Kaya Holdings, Inc 10-Q for FY2023 Q2
Kaya Holdings, Inc. (KAYS)
About this 10-Q
Kaya Holdings, Inc filed this 10-Q on August 21, 2023, covering the quarter ended June 30, 2023 (FY2023 Q2).
Headline figures
Quarter ended June 30, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $55.12K
- down 71.8% from $195.19K a year earlier
- Net loss
- $714.16K
- compared with net income of $3.07M a year earlier
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM
ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For
the Quarter ended
Commission
File No.
(Exact name of registrant as specified in its charter)
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| (State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
(Address of principal executive offices)
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| None |
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X]
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]
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]
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]
As of August 21, 2023, the Issuer had shares of its common stock outstanding.
KAYA HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10 Q
Part I – Financial Information Page
In this Quarterly Report on Form 10-Q, 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 Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Available Information
We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”) that can be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as EDGAR, through the SEC’s website (www.sec.gov).
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
June 30, 2023 and December 31, 2022
| ASSETS | ||||||||
| (Unaudited) | (Audited) | |||||||
| June 30, 2023 | December 31, 2022 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash and equivalents | $ | |||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Assets for sale | ||||||||
| Property
and equipment, net of accumulated depreciation of $ | ||||||||
| as of March 31, 2023 and December 31, 2022, respectively | ||||||||
| Investment in subsidiaries | ||||||||
| Other Assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expense | $ | $ | ||||||
| Accounts payable and accrued expense-related parties | ||||||||
| Accrued interest | ||||||||
| Right-of-use liability - operating lease | ||||||||
| Taxable Payable | ||||||||
| Convertible
notes payable, net of discount of $ | ||||||||
| Notes payable | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Notes payable | ||||||||
| Notes payable-related party | ||||||||
| Convertible
notes payable, net of discount of $ | ||||||||
| Accrued expense-related parties | ||||||||
| Right-of-use liability - operating lease | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS' DEFICIT: | ||||||||
| Convertible preferred stock, Series D, par value $.; shares authorized; and issued and outstanding at June 30, 2023 and December 31, 2021, respectively |
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| Common stock , par value ; shares authorized; shares and shares issued as of June 30, 2023 and 22,172,835 shares outstanding as of December 31, 2022 , respectively |
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| Subscriptions payable | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
Accumulated other comprehensive income
| ( | ) | ( | ) | ||||
| Total stockholders' deficit attributable to parent company | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
| (Unaudited) | (Unaudited) | (Unaudited) | (Audited) | |||||||||||||
| For The Three | For The Three | For The | For The | |||||||||||||
| Months Ended | Months Ended | Six-months Ended | Six-months Ended | |||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Loss on impairment of right of use assets | ( | ) | ( | ) | ||||||||||||
| Gain on disposal | ||||||||||||||||
| Change in derivative liabilities income (expense) | ( | ) | ||||||||||||||
| Other income | 1,500 | — | 1,500 | — | ||||||||||||
| Total other income (loss) | ( | ) | ( | ) | ||||||||||||
| Net income (loss) from continuing operations before income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for Income Taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net Income (loss) attributed to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Net income (loss) attributed to Kaya Holdings, Inc. | ( | ) | ( | ) | ||||||||||||
| Basic net income (loss) per common share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of common shares outstanding - Basic | ||||||||||||||||
| Diluted net income (loss) per common share | $ | ( | ) | $ | $ | ( | ) | $ | ||||||||
| Weighted average number of common shares outstanding - Diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
| (Unaudited) | (Audited) | (Unaudited) | (Audited) | |||||||||||||
| For The | For The | For The | For The | |||||||||||||
| Three-months Ended | Three-months Ended | Six-months Ended | Six-months Ended | |||||||||||||
| June 30, 2023 | June 30, 2022 | June 30, 2023 | June 30, 2022 | |||||||||||||
| Net income (loss) | ( | ) | $ | $ | ( | ) | $ | |||||||||
| Other comprehensive expense | ||||||||||||||||
| Foreign currency adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | ( | ) | ( | ) | ||||||||||||
| Other comprehensive income (expense) | ||||||||||||||||
| Net income (loss) attributed to non-controlling interest | ( | ) | ( | ) | ( | ) | ||||||||||
| Comprehensive income (loss) attributable to Kaya Holdings | ( | ) | ( | ) | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 4 |
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statement of Cashflows
(Unaudited)
| For The Six | For the Six | |||||||
| Months Ended | Months Ended | |||||||
| June 30, 2022 | June 30, 2023 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Adjustments to reconcile net income / loss to net cash used in operating activities: | ||||||||
| Adjustment to non-controlling interest | ( | ) | ( | ) | ||||
| Depreciation | ||||||||
| Imputed interest | ||||||||
| Loss on impairment of right-of-use asset | ||||||||
| Change in derivative liabilities | ( | ) | ( | ) | ||||
| Amortization of debt discount | ||||||||
| Loss on disposal of fixed assets | ( | ) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expense | ||||||||
| Inventory | ( | ) | ||||||
| Right-of-use asset | ||||||||
| Other assets | ( | ) | ||||||
| Accrued interest | ||||||||
| Accounts payable and accrued expenses | ( | ) | ||||||
| Accounts payable and accrued expenses - Related Parties | ||||||||
| Right-of-use liabilities | ( | ) | ( | ) | ||||
| Deferred tax liabilities | ||||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Proceeds from sales of fixed assets | ||||||||
| Proceeds from sales of Business License | ||||||||
| Cash paid for impairment of right-of-use asset | (75,000 | ) | ||||||
| Net cash provided by investing activities | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| Payments on convertible debt | ( | ) | ||||||
| Borrowings on debt | ||||||||
| Net cash provided by financing activities | ( | ) | ||||||
| NET INCREASE (DECREASE) IN CASH | ( | ) | ||||||
| Effects of currency translation on cash and cash equivalents | ( | ) | ||||||
| CASH BEGINNING BALANCE | ||||||||
| CASH ENDING BALANCE | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | ||||||||
| NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: |
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| Settlement of derivative liabilities | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the six months ended June 30, 2023 (Unaudited) and the year ended December 31, 2022 (Audited)
| Additional Paid-in Capital | Accumulated Deficit | Accumulated Comprehensive Loss | Noncontrolling Interest | Total Stockholders' Deficit | |||||||||||||||||||
| Subscription Payable | |||||||||||||||||||||||
| Preferred Stock - Series C | Preferred Stock - Series D | Common Stock | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | |||||||||||||||||
| Balance, December 31, 2021 (Audited) | - | $ | |
$ | |
$ |
$ |
$ |
$ ( |
$ ( |
$ ( |
$ ( | |||||||||||
| Imputed interest | - | - | - | |
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| Settlement of related party accrued compensation | - | - | - | |
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| Translation Adjustment | - | - | - | ( |
( |
( | |||||||||||||||||
| Net Income | - | - | - | |
( |
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| Balance, June 30, 2022 (Unaudited) | - | $ | |
$ | |
$ |
$ |
$ |
$ ( |
$ ( |
$ ( |
$ ( | |||||||||||
| Balance, December 31, 2022 (Audited) | - | $ | |
$ | |
$ |
$ |
$ |
$ ( |
$ ( |
$ ( |
$ ( | |||||||||||
| Imputed interest | - | - | - | |
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| Settlement of derivative liabilities to additional paid in capital | - | $ | - | - | |
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| Translation Adjustment | - | $ | - | - | ( |
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| Net Income | - | $ | - | - | ( |
( |
( | ||||||||||||||||
| Balance, June 30, 2023 | - | $ | |
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( |
( |
( |
( | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
NOTE 1 – ORGANIZATION AND NATURE OF THE BUSINESS
Organization
Kaya Holdings, Inc. FKA (Alternative Fuels Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings, Inc.
The Company has four subsidiaries: Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned and was formed on March 27, 2014 to maintain ownership of the Company’s Oregon based cannabis operations, 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability company which held ownership of the Company’s 26 acre property in Lebanon, Oregon (inactive since Feb 28, 2023 when the subject property was sold), Kaya Brand International, Inc., a Florida Corporation (“KBI”) which is majority-owned and was formed on October 14, 2019 to expand the business overseas (active) and Fifth Dimension Therapeutics, Inc., a Florida corporation which is majority owned (“FTD”) and was formed on December 13, 2022 to develop and maintain ownership of the Company’s planned Psychedelic Clinics targeting Psilocybin and Ketamine Treatments
MJAI develops and operates the Company’s legal cannabis retail operations in Oregon through controlling ownership interests in five Oregon limited liability companies: MJAI Oregon 1 LLC (active), MJAI Oregon 2 LLC (inactive), MJAI Oregon 3 LLC (inactive) , MJAI Oregon 4 LLC (inactive) and MJAI Oregon 5 LLC (inactive).
MJAI Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations. MJAI Oregon 5 LLC is the entity that held the license application for the Company’s 26 acre farm property in Lebanon Oregon (property sold 2/28/23, inactive since that date).
KBI is the entity that holds controlling ownership interests in Kaya Farms Greece, S.A. (a Greek corporation) and Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation). These two entities were formed to facilitate expansion of the Company’s business in Greece and Israel respectively.
Fifth Dimension Therapeutics, Inc. (FDT) is the entity that was formed to hold interests in Psilocybin and Ketamine treatment facilities, with operations initially targeted for Oregon and Florida.
Nature of the Business
In January 2014, KAYS incorporated MJAI, a wholly owned subsidiary, to focus on opportunities in the legal recreational and medical marijuana in the United States. MJAI has concentrated its efforts in Oregon, where through controlled Oregon limited liability companies, it initially secured licenses to operate a medical marijuana dispensary (an “MMD”) and following legalization of recreational cannabis use in Oregon, secured licenses to operate four retail outlets and purchased 26 acres for development as a legal cannabis cultivation and manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail operations and the Kaya Farms ™ brand for its cannabis growing and processing operations.
On July 3, 2014 opened its first Kaya Shack™ MMD in Portland, Oregon. Between April of 2014 and December 31, 2022, KAYS owned and operated four (4) Kaya Shack™ retail cannabis medical and recreational dispensaries, three (3) Medical Marijuana Grow sites licensed by the OHA and two (2) Recreational Marijuana grow sites licensed by the OLCC (all in Oregon). The statuses of these operations are as follows:
The first Kaya Shack™ (Kaya Shack™ Store 1) opened in 2014 still maintains operations in Portland, Oregon at the same address as an Oregon Liquor and Cannabis Commission (OLCC) licensed medical and recreational marijuana retailer.
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Kaya Shack™ Store 2 was closed in December, 2022 as part of a sale and surrender agreement that the Company entered into with the OLCC to resolve an Administrative Action filed by the OLCC (as previously disclosed in the Company’s Annual Report on form 10-K for the period ending December 31, 2021 filed on April 18, 2022 and in the Company’s Quarterly report for the period ending March 31, 2022 filed on May 16, 2022). Per the terms of the agreement the Company agreed to either enter into a purchase and sale agreement for its retail license in South Salem by February 1, 2023 (the renewal date) or surrender the license. Since the time of the agreement the Company has entered into an asset purchase agreement for the sale of its receipt of approval from the Oregon Liquor Control and Cannabis Commission for the new licensee. On April 21, 2023 the Company concluded the sale of its Kaya Shack™ Store 2 Retail Cannabis Store (“Store 2”) for $210,000, less a 6% closing commission and minor closing expenses. After these expenses and paying $75,000 to resolve three non-performing store leases in South Oregon, the Company netted $118,900, including proceeds from sale of business license $193,900. The net book value of the assets as of December 31, 2022 was $0 and revenue for the year ended December 31, 2022 was approximately $410,880.
