01     $ (0.01 )   $ 0.02  
                                 
Weighted average number of common shares outstanding - Diluted     187,503,812       423,656,593       187,503,812       420,931,510  

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

  2  

 

 

Kaya Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

For the six months ended June 30, 2020 and December 31, 2019

(Unaudited)

 

              Additional Paid-in Capital   Accumulated Deficit   Noncontrolling Interest   Total
Stockholders'  Equity
                   
          Subscription Payable        
   Preferred Stock     Common Stock           
  Shares   Amount   Shares   Amount   Amount        
                                   
Balance, December 31, 2018     50,000    $     50     165,812,128     $165,812    $    397,209    $ 17,100,137    $  (39,924,912)    $    (1,043,517)    $             (23,305,221)
                                   
Imputed interest              -              -                        -                  -                      -                67,500                           -                          -                             67,500
                                   
Loss on debt extinguishment              -              -                        -                  -                      -                25,000                           -                          -                             25,000
                                   
Common stock issued for services              -              -           4,600,000            4,600                      -              275,700                           -                          -                           280,300
                                   
Common stock issued for services - related parties              -              -           6,000,000            6,000                      -              384,000                           -                          -                           390,000
                                   
Common stock issued for debt conversion and interest              -              -           7,785,952            7,786          (233,579)              225,793                           -                          -                                   -   
                                   
Common stock issued for notes conversion and interest      50,000            50           3,305,732            3,306                      -              595,816                           -                          -                           599,172
                                   
Cash for KBI Preferred Shares              -              -                        -                  -                      -                75,000                           -                          -                             75,000
                                   
Reclassification of derivative liabilities to additional paid in capital              -              -                        -                  -                      -              854,908                           -                          -                           854,908
                                   
Net loss              -              -                        -                  -                      -                        -              7,804,125               (282,264)                        7,521,861
                                   
Balance, December 31, 2019   100,000    $   100     187,503,812     $187,504    $    163,630    $ 19,603,854    $  (32,120,787)    $    (1,325,781)    $             (13,491,480)
                                   
Balance, December 31, 2019   100,000    $   100     187,503,812     $187,504    $    163,630    $ 19,603,854    $  (32,120,787)    $    (1,325,781)    $             (13,491,480)
                                   
Imputed interest              -              -                        -                  -                      -                11,250                           -                          -                             11,250
                                   
Common stock issued for Cash              -              -                        -                  -                  250                  7,715                           -                          -                              7,965
                                   
Warrants granted for Cash              -              -                        -                  -                      -                  4,535                           -                          -                              4,535
                                   
Net loss              -              -                        -                  -                      -                        -             (2,082,662)                 (57,776)                       (2,140,438)
                                   
Balance, June 30, 2020  (Unaudited)   100,000    $   100     187,503,812     $187,504    $    163,880    $ 19,627,354    $  (34,203,449)    $    (1,383,557)    $             (15,608,168)

 

The accompanying notes are an integral part of these consolidated financial statements.

  3  

 

 

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Cash flows

 

    (Unaudited)   (Unaudited)
    For The Six   For The Six
    Months Ended   Months Ended
    June 30, 2020   June 30, 2019
OPERATING ACTIVITIES:                
Net income/(loss)   $ (2,082,662 )   $ 8,113,272  
Adjustments to reconcile net loss to net cash used in operating activities:                
Net income/(loss) attributable to non-controlling interest     (57,776 )     (168,608 )
Depreciation     111,349       115,590  
Imputed interest     11,250       33,749  
Loss (Gain) on Extinguishment of Debt     —         25,000  
Derivative expense     172,169       562,148  
Change in derivative liabilities     965,759       (10,141,165 )
Amortization of debt discount     114,216       713,786  
Changes in operating assets and liabilities:                
Prepaid expense     728       7,767  
Inventory     20,877       7,588  
Right-of-use asset     (178,809 )     113,142  
Accrued interest     288,683       224,645  
Accounts payable and accrued expenses     62,991       89,940  
Accounts payable and accrued expenses - Related Parties     171,197       —    
Right-of-use liabilities     186,066       (108,615 )
                 
        Net cash used in operating activities     (213,962 )     (411,761 )
                 
INVESTING ACTIVITIES:                
Purchase of property and equipment     —         (19,668 )
                 
Net cash used in investing activities     —         (19,668 )
                 
FINANCING ACTIVITIES:                
Proceeds from common stock subscriptions     12,500       —    
Proceeds from convertible debt     170,000       440,000  
                 
Net cash provided by financing activities     182,500       440,000  
                 
NET INCREASE (DECREASE) IN CASH     (31,462 )     8,571  
                 
CASH BEGINNING BALANCE     86,967       111,512  
                 
CASH ENDING BALANCE   $ 55,505     $ 120,083  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Taxes paid     —         —    
Interest paid     —         —    
                 
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING                
   AND FINANCING ACTIVITIES:                
Adoption of lease standard ASC 842     —         638,593  
Derivative liability on convertible note payable     170,000       440,000  
Value of common shares issued for conversion of convertible     —         233,579  
Capitalization of interest pursuant to amended agreement     584,478       —    

 

The accompanying notes are an integral part of these consolidated financial statements.

 

  4  

 

 

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 four subsidiaries: Alternative Fuels Americas, Inc, a Florida corporation, which is wholly-owned, Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned, 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability company which holds ownership of the Company’s 26 acre property in Lebanon, Oregon on which it plans to develop a legal cannabis cultivation and manufacturing facility, and Kaya Brand International, Inc. (KBI) a Florida Corporation which the Company owns 65% of which was formed on October 14, 2019 to expand the business overseas.

 

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 (inactive), MJAI Oregon 3 LLC (inactive) , MJAI Oregon 4 LLC (inactive) and MJAI Oregon 5 LLC.

 

MJAI Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations and pending OLCC Production and Processing license transfer applications for the 260 Grimes Street property in Eugene, Oregon. MJAI Oregon 5 LLC maintains the Company’s pending OLCC Producer Application for the Company’s 26 acre farm property in Lebanon Oregon

 

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.

  5  

 

 

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 ShackTM outlet (Kaya ShackTM OLCC Marijuana Retailer License #4) a 3,100-square foot Kaya ShackTM 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. The Company is presently seeking transfer of the Facility’s OLCC Marijuana Production and Processing Licenses from the Facility’s Prior Licensee, Sunstone Farms to MJAI Oregon 1, LLC which the OLCC has not yet approved. Pending the transfer or issuance of a new License to the Company’s Operating subsidiary, or the purchase of another existing OLCC License and its transfer for use at the Facility the Company has conducted only limited operations of the Facility pending resolution of the Licensing. For more information please see Part II, Item 1. Legal Proceedings of this filing..

 

On September 26, 2019 the Company formed the majority owned subsidiary Kaya Brands International, Inc. (“KBI”) to serve as the Company’s vehicle for expansion into worldwide cannabis markets.

 

On November 4, 2019 the Company filed an 8-K announcing that its majority owned subsidiary, Kaya Brands International, Inc. (“KBI”), had executed a memorandum of understanding (“MOU”) setting forth the terms for KBI’s acquisition of a 50% ownership interest in Greekkannabis, PC (“GKC”). GKC is an Athens, Greece based cannabis company which has applied for and is awaiting issuance of a medical cannabis cultivation, processing and export license from the Greek government

 

In February, 2020 the Company renewed the OLCC Marijuana Retailer Licenses #1, 2 and 4 listed above and did not renew OLCC Marijuana Retailer License #3 and ceased operations at that location. Additionally, the Company is in the process of seeking to transfer OLCC License #4 to either its 12,000 square foot property in Eugene, Oregon to facilitate a delivery hub for Eugene, Oregon or other such location to make effective use of MJAI Retailer License #4.

 

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NOTE 2 – LIQUIDITY AND GOING CONCERN

 

The Company’s consolidated financial statements as of June 30, 2020 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $2,082,662 for the six months ended June 30, 2020 and a net income of $8,113,272 for the six months ended June 30, 2019. The decrease in net income is due to the changes in derivative liabilities, the decrease in amortization of debt discount and derivative liabilities expense, as well as the company continues to have operating losses. At June 30, 2020 the Company has a working capital deficiency of $11,229,506 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:

 

· The sale of additional equity and debt securities
· The sale of additional equity and debt securities
· Alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan
· Business transactions to assure continuation of the Company’s development and operations
· Development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name

 

NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.

 

Risks and Uncertainties

 

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure.  

 

The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings.  The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales. 

     

Fiscal Year

 

The Company’s fiscal year-end is December 31.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries. All significant intercompany balances have been eliminated.

 

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Wholly-owned subsidiaries:

  · Alternative Fuels Americas, Inc. (a Florida corporation)

 

  · 34225 Kowitz Road, LLC (an Oregon LLC)
     

 

Majority-owned subsidiaries:

Kaya Brands International, Inc. (a Florida Corporation)

Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation) majority owned subsidiary of KBI)

Kaya Farms Greece, S.A. (a Greek Corporation) majority owned subsidiary of KBI)

 

  · Marijuana Holdings Americas, Inc. (a Florida corporation)

 

  o MJAI Oregon 1 LLC

 

  o MJAI Oregon 2 LLC (inactive)

 

  o MJAI Oregon 3 LLC (inactive)

 

  o MJAI Oregon 4 LLC (inactive)

 

  o MJAI Oregon 5 LLC

 

Non-Controlling Interest

 

The company owned 55% of Marijuana Holdings Americas until September 30, 2019. Starting October 1, 2019, Kaya Holding, Inc. owns 65% of Marijuana Holdings Americas, Inc. As of June 30, 2020 Kaya owns 65% of Marijuana Holdings Americas, Inc.

