UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C.  20549

FORM 10-Q

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

 OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period ended September 30, 20162017

OR

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

For the transition period from

__________to __________

Commission File No.: 333-177532

KAYA HOLDINGS, INC.

(Exact name of registrant as specified in its charter) 

305888 S. Andrews Avenue

Suite 209302

Ft. Lauderdale, Florida 3330133316

(Address of principal executive offices)

(561) 210-5784(954)-892-6911

(Issuer's telephone number)

305 S. Andrews Avenue, Suite 209, Ft. Lauderdale, Florida 33301

 Former Name or Former Address (If Changed Since Last Report)

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

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

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

  Emerging growth company [X]

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

As of November 21, 2016,17, 2017, the Issuer had 112,396,795138,793,087 shares of its common stock outstanding.  

KAYA HOLDINGS, INC.

INDEX TO QUARTERLY REPORT ON FORM 10 Q

Signatures

PART I- FINANCIAL INFORMATION  

Item 1. Financial StatementsStatements.    

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheet

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

Kaya Holdings, Inc. and Subsidiaries   

Condensed Consolidated Statements of Operations   

(Unaudited)   

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

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated StatementsStatement of OperationsCash flows 

Unaudited(Unaudited)

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

Kaya Holdings, Inc. and Subsidiaries

CondensedNotes to Consolidated Statement of Cashflows

Unaudited

Kaya Holdings, Inc. and SubsidiariesFinancial Statements

September 30, 20162017 (unaudited)

NOTE 1 – ORGANIZATION AND NATURE OF THE BUSINESS

Organization

Kaya Holdings, Inc. FKA (Alternative Fuels Americas, Inc., a Delaware corporation (the “Company” or “KAYS”), is a holding company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace acquired 100% of Alternative Fuels Americas, Inc.Inc, (a Florida corporation) in January 2010 in a stock-for-member interest transaction and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. A Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation).A Certificate of Amendment to the Certificate of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings, Inc.

The Company has two subsidiaries:three subsidiaries, Alternative Fuels Americas, Inc. (aInc, a Florida corporation)corporation, which is wholly owned,wholly-owned, Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned and 34225 Kowitz Road, LLC, an Oregon limited liability company which holds the Company’s recently acquired 26 acre property in Lebanon, Oregon on which it plans to develop a majority owned subsidiary. Additionally,legal cannabis cultivation and manufacturing facility. MJAI conductsdevelops and operates the Company’s Kaya Shack™ legal cannabis retail operations in Oregon through controlling ownership interests in four Oregon limited liabilities companies: MJAI Oregon 1 LLC, MJAI Oregon 2 LLC, MJAI Oregon 3 LLC and MJAI Oregon 4 LLC.

Nature of the Business  

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

In MarchJanuary 2014, Marijuana Holdings Americas, Inc. (through localKAYS incorporated MJAI, a wholly-owned subsidiary, to focus on opportunities in the legal recreational and medical marijuana in the United States. MJAI has concentrated its efforts in Oregon, subsidiaries) began the application process to obtainwhere through controlled Oregon limited liability companies, it initially secured licenses to operate a medical marijuana dispensariesdispensary (an “MMD”) and following legalization of recreational cannabis use in Oregon. Oregon, has secured licenses to operate three retail outlets (with the license application for a fourth outlet pending) and purchased 26 acres for development as a legal cannabis cultivation and manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail operations.

On March 21,July 3, 2014, the Company received notice from the Oregon Health Authority that MJAI Oregon 1 had been granted provisional licensing approval to operate theiropened its first Medical Marijuana DispensaryKaya Shack™ MMD in Portland, Oregon and subsequently received full licensing approval for the first “Kaya ShackTM” retail medical marijuana dispensary, which we began operating July 3, 2014.

Oregon.  In April 2015, KAYS commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana thereby becoming the first US publicly traded U.S. company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. The CompanyIn October 2015, concurrent with Oregon commencing legal sales of recreational marijuana through MMDs, KAYS opened its second MMD (and firstretail outlet in Salem, Oregon, the Kaya Shack™ Marijuana Superstore) in October 2015 in Salem, Oregon.Superstore. During 2015, the Company also consolidated its grow operations and manufacturing operations into a single facility in Portland, Oregon.

In October 2015,2016, Oregon commencedbegan the process to transition legal marijuana sales from Oregon Health Authority (“OHA”) licensed MMDs and grow operations to Oregon Liquor Control Commission (“OLCC”) licensed recreational marijuana retailers and producer and processing facilities. Effective January 1, 2017, all retailers of recreational marijuana were required to have a recreational marijuana sales which are initially being conducted solely through State Licensed MMDs, including those operatedlicense issued by the Company. TheOLLC for each retail outlet operated.

