Kaya Holdings, Inc 10-K for FY2022
Kaya Holdings, Inc. (KAYS)
About this 10-K
Kaya Holdings, Inc filed this 10-K on April 27, 2023, covering the fiscal year ended December 31, 2022 (FY2022).
Headline figures
Fiscal year ended December 31, 2022, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $685.38K
- down 23.0% from $889.9K a year earlier
- Net loss
- $3.58M
- compared with net income of $9.72M a year earlier
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM
For the Fiscal Year Ended
Commission
File No.
(Exact name of registrant as specified in its charter)
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Securities registered under Section 12(b) of the Exchange Act: None
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The
aggregate market value of the voting stock held by non-affiliates of the Registrant was approximately $
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were shares of common stock outstanding as of April 24, 2023.
DOCUMENTS INCORPORATED BY REFERENCE: No documents are incorporated by reference into this Annual Report on Form 10-K except those Exhibits so incorporated as set forth in the list of Exhibits set forth in Item 15 of this Annual Report on Form 10-K.
KAYA HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2022
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this Annual Report contains “ forward-looking statements ” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘ Exchange Act ”). These forward-looking statements are contained principally in the sections titled “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and are generally identifiable by use of the words “ may ,” “ will ,” “ should ,” “ expect ,” “ anticipate ,” “ estimate ,” “ believe ,” “ intend ” or “ project ” or the negative of these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
As used in this Annual Report on Form 10-K (the “ Annual Report ”), the terms “ KAYS ,” “ the Company ,” “ we ,” “ us ” and “ our ” refer to Kaya Holdings, Inc. and its owned and controlled subsidiaries, unless the context indicates otherwise.
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. 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:
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.
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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 200 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 and in the Company’s Quarterly report for the quarter ended March 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. Since the time of the agreement the Company has entered into an asset purchase agreement for the sale of its Salem Retail Cannabis Store (“Store 2”) for $210,000, less a 6% closing commission and minor closing expenses. The purchase price has been deposited in escrow, with a closing anticipated to occur prior to the end of April, 2023 as the OLCC has approved the license transfer to the purchaser. 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 $410,880.00.
The Company intends to utilize the net proceeds of approximately $500,000 from both the sale of the Property and Store 2, for general working capital including the resolution of its three non-performing store leases in South Oregon, 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.
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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") 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’s projects include two medical cannabis cultivation and processing projects in Greece- one in Epidaurus, Greece and the other in Thebes, 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 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 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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The Thebes Project has a development license from the Greek authorities and a purchase option on 15 acres in Thebes, Greece. The farm has large-scale cultivation capacities and the company expects to develop the site once legal cannabis demand warrants an increase in capacity.
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.
Kaya Farms Israel
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.
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.
Kaya Shalvah is currently focused on two separate paths of development to launch its Israel Operations- the first being through participation in the government sponsored Greenegev Cannabis Ecosystem in Yerucham, Israel and the second path being through potentially acquiring an interest in currently licensed medical cannabis production and processing facilities that are already operating in Israel.
Fifth Dimension Therapeutics- Psilocybin Therapeutics Business Plan
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.
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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 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 application (along with the other 17 graduates of this first state approved course) is currently pending review with the OHA, and the Company expects to file a Facilitation Clinic License application once he is approved and 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.
The Science
It is estimated that approximately every 40 seconds someone in the world commits suicide. Psilocybin may soon be available as a mainstream medical 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. 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.
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. 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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Florida Ketamine Treatment Facilities
On February 15, 2023 the Company announced today that FDT 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. Dr. Anya Temer of Total Holistic Center will be developing treatment protocols for KAYS' Ketamine Clinic and Telehealth Model to be Launched from Holistic’ s Boca Raton, Lake Worth, and Miami Beach Clinics. Initial plans call for co-locating the Company's "Keta-Kaya" business within Total Holistic Center's existing offices in Boca Raton, Fort Worth 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. Dr. Temer is the medical director and chief practitioner at Total Holistic Centers, a Florida based Alternative Healthcare Provider with offices in Boca Raton, Fort Worth, and Miami Beach.
Founding Board Members and Management Staffing of Fifth Dimension Therapeutics, Inc.
On January 25, 2023 the Company welcomed attorney Glenn E.J. Murphy to the FDT Board of Director. Glenn will assist FDT with introductions to pharmaceutic 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.
Glenn's current practice primarily focuses on building and managing domestic and international utility and design patent portfolios and opining on the validity and infringement of U.S. patents. In addition to drafting and prosecuting patent applications filed in the U.S. and foreign patent offices, Glenn has briefed and argued before the U.S. Patent Office Board of Appeals, assisted with the preparation and argument of appeals before the U.S. Court of Appeals for the Federal Circuit, and assisted with the conduct of bench and jury trials in the U.S. District Courts and the U.S. International Trade Commission. He has provided due diligence and advice in acquisitions, divestments, licenses, and other transactions involving intellectual property rights. He has particular experience in building and managing domestic utility and design patent portfolios for non-U.S. clients.
Mr. Murphy is a member of Ratner Prestia's Biotechnology, General Chemistry and Polymers and Pharmaceutical Chemistry Groups. To review Mr. Murphy's biography, please go to https://www.ratnerprestia.com/professionals/glenn-e-j-murphy/.
Dr. Anya Temer, who will initially serve as FDT’s Medical Director in Florida, completed her Bachelor’s degree with a Major in Psychology from Hunter University. She received her medical degree from the New York College of Osteopathic Medicine in 2011, completing her residency at Westchester General Hospital of Florida in 2014. Since that time she has dedicated her career to the holistic / integrative view of medicine that the human is not a series of separate organs, but rather one cohesive unit that needs to be viewed as a whole. Much of the therapy at Total Holistic Center is focused on the mind - body connection while using the latest personalized biometrics to understand the root cause of each client's problems. Her dedication to the "whole - person / root - cause" approach sharpened during her residency as she saw imbalances between such areas as patient treatment, nutrition, exercise, and mental health.
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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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.
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.
Of the $103.9 billion global cannabis market forecasted by Prohibition Partners, $62.7 billion is expected to be medical cannabis driven. Of this $62.7 billion, Europe is expected to be the largest market, with $22.3 billion, followed by North America with $20.2 billion.
North America
North America, according to New Frontier Data, represents a total cannabis demand (legal & illicit) valued at $86 billion USD. The United States and Canada have been leading the global legal cannabis movement, which in turn impacts the way governments worldwide are structuring the regulation of legal cannabis in their own countries.
Canada
Canada 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.
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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. |
| § | 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.
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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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Next Stage Traditional (2023-2024)
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Next Stage Innovative (2023-2024)
Note: The “Next Stage Traditional” and “Next Stage Innovative” brands are all targeted for release in 2023 and 2024. The Company is currently awaiting developments with the Company’s projects in Israel and Greece to finalize the release dates for these brands, some of which will be CBD only based on demand and legal structure in Europe.
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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 open 7 days a week- Monday through Sunday from 10:00 am to 8:00 pm. Operations follow an operational manual that details procedures for 18 areas of operation including safety, compliance, store opening, store closing, merchandising, handling of cash, inventory control, product intake, store appearance and employee conduct.
In compliance with regulations, all marijuana and marijuana infused products sold through our stores are quality tested by independent labs to assure adherence to strict quality and OLCC regulations.
The Company is exploring opportunities to expand its operations beyond Oregon by replicating its Kaya Shack™ brand retail outlets through franchising in other states where medial and or recreational cannabis use is legal or expected to become legal in the near term, as well as in Canada, Greece and Israel, as part of KAYS International Expansion Plans. KAYS also is targeting opening corporate owned marijuana production and processing facilities to support the envisioned franchised outlets, and to both maintain quality control and offer customers a consistent customer experience while reducing costs of goods to franchisees.
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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 200 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.
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Greece
Kaya Kannabis is a joint venture project cultivation-for-export cannabis-farming and processing project of Athens based Greekkannabis PC (“GKC”) and KBI. GKC is an Athens, Greece based cannabis company with deep ties in the Greek business community and a strong presence in the academic and agricultural communities. The alliance is designed to combine the business acumen and extensive European network of GKC with the broad cannabis industry and cannabis cultivation experience of Kaya Holdings.
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’s projects include two medical cannabis cultivation and processing projects in Greece- one in Epidaurus, Greece and the other in Thebes, Greece.
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.
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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.
The Epidaurus project is smaller in scale than the Company’s 15-acre project in Thebes, Greece, allowing KAYS to fast-track cultivation and processing of its proprietary branded cannabis products for distribution in legal EU markets while awaiting greater legal cannabis demand to emerge prior to developing a large-scale capacity in Thebes.
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Kaya Kannabis- Thebes, Greece Project
Kaya Kannabis Medical Cannabis Production Facility in Thebes, Greece (Project Design Rendering)
The Thebes Project, as currently envisaged by management consists of up to 20,000 sq. meters of light deprivation greenhouses and 60,000 square feet of structure to be used for storage, laboratory, processing, manufacturing, logistics, and support/administrative space. The Thebes Project has already obtained the initial cannabis construction license approvals from Greek government authorities and is awaiting project financing.
Situated on 15 acres of land which GKC has contracted to purchase, the Thebes Project is much larger than the Epidaurus Project and allows the Company “Room to Grow” should the legal circumstances in a country or region suddenly permit (i.e., German legalization of recreational cannabis and the subsequent rapid rise in demand). Thebes, with large scale production and processing capabilities provides KAYS the operational flexibility needed to secure and maintain market position in a rapidly evolving market arena once legal cannabis demand warrants an increase in capacity.
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Neither of the two subject Greece 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 our Greek partner’s families and the land in Thibes is currently available for purchase or option. The Company believes it could acquire either of the properties 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.
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.
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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 participation in the government sponsored Greenegev Cannabis Ecosystem in Yerucham, Israel and the second path being through potentially acquiring an interest in currently licensed medical cannabis production and processing facilities that are already operating in Israel.
Greenegev Cannabis Ecosystem, Yerucham, Israel
Under the leadership of its Mayor, Tal Ohana, Yerucham has embarked on a program to transform the small desert town into “Greenegev”, the first cannabinoid ecosystem in Israel. The plans call for cultivation, processing and research companies to concentrate their respective activities in Yerucham, attracting services that provide each resident company with core advantages by virtue of the cooperation and support the ecosystem community is uniquely positioned to provide. Yerucham has a Development Zone A designation from the Israeli government, making economic growth in the area a national priority and attaching a wide range of financial incentives to companies therein establishing operations.
Kaya Shalvah meets all the prescribed criteria and the licensing process is progressing, with the full support and valuable assistance of the Yerucham mayor’s office and the municipal staff. Kaya Shalvah is also benefitting from the support and guidance of Major General (Res.) Amram Mitzna, a former Yerucham mayor and the current chairman of the Yerucham Fund.
Kaya Shalvah is currently waiting for the Israeli Government to proceed with the land tender program (which has been delayed due to COVID 19 issues). Upon commencement with the bidding program, Kaya Shalvah intends to submit its land acquisition bid for 100 Dunams (approximately 25 acres) of land to the Israel Land Authority, which is tasked with processing the applications for the land bids that are part of the highly sought after Greenegez Cannabis Center in Yerucham, Israel.
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Pending receipt of a successful bid through this program, once Kaya Shalvah develops the site in accordance with all Israeli regulations, and meets all requisite standards, the final cultivation and processing licenses will be issued.
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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Item 1A. Risk Factors.
We have a limited operating history with our current business.
The Company was incorporated in 1993 and has engaged in a number of businesses as both a private and as a publicly held company, including the online sale of specialty foods, online marketing and website development.
KAYS’s legal marijuana business, which it has focused on since 2014, only commenced generating more than a limited level of revenues subsequent to the commencement of legal recreational marijuana sales in Oregon on October 1, 2015. Accordingly, our operations continue to be subject to all the problems, expenses, difficulties, complications and delays encountered in an early-stage business. There can be no assurance that the Company will generate significant revenues or operate at a profit.
The Company will require additional financing to become commercially viable.
The Company’s current legal marijuana operations can be capital intensive.
During the years ended December 31, 2022 and 2021, we raised approximately $370,000 and $501,000 respectively, through a series of private debt and equity offerings to finance operations.
The Company had net loss of $3,559,663 and net income of $9,724,262 for the years ended December 31, 2022 and 2021, respectively.
All of the net income for the years ended December 31, 2022 and December 31, 2021 were not actual operating gains but were a result of the derivative liabilities from the conversion of debt from the stabilization of our stock prices the reduces the volatility factors used in the derivative calculations.
At December 31, 2022, we had a total stockholders' deficit of $17,528,289 and a working capital deficiency of $10,359,344. There can be no assurance that the Company will become commercially viable without additional financing, the availability and terms of which are uncertain. If the Company cannot secure necessary capital when needed on commercially reasonable terms, its business, condition (financial and otherwise) and commercial viability may be harmed. Although management believes that it will be able to successfully execute its business plan, which includes third party financing and the raising of capital to meet the Company’s future liquidity needs, there can be no assurances in this regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
We currently rely on certain key individuals, and the loss of one of these key individuals could have an adverse effect on the Company.
Our success depends to a certain degree upon certain key members of our management and certain key consultants to the company. These individuals are a significant factor in our growth and success. The loss of the services of such members of management could have a material adverse effect on our Company.
The Company’s success will be dependent in part upon its ability to attract qualified personnel and consultants.
The Company’s success will be dependent in part upon its ability to attract qualified creative marketing, sales and development professionals. The inability to do so on favorable terms may harm the Company’s proposed business.
KAYS must effectively meet the challenges of managing expanding operations.
The Company’s business plan anticipates that operations will undergo expansion in 2020 and beyond. This expansion will require the Company to manage a larger and more complex organization, which could place a significant strain on our managerial, operational and financial resources. Management may not succeed with these efforts. Failure to expand in an efficient manner could cause expenses to be greater than anticipated, revenues to grow more slowly than expected and could otherwise have an adverse effect on the business, financial condition and results of operations.
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Marijuana and Psilocybin remains illegal in the United States under federal law.
Notwithstanding its legalization for recreational and/or medical use by a growing number of states, the growing, transport, possession or selling of marijuana and Psilocybin continues to be illegal under federal law. Although the current administration has made policy decisions to allow implementation of state laws legalizing recreational and/or medical marijuana and Psilocybin use and not to federally prosecute anyone operating under state law, the continuance of that policy is not assured and could change at any time, which might render our marijuana and Psilocybin operations illegal and adversely affecting KAYS’s business, financial condition and results of operations.
The marketing and market acceptance of marijuana and Psilocybin may not be as rapid as KAYS expects.
The market for legal marijuana and Psilocybin is quickly evolving, and activity in the sector is expanding rapidly. Demand and market acceptance for legal marijuana and Psilocybin are subject to uncertainty and risk, as changes in the price and possible adverse political efforts could influence and denigrate demand. KAYS cannot predict whether, or how fast, this market will grow or how long it can be sustained. If the market for legal marijuana and Psilocybin develops more slowly than expected or becomes saturated with competitors, KAYS’s operating results could be adversely impacted.
KAYS’s marijuana and Psilocybin activities are part of an emerging industry.
The Company intends to implement an aggressive plan of growth to enter the legal recreational and medical marijuana industry, as well as the emerging Psilocybin industry. These industries are new and emerging, and have yet to fully define competitive, operational, financial and other parameters for successful operations. By pursuing a growth strategy to enter a new and emerging industry, the Company’s operations may be adversely impacted as the industry’s competitive, operational, financial and other parameters take shape. Given the fluidity of the industry, the Company may make errors in implementing its business plan, thereby limiting some or all of its ability to perform in accordance with its expectations.
Our business could be affected by changes in governmental regulation.
Federal, state and local laws and regulations governing legal recreational and medical marijuana and Psilocybin use are broad in scope and are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance. In addition, violations of these laws or allegations of such violations could disrupt KAYS’s planned business and adversely affect our financial condition and results of operations. In addition, it is possible that additional or revised federal, state and local laws and regulations may be enacted in the future governing the legal marijuana industry. 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. There can be no assurance that KAYS will be able to comply with any such laws and regulations and its failure to do so could significantly harm our business, financial condition and results of operations.
Our business will be subject to other operating risks which may adversely affect the Company’s financial condition.
Our planned operations will be subject to risks normally incidental to manufacturing operations which may result in work stoppages and/or damage to property. This may be caused by:
| · | breakdown of the equipment; | |
| · | labor disputes; |
| · | imposition of new government regulations; | |
| · | sabotage by operational personnel; | |
| · | cost overruns; and |
| · | fire, flood, or other acts of God. |
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We will likely face significant competition.
The legal marijuana and Psilocybin industry is in its early stages and is attracting significant attention from both small and large entrants into the industry. KAYS expects to encounter significant competition as it implements its business strategy. The ability of KAYS to effectively compete could be hindered by a lack of funds, poor positioning, management error, and other factors. The inability to effectively compete could adversely affect our business, financial condition and results of operations.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act `Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial office and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company | |
| · | 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/or 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. |
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identify other deficiencies that we may not be able to timely remediate. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes Oxley”). Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
The Jumpstart our Business Startups Act of 2012 (the “Jobs Act”) has reduced the information that the Company is required to disclose.
Under the Jobs Act, the information that the Company will be required to disclose has been reduced in a number of ways.
As a company that had gross revenues of less than $1 billion during the Company’s last fiscal year, the Company is an “emerging growth company,” as defined in the Jobs Act (an “ EGC ”). The Company will retain that status until the earliest of (a) the last day of the fiscal year which the Company has total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (b) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of the common stock pursuant to an effective registration statement under the Securities Act; (c) the date on which the Company has, during the previous three year period, issued more than $1,000,000,000 in nonconvertible debt; or (d) the date on which the Company is deemed to be a “ large accelerated filer ,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, the Company is relieved from the following:
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· |
The Company is excluded from Section 404(b) of Sarbanes-Oxley, which otherwise would have required the Company’s auditors to attest to and report on the Company’s internal control over financial reporting. The Jobs Act also amended Section 103(a)(3) of Sarbanes-Oxley to provide that (i) any new rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (each of which is currently under consideration by the PCAOB) shall not apply to an audit of an EGC; and (ii) any other future rules adopted by the PCAOB will not apply to the Company’s audits unless the SEC determines otherwise. |
| · | The Jobs Act amended Section 7(a) of the Securities Act to provide that the Company need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement, need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, the Company is not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “issuer” as defined by Section 2(a) of Sarbanes-Oxley) is required to comply with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable if the Company were required to comply with them. |
| · | As long as the Company is an EGC, the Company may comply with Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation, by disclosing the more limited information required of a “smaller reporting company .” | |||
| · | In the event that the Company registers the common stock under the Exchange Act, the Jobs Act will also exempt the Company from the following additional compensation related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: | |||
| (i) | the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act; | |||
| (ii) | the requirements of Section 14A(b) of the Exchange Act relating to stockholder advisory notes on “golden parachute” compensation; | |||
| (iii) | the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance; and | |||
| (iv) | the requirement of Section 953(b)(1) of the Dodd-Frank Act, which requires disclosure as to the relationship between the compensation of the Company’s chief executive officer and median employee pay. |
The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal control. The costs of this compliance could be significant. If our revenues do not increase and/or we cannot satisfy many of these costs through the issuance of our shares, we may be unable to satisfy these costs in the normal course of business that would result in our being unable to continue as a going concern.
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Management, the Board of Directors and Key Consultants may be indemnified.
The Certificate of Incorporation and Bylaws of KAYS provide for indemnification of directors and officers at the expense of the respective corporation and limit their liability. This may result in a major cost to the corporation and hurt the interests of stockholders because corporate resources may be expended for the benefit of directors and officers. The Company has been advised that, in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
The market for the KAYS Shares is extremely limited and sporadic
KAYS’s common stock is quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. The market KAYS’s for common stock is limited and sporadic. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of KAYS’s common stock for reasons unrelated to operating performance. Moreover, the trading of securities in the OTCQB is often more sporadic than the trading of securities listed on a quotation system like NASDAQ, or a stock exchange like the New York Stock Exchange.
KAYS’s common stock is a penny stock. Trading of KAYS’s common stock may be restricted by the penny stock regulations adopted by the Securities and Exchange Commission (the “SEC”) and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our common stock.
KAYS’s common stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. KAYS’s common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, KAYS’s common stock.
In addition to the penny stock rules promulgated by the SEC, FINRA (the Financial Industry Regulatory Authority) has adopted rules that require when recommending an investment to a customer, a broker- dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low -priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy KAYS’s common stock, which may limit investor ability to buy and sell KAYS’s common stock.
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The market for penny stocks has experienced numerous frauds and abuses that could adversely impact KAYS’s common stock.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
| · | control of the market for the security by one or a few broker-dealers that are often related to a promoter or issuer; |
| · | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; | |
| · | boiler room practices involving high pressure sales tactics and unrealistic price projections by salespersons; | |
| · | excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and | |
| · | wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
The board of directors of KAYS has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to adversely affect common stockholder voting power and rights upon liquidation.
KAYS’s Certificate of Incorporation allows us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders of preferred stock the rights to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
The ability of our principal stockholders, including our CEO, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs.
The principal non-affiliated stockholder of KAYS holds 1,533,131 shares of common stock and another unrelated, non-affiliated stockholder holds 20 shares of Series D Convertible Preferred Stock. Additionally, our CEO owns 2,113,345 shares of common stock and 20 shares of Series D Convertible Preferred Stock. Each Series D Preferred Share votes as 1% of the issued and outstanding common shares on an as converted, fully diluted basis. There are presently 22,172,835 shares of common stock outstanding, so factoring in the conversion of these Series D Preferred Shares means that these four parties have approximately 49.86 % of votes on matters presented to stockholders.
Accordingly, these three individuals are in a position to significantly influence membership of our board of directors as well as all other matters requiring stockholder approval. The interests of our principal stockholders may differ from the interests of other stockholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other officers and directors and other business decisions. The minority stockholders have no way of overriding decisions made by our principal stockholders. This level of control may also have an adverse impact on the market value of our shares because our principal stockholders may institute or undertake transactions, policies or programs that result in losses and/or may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.
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We do not expect to pay cash dividends in the foreseeable future.
KAYS has not paid cash dividends on its shares of common stock and does not intend to do so at any time in the foreseeable future. The future payment of dividends depends upon future earnings, capital requirements, financial requirements and other factors that the companies’ board of directors will consider. Since they do not anticipate paying cash dividends on the common stock, return on investment, if any, will depend solely on an increase, if any, in the market value of the common stock.
The conversion of the 40 shares of KAYS’ outstanding Series D Preferred stock by the CEO and an unrelated third-party shareholder would result in the issuance of an additional 14,781,890 shares of KAYS’ common stock, (without taking into effect the conversion into shares of KAYS common stock of any or all outstanding convertible debt described in this Annual Report at December 31, 2022). Accordingly, such market overhang could adversely impact the market price of the common stock.
KAYS has 40 shares of Series D Convertible Preferred Stock outstanding, 20 shares of which are held by our CEO and 20 of which are held by an unrelated third-party shareholder. These preferred shares can be converted into a total of 14,781,890 shares of KAYS common stock which would result in substantial dilution if converted.
Additionally, as of the date of this filing the Company has convertible debt of approximately $7,000,000 principal amount (without taking into effect the accrued interest which could also be converted) which can be converted into KAYS stock at $0.08 (with certain ratchet provisions that would allow stock to be issued at lower prices in event of severe market reductions in the price of KAYS stock), subject to certain ownership volume limitations and could result in further substantial dilution if all converted.
Such market overhang of both the KAYS Series D Preferred Shares and the KAYS Convertible Debt could adversely impact the market price of KAYS’s common stock as a result of the dilution which would result if such securities were converted into shares of KAYS common stock.
Future sales of shares of KAYS common stock pursuant to Rule 144 under the Securities Act could adversely affect the market price of KAYS’s common stock.
KAYS has a substantial number of shares of common stock which were issued in transactions exempt from the registration requirements of the Securities Act and are now available for public sale pursuant to the Rule 144 under the Securities Act. Such sales could adversely affect the market price of KAYS’s common stock.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
Sarbanes-Oxley as well as rule changes proposed and enacted by the SEC, the NYSE/AMEX and the NASDAQ Stock Market as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not currently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with voluntary compliance, we have not yet adopted these measures.
We do not currently have independent audit or compensation committees. As a result, directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested- director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations as a result thereof.
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We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley. The enactment of Sarbanes-Oxley has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
Item 1B. Unresolved Staff Comments.
Not applicable.
Item 2. Properties.
Operating Leases
The Company has in Fort Lauderdale, Florida and 4 store leases in Oregon under arrangements classified as leases under ASC 842:
Effective June 1, 2019, the Company leased its current office space in Fort Lauderdale, Florida under a 2-year operating lease that expired May 31, 2021. In May 2021 the lease was extended for an additional year and in May 2022 it was also extended for an additional year and now expires May 31, 2023. The total rental payment is currently $2,079.41 per month. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease.
Effective May 15, 2014, the Company leased 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 lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $2,250 which have increased to a monthly payment of $2,950. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease.
Effective June 1, 2015, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. The lease has been extended and now expires May 31, 2025. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $3,584 which have increased to a net monthly payment of $5,061. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The Company is currently in process of negotiating a termination agreement with the landlord for this space as this store has been closed.
Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,367 and culminating in a monthly payment of $4,915. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The Company is currently in process of negotiating a termination agreement with the landlord for this space as this store has been closed.
Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,617 and culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The Company is currently in process of negotiating a termination agreement with the landlord for this landlord as this store has been closed.
The Company has right-of-use assets of $182,604_and operating lease liabilities of $193,182 as of December 31, 2022. 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, 2016 are in the process of being terminated with $75,000.00 in currently escrowed funds from the sale of one of the Company’s stores to be transferred to the landlord in exchange for a satisfaction of the three leases prior to the end of April, subject to final closing of the store sale. Accordingly, there is an impairment of the right-of-use assets in the amount of $0.
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Real Property
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 $769,500, 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’s interest) and the Company realized net proceeds of approximately $302,000,000. 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.
In 2018, we acquired the Eugene, Oregon based Sunstone Farms grow and manufacturing facility. Pursuant to the settlement with Burwick and Sunstone Marketing described below in Item 3. Legal Proceedings, On October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000. Funds received from the sale were 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.
Item 3. Legal Proceedings.
From time-to-time KAYS be party to various legal proceedings in the ordinary course of business. Please see paragraphs below for results of legal proceedings during 2020 and 2021as well as a pending licensing matter with the OLCC.
Oregon Licensing Matters
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 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 Salem Retail Cannabis Store (“Store 2”) for $210,000.00, less a 6% closing commission and minor closing expenses. The purchase price has been deposited in escrow, with a closing anticipated to occur prior to the end of April, 2023. 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 $410,880.00.
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.
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PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
Market for Common Stock
Our common stock is currently traded on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “KAYS.” Such market is extremely limited. We can provide no assurance that our shares will continue to be traded on the OTCQB or another exchange, or if traded, that the current public market will be sustainable.
Holders of Our Common Stock
As of the date of this Annual Report, we had 646 holders of record of our common stock. One of these holders is CEDE and Company which is the mechanism used for brokerage firms to hold securities in book entry form on behalf of their clients. As of the date of this Annual Report, CEDE held 8,860,806 shares of common stock for these stockholders. When the Company last received a report from CEDE it showed a log of 7,669 stockholders that consented to release their name to the Company for purposes of stockholder communications. Accordingly, we believe that KAYS has approximately 8,000 beneficial stockholders as of such date.
