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EX-32.1 - CERTIFICATION PURSUANT TO - Kaya Holdings, Inc.kays10qa1080216ex32_1.htm
EX-31.1 - CERTIFICATIONS - Kaya Holdings, Inc.kays10qa1080216ex31_1.htm

UNITED STATES

 

SECURITIES AND EXCHANGE COMMISSION

 

Washington, D. C. 20549

 

FORM 10 Q/A

 

AMENDMENT NO. 1 TO

 

 

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

 

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Quarterly Period ended March 31, 2015

 

 

Commission File No.: 333177532

 

Kaya Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 900898007
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification Number)

 

305 S. Andrews Avenue

 

Suite 209

 

Ft. Lauderdale, Florida 33301

(Address of principal executive offices)

 

(561) 210-5784

(Issuer's telephone number)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and

 

(2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]

 

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

 

 

 
 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b2 of the Exchange Act. (Check one):

 

Large accelerated filer [ ] Accelerated filer [ ]

 

Nonaccelerated filer [ ] Smaller reporting company [X]

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b2 of the Exchange Act.) Yes [ ] No [X]

 

As of May 20, 2015, the Issuer had 86,989,325 shares of its common stock outstanding

 

 
 

 

EXPLANATORY NOTE

 

In connection with the preparation and filing by Kaya Holdings, Inc. (the “Company”) of its Annual Report on Form 10-K for the year ended December 31, 2015 (the “2015 Form 10-K”), the Company determined that certain of the Company’s outstanding convertible debt instruments contain conversion price protection clauses that create derivative liabilities. These derivative liabilities were not reflected in the Company’s unaudited condensed consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q for the periods ended March 31, June 30, and September 30, 2015.

 

Additionally, management of the Company conducted analysis of the Company’s convertible notes with fixed conversion price issued and audited in 2014 and found that the impact of derivative liabilities on our 2014 convertible notes due to tainting issue were not properly recorded in the financial statements.  

 

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 Black Scholes Option Model.

 

Accordingly, the Company is hereby amending this Quarterly Report on Form 10-Q to restate its previously filed financial statements contained therein to give effect to the foregoing.

 

KAYA HOLDINGS, INC.

 

INDEX TO QUARTERLY REPORT

 

ON FORM 10Q

 

Part I – Financial Information Page
 
Item 1. Condensed Consolidated Financial Statements  
  Condensed Consolidated Balance Sheet 1
  Condensed Consolidated Statements of Operation 3
  Condensed Consolidated Statements of Cash Flows 4
  Notes to Condensed Consolidated Financial Statements 6
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 23
Item 3. Quantitative and Qualitative Disclosures About Market Risk 34
Item 4. Controls and Procedures 34
Part II Other Information 35
   
Item 1. Legal Proceedings 35
Item 1A Risk Factors 35
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 35
Item 3. Defaults Upon Senior Securities 35
Item 4. Mine Safety Disclosures 35
Item 5. Other Information 36
Item 6. Exhibits  

 

Signatures

 

 
 

Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
ASSETS 
Assets      Restated
       Unaudited  Audited
       March 31, 2015  December 31, 2014
CURRENT ASSETS:              
Cash and equivalents      $40,673    35,194 
Inventory-Net of Allowance       44,335    5,267 
Prepaid license fee       —      1,667 
Total Current Assets       85,008    42,128 
               
OTHER ASSETS:              
Property and equipment, net       63,620    57,379 
Deposits       16,200    16,200 
Total Other Assets       79,820    73,579 
               
Total Assets       164,829    115,707 
               
               
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIENCY)              
               
CURRENT LIABILITIES:              
Accounts payable and accrued expense       228,457    215,174 
Accounts payable and accrued expense-related parties       —      20,109 
Accrued interest       27,118    28,917 
Convertible Note Payable-net of discount       141,775    204,276 
Derivative liabilities       2,246,059    1,931,759 
Convertible Note Payable-related party-Net of Discount       500,000    250,000 
Note Payable-Related Party       250,000    250,000 
Notes Payable       110,000    200,000 
Total Current Liabilities       3,503,409    3,100,235 
               
LONG TERM LIABILITIES:              
Convertible Note Payable-related party-Net of Discount       —      —   
Note Payable-Related Party       —      —   
Total Long Term Liabilities       —      —   
               
Total Liabilities       3,503,409    3,100,235 

 

 

               
STOCKHOLDERS' DEFICIT:              
Convertible Preferred Stock, Series C, par value $.001; 10,000,000 shares authorized;              
55,120 and 55,120 issued and outstanding at March 31, 2015 and December 31, 2014       55    55 
Common stock , par value $.001;  250,000,000 shares authorized;              
   85,989,325 shares issued as of March 31, 2015 and              
    76,289,325 shares issued as of December 31, 2014       85,989    76,289 
Additional paid in capital       4,271,408    3,620,608 
Subscribed shares not issued       100,000    202,000 
Accumulated Deficit       (7,622,949)   (6,715,758)
Non-controlling Interest       (173,083)   (167,722)
Net Stockholders' Deficit       (3,338,580)   (2,984,528)
Total Liabilities and Stockholders' Deficit      $164,829   $115,707 
               

 

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

 

Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Unaudited
       
       
       
    Restated      
    For the three    For the three 
    months ended    months ended 
    March 31, 2015    March 31, 2014 
           
Net Sales  $30,339   $—   
           
Cost of Sales   8,435    —   
           
Gross Profit   21,904    —   
           
Operating Expenses:          
Professional Fees   547,010    99,670 
Salaries and Wages   23,063    —   
General and Administrative   76,584    62,048 
           
Total Operating Expenses   646,657    161,718 
           
Operating Loss   (624,753)   (161,718)
           
Other Income(expense)          
Interest Expense   (1,500)   (616)
Derivative Liabilities Expense   (174,515)   —   
Change in Derivative Liabilities Expense   (139,785)   —   
Other income   —      90,995 
Asset Valuation Allowance   28,000      
Forgiveness of debts   —      21,369 
Total Other Income(Expense)   (287,800)   111,748 
           
Net (loss) before Income Taxes   (912,553)   (49,970)
           
Provision for Income Taxes   —      —   
           
Net (loss)   (912,553)   (49,970)
           
Net (Loss) attributed to non-controlling interest   (5,361)   (23,334)
           
Net (loss) attributed to Kaya Holdings, Inc.   (907,192)   (26,636)
           
Basic and diluted net loss per common share  $(0.01)  $**
           
Weighted average number of common shares outstanding   84,079,325    70,949,325 
           
The accompanying notes are an integral part of these financial statements. 

