Kaya Holdings, Inc 10-Q for FY2021 Q3
Kaya Holdings, Inc. (KAYS)
About this 10-Q
Kaya Holdings, Inc filed this 10-Q on November 22, 2021, covering the quarter ended September 30, 2021 (FY2021 Q3).
Headline figures
Quarter ended September 30, 2021, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $214.05K
- down 22.2% from $274.99K a year earlier
- Net income
- $3.93M
- compared with a net loss of $13.41M a year earlier
- Diluted EPS
- $0.00
- compared with -$0.07 a year earlier
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM
OF THE SECURITIES EXCHANGE ACT OF 1934
For the
Quarterly Period ended
OR
For the transition period from
__________to __________
Commission
File No.:
(Exact name of registrant as specified in its charter)
| (State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification Number) |
(Address of principal executive offices)
(Issuer's telephone number)
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
| None |
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during
the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule
405 of Regulation ST (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was
required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a nonaccelerated filer, or a smaller reporting company or emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):
| Large Accelerated Filer [ ] | Accelerated Filer [ ] |
| Smaller
reporting company | |
| Emerging
growth company |
If an emerging growth company,
indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised
financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by checkmark whether
the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act.) Yes [ ]
As of November 19, 2021, the Issuer had shares of its common stock outstanding.
KAYA HOLDINGS, INC.
INDEX TO QUARTERLY REPORT ON FORM 10 Q
Part I – Financial Information Page
| Item 1. Condensed Consolidated Financial Statements | Page |
| Condensed Consolidated Balance Sheet | 1 |
| Condensed Consolidated Statements of Operations | 2 |
| Condensed Consolidated Statements of Comprehensive Income | 3 |
| Condensed Consolidated Statement of Stockholder’s deficit for the nine month period ended September 30, 2021 and the year ended December 31, 2020 | 4 |
| Condensed Consolidated Statements of Cash Flows | 5 |
| Notes to Condensed Consolidated Financial Statements | 6 |
| Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 |
| Item 3. Quantitative and Qualitative Disclosures About Market Risk | 58 |
| Item 4. Controls and Procedures | 58 |
| Part II Other Information | |
| Item 1. Legal Proceedings | 59 |
| Item 1A. Risk Factors | 59 |
| Item 2. Unregistered Sales of Equity Securities and Use of Proceeds | 59 |
| Item 3. Defaults Upon Senior Securities | 59 |
| Item 4. Mine Safety Disclosures | 59 |
| Item 5. Other Information | 59 |
| Item 6. Exhibits | 59 |
| Signatures | 60 |
In this Quarterly Report on Form 10-Q, the terms “Kaya Holdings,” “KAYS,” “the Company,” “we,” “us” and “our” refer to Kaya Holdings, Inc. and its subsidiaries, unless the context indicates otherwise.
Cautionary Note Regarding Forward Looking Statements
Information contained in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Available Information
We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”) that can be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as
Item 1 Condensed Consolidated Financial Statements
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
September 30, 2021 and December 31, 2020
| ASSETS | ||||||||
| (Unaudited) | (Audited) | |||||||
| September 30, 2021 | December 31, 2020 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash and equivalents | $ | $ | ||||||
| Inventory-net of allowance | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Property
and equipment, net of accumulated depreciation of $ | ||||||||
| Investment in subsidaries | ||||||||
| Deposits | ||||||||
| Total other assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expense | $ | $ | ||||||
| Accounts payable and accrued expense-related parties | ||||||||
| Accrued interest | ||||||||
| Right-of-use liability - operating lease | ||||||||
| Notes payable-related party | ||||||||
| Convertible
notes payable, net of discount of $ | ||||||||
| Notes payable | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| LONG TERM LIABILITIES: | ||||||||
| Notes payable-related party | ||||||||
| Convertible
notes payable, net of discount of $ | ||||||||
| Right-of-use liability - operating lease | ||||||||
| Total long term liabilities | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS' EQUITY (DEFICIT): | ||||||||
| Convertible preferred stock, Series C, par value $; shares authorized; and issued and outstanding at September 30, 2021 and December 31, 2020, respectively | ||||||||
| Common stock , par value $; shares authorized; shares issued as of September 30, 2021 and shares outstanding as of December 31, 2020, respectively | ||||||||
| Subscriptions payable | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income | ( | ) | ||||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Net stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 1 |
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| For The Three | For The Three | For The Nine | For The Nine | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Net sales | $ | $ | $ | $ | ||||||||||||
| Cost of sales | ||||||||||||||||
| Gross profit | ||||||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | ||||||||||||||||
| Salaries and wages | ||||||||||||||||
| (Gain) Loss on impairment of assets | ( | ) | ( | ) | ||||||||||||
| General and administrative | ||||||||||||||||
| Total operating expenses | ||||||||||||||||
| Operating loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Amortization of debt discount | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Derivative liabilities expense | ( | ) | ( | ) | ( | ) | ||||||||||
| Gain (loss) on Settlement | ||||||||||||||||
| Gain (loss) on disposal | ||||||||||||||||
| Change in derivative liabilities expense | ( | ) | ( | ) | ||||||||||||
| Other income (expense) | — | — | — | — | ||||||||||||
| Total other expense | ( | ) | ( | ) | ||||||||||||
| Net loss before income taxes | ( | ) | ( | ) | ||||||||||||
| Provision for Income Taxes | ||||||||||||||||
| Net income (loss) | ( | ) | ( | ) | ||||||||||||
| Net Income (loss) attributed to non-controlling interest | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
| Net loss attributed to Kaya Holdings, Inc. | ( | ) | ( | ) | ||||||||||||
| Basic net loss per common share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding - Basic | ||||||||||||||||
| Diluted net loss per common share | $ | $ | ( | ) | $ | $ | ( | ) | ||||||||
| Weighted average number of common shares outstanding - Diluted | ||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 2 |
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income Statement
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| For The Three | For The Three | For The Nine | For The Nine | |||||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | |||||||||||||
| September 30, 2021 | September 30, 2020 | September 30, 2021 | September 30, 2020 | |||||||||||||
| Net income (loss) | $ | $ | $ | $ | ( | ) | ||||||||||
| Other comprehensive income (expense) | ||||||||||||||||
| Foreign currency adjustments | ( | ) | ( | ) | ||||||||||||
| Comprehensive income (loss) | ( | ) | ||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 3 |
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Stockholders' Deficit
For the nine months ended September 30, 2021 (unaudited) and the year ended December 31, 2020
| Preferred Stock | Post-Split Common Stock | Subscription Payable | Additional Paid-in Capital | Accumulated Deficit | Accumulated Comprehensive Income | Noncontrolling Interest | Total Stockholders' Deficit | |||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Amount | ||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2019 | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | |||||||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for Cash | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for services - related parties | — | |||||||||||||||||||||||||||||||||||||||
| Common stock issued for debt conversion and interest | — | |||||||||||||||||||||||||||||||||||||||
| Warrants granted for Cash | — | — | ||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | — | — | ||||||||||||||||||||||||||||||||||||||
| Rounding Shares | — | |||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Balance, December 31, 2020 | $ | $ | $ | $ | $ | ( | ) | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||
| Imputed interest | — | — | ||||||||||||||||||||||||||||||||||||||
| Common stock issued for Cash | — | ( | ) | |||||||||||||||||||||||||||||||||||||
| Common stock issued for notes conversion and interest | — | |||||||||||||||||||||||||||||||||||||||
| Share Cancellation | — | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||
| Settlement of related party accrued compensation | — | — | ||||||||||||||||||||||||||||||||||||||
| Reclassification of derivative liabilities to additional paid in capital | — | — | ||||||||||||||||||||||||||||||||||||||
| Noncontrolling capital | — | — | ||||||||||||||||||||||||||||||||||||||
| Net loss | — | — | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||
| Balance, September 30, 2021 (Unaudited) | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 5 |
Kaya Holdings, Inc. and Subsidiaries
Condensed Consolidated Statement of Cashflows
| (Unaudited) | (Unaudited) | |||||||
| For The Nine | For The Nine | |||||||
| Months Ended | Months Ended | |||||||
| September 30, 2021 | September 30, 2020 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net loss | $ | $ | ( | ) | ||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
| Net income/(loss) attributable to non-controlling interest | ( | ) | ( | ) | ||||
| Depreciation | ||||||||
| Imputed interest | ||||||||
| Loss (gain) on disposal of fixed assets | ( | ) | ||||||
| Loss (gain) on impairment of right-of-use asset | ( | ) | ||||||
| Derivative expense | ||||||||
| Change in derivative liabilities | ( | ) | ||||||
| Gain on settlement | ( | ) | ||||||
| Amortization of debt discount | ||||||||
| Stock to be issued for services - related parties | ||||||||
| Stock to be issued for services | ||||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expense | ( | ) | ( | ) | ||||
| Inventory | ||||||||
| Right-of-use asset | ( | ) | ||||||
| Other assets | ( | ) | ||||||
| Accrued interest | ||||||||
| Accounts payable and accrued expenses | ||||||||
| Accounts payable and accrued expenses - Related Parties | ||||||||
| Right-of-use liabilities | ( | ) | ||||||
| Net cash used in operating activities | ( | ) | ( | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Proceeds from sales of fixed assets | ||||||||
| Net cash used in 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: | ||||||||
| Reclassification of derivative liability to additional paid in capital | ||||||||
| Derivative liability on convertible note payable | ||||||||
| Value of common shares issued for conversion of principle and interest | ||||||||
| Value of common shares cancelled | ( | ) | ||||||
| Capitalization of interest pursuant to amended agreement | ||||||||
| Shares issued for cash from stock payable | ||||||||
| Settlement of accounts payable with note payable | ||||||||
| Settlement of Related Party liability in excess of net book value of assets distributed | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
| 6 |
NOTE 1 – ORGANIZATION AND NATURE OF THE BUSINESS
Organization
Kaya Holdings, Inc. FKA (Alternative Fuels Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings, Inc.
The Company has four subsidiaries: Alternative Fuels Americas, Inc, a Florida corporation, which is wholly-owned, Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned, 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability company which holds ownership of the Company’s 26 acre property in Lebanon, Oregon on which it plans to develop a legal cannabis cultivation and manufacturing facility, and Kaya Brand International, Inc. (KBI) a Florida Corporation which the Company owns 85% of which was formed on October 14, 2019 to expand the business overseas
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, MJAI Oregon 2 LLC (inactive), MJAI Oregon 3 LLC (inactive) , MJAI Oregon 4 LLC (inactive) and MJAI Oregon 5 LLC.
MJAI Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations and pending OLCC Production and Processing license transfer applications for the 260 Grimes Street property in Eugene, Oregon. MJAI Oregon 5 LLC maintains the Company’s pending OLCC Producer Application for the Company’s 26 acre farm property in Lebanon Oregon.
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.
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, has 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 gowing and processing operations.
On July 3, 2014 opened its first Kaya Shack™ MMD in Portland, Oregon. In April 2015, KAYS commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana thereby becoming the first publicly traded U.S. company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. In October 2015, concurrent with Oregon commencing legal sales of recreational marijuana through MMDs, KAYS opened its second retail outlet in Salem, Oregon, the Kaya Shack™ Marijuana Superstore. During 2015, the Company also consolidated its grow operations and manufacturing operations into a single facility in Portland, Oregon.
In 2016, Oregon began the process to transition legal marijuana sales from Oregon Health Authority (“OHA”) licensed MMDs and grow operations to Oregon Liquor Control Commission (“OLCC”) licensed recreational marijuana retailers and producer and processing facilities. Effective January 1, 2017, all retailers of recreational marijuana were required to have a recreational marijuana sales license issued by the OLLC for each retail outlet operated.
In 2016 the Company applied for OLLC licenses for its two initial Kaya Shack™ retail outlets (Portland, Oregon and South Salem, Oregon), and also submitted license applications for its two new locations under construction and development at that time.
In late December 2016, we received our OLCC recreational license for the South Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™ OLCC Marijuana Retailer License #1) and recreational and medical sales continued without interruption from 2016 through the present at that location.
On March 21, 2017, we received our North Salem Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #2) a 2,600-square foot Kaya Shack™ Marijuana Superstore in North Salem, Oregon, whereupon the location opened for business with both recreational and medical sales.
| 7 |
On May 2, 2017, we received our OLCC recreational license for our Portland Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #3) after a delay of approximately four months. During that period, we were limited to solely medical sales at the Portland location. Upon receipt of Kaya Shack™ OLCC Marijuana Retailer License #3, recreational sales recommenced at that location.
During August of 2017, the Company purchased a 26 acre parcel in Lebanon, Linn County, Oregon, on which we intend to construct an 85,000 square foot Kaya Farms™ Greenhouse Grow and Production Facility at the property.
On February 15, 2018, we received our OLCC recreational, medical and home delivery license for the Central Salem Kaya ShackTM outlet (Kaya ShackTM OLCC Marijuana Retailer License #4) a 3,100-square foot Kaya ShackTM Marijuana Superstore in Central Salem, Oregon. After various construction and permitting delays, On April 12, 2018, the location opened for business with both recreational and medical sales.
On August 18, 2018, the Company had concluded the purchase of the Eugene, Oregon based Sunstone Farms manufacturing facility, which was licensed by the OLCC for both the production of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles. 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 to the seller at closing. Additionally, the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company, and became a Board Member of Kaya Holdings. While the shares carried a lock-up-restriction allowing for their staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS, none of the shares have been submitted for resale.
In mid-April, 2019 the Company was notified by Sunstone that the OLCC had filed an administrative proceeding and was proposing that Sunstone’s licenses for the facility purchased by KAYS 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 and accordingly could not respond to the proceedings.
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.
On November 4, 2019 the Company filed an 8-K announcing that its majority owned subsidiary, Kaya Brands International, Inc. (“KBI”), had executed a memorandum of understanding (“MOU”) setting forth the terms for KBI’s acquisition of a 50% ownership interest in Greekkannabis, PC (“GKC”), an Athens, Greece based cannabis company which at the time was awaiting issuance of a medical cannabis cultivation, processing, and export license from the Greek government.
In February, 2020 the Company renewed the OLCC Marijuana Retailer Licenses #1, 2 and 4 listed above and did not renew OLCC Marijuana Retailer License #3 and ceased operations at that location. The Company is currently seeking to transfer OLCC License #4 to another location.
On April 22, 2020 KAYS/KBI received confirmation from its Greek Counsel that the Greek Government had approved and issued the Crucial Installation License for the GKC facility which is the subject of the previously announced MoU executed by and between KBI and GKC. The license allows for construction of a medical cannabis cultivation and process facility which includes twelve (12) 35,000 square foot of light deprivation greenhouses and an additional 50,000 square foot building for workspace, storage and administrative offices situated on fifteen acres of land in Thibes, Greece.
On June 7, 2020 Kaya Shalvah (“Kaya Farms Israel”) was incorporated by the Company’s Israel Counsel, Sullivan & Worcester. KBI owns a majority of Kaya Farms Israel.
On October 15, 2020 the OLCC approved a settlement between the OLCC and Sunstone Marketing Partners that required that the licenses for the Eugene Oregon based Sunstone Farms facility be sold to a third party (other than KAYS) or surrendered. For more information, please see Note 15, Subsequent Events and Part II-Other Information, Item 1, Legal Proceedings elsewhere in this filing.
| 8 |
On November 27, 2020 Kaya Farms Greece, S.A. (“KFG)” was incorporated by the Company’s Greek Counsel Dalakos, Fassolis and Theofanopoulos of Piraeus, Greece. KBI owns a majority of KFG.
On December 31, 2020, the Company entered into a joint venture agreement with Greekkbannabis., and and On January 11, 2021, KAYS/KBI, through a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG") and Greekkannabis (“GKC") executed an agreement for KBI to acquire 50% of GKC. The terms are as follows:
1. Prior to the execution of the transaction, the GKC shareholders owned a total of 320 shares (100%) of GKC.
2. Pursuant to first section of the contract, KBI has initially acquired 80 shares of GKC (from the current shareholders) for payment of 30,000 Euros- 20,000 Euros have been paid from the $31,688 (25,000 Euros) sent to Greece on December 31, 2020 and the remaining 10,000 Euros is due to be paid by June 30, 2022. This leaves current shareholders on GKC side with 240 shares.
3. GKC is in process of issuing an additional 160 shares of GKC to KFG in exchange for additional paid in capital by KFG of 16,000 Euros. At the conclusion of the process (minutes of meetings have to be published in Greek Government publications, etc which will take a few months), KFG will own 50% of GKC (240 shares) and the current shareholders of GKC will own 50% (240 shares).
5. An operating agreement is currently being drafted that allows for 5 board members (2 from KFG and 3 from GKC). Ilias will become the President and Panos will become the vice president and Managing Director. Final terms will include the provision that a super majority (80%) is required to enter into a transaction in excess of 100K Euros and also to issue new shares, encumber/sell existing shares, enter into decisions regarding infrastructure, development and construction decisions, etc.
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.
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.
KAYS has listed the warehouse property for sale with the goal of using the realized funds to propel progress in our U.S., Israel and Greece, as well as improve our balance sheet. Projects we plan to focus on include launching Kaya Harmony™ - Kaya Farms™ U.S.A., introducing a number of consumer product brands, redesigning our Kaya Shack™ stores, launching CBD brands in Europe, and acquiring land in Israel through an Israeli government tender program
NOTE 2 – LIQUIDITY AND GOING CONCERN
The
Company’s consolidated financial statements as of September 30, 2021 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
income of $
| • | the sale of additional equity and debt securities, |
| • | alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan, |
| • | business transactions to assure continuation of the Company’s development and operations, |
| • | development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name. |
| 9 |
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.
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 subsidia y 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 |
| 10 |
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, 2019 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.
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 September 30, 2021 is $35,840 and $47,618 as of December 31, 2020. Inventory allowance and impairment were $0 and $0 as of September 30, 2021 and December 31, 2020, 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.
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.
| 11 |
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.
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 of financial instruments | |||||||||||
| Fair Value Measurements at September 30, 2021 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $612,311 | |||||||||||
| Short term debt, net of discounts of $-0- | |||||||||||
| Derivative liability | |||||||||||
| Total liabilities | - | - | 15,002,035 | ||||||||
| $ | $ | $ | |||||||||
| Fair Value Measurements at December 31, 2020 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $494,930 | |||||||||||
| Short term debt, net of discounts of $-0- | |||||||||||
| Derivative liability | |||||||||||
| Total liabilities | - | - | 24,091,721 | ||||||||
| $ | $ | $ | |||||||||
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.
| 12 |
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company uses the 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 re-assessed 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.
| 13 |
The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.
The Company adopted this new standard on January 1, 2019; however, the Company needs to continue the derivative liabilities due to variable conversion price on some of the convertible instruments. As such, it did not have a material impact on the Company’s consolidated financial statements.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.
Extinguishments of Liabilities
The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.
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.
| 14 |
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.
|
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.
|
| 15 |
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.
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.
| 16 |
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 September 30, 2021.
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.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at September 30, 2021 and December 31, 2020:
Schedule of property, plant and equipment
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | (Audited) | |||||||
| ATM Machine | $ | $ | ||||||
| Computer | ||||||||
| Furniture & Fixtures | ||||||||
| HVAC | ||||||||
| Land | ||||||||
| Leasehold Improvements | ||||||||
| Machinery and Equipment | ||||||||
| Sign | ||||||||
| Structural | ||||||||
| Vehicle | ||||||||
| Total | ||||||||
| Less: Accumulated Depreciation | ( |
( |
||||||
| Property, Plant and Equipment - net | $ | $ | ||||||
Depreciation expense totaled of $92,715 and $165,981 for the six months ended September 30, 2021 and 2020, respectively. Due to the closure of 2 stores, the Company removed net asset of $173,658 and record loss of disposal of fixed asset $173,658 during the years ended December 31, 2020.
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 $14,992.00.
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.
Additionally, the second Fiat was transferred to Mr. Frank in lieu of $15,000.00 in fees owed him. See Note 11 for additional information.
NOTE 5 – NON-CURRENT ASSETS
Other assets consisted of the following at September 30, 2021 and December 31, 2020:
Schedule of non current assets
| 30-Sep-21 | 31-Dec-20 | |||||||
| (Unaudited) | (Audited) | |||||||
| Rent Deposits | $ | $ | ||||||
| Security Deposits | ||||||||
| Down Payment | ||||||||
| Non-Current Assets | $ | $ | ||||||
Due to the closure of 2 stores, the Company expensed rent deposit of $11,016 during the years ended December 31, 2020.
| 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 0.11% to 0.47%, volatility ranging from 106% to 142%, trading prices ranging from $0.020 per share to $0.66 per share and a conversion price ranging from $0.15 per share to $0.38 per share. The total derivative liabilities associated with these notes were $8,102,629 at September 30, 2021 and $17,328,904 at December 31, 2020.
See Below Summary Table
Convertible Debt
| Convertible Debt Summary | |||||||
| Debt Type | Debt Classification | Interest Rate | Due Date | Ending | |||
| CT | LT | 9/30/2021 | 12/31/2020 | ||||
| A | Convertible | X | |
$ | |||
| B | Convertible | X | |
| |||
| C | Convertible | X | |
| |||
| D | Convertible | X | |
| |||
| O | Convertible | X | |
| |||
| P | Convertible | X | |
| |||
| Q | Convertible | X | |
| |||
| S | Convertible | X | |
| |||
| T | Convertible | X | |
| |||
| BB | Convertible | X | - | | |||
| CC | Convertible | X | |
| |||
| KK | Convertible | X | |
| |||
| LL | Convertible | X | |
| |||
| MM | Convertible | X | |
| |||
| NN | Convertible | X | |
| |||
| OO | Convertible | X | |
| |||
| PP | Convertible | X | |
| |||
| Convertible | X | |
| ||||
| RR | Convertible | X | |
| |||
| SS | Convertible | X | |
| |||
| TT | Convertible | X | |
| |||
| UU | Convertible | X | |
| |||
| VV | Convertible | X | |
| |||
| XX | Convertible | X | |
| |||
| YY | Convertible | X | |
| |||
| ZZ | Convertible | X | |
| |||
| AAA | Convertible | X | |
| |||
| BBB | Convertible | X | |
| |||
| CCC | Convertible | X | - | | |||
| DDD | Convertible | X | |
| |||
| EEE | Convertible | X | |
| |||
| GGG | Convertible | X | |
| |||
| HHH | Convertible | X | - | | |||
| JJJ | Convertible | X | |
| |||
| LLL | Convertible | X | |
| |||
| MMM | Convertible | X | |
| |||
| PPP | Convertible | X | |
| |||
| RRR | Convertible | X | - | | |||
| SSS | Convertible | X | |
| |||
| TTT | Convertible | X | |
| |||
| UUU | Convertible | X | - | | |||
| VVV | Convertible | X | |
| |||
| WWW | Convertible | X | |
- | |||
| XXX | Convertible | X | |
- | |||
| YYY | Convertible | X | |
- | |||
| ZZZ | Convertible | X | |
- | |||
| AAAA | Convertible | X | |
- | |||
| Total Convertible Debt | |
| |||||
| Less: Discount | ( |
( | |||||
| Convertible Debt, Net of Discounts | $ |
$ | |||||
| Convertible Debt, Net of Discounts, Current | $ |
$ | |||||
| Convertible Debt, Net of Discounts, Long-term | $ |
$ | |||||
| 18 |
FOOTNOTES FOR CONVERTIBLE DEBT ACTIVITY FOR NINE MONTHS ENDED SEPTEMBER 30, 2021
(BB)
On September 23, 2015 the Company received a total of $50,000 from an accredited investor in exchange for a two year note in the aggregate amount of $50,000 with interest accruing at 10%. The note is convertible after September 23, 2015 and is convertible into the Company’s common stock at a conversion rate of $0.15 per share. The market value of the stock at the date when the debt becomes convertible was $1.17. The debt issued is a result of a financing transaction and contain a beneficial conversion feature. The accrued interest of $5,000 was converted to 166,666 shares of common stock on September 15, 2019. The accrued interest of $5,000 was paid in cash in the year of 2020. On January 1, 2019, due date of this note was extended until January 1, 2020. No gain or loss on conversion was recorded as conversions were made within the terms of agreement. On May 18, 2021, the noteholder converted the remaining principal of $50,000 and accrued interest of $10,197. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
(CC)
On September 23, 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 was convertible after September 23, 2015 and was convertible into the Company’s common stock at a conversion rate of $.45 per share. The market value of the stock at the date when the debt becomes convertible was $1.17. The debt issued is a result of a financing transaction and contain a beneficial conversion feature. On May 18, 2021, the noteholder converted the accrued interest of $26,712. The remaining balance of principal and interest was $100,000 and $0, respectively, at September 30, 2021.
(CCC)
On December 21, 2018, the Company received $25,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest is convertible into common shares at $.75 per share. On January 22, 2019, the ratchet provision was activated due to issuance of another convertible note. As such, the conversion price was decreased from $.75 per share to $.45 per share. As the change is greater than 10%, the discount of $25,000 was recorded as a loss on extinguishment. The maturity date of the notes had been extended to January 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 May 24, 2021, the noteholder converted the remaining principal of $29,055 and accrued interest of $969. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
(HHH)
On April 22, 2019 the Company received $35,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The maturity date of the notes had been extended to January 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 May 24, 2021, the noteholder converted the remaining principal of $39,741 and accrued interest of $1,325. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
(RRR)
On January 8, 2020, the Company received $15,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The maturity date of the notes had been extended to January 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 May 24, 2021, the noteholder converted the remaining principal of $16,177 and accrued interest of $539. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
(UUU)
On August 13, 2020, the Company received $20,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 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 May 24, 2021, the noteholder converted the remaining principal of $20,614 and accrued interest of $687. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
| 19 |
(WWW)
On January 22, 2021, the Company received $60,000 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 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 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..
(XXX)
On February 28, 2021, the Company received $100,000 from the issuance of convertible debt to a High Net Worth Investor. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 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.
(YYY)
On March 31, 2021, the Company received $50,000 from the issuance of convertible debt to a High Net Worth Investor. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 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.
(ZZZ)
On May 4, 2021, the Company received $40,000 from the issuance of convertible debt to a High Net Worth Investor. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 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.
(AAAA)
On May 6, 2021, the Company received $66,000 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 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 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.
NOTE 7 – NON-CONVERTIBLE DEBT
| September 30, 2021 | December 31, 2020 | |||||||
| Note 5 | ||||||||
| Note BBBB | - | |||||||
| Note CCCC | - | |||||||
| 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 default as of September 30, 2021 with an outstanding balance of $9,312.
(BBBB) On July 22, 2021, the Company received a total of $55,000 to be used for operating expenses, which matures on March 31, 2022. The note bears interest accruing at 9% per year.
(CCCC) On August 1, 2021, the Company received a total of $150,000 to be used for operating expenses, which matures on March 31, 2022. The note bears interest accruing at 10% per year.
Related Party
| B-Related Party | ||||||||
| Loan payable - Stockholder, 0%, Due December 31, 2021 (1) | $ | $ | ||||||
| $ | 250,000 | $ | 250,000 |
| (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 $16,767 and $16,875 for the nine months ended September 30, 2021 and 2020, respectively. As of September 30, 2021, the balance of the debt was $250,000. |
| 20 |
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 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.
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 February 13, 2020, the Company sold a 0.25 subscription unit for $12,500. Each unit consists of 66,667 post-reverse split shares of the Company's common stock; 66,667 one-year class A warrants at an exercise price of $0.12 per Company's post-reverse split share; 66,667 two-year class B warrants at an exercise price of $0.18 per Company's post-reverse split share; and 1,000,000 shares of common stock of Kaya Brands International, Inc, which is a majority-owned subsidiary of the Company. As of September 30, 2021, the shares had not been issued.
On July 13, 2020, a total of 533,333 shares of common stock of Kaya Holding Inc. were issued for services performed; 266,667 shares were issued to a non-management consultant and related parties and 266,666 shares were issued to a related party The shares were valued at $264,000. Total of 480,000 shares of common stock has been issued for service performed by employees. The shares were valued at $237,600.
On July 20, 2020, total of 683,753 shares of common stock of Kaya Holdings Inc. were issued in satisfaction of 5 promissory notes. The total principal and interest converted were $102,563. There was no gain or loss on conversion as the conversion was done per terms of the note agreement.
On October 7, 2020, a total of 66,667 shares of common stock of Kaya Holding Inc. were issued for services performed. The shares were valued at fair value of $26,392
The above issuances reflected a 15 to 1 reverse stock split, which resulted in a total of 14,264,409 outstanding as of December 31, 2020 and 402 rounding shares issued in 2020.
On January 22, 2021, the Company sold and issued 50,000 shares of common stock for gross proceeds of $15,000.
On March 8, 2021, the Company sold 66,666 shares of common stock for gross proceeds of $20,000 and issued on March 11,2021.
On March 5, 2021, total of 41,666 shares of common stock had been issued from stock payable for stock subscripted in 2020.
On May 18, 2021 the Company received conversion notices totaling 579,390 shares, which were issued on June 7, 2021. This settled convertible debt and interest totaling $86,909.
On May 24, 2021 the Company received conversion notices totaling 727,375 shares, which were issued on June 7, 2021. This settled convertible debt and interest totaling $109,106. There was no gain/loss on these conversions, as they were made within the terms of the note agreements.
On July 26, 2021, the Company reached an agreement with a shareholder and board member for the return of 1,006,671 shares of common stock. The par value of the shares were accounted for in additional paid in capital, in the amount of $1,007.
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 from 0.05% to 2.63%, volatility ranging from 84.63% to 243.22%, trading prices ranging from $0.42 per share to $6.15 per share and a conversion price ranging from $0.15 per post- reverse split share to $0.38 per share.
| 21 |
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:
Derivative liabilities
| Balance as of December 31, 2020 | $ | |||
| Initial | ||||
| Change in Derivative Values | ( |
|||
| Conversion of debt-reclass to APIC | ( |
|||
| Balance as of September 30, 2021 | $ |
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 recoded initial derivative liabilities of $882,080 and $584,485 for the new notes issued for nine months ended September 30, 2021 and 2020, respectively.
The Company recorded derivative liability expense of $566,080 and $319,484 for the nine months ended September 30, 2021 and 2020, respectively.
The Company recorded a change in the value of embedded derivative liabilities expense of $9,825,029 and $13,232,597 for the nine months ended September 30, 2021 and 2020, respectively.
The Company recorded a reclassification of derivatives liabilities to additional paid in capital due to conversion of date of $283,326 during the nine months ended September 30, 2021.
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 $537,746 and $542,624 as of September 30, 2021 and 2020, respectively.
The Company recorded the amortization of debt discount of $273,184 and $194,061 for the nine months ended September 30, 2021 and 2020, respectively.
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 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 $1,300,000.00 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 $1,433,000.00. The purchase price of $1.3 million for the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the issuance of 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.
| 22 |
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 $27,273 representing the equity not currently owned by the Company. The financial statements have been consolidated with the Company.
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 a monthly compensation of $25,000. Due to the liquidity of the Company, the compensations were paid partially over the periods. As of Septemner 30, 2021, the accrued compensation was approximately $970,405, whereas, $820,405 was carried over from prior years. As of September 30,2021, the Company also had $18,274 of accounts payable due to Tudog International Consulting, Inc. and BMN Consultants, Inc.
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.
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.
KAYS has listed the warehouse property for sale with the goal of using the realized funds to propel progress in our U.S., Israel and Greece, as well as improve our balance sheet. Projects we plan to focus on include launching Kaya Harmony™ - Kaya Farms™ U.S.A., introducing a number of consumer product brands, redesigning our Kaya Shack™ stores, launching CBD brands in Europe, and acquiring land in Israel through an Israeli government tender program.
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 $14,992.00.
One of the Fiat was transferred to Mr. Frank in lieu of $15,000.00 in fees owed him. After adjusting for net book value, the Company recorded $12,453 to additional paid in capital.
NOTE 12 – STOCK OPTION PLAN
In 2011 the Alternative Fuels America, Inc. 2011 Incentive Stock Plan (the “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 2011 Incentive Stock Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2011 Incentive Stock Plan is administered by the board of directors.
On July 22, 2020, the Board of Directors approved the issuance of 666,667 shares of stock to recipients of the plan (the shares are to be issued after the 2020 June 30 Quarterly filing is completed). Upon issuance the remaining balance of the shares available in the plan will be 60,333 shares.
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.
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.
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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, 2020 | |
||
| Granted | - | - | - |
| Exercised | - | - | - |
| Expired | - | - | - |
| Balance as of September 30, 2021 | |
NOTE 14 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has several operating leases for an office and store lease in Fort Lauderdale, Florida and several locations in Oregon under arrangements classified as leases under ASC 842.
Effective June 12, 2017, the Company leased the office space in Fort Lauderdale, Florida under a 5-year operating lease expiring June 30, 2022. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,017 and culminating in a monthly payment of $4,839. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease was terminated on July 3, 2019 and the Company agreed to issue landlord 500,000 shares of common stock as penalty for early termination.
Effective June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021. The rental payment is $1,802 per month. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease.
Effective May 15, 2014, the Company leased an unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019, the lease had been extended to May 15, 2024. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $2,250 and culminating in a monthly payment of $2,632. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective June 1, 2015, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $3,584 and culminating in a monthly payment of $4,034. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,367 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 lease is now on a month-to-month basis.
Effective April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,617 and culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
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.
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The Company has right-of-use assets of $278,638 and operating lease liabilities of $320,127 as of September 30, 2021. Operating lease expense for the nine months ended September 30, 2021 were $150,822. 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 have recorded $87,151 in impairment charges related to right-of-use assets during the year ended December 31, 2020.
Schedule of commitments and contingencies
| Maturity of Lease Liabilities at September, 2021 | Amount | ||||
| 2021 | |||||
| 2022 | |||||
| 2023 | |
||||
| Later years | |
||||
| Total lease payments | |||||
| Less: Imputed interest | ( |
) | |||
| Present value of lease liabilities | $ | ||||
Note 15- 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. Management evaluated the activity of the Corporation through the date the financial statements were issued, and concluded that no subsequent events have occurred that would require recognition in the financial statements or disclosure in the notes to the financial statements, other than those listed below.
Sale of Eugene, Oregon Cannabis Facility for $1.325mm
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.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview
General
Kaya Holdings, Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana enterprise that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges and cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting highly distinctive brands.
KAYS is a veteran of the global legal cannabis industry, with more than six years of operational experience. KAYS is the first U.S. publicly traded company to operate a legal marijuana dispensary, as well as the first to vertically integrate by adding cultivation and manufacturing.
The Company’s business strategy seeks to achieve four fundamentals objectives:
| · | 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. |
KAYS currently operates three majority-owned subsidiaries, each responding to various demands and opportunities in the cannabis industry, to aid in the execution of these objectives:
Marijuana Holdings Americas, Inc.
Marijuana Holdings Americas, Inc. (“MJAI”), incorporated in 2014, operates the Company’s U.S. based cannabis operations including its Kaya Shack™ retail brand and the Kaya Farms™ cultivation brand.
After an evaluation of several factors including reputation for cannabis excellence, costs of entry, learning opportunity, and ease of regulatory structure, the Company selected Oregon as its point-of-entry into the legal cannabis sector where it commenced operations in Oregon in July 2014. Oregon is universally recognized for its excellence in cannabis cultivation and is part of the famed “Green Triangle” of expert cannabis cultivation that also includes Northern California. Having Oregon as the Company’s learning ground has allowed the Company to combine “traditional” methods of cannabis cultivation with modern agriculture techniques.
The Company’s US operations are currently focused in Oregon, where all of the Company’s operations are licensed by the Oregon Liquor Control Commission (the “OLCC’), which has jurisdiction over legal medical and recreational cannabis grow, production and retail operations. The Company has three active OLCC Marijuana Retailer Licenses, each of which allow for one brick-and-mortar physical dispensary location as well as unlimited delivery operations tied to the geographic location of the fixed based licensed operations. KAYS currently operates two Kaya Shack™ retail outlets (one in South Salem and one in Portland), and is in the process of targeting its third license to open an additional third outlet in Portland
The Company has developed its own proprietary Kaya Farms™ strains of cannabis, which it has grown and produced at the various medical and recreational grows that the Company has operated and maintained over the past seven years in Oregon.
The Company owns a 26-acre farm in Lebanon, Linn County, Oregon, on which it is in process of constructing an 85,000-square foot Kaya Farms™ Greenhouse Grow and Production Facility. The Company has received county zoning approvals for the complex, and has recently been notified by the OLCC that they are ready to proceed with KAYS Production (Grow) Licensing for the Linn County Facility pending completion of initial construction.
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Kaya Brands USA
Kaya Brands USA, Inc. (“KBUS”) was recently incorporated to manage and leverage the intellectual property associated with the Kaya family of brands and seek out US based projects and ventures to enhance shareholder value associated with their development.
KBUS presently manages 18 proprietary brands formulated and developed by the Company which includes the Kaya Shack™ retail brand, the Kaya Farms™ cultivation brand, and the Kaya Gear™ apparel brand, as well as a host of carefully developed cannabis and CBD products that include cannabis extracts and concentrates, vape cartridges, chocolates, gummies and chews, topicals and creams, beverages, foods, and cannaceuticals.
Kaya Brands International and International Plans for Expansion
Kaya has implemented a strategic shift away from the U.S. cannabis market, its initial intended focus, placing current expansion emphasis on international opportunities and brand extensions. While the US Cannabis markets initially received a strong tail wind from the 2021 change in administration and the fact that US Cannabis Banking and Taxation Laws and Regulations are forecast to become more industry friendly, KAYS believes that it will still be some years until such time that the Federal Laws allow for Interstate Cannabis Commerce and true economies of scale to develop within the emerging U.S. Cannabis Markets. Thus, KAYS has developed an exciting international growth program with the potential for strategic position and growth, all the while remaining prepared for the eventuality of a more inviting U.S. market.
Kaya Brands International, Inc. (“KBI”) was incorporated in late 2019 to serve as the Company’s vehicle for expansion into worldwide cannabis markets. KBI is seeking to leverage the other product brands for development of the Kaya Shack™ retail and Kaya Farms™ brands in Europe and elsewhere as opportunities permit. Projects currently under development include licensing of the Kaya Shack™ retail brand for franchising in Canada and licensing of the Kaya Farms™ brand to develop cultivation projects in Greece, Israel and other potential locations.
This segregation of US and foreign based activities would allow for KAYS to eventually have KBI listed on a recognized securities exchange such as the OTCQX, NASDAQ or NYSE in the US, the Canadian Securities Exchange or “CSE” in Canada (a Canadian Exchange that has proven to be an excellent source of new institutional and retail investment capital and liquidity for both Canadian and U.S.-based OTC cannabis stocks) or other such international exchange that would allow KBI to access additional capital not currently available through US over-the counter (“OTC”) markets.
KAYS intends to maintain a majority ownership of KBI, but is also working on plans to issue a dividend of common stock in KBI to stockholders of record at a date to be determined by the Board of Directors of KAYS.
Additionally, KAYS intends to structure KBI’s participation in projects that would lead to these projects eventually seeking their own public company status and corresponding issuance of securities which could potentially significantly enhance the value of KAYS/KBI’s investment and possibly lead to dividends for KAYS/KBI’s stockholders. There can be no assurance given as to whether or when KAYS will be able to do so, or it would ultimately be successful in increasing stockholder value.
Recent Developments
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.
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 $35,000.00
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 are being used to repay certain debt and strengthen its balance sheet, as well as providing the initial stage capital for some of the Company’s U.S. and global expansion activities, including its cultivation sites in Greece and Israel.
Corporate Information
Our corporate office is located at 915 Middle River Drive, Suite 316, Fort Lauderdale, Florida, 33304. Our telephone number is 954-892-6911 and our corporate website is www.kayaholdings.com. Information contained on our corporate website does not constitute part of this filing.
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The Global Cannabis Industry
New Frontier Data estimates the existing global demand for cannabis to be $344.4 billion USD, using consumption levels and market prices to reach their estimate. The illicit market, with the exception of the relatively few countries that regulate and license cultivation or importation of cannabis, meets the vast majority of global demand for cannabis.
There are an estimated 263 million people globally who can be classified as cannabis consumers, demonstrating significant demand for the medical, wellness, and recreational uses of cannabis. The strength of demand varies by region and depends heavily on the status of legalization, levels of social acceptance, and access to cannabis. There are an estimated 1.2 billion people worldwide suffering from medical conditions for which cannabis has shown therapeutic value.
There are currently 55 countries with legalized cannabis for medical use. The regulatory framework varies by country and may differ in rules for qualifying conditions, physician participation, production and processing, accepted delivery systems, insurance payment participation, and potency permitted. The stringency of the rules typically has a significant impact on the size, growth, and reach of each program.
Canada and Uruguay are the first two nations with legal recreational cannabis, with a few other nations set to follow, including South Africa, Georgia and Mexico. The aim of the legal programs is to transition the illicit market to the legal, regulated and taxable markets. Canadian companies were the first to create global cannabis infrastructure and are poised to compete with other emerging export centers, including Israel, Greece and Colombia.
The United States has been the global leader in cannabis innovation, including new genetics, cultivation techniques, derivative products, and delivery methods. U.S. based companies are beginning to move into the global arena.
The opportunity represented by legal cannabis is significant, but many countries limit the number of legal participants and have regulatory policies that are still evolving, leading to high overall risk and barriers to entry.
As governments in newly legalized markets lay the foundations for their nascent industries, many lack or do not wish to regulate domestic cultivation and production activity. This forms the foundation for a vibrant international cannabis import-export sector.
North America
North America, according to New Frontier Data, represents a total cannabis demand (legal & illicit) valued at $86 billion USD.
The United States and Canada have been leading the global legal cannabis movement, which in turn impacts the way governments worldwide are structuring the regulation of legal cannabis in their own countries.
Canada
Canada is the first G-7 nation to fully legalize cannabis for medical and recreational use. The legal structure has given rise to large Canadian cannabis companies that have achieved high valuations, which they have leveraged to purchase supply chain companies and invest in infrastructure projects to produce cannabis at costs lower than those in Canada.
To date, Canadian companies report exporting only several thousands of pounds of cannabis to more than 20 different countries, collectively – demonstrating the early stage of development of the global cannabis market, and by extension the remaining opportunities.
The United States
New Frontier Data forecasts that the legal U.S. markets will generate nearly $19 billion in legal sales in 2020, growing to over $20 billion by 2022.
Cannabis remains federally illegal in the United States, even as support for legal recreational cannabis remains above 60% in most reputable polls. Regardless of the federal status of cannabis, currently 33 U.S. states have enacted laws legalizing some form of medical cannabis, and 10 states and the District of Colombia have legalized recreational use cannabis. The United States has been the global leader in cannabis innovation, including new genetics, cultivation techniques, derivative products, and delivery methods.
States with some type of legal medical cannabis laws include Arizona, Arkansas, Connecticut, Delaware, Florida, Hawaii, Illinois, Georgia, Indiana, Iowa, New Hampshire, Louisiana, Rhode Island, Minnesota, Missouri, Maryland, Montana, Michigan, New Mexico, New York, North Dakota, New Jersey, Ohio, Oklahoma, Vermont, Pennsylvania, Rhode Island, Texas, Utah, and West Virginia. States permitted the sales of recreational or “adult-use” cannabis are Alaska, California, Colorado, Illinois, Maine, Massachusetts, Michigan, Nevada, Oregon, Vermont, and Washington. The District of Colombia (Washington D.C.) also permits adult-use cannabis.
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Europe
New Frontier Data estimates the European cannabis market (legal & illicit) generates $69 billion USD annually, with France, Italy and Spain having the greatest number of cannabis consumers, and Germany with the most robust medical program to date.
With the U.S. political shift creating federal U.S. legalization optimism, the U.S. marijuana market is projected to grow to $30-$37 billion by 2024. On the other hand, with over twice the population of the U.S. and Canada combined, Europe’s cannabis market is projected to reach $146.37 billion by 2028.
There are almost 30 European countries that permit some form of legal medical cannabis including, France, Italy, Germany, United Kingdom, Spain, Poland, Czech Republic, Croatia, Cyprus, Denmark, Finland, Greece, Israel, Luxembourg, North Macedonia, Malta, Netherlands, Norway, Poland, Romania, Switzerland, Turkey, Ireland, Lithuania and Portugal. The European Union requires its member countries to enforce the European Union Good Manufacturing Practices (GMP), which detail the production standards for medicinal products. These standards are typically stringent and can be costly for cannabis companies.
Israel and Greece
Israel has a small population but a long established history of legal medical cannabis development. It continues as a leader with years in the development of cannabis pharmaceuticals, and together with Greece the 2 are projected to form a “Silicon Valley” network for the development of medical cannabis production to service the European Markets and beyond.
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The Kaya™ Family of Brands
Kaya Holdings, Inc., “KAYS” or the “Company” a Delaware corporation, is a vertically integrated legal marijuana enterprise that produces, distributes, and/or sells a full range of premium cannabis products including flower, oils, vape cartridges and cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting highly distinctive brands.
Current Brands (2014-2020)
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Next Stage Traditional (2022)
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Next Stage Innovative (2022)
Note: The “Next Stage Traditional” and “Next Stage Innovative” brands are all targeted for release in 2022. The Company is currently awaiting the culmination of both the new licensing process and buildout of the Kaya Farms Ag Facility in Lebanon, Oregon and developments with the Company’s projects in Israel and Greece to finalize the release dates for these brands. In the event that the licensing approval and construction timeline of these facilities is delayed or experiences difficulties, the Company has sourced other alternatives to expedite the release of the brands and will update shareholders accordingly.
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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 operates two recreational marijuana retail outlets and medical marijuana dispensaries in Oregon under the Kaya Shack™ brand.
Dubbed by the mainstream press as the “Starbucks of Marijuana” after our first outlet opened in July 2014, our operating concept is simple: to deliver a consistent customer experience (quality products, fair prices and superior customer service) to a broad and diverse base of customers. Kaya Shack™ meets the quality needs of the “marijuana enthusiast”, the comfort and atmosphere of all including “soccer moms” and the price sensitivities of casual smokers.
The Kaya Shack™ brand communicates positive thinking and joy, with signs adorning the walls that read “It’s a Good Day to have a Good Day,” “Some of our Happiest Days Haven’t Even Happened Yet,” and our signature “Be Kind.”
Kaya Shack™ retail outlets are open 7 days a week- Monday through Saturday from 8:00 am to 10:00 pm, and Sunday 8:00 AM to 9:00 PM. Operations follow an operational manual that details procedures for 18 areas of operation including safety, compliance, store opening, store closing, merchandising, handling of cash, inventory control, product intake, store appearance and employee conduct.
In compliance with regulations, all marijuana and marijuana infused products sold through our stores are quality tested by independent labs to assure adherence to strict quality and OLCC regulations.
The Company is exploring opportunities to expand its operations beyond Oregon by replicating its Kaya Shack™ brand retail outlets through franchising in other states where medial and or recreational cannabis use is legal or expected to become legal in the near term, as well as in Canada, Greece and Israel, as part of KAYS International Expansion Plans. KAYS also is targeting opening corporate owned marijuana production and processing facilities to support the envisioned franchised outlets, and to both maintain quality control and offer customers a consistent customer experience while reducing costs of goods to franchisees.
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Kaya Shack™ Retail Outlets
All stores feature a check out stand wrapped to feature the Company’s proprietary brand of pre-rolls, Kaya Buddies. The Buddies program is an exciting and popular pre-roll offering, featuring a wide selection (15-15 strains of pre-rolls) and featuring our special Kaya Saying in each Buddies tube. A glass display case showcases at least 25 strains of marijuana flower, which the stores serve to customers “deli style”, weighing straight from the jar to the customer’s take-out tube. An additional display case with a varied selection of oils, concentrates and topicals rounds out the cannabis product display.
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The stores also feature standing display cases with cannabis intended glassware under the Company’s brand Really Happy Glass, as well as a rack of proprietary t-shirt designs marketed under the Company brand Kaya Gear. The store also has a hospitality area that offers free water, coffee, tea and hot cocoa. As required by law, all products containing marijuana are either behind locked glass or behind the counter and out of customer reach.
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I. Kaya Shack™ , 1719 SE Hawthorne Blvd., Portland, Oregon.
Our first Kaya Shack™ OLCC licensed marijuana store (located in the heart of the trendy Hawthorne district in southeast Portland, the “Greenwich Village” of the West Coast) opened for business July 03, 2014. The store is located next door to a cell phone repair shop, and near to Devil’s Dill restaurant and No Fun pub. There are also a McMenamins restaurant, tattoo parlor, convenience store, hair/nail salon and a soccer sports bar. The area around the shop is mixed use (commercial and residential) and has a footprint of approximately 700 square feet and is the model for the Company’s small urban shops.
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II. Kaya Shack ™ Marijuana Superstore, South Salem, Oregon.
Our second Kaya Shack™ OLCC licensed marijuana store (located in South Salem, Oregon) opened for business on October 17, 2015. The store is located in a strip mall alongside a Caesar’s Pizza, Aaron’s furniture, a convenience store, a tanning salon, and a nail salon. The plaza also has a Subway, a sports bar and a laundromat. The area around the shop is primarily commercial with residential complexes under construction and has a footprint of approximately 2,100 square feet and serves as the model for the Company’s superstores featuring larger display areas and a soon-to-be-opened Pakalolo Juice Company infused fresh fruit smoothies stand.
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Kaya Shack™ Car Fleet and Home Delivery
The Company is licensed by the OLCC for home delivery for all of its retail licenses and has two Kaya Cars featuring the Company’s branding logos outfitted with safes and security equipment. We have begun to offer deliver within the geographic areas of Portland and Salem.
The Company has developed the website www.kayadelivers.com to advance the growth of its delivery service and to offer pre-ordering for curbside pickup in light of the coronavirus pandemic to better serve our customers.
We expect delivery to extend our visibility, assist in building brand awareness, and allow the Company to service a broader geographic territory.
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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 operated and maintained over the past seven years in Oregon. Additionally, KAYS has produced a full line of cannabis concentrates and extracts which it has initially produced through third party manufacturers and marketed at the Kaya Shack Stores, along with the very popular Kaya Buddies line of strain specific cannabis cigarettes.
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Kaya Farms™
Lebanon, Linn County, Oregon Marijuana Grow and Manufacturing Complex
In early 2015, KAYS commenced its own medical marijuana grow operations for the cultivation and harvesting of legal marijuana thereby becoming the first publicly traded U.S. company to own a majority interest in a vertically integrated legal marijuana enterprise in the United States. Since that time KAYS has operated various grow facilities to feed the Kaya Shack Supply Chain, and in August 2017, KAYS acquired its first property for a large scale facility- a 26-acre parcel in Lebanon, Linn County, Oregon, where we intend to develop an 85,000-square foot Kaya Farms™ facility.
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We filed for zoning and land use approval in early 2018, and after numerous regulatory challenges and delays, we finally received zoning and land use approval in early 2019 to build on the property. We are presently in the process of initiating Stage 1 construction and final licensing on the property to meet the Spring 2022 growing season.
Management believes that the acquisition and development of the property will position the Company for future growth and expansion, including increased Marijuana Canopy production to the maximum extent allowed by law through use of both greenhouse and outdoor grows.
Under present laws the property can easily deliver 6-8,000 pounds of cannabis each year; if future regulations permit this capacity could easily be increased to over 100,000 pounds of cannabis per year.
When the federal prohibition on marijuana use and manufacture ends and national and international cannabis trade can begin, we believe that Oregon is uniquely positioned to become America’s “pot basket” due to its superior climate and state history involving generations of Oregonian Cannabis Growers; ideal weather + extensive generational knowledge = superior, lower cost cannabis products for export.
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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 pre-rolls, but none that we know of offer strain specific pre-roll made from the buds of the flower.
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Kaya Brands International
After over seven years of conducting “touch the plant” U.S. cannabis operations inside the strict regulatory confines of a public company, KAYS has formed Kaya Brands International, Inc. (“Kaya International” or “KBI”), to leverage its experience and expand into worldwide cannabis markets. KBI’s current operations and initiatives include Canada Greece, and Israel, with additional areas under consideration including Mexico, and Zimbabwe.
Canada
Canadian Franchising: KAYS has endeavored to launch its franchise program and growth strategy in Canada. To this end, the Company has retained the Toronto based law firm of Garfinkle Biderman LLP to prepare the legal infrastructure required to enable the Company to sell Kaya Shack™ franchises in Canada.
Garfinkle Biderman has since completed the necessary legal work and the Company is currently in negotiations with different potential development partners to launch franchised operations in Canada and hopes to establish up to 100 franchised locations there over the next five years.
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Greece
Kaya Kannabis is a joint venture project cultivation-for-export cannabis-farming project of Athens based Greekkannabis PC (“GKC”) and KBI. GKC is a recently formed Athens, Greece based cannabis company with deep ties in the Greek business community and a strong presence in the academic and agricultural communities. The alliance is designed to combine the business acumen and extensive European network of GKC with the broad cannabis industry and cannabis cultivation experience of Kaya Holdings.
Kaya Kannabis Medical Cannabis Production Facility in Thebes, Greece (Project Design Rendering)
Project Description
Project Management envisages twelve 35,000 sq. feet (approximately 3,500 sq. meters) of light deprivation greenhouses situated on fifteen acres of land, and supported by an additional 50,000 sq. feet (approximately 5,000 sq. meters) building for workspace, storage and administrative offices.
Under this model the farm will support 9,360 plants per greenhouse (for a total plant count of 112,320 plants per harvest). There will be four harvests each year for a total of 449,280 cannabis plants harvested annually. The Company estimates total farm production, once completely constructed and operating at full capacity, to be at a minimum of approximately 225,000 pounds of premium grade cannabis annually.
Project Location
GKC has entered into an agreement to purchase 15 acres of land outside of Athens in Thebes, Greece, approximately 75 minutes from Athens plans to establish the Kaya Kannabis Cultivation and Processing Facility. The region offers optimal growing conditions for cannabis and will enable the Company to produce exceptional cannabis economically.
The project location provides:
| § | 15 acres of flat land, with additional land available. |
| § | Full exposure to sunlight, without shadows cast. |
| § | Access to sufficient water, with operating wells. |
| § | Access to sufficient electricity. |
| § | Access to logistic routes. |
| § | Proximity to sufficient work force, both professional & labor. |
| § | Easy to secure (for security & safety). |
| § | Zoned for cannabis production. |
| § | Land is completely cleared and ready for construction. |
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Kaya Kannabis Medical Cannabis Production Facility in Thebes, Greece (Project Design Rendering)
Current Project Status & Developmental Timeline
On October 31, 2019 KAYS entered into an initial Memorandum of Understanding (“MOU”) setting forth an agreement in principle for KBI to acquire a 50% ownership interest in GKC, pursuant to which in consideration for KBI providing the necessary expertise related to cannabis cultivation, processing, brand development and other matters, KBI would have the right to acquire a 50% ownership interest in GKC by reimbursing GKC for 50% of its license application costs (with allowances for KBI’s expenses as well).
On April 22, 2020 KAYS/KBI received confirmation from their Greek counsel that the Greek government had awarded the crucial Installation License for the project. There are three licenses required for the Facility- an “Installation License” (which is the equivalent to a license to construct the facility), the “Operating License” (available only after construction is completed), and the “Production & Distribution License” (available from the EOF - the Greek equivalent to the U.S. FDA - once production can be evaluated).
On January 13, 2021 KAYS reported that its majority-owned subsidiary KBI had exercised its option to acquire a 50% interest in GKC. The acquisition of the 50% interest in GKC is the cornerstone of KAYS’ planned Kaya Kannabis project, announced in late June 30, 2020 with the objective of establishing a beachhead to enter the lucrative global medical cannabis market from Greece, a member of the European Union.
On January 21, 2021 KAYS announced that the Joint Venture has named Dimitris Bouras the Lead Engineer, and his firm, Whitestone MCI, the Chief Engineering Group for the development and construction of the Company's planned cannabis cultivation and processing facility in Thebes, Greece.
Dimitris Bouras has successfully been planning and constructing large engineering projects internationally for 30 years, and serves as the CEO of Whitestone, a firm founded in 2008 that is active in engineering, design, construction and O&M of industrial, marine and commercial projects. Whitestone MCI has been active in the Medical & Industrial Cannabis Industry since 2017 and is a leading Engineering & EPC Contracting Company that offers total project development services to GACP/EU GMP Standards. Whitestone MCI currently has active projects in Greece, Cyprus, Portugal, North Macedonia, Poland and Africa.
On February 1, 2021 KAYS reported that the joint venture had engaged Dutch based Orange Ridge Capital B.V. (“Orange Ridge”) to raise up to $45 million for its planned 15-acre cannabis cultivation and processing facility in Thebes, Greece.
Orange Ridge Capital B.V. ("Orange Ridge") is registered at the Dutch Authority for the Financial Markets (AFM: Autoriteit Financiele
Markten) and is registered as an Alternative Investment Fund Manager (an "AIFMD") with the Dutch Supervisory Authority in The
Netherlands. Orange Ridge has comprehensive expertise in sustainable real asset investments that require significant due diligence and
technical expertise, access to capital, and local partnerships in strategic locations.
As an AIFMD, Orange Ridge's mission is to generate attractive investment returns from high-quality sustainable real assets such as timberland, farmland, agriculture, infrastructure, real estate, and renewable energy in Europe, the Americas, and Australasia, and provides these sustainable real asset investment solutions and strategies to a wide range of clients in Europe, the Middle East, and the Americas, such as pension funds, insurance companies, sovereign wealth funds, family offices, and investment consultants.
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Kaya Shalvah is the Israeli-based cultivation-for-export project cannabis farming project of U.S. based Kaya Brands International, Inc (“KBI”), a majority owned subsidiary of Kaya Holdings, Inc.
Kaya Shalvah Cannabis Production Facility, Greenegeve Cannabis Ecosystem, Yerucham, Israel (Project Design Rendering)
Project Description
Kaya Shalvah will, at full capacity, comprise twenty light deprivation greenhouses, each 35,000 sq. feet (approximately 3,500 sq. meters), situated on 25 acres of land, and supported by an additional 80,000 sq. feet (approximately 8,000 sq. meters) structure for workspace, storage and administrative offices.
Under this model the farm will support 9,360 plants per greenhouse (for a full-capacity total plant count of 187,200 plants). There will be four harvests each year for a total of 748,800 cannabis plants harvested annually. The Company estimates total farm production, once completely constructed and operating at full capacity, to be at least 374,400 pounds (169,825 kilos) of premium grade cannabis annually. The targeted land is in Yerucham, Israel approximately 90 minutes from Tel Aviv.
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Project Location- Greenegev Cannabis Ecosystem, Yerucham, Israel
Why Israel, and Why Yerucham
Among Israel’s chief advantages, alongside its compatible climate, are its tradition of agricultural sophistication and its status as perhaps the world’s premier cannabis research center. Israel has been a pioneer in cannabis R&D for several decades, and has one of the highest per capita rates of medical cannabis patients in the world. Yerucham has a Development Zone A designation from the Israeli government, making economic growth in the area a national priority and attaching a wide range of financial incentives to companies therein establishing operations.
Under the leadership of its Mayor, Tal Ohana, Yerucham has embarked on a program to transform the small desert town into “Greenegev”, the first cannabinoid ecosystem in Israel. The plans call for cultivation, processing and research companies to concentrate their respective activities in Yerucham, attracting services that provide each resident company with core advantages by virtue of the cooperation and support the ecosystem community is uniquely positioned to provide.
The Company meets all the prescribed criteria and the licensing process is progressing, with the full support and valuable assistance of the Yerucham mayor’s office and the municipal staff. The Company is also benefitting from the support and guidance of Major General (Res.) Amram Mitzna, a former Yerucham mayor and the current chairman of the Yerucham Fund. Yerucham has a Development Zone A designation from the Israeli government, making economic growth in the area a national priority and attaching a wide range of financial incentives to companies therein establishing operations. The process is estimated to take between 6-9 months.
Layout for Yerucham-based Greenegev Cannabis Center
Current Licensing & Project Status
In late 2019 and early 2020, KBI retained the services of the Tel Aviv based law firms Zysman, Aharoni, Gayer and Sullivan Law, respectively, to assist the Company in obtaining an Israeli medical cannabis cultivation license and an Israeli license to export medical cannabis. Part of this process included the establishment of our entity to do business in Israel (Kaya Shalvah) as well as building out Kaya Shalvah’s Board of Directors and Board of Advisors (biographies listed below).
In early and mid 2020, the Company, through its attorneys, worked to prepare the requisite paperwork for its cannabis cultivation license application. On November 30, 2020 the Company submitted its application for its initial cannabis cultivation license to the Ministry of Health, Division of Medical Cannabis, and was advised that the review process would take 3 to 6 months.
On March 30, 2021 the Company confirmed that its Israeli subsidiary, Kaya Shalvah (Kaya Farms Israel) 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 the Company permission to proceed with its plans to develop commercial scale cannabis cultivation and processing site at the Green Negev cannabis complex in Yerucham, Israel, pending a tender for the land.
The Company is currently awaiting 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, the Company will 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 Canabis Center in Yerucham, Israel. Once the Company develops the site in accordance with all Israeli regulations, and meets all requisite standards, the final cultivation and processing licenses will be issued.
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The Company has established a Board of Directors for Kaya Shalvah that includes:
Offer Lapidot (Brig. Gen. Res.)
A career fighter pilot in the Israel Air Force (1969-1996), Offer served two tours as a fighter squadron commander, and served as commander of the Flight Training School, commander of the Ramon Air Force base, and Head of Planning & Organization (at Air Force HQ). Offer holds the rank of Brigadier General. After his military service Offer spent a number of years in senior management positions at Israel’s leading retailer, as well as CEO of a high-tech start-up, only to miss flying and return to the skies as a pilot for El Al airlines. After his mandatory retirement from commercial flying, he joined the El Al executive team as the Director of Safety and Quality for El Al Airlines. Offer studied for his B.A. degree in Economics at Bar Ilan University, and holds an M.S. in Management from the Naval Post Graduate School in Monterey, California.
Ilan Horesh (Col. Res.)
Ilan was a career Israel Defense Forces officer, retiring in 1993 after 23 years at the rank of Colonel. During his career Ilan held numerous command positions with combat ground forces. His final assignment in the IDF was Commander of the School of Electronics and Computerization. After his military service Ilan embarked on a career as an executive and leader in the Israeli high tech sector, working with such companies as Pelephone, Bezek, Paz Oil and others. Ilan has served on the Boards of a number of Israeli companies, including Taldor Computer Systems, Ltd., Rakah Pharmaceutical Industry, Ltd., Ampa Investments, Ltd., and Retalix, Ltd.
Joseph Gayer, Adv.
Joseph “Yossi” Gayer is one of the founders of the international law firm ZAG-S&W. Yossi is a prominent expert in a number of legal fields, including commercial litigation and contracts law, representing clients both on domestic and international matters.
Yossi also represents Israel’s leading professional athletes in all fields of sports, including advising sports clubs, organizations, and sponsors in Israel and abroad. His litigation practice has yielded many legal precedents that have influenced the status of professional athletes, both in Israel and abroad, with respect to their rights vis-a-vis employers, sports authorities, and various statutory institutes. Yossi’s expertise includes insurance and property law.
Yossi lectures at the Radzyner School of Law at the Interdisciplinary Center (IDC) Herzliya.
Gadi Katz
Gadi is the founder of Total Immersion Swimming Israel “TISI”, the Israel franchise of a multinational corporation in the sports and leisure market. Gadi has built the Company to a current 70 branches operating across Israel, serving thousands of clients annually. Since founding TISI in 2006, Gadi has become expert in online marketing and has development in-house a state of the art marketing and sales Business Intelligence system. Gadi is also an expert in business development, specializing in small and mid-sized companies. Prior to TISI, Gadi was the co-founder and CFO of the American-Israeli Crisis and Issue Management (AICIM) consulting firm. AICIM specialized in high-level advisory services to politicians (including candidates for Head of State) and business leaders globally. Early in his career Gadi practiced law at what is today Israel’s largest Law Office Meitar & Co., where he engaged in various business focused matters such as Venture Capital, IPOs, M&As, Joint Ventures, Spin Offs and Corporate Restructurings. Gadi holds a B.A. in Business Administration, Magna Cum Laude, LL.B and an MBA.
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The Company’s supportive Board of Advisors includes:
Uzi Teshuva
Uzi is a second-generation Israeli farmer, active in agriculture since his teenage years. Since 1991 Uzi has served as the CEO of a farm distributes its agricultural products, grown using groundbreaking and innovative agricultural methods. Uzi became the active Chairman of TAP, an agricultural engineering and technology company specializing in the design, construction and management of agricultural farms in numerous countries worldwide.
Elon Kaplan, Ph.D.
Elon, a Ph.D. in Organizational Psychology is the Founder and CEO of Cytegic, a cutting-edge cyber-risk quantification solution predicated on the idea that enterprise risk is a combination of three key elements: technology, people, and business. Cytegic was recently sold to MasterCard. Elon brings to Kaya Shalvah the guidance of a serial entrepreneur, a scientist and a cyber-security expert. As a business leader, he excels at building exceptional teams and driving innovative breakthroughs. As an applied behavioral scientist, he is trained in specific modeling and statistical methodologies. Prior to Cytegic, Elon was Founder and CEO of Gilon Yaad, Ltd., an organizational business strategy consultancy, where he worked with many large companies, including PayPal, El-Al, Johnson & Johnson, Bank Leumi, Bank HaPoalim, Discount Bank, Maccabi Healthcare, and Comverse.
Rafi Cohen
Rafi is the Israeli Chief of Operations for Day Three Labs. Rafi has managed and overseen small and large-scale cannabis research & development projects since 2015, specializing in medicinal, cosmetic , wellness and animal health product development. For the past five years, Rafi has been dedicated exclusively to working within the emerging Israeli and global cannabis industry, recognizing the commercial and medicinal potential of cannabis. Rafi has distinctive experience in cannabis research projects, product development, clinical studies, investments, and joint ventures. Rafi began his career as a corporate attorney with Fischer Behar Chen Well Orion & Co., where he focused on M&A and strategic corporate development. Later he was a founding partner at Cohen, Light, Ziv and Associates. Rafi has a B.ed. from Herzog College of Education, an MA from Yeshiva University in New York City and an LL.B. from the Hebrew University in Jerusalem.
Josh Rubin
Josh is the founder and CEO of Day Three Labs (DTL). Headquartered in Denver, Colorado and with research operations in Israel, DTL seeks to disrupt the cannabis industry by introducing Israeli cannabis related innovations to the North American and global markets. Josh began his career in the cannabis industry in 2017 as a consultant analyzing trends in the cannabis market. Recognizing the opportunity to bridge the North American and Israeli cannabis sectors, he launched DTL. Josh was well suited to establish DTL, for in addition to his extensive network in Israel, he speaks Hebrew and has experience living and working in Israel. During a five year period in Israel Josh studied at the Hebrew University and the Interdisciplinary College in Herzliya (IDC), worked in the Knesset, and worked for the International Institute for Counter-Terrorism as a researcher. Josh even found time to volunteer as a medic for Magan David Adom. Josh has a Masters of Business Administration from Johns Hopkins University (Marketing), a Masters Degree from IDC in Government and a Bachelor of Arts Degree from Queens College (Psychology & Philosophy).
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Government Regulation
We are subject to general business regulations and laws, as well as regulations and laws directly applicable to our operations. As we continue to expand the scope of our operations, the application of existing laws and regulations could include matters such as pricing, advertising, consumer protection, quality of products, and intellectual property ownership. In addition, we will also be subject to new laws and regulations directly applicable to our activities.
Any existing or new legislation applicable to us could expose us to substantial liability, including significant expenses necessary to comply with such laws and regulations, which could hinder or prevent the growth of our business.
Federal, state and local laws and regulations governing legal recreational and medical marijuana use are broad in scope and are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance. In addition, violations of these laws or allegations of such violations could disrupt our planned business and adversely affect our financial condition and results of operations. In addition, it is possible that additional or revised federal, state and local laws and regulations may be enacted in the future governing the legal marijuana industry. There can be no assurance that we will be able to comply with any such laws and regulations and its failure to do so could significantly harm our business, financial condition and results of operations.
Competition
The legal marijuana sector is rapidly growing and the Company faces significant competition in the operation of retail outlets, MMDs and grow facilities. Many of these competitors will have far greater experience, more extensive industry contacts and greater financial resources than the Company. There can be no assurance that we can adequately compete to succeed in our business plan.
Employees
As of the date as of this Report, our Oregon operations have a total of 12-15 part-time store employees including budtenders, trimmers, growers, 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.
Potential Effects of the COVID-19 Pandemic on our Business
The adverse public health developments and economic effects of the COVID-19 pandemic in the United States and overseas could adversely affect the Company’s customers and suppliers as a result of quarantines, facility closures and logistics restrictions in connection with the outbreak. More broadly, the COVID-19 pandemic could potentially lead to an extended economic downturn, which would likely decrease spending, adversely affect demand for our products and services, slow our international expansion plans, harm our business, results of operations and financial condition. The Company cannot accurately predict the effect the COVID-19 pandemic will have on the Company.
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Results of Operations
Three months ended September 30, 2021 compared to three months ended September 30, 2020
Revenues
We had revenues of $214,051 for the three months ended September 30, 2021 which was relatively unchanged as compared to revenues of $274,985 for the three months ended September 30, 2020.
Cost of Goods Sold
Our cost of goods sold for the three months ended September 30, 2021 was $62,245 compared to cost of goods sold of $105,862 for the three months ended September 30, 2020. The decrease in cost of goods sold was due to normal fluctuation in the wholesale cannabis market.
Salaries and Wages
Salaries and Wages decreased to $96,436 for the three months ended September 30, 2021 as compared to $94,1763 for the three months ended September 30, 2020. The decrease in salaries and wages was due to normal decrease in labor cost as well as the fact that we have less staff while we await licensing of our production facility in Lebanon.
Selling, General and Administrative Expenses
Selling, general and administrative increased to $225,245 for the three months ended September 30, 2021 as compared to $636,985 for the three months ended September 30, 2020. The decrease was primarily due decreases in marketing and office expenses.
Professional Fees
Professional fees were $316,979 for the three months ended September 30, 2021, as compared to $207,289 for the three months ended September 30, 2020. The increase in professional fees was a result of increased costs in this category.
Gain or Loss on Disposal of Assets
Gain on disposal of assets was $13,214 for the three months ended September 30, 2021, as compared to $0 for the three months ended September 30, 2020.
Interest Expense
Interest expense remained relatively unchanged at $153,746 for the three months ended September 30, 2021 from $150,386 for the three months ended September 30, 2020.
Amortization of Debt Discount
Amortization of debt discount was an expense of $60,113 for the three months ended September 30, 2021, as compared to $79,844 for the three months ended September 30, 2020.
Derivative Liabilities Expense
Derivative liabilities decreased to $0 for the three months ended September 30, 2021 from $147,315 for the three months ended September 30, 2020. The decrease was due to change in stock price as well as the volatility factors used in the derivative calculations.
Change in Fair Value of Embedded Derivative Liabilities
Change in fair value of embedded derivative liabilities was a gain of $4,562,135 for the three months ended September 30, 2021 compared to an expense of $12,266,838 for the three months ended September 30, 2020. These changes were due to change in stock price as well as the volatility factors used in the derivative calculations.
Net Income attributed to Kaya Holdings
We had net income of $3,951,793 for the three months ended September 30, 2021, as compared to a net loss of $13,400,142 for the three months ended September 30, 2020. The majority of our net income during the three-month period ending September 30, 2021 was a result of a gain on settlement of $45,458 and the derivative liabilities associated with our Convertible Debt and an increase in our stock price as well as the volatility factors used in the derivative calculations. The non-controlling interest for the three months ended September 30, 2021 and 2020 was a loss of $18,003 and a loss of $13,565 respectively.
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Nine months ended September 30, 2021 compared to nine months ended September 30, 2020
Revenues
We had revenues of $690,267 for the nine months ended September 30, 2021 as compared to revenues of $774,158 for the nine months ended September 30, September 30, 2020. The slight decrease in revenue is due to the normal fluctuation in the market and we are evaluating the effect of the COVID 19 pandemic.
Cost of Goods Sold
Our cost of goods sold for the nine months ended September 30, 2021 was $224,788 compared to cost of goods sold of $214,649 for the nine months ended September 30, September 30, 2020. The increase in cost of goods sold was due to normal fluctuation in the wholesale cannabis market and revised pricing policies.
Salaries and Wages
Salaries and Wages decreased to $271,057 for the nine months ended September 30, 2021 as compared to $329,020 for the nine months ended September 30, September 30, 2020. The decrease in salaries and wages was due to a reduction in staffing from the consolidation of retail outlets and reduced operations.
Selling, General and Administrative Expenses
Selling, general and administrative decreased to $625,093 for the nine months ended September 30, 2021 as compared to $1,001,414 for the nine months ended September 30, September 30, 2020. The increase was primarily due decrease in marketing and office expenses.
Professional Fees
Professional fees were $682,884 for the nine months ended September 30, 2021 as compared to $586,760 for the nine months ended September 30, September 30, 2020. The increase in professional fees was primarily related to increases in expenses for accounting, auditing and consulting.
Interest Expense
Interest expense and debt amortization expense increased to $464,566 for the nine months ended September 30, 2021 from $450,319 for the nine months ended September 30, September 30, 2020. The increase was related to an increase debt incurred over the past 12 months for expansion of our operations.
Derivative Liabilities Expense
Derivative liabilities expense increased to $566,080 for the nine months ended September 30, 2021 from $319,484 for the nine months ended September 30, September 30, 2020. The increase was due to change in stock price as well as the volatility factors used in the derivative calculations.
Change in Fair Value of Embedded Derivative Liabilities
Change in fair value of embedded derivative liabilities was a gain of $9,825,029 for the nine months ended September 30, 2021 compared to a loss of $13,232,597 for the nine months ended September 30, September 30, 2020. These changes were due to change in stock price as well as the volatility factors used in the derivative calculations.
Net Income attributed to Kaya Holdings Inc.
We had net income of $ 7,608,398 for the nine months ended September 30, 2021 as compared to a net loss of $15,482,804 for the nine months ended September 30, September 30, 2020.
The majority of our net income during the nine months ended September 30, 2021 was a result of gain on disposal of assets of $13,213, gain on settlement of $45,458 and the derivative liabilities associated with our Convertible Debt and a reduction in our stock price as well as the less volatility factors used in the derivative calculations. The non-controlling interest for the nine months ended September 30, 2021 and September 30, 2020 was a loss of $83,456 and $71,341 respectively.
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Liquidity and Capital Resources
KAYS has historically relied on a number of private placements of equity, debt and convertible debt to fund the cash shortfall from operations as well as to provide working capital for expansion.
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 funds received from the sale have been 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.
The Company will likely need to effect additional private or public offering of its debt or security to provide additional financing to meet its working capital needs prior to achieving profitability or positive cash flow. Howevever, 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.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the direction of Chief Executive Officer and Acting Chief Financial Officer (our principal executive, financial and accounting officer), we evaluated our disclosure controls and procedures as of September 30, 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 September 30, 2021.
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Securities Exchange Act of 1934 (the “Exchange Act”) is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer (our principal executive, financial and accounting officer), as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost benefit relationship of possible controls and procedures.
As required by SEC Rule 13a15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive, financial and accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of the first fiscal quarter covered by this report. Based on the foregoing, our Chief Executive Officer (our principal executive, financial and accounting officer) concluded that our disclosure controls and procedures were not effective. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Changes in Internal Controls
There was no change in our internal controls or in other factors that could affect these controls during the six months ended September 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting. We do not anticipate any changes to our internal controls at this time.
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PART II – OTHER INFORMATION
Item 1. Legal Proceedings
None.
Item 1A. Risk Factors.
See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2020.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits
| Exhibit No. | Description of Exhibit | ||
| 31.1 | Section 302 Certification | ||
| 32.1 | Section 906 Certification |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: November 22, 2021
KAYA HOLDINGS, INC.
By: /s/ Craig Frank
Craig Frank, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer).
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANESOXLEY ACT OF 2002
I, Craig Frank, Chairman, President, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer of Kaya Holdings, Inc., a Delaware corporation (the “Registrant”), certify that:
| 1. | I have reviewed this Form 10-Q for the quarter ended September 30, 2021 of the Registrant; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | I, as the Registrant’s sole officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
| d) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | I, as the Registrant’s sole officer, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: November 22, 2021
KAYA HOLDINGS, INC.
By: /s/ Craig Frank
Craig Frank, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANESOXLEY ACT OF 2002
In connection with the Quarterly Report of Kaya Holdings, Inc., a Delaware corporation (the “Company”) on Form 10-Q for the quarter year ended September 30, 2021 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig Frank, the Chairman, President, Chief Executive Officer and Acting Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the SarbanesOxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: November 22, 2021
KAYA HOLDINGS, INC .
By: /s/ Craig Frank
Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer)