Item 1. Condensed Consolidated Financial Statements
|
Page
|
Condensed
Consolidated Balance Sheets at September 30, 2019 (unaudited) and December 31, 2018 (audited)
|
3
|
Condensed
Consolidated Statements of Operations for the three and nine months ended September 30, 2019 and 2018 (unaudited)
|
4
|
Condensed
Consolidated Statements of Cash Flows for the three and nine months ended September 30, 2019 and 2018 (unaudited)
|
5
|
Statement
of Stockholder’s equity for the nine months ended September 30, 2019 and 2018
|
6
|
Notes to Condensed Consolidated Financial Statements
|
7
|
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
29
|
Item 3. Quantitative and Qualitative Disclosures About Market Risk
|
76
|
Item 4. Controls and Procedures
|
76
|
|
|
Part II Other Information
|
|
|
|
Item 1. Legal Proceedings
|
76
|
Item 1A. Risk Factors
|
77
|
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
77
|
Item 3. Defaults Upon Senior Securities
|
78
|
Item 4. Mine Safety Disclosures
|
78
|
Item 5. Other Information
|
78
|
Item 6. Exhibits
|
78
|
Signatures
|
79
|
Kaya
Holdings, Inc. and Subsidiaries
Condensed
Consolidated Balance Sheets
September
30, 2019 (Unaudited) and December 31, 2018
ASSETS
|
|
|
(Unaudited)
|
|
(Audited)
|
|
|
September 30, 2019
|
|
December 31, 2018
|
CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Cash and equivalents
|
|
$
|
11,079
|
|
|
$
|
111,512
|
|
Inventory-net of allowance
|
|
|
121,916
|
|
|
|
131,542
|
|
Prepaid expenses
|
|
|
10,274
|
|
|
|
20,541
|
|
Total current assets
|
|
|
143,269
|
|
|
|
263,595
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS:
|
|
|
|
|
|
|
|
|
Right-of-use asset - operating lease
|
|
|
337,628
|
|
|
|
—
|
|
Property and equipment, net
|
|
|
2,196,596
|
|
|
|
2,348,780
|
|
Deposits
|
|
|
31,523
|
|
|
|
31,523
|
|
Total other assets
|
|
|
2,565,747
|
|
|
|
2,380,303
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,709,016
|
|
|
$
|
2,643,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expense
|
|
$
|
695,590
|
|
|
$
|
562,016
|
|
Accounts payable and accrued expense-related parties
|
|
|
8,137
|
|
|
|
7,737
|
|
Accrued interest
|
|
|
1,004,247
|
|
|
|
659,169
|
|
Right-of-use liabiliy - operating lease
|
|
|
195,986
|
|
|
|
—
|
|
Convertible notes payable-net of discount
|
|
|
352,506
|
|
|
|
2,894,294
|
|
Notes payable
|
|
|
9,312
|
|
|
|
9,312
|
|
Derivative liabilities
|
|
|
9,164,912
|
|
|
|
19,783,034
|
|
Total current liabilities
|
|
|
11,430,690
|
|
|
|
23,915,562
|
|
|
|
|
|
|
|
|
|
|
LONG TERM LIABILITIES:
|
|
|
|
|
|
|
|
|
Convertible notes payable-related party-net of discount
|
|
|
500,000
|
|
|
|
500,000
|
|
Convertible notes payable-net of discount
|
|
|
4,940,906
|
|
|
|
1,283,557
|
|
Notes payable-related party
|
|
|
250,000
|
|
|
|
250,000
|
|
Right-of-use liabiliy - operating lease
|
|
|
146,029
|
|
|
|
—
|
|
Total long term liabilities
|
|
|
5,836,935
|
|
|
|
2,033,557
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
17,267,625
|
|
|
|
25,949,119
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS' EQUITY (DEFICIT):
|
|
|
|
|
|
|
|
|
Convertible preferred stock, Series C, par value $.001; 10,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
49,900 and 49,900 issued and outstanding at September 30, 2019 and December 31, 2018
|
|
|
50
|
|
|
|
50
|
|
, respectively
|
|
|
|
|
|
|
|
|
Common stock , par value $.001; 500,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
173,598,080 shares issued as of September 30, 2019 and
|
|
|
|
|
|
|
|
|
165,812,128 shares issued as of December 31, 2018
|
|
|
173,598
|
|
|
|
165,812
|
|
Subscriptions payable
|
|
|
163,630
|
|
|
|
397,209
|
|
Additional paid in capital
|
|
|
17,401,555
|
|
|
|
17,100,137
|
|
Accumulated deficit
|
|
|
(30,995,734
|
)
|
|
|
(39,924,912
|
)
|
Non-controlling interest
|
|
|
(1,301,708
|
)
|
|
|
(1,043,517
|
)
|
Net stockholders' equity/(deficit)
|
|
|
(14,558,609
|
)
|
|
|
(23,305,221
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' equity/(deficit)
|
|
$
|
2,709,016
|
|
|
$
|
2,643,898
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Kaya
Holdings, Inc. and Subsidiaries
Condensed
Consolidated Statements of Operations
(Unaudited)
|
|
For the three
|
|
For the three
|
|
For the nine
|
|
For the nine
|
|
|
months ended
|
|
months ended
|
|
months ended
|
|
months ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
|
September 30, 2019
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
Net sales
|
|
$
|
208,843
|
|
|
$
|
303,888
|
|
|
$
|
721,722
|
|
|
$
|
850,386
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales
|
|
|
99,460
|
|
|
|
136,527
|
|
|
|
337,691
|
|
|
|
357,538
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
109,383
|
|
|
|
167,361
|
|
|
|
384,031
|
|
|
|
492,848
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Professional fees
|
|
|
71,363
|
|
|
|
511,415
|
|
|
|
262,332
|
|
|
|
1,869,474
|
|
Salaries and wages
|
|
|
142,378
|
|
|
|
155,539
|
|
|
|
403,248
|
|
|
|
391,171
|
|
General and administrative
|
|
|
234,085
|
|
|
|
260,652
|
|
|
|
694,305
|
|
|
|
599,898
|
|
Total operating expenses
|
|
|
447,826
|
|
|
|
927,606
|
|
|
|
1,359,885
|
|
|
|
2,860,543
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating loss
|
|
|
(338,443
|
)
|
|
|
(760,245
|
)
|
|
|
(975,854
|
)
|
|
|
(2,367,695
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income(expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(137,308
|
)
|
|
|
(179,676
|
)
|
|
|
(395,703
|
)
|
|
|
(463,484
|
)
|
Amortization of debt discount
|
|
|
(401,980
|
)
|
|
|
(783,040
|
)
|
|
|
(1,115,766
|
)
|
|
|
(1,907,162
|
)
|
Derivative liabilities expense
|
|
|
(64,381
|
)
|
|
|
(955,759
|
)
|
|
|
(626,529
|
)
|
|
|
(2,869,350
|
)
|
Gain (loss) on extinguishment of debt
|
|
|
—
|
|
|
|
(1,054,825
|
)
|
|
|
(25,000
|
)
|
|
|
(1,054,825
|
)
|
Change in derivative liabilities expense
|
|
|
1,668,486
|
|
|
|
4,250,351
|
|
|
|
11,809,651
|
|
|
|
20,355,496
|
|
Other income (expense)
|
|
|
(50
|
)
|
|
|
(241
|
)
|
|
|
188
|
|
|
|
(241
|
)
|
Total other income (expense)
|
|
|
1,064,767
|
|
|
|
1,276,810
|
|
|
|
9,646,841
|
|
|
|
14,060,434
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
726,324
|
|
|
|
516,565
|
|
|
|
8,670,987
|
|
|
|
11,692,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) attributed to non-controlling interest
|
|
|
(89,583
|
)
|
|
|
(63,359
|
)
|
|
|
(258,191
|
)
|
|
|
(137,913
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributed to Kaya Holdings, Inc.
|
|
|
815,907
|
|
|
|
579,924
|
|
|
|
8,929,178
|
|
|
|
11,830,652
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic net income (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.05
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Basic
|
|
|
173,598,080
|
|
|
|
154,705,344
|
|
|
|
171,794,716
|
|
|
|
144,462,038
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted net income (loss) per common share
|
|
$
|
0.00
|
|
|
$
|
0.00
|
|
|
$
|
0.02
|
|
|
$
|
0.08
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - Diluted
|
|
|
432,023,413
|
|
|
|
154,705,344
|
|
|
|
430,220,049
|
|
|
|
144,462,038
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Kaya
Holdings, Inc. and Subsidiaries
Consolidated
Statement of Cashflows
(Unaudited)
|
|
For the nine
|
|
For the nine
|
|
|
months ended
|
|
months ended
|
|
|
September 30, 2019
|
|
September 30, 2018
|
OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Net income/(loss)
|
|
$
|
8,929,178
|
|
|
$
|
11,830,652
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Net income/(loss) attributable to non-controlling interest
|
|
|
(258,191
|
)
|
|
|
(137,913
|
)
|
Depreciation
|
|
|
171,852
|
|
|
|
99,507
|
|
Imputed interest
|
|
|
50,625
|
|
|
|
22,500
|
|
Loss (Gain) on Extinguishment of Debt
|
|
|
25,000
|
|
|
|
1,054,825
|
|
Derivative expense
|
|
|
626,529
|
|
|
|
2,869,350
|
|
Change in derivative liabilities
|
|
|
(11,809,651
|
)
|
|
|
(20,355,496
|
)
|
Amortization of debt discount
|
|
|
1,115,766
|
|
|
|
1,907,162
|
|
Stock to be issued for services - related parties
|
|
|
—
|
|
|
|
942,400
|
|
Stock to be issued for services
|
|
|
—
|
|
|
|
313,510
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expense
|
|
|
10,267
|
|
|
|
(19,525
|
)
|
Inventory
|
|
|
9,626
|
|
|
|
(18,810
|
)
|
Right-of-use asset
|
|
|
300,965
|
|
|
|
—
|
|
Deposits
|
|
|
—
|
|
|
|
66,974
|
|
Accrued interest
|
|
|
345,078
|
|
|
|
280,574
|
|
Accounts payable and accrued expenses
|
|
|
133,769
|
|
|
|
85,630
|
|
Right-of-use liabilities
|
|
|
(296,578
|
)
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(645,765
|
)
|
|
|
(1,058,660
|
)
|
|
|
|
|
|
|
|
|
|
INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(19,668
|
)
|
|
|
(162,828
|
)
|
Net cash used in investing activities
|
|
|
(19,668
|
)
|
|
|
(162,828
|
)
|
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Proceeds from Common stock subscription
|
|
|
—
|
|
|
|
300,000
|
|
Proceeds from convertible debt
|
|
|
565,000
|
|
|
|
970,000
|
|
Payments on notes payable
|
|
|
—
|
|
|
|
(51,274
|
)
|
Net cash provided by financing activities
|
|
|
565,000
|
|
|
|
1,218,726
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE IN CASH
|
|
|
(100,433
|
)
|
|
|
(2,762
|
)
|
|
|
|
|
|
|
|
|
|
CASH BEGINNING BALANCE
|
|
|
111,512
|
|
|
|
318,462
|
|
|
|
|
|
|
|
|
|
|
CASH ENDING BALANCE
|
|
$
|
11,079
|
|
|
$
|
315,700
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Taxes paid
|
|
|
—
|
|
|
|
—
|
|
Interest paid
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING
|
|
|
|
|
|
|
|
|
AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability to additional paid in capital
|
|
|
—
|
|
|
|
1,049,065
|
|
Value of accrued interest payable reclassified as principal
|
|
|
—
|
|
|
|
7,133
|
|
Adoption of lease standard ASC 842
|
|
|
638,593
|
|
|
|
—
|
|
Derivative liability on convertible note payable
|
|
|
565,000
|
|
|
|
—
|
|
Value of common shares issued for conversion of convertible
|
|
|
233,579
|
|
|
|
—
|
|
notes payable issued from stock payable
|
|
|
|
|
|
|
|
|
Value of common shares issued for acquisition of fixed assets
|
|
|
—
|
|
|
|
1,417,200
|
|
Value of common shares issued as payment of debt and interest
|
|
|
—
|
|
|
|
245,774
|
|
Value of common shares issued as payment of interest
|
|
|
—
|
|
|
|
45,708
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Kaya
Holdings, Inc. and Subsidiaries
Consolidated
Statements of Stockholders' Equity
For
the nine months ended September 30, 2019 and 2018
(Unaudited)
|
|
|
|
|
|
|
Additional
Paid-in Capital
|
|
Accumulated
Deficit
|
|
Noncontrolling
Interest
|
|
Total
Stockholders' Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred Stock
|
|
Common Stock
|
|
Subscription Payable
|
|
|
|
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2017
|
49,900
|
|
$ 50
|
|
138,993,087
|
|
$ 138,993
|
|
$ 152,796
|
|
$ 12,811,671
|
|
$ (44,672,209)
|
|
$ (833,710)
|
|
$ (32,402,409)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
72,450
|
|
-
|
|
-
|
|
72,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to director compensation policy
|
-
|
|
-
|
|
6,200,000
|
|
6,200
|
|
-
|
|
936,200
|
|
-
|
|
-
|
|
942,400
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for services
|
-
|
|
-
|
|
2,100,000
|
|
2,100
|
|
100
|
|
311,310
|
|
-
|
|
-
|
|
313,510
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
-
|
|
-
|
|
3,000,000
|
|
3,000
|
|
|
|
247,050
|
|
-
|
|
-
|
|
250,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock to be issued for acquisition of fixed assets
|
-
|
|
-
|
|
12,000,000
|
|
12,000
|
|
-
|
|
1,405,200
|
|
-
|
|
-
|
|
1,417,200
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion and interest
|
-
|
|
-
|
|
3,419,041
|
|
3,418
|
|
5,980
|
|
1,336,909
|
|
-
|
|
-
|
|
1,346,308
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of subscription payable to additional paid-in
capital
|
-
|
|
-
|
|
-
|
|
-
|
|
(149,890)
|
|
149,890
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Reclassification of derivative liability related to convertible
notes
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
1,049,065
|
|
-
|
|
-
|
|
1,049,065
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payment on subscriptions payable
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
11,830,652
|
|
(137,913)
|
|
11,692,739
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2018
|
49,900
|
|
$ 50
|
|
165,712,128
|
|
$ 165,711
|
|
$ 8,986
|
|
$ 18,319,745
|
|
$ (32,841,557)
|
|
$ (971,623)
|
|
$ (15,318,688)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
49,900
|
|
$ 50
|
|
165,812,128
|
|
$ 165,812
|
|
$ 397,209
|
|
$ 17,100,137
|
|
$ (39,924,912)
|
|
$ (1,043,517)
|
|
$ (23,305,221)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Imputed interest
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
50,625
|
|
-
|
|
-
|
|
50,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on debt extinguishment
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
25,000
|
|
-
|
|
-
|
|
25,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for debt conversion and interest
|
-
|
|
-
|
|
7,785,952
|
|
7,786
|
|
(233,579)
|
|
225,793
|
|
-
|
|
-
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
8,929,178
|
|
(258,191)
|
|
8,670,987
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, September 30, 2019
|
49,900
|
|
$ 50
|
|
173,598,080
|
|
$ 173,598
|
|
$ 163,630
|
|
$ 17,401,555
|
|
$ (30,995,734)
|
|
$ (1,301,708)
|
|
$ (14,558,609)
|
The
accompanying notes are an integral part of these condensed consoldated financial statements.