Securities Authorized for Issuance under Equity Compensation Plans
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future insurance under equity compensations plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 0 shares (1) | n/a | 0 shares | |||
| Equity compensation plans not approved by security holders | 0 shares | n/a | 0 shares | |||
| (1) |
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Recent Sales of Registered and Unregistered Securities (includes common stock, preferred stock and debt issuances/cancellations)
Convertible Debt Issuances
On August 8, 2022 the Company received $150,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share, subject to certain ratchet provisions . The Note was Due upon the earlier of the sale of the Company’s Oregon Farm Property or March 1, 2023. On February 28, 2023 the sale of the Company’s Oregon Farm Property closed and the Note was repaid in full plus 6 months minimum interest per the terms of the Note.
On November 8, 2022 the Company received $120,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share, subject to certain ratchet provisions . The Note was Due upon the earlier of the sale of the Company’s Oregon Farm Property or March 1, 2023. On February 28, 2023 the sale of the Company’s Oregon Farm Property closed and the Note was repaid in full plus 6 months minimum interest per the terms of the Note.
On December 12, 2022 the Company received $100,000 from the issuance of convertible debt. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share, subject to certain ratchet provisions . The Note was Due upon the earlier of the sale of the Company’s Oregon Farm Property or March 1, 2023. On February 28, 2023 the sale of the Company’s Oregon Farm Property closed and the Note was repaid in full plus 6 months minimum interest per the terms of the Note.
Common Stock Issuances-
On December 15, 2022 the Board of Directors approved the issuance of 7,450,000 shares of restricted common stock to various individuals for services rendered to the Company (2,100,000 of these shares of restricted stock were issued to officers and directors of the Company for annual compensation).
All of the above securities were issued in private transactions pursuant to the exemption from registration afforded by Section 4(a)(2) of the Securities Act of 1933, as amended and the rules and regulations thereunder.
Item 6. [Reserved].
Not applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Year ended December 31, 2022 compared to year ended December 31, 2021
| Revenues |
We had revenues of $685,379 for the year ended December 31, 2022, as compared to revenues of $889,899 for the year ended December 31, 2021.
Cost of Sales
We had a cost of sales of $225,107 on revenues of $685,379 for the year ended December 31, 2022 versus a cost of sales of $279,333 on revenues of $889,899 for the year ended December 31, 2021
Operating Expenses
General and administrative were $525,855 for the year ended December 31, 2022, as compared to $780,462 for the year ended December 31, 2021. Salaries and wages were $383,762 for the year ended December 31, 2022 as compared to $370,034 for the year ended December 31, 2021. The decrease in general and administrative expense categories from 2021 to 2022 reflects our shift of focus to overseas development of operations and impairment expense related to our Greek operations of $74,509. Salaries and wages remained fairly consistent and vary depending on personnel changes.
Professional fees were $1,262,095 for the year ended December 31, 2022, as compared to $889,912 for the year ended December 31, 2021, reflecting an increase of $372,183. After giving effect to all of the foregoing, total operating expenses were $2,171,712 for the year ended December 31,2022, as compared to $2,040,408 for the year ended December 31, 2021. Accordingly, our operating loss was $1,711,440 for the year ended December 31, 2022, as compared to $1,429,842 for the year ended December 31, 2021.
Interest expense
Interest expense was $629,386 for the year ended December 31, 2022, as compared to $635,810 for the year ended December 31, 2021, reflecting an increase of additional debt incurred in 2022.
Net Income (Loss)
After giving effect to an operating loss of $1,711,440 interest expense of $629,386, amortization of debt discount of $303,398, derivative liabilities expense of $0, gain on disposal/impairment of fixed assets of $17,177, change in derivative liabilities expense of $1,010,737 arising from the decrease of our stock prices which increased the volatility factors used in the derivative calculations, we had net loss from non-controlling interest of $155,080 for the year ended December 31, 2022. Additionally, the Company has accrued a tax liability of $876,017 related to potential taxes due under the IRS Code 280E.
This compares to a net loss from non-controlling interest of $331,009 for the year ended December 31, 2021, after giving effect to an operating loss of $1,429,842, interest expense of $635,810, amortization of debt discount of $333,296, derivative liabilities expense of $333,296 and gain on extinguishment of debt of $6,155 offset by other income from a change in derivative liabilities income of $12,947,095 arising from the increase of our stock prices which reduced the volatility factors used in the derivative calculations. The net income attributable to the Company for 2022 and net loss attributable to the Company for 2021 was $3,559,663 and net income of $9,724,262, respectively.
Liquidity and Capital Resources
During 2022 our cash position decreased by $541,669 to $18,330 and our negative working capital deficit was $10,359,344.
As of December 31, 2022, our working capital consisted of cash of $18,330, inventories of $11,990 and prepaid expenses of $28,158 as compared to cash of $565,979, inventories of $51,484 and prepaid expenses of $13,967 as of December 31, 2021.
Our current liabilities include accounts payable and accrued expenses of $961,396, accounts payable and accrued expenses-related parties of $23,190, accrued interest of $1,759,669, current portion of lease liability of $93,067, tax liability of $876,017, convertible notes payable- net of discount of $240,293, notes payable of $9,312 and derivative liabilities of $6,204,878 as compared to current liabilities include accounts payable and accrued expenses of $918,148, accounts payable and accrued expenses-related parties of $141,990 accrued interest of $1,152,783 current portion of lease liability of $79,875, tax liability of $782,107 convertible notes payable- net of discount of $25,000, notes payable of $9,312 and derivative liabilities of $4,980,563 as of December 31, 2021.
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The following table sets forth the major sources and uses of cash for the years ended December 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| Net cash (used in) operating activities | $ | (918,799 | ) | $ | (1,043,482 | ) | ||
| Net cash provided by investing activities | $ | 17,177 | $ | 1,274,018 | ||||
| Net cash provided by financing activities | $ | 370,000 | $ | 296,000 | ||||
| Net increase in cash | $ | 531,622 | $ | 526,536 | ||||
Cash Used in Operating Activities
During 2022, we had cash of $928,846 used in operating activities, as compared to cash used in operations of $1,043,482 in 2021.
Cash Provided by (Used in) Investing Activities
During 2022, we had cash of $17,177 provided by investing activities, as compared to $1,274,018 used in investing activities in 2021. Expenditures in 2022 and 2021 consisted of property and equipment.
Cash Provided by Financing Activities
During 2022, $370,000 of convertible debt was issued, as compared to $466,000 of convertible debt issued, with repayment of $205,000 and we sold $35,000 of restricted stock in 2021.
Additional Capital
As of December 31, 2022 we had cash of $18,330 and a working capital deficiency of $10,359,344 as compared to cash of $565,979 and a working capital deficiency of $7,458,348 at December 31, 2021.
Management believes that it will require additional capital, in addition to anticipated revenues from operations to fund expansion of the Company’s operations and ultimately achieve profitability. The Company intends to seek such additional capital from further private offerings of equity and/or debt securities. However, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition, cash flows and results of operations may be materially and adversely affected.
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Critical Accounting Estimates
The following are deemed to be the most significant accounting estimates affecting us and our results of operations:
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
To confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt of product via cash payment at our retail store; the transaction is recorded at the time of sale in our point of sale software system. Revenue is only reported after product has been delivered to the customer and the customer has paid for the product with cash.
To date the only other revenue we have received is for ATM transactions and revenue from this activity is only reported after we receive payment via check from the ATM service provider company.
Fair value of financial instruments
The Company follows the provisions of ASC 820. This Topic defines fair value, establishes a measurement framework and expands disclosures about fair value measurements. We apply these provisions to estimate the fair value of our financial instruments including cash, accounts payable and accrued expenses, and notes payable.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Our deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
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.
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Provision for Income Taxes
We recorded a provision for income taxes in the amount of $876,017 during the year ended December 31, 2022 compared to $782,107 during the year ended December 31, 2021. 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.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (ASU 2016-02). Under ASU No. 2016-2, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. ASU No. 2016-02 offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. For public companies, the Company adopted this standard on January 1, 2019 using the modified retrospective method. The new standard provides a number of optional practical expedients in transition. The Company elected the package of practical expedients’, which permitted the Company not to reassess under the new standard its prior conclusions about lease identification, lease classification and initial direct costs; and all of the new standard’s available transition practical expedients. On adoption, the Company recognized a right of use asset of $638,593, operating lease liabilities of $638,593, based on the present value of the remaining minimum rental payments under current leasing standards for its existing operating lease. The new standard also provides practical expedients for a company’s ongoing accounting. The Company elected the short-term lease recognition exemption for its leases. For those leases with a lease term of 12 months or less, the Company will not recognize ROU assets or lease liabilities.
In July 2017, the FASB issued ASU 2017-11, Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II) Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain Mandatorily Redeemable Noncontrolling Interests with a Scope Exception” to simply the accounting for certain instruments with down round features. The amendments require companies to disregard the down round feature when assessing whether the instrument is indexed to its own stock, for purposes of determining liability or equity classification. Further, companies that provide earnings per share (“EPS”) data will adjust the basic EPS calculation for the effect of the feature when triggered and will also recognize the effect of the trigger within equity. The standard is effective for public companies for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted. The Company adopted this new standard on January 1, 2019 and did not have a material impact on the Company’s consolidated financial statements.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years, and interim periods within those There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows. fiscal years, beginning after December 15, 2019. Early adoption is permitted. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The standard also allows for early adoption of any removed or modified disclosures upon issuance while delaying adoption of the additional disclosures until their effective date. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.
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In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. This standard simplifies the accounting for income taxes. This standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted for all entities, The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
See the Index of Consolidated Financial Statements on page F-1 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Disclosure controls and procedures
Under the direction of our Chairman and President, who is our principal, executive, financial and accounting officer, we evaluated our disclosure controls and procedures as of December 31, 2022. Our Chairman and President, who is our principal, executive, financial and accounting officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2022.
Disclosure controls and procedures
Under the direction of our Chairman and President, who is our principal, executive, financial and accounting officer, we evaluated our disclosure controls and procedures as of December 31, 2021. Our Chairman and President, who is our principal, executive, financial and accounting officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2022.
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and President, who is our principal, executive, financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and President, who is our principal, executive, financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our fourth fiscal quarter covered by this report. Based on the foregoing, our Chairman and President concluded that our disclosure controls and procedures were not effective. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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Management’s Report on Internal Control Over Financial Reporting
Our management 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; | |
| ▪ | 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 December 31, 2022. In making this assessment, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.
Based on the assessment performed, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s internal control over financial reporting, as of December 31, 2022, is not effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements in accordance with generally accepted accounting principles. Further, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has identified material weaknesses in internal control over financial reporting as of December 31, 2022.
Based on an evaluation, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of December 31, 2022 (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:
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| ▪ | 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 December 31, 2022, the Company did not establish a formal written policy for the approval, identification and authorization of related party transactions. |
The Company’s Chairman and President, who is our principal, executive, financial and accounting officer, believes that the material weaknesses set forth in the two items above did not have an effect on our financial results. However, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and financial procedures, which could result in a material misstatement in our consolidated financial statements in future periods.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls or in other factors that could affect these controls during the fourth quarter of the year ended December 31, 2022 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information
| None |
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
Our directors and executive officers and their respective ages and titles are as follows:
| Name | Age | Position(s) and Office(s) Held |
| Craig Frank | 62 | Chairman of the Board, President, Chief Executive Officer, Acting Chief Financial Officer, Director |
| Carrie Schwarz | 62 | Director |
| Mitchell Chupak | 68 | Director |
Set forth below is a brief description of the background and business experience of our directors and executive officers.
Craig Frank became Chairman of the Board, President, Chief Executive Officer and a Director of the Company in January 2010. He assumed the appointed position of acting Chief Financial Officer in 2012. For the past 15 years, Mr. Frank has served as Chairman and CEO of Tudog International Consulting, a Florida-based company with business advisory, business development, market research, training, and merchant banking divisions. During his tenure at Tudog, Mr. Frank has worked with more than 200 companies from 19 countries. In addition, in such capacity, he developed the business plan for a biofuels company based in Central America, and is the co-founder of the Company’s predecessor, which we acquired in January 2010. He remains Tudog’s Chairman. Mr. Frank is a widely published author with articles on business matters featured in magazines and newsletters internationally, including publications of the Guatemala America Chamber of Commerce, the Israel Export Institute, the Romania Chamber of Commerce, and the World Association of Small and Medium Sized Enterprises. He is also an in-demand speaker at international conferences, including the Florida Sterling Council, the International Project Management Association, The Central American Center for Entrepreneurship, the Israel Center for Entrepreneurial Studies, and the Pino Center for Entrepreneurship at Florida International University. The Company believes that Mr. Frank’s consulting and entrepreneurial experience brings significant value to our management team.
Carrie Schwarz, who became a director in January 2010, has served as the Managing Partner of Athena Assets Management, a New York based hedge fund specializing in investments of special situation publicly traded securities since 2002. Ms. Schwarz has also been a Portfolio Manager at Metropolitan Capital, a New York based hedge fund. From 1999 to 2001 Ms. Schwarz was an executive at Bank of America Securities, where she built and managed a proprietary Risk Arbitrage Department. From 1991 to 1999 she founded and managed Athena Investment Partners, L.P., a hedge fund that focused on special situations. Prior thereto, she was with American Porters, L.P., a hedge fund that focused on risk arbitrage, which she joined as a junior analyst in 1995 and ultimately rose to become Head of Research and a partner. Ms. Schwarz serves on the board of directors of the American Friends of the Weizmann Institute of Science. We believe that her financial industry experience makes her a valuable member of the board of directors.
Mitchell Chupak became a director in December, 2020 to fill a vacancy created by the resignation of Jordi Arimany. Mitchell Chupak has resided in Israel since 1972, where since 1997, he has been the Director of Development for the Jaffa Institute, the largest not for profit social service agency serving southern portions of Tel-Aviv-Jaffa, Israel and its suburbs. During his over 25 years at the Jaffa Institute, Mr. Chupak has grown the organization extensively and is responsible for development of major social services, educational and community projects for which he secured millions of dollars in funding. He developed funding sources worldwide and enlisted the aid of major donors in the United States, Canada, Europe, Australia, and South America.
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In 2005, Mr. Chupak created the Israel Fundraisers Forum to assist other non-profit organizations better understand methods of fundraising. The forum, with which he has been associated since its founding, promotes professionalism in fundraising and development and assists both organizations and individual fundraisers to improve methods of the profession.
We believe that Mr. Chupak’s spectrum of experience in both management and funding, will add value our board of directors.
Terms of Office
Our directors are appointed for a one-year term to hold office until the next annual meeting of our stockholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.
Board Committees
Two of our three directors are “independent” within the scope of the rules adopted by the NASDAQ Stock Market and the SEC: Ms. Schwarz and Mr. Chupak. However, our board of directors does not currently have an audit committee, a compensation committee, or a corporate governance committee. We plan to establish such committees in the near future.
Board of Directors Role in Risk Oversight
Members of the board of directors have periodic meetings with management and the Company’s independent auditors to perform risk oversight with respect to the Company’s internal control processes. Our board is currently comprised of a majority of independent directors. The Company believes that the board’s role in risk oversight does not materially affect the leadership structure of the Company.
Code of Ethics
We adopted a Code of Business Conduct and Ethics (the “Ethics Code”) on February 28, 2013 that includes provisions ranging from conflicts of interest to compliance with all applicable laws and regulations. All officers, directors and employees are bound by the Ethics Code, violations of which may be reported to any independent member of the board of directors.
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Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and acting Chief Financial Officer, who is our sole executive officer, for the years ended December 31, 2022 and December 31, 2021.
SUMMARY COMPENSATION TABLE
| Name and principal position | Year | Salary ($) | Bonus ($) |
Stock Awards (#) |
Option Awards (#) |
Non-Equity Incentive Plan Compensation($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) | ||||||||||||||||||
Craig Frank CEO/Acting CFO
|
2022 | $300,000 | 1,500,000 (3)
|
0 | 0 | 0 | 0 | $300,000 (1) |
|||||||||||||||||||
| 2021 | $300,000 | 0 (3) |
0 | 0 | 0 | 0 | $300,000 (2) |
| (1) | Mr. Frank’s compensation for 2022 was a total of $218,802 paid in cash and $81,198 in accruals. |
| (2) | Mr. Frank’s compensation for 2020 was a total of $186,000 paid in cash and $114,000 in accruals. |
| (3) | Represents “ restricted ” shares of our common stock valued at $0.10 per share. |
Mr. Frank's compensation was paid to Tudog International Consulting, Inc., of which Mr. Frank is the Chairman and a principal.
Employment and Consulting Agreements
The Company is currently not a party to any employment agreement with its executive officers. The Company has consulting agreements with Tudog International Consulting, of which firm Mr. Frank is Chairman and a Principal, for the services of Mr. Frank as CEO and acting CFO, and with BMN Consultants, Inc of which non-officer or affiliate William David Jones is President
Outstanding Equity Awards at Fiscal Year-End
| None. |
Compensation of Directors
Our non-employee directors are compensated with issuance of restricted common stock in amounts determined annually by the board of directors. During the year ended December 31, 2022, Carrie Schwarz and Mitchell Chupak, our two non-employee directors, were each issued 300,000 restricted shares of KAYS stock.
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2022 Equity Incentive Stock Plan
In 2022 we adopted a new equity incentive plan (the 2022 Equity Incentive Plan) as our prior plan expired in 2021
Our 2022 Incentive Stock Plan, as amended (the “Plan”) provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the Plan, restricted stock awards, other stock- based awards, or any combination of the foregoing. The Plan is administered by the board of directors.
As of December 31, 2022 awards covering 4,550,000 shares have been issued under the Plan and 450,000 shares of common stock were available for issuance under the Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the beneficial ownership of our common stock by each director and executive officer, by all directors and executive officers as a group and by each other person known by us to beneficially own 5% or more of our common stock as of the date of this Annual Report. The address of each such person is c/o the Company 915 Middle River Drive, Suite 316, Fort Lauderdale, FL, 33304.
| Name and Address of Beneficial Owner and Directors and Executive officers: | Number of Shares of Common Stock | Number of Shares of Preferred Stock | Percentage of shares (4) | |||||||||
| Craig Frank (1)(2) | 2,113,345 | 20 | 25.71 | |||||||||
| Carrie Schwarz | 360,002 | 0 | * | |||||||||
| Mitchel Chupak | 350,601 | 0 | * | |||||||||
| All directors and | ||||||||||||
| executive officers, | ||||||||||||
| as a group (three | ||||||||||||
| persons) (1)(2) | 2,823,948 | 20 | 27.64 | % | ||||||||
| Other 5% or greater | ||||||||||||
| stockholders: | ||||||||||||
| Ilan Sarid | 1,533,131 | 4.14 | % | |||||||||
| RLH Financial Partners, Inc (3) | 20 | 20 | % | |||||||||
* Less than 1%
| 1. | includes shares beneficially owned by Tudog International Consulting and Drora Frank. |
| 2. | Includes 7,390,945 shares of common stock issuable upon conversion of 20 shares of our Series D Convertible Preferred Stock held by Mr. Frank, which shares vote on an “as converted” basis. |
| 3. | Includes 4,907,611 shares of our common stock issuable upon conversion of 20 shares of our Series D Convertible Preferred Stock held by RLH Financial Partners, Inc. which shares vote on an “as converted” basis. |
| 4. | All values for “Percentage of Shares” owned were calculated by adding 14,781,890 (the number of shares of common stock currently issuable on the conversion of the outstanding 20 Series D Convertible shares) to 22,172,835 (the number of currently issued and outstanding shares of common stock). The persons named above have full voting and investment power with respect to the shares indicated. Under the rules of the SEC, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock. |
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Securities Authorized for Issuance under Equity Compensation Plans
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future insurance under equity compensations plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 0 shares (1) | n/a | 450,000 shares | |||
| Equity compensation plans not approved by security holders | 0 shares | n/a | ||||
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
Settlement with Sunstone, Burwick Regarding Non-Transferability of Sunstone Grow License
In the fourth quarter of 2018, KAYS concluded the purchase of the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the Oregon Liquor Control Commission (the “ OLCC ”) for both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. KAYS entered into a management agreement with the holder of existing OLCC licenses (“Sunstone”) to oversee operations at the facility pending transfer of the license to KAYS, which were aware would be an extended and cumbersome process.
In mid-April 2019, we were advised by Sunstone that it had been notified that the OLCC was proposing that Sunstone’s licenses be cancelled, claiming that that Sunstone had not filed paperwork correctly with respect to the transaction or its historical ownership. At the OLCC’s Administrative Hearing Session held on October 15, 2020, the OLCC approved a settlement between the OLCC and Sunstone that required their license to either be sold to a third party (other than KAYS) or surrendered.
As the settlement between the OLCC and Sunstone, in July 2021, KAYS concluded 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.
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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 cancelled. In addition, the Company received clear title to the warehouse facility. 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.
In October 2021, KAYS sold the Eugene, Oregon cannabis facility for gross proceeds of $1,325,000. The funds received from the sale have been used to repay certain debt and strengthen its balance sheet, as well as general operating expenses including providing the initial stage capital for some of the Company’s U.S. and global expansion activities.
Exchange Agreement for Cancellation of Series C Preferred Shares and Issuance of Series D Preferred Shares
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.
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant stockholders. However, all such matters are approved by our independent directors as well as the board of directors as a whole prior to implementation.
Item 14. Principal Accountant Fees and Services.
Audit Fees
The following is a summary of the fees billed to us for professional services (a) for the years ended December 31, 2022 and 2021 by M&K CPAS, PLLC our independent public registered accounting firm .
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| 2022 | 2021 | |||||||
| Audit fees | $ | 38,000 | $ | 35,500 | ||||
| Audit-related fees | -0- | -0- | ||||||
| Tax fees | -0- | -0- | ||||||
| All other fees | -0- | -0- | ||||||
| 38,000 | $ | 35,500 | ||||||
Audit fees consist of billings for the audit of the Company’s consolidated financial statements included in our Annual Reports on Form 10-K and reviews of the consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q.
The Company does not have an Audit Committee. It is the Company’s policy to have its Chief Executive Officer preapprove all audit and permissible non-audit services provided by the independent public accountants, subject to approval by the board of directors.
These services may include audit, audit-related, tax and other services. Pre-approval is generally for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. Unless there are significant variations from the pre-approved services and fees, the independent public accountants and management generally are not required to formally report to the Board of Directors regarding actual services and related fees.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| a) | The following documents are filed as part of this Annual Report: | |
| (1) | Financial Statements – The following Consolidated Financial Statements of the Company are contained in Item 8 of this Annual Report: | |
| • | Reports of Independent Registered Public Accounting Firms | |
| • | Consolidated Balance Sheets at December 31, 2022 and 2021 | |
| • | Consolidated Statements of Operations for the years ended December 31, 2022 and 2021 | |
| • | Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2022 and 2021 | |
| • | Consolidated Statements of Cash Flows for the years ended December 31, 2022 and 2021 | |
| • | Notes to the Consolidated Financial Statements. | |
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| (2) | Financial Statement Schedules were omitted, as they are not required or are not applicable, or the required information is included in the Consolidated Financial Statements. | |
| (3) | Exhibits – The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b32 under the Exchange Act: |
| Exhibit No. | Description of Exhibit | ||
| 3.1 | Certificate of Incorporation, as amended (1)(2) | ||
| 3.2 | Bylaws, as amended(1) | ||
| 10.1 | Share Exchange Agreement dated February 3, 2010 by and among Netspace International, Inc. and the stockholders of Alternative Fuels Americas, Inc.(1) | ||
| 10.2 | 2011 Incentive Stock Plan, as amended (1) + | ||
| 10.6 | Form of 8% Convertible Promissory Note (1) | ||
| 10.5 | Consulting Agreement between Registrant and Tudog International Consulting, Inc . (1) + | ||
| 10.6 | Office Lease for premises located at 305 South Andrews Avenue, Suite 209, Fort Lauderdale, FL 33301 (3) | ||
| 10.9 | Letter Agreement effective December 1, 2011 between Registrant and Ilan Sarid(1) | ||
| 10.10 | Amendment to Consulting Agreement between Registrant and Tudog International Consulting, Inc. (1) + | ||
| 10.11 | Amendment to Consulting Agreement between Registration and The Tudog Group (3) + | ||
| 21.1 | Subsidiaries of Registrant (4) | ||
| 23.1 | Consent of M&K CPAS LLC(5) | ||
| 31.1 | Section 302 Certification(5) | ||
| 32.1 | Section 906 Certification(5) |
| (1) | Filed as an Exhibit to the Company’s Registration Statement on Form S-1, as amended (File No. 333-177532) and incorporated herein by reference. |
| (2) | Amendments to the Certificate of Incorporation are filed as Exhibits to the Company’s Current Reports on Form 8-K dated April 23, 2015 and March 22, 2017 and are incorporated herein by reference. |
| (3) | Filed as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. |
| (4) | Filed as an Exhibit to the Company’s annual Report on Form 10-K for the year ended December 31, 2017 and Incorporated herein by reference. |
| (5) | Filed herewith. |
+ Management compensation arrangement.
Item 16. Form 10-K Summary.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 27, 2023
| KAYA HOLDINGS, INC. | ||
| By: | /s/ Craig Frank | |
| Craig Frank | ||
| Chairman of the Board, President, Chief Executive Officer, Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer | ||
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, this Annual Report on Form 10K has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
| Signature | Title | Date |
| / s/ Craig Frank | Chairman of the Board, President, Chief Executive Officer, | |
| Craig Frank | Acting Chief Financial Officer and Director (Principal Executive, Financial and Accounting Officer) | April 27, 2023 |
| /s/ Carrie Schwarz | Director | April 27, 2023 |
| Carrie Schwarz | ||
| /s/ Mitchel Chupak | Director | April 27, 2023 |
| Mitchel Chupak |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
53
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Kaya Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kaya Holdings, Inc. (the Company) as of December 31, 2022 and 2021, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2022, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company had a net loss from continuing operations, net cash used in operations, and a lack of revenues to-date, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which they relate.
Derivative Liabilities
As discussed in Note 10, the Company borrows funds through the use of convertible notes payable that contain a conversion price that may be fixed or fluctuates with the stock price.
Auditing management’s estimates of the fair value of the derivative liability involves significant judgements and estimates given the embedded conversion features of the notes.
To evaluate the appropriateness of the fluctuation of the conversion price, the embedded conversion feature requires bifurcation from the host contract and is recorded as a liability subject to market adjustments as of each reporting period. Significant judgment is exercised by the Company in determining derivative liability values for these convertible note agreements, including the use of a specialist engaged by management.
We evaluated management’s conclusions regarding their derivative liability and reviewed support for the significant inputs used in the valuation model, as well as assessing the model for reasonableness. Additionally, we evaluated management’s disclosure of the Derivative Liabilities calculations in Note 10 of the consolidated financial statements.
/s/
M&K CPAS, PLLC
We have served as the Company’s auditor since 2018
Firm ID
April 27, 2023
| F-1 |
Kaya Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2022 and December 31, 2021
| ASSETS | ||||||||
| (Audited) | (Audited) | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| 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 December 31, 2022 and December 31, 2021, 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-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 C, par value $.; shares authorized; and issued and outstanding at December 31, 2022 and December 31, 2021, respectively | ||||||||
| Convertible preferred stock, Series D, par value $.; shares authorized; and issued and outstanding at December 31, 2022 and December 31, 2021, respectively | ||||||||
| Common stock , par value $; shares authorized; shares and shares issued and outstanding as of December 31, 2022 and 2021, respectively | |
|
||||||
| 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.
| F-2 |
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
| (Audited) | (Audited) | |||||||
| For The | For The | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| 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 | ( | ) | ( | ) | ||||
| Derivative liabilities expense | ( | ) | ||||||
| Gain (loss) on extinguishment of debt | ||||||||
| Gain on Settlement | ||||||||
| Gain on disposal | ||||||||
| Change in derivative liabilities expense | ( | ) | ||||||
| Total other expense | ( | ) | ||||||
| Net income (loss) before income taxes | ( | ) | ||||||
| Provision for Income Taxes | ( | ) | ( | ) | ||||
| Net income (loss) | ( | ) | ||||||
| Net (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.
| F-3 |
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
| (Audited) | (Audited) | |||||||
| For The | For The | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| Net income (loss) | $ | ( | ) | $ | ||||
| Other comprehensive expense | ||||||||
| Foreign currency adjustments | ( | ) | ( | ) | ||||
| Comprehensive income (loss) | ( | ) | ||||||
| Other comprehensive income (expense) | ||||||||
| Net loss attributed to non-controlling interest | ( | ) | ( | ) | ||||
| Comprehensive loss attributable to Kaya Holdings | ( | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
Consolidated Statements of Stockholders' Deficit
For the year ended December 31, 2022 (Audited) and the year ended December 31, 2021 (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, 2020 (Audited) | |
$ |
- | $ | |
|
$ |
$ |
$ ( |
$ | $ ( |
$ ( | |||||||||||
| Imputed interest | - | - | - | |
| ||||||||||||||||||
| Common stock issued for Cash | - | - | |
|
( |
|
| ||||||||||||||||
| Common stock issued for debt conversion and interest | - | - | |
|
|
| |||||||||||||||||
| Share Cancellation | - | - | ( |
( |
|
||||||||||||||||||
| Exchanges of preferred shares - series C to series D | ( |
( |
|
- | |
||||||||||||||||||
| Settlement of related party accrued compensation | - | - | - | |
| ||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | - | - | - | |
| ||||||||||||||||||
| Business combination of foreign entities | - | - | - | |
| ||||||||||||||||||
| Translation Adjustment | - | - | - | ( |
( |
( | |||||||||||||||||
| Net loss | - | - | - | |
( |
| |||||||||||||||||
| Balance, December 31, 2021 (Audited) | - | $ | |
$ | |
$ |
$ |
$ |
$
( |
$ ( |
$ ( |
$ ( | |||||||||||
| Balance, December 31, 2021 (Audited) | - | $ | |
$ | |
$ |
$ |
$ |
$ ( |
$ ( |
$ ( |
$ ( | |||||||||||
| Imputed interest | - | - | - | |
| ||||||||||||||||||
| Common stock issued for services | - | - | |
|
|
| |||||||||||||||||
| Common stock issued for services - related parties | - | - | |
|
|
| |||||||||||||||||
| Settlement of related party accrued compensation | - | - | - | |
| ||||||||||||||||||
| Translation Adjustment | - | - | - | ( |
( |
( | |||||||||||||||||
| Net Income | - | - | - | ( |
( |
( | |||||||||||||||||
| Balance, December 31, 2022 (Audited) | - | $ | |
$ | |
$ |
$ |
$ |
$
( |
$ ( |
$ ( |
$ ( | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-5 |
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statement of Cashflows (Audited)
| For The | For The | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2022 | December 31, 2021 | |||||||
| 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 | ||||||||
| Impairment expense | ||||||||
| Loss (gain) on disposal of fixed assets | ( | ) | ( | ) | ||||
| Loss (gain) on settlement of debt | ( | ) | ||||||
| Gain on extinguishment of debt | ( | ) | ||||||
| Derivative expense | ||||||||
| Change in derivative liabilities | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Shares issued for service | ||||||||
| Shares issued for service - related parties | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expense | ( | ) | ( | ) | ||||
| Inventory | ( | ) | ||||||
| Right-of-use asset | ||||||||
| Deposit | ( | ) | ||||||
| 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 provided by(used in) operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | ( | ) | ||||||
| Proceeds from sales of fixed assets | ||||||||
| Net cash provided by investing activities | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from common stock subscriptions | ||||||||
| Proceeds from convertible debt | ||||||||
| Non-controlling contribution | ( | ) | ||||||
| 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: | ||||||||
| Adoption of lease standard ASC 842 | ||||||||
| Settlement of accounts payable with note payable | ||||||||
| Reclassification of derivative liability to additional paid in capital | ||||||||
| Initial derivative liability on convertible notes payable | ||||||||
| Value of common shares issued for conversion of principal and interest | ||||||||
| Value of common shares cancelled | ( | ) | ||||||
| Capitalization of interest pursuant to amended agreement | ||||||||
| Shares issued for cash from stock payable | ||||||||
| Settlement of related party liabilities in excess of net book value of asset distributed | ||||||||
| Preferred stock exchange-related party | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-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. (FTD) 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.
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 Salem Retail Cannabis Store (“Store 2”) for $210,000.00, less a 6% closing commission and minor closing expenses. The purchase price has been deposited in escrow, with a closing anticipated to occur prior to the end of April, 2023, subject to the receipt of approval from the Oregon Liquor Control and Cannabis Commission for the new licensee. 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 $410,880.00.
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.
| F-7 |
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 $769,500, 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 $302,000,000. 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.
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.
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 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.
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 been issued two (2) Installation Licenses for construction of two medical cannabis cultivation and processing projects in Greece- one in Epidaurus, Greece and the other in Thebes, Greece. 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 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.
On December 13, 2022 the Company formed Fifth Dimension Therapeutics ™ (“FTD”, 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 FTD 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 (along with the other 17 graduates of this first state approved course) is currently pending review with the OHA, and the Company expects to file a Facilitation Clinic License application once he is approved and 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. open its first Psilocybin Clinic.
| F-8 |
NOTE 2 – LIQUIDITY AND GOING CONCERN
The Company’s consolidated financial statements as of December 31, 2022 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred net loss of $3,576,614 for the year ended December 31, 2022 and net income of $9,724,262 for the twelve months ended December 31, 2021. The decrease in net income is due to the changes in derivative liabilities, the decrease in amortization of debt discount and derivative liabilities expense, as well as the company continues to have operating losses. At December 31, 2022 the Company has a working capital deficiency of $10,359,344 and is totally dependent on its ability to raise capital. The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive working capital in the near future. Even though management believes that it will be able to successfully execute its business plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this material uncertainty. Management recognizes that the Company must generate additional funds to successfully develop its operations and activities. Management plans include:
| • | 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. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.
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.
| F-9 |
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 December 31, 2022, 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 75% 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 December 31, 2022 is $11,990 and $51,484 as of December 31, 2021. Inventory allowance and impairment were $0 and $0 as of December 31, 2022 and December 31, 2021, respectively.
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.
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.
| F-10 |
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.
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.
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.
| F-11 |
Provision for Income Taxes
We recorded a provision for income taxes in the amount of $93,910 during the year ended December 31, 2022 compared to $782,107 during the year ended December 31, 2021. 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 December 31, 2022 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $387,814 | - | - | |||||||||
| Short term debt, net of discounts of $-0- | - | - | |||||||||
| Derivative liability | - | - | |||||||||
| Total liabilities | - | - | |||||||||
| $ | $ | $ | ( |
||||||||
| Fair Value Measurements at December 31, 2021 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $477,634 | - | - | |||||||||
| Short term debt, net of discounts of $-0- | - | - | |||||||||
| Derivative liability | - | - | |||||||||
| Total liabilities | - | - | |||||||||
| $ | $ | $ | ( |
||||||||
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 7.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
| F-12 |
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.
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.
| F-13 |
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Extinguishments of Liabilities
The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.
Stock-Based Compensation - Employees
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a 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.
| |
| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
| |
| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
| |
| • | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.
|
| F-14 |
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.
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.
| |
| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
| |
| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
| |
| • | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.
|
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.
Cost of Sales
Cost of sales represents costs directly related to the purchase of goods and third party testing of the Company’s products.
| F-15 |
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 December 31, 2022.
Subsequent Events
The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.
Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.
Recently Issued Accounting Pronouncements
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.
| F-16 |
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, 2022 and December 31, 2021:
Schedule of Property Plant And Equipment
| December
31, 2022 | December
31, 2021 | |||||||
| (Audited) | (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 $
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 to $14,992.
After a review of market pricing the Company was able to sell one of the cars to Carvana for $14,460, after adjustments for cost removed and accumulated depreciation removal, the sale resulted in a gain on settlement. The Company recorded a net gain on disposal of assets of $28,983.
Additionally, the second Fiat was transferred to Mr. Frank in lieu of $17,000 in fees owed him. See Note 10 for additional information.
On October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000. The Company recorded a net gain on disposal of $113,861.
During
the year ended December 31, 2022, the Company sold a third vehicle which reduced our assets and accumulated depreciation by $
and recorded a gain on disposal of assets of $
NOTE 5 – NON-CURRENT ASSETS
Other assets consisted of the following at December 31, 2022 and December 31, 2021:
Schedule of other assets noncurrent
December 31, 2022 (Audited) | December 31, 2021 (Audited) | |||||||
| Other Receivable | $ | $ | ||||||
| Rent Deposits | ||||||||
| Security Deposits | ||||||||
| Non-Current Assets | $ | $ | ||||||
Due to the closure of 2 stores, the Company recorded a loss on deposits expensed against rent of $11,016, during year ended December 31, 2021. During year-end December 31, 2022, the Company impaired $74,509 in deposits for the Greece operation that was forfeited .
| F-17 |
NOTE 6 – 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 4.40% to 4.77%, volatility ranging from 170.53% to 179.63%, trading prices ranging from $0.06 per share to $0.10 per share and a conversion price ranging from $005 to $0.08 per share. The total derivative liabilities associated with these notes were $6,204,878 at December 31, 2022 and $4,980,563 at December 31, 2021.
See Below Summary Table
Schedule of Convertible Debt
| Convertible Debt Summary | |||||||
| Debt Type | Debt Classification | Interest Rate | Due Date | Ending | |||
| CT | LT | 12/31/2022 | 12/31/2021 | ||||
| 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-24 | |
| ||
| 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 | $ |
$ | |||||
| F-18 |
FOOTNOTES FOR CONVERTIBLE DEBT ACTIVITY FOR YEAR ENDED DECEMBER31, 2022
On August 8, 2022, the Company received $150,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due in March 1, 2024. This note has 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 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, see Note 9 for further details.
On November 8, 2022, the Company received $120,000 from the issuance of convertible debt with a third- party individual. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on March 1, 2023. This note has 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 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, see Note 9 for further details.
On December 12, 2022, the Company received $100,000 from the issuance of convertible debt with a third- party individual. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on December 31, 2024. This note has 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 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, see Note 9 for further details.
On December 31, 2022, the Company and various noteholders agree to modify the maturity date to December 31,2025 of all notes that were due to mature on December 31, 2024. No other terms of the convertible notes were changed.
NOTE 7 – NON-CONVERTIBLE DEBT
| December 31, 2022 | December 31, 2021 | |||||||
| Note 5 | $ | $ | ||||||
| Total Non-Convertible Debt | $ | $ | ||||||
(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 December 31, 2022 with an outstanding balance of $9,312.
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%. The Company used the stated rate of 9% as imputed interest rate, which was $22,500 and $22,500 for the year ended December 31, 2022 and year ended December 31, 2021, respectively. As of December 31, 2022, the balance of the debt was $250,000. 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. |
NOTE 8 – 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.
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.
On December 15, 2022 the Board of Directors approved the issuance of 2,900,000 shares of common stock to various individuals for services rendered to the Company. The shares were issued in accordance with Rule 144. The shares were valued at the market price of $0.0685 per share on the date of issuance.
On December 15, 2022 the Board of Directors approved the issuance of 4,550 ,000 shares of common stock to recipients of the plan (the shares were issued prior to the end of 2022). The remaining balance of the shares available in the plan is 450,000 shares. A total of 2,100,000 of these shares were issued as Officer and Director Compensation as follows:1,500,000 shares of common stock to our CEO Craig Frank 300,000 shares of common stock to Carries Schwarz 300,000 shares of common stock to Mitchell Chupak, as annual award compensation, per their agreements. The balance of 1,750,000 shares of commons stock was issued third parties for ser ices rendered to the Company. By agreement the shareholders agreed to a three year lock-up agreement. The shares were valued at the market price of $0.0685 per share on the date of issuance.
As of December 31, 2022, there were 22,172,835 shares of common stock outstanding.
| F-19 |
NOTE 9 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 4.40% to 4.77%, volatility ranging from 170.53% to 179.63%, trading prices ranging from $0.06 per share to $0.10 per share and a conversion price ranging from $005 to $0.08 per share. The total derivative liabilities associated with these notes were $4,741,207at December 31, 2022 and $4,980,563 at December 31, 2021.
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, 2021 | $ | |||
| Initial | ||||
| Change in Derivative Values | ||||
| Conversion of debt-reclass to APIC | ||||
| Balance as of December 31, 2022 | $ |
The Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
The Company recorded initial derivative liabilities of $213,579 and $589,033 for the new notes issued for years ended December 31, 2022 and 2021, respectively.
The Company recorded derivative liability expense of $0 and $566,080 for the years ended December 31, 2022 and 2021, respectively.
The Company recorded a change in the value of embedded derivative liabilities expense of $1,010,737 and a gain of $12,947,095 for the year ended December 31, 2022 and 2021, respectively.
NOTE 10 – DEBT DISCOUNT
The Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
Debt
discount amounted to $
The
Company recorded the amortization of debt discount of $
The
Company reclassified derivative liabilities of $0 to additional paid in capital due to debt conversion for the year ended December 31,
2022 and $
| F-20 |
NOTE 11 – 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.
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.
| F-21 |
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.
| F-22 |
NOTE 12 – 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.
On December 15, 2022 the Board of Directors approved the issuance of 4, 550,000 shares of stock to recipients of the plan (the shares were issued prior to the end of 2022). The remaining balance of the shares available in the plan is 450,000 shares. The shares were valued at $0.0685, the closing market price on the date of issuance.
NOTE 13 – 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 December 31, 2022, 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 December 31, 2022, 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, 2021 | |
||
| Granted | - | ||
| Exercised | - | ||
| Expired | ( |
- | |
| Balance as of December 31, 2022 | |
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has several operating leases for an office in Fort Lauderdale, Florida and four retail store locations 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 is now on a month-to-month basis.
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 $2,950 with right of use liabilities of $45,884 as of December 31, 2022.
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 $5,140 with right of use liabilities of $137,138 as of December 31, 2022. This lease is in process of being terminated pursuant to agreement reached with landlord- see note below.
| F-23 |
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 is in process of being terminated pursuant to agreement reached with landlord- see note below.
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 is in process of being terminated pursuant to agreement reached with landlord- see note below.
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 are in the process of being terminated with $75,000.00 in currently escrowed funds from the sale of one of the Company’s stores to be transferred to the landlord (subject to final closing of the store sale) in exchange for a satisfaction of the three leases prior to the end of April.
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 $182,604 and operating lease liabilities of $193,182 as of December 31, 2022. Operating lease expense for the years ended December 31, 2022 and 2021 were $193,182 and $194,689, respectively. Due to the closure of 2 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 $0 in impairment charges related to right-of-use assets during the year ended December 31, 2022.
Schedule Of Future Minimum Rental Payments For Operating Leases
| Maturity of Lease Liabilities at December 31, 2022 | Amount | ||
| 2023 | |||
| 2024 | |||
| 2025 | | ||
| Later years | |||
| Total lease payments | |||
| Less: Imputed interest | ( | ||
| Present value of lease liabilities | $ | ||
NOTE 15- INCOME TAXES
On December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing a deemed repatriation tax on previously deferred foreign income.
The Act also created a new minimum tax on certain future foreign earnings. The impact of the Act increase the Company’s deferred tax asset related to the Company’s net operating loss by approximately $3,427,125 and increase the Company’s valuation allowance by approximately $3,427,125 resulting in no impact to the Company’s financials.
We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2022, and 2021 we have not recorded any uncertain tax positions in our financial statements.
The effective US Federal Income Corporate Tax Rates for 2022 and 2021 are 21% and 21%, respectively.
The
Company has net operating loss carry forwards of approximately $
The Company has a deferred tax asset as shown in the following:
Schedule of Deferred Tax Assets and Liabilities
| Year Ending December 31, 2022 | Year Ending December 31, 2021 | |||||||
| Deferred Tax Asset | ||||||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Net Deferred Tax Asset | $ | $ | ||||||
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 $
| F-24 |
Note 16- SUBSEQUENT EVENTS
Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events, which provide evidence about conditions that existed after the balance sheet date, require disclosure in the accompanying notes.
As previously reported in our Quarterly Report on Form 10-Q 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, 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 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.
Additionally, the Company has entered into an asset purchase agreement for the sale of its Salem Retail Cannabis Store (“Store 2”) for $210,000.00, less a 6% closing commission and minor closing expenses. The purchase price has been deposited in escrow, with a closing anticipated to occur prior to the end of April 2023, as the OLCC has approved the license transfer. $75,000 of the proceeds has been set aside from the escrowed deposit to settle the three (3) leases that the Company had in Salem, Oregon (Store 2 which was the subject of this sale and Stores 3 and 4 which had been closed previously; all 3 leases were with the same landlord. The net book value of the assets as of December 31, 2022 was $9,111 and revenue for the year ended December 31, 2022 was approximately $410,880.00.
The Company intends to utilize the net proceeds of approximately $500,000 from both the sale of the Property and Store 2, for general working capital including the resolution of its three non-performing store leases in South Oregon, the development of its planned Oregon Psilocybin business and planned Florida hybrid Ketamine Clinic and Telehealth business, 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.
On April 19, 2023, the Company negotiated a Lease Release agreement for a lease of space for MJAI Oregon 1, LLC. Under the terms of the release the landlord agreed to release the Company from the lease and to settle all claims against the Company for a one-time payment of $75,000.
| F-25 |
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 SARBANES-OXLEY ACT OF 2002
I, Craig Frank, Chairman of the Board, President, Chief Executive Officer and Chief Acting Financial Officer of Kaya Holdings, Inc. (the “ Registrant ”), certify that:
| 1. | I have reviewed this report on Form 10-K for the year ended December 31, 2021 of the Registrant (the “ Report ”); | |
| 2. | Based on my knowledge, the 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 the Report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in the 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 the Report; | |
| 4. | I 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-a15(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 the 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 the Report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report based on such evaluation; and | |
| d) | disclosed in the Report any change in the Registrant’s internal controls over financial reporting that occurred during the Registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| 5. | I 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 controls 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 controls. | |||
Dated: April 27, 2023
| KAYA HOLDINGS, INC.. | ||
| By: | /s/ Craig Frank | |
| Craig Frank, Chairman, President Chief Executive Officer, Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of Kaya Holdings, Inc. (the " Company ") on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the " Repor t"), I, Craig Frank, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge, 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 fully presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: April 27, 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) | ||