 

The company owned 85% of Kaya Brands International, Inc. until July 31, 2020. Starting August 30, 2020, Kaya Holding, Inc. owns 65% of Kaya Brands International, Inc.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.

 

Inventory

 

Inventory consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method.  The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.  Total Value of Finished goods inventory as of June 30, 2020 is $87,131 and $108,008 as of December 31, 2019. No allowance as necessary as of June 30, 2020 and December 31, 2019.

 

Property and Equipment

 

Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  

 

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-30 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.

 

Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

   

Long-lived assets

 

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

 

  8  

 

Operating Leases

 

We lease our retail stores under non-cancellable operating leases. Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. We recognize rent expense on a straight-line basis over the lease term, excluding contingent rent, and record the difference between the amount charged to expense and the rent paid as a deferred rent liability.

 

Deferred Rent and Tenant Allowances

 

Deferred rent is recognized when a lease contains fixed rent escalations. We recognize the related rent expense on a straight-line basis starting from the date of possession and record the difference between the recognized rental expense and cash rent payable as deferred rent. Deferred rent also includes tenant allowances received from landlords in accordance with negotiated lease terms. The tenant allowances are amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession.

 

Earnings Per Share

 

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

 

Income Taxes

 

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

 

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

 

Fair Value of Financial Instruments

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

  Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

  Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

  Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

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    Fair Value Measurements at June 30, 2020
    Level 1   Level 2   Level 3
Assets            
Cash   $ 55,505     $ —       $ —    
Total assets     55,505       —         —    
Liabilities                        
Convertible debentures, net of discounts of $527,469     —         —         6,980,278  
Short term debt, net of discounts of $-0-     —         —         —    
Derivative liability     —         —         9,125,009  
Total liabilities     —         —         16,105,287  
    $ 55,505     $ —       $ (16,105,287 )

 

             
    Fair Value Measurements at December 31, 2019
    Level 1   Level 2   Level 3
Assets            
Cash   $ 86,967     $ —       $ —    
Total assets     86,967       —         —    
Liabilities                        
Convertible debentures, net of discounts of $471,685     —         —         6,281,584  
Short term debt, net of discounts of $-0-     —         —         —    
Derivative liability     —         —         7,817,081  
Total liabilities     —         —         14,098,665  
    $ 86,967     $ —       $ (14,098,665 )

 

The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.

 

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 7.

 

Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.

 

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company uses the Binomial option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

In July 2017, the FASB issued ASU 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendment also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.

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Prior to this Update, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.

 

The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.

 

For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.

 

The amendments in Part 1 of this Update are a cost savings relative to former accounting. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.

 

The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.

 

The Company adopted this new standard on January 1, 2019; however, the Company needs to continue the derivative liabilities due to variable conversion price on some of the convertible instruments. As such, it did not have a material impact on the Company’s consolidated financial statements.

 

Beneficial Conversion Feature

 

For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.

 

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.

 

Debt Issue Costs and Debt Discount

 

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt.  These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

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Original Issue Discount

 

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount.  The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

 

Extinguishments of Liabilities

 

The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.

 

Stock-Based Compensation - Employees

 

The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  

 

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  

 

If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

 

 

Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments.  Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

 

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

 

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

 

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

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Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.

 

The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.

 

Stock-Based Compensation – Non Employees

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation: Improvement to Nonemployee Share-Based Payment Accounting (Topic 718). The ASU supersedes ASC 505-50, Equity-Based Payment to Non-Employment and expends the scope of the Topic 718 to include stock-based payments granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for stock-based payments to non-employees are aligned with those of employees, most notably aligning the award measurement date with the grant date of an award. The new guidance is required to be adopted using the modified retrospective transition approach. The Company adopted the new guidance effective January 1, 2019, with an immaterial impact on its financial statements and related disclosures.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

 

 

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

 

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

 

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

 

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

 

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.

 

  13  

 

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.

 

  14  

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2020.

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.

  

Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, the Company adopted this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients.

 

On adoption, the Company recognized a right of use asset of $638,593, operating lease liabilities of $638,593, based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating lease.

 

The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.

 

In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” to simply the accounting for certain instruments with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Further, companies that provide earnings per share (“EPS”) data will adjust the basic EPS calculation for the effect of the feature when triggered and will also recognize the effect of the trigger within equity. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this new standard on January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.

 

In June 2018, the FASB issued ASU 2018-07, “Compensation – Stock Compensation (Topic 718)”: Improvements to Nonemployee Share-Based Payment Accounting. This ASU was issued to expend the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. Previously, these awards were recorded at the fair value of consideration received or the fair value of the equity instruments issued and were measured at the earlier of the commitment date of the date performance was completed. The amendments in this ASU require nonemployee share-based payment awards to be measured at the grant-date fair value of the equity instrument. ASU 2018-07 was effective for fiscal years, including interim periods within those fiscal years beginning after December 15, 2018. The Company adopted ASU 2018-07 effective on October 1, 2019 and it did not have a material impact on the Company’s consolidated financial statements.

 

  15  

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The standard also allows for early adoption of any removed or modified disclosures upon issuance while delaying adoption of the additional disclosures until their effective date. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. This standard simplifies the accounting for income taxes. This standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted for all entities. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.

 

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following at June 30, 2020 and December 31, 2019:  

    June 30, 2020   December 31, 2019
(Unaudited) (Audited)
ATM Machine   $ 11,000     $ 11,000  
Computer     22,736       22,736  
Furniture & Fixtures     49,408       49,408  
HVAC     41,768       41,768  
Land     697,420       697,420  
Leasehold Improvements     333,529       333,529  
Machinery and Equipment     408,133       408,133  
Sign     43,594       43,594  
Structural     1,017,359       1,017,359  
Vehicle     79,744       79,744  
Total     2,704,691       2,704,691  
Less: Accumulated Depreciation     (675,709)       (564,360)  
Property, Plant and Equipment - net   $ 2,028,982     $ 2,140,331  

 

Depreciation expense totaled of $111,349 and $115,590 for the six months ended June 30, 2020 and 2019, respectively.

 

NOTE 5 – NON-CURRENT ASSETS

 

Other assets consisted of the following at June 30, 2020 and December 31, 2019:

 

   

June 30, 2020

(Unaudited)

 

December 31, 2019

(Audited)

Rent Deposits   $ 22,032     $ 22,032  
Security Deposits     5,491       5,491  
Non-Current Assets   $ 27,523     $ 27,523  

 

NOTE 6 – CONVERTIBLE DEBT

 

These debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.14% to 0.47%, volatility ranging from 84.63% to 123.13%, trading prices ranging from $0.020 per share to $0.0438 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 $9,125,009 at June 30, 2020 and $7,817,081 at December 31, 2019.

 

See Below Summary Table

  16  

 

 

 

Convertible Debt Summary
  Debt Type Debt Classification Interest Rate Due Date  Ending
 CT  LT  6.30.2020  12.31.19
               
A Convertible  X   10.0% 1-Jan-17                   25,000  $               25,000
B Convertible    X 8.0% 1-Jan-24                   82,391                   76,288
C Convertible    X 8.0% 1-Jan-24                   41,195                   38,144
D Convertible    X 8.0% 1-Jan-24                 262,156                 242,737
O Convertible    X 8.0% 1-Jan-24                 136,902                 126,760
P Convertible    X 8.0% 1-Jan-24                   66,173                   61,271
Q Convertible    X 8.0% 1-Jan-24                   65,274                   60,439
S Convertible    X 8.0% 1-Jan-24                   63,205                   58,523
T Convertible    X 8.0% 1-Jan-24                 313,634                 290,402
BB Convertible  X   10.0% 1-Jan-20                   50,000                   50,000
CC Convertible  X   10.0% 1-Jan-20                 100,000                 100,000
KK Convertible    X 8.0% 1-Jan-24                 188,000                 174,074
LL Convertible    X 8.0% 1-Jan-24                 749,697                 694,164
MM Convertible    X 8.0% 1-Jan-24                 124,690                 115,500
NN Convertible    X 8.0% 1-Jan-24                 622,588                 576,470
OO Convertible    X 8.0% 1-Jan-24                 620,908                 574,915
PP Convertible    X 8.0% 1-Jan-24                 611,428                 566,137
QQ Convertible    X 8.0% 1-Jan-24                 180,909                 167,508
RR Convertible    X 8.0% 1-Jan-24                 586,804                 500,000
SS Convertible    X 8.0% 1-Jan-24                 174,374                 150,000
TT Convertible    X 8.0% 1-Jan-24                 345,633                 300,000
UU Convertible    X 8.0% 1-Jan-24                 171,304                 150,000
VV Convertible  X   8.0% 1-Jan-21                 113,322                 104,937
XX Convertible    X 8.0% 1-Jan-24                 112,734                 100,000
YY Convertible    X 8.0% 1-Jan-24                 173,039                 155,000
ZZ Convertible    X 8.0% 1-Jan-24                 166,603                 150,000
AAA Convertible    X 8.0% 1-Jan-24                 104,641                   95,000
BBB Convertible    X 8.0% 1-Jan-24                   87,066                   80,000
CCC Convertible  X   8.0% 1-Jan-20                   25,000                   25,000
DDD Convertible    X 8.0% 1-Jan-24                   75,262                   70,000
EEE Convertible    X 8.0% 1-Jan-24                 160,619                 150,000
FFF Convertible  X   8.0% 1-Jan-21                   15,000                   15,000
GGG Convertible    X 8.0% 1-Jan-24                   79,422                   75,000
HHH Convertible  X   8.0% 1-Jan-21                   35,000                   35,000
III Convertible  X   8.0% 1-Jan-21                   25,000                   25,000
JJJ Convertible    X 8.0% 1-Jan-24                   52,455                   50,000
KKK Convertible  X   8.0% 1-Jan-21                   20,000                   20,000
LLL Convertible    X 8.0% 1-Jan-24                   77,992                   75,000
MMM Convertible    X 8.0% 1-Jan-24                   51,348                   50,000
OOO Convertible  X   8.0% 1-Jan-21                   10,000                   10,000
PPP Convertible    X 8.0% 1-Jan-24                   95,979                   95,000
QQQ Convertible  X   8.0% 1-Jan-21                   25,000                   25,000
RRR Convertible  X   8.0% 1-Jan-21                   15,000                          -   
SSS Convertible    X 8.0% 1-Jan-24                   75,000                          -   
TTT Convertible    X 8.0% 1-Jan-24                   80,000                          -   
Total Convertible Debt                      7,257,747              6,503,269
Less: Discount                       (527,469)               (471,685)
Convertible Debt, Net of Discounts        $          6,730,278  $          6,031,584
Convertible Debt, Net of Discounts, Current      $             404,943  $             303,710
Convertible Debt, Net of Discounts, Long-term      $          6,325,335  $          5,727,874