 

**Less than $0.01

 
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cashflows
Unaudited
   Restated   
   For the three  For the three
   months ended  months ended
   March 31, 2015  March 31, 2014
OPERATING ACTIVITIES:          
Net loss  $(907,192)  $(49,970)
Adjustments to reconcile net loss to net cash used in operating activities:          
Net loss attributable to non-controlling interest   (5,361)     
Depreciation   1,515    373 
Gain from restructure of stockholder loan   —      (92,364)
Derivative Expense   179,225      
Change in Derivative Liabilities   (4,710)     
Amortization of debt discount   139,785    —   
Stock issued for services   444,500    —   
Stock issued for interest   1,500      
Changes in operating assets and liabilities:          
Prepaid Expense   1,667      
Inventory   (39,324)     
Other assets   —      (21,632)
Accounts payable and accrued expenses   (8,626)   48,697 
           
        Net cash used in operating activities   (197,021)   (114,896)
           
INVESTING ACTIVITIES:          
Purchase of property and equipment   (7,500)   (5,835)
Proceeds for equipment   —      —   
Net cash used in investing activities   (7,500)   (5,835)
           
FINANCING ACTIVITIES:          
Payments on installment agreement   —      (5,000)
Payments on related party debt   —      (12,500)
Proceeds from Convertible debt   135,000    —   
Proceeds from Note Payable   10,000    —   
Proceeds from sales of common stock   65,000    250,000 
        Net cash provided by (used in) financing activities   210,000    232,500 

 

 

           
NET INCREASE IN CASH   5,479    111,769 
           
CASH BEGINNING BALANCE   35,194    185 
           
CASH ENDING BALANCE  $40,673   $111,954 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Taxes paid   —      —   
Interest paid   —      —   
           
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING          
   AND FINANCING ACTIVITIES:          
    —      —   
Value of convetible preferred shares of subsidiary issued        96,000 
Value of common shares issued as payment of debt   30,000      
Value of common shares issued as payment for equipment   17,500      

 

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

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

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) and Alternative Fuels Costa Rica AFA-CR, LTDA which are both wholly-owned, and as of 2014, Marijuana Holdings Americas, Inc. (a Florida corporation) which is a majority owned subsidiary. 

 

Nature of the Business  

 

The Company operates a subsidiary, Marijuana Holdings Americas, Inc., a Florida corporation, that pursues medical and/or recreational licenses for the growing, processing and/or sale of marijuana in jurisdictions where it is legal and permissible under local laws. The subsidiary was formed in March 2014.

 

In March 2014 Marijuana Holdings Americas, Inc. (through local Oregon subsidiaries) began the application process to obtain licenses to operate medical marijuana dispensaries in Oregon. On March 21, 2014 the Company received notice from the Oregon Health Authority that MJAI Oregon 1 had been granted provisional licensing approval to operate their first Medical Marijuana Dispensary in Portland, Oregon and subsequently received full licensing approval for the first “Kaya ShackTM” retail medical marijuana dispensary, which we began operating July 3, 2014.

 

In April 2015 KAYS announced that it has commenced with its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana.

 

NOTE 2 - LIQUIDITY AND GOING CONCERN

 

The Company’s consolidated financial statements as of and for three months ended March 31, 2015 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net loss of $907,192 for the three months ended March 31, 2015 and $26,636 for the three months ended March 31, 2014. At March 31, 2015 the Company has a working capital deficiency of $3,418,401 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:

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

  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,

 

  other business transactions to assure continuation of the Company’s development and operations,
  development of a unified brand and the pursuit of licenses to operate medical marijuana facilities under the branded name.

 

NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICES AND BASIS OF PRESENTATION

 

Basis of Presentation

 

The accompanying unaudited condensed consolidated financial statements of the Company and the notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The December 31, 2014 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included herein should be read in conjunction with the audited financial statements and the notes thereto that are included in the Company’s Annual Report on form 10-K for the year ended December 31, 2014 filed with the SEC on April 15, 2015.

 

The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended December 31, 2014. The quarterly information presented should be read in conjunction with the annual report filed on Form 10-K with the Securities and Exchange Commission.

 

Use of Estimates

 

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

 

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

 

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.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

Risks and Uncertainties

 

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

 

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

 

Fiscal Year

 

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

 

Principles of Consolidation

 

The consolidated financial statements include the accounts of Kaya Holdings, Inc. and its subsidiary, Alternative Fuels Americas, Inc. (a Florida corporation) and Marijuana Holdings Americas, Inc. (a Florida corporation) which is a majority owned subsidiary.  All inter-company accounts and transactions have been eliminated in consolidation.

 

Non-Controlling Interest

 

The company owns 55% of Marijuana Holdings Americas, Inc.

 

Cash and Cash Equivalents

 

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

 

Inventory

 

Inventory will consist of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method.  The Company will periodically review historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.  

 

Property and Equipment

 

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

 

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.

 

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.

  

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

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.

 

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

 

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 6.

 

Embedded Conversion Features

 

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

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

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 Black-Scholes option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

[]

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.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

Stock-Based Compensation – Non Employees

 

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

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

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

 

[] 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.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

 

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

 

Revenue Recognition

  

Revenue is recorded when all of the following have occurred: (1) persuasive evidence of an arrangement exists, (2) asset is transferred to the customer without further obligation, (3) the sales price to the customer is fixed or determinable, and (4) collectability is reasonably assured.

 

Cost of Sales  

 

Cost of sales represents costs directly related to the purchase of goods and third party testing of the Company’s products.  

 

 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.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

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.

 

Subsequent Events

 

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

  

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

 

Recently Issued Accounting Pronouncements

 

In April 2014, the FASB issued ASU No. 2014-08, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 205-20.

 

Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The ASU states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

The ASU also requires additional disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. In addition, the ASU requires disclosure of the pre-tax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements.

