Kaya Holdings, Inc 10-K for FY2023
Kaya Holdings, Inc. (KAYS)
About this 10-K
Kaya Holdings, Inc filed this 10-K on April 16, 2024, covering the fiscal year ended December 31, 2023 (FY2023).
Headline figures
Fiscal year ended December 31, 2023, as reported in this filing, compared with the same period a year earlier where the filing states it.
- Revenue
- $196.29K
- down 71.4% from $685.38K a year earlier
- Net income
- $1.61M
- compared with a net loss of $3.58M a year earlier
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM
For the Fiscal
Year Ended
OR
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DOCUMENTS
INCORPORATED BY REFERENCE:
KAYA HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K FOR THE YEAR
ENDED DECEMBER 31, 2022
TABLE OF CONTENTS
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information contained in this Annual Report contains “ forward-looking statements ” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “ Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘ Exchange Act ”). These forward-looking statements are contained principally in the sections titled “Item 1. Business,” “Item 1A. Risk Factors,” and “Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations ” and are generally identifiable by use of the words “ may ,” “ will ,” “ should ,” “ expect ,” “ anticipate ,” “ estimate ,” “ believe ,” “ intend ” or “ project ” or the negative of these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Available Information
We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”) that can be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as EDGAR, through the SEC’s website (www.sec.gov).
As used in this Annual Report on Form 10-K (the “ Annual Report ”), the terms “ KAYS ,” “ the Company ,” “ we ,” “ us ” and “ our ” refer to Kaya Holdings, Inc. and its owned and controlled subsidiaries, unless the context indicates otherwise.
PART I
Item 1. Business.
| Overview |
Kaya Holdings, Inc is a holding company focusing on wellness and mental health through operations in psychedelic treatment clinics, medical and recreational cannabis, and CBD products.
In 2014, KAYS became the first US public company to own and operate a medical cannabis dispensary in the United States and is again seeking to break ground with the planned opening of The Sacred Mushroom™ Psychedelic Treatment Center. KAYS plans to operate The Sacred Mushroom™ as part of its Fifth Dimension Therapeutics, Inc. subsidiary (“FDT”), which also plans to work cooperatively with select pharmaceutical companies to maximize the curative and therapeutic potential of psilocybin.
KAYS has approximately ten years of operational experience as a vertically integrated legal cannabis enterprise and is the first U.S. publicly traded company to operate a legal marijuana dispensary, as well as the first to vertically integrate by adding cultivation and manufacturing. During the last ten years of cannabis operations the Company has produced, distributed, and/or sold a full range of premium cannabis products including flower, oils, vape cartridges and cannabis infused confections, baked goods and beverages through a fully integrated group of subsidiaries and companies supporting highly distinctive brands.
In late 2019 the Company determined that US Federal cannabis legalization was not something that would come to fruition anytime soon and began to explore overseas opportunities for cannabis operations. In addition, we also began looking at opportunities within the pending legalization of Psilocybin treatments and their potential therapeutic value for treatment-resistant mental health disorders.
In November 2020, Oregon became the first state in the United States to legalize and license the supervised use of psilocybin, and in January 2023 they began accepting licensing applications for Oregon Health Authority (the “OHA”) State Licensed Psilocybin Facilitators (OHA licensed professionals to operate the clinics) and also licensing for Manufacturing, Testing and the Facilitation clinics where clients can obtain Psilocybin Treatment Services. The OHA had also launched Oregon’s medical cannabis program in 2014, giving KAYS critical experience in comprehending and complying with OHA mandates, and sets the stage for KAYS “First Mover Advantage” in the emerging US psychedelic therapeutics industry.
On November 14, 2023, the Company filed a license application with the OHA for the licensure of The Sacred Mushroom™, an approximately 11,000 square foot psychedelic treatment center located in Portland, Oregon which the Company intends to operate as its flagship psychedelic treatment facility. We are presently in the final stages of licensing and anticipate receiving our license within 30 days of the date of this Report, although no assurance can be given in that regard. It is our understanding is that we will be the first US Public Company to own and operate a US based licensed Psychedelic Treatment Facility.
Our Planned Psychedelic Treatment Facility Plan and KAYS Fifth Dimension Therapeutics, Inc. Subsidiary
On December 13, 2022 the Company formed Fifth Dimension Therapeutics ™ (“FDT”) to seek to provide psychedelic "mind care" treatments to veterans suffering from PTSD, addicts seeking to break addiction, individuals with eating disorders, and others with a wide array of treatment resistant mental health disorders.