 

  17  

 

FOOTNOTES FOR CONVERTIBLE DEBT SUMMARY TABLE

 

(A)

 

At the option of the holder the convertible note may be converted into shares of the Company’s common stock at the lesser of $0.40 or 20% discount to the market price, as defined, of the Company’s common stock. The Company is currently in discussions with the lender on a payment schedule. The outstanding balance of this note is convertible into a variable number of the Company’s common stock. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have being amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.18% to 2.63%, volatility ranging from 84.63% to 243.37%, trading prices ranging from $0.028 per share to $0.45 per share and a conversion price ranging from $0.0224 per share to $0.41 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $52,459.

 A recap of the balance of outstanding convertible debt at June 30, 2020 is as follows:

 

Principal balance   $ 25,000  
Accrued interest     27,459  
Balance maturing for the period ending:        
June 30, 2020   $ 52,459  

 

The Company valued the derivative liabilities at June 30, 2020 at $27,067. The Company recognized a change in the fair value of derivative liabilities for the three months ended June 30, 2020 of $1,289 which were charged (credited) to operations.  In determining the indicated values at June 30, 2020, since the debt is in default, the company used the maximum value these embedded options represent, with a trading price of $0.032, and conversion prices of $0.0256 per share. 

 

(B), (C), (D)

 

All these amended debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.05% to 2.59%, volatility ranging from 84.63% to 243.23%, trading prices ranging from $0.028 per share to $0.14 per share and a conversion price ranging from $0.02 per share to $0.04 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. The balance of these convertible notes at June 30, 2020 including accrued interest amounted to $395,487. The derivative liability associated with these notes as of June 30, 2020 were $402,278. During 2020, interest of $28,573 was capitalized.

 

(O)

 

On March 31, 2016 the Company received $100,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 157.47%, trading prices ranging from $0.028 per share to $0.27 per share and a conversion price of $0.02 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $142,347. The derivative liability associated with this note as of June 30, 2020 were $163,000. During 2020, interest of $10,142 was capitalized.

 

  18  

 

(P)

 

On July 13, 2016 the Company received $50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 157.47%, trading prices ranging from $0.028 per share to $0.27 per share and a conversion price of $0.02 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $68,805. The derivative liability associated with this note as of June 30, 2020 were $78,788. During 2020, interest of $4,902 was capitalized.

 

(Q)

 

On August 30, 2016 the Company received $50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.27 per share a conversion price of $0.02 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $67,871. The derivative liability associated with this note as of June 30, 2020 were $77,718. During 2020, interest of $4,835 was capitalized.

 

(S)

 

On December 1, 2016 the Company received $50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.27 per share and a conversion price of $0.02 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $65,719. The derivative liability associated with this note as of June 30, 2020 were $75,254. During 2020, interest of $4,682 was capitalized.

 

(T)

 

On December 30, 2016 the Company received $250,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.27 per share and a conversion price of $0.02 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $373.425. The derivative liability associated with this note as of June 30, 2020 were $373,425. During 2020, interest of $23,232 was capitalized.

 

(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 $0.02 per share. The market value of the stock at the date when the debt becomes convertible was $0.078. The debt issued is a result of a financing transaction and contain a beneficial conversion feature. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $57,489. The accrued interest of $5,000 was converted to 166,666 shares of common stock on September 15, 2019. The derivative liabilities of $5,853 associated to this note was reclassified to APIC. The derivative liability associated with this note as of June 30, 2020 were $127.924. On January 1, 2019, due date of this note was extended until January 1, 2020. The lender and the Company are in discussion to extend the maturity terms. No gain or loss on conversion was recorded as conversions were made within the terms of agreement.

 

(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 $0.02 per share. The market value of the stock at the date when the debt becomes convertible was $0.078. The debt issued is a result of a financing transaction and contain a beneficial conversion feature. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $114,979. The accrued interest of $10,000 was converted to 333,333 shares of common stock on September 15, 2019. The Derivative liabilities of $11,706 associated to this note was reclassified to APIC. The derivative liability associated with this note as of June 30, 2020 were $255,849. On January 1, 2019, due date of this note was extended until January 1, 2020. The lender and the Company are in discussion to extend the maturity terms. No gain or loss on conversion was recorded as conversions were made within the terms of agreement.

 

  19  

 

(KK)

 

On January 4, 2017, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.04 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.27 per share and a conversion price of $0.02 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $195,479. The derivative liability associated with this note as of June 30, 2020 were $223,840. During 2020, interest of $13,926 was capitalized.

 

(LL)

 

On January 20, 2017, the Company received $600,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.07 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.31 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $779,521. The derivative liability associated with this note as of June 30, 2020 were $892,619. During 2020, interest of $55,533 was capitalized.

 

(MM)

 

On January 31, 2017, the Company received $100,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.07 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.31 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $129,650. The derivative liability associated with this note as of June 30, 2020 were $153,305. During 2020, interest of $9,190 was capitalized.

 

(NN)

 

On February 7, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.10 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.028 per share to $0.31 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $647,355. The derivative liability associated with this note as of June 30, 2020 were $741,277. During 2020, interest of $46,118 was capitalized.

 

(OO)

 

On February 21, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.10 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to154.71%, trading prices ranging from $0.028 per share to $0.30 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $645,609. The derivative liability associated with this note as of June 30, 2020 were $754,709. During 2019, interest of $45,993 was capitalized.

 

(PP)

 

On May 11, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.05 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility ranging from 84.63% to 139.70%, trading prices ranging from $0.028 per share to $0.27 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $635,751. The derivative liability associated with this note as of June 30, 2020 were $727,990. During 2020, interest of $45,291 was capitalized.

 

  20  

 

(QQ)

 

On July 17, 2017, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.05 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.63%, volatility ranging from 84.63% to 139.70%, trading prices ranging from $0.028 per share to $0.27 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $188,105. The derivative liability associated with this note as of June 30, 2020 were $219,893. During 2020, interest of $13,401 was capitalized.

 

(RR)

 

On November 1, 2017, the Company received $500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.63%, volatility ranging from 84.63% to 138.23%, trading prices ranging from $0.028 per share to $0.27 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $610,148. The derivative liability associated with this note as of June 30, 2020 were $696,611. During 2020, interest of $86,804 was capitalized.

 

(SS)

 

On December 21, 2017, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.63%, volatility ranging from 84.63% to 131.81%, trading prices ranging from $0.028 per share to $0.27 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $181,311. The derivative liability associated with this note as of June 30, 2020 were $207,617. During 2020, interest of $24,374 was capitalized.

 

(TT)

 

On February 5, 2018, the Company received $300,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.63%, volatility ranging from 84.63% to 132.27%, trading prices ranging from $.028 per share to $0.49 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $359,383. The derivative liability associated with this note as of June 30, 2020 were $283,666. During 2020, interest of $45,633 was capitalized.

 

(UU)

 

On March 23, 2018, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.63%, volatility ranging from 84.63% to 132.27%, trading prices ranging from $0.028 per share to $0.14 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $178,119. The derivative liability associated with this note as of June 30, 2020 were $206,567. During 2020, interest of $21,304 was capitalized.

 

(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. In January 2020, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.59%, volatility ranging from 84.63% to 132.27%, trading prices ranging from $0.028 per share to $0.14 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $117,840. The derivative liability associated with this note as of June 30, 2020 were $262,216. During 2020, interest of $8,385 was capitalized.

 

  21  

 

(XX)

 

On May 29, 2018, the Company received $100,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.63%, volatility from 84.63% to 127.07%, trading prices ranging from $0.028 per share to $0.16 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $117,219. The derivative liability associated with this note as of June 30, 2020 were $134,226. During 2020, interest of $12,734 was capitalized.

 

(YY)

 

On July 18, 2018, the Company received $155,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.81%, volatility from 84.63% to 126.88%, trading prices ranging from $0.028 per share to $0.13 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $179,923. The derivative liability associated with this note as of June 30, 2020 were $206,027. During 2020, interest of $18,039 was capitalized.