 

The ASU is effective for public business entities for annual periods beginning on or after December 15, 2014, and interim periods within those years.

 

In May 2014, the FASB has issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”.  The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.”  In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update.  Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments in ASU No, 2014-09 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted.  We do not believe the adoption of this update will have a material impact on our financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Re-Classifications

 

Certain amounts in 2014 were reclassified to conform to the 2015 presentation. These reclassifications had no effect on consolidated net loss for the periods presented.

 

The fair value of the warrants on the date of issuance and on each re-measurement date of those warrants classified as liabilities is estimated using the Black-Scholes option pricing model using the following assumptions: contractual life according to the remaining terms of the warrants, no dividend yield, weighted average risk-free interest rate of 2.17% at March 31, 2015 and weighted average volatility of 85.63%. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company's various classes of preferred stock, stock price volatility, the contractual term of the warrants, risk free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The warrant liability is recorded in other liabilities on the Company's Consolidated Balance Sheets. The warrant liability is marked-to-market each reporting period with the change in fair value recorded on the Consolidated Statement of Operations and Comprehensive Loss until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

NOTE 4- RESTATEMENT

 

During the year-end audit management determined that it was necessary to restate the financial statements for the period ended March 31, 2015 to properly reflect the derivative liabilities associated with the company’s convertible debt obligation, amortization, imputed interest and asset valuation.

 

Assets   Original     Restated    Change 
                
Property and Equipment   81,120    63,620    (17,500)
                
Total Assets   182,329    164,829    (17,500)
                
Liabilities               
Convertible Debt   25,000    -0-    (25,000)
Convertible Debt-net of discount   416,599    141,775    (274,824)
Derivative Liabilities   8,659    2,246,059    2,237,400 
Accrued Interest   6,905    27,118    20,213 
Convertible Note Payable-Related   351,945    500,000    148,055 
Note Payable-Related   276,011    250,000    (26,011)
                
Total Liabilities   1,423,576    3,503,409    2,079,833 
                
Expenses               
Interest Expense   (192,457)   (1,500)   (190,957)
Derivative Expense   (225)   (314,500)   314,075 
Total Other Income (Expense)   (164,682)   (315,800)   123,118 
Net Loss attributed to Kaya               
Holdings Inc.   (784,074)   (912,553)   (128,479)
                
Net Loss per common share   (0.01)   (0.01)   -0- 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

NOTE 5 – DEBT

 

A)      Notes Payable

 

 

 

  March 31,
2015
  December 31,
2014
                 
Loan payable - Stockholder, 8%, Due December 31, 2015, (1)   $ 250,000     $ 250,000  
Note Payable – due May 25, 2015 (4)     10,000       -0-  
Note Payable -10% due May 31, 2015 (3)     100,000       100,000  
Note Payable - 12% due May 30, 2015 (2)     100,000       100,000  
    $ 460,000     $ 450,000  

 

(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, 2015. $500,000 of the debt is convertible into 50,000 Series C Convertible Preferred Shares of AFAI, which if converted are subject to resale restrictions through December 31, 2015. The two-year note in the aggregate amount of $500,000 is convertible into the Company’s preferred stock at a conversion rate of $10.00 per share of preferred. At a conversion rate of 433.9297 common shares to 1 preferred share, this would result in a total of 21,696,485 common shares issued if all debt was converted. The market value of the stock at the date of issuance of the debt was $0.04. The debt issued is a result of a financing transaction and contain a debt discount feature valued at $367,859 to be amortized over the life of the debt. As of March 31, 2015, the balance of the debt was $500,000. The net balance reflected on the balance sheet is $351,945. 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.

 

(2)  

 On August 11, 2014 the Company received a total of $100,000 from an accredited investor in exchange for a senior promissory note due May 25, 2015 in the aggregate amount of $100,000. Interest rate is stated at 12%. As of March 31, 2015, this balance has not been paid. 

 

(3)  

On November 25, 2014 the Company received a total of $100,000 from an accredited investor in exchange for a senior promissory note due May 31, 2015 in the aggregate amount of $100,000. Interest rate is stated at 10%. As of March 31, 2015, this balance has not been paid.

 

(4)   On January 13, 2015 the Company received a total of $10,000 from an accredited investor in exchange for a senior promissory note due May 25, 2015 in the aggregate amount of $10,000. Interest was prepaid with the issuance of 100,000 shares of common stock. As of March 31, 2015, this balance has not been paid.

 

B)– Convertible Notes Payable

 

The outstanding balance of these notes are 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.

 

The Company valued the derivative liabilities at March 31, 2015 at $2,106,274. The Company recognized a change in the fair value of derivative liabilities for the three months ended March 31, 2015 of $4,710, which were credited to operations and an increase in derivative liabilities of $179,225 from new debt issuances.  In determining the indicated values at March 31, 2015 the Company used the Black Scholes Option Model with risk-free interest rates ranging from 0.018% to 0.02%, volatility ranging from 160% to 336%, a trading price of $.065, and conversion prices ranging from $.05 per share. 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

    March 31,
2015
  December 31,
2014
                 
Convertible note - related party, Due December 31, 2015 unsecured (2)     500,000       500,000  
Convertible note - 10% due June 9, 2015 (3)     50,000       50,000  
Convertible note - 10% due June 13, 2015 (4)     25,000       25,000  
Convertible note - 10% due July 11, 2015 (5)     160,000       160,000  
Convertible note - 10% due June 13, 2015 (6)     100,000       100,000  
Convertible note - 10% due June 30, 2015 (7)     30,000       30,000  
Convertible note - 10% due September 17, 2015 (8)     50,000       -0-  
Convertible note - 10% due September 13, 2015 (9)     60,000       -0-  
Convertible note - due September 30, 2015 (10)     25,000       -0-  
Convertible note - stockholder, 10%, due April 30, 2013, unsecured (1)     25,000       25,000  
    $ 1,025,000     $ 890,000  

 

 

(1)

 

 

At the option of the holder the convertible note may be converted into shares of the Company’s common stock at the lesser of $0.40 or 20% discount to the market price, as defined, of the Company’s common stock. The Company is currently in discussions with the lender on a payment schedule.

 

Accrued interest on this note that was charged to operations for the year ended December 31, 2014 totaled approximately $7,760. Accrued interest on this note that was charged to operations for the quarter ended March 31, 2015 totaled approximately $625 Amortization of the discounts for the year ended December 31, 2014 totaled $25,000, which was charged to interest expense. The balance of the convertible note at march 31, 2015, including accrued interest and net of the discount amounted to $34,630.

 

(2)   At December 31, 2013 the Company was indebted to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal and $103,895 accrued interest, with interest accruing at 10%. On January 2, 2014 the Company entered into a Debt Modification Agreement whereby the total amount of the debt was reduced to $750,000 and there is no accrued interest or principal due until December 31, 2015. $500,000 of the debt is convertible into 50,000 Series C Convertible Preferred Shares of AFAI, which if converted are subject to resale restrictions through December 31, 2015. The two-year note in the aggregate amount of $500,000 is convertible into the Company’s preferred stock at a conversion rate of $10.00 per share of preferred. At a conversion rate of 433.9297 common shares to 1 preferred share, this would result in a total of 21,696,485 common shares issued if all debt was converted. The market value of the stock at the date of issuance of the debt was $0.04. The debt issued is a result of a financing transaction and contain a debt discount feature valued at $367,859 to be amortized over the life of the debt. Total amortization for the quarter ended March 31, 2015 was $45,982. As of March 31, 2015, 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.

 

(3)   On June 9, 2014 the Company received a total of $50,000 from an accredited investor in exchange for one year notes in the aggregate amount of $50,000. The note is convertible after December 9, 2014 and is convertible into the Company’s common stock at a conversion rate of $0.04 per share. The market value of the stock at the date (December 9, 2014) when the debt becomes convertible was $0.09.  The debt issued is a result of a financing transaction and contain a derivative liability feature. As of March 31, 2015, the balance was $50,000. The debt discount feature in the amount of $50,000 is being expensed as interest over the term of the note. As of March 31, 2015, the balance was $50,000. The debt discount in the amount of $50,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $7,705

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

(4)   On June 15, 2014, the Company received a total of $25,000 from an accredited investor in exchange for one year notes in the aggregate amount of $25,000. The note is convertible after December 13, 2014 and is convertible into the Company’s common stock at a conversion rate of $0.04 per share. The market value of the stock at the date (December 13, 2014) when the debt becomes convertible was $0.085. The debt issued is a result of a financing transaction and contain a derivative liability feature. The debt conversion feature in the amount of $25,000 is being expensed as interest over the term of the note. As of March 31, 2015, the balance was $25,000. The debt discount in the amount of $25,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $6,164

 

(5)  

On July 11, 2014 the Company received a total of $160,000 from an accredited investor in exchange for one year note in the aggregate amount of $160,000. The note is convertible after January 13, 2015 and is convertible into the Company’s common stock at a conversion rate of $0.04 per share. The market value of the stock at the date (January 13, 2015) when the debt becomes convertible was $0.077. The debt issued is a result of a financing transaction and contains a derivative liability when the debt becomes convertible as of January 13, 2015. As of March 31, 2015, the balance was $160,000 The debt discount in the amount of $160,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $75,836. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $39,890.

 

(6)  

On September 19, 2014 the Company received a total of $100,000 from an accredited investor in exchange for a six month note in the aggregate amount of $100,000. The note is convertible after December 13, 2014 and is convertible into the Company’s common stock at a conversion rate of $0.04 per share. The market value of the stock at the date (December 13, 2014) when the debt becomes convertible was $0.085. The debt issued is a result of a financing transaction and contain a derivative liability.  As of March 31, 2015, the balance was $100,000. The debt discount in the amount of $100,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $43,094.

 

(7)  

On November 14, 2014 the Company received a total of $30,000 from an accredited investor in exchange for a six month note in the aggregate amount of $30,000. The note is convertible after December 15, 2014 and is convertible into the Company’s common stock at a conversion rate of $0.07 per share. The market value of the stock at the date (December 15, 2014) when the debt becomes convertible was $0.085. The debt issued is a result of a financing transaction and contain a derivative liability. The debt discount in the amount of $30,000 is being expensed as interest over the term of the note. As of March 31, 2015, the balance was $0. The note was converted into 450,000 shares common stock.  

 

(8)  

On February 17, 2015 the Company received a total of $50,000 from an accredited investor in exchange for a six month note in the aggregate amount of $50,000. The note is convertible after February 17, 2015 and is convertible into the Company’s common stock at a conversion rate of $0.04 per share. The market value of the stock at the date when the debt becomes convertible was $0.085. The debt issued is a result of a financing transaction and contain a derivative liability. As of March 31, 2015, the balance was $50,000. The debt discount in the amount of $50,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $11,022.   

 

(9)  

On March 12, 2015 the Company received a total of $60,000 from an accredited investor in exchange for a six month note in the aggregate amount of $60,000. The note is convertible after March 12, 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 $0.085. The debt issued is a result of a financing transaction and contain a derivative liability. As of March 31, 2015, the balance was $60,000. The debt discount in the amount of $60,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $6,162.    

(10)  

On March 13, 2015 the Company received a total of $25,000 from an accredited investor in exchange for a six month note in the aggregate amount of $25,000. The note is convertible after March 13, 2015 and is convertible into the Company’s common stock at a conversion rate of $0.06 per share. The market value of the stock at the date when the debt becomes convertible was $0.085. The debt issued is a result of a financing transaction and contain a derivative liability. As of March 31, 2015, the balance was $25,000. The debt discount in the amount of $25,000 is being expensed as interest over the term of the note. At March 31, 2015 the Company has recorded interest expense from amortization of debt discount in the amount of $709. The company will issue 150,000 shares of common stock as prepaid interest.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

NOTE 6 – STOCKHOLDERS’ EQUITY

 

The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001, of which 100,000 shares have been designated as Series C convertible preferred stock (“Series C” or “Series C preferred stock”). The Board has the authority to issue the shares in one or more series and to fix the designations, preferences, powers and other rights, as it deems appropriate.

 

Each share of Series C has 433.9297 votes on any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 433.9297 shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the holder into 433.9297 shares of common stock.

 

The Company has 250,000,000 shares of common stock authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.