Kaya Shack™ Store 3 and Kaya Shack™ Store 4 were both closed due to consolidation moves by the Company in 2020 and 2021, respectively, and the Company let the licenses lapse.
The three (3) Medical Marijuana Grows owned and operated by the Company through Oregon Health Authority (OHA) Licensure between 2015 and 2017 were all closed by the Company due to changing market conditions as OLCC Licensure of recreational marijuana came about and medical grow sites became economically unfeasible.
In August of 2017, the Company purchased a 26-acre parcel in Lebanon, Linn County, Oregon for $510,000 on which we intended to construct a Greenhouse Grow and Production Facility (the “Property”) and filed for OLCC licensure. In August of 2022, the Company entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the Property. CVC released its lien on the Property to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC. Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which amounted to $270,000 pending the sale of the Property. On February 28, 2023 we sold the Property for a price of $770,312, less commissions and customary closing costs. The net proceeds of the sale were used to repay the advances plus interest (including an additional $100,000 borrowed from another lender interest) and the Company realized net proceeds of approximately $302,111. The land was reflected on the balance sheet as assets held for sale for the year ended December 31, 2022 and 2021, at a value of $516,076.
On August 18, 2018, the Company purchased the assets of Eugene, Oregon based Sunstone Farms which was licensed by the OLCC for cannabis production and processing. The purchase included a 12,000 square foot building housing and indoor grow facility, as well as 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, and the seller also 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. In mid-April, 2019 the OLCC filed an administrative proceeding proposing that the facility’s licenses (the “Licenses”) be cancelled, claiming that Sunstone had not filed paperwork correctly with respect to the transaction and the historical ownership of Bruce Burwick, the seller of the facility to the Company. Neither the Issuer nor any of its agents, consultants, employees or related entities was named as a respondent to the action. On March 31, 2021 the Company entered into a settlement with Sunstone and Burwick regarding the failure to deliver to KAYS the Licenses. Bruce Burwick surrendered to KAYS all 1,006,671 shares of our common stock issued to him in connection with the transaction (after adjustments for a 15:1 reverse split this was the 800,003 shares issued for the facility purchase, the 166,667 shares which were issued for $250,000 in cash and 40,001 shares which were issued as annual compensation for Burwick serving as a director of KAYS), and the Company received clear title to the warehouse facility. Burwick received $160,000 from the net proceeds of the sale of the facility's grow license to an unrelated third party, resigned from the Company's board of directors and agreed to work as a non-exclusive consultant to the Company for the next four years for a yearly fee of $35,000.00. On October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000.
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On September 26, 2019, the Company formed the majority owned subsidiary Kaya Brands International, Inc. (“KBI”) to serve as the Company’s vehicle for expansion into worldwide cannabis markets. Between September of 2019 and December 31, 2022 KBI has formed majority-owned subsidiaries in both Greece and Israel and its local operating subsidiaries have acquired interests in various licenses and entities as noted below:
On June 7, 2020, Kaya Shalvah (“Kaya Farms Israel” or “KFI”), a majority owned subsidiary of KBI) was incorporated by the Company’s Israel Counsel. On March 30, 2021 the Company confirmed that its Israeli subsidiary, Kaya Shalvah has been awarded its initial license and permit from the "YAKAR", the Department for Medical Cannabis in the Israeli Ministry of Health, to develop an Israeli cannabis cultivation and processing facility. This initial license and permit grants Kaya Shalvah permission to proceed with its plans to develop commercial scale cannabis cultivation and processing in Israel. The license and permit are in good order and can be assigned to a location for development and licensure pending approval from the Yakar.
On November 27, 2020, Kaya Farms Greece, S.A. (“KFG”, a majority owned subsidiary of KBI) was incorporated by the Company’s Greek Counsel. On December 31, 2020, the Company entered into a joint venture agreement with Greekkannabis, PC (“GKC”, an Athens, Greece based cannabis company) and executed a formal agreement to acquire 50% of GKC which was completed in 2021.GKC has a development license from the Greek authorities that was originally issued as part of a plan purchase and develop 15 acres in Thebes, Greece as a large-scale cultivation production and processing project. However, GKC has elected to hold off on acquiring the land until such time as European Cannabis Demand would warrant the investment required to develop the project.
Additionally, on November 8, 2021 KAYS/KBI through a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG") executed an agreement to acquire 50% of Greekkaya, a second medical Cannabis Project in Epidaurus, Greece.
The Epidaurus Project consists of 2 connected industrial buildings (already constructed, approximately 50,000 square feet in total under-air space) situated on 2.8 acres of land, with its own independent industrial electrical power center and ample water supply to service the needs of the facility. The Epidaurus Project is designed to include 25,000 square feet of indoor cannabis cultivation, a 15,000 square foot EU-GMP extraction and processing facility, and a 10,000 square foot EU-GMP packing area. There is ample room for expansion with room to construct an additional 15,000 square feet on site. The joint venture has been awarded its development license to from the Greek authorities and is awaiting project financing to complete the acquisition of the Epidaurus property and complete the installation of EU Certified equipment to gain final licensing of the facility.
Neither of the subject properties are currently owned or optioned by GKC or its operating subsidiaries, but the land for the potential project in Epidaurus is owned by one of the Greek Partner’s families and the Land in Thibes is currently available for purchase or option and the Company believes it could acquire either of the Properties on good terms once funding and market conditions allow. Alternatively, both licenses are in good order, and could be transferred to a new location pending Greek government approval.
Additionally, Kaya Farms Greece is working with its Greek Partners to produce CBD and THC Cannabis products originally developed by Kaya Holdings through contract manufacturing agreements it is developing and supply these branded products to the European Union as regulations permit.
On December 13, 2022, the Company formed Fifth Dimension Therapeutics ™ ( “FDT””, a Florida Corporation) to seek to provide psychedelic services to sufferers of treatment resistant mental health diseases such as depression, PTSD and other mental health disorders. The Company has begun to populate the Board of “FDT” and its oldest Oregon employee, Bryan Arnold, has become one of the initial eighteen graduates to obtain Psilocybin Facilitator certification in the State of Oregon. Bryan’s Facilitation application has been approved by the OHA, and he now may oversee up to five (5) Psilocybin Treatment Facilities and up to one (1) Psilocybin Production facility. The Company expects to file a Facilitation Clinic License application once they have secured appropriate space on good terms. Additionally, the Company expects to enroll additional potential licensee candidates within the coming months to bolster its ranks of OHA Licensed Psilocybin Facilitators as it moves forward with plans to open its first Psilocybin Clinic, subject to completion of financing and regulatory approvals.
On February 15, 2023 KAYS reached an agreement in principle with Florida-based Total Holistic Center™ ("Total Holistic") to assist FDT with the development of its ketamine treatment model as a first step in the launch of its planned Fifth Dimension Therapeutics Mind Care Clinics and Telehealth Services.
Initial plans call for co-locating the Company's ketamine business within Total Holistic Center's existing offices in Boca Raton and Miami Beach upon the completion of required protocols. The hybrid Ketamine Clinic and Telehealth model will operate under the direction of Dr. Anya Temer, who will initially serve as FDT's Medical Director in Florida. KAYS and Total holistic are currently working out the details of their final agreement and expect to move forward with licensing and operations over the next Quarter subject to financing and licensing.
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NOTE 2 – LIQUIDITY AND GOING CONCERN
The
Company’s consolidated financial statements as of June 30, 2023 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 had net loss
of $
| • | the sale of additional equity and debt securities, |
| • | alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan, |
| • | business transactions to assure continuation of the Company’s development and operations, |
| • | development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name. |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.
Risks and Uncertainties
The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales.
Fiscal Year The Company’s fiscal year-end is December 31.
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Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries. All significant intercompany balances have been eliminated.
Wholly owned subsidiaries:
| · | Alternative Fuels Americas, Inc. (a Florida corporation) |
| · | 34225 Kowitz Road, LLC (an Oregon LLC) |
Majority-owned subsidiaries:
Kaya Brands International, Inc. (a Florida Corporation)
Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation) majority owned subsidiary of KBI)
Kaya Farms Greece, S.A. (a Greek Corporation) majority owned subsidiary of KBI)
| · | Marijuana Holdings Americas, Inc. (a Florida corporation) |
| o | MJAI Oregon 1 LLC |
| o | MJAI Oregon 2 LLC (inactive) |
| o | MJAI Oregon 3 LLC (inactive) |
| o | MJAI Oregon 4 LLC (inactive) |
| o | MJAI Oregon 5 LLC (inactive) |
Non-Controlling Interest
The company owned 55% of Marijuana Holdings Americas until September 30, 2019. Starting October 1, 2019, Kaya Holding, Inc. owns 65% of Marijuana Holdings Americas, Inc. As of June 30, 2023, Kaya owns 65% of Marijuana Holdings Americas, Inc.
The company owned 85% of Kaya Brands International, Inc. until July 31, 2020. Starting August 1, 2020, Kaya Holding, Inc. owns 65% of Kaya Brands International, Inc.
The Company owns 5% of Fifth Dimension Therapeutics, Inc.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.
Inventory
Inventory
consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in,
first-out method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also
evaluates the impact of any anticipated changes in future demand. Total Value of Finished goods inventory as of June 30, 2023
is $
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-30 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
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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.
Accounting for the Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets.
Assets Held for Sale
The Company classifies an asset group (‘asset’) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in general and administrative expenses in the period in which the held for sale criteria are met. Conversely, gains are generally not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.
Operating Leases
We lease our retail stores under non-cancellable operating leases. Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. We recognize rent expense on a straight-line basis over the lease term, excluding contingent rent, and record the difference between the amount charged to expense and the rent paid as a deferred rent liability.
Deferred Rent and Tenant Allowances
Deferred rent is recognized when a lease contains fixed rent escalations. We recognize the related rent expense on a straight-line basis starting from the date of possession and record the difference between the recognized rental expense and cash rent payable as deferred rent. Deferred rent also includes tenant allowances received from landlords in accordance with negotiated lease terms. The tenant allowances are amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession.
In accordance with ASC 260, Earnings per Share, the Company calculates basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed if the Company has net income; otherwise it would be anti-dilutive and would result from the conversion of a convertible note.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
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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.
We are subject to certain tax risks and treatments that could negatively impact our results of operations
Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E favorable to cannabis businesses.
Provision for Income Taxes
We recorded a provision for income taxes in the amount of $13,839 during the six months ended June 30, 2023 compared to $54,863 during the six months ended June 30, 2022. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| • | Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
| • | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
Schedule of Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis
| Fair Value Measurements at June 30, 2023 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $138,261 | - | - | |||||||||
| Short term debt, net of discounts of $-0- | - | - | |||||||||
| Derivative liability | - | - | |||||||||
| Total liabilities | - | - | |||||||||
| $ | $ | $ | ( |
||||||||
| Fair Value Measurements at December 31, 2022 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $333,107 | - | - | |||||||||
| Short term debt, net of discounts of $-0- | - | - | |||||||||
| Derivative liability | - | - | |||||||||
| Total liabilities | - | - | |||||||||
| $ | $ | - | $ | ( |
|||||||
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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 9.
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 convete8rsion 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 its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company uses the Binomial option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.
In July 2017, the FASB issued ASU 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendment also clarifies existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
Prior to this Update, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
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The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.
For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
The amendments in Part 1 of this Update are a cost savings relative to former accounting. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.
The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.
The Company adopted this new standard on January 1, 2019; however, the Company needs to continue the derivative liabilities due to variable conversion price on some of the convertible instruments. As such, it did not have a material impact on the Company’s consolidated financial statements.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Extinguishments of Liabilities
The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.
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Stock-Based Compensation - Employees
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing valuation model. The ranges of assumptions for inputs are as follows:
| • | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
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| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
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| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
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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.