NOTE 1 – ORGANIZATION AND NATURE
OF THE BUSINESS
Organization
Kaya Holdings, Inc. FKA (Alternative Fuels
Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name
was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace
acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction
and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders.
Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace
International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate
of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation)
to Kaya Holdings, Inc.
The Company has three subsidiaries, Alternative
Fuels Americas, Inc, a Florida corporation, which is wholly-owned, Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”),
which is majority-owned and 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability company which holds the Company’s
recently acquired 26 acre property in Lebanon, Oregon on which it plans to develop a legal cannabis cultivation and manufacturing
facility. MJAI develops and operates the Company’s legal cannabis retail operations in Oregon through controlling ownership
interests in five Oregon limited liability companies: MJAI Oregon 1 LLC, MJAI Oregon 2 LLC, MJAI Oregon 3 LLC, MJAI Oregon 4 LLC
and MJAI Oregon 5 LLC (Inactive).
Nature of the Business
In January 2014, KAYS incorporated MJAI, a
wholly-owned subsidiary, to focus on opportunities in the legal recreational and medical marijuana in the United States. MJAI has
concentrated its efforts in Oregon, where through controlled Oregon limited liability companies, it initially secured licenses
to operate a medical marijuana dispensary (an “MMD”) and following legalization of recreational cannabis use in Oregon,
has secured licenses to operate four retail outlets and purchased 26 acres for development as a legal cannabis cultivation and
manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail operations.
On July 3, 2014 opened its first Kaya Shack™
MMD in Portland, Oregon. In April 2015, KAYS commenced its own medical marijuana grow operations for the cultivation and
harvesting of legal marijuana thereby becoming the first publicly traded U.S. company to own a majority interest in a vertically
integrated legal marijuana enterprise in the United States. In October 2015, concurrent with Oregon commencing legal sales of recreational
marijuana through MMDs, KAYS opened its second retail outlet in Salem, Oregon, the Kaya Shack™ Marijuana Superstore. During
2015, the Company also consolidated its grow operations and manufacturing operations into a single facility in Portland, Oregon.
In 2016, Oregon began the process to transition
legal marijuana sales from Oregon Health Authority (“OHA”) licensed MMDs and grow operations to Oregon Liquor Control
Commission (“OLCC”) licensed recreational marijuana retailers and producer and processing facilities. Effective January
1, 2017, all retailers of recreational marijuana were required to have a recreational marijuana sales license issued by the OLLC
for each retail outlet operated.
In 2016 the Company applied for OLLC licenses
for its two initial Kaya Shack™ retail outlets (Portland, Oregon and South Salem, Oregon), and also submitted license applications
for its two new locations under construction and development at that time.
In late December 2016, we received our OLCC
recreational license for the South Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License
#1) and recreational and medical sales continued without interruption from 2016 through the present at that location.
On March 21, 2017, we received our North Salem
Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #2) a 2,600-square foot Kaya Shack™ Marijuana
Superstore in North Salem, Oregon, whereupon the location opened for business with both recreational and medical sales.
On May 2, 2017, we received our OLCC recreational
license for our Portland Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #3) after a delay of approximately
four months. During that period, we were limited to solely medical sales at the Portland location. Upon receipt of Kaya Shack™
OLCC Marijuana Retailer License #3, recreational sales recommenced at that location. Our OLCC License for the Central Salem Kaya
Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License #4) has been filed and is pending completion,
inspection and final licensing.
During August of 2017, we purchased 26 acres
in Lebanon, Oregon, for development as a legal cannabis cultivation and manufacturing facility. The company is in the process of
planning and permitting.
On February 15, 2018, we received our OLCC
recreational, medical and home delivery license for the Central Salem Kaya 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.
As part of planned expansion and renovations
for the facility, the Company has begun the site improvements and is ramping up production to feed the existing four OLCC licensed
cannabis retail stores in Oregon.
NOTE 2 – LIQUIDITY AND GOING CONCERN
The Company’s consolidated financial
statements as of September 30, 2019 have been prepared on a going concern basis, which contemplates the realization of assets and
the settlement of liabilities and commitments in the normal course of business. The Company incurred a net income of $8,929,178
for the nine months ended September 30, 2019 and a net income of $11,830,652 for the nine months ended September 30, 2018. The
decrease in net income is due to the changes in derivative liabilities and the company continues to have operating losses. At September
30, 2019 the Company has a working capital deficiency of $11,287,421 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,
|
•
|
|
alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan,
|
•
|
|
business transactions to assure continuation of the Company’s development and operations,
|
•
|
|
development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name.
|
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND BASIS OF PRESENTATION
Basis of Presentation
The accompanying consolidated financial statements
of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S.
GAAP) under the accrual basis of accounting.
Use of Estimates
The preparation of financial statements in
conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect
the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both
assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful
lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based
payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax
liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making estimates requires management to exercise
significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances
that existed at the date of the financial statements, which management considered in formulating its estimate could change in the
near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.
Risks and Uncertainties
The Company’s operations are subject
to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business
failure.
The Company has experienced, and in the future
expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this
variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product,
(ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions and (iv) the
related volatility of prices pertaining to the cost of sales.
Fiscal Year
The Company’s fiscal year-end is December
31.
Principles of Consolidation
The accompanying consolidated financial statements
include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries. All significant intercompany balances
have been eliminated.
Wholly-owned subsidiaries:
|
·
|
Alternative Fuels Americas, Inc. (a Florida corporation)
|
|
·
|
34225 Kowitz Road, LLC (an Oregon LLC)
|
Majority-owned subsidiaries:
|
·
|
Marijuana Holdings Americas, Inc. (a Florida corporation)
|
Non-Controlling Interest
The company owns 55% of Marijuana Holdings Americas, Inc.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost
and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments
with an original maturity of three months or less. The Company had no cash equivalents.
Inventory
Inventory consists of finished goods purchased,
which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method. The
Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of
any anticipated changes in future demand. Total Value of Finished goods inventory as of September 30, 2019 is $121,916
and $131,542 as of December 31, 2018. No allowance as necessary as of September 30, 2019 and December 31, 2018.
Property and Equipment
Property and equipment is stated at cost, less
accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable.
Depreciation of property and equipment is provided
utilizing the straight-line method over the estimated useful lives, ranging from 5-30 years of the respective assets. Expenditures
for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement of property and equipment,
the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements
of operations.
Long-lived assets
The Company reviews long-lived assets and certain
identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management
performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization
period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
Operating Leases
We lease our retail stores under non-cancellable
operating leases. Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions.
We recognize rent expense on a straight-line basis over the lease term, excluding contingent rent, and record the difference between
the amount charged to expense and the rent paid as a deferred rent liability.
Deferred Rent and Tenant Allowances
Deferred rent is recognized when a lease contains
fixed rent escalations. We recognize the related rent expense on a straight-line basis starting from the date of possession and
record the difference between the recognized rental expense and cash rent payable as deferred rent. Deferred rent also includes
tenant allowances received from landlords in accordance with negotiated lease terms. The tenant allowances are amortized as
a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession.
Earnings Per Share
In accordance with ASC 260, Earnings per Share,
the Company calculates basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding
during the period. Diluted earnings per share are computed if the Company has net income; otherwise it would be anti-dilutive,
and would result from the conversion of a convertible note.
Income Taxes
The Company accounts for income taxes in accordance
with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under
this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial
statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and
benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers
tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning
strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the
carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax
assets based on the “more likely than not” criteria of ASC 740.
ASC 740-10 requires that the Company recognize
the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than
not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount
recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized
upon ultimate settlement with the relevant tax authority.
Fair Value of Financial Instruments
The Company measures assets and liabilities
at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents
the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction
between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset
or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value
on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of
inputs to measure fair value:
•
|
|
Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
|
•
|
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
•
|
|
Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
|
Fair Value Measurements at September 30, 2019
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
11,079
|
|
|
$
|
|
|
|
$
|
|
|
Total assets
|
|
11,079
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures, net of discounts of $640,701
|
|
-
|
|
|
|
-
|
|
|
|
5,793,412
|
|
Short term debt, net of discounts of $-0-
|
|
-
|
|
|
|
9,312
|
|
|
|
-
|
|
Derivative liability
|
|
-
|
|
|
|
-
|
|
|
|
9,164,912
|
|
Total liabilities
|
|
-
|
|
|
|
9,312
|
|
|
|
14,958,324
|
|
|
$
|
11,079
|
|
|
$
|
(9,312)
|
|
|
$
|
(14,958,324)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2018
|
|
|
Level 1
|
|
|
|
Level 2
|
|
|
|
Level 3
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
$
|
111,512
|
|
|
$
|
|
|
|
$
|
|
|
Total assets
|
|
111,512
|
|
|
|
-
|
|
|
|
-
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
Convertible debentures, net of discounts of $1,191,264
|
|
-
|
|
|
|
-
|
|
|
|
4,677,851
|
|
Short term debt, net of discounts of $-0-
|
|
-
|
|
|
|
9,312
|
|
|
|
-
|
|
Derivative liability
|
|
-
|
|
|
|
-
|
|
|
|
19,783,034
|
|
Total liabilities
|
|
-
|
|
|
|
9,312
|
|
|
|
24,460,885
|
|
|
$
|
111,512
|
|
|
$
|
(9,312)
|
|
|
$
|
(24,460,885)
|
|
The carrying amounts of the Company’s
financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses,
certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these
instruments.
The Company accounts for its derivative liabilities,
at fair value, on a recurring basis under level 3. See Note 7.
Embedded Conversion Features
The Company evaluates embedded conversion features
within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s)
should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded
in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC
470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments
to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including
stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are
accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting
date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments,
the Company uses the Binomial option-pricing model to value the derivative instruments at inception and subsequent valuation dates.
The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity,
is re-assessed at the end of each reporting period.
In July 2017, the FASB issued ASU 2017-11 Earnings
Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivative and Hedging (Topic 815). The amendments
in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features. When determining whether certain financial instruments should be classified as liabilities or equity
instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to
an entity’s own stock. The amendment also clarify existing disclosure requirements for equity-classified instruments. As
a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as
a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to
recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of
income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round
features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt
with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize
the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a
scope exception. Those amendments do not have an accounting effect.
Prior to this Update, an equity-linked financial
instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic
480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative.
If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s
own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants
and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are
readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition
of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s
own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated
conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
The amendments in this Update revise the guidance
for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity,
which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative
accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic
815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round
features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.
For entities that present EPS in accordance
with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value
of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic
EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating
the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments
are unaffected by the Topic 260 amendments in this Update.
The amendments in Part 1 of this Update are
a cost savings relative to former accounting. This is because, assuming the required criteria for equity classification in Subtopic
815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period
(in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis
of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features,
applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded
derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the
feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each
reporting period.
The amendments in Part II of this Update replace
the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability
of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.
The Company adopted this new standard on January
1, 2019; however, the Company needs to continue the derivative liabilities due to variable conversion price on some of the convertible
instruments. As such, it did not have a material impact on the Company’s consolidated financial statements.
Beneficial Conversion Feature
For conventional convertible debt where the
rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and
related debt discount.
When the Company records a BCF, the relative
fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional
paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or
debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of
cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of
the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company
may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount,
reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Extinguishments of Liabilities
The Company accounts for extinguishments of
liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets
and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized
and the gain or loss on the sale is recognized.
Stock-Based Compensation - Employees
The Company accounts for its stock-based compensation
in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles
of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph
718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received
for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value
of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the
fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which
it is probable that performance will occur.
If the Company is a newly formed corporation
or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement
memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more
appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between
the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated
on the date of grant using a Binomial Option Model option-pricing valuation model. The ranges of assumptions for inputs
are as follows:
•
|
|
Expected term of share options and similar
instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected
to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of
share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding
taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment
termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1,
it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual
term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate
expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes
the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise
data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant
structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to
estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments
as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected
term.
|
•
|
|
Expected volatility of the entity’s shares
and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity
that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected
volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular
index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility
of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If
shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than
the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially
inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
|
•
|
|
Expected annual rate of quarterly dividends. An
entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected
dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s
current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options
and similar instruments.
|
•
|
|
Risk-free rate(s). An entity that uses a method
that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate
is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options
and similar instruments.
|
Generally, all forms of share-based payments, including stock option
grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’
grant date, based on estimated number of awards that are ultimately expected to vest.
The expense resulting from share-based payments is recorded in general
and administrative expense in the statements of operations.
Stock-Based Compensation – Non Employees
Equity Instruments Issued to Parties Other Than Employees
for Acquiring Goods or Services
The Company accounts for equity instruments
issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting
Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section 505-50-30, all transactions
in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the
fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The
measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance
is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation
or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement
memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily
price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack
of consistent trading in the market.
The fair value of share options and similar
instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The ranges of assumptions
for inputs are as follows:
•
|
|
Expected term of share options and similar
instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share
options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding
taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair
value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected
exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual
term of the share options and similar instruments is used as the expected term of share options and similar instruments as the
Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
|
•
|
|
Expected volatility of the entity’s shares
and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity
that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected
volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular
index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility
of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If
shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than
the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially
inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
|
•
|
|
Expected annual rate of quarterly dividends. An
entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected
dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s
current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options
and similar instruments.
|
•
|
|
Risk-free rate(s). An entity that uses a method
that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate
is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options
and similar instruments.
|
Pursuant to ASC paragraph 505-50-25-7, if fully
vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or
services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination
of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor
shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding
cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements
of paragraph 505-50-45-1) depends on the specific facts and circumstances.
Pursuant to ASC paragraph 505-50-45-1, a grantor
may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity
instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific
performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity
by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the
balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other
than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement
date for transactions that are within the scope of this Subtopic.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an
entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period
of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any
measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash
for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A
recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty
has the right to exercise expires unexercised.
Pursuant to ASC paragraph 505-50-30-S99-1,
if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity
instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are
not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should
be recorded.
Revenue Recognition
Effective January 1, 2018, the Company adopted
ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales
of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identifying the contract
with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the
transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is
satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 – Revenue
Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement
exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid
by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
To confirm, all of our OLCC licensed cannabis
retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts
are sold to the customer(s) and the customer settles the account at time of receipt of product via cash payment at our retail store;
the transaction is recorded at the time of sale in our point of sale software system. Revenue is only reported after product has
been delivered to the customer and the customer has paid for the product with cash.
To date the only other revenue we have received
is for ATM transactions and revenue from this activity is only reported after we receive payment via check from the ATM service
provider company.
Cost of Sales
Cost of sales represents costs directly related to the purchase
of goods and third party testing of the Company’s products.
Related Parties
The Company follows subtopic 850-10 of the
FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties
include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the
election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for
by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts
that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f.
other parties with which the Company may deal if one party controls or can significantly influence the management or operating
policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate
interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties
or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that
one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall
include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other
similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of
consolidated or combined financial statements is not required in those statements.
The disclosures shall include: a. the nature
of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts
were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to
an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each
of the periods for which income statements are presented and the effects of any change in the method of establishing the terms
from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented
and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The Company follows subtopic 450-20 of the
FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the
consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one
or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently
involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company
or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or
unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates
that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated
liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material
loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent
liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally
not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that
such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated
results of operations or consolidated cash flows.
Uncertain Tax Positions
The Company did not take any uncertain tax
positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for
the reporting period ended September 30, 2019.
Subsequent Events
The Company follows the guidance in Section
855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate
subsequent events through the date when the financial statements are issued.
Pursuant to ASU 2010-09 of the FASB Accounting
Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed
to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements
are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless
otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have
a material effect on its consolidated financial position or results of operations upon adoption.
In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease
liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting
guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and
quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and
uncertainty of cash flows arising from leases. For public companies, the Company adopted this standard on January 1, 2019 using
the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company
elected the package of practical expedients’, which permitted the Company not to reassess under the new standard its prior
conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available
transition practical expedients.
On adoption, the Company recognized a right
of use asset of $638,593, operating lease liabilities of $638,593, based on the present value of the remaining minimum rental payments
under current leasing standards for its existing operating lease.
The new standard also provides practical expedients
for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those
leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.
In July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part
I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for
Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests
with a Scope Exception” to simply the accounting for certain instruments with down round features. The amendments require
companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of
determining liability or equity classification. Further, companies that provide earnings per share (“EPS”) data will
adjust the basic EPS calculation for the effect of the feature when triggered and will also recognize the effect of the trigger
within equity. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2018. Early adoption is permitted. The Company adopted this new standard on January 1, 2019 and did
not have a material impact on the Company’s consolidated financial statements.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of
the following at September 30, 2019 and December 31, 2018:
|
|
September 30, 2019
|
|
December 31, 2018
|
(Unaudited)
|
(Audited)
|
ATM Machine
|
|
$
|
11,000
|
|
|
$
|
11,000
|
|
Computer
|
|
|
22,736
|
|
|
|
22,736
|
|
Furniture & Fixtures
|
|
|
49,408
|
|
|
|
49,408
|
|
HVAC
|
|
|
41,768
|
|
|
|
25,000
|
|
Land
|
|
|
697,420
|
|
|
|
697,420
|
|
Leasehold Improvements
|
|
|
333,529
|
|
|
|
333,529
|
|
Machinery and Equipment
|
|
|
408,133
|
|
|
|
405,233
|
|
Sign
|
|
|
43,594
|
|
|
|
43,594
|
|
Structural
|
|
|
1,017,359
|
|
|
|
1,017,359
|
|
Vehicle
|
|
|
79,744
|
|
|
|
79,744
|
|
Total
|
|
|
2,704,691
|
|
|
|
2,685,023
|
|
Less: Accumulated Depreciation
|
|
|
(508,095)
|
|
|
|
(336,243)
|
|
Property, Plant and Equipment - net
|
|
$
|
2,196,596
|
|
|
$
|
2,348,780
|
|
Depreciation expense totaled of $171,852 and
$99,507 for the nine months ended September 30, 2019 and 2018, respectively.
NOTE 5 – NON-CURRENT ASSETS
Other assets consisted of the following at
September 30, 2019 and December 31, 2018:
|
|
September 30,
2019
(Unaudited)
|
|
December 31, 2018
(Audited)
|
Construction Deposits
|
|
$
|
—
|
|
|
$
|
—
|
|
Rent Deposits
|
|
|
22,032
|
|
|
|
22,032
|
|
Security Deposits
|
|
$
|
9,491
|
|
|
$
|
9,491
|
|
Non-Current Assets
|
|
$
|
31,523
|
|
|
$
|
31,523
|
|
NOTE 6 – CONVERTIBLE DEBT
These debts have a price adjustment provision.
Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation are initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging
from 0.05% to 2.63%, volatility ranging from 84.63% to 243.37%, trading prices ranging from $0.045 per share to $0.41 per share
and a conversion price ranging from $0.03 per share to $0.10 per share. The total derivative liabilities associated with these
notes were $9,164,912 at September 30, 2019 and $19,783,034 at December 31, 2018.
See Below Summary Table
Convertible Debt Summary
|
|
Debt Type
|
Debt Classification
|
Interest Rate
|
Due Date
|
Ending
|
CT
|
LT
|
9.30.19
|
12.31.18
|
|
|
|
|
|
|
|
|
A
|
Convertible
|
X
|
|
10.0%
|
1-Jan-17
|
25,000
|
$ 25,000
|
B
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
65,700
|
65,700
|
C
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
32,850
|
32,850
|
D
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
209,047
|
209,047
|
O
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
109,167
|
109,167
|
P
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
52,767
|
52,767
|
Q
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
52,050
|
52,050
|
S
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
50,400
|
50,400
|
T
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
250,000
|
250,000
|
X
|
Convertible
|
X
|
|
8.0%
|
1-Jan-19
|
66,800
|
66,800
|
BB
|
Convertible
|
X
|
|
10.0%
|
1-Jan-19
|
50,000
|
50,000
|
CC
|
Convertible
|
X
|
|
10.0%
|
1-Jan-19
|
100,000
|
100,000
|
EE
|
Convertible
|
|
X
|
0.0%
|
31-Dec-21
|
500,000
|
500,000
|
KK
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
LL
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
600,000
|
600,000
|
MM
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
100,000
|
100,000
|
NN
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
OO
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
PP
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
QQ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
RR
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
500,000
|
500,000
|
SS
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
TT
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
300,000
|
300,000
|
UU
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
VV
|
Convertible
|
|
X
|
5.0%
|
31-Jan-20
|
100,333
|
100,333
|
XX
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
100,000
|
100,000
|
YY
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
155,000
|
155,000
|
ZZ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
150,000
|
AAA
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
95,000
|
95,000
|
BBB
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
80,000
|
80,000
|
CCC
|
Convertible
|
X
|
|
8.0%
|
1-Jan-20
|
25,000
|
25,000
|
DDD
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
70,000
|
-
|
EEE
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
150,000
|
-
|
FFF
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
15,000
|
-
|
GGG
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
75,000
|
-
|
HHH
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
35,000
|
-
|
III
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
25,000
|
-
|
JJJ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
50,000
|
-
|
KKK
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
20,000
|
-
|
LLL
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
75,000
|
-
|
MMM
|
Convertible
|
|
X
|
8.0%
|
1-Jan-21
|
50,000
|
-
|
Total Convertible Debt
|
|
|
|
|
6,434,114
|
5,869,114
|
Less: Discount
|
|
|
|
|
(640,702)
|
(1,191,263)
|
Convertible Debt, Net of Discounts
|
|
|
|
$ 5,793,412
|
$ 4,677,851
|
Convertible Debt, Net of Discounts, Current
|
|
|
$ 352,506
|
$ 2,894,294
|
Convertible Debt, Net of Discounts, Long-term
|
|
|
$ 5,440,906
|
$ 1,783,557
|
FOOTNOTES FOR CONVERTIBLE DEBT SUMMARY TABLE
(A)
At the option of the holder the convertible
note may be converted into shares of the Company’s common stock at the lesser of $0.40 or 20% discount to the market price,
as defined, of the Company’s common stock. The Company is currently in discussions with the lender on a payment schedule.
The outstanding balance of this note is convertible into a variable number of the Company’s common stock. Therefore the Company
accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation
are initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have being
amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible
note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 0.18% to 2.63%,
volatility ranging from 84.63% to 243.37%, trading prices ranging from $0.065 per share to $0.45 per share and a conversion price
ranging from $0.05 per share to $0.41 per share. The balance of the convertible note at September 30, 2019 including accrued interest
and net of the discount amounted to $51,521.
A recap of the balance of outstanding convertible debt at
September 30, 2019 is as follows:
Principal balance
|
|
$
|
25,000
|
|
Accrued interest
|
|
|
26,521
|
|
Balance maturing for the period ending:
|
|
|
|
|
September 30, 2019
|
|
$
|
51,521
|
|
The Company valued the derivative liabilities
at September 30, 2019 at $24,487. The Company recognized a change in the fair value of derivative liabilities for the nine months
ended September 30, 2019 of $2,625 which were charged (credited) to operations. In determining the indicated values at September
30, 2019, since the debt is in default, the company used the maximum value these embedded options represent, with a trading price
of $0.0569, and conversion prices of $0.40 per share.
(B), (C), (D)
All these amended debts have a price adjustment
provision. Therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging
from 0.05% to 2.59%, volatility ranging from 84.63% to 243.23%, trading prices ranging from $0.065 per share to $0.14 per share
and a conversion price ranging from $0.03 per share to $0.04 per share. In January 2019, the maturity date of the notes had been
extended to January 1, 2021. The derivative liability associated with this note as of September 30, 2019 were $465,284.
(O)
On March 31, 2016 the Company received
$100,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. The derivative component
of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt.
Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of
the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.41% to 2.59%, volatility ranging from 84.63% to 157.47%, trading prices ranging from $0.065 per share to $0.27 per share and
a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including accrued interest and
net of the discount amounted to $133,292. The derivative liability associated with this note as of September 30, 2019 were $165,130.
(P)
On July 13, 2016 the Company received
$50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. The derivative component
of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt.
Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of
the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.41% to 2.59%, volatility ranging from 84.63% to 157.47%, trading prices ranging from $0.065 per share to $0.27 per share and
a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including accrued interest and
net of the discount amounted to $64,428. The derivative liability associated with this note as of September 30, 2019 were $79,817.
(Q)
On August 30, 2016 the Company received
$50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging
from 0.41% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.065 per share to $0.27 per share
a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including accrued interest and
net of the discount amounted to $63,553. The derivative liability associated with this note as of September 30, 2019 were $78,733.
(S)
On December 1, 2016 the Company received
$50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging
from 0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.065 per share to $0.27 per share
and a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including accrued interest
and net of the discount amounted to $61,538. The derivative liability associated with this note as of September 30, 2019 were $76,237.
(T)
On December 30, 2016 the Company
received $250,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common
shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. In determining
the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest
rate of ranging from 1.08% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.065 per share to
$0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including
accrued interest and net of the discount amounted to $305,361. The derivative liability associated with this note as of September
30, 2019 were $378,299.
(X)
On November 18, 2016 the Company
received $60,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common
shares at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. In determining
the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest
rate of ranging from 0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.065 per share to
$0.27 per share and a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including
accrued interest and net of the discount amounted to $78,481. The derivative liability associated with this note as of September
30, 2019 were $81,179.
(BB)
On September 23, 2015 the Company received
a total of $50,000 from an accredited investor in exchange for a two year note in the aggregate amount of $50,000 with interest
accruing at 10%. The note is convertible after September 23, 2015 and is convertible into the Company’s common stock at a
conversion rate of $0.03 per share. The market value of the stock at the date when the debt becomes convertible was $0.078. The
debt issued is a result of a financing transaction and contain a beneficial conversion feature. The balance of the convertible
note at September 30, 2019 including accrued interest and net of the discount amounted to $58,743. The derivative liability associated
with this note as of September 30, 2019 were $60,762.
(CC)
On September 23, 2015 the Company received
a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest
accruing at 10%. The note is convertible after September 23, 2015 and is convertible into the Company’s common stock at a
conversion rate of $0.03 per share. The market value of the stock at the date when the debt becomes convertible was $0.078. The
debt issued is a result of a financing transaction and contain a beneficial conversion feature. The balance of the convertible
note at September 30, 2019 including accrued interest and net of the discount amounted to $117,486. The derivative liability associated
with this note as of September 30, 2019 were $121,526.
(EE)
At December 31, 2013 the Company was indebted
to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal and $103,895 accrued interest,
with interest accruing at 10%. On January 2, 2014 the Company entered into a Debt Modification Agreement whereby the total amount
of the debt was reduced to $750,000 and there is no accrued interest or principal due until December 31, 2017. $500,000 of the
debt is convertible into 50,000 Series C Convertible Preferred Shares of Kaya Holdings Inc., which if converted are subject to
resale restrictions through December 31, 2015. The two-year note in the aggregate amount of $500,000 is convertible into the Company’s
preferred stock at a conversion rate of $10.00 per share of preferred. At a conversion rate of 433.9297 common shares to 1 preferred
share, this would result in a total of 21,696,485 common shares issued if all debt was converted. The market value of the stock
at the date of issuance of the debt was $0.04. The debt issued is a result of a financing transaction and contain a beneficial
conversion feature valued at $500,000 to be amortized over the life of the debt. As of September 30, 2019, the debt discount was
amortized in full.
On January 1, 2018 the holder of the note extended
the due date until December 31, 2021.
As of September 30, 2019, the balance of the
debt was $500,000. The remaining $250,000 is not convertible. The company has imputed interest on both the convertible debt and
the non-convertible debt. The company used an interest rate of 9% for calculation purposes. The net balance of $250,000 of the
non-convertible portion is reflected on the balance sheet.
The derivative liability associated with this
note as of September 30, 2019 was $688,334.
(KK)
On January 4, 2017, the Company received $150,000
from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.04
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.0569 per share to $0.27 per share and
a conversion price of $0.03 per share. The balance of the convertible note at September 30, 2019 including accrued interest and
net of the discount amounted to $183,049. The derivative liability associated with this note as of September 30, 2019 were $226,773.
(LL)
On January 20, 2017, the Company received $600,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.07
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.85% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.0569 per share to $0.31 per share. The
balance of the convertible note at September 30, 2019 including accrued interest and net of the discount amounted to $730,066.
The derivative liability associated with this note as of September 30, 2019 were $904,449.
(MM)
On January 31, 2017, the Company received $100,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.07
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.87% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.0569 per share to $0.31 per share. The
balance of the convertible note at September 30, 2019 including accrued interest and net of the discount amounted to $121,433.
The derivative liability associated with this note as of September 30, 2019 were $150,439.
(NN)
On February 7, 2017, the Company received $500,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.10
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.87% to 2.59%, volatility ranging from 84.63% to 154.71%, trading prices ranging from $0.0569 per share to $0.31 per share. The
balance of the convertible note at September 30, 2019 including accrued interest and net of the discount amounted to $606,388.
The derivative liability associated with this note as of September 30, 2019 were $751,230.
(OO)
On February 21, 2017, the Company received
$500,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares
at $0.10 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price
adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the
indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate
of ranging from 0.87% to 2.59%, volatility ranging from 84.63% to154.71%, trading prices ranging from $0.0569 per share to $0.30
per share. The balance of the convertible note at September 30, 2019 including accrued interest and net of the discount amounted
to $604,833. The derivative liability associated with this note as of September 30, 2019 were $749,302.
(PP)
On May 11, 2017, the Company received $500,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.05
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.87% to 2.59%, volatility ranging from 84.63% to 139.70%, trading prices ranging from $0.0569 per share to $0.27 per share. The
balance of the convertible note at September 30, 2019 including accrued interest amounted to $596,055, net of the discount of $42,750.
The derivative liability associated with this note as of September 30, 2019 were $738,428.
(QQ)
On July 17, 2017, the Company received $150,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.05
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.87% to 2.63%, volatility ranging from 84.63% to 139.70%, trading prices ranging from $0.0569 per share to $0.27 per share. The
balance of the convertible note at September 30, 2019 including accrued interest amounted to $176,483, net of the discount of $15,390.
The derivative liability associated with this note as of September 30, 2019 were $218,638.
(RR)
On November 1, 2017, the Company received $500,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.03
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
1.49% to 2.63%, volatility ranging from 84.63% to 138.23%, trading prices ranging from $0.0569 per share to $0.27 per share. The
balance of the convertible note at September 30, 2019 including accrued interest amounted to $576,721, net of the discount of $62,699.
The derivative liability associated with this note as of September 30, 2019 were $714,477.
(SS)
On December 21, 2017, the Company received
$150,000 from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price
adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the
indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate
of ranging from 1.49% to 2.63%, volatility ranging from 84.63% to 131.81%, trading prices ranging from $0.0569 per share to $0.27
per share. The balance of the convertible note at September 30, 2019 including accrued interest amounted to $171,350, net of the
discount of $19,665. The derivative liability associated with this note as of September 30, 2019 were $212,278.
(TT)
On February 5, 2018, the Company received $300,000
from the issuance of convertible debt. Interest is stated at 8% The Note and Interest is convertible into common shares at $0.03
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
1.49% to 2.63%, volatility ranging from 84.63% to 132.27%, trading prices ranging from $.05 per share to $0.49 per share. The balance
of the convertible note at September 30, 2019 including accrued interest amounted to $339,584, net of the discount of $27,626.
The derivative liability associated with this note as of September 30, 2019 were $420,696.
(UU)
On March 23, 2018, the Company received $150,000
from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
1.49% to 2.63%, volatility ranging from 84.63% to 132.27%, trading prices ranging from $0.0569 per share to $0.14 per share. The
balance of the convertible note at September 30, 2019 including accrued interest amounted to $168,279, net of the discount of $4,160.
The derivative liability associated with this note as of September 30, 2019 were $208,475.
(VV)
On December 21, 2017 the Company received a
total of $80,000 from an accredited investor in exchange for a two year note in the aggregate amount of $80,000 with interest accruing
at 10% per year. The note is due January 1, 2019 with monthly payments of principal and interest. On January 30, 2018, the accredited
investor advanced an additional $20,000. The total $100,000 including $333 of unpaid interest was exchanged for a convertible note
(Note VV). Interest is stated at 5%. The Note and Interest is convertible into common shares at $0.10 per share. Note is Due in
January of 2020. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15
“Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative
liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term
of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing
Model with a risk-free interest rate of ranging from 1.49% to 2.59%, volatility ranging from 84.63% to 132.27%, trading prices
ranging from $0.0569 per share to $0.14 per share. The balance of the convertible note at September 30, 2019 including accrued
interest amounted to $108,690, net of the discount of $13,630. The derivative liability associated with this note as of September
30, 2019 were $112,427.
(XX)
On May 29, 2018, the Company received $100,000
from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
1.75% to 2.63%, volatility from 84.63% to 127.07%, trading prices ranging from $0.0569 per share to $0.16 per share. The balance
of the convertible note at September 30, 2019 including accrued interest amounted to $110,718, net of the discount of $6,873. The
derivative liability associated with this note as of September 30, 2019 were $137,164.
(YY)
On July 18, 2018, the Company received $155,000
from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
1.75% to 2.81%, volatility from 84.63% to 126.88%, trading prices ranging from $0.0569 per share to $0.13 per share. The balance
of the convertible note at September 30, 2019 including accrued interest amounted to $169,914, net of the discount of $23,600.
The derivative liability associated with this note as of September 30, 2019 were $210,500.
(ZZ)
On August 13, 2018, the Company received $150,000
from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03
per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price adjustment
provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
1.75% to 2.81%, volatility from 84.63% to 126.90%, trading prices ranging from $0.0569 per share to $0.13 per share. The balance
of the convertible note at September 30, 2019 including accrued interest amounted to $163,578, net of the discount of $16,304.
The derivative liability associated with this note as of September 30, 2019 were $202,650.
(AAA)
On September 24, 2018, the Company received
$95,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price
adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the
indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate
of ranging from 1.75% to 2.83%, volatility from 84.63% to 126.38%, trading price at $0.0569 per share. The balance of the convertible
note at September 30, 2019 including accrued interest amounted to $102,725, net of the discount of $2,662. The derivative liability
associated with this note as of September 30, 2019 were $127,262.
(BBB)
On November 23, 2018, the Company received
$80,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. In January 2019, the maturity date of the notes had been extended to January 1, 2021. This note has a price
adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the
indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate
of ranging from 1.75% to 2.81%, volatility from 84.63% to 118.96%, trading price at $0.0569 per share. The balance of the convertible
note at September 30, 2019 including accrued interest amounted to $85,453, net of the discount of $8,515. The derivative liability
associated with this note as of September 30, 2019 were $105,864.
(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 1.75% to 2.63%, volatility from 84.63% to 105.36%, trading price of ranging from $0.0569 to $0.11 per share. The
balance of the convertible note at September 30, 2019 including accrued interest amounted to $26,551, net of the discount of $997.
The derivative liability associated with this note as of September 30, 2019 were $27,464.
(DDD)
On January 22, 2019, the Company received $70,000
from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03
per share. Note is due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these
Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued
and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense
over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used
the Binomial Options Pricing Model with a risk-free interest rate of ranging from 1.75% to 2.59%, volatility from 84.63% to 105.36%,
trading price of ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued
interest amounted to $73,851, net of the discount of $23,644. The derivative liability associated with this note as of September
30, 2019 were $91,491.
(EEE)
On February 11, 2019, the Company received
$150,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares
at $0.03 per share. Note is due in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted
for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially
valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest
expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company
used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 1.75% to 2.48%, volatility from 84.63% to
105.36%, trading price of ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including
accrued interest amounted to $157,595, net of the discount of $103,706. The derivative liability associated with this note as of
September 30, 2019 were $195,237.
(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 1.75% to 2.40%, volatility from 82.70% to 105.36%,
trading price of ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued
interest amounted to $15,638, net of the discount of $11,119. The derivative liability associated with this note as of September
30, 2019 were $19,373.
(GGG)
On April 6, 2019 the Company received
$75,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the May 2017 Financing Agreement,
as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.03 per share. The Note is Due
in January of 2021. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic
815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative
liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term
of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing
Model with a risk-free interest rate of ranging from 1.75% to 2.40%, volatility from 82.70% to 105.36%, trading price of ranging
from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued interest amounted
to $77,910, net of the discount of $54,245. The derivative liability associated with this note as of September 30, 2019 were $96,519.
(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 1.75% to 2.40%, volatility from 82.70% to 105.36%, trading price of
ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued interest amounted
to $36,235, net of the discount of $25,968. The derivative liability associated with this note as of September 30, 2019 were $44,890.
(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 1.75% to 2.40%, volatility from 82.70% to 105.36%, trading price of
ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued interest amounted
to $25,805, net of the discount of $18,977. The derivative liability associated with this note as of September 30, 2019 were $31,969.
(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 1.75% to 2.40%, volatility from 82.70% to 105.36%, trading price of
ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued interest amounted
to $51,447, net of the discount of $38,917. The derivative liability associated with this note as of September 30, 2019 were $63,735.
(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 1.75% to 2.40%, volatility from 82.70% to 105.36%, trading price of
ranging from $0.0569 to $0.11 per share. The balance of the convertible note at September 30, 2019 including accrued interest amounted
to $20,513, net of the discount of $15,972. The derivative liability associated with this note as of September 30, 2019 were $25,413.
(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. 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 1.75% to 1.75%, volatility from 105.36% to 105.36%, trading price
of ranging from $0.0569 to $0.0667 per share. The balance of the convertible note at September 30, 2019 including accrued interest
amounted to $76,512, net of the discount of $62,568. The derivative liability associated with this note as of September 30, 2019
were $94,788.
(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. 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 1.75% to 1.75%, volatility from 105.36% to 105.36%, trading price
of ranging from $0.0569 to $0.0642 per share. The balance of the convertible note at September 30, 2019 including accrued interest
amounted to $51,008, net of the discount of $40,714. The derivative liability associated with this note as of September 30, 2019
were $63,192.
NOTE 7 – NON-CONVERTIBLE DEBT
A-Non Related Party
|
|
September 30,
2019
|
|
December 31, 2018
|
Note 3
|
|
|
-0-
|
|
|
|
-0-
|
|
Note 4
|
|
|
-0-
|
|
|
|
-0-
|
|
Note 5
|
|
|
9,312
|
|
|
|
9,312
|
|
Note 6
|
|
|
-0-
|
|
|
|
-0-
|
|
Total Non-Convertible Debt
|
|
|
9,312
|
|
|
|
9,312
|
|
(3) On May 17, 2016 the Company received
a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest
accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares
of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17, 2018 has been fully repaid or
the start of the Acceleration Period as defined in “The Note” or May 17, 2018.
(4) On May 9, 2016 the Company received a total
of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing
at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of
the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or
the start of the Acceleration Period as defined in “The Note” or May 9, 2018
(5) On September 16, 2016 the Company received
a total of $31,661 to be used for equipment in exchange for a two year note in the aggregate amount of $31,661 with interest accruing
at 18% per year and a 10% loan fee. The note is default as of September 30, 2019.
(6) On December 21, 2017 the Company received
a total of $80,000 from an accredited investor in exchange for a two year note in the aggregate amount of $80,000 with interest
accruing at 10% per year The note is due January 1, 2019 with monthly payments of principal and interest. On January 30, 2018 the
accredited investor advanced an additional $20,000. The total $100,000 including $333 of unpaid interest was exchanged for a convertible
note (Note VV) due January 1, 2020
Loan payable - Stockholder, 0%, Due December 31, 2021 (1)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
(1)
|
|
At December 31, 2013 the Company was indebted
to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal and $103,895 accrued interest,
with interest accruing at 10%. On January 2, 2014 the Company entered into a Debt Modification Agreement whereby the total amount
of the debt was reduced to $750,000 and there is no accrued interest or principal due until December 31, 2017. $500,000 of the
debt is convertible into 50,000 Series C Convertible Preferred Shares of Kaya Holdings Inc., which if converted are subject to
resale restrictions through December 31, 2015. The two-year note in the aggregate amount of $500,000 is convertible into the Company’s
preferred stock at a conversion rate of $10.00 per share of preferred. At a conversion rate of 433.9297 common shares to 1 preferred
share, this would result in a total of 21,696,485 common shares issued if all debt was converted. The market value of the stock
at the date of issuance of the debt was $0.04. The debt issued is a result of a financing transaction and contain a beneficial
conversion feature valued at $500,000 to be amortized over the life of the debt. Total amortization for the year ended December
31, 2017 was $201,092. On January 1, 2018 the holder of the note extended the due date until January 1, 2021.