On January 3, 2023 the OHA began to accept license applications, allowing each entity to own and operate one (1) Psilocybin manufacturing and processing facility for the production of Psilocybin Mushrooms and derived therapeutics (“Psilocybins”), and up to five (5) Psilocybin Facilitation Centers where clients would go to ingest Psilocybins and experience effects under the supervision of State Licensed Facilitators.
The OHA had also launched Oregon’s medical cannabis program in 2014, giving KAYS critical experience in comprehending and complying with OHA mandates. The psilocybin opportunity is a logical extension for Kaya Holdings. The purpose, customer, regulations, and operations, as well as our familiarity with Oregon regulators, are synergistic with our current mission, and can be leveraged within our current operational infrastructure. We anticipate being able to respond to market demand rapidly, upon licensing. The licenses issued in Oregon are the first ever State Legal Licensing of Psilocybin Manufacturing and Treatment Centers, and KAYS is positioned to be first in line due to its operating history in Oregon.
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On January 25, 2023 attorney Glenn E.J. Murphy became a founding member of the FDT Board of Directors. Mr. Murphy has agreed to assist FDT with introductions to pharmaceutical companies seeking data and access to psychedelic patients, as well as advising on the development of intellectual property, structure of potential joint ventures, funding opportunities, acquisitions, and other related endeavors. With more than 25 years of experience in corporate legal practice (including both ten years in-house with the Henkel Group and more than 15 years in private practice), Mr. Murphy’s experience has touched on most every aspect of intellectual property practice.
On March 13, 2023, Bryan Arnold (one of KAYS Vice Presidents and its longest serving Oregon Employee) completed his OHA Certified Psilocybin Education through the Changra Institute and became one of the first eighteen graduates to obtain Psilocybin Facilitator certification in the State of Oregon. Bryan’s Facilitation License application has been approved by the OHA, and he now may oversee up to five (5) Psilocybin Treatment Facilities and up to one (1) Psilocybin Production Facility. Additionally, the Company expects to enroll additional potential licensee candidates within the coming months to bolster its ranks of OHA Licensed Psilocybin Facilitators as it moves forward with plans to open its first Psychedelic Treatment Center, subject to completion of financing and regulatory approvals.
On November 14, 2023 the Company filed a license application with the OHA for the licensure of The Sacred Mushroom™, an approximately 11,000 square foot psychedelic treatment center located in Portland, Oregon which the Company intends to operate as its flagship psychedelic treatment facility. We are presently in the final stages of licensing and anticipate receiving our license within 30 days of the date of this report. Our understanding is that we will be the first US Public Company to own and operate a US based Psychedelic Treatment Facility.
The Science of Psilocybin and Treatment Resistant Mental Health Issues
Growing evidence suggests that psychedelics act on the brain’s default network, or those regions of the brain that remain active when your brain is not engaged in active tasks. The default network provides a “framework” for the brain’s activity, providing structure and making order of all that is happening in the cortex and keeping external neurological information (delivered via our senses) distinct from internally generated activity (thoughts, emotions, and memory).
Psychedelics seem to suppress the default network, relaxing the separation of our senses, memories, thoughts, and emotions, and enabling each to influence each other more easily. This ability to break down the brain’s “framework” has led to a focus on psychedelics as a groundbreaking opportunity to address a wide range of mental health disorders.
Psilocybin, a naturally occurring compound found in “magic mushrooms”, is one of an emerging class of psychedelic medicines that contain potent psychoactive chemicals that can serve to affect human perception, emotions, and other cognitive functions. Psychedelic medicines have been found to have ground-breaking potential in treating a range of physical and mental disorders including anxiety and panic disorder, resistant depression, opiate addiction, adult attention deficit hyperactivity disorder (“ADHD”), post-traumatic stress disorder (“PTSD”), and acute and chronic pain.
A 2020 study in the Journal of the American Medical Association Psychiatry found that 71% of the patients with severe, previously treatment-resistant depression, showed “clinically significant improvement” that lasted at least four weeks and with “low potential” for addiction after treatment with Psilocybin. Speaking on the study one of the study’s co-authors, Alan Davis, a neuroscience researcher at Ohio State University and adjunct professor at the Johns Hopkins Center for Psychedelic and Consciousness Research stated, “I would say at this stage the research is showing that in safe settings, this provides relief from debilitating mental health problems for some people.”