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Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation: Improvement to Nonemployee Share-Based Payment Accounting (Topic 718). The ASU supersedes ASC 505-50, Equity-Based Payment to Non-Employment and expends the scope of the Topic 718 to include stock-based payments granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for stock-based payments to non-employees are aligned with those of employees, most notably aligning the award measurement date with the grant date of an award. The new guidance is required to be adopted using the modified retrospective transition approach. The Company adopted the new guidance effective January 1, 2019, with an immaterial impact on its financial statements and related disclosures.
The fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The ranges of assumptions for inputs are as follows:
| • | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
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| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
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| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
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| • | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.
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Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identifying the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
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.
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Cost of Sales
Cost of sales represents costs directly related to the purchase of goods and third party testing of the Company’s pr
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements.
The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2023.
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.
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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 August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30, 2023 and December 31, 2022:
Schedule of Property Plant And Equipment
| June 30, 2023 | December 31, 2022 | |||||||
| (Unaudited) | (Audited) | |||||||
| ATM Machine | $ | $ | ||||||
| Computer | ||||||||
| Furniture & Fixtures | ||||||||
| HVAC | ||||||||
| Land | ||||||||
| Leasehold Improvements | ||||||||
| Machinery and Equipment | ||||||||
| Sign | ||||||||
| Vehicle | ||||||||
| Total | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property, Plant and Equipment - net | $ | $ | ||||||
Depreciation
expense totaled of $
NOTE 5 – ASSETS HELD FOR SALE
At December 31, 2022 assets held for sale mainly referred to property the Company owned in Lebanon, Oregon, which the Company had intended to develop as a cannabis grow and production facility. All transactions that resulted in the reclassification of assets held for sale at December 31, 2022, are already completed in 2023.
As previously reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, the Company entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the property the Company owned in Lebanon, Oregon, which the Company intended to develop as a cannabis grow and production facility (the “Property”).
Pursuant to the CVC Agreement, CVC released its $500,000 mortgage lien on the Property, to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC.
Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which included $150,000 advanced at the time the CVC Agreement was entered into and $120,000 which was advanced to the Company on November 10, 2022. The advances bear interest at the rate of 10% per annum and are convertible into shares of our common stock at $0.08 per share, subject to market adjustment.
On February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the sale were used to repay the advances and an additional short-term loan of $100,000 (plus interest due of $5,000). After such repayments, the Company realized a gain on disposal of assets of $177,883.
The carrying amount of assets classified as held for sale at June 30, 2023 and December 31, 2022 was $0 and $516,076, respectively.
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NOTE 6 – NON-CURRENT ASSETS
Other assets consisted of the following at June 30, 2023 and December 31, 2022:
Schedule of other assets noncurrent
June 30, 2023 (Unaudited) | December 31, 2022 (Audited) | |||||||
| Rent Deposits | $ | $ | ||||||
| Security Deposits | ||||||||
| Other Receivable | ||||||||
| Non-Current Assets | $ | $ | ||||||
During
the six months ended June 30, 2023, our other receivables increased $
NOTE 7 – 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 is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 4.06% to 4.94%, volatility ranging from 145.78% to 192.4%, trading prices was $0.067 per share and a conversion price ranging from $0.05 to $0.08 per share. The total derivative liabilities associated with these notes were $6,070,415 at June 30, 2023 and $6,204,878 at December 31, 2022.
See Below Summary Table
Schedule of Convertible Debt
| Convertible Debt Summary | |||||||
| Debt Type | Debt Classification | Interest Rate | Due Date | Ending | |||
| CT | LT | 6/30/2023 | 12/31/2022 | ||||
| A | Convertible | X | 1-Jan-17 | |
$ | ||
| B | Convertible | X | 1-Jan-25 | |
| ||
| C | Convertible | X | 1-Jan-25 | |
| ||
| D | Convertible | X | 1-Jan-25 | |
| ||
| O | Convertible | X | 1-Jan-25 | |
| ||
| P | Convertible | X | 1-Jan-25 | |
| ||
| Q | Convertible | X | 1-Jan-25 | |
| ||
| S | Convertible | X | 1-Jan-25 | |
| ||
| T | Convertible | X | 1-Jan-25 | |
| ||
| CC | Convertible | X | 1-Jan-25 | |
| ||
| KK | Convertible | X | 1-Jan-25 | |
| ||
| LL | Convertible | X | 1-Jan-25 | |
| ||
| MM | Convertible | X | 1-Jan-25 | |
| ||
| NN | Convertible | X | 1-Jan-25 | |
| ||
| OO | Convertible | X | 1-Jan-25 | |
| ||
| PP | Convertible | X | 1-Jan-25 | |
| ||
| Convertible | X | 1-Jan-25 | |
| |||
| RR | Convertible | X | 1-Jan-25 | |
| ||
| SS | Convertible | X | 1-Jan-25 | |
| ||
| TT | Convertible | X | 1-Jan-25 | |
| ||
| UU | Convertible | X | 1-Jan-25 | |
| ||
| VV | Convertible | X | 1-Jan-25 | |
| ||
| XX | Convertible | X | 1-Jan-25 | |
| ||
| YY | Convertible | X | 1-Jan-25 | |
| ||
| ZZ | Convertible | X | 1-Jan-25 | |
| ||
| AAA | Convertible | X | 1-Jan-25 | |
| ||
| BBB | Convertible | X | 1-Jan-25 | |
| ||
| DDD | Convertible | X | 1-Jan-25 | |
| ||
| EEE | Convertible | X | 1-Jan-25 | |
| ||
| GGG | Convertible | X | 1-Jan-25 | |
| ||
| JJJ | Convertible | X | 1-Jan-25 | |
| ||
| LLL | Convertible | X | 1-Jan-25 | |
| ||
| MMM | Convertible | X | 1-Jan-25 | |
| ||
| PPP | Convertible | X | 1-Jan-25 | |
| ||
| SSS | Convertible | X | 1-Jan-25 | |
| ||
| TTT | Convertible | X | 1-Jan-25 | |
| ||
| VVV | Convertible | X | 1-Jan-25 | |
| ||
| WWW | Convertible | X | 1-Jan-25 | |
| ||
| XXX | Convertible | X | 1-Jan-25 | |
| ||
| YYY | Convertible | X | 1-Jan-25 | |
| ||
| ZZZ | Convertible | X | 1-Jan-25 | |
| ||
| AAAA | Convertible | X | 1-Jan-25 | |
| ||
| BBBB | Convertible | X | 1-Mar-23 | - | | ||
| CCCC | Convertible | X | 1-Mar-23 | - | | ||
| DDDD | Convertible | X | 31-Dec-24 | - | | ||
| Total Convertible Debt | |
| |||||
| Less: Discount | ( |
( | |||||
| Convertible Debt, Net of Discounts | $ |
$ | |||||
| Convertible Debt, Net of Discounts, Current | $ |
$ | |||||
| Convertible Debt, Net of Discounts, Long-term | $ |
$ | |||||
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FOOTNOTES FOR CONVERTIBLE DEBT ACTIVITY FOR QUARTER ENDED JUNE 30, 2023
As previously reported for the quarter ended September 30, 2023, the Company entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the property the Company owned in Lebanon, Oregon, which the Company intended to develop as a cannabis grow and production facility (the “Property”).
Pursuant to the CVC Agreement, CVC released its $500,000 mortgage lien on the Property, to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, including the start-up costs and operation expenses of Fifth Dimension Therapeutics ™ (“FDT”) without having to repay CVC the $500,000 Note held by CVC. In addition to the release of the mortgage by CVC, it agreed to loan the company $350,000 in the form of a non-convertible note. Please see NOTE 8 for further discussion.
Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which included $150,000 advanced at the time the CVC Agreement was entered into and $120,000 which was advanced to the Company on November 10, 2022. The advances bear interest at the rate of 10% per annum and are convertible into shares of our common stock at $0.08 per share, subject to market adjustment.
On February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the sale were used to repay the advances and an additional short-term loan of $100,000 (plus interest due of $5,000).
NOTE 8 – NON-CONVERTIBLE DEBT
June 30, 2023 | December 31, 2022 | |||||||
| Note 5 | $ | |||||||
| Note 6 | ||||||||
| Total Non-Convertible notes | $ | |||||||
(5) On September 16, 2016, the Company received a total of $31,661 to be used for equipment in exchange for a two year note in the aggregate amount of $31,661 with interest accruing at 18% per year and a 10% loan fee. The note is in default as of June 30, 2023 with an outstanding balance of $9,312.
(6) On June 12, 2023, the Company issued a 10% promissory note in the amount of $350,000 with 10% interest rate, payable to CVC International Ltd, secured by 10% of monthly total revenues from all sources of Kaya Holdings, Inc. and any of its subsidiaries. and the noteholder also received 10 Series A preferred shares in FDT, which are convertible into a total of 10% of the common shares. The due date of the note is June 12, 2025. FDT was formed by the company on December 13, 2022 and the Company owns 55% of FDT, after FDT issued 10 Series A preferred shares to CVC as of June 30, 2023
Schedule Of Related Party Transactions
| B-Related Party | ||||||||
| Loan payable - Stockholder, 0%, Due December 31, 2025 (1) | $ | $ | ||||||
| $ | $ | |||||||
| (1) | The $250,000 non-convertible note was issued as part of a Debt Modification Agreement dated January 2, 2014. On January 1, 2019, the holder of the note extended the due date until December 31, 2021. The interest rate of the non-convertible note is 0%. On December 31, 2021, the Company entered into an agreement to further extend the debt until December 31, 2025, with no additional interest for the extension period. The Company used the stated rate of 9% as imputed interest rate, which was $11,158 and $22,500 for the six months ended June 30, 2023 and the year ended December 31, 2022, respectively. As of June 30, 2023 and December 31, 2022, the balance of the debt was $250,000. | |
NOTE 9 – 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 Company has 10,000,000 shares of preferred stock authorized. 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 434 votes on any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 434 shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the holder into 434 shares of common stock.
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On December 27, 2021 the Company entered into an Exchange Agreement with Craig Frank and BMN Consultants, Inc. for 50,000 Series C Preferred Shares of Kaya Holdings held by Mr. Frank and 50,000 Series C Preferred Shares of Kaya Holdings optioned by BMN from Mr. Frank and Ilan Sarid (pursuant to stock options extended to BMN in 2010), 100,000 total shares.
Pursuant to the terms and conditions of this Agreement, the Holders each agreed to (a) waive payment of approximately $338,000 of Accrued Compensation; (b) defer payment of the remaining balance of Accrued Compensation owed to each of them of approximately $250,000 until January 1, 2025 ; and (c) exchange the 50,000 Series C Shares ( at total of 100,000) for twenty (20) Series D Convertible Preferred Shares of Kaya Holdings Stock. Mr. Frank’s Series D shares were issued to Mr. Frank and the Series D shares issued for the option held by BMN were issued to RLH Financial Services pursuant to a private sale between BMN and RLH whereby RLH acquired the shares in exchange for a promissory note in the amount of $1,000,000.
Each Share of 40 Series D Preferred Stock is convertible, at the option of the holder thereof, at any time and from time to time, into one percent (1%) of the Company’s Fully Diluted Capitalization as of the Conversion Date. This resulted in a related party gain of $559,058.
The Company has 500,000,000 shares of common stock authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.
There were no new issuances of common stock during the three months ended June 30, 2023.
As of June 30, 2023, there were 22,172,835 shares of common stock outstanding.
NOTE 10 – DERIVATIVE LIABILITIES
Effective January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
However, due to a recognition of tainting, due to variable conversion price on some of the convertible notes, all convertible notes are considered to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging 4.06% to 4.94%, volatility ranging from 145.78% to 192.4%, trading prices was $0.065 per share and a conversion price ranging from $0.05 to $0.08 per share. The total derivative liabilities associated with these notes were $5,825,566 at June 30, 2023 and $6,204,878 at December 31, 2022.
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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:
Schedule Of Derivative Liabilities At Fair Value
| Balance as of December 31, 2022 | $ | |||
| Initial | ||||
| Change in Derivative Values | ( | ) | ||
| Settlement of debt-reclass to APIC | ( | ) | ||
| Balance as of June 30, 2023 | $ | |||
The Company recorded the debt discount to the extent of the gross proceeds raised and expended immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
The Company recorded income from settlement of debt, reclassed to APIC of $145,625 and $0 for the six months ended June 30, 2023 and 2022, respectively.
The Company recorded a change in the value of embedded derivative liabilities loss of $233,687 and a gain of $3,089,822 for the six months ended June 30, 2023 and 2022, respectively.
NOTE 11 – DEBT DISCOUNT
The Company recorded the debt discount to the extent of the gross proceeds raised and expended immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
Debt discount amounted to $138,261 and $387,819 as of June 30, 2023 and December 31, 2022, respectively.
The Company recorded the amortization of debt discount of $249,553 and $157,204 for the six months ended June 30, 2023 and 2022, respectively.
The Company reclassified derivative liabilities of $0 to additional paid in capital due to debt conversion for the six months ended June 30, 2023 and the year ended December 31, 2022.
NOTE 12 – 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. On December 31, 2021, the Company entered into an agreement to further extend the debt until December 31, 2025, with no additional interest for the extension period, with no additional interest for the extension period.
At December 2017, the company was indebted to Craig Frank, Chairman, CEO and Acting CFO for KAYS, in the amount of $7,737 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 100,000 shares of KAYS stock for their service as board members. The stock was issued from Treasury as restricted stock and carries a one-year restriction before it can be registered for resale pursuant to Rule 144.
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In 2018 and 2019, the Company issued stock grants to Craig Frank for 3,000,00 shares of KAYS stock each year, pursuant to his employment agreement via board resolution. Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock. The stock was issued from Treasury as restricted stock and carries a one-year restriction before it can be registered for resale pursuant to Rule 144.
In August, 2018 KAYS entered into an agreement with Bruce Burwick, (who subsequently joined the Board of Directors and became an affiliate of the Company) to purchase the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the OLCC for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. The purchase includes a 12,000 square foot building housing an indoor grow facility, as well as equipment for growing and extraction activity. KAYS paid Bruce Burwick $1,300,000 for the real property and schedule of equipment that was and is used to operate the facility.
Bruce Burwick acquired the property for satisfaction of a promissory note due him for $1,433,000. The purchase price of $1.3 million for the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the issuance of 12 million shares of KAYS restricted stock to the seller at closing. The shares carry a lock-up-restriction that allows for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS. Additionally, the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds from the sale of those shares were and are being used for acquisition related expenses, transitional operating costs and facility capital improvements with respect to the production and processing facility we purchased.
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 and carries a minimum of one year restriction before it can be registered for resale pursuant to Rule 144.
In 2019, the Company issued a stock grant to Bruce Burwick for 100,000 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.
In 2019, the Company entered into amended consulting agreements with Tudog International Consulting, Inc. which provides CEO services to the Company through Craig Frank, an Officer of the Company and BMN Consultants, Inc. which provides business development and financial consulting services to the Company through William David Jones, a non-officer Consultant to the Company. Pursuant to the amended consulting agreements, each entity is entitled to monthly compensation of $25,000. Due to the liquidity of the Company, the compensations were paid partially over the periods. As of December 31, 2022, the accrued compensation was approximately $500,000. By agreement of the parties, the accrued compensation will not be paid until January 1,, 2025 and has been recorded as a long-term liability. As of December 31, 2022, the Company also had $273,190 of accounts payable due to Tudog International Consulting, Inc. and BMN Consultants, Inc.
In 2021, the Company formed Kaya Farm Greece, which is a majority owned subsidiary of Kaya Brands International, Inc., with 70% ownership. The remaining 30% is owned by related parties of the Company. Subsequently, Kaya Farm Greece entered an acquisition agreement to acquire 50% GREEKKANNABIS S.A. (GK) The remaining 50% of GREEKKANNABIS S.A. is currently owned by Ilias Kammenos (President of GK) and Panagiotis Kininis (Vice president of GK). There is non-controlling capital of $1,909,211 representing the equity not currently owned by the Company. The financial statements have been consolidated with the Company.
On March 31, 2021 the Company entered into a settlement with Sunstone Capital Partners, LLC, Sunstone Marketing Partners LLC and Bruce Burwick, the principal of Sunstone and a director of Kays, regarding the failure to deliver to KAYS the Oregon Cannabis Production and Processing Licenses that were part of a warehouse purchase transaction in August 2018.
| 24 |
On July 28, 2021 the Company announced that all terms had been satisfied. Pursuant to the terms of the settlement, Bruce Burwick surrendered to KAYS 1,006,671 shares of our common stock issued to him in connection with the transaction (800,003 shares which were issued for the facility purchase, 166,667 shares which were issued for $250,000 in cash and 40,001 shares which were issued as annual compensation for Burwick serving as a director of KAYS). The shares have been submitted to KAYS' transfer agent for cancellation. In addition, the Company received clear title to the warehouse facility, which enables the Company to sell it without restriction. As part of the settlement, Burwick received $160,000 from the net proceeds of the sale of the facility's grow license to an unrelated third party, resigned from the Company's board of directors and agreed to work as a non-exclusive consultant to the Company for the next four years for a yearly fee of $35,000.00.
On October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000, generating a cash influx of approximately $0.09 per share for the Company (the “Eugene Warehouse Sale”). The sale was part of our recently announced settlement with Sunstone Farms, and it also resulted in the cancellation of 1,006,671 shares of KAYS stock, decreasing the Company’s issued and outstanding shares by approximately 6.5% to 14.7 million shares. Funds received from the sale were and are being used to repay certain debt and strengthen our balance sheet and for general working capital purposes, as well as provide the initial stage capital for some of the Company’s U.S. and global expansion activities, including its planned cultivation sites in Greece and Israel.
On August 30, 2021 the Company elected to dispose of two (2) of the four (4) Fiat cars that it owned that it was not using. The four cars were originally purchased in September of 2017 for prices ranging from $13,584.00 to $14,992.
After a review of market pricing the Company was able to sell one of the cars to Carvana for $14,460.00 and the funds were used for general working capital. Additionally, the second Fiat was transferred to Mr. Frank in lieu of $15,000in fees owed him. After adjusting for net book value, the Company recorded $12,453 to additional paid in capital.
On December 27, 2021 the Company entered into an Exchange Agreement with Craig Frank and BMN Consultants, Inc. for 50,000 Series C Preferred Shares of Kaya Holdings held by Mr. Frank and 50,000 Series C Preferred Shares of Kaya Holdings optioned by BMN from Mr. Frank and Ilan Sarid (pursuant to stock options that they each extended to BMN in 2010), 100,000 total shares.
Pursuant to the terms and conditions of this Agreement, the Holders each agreed to (a) waive payment of approximately $338,000 of Accrued Compensation; (b) defer payment of the remaining balance of Accrued Compensation owed to each of them of approximately $250,000 until January 1, 2025 ; and (c) exchange the 50,000 Series C Shares ( at total of 100,000) for twenty (20) Series D Convertible Preferred Shares of Kaya Holdings Stock. Each Share of 40 Series D Preferred Stock is convertible, at the option of the holder thereof, at any time and from time to time, into one percent (1%) of the Company’s Fully Diluted Capitalization as of the Conversion Date. This resulted in a related party gain, which was applied to APIC. Mr. Frank’s Series D shares were issued to Mr. Frank and the Series D shares issued for the option held by BMN were issued to RLH Financial Services pursuant to a private sale between BMN and RLH whereby RLH acquired the shares in exchange for a promissory note in the amount of $1,000,000.
On December 1, 2022, the Company priced a its one remaining vehicle with Carvana and received a offer for $14,510 In lieu of accepting the bid and partially paying Mr. Frank’s invoices which were still due from August, 2022, the Company agreed to transfer title to the car to him in settlement of $17,000.00 in fees that were due him in August (these are fees that are not being deferred and would otherwise be paid in cash, and cost the Company $2,490.00 more in fees if the car was sold).
On December 15, 2022 the Board of Directors approved the issuance of a total of 2,100,000 shares as Officer and Director Compensation as follows:1,500,000 shares of common stock to our CEO Craig Frank 300,000 shares to Carries Schwarz 300,000 shares to Mitchell Chupak, as annual award compensation, per their agreements.
NOTE 13 – STOCK OPTION PLAN
On September 15, 2022 the Company approved the 2022 Equity Incentive Plan, which provides for equity incentives to be granted to the Company’s employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2022 Incentive Stock Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2022 Incentive Stock Plan is administered by the board of directors.
The remaining balance of the shares available in the plan is 450,000 shares.
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NOTE 14 – 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 210,772 paid and non-assessable post -reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of December 31, 2019, the note was paid in full. As of March 31, 2023, the warrants have expired.
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 210,772 paid and non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of December 31, 2019, the note was paid in full. As of March 31, 2023, the warrants have expired.
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 158,079 paid and non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 9, 2018. As of December 31, 2019, the note was paid in full.
On May 17, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 158,079 paid and non-assessable shares of the Common Stock at the price of $0.4744455 per share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 17, 2018. As of December 31, 2019, the note was paid in full.
Warrants issued to Non-Employees
Schedule Of Warrants
| Warrants Issued | Weighted Average Exercise Price | Weighted Average Contract Terms Years | |
| Balance as of December 31, 2022 | |
||
| Granted | - | - | |
| Exercised | - | - | |
| Expired | - | - | |
| Balance as of June 30, 2023 | |
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NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has one operating lease for an office in Fort Lauderdale, Florida, and one operating lease for a retail store location in Oregon under arrangements classified as leases under ASC 842.
Effective June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021 at a rate of $1,802 per month. On June 1, 2021 the lease was extended for another year and on June 1 in 2022 the lease was extended for an additional year. The current monthly payment inclusive of sales tax and operating expenses is $2,079 with right of use liabilities of $0. 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 May 30, 2023, and the Company has been leasing the space month to month since that time, and is in process of extending the lease until May, 2024.
Effective May 15, 2014, the Company leased a 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 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 current monthly payment is $3,100 with right of use liabilities of $29,715.91 as of June 30, 2023.
Effective May 22, 2015, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. In May 2020, the lease had been extended to May 31, 2025. 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 extended for an additional 5 years.. The current monthly payment is $0 with right of us liabilities of $0. This lease was terminated as of April 19, 2023 as part of a settlement with the Landlord on the three (3) outstanding retail store leases that the Company had outstanding in Salem, Oregon for locations that were closed, and no funds are owed for the leases.
Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. 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 current monthly payment is $0 with right of us liabilities of $0. This lease was terminated as of April 19, 2023 as part of a settlement with the Landlord on the three (3) outstanding retail store leases that the Company had outstanding in Salem, Oregon for locations that were closed, and no funds are owed for the leases.
Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. 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 current monthly payment is $0 with right of us liabilities of $0. This lease was terminated as of April 19, 2023 as part of a settlement with the Landlord on the three (3) outstanding retail store leases that the Company had outstanding in Salem, Oregon for locations that were closed, and no funds are owed for the leases.
As noted above, the one (1) lease that the Company entered into on June 1, 2015 and the two (2) leases that the Company entered into effective April 15, 20 16 were terminated as part of a settlement with the landlord entered into on April 19, 2023 concurrent with a payment of $75,000 which resolved all outstanding liabilities of the Company and its subsidiaries for the leases.
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 $27,316 and operating lease liabilities of $29,716 as of June 30, 2023. Operating lease expenses for the six months ended June 30, 2023 and 2022 were $29,041 and $47,475, respectively. The big changes were due to the termination of the three stores lease. As the closure of 3 stores, the Company evaluated long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Hence, the Company has recorded $67,924 in impairment charges related to right-of-use assets during the six months ended June 30, 2023.
Schedule Of Future Minimum Rental Payments For Operating Leases
| Maturity of Lease Liabilities at June 30, 2023 | Amount | |||||
| 2023 | ||||||
| 2024 | ||||||
| 2025 | ||||||
| Later years | ||||||
| Total lease payments | ||||||
| Less: Imputed interest | ( |
) | ||||
| Present value of lease liabilities | $ | |||||
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Note 16- SUBSEQUENT EVENTS
On June 12, 2023 the Company received $350,000 as a working capital loan from CVC International Ltd. an Institutional Investor that has provided substantial fundings to the Company over the past ten (10) years. The debt is not convertible and carries an interest rate of 10% annually.
Commencing with the quarterly period beginning July 1, 2023, the Company agrees to segregate and pay to the Holder ten percent (10%) of monthly total revenues from all sources (net of sales taxes) of Kaya Holdings, Inc. and or any of its subsidiaries or operations, whether currently in existence or created or acquired in the future (including but not limited to the Marijuana Holdings Americas, Inc. subsidiary, the Kaya Brand International, Inc. subsidiary and the newly formed Fifth Dimension Therapeutics, Inc subsidiary), or any other name or partnership that the Company may operate under or gain interest in that it may receive revenue from), until such time as all outstanding Principal amount and Interest due has been repaid to the Holder.
On August 16, 2023, the Company signed a Letter of Intent to lease approximately 11,000 square feet of space in Portland, OR for its Psilocybin business. The space takes up the entire seventh floor of commercial building which has floor to ceiling windows offering sweeping views of the Portland Skyline, and has an existing substantial kitchen/ café area that the Company intends to utilize for a “Microdosing Café” concept, as well as already constructed rooms that the Company intends to utilize for individual and group Psilocybin sessions. The lease is for one year with option for an additional two years, if all conditions are met.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview
PART I
Item 1. Business.
| Overview |
Kaya Holdings, Inc is a holding company focusing on wellness and mental health through operations in medical and recreational cannabis, CBD products and psychedelic treatment clinics.
KAYS has approximately nine years of operational experience as a vertically integrated legal cannabis enterprise and 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 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.
In Oregon, KAYS is seeking the requisite licenses from the Oregon Department of Health (the “OHA”) to operate State Licensed Psilocybin Manufacturing and Facilitation Service Centers in Oregon through its majority ownership in Fifth Dimension Therapeutics, Inc (“FDT”).
In November 2020 Oregon became the first state in the United States to legalize and license the supervised use of psychedelic therapeutics for treatment of a range of physical and mental health issues, and in January, 2023 they began accepting licensing applications for OHA State Licensed Psilocybin Facilitators (OHA approved licensed professionals to operate the clinics) and also licensing for Manufacturing, Testing and the Facilitation clinics where clients can obtain Psilocybin Services. The OHA also launched Oregon’s medical cannabis program in 2014, giving KAYS critical experience in comprehending and complying with OHA mandates, and sets the stage for KAYS “First Mover Advantage” in the emerging US psychedelic therapeutics industry.
In Florida, KAYS is seeking to open ketamine treatment facilities to be operated by licensed medical staff that can legally give ketamine treatments to alleviate treatment resistant mental health issues including severe depression, PTSD, eating disorders, alcoholism and other mental health issues.
Cannabis Operations
The Company’s cannabis business strategy seeks to achieve four fundamental objectives:
| · | maintaining direct access to customers (to own the relationship with end-users); |
| · | effecting vertical integration to control the supply chain (to control cost, selection and quality); |
| · | introducing strong brands in tradition and innovative categories (to control asset development); and |
| · | creating the capacity to expand nationally and internationally as regulations and opportunities permit. |
Kaya Holdings currently operates three majority-owned cannabis subsidiaries, each responding to various demands and opportunities in the cannabis industry, to aid in the execution of these objectives:
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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 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, the Company currently maintains a genetic library of seeds for over 150 top strains of cannabis that it has assembled from its own grow operations, contract growers, vendors for its retail stores and other commercial sources which it intends to utilize to launch international grow operations in Israel, Greece and elsewhere.
The Company’s US cannabis operations are currently focused in Oregon, where 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 currently has one active OLCC Marijuana Retailer License in Oregon which it is utilizing to operate a Kaya Shack™ retail outlet in Portland.
Sale of Lebanon, Oregon Farm Property
In August 2017, the Company purchased a 26-acre parcel in Lebanon, Linn County, Oregon for $510,000 on which we intended to construct a Greenhouse Grow and Production Facility (the “Property”) and filed for OLCC licensure. As previously reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2023, in August 2023 the Company elected to sell the Property and entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the Property.
Pursuant to the CVC Agreement, CVC released its $500,000 mortgage lien on the Property, to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC. Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which included $150,000 advanced at the time the CVC Agreement was entered into, $120,000 which was advanced to the Company by CVC on November 10, 2022 and an additional short-term loan of $100,000 which was also secured by the Property. The Advances bear interest at the rate of 10% per annum and are convertible into shares of our common stock at $0.08 per share, subject to market adjustment.
On February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the sale were used to repay the Advances (Principal of $370,000 and interest due of approximately $18,500. After such repayments, the Company realized net proceeds of approximately $302,000. The land is reflected on the balance sheet as assets held for sale for the year ended December 31, 2022 and 2021, at a value of $516,076.
Sale of Salem Oregon Cannabis Dispensary
In November of 2022 the Company entered into an agreement with the OLCC to resolve an Administrative Action filed by the OLCC (as previously disclosed in the Company’s Annual Report on form 10-K for the year ended December 31, 2021, the Company’s Quarterly report for the quarter ended March 31, 2022 and the Company’s Annual Report on form 10-K for the year ended December 31, 2022). Per the terms of the agreement the Company agreed to either enter into a purchase and sale agreement for its retail license in South Salem by February 1, 2023 (the renewal date) or surrender the license.
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On April 21, 2023 the Company concluded the sale of its Salem Retail Cannabis Store (“Store 2”) for $210,000, less a 6% closing commission and minor closing expenses. After these expenses and paying $75,000 to resolve three non-performing store leases in South Oregon, the Company netted $118,900.
The Company is in process of utilizing the net proceeds of approximately $420,000 from both the sale of the Property and Store 2, for general working capital including the development of its planned Oregon psilocybin business and planned Florida hybrid ketamine treatment Clinic facilities, as well as for the enhancement of its Portland Kaya Shack™ retail cannabis store to create a streamlined model designed to facilitate franchising efforts and development of its international projects. Additionally, the Company is also evaluating other locations in the United States to pursue other domestic licensed retail cannabis operations.
Kaya Brands USA
Kaya Brands USA (“KBUS”) is being 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 stockholder value associated with their development.
KBUS presently manages several 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 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 Farms™ brand to develop cultivation projects in Greece, Israel and other potential locations.
Kaya Farms Greece
On January 11, 2021, KAYS/KBI, through a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG") executed an agreement to acquire 50% of Greekkannabis (“GKC", an Athens based cannabis company) GKC. The first 25% was acquired in January, 2021 and the remaining 25% was acquired in July, 2021.
GKC has a development license from the Greek authorities that was originally issued as part of a plan purchase and develop 15 acres in Thebes, Greece as a large-scale cultivation production and processing project. However, GKC has elected to hold off on acquiring the land until such time as European Cannabis Demand would warrant the investment required to develop the project.
Additionally, on November 8, 2021 KAYS/KBI through a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG") executed an agreement to acquire 50% of Greekkaya, a second medical Cannabis in Epidaurus, Greece.
The Epidaurus Project consists of 2 connected industrial buildings (already constructed, approximately 50,000 square feet in total under-air space) situated on 2.8 acres of land, with its own independent industrial electrical power center and ample water supply to service the needs of the facility. The Epidaurus Project is designed to include 25,000 square feet of indoor cannabis cultivation, a 15,000 square foot EU-GMP extraction and processing facility, and a 10,000 square foot EU-GMP packing area. There is ample room for expansion with room to construct an additional 15,000 square feet on site. The joint venture has been awarded its development license to from the Greek authorities and is awaiting project financing to complete the acquisition of the Epidaurus property and complete the installation of EU Certified equipment to gain final licensing of the facility.
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Neither of the subject properties are currently owned or optioned by GKC or its operating subsidiaries, but the land for the potential project in Epidaurus is owned by one of the Greek Partner’s families and the Land in Thibes is currently available for purchase or option and the Company believes it could acquire either of the Properties on good terms once funding and market conditions allow. Alternatively, both licenses are in good order, and can be transferred to a new location pending Greek government approval.
Additionally, Kaya Farms Greece is working with its Greek Partners to produce CBD and THC Cannabis products originally developed by Kaya Holdings through contract manufacturing agreements it is developing and supply these branded products to the European Union as regulations permit.
Kaya Farms Israel
We have chosen to become active in the Israeli cannabis market because of this position as global center of cannabis science, where technologies are specifically developed to enhance cannabis cultivation processes and yields, and innovative consumer products are emerging that have potential interest for both the medical and recreational markets throughout the world.
Israel has been a pioneer in cannabis R&D for several decades and is often referred to as the “Silicon Valley” of the Global Medical Cannabis Industry. Israel currently has the world’s largest medical marijuana program and is the largest importer of cannabis.
There is legislation under Knesset review to permit adult-use cannabis, making the domestic Israeli market an attractive opportunity. Upon legalization of adult use cannabis in Israel, KAYS expects to sell flower and oils, and as permitted, the KAYS portfolio of brands in Israel, leveraging its adult use market experience and Kaya Shack™ retail shops (through a local franchisee) to serve the domestic Israeli market, and has begun to target distribution agreements with the Israeli Pharmaceutical Industry.
On March 30, 2021 the Company confirmed that its Israeli subsidiary, Kaya Shalvah has been awarded its initial permit from the “YAKAR”, the Department for Medical Cannabis in the Israeli Ministry of Health, to develop an Israeli cannabis cultivation and processing facility. This initial permit grants Kaya Shalvah permission to proceed with its plans to develop commercial scale cannabis cultivation and processing in Israel.
Kaya Shalvah is currently focused on two separate paths of development to launch its Israel Operations- the first being through potentially acquiring an interest in currently licensed medical cannabis production and processing facilities that are already operating in Israel, and the second being through either filing for or acquiring an existing import/export license license for sales and distribution of Kaya’s branded products in Israel.
Potential Cannabis Projects in development for 2024 and beyond:
| · | International distribution of CBD and Hemp extracted products in development under Company brands, with select distribution in the United States also under consideration. |
| · | Potential licensing of certain cannabis brands based on KAYS experience in Oregon in select U.S. and European markets with the goal of establishing royalty revenue. |
| · | Sales of cannabis and derivative products from planned Greek facility into Germany and other legal E.U. markets. |
| · | Sales of cannabis and derivative products from planned Israeli facility in Israel or sourced from other legal markets. |
| · | Expansion of Kaya Shack™ retail footprint through franchising in US and also Europe/Israel (as permitted by law). |
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Fifth Dimension Therapeutics
Psylocibins Facilitation Centers
In November, 2020 Oregon became the first state in the United States to legalize and license the supervised use of psychedelic therapeutics for treatment of a range of physical and mental health issues.
On December 13, 2022 the Company formed Fifth Dimension Therapeutics ™ (“FDT”) to seek to provide psychedelic "mind care" treatments to veterans suffering from PTSD, addicts seeking to break addiction, individuals with eating disorders, and others with a wide array of treatment resistant mental health disorders.
On January 3, 2023 the Oregon Health Authority (the “OHA”) began to accept license applications, allowing each entity to own and operate one (1) Psilocybin manufacturing and processing facility for the production of Psilocybin Mushrooms and derived therapeutics (“Psilocybins”), and up to five (5) Psilocybin Facilitation Centers where clients would go to ingest Psilocybins and experience effects under the supervision of State Licensed Facilitators.
The OHA also launched Oregon’s medical cannabis program in 2014, giving KAYS critical experience in comprehending and complying with OHA mandates. The psilocybin opportunity is a logical extension for Kaya Holdings. The purpose, customer, regulations, and operations, as well as our familiarity with Oregon regulators, are synergistic with our current mission, and can be leveraged within our current operational infrastructure. We anticipate being able to respond to market demand rapidly, upon licensing. The licenses to be issued in Oregon will be the first ever State Legal Licensing of Psilocybin Manufacturing and Treatment Centers, and KAYS is positioned to be a first mover due to its operating history in Oregon. The Company has begun the process of enrolling staff that qualify for the licensing into the training programs that have been approved for state certification and is in process of identifying a site for Psilocybin Manufacturing and Processing and up to five (5) sites to open and operate Psilocybin Facilitation Centers, subject to financing and final regulatory approval.
On January 25, 2023 the Company confirmed that attorney Glenn E.J. Murphy was welcomed as a founding member to the FDT Board of Directors. Glenn will assist FDT with introductions to pharmaceutical companies seeking data and access to psychedelic patients, as well as advising on the development of intellectual property, structure of potential joint ventures, funding opportunities, acquisitions, and other related endeavors. Glenn has twenty-five years of private and corporate practice, including ten years in-house with the Henkel Group and more than fifteen years in private practice, Glenn's experience has touched on most every aspect of intellectual property practice.
On March 13, 2023, Bryan Arnold (one of KAYS Vice Presidents and its longest serving Oregon Employee) completed his OHA Certified Psilocybin Education through the Changra Institute and became one of the first eighteen graduates to obtain Psilocybin Facilitator certification in the State of Oregon. Bryan’s Facilitation License application has been approved by the OHA, and he now may oversee up to five (5) Psilocybin Treatment Facilities and up to one (1) Psilocybin Production Facility.
The Company expects to file a Facilitation Clinic License application once they have secured appropriate space on good terms. Additionally, the Company expects to enroll additional potential licensee candidates within the coming months to bolster its ranks of OHA Licensed Psilocybin Facilitators as it moves forward with plans to open its first Psilocybin Clinic, subject to completion of financing and regulatory approvals.
Institutional Investment in Fifth Dimension Therapeutics
On June 12, 2023 the Company received $350,000 as a working capital loan from CVC International Ltd. an Institutional Investor that has provided substantial fundings to the Company over the past ten (10) years. The debt is not convertible and carries an interest rate of 10% annually.
In consideration for CVC extending the loan to the Company (as well as for the release of a $500,000 lien on property that the Company sold in Q-1, 2023 and utilized the proceeds for corporate working capital, as detailed above and in previous filings, and other substantial financial assistance provided to the Company over the past ten (10) years) , the Company transferred to CVC ten (10) Series A Preferred shares of stock in Fifth Dimension Therapeutics, Inc. (“FDT Preferred Shares”) which are convertible into a total of 10% of the common shares of FDT (“FDT Common Shares”), taking into account the current FDT Common Shares that are outstanding and conversion of any other FDT Preferred Shares outstanding at the time of conversion. This resulted in a change of the company’s ownership of FDT from 65% to 55%.
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KAYS is moving to first establish a Psilocybin Treatment Center in Oregon, but is also keeping abreast of developments in other states such as California, Colorado, Hawaii and Washington as well as international locations to locate Psilocybin Service Centers as regulations unfold.
Ketamine Clinics
On February 15, 2023 KAYS reached an agreement in principle with Florida-based Total Holistic Center™ ("Total Holistic") to assist FDT with the development of its ketamine treatment model as a first step in the launch of its planned Fifth Dimension Therapeutics Mind Care Clinics and Telehealth Services.
Initial plans call for co-locating the Company's ketamine business within Total Holistic Center's existing offices in Boca Raton and Miami Beach upon the completion of required protocols. The hybrid Ketamine Clinic and Telehealth model will operate under the direction of Dr. Anya Temer, who will initially serve as FDT's Medical Director in Florida. KAYS and Total holistic are currently working out the details of their final agreement and expect to move forward with licensing and operations over the next Quarter subject to financing and licensing.
The Science of Psychedelics and Treatment Resistant Mental Health Issues
It is estimated that approximately every 40 seconds someone in the world commits suicide due to treatment resistant Depression, Post Traumatic Stress Disorder (PTSD), severe drug and alcohol addiction and other debilitating mental health illnesses. While anti-depressants and anti-anxiety medications offer various levels of relief for a significant number of people suffering from these conditions, it is estimated that the medications do not work for in excess of 40% of those afflicted and their life is an endless struggle with no relief provided from the current treatment regimens.
Ketamine has emerged as an effective off label treatment for treatment resistant depression (TRD) and other mental health diseases, potentially providing a new lease on life for millions worldwide for whom current medications do not work. Additionally, Psilocybin may soon be available as a mainstream medical treatment for these treatment resistant mental health issues and diseases as part of a Global Psychedelics Market estimated to exceed US$10 Billion by 2027.
Ketamine was FDA approved it as an anesthetic for people in 1970 and was used in treating injured soldiers on the battlefields in the Vietnam War. Since that time Emergency responders began to give it to an agitated patient who, for example, they have rescued from a suicide attempt, which has led Doctors to realize that the drug had powerful effects against depression and suicidal thoughts.
Today, Ketamine has been repurposed as an off-label analgesic and antidepressant. Extensive investigation of its rapid anti-depressive effects has been a breakthrough offering a potential lifesaving reprieve to those suffering from Treatment Resistant Depression (TRD) and has also been shown to reduce suicidal ideation in depressed patients at risk for suicide. Similarly, the administration of ketamine was effective at reducing depressive symptoms, acute suicidal behavior, and mood lability in youth with TRD and bipolar disease.
In 2019, the Food and Drug Administration (FDA) approved a nasal spray called esketamine, derived from ketamine-an anesthetic that has made waves for its surprising antidepressant effect. Intranasal esketamine is the only form of ketamine that has been FDA-approved as a treatment for TRD. However, Physicians have been prescribing racemic ketamine off-label to patients with depression for at least two decades. Additionally, Telehealth providers deliver oral tablets of ketamine that are taken at home for convenience with remote monitoring equipment and protocols for safety (also an off-label use). Using an approved drug for unapproved purposes (such as Ozempic for weight loss) is legal with the patient's informed consent.
Psilocybin, a naturally occurring compound found in “magic mushrooms”, is one of an emerging class of psychedelic medicines that contain potent psychoactive chemicals that can serve to affect human perception, emotions, and other cognitive functions. Psychedelic medicines have been found to have ground-breaking potential in treating a range of physical and mental disorders including anxiety and panic disorder, resistant depression, opiate addiction, adult attention deficit hyperactivity disorder (“ADHD”), opioid addiction, post-traumatic stress disorder (“PTSD”), and acute and chronic pain.
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A 2020 study in the Journal of the American Medical Association Psychiatry found that 71% of the patients with severe, previously treatment-resistant depression, showed “clinically significant improvement” that lasted at least four weeks and with “low potential” for addiction after treatment with Psilocybin.. Speaking on the study one of the study’s co-authors, Alan Davis, a neuroscience researcher at Ohio State University and adjunct professor at the Johns Hopkins Center for Psychedelic and Consciousness Research stated, “I would say at this stage the research is showing that in safe settings, this provides relief from debilitating mental health problems for some people.”
The Numbers
Insight Ace Analytic, an industry research firm, reports that the global psychedelic therapeutics market was valued at US$ 3.61 billion in 2021, and estimates the market will reach US$ 8.31 billion by 2028, with a CAGR of 13.2% during the forecast period of 2022-2028. Other market estimates include the research firm Research & Markets’ estimate that the psychedelic drugs market will reach US$ 10.75 billion by 2027.
As recently reported in the Wall Street Journal, Venture Capitalist Brom Rector of Empath Ventures sees Psychedelics as … “a traditional biotech play, with a high probability of failure but a potential upside of 10, 20, maybe 50 times.” Additionally, he sees many of the infrastructure companies for the industry as having a lot higher probability of becoming cash flow positive.
While Oregon is currently the only State that has legalized Psilocybin for medical use with a regulatory framework in place to issue licenses for their manufacture and sale, Denver Colorado, Santa Cruz and Oakland, California, Ann Arbor, Michigan, Washington D.C., and Seattle, Washington have all decriminalized small quantities. Other activity in the U.S. include:
| § | The Connecticut legislature has begun the process toward legalizing Psilocybin centers for the treatment of veterans. Many veterans’ groups are advocating making psychedelic treatments available for veterans, particularly those with PTSD. |
| § | Texas, Utah, Maryland, and Washington State have set up task forces to study the medical use of psilocybin and have funded research to explore the effects of psilocybin on certain mental health conditions. |
| § | Colorado and California have ballots initiatives pending that would legalize psilocybin. |
| § | The New Jersey senate is considering a bill that would legalize psilocybin to treat certain disorders. |
Internationally:
| § | The Canadian government has been sued by an advocate group to force the legalization of psilocybin and other psychedelics. |
| § | Possession of psilocybin is legal in Austria, British Virgin Islands, Spain, and Portugal. |
| § | Psilocybin is legal to possess, sell, transport, and cultivate in Bahamas, Jamaica, Brazil, Nepal, Netherlands (only as a truffle), and Samoa. |
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The Global Cannabis Industry
The global cannabis market is being driven by the increasing number of countries passing legislation to decriminalize the use of cannabis and legalize cannabis for medicinal use. This change in legislation is the result of an increase in public awareness to the medicinal benefits of cannabis and greater social acceptance of cannabis use.
According to New Frontier Data, more than 260 million adults globally consumed cannabis at least once annually in 2018 – placing global spending on cannabis (legal & illicit) at $344 billion USD annually.
The Insight Partners, another research group, in their 2019 Global Cannabis Market report projects the global cannabis market to reach $153,689,900,000 in 2027, which represents a CAGR of 34% from 2019-2027.
Prohibition Partners, expects the North American market to remain the world’s largest until 2023, when they expect North American ($17.7 billion) to outpace Europe ($16.8 billion). By 2024, with a forecasted global market of $103.9 billion, Europe is expected to outperform North America $39.1 billion to $37.9 billion.
Canada
Canada legalized medical cannabis in 2001 and in October 2017 the Federal Cannabis Act came into effect, making Canada the first G7 nation to legalize recreational cannabis. 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 overseas infrastructure projects to produce cannabis at costs lower than those in Canada. Increasing competition from U.S. and European countries and investor frustration has seen some decline of valuation and some Canadian companies have been forced to shrink operations and lessen their developing global footprint. Canadian cannabis companies currently export to more than twenty countries. Up until 2020, most exports of cannabis from Canada had been sent to European Countries. Exports of oil and flowers from Canada to Europe increased from 2019-2020 by 28% in terms of weight, but have declined, with most flowers being exported to Israel and the majority of oil being exported to Australia.
The United States
The United States has been the global leader in cannabis innovation; including new genetics, cultivation techniques, derivative products, and delivery methods.
Cannabis remains federally illegal in the United States, with the interstate transport and sale of cannabis prohibited. Nonetheless, support for legal recreational cannabis remains above 60% in most reputable polls, and 48 U.S. states have some form of legal medical or recreational cannabis (including hemp/CBD). Only Idaho and Nebraska prohibit all forms of cannabinoids.
States with some type of legal medical cannabis includes Alabama, Arkansas, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, New Hampshire, Louisiana, Maryland, Minnesota, Mississippi, Missouri, Montana, New Hampshire, North Carolina, North Dakota, Ohio, Oklahoma, Pennsylvania, Rhode Island, South Carolina, Tennessee, Texas, Utah, Vermont, West Virginia, Wisconsin, and Wyoming.
States which permit the sales of recreational, or “adult-use” cannabis are Alaska, Arizona, California, Colorado, Connecticut, Illinois, Maine, Massachusetts, Michigan, Montana, Nevada, New Jersey, New York, New Mexico, Oregon, South Dakota, Vermont, Virginia and Washington. The District of Colombia (Washington D.C.) also permits adult-use cannabis.
Despite the number of individual states permitting the cultivation and distribution of cannabis (including hemp), in 2021 the U.S. Senate failed to pass a bill that would reclassify cannabis from a Schedule I drug under the Controlled Substances Act, which would have allowed cannabis companies access to banking and relief from punitive IRS rules.
Europe
Some key points about the European medical cannabis market are:
| § | New Frontier Data estimates the European cannabis market (legal & illicit) generates $69 billion USD annually. |
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| § | Prohibition Partners Europe forecasts Europe to be the largest legal cannabis market worldwide by 2024, with a total value of $39.1 billion. |
| § | The Insight Partners estimates the European cannabis market will be worth $474 million by the end of 2021. They estimate the market to grow with a CAGR of 67.4% from 2021 to reach $3.75 billion by 2025. |
| § | Europe is projected to surpass North America (currently the largest medical cannabis market) in 2024, with a market value of $39.1 billion to North America’s $37.9 billion. |
| § | Total European market sales, including isolated cannabinoids, finished pharmaceutical products, cannabis flower and full spectrum cannabis products exceeded $295 million in 2019. |
| § | Germany has by far the largest number of medical cannabis patients as of 2021. By 2025, it is expected that countries like France and the United Kingdom will have developed their patient access considerably, growing to represent a significant share of the European market. |
Israel and Greece
In September 2017, the Greek government announced it would be legalizing medical cannabis, and less than a year later Greek leaders approved Law 4523 and Joint Ministerial Decision No. 51483, which permitted farming and production of medical cannabis. In 2020 the Greek Parliament passed legislation that further relaxed cannabis export regulations, now permitting the bulk export of cannabis flower.
Israel is currently the largest importer of medical cannabis in the world. By September 2020 Israel had imported more than Nine tonnes of cannabis. The strong medical cannabis program stems from traditionally progressive cannabis policies and strong cultural acceptance of cannabis medicinal uses.
The Israeli cannabis sector has been slowed by regulations, which have hindered Israeli cannabis exports and complicated domestic distribution. There is currently no mutual recognition agreement between local Medical Cannabis GMP and EU-GMP, denying many Israeli firms the qualifications necessary to export to Europe.
In February 2021, Israeli cannabis company Panaxia was chosen to supply medical cannabis to Cyprus and France as part of new government programs. IM Cannabis exports cannabis to Germany by purchasing EU-GMP flower and selling the product to German wholesalers.
Corporate Information
We are incorporated in the State of Delaware. 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 Annual Report.
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Kaya™ Family of Brands
KAYS 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.
Operational Brands (2014-2023)
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The Kaya Shack™ Brand
Kaya Holdings operates the Kaya Shack™ brand of legal medical and recreational retail marijuana retail stores. Kaya Holdings presently operates only one recreational marijuana retail outlets and medical marijuana dispensary in Portland, Oregon under the Kaya Shack™ brand, but is positioning the brand for franchising in the US and International Markets in Greece, Israel and Europe.
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 designed to be open 7 days a week. 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.
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Kaya Shack™ Retail Outlets
Our store layout features 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 (20-30 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.
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The store layout also features 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 layout 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.
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Kaya Shack™ , 1719 SE Hawthorne Blvd., Portland, Oregon.
Our 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.
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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 previously operated and maintained over the past eight 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.
The Company currently maintains a genetic library of seeds for over 150 top strains of cannabis that it has assembled from its own grow operations, contract growers, vendors for its retail stores and other commercial sources which it intends to utilize to launch international grow operations in Israel, Greece and elsewhere.
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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 prerolls made from the buds of the flower.
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Kaya Brands International
In 2019 KAYS formed Kaya Brands International, Inc. (“Kaya International” or “KBI”), to leverage its experience and expand into worldwide cannabis markets. KBI’s current initiatives include Greece and Israel, with additional areas under consideration.
Greece
We have selected Greece as the center of our European market activity because of its amenable cannabis regulations, favorable climate, affordable, capable workforce, and the country’s position as a major pharmaceutical center in Europe. As an EU nation Greece opens up the entire European market (where legal) to KAYS flower and oils, and as permitted, the KAYS portfolio of brands.
On January 11, 2021, through a majority owned subsidiary of KBI, Kaya Farms Greece (or “KFG”) and Greekkannabis (“GKC”, an Athens based cannabis company) executed an agreement for KBI to acquire 50% of GKC. The first 25% was acquired in January, 2021 and the remaining 25% was acquired in July, 2021.
GKC has a development license from the Greek authorities that was originally issued as part of a plan purchase and develop 15 acres in Thebes, Greece as a large-scale cultivation production and processing project. However, GKC has elected to hold off on acquiring the land until such time as European Cannabis Demand would warrant the investment required to develop the project.
Additionally, on November 8, 2021 KAYS/KBI through a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG") executed an agreement to acquire 50% of Greekkaya, a second medical Cannabis in Epidaurus, Greece.
The Epidaurus Project consists of 2 connected industrial buildings (already constructed, approximately 50,000 square feet in total under-air space) situated on 2.8 acres of land, with its own independent industrial electrical power center and ample water supply to service the needs of the facility. The Epidaurus Project is designed to include 25,000 square feet of indoor cannabis cultivation, a 15,000 square foot EU-GMP extraction and processing facility, and a 10,000 square foot EU-GMP packing area. There is ample room for expansion with room to construct an additional 15,000 square feet on site. The joint venture has been awarded its development license to from the Greek authorities and is awaiting project financing to complete the acquisition of the Epidaurus property and complete the installation of EU Certified equipment to gain final licensing of the facility.
Neither of the subject properties are currently owned or optioned by GKC or its operating subsidiaries, but the land for the potential project in Epidaurus is owned by one of the Greek Partner’s families and the Land in Thibes is currently available for purchase or option and the Company believes it could acquire either of the Properties on good terms once funding and market conditions allow. Alternatively, both licenses are in good order, and could be transferred to a new location pending Greek government approval.
Additionally, Kaya Farms Greece is working with its Greek Partners to produce CBD and THC Cannabis products originally developed by Kaya Holdings through contract manufacturing agreements it is developing and supply these branded products to the European Union as regulations permit.
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Kaya Kannabis- Epidaurus, Greece Project
Site of Epidaurus Land
GKC plans to cultivate and manufacture KAYS proprietary cannabis brands (CBD/THC) from the Epidaurus Project for distribution in the Greek, German and other EU markets as permitted by local regulations.
Interior View- KAYS’ newest project with 50K square feet of already constructed buildings is designed to
fast-track sales of KAYS proprietary branded cannabis products to the EU.
The Epidaurus Project consists of 2 connected industrial buildings (already constructed, approximately 50,000 square feet in total under-air space) situated on 2.8 acres of land, with its own independent industrial electrical power center and ample water supply to service the needs of the facility. The Epidaurus Project will include 25,000 square feet of indoor cannabis cultivation, a 15,000 square foot EU-GMP extraction and processing facility, and a 10,000 square foot EU-GMP packing area. There is ample room for expansion with room to construct an additional 15,000 square feet on site. The joint venture is awaiting project financing and final license approval from Greek government authorities.
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Israel
Kaya Shalvah Cannabis Production Facility (Project Design Rendering).
Israel has been a pioneer in cannabis R&D for several decades and is often referred to as the “Silicon Valley” of the Global Medical Cannabis Industry. Israel currently has the world’s largest medical marijuana program and is the largest importer of cannabis.
There is legislation under Knesset review to permit adult-use cannabis, making the domestic Israeli market an attractive opportunity. Upon legalization of adult use cannabis in Israel, KAYS expects to sell flower and oils, and as permitted, the KAYS portfolio of brands in Israel, leveraging its adult use market experience and Kaya Shack™ retail shops (through a local franchisee) to serve the domestic Israeli market, and has begun to target distribution agreements with the Israeli Pharmaceutical Industry.
We have chosen to become active in the Israeli cannabis market because of this position as global center of cannabis science, where technologies are specifically developed to enhance cannabis cultivation processes and yields, and innovative consumer products are emerging that have potential interest for both the medical and recreational markets throughout the world.
On March 30, 2021 the Company confirmed that its Israeli subsidiary, Kaya Shalvah has been awarded its initial permit from the “YAKAR”, the Department for Medical Cannabis in the Israeli Ministry of Health, to develop an Israeli cannabis cultivation and processing facility. This initial permit grants Kaya Shalvah permission to proceed with its plans to develop commercial scale cannabis cultivation and processing in Israel.
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Kaya Shalvah is currently focused on two separate paths of development to launch its Israel Operations- the first being through potentially acquiring an interest in currently licensed medical cannabis production and processing facilities that are already operating in Israel, and the second being through either filing for or acquiring an existing import/export license license for sales and distribution of Kaya’s branded products in Israel.
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.
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.
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Our foreign operations will also be subject to comparable government regulation in Greece, Israel and any other various foreign jurisdictions in which KAYS intends to operate.
Competition
The legal marijuana sector is rapidly growing and the Company faces significant competition in the operation of retail outlets, MMDs and grow facilities. Many of these competitors will have far greater experience, more extensive industry contacts and greater financial resources than the Company. There can be no assurance that we can adequately compete to succeed in our business plan.
Employees
As of the date as of this Report, our Oregon operations have a total of 12-15 part-time store employees including budtenders, trimmers, growers, and 4 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.
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Results of Operations
Three months ended June 30, 2023 compared to three months ended June 30, 2022
Revenues
We had revenues of $55,116, for the three months ended June 30, 2023, as compared to revenues of $195,186 for the three months ended June 30, 2022. The decrease in revenue is due to our smaller Oregon cannabis footprint as we are working to transition the bulk of our cannabis initiatives to Greece and Israel while we work to open a OHA State Licensed Psilocybin Treatment and Production Facility in Oregon.
Cost of Goods Sold
Our cost of goods sold for the three months ended June 30, 2023 was $19,717, compared to cost of goods sold of $58,698 for the three months ended June 30, 2022. The decrease in cost of goods sold was due to lower levels of sales due to our smaller Oregon cannabis footprint as we are working to transition the bulk of our cannabis initiatives to Greece and Israel while we work to open a OHA State Licensed Psilocybin Treatment and Production Facility in Oregon.
Salaries and Wages
Salaries and Wages decreased to $54,008 for the three months ended June 30, 2023 as compared to $102,873 for the three months ended June 30, 2022. The decrease in salaries and wages was due to the sold retail shop in Oregon.
Selling, General and Administrative Expenses
Selling, general and administrative decreased to $132,688 for the three months ended June 30, 2023 as compared to $120,501 for the three months ended June 30, 2022.
Professional Fees
Professional fees were $162,016 for the three months ended June 30, 2023, as compared to $182,633 for the three months ended June 30, 2022.
Gain or Loss on Impairment of Assets
Gain on impairment of assets was $206,546 for the three months ended June 30, 2023, as compared to $0 for the three months ended June 30, 2022.
Gain or Loss on Impairment of right of use assets
Gain or loss on impairment of right of use assets was $67,924 for the three months ended June 30, 2023, as compared to $0 for the three months ended June 30, 2022.
Interest Expense
Interest expense and debt amortization expense increased slightly to $156,293 for the three months ended June 30, 2023 from $154,570 for the three months ended June 30, 2022.
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Amortization of Debt Discount
Amortization of debt discount was $68,010 for the three months ended June 30, 2023, as compared to $90,122 for the three months ended June 30, 2022.
Derivative Liabilities Expense
Derivative liabilities expense was $0 for the three months ended June 30, 2023, the same as for the three months ended June 30, 2022.
Change in Fair Value of Embedded Derivative Liabilities
Change in fair value of embedded derivative liabilities was an expense of $309,296 for the three months ended June 30, 2023 compared to a gain of $3,638,827 for the three months ended June 30, 2022. These changes were due to change in stock price as well as the volatility factors used in the derivative calculations.
Other Income/(Loss)
Other income was a loss of $393,477 for the three months ended June 30, 2023 as compared to an income of $3,394,135 for the three months ended June 30, 2022. The increased loss was due largely to a change in derivative liability expenses resulting from a change in stock price as well as the volatility factors used in the derivative calculations.
Net Income (Loss)
We incurred net loss of $714,156 for the three months ended June 30, 2023, as compared to net income of $3,069,753 for the three months ended June 30, 2022. The majority of our loss during the three-month period ending June 30, 2023 was a result of the derivative liabilities associated with our Convertible Debt and a reduction in our stock price as well as the less volatility factors used in the derivative calculations. The non-controlling interest for the three months ended June 30, 2023 and 2022 was a gain of $18,612 and a loss of $33,711 respectively.
Six months ended June 30, 2023 compared to six months ended June 30, June 30, 2022
Revenues
We had revenues of $103,361 for the six months ended June 30, 2023 as compared to revenues of $383,850 for the six months ended June 30, 2022. The decrease in revenue is due to our smaller Oregon cannabis footprint as we are working to transition the bulk of our cannabis initiatives to Greece and Israel while we work to open a OHA State Licensed Psilocybin Treatment and Production Facility in Oregon.
Cost of Goods Sold
Our cost of goods sold for the six months ended June 30, 2023 was $36.314 compared to cost of goods sold of $122,598 for the six months ended June 30, 2022. The decrease in cost of goods sold was due to lower levels of sales due to our smaller Oregon cannabis footprint as we are working to transition the bulk of our cannabis initiatives to Greece and Israel while we work to open a OHA State Licensed Psilocybin Treatment and Production Facility in Oregon.
Salaries and Wages
Salaries and Wages decreased to $96,139 for the six months ended June 30, 2023 as compared to $202,151 for the six months ended June 30, 2022. The decrease in salaries and wages was due to the close and sold of retail shop in Oregon.
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Selling, General and Administrative Expenses
Selling, general and administrative increased to $226,834 for the six months ended June 30, 2023 as compared to $274,175 for the six months ended June 30, 2022. The slight increase was primarily due increase in marketing and office expenses.
Professional Fees
Professional fees were $393,265 for the six months ended June 30, 2023 as compared to $383,389 for the six months ended June 30, 2022. The increase in professional fees was primarily related to an increase in expenses for accounting, auditing and consulting.
Gain or Loss on Impairment of Assets
Gain on impairment of assets was $384,429 for the six months ended June 30, 2023, included gain from sales of the land and sale of the Salem Retail Cannabis Store, as compared to $0 for the six months ended June 30, 2022.
Gain or Loss on Impairment of right of use assets
Gain or loss on impairment of right of use assets was $67,924 for the six months ended June 30, 2023, as compared to $0 for the six months ended June 30, 2022.
Interest Expense
Interest expense and debt amortization expense decreased to $318,332 for the six months ended June 30, 2023 from $307,439 for the six months ended June 30, 2022. The increase was related to a increase in debt incurred over the past 12 months for our operations.
Amortization of Debt Discount
Amortization of debt discount was $249,553 for the six months ended June 30, 2023, as compared to $157,204 for the six months ended June 30, 2022.
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Derivative Liabilities Expense
Derivative liabilities expense was $0 for the six months ended June 30, 2023 same as for the six months ended June 30, 2022.
Change in Fair Value of Embedded Derivative Liabilities
Change in fair value of embedded derivative liabilities was a gain of $233,687 for the six months ended June 30, 2023 compared to a gain of $3,089,822 for the six months ended June 30, 2022. These changes were due to change in stock price as well as the volatility factors used in the derivative calculations.
Net Income attributed to Kaya Holdings Inc.
We had net loss of $679, 223 for the six months ended June 30, 2023 as compared to net income of $1,971,853 or the six months ended June 30, 2022.
The majority of our net loss during the six months ended June 30, 2023 was a result of the derivative liabilities associated with our Convertible Debt and a reduction in our stock price as well as the less volatility factors used in the derivative calculations. The non-controlling interest for the six months ended June 30, 2023 and June 30, 2022 was a loss of $13,614 and a loss of $57,835 respectively.
Liquidity and Capital Resources
During the second quarter of 2023 our cash position increase by $107,557 to $125,887 and our negative working capital deficit was $9,858,427.
As of June 30, 2023, our working capital consisted of cash of $125,887, inventories of $12,569 and prepaid expenses of $11,153 as compared to cash of $46,605, inventories of $39,668 and prepaid expenses of $13,967, as of June 30, 2022.
Our current liabilities include accounts payable and accrued expenses of $910,023, accounts payable and accrued expenses-related parties of $280,301, accrued interest of $2,038,262, current portion of lease liability of $29,716, potential tax liability of $889,856, convertible notes payable- net of discount of $25,000, notes payable of $9,312 and derivative liabilities of $5,825,566, as compared to accounts payable and accrued expenses of $922,308, accounts payable and accrued expenses-related parties of $227,012 accrued interest of $1,449,064, current portion of lease liability of $80,172, potential tax liability of $836,970, convertible notes payable- net of discount of $25,000, notes payable of $9,312 and derivative liabilities of $1,890,741 as of June 30, 2022.
Financing Transactions
On June 12, 2023 the Company received $350,000 as a working capital loan from CVC International Ltd. an Institutional Investor that has provided substantial fundings to the Company over the past ten (10) years. The debt is not convertible and carries an interest rate of 10% annually.
Commencing with the quarterly period beginning July 1, 2023, the Company agrees to segregate and pay to the Holder ten percent (10%) of monthly total revenues from all sources (net of sales taxes) of Kaya Holdings, Inc. and or any of its subsidiaries or operations, whether currently in existence or created or acquired in the future (including but not limited to the Marijuana Holdings Americas, Inc. subsidiary, the Kaya Brand International, Inc. subsidiary and the newly formed Fifth Dimension Therapeutics, Inc subsidiary), or any other name or partnership that the Company may operate under or gain interest in that it may receive revenue from), until such time as all outstanding Principal amount and Interest due has been repaid to the Holder.
In consideration for CVC extending the loan to the Company (as well as for the release of a $500,000 lien on property that the Company sold in Q-1, 2023 and utilized the proceeds for corporate working capital, as detailed in previous filings, and other substantial financial assistance provided to the Company over the past ten (10) years) , the Company transferred to CVC ten (10) Series A Preferred shares of stock in Fifth Dimension Therapeutics, Inc. (“FDT Preferred Shares”) which are convertible into a total of 10% of the common shares of FDT (“FDT Common Shares”), taking into account the current FDT Common Shares that are outstanding and conversion of any other FDT Preferred Shares outstanding at the time of conversion.
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Use of Proceeds
The proceeds from financing transactions that the Company may enter into will be used to fund our growth plan, including the development, operation and expansion of the Fifth Dimension Therapeutics Business Plan and the launch of its first Psilocybin facilitation Clinic. our Kaya Shack™ and Kaya Farms™ operations in Oregon, the development of our new Kaya Shack™ branded cannabis products, and the groundwork required to initiate our planned expansion through Kaya Brands International initiatives in Greece and Israel.
Plan of Operations
Management believes that further proceeds expected to be received from financing transactions that it is seeking to enter into, combined with existing and anticipated revenues, will alleviate the Company’s financial difficulties to a significant extent and will allow the Company to meet its anticipated working capital needs for a period of between twelve and eighteen months from the date of this report. However, there can be no assurance that further funding from the contemplated financings will be achieved, or if achieved that they will be successful to the level required to meet the Company’s cash needs, or that management’s belief will be correct and that the Company will not sooner require additional financing to meet its working capital needs prior to achieving profitability or positive cash flow. Moreover, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition, cash flows and results of operations may be materially and adversely affected.
Note Conversions, Repayments
No notes were converted or repaid during the period.
Employee Stock Plan Issuances and Director and Officer Restricted Stock issuances
No Employee Stock Plan Issuances or Director and Officer Restricted Stock Issuances were issued during the period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chairman and President, who is our principal, executive, financial and accounting officer, we evaluated our disclosure controls and procedures as of June 30, 2023. 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 June 30, 2023.
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.
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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:
| ▪ | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
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| ▪ | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | |
| ▪ | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
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 June 30, 2023. 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 March 31, 2023. 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 June 30, 2023.
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 June 30, 2023. (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:
| ▪ | We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures. | |
| ▪ | We did not maintain proper segregation of duties for the preparation of our financial statements. We currently have only one officer overseeing all transactions. This has resulted in several deficiencies, including the lack of control over preparation of financial statements and proper application of accounting policies | |
| ▪ | Lack of controls over related party transactions: As of June 30, 2023, the Company did not establish a formal written policy for the approval, identification and authorization of related party transactions. |
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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 first quarter of the year ended June 30, 2023 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time-to-time KAYS be party to various legal proceedings in the ordinary course of business. Pleases see paragraphs below for status and results of legal proceedings during Q-2 2023.
Lawsuit from Law Offices of Ross Day
On September 9, 2022 the Company received notice from its Oregon Counsel that Day Law & Associates, P.C. (Attorney Ross Day is a former attorney for the Company) had filed suit in Washington County, Oregon seeking damages in the amount of $16,169.24 for unpaid legal fees, plus any costs, disbursements and attorney fees awarded. On March 30, 2023 the Company was advised from its current Oregon Counsel that the Court has appointed an arbitrator, and the Company intends to either seek settlement or otherwise litigate the matter based on the results of the arbitration. As of the date of this filing settlement has been reached and the Company’s Oregon Counsel has advised the Company that we are scheduled to have an arbitration date of late August 24, 2023.
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Item 1A. Risk Factors.
See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2022.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits
| Exhibit No. | Description of Exhibit | ||
| 31.1 | Section 302 Certification |
| 32.1 | Section 906 Certification |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 21, 2023
KAYA HOLDINGS, INC.
By: /s/ Craig Frank
Craig Frank, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANESOXLEY ACT OF 2002
I, Craig Frank, Chairman, President, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer of Kaya Holdings, Inc., a Delaware corporation (the “Registrant”), certify that:
| 1. | I have reviewed this Form 10-Q for the quarter ended June 30, 2023 of the Registrant; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | I, as the Registrant’s sole officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, 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; |
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
| d) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | I, as the Registrant’s sole officer, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: August 21, 2023
KAYA HOLDINGS, INC.
By: /s/ Craig Frank
Craig Frank, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANESOXLEY ACT OF 2002
In connection with the Quarterly Report of Kaya Holdings, Inc., a Delaware corporation (the “Company”) on Form 10-Q for the quarter year ended June 30, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig Frank, the Chairman, President, Chief Executive Officer and Acting Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the SarbanesOxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. |
The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 21, 2023
KAYA HOLDINGS, INC .
By: /s/ Craig Frank
Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer)