Kaya Holdings, Inc. - Annual Report: 2020 (Form 10-K)

915 Middle River Drive, Suite 316

Ft. Lauderdale, Florida 33304

(Address of principal executive offices)

(954)-892-6911

(Registrant’s telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 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. [X] Yes [ ] No

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

[ ] Large accelerated filer [ ] Accelerated filer

[X] Non-accelerated filer [X] Smaller reporting company

[X] emerging growth company

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately 4,486,058 as of June 30, 2020, based on the closing price on such date of $0.48 of the Company’s common stock on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 14,381,075 shares of common stock outstanding as of March 30, 2021.

DOCUMENTS INCORPORATED BY REFERENCE: No documents are incorporated by reference into this Annual Report on Form 10-K except those Exhibits so incorporated as set forth in the list of Exhibits set forth in Item 15 of this Annual Report on Form 10-K.

KAYA HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2020

TABLE OF CONTENTS

As used in this Annual Report on Form 10-K (the “ Annual Report ”), the terms “ KAYS ,” “ the Company ,” “ we ,” “ us ” and “ our ” refer to Kaya Holdings, Inc. and its owned and controlled subsidiaries, unless the context indicates otherwise.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

Information contained in this Annual Report contains “ forward-looking statements ” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘ Exchange Act ”). These forward-looking statements are contained principally in the sections titled “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and are generally identifiable by use of the words “ may ,” “ will ,” “ should ,” “ expect ,” “ anticipate ,” “ estimate ,” “ believe ,” “ intend ” or “ project ” or the negative of these words or other variations on these words or comparable terminology.

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

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

PART I

Item 1. Business.

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

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

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

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

Marijuana Holdings Americas, Inc.

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

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

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

The Company has developed its own proprietary Kaya Farms™ strains of cannabis, which it has grown and produced at the various medical and recreational grows that the Company has operated and maintained over the past seven years in Oregon.

The Company is currently applying for a new Cannabis Processing License for its 12,000 square foot Cannabis Processing and Cannaceutical Facility in Eugene, Oregon which KAYS acquired in October 2018.

Additionally, the Company also owns a 26-acre parcel in Lebanon, Linn County, Oregon, which it purchased in August 2017 on which it intends to construct a cannabis cultivation complex, which will initially consist of an 85,000-square foot Kaya Farms™ Greenhouse Grow and Production Facility. The Company has received county zoning approvals for the complex, and has recently been notified by the OLCC that they are ready to proceed with KAYS Production (Grow) Licensing for the Linn County Facility pending completion of initial construction.

Kaya Brands USA

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

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

Kaya Brands International and International Plans for Expansion

Kaya has recently implemented a strategic shift away from the U.S. cannabis market, its initial intended focus, placing current expansion emphasis on international opportunities and brand extensions. While the US Cannabis markets are receiving a strong tail wind from the recent change in administration and the fact that US Cannabis Banking and Taxation Laws and Regulations are forecast to become more industry friendly, KAYS believes that it will still be some years until such time that the Federal Laws allow for Interstate Cannabis Commerce and true economies of scale to develop within the emerging U.S. Cannabis Markets. Thus, KAYS has developed an exciting international growth program with the potential for strategic position and growth, all the while remaining prepared for the eventuality of a more inviting U.S. market.

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

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

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

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

Corporate Information

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

The Global Cannabis Industry

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

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

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

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

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

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

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

North America

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

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

Canada

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

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

The United States

 New Frontier Data forecasts that the legal U.S. markets will generate nearly $19 billion in legal sales in 2020, growing to over $20 billion by 2022.

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

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

Europe

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

With the U.S. political shift creating federal U.S. legalization optimism, the U.S. marijuana market is projected to grow to $30-$37 billion by 2024. On the other hand, with over twice the population of the U.S. and Canada combined, Europe’s cannabis market is projected to reach $146.37 billion by 2028.

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

Israel and Greece

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

The Kaya™ Family of Brands

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

Currently Operational Brands (2014-2020)

Next Stage Traditional (2020-2022)

Next Stage Innovative (2020-2022)

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

The Kaya Shack™ Brand

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

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

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

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

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

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

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

Kaya Shack™ Retail Outlets

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

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

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

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

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

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

Kaya Shack™ Car Fleet and Home Delivery

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

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

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

Kaya Farms™

The Company has developed its own proprietary Kaya Farms™ strains of cannabis, which it has grown and produced at the various medical and recreational grows that the Company has operated and maintained over the past seven years in Oregon. Additionally, KAYS has produced a full line of cannabis concentrates and extracts which it has initially produced through third party manufacturers and marketed at the Kaya Shack Stores, along with the very popular Kaya Buddies line of strain specific cannabis cigarettes.

Please see the following pages for an overview of our current properties in Oregon which details their history, current status and intended development, as well as pictures of our crops and testing results for some of the cannabis and cannabis products in our strain library.

Kaya Farms™

Lebanon, Linn County, Oregon Marijuana Grow and Manufacturing Complex

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

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

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

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

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

Kaya Farms Indoor Marijuana Grow, Processing & Cannaceutical Production Facility

On October 23, 2018 KAYS announced that it had concluded the purchase of the real property and associated equipment utilized by the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the OLCC for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. The purchase included a 12,000 square foot building housing equipment for growing and extraction activity.

The purchase price of $1.3 was paid for by the issuance of 12 million shares of KAYS restricted stock to the seller at closing. Additionally, the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company, and became a Board Member of Kaya Holdings. While the shares carried a lock-up-restriction allowing for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS, none of the shares have been submitted for resale.

As the OLCC deemed that the licenses that were part and parcel of the purchase were ultimately non-transferrable to KAYS by Sunstone, the Company recently negotiated a settlement with the seller that allows KAYA to retain ownership of the facility, for the return of all shares issued to the seller as part of the transaction (the 12 million shares for the facility purchase, the 2.5 million shares issued for $250,000.00, and subsequent shares issued as annual compensation for Board Member Compensation) in exchange for allowing the seller to retain the proceeds of the sale of the grow license to an unrelated third party that is in process of obtaining approvals from the OLCC to relocate it to another location, as well as provides for the seller to resign from the Board of Kaya Holdings and work as a non-exclusive consultant to the Company for the next 48 months for a total four year fee of $140,000.

As part of a larger production and processing plan that would allow for a more efficient Production and Processing plan and economy of scale, the Company is presently in the process of submitting a new OLCC Marijuana Processing License for the 12,000 facility, and plans to renovate and dedicate the facility to produce various brands of oils, edibles, concentrates and extracts, and develop medical grade laboratory facilities for the production of a proprietary Kaya Cannaceuticals™, while conductingall future grow operations at the Lebanon Kaya Farms Ag Facility upon completion of construction and licensing.

Kaya Buddie™ Strain Specific Cannabis Cigarettes

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

Kaya Brands International

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

Canada

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

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

Greece

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

Kaya Kannabis Medical Cannabis Production Facility in Thebes, Greece (Project Design Rendering

Project Description

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

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

Project Location

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

The project location provides:

Kaya Kannabis Medical Cannabis Production Facility in Thebes, Greece (Project Design Rendering)

Current Project Status & Developmental Timeline

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

On April 22, 2020 KAYS/KBI received confirmation from their Greek Counsel that the Greek Government had awarded the crucial Installation License for the project. There are three licenses required for the Facility- an “Installation License” (which is the equivalent to a license to construct the facility), the “Operating License” (available only after construction is completed), and the “Production & Distribution License” (available from the EOF - the Greek equivalent to the U.S. FDA - once production can be evaluated).

On January 13, 2021 KAYS reported that its majority-owned subsidiary KBI had exercised its option to acquire a 50% Interest in GKC:

KBI acquired an initial 25% interest in GKC through a share purchase agreement with existing shareholders of GKC, which was consummated as of December31, 2020.

The remaining 25% interest is in process of being issued to KBI for a minor amount of paid in capital in recognition of KAYS and KBI’s contributions to the project.

The acquisition of the 50% interest in GKC is the cornerstone of KAYS’ planned Kaya Kannabis project, announced in late 2019 with the objective of establishing a beachhead to enter the lucrative global medical cannabis market from Greece, a member of the European Union.

On January 21, 2021 KAYS announced that the Joint Venture has named Dimitris Bouras the Lead Engineer, and his firm, Whitestone MCI, the Chief Engineering Group for the development and construction of the Company's planned cannabis cultivation and processing facility in Thebes, Greece:

Dimitris Bouras has successfully been planning and constructing large engineering projects internationally for 30 years, and serves as the CEO of Whitestone, a firm founded in 2008 that is active in engineering, design, construction and O&M of industrial, marine and commercial projects. Whitestone MCI has been active in the Medical & Industrial Cannabis Industry since 2017 and is a leading Engineering & EPC Contracting Company that offers total project development services to GACP/EU GMP Standards. Whitestone MCI currently has active projects in Greece, Cyprus, Portugal, North Macedonia, Poland and Africa.

On February 1, 2021 KAYS reported that the joint venture had engaged Dutch based Orange Ridge Capital B.V. (“Orange Ridge”) to raise up to $45 million for its planned 15-acre cannabis cultivation and processing facility in Thebes, Greece:

Orange Ridge Capital B.V. ("Orange Ridge") is registered at the Dutch Authority for the Financial Markets (AFM: Autoriteit Financiele Markten) and is registered as an Alternative Investment Fund Manager (an "AIFMD") with the Dutch Supervisory Authority in The Netherlands. Orange Ridge has comprehensive expertise in sustainable real asset investments that require significant due diligence and technical expertise, access to capital, and local partnerships in strategic locations.

As an AIFMD, Orange Ridge's mission is to generate attractive investment returns from high-quality sustainable real assets such as timberland, farmland, agriculture, infrastructure, real estate, and renewable energy in Europe, the Americas, and Australasia, and provides these sustainable real asset investment solutions and strategies to a wide range of clients in Europe, the Middle East, and the Americas, such as pension funds, insurance companies, sovereign wealth funds, family offices, and investment consultants.

Kaya Shalvah is the Israeli-based cultivation-for-export project cannabis farming project of U.S. based Kaya Brands International, Inc (“KBI”), a majority owned subsidiary of Kaya Holdings, Inc.

 Kaya Shalvah Cannabis Production Facility, Greenegeve Cannabis Ecosystem, Yerucham, Isreal (Project Design Rendering)

Project Description

Kaya Shalvah will, at full capacity, comprise twenty light deprivation greenhouses, each 35,000 sq. feet (approximately 3,500 sq. meters), situated on 25 acres of land, and supported by an additional 80,000 sq. feet (approximately 8,000 sq. meters) structure for workspace, storage and administrative offices.

Under this model the farm will support 9,360 plants per greenhouse (for a full-capacity total plant count of 187,200 plants). There will be four harvests each year for a total of 748,800 cannabis plants harvested annually. The Company estimates total farm production, once completely constructed and operating at full capacity, to be at least 374,400 pounds (169,825 kilos) of premium grade cannabis annually. The targeted land is in Yerucham, Israel approximately 90 minutes from Tel Aviv.

Project Location- Greenegev Cannabis Ecosystem, Yerucham, Israel

Why Israel, and Why Yerucham

Among Israel’s chief advantages, alongside its compatible climate, are its tradition of agricultural sophistication and its status as perhaps the world’s premier cannabis research center. Israel has been a pioneer in cannabis R&D for several decades, and has one of the highest per capita rates of medical cannabis patients in the world. Yerucham has a Development Zone A designation from the Israeli government, making economic growth in the area a national priority and attaching a wide range of financial incentives to companies therein establishing operations.

Under the leadership of its Mayor, Tal Ohana, Yerucham has embarked on a program to transform the small desert town into “Greenegev”, the first cannabinoid ecosystem in Israel. The plans call for cultivation, processing and research companies to concentrate their respective activities in Yerucham, attracting services that provide each resident company with core advantages by virtue of the cooperation and support the ecosystem community is uniquely positioned to provide.

The Company meets all the prescribed criteria and the licensing process is progressing, with the full support and valuable assistance of the Yerucham mayor’s office and the municipal staff. The Company is also benefitting from the support and guidance of Major General (Res.) Amram Mitzna, a former Yerucham mayor and the current chairman of the Yerucham Fund. Yerucham has a Development Zone A designation from the Israeli government, making economic growth in the area a national priority and attaching a wide range of financial incentives to companies therein establishing operations. The process is estimated to take between 6-9 months. The Company anticipates receiving its license in early 2021, subject to final acquisition of the land.

Layout for Yerucham-based Greenegev Cannabis Center

Current Licensing & Project Status

In late 2019 and early 2020, KBI retained the services of the Tel Aviv based law firms Zysman, Aharoni, Gayer and Sullivan Law, respectively, to assist the Company in obtaining an Israeli medical cannabis cultivation license and an Israeli license to export medical cannabis. Part of this process included the establishment of our entity to do business in Israel (Kaya Shalvah) as well as building out Kaya Shalvah’s Board of Directors and Board of Advisors (biographies listed below).

In early and mid 2020, the Company, through its attorneys, worked to prepare the requisite paperwork for its cannabis cultivation license application. On November 30, 2020 the Company submitted its application for its initial cannabis cultivation license to the Ministry of Health, Division of Medical Cannabis, and was advised that the review process would take 3 to 6 months.

As of March 20, 2021, our attorneys advised that the license was in its final stage of approval (having completed the review and screening process as an International Company applying for a cannabis license in Israel), and that the process should be completed shortly and the license issued.

Once the Company receives the license, the Company will submit its land acquisition bid for 100 Dunams (approximately 25 acres) of land to the Israel Land Authority, which is processing applications for the land bids that are part of the highly sought after Greenegez Canabis Center in Yerucham, Israel.

Potential Markets

The Company has ongoing discussions with a number of European cannabis distribution companies in an effort to sign non-exclusive supply/sales agreements for all or part of the Company’s yield, in accordance with agreed upon parameters. The Company also expects to target sales in Asia, South America, and additional markets as the global legalization of cannabis progresses. Additionally, the Company is in preliminary discussions with current medical marijuana dispensary license operators in Israel about franchising the Kaya Shack, as well as working with other medical marijuana companies on joint ventures and acquisitions.

The Company has established a Board of Directors for Kaya Shalvah that includes:

Offer Lapidot (Brig. Gen. Res.)

A career fighter pilot in the Israel Air Force (1969-1996), Offer served two tours as a fighter squadron commander, and served as commander of the Flight Training School, commander of the Ramon Air Force base, and Head of Planning & Organization (at Air Force HQ). Offer holds the rank of Brigadier General. After his military service Offer spent a number of years in senior management positions at Israel’s leading retailer, as well as CEO of a high-tech start-up, only to miss flying and return to the skies as a pilot for El Al airlines. After his mandatory retirement from commercial flying, he joined the El Al executive team as the Director of Safety and Quality for El Al Airlines. Offer studied for his B.A. degree in Economics at Bar Ilan University, and holds an M.S. in Management from the Naval Post Graduate School in Monterey, California.

Ilan Horesh (Col. Res.)

Ilan was a career Israel Defense Forces officer, retiring in 1993 after 23 years at the rank of Colonel. During his career Ilan held numerous command positions with combat ground forces. His final assignment in the IDF was Commander of the School of Electronics and Computerization. After his military service Ilan embarked on a career as an executive and leader in the Israeli high tech sector, working with such companies as Pelephone, Bezek, Paz Oil and others. Ilan has served on the Boards of a number of Israeli companies, including Taldor Computer Systems, Ltd., Rakah Pharmaceutical Industry, Ltd., Ampa Investments, Ltd., and Retalix, Ltd.

Joseph Gayer, Adv.

Joseph “Yossi” Gayer is one of the founders of the international law firm ZAG-S&W. Yossi is a prominent expert in a number of legal fields, including commercial litigation and contracts law, representing clients both on domestic and international matters.

Yossi also represents Israel’s leading professional athletes in all fields of sports, including advising sports clubs, organizations, and sponsors in Israel and abroad. His litigation practice has yielded many legal precedents that have influenced the status of professional athletes, both in Israel and abroad, with respect to their rights vis-a-vis employers, sports authorities, and various statutory institutes. Yossi’s expertise includes insurance and property law.

Yossi lectures at the Radzyner School of Law at the Interdisciplinary Center (IDC) Herzliya.

Gadi Katz

Gadi is the founder of Total Immersion Swimming Israel “TISI”, the Israel franchise of a multinational corporation in the sports and leisure market. Gadi has built the Company to a current 70 branches operating across Israel, serving thousands of clients annually. Since founding TISI in 2006, Gadi has become expert in online marketing and has development in-house a state of the art marketing and sales Business Intelligence system. Gadi is also an expert in business development, specializing in small and mid-sized companies. Prior to TISI, Gadi was the co-founder and CFO of the American-Israeli Crisis and Issue Management (AICIM) consulting firm. AICIM specialized in high-level advisory services to politicians (including candidates for Head of State) and business leaders globally. Early in his career Gadi practiced law at what is today Israel’s largest Law Office Meitar & Co., where he engaged in various business focused matters such as Venture Capital, IPOs, M&As, Joint Ventures, Spin Offs and Corporate Restructurings. Gadi holds a B.A. in Business Administration, Magna Cum Laude, LL.B and an MBA.

The Company’s supportive Board of Advisors includes:

Uzi Teshuva

Uzi is a second-generation Israeli farmer, active in agriculture since his teenage years. Since 1991 Uzi has served as the CEO of a farm distributes its agricultural products, grown using groundbreaking and innovative agricultural methods. Uzi became the active Chairman of TAP, an agricultural engineering and technology company specializing in the design, construction and management of agricultural farms in numerous countries worldwide.