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It is estimated that 46,494,000 American adults (18%) battle an anxiety disorder such as Post Traumatic Stress Disorder (PTSD) and Panic Disorders, 24,538,500 American adults suffer from depressive illness (9.5%) (with someone committing suicide every 40 seconds), 17,306,100 American adults (6.7%) have been diagnosed with Alcohol Use Disorder, 18,339,300 American adults (7.1%) are considered drug dependent, and 11,416,860 American women (8.5%) and 3,099,600 American men (2.5%) struggle with an eating disorder. All of these difficult to treat mental health disorders have been shown by research to be aided by psychedelic treatment.
Companies such as Compass Pathways, ATAI Life Sciences, and Cybin are engaged in developing synthetic versions of psilocybin and psilocin (the active ingredient in “magic mushrooms”) to offer as breakthrough therapies for treatment resistant mental health disorders. As a “Delivery of Treatment” provider, it is expected that The Sacred Mushroom™ and similar facilities will be the safe environment needed for these emerging pharma-based psychedelic treatments. As these companies endure the costly, time consuming, and unpredictable path to FDA approval, we believe that The Scared Mushroom will establish its position as a leader in the delivery of psychedelic care, offering more immediate relief for people with pressing mental health conditions.
The Sacred Mushroom™ Psychedelic Treatment Facility
The Sacred Mushroom™ (TSM), currently under development in Portland, Oregon, is the Company’s expertly crafted Psychedelic Treatment Facility. TSM provides guests access to psilocybin treatments in a spacious, comfortable, carefully controlled environment under licensure by the OHA (OHA).
The Sacred Mushroom™ is seven floors above the city of Portland, with panoramic views of the city skyline and Mount Hood. The Sacred Mushroom™ has approximately 11,000 sq ft. and will provide guests with access to private treatment rooms, group session areas, and activity zones with movement, listening stations, journaling chairs, and art expression for distinctive, effective, and positive psilocybin treatments. The setting and space are designed to deliver the ultimate in safe, comfortable, and relaxing psychedelic treatments.
Industry Treatment Models
A recently published report on psilocybin treatment prices in Oregon showed that initial prices for one facility range from $300 for a group microdose session to $3,500 for an individual high-dose session, with another facility pricing first-time full dose treatments at $15,000 (these prices do not include the cost of the psilocybin, which can run from $300 to $500).
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KAYS expects its facility to offer a superior setting, broader activity and treatment options, integrated cultivation and processing, and accessible pricing, thereby enabling us to deliver a superior treatment experience at a much lower price than the competition, while still achieving profitability
View from The Sacred Mushroom™ - Mount Hood can be seen
above the Portland, Oregon skyline from our 7th floor facility.
$700,000+ Institutional Investment in Fifth Dimension Therapeutics and Kaya Holdings
On June 12, 2023 the Company received $350,000 as a first installment for a working capital loan from CVC International Ltd., an institutional investor that has provided substantial fundings to the Company over the past ten years. The debt carries an interest rate of 10% annually. Additionally, on October 6, 2023 the Company received a second installment of $150,000 on the same terms, bringing the total working capital loan to $500,000.
In consideration for CVC extending the loan to the Company (as well as all other substantial financial assistance provided to the Company over the past ten years) , the Company transferred to CVC ten Series A Preferred shares of stock in Fifth Dimension Therapeutics, Inc. (“FDT Preferred Shares”) which are convertible into a total of 10% of the shares of FDT Common Stock (“FDT Common Shares”), taking into account the current FDT Common Shares that are outstanding and conversion of any other FDT Preferred Shares outstanding at the time of conversion. This resulted in a change of the Company’s ownership of FDT from 75% to 65%.
Additionally, on January 23, 2024, the Company received $61,200.00 and on March 12, 2024,the Company received an additional $150,000 in capital from the Institutional Investor as part of a private placement.
KAYS is moving to first establish a Psychedelic Treatment Center in Oregon, but is also keeping abreast of developments in other states such as California, Colorado, Hawaii and Washington as well as international locations such as Australia to locate Psychedelic Treatment Centers as regulations unfold.