 

During January 2015 the company issued 8,200,000 shares of common stock valued in a range of $0.05 to $0.07 per share. Total cash received was $114,000. Total interest paid with shares was $1,500. Total value of debt paid was $30,000. Total value of assets acquired was $17,500. Total consulting services were $444,500.

 

NOTE 7 – LEASES

 

The Company is obligated under operating lease agreements for its corporate office in Fort Lauderdale, which expires March 2016. The Company concluded an agreement in March 2014 terminating its obligations for leases held for land in Tempate, Costa Rica. The Company concluded the term of its lease agreement for offices maintained in Hollywood, Florida. The Company signed 2 new leases that started in May 2014 and June 2014.

 

 

Kaya Holdings, Inc. and Subsidiaries

March 31, 2015

 

Minimum future lease commitments are:

 

 Year    Amount 
        
 2015    56,880 
 2016    36,396 
 2017    30,360 
 2018    31,584 

 

 

Rent expense was $21,664 for the three months ended September 30, 2014, and $17,900 for the year ended December 31, 2013, respectively.

 

In April, 2014 MJAI, through its wholly owned subsidiary, MJAI Oregon 1, LLC (MJAI Oregon 1) Oregon company, entered into a lease for space to operate their first medical marijuana dispensary in Portland, Oregon. The five-year lease requires MJAI Oregon 1 to pay a monthly rental fee of $2,255 the first year with annual lease payment escalations of 4% and a security deposit of $12,000. The dispensary is located are located at 1719 SE Hawthorne Boulevard, Portland, Oregon and will operate under the proprietary brand name of “Kaya Shack “TM.

 

NOTE 8 – RELATED PARTY TRANSACTIONS

 

The Company has agreements covering certain of its management personnel. Such agreements provide for minimum compensation levels and are subject to annual adjustment.

 

The Company’s Chief Executive Officer holds 50,000 shares of its Series C preferred stock. These shares can be converted into 21,696,485 shares of the Company’s common stock at his option.

 

The Company’s largest stockholder has from time to time provided unsecured loans to the Company, which is due on demand and bear interest at 10%. See Note 4 for the detail of the convertible and non-convertible debt with a face value of $750,000 

 

NOTE 9– SUBSEQUENT EVENTS

 

On April 20, 2015 the Company received a total of $20,000 from an accredited investor in exchange for a senior promissory note due July 31, 2015 in the aggregate amount of $20,000. Interest rate is stated at 10%.

 

 On April 27, 2015, the Company received a total of $30,000 from an accredited investor in exchange for one year notes in the aggregate amount of $30,000. The note is convertible into the Company’s common stock at a conversion rate of $0.05 per share. The company will issue 150,000 shares of common stock as prepaid interest.

 

On April 30, 2015 the Company received a total of $20,000 from an accredited investor in exchange for a senior promissory note due July 31, 2015 in the aggregate amount of $20,000. Interest rate is stated at 10%.

 

 

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

 

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

 

ForwardLooking Statements

 

This Quarterly Report on Form 10QA includes forwardlooking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial condition, made in this Quarterly Report on Form 10Q are forwardlooking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forwardlooking statements. Forwardlooking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a variety of reasons, including those risks described in our Annual Report on Form 10K for the year ended December 31, 2014 filed with the Securities and Exchange Commission (“SEC”) on April 15, 2015, and the risks discussed in other SEC filings. These risks and uncertainties as well as other risks and uncertainties could cause our actual results to differ significantly from management’s expectations. The forwardlooking statements included in this Quarterly Report on Form 10QA reflect the beliefs of our management on the date of this report. We undertake no obligation to update publicly any forwardlooking statements for any reason.

 

Introduction

 

Kaya Holdings, Inc. (“KAYS”, “”we”, “us”, “our” or the “Company”) owns and operates brands that produce, distribute and sell premium cannabis products, including flower, concentrates, and cannabisinfused baked goods and candies. We are the first fully reporting U.S. public company to actually own and operate a vertically integrated seedtosale legal marijuana enterprise in the United States. Our operations include medical marijuana dispensaries ("MMDs"), medical marijuana grow operations ("Grows"), the manufacturing of proprietary cannabis products and the research and development of medical grade cannabis strains and extracts for pain relief and treatment of serious illnesses.

 

Background

 

KAYS was incorporated in Delaware in 1993 under the name Gourmet Market, Inc. and has engaged in a number of businesses. Its name was changed on May 11, 2007 to Netspace International Holdings, Inc. (“Netspace”). Netspace acquired 100% of the capital stock of Alternative Fuels Americas, Inc., a Florida corporation in January 2010 in a stockforstock transaction and issued 100,000 shares of Series C convertible preferred stock to existing shareholders. A 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. (AFAI).

 

From 2010 to 2014, the Company was engaged in seeking to develop a biofuels business. In January 2015, the Company determined that it was in the best interests of its stockholders to discontinue its biofuel development activities, and to instead leverage its agricultural and business development experience and focus all its resources on the development of legal medical and recreational marijuana opportunities in the United States, which the Company had commenced pursuing in 2014.

 

 

Following the successful introduction of legal recreational marijuana in Colorado in 2014, KAYS incorporated a subsidiary, Marijuana Holdings Americas, Inc. a Florida corporation (“MJAI”) to operate as a grower, processor, distributor and/or retailer of legal recreational and/or medical marijuana in jurisdictions where it is legal in accordance with State law. After an evaluation of several factors including barriers to entry, cost factors and potential rewards for success, the Company targeted Oregon as the first market to open a state licensed medical marijuana dispensary (MMD).

 

In March 2014, MJAI, through an Oregon subsidiary, applied for and was awarded its first license to operate a MMD. The Company developed the Kaya Shack brand for its retail operations and on July 3, 2014 opened the Kaya Shack at 1719 SE Hawthorne Boulevard in Portland, Oregon. Initial customer acceptance and media coverage was very positive, including many references to KAYS as the “Starbucks of Medical Marijuana” by television news stations, news print publications and online

news sources.  

 

In March 2015 a Certificate of Amendment to the Certificate of Incorporation was filed changing the Company’s name from Alternative Fuels Americas, Inc, to Kaya Holdings, Inc.