 

(ZZ)

 

On August 13, 2018, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.81%, volatility from 84.63% to 126.90%, trading prices ranging from $0.028 per share to $0.13 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $173,231. The derivative liability associated with this note as of June 30, 2020 were $198,364. During 2020, interest of $16,603 was capitalized.

 

(AAA)

 

On September 24, 2018, the Company received $95,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.83%, volatility from 84.63% to 126.38%, trading price at $0.028 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $108,804. The derivative liability associated with this note as of June 30, 2020 were $124,590. During 2020, interest of $9,641 was capitalized.

 

 

(BBB)

 

On November 23, 2018, the Company received $80,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.81%, volatility from 84.63% to 123.13%, trading price at $0.028 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $90,530. The derivative liability associated with this note as of June 30, 2020 were $103,664. During 2020, interest of $7,066 was capitalized.

 

 

  22  

 

(CCC)

 

On December 21, 2018, the Company received $25,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.05 per share. On January 22, 2019, the ratchet provision was activated due to issuance of another convertible note. As such, the conversion price was decreased from $0.05 per share to $0.03 per share. As the change is greater than 10%, the discount of $25,000 was recorded as a loss on extinguishment. the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.63%, volatility from 84.63% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $28,050. The derivative liability associated with this note as of June 30, 2020 were $62,415.

 

(DDD)

 

On January 22, 2019, the Company received $70,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.59%, volatility from 84.63% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $78,256. The derivative liability associated with this note as of June 30, 2020 were $89,610. During 2020, interest of $5,262 was capitalized.

 

 

(EEE)

 

On February 11, 2019, the Company received $150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.48%, volatility from 84.63% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $167,009. The derivative liability associated with this note as of June 30, 2020 were $191,147. During 2020, interest of $10,619 was capitalized.

 

(FFF)

 

On March 20, 2019, the Company received $15,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. Note is due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.40%, volatility from 82.70% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $16,537. The derivative liability associated with this note as of June 30, 2020 were $36,798.

 

(GGG)

On April 6, 2019 the Company received $75,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the May 2017 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 2.40%, volatility from 82.70% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $82,581. The derivative liability associated with this note as of June 30, 2020 were $94,563. During 2020, interest of $4,422 was capitalized.

(HHH)

On April 22, 2019 the Company received $35,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.40%, volatility from 82.70% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $38,333. The derivative liability associated with this note as of June 30, 2020 were $85,298.

  23  

 

(III)

On May 6, 2019 the Company received $25,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.40%, volatility from 82.70% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $27,304. The derivative liability associated with this note as of June 30, 2020 were $60,757.

(JJJ)

On May 21, 2019 the Company received $50,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.40%, volatility from 82.70% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $54,542. The derivative liability associated with this note as of June 30, 2020 were $62,455. During 2020, interest of $2,455 was capitalized.

(KKK)

On June 5, 2019 the Company received $20,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 2.40%, volatility from 82.70% to 123.13%, trading price of ranging from $0.028 to $0.11 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $21,712. The derivative liability associated with this note as of June 30, 2020 were $48,313.

(LLL)

On July 2, 2019 the Company received $75,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 1.75%, volatility from 105.36% to 123.13%, trading price of ranging from $0.028 to $0.067 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $81,094. The derivative liability associated with this note as of June 30, 2020 were $92,860. During 2020, interest of $2,992 was capitalized.

(MMM)

On August 30, 2019 the Company received $50,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 1.75%, volatility from 105.36% to 123.13%, trading price of ranging from $0.028 to $0.064 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $53,391. The derivative liability associated with this note as of June 30, 2020 were $61,137. During 2020, interest of $1,348 was capitalized.

(OOO)

On November 4, 2019, the Company received $10,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 1.59%, volatility from 107.76% to 123.13%, trading price of ranging from $0.028 to $0.056 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $10,523. The derivative liability associated with this note as of June 30, 2020 were $23,415.

  24  

 

(PPP)

On November 14, 2019 the Company received $95,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. In January 2020, the maturity date of the notes had been extended to January 1, 2024. 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 0.17% to 1.59%, volatility from 107.76% to 123.13%, trading price of ranging from $0.028 to $0.055 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $99,797. The derivative liability associated with this note as of June 30, 2020 were $114,276. During 2020, interest of $979 was capitalized.

(QQQ)

On December 19, 2019, the Company received $25,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 1.59%, volatility from 107.76% to 123.13%, trading price of ranging from $0.028 to $0.060 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $26,060. The derivative liability associated with this note as of June 30, 2020 were $57,989.

(RRR)

On January 8, 2020, the Company received $15,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.17% to 1.55%, volatility from 115.62% to 123.13%, trading price of ranging from $0.028 to $0.054 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $15,570. The derivative liability associated with this note as of June 30, 2020 were $10,661.

(SSS)

On January 10, 2020, the Company received $75,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due in January of 2024. 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 0.17% to 0.37%, volatility from 115.62% to 123.13%, trading price of ranging from $0.028 to $0.05 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $77,820. The derivative liability associated with this note as of June 30, 2020 were $89,110.

(TTT)

On May 21, 2020, the Company received $80,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.01 per share. The Note is Due in January of 2024. 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 0.16% to 0.16%, volatility from 121.13% to 123.13%, trading price of ranging from $0.0319 to $0.320 per share. The balance of the convertible note at June 30, 2020 including accrued interest amounted to $81,591. The derivative liability associated with this note as of June 30, 2020 were $225,722. 

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NOTE 7 – NON-CONVERTIBLE DEBT

 

A-Non Related Party

 

    June 30, 2020   December 31, 2019
Note 3     -0-       -0-  
Note 4     -0-       -0-  
Note 5     9,312       9,312  
Note 6     -0-       -0-  
Total Non-Convertible Debt     9,312       9,312  

 

 

(3) On  May 17, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 17, 2018.

 

(4) On May 9, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 9, 2018

 

(5) On September 16, 2016 the Company received a total of $31,661 to be used for equipment in exchange for a two year note in the aggregate amount of $31,661 with interest accruing at 18% per year and a 10% loan fee. The note is default as of December 31, 2019 with an outstanding balance of $9,312.

 

(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 period ending June 30, 2020 was $0. On January 1, 2019 the holder of the note extended the due date until December 31, 2021.

 

As of June 30, 2020, the balance of the debt was $250,000 which is not convertible. The company recorded imputed interest of $11,250 and $67,500 for the period ending June 30, 2020 and December 31, 2019, respectively, on both the convertible debt and the non-convertible debt. The company used an interest rate of 4% for calculation purposes. The net balance of $250,000 of the non-convertible portion is reflected on the balance sheet.

 

NOTE 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 434 votes on any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 434 shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the holder into 434 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.

 

  26  

 

On March 5, 2019, total of 7,785,952 shares of common stock had been issued from stock payable to settle the conversion dated on September 16, 2018.

 

On October 11, 2019, Kaya Brands International, Inc. issued 5 shares of preferred stock for cash received of $75,000. As of December 31, 2019, all shares were issued.

 

On October 16, 2019, total of 3,305,732 shares of common stock of Kaya Holdings Inc. in satisfaction of 3 promissory notes dated on September 21, 2015 in amount of $5,000, September 21, 2015 in amount of $10,000, November 15, 2016 in amount of $84,172. Total of 50,000 shares of preferred stock had been issued in satisfaction 2 promissory notes for a total of $500,000.

 

On October 16, 2019, total of 6,000,000 shares of common stock of Kaya Holding Inc. had been issued for related parties service performed. The shares were valued at $390,000. Total of 4,600,000 shares of common stock has been issued for service performed by employees. The shares were valued at $280,300.

 

On February 13, 2020, the Company sold 0.25 subscription unit for $12,500. Each unit consists of 1,000,000 shares of the Company's common stock; 1,000,000 one-year class A warrants at an exercise price of $0.12 per Company's share; 1,000,000 two-year class B warrants at an exercise price of $0.18 per Company's share; and 1,000,000 shares of common stock of Kaya Brands International, Inc, which is a majority-owned subsidiary of the Company. As of June 30, 2020, the shares had not been issued.

 

NOTE 9 DERIVATIVE LIABILITIES

 

Effective January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.

 

However, due to a recognition of tainting, due to variable conversion price on some of the convertible notes, all convertible notes are considered to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.05% to 2.63%, volatility ranging from 84.63% to 243.22%, trading prices ranging from $0.028 per share to $0.41 per share and a conversion price ranging from $0.03 per share to $0.01 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, 2019   $ 7,817,081  
Initial     342,169  
Change in Derivative Values     965,759  
 Conversion of debt-reclass to APIC     -0-  
Balance as of June 30, 2020   $ 9,125,009  

 

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 recoded initial derivative liabilities of $170,000 for the new notes issued for the six months ended June 30, 2020.

 

The Company recorded derivative liability expense of $172,169 for the six months ended June 30, 2020.

  

The Company recorded a change in the value of embedded derivative liabilities expense of $965,759 for the six months ended June 30, 2020.

 

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 $527,469 as of June 30, 2020.

 

The Company recorded $114,216 for the six months ended June 30, 2020 for amortization of debt discount expense. 

 

  27  

 

NOTE 11 – RELATED PARTY TRANSACTIONS

 

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

 

On December 31, 2015, the Company entered into an agreement to extend the debt until December 31, 2017 with no additional interest for the extension period. On January 1, 2018 the Company entered into an agreement to further extend the debt until December 31, 2021 with no additional interest for the extension period.

