Kaya Holdings, Inc. - Quarter Report: 2016 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

FORM 10-Q

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

 OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 2016

OR

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

For the transition period from

__________to __________

Commission File No.: 333-177532

KAYA HOLDINGS, INC.

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 S-T (§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 non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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

As of November 21, 2016, the Issuer had 112,396,795 shares of its common stock outstanding.   

KAYA HOLDINGS, INC.

INDEX TO QUARTERLY REPORT ON FORM 10 Q

Signatures

Item 1. Financial Statements

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

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

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

Unaudited

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

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Cashflows

Unaudited

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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 two subsidiaries: Alternative Fuels Americas, Inc. (a Florida corporation) which is wholly owned, Marijuana Holdings Americas, Inc. a Florida corporation, (“MJAI”) which is a majority owned subsidiary. Additionally, MJAI conducts operations in Oregon through ownership interests in MJAI Oregon 1 LLC, MJAI Oregon 2 LLC, MJAI Oregon 3 LLC and MJAI Oregon 4, LLC.

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 commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana, thereby becoming the first US publicly traded company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. The Company opened its second MMD (and first Kaya Shack™ Marijuana Superstore) in October 2015 in Salem, Oregon. During 2015, the Company also consolidated its grow operations and manufacturing operations into a single facility in Portland, Oregon. In October 2015, Oregon commenced legal recreational marijuana sales, which are initially being conducted solely through State Licensed MMDs, including those operated by the Company. The Company plans to open at least two additional dispensaries in Oregon during 2016 and in April 2016 entered into leases and filed increased applications for its next two planned retain outlets in Salem Oregon.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

NOTE 2 - LIQUIDITY AND GOING CONCERN

The Company’s consolidated financial statements as of and for the three and nine months ended September 30, 2016 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 $899,566 for the nine months ended September 30, 2016 and a net loss of $3,225,397 for the year ended December 31, 2015. At September 30, 2016, the Company has a working capital deficiency of $2,817,672 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:

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, 2015 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, 2015 filed with the SEC on May 5, 2016.

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, 2015. 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.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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

Risks and Uncertainties

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

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

Fiscal Year

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

Principles of Consolidation

The 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

September 30, 2016

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:

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

September 30, 2016

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

September 30, 2016

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

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

Stock-Based Compensation – Non Employees

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

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

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

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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.

Cost of Sales  

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

Related Parties

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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 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.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Re-Classifications

Certain amounts in 2015 were reclassified to conform to the 2016 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 .41% at September 30, 2016 and weighted average volatility of 134%. 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.

NOTE 4- CONVERTIBLE DEBT

These debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation are initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Black Scholes Option Model with a risk -free interest rate of ranging from 0.05% to 1.06%, volatility ranging from 134% of 221%, trading prices ranging from $.056 per share to $0.1 per share and a conversion price ranging from $0.03 per share to $0.045 per share. The total derivative liabilities associated with these notes are $3,044,859 at September 30, 2016.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Accrued interest on this note that was charged to operations for the quarter ended September 30, 2016 totaled approximately $935. The balance of the convertible note at September 30, 2016 including accrued interest and net of the discount amounted to $15,260.

The Company valued the derivative liabilities at September 30, 2016 at $18,582. The Company recognized a change in the fair value of derivative liabilities for the three months ended September 30, 2016 of $166, which were credited to operations.  In determining the indicated values at September 30, 2016, the Company used the Black Scholes Option Model with risk-free interest rates ranging from 0.018% to 0.02%, volatility ranging from 134% to 336%, a trading price of $.07, and conversion price of $.03 per share. 

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

NOTE 5 - NOTES PAYABLE

A-Non Related Party

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

B-Related Party

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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.

In January of 2016 the Company received $100,000 from the sale of 2,222,222 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company.

In February of 2016 the Company issued 4,200,000 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company as a conversion of $126,000 Note Payable due January 1, 2017.

In February of 2016 the Company issued

In April of 2016 the Company issued 150,000 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company as a payment of interest on a Note Payable due January 1, 2017.

In April of 2016 the Company issued 1,200,249 common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company as a conversion of preferred stock of 2,766 shares. On the same date the shareholder returned 2,454 preferred shares to be cancelled.