Accordingly, in 2016 the Company plans to open at leastapplied for OLLC licenses for its two additional dispensaries ininitial Kaya Shack™ retail outlets (Portland, Oregon during 2016 and in April 2016 entered into leasesSouth Salem, Oregon), and filed increasedalso submitted license applications for its next two planned retain outlets in Salem Oregon.new locations under construction and development at that time.

In late December 2016, we received our OLCC recreational license for the South Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License #1) and recreational and medical sales continued without interruption from 2016 through the present at that location.

 On March 21, 2017, we received our North Salem Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #2) a 2,600-square foot Kaya Shack™ Marijuana Superstore in North Salem, Oregon, whereupon the location opened for business with both recreational and medical sales.

On May 2, 2017, we received our OLCC recreational license for our Portland Kaya Holdings, Inc.Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #3) after a delay of approximately four months. During that period, we were limited to solely medical sales at the Portland location. Upon receipt of Kaya Shack™ OLCC Marijuana Retailer License #3, recreational sales recommenced at that location. Our OLCC License for the Central Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License #4) has been filed and Subsidiariesis pending completion, inspection and final licensing.

September 30, 2016

During the third quarter of 2017, we purchased 26 acres in Lebanon, Oregon, for development as a legal cannabis cultivation and manufacturing facility.

NOTE 2 - LIQUIDITY AND GOING CONCERN

The Company’s consolidated financial statements as of and for the three and nine months ended September 30, 20162017 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred a net income of $2,436,271 for the nine months ended September 30, 2017 and a net loss of $899,566 for the nine months ended September 30, 2016 and a net loss of $3,225,397 for the year ended December 31, 2015.2016. At September 30, 2016,2017, the Company has a working capital deficiency of $2,817,672$5,147,348 and is totally dependent on its ability to raise capital. The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive working capital in the near future. Even though management believes that it will be able to successfully execute its business plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this material uncertainty. Management recognizes that the Company must generate additional funds to successfully develop its operations and activities. Management plans include:

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

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements of the Company and the notes thereto have been prepared in accordance with the instructions for Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission (“SEC”). The December 31, 2015 condensed consolidated balance sheet data was derived from audited financial statements but does not include all disclosures required by accounting principles generally accepted in the United States of America. The unaudited condensed consolidated financial statements included herein should be read in conjunction withAmerica (U.S. GAAP) under the audited financial statements and the notes thereto that are included in the Company’s Annual Report on form 10-K for the year ended December 31, 2015 filed with the SEC on May 5, 2016.

The accounting policies applied by the Company in these condensed interim financial statements are the same as those applied by the Company in its audited consolidated financial statements as at and for the year ended December 31, 2015. The quarterly information presented should be read in conjunction with the annual report filed on Form 10-K with the Securities and Exchange Commission.accrual basis of accounting.

Use of Estimates

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

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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

Risks and Uncertainties

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

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

Fiscal Year

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

Principles of Consolidation

The consolidated financial statements include the accounts of Kaya Holdings, Inc. and its subsidiary, Alternative Fuels Americas, Inc. (a Florida corporation) and Marijuana Holdings Americas, Inc. (a Florida corporation) which is a majority owned subsidiary.subsidiary including all wholly owned LLC’s (MJAI Oregon 1 LLC, MJAI Oregon 2 LLC, MJAI Oregon 3 LLC, MJAI Oregon 4 LLC).  All inter-company accounts and transactions have been eliminated in consolidation.

Non-Controlling Interest

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

Cash and Cash Equivalents

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

Inventory

Inventory will consistconsists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method.  The Company will periodically reviewreviews historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.  Total Value of Finished goods inventory as of September 30, 2017 is $150,936 and $83,997 as of December 31, 2016. No allowance was necessary as of September 30, 2017 and December 31, 2016.

Property and Equipment

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

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

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

Long-lived assets

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

Operating Leases

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

Kaya Holdings, Inc.

Deferred Rent and Subsidiaries

September 30, 2016Tenant Allowances

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

Earnings Per Share

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

Income Taxes

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

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

Fair Value of Financial Instruments

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

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

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

The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 6.7.

Embedded Conversion Features

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

Derivative Financial Instruments

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

For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Beneficial Conversion Feature

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

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

Debt Issue Costs and Debt Discount

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

Original Issue Discount

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

Extinguishments of Liabilities

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

Stock-Based Compensation - Employees

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

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

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

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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

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

Stock-Based Compensation – Non Employees

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

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

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

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances.

Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

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

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

Revenue Recognition

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

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

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

Cost of Sales

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

Related Parties

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

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

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements.

The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.

Uncertain Tax Positions

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting periods ended December 31, 2016, 2015 and 2014.

Subsequent Events

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

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

Recently Issued Accounting Pronouncements

In May 2014,March 2016, the FASB has issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”.2016-09, Stock Compensation, which is intended to simplify the accounting for share based payment award transactions. The new standard will modify several aspects of the accounting and reporting for employee share based payments and related tax accounting impacts, including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The guidance in this update supersedes the revenue recognition requirements in Topic 605, “Revenue Recognition.”  In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (for example, assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles—Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this Update.  Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.  The amendments in ASU No, 2014-09 areis effective for annual reporting periodsfiscal years beginning after December 15, 2016, including interim periods within that reporting period. Early applicationyear, and will be adopted by the Company in the first quarter of fiscal 2017. The Company anticipates the new standard will result in an increase in the number of shares used in the calculation of diluted earnings per share and will add volatility to the Company’s effective tax rate and income tax expense. The magnitude of such impacts will depend in part on whether significant employee stock option exercises occur.

In April 2015, the FASB issued Accounting Standards Update No. 2015-03, Interest—Imputation of Interest (Topic 83530): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs is not affected by ASU 2015-03. ASU 2015-03 is effective for financial statements issued for fiscal years beginning after December 15, 2016, and interim periods within those fiscal years. 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory (“ASU 2015-11”), which applies guidance on the subsequent measurement of inventory. ASU 2015-11 states that an entity should measure inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonable predictable costs of completion, disposal and transportation. The guidance excludes inventory measured using last in, first out or the retail inventory method. ASU 2015-11 is effective for interim and annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The Company is not planning to early adopt ASU 2015-11 and is currently evaluating ASU 2015-11 to determine the potential impact to its condensed consolidated financial statements and related disclosures.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” The ASU will increase transparency and comparability among entities by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. The ASU will require lessees to recognize in the balance sheet a liability to make lease payments (the lease liability) and a right-of-use asset representing its right to use the underlying asset for the lease term. The ASU is effective for annual reporting periods beginning after December 15, 2018 and interim periods within those annual periods. We do not believe the adoption of this update will have a material impact on our financial statements.

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (”ASU”) No. 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.” This ASU includes specific guidance to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The ASU is effective for annual reporting periods beginning after December 15, 2017 and interim periods within those annual periods. The Company does not expect the adoption of this ASU to have a significant impact on the consolidated financial statements. 

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

Kaya Holdings, Inc. and SubsidiariesRe-Classifications

September 30, 2016

Re-Classifications

Certain amounts in 20152016 were reclassified to conform to the 20162017 presentation. These reclassifications had no effect on consolidated net loss for the periods presented.

The fair value of the warrants on the date of issuance and on each re-measurement date of those warrants classified as liabilities is estimated using the Black-Scholes option pricing model using the following assumptions: contractual life according to the remaining terms of the warrants, no dividend yield, weighted average risk-free interest rate of .41%1.09% at September 30, 20162017 and weighted average volatility of 134%130%. For this liability, the Company developed its own assumptions that do not have observable inputs or available market data to support the fair value. This method of valuation involves using inputs such as the fair value of the Company's various classes of preferred stock, stock price volatility, the contractual term of the warrants, risk free interest rates and dividend yields. Due to the nature of these inputs, the valuation of the warrants is considered a Level 3 measurement. The warrant liability is recorded in other liabilities on the Company's Consolidated Balance Sheets. The warrant liability is marked-to-market each reporting period with the change in fair value recorded on the Consolidated Statement of Operations and Comprehensive Loss until the warrants are exercised, expire or other facts and circumstances lead the warrant liability to be reclassified as an equity instrument.

NOTE 4-4 – CONVERTIBLE DEBT

These debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation are initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Black Scholes Option Model with a risk -freerisk-free interest rate of ranging from 0.05% to 1.06%1.09%, volatility ranging from 134%130% of 221%157%, trading prices ranging from $.056$.08 per share to $0.1$0.49 per share and a conversion price ranging from $0.03 per share to $0.045$0.12 per share. The total derivative liabilities associated with these notes are $3,044,859$12,362,150 at September 30, 2017 and $19,346,348 as of December 31, 2016.