 

At December 2017, the company was indebted to Craig Frank, Chairman, CEO and Acting CFO for KAYS, in the amount of $7,737 for travel and miscellaneous expenses incurred by Mr. Frank from travel and related activities in Oregon.

 

In each of 2018 and 2019, 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 2018 and 2019, the Company issued stock grants to Craig Frank for 3,000,00 shares of KAYS stock each year, pursuant to his employment agreement via board resolution. Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock. The stock was issued from Treasury as restricted stock and carries a one year restriction before it can be registered for resale pursuant to Rule 144.

 

In August, 2018 KAYS entered into an agreement with Bruce Burwick, (who subsequently joined the Board of Directors and became an affiliate of the Company) to purchase the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the OLCC for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. The purchase includes a 12,000 square foot building housing an indoor grow facility, as well as equipment for growing and extraction activity. KAYS paid Bruce Burwick $1,300,000.00 for the real property and schedule of equipment that was and is used to operate the facility.

 

Bruce Burwick acquired the property for satisfaction of a promissory note due him for $1,433,000.00. The purchase price of $1.3 million for the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the issuance of 12 million shares of KAYS restricted stock to the seller at closing. The shares carry a lock-up-restriction that allows for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS. Additionally, the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds from the sale of those shares were and are being used for acquisition related expenses, transitional operating costs and facility capital improvements with respect to the production and processing facility we purchased.

 

On October 14, 2019 the shareholder submitted a conversion notice and the $500,000 in convertible debt was converted into 50,000 Series C Preferred shares of KAYS stock. The stock was issued from Treasury as restricted stock and carries a minimum of one year restriction before it can be registered for resale pursuant to Rule 144.

 

In 2019, the Company issued a stock grant to Bruce Burwick for 100,000 shares of KAYS stock for his service as a board member. 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 2019, the Company entered into amended consulting agreements with Tudog International Consulting, Inc. which provides CEO services to the Company through Craig Frank, an Officer of the Company and BMN Consultants, Inc. which provides business development and financial consulting services to the Company through William David Jones, a non-officer Consultant to the Company. . Pursuant to the amended consulting agreements, each entity is entitled to a monthly compensation of $25,000. Due to the liquidity of the Company, the compensations were paid partially over the periods. As of June 30, 2020, the accrued compensation was approximately $588,000, whereas, $410,000 was carried over from prior years.

 

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Future Employee Stock Plan Issuances and Director and Officer Restricted Stock issuances

 

 

In a Board Meeting initially held Monday July 22, 2020 and confirmed on July 22, 2020, the Company reviewed stock compensation packages for KAYS and KBI Management, Board Members, Key Consultants and Service Providers, and Kaya Staff in light of specific circumstances with each group. The discussion and resulting future issuances are summarized below:

In regards to Board of Directors compensation, the Company notes that the only compensation paid the 3 Directors (excluding Mr. Frank) that sit as Board Members is stock, and such stock is supposed to be valued at a minimum of approximately $15,000.00 per year, and that it has been some time since the figure has been adjusted. Accordingly, the stock distribution for each of these three Directors has been raised to 400,000 shares of KAYS restricted stock for the 2020 distribution for their service to the Company during 2020. The shares are considered to be fully paid when issued.  

In regards to compensation for Craig Frank (CEO, Acting CFO and Chairman of the Board) and for William David Jones (Senior Advisor for Business Development, Cannabis Licensing and Financial Operations), the Company notes that for the past approximately twenty (20) months that their respective consulting companies have only been paid approximately 40% of their base compensation and the other 60% has accrued with the understanding that it will be paid them when the cashflow of the Company permits. Additionally, they have not submitted any expenses for reimbursement that they have paid from their own funds that otherwise would be paid by the Company (travel, meals and related expenses, some professional fees of service providers, technical subscriptions and other general office and business expenses, etc.), and have also made formal and informal personal and business guarantees and traded favors to service providers and others to advance the interests of the Company. Additionally, as the Company did not have the resources available, a previously approved plan to offer health insurance to Mr. Frank and Mr. Jones (as well as the four (4) full-time employees of the Kaya Shack) has not been implemented and they have each born these expenses themselves. Accordingly,the annual stock distribution for Mr. Frank and Mr. Jones has been adjusted from 3,000,000 shares of KAYS stock to 4,000,000 shares of KAYS stock, with the possibility of further distributions based on the Company hitting certain to-be-determined milestones (Mr. Jones’s stock will be awarded from the KAYS 2011 Stock Incentive Plan, and Mr. Frank’s stock will be in the form of KAYS restricted stock.

Additionally, as the Company is prevailing heavily on the efforts of Mr. Jones and Mr. Frank to succeed with KAYS Expansion Plan, the capitalization of Kaya Brands International, Inc. and Kaya Brands USA, Inc. will each include founder shares of 15% in non-dilutive Preferred Shares of each entity to each of Mr. Frank and Mr. Jones (as was done with Marijuana Holdings Americas to incentivize their work in Oregon). Mr. Frank will also have the discretion to issue similar distributions (or lesser, based on his discretion and the individual facts and circumstances associated with each project) in entities formed in relation to the Kaya Shalvah (Israel) and Kaya Kannabis (Greece) projects, as well as any other subsidiaries to be formed in the future.

In regards to the compensation of KAYS SEC Lawyer, it is noted that the attorney’s law firm is owed approximately $50,000.00 from prior billings, yet he has continued to provide the Company with legal services, notwithstanding that cash payments to him have been deferred and has worked for some period of time without billing and instead takes stock as compensation which he liquidates on a very judicious schedule over time as he performs work. Accordingly, Mr. Bergman is to be awarded 2,000,000 shares of KAYS stock under the 2011 Stock Incentive Plan for his efforts

 

In regards to the compensation of Chad Craig, V.P. of Operations and Bryan Arnold, V.P. of Marketing for the Kaya Shack and the rest of the Kaya Shack employees in Oregon, it is noted that we critically depend on the work that they do to define our brand and represent our Company. Accordingly, Craig Frank was given discretion to disburse up to 4,000,000 shares of KAYS stock to the Kaya Shack employees, and he has designated the following awards: Chad Craig, Kaya Shack’s VP of Operations is to be awarded 1,600,000 shares of KAYS stock, Bryan Arnold, Kaya Shack’s VP of Marketing is to be awarded 1,200,000 shares of KAYS stock and the rest of the staff is to be awarded a total of 1,200,000 shares. All of these 4,000,000 shares are to be issued from the 2011 Stock Incentive Plan but are subject to lockup agreements.

 

  29  

 

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.

 

On July 22, 2020 the Board of Directors approved the issuance of 10,000,000 shares of stock to recipients of the plan (the shares are to be issued after the 2020 June 30 Quarterly filing is completed). Upon issuance the remaining balance of the shares available in the plan will be 905,000 shares.

 

NOTE 13 – WARRANTS

 

On September 8, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 3,161,583 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of June 30, 2020, the note was paid in full.

 

On September 9, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 3,161,583 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of June 30, 2020, the note was paid in full.

 

On May 9, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 9, 2018. As of June 30, 2020, the note was paid in full.

 

On May 17, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 17, 2018. As of June 30, 2020, the note was paid in full.

 

 Warrants issued to Non-Employees      
  Warrants Issued Weighted AverageExercise Price Weighted Average Contract Terms Years
Balance as of December 31, 2019 11,065,540 0.0316297 3.8
Granted - - -
Exercised - - -
Expired - - -
Balance as of June 30, 2020 11,065,540 0.0316297 3.2

 

NOTE 14 – COMMITMENTS AND CONTINGENCIES

 

Operating Leases

 

The Company has several operating leases for an office and store lease in Fort Lauderdale, Florida and several locations in Oregon under arrangements classified as leases under ASC 842.

 

Effective June 12, 2017, the Company leased the office space in Fort Lauderdale, Florida under a 5-year operating lease expiring June 30, 2022. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,017 and culminating in a monthly payment of $4,839. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease was terminated on July 3, 2019 and the Company agreed to issue landlord 500,000 shares of common stock as penalty for early termination.

 

  30  

 

Effective June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021. The rental payment is $1,802 per month. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease.

 

Effective May 15, 2014, the Company leased a unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019, the lease had been extended to May 15, 2024. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $2,250 and culminating in a monthly payment of $2,632. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease was extended to April, 2024.

 

Effective June 1, 2015, the Company leased a 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 was extended to May 2025.

 

Effective April 15, 2016, the Company leased a 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. The Company is in negotiations with the landlord to terminate this lease.

 

Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,617 and culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis. The Company is in negotiations with the landlord to terminate this lease.

 

The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company used an estimated incremental borrowing rate of 9.32% to estimate the present value of the right of use liability.