As of September 30, 2019, the balance of the
debt was $500,000. The remaining $250,000 is not convertible. The company has imputed interest on both the convertible debt and
the non-convertible debt. The company used an interest rate of 4% for calculation purposes. The net balance of $250,000 of the
non-convertible portion is reflected on the balance sheet.
|
Summary Notes Payable Schedule-All Debt
Balance December 31, 2018
|
|
$
|
6,128,424
|
|
New Notes Payable
|
|
|
565,000
|
|
Addition due to amendment
|
|
|
-0-
|
|
Repaid Notes Payable
|
|
|
-0-
|
|
Conversions
|
|
|
-0-
|
|
Balance September 30, 2019
|
|
$
|
6,693,424
|
|
NOTE 8 – STOCKHOLDERS’ EQUITY
The Company has 10,000,000 shares of preferred
stock authorized with a par value of $0.001, of which 100,000 shares have been designated as Series C convertible preferred stock
(“Series C” or “Series C preferred stock”). The Board has the authority to issue the shares in one or more
series and to fix the designations, preferences, powers and other rights, as it deems appropriate.
Each share of Series C has 433.9297 votes on
any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 433.9297
shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the holder into 433.9297
shares of common stock.
The Company has 500,000,000 shares of common
stock authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and
all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption
or conversion rights.
In February of 2018 the Company authorized
the issuance of 6,200,000 shares of common shares of Kaya Holdings Inc. for employee compensation and consulting fees. The shares
were valued at $942,400. As of December 31, 2018, all 6,200,000 shares were issued on July 6, 2018.
In February of 2018, the Company authorized
the issuance of 138,866 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder
of the company. The restricted common shares were issued as payment of interest of $4,166.
In February of 2018, the Company authorized
the issuance of 277,766 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder
of the company. The restricted common shares were issued as payment of interest of $8,333.
In February of 2018, the Company authorized
the issuance of 633,288 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder
of the company. This was a conversion of a Note Payable and Interest with a total value of $28,498, the Note Payable was due January
1, 2019.
In February of 2018, the Company authorized
the issuance of 563,566 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder
of the company. This was a conversion of a Notes Payable and Interest with a total value of $16,907 the Note Payable was due January
1, 2019.
In June of 2018, the Company sold 500,000 shares
of common stock for gross proceeds of $50,000.
In May of 2018 the company filed a form S-8
this Registration Statement covers an additional 10,000,000 shares of common stock, par value $0.001 per share of Kaya Holdings,
Inc. (the “Company”), which may be offered pursuant to the Company’s 2011 Stock Incentive Plan (the “Plan”),
as amended on November 24, 2014, September 22, 2016 and May 1, 2018.
In June of 2018, the Company authorized the
issuance of 1,000,000 shares of common shares of Kaya Holdings Inc. for legal service. The shares were valued at $138,500. As of
December 31, 2018, all shares were issued on July 6, 2018.
On July 6, 2018, the Company issued 1,805,555
shares of common shares of Kaya Holdings Inc. that previously recorded as stock payable in 2017 in satisfaction of promissory note
due November 30, 2017 in the amount of $54,166, for principal and accrued but unpaid interest, which is convertible at $0.03 per
share. In addition, the Company authorized 3,200,000 shares of Kaya Holdings Inc. for services at value of $301,510. As of December
31, 2018, 1,000,000 shares were unissued and valued at $65,000.
In August of 2018, the Company sold 2,500,000
shares of common stock for gross proceeds of $250,000. As of September 30, 2018, all shares were issued on August 24, 2018.
In August of 2018, the Company issued total
of 12,000,000 shares to acquire the OLCC licensed marijuana production and processing facility, consisting of the building and
equipment. The shares were valued at $1,417,200 (See Note 11).
In September of 2018, the Company authorized
the issuance of 7,785,952 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor of the company. This
was a conversion of a Notes Payable and Interest with a total value of $233,579, the Note Payable was due January 1, 2019.
In September of 2018 the Company authorized
the issuance of 100,000 shares of common shares of Kaya Holdings Inc. for professional service. The shares were valued at $11,200
and the shares were issued on November 27, 2018.
On March 5, 2019, total of 7,785,952
shares of common stock had been issued from stock payable to settle the conversion dated on September 16, 2018.
NOTE 9 DERIVATIVE LIABILITIES
Effective January 1, 2019, an equity-linked
financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance
in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition
of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed
to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting.
Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming
the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion
option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered
indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial
instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each
subsequent reporting date.
However,, due to a recognition of tainting,
due to variable conversion price on some of the convertible notes, all convertible notes are considered to have a derivative liability,
therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative
component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible
debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value
of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.05% to 2.63%, volatility ranging from 84.63% to 243.22%, trading prices ranging from $0.045 per share to $0.41 per share and
a conversion price ranging from $0.03 per share to $0.10 per share.
As a result of the application of ASC No. 815,
the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow:
Balance as of December 31, 2018
|
|
$
|
19,783,034
|
|
Initial
|
|
|
1,191,529
|
|
Change in Derivative Values
|
|
|
(11,809,651
|
)
|
Conversion of debt-reclass to APIC
|
|
|
-0-
|
|
Balance as of September 30, 2019
|
|
$
|
9,164,912
|
|
The Company recorded the debt discount to the
extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability, as it exceeded
the gross proceeds of the note.
The Company recorded the amortization of debt
discount of $401,980 and $1,115,766 for the three and nine months ended September 30, 2019, respectively.
The Company recorded derivative liability expense
of $64,381 and $626,529 for the three and nine months ended September 30, 2019, respectively.
The Company recorded a change in the value
of embedded derivative liabilities income of $1,668,486 and $11,809,651 for the three and nine months ended September 30, 2019,
respectively.
NOTE 10 – DEBT DISCOUNT
The Company recorded the debt discount to the
extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability, as it exceeded
the gross proceeds of the note.
Debt discount amounted to $640,701 as of September
30, 2019.
The Company recorded the amortization of debt
discount of $401,980 and $1,115,766 for the three and nine months ended September 30, 2019, respectively.
NOTE 11 – RELATED PARTY TRANSACTIONS
At December 31, 2014, the Company was indebted
to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal and $103, 895 accrued interest,
with interest accruing at 10%. On January 2, 2014, the Company entered into a Debt Modification Agreement whereby the total amount
of the debt was reduced to $750,000 and no interest accrued until December 31, 2015. $500,000 of the debt is convertible into 50,000
Series C Convertible Preferred Shares of KAYS. The remaining $250,000 is not convertible.
On December 31, 2015, the Company entered into
an agreement to extend the debt until December 31, 2017 with no additional interest for the extension period. On January 1, 2018
the Company entered into an agreement to further extend the debt until December 31, 2021 with no additional interest for the extension
period.
At December 2017, the company was indebted
to Craig Frank, Chairman, CEO and Acting CFO for KAYS, in the amount of $7,737.00 for travel and miscellaneous expenses incurred
by Mr. Frank from travel and related activities in Oregon.
In each of 2017 and 2018, the Company issued
stock grants to Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock for their service as board members. The stock
was issued from Treasury as restricted stock and carries a one-year restriction before it can be registered for resale pursuant
to Rule 144.
In 2017 and 2018, the Company issued stock
grants to Craig Frank for 2,000,000 and 3,000,00 shares of KAYS stock respectively, pursuant to his employment agreement via board
resolution. Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock. The stock was issued from Treasury as restricted
stock and carries a one year restriction before it can be registered for resale pursuant to Rule 144.
In August, 2018 KAYS entered into an agreement
with Bruce Burwick, (who subsequently joined the Board of Directors and became an affiliate of the Company) to purchase the Eugene,
Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the OLCC for both the production (growing) of
medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. The purchase includes a
12,000 square foot building housing an indoor grow facility, as well as equipment for growing and extraction activity. KAYS paid
Bruce Burwick $1,300,000.00 for the real property and schedule of equipment that was and is used to operate the facility.
Bruce Burwick acquired the property for satisfaction
of a promissory note due him for $1,433,000.00. The purchase price of $1.3 million for the OLCC licensed marijuana production and
processing facility, consisting of the building and equipment was paid for by the issuance of 12 million shares of KAYS restricted
stock to the seller at closing. The shares carry a lock-up-restriction that allows for their staged eligibility for resale over
a 61-month period from the date of the purchase of the facility by KAYS. Additionally, the seller purchased 2.5 million restricted
shares for $250,000 in cash in a private transaction with the Company. The proceeds from the sale of those shares were and are
being used for acquisition related expenses, transitional operating costs and facility capital improvements with respect to the
production and processing facility we purchased.
NOTE 12 – STOCK OPTION PLAN
In 2011 the Alternative Fuels America, Inc.
2011 Incentive Stock Plan (the “Plan”), which provides for equity incentives to be granted to the Company’s employees,
executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an
exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2011 Incentive Stock
Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2011 Incentive Stock Plan is
administered by the board of directors.
NOTE 13 – WARRANTS
On September 8, 2015 the Company received a
total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest
accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 3,161,583 paid and non-assessable shares
of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid
or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of September 30, 2019, the
note was paid in full.
On September 9, 2015 the Company received a
total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest
accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 3,161,583 paid and non-assessable shares
of the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid
or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of September 30, 2019, the
note was paid in full.
On May 9, 2016 the Company received a total
of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing
at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of
the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or
the start of the Acceleration Period as defined in “The Note” or May 9, 2018. As of September 30, 2019, the note was
paid in full.
On May 17, 2016 the Company received a total
of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing
at 10%. The note holder is entitled to subscribe for and purchase from the company 2,371,187 paid and non-assessable shares of
the Common Stock at the price of $0.0316297 per share (the “Warrant Exercise Price”) for a period of five (5) years
commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17, 2018 has been fully repaid or
the start of the Acceleration Period as defined in “The Note” or May 17, 2018. As of September 30, 2019, the note was
paid in full.
Warrants issued to Non-Employees
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
Weighted
|
|
|
|
|
Average
|
Average
|
|
|
|
Warrants
|
Exercise
|
Contract
|
|
|
|
Issued
|
Price
|
Terms Years
|
Balance as of December 31, 2018
|
11,065,540
|
0.0316297
|
3.8
|
Granted
|
|
|
-0-
|
-0-
|
-0-
|
Exercised
|
|
|
-0-
|
-
|
-
|
Expired
|
|
|
-0-
|
-
|
-
|
Balance as of September 30, 2019
|
11,065,540
|
0.0316297
|
3.55
|
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company
has several operating leases for an office and store lease in Fort Lauderdale, Florida and several locations in Oregon under arrangements
classified as leases under ASC 842.
Effective
June 12, 2017, the Company leased the office space in Fort Lauderdale, Florida under a 5-year operating lease expiring June 30,
2022. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with
monthly payments of $4,017 and culminating in a monthly payment of $4,839. The total amount of rental payments due over the lease
term is being charged to rent expense according to the straight-line method over the term of the lease. The lease was terminated
on July 3, 2019 and the Company agreed to issue landlord 500,000 shares of common stock as penalty for early termination.
Effective
June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021.
The rental payment is $1,802 per month. The total amount of rental payments due over the lease term is being charged to rent expense
according to the straight-line method over the term of the lease.
Effective
May 15, 2014, the Company leased an unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019,
the lease had been extended to May 15, 2024. The lease provides for increases in future minimum annual rental payments based on
defined annual increase beginning with monthly payments of $2,250 and culminating in a monthly payment of $2,632. The total amount
of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term
of the lease. The lease is now on a month-to-month basis.
Effective
June 1, 2015, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. The lease provides
for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $3,584
and culminating in a monthly payment of $4,034. The total amount of rental payments due over the lease term is being charged to
rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective
April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides
for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,367
and culminating in a monthly payment of $4,915. The total amount of rental payments due over the lease term is being charged to
rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective
April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides
for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,617
and culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being charged to
rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
The Company
utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily
determinable. The Company used an estimated incremental borrowing rate of 9.32% to estimate the present value of the right of use
liability.
The Company has right-of-use assets of $463,163
and operating lease liabilities of $469,025 as of September 30, 2019. Operating lease expense for the three and nine months ended
September 30, 2019 was $39,997 and $179,322, respectively. The Company had cash used in operating activities related to leases
of $38,662 and $140,540 during the three and nine months ended September 30, 2019, respectively.
Maturity
of Lease Liabilities at September 30, 2019
|
|
Amount
|
|
2019 (excluding the nine
months ended September 30, 2019)
|
|
|
$
|
60,674
|
|
|
2020
|
|
|
|
186,005
|
|
|
2021
|
|
|
|
101,675
|
|
|
2022
|
|
|
|
27,300
|
|
|
Later years
|
|
|
|
—
|
|
|
Total lease payments
|
|
|
|
375,654
|
|
|
Less: Imputed interest
|
|
|
|
(33,639
|
)
|
|
Present
value of lease liabilities
|
|
|
$
|
342,015
|
|
NOTE 15 – SUBSEQUENT EVENTS
On October 16, 2019 a total of 166,666 shares of common stock were issued to an investor in consideration of settlement of
a total of $5,000 in interest owed pursuant to a Note Conversion. The shares have been issued and are in electronic format
in an account at the transfer agent pending delivery instructions of the shareholder. For more information see Footnote “BB”
to Convertible Debt Summary in Note 6 to the Financials.
On October 16, 2019 a total of 333,333
shares of common stock were issued to an investor in consideration of settlement of a total of $10,000 in interest owed
pursuant to a Note Conversion. The shares have been issued and are in electronic format in an account at the transfer agent
pending delivery instructions of the shareholder. For more information see Footnote “CC” to Convertible Debt
Summary in Note 6 to the Financials.
On October 16, 2019 a total of 2,805,733 shares of common stock were issued to an investor in consideration of settlement
of a total of $84,172.00 in principal and interest owed pursuant to a Note Conversion. The shares have been issued and are
in electronic format in an account at the transfer agent pending delivery instructions of the shareholder. For more information
see Footnote “X” to Convertible Debt Summary in Note 6 to the Financials.
On October 16, 2019 a total of 50,000
shares of restricted Series C Preferred Stock were issued to an affiliated shareholder of the Company in consideration of
settlement of a total of $500,000.00 in principal owed pursuant to a Note Conversion. Each Preferred Share is convertible
into 433.9297 common shares so the 25,000 Preferred Shares if converted would result in the issuance of 21,696,485 common
shares. For more information see Footnote “EE” to Convertible Debt Summary in Note 6 to the Financials.
Employee Stock Plan Issuances and Director
and Officer Restricted Stock issuances
On October 16, 2019 a total of 2,100,000 shares of
stock were issued to a total of 12 employees of the Kaya Shack from the KAYS 2011 Employee Stock Plan (the “Plan”)
for their service to the Company. The shares are subject to a lockup agreement and absent earlier consent by the Company they
not eligible for resale until December 31, 2021.
On October 16, 2019, 3,000,000 shares of KAYS stock were issued for W. David
Jones's service to the Company during 2018 pursuant to consulting agreements entered into with BMN Consultants on February
19, 2018 via Board Stipulation. The shares are considered to be fully paid when issued.
On October 16, 2019, 3,000,000 shares
of KAYS restricted stock were issued for Craig Frank's service to the Company during 2018 pursuant to consulting agreements
entered into with Tudog Consultants on February 19, 2018 via Board Stipulation. The shares are considered to be fully paid
when issued.
On October 16, 2019 a total of 300,000 shares of KAYS stock were issued to our three (3) Board Members (100,00
shares each) pursuant to annual compensation schedules for their service to the Company during 2019. The shares are considered
to be fully paid when issued.
On October 16, 2019 a total of 1,700,000 shares of KAYS stock were issued to 5 individuals (three
(3) attorneys and 2 Consultants) from the KAYS 2011 Employee Stock Plan (the “Plan”) for their service to the
Company.
Other Restricted Stock Issuances
On October 16, 2019 the Company issued a former landlord 500,000 shares of restricted
stock as settlement for early termination of the lease and forgiveness of all debt owed.
On October 16, 2019 the Company issued
a charitable organization 100,000 shares of restricted stock as a charitable donation.
Other Items
On November 4, 2019, KAYS
issued a press release 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
this Quarterly Report on Form 10-Q, the terms “Kaya Holdings,” “KAYS,” “the Company,” “we,”
“us” and “our” refer to Kaya Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
Cautionary
Note Regarding Forward Looking Statements
Information
contained in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section
27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act
of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the
words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,”
“believe,” “intend” or “project” or the negative of these words or other variations on these
words or comparable terminology.
The
forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events.
Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections
or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are
subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or
achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking
statements.
Except
as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even
if new information becomes available or other events occur in the future.
Available
Information
We file annual, quarterly
and special reports and other information with the Securities and Exchange Commission (“SEC”) that are available through
the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as EDGAR, through the SEC’s website (www.sec.gov).
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview
PART I
Item 1. Business.
Overview
Kaya
Holdings, Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana
enterprise that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges
and cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting
highly distinctive brands.
Current
Oregon Operations
In
Oregon, all of the Company’s operations are licensed by the Oregon Liquor Control Commission (the “OLCC’), which
has jurisdiction over legal medical and recreational cannabis grow, production and retail operations. The Company originally commenced
operations in Oregon in July 2014, operating medical marijuana dispensaries (“MMDs”) when only medical marijuana sales
had been legalized. However, this afforded the Company to be in position to rapidly move into the grow, production and retailing
of recreational marijuana when legalization of recreational cannabis sales followed shortly thereafter in October 2015.
The
Company currently operates a chain of three Kaya Shack™ retail outlets and has developed its own proprietary Kaya Farms™
strains of cannabis, which it grows and produces (together with edibles and other cannabis products) at its Eugene, Oregon Sunstone
Farms Indoor Cannabis Grow, Processing & Cannaceutical Facility, which KAYS acquired in October 2018 and is presently operating
under a Management Agreement pending transfer of the licenses by the OLCC to the Company, upon completion of a satisfactory compliance
review.
Additionally,
the Company also owns a 26-acre parcel in Lebanon, Linn County, Oregon, which it purchased in August 2017 on which it intends
to construct a cannabis cultivation complex, which will initially consist of an 85,000-square foot Kaya Farms™ Greenhouse
Grow and Production Facility. The Company maintains a genetics library of over 30 strains of cannabis it has developed and has
also formulated various cannabis-infused edibles, marijuana cigarettes and other cannabis derivatives under its proprietary “Kaya”
brand names.
The Company’s
business strategy seeks to achieve four fundamentals objectives:
|
·
|
maintaining
direct access to customers (to own the relationship with end-users);
|
|
·
|
effecting vertical
integration to control the supply chain (to control cost, selection and quality);
|
|
·
|
introducing strong
brands in tradition and innovative categories (to control asset development); and
|
|
·
|
creating the
capacity to expand nationally and internationally as regulations and opportunities permit.
|
Domestic
and International Plans for Expansion
The Company is
focusing its efforts on expanding its operations both domestically and internationally by:
|
·
|
replicating
its Kaya Shack™ brand retail outlets through franchising, initially in Canada, where the production and use of marijuana
for both medical and recreational purposes is legal nationwide and ultimately into U.S. states where medical and recreational
marijuana production and use is legal or expected to become legal in the near term;
|
|
·
|
retaining Franchise
Academy, Inc., a franchise consulting group, to assist it, together with Garfinkle Biderman LLP, a Canadian law firm specializing
in the franchise arena, in the development, planning, launch and implementation of its retail franchise program in Canada;
|
|
·
|
utilizing its
marijuana grow, processing, manufacturing and production facilities (which have the capability to grow and process up to 100,000
pounds of cannabis annually) to support its planned franchised outlets, in order to both maintain quality control and offer
customers a consistent customer experience while reducing costs of goods to franchisees;
|
|
·
|
developing, producing
and marketing, additional cannabis products, including flower, concentrates, extracts, cannabis-infused edibles, topicals,
marijuana cigarettes and other specialty cannabis derivatives using its proprietary Kaya Shack™ and Kaya Farms™
brands edibles, marijuana cigarettes, extracts, and topicals;
|
|
·
|
establishing
substantial production and processing facilities in Greece and Israel, where it will seek to grow and export legal medical
and recreational cannabis to European and Asian countries, as regulations permit; and
|
|
·
|
ultimately, taking
advantage of anticipated regulatory changes to export cannabis and cannabis products from Oregon to other jurisdictions where
medical and recreational cannabis use is legal.
|
The Company has formed Kaya Brands
International, Inc. (“ Kaya International ”), a new Florida subsidiary, to undertake its planned Canadian retail
franchise operations and other planned operations outside the U.S.
Corporate
Information
Our
corporate office is located at 915 Middle River Drive, Suite 316, Fort Lauderdale, Florida, 33304. Our telephone number is 954-892-6911
and our corporate website is www.kayaholdings.com. Information contained on our corporate website does not constitute part of
this Memorandum.
Market Overview
According to Arcview
Market Research and its research partner BDS Analytics, over the next 10 years, the legal cannabis industry will see much progress
around the globe. Spending on legal cannabis worldwide is expected to hit $57 billion by 2027. The adult-use (recreational) market
will cover 67% of the spending; medical marijuana will take up the remaining 33%.
The largest single
market of cannabis buyers will be in North America, going from $9.2 billion in 2017 to $47.3 billion a decade later. The largest
growth spread, however, is predicted within the rest-of-world markets, from $52 million spent in 2017 to a projected $2.5 billion
in 2027.
While the U.S. market
is expected to be dominated by recreational sales, the European market may have greater medical sales due to the inclusion of
cannabis in the government subsidized healthcare systems. The European market is expected to be the single largest arena for medical
marijuana.
The worldwide adult
recreational cannabis market remains hampered by the United Nations and its 1961 Single Convention on Narcotic Drugs. The Arcview
and BDS report believes nothing will be done to change the U.N. attitude until U.S. federal laws legalize marijuana something
many industry experts and pundits believes will happen after the 2020 presidential election.
Important Industry Considerations
|
·
|
The
initial decision by many U.S. states and Canada to create medical-only cannabis regulations prompted many other countries
to act similarly. This increased further after California and Canada legalized adult recreational use.
|
|
·
|
South
America has some of the most liberal medical cannabis programs. Led by Brazil, Argentina, Peru and Uruguay (the only country
in the world in which adult recreational use is legal for all its citizens), the South American medical cannabis market may
grow from $125 million in 2018 to $776 million in 2027.
|
|
·
|
Germany
is poised to be the leader of the European cannabis market, and Italy is expected to be second with $1.2 billion in sales
by 2027. Overall, however, the European cannabis market is not expected to grow as stridently as its potential suggests.
|
|
·
|
Australia’s
legal cannabis market is forecast to grow from $52 million in 2018 to $1.2 billion in 2027, the 5th largest in the world.
|
|
·
|
Israel
has a small population and a long history of legal medical marijuana use. It continues as a leader with years in the development
of cannabis pharmaceuticals.
|
|
·
|
Canada
is among the few countries where investors have already shown confidence in the future legality of the cannabis industry;
they are betting with billions of dollars pouring into public equity investments.
|
Source: www.forbes.com | Legal
Cannabis Industry Poised For Big Growth, In North America And Around The World | Thomas Pellechia | March 1, 2018.
The
Kaya™ Family of Brands
Kaya Holdings,
Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana enterprise
that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges and
cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting
highly distinctive brands.
Currently
Operational Brands (2014-2019)
Next
Stage Traditional (2019-2021)
Next
Stage Innovative (2019-2021)
Note:
The “Next Stage Traditional” and “Next Stage Innovative” brands are all targeted for release over the
6-18 months. The Company is currently awaiting the status of the license transfer at the Kaya Farms Indoor Marijuana Grow, Processing
& Cannaceutical Production Facility in Eugene, Oregon, and the pending license issuance of the Kaya Farms Ag Facility in Lebanon,
Oregon to finalize the release dates for these brands in Oregon. In the event that the license transfer at the Eugene facility
and/or the licensing approval and construction timeline of the Lebanon facility is delayed or experiences difficulties, the Company
has sourced other alternatives to expedite the release of the brands and will update shareholders accordingly as to revised brand
rollout dates (if any).
The
Kaya Shack™ Brand
Kaya
Holdings operates the Kaya Shack™ brand of legal medical and recreational retail marijuana retail stores.
Kaya
Holdings operates three recreational marijuana retail outlets and medical marijuana dispensaries in Oregon under the Kaya Shack™
brand.
Dubbed
by the mainstream press as the “Starbucks of Marijuana” after our first outlet opened in July 2014, our operating
concept is simple: to deliver a consistent customer experience (quality products, fair prices and superior customer service) to
a broad and diverse base of customers. Kaya Shack™ meets the quality needs of the “marijuana enthusiast”, the
comfort and atmosphere of all including “soccer moms” and the price sensitivities of casual smokers.
Additionally,
Kaya Holdings maintains an active fourth OLCC Marijuana Retail License which it is seeking to move to its Eugene, Oregon Kaya
Farms Indoor Production and Processing Facility so that the Company may offer a “Kaya Farm Store” and also serve as
a retail delivery hub for Eugene, Oregon.
The
Kaya Shack™ brand communicates positive thinking and joy, with signs adorning the walls that read “It’s a Good
Day to have a Good Day,” “Some of our Happiest Days Haven’t Even Happened Yet,” and our signature “Be
Kind.”
Kaya
Shack™ retail outlets are open 7 days a week- Monday through Saturday from 8:00 am to 10:00 pm, and Sunday 8:00 AM to 9:00
PM. Operations follow an operational manual that details procedures for 18 areas of operation including safety, compliance, store
opening, store closing, merchandising, handling of cash, inventory control, product intake, store appearance and employee conduct.
In
compliance with regulations, all marijuana and marijuana infused products sold through our stores are quality tested by independent
labs to assure adherence to strict quality and OLCC regulations.
The
Company is exploring opportunities to expand its operations beyond Oregon by replicating its Kaya Shack™ brand retail outlets
through franchising in other states where recreational cannabis use is legal or expected to become legal in the near term, as
well as in Canada, where it is legal nationwide. KAYS also is targeting opening corporate owned marijuana production and processing
facilities to support the envisioned franchised outlets, and to both maintain quality control and offer customers a consistent
customer experience while reducing costs of goods to franchisees.
Kaya Shack™
Retail Outlets
All stores
feature a check out stand wrapped to feature the Company’s proprietary brand of pre-rolls, Kaya Buddies. The Buddies program
is an exciting and popular pre-roll offering, featuring a wide selection (15-15 strains of pre-rolls) and featuring our special
Kaya Saying in each Buddies tube. A glass display case showcases at least 25 strains of marijuana flower, which the stores serve
to customers “deli style”, weighing straight from the jar to the customer’s take-out tube. An additional display
case with a varied selection of oils, concentrates and topicals rounds out the cannabis product display.
The
stores also feature standing display cases with cannabis intended glassware under the Company’s brand Really Happy Glass,
as well as a rack of proprietary t-shirt designs marketed under the Company brand Kaya Gear. The store also has a hospitality
area that offers free water, coffee, tea and hot cocoa. As required by law, all products containing marijuana are either behind
locked glass or behind the counter and out of customer reach.
I. Kaya Shack™ , 1719 SE Hawthorne Blvd., Portland, Oregon.
Our
first Kaya Shack™ OLCC licensed marijuana store (located in the heart of the trendy Hawthorne district in southeast Portland,
the “Greenwich Village” of the West Coast) opened for business July 03, 2014. The store is located next door to a
cell phone repair shop, and near to Devil’s Dill restaurant and No Fun pub. There are also a McMenamins restaurant, tattoo
parlor, convenience store, hair/nail salon and a soccer sports bar. The area around the shop is mixed use (commercial and residential)
and has a footprint of approximately 700 square feet and is the model for the Company’s small urban shops.
II. Kaya Shack ™ Marijuana Superstore, South Salem, Oregon.
Our second Kaya
Shack™ OLCC licensed marijuana store (located in South Salem, Oregon) opened for business on October 17, 2015. The store
is located in a strip mall alongside a Caesar’s Pizza, Aaron’s furniture, a convenience store, a tanning salon, and
a nail salon. The plaza also has a Subway, a sports bar and a laundromat. The area around the shop is primarily commercial with
residential complexes under construction and has a footprint of approximately 2,100 square feet and 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.
III. Kaya Shack™ Marijuana Superstore, Central Salem, Oregon.
Our
third Kaya Shack™ (located in Central Salem, Oregon) opened for business February 15, 2018. The store is located in a strip
mall directly behind Carl Jr. and Popeye’s Chicken restaurants and alongside a microbrewery sports bar, laundromat, and
Hawaiian sandwich shop. The area around the shop is primarily commercial with residential complexes ready to open Summer 2018.