 

KAYS Operational Developments during the Second Quarter 2015

 

On April 6, 2015 FINRA approved the name and symbol change to “KAYS” and on April 7, 2015 the company commenced trading under the new symbol “KAYS”

 

On April 9, 2015 KAYS announced that it had formed the Kaya Farms Medical Marijuana Grow to feed the Kaya Shack supply chain, becoming the first US publicly traded company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States.

 

As of April 30, 2015 KAYS employees and contractors had harvested the final round of our first medical marijuana crop trials which yielded the company nearly 25 pounds of Oregon ConnoisseurGrade Medical Marijuana since January 1, 2015.

 

On June 3, 2015 KAYS confirmed that it has filed an application for an additional license to open its second Kaya Shack™ MMD in Oregon. The “Kaya Shack™ Marijuana Superstore” is designed to support potential revenue enhancing opportunities under development by the Company as well as potential early recreational sales by existing MMDs in Oregon.

 

On June 18, 2015 KAYS announced that it had reached an agreement on the principal terms to acquire assets from OC Harley Gardens, a Portland based marijuana grow, which produces high quality, connoisseurgrade, medical marijuana as the countdown to legal recreational sales in Oregon continues. The assets include an existing duly licensed patient base with associated plants and grower licenses, unique genetics, equipment, and use of the facility on a rentfree basis.

 

 

(The agreement was subsequently consummated on July 15, 2015 and adds additional highly soughtafter strains to the Kaya Farms portfolio (with THC levels ranging from 2027%) and boosts KAYS production capabilities so we can meet anticipated increases in demand as we open additional shops and recreational sales come to Oregon with the first stage of legal recreational sales slated to begin October1, 2015 through medical marijuana dispensaries.)

 

On June 26, 2015 KAYS confirmed that it has been awarded a license by the Oregon Medical Marijuana Program to open its second Kaya Shack™. KAYS has met all of the criteria for the license, and final approval is subject to preopening inspection. The license for the new Kaya Shack Marijuana Superstore coincides with the Oregon Legislature Joint Marijuana Committee’s unanimous passing of an amendment to permit MMP dispensaries to sell marijuana to adults 21 and above beginning October 1, 2015.

 

Market Overview Legal Recreational and Medical Marijuana

 

The National Level

 

Twentyseven states and the District of Columbia have either legalized medical marijuana or decriminalized marijuana possession or both. Additionally, four states have votedin recreational marijuana laws with active legal cannabis economies flourishing in Colorado and Washington. Oregon is scheduled to commence with early recreational sales of marijuana (“flower” only, no concentrates or edibles) through existing medical marijuana dispensaries, beginning October 1, 2015 with full recreational licensing and sales beginning in 2016.

 

Potential legislative actions and ballot initiatives are planned over the next two years for nine more states Arizona, California, Hawaii, Maine, Massachusetts, Missouri, Nevada, Ohio and Wyoming.

 

According to an article published by CBS News Moneywatch, the legal marijuana industry is the fastest growing business in the United States, with nearly 11 Billion Dollars in sales forecast for 2019. Steve Berg, a former managing director of Wells Fargo Bank has published a report citing Cannabis as being one of the fastest growing domestic industries, citing that “Domestically, we weren't able to find any market that is growing as quickly."

 

Estimates from various sources for the size of the long term market range from up to an excess of $100 billion if Federal Prohibition is repealed and marijuana sales become legal in all 50 states and Washington D.C. (for perspective beer is approximately a $100 billion market, with wine just under $30 billion and coffee approximately $12 billion).

 

Kaya Holdings Current and Future Operations in Oregon

 

Kaya Shack Medical Marijuana Dispensaries and Recreational Marijuana Retail Stores

  

Kaya Holdings operates the Kaya Shack™ brand of medical marijuana dispensaries.

 

Dubbed by the mainstream press as the “Starbucks of Marijuana” after our first store 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 preferences of “soccer moms” and the price sensitivities of casual smokers.

 

 

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

 

Kaya Shack™ Stores are open 7 days a week from 10:00 am to 10:00 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 purity standards.

 

While the stores are currently operating as medical marijuana dispensaries (MMDs), as of October 1, 2015 they will also begin to offer recreational sales pursuant to a bill passed by both Houses of the Oregon Legislature. When recreational licenses are available in 2016 we will apply for retail sales licenses for all locations but still intend to keep our medical marijuana dispensary licenses so as to continue delivering top service to our patient base.

 

Retail Locations

 

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

 

 

Our flagship Hawthorne Boulevard Store opened July 3, 2014. The location is prime Portland real estate, located in an area that many term as “the Greenwich Village of Portland”.

 

The Portland facility currently features over 35 popular strains of marijuana including our proprietary, highgrade “Kaya Kush” (independent testing performed on 11/10/2014 confirms a total THC/Cannabinoid content in excess of 25%). Our stores also feature various concentrates, including butane hash oil (B.H.O.) and CO2 oil extract (wax, shatter) which range in potency from approximately 40% to over 80% THC, as well as high grade Oils and Tinctures, high CBD – low THC strains and “Kaya Candies”, “Kaya Caramels” and an assortment of cookies and cakes for patients who do not smoke.

 

 

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

 

Our first Marijuana Superstore (the second Kaya Shack™) is targeted to open earlyfall, 2015 in South Salem, Oregon in time to take advantage of early recreational sales starting October 1.

 

The Company has received its provisional license from the Oregon Medical Marijuana Program (OMMP) and has initiated site buildout. Upon completion of the construction and satisfactory passing of the compliance inspection the company will apply for the final state license to be issued by the OMMP, and then apply for the local Salem, Oregon operating license.

 

The first class space, with a footprint roughly three times the size of our first Kaya Shack™ in Portland, was carefully chosen with an eye towards concept expansion to enhance revenues and broaden branding opportunities. In addition to the recreational and medical marijuana products offered at our Hawthorne location, the space allows for additional products and concept innovations to be introduced. These include a clone room for the sale of nascent plants and additional onsite freshly made products.

 

 

III. Kaya Shack™ Marijuana Superstore, North Salem, Oregon

 

Our second Marijuana Superstore (the third Kaya Shack™) is targeted to open late 2015 in North Salem, Oregon.