 

The Company has right-of-use assets of $462,851 and operating lease liabilities of $474,965 as of June 30, 2020. Operating lease expense for the six months ended June 30, 2020 was $76,296

 

  

Maturity of Lease Liabilities at June 30, 2020   Amount
  2020 (excluding the six months ended June 30, 2020)       93,362  
  2021       151,572  
  2022       115,010  
  Later years       210,413  
  Total lease payments       570,357  
  Less: Imputed interest       (95,392 )
  Present value of lease liabilities     $ 474,965  

 

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Note 15- Subsequent Events

 

On July 6, 2020 the Company formed Kaya Shalvah LTD (“Kaya Farms Israel”), an Israeli Corporation which is a majority owned subsidiary of Kaya Brands International, Inc. Kaya Farms Israel is in the process of applying to various Israeli Government Agencies for a license to grow, process and export medical grade cannabis from Israel to the European Union and elsewhere. Upon submission of the application to the Israeli Cannabis Authority, Kaya Shalvah intends to submit a bid to acquire 100 Dunams (approximately 25 acres) of land in Israel that is part of Greenegev, an Israeli Government backed Cannabinoid Ecosystem in Israel. The facility, as currently envisioned (after obtaining successful financing, completing construction and obtaining final requisite licensing) would include approximately 800,000 square feet of buildings estimated to produce approximately 375,000 pounds of premium medical grade, GMP Certified Cannabis annually for potential export to the European Union and elsewhere.

 

On July 22, 2020 the Board of Directors approved the issuance of 10,000,00 shares of stock from the KAYS 2011 Stock Incentive Plan and a total of 15,456,300 shares of restricted stock. The shares were approved for stock compensation packages for KAYS and KBI Management, Board Members, Key Consultants and Service providers and staff of the Kaya Shack operations in Oregon, and for conversion of $102,563 in debt. Additionally, Company the capitalization of Kaya Brands International, Inc. and Kaya Brands USA, Inc. to include founder shares of 15% in non-dilutive Preferred Shares of each entity to Mr. Frank and Mr. Jones (as was done with Marijuana Holdings Americas to incentivize their work in Oregon). Mr. Frank will also have the discretion to issue similar distributions (or lesser, based on his discretion and the individual facts and circumstances associated with each project) in entities formed in relation to the Kaya Farms Israel and Kaya farms Greece projects, as well as any other subsidiaries to be formed in the future. For more information on these issuances and other matters please refer to Part I. Item 2 of this filing, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

On August 12, 2020 the Company submitted documents to their attorneys in Greece to form Kaya Farms Greece S.A. (“Kaya Farms Greece”), a Greek Corporation which is to be a majority owned subsidiary of Kaya Brands International, Inc. The Company is in the final stages of completing their due diligence and expects to exercise their option (pursuant to terms of the previously disclosed 8-K filing on November 4, 2019) to acquire a 50% interest in Greekkannabis, PC, an Athens, Greece based cannabis company which has received its license for the construction of a facility encompassing approximately 500,000 square feet of buildings on 15 acres of land outside of Athens, Greece to grow, process and export medical grade cannabis from Israel to the European Union and elsewhere. The facility, as currently envisioned (after obtaining successful financing, completing construction and obtaining final requisite licensing) would produce approximately 225,000 pounds of GMP Certified, premium medical grade GMP Certified Cannabis annually for potential export to the European Union and elsewhere.

 

On August 13, 2020 the Company received $20,000 from the issuance of convertible debt to the High Net Worth Investor. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.01 per share, subject to certain adjustments in the event of stock dividends, splits and similar recapitalization events. The Note is Due in January of 2024.

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

 

Business Overview

 

PART I

 

Item 1. Business.

 

Overview

 

Kaya Holdings, Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana enterprise that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges and cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting highly distinctive brands.

KAYS is a veteran of the global legal cannabis industry, with more than six years of operational experience. KAYS is the first U.S. publicly traded company to operate a legal marijuana dispensary, as well as the first to vertically integrate by adding cultivation and manufacturing.

 

The Company’s business strategy seeks to achieve four fundamentals objectives:

 

· maintaining direct access to customers (to own the relationship with end-users);

 

· effecting vertical integration to control the supply chain (to control cost, selection and quality);

 

· introducing strong brands in tradition and innovative categories (to control asset development); and

 

· creating the capacity to expand nationally and internationally as regulations and opportunities permit.

 

 

Kaya Holdings currently operates three majority-owned subsidiaries, each responding to various demands and opportunities in the cannabis industry, to aid in the execution of these objectives:

 

Marijuana Holdings Americas, Inc.

 

Marijuana Holdings Americas, Inc. (“MJAI”), incorporated in 2014, operates the Company’s U.S. based cannabis operations including its Kaya Shack™ retail brand and the Kaya Farms™ cultivation brand.

 

After an evaluation of several factors including reputation for cannabis excellence, costs of entry, learning opportunity, and ease of regulatory structure, the Company selected Oregon as its point-of-entry into the legal cannabis sector where it commenced operations in Oregon in July 2014. Oregon is universally recognized for its excellence in cannabis cultivation and is part of the famed “Green Triangle” of expert cannabis cultivation that also includes Northern California. Having Oregon as the Company’s learning ground has allowed the Company to combine “traditional” methods of cannabis cultivation with modern agriculture techniques.

 

The Company’s US operations are currently focused in Oregon, where all of the Company’s operations are licensed by the Oregon Liquor Control Commission (the “OLCC’), which has jurisdiction over legal medical and recreational cannabis grow, production and retail operations. The Company has three active OLCC Marijuana Retailer Licenses, each of which allow for one brick-and-mortar physical dispensary location as well as unlimited delivery operations tied to the geographic location of the fixed based licensed operations. KAYS currently operates two Kaya Shack™ retail outlets (one in South Salem and one in Portland), and is in the process of targeting its third license to operate a Kaya Farm Store and Delivery Hub to service the Southern Oregon Market.

 

The Company has developed its own proprietary Kaya Farms™ strains of cannabis, which it grows and produces (together with edibles and other cannabis products) at its 12,000 square foot Eugene, Oregon Sunstone Farms Indoor Cannabis Grow, Processing & Cannaceutical Facility which KAYS acquired in October 2018 and is presently conducting limited operations under a Management Agreement with Sunstone farms. Pending the eventual acquisition and transfer of other existing OLCC Marijuana Production and Processing licenses, KAYS intends to build out the facility and ramp up to full production.

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Additionally, the Company also owns a 26-acre parcel in Lebanon, Linn County, Oregon, which it purchased in August 2017 on which it intends to construct a cannabis cultivation complex, which will initially consist of an 85,000-square foot Kaya Farms™ Greenhouse Grow and Production Facility. The Company has received county zoning approvals for the complex, and is currently awaiting OLCC Licensure approvals to begin construction of this facility.

 

Kaya Brands USA

 

Kaya Brands USA, Inc. (“KBUS”) is in the process of being incorporated to manage and leverage the intellectual property associated with the Kaya family of brands and seek out US based projects and ventures to enhance shareholder value associated with their development.

 

KBUS presently manages 18 proprietary brands formulated and developed by the Company which includes the Kaya Shack™ retail brand, the Kaya Farms™ cultivation brand, and the Kaya Gear™ apparel brand, as well as a host of carefully developed cannabis and CBD products that include cannabis extracts and concentrates, vape cartridges, chocolates, gummies and chews, topicals and creams, beverages, foods, and cannaceuticals.

 

Kaya Brands International and International Plans for Expansion

  

Kaya has recently implemented a strategic shift away from the U.S. cannabis market, its initial intended focus, placing all emphasis on international opportunities and brand extensions. Thus, KAYS has developed an exciting international growth program with the potential for strategic position and growth, all the while remaining prepared for the eventuality of a more inviting U.S. market.

 

Kaya Brands International, Inc. (“KBI”) was incorporated in late 2019 to serve as the Company’s vehicle for expansion into worldwide cannabis markets. KBI is seeking to leverage the other product brands for development of the Kaya Shack™ retail and Kaya Farms™ brands in Europe and elsewhere as opportunities permit. Projects currently under development include licensing of the Kaya Shack™ retail brand for franchising in Canada and licensing of the Kaya Farms™ brand to develop cultivation projects in Greece, Israel and other potential locations.

 

This segregation of US and foreign based activities would allow for KAYS to eventually have KBI listed on a recognized securities exchange such as the OTCQX, NASDAQ or NYSE in the US, the Canadian Securities Exchange or “CSE” in Canada (a Canadian Exchange that has proven to be an excellent source of new institutional and retail investment capital and liquidity for both Canadian and U.S.-based OTC cannabis stocks) or other such international exchange that would allow KBI to access additional capital not currently available through US over-the counter (“OTC”) markets.

 

KAYS intends to maintain a majority ownership of KBI, but is also working on plans to issue a dividend of common shares in KBI to shareholders of record at a date to be determined by the Board of Directors of KAYS

 

Additionally, KAYS intends to structure KBI’s participation in projects that would lead to these projects eventually seeking their own public company status and corresponding issuance of securities which could potentially significantly enhance the value of KAYS/KBI’s investment and possibly lead to dividends for KAYS/KBI’s shareholders. There can be no assurance given as to whether or when KAYS will be able to do so, or it would ultimately be successful in increasing shareholder value.

 

Corporate Information

 

Our corporate office is located at 915 Middle River Drive, Suite 316, Fort Lauderdale, Florida, 33304. Our telephone number is 954-892-6911 and our corporate website is www.kayaholdings.com. Information contained on our corporate website does not constitute part of this Memorandum.

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The Global Cannabis Industry

 

New Frontier Data estimates the existing global demand for cannabis to be $344.4 billion USD, using consumption levels and market prices to reach their estimate. The illicit market, with the exception of the relatively few countries that regulate and license cultivation or importation of cannabis, meets the vast majority of global demand for cannabis.

 

There are an estimated 263 million people globally who can be classified as cannabis consumers, demonstrating significant demand for the medical, wellness, and recreational uses of cannabis. The strength of demand varies by region and depends heavily on the status of legalization, levels of social acceptance, and access to cannabis. There are an estimated 1.2 billion people worldwide suffering from medical conditions for which cannabis has shown therapeutic value.