It has a footprint of approximately 3100 square feet and utilizes the Kaya Shack™ Marijuana Superstore model.
Kaya
Shack™ Car Fleet and Home Delivery
The
Company is licensed by the OLCC for home delivery for all four stores. The Company is interested in developing its delivery service
and has a fleet of 4 Kaya Cars (wrapped Fiat 500s featuring the Company’s branding logos and colors and outfitted with safes
and security) at the ready, and once the support software enabling compliant delivery is released Kaya Shack™ will commence
with its home delivery service. We expect delivery to extend our visibility, assist in building brand awareness, and allow the
Company to service a broader geographic territory. The Company has developed the website www.kayadelivers.com to advance the growth
of its delivery service.
To
make use of the cars while the Company waits to launch delivery service, the cars are currently used for promotional purposes
at community fairs and roving billboards
Kaya
Farms™
Lebanon, Linn County,
Oregon Marijuana Grow and Manufacturing Complex
In
early 2015, KAYS commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana thereby
becoming the first publicly traded U.S. company to own a majority interest in a vertically integrated legal marijuana enterprise
in the United States. Since that time KAYS has operated various grow facilities to feed the Kaya Shack Supply Chain, and in August
2017, KAYS acquired its first property for a large scale facility- a 26-acre parcel in Lebanon, Linn County, Oregon, where we
intend to develop an 85,000-square foot Kaya Farms™ Farm and greenhouse facility
Management
believes that the acquisition and development of the property will position the Company for future growth and expansion, including
increased Marijuana Canopy production to the maximum extent allowed by law through use of both greenhouse and outdoor grows, as
well as expansion of its production capabilities with brands in oils, vape cartridges, concentrates, a selection of edibles, and
infused creams and lotions. When Federal Prohibition of marijuana ends and national and international cannabis trade can begin,
we believe that Oregon is uniquely positioned to become America’s “pot basket” due to its superior climate and
state history involving generations of Oregonian Cannabis Growers; ideal weather + extensive generational knowledge = superior,
lower cost cannabis products for export.
We
filed for zoning and land use approval in early 2018, and after numerous regulatory challenges and delays, we finally received
zoning and land use approval in early 2019 to build on the property. We are presently in the final planning stages and are awaiting
the culmination of the OLCC licensing process to begin construction. Under present laws the property can easily deliver 6-8,000
pounds of cannabis each year; if future
Kaya Farms Indoor
Marijuana Grow, Processing & Cannaceutical Production Facility
On
October 23, 2018 KAYS announced that it had concluded the purchase of the Eugene, Oregon based Sunstone Farms grow and manufacturing
facility, which is licensed by the OLCC for both the production (growing) of medical and recreational marijuana flower and the
processing of cannabis concentrates/extracts/edibles. The purchase includes a 12,000 square foot building housing an indoor grow
facility, as well as equipment for growing and extraction activity. The facility can produce in excess of 800 pounds cannabis
flower annually as currently outfitted, as well as a substantial amount of manufactured extracts and related cannabis products.
The
purchase price of $1.3 million for the OLCC licensed marijuana production and processing facility, consisting of the building
and equipment was paid for by the issuance of 12 million shares of KAYS restricted stock to the seller at closing. The shares
carry a lock-up-restriction that allows for their staged eligibility for resale over a 61-month period from the date of the purchase
of the facility by KAYS.
Additionally,
the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds
from the sale of those shares were and are being used for acquisition related expenses, transitional operating costs and facility
capital improvements with respect to the production and processing facility we purchased.
KAYS
intends to utilize the processing facilities to grow their own top-shelf, connoisseur-grade marijuana flower, produce various
brands of oils, edibles, concentrates and extracts, and develop medical grade laboratory facilities for the production of a proprietary
Kaya Cannaceuticals™ line of both CBD and CBD/THC products for the health, skincare and medical industries.
Pursuant
to an interim Management Agreement entered into between the parties, the Company has assumed operations of the 12,000-square foot
facility pending transfer of the licenses by the OLCC to the Company, upon completion of a satisfactory compliance review. As
part of planned expansion and renovations for the facility, KAYS began site improvements and has begun supplying its three Kaya
Shack™ retail outlets with Kaya Farms™ cannabis and cannabis products from the facility
Acquisition
of the Eugene, Oregon facility has enabled the Company to recommence its Kaya Farms™ cannabis grow, processing and manufacturing
operations. Please see the following pages for copies of testing results and pictures of various aspects of production.
Kaya Farms™
- Cannabis and Cannabis Products
Proprietary Cannabis
Strains
Kaya Farms Proprietary
Cannabis Concentrates
Fall Production Run
- 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)
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.
Domestic and International Expansion
The Company is focusing
its efforts on expanding its operations both domestically and internationally by:
·
|
|
replicating
its Kaya Shack™ brand retail outlets through franchising, initially in Canada,
where the production and use of marijuana for both medical and recreational purposes
is legal nationwide and ultimately into U.S. states where medical and recreational marijuana
production and use is legal or expected to become legal in the near term;
|
·
|
|
retaining
Franchise Academy, Inc., a franchise consulting group, to assist it, together with Garfinkle
Biderman LLP, a Canadian law firm specializing in the franchise arena, in the development,
planning, launch and implementation of its retail franchise program in Canada;
|
·
|
|
utilizing
its marijuana grow, processing, manufacturing and production facilities (which have the
capability to grow and process up to 100,000 pounds of cannabis annually) to support
its planned franchised outlets, in order to both maintain quality control and offer customers
a consistent customer experience while reducing costs of goods to franchisees;
|
·
|
|
developing,
producing and marketing, additional cannabis products, including flower, concentrates,
extracts, cannabis-infused edibles, topicals, marijuana cigarettes and other specialty
cannabis derivatives using its proprietary Kaya Shack™ and Kaya Farms™ brands
edibles, marijuana cigarettes, extracts, and topicals;
|
·
|
|
establishing
operations in Greece Israel, where it will seek to grow and export legal medical and
recreational cannabis to European and Asian countries, as regulations permit; and
|
·
|
|
ultimately,
taking advantage of anticipated regulatory changes to export cannabis and cannabis products
from Oregon to other jurisdictions where medical and recreational cannabis use is legal.
|
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 and development .
Canada
Canadian
Franchising: KAYS has targeted Canada for its first international sale and operation of Kaya Shack™ cannabis store
franchises. KAYS has entered into an area representation agreement with The Franchise Academy (a leading Canadian Franchise Development
and Sales Group) to implement the Kaya Shack™ Retail Cannabis Store program in Canada (the only G7 country that has legalized
both medical and recreational cannabis production, sale and use on a national level). The agreement targets 75-100 Kaya Shack™
Cannabis Retail locations throughout Canada through a multi-year structured rollout, subject to licensing and market conditions.
The Franchise
Academy (http://www.franchiseacademy.ca) and its founder Shawn Saraga, is a member and national sponsor of the Canadian Franchise
Association. With over 15 years of industry experience and having successfully closed over 700 franchise agreements and leases
across Canada, the Franchise Academy has the knowledge, expertise, network and dedication to assist select franchisors enter the
Canadian market.
Additionally,
KAYS has retained Toronto, Canada based law firm of Garfinkle Biderman, LLP to prepare the Franchise Disclosure Documents and
related items for the sale of Kaya Shack™ cannabis store franchises in Canada. We expect the franchise sale and placement
effort throughout Canada to progress over the next 3-24 months. KAYS plans to ultimately expand its franchise operations to the
U.S., as regulations and laws permit.
Greece
KAYS has entered
into a Memorandum of Understanding (“MOU”) setting forth an agreement in principle for KBI to acquire a 50% ownership
interest in Greekkannabis, PC (“GKC”). GKC is a recently formed 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.
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). 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.
GKC plans to
establish its cannabis cultivation and processing facility on land already identified outside of Athens. Project management envisages
3 stages of development, each comprised of 125,000 square feet of light-deprivation greenhouse cultivation. Each phase is expected
to produce 93,600 pounds of premium medical cannabis, for an anticipated total project capacity of not less than 280,0000 pounds
annually for distribution throughout Europe and other select markets.
In consideration
for KBI providing the necessary expertise related to cannabis cultivation, processing, brand development and other matters, GKC
has extended an option to KBI to acquire a 50% ownership interest in GKC by reimbursing GKC for 50% of the license application
costs (with allowances for KBI’s expenses as well). The agreement is subject to due diligence review by KBI and final licensure
by the Greek Authorities.
KAYS and KBI
are represented in Greece by the Athens based law firm of Dalakos Fassolis Theofanopoulos (https://dftlaw.gr/). The firm has developed
a long-established and well-respected commercial legal practice and has developed a wide international network of correspondent
relationships with overseas law offices throughout the world.
Growth
Strategy
The
Company has established a well-defined strategy for entering and maintaining a strong presence in the legal marijuana sector.
The cornerstones of this strategy include:
|
·
|
All
operations are to be conducted in accordance with State and Local Laws and Federal Enforcement Policies and Priorities as
it relates to Marijuana (as outlined in the Justice Department's Cole Memo dated August 29, 2013, US Attorney General Jeff
Sessions Memo dated January 4, 2018, and subsequent commentary from US Attorney for the District of Oregon Billy Williams).
|
·
|
|
The
Company will seek to operate in a vertically integrated manner (grow, process and sell) wherever permitted by law. In states
or countries where vertical integration is not permitted, the Company plans to determine which of the permitted activities
offers the most potential for growth and value creation.
|
·
|
|
The
Company will seek to engage, sponsor or lead local advocacy and lobbying groups that have a significant impact on the evolution
and character of laws and the regulations under which legal marijuana operations are implemented in select markets.
|
·
|
|
The
Company shall work with law enforcement and government officials to insure compliance with all regulations.
|
Marketing and
Sales
The Company will
only market its legal marijuana as in compliance with applicable state law. The Company employs a marketing campaign consisting
of four cornerstones:
|
·
|
Promoting
and establishing the Kaya Shack™ brand.
|
|
·
|
A
positive and active online presence.
|
|
·
|
Daily
specials and promotions.
|
|
·
|
Quirky
and fun holiday specials.
|
Our core strategic marketing
objectives include:
|
|
Establishing
and Enhancing the Kaya Shack™ Brand – positioning the Company’s brand to have positive and value
related associations with all prospective and existing customers.
|
|
|
Operating
Cooperatively - cooperation, as a strategy, helps develop a network of suppliers and marketing channels able to promote
Kaya Shack™.
|
|
|
Delivering
Value - customer value is achieved when the perceived value of what we sell along with the value of the experience
we deliver exceeds the price we charge.
|
|
|
Driving
Customer Traffic - the only two ways to increase store income is to sell more to our existing customers and attract
new customers. Programs are in place to accomplish both tasks.
|
Government
Regulation
We
are subject to general business regulations and laws, as well as regulations and laws directly applicable to our operations. As
we continue to expand the scope of our operations, the application of existing laws and regulations could include matters such
as pricing, advertising, consumer protection, quality of products, and intellectual property ownership. In addition, we will also
be subject to new laws and regulations directly applicable to our activities.
Any
existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary
to comply with such laws and regulations, which could hinder or prevent the growth of our business.
Federal,
state and local laws and regulations governing legal recreational and medical marijuana use are broad in scope and are subject
to evolving interpretations, which could require us to incur substantial costs associated with compliance. In addition, violations
of these laws or allegations of such violations could disrupt our planned business and adversely affect our financial condition
and results of operations. In addition, it is possible that additional or revised federal, state and local laws and regulations
may be enacted in the future governing the legal marijuana industry. There can be no assurance that we will be able to comply
with any such laws and regulations and its failure to do so could significantly harm our business, financial condition and results
of operations.
Competition
The
legal marijuana sector is rapidly growing and the Company faces significant competition in the operation of retail outlets, MMDs
and grow facilities. Many of these competitors will have far greater experience, more extensive industry contacts and greater
financial resources than the Company. There can be no assurance that we can adequately compete to succeed in our business plan.
Employees
As
of the date as of this Report, our Oregon operations have a total of 12-15 part-time store employees including budtenders, trimmers,
growers, and 6 full-time employees, consisting of the Senior Vice President of Cannabis Operations, the Vice President of Marketing
and Brand development, the Manager of Kaya Farms and 3 store managers. Additionally, we engage several consultants to assist with
daily duties and business plan implementation and execution. Additional employees will be hired and other consultants engaged
in the future as our business expands.
Results of Operations
Three months ended September
30, 2019 compared to three months ended September 30, 2018
Revenues
We had revenues
of $208,843 for the three months ended September 30, 2019 as compared to revenues of $303,888 for the three months ended September
30, 2018. The decrease in revenue for the 2018 quarter to 2019 quarter was due to the normal fluctuation in the market and the
fact that we have reduced our footprint in Oregon to three stores as we prepare to concentrate on international expansion to grow
the Company.
Cost of Goods Sold
Our cost of
goods sold for the three months ended September 30, 2019 was $99,460 compared to cost of goods sold of $136,527 for the three
months ended September 30, 2018. The decrease in cost of goods sold was due to reduced retail operation as a result of the repository
of the Company’s Oregon retail operation of three outlets and normal fluctuation in the wholesale cannabis market.
Salaries and Wages
Salaries and
Wages decreased to $142,378 for the three months ended September 30, 2019 from $155,539 for the three months ended September 30,
2018. The reduction in salaries and wages during the current period was due the repositioning of the Company’s Oregon retail
operations to three outlets.
Selling, General and Administrative
Expenses
Selling, general
and administrative expenses decreased to $234,085 for the three months ended September 30, 2019 from $260,652 for the three months
ended September 30, 2018, primarily as a result of the repositioning of the Company’s Oregon retail operations.
Professional Fees
Professional
fees were $71,363 for the three months ended September 30, 2019, as compared to $511,415 for the three months ended
September 30, 2018. The decrease was due to the settlement of certain legal disputes. Our professional fees were primarily
attributable to accounting, auditing and legal fees associated with maintaining our public markets listing.