In June of 2016 the Company authorized the issuance of 100,000 restricted common shares of Kaya Holdings, Inc. stock as payment of consulting fees. The shares were valued at $7,610.

In September of 2016 the Company issued 2,300,000 of common shares of Kaya Holdings Inc. stock for director fees. The shares were valued at $161,000

In September of 2016 the Company authorized the issuance of 6,825,000 shares of common shares of Kaya Holdings Inc. for employees compensation, legal and consulting fees from the Kaya Holdings, Inc 2011 Stock Incentive Plan, as amended. The shares were valued at $477,750

In September of 2016 the Company issued 1,486,111 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company as a conversion of 2 notes totalling $50,000 due January 1, 2017.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Note 7 Derivative Liabilities

The Company identified conversion features embedded within convertible debt and issued in 2013 and subsequent periods. The Company has determined that the features associated with the embedded conversion option, in the form a ratchet provision, should be accounted for at fair value, as a derivative liability, as the Company cannot determine if a sufficient number of shares would be available to settle all potential future conversion transactions.

Additionally, due to a recognition of tainting, due to shares not being held in reserve in 2014 all convertible notes are considered to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Black Scholes Option Model with a risk-free interest rate of ranging from 0.05% to 1.06%, volatility ranging from 134% of 221%, trading prices ranging from $.056 per share to $0.1 per share and a conversion price ranging from $0.03 per share to $0.04 per share.

As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow: 

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as September 30, 2016:

The Company recorded the debt discount to the extent of the gross proceeds raised, and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.  

The Company recorded a derivative expense of $-0- and $129,340 for the three and nine months ended September 30, 2016

The Company recorded a change in the value of embedded derivative liabilities income/(expense) of $ 181,986 and $1,895,656 for the three and nine months ended September 30, 2016, respectively.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

NOTE 8 Warrants

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

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

NOTE 9 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 10 SUBSEQUENT EVENTS

In October of 2016 the Company received $10,000 from the issuance of 200,000 of common shares

In October of 2016 the Company received $15,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2018

In November of 2016 the Company received $200,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2018

In November of 2016 the Company received $60,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2018

In November of 2016 the Company issued 6,825,000 common shares of Kaya Holdings Inc for employee compensation and legal and consulting fees. The shares had previously been authorized for issuance in September 2016.

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

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

Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking 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 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking 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 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”). These risks and uncertainties as well as other risks and uncertainties could cause our actual results to differ significantly from management’s expectations. The forward-looking statements included in this Quarterly Report on Form 10-Q reflect the beliefs of our management on the date of this report. We undertake no obligation to update publicly any forward-looking statements for any reason.

Business Overview

Our corporate office is located at 305 South Andrews Avenue, Suite 209, Fort Lauderdale, Florida, 33301. Our website is www.kayaholdings.com. Information contained on our website does not constitute part of this Annual Report.

Kaya Holdings 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 stock-for-stock transaction and issued 100,000 shares of Series C convertible preferred stock to existing shareholders of the Florida corporation. The Company’s name was changed in October 2010 Netspace International Holdings, Inc. to Alternative Fuels Americas, Inc.

From 2010 to 2014 the Company was engaged in seeking to develop a biofuels business. In January 2014 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 and in select international markets.

Legal Medical and Recreational Marijuana Operations in Oregon

In 2014, KAYS incorporated a subsidiary, Marijuana Holdings Americas, Inc. a Florida corporation (“MJAI”). Through MJAI, KAYS has focused on the development of opportunities within the legal recreational and medical marijuana sectors in the United States. In March 2014, MJAI, through an Oregon subsidiary, applied for and was awarded its first license to operate a Medical Marijuana Dispensary (“MMD”). The Company developed the Kaya Shack™ brand for its retail operations and on July 3, 2014 opened its first Kaya Shack™ Medical Marijuana Dispensary in Portland, Oregon, thereby becoming the first US publicly traded company to own and operate an MMD. In March 2015, the Company changed its name to Kaya Holdings, Inc. to better reflect its new plan of operations.

In April 2015 KAYS commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana, thereby becoming the first US publicly traded company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. The Company opened its second MMD (and first Kaya Shack™ Marijuana Superstore) in October 2015 in Salem, Oregon. During 2015, the Company also consolidated its grow operations and manufacturing operations into a single facility in Portland, Oregon. In October 2015, Oregon commenced legal recreational marijuana sales, which are initially being conducted solely through State Licensed MMDs, including those operated by the Company. In April, 2016 the Company entered into leases and filed initial OHA license applications for its next two planned retain outlets in Salem Oregon, bringing the total existing and planned operations to 4 retail operations and one production and processing facility.

In 2016 Oregon began the process to transition from Oregon Health Authority (OHA) licensed medical marijuana dispensaries and grow operations to Oregon Liquor Control Commission (OLCC) licensed recreational marijuana licensed stores and producer and processing facilities. 

The Company has pursued a strategy of attempting to secure future OLCC licenses by first filing renewals for OHA licenses for existing locations and filing initial OHA license applications for new locations, with follow up license OLCC applications for all locations. As of the date of this filing the Company’s two operating medical marijuana dispensaries that are able to also conduct recreational sales (Portland, Oregon and South Salem, Oregon) have filed renewals of their OHA licenses (Portland location has both OHA and City renewals through May 2017 and South Salem is pending OHA renewal and has City of Salem approval). The Company’s two new retail locations in North and Central Salem, Oregon have received initial OHA conditional license approvals and also have pending OLCC license applications. The Company’s marijuana manufacturing and production facility in Portland has requisite OHA medical marijuana licenses to operate through January of 2017, and also has pending OLCC license applications.

Based on recent interaction with the OLCC and the City of Salem, the Company anticipates receiving final license approvals for the 3 Salem locations over the next 2 months. However, while the Company anticipates receiving OLCC license approval for its pending OLCC license applications in Portland, the City of Portland has so far denied approval for the Company to transition both its MMD and its grow to full OLCC operations (as it initially did for the recent OHA renewal until the Company brought suit in State Court).

Local Counsel believes that the Company will prevail in securing licensing for the Portland store and grow/manufacturing facilities, but there can be no assurance that this will happen. Accordingly, the Company is actively seeking other locations within Portland to relocate its one Portland retail location (if necessary), and is also looking for larger space to move its grow and manufacturing facility (whether in Portland or elsewhere, including Southern Oregon). The Company has made all capital improvements and equipment purchases for its grow/manufacturing facility in a manner that would allow for relocation to another facility if necessary, and has expanded its vendor supplier network so as to provide for any operational supply interruption that the transition would require.

Additionally, the Company is actively seeking the expansion of operations in Oregon through either acquisition of current retail and grow/manufacturing operations, or securing new space and filing for new OLCC licenses.

The Kaya Shack Brand

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 of all including “soccer moms” and the price sensitivities of casual smokers.

The Kaya Shack™ brand communicates positive thinking and joy, with signs adorning the walls that read “It’s a Good Day to have a Good Day” 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 8:00 am to 9:00 pm. Operations follow an operational manual that details procedures for 18 areas of operation including safety, compliance, store opening, store closing, merchandising, handling of cash, inventory control, product intake, store appearance and employee conduct.

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

Our two currently operating locations operate as medical marijuana dispensaries (MMDs), and as of October 1, 2015 they became licensed 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 bothl locations but still intend to service our medical marijuana patients as the law permits. We intend to open at least two additional retail outlets in Oregon during 2016, and in April 2016 entered into leases and filed increased applications for the next 2 locations.

CBS Oregon Affiliate KOIN Channel 6 Television News featured Kaya Holdings and the Kaya Shack™ Retail Marijuana Store in Portland, Oregon on the eve of recreational sales, and spotlighted the company’s stock and status as the first fully reporting US Public Company to commence legal recreational marijuana sales.

Kaya Shack Store locations

 

I. Kaya ShackTM , 1719 SE Hawthorne Blvd., Portland, Oregon

 

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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 rotates through approximately 100 different strains throughout the year and in any given month features over 35 popular strains of marijuana with some proprietary strains testing in excess of 28%. 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.

 

 

 

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

 

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Our second location (the first Kaya ShackTM Marijuana Superstore) opened for business on October 17, 2015 in South Salem, Oregon in time to take advantage of early recreational sales.

 

The store is located in first class strip mall space adjacent to “Little Caesars Pizza” and “Aaron Rents”, with a footprint roughly three times the size of our first Kaya ShackTM in Portland. The location and floorplan was carefully chosen with an eye towards concept expansion to enhance revenues and broaden branding opportunities.

 

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III. Kaya ShackTM Marijuana Superstore, North Salem, Oregon

 

Our third Kaya ShackTM is targeted to open in late 2016/ early 2017 in North Salem, Oregon.

 

As with the South Salem Store, the location is first class space, adjacent to Starbucks Coffee and has a footprint of approximately 2600 square feet. This will be our largest location yet and will be our intended “Marijuana Superstore” model going forward. In addition to the benefits of our South Salem store, this location was chosen with an eye towards completing market penetration of the Salem Metropolitan Area which hosts a population of approximately 400,000 people. We also intend to expand our product offerings here as well as utilize the additional space to host community events we hope will help make the Kaya ShackTM a destination for cannabis consumers.

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IV. Kaya ShackTM Marijuana Superstore, Central Salem, Oregon

Our fourth Kaya ShackTM is also targeted to open late 2016/ early 2017 in Central Salem, Oregon.

 

As with the other Salem Stores the location is first class space, adjacent to fast food stores and nearby popular national retail chain stores. It also has a footprint of approximately 2600 square feet and will be constructed using our “Marijuana Superstore” model.

 

 

 

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Nationwide Expansion, Other markets

 

We further believe that revenues and profitability will be enhanced through our planned opening of additional retail outlets in our chain, as well as economies of scale achieved by being a multi-location retail chain and being vertically integrated with our grow and manufacturing operations. Ultimately, we believe that we can successfully enter other markets as they open up by applying our “brand” retail chain and vertically integrated grow and manufacture model to other states that legalize recreational marijuana use.

 

On November 8, 2016 California, Maine, Massachusetts and Nevada voted to legalize recreational marijuana, while Arkansas, Florida and North Dakota approved medical cannabis initiatives. Montana, which legalized medical marijuana in 2004, also passed a measure to set up commercial cultivation operations and dispensaries.

 

The California Recreational Cannabis market is by far the largest potential market in the country, and our operations in Oregon allow for a natural progression and expansion down the I-5 corridor into California. Florida could be huge as well, and KAYS would have a distinct advantage here in that we are one of the few entities in existence in Florida that have experience owning and operating medical marijuana dispensaries, grows and retail cannabis stores.

 

These markets are substantial, and their development could lead to $7 billion-$8 billion in additional annual retail cannabis sales, according to Marijuana Business Daily’s preliminary estimates.

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Kaya Farms

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Kaya Farms Cannabis Testing Results

 

Following pages: recent test results from our latest crops, as well as the “Kaya Blend” every-day-value 

 

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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 740-10, 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 tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.

 

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

 

Recently Issued Accounting Pronouncements

 

There are no recent accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”), the American Institute of Certified Public Accountants (“AICPA”), and the SEC believed by management to have a material impact on the Company’s present or future financial statements.

 

 

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Off-Balance Sheet Arrangements

 

There are no off-balance 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.

 

Results of Operations

 

Three months ended September 30, 2016 compared to three months ended September 30, 2015

and the nine months ended September 30, 2016 compared to nine months ended September 30, 2015

 

Revenues

 

We had revenues of $263,435 for the three months ended September 30, 2016, as compared to revenues of $32,765 for the three months ended September 30, 2015 and revenues of $754,093 for the nine months ended September 30, 2016, as compared to revenues of $90,597 for the nine months ended September 30, 2015. The significant increases in revenues in the 2016 periods from the comparable periods in 2015, reflects revenues from legal recreational marijuana sales, which commenced on October 1, 2015 and revenues generated from our second retail outlet, the Kaya Shack™ Marijuana Superstore which we opened in October 2015, as compared to the operation of only our initial Kaya Shack™ outlet in the first quarter of 2015.

 

Selling, General and Administrative Expenses

 

Selling, general and administrative expenses decreased to $109,417 for the three months ended September 30, 2016 from $121,305 for the three months ended September 30, 2015 and increased to $338,073 for the nine months ended September 30, 2016 from $268,322 for the nine months ended September 30, 2015. These increases reflect our increased level of operations, including operation of two dispensaries in the 2016 periods as compared to a single retail outlet in the 2015 periods. In addition, the increases in selling general and administrative expenses from the 2015 periods to the 2016 periods are attributable, in part, to the establishment and operation of our growing and manufacturing operations.

 

Professional

 

Professional fees were $815,508 for the three months ended September 30, 2016, as compared to $124,050 for the three months ended September 30, 2015. Professional fees were $1,205,293 for the nine months ended September 30, 2016, as compared to $734,260 for the nine months ended September 30, 2015. These increases reflect additional employee, licensing and regulatory compliance costs arising from our increase level of retail operations, as well as out establishment of grow and manufacturing operations.

 

Interest expense

 

Interest expense and debt amortization expense increased to $451,512 for the three months ended September 30, 2016 from $537,556 for the three months ended September 30, 2015, Interest expense and debt amortization expense increased to $1,174,176 for the nine months ended September 30, 2016 from $862,930 for the nine months ended September 30, 2015. These increases reflect additional debt incurred to fund expansion of our operations. 

  

Net Income (Loss)

 

We incurred a net loss of $1,122,694 for the three months ended September 30, 2016 and net loss of $960,825 for the nine months ended September 30, 2016 as compared to net losses of $1,115,775 and $2,715,487 for the three and nine months ended September 30, 2015, respectively.

 

 

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The majority of our net loss during the nine month period ending September 30, 2016 $960,825 was a result of the derivative liabilities from the conversion of debt in the nine months ended September 30, 2016 and from the stabilization of our stock prices the reduces the volatility factors used in the derivative calculations.

 

 

Ultimately, we believe that we can successfully enter other markets as they open up by applying our “brand” retail chain and vertically integrated grow and manufacture model to other states that legalize recreational marijuana use.

 

Liquidity and Capital Resources

 

During the nine months ended September 30, 2016, the Company raised a total of $575,000 through the private sale of debt and equity securities. Management recognizes the Company’s current financial difficulties that, at September 30, 2016, include a working capital deficiency of $2,817,672 and limited cash. Moreover, we acknowledge that our financial position at September 30, 2016, raises substantial doubt about the Company’s ability to continue as a going concern. However, management believes that its proposed plan of operation is strong. Our plan recognizes the Company’s needs to generate working capital to successfully develop its operations towards the goal of successfully operating in the legal recreational and medical marijuana sectors.

 

Further, we realize that may not be successful in raising additional capital, and even assuming that we raise additional funds, the Company may not achieve profitability or positive cash flow. If we are not able to timely and successfully raise additional capital and/or achieve profitability or positive cash flow, our business, financial condition, cash flows and results of operations may be materially and adversely affected.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

Not applicable.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the direction of Chief Executive Officer and Acting Chief Financial Officer (our principal executive, financial and accounting officer), we evaluated our disclosure controls and procedures as of September30, 2016. Our Chief Executive Officer and Acting Chief Financial Officer (our principal executive, financial and accounting officer) concluded that our disclosure controls and procedures were not effective as of September 30, 2016.

 

We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Acting Chief Financial Officer (our principal executive, financial and accounting officer), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.

 

As required by SEC Rule 13a15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Acting Chief Financial Officer (our principal executive, financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our fourth fiscal quarter covered by this report. Based on the foregoing, our Chief Executive Officer and Acting Chief Financial Officer (our principal executive, financial and accounting officer) concluded that our disclosure controls and procedures were not effective. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.

 

 

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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 June 30, 2016, 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

 

UPDATE

 

On June 22, 2016, Daniel A. Goldin and Wally Goldin commenced an action in Oregon Circuit Court, Multnomah County, against the Company, MJAI, its direct majority-owned subsidiary, Craig Frank, our Chairman, President and Chief Executive Officer, William David Jones, a consultant to our Company and BMN Capital Group, LLC (the “ Action ”). The plaintiffs allege breach of contract, state securities fraud and state racketeering claims against the defendants arising from alleged misrepresentations made in subscription agreements with the Company entered into in October 2015 and January 2016 by Daniel A. Goldin and Wally Goldin, respectively, pursuant to which they each purchased 2,222,222 “ restricted ” shares of our common stock for $100,000 in a private transaction. In addition, Daniel A. Goldin alleges that the Company breached a purported employment agreement with him pursuant to which he was purportedly to be compensated for working in our Oregon operations through a combination of cash and stock. The Plaintiffs are seeking damages in excess of $1.7 million.

 

 

The Company believes that the claims and allegations set forth in the complaint filed in the Action are without merit and contain factual misstatements, and that the Company possesses documentation to establish that the plaintiffs’ investments were not solicited by the Company but that plaintiff Daniel A. Goldin unilaterally contacted the Company and represented himself as an “ accredited investor ” with expertise in the marijuana industry and proposed an investment in the Company.

 

 

The Company moved to dismiss all the claims. To date, the Court has dismissed one of two securities fraud claims and the racketeering claim (with leave for the plaintiffs to amend). In addition, the Court dismissed Daniel A. Goldin’s claim for stock compensation of approximately $200,000, on the basis that the agreement for such compensation provided for exclusive jurisdiction for dispute resolution in Florida. Although the Court allowed Mr. Goldin’s claim for cash compensation to stand, this reduces the Company’s exposure on his compensation claims to approximately $40,000. Although the plaintiffs have asked the Court for an extension of time to file an amended complaint, they have not indicated whether they will do so. In any event, the Company intends to vigorously defend against any claims which do proceed and continues to evaluate possible counter-claims against the plaintiffs.

 

 

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Item 1A. Risk Factors.

 

See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2015.

 

 

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

 

During the quarter ending September 30, 2016 the Company issued the following convertible debt and equity:

 

On July 13, 2016, the Company received $50,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2018. In determining the indicated values at September 30, 2016, the Company used the Black Scholes Option Model with risk free interest rates ranging from 0.41% to 0.41%, volatility ranging from 134% to 157%, a trading price of $.07 and conversion price of $.03 per share.

 

On August 30, 2016, the Company received $50,000 from the issuance of convertible debt. Interest is stated at 12% The Note and Interest is convertibleinto common shares at $0.03 per share. Note is Due in January of 2018. In determining the indicated values at September 30, 2016, the Company used the Black Scholes Option Model with riskfree interest rates ranging from 0.41% to 0.41%, volatility ranging from 134% to 157%, a trading price of $.07 and conversion price of $.03 per share.

 

On September 13, 2016, the Company received $25,000 from the issuance of convertible debt. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2018. In determining the indicated values at September 30, 2016, the Company used the Black Scholes Option Model with risk free interest rates ranging from 0.41% to 0.41%, volatility ranging from 134% to 157%, a trading price of $.07 and conversion price of $.03 per share.

 

In September of 2016 the Company issued 2,300,000 of common shares of Kaya Holdings Inc. stock for director fees. The shares were valued at $161,000.

 

In September of 2016 the Company authorized the issuance of 6,825,000 shares of common shares of Kaya Holdings Inc. for employees compensation, legal and consulting fees. The shares were valued at $477,750, and were subsequently issued in November of 2016.

 

In September of 2016 the Company issued 1,486,111 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company as a conversion of two notes totaling $50,000 that were due January 1, 2017.

 

These securities were issued without registration under the Securities Act of 1933, as amended pursuant to the exemption from registration afforded by Section 4 (a) (2) thereof and Regulation D thereunder.

 

For more information please refer to Note 6 Stockholder’s Equity and Note 10 Subsequent Events in the preceding financial statements that are part of this 10-Q filing.

 

Item 3. Defaults Upon Senior Securities.

 

None.

 

Item 4. Mine Safety Disclosures.

 

Not applicable.

 

Item 5. Other Information.

 

None  

 

Item 6. Exhibits

 

Exhibit No.		Description
31.1		Certification 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

 

 

 

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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: November 21, 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)

 

 

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