 

There are currently 55 countries with legalized cannabis for medical use. The regulatory framework varies by country and may differ in rules for qualifying conditions, physician participation, production and processing, accepted delivery systems, insurance payment participation, and potency permitted. The stringency of the rules typically has a significant impact on the size, growth, and reach of each program.

 

Canada and Uruguay are the first two nations with legal recreational cannabis, with a few other nations set to follow, including South Africa, Georgia and Mexico. The aim of the legal programs is to transition the illicit market to the legal, regulated and taxable markets.  Canadian companies were the first to create global cannabis infrastructure and are poised to compete with other emerging export centers, including Israel, Greece and Colombia.

 

The United States has been the global leader in cannabis innovation, including new genetics, cultivation techniques, derivative products, and delivery methods. U.S. based companies are beginning to move into the global arena.

 

The opportunity represented by legal cannabis is significant, but many countries limit the number of legal participants and have regulatory policies that are still evolving, leading to high overall risk and barriers to entry.

 

As governments in newly legalized markets lay the foundations for their nascent industries, many lack or do not wish to regulate domestic cultivation and production activity. This forms the foundation for a vibrant international cannabis import-export sector.

 

North America

 

North America, according to New Frontier Data, represents a total cannabis demand (legal & illicit) valued at $86 billion USD.

 

The United States and Canada have been leading the global legal cannabis movement, which in turn impacts the way governments worldwide are structuring the regulation of legal cannabis in their own countries.

 

Canada

 

Canada is the first G-7 nation to fully legalize cannabis for medical and recreational use. The legal structure has given rise to large Canadian cannabis companies that have achieved high valuations, which they have leveraged to purchase supply chain companies and invest in infrastructure projects to produce cannabis at costs lower than those in Canada.

 

To date, Canadian companies report exporting only several thousands of pounds of cannabis to more than 20 different countries, collectively – demonstrating the early stage of development of the global cannabis market, and by extension the remaining opportunities.

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The United States

 

 New Frontier Data forecasts that the legal U.S. markets will generate nearly $13 billion in legal sales in 2019, growing to over $20 billion by 2022.

 

Cannabis remains federally illegal in the United States, even as support for legal recreational cannabis remains above 60% in most reputable polls. Regardless of the federal status of cannabis, currently 33 U.S. states have enacted laws legalizing some form of medical cannabis, and 10 states and the District of Colombia have legalized recreational use cannabis. The United States has been the global leader in cannabis innovation, including new genetics, cultivation techniques, derivative products, and delivery methods.

 

States with some type of legal medical cannabis laws include Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, Georgia, Indiana, Iowa, New Hampshire, Louisiana, Rhode Island, Minnesota, Missouri, Maryland, Montana, Michigan, New Mexico, New York, North Dakota, New Jersey, Ohio, Oklahoma, Vermont, Pennsylvania, Rhode Island, Texas, Utah, and West Virginia. States permitted the sales of recreational or “adult-use” cannabis are Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington. The District of Colombia (Washington D.C.) also permits adult-use cannabis.

 

Europe

 

New Frontier Data estimates the European cannabis market (legal & illicit) generates $69 billion USD annually, with France, Italy and Spain having the greatest number of cannabis consumers, and Germany with the most robust medical program to date. 

 

There are almost 30 European countries that permit some form of legal medical cannabis including, France, Italy, Germany, United Kingdom, Spain, Poland, Czech Republic, Croatia, Cyprus, Denmark, Finland, Greece, Israel, Luxembourg, North Macedonia, Malta, Netherlands, Norway, Poland, Romania, Switzerland, Turkey, Ireland, Lithuania and Portugal. The European Union requires its member countries to enforce the European Union Good Manufacturing Practices (GMP), which detail the production standards for medicinal products. These standards are typically stringent and can be costly for cannabis companies.

 

Israel and Greece

 

Israel has a small population but a long established history of legal medical cannabis development. It continues as a leader with years in the development of cannabis pharmaceuticals, and together with Greece the 2 are projected to form a “Silicon Valley” network for the development of medical cannabis production to service the European Markets and beyond.

 

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The Kaya™ Family of Brands

 

Kaya Holdings, Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana enterprise that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges and cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting highly distinctive brands.

 

Currently Operational Brands (2014-2020)

 

 

 

 

 

 

 

 

 

 

 

 

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Next Stage Traditional (2020-2021)

 

 

 

 

 

 

 

 

 

 

 

 

 

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Next Stage Innovative (2020-2021)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Note: The “Next Stage Traditional” and “Next Stage Innovative” brands are all targeted for release over the 6-18 months. The Company is currently awaiting the resolution licenses at the Kaya Farms Indoor Marijuana Grow, Processing & Cannaceutical Production Facility in Eugene, Oregon, and the pending license issuance of the Kaya Farms Ag Facility in Lebanon, Oregon to finalize the release dates for these brands in Oregon. In the event that the license acquisition at the Eugene Facility and/or the licensing approval and construction timeline of the Lebanon Facility is delayed or experiences difficulties, the Company has sourced other alternatives to expedite the release of the brands and will update shareholders accordingly as to revised brand rollout dates (if any).

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The Kaya Shack™ Brand

 

 

Kaya Holdings operates the Kaya Shack™ brand of legal medical and recreational retail marijuana retail stores. Kaya Holdings operates two recreational marijuana retail outlets and medical marijuana dispensaries in Oregon under the Kaya Shack™ brand.

 

Additionally, Kaya Holdings maintains an active third OLCC Marijuana Retail License which it is seeking to move to its Eugene, Oregon Kaya Farms Indoor Production and Processing Facility so that the Company may offer a “Kaya Farm Store” and also serve as a retail delivery hub for Eugene, Oregon.

 

Dubbed by the mainstream press as the “Starbucks of Marijuana” after our first outlet opened in July 2014, our operating concept is simple: to deliver a consistent customer experience (quality products, fair prices and superior customer service) to a broad and diverse base of customers. Kaya Shack™ meets the quality needs of the “marijuana enthusiast”, the comfort and atmosphere of all including “soccer moms” and the price sensitivities of casual smokers.

 

The Kaya Shack™ brand communicates positive thinking and joy, with signs adorning the walls that read “It’s a Good Day to have a Good Day,” “Some of our Happiest Days Haven’t Even Happened Yet,” and our signature “Be Kind.”

 

Kaya Shack™ retail outlets are open 7 days a week- Monday through Saturday from 8:00 am to 10:00 pm, and Sunday 8:00 AM to 9:00 PM. Operations follow an operational manual that details procedures for 18 areas of operation including safety, compliance, store opening, store closing, merchandising, handling of cash, inventory control, product intake, store appearance and employee conduct.

 

In compliance with regulations, all marijuana and marijuana infused products sold through our stores are quality tested by independent labs to assure adherence to strict quality and OLCC regulations.

 

The Company is exploring opportunities to expand its operations beyond Oregon by replicating its Kaya Shack™ brand retail outlets through franchising in other states where recreational cannabis use is legal or expected to become legal in the near term, as well as in Canada, where it is legal nationwide. KAYS also is targeting opening corporate owned marijuana production and processing facilities to support the envisioned franchised outlets, and to both maintain quality control and offer customers a consistent customer experience while reducing costs of goods to franchisees.

 

 

 

 

 

 

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Kaya Shack™ Retail Outlets

 

 

All stores feature a check out stand wrapped to feature the Company’s proprietary brand of pre-rolls, Kaya Buddies. The Buddies program is an exciting and popular pre-roll offering, featuring a wide selection (15-15 strains of pre-rolls) and featuring our special Kaya Saying in each Buddies tube. A glass display case showcases at least 25 strains of marijuana flower, which the stores serve to customers “deli style”, weighing straight from the jar to the customer’s take-out tube. An additional display case with a varied selection of oils, concentrates and topicals rounds out the cannabis product display.

  

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The stores also feature standing display cases with cannabis intended glassware under the Company’s brand Really Happy Glass, as well as a rack of proprietary t-shirt designs marketed under the Company brand Kaya Gear. The store also has a hospitality area that offers free water, coffee, tea and hot cocoa. As required by law, all products containing marijuana are either behind locked glass or behind the counter and out of customer reach.

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I. Kaya Shack™ , 1719 SE Hawthorne Blvd., Portland, Oregon.                      

 

Our first Kaya Shack™ OLCC licensed marijuana store (located in the heart of the trendy Hawthorne district in southeast Portland, the “Greenwich Village” of the West Coast) opened for business July 03, 2014. The store is located next door to a cell phone repair shop, and near to Devil’s Dill restaurant and No Fun pub. There are also a McMenamins restaurant, tattoo parlor, convenience store, hair/nail salon and a soccer sports bar. The area around the shop is mixed use (commercial and residential) and has a footprint of approximately 700 square feet and is the model for the Company’s small urban shops.

 

 

 

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  II. Kaya Shack ™ Marijuana Superstore, South Salem, Oregon.                                

 

 

 

Our second Kaya Shack™ OLCC licensed marijuana store (located in South Salem, Oregon) opened for business on October 17, 2015. The store is located in a strip mall alongside a Caesar’s Pizza, Aaron’s furniture, a convenience store, a tanning salon, and a nail salon. The plaza also has a Subway, a sports bar and a laundromat. The area around the shop is primarily commercial with residential complexes under construction and has a footprint of approximately 2,100 square feet and serves as the model for the Company’s superstores featuring larger display areas and a soon-to-be-opened Pakalolo Juice Company infused fresh fruit smoothies stand.