Interest Expense
Interest
expense and debt amortization expense decreased to $539,288 for the three months ended September 30, 2019 from $962,716 for
the three months ended September 30, 2018. The decrease were due to lesser debt incurred over the past 12 months to acquire
land and fund expansion of our operations.
Derivative Liabilities Expense
Derivative liabilities
expense decrease to $64,381 for the three months ended September 30, 2019 from $955,759 for the three months ended September
30, 2018. The decrease were due to change in stock price as well as the volatility factors used in the derivative calculations.
Loss on extinguishment of debt
Loss on extinguishment of debt was $-0- for the three months ended September 30, 2019 as compared
to $1,054,825 for the three months ended September 30, 2018.
The loss was due to ratchet provision, which is change in conversion
price on one of the convertible notes issued in 2018.
Change in Fair Value of Embedded
Derivative Liabilities
We had a
gain of $1,668,486 from change in fair value of embedded derivative liabilities for the three months ended
September 30, 2019, compared to a gain of $4,250,351 from change in fair value of embedded derivative liabilities for
the three months ended September 30, 2018. This decrease was due to change in stock price as well as the volatility
factors used in the derivative calculations.
Net Income attributed to Kaya Holdings
Inc.
We had net income
of $815,905 attributed to Kaya Holdings Inc. for the three months ended September 30, 2019, as compared to net income of $579,924
for the three months ended September 30, 2018.
The
majority of our net income during the three-month period ending September 30, 2019 was a result of the derivative liabilities
associated with our Convertible Debt and a reduction in our stock price as well as the less volatility factors used in the
derivative calculations. The net losses attributed to non-controlling interest for the three months ended September 30, 2019
and 2018 were $89,582 and $63,359, respectively.
Nine months
ended September 30, 2019 compared to Nine months ended September 30, 2018
Revenues
We had revenues
of $721,722 for the Nine months ended September 30, 2019, as compared to revenues of $850,386 for the Nine months ended September
30, 2018. The decrease in revenue from the 2018 period to the 2019 period was due to the normal fluctuation in the market and
the fact that we have reduced our footprint in Oregon to three stores as we prepare to concentrate on international expansion
to grow the Company.
Cost of Goods Sold
Our cost of
goods sold for the Nine months ended September 30, 2019 was $337,691 compared to cost of goods sold of $357,538 for the Nine months
ended September 30, 2018. The decrease in cost of goods sold during the current period was due to normal fluctuation in the wholesale
cannabis market.
Salaries and Wages
Salaries and
Wages increased $403,248 for the Nine months ended September 30, 2019 from $391,171 for the Nine months ended September 30,
2018. The increase in salaries and wages was due to normal increase in labor cost.
Selling, General
and Administrative Expenses
Selling, general
and administrative expenses increased to $694,305 for the Nine months ended September 30, 2019, as compared to $599,898 for the
Nine months ended September 30, 2018. This slight increase reflects the fact that some of the expenses associated with this category
have increased over time.
Professional
Fees
Professional
fees were $262,332 for the Nine months ended September 30, 2019, as compared to $1,869,474 for the Nine months ended September
30, 2018. The decrease in professional fees was a result of the settlement of certain legal disputes.
Interest expense
Interest expense
and debt amortization expense decreased to $1,511,469 for the Nine months ended September 30, 2019 from $2,370,646 for
the Nine months ended September 30, 2018. The decease was due to a decrease in debt incurred over the past 12 months to fund
expansion of our operations.
Derivative Liabilities Expense
Derivative liabilities
expense decreased to $626,529 for the Nine months ended September 30, 2019 from $2,869,350 for the Nine months ended September
30, 2018. These decreases were due to change in stock price as well as the volatility factors used in the derivative calculations.
Loss on extinguishment of debt
Loss on extinguishment
of debt was $25,000 for the Nine months ended September 30, 2019 as compared to $1,054,825 for the Nine months ended September
30, 2018. The loss was due to ratchet provision, which is change in conversion price on one of the convertible notes issued in
2018.
Change in Fair Value of Embedded
Derivative Liabilities
We had a
gain of $11,809,651 from change in fair value of embedded derivative liabilities for the nine months ended September 30,
2019, compared to a gain of $20,355,496 from change in fair value of embedded derivative liabilities for the nine
months ended September 30, 2018. This decrease was due to change in stock price as well as the volatility factors used
in the derivative calculations.
Net Income attributed to Kaya Holdings
Inc.
We incurred
net income of $8,929,178 attributed to Kaya Holdings Inc. for the Nine months ended September 30, 2019, as compared to a net income
of $11,830,652 or the Nine months ended September 30, 2018.
The
majority of our net income during the Nine-month period ending September 30, 2019 was a result of the derivative liabilities
associated with our Convertible Debt and a reduction in our stock price as well as the less volatility factors used in the
derivative calculations. The net loss attributed to non-controlling interest for the Nine months ended September 30, 2019 and
2018 was $258,191 and $137,913, respectively.
Liquidity and Capital
Resources
May
2017 Financing
On May 11, 2017,
we entered into a second financing agreement with Cayman Venture Capital Fund (the “Institutional Investor”) which
had previously completed approximately $3.3 Million in in financing as listed in the 2018 10-K and previous filings to provide
the Company with up to an additional $5.8 million in convertible note funding (the “ May 2017 Notes ”)
through July 31, 2018 (the “ May 2017 Financing Agreement ”). The May 2017 Financing Agreement was amended
as of July 31, 2017, to increase the amount of funding available to the Company thereunder to $6.3 million and to extend the time
period for such funding to May 31, 2019 and was subsequently amended as of November 15, 2017 and as of March 31, 2018, to further
increase the amount of funding available to the Company thereunder to $7.75 million and to provide for the remaining $5.8million
in principal amount of May 2017 Notes to be (a) convertible into shares of the Company’s common stock at conversion prices
ranging from $0.03 to $0.11 pursuant to the terms of each May 2017 Note as described below; and (b) to extend the time period
for such funding to April 30, 2020.
Pursuant to
an additional agreement reached as of March 31, 2018, KAYS and the Institutional Investor agreed that effective as of January
1, 2019, (a) the maturity date of all then outstanding Company promissory notes held by the Institutional Investor and its affiliate,
NWP Finance LTD, will be extended from January 1, 2019 to January 1, 2020; (b) all of the $1.75 million in principal amount of
May 2017 Notes currently outstanding and the remaining $5.8 million in principal amount of May 2017 Notes which may be issued
under the Agreement, as amended, are to be secured by a mortgage lien on the Company’s 26-acre Lebanon, Oregon property,
substantially similar in form and substance to the mortgage securing the $500,000 in principal amount of $0.03 Secured Notes purchased
by the Institutional Investor, with the caveat that the property, improvements or rights to utilize them cannot be directly or
indirectly leased, assigned or otherwise pledged to any entity without approval of the Institutional Investor, and in the event
that there is a change in control of the Company or its subsidiaries the May 2017 Notes become immediately due and payable; and
(c) the Institutional Investor was be granted piggy-back registration rights with respect to shares of the Company’s common
stock it may hold or is issuable upon conversion of any Notes it or its Assigns may hold in the event the Company files a Registration
Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended to sell shares
of its common stock or permit the resale by shareholders of previously issued shares of common stock, up to a maximum of 30% of
the shares registered under such registration statement.
Effective as
of January 20, 2019, the Agreement was further amended to: (a) extend the due dates for funding due under the Agreement for each
of the remaining trenches (including the $420,000 remaining “$0.03” Notes that were due to expire December 31, 2018)
by Nine (9) months; (b) agree to extend the maturity date all then outstanding Company promissory notes held by the Institutional
Investor and its affiliate, NWP Finance LTD, from January 1, 2020 to January 1, 2021; and (c) pursuant to price adjustment features
in the outstanding Notes held by the Institutional Investor, the Company confirmed that all outstanding Notes with a conversion
price greater than $0.03 held by the Institutional Investor would be lowered to $0.03 per share at time of conversion.
On July 2, 2019
the Institutional investor completed the purchase of all $420,000 of the remaining “$0.03” Notes that had been extended
effective January 20, 2019, and the Agreement was further amended to allow for the purchase of up to $2,000,000 in “0.03”
Notes until June 30, 2020 with the understanding that the Agreement will be reevaluated as to pricing and due dates for the approximately
$2,900,000 in principal amount of Notes remaining after the $2,000,000 June 30, 2020 0.03 Notes have been subscribed for.
As of the date
of this Quarterly report, the Institutional Investor has purchased an aggregate of $2,800,000 in principal amount of May 2017
Notes from the Company under the May 2017 Financing Agreement, as amended to date, of which are (i) convertible into shares of
the Company’s common stock at a conversion price of $0.03; and (ii) secured by a mortgage lien on the Company’s 26
acre Lebanon, Oregon property (the “ $0.03 Secured Notes ”). Additionally, on October 11, 2019 the Institutional
Investor subscribed for 5 Series A Preferred Shares of Kaya Brands International, Inc. for $75,000 which brings their total financings
in KAYS and KBI since 2013 to date of just under $7,000,000.
January
2018 Financing
Effective January
22, 2018, and amended as of July 31, 2018 we entered into a financing agreement with a high net worth investor (the “ HNW
Investor ”) to provide the Company with up to $1.4 million in convertible note funding (the “ January 2018
Notes ”) through July 31, 2018 (the “ January 2018 Financing Agreement ”). Pursuant
to the January 2018 Financing Agreement, upon execution of the January 2018 Financing Agreement, the HNW Investor purchased $100,000
in principal amount of January 2018 Notes, which are convertible into shares of the Company’s common stock at a conversion
price of $0.10 per share (the “$0.10 Notes ”).
While the January
2018 Financing Agreement granted the HNW Investor the right to acquire additional January 2018 Notes by certain deadlines if additional
funding was provided, no additional $0.10 Notes were purchased until the January 2018 Financing Agreement was amended in December,
2018 to allow the HNW investor the right to purchase an additional $25,000 of January 2018 Notes, which are convertible into shares
of the Company’s common stock at a conversion price of $0.05 per share (the “$0.05 Notes ”). In January
2019 the Agreement was further amended to lower the conversion price of the previously purchased $0.10 Note to $0.05, and to modify
terms of the $0.10 Note to make them consistent with the May 2017 Financing Agreement executed with the Institutional Investor,
and to allow for the right of the HNW Investor to acquire an additional $200,000 of January 2018 Notes, which are convertible
into shares of the Company’s common stock.
In March, 2019
the agreement was further amended to lower the conversion prices of both the previously issued and recently offered $200,000.00
of $0.05 Notes to $0.03. As of the date of this Quarterly report, the HNW Investor has purchased a total of $105,000.00 in principal
amount of the January 2018 $0.03 Notes and has indicated he will purchase the remaining $95,000 of these Notes.
All the above
securities were issued pursuant to the exemption from registration under the Securities Act afforded by Section 4(a)(2) thereof
and Regulation D thereunder.
Use
of Proceeds
The proceeds
from the offer and sale of the $2.1M Notes, the May 2017 Notes and the January 2018 notes and are and will be used to fund the
Company’s growth plan, including the expansion of our chain of Kaya Shack™ Marijuana Superstores in Oregon, the acquisition
and development of our Lebanon, Oregon legal cannabis cultivation and manufacturing facility, the operation and development of
our Eugene, Oregon 12,000 square foot indoor legal marijuana grow and manufacturing facility and the development and introduction
of new Kaya Shack™ branded cannabis products.
Plan
of Operations
Management believes
that consummation of the proceeds received and expected to be received from the above described financings as well as any other
financing transactions that it may enter into, combined with existing and anticipated revenues, has alleviated the Company’s
financial difficulties to a significant extent and will allow the Company to meet its anticipated working capital needs for a
period of between twelve and eighteen months from the date of this report. However, there can be no assurance that the balance
of the $7.75 million financing will be completed, or that management’s belief will be correct and that the Company will
not sooner require additional financing to meet its working capital needs prior to achieving profitability or positive cash flow.
Moreover, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which
case our business, financial condition, cash flows and results of operations may be materially and adversely affected.
Note
Conversions
On March 5,
2019, a total of 7,785,952 shares of common stock were issued to Cayman Venture Capital Fund in consideration of settlement a
total of $233,579 in principal and interest pursuant to a Note Conversion. The Note was reported as converted on September 16,
2018 when the documents were submitted but the shares were not issued until March 5, 2019. The shares have now been issued and
are in electronic format in an account at the transfer agent pending delivery to the Cayman Venture Capital Fund. For more information
see Footnote “R” to Convertible Debt Summary in Note 6 to the Financials.
On October 16,
2019 a total of 166,666 shares of common stock were issued to an investor in consideration of settlement of a total of $5,000
in interest owed pursuant to a Note Conversion. The shares have been issued and are in electronic format in an account at the
transfer agent pending delivery instructions of the shareholder. For more information see Footnote “BB” to Convertible
Debt Summary in Note 6 to the Financials.
On October 16,
2019 a total of 333,333 shares of common stock were issued to an investor in consideration of settlement of a total of $10,000
in interest owed pursuant to a Note Conversion. The shares have been issued and are in electronic format in an account at the
transfer agent pending delivery instructions of the shareholder. For more information see Footnote “CC” to Convertible
Debt Summary in Note 6 to the Financials.
On October 16,
2019 a total of 2,805,733 shares of common stock were issued to an investor in consideration of settlement of a total of $84,172.00
in principal and interest owed pursuant to a Note Conversion. The shares have been issued and are in electronic format in an account
at the transfer agent pending delivery instructions of the shareholder. For more information see Footnote “X” to Convertible
Debt Summary in Note 6 to the Financials.
On October
16, 2019 a total of 50,000 shares of restricted Series C Preferred Stock were issued to an affiliated shareholder of the
Company in consideration of settlement of a total of $500,000.00 in principal owed pursuant to a Note Conversion. Each
Preferred Share is convertible into 433.9297 common shares so the 25,000 Preferred Shares if converted would result in the
issuance of 21,696,485 common shares. For more information see Footnote “EE” to Convertible Debt Summary in Note
6 to the Financials.
On October 16,
2019 a total of 2,100,000 shares of stock were issued to a total of 12 employees of the Kaya Shack from the KAYS 2011 Employee
Stock Plan (the “Plan”) for their service to the Company. The shares are subject to a lockup agreement and absent
earlier consent by the Company they not eligible for resale until December 31, 2021.