See Summary Table – Page 17

September 30, 2016

FOOTNOTES FOR CONVERTIBLE DEBT SUMMARY TABLE

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

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

NOTE 5 - NOTES PAYABLENON-CONVERTIBLE DEBT

A-Non- Related Party

A-Non Related Party

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

B-Related Party

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

NOTE 6 – STOCKHOLDERS’ EQUITY

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

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

The Company has 250,000,000500,000,000 shares of common stock authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.

In JanuaryFebruary of 20162017, the Company received $100,000 from the sale of 2,222,222issued 6,352,500 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company. This was a conversion of four (4) Notes Payable with a total value of $190,575 the Notes Payable were due January 1, 2019.

In FebruaryJune of 20162017, the Company issued 4,200,000987,632 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the companycompany. The restricted common shares were issued as a conversionpayment of $126,000 Note Payable due January 1, 2017.interest of $29,638.

In FebruaryJuly of 20162017, the Company issued

In April of 2016 the Company issued 150,000 1,760,283 restricted common shares of Kaya Holdings, Inc. stock to an accredited investor that is a current shareholder of the company ascompany. This was a paymentconversion of interest on a Notes Payable with a total value of $50,000 the Note Payable was due January 1, 2017.2019.

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

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

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

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

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

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

Note 7 Derivative LiabilitiesNOTE 7- DERIVATIVE LIABILITIES

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

Additionally, due to a recognition of tainting due(due to shares not being held in reserve in 20142014), all convertible notes are considered to have a derivative liability, thereforeliability. Therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”  The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Black Scholes Option Model with a risk-free interest rate of ranging from 0.05% to 1.06%1.08%, volatility ranging from 134% of 221%157%, trading prices ranging from $.056$.05 per share to $0.1$0.49 per share and a conversion price ranging from $0.03 per share to $0.04$0.12 per share.

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

The fair value at the commitment and re-measurement dates for the Company’s derivative liabilities were based upon the following management assumptions as September 30, 2016:2017:

The Company recorded a derivative expense of $375,950 and $-0  - for the three months ended September 30, 2017 and 2016, respectively and $16,221,943 and $129,340 for the nine months ended September 30, 2017 and 2016.

The Company recorded a change in the value of embedded derivative liabilities income/(expense) of $ 1,260,200 and $181,986 for the three months ended September 30, 2017 and 2016, respectively and $22,114,526 and $1,895,657 for the nine months ended September 30, 2017 and 2016

NOTE 8- DEBT DISCOUNT

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

Debt discount amounted to $2,217,596 as of September 30, 2017 and $863,860 as of December 31, 2016.

The Company recorded a derivative expense of $-0-$569,497 and $129,340$405,530 for the three months and $1,678,899 and $978,208 for the nine months ended September 30, 2016

The Company recorded a change in the value of embedded derivative liabilities income/(expense) of $ 181,9862017 and $1,895,656 for the three and nine months ended September 30, 2016, respectively.respectively for amortization of debt discount expense. 

Kaya Holdings, Inc. and Subsidiaries

September 30, 2016

NOTE 8 Warrants

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

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

NOTE 9 – RELATED PARTY TRANSACTIONS

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

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

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

NOTE 10– DEBT EXTINGUISHMENT

On January 1, 2017, the Company renegotiated nine (9) convertible notes payable. The  Total face value of the notes issued was $876,468 the notes are due on January 1, 2019. The face value plus accrued interest due of $62,533 resulting in new face amount due of $876,468. The new notes are convertible after January 1, 2017 and are convertible into the Company’s common stock at a conversion rate of $0.03 per share. The market value of the stock at the date when the debt becomes convertible was $0.225. The Company recorded a loss from debt extinguishment of $67,442.

NOTE 11 – Warrants

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

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

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

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

NOTE 12 – COMMITMENTS AND CONTINGENCIES

The Company is, from time to time involved in litigation in the normal course of business. While it is not possible at this time to establish the ultimate amount of liability with respect to contingent liabilities, including those related to legal proceedings, management is of the opinion that the aggregate amount of any such liabilities, for which provision has not been made, will not have a material adverse effect on the Company’s financial position.