Success of our business plan including the launch of “The Sacred Mushroom™” Psychedelic Treatment Centers depends on many factors including on final Oregon Health Authority (“OHA”) licensing and receipt of final financing from our investors.
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The Global Psilocybin and Psychedelic Medicine Industry
Insight Ace Analytic, an industry research firm, reports that the global psychedelic therapeutics market was valued at US$ 3.61 billion in 2021, and estimates the market will reach US$ 8.31 billion by 2028, with a CAGR of 13.2% during the forecast period of 2022-2028. Other market estimates include the research firm Research & Markets’ estimate that the psychedelic drugs market will reach US$ 10.75 billion by 2027.
As reported in the Wall Street Journal, Venture Capitalist Brom Rector of Empath Ventures sees Psychedelics as … “a traditional biotech play, with a high probability of failure but a potential upside of 10, 20, maybe 50 times.” Additionally, he sees many of the infrastructure companies for the industry as having a lot higher probability of becoming cash flow positive.
While Oregon is currently the only State that has legalized Psilocybin for medical use with a regulatory framework in place to issue licenses for their manufacture and sale, Denver Colorado, Santa Cruz and Oakland, California, Ann Arbor, Michigan, Washington D.C., and Seattle, Washington have all decriminalized small quantities. Other activity in the U.S. include:
| § | The Connecticut legislature has begun the process toward legalizing Psilocybin centers for the treatment of veterans. Many veterans’ groups are advocating making psychedelic treatments available for veterans, particularly those with PTSD. |
| § | Texas, Utah, Maryland, and Washington State have set up task forces to study the medical use of psilocybin and have funded research to explore the effects of psilocybin on certain mental health conditions. |
| § | Colorado and California have ballots initiatives pending that would legalize psilocybin. |
| § | The New Jersey senate is considering a bill that would legalize psilocybin to treat certain disorders. |
Internationally:
| § | The Canadian government has been sued by an advocate group to force the legalization of psilocybin and other psychedelics. |
| § |
Australia’s medicines regulator, the Therapeutic Goods Administration, has down-scheduled MDMA and Psilocybin for controlled clinical used as part of psychotherapy in clinical settings. |
| § |
Psilocybin is legal to possess, sell, transport, and cultivate in Bahamas, Jamaica, Brazil, Nepal, Netherlands (only as a truffle), and Samoa. Possession of psilocybin is legal in Austria, British Virgin Islands, Spain, and Portugal.
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Cannabis Operations
Kaya™ Family of Brands
During the last 10 years of cannabis operations the Company has produced, distributed, and/or sold 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.
Kaya Farms™ Cannabis
The Company has developed its own proprietary Kaya Farms™ strains of cannabis, which it has grown and produced at the various medical and recreational grows that the Company has previously operated and maintained over the past ten years in Oregon. Additionally, KAYS has produced a full line of cannabis concentrates and extracts which it has initially produced through third party manufacturers and marketed at the Kaya Shack Stores, along with the very popular Kaya Buddies line of strain specific cannabis cigarettes.
The Company currently maintains an extensive genetic library of seeds for top strains of cannabis that it has assembled from its own grow operations and other commercial sources which it intends to utilize to launch international grow operations in Greece and elsewhere.
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Kaya Buddie™ Strain Specific Cannabis Cigarettes
In 2016 the Company introduced a signature line of strain-specific pre-rolled cannabis cigarettes branded as “Kaya Buddies™”. Kaya Buddies™ cannabis cigarettes have been very well received by medical patients and recreational users. The brand, marketed under the tagline “Buds with Benefits”, features over 50 different strains of high quality cannabis and proprietary specialty blends.
Kaya Brands International
In 2019 KAYS formed Kaya Brands International, Inc. (“Kaya International” or “KBI”), to leverage its experience and expand into worldwide cannabis markets. KBI’s current initiative includes Greece, with additional areas under consideration.
Kaya Farms Greece
We have selected Greece as the center of our European market activity because of its amenable cannabis regulations, favorable climate, affordable, capable workforce, and the country’s position as a major pharmaceutical center in Europe. As an EU nation Greece opens up the entire European market (where legal) to KAYS flower and oils, and as permitted, the KAYS portfolio of brands.