 

 

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Kaya Shack™ Car Fleet and Home Delivery

 

 

 

 

The Company is licensed by the OLCC for home delivery for all three of its retail licenses and has a fleet of 4 Kaya Cars featuring the Company’s branding logos outfitted with safes and security equipment. We have begun to offer deliver within the geographic areas of Portland and Salem, and are looking to expand this offering to Eugene if we are able to get an approval on the transfer of our third retailer license and open up the Kaya Farm Store at our Eugene, Oregon Kaya Farms Indoor Grow, Processing & Cannaceutical Production Facility.

 

The Company has developed the website www.kayadelivers.com to advance the growth of its delivery service and to offer pre-ordering for curbside pickup in light of the coronavirus pandemic to better serve our customers.

 

We expect delivery to extend our visibility, assist in building brand awareness, and allow the Company to service a broader geographic territory.

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Kaya Farms™

 

Lebanon, Linn County, Oregon Marijuana Grow and Manufacturing Complex

 

  

In early 2015, KAYS commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana thereby becoming the first publicly traded U.S. company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. Since that time KAYS has operated various grow facilities to feed the Kaya Shack Supply Chain, and in August 2017, KAYS acquired its first property for a large scale facility- a 26-acre parcel in Lebanon, Linn County, Oregon, where we intend to develop an 85,000-square foot Kaya Farms™ facility.

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We filed for zoning and land use approval in early 2018, and after numerous regulatory challenges and delays, we finally received zoning and land use approval in early 2019 to build on the property. We are presently in the final planning stages and are awaiting the culmination of the OLCC licensing process to begin construction.

 

Management believes that the acquisition and development of the property will position the Company for future growth and expansion, including increased Marijuana Canopy production to the maximum extent allowed by law through use of both greenhouse and outdoor grows.

 

Under present laws the property can easily deliver 6-8,000 pounds of cannabis each year; if future regulations permit this capacity could easily be increased to over 100,000 pounds of cannabis per year.

 

When Federal Prohibition of marijuana ends and national and international cannabis trade can begin, we believe that Oregon is uniquely positioned to become America’s “pot basket” due to its superior climate and state history involving generations of Oregonian Cannabis Growers; ideal weather + extensive generational knowledge = superior, lower cost cannabis products for export. 

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Kaya Farms Indoor Marijuana Grow, Processing & Cannaceutical Production Facility

 

 

On October 23, 2018 KAYS announced that it had concluded the purchase of the real property and associated equipment utilized by the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the OLCC for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles.

 

The purchase includes a 12,000 square foot building housing an indoor grow facility, as well as equipment for growing and extraction activity. The facility can produce in excess of 800 pounds cannabis flower annually as currently outfitted, as well as a substantial amount of manufactured extracts and related cannabis products.

 

The purchase price of $1.3 million for the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the issuance of 12 million shares of KAYS restricted stock to the seller at closing. The shares carry a lock-up-restriction that allows for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS. Additionally, the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds from the sale of those shares were and are being used for acquisition related expenses, transitional operating costs and facility capital improvements with respect to the production and processing facility we purchased.

 

KAYS intends to utilize the processing facilities to grow their own top-shelf, connoisseur-grade marijuana flower, produce various brands of oils, edibles, concentrates

and extracts, and develop medical grade laboratory facilities for the production of a proprietary Kaya Cannaceuticals™ line of both CBD and CBD/THC products for the health, skincare and medical industries.

 

The Company is presently conducting limited grow and facility maintenance operations under a Management Agreement with Sunstone Farms, the current licensee. Pending the successful acquisition and transfer of other existing OLCC Marijuana Production and Processing licenses , KAYS intends to build out the facility and ramp up to full production.

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KAYS has initiated initial upgrades to the Eugene property, and pending successful resolution of the licensing associated with the facility intends to complete a full renovation and expansion to improve workflow and increase production capability.

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Kaya Farms™ - Cannabis and Cannabis Products

 

Proprietary Cannabis Strains

 

 

  

 

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Kaya Farms Proprietary Cannabis Concentrates

 

Concentrates & Extracts, Hash Oil

(Note: These Concentrates were produced under contract for Kaya Farms by a third party while we await licensure of Production Facilities) 

 

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Kaya Buddie™ Strain Specific Cannabis Cigarettes

 

 

 

  

In 2016 the Company introduced a signature line of strain-specific connoisseur-grade, pre-rolled cannabis cigarettes branded as “Kaya Buddies™”. Kaya Buddies™ cannabis cigarettes have been very well received by medical patients and recreational users, with the Company selling over 100,000 Kaya Buddies™ since launching the brand in January 2016. The brand, marketed under the tagline “Buds with Benefits”, features over 50 different strains of connoisseur-grade, high quality cannabis and proprietary specialty blends. Many cannabis retailers produce prerolls, but none that we know of offer strain specific preroll made from the buds of the flower.

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Kaya Brands International

 

 

After over five years of conducting “touch the plant” U.S. cannabis operations inside the strict regulatory confines of a public company, KAYS has formed Kaya Brands International, Inc. (“Kaya International” or “KBI”), to leverage its experience and expand into worldwide cannabis markets. KBI’s current operations and initiatives include Canada and Greece, with additional areas under consideration for Israel.

 

 

Canada

 

 

 

 

 

 

Canadian Franchising:  KAYS has endeavored to launch its franchise program and growth strategy in Canada. To this end, the Company has retained the Toronto based law firm of Garfinkle Biderman LLP to prepare the legal infrastructure required to enable the Company to sell Kaya Shack™ franchises in Canada.

 

Garfinkle Biderman has since completed the necessary legal work and the Company is currently in negotiations with different potential development partners to launch franchised operations in Canada and hopes to establish up to 100 franchised locations there over the next five years.

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Greece

 

 

 

Kaya Kannabis is a joint venture project cultivation-for-export cannabis-farming project of Athens based Greekkannabis PC (“GKC”) and U.S. based Kaya Brands International, Inc (“KBI”), a majority owned subsidiary of Kaya Holdings, Inc. GKC is a recently formed Athens, Greece based cannabis company with deep ties in the Greek business community and a strong presence in the academic and agricultural communities. The alliance is designed to combine the business acumen and extensive European network of GKC with the broad cannabis industry and cannabis cultivation experience of Kaya Holdings.

 

On October 31, 2019 KAYS entered into an initial Memorandum of Understanding (“MOU”) setting forth an agreement in principle for KBI to acquire a 50% ownership interest in GKC. The MOU sets forth an agreement in principle, pursuant to which in consideration for KBI providing the necessary expertise related to cannabis cultivation, processing, brand development and other matters, KBI will have the right to acquire a 50% ownership interest in GKC by reimbursing GKC for 50% of its license application costs (with allowances for KBI’s expenses as well).

 

There are three licenses required for the Facility- an “Installation License” (which is the equivalent to a license to construct the facility), the “Operating License” (available only after construction is completed), and the “Production & Distribution License” (available from the EOF - the Greek equivalent to the U.S. FDA - once production can be evaluated).

 

Consummation of the transaction contemplated by the MOU is subject to, among other customary conditions, satisfactory completion by KBI of its due diligence review of GKC, the drafting, execution and delivery of definitive transaction documentation and final license approval and issuance by the Greek government.

 

Project Description

 

GKC has entered into an agreement to purchase 15 acres of land outside of Athens in Thebes, Greece, approximately 75 minutes from Athens plans to establish the Kaya Kannabis Cultivation and Processing Facility. The region offers optimal growing conditions for cannabis and will enable the Company to produce exceptional cannabis economically.

 

The project location provides:

 

§ 15 acres of flat land, with additional land available.
§ Full exposure to sunlight, without shadows cast.
§ Access to sufficient water, with operating wells.
§ Access to sufficient electricity.
§ Access to logistic routes.
§ Proximity to sufficient work force, both professional & labor.
§ Easy to secure (for security & safety).
§ Zoned for cannabis production.
§ Land is completely cleared and ready for construction.

 

Project Management envisages twelve 35,000 sq. feet (approximately 3,500 sq. meters) of light deprivation greenhouses situated on fifteen acres of land, and supported by an additional 50,000 sq. feet (approximately 5,000 sq. meters) building for workspace, storage and administrative offices.

 

Under this model the farm will support 9,360 plants per greenhouse (for a total plant count of 112,320 plants per harvest). There will be four harvests each year for a total of 449,280 cannabis plants harvested annually. The Company estimates total farm production, once completely constructed and operating at full capacity, to be at a minimum of approximately 225,000 pounds of premium grade cannabis annually.

 

Current Licensing & Project Status

 

On February 18, 2020 the parties entered into an agreement to extend the date of the option until June 1, 2020 as GKC the first stage of the licensing had not yet been completed and the Parties due diligence process had not yet been completed.

 

On April 22, 2020 KAYS/KBI received confirmation from their Greek Counsel that the Greek Government had awarded the crucial Installation License for the project.

 

On May 22, 2020 the Parties entered into a second agreement to extend the date of the option until September 30, 2020 to allow for final due diligence to be performed, and a final Shareholders Agreement (to govern the Shareholders’ relations) and Operating Agreement (to govern how GKC will be run and operate) to be executed.

 

See the following pages for the initial MOU, the extension of the MOU and a copy of the Greek Licensing Document published by the Greek Government.

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