 

As of the date of this filing, the Company has completed a letter of intent with the landlord (the same landlord that leased us the South Salem Location) to secure this location and has filed for its provisional license from the Oregon Medical Marijuana Program (OMMP).

 

Upon securing the final lease (anticipated but not yet finalized) and the subsequent issuance of the provisional license from the OMMP upon positive acceptance of the application (also anticipated but not yet finalized), the Company intends to commence with site buildout and final licensing procedures similar to those described above.

 

As with the South Salem Store, the location is first class space, with a footprint roughly three times the size of our first Kaya Shack™ and we intend to offer additional products and concept innovations at this location. In addition to the benefits of our South Salem location, this location was chosen with an eye towards completing market penetration of the Salem Metropolitan Area which hosts a population base of approximately 400,000 people.

 

Kaya Farms Consolidated Marijuana Grow and Manufacturing Facility, West Coast Base of Operations

 

Kaya Holdings operates the Kaya Farms Grow Operations and Manufacturing Facility to provide its Kaya Shack™ dispensaries with top grade connoisseur quality marijuana products including flower, concentrates and extracts, and edibles.

 

On August 1, 2015 the Company announced that it had signed a lease for a 6,000 square foot facility in central Portland to serve as the Company's expanded Marijuana and Cannabis Manufacturing Complex and West Coast Operations Base. To date the Company has consolidated the original Kaya Farms Grow operation and the newly acquired assets of OC Harley Gardens including equipment, plants and all related licenses into the new facility for a substantially expanded Grow with significantly increased volume capacities.

 

 

Expansion and remodeling is being undertaken with an eye towards uninterrupted production of high quality, connoisseur grade marijuana, so that the Company is prepared for the October 1st commencement of recreational sales in Oregon. Our end goal is designed to increase the perpetual harvest room model to potentially include more than 100 strains of marijuana and substantially increase our production volume while lowering costs.

 

Kaya Shack/Kaya Farms Medical Marijuana Products

 

 

 

The Company is currently evaluating a rollout of proprietary strainspecific concentrates for sale through our retail network as well as potential distribution lines to other dispensaries. Additionally, the Company is in process of evaluating different manufacturing opportunities and related activities at the space for a wide range of marijuana manufacturing opportunities.

 

The Company’s proprietary strain of Kaya Kush Marijuana tested in excess of 25% total THC/Cannabinoid content in November 2014. Additionally, KAYS produced its first batch of its own concentrates in February 2015, which was tested by an independent lab at 94% total cannabinoid content.

 

Summary

 

Our first 13 and a half months of operations have yielded approximately $150,000 in sales at our first medical marijuana dispensary and a wealth of experience and data that we are using to build out our infrastructure to steer our expansion efforts, which we hope to achieve in Oregon and beyond under the Kaya Shack banner. While we had first sought to open multiple dispensary locations in Oregon by the end of 2014, our first few months in operation led us to understand that this is an industry with unique challenges and opportunities, especially for a public company. We elected to concentrate our efforts in late 2014 and early 2015 on properly building out our infrastructure to facilitate growth and also to set up operations to grow our own supply of Connoisseur Grade Cannabis to supply our planned retail locations so that we could control costs and maintain a steady enough supply of quality Cannabis.

 

Since the beginning of the second quarter we have begun the process of opening two new dispensaries (“Mini Superstores”) as well as secured space for a substantially larger grow operation and marijuana products manufacturing facility. The grand opening of the new Kaya Shack Marijuana Superstores are scheduled to coincide with the beginning of early recreational sales beginning October 1, 2015.

 

Management continues to believe that the larger opportunity will be with the new recreational market that will be unfolding in Oregon that involves vertical integration utilizing Producer, Processor, Wholesaler and Retailer licenses. Unlike the medical marijuana program, there are no restrictions or limitations with the Recreational Market regarding patient qualifications, and a much larger market will open up for retail demand, which the Company intends to aggressively exploit by leveraging their Oregon MMD experience and public company status.

 

Other Markets

 

The Company intends to seek additional licensing opportunities in various states and territories throughout the country which have legalized recreational and/or medical marijuana use, as well as select states and territories where legalization is pending or is otherwise under consideration through joint efforts with the Drug Policy Alliance and the Drug Policy Alliance’s lobbying affiliate, Drug Action and other activists and lobbyists.

 

Potential future target markets include Alaska, Arizona, California, Colorado, Connecticut, Florida, Illinois, Michigan, Nevada, New Jersey, New York, Ohio, Pennsylvania, Texas, Vermont, Washington D.C., Washington State and others.

 

 

We cannot assure that we will be successful in raising additional capital to implement our business plan. Further, we cannot assure, assuming that we raise additional funds, that we will achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability and positive cash flow, our operating business, financial condition, cash flows and results of operations may be materially and adversely affected.

 

Critical Accounting Estimates

 

The following are deemed to be the most significant accounting estimates affecting us and our results of operations:

 

Fair value of financial instruments

 

The Company follows the provisions of ASC 820. This Topic defines fair value, establishes a measurement framework and expands disclosures about fair value measurements. We apply these provisions to estimate the fair value of our financial instruments including cash, accounts payable and accrued expenses, and notes payable.

 

Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 74010, Accounting for Uncertainty in Income Taxes. Our 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 taxplanning 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 74010 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 “morelikelythannot” 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.

 

Recently Issued Accounting Pronouncements

 

In April 2014, the FASB issued ASU No. 201408, Presentation of Financial Statements (Topic 205) and Property, Plant, and Equipment (Topic 360): Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. The amendments in this Update change the requirements for reporting discontinued operations in Subtopic 20520.

 

Under the new guidance, a discontinued operation is defined as a disposal of a component or group of components that is disposed of or is classified as held for sale and “represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results.” The ASU states that a strategic shift could include a disposal of (i) a major geographical area of operations, (ii) a major line of business, (iii) a major equity method investment, or (iv) other major parts of an entity. Although “major” is not defined, the standard provides examples of when a disposal qualifies as a discontinued operation.

 

 

The ASU also requires additional disclosures about discontinued operations that will provide more information about the assets, liabilities, income and expenses of discontinued operations. In addition, the ASU requires disclosure of the pretax profit or loss attributable to a disposal of an individually significant component of an entity that does not qualify for discontinued operations presentation in the financial statements.