Elon Kaplan, Ph.D.

Elon, a Ph.D. in Organizational Psychology is the Founder and CEO of Cytegic, a cutting-edge cyber-risk quantification solution predicated on the idea that enterprise risk is a combination of three key elements: technology, people, and business. Cytegic was recently sold to MasterCard. Elon brings to Kaya Shalvah the guidance of a serial entrepreneur, a scientist and a cyber-security expert. As a business leader, he excels at building exceptional teams and driving innovative breakthroughs. As an applied behavioral scientist, he is trained in specific modeling and statistical methodologies. Prior to Cytegic, Elon was Founder and CEO of Gilon Yaad, Ltd., an organizational business strategy consultancy, where he worked with many large companies, including PayPal, El-Al, Johnson & Johnson, Bank Leumi, Bank HaPoalim, Discount Bank, Maccabi Healthcare, and Comverse.

Rafi Cohen

Rafi is the Israeli Chief of Operations for Day Three Labs. Rafi has managed and overseen small and large-scale cannabis research & development projects since 2015, specializing in medicinal, cosmetic , wellness and animal health product development. For the past five years, Rafi has been dedicated exclusively to working within the emerging Israeli and global cannabis industry, recognizing the commercial and medicinal potential of cannabis. Rafi has distinctive experience in cannabis research projects, product development, clinical studies, investments, and joint ventures. Rafi began his career as a corporate attorney with Fischer Behar Chen Well Orion & Co., where he focused on M&A and strategic corporate development. Later he was a founding partner at Cohen, Light, Ziv and Associates. Rafi has a B.ed. from Herzog College of Education, an MA from Yeshiva University in New York City and an LL.B. from the Hebrew University in Jerusalem.

Josh Rubin

Josh is the founder and CEO of Day Three Labs (DTL). Headquartered in Denver, Colorado and with research operations in Israel, DTL seeks to disrupt the cannabis industry by introducing Israeli cannabis related innovations to the North American and global markets. Josh began his career in the cannabis industry in 2017 as a consultant analyzing trends in the cannabis market. Recognizing the opportunity to bridge the North American and Israeli cannabis sectors, he launched DTL. Josh was well suited to establish DTL, for in addition to his extensive network in Israel, he speaks Hebrew and has experience living and working in Israel. During a five year period in Israel Josh studied at the Hebrew University and the Interdisciplinary College in Herzliya (IDC), worked in the Knesset, and worked for the International Institute for Counter-Terrorism as a researcher. Josh even found time to volunteer as a medic for Magan David Adom. Josh has a Masters of Business Administration from Johns Hopkins University (Marketing), a Masters Degree from IDC in Government and a Bachelor of Arts Degree from Queens College (Psychology & Philosophy).

Government Regulation

We are subject to general business regulations and laws, as well as regulations and laws directly applicable to our operations. As we continue to expand the scope of our operations, the application of existing laws and regulations could include matters such as pricing, advertising, consumer protection, quality of products, and intellectual property ownership. In addition, we will also be subject to new laws and regulations directly applicable to our activities.

Any existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary to comply with such laws and regulations, which could hinder or prevent the growth of our business.

Federal, state and local laws and regulations governing legal recreational and medical marijuana use are broad in scope and are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance. In addition, violations of these laws or allegations of such violations could disrupt our planned business and adversely affect our financial condition and results of operations. In addition, it is possible that additional or revised federal, state and local laws and regulations may be enacted in the future governing the legal marijuana industry. There can be no assurance that we will be able to comply with any such laws and regulations and its failure to do so could significantly harm our business, financial condition and results of operations.

Competition

The legal marijuana sector is rapidly growing and the Company faces significant competition in the operation of retail outlets, MMDs and grow facilities. Many of these competitors will have far greater experience, more extensive industry contacts and greater financial resources than the Company. There can be no assurance that we can adequately compete to succeed in our business plan.

Employees

As of the date as of this Report, our Oregon operations have a total of 12-15 part-time store employees including budtenders, trimmers, growers, and4 full-time employees, consisting of the Senior Vice President of Cannabis Operations, the Vice President of Marketing and Brand development, and 2 store managers. Additionally, we engage several consultants to assist with daily duties and business plan implementation and execution. Additional employees will be hired and other consultants engaged in the future as our business expands.

Potential Effects of the COVID-19 Pandemic on our Business

The adverse public health developments and economic effects of the COVID-19 pandemic in the United States and overseas could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures and logistics restrictions in connection with the outbreak. More broadly, the COVID-19 pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services, slow our international expansion plans, harm our business, results of operations and financial condition. The Company cannot accurately predict the effect the COVID-19 pandemic will have on the Company.

Item 1A. Risk Factors.

We have a limited operating history with our current business.

The Company was incorporated in 1993 and has engaged in a number of businesses as both a private and as a publicly held company, including the online sale of specialty foods, online marketing and website development.

KAYS’s legal marijuana business, which it has focused on since 2014, only commenced generating more than a limited level of revenues subsequent to the commencement of legal recreational marijuana sales in Oregon on October 1, 2015. Accordingly, our operations continue to be subject to all the problems, expenses, difficulties, complications and delays encountered in an early stage business. There can be no assurance that the Company will generate significant revenues or operate at a profit.

The Company will require additional financing to become commercially viable.

The Company’s current legal marijuana operations can be capital intensive.

During the years ended December 31, 2020 and 2019, we raised approximately $277,500 and $770,000, respectively, through a series of private debt and equity offerings to finance operations.

The Company incurred net loss of $12,297,222 and net income of $7,521,861 or the years ended December 31, 2020 and 2019, respectively.

All of the net income for the years ended December 31, 2020 and December 31, 2019 were not actual operating gains but were a result of the derivative liabilities from the conversion of debt from the stabilization of our stock prices the reduces the volatility factors used in the derivative calculations.

At December 31, 2020, we had a total stockholders' deficit of ($24,926,089) and a working capital deficiency of $20,472,416. There can be no assurance that the Company will become commercially viable without additional financing, the availability and terms of which are uncertain. If the Company cannot secure necessary capital when needed on commercially reasonable terms, its business, condition (financial and otherwise) and commercial viability may be harmed. Although management believes that it will be able to successfully execute its business plan, which includes third party financing and the raising of capital to meet the Company’s future liquidity needs, there can be no assurances in this regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern.

We currently rely on certain key individuals, and the loss of one of these key individuals could have an adverse effect on the Company.

Our success depends to a certain degree upon certain key members of our management and certain key consultants to the company. These individuals are a significant factor in our growth and success. The loss of the services of such members of management could have a material adverse effect on our Company.

The Company’s success will be dependent in part upon its ability to attract qualified personnel and consultants.

The Company’s success will be dependent in part upon its ability to attract qualified creative marketing, sales and development professionals. The inability to do so on favorable terms may harm the Company’s proposed business.

KAYS must effectively meet the challenges of managing expanding operations.

The Company’s business plan anticipates that operations will undergo expansion in 2020 and beyond. This expansion will require the Company manage a larger and more complex organization, which could place a significant strain on our managerial, operational and financial resources. Management may not succeed with these efforts. Failure to expand in an efficient manner could cause expenses to be greater than anticipated, revenues to grow more slowly than expected and could otherwise have an adverse effect on the business, financial condition and results of operations.

Marijuana remains illegal in the United States under federal law.

Notwithstanding its legalization for recreational and/or medical use by a growing number of states, the growing, transport, possession or selling of marijuana continues to be illegal under federal law. Although the Obama administration had made a policy decision to allow implementation of state laws legalizing recreational and/or medical marijuana use and not to federally prosecute anyone operating under state law, the continuance of that policy is not assured under the Trump administration and could change at any time, which might render our marijuana operations illegal and adversely affecting KAYS’s business, financial condition and results of operations.

The marketing and market acceptance of marijuana may not be as rapid as KAYS expects.

The market for legal marijuana is quickly evolving, and activity in the sector is expanding rapidly. Demand and market acceptance for legal marijuana are subject to uncertainty and risk, as changes in the price and possible adverse political efforts could influence and denigrate demand. KAYS cannot predict whether, or how fast, this market will grow or how long it can be sustained. If the market for legal marijuana develops more slowly than expected or becomes saturated with competitors, KAYS’s operating results could be adversely impacted.

KAYS’s marijuana activities are part of an emerging industry.

The Company intends to implement an aggressive plan of growth to enter the legal recreational and medical marijuana industry. The legal marijuana industry is new and emerging, and has yet to fully define competitive, operational, financial and other parameters for successful operations. By pursuing a growth strategy to enter a new and emerging industry, the Company’s operations may be adversely impacted as the industry’s competitive, operational, financial and other parameters take shape. Given the fluidity of the industry, the Company may make errors in implementing its business plan, thereby limiting some or all of its ability to perform in accordance with its expectations.

Our business could be affected by changes in governmental regulation.

Federal, state and local laws and regulations governing legal recreational and medical marijuana use are broad in scope and are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance. In addition, violations of these laws or allegations of such violations could disrupt KAYS’s planned business and adversely affect our financial condition and results of operations. In addition, it is possible that additional or revised federal, state and local laws and regulations may be enacted in the future governing the legal marijuana industry. There can be no assurance that KAYS will be able to comply with any such laws and regulations and its failure to do so could significantly harm our business, financial condition and results of operations.

Our business will be subject to other operating risks which may adversely affect the Company’s financial condition.

Our planned operations will be subject to risks normally incidental to manufacturing operations which may result in work stoppages and/or damage to property. This may be caused by:

We will likely face significant competition.

The legal marijuana industry is in its early stages and is attracting significant attention from both small and large entrants into the industry. KAYS expects to encounter significant competition as it implements its business strategy. The ability of KAYS to effectively compete could be hindered by a lack of funds, poor positioning, management error, and other factors. The inability to effectively compete could adversely affect our business, financial condition and results of operations.

Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act `Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial office and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identity other deficiencies that we may not be able to timely remediate. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes Oxley”). Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly

The Jumpstart our Business Startups Act of 2012 (the “Jobs Act”) has reduced the information that the Company is required to disclose.

Under the Jobs Act, the information that the Company will be required to disclose has been reduced in a number of ways.

As a company that had gross revenues of less than $1 billion during the Company’s last fiscal year, the Company is an “emerging growth company,” as defined in the Jobs Act (an “ EGC ”). The Company will retain that status until the earliest of (a) the last day of the fiscal year which the Company has total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (b) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of the common stock pursuant to an effective registration statement under the Securities Act; (c) the date on which the Company has, during the previous three year period, issued more than $1,000,000,000 in nonconvertible debt; or (d) the date on which the Company is deemed to be a “ large accelerated filer ,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, the Company is relieved from the following:

The costs of being a public company could result in us being unable to continue as a going concern.

As a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal control. The costs of this compliance could be significant. If our revenues do not increase and/or we cannot satisfy many of these costs through the issuance of our shares, we may be unable to satisfy these costs in the normal course of business that would result in our being unable to continue as a going concern. 

Management and the Board of Directors may be indemnified.

The Certificate of Incorporation and Bylaws of KAYS provide for indemnification of directors and officers at the expense of the respective corporation and limit their liability. This may result in a major cost to the corporation and hurt the interests of stockholders because corporate resources may be expended for the benefit of directors and officers. The Company has been advised that, in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

The market for the KAYS Shares is extremely limited and sporadic

KAYS’s common stock is quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. The market KAYS’s for common stock is limited and sporadic. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of KAYS’s common stock for reasons unrelated to operating performance. Moreover, the trading of securities in the OTCQB is often more sporadic than the trading of securities listed on a quotation system like NASDAQ, or a stock exchange like the New York Stock Exchange.

KAYS’s common stock is a penny stock. Trading of KAYS’s common stock may be restricted by the penny stock regulations adopted by the Securities and Exchange Commission (the “SEC”) and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our common stock.

KAYS’s common stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. KAYS’s common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, KAYS’s common stock.

In addition to the penny stock rules promulgated by the SEC, FINRA (the Financial Industry Regulatory Authority) has adopted rules that require when recommending an investment to a customer, a broker- dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low -priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy KAYS’s common stock, which may limit investor ability to buy and sell KAYS’s common stock.

The market for penny stocks has experienced numerous frauds and abuses that could adversely impact KAYS’s common stock.

Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

The board of directors of KAYS has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to adversely affect common stockholder voting power and rights upon liquidation.

KAYS’s Certificate of Incorporation allows us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders of preferred stock the rights to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.

The ability of our principal stockholders, including our CEO, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs.

The principal stockholder of KAYS holds 1,533,131 shares of common stock and 50,000 shares of Series C Convertible Stock. Additionally, our CEO owns 752,011 shares of common stock and 50,000 shares of Series C Convertible Preferred Stock. These preferred shares can be converted into a total of 2,888,665 shares of KAYS common stock which, added to the common shares of KAYS held by both parties gives them approximately 29.9% of votes on matters presented to stockholders. Accordingly, they are in a position to significantly influence membership of our board of directors as well as all other matters requiring stockholder approval. The interests of our principal stockholders may differ from the interests of other stockholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other officers and directors and other business decisions. The minority stockholders have no way of overriding decisions made by our principal stockholders. This level of control may also have an adverse impact on the market value of our shares because our principal stockholders may institute or undertake transactions, policies or programs that result in losses and/or may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.

We do not expect to pay cash dividends in the foreseeable future.

KAYS has not paid cash dividends on its shares of common stock and does not intend to do so at any time in the foreseeable future. The future payment of dividends depends upon future earnings, capital requirements, financial requirements and other factors that the companies’ boards of directors will consider. Since they do not anticipate paying cash dividends on the common stock, return on investment, if any, will depend solely on an increase, if any, in the market value of the common stock.

The conversion of KAYS’ outstanding preferred stock by the CEO and convertible debt held by our principal stockholder would result in the issuance of 2,888,665 shares of KAYS’ common stock. Additionally, conversion of other convertible debt described in this Annual Report would result in further dilution to KAYS’ stockholders. Accordingly, such market overhang could adversely impact the market price of the common stock.

KAYS has 100,000 shares of Series C Convertible Preferred Stock outstanding, all of which are held by our CEO and our principal stockholder. These preferred shares can be converted into a total of 2,888,665 shares of KAYS common stock. Additionally, the company has other convertible debt described in this Annual Report, which would result in further dilution if converted Such market overhang could adversely impact the market price of KAYS’s common stock as a result of the dilution which would result if such securities were converted into shares of KAYS common stock.

Future sales of shares of KAYS common stock pursuant to Rule 144 under the Securities Act could adversely affect the market price of KAYS’s common stock.

KAYS has a substantial number of shares of common stock which were issued in transactions exempt from the registration requirements of the Securities Act and are now available for public sale pursuant to the Rule 144 under the Securities Act. Such sales could adversely affect the market price of KAYS’s common stock.

Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interesteddirector transactions, conflicts of interest and similar matters.

Sarbanes-Oxley as well as rule changes proposed and enacted by the SEC, the NYSE/AMEX and the NASDAQ Stock Market as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not currently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with voluntary compliance, we have not yet adopted these measures.

We do not currently have independent audit or compensation committees. As a result, directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested- director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations as a result thereof.

We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley. The enactment of Sarbanes-Oxley has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.

Item 1B. Unresolved Staff Comments.

Not applicable.

Item 2. Properties.

Operating Leases

The Company has several operating leases- an office in Fort Lauderdale, Florida and 4 store leases in Oregon under arrangements classified as leases under ASC 842:

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

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

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

Effective June 1, 2015, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $3,584 and culminating in a monthly payment of $4,034. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease.

Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,367 and culminating in a monthly payment of $4,915. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The Company is currently in process of negotiating a termination agreement with the landlord for this space as this store has been closed and the Company intends to utilize the OLCC License at its warehouse Property in Eugene, Oregon to open a “Grow Store” and Delivery Operation to service the Eugene, Oregon market (subject to OLCC approval for license transfer).

Effective April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,617 and culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The Company is currently in process of negotiating a termination agreement with the landlord for this landlord as this store has been closed

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

The Company has right-of-use assets of $322,760 and operating lease liabilities of $423,185 as of December 31, 2020. As noted above, the two (2) leases that the Company entered into effective April 15, 2016 are in the process of being terminated with the landlord subject to completion of negotiations. Accordingly, there is an impairment of the right-of-use-assets in the amount of $87,151.

Real Property

In August 2017, KAYS we acquired a 26 acre parcel in Lebanon, Linn County, Oregon, which we intend to develop as a Kaya Farms™ legal cannabis cultivation and manufacturing facility.

In 2018, we acquired the Eugene, Oregon based Sunstone Farms grow and manufacturing facility.

Item 3. Legal Proceedings.

From time to time KAYS be party to various legal proceedings in the ordinary course of business. Pleases see paragraphs below for results of legal proceedings during 2019 and 2020; there are no currently pending proceedings:

A. Licensing Update- Kaya Farms Greenhouse Grow and Production Facility, Lebanon, Oregon

On February 9, 2018 KAYS submitted a site plan review for the Company’s envisioned 101,000 square foot OLCC licensed Kaya Farms™ Marijuana Grow and Manufacturing Complex and an application for a conditional use permit for marijuana processing on the Company owned 26.50-acre property zoned Exclusive Farm Use (EFU) with the Linn County, Oregon Planning and Building Department.