On June 22, 2016, Daniel A. Goldin and Wally Goldin commenced an action in Oregon Circuit Court, Multnomah County, against the Company, MJAI, its direct majority-owned subsidiary, Craig Frank, our Chairman, President and Chief Executive Officer, William David Jones, a consultant to our Company and BMN Capital Group, LLC (the “Action”). The plaintiffs alleged breach of contract, state securities fraud and state racketeering claims against the defendants arising from alleged misrepresentations made in subscription agreements with the Company entered into in October 2015 and January 2016 by Daniel A. Goldin and Wally Goldin, respectively, pursuant to which they each purchased 2,222,222 “restricted” shares of our common stock for $100,000 in a private transaction. In addition, Daniel A. Goldin alleged that the Company breached a purported employment agreement with him pursuant to which he was purportedly to be compensated for working in our Oregon operations through a combination of cash and stock. The plaintiffs are sought in excess of $1.7 million in damages. The Company believed that not only was the Action without merit, but that it had various counterclaims against the plaintiffs, particularly Daniel L. Goldin. The Company defended against the Action and pursued its counterclaims both in the Action and in a separate lawsuit commenced against the plaintiffs in the U.S. District Court for the Southern District of Florida in which the Company alleged fraud by the plaintiffs and sought damages and the return of the common stock issued to the Company’s treasury In September 2017, the parties entered in a settlement agreement, pursuant to which Mr. Goldin waived any rights to a total of 1.2 million shares of common stock (200,000 shares of our common stock which were already issued in his name and an additional 1,000,000 shares which were to be issued) and $40,000 in cash compensation payable to him under the employment agreement. The Company paid the plaintiffs the sum of $247,500, in exchange for the return of the stock and the waiver of claims against any further stock or cash, all litigation was dismissed by the parties and the parties exchanged mutual releases.

NOTE 1013– SUBSEQUENT EVENTS

In October

On November 13, 2017 we paid into escrow $247,500 to settle the commitment discussed in Note 12

On November 3, 2017 three convertible notes with the face value of 2016$217,643 were converted into 7,734,099 shares of common stock.

On May 11, 2017, we entered into a financing agreement with an institutional investor (the “Investor”) to provide the Company with up to $5.8 in convertible note funding through July 31, 2018 (the “May 2017 Financing Agreement”). The May 2011 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 additionally amended as of November 15, 2017 to further increase the amount of funding available to the Company thereunder to $7.0 million and to extend the time period for such funding to November 30, 2019.

Funding under the May 2017 Financing Agreement, as amended, takes the form of the offer and sale of Convertible Notes (the “$7.0 Million Notes”). The $7.0 Million Notes are substantially similar in form and substance to the $2.1 million Notes that were part of the $2.1 million Financing Agreement entered into between the Company and the Investor in December 2016 and completed in March of 2017 (as well as the approximately $1.2 million in financing previously received $10,000 from the issuance of 200,000 of common sharesInvestor in 2014 and 2015), except that the $7.0 million Notes are due and payable on January 1, 2020.

In OctoberThe $7.0 million Notes are substantially similar in form and substance to the $2.1 million Notes that were part of 2016the $2.1 million Financing Agreement entered into between the Company and the Investor in December 2016 and completed in March of 2017 (as well as the approximately $1.2 million in financing previously received $15,000 from the issuance of convertible debt. Interest is stated at 10%. The NoteInvestor in 2014 and Interest is convertible into common shares at $0.03 per share. Note is Due in2015), except that the $7.0 million Notes are due and payable on January of 20181, 2020.

In NovemberPursuant to the terms of 2016the $7.0 million Financing Agreement, an additional $500,000 was delivered to the Company on November 3, 2017, bringing the total amount received $200,000 fromby the issuanceCompany to $1,150,000 since its execution on May 11, 2017. The purpose for the increase in the $7.0 million Financing Agreement was to allocate an additional $500,000 to be used for the targeted acquisition of convertible debt. Interest is stated at 12%. The Noteproperty in Oregon for the development of a Commercial and Interest is convertible into common shares at $0.03 per share. Note is Due in JanuaryMedical Cannabis Grow Complex and related enterprises, and $500,000 has been used against the purchase of 2018an identified property which the Company closed on the property during the third Quarter of 2017.

In NovemberFor more information on the $7.0 million Financing Agreement, please refer to the narrative in Item 2 (above), Management’s Discussion and Analysis of 2016 the Company received $60,000 from the issuanceFinancial Condition and Results of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.03 per share. Note is Due in January of 2018Operations.