 

The ASU is effective for public business entities for annual periods beginning on or after December 15, 2014, and interim periods within those years.

 

In May 2014, the FASB has issued ASU No. 201409, “Revenue from Contracts with Customers (Topic 606)”. The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.” In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update. Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU No, 201409 are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We do not believe the adoption of this update will have a material impact on our financial statements.

 

Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying financial statements.

 

Recent accounting pronouncements issued by the FASB, the American Institute of Certified Public Accountants (“AICPA”), and the Securities and Exchange Commission ("SEC") did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

 

Results of Operations

 

Three months ended March 31, 2015 compared to three months ended March 31, 2014.

 

Revenues

 

With the opening of the Company’s first MMD in Portland Oregon, we had revenues of $30,339 for the three months ended March 31, 2015 versus no revenues for the corresponding periods in 2014.

 

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses increased by $14,536 to $76,584 in the three months ended March 31, 2015 and compared to the same period in 2014. The increase for the current period versus the same period in the prior year results from expenses associated the Company’s entrance into the medical marijuana market and with launching operations at their first licensed MMD in Portland, Oregon in the prior year.

 

 

Professional fee expense

 

Professional fees increased by $447,340 to $547,010 in the three months ended March 31, 2015 compared to the same period in 2014. The Company’s entrance into the medical marijuana market in the prior year resulted in increased expenses currently.

 

The Company’s expenses were substantially more compared to the same period the prior year, but these expenses were mostly stock issuances (versus actual cash payments) to key management, consultants and professionals that were integral to the process of the company becoming the first fully reporting U.S. public company to actually own and operate a vertically integrated seedtosale legal marijuana enterprise in the United States

 

Liquidity and Capital Resources

 

During the three months ended March 31, 2015 we issued $210,000 of debt with a stated interest rate of 12%.

 

For the three months ended March 31, 2015 we invested $7,500 in equipment at our grow location.

 

Accordingly, with increased capital improvements and increased expenses associated with the launch of the Medical Marijuana business plan the Company’s cash reserves as of March 31, 2015 were $40,673 versus $111,954 for the same period in 2014. While the Company believes that they will continue to have increased access to investment capital to develop its Medical Marijuana and Legal Recreational Marijuana business plan, there can be no assurance that this will be so.

 

Although the Company achieved revenues in the first quarter through the opening of their first Kaya Shack MMD, the Company acknowledges that its Plan of Operations may not result in generating positive working capital in the near future. Although management believes that it will be able to successfully execute its business plan, which includes thirdparty financing and the raising of capital to 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 financial statements do not include any adjustments that might result from the outcome of this material uncertainty.

 

 

Going Concern

 

The Company’s financial statements as of and for the three months ended March 31, 2015 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 total net loss of $7,622,949 from inception through the period ended March 31, 2015. The Company had a net loss of $907,192 for the three months ended March 31, 2015. At March 31, 2015 the Company had a working capital deficiency of $3,418,401. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this material uncertainty.

 

No assurances can be given that the Company will be successful in raising additional capital as discussed above. Further, there can be no assurance, assuming the Company successfully raises additional funds, that the Company will achieve profitability or positive cash flow. If the Company is not able to timely and successfully raise additional capital and/or achieve positive cash flow, its business, financial condition, cash flows and results of operations will be materially and adversely affected.

 

OffBalance Sheet Arrangements

 

There are no offbalance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

(a) Evaluation of disclosure controls and procedures

 

Following the end of the period covered by this report, we conducted an evaluation under the supervision and with the participation of Craig Frank, our Chairman of the Board, President and Chief Executive Officer, and Craig Frank, our Chief Financial Officer, of our disclosure controls and procedures (as defined in Rule 13a15(e) and Rule 15d15(e) of the Exchange Act) as of June 30, 2015 the end of the period covered by this report. Based on this evaluation, our Chairman of the Board, President and Chief Executive Officer and our Chief Financial Officer concluded that at June 30, 2015 our disclosure controls and procedures are effective to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, or

 

 

(b) Changes in internal controls

 

There was no change in our internal controls or in other factors that could affect these controls during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We do not anticipate any changes to our internal controls at this time.

 

PART II – OTHER INFORMATION

Item 1. Legal Proceedings  

 

None  

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

 

On February 17, 2015 the Company received a total of $50,000 from an accredited investor in exchange for a six month note in the aggregate amount of $50,000, convertible into the Company’s common stock at a conversion rate of $0.04 per share. The market value of the stock at the date of issuance of the debt was $0.085. The debt issued is a result of a financing transaction and contains a beneficial conversion feature. The funds were used for general working capital. For more information please see “Convertible Debt”, Note 5.

 

On March 12, 2015 the Company received a total of $60,000 from an accredited investor in exchange for a six month note in the aggregate amount of $60,000, 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 of issuance of the debt was $0.085. The debt issued is a result of a financing transaction and contains a beneficial conversion feature. The funds were used for general working capital. For more information please see “Convertible Debt”, Note 5.

 

On March 13, 2015 the Company received a total of $25,000 from an accredited investor in exchange for a six month note in the aggregate amount of $25,000, convertible into the Company’s common stock at a conversion rate of $0.06 per share. The market value of the stock at the date of issuance of the debt was $0.085. The company will issue 150,000 shares of common stock as prepaid interest. The debt issued is a result of a financing transaction and contains a beneficial conversion feature. The funds were used for general working capital. For more information please see “Convertible Debt”, Note 5.

 

Item 3. Defaults Upon Senior Securities  

 

None.  

 

Item 4. Mine Safety Disclosures.  

 

None.  

 

Item 5. Other Information  

 

None   

 

 

Item 6. Exhibits

 

Exhibit No.  Description
31.1Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 130-14 of the Securities Exchange Act of 1934, as amended, pursuant to Section 302 of the SarbanesOxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes Oxley Act of 2002

 

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Dated: August 22, 2016

 

KAYA HOLDINGS, INC.

By: /s/ Craig Frank

 

Craig Frank, Chairman of the Board, President, Chief Executive Officer and Acting Chief Financial Officer

(Principal Executive, Financial and Accounting Officer)