On March 9, 2018 the Company was notified by the Linn County, Oregon Planning and Building Department (the “ Department ”) that the application was deemed complete and received an official letter of completeness with respect to the application. The formal “ Letter of Completeness ,” sent March 9, 2018 by a Linn County Senior Planner, confirmed the eligibility of the Company’s 26-acre plot for the purposes of growing legal cannabis, as well as the eligibility of the property for a special purpose exemption for the Company’s proposed manufacturing operations.

On April 20, 2018 the Company was notified by the Department that the site plan review for the indoor and outdoor marijuana operation on the 26.50-acre property (which encompasses approximately 86,000 square feet of the Company’s 101,000 square feet of the Company’s submitted buildings) had been approved. However, the conditional use permit for marijuana processing (which encompasses approximately 15,000 square feet of the Company’s 101,000 square feet of the Company’s submitted buildings) had been denied, largely due to the scale and coverage of the proposed processing operation. Additionally, local residents requested a hearing to appeal the approval of the site plan based on concerns that a portion of the approved site plan that supports the 36,000 square feet of green houses for outdoor growing is not eligible for the Irrigation rights that the Company possesses for the Property.

On June 12, 2018 the Linn County Planning Commission held a hearing and adopted a motion to Deny the previously approved site plan, citing that the proposed site plan does not comply with the odor and waste management standards set forth in Section 940.400 of the Linn County Development Code.

On August 7, 2018 KAYS filed a Notice of Appeal with the State of Oregon Land Use Board of Appeals (LUBA).

On October 9, 2018, Larkins Vacura Kayser LLP (“LVKLAW”), Oregon Counsel, received a letter from Linn County’s Attorney notifying them that Linn County did not intend to file a response brief or appear at the State of Oregon Land Use Board of Appeals (“LUBA”) hearing, and shortly thereafter LUBA cancelled the LUBA Hearing.

On November 13, 2018 LUBA issued its FINAL OPINION AND ORDER (the “Order”). The Order reversed the County’s decision and ordered the County to approve the Company’s Land Use Application for the to-be-built 85,000-square foot Kaya Farms & Greenhouse Facility in Lebanon, Oregon.

On August 16^th, 2019 the Land Use Board of Appeals issued an order granting attorney’s fees and costs in the amount of $25,158 be paid to KAYS and the funds were received in September, 2019. The proceeds were recorded net against costs incurred, noting no gain or loss.

On November 12, 2020 the Company received official notification from the OLCC that they were ready to move forward on the KAYS license application for their Kaya Farms Greenhouse Grow and Production facility located in Lebanon, Oregon, and on November 13, 2020 KAYS met with Linn County Zoning Officials and filed for and received a one year extension of their Zoning Permits so as to allow for scheduling of construction and OLCC licensing inspections after the facility is completed.

The facility features approximately 85,000 square feet of buildings and greenhouses on approximately 26.5 acres in the heart of Oregon’s Agriculture Country in Linn County. Under present laws the property can easily deliver 6-8,000 pounds of cannabis each year; if future regulations permit this capacity could easily be increased to over 100,000 pounds of cannabis per year.

KAYS is still working out logistics but is targeting the facility to be functionally complete by mid-fall 2021.

B. Settlement with Sunstone, Burwick regarding non-transferability of Sunstone Grow License

As previously reported in our periodic reports filed under the Securities Exchange Act of 1934, in the fourth quarter of 2018, KAYS concluded the purchase of the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the Oregon Liquor Control Commission (the “ OLCC ”) for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. KAYS entered into a management agreement with the holder of existing OLCC licenses (“ Sunstone ”) to oversee operations at the facility pending transfer of the license to KAYS, which were aware would be an extended and cumbersome process.

In mid-April 2019, we were advised by Sunstone that it had been notified that the OLCC was proposing that Sunstone’s licenses be cancelled, claiming that that Sunstone had not filed paperwork correctly with respect to the transaction or its historical ownership.

At the OLCC’s Administrative Hearing Session held on October 15, 2020, the OLCC approved a settlement between the Oregon Liquor Control Commission (OLCC) and Sunstone Marketing Partners that required theirs license to either be sold to a third party (other than KAYS) or surrendered.

As the settlement between the OLCC and Sunstone/Burwick deemed that the licenses that were part and parcel of the purchase were ultimately non-transferrable to KAYS by the OLCC, the Company recently negotiated a settlement with the seller (Sunstone and Bruce Burwick) that allows for the return of all 1,006,671 shares issued to the seller as part of the transaction (the 773,336 shares for the facility purchase, the 166,667 shares issued for $250,000.00, and subsequent shares issued as annual compensation for Board Member Compensation) in exchange for allowing the seller to retain the proceeds of the sale of the grow license to an unrelated third party that is in process of obtaining approvals from the OLCC to relocate it to another location, as well as provides for the seller to resign from the Board of Kaya Holdings and work as a non-exclusive consultant to the Company for the next 48 months for a total four year fee of $140,000.00.

The settlement between Sunstone and KAYS is effective March 31, 2021 but is contingent on Sunstone receiving the proceeds of the sale of the grow license to the unrelated third party as described above; the Company has been advised that the funds are in escrow for release pending the OLCC transfer approval which should be sometime prior to June 30, 2021.

As part of a larger production and processing plan that would allow for a more efficient Production and Processing plan and economy of scale, the Company is presently in the process of submitting a new OLCC Marijuana Processing License for the 12,000 facility, and plans to renovate and dedicate the facility to produce various brands of oils, edibles, concentrates and extracts, and develop medical grade laboratory facilities for the production of a proprietary Kaya Cannaceuticals™, while conducting all future grow operations at the Lebanon Kaya Farms Ag Facility upon completion of construction and licensing

C. Service Provider and Vendor Litigation and Settlements

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

Market for Common Stock

Our common stock is currently traded on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “KAYS.” Such market is extremely limited. We can provide no assurance that our shares will be continued to be traded on the OTCQB or another exchange, or if traded, that the current public market will be sustainable.

Holders of Our Common Stock

As of March 19, 2020 we had 636 holders of record of our common stock. One of these holders is CEDE and Company which is the mechanism used for brokerage firms to hold securities in book entry form on behalf of their clients and as of March 5, 2021, they held 6,711,071 shares of common stock for these shareholders. When the Company last received a report from CEDE it showed a log of 8,621 shareholders that consented to release their name to the Company for purposes of shareholder communications. Accordingly, we believe that KAYS has approximately 10-11,000 beneficial stockholders as of such date.

Securities Authorized for Issuance under Equity Compensation Plans

Recent Sales of Unregistered Securities

As detailed in the accompanying financial statements and footnotes, in 2020 KAYS issued a total of 10,256,300 shares of common stock (adjusted to 683,754 shares after the reverse stock split became effective December 15, 2020) to shareholders of the Company for conversion of principal and interest due from convertible promissory notes.

In 2020 KAYS received a total of $235,000 from additional sales of Convertible Promissory Notes pursuant to the May 2017 Financing Agreement and $35,000 from sales of Convertible Promissory Notes pursuant to the January 2018 Financing Agreement (each as described below). 

Additionally, in 2020 KAYS received $12,500 from stock subscriptions.

May 2017 Financing-Agreement

On May 11, 2017, we entered into a second financing agreement with the Institutional Investor to provide the Company with up to an additional $5.8 million in convertible note funding (the “May 2017 Notes \”) through July 31, 2018 (the “May 2017 Financing Agreement”). The May 2017 Financing Agreement was amended as of July 31, 2017, to increase the amount of funding available to the Company thereunder to $6.3 million and to extend the time period for such funding to May 31, 2019 and was subsequently amended as of November 15, 2017 and as of March 31, 2018, to further increase the amount of funding available to the Company thereunder to $7.75 million and to provide for the remaining $5.8million in principal amount of May 2017 Notes to be (a) convertible into shares of the Company’s common stock at conversion prices ranging from $0.03 to $0.11 pursuant to the terms of each May 2017 Note as described below; and (b) to extend the time period for such funding to April 30, 2020.

Pursuant to an additional agreement reached as of March 31, 2018, KAYS and the Institutional Investor agreed that effective as of January 1, 2019, (a) the maturity date of all then outstanding Company promissory notes held by the Institutional Investor and its affiliate, NWP Finance LTD, will be extended from January 1, 2019 to January 1, 2020; (b) all of the $1.75 million in principal amount of May 2017 Notes currently outstanding and the remaining $5.8 million in principal amount of May 2017 Notes which may be issued under the Agreement, as amended, are to be secured by a mortgage lien on the Company’s 26-acre Lebanon, Oregon property, substantially similar in form and substance to the mortgage securing the $500,000 in principal amount of $0.03 Secured Notes purchased by the Institutional Investor, with the caveat that the property, improvements or rights to utilize them cannot be directly or indirectly leased, assigned or otherwise pledged to any entity without approval of the Institutional Investor, and in the event that there is a change in control of the Company or its subsidiaries the May 2017 Notes become immediately due and payable; and (c) the Institutional Investor was be granted piggy-back registration rights with respect to shares of the Company’s common stock it may hold or is issuable upon conversion of any Notes it or its Assigns may hold in the event the Company files a Registration Statement on Form S-1 with the Securities and Exchange Commission under the Securities Act of 1933, as amended to sell shares of its common stock or permit the resale by shareholders of previously issued shares of common stock, up to a maximum of 30% of the shares registered under such registration statement.

Effective as of January 20, 2019, the Agreement was further amended to: (a) extend the due dates for funding due under the Agreement for each of the remaining trenches (including the $420,000 remaining “$0.03” Notes that were due to expire December 31, 2018) by six (6) months; (b) agree to extend the maturity date all then outstanding Company promissory notes held by the Institutional Investor and its affiliate, NWP Finance LTD, from January 1, 2020 to January 1, 2021; and (c) pursuant to price adjustment features in the outstanding Notes held by the Institutional Investor, the Company confirmed that all outstanding Notes with a conversion price greater than $0.03 held by the Institutional Investor would be lowered to $0.03 per share at time of conversion.

Effective as of January 1, 2020, the Agreement was further amended to: (a) extend the maturity date all then outstanding Company promissory notes held by the Institutional Investor and its affiliate, NWP Finance LTD, from January 1, 2021 to January 1, 2024; (b) notwithstanding item “a” upon the Company receiving US$4,000,000.00 in new financing from sources other than the Holder, the Holder shall have the option to have the Company allocate 10% of any additional financing beyond this amount for purposes of early repayment of any Notes still held by the Holder; (c) notwithstanding item “a” provide for an “Acceleration Provision” in the event of a change in the event that Craig Frank is no longer the CEO of the Company, and/or W. David Jones is no longer retained to provide Business Consulting Services to the Company through BMN Consultants (either through resignation, termination or through determination by the Board of Directors that the respective party is medically incapable of conducting their duties), then the Holder of this Note is entitled to enact the Acceleration Provision by notifying the Company’s Board of Directors or Corporate Counsel which provides for the Maturity Date to be accelerated from January 1, 2024 to ninety (90) days from receipt of said notice; (d) the limitation on conversion of shares by the Holder to an amount less than 4.99% of the total issued and outstanding stock of the Company is automatically deemed waived with respect to a conversion of the Notes in connection with the occurrence of any of the corporate events described in Section 8(h) of the Notes; (e) the corporate events listed in Section 8(h) are also deemed to include a buyback/repurchase of the Company’s Shares by the Company, taking the Company “private”, a tender offer for the Company’s shares by another entity or individual(s) or other such action; and (f) the Conversion Price of the Notes will be adjusted if the average closing price of the Company’s common stock for the thirty (30) trading days immediately preceding the date of the Company’s receipt of the Holder’s Conversion Notice is less than $0.05 per share, the Conversion Price for the shares shall be adjusted to the lesser of: sixty percent (60%) of the average closing price of the Company’s common stock for the thirty (30) trading days immediately preceding the date of the Company’s receipt of the Holder’s Election Notice reflecting such election, but in any event not less than $.01 per share, OR $.03 per share, and in any event not to exceed such $.03 per share amount.

Effective as of July 22, 2020, pursuant to certain ratchet provisions within the Notes and in consideration of further concessions and additional financing assistance provided by the Institutional Investor, the Agreement was further modified so that the Conversion Price of all Notes held by the Institutional Investor and its affiliate, NWP Finance LTD have been reduced to $0.01 (0.15 post-split) per share, subject to certain adjustments in the event of stock dividends, splits and similar recapitalization events.

As of the date of this report, the Institutional Investor has purchased an aggregate of $3,185,000 in principal amount of May 2017 Notes from the Company under the May 2017 Financing Agreement, as amended to date.

January 2018 Financing-Agreement

Effective January 22, 2018, and amended as of July 31, 2018 we entered into a financing agreement with a high net worth investor (the “HNW Investor”) to provide the Company with up to $1.4 million in convertible note funding (the “January 2018 Notes ”) through July 31, 2018 (the “ January 2018 Financing Agreement ”). Pursuant to the January 2018 Financing Agreement, upon execution of the January 2018 Financing Agreement, the HNW Investor purchased $100,000 in principal amount of January 2018 Notes, which are convertible into shares of the Company’s common stock at a conversion price of $0.10 per share (the “$0.10 Notes”).

While the January 2018 Financing Agreement granted the HNW Investor the right to acquire additional January 2018 Notes by certain deadlines if additional funding was provided, no additional $0.10 Notes were purchased until the January 2018 Financing Agreement was amended in December, 2018 to allow the HNW investor the right to purchase an additional $25,000 of January 2018 Notes, which are convertible into shares of the Company’s common stock at a conversion price of $0.05 per share (the “$0.05 Notes”).

In January 2019 the Agreement was further amended to lower the conversion price of the previously purchased $0.10 Note to $0.05, and to modify terms of the $0.10 Note to make them consistent with the May 2017 Financing Agreement executed with the Institutional Investor, and to allow for the right of the HNW Investor to acquire an additional $200,000 of January 2018 Notes, which are convertible into shares of the Company’s common stock at a conversion price of $0.03 per share (the “$0.03 Notes”).

Effective as of January 1, 2020, the Agreement was further amended to: (a) extend the maturity date all then outstanding Company promissory notes held by the High Net Worth Investor Institutional Investor to January 1, 2021 (b) the limitation on conversion of shares by the Holder to an amount less than 4.99% of the total issued and outstanding stock of the Company is automatically deemed waived with respect to a conversion of the Notes in connection with the occurrence of any of the corporate events described in Section 8(h) of the Notes; (c) the corporate events listed in Section 8(h) are also deemed to include a buyback/repurchase of the Company’s Shares by the Company, taking the Company “private”, a tender offer for the Company’s shares by another entity or individual(s) or other such action; and (d) the Conversion Price of the Notes will be adjusted if the average closing price of the Company’s common stock for the thirty (30) trading days immediately preceding the date of the Company’s receipt of the Holder’s Conversion Notice is less than $0.05 per share, the Conversion Price for the shares shall be adjusted to the lesser of: sixty percent (60%) of the average closing price of the Company’s common stock for the thirty (30) trading days immediately preceding the date of the Company’s receipt of the Holder’s Election Notice reflecting such election, but in any event not less than $.01 per share, OR $.03 per share, and in any event not to exceed such $.03 per share amount.

Effective as of July 22, 2020, pursuant to certain ratchet provisions within the Notes and in consideration of further concessions and additional financing assistance provided by the Institutional Investor, the Agreement was further modified so that the Conversion Price of all Notes held by the HNW Investor have been reduced to $0.01 (0.15 post-split) per share, subject to certain adjustments in the event of stock dividends, splits and similar recapitalization events.

As of the date of this report, the HNW Investor has purchased an aggregate of $395,000 in principal amount of January 2018 Notes from the Company under the January 2018 Financing Agreement, as amended to date.

All the above securities were issued pursuant to the exemption from registration under the Securities Act afforded by Section 4(a)(2) thereof and Regulation D thereunder.

Item 6. Selected Financial Data.

Not applicable.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Results of Operations

Year ended December 31, 2019 compared to year ended December 31, 2018

We had revenues of $1,029,543 for the year ended December 31, 2020, as compared to revenues of $1,014,266 for the year ended December 31, 2019.

Cost of Sales

We had a cost of sales of $310,685 on revenues of $1,029,543 for the year ended December 31, 2020 versus a cost of sales of $$410,250 on revenues of $1,014,266 for the year ended December 31, 2019

Operating Expenses

General and administrative were $720,525 for the year ended December 31, 2020, as compared to $932,553 for the year ended December 31, 2019. Salaries and wages were $418,697 for the year ended December 31, 2020 as compared to $505,049 for the year ended December 31, 2019. The decrease in these expense categories from 2019 to2020, reflects our increased level of operations. Professional fees were $ 1,327,607 for the year ended December 31, 2020, as compared to $1,431,297 for the year ended December 31, 2019, reflecting a decrease of $103,690, and there was an impairment of the right-of-use-assets in the amount of $87,151 as we are in the process of terminating two leases for stores we have closed. After giving effect to all of the foregoing, total operating expenses were $2,553,980 for the year ended December 31,2020, as compared to $2,868,899 for the year ended December 31, 2019. Accordingly, our operating loss was $1,835,122 for the year ended December 31, 2020, as compared to $2,264,883 for the year ended December 31, 2019.

Interest expense

Interest expense was $602,806 for the year ended December 31, 2020, as compared to $579,722 for the year ended December 31, 2019, reflecting a decrease of additional debt incurred in 2020 to fund expansion of our operations.