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

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

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

Cautionary Note Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical fact, including statements regarding guidance, industry prospects or future results of operations or financial condition, madeInformation contained in this Quarterly Report on Form 10-Q are forward-looking. We use words such as anticipates, believes, expects, future, intends and similar expressions to identify forward-looking statements. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Actual results could differ materially for a varietycontains “forward-looking statements” within the meaning of reasons, including those risks described in our Annual Report on Form 10-K for the year ended December 31, 2015 filed withSection 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Commission (“SEC”Act of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and uncertainties as well as other risks and uncertainties couldfactors that may cause our actual results, performance or achievements to differ significantlybe materially different from management’s expectations. Thefuture results, performance or achievements expressed or implied by any forward-looking statements included in this Quarterly Report on Form 10-Q reflect the beliefs of our management on the date of this report. Westatements.

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

Business Overview

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

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

From 2010 tothrough 2014 the Company was engaged in seeking to develop a biofuels business. In January 20142015, the Company determined that it was in the best interests of its stockholders to discontinue its biofuel development activities, and to instead leverage its agricultural and business development experience and focus all its resources on the development of legal medical and recreational marijuana opportunities in the United States and in select international markets.

markets^.

Legal Medical and Recreational Marijuana OperationsOperation in Oregon

In January 2014 KAYS incorporated a subsidiary, Marijuana Holdings Americas, Inc. a Florida corporation (“MJAI”). Through MJAI, KAYS has focusedto focus on the development of opportunities withinin the legal recreational and medical marijuana sectors in the United States. In March 2014, MJAI has concentrated its efforts in Oregon, where through ancontrolled Oregon subsidiary, applied for and was awarded its first licenselimited liability companies, it initially secured licenses to operate a Medical Marijuana Dispensary (“MMD”medical marijuana dispensary (an “MMD”). and following legalization of recreational cannabis use in Oregon, has secured licenses to operate three retail outlets (with the license application for a fourth outlet pending) and purchased 26 acres for development as a legal cannabis cultivation and manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail operationsoperations.

In March 2014, we applied for and were awarded our first license to operate an MMD and on July 3, 2014 opened its first Kaya Shack™ Medical Marijuana Dispensary in Portland, Oregon, thereby becoming the first US publicly traded U.S. company to own and operate an MMD. Initial customer acceptance and media coverage was very positive, including many references to KAYS as the “Starbucks of Medical Marijuana” by television news stations, news print publications and online news sources. In March 2015, the Company changed its name to Kaya Holdings, Inc. to better reflect its new plan of operations.

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

Recent Developments

Licensing

In 2016, Oregon began the process to transition legal marijuana sales from Oregon Health Authority (OHA)(“OHA”) licensed medical marijuana dispensariesMMDs and grow operations to Oregon Liquor Control Commission (OLCC)(“OLCC”) licensed recreational marijuana licensed storesretailers and producer and processing facilities. Effective January 1, 2017, all retailers of recreational marijuana were required to have a recreational marijuana sales license issued by the OLLC for each retail outlet operated.

Accordingly, in 2016 the Company applied for OLLC licenses for its two initial Kaya Shack™ retail outlets (Portland, Oregon and South Salem, Oregon), and also submitted license applications for its two new locations under construction and development at that time.

In late December 2016, we received our OLCC recreational license for the South Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License #1) and recreational and medical sales continued without interruption from 2016 through the present at that location.

On March 21, 2017, we received our North Salem Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #2) a 2,600-square foot Kaya Shack™ Marijuana Superstore in North Salem, Oregon, whereupon the location opened for business with both recreational and medical sales.

On May 2, 2017, we received our OLCC recreational license for our Portland Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #3) and after a delay of approximately four months. During that period we were limited to solely medical sales at the Portland location. Upon receipt of Kaya Shack™ OLCC Marijuana Retailer License #3, recreational sales recommenced at that location.

Our OLCC License for the Central Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License #4) has been filed and is pending completion, inspection and final licensing. We expect to complete construction and licensing during the fourth quarter of 2017 and commence recreational and medical sales at this location as soon as possible thereafter.

Additional Kaya Shack™ Marijuana Superstores

During 2016 and the first nine months of 2017, the Company focused a significant portion of its efforts on developing two additional Kaya Shack™ Marijuana Superstores, including identifying and leasing suitable locations, completing necessary build out and applying for the requisite OLCC recreational marijuana retailer licenses. In addition to the four Kaya Shack™ retail marijuana stores described above, the Company plans to identify and lease locations for, license and seek to open up to four additional Kaya Shack™ Marijuana Superstores in other Oregon markets over the next 18 to 24 months, as well as explore opportunities in other states to increase its retail footprint. Additionally, the Company is exploring opportunities to further its operation in Oregon and elsewhere through the acquisition of currently licensed and operating retail operations, which can be converted to the Kaya Shack™ model.