Net Income (Loss)

After giving effect to an operating loss of $1,835,122, interest expense of $602,806, amortization of debt discount of $241,755, derivative liabilities expense of $324,033 andloss on extinguishment of debt of $-0-, loss on disposal/impairment of fixed assets of $173,658, change in derivative liabilities expense of $9,119,848 arising from the reduction of our stockprices which increased the volatility factors used in the derivative calculations, we had net loss from non-controlling interest of $198,401 for the year ended December 31,2020.

This compares to a net loss from non-controlling interest of $282,264 for the year ended December 31, 2019, after giving effect to an operating loss of $2,264,883, interest expense of $579,722, amortization of debt discount of $1,412,548, derivative liabilities expense of $634,741 and loss on extinguishment of debt of $25,000 offset by other income from a change in derivative liabilities income of $12,438,755 arising from the stabilization of our stock prices which reduced the volatility factors used in the derivative calculations. The net loss attributable to the Company for 2020 and net income attributable to the Company for 2019 was $12,098,821 and $7,804,125, respectively.

Liquidity and Capital Resources

During 2020 our cash position decreased by $43,805 to $43,162 and our negative working capital increased by $10,628,284 to $20,472,416.

As of December 31, 2020, our working capital consisted of cash of $43,162, inventories of $47,618 and prepaid expenses of $12,135.

Our current liabilities include accounts payable and accrued expenses of $988,247, accounts payable and accrued expenses-related parties of $846,111 accrued interest of$616,329, current portion of lease liability of $423,185, convertible notes payable- net of discount of $363,243, notes payable of $9,312 and derivative liabilities of $17,328,904.

The following table sets forth the major sources and uses of cash for the years ended December 31, 2020 and 2019:            

Cash Used in Operating Activities

During 2020, we used cash of $289,617 in operating activities, as compared to cash used in operations of $778,877 in 2019.

Cash Used in Investing Activities

During 2020, we used cash of $31,688 in investing activities, as compared to $19,668 in 2019. Expenditures in 2020 and 2019 consisted of property and equipment.

Cash Provided by Financing Activities

During 2020, $265,000 of convertible debt was issued and $12,500 of restricted stock, as compared to $695,000 of convertible debt and $75,000 of in capital contributions in 2019.

Additional Capital

As of December 31, 2020, we had cash of $43,162 and a working capital deficiency of $20,472,416.

Management believes that it will require additional capital, in addition to anticipated revenues from operations to fund expansion of the Company’s operations and ultimately achieve profitability. The Company intends to seek such additional capital from further private offerings of equity and/or debt securities. However, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition, cash flows and results of operations may be materially and adversely affected.

Management believes that it will require additional capital, in addition to anticipated revenues from operations to fund expansion of the Company’s operations and ultimately achieve profitability. The Company intends to seek such additional capital from further private offerings of equity and/or debt securities. However, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition, cash flows and results of operations may be materially and adversely affected.

Critical Accounting Estimates

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

Revenue Recognition

Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

To confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt of product via cash payment at our retail store; the transaction is recorded at the time of sale in our point of sale software system. Revenue is only reported after product has been delivered to the customer and the customer has paid for the product with cash.

To date the only other revenue we have received is for ATM transactions and revenue from this activity is only reported after we receive payment via check from the ATM service provider company.

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.

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

Recently Issued Accounting Pronouncements

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

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, the Company adopted this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients. On adoption, the Company recognized a right of use asset of $638,593, operating lease liabilities of $638,593, based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating lease. The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.

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

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

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

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 that is material to investors.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk.

Not applicable.

Item 8. Financial Statements and Supplementary Data.

See the Index of Consolidated Financial Statements on page F-1 below.

Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

Disclosure controls and procedures

Under the direction of our Chairman and President, who is our principal, executive, financial and accounting officer, we evaluated our disclosure controls and procedures as of December 31, 2020. Our Chairman and President, who is our principal, executive, financial and accounting officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2020.

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 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 Chairman and President, who is 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 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and President, who is 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 Chairman and President 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.

Management’s Report on Internal Control Over Financial Reporting

Our management of is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our Chairman and President, who is our principal, executive, financial and accounting officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

The Company’s Chairman and President, who is our principal, executive, financial and accounting officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2020. In making this assessment, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.

Based on the assessment performed, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s internal control over financial reporting, as of December 31, 2019, is not effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements in accordance with generally accepted accounting principles. Further, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has identified material weaknesses in internal control over financial reporting as of December 31, 2019.

Based on an evaluation, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of December 31, 2019 (the “Evaluation Date”), to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) accumulated and communicated to the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Each of the following is deemed a material weakness in our internal control over financial reporting:

The Company’s Chairman and President, who is our principal, executive, financial and accounting officer, believes that the material weaknesses set forth in the two items above did not have an effect on our financial results. However, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and financial procedures, which could result in a material misstatement in our consolidated financial statements in future periods.

Changes in Internal Control over Financial Reporting

There was no change in our internal controls or in other factors that could affect these controls during the fourth quarter of the year ended December 31, 2020 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.

Item 9B. Other Information

PART III

Item 10. Directors, Executive Officers and Corporate Governance.

Directors and Executive Officers

Our directors and executive officers and their respective ages and titles are as follows:

Set forth below is a brief description of the background and business experience of our directors and executive officers.

Craig Frank became Chairman of the Board, President, Chief Executive Officer and a Director of the Company in January 2010. He assumed the appointed position of acting Chief Financial Officer in 2012. For the past 15 years, Mr. Frank has served as Chairman and CEO of Tudog International Consulting, a Florida-based company with business advisory, business development, market research, training, and merchant banking divisions. During his tenure at Tudog, Mr. Frank has worked with more than 200 companies from 19 countries. In addition, in such capacity, he developed the business plan for a biofuels company based in Central America, and is the co-founder of the Company’s predecessor, which we acquired in January 2010. He remains Tudog’s Chairman. Mr. Frank is a widely published author with articles on business matters featured in magazines and newsletters internationally, including publications of the Guatemala America Chamber of Commerce, the Israel Export Institute, the Romania Chamber of Commerce, and the World Association of Small and Medium Sized Enterprises. He is also an in-demand speaker at international conferences, including the Florida Sterling Council, the International Project Management Association, The Central American Center for Entrepreneurship, the Israel Center for Entrepreneurial Studies, and the Pino Center for Entrepreneurship at Florida International University. The Company believes that Mr. Frank’s consulting and entrepreneurial experience brings significant value to our management team.

Carrie Schwarz, who became a director in January 2010, has served as the Managing Partner of Athena Assets Management, a New York based hedge fund specializing in investments of special situation publicly traded securities since 2002. Ms. Schwarz has also been a Portfolio Manager at Metropolitan Capital, a New York based hedge fund. From 1999 to 2001 Ms. Schwarz was an executive at Bank of America Securities, where she built and managed a proprietary Risk Arbitrage Department. From 1991 to 1999 she founded and managed Athena Investment Partners, L.P., a hedge fund that focused on special situations. Prior thereto, she was with American Porters, L.P., a hedge fund that focused on risk arbitrage, which she joined as a junior analyst in 1995 and ultimately rose to become Head of Research and a partner. Ms. Schwarz serves on the board of directors of the American Friends of the Weizmann Institute of Science. We believe that her financial industry experience makes her a valuable member of the board of directors.

Jordi Arimany, who became a director in January 2010, has served as Vice President of Business Development of First Diversity Management Group, a Cleveland, Ohio-based human capital services company since 2008. From 2007 to 2008 he served as Associate to the Executive Vice President of Bunco Industrial, in Guatemala City, one of the largest private banks in Central America. From 2000 to 2007 he was National Business Development Manager to LAFISE (Latin American Financial Services), a Miami, Florida-based financial services firm operating throughout Latin America. Mr. Arimany has a Bachelor’s degree in Business Administration from John Brown University and a Master’s degree in Business Administration from Regent University. We believe that his Latin American financial and business experience makes him a valuable member of the board of directors.

Bruce R. Burwick, who became a director in January 2019, has been a serial entrepreneur for over 50 years. His business ventures have included both domestic and international startups including product concept, manufacturing, wholesale and retail distribution, marketing and e-commerce. This includes private label manufacturing for several NYSE listed companies. In Oct 2015 Mr. Burwick sold Dynamic Health Laboratories, Inc to a NYSE listed company. Since 2014, has invested in both Medical and Recreational cannabis businesses.

Terms of Office

Our directors are appointed for a one-year term to hold office until the next annual meeting of our stockholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.

Board Committees

Two of our three directors are “independent” within the scope of the rules adopted by the NASDAQ Stock Market and the SEC: Ms. Schwarz and Mr. Arimany. However, our board of directors does not currently have an audit committee, a compensation committee, or a corporate governance committee. We plan to establish such committees in the near future.

Board of Directors Role in Risk Oversight

Members of the board of directors have periodic meetings with management and the Company’s independent auditors to perform risk oversight with respect to the Company’s internal control processes. Our board is currently comprised of a majority of independent directors. The Company believes that the board’s role in risk oversight does not materially affect the leadership structure of the Company.

Code of Ethics

We adopted a Code of Business Conduct and Ethics (“Ethics Code”) on February 28, 2013 that includes provisions ranging from conflicts of interest to compliance with all applicable laws and regulations. All officers, directors and employees are bound by this Ethics Code, violations of which may be reported to any independent member of the board of directors.

Item 11. Executive Compensation

Summary Compensation Table

The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and acting Chief Financial Officer, who is our sole executive officer, for 2020 and 2019.

SUMMARY COMPENSATION TABLE

Mr. Frank's compensation was paid to Tudog International Consulting, Inc., of which Mr. Frank is the Chairman and a principal.

Employment and Consulting Agreements

The Company is currently not a party to any employment agreement with its executive officers. The Company has consulting agreements with Tudog International Consulting, of which firm Mr. Frank is Chairman and a Principal, for the services of Mr. Frank as CEO and acting CFO.

Outstanding Equity Awards at Fiscal Year-End

Compensation of Directors Table

The table below summarizes all compensation paid to our nonemployee directors for 2018.

⁽¹⁾ Represents restricted shares of common stock granted.

Narrative Disclosure to the Director Compensation Table

Our non-employee directors are compensated with common stock. All such directors receive 100,000 “restricted” shares of common stock annually for their service.

2011 Incentive Stock Plan

Our 2011 Incentive Stock Plan, as amended (the “Plan”) provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the Plan, restricted stock awards, other stock- based awards, or any combination of the foregoing. The Plan is administered by the board of directors.

A total of 2,666,667 shares of KAYS common stock have been reserved for issuance under the Plan. As of December 31, 2020 awards covering 2,606,333 shares have been issued under the Plan and 60,333 shares of common stock were available for issuance under the Plan.

(Note- these figures are expressed in 15:1 post stock split numbers).

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table sets forth the beneficial ownership of our common stock by each director and executive officer, by all directors and executivesofficers as a group and by each other person known by us to beneficially own 5% or more of our common stock as of the date of this Annual Report. The address of each such person is c/o the Company 915 Middle River Drive, Suite 316, Fort Lauderdale, FL, 33304.

* Less than 1%

Securities Authorized for Issuance under Equity Compensation Plans

⁽¹⁾ Represents shares of common stock issued or reserved for issuance under our 2011 Incentive Stock Plan.

Item 13. Certain Relationships and Related Transactions, and Director Independence.

Related Party Transactions

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

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

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

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

In each of 2018 and 2019, the Company issued stock grants to Jordi Arimany and Carrie Schwarz for 6,667 shares of KAYS stock for their service as board members. The stock was issued from Treasury as restricted stock and carries a one-year restriction before it can be registered for resale pursuant to Rule 144.

In 2018 and 2019, the Company issued stock grants to Craig Frank for 200,000 shares of KAYS stock each year, pursuant to his employment agreement via board resolution. The stock was issued from Treasury as restricted stock and carries a one year restriction before it can be registered for resale pursuant to Rule 144.

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

In 2019, the Company issued a stock grant to Bruce Burwick for 6,667 shares of KAYS stock for his service as a board member. The stock was issued from Treasury as restricted stock and carries a one-year restriction before it can be registered for resale pursuant to Rule 144.

Bruce Burwick acquired the property for satisfaction of a promissory note due him for $1,433,000.00. The purchase price of $1.3 million for the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the issuance of 773,336 shares of KAYS restricted stock to the seller at closing. The Company valued the shares at $1,417,200. The shares carry a lock-up restriction that allows for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS.

Additionally, the seller purchased 166,667 restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds from the sale of those shares were and are being used for acquisition related expenses, transitional operating costs and facility capital improvements with respect to the production and processing facility we purchased

On August 24, 2018 the Company entered into a Consulting Agreement with Bruce Burwick and paid him 6,667 shares of KAYS stock via a stock grant from the 2011 Employee Stock Incentive Plan for services rendered to the Company through December 31. 2018. The stock was valued by the Company at $11,810.

Settlement with Sunstone, Burwick regarding non-transferability of Sunstone Grow License

As previously reported in our periodic reports filed under the Securities Exchange Act of 1934, in the fourth quarter of 2018, KAYS concluded the purchase of the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the Oregon Liquor Control Commission (the “ OLCC ”) for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. KAYS entered into a management agreement with the holder of existing OLCC licenses (“ Sunstone ”) to oversee operations at the facility pending transfer of the license to KAYS, which were aware would be an extended and cumbersome process.

In mid-April 2019, we were advised by Sunstone that it had been notified that the OLCC was proposing that Sunstone’s licenses be cancelled, claiming that that Sunstone had not filed paperwork correctly with respect to the transaction or its historical ownership.

At the OLCC’s Administrative Hearing Session held on October 15, 2020, the OLCC approved a settlement between the Oregon Liquor Control Commission (OLCC) and Sunstone Marketing Partners that required theirs license to either be sold to a third party (other than KAYS) or surrendered.

As the settlement between the OLCC and Sunstone/Burwick deemed that the licenses that were part and parcel of the purchase were ultimately non-transferrable to KAYS by the OLCC, the Company recently negotiated a settlement with the seller (Sunstone and Bruce Burwick) that allows for the return of all 1,006,671 shares issued to the seller as part of the transaction (the 773,336 shares for the facility purchase, the 166,667 shares issued for $250,000.00, and subsequent shares issued as annual compensation for Board Member Compensation) in exchange for allowing the seller to retain the proceeds of the sale of the grow license to an unrelated third party that is in process of obtaining approvals from the OLCC to relocate it to another location, as well as provides for the seller to resign from the Board of Kaya Holdings and work as a non-exclusive consultant to the Company for the next 48 months for a total four year fee of $140,000.00.

The settlement between Sunstone and KAYS is effective March, 24, 2021 but is contingent on Sunstone receiving the proceeds of the sale of the grow license to the unrelated third party as described above; the Company has been advised that the funds are in escrow for release pending the OLCC transfer approval which should be sometime prior to June 30, 2021.

As part of a larger production and processing plan that would allow for a more efficient Production and Processing plan and economy of scale, the Company is presently in the process of submitting a new OLCC Marijuana Processing License for the 12,000 facility, and plans to renovate and dedicate the facility to produce various brands of oils, edibles, concentrates and extracts, and develop medical grade laboratory facilities for the production of a proprietary Kaya Cannaceuticals™, while conducting all future grow operations at the Lebanon Kaya Farms Ag Facility upon completion of construction and licensing

For more information please see Related Party Transactions, Note 11 in the Financials.

Review, Approval and Ratification of Related Party Transactions

Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant shareholders. However, all matters relating to the compensation and stock awards for such persons were approved by the board of directors prior to implementation.

Item 14. Principal Accountant Fees and Services.

Audit Fees

The following is a summary of the fees billed to us for professional services (a) for the year ended December 31, 2020 and 2019 by M&K CPAS, PLLC our independent public registered accounting firm .

Audit fees consist of billings for the audit of the Company’s consolidated financial statements included in our Annual Reports on Form 10-K and reviews of the consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q.

The Company does not have an Audit Committee. It is the Company’s policy to have its Chief Executive Officer preapprove all audit and permissible non-audit services provided by the independent public accountants, subject to approval by the Board of Directors.

These services may include audit, audit-related, tax and other services. Pre-approval is generally for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. Unless there are significant variations from the pre-approved services and fees, the independent public accountants and management generally are not required to formally report to the Board of Directors regarding actual services and related fees.

PART IV

Item 15. Exhibits and Financial Statement Schedules.

+ Management compensation arrangement.

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

Dated: March 31, 2021

In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, this Annual Report on Form 10K has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Kaya Holdings, Inc.

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of Kaya Holdings, Inc. (the Company) as of December 31, 2020 and 2019, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2020, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020 and 2019, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2020, in conformity with accounting principles generally accepted in the United States of America.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered net losses from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Derivative Liabilities

As discussed in Note 9, the Company borrows funds through the use of convertible notes payable that contain a conversion price that may be fixed or fluctuates with the stock price.

Auditing management’s estimates of the fair value of the derivative liability involves significant judgements and estimates given the embedded conversion features of the notes.

To evaluate the appropriateness of the fluctuation of the conversion price, the embedded conversion feature requires bifurcation from the host contract and is recorded as a liability subject to market adjustments as of each reporting period. Significant judgment is exercised by the Company in determining derivative liability values for these convertible note agreements, including the use of a specialist engaged by management.

We evaluated management’s conclusions regarding their derivative liability and reviewed support for the significant inputs used in the valuation model, as well as assessing the model for reasonableness.

M&K CPAS, PLLC

We have served as the Company’s auditor since 2018.

Houston, TX

March 31, 2021

Kaya Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

December 31, 2020 and December 31, 2019

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

Kaya Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

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

Kaya Holdings, Inc. and Subsidiaries

Consolidated Statement of Cashflows