Expansion of Grow and Manufacturing Operations

On March 21, 2017, KAYS announced that it was in the process of expanding its grow and manufacturing operations and had retained a realtor to assist in identifying a suitable 30-60 acre tract of land in Oregon which would permit KAYS to expand its grow operations. As part of this expansion, KAYS ceased operations of its Portland grow facility at the end of March 2017, arranged to maintain its genetics library of over 30 strains of cannabis at an OHA licensed medical grow site and contracted with farmers to meet demand until the new facility is secured, built and fully operational.

In August 2017, we acquired a 26 acre parcel in Lebanon, Oregon, which KAYS intends to develop as a legal cannabis cultivation and manufacturing facility. KAYS believes that the acquisition of a property will position the Company for future development, including increased Marijuana Canopy production to the maximum extent allowed by law through use of both greenhouse and outdoor grows, as well as expansion of its production capabilities with brands in oils, vape cartridges, concentrates, a selection of edibles, and infused creams and lotions.

$2.1 Million Financing

In March 2017, the Company completed a $2.1 million financing with an institutional investor (the “Investor”) who had previously furnished KAYS with $1.2 million in financing, pursuant to a financing agreement (the “$2.1M Financing Agreement”) entered into between the Company and the Investor in December 2016. Pursuant to the $2.1M Financing Agreement, the Investor purchased $2.1 million in principal amount of convertible notes (the “$2.1M Notes”) from the Company as follows:

The purchase price for the $2.1M Notes is equal to the principal amount thereof. The $2.1M Notes have a term of two years from issuance and bear interest at the rate of eight percent (8%) annum, which accrues and is payable to together with interest at maturity. The Investor may convert the principal amount of the $2.1M Notes (as well as other notes it currently holds as referenced above), together with accrued but unpaid interest thereon, into shares at the applicable conversion price, at any time or from time to time prior to maturity. The conversion price is subject to adjustment for stock splits, stock dividends, recapitalizations and similar transactions. The $2.1M Notes also provide that at no time may they be convertible if the number of shares being issued upon conversion to and then held by the Investor would result in the Investor beneficially owning in excess of 4.99% of the Company’s then outstanding shares of common stock, after giving effect to the proposed conversion.

May 2017 Financing Agreement

On May 11, 2017, we entered into a financing agreement with an institutional investor (the “Investor”) to provide the Company has pursued a strategywith up to $5.8 million in convertible note funding through July 31, 2018 (the “May 2017 Financing Agreement”). The May 2011 Financing Agreement was amended as of attemptingJuly 31, 2017, to secure future OLCC licenses by first filing renewalsincrease the amount of funding available to the Company thereunder to $6.3 million and to extend the time period for OHA licensessuch funding to May 31, 2019 and was additionally amended as of November 15, 2017 to further increase the amount of funding available to the Company thereunder to $7.0 million and to extend the time period for existing locationssuch funding to November 30, 2019.

Funding under the May 2017 Financing Agreement, as amended, takes the form of the offer and filing initial OHA license applications for new locations, with follow up license OLCC applications for all locations. sale of Convertible Notes (the “$7.0M Notes”). The $7.0 Notes are substantially similar in form and substance to the $2.1M Notes that were part of the $2.1 million Financing Agreement entered into between the Company and the Investor in December 2016 and completed in March of 2017 (as well as the approximately $1.2 million in financing previously received from the Investor in 2014 and 2015), except that the $7.0M Notes are due and payable on January 1, 2020.

As of the date of this filingQuarterly Report, the Investor has purchased an aggregate of $1,150,000 in principal amount of $7.0M Notes from the Company under the May 2017 Financing Agreement, as amended to date, of which (a) $500,000 in principal amount of $7.0M Notes are convertible into shares of the Company’s two operating medical marijuana dispensaries thatcommon stock at a conversion price of $0.05 (the “$0.05Notes”); (b) $150,000 in principal amount of $7.0M Notes, which are able to also conduct recreational sales (Portland, Oregonconvertible into shares of the Company’s common stock at a conversion price of $0.03 (the “$0.03Notes”); and South Salem, Oregon) have filed renewals(c) $500,000 in principal amount of their OHA licenses (Portland location has both OHA$7.0M Notes, which are (i) convertible into shares of the Company’s common stock at a conversion price of $0.03; and City renewals through May 2017 and South Salem is pending OHA renewal and has City of Salem approval). The Company’s two new retail locations in North and Central Salem, Oregon have received initial OHA conditional license approvals and also have pending OLCC license applications. The Company’s marijuana manufacturing and production facility in Portland has requisite OHA medical marijuana licenses to operate through January(ii) secured by a mortgage lien on the 26 acre property acquired by the Company during the third quarter of 2017 and also has pending OLCC license applications.

Based on recent interaction with the OLCC and the City of Salem, the Company anticipates receiving final license approvals for the 3 Salem locations over the next 2 months. However, while the Company anticipates receiving OLCC license approval for its pending OLCC license applications in Portland, the City of Portland has so far denied approval for the Company to transition both its MMD and its grow to full OLCC operations (as it initially did for the recent OHA renewal until the Company brought suit in State Court)(the $0.03 Secured Notes”).

Local Counsel believes thatUnder the May 2017 Financing Agreement, as amended to date, the Investor has the right to purchase another tranche of $0.03 Notes up to an aggregate of $1,050,000 in principal amount, at any time and from time to time throughMarch 31, 2018.

Provided the Investor has fulfilled its obligation to purchase the additional $1,050,000 in principal amount of $0.03 Notes from the Company on or before March 31, 2018, the Investor will prevailhave the right to purchase another tranche of $0.05 Notes up to an aggregate of $1,000,000 in securing licensing forprincipal amount, at any time and from time to time through July 31, 2018.

Provided the Portland store and grow/manufacturing facilities, but there can be no assurance that this will happen. Accordingly,Investor has fulfilled its obligation to purchase the additional $1,000,000 in principal amount of $0.05 Notes from the Company is actively seeking other locations within Portlandon or before July 31, 2018, the Investor will have the right to relocatepurchase up to an aggregate of $1,600,000 in principal amount of $7.0M Notes, which are convertible into shares of the Company’s common stock at a conversion price of $0.08 per share, at any time and from time to time through January 31, 2019 (the “$0.08 Notes”).

Provided the Investor has fulfilled its one Portland retail location (if necessary),obligation to purchase all $1,600,000 in principal amount of $0.08 Notes from the Company on or before January 31, 2019, the Investor will have the right to purchase up to an additional $2,200,000 in principal amount of $7.0N Notes from the Company at any time and is also looking for larger spacefrom time to move its growtime through November 30, 2019, which Notes will be convertible into shares of common stock at a conversion price of $0.11.

The proceeds from the offer and sale of the $2.1M and $7.0M Notes are and will be used to fund the Company’s growth plan, including expansion of our chain of Kaya Shack™ Marijuana Superstores in Oregon, acquisition and development of our Lebanon, Oregon legal cannabis cultivation and manufacturing facility (whetherand the introduction of new Kaya Shack™ branded cannabis products.

Corporate Information

Our corporate office is located at 888 South Andrews Avenue, Suite 302, Fort Lauderdale, Florida, 33316 and out telephone number is (954) 892-6911. Our website is www.kayaholdings.com. Information contained on our website does not constitute part of this Quarterly Report.

Market Overview

Twenty-nine states and the District of Columbia have legalized marijuana in Portland or elsewhere, including Southern Oregon). The Company has made all capital improvementssome capacity. Additionally, eight states (Alaska, California, Colorado, Maine, Massachusetts, Nevada, Oregon and equipment purchases for its grow/manufacturing facilityWashington State) and Washington, DC have approved the implementation of legal recreational marijuana use, with active legal cannabis economies flourishing in Colorado, Oregon and Washington. As Melia Robinson of Business Insider stated, “After a historic election cycle, which saw four states pass ballot initiatives legalizing nonmedical marijuana, one in five Americans now live in a manner that would allow for relocationstate where it’s legal to another facility if necessary, and has expanded its vendor supplier network so as to provide for any operational supply interruption that the transition would require.smoke weed without a doctor’s letter.”

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

According to cannabis research firm Arcview, sales of legal marijuana in North America rose by 34% to $6.9 billion in 2016, and based on estimates from investment firm Cowen & Co., U.S. legal sales could reach $50 billion by 2026. For added context, ArcView estimates that North American black market sales totaled $46.4 billion last year.

Arcview projects sales will grow at a compound annual growth rate of 25% through 2021, when the North American market is expected to top $20.2 billion in sales. “The only consumer industry categories I’ve seen reach $5 billion in annual spending and then post anything like 25% compound annual growth in the next five years are cable television (19%) in the 1990s and the broadband internet (29%) in the 2000s,” Tom Adams, editor in chief of Arcview Market Research, said in a statement.