On January 11, 2021, through a majority owned subsidiary of KBI, Kaya Farms Greece (or “KFG”) and Greekkannabis (“GKC”, an Athens based cannabis company) executed an agreement for KBI to acquire 50% of GKC. The first 25% was acquired in January, 2021 and the remaining 25% was acquired in July, 2021. GKC’s projects include two medical cannabis cultivation and processing projects in Greece- one in Epidaurus, Greece and the other in Thebes, Greece.
GKC has a development license from the Greek authorities that was originally issued as part of a plan purchase and develop 15 acres in Thebes, Greece as a large-scale cultivation production and processing project. However, GKC has elected to hold off on acquiring the land until such time as European cannabis demand warrants the investment required to develop the project.
Additionally, on November 8, 2021 KAYS/KBI through a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG”) executed an agreement to acquire 50% of Greekkaya, a second medical Cannabis in Epidaurus, Greece.
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Kaya Kannabis- Epidaurus, Greece Project
Site of Epidaurus Land
GKC plans to cultivate and manufacture KAYS proprietary cannabis brands (CBD/THC) from the Epidaurus Project for distribution in the Greek, German and other EU markets as permitted by local regulations.
Interior View- KAYS’ Epidaurus Project with 50K square feet of already constructed buildings.
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The Epidaurus Project consists of 2 connected industrial buildings (already constructed, approximately 50,000 square feet in total under-air space) situated on 2.8 acres of land, with its own independent industrial electrical power center and ample water supply to service the needs of the facility. The Epidaurus Project will include 25,000 square feet of indoor cannabis cultivation, a 15,000 square foot EU-GMP extraction and processing facility, and a 10,000 square foot EU-GMP packing area. There is ample room for expansion with room to construct an additional 15,000 square feet on site. The joint venture is awaiting project financing and final license approval from Greek government authorities.
Neither of the two subject Greece properties are currently owned or optioned by GKC or its operating subsidiaries, but the land for the potential project in Epidaurus is owned by one of our Greek partner’s families and the land in The bes is currently available for purchase or option. The Company believes it could acquire either of the properties once funding and market conditions allow. Alternatively, both licenses are in good order, and can be transferred to a new location pending Greek Government approval.
Sale of Lebanon, Oregon Farm Property and Salem, Oregon Cannabis Dispensary
On February 28, 2023 the Company concluded the sale of a a 26-acre parcel in Lebanon, Linn County, Oregon that it had previously purchased for $510,000 as part of our focus on moving our cannabis operations overseas. We sold the Property for a price of $769,500, less commissions and customary closing costs and repayment of loans against the transaction. After such repayments, the Company realized net proceeds of approximately $302,000.
On April 21, 2023 the Company concluded the sale of its Salem Retail Cannabis Store (“Store 2”) for $210,000, less a 6% closing
commission and minor closing expenses. After these expenses and paying $75,000 to resolve three non-performing store leases in South Oregon,
the Company netted $118,900.
The Company utilized the net proceeds of approximately $420,000 from both the sale of the Property and Store 2, for general working capital including the development of its planned Oregon psilocybin business and development of its international projects.
Closure of Portland, Oregon Cannabis Dispensary
On March 11, 2024, we notified the Oregon Liquor Control Commission (the “OLCC”) that we were temporarily closing our Cannabis Retail Dispensary in Portland, Oregon as we evaluate redeploying our remaining cannabis dispensary license to serve as a delivery hub for Portland residents, tourists and The Sacred Mushroom™ guests, among others. We made this move so as to concentrate on the opening of the Sacred Mushroom Psychedelic Treatment Center and intend to explore additional cannabis opportunities as new markets develop.
The Global Cannabis Industry
The global cannabis market is being driven by the increasing number of countries passing legislation to decriminalize the use of cannabis and legalize cannabis for medicinal use. This change in legislation is the result of an increase in public awareness to the medicinal benefits of cannabis and greater social acceptance of cannabis use. According to Statista, cannabis is expected to reach a legal market of 74 billion USD by 2029, for a CAGR of 3.01%.
Prohibition Partners, expects the North American market to remain the world’s largest until 2023, when they expect North American ($17.7 billion) to outpace Europe ($16.8 billion). By 2024, with a forecasted global market of $103.9 billion, Europe is expected to outperform North America $39.1 billion to $37.9 billion.
Of the $103.9 billion global cannabis market forecasted by Prohibition Partners, $62.7 billion is expected to be medical cannabis driven. Of this $62.7 billion, Europe is expected to be the largest market, with $22.3 billion, followed by North America with $20.2 billion.
Greece
In September 2017, the Greek government announced it would be legalizing medical cannabis, and less than a year later Greek leaders approved Law 4523 and Joint Ministerial Decision No. 51483, which permitted farming and production of medical cannabis. In 2020 the Greek Parliament passed legislation that further relaxed cannabis export regulations, now permitting the bulk export of cannabis flower.
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.
While the State of Oregon has created a regulatory framework through the Oregon Health Authority (OHA) that allows for the administration of psilocybin to clients in OHA Licensed Psilocybin Treatment Facilities, the use and possession of Psilocybin is currently illegal under Federal Law.
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.
Our foreign operations will also be subject to comparable government regulation in Greece and any other various foreign jurisdictions in which KAYS intends to operate.
Competition
The legal marijuana sector is rapidly growing and the Company faces significant competition in the operation of retail outlets 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.
The legal psychedelic medicine sector is rapidly growing, and while the industry is at a much earlier stage than cannabis, the Company will also face significant competition in the operation of retail outlets 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 2 full-time employees, consisting of Chad Craig, the Senior Vice President of Oregon Operations and Bryan Arnold, Vice President of KAYS Subsidiary Fifth Dimension Therapeutics, Inc. and Lead Facilitator of the Sacred Mushroom Psychedelic Treatment Center. Additionally, we engage several consultants to assist with daily duties and business implementation and execution. Additional employees will be hired and other consultants engaged in the future as we execute our business plan.
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Item 1A. Risk Factors.
We have a limited operating history with our current businesses.
The Company was incorporated in 1993 and has engaged in a number of businesses as both a private and as a publicly held company.
KAYS’s legal medical and recreational marijuana business (which it has focused on in Oregon since 2014 and in Greece since 2020) has not generated sufficient revenue to enable the Company to achieve profitability. In addition, the overall US market for legal marijuana has not been as robust as anticipated because of the lack of legalization on a federal level. Accordingly, we have recently reduced our US retail operations and expanded into establishing a psilocybin therapy and treatment center in Portland, Oregon where such treatment has recently been legalized. However, our planned psilocybin business (which is currently pending license by the OHA) has not yet generated any revenues.
Accordingly, our operations continue to be subject to all the problems, expenses, difficulties, complications and delays encountered in an early-stage business. There can be no assurance that the Company will generate significant revenues or operate at a profit.
The Company will require additional financing to become commercially viable.
The Company’s current psilocybin and legal marijuana operations can be capital intensive.
During the years ended December 31, 2023, and December 31, 2022, we raised approximately $615,000 and $370,000 respectively, through a series of private debt and equity offerings to finance operations.
The Company had net income of $1,039,922 and net loss of $3,731,694 for the years ended December 31, 2023 and 2022, respectively.
All of the net income for the years ended December 31, 2023 and December 31, 2022 were not actual operating gains but were a result of the derivative liabilities from the conversion of debt from the stabilization of our stock prices the reduces the volatility factors used in the derivative calculations.
At December 31, 2023, we had a total stockholders' deficit of $16,688,022 and a working capital deficiency of $7,813,590. There can be no assurance that the Company will become commercially viable without additional financing, the availability and terms of which are uncertain. If the Company cannot secure necessary capital when needed on commercially reasonable terms, its business, condition (financial and otherwise) and commercial viability may be harmed. Although management believes that it will be able to successfully execute its business plan, which includes third party financing and the raising of capital to meet the Company’s future liquidity needs, there can be no assurances in this regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
We currently rely on certain key individuals, and the loss of one of these key individuals could have an adverse effect on the Company.
Our success depends to a certain degree upon certain key members of our management and certain key consultants to the company. These individuals are a significant factor in our growth and success. The loss of the services of such members of management could have a material adverse effect on our Company.
The Company’s success will be dependent in part upon its ability to attract qualified personnel and consultants.
The Company’s success will be dependent in part upon its ability to attract qualified creative marketing, sales and development professionals. The inability to do so on favorable terms may harm the Company’s proposed business.
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KAYS must effectively meet the challenges of managing expanding operations.
The Company’s business plan anticipates that operations will undergo expansion in 2024 and beyond. This expansion will require the Company to manage a larger and more complex organization, which could place a significant strain on our managerial, operational and financial resources. Management may not succeed with these efforts. Failure to expand in an efficient manner could cause expenses to be greater than anticipated, revenues to grow more slowly than expected and could otherwise have an adverse effect on the business, financial condition and results of operations.
Marijuana and Psilocybin remains illegal in the United States under federal law.
Notwithstanding its legalization for recreational and/or medical use by a growing number of states, the growing, transport, possession or selling of marijuana continues to be illegal under federal law. Additionally, the growing, transport, possession or selling of psilocybin is also illegal under federal law and only a handful of states have decriminalized its usage, with Oregon being the only state that has devised a state legal licensing system that allows for providing access to psilocybin therapies in a carefully controlled environment.
Although the current administration has made policy decisions to allow implementation of state laws legalizing recreational and/or medical marijuana and not to federally prosecute anyone operating under state law, the continuance of that policy is not assured and could change at any time.
While we seek the advice of counsel with respect to our operations within these industries, federal action could determine that our marijuana and/or psilocybin operations are illegal and adversely affecting KAYS’s business, financial condition and results of operations.
The marketing and market acceptance of marijuana and psilocybin may not be as rapid as KAYS expects.
The market for state legal marijuana and Psilocybin is quickly evolving, and activity in the sector is expanding rapidly. Demand and market acceptance for state legal marijuana and psilocybin are subject to uncertainty and risk, as changes in the price and possible adverse political efforts could influence and denigrate demand. KAYS cannot predict whether, or how fast, this market will grow or how long it can be sustained. If the market for state legal marijuana and psilocybin develops more slowly than expected or becomes saturated with competitors, KAYS’s operating results could be adversely impacted.
KAYS’s business activities are part of emerging industries.
The Company intends to implement an aggressive plan of growth to enter the legal recreational and medical marijuana industry, as well as the emerging psilocybin industry. These industries are new and emerging, and have yet to fully define competitive, operational, financial and other parameters for successful operations. By pursuing a growth strategy to enter a new and emerging industry, the Company’s operations may be adversely impacted as the industry’s competitive, operational, financial and other parameters take shape. Given the fluidity of the industry, the Company may make errors in implementing its business plan, thereby limiting some or all of its ability to perform in accordance with its expectations.
Our business could be affected by changes in governmental regulation.
Federal, state and local laws and regulations governing state legal recreational and medical marijuana and psilocybin use are broad in scope and are subject to evolving interpretations, which could require us to incur substantial costs associated with compliance. Violations of these laws or allegations of such violations could disrupt KAYS’s planned business and adversely affect our financial condition and results of operations. In addition, it is possible that additional or revised federal, state and local laws and regulations may be enacted in the future governing the legal marijuana industry. Our foreign operations will also be subject to comparable government regulation in Greece and any other various foreign jurisdictions in which KAYS intends to operate. There can be no assurance that KAYS will be able to comply with any such laws and regulations and its failure to do so could significantly harm our business, financial condition and results of operations.
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Our business will be subject to other operating risks which may adversely affect the Company’s financial condition.
We will likely face significant competition.
The legal marijuana and the psilocybin industry is in its early stages and is attracting significant attention from both small and large entrants into the industry. KAYS expects to encounter significant competition as it implements its business strategy. The ability of KAYS to effectively compete could be hindered by a lack of funds, poor positioning, management error, and other factors. The inability to effectively compete could adversely affect our business, financial condition and results of operations.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act `Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial office and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| · | pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company | |
| · | provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and | |
| · | provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identify other deficiencies that we may not be able to timely remediate. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 (“Sarbanes Oxley”). Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.
As a smaller reporting company, we are subject to scaled disclosure requirements that may make it more challenging for investors to analyze our results of operations and financial prospects.
Currently, we are a “smaller reporting company,” as defined by Rule 12b-2 of the Exchange Act. As a “smaller reporting company,” we are able to provide simplified executive compensation disclosures in our filings and have certain other decreased disclosure obligations in our filings with the SEC, including being required to provide only two years of audited financial statements in annual reports. Consequently, it may be more challenging for investors to analyze our results of operations and financial prospects.
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Furthermore, we are a non-accelerated filer as defined by Rule 12b-2 of the Exchange Act, and, as such, are not required to provide an auditor attestation of management’s assessment of internal control over financial reporting, which is generally required for SEC reporting companies under Section 404(b) of the Sarbanes-Oxley Act. Because we are not required to, and have not, had our auditors provide an attestation of our management’s assessment of internal control over financial reporting, a material weakness in internal controls may remain undetected for a longer period.
The costs of being a public company could result in us being unable to continue as a going concern.
As a public company, we are required to comply with numerous financial reporting and legal requirements, including those pertaining to audits and internal control. The costs of this compliance could be significant. If our revenues do not increase and/or we cannot satisfy many of these costs through the issuance of our shares, we may be unable to satisfy these costs in the normal course of business that would result in our being unable to continue as a going con
Management, the Board of Directors and Key Consultants may be indemnified.
The Certificate of Incorporation and Bylaws of KAYS provide for indemnification of directors and officers at the expense of the respective corporation and limit their liability. This may result in a major cost to the corporation and hurt the interests of stockholders because corporate resources may be expended for the benefit of directors and officers. The Company has been advised that, in the opinion of the Securities and Exchange Commission, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
The market for the KAYS Shares is extremely limited and sporadic
KAYS’s common stock is quoted on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. The market KAYS’s for common stock is limited and sporadic. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of KAYS’s common stock for reasons unrelated to operating performance. Moreover, the trading of securities in the OTCQB is often more sporadic than the trading of securities listed on a quotation system like NASDAQ, or a stock exchange like the New York Stock Exchange.
KAYS’s common stock is a penny stock. Trading of KAYS’s common stock may be restricted by the penny stock regulations adopted by the Securities and Exchange Commission (the “SEC”) and FINRA’s sales practice requirements, which may limit a stockholder’s ability to buy and sell our common stock.
KAYS’s common stock is a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. KAYS’s common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, KAYS’s common stock.
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In addition to the penny stock rules promulgated by the SEC, FINRA (the Financial Industry Regulatory Authority) has adopted rules that require when recommending an investment to a customer, a broker- dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low -priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy KAYS’s common stock, which may limit investor ability to buy and sell KAYS’s comm
The market for penny stocks has experienced numerous frauds and abuses that could adversely impact KAYS’s common stock.
Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
| · | control of the market for the security by one or a few broker-dealers that are often related to a promoter or issuer; |
| · | manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; | |
| · | boiler room practices involving high pressure sales tactics and unrealistic price projections by salespersons; | |
| · | excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and | |
| · | wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses. |
The board of directors of KAYS has the authority, without stockholder approval, to issue preferred stock with terms that may not be beneficial to common stockholders and with the ability to adversely affect common stockholder voting power and rights upon liquidation.
KAYS’s Certificate of Incorporation allows us to issue shares of preferred stock without any vote or further action by our stockholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders of preferred stock the rights to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.
The ability of our principal stockholders, including our CEO, to control our business may limit or eliminate minority stockholders’ ability to influence corporate affairs.
The principal non-affiliated stockholder of KAYS holds 1,533,131 shares of common stock and another unrelated, non-affiliated stockholder holds 20 shares of Series D Convertible Preferred Stock. Additionally, our CEO owns 2,113,345 shares of common stock and 20 shares of Series D Convertible Preferred Stock. Each Series D Preferred Share votes as 1% of the issued and outstanding common shares on an as converted, fully diluted basis. There are presently 22,172,835 shares of common stock outstanding, so factoring in the conversion of these Series D Preferred Shares means that these four parties have approximately 49.86 % of votes on matters presented to stockholders.
Accordingly, these three individuals are in a position to significantly influence membership of our board of directors as well as all other matters requiring stockholder approval. The interests of our principal stockholders may differ from the interests of other stockholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other officers and directors and other business decisions. The minority stockholders have no way of overriding decisions made by our principal stockholders. This level of control may also have an adverse impact on the market value of our shares because our principal stockholders may institute or undertake transactions, policies or programs that result in losses and/or may not take any steps to increase our visibility in the financial community and/or may sell sufficient numbers of shares to significantly decrease our price per share.
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We do not expect to pay cash dividends in the foreseeable future.
KAYS has not paid cash dividends on its shares of common stock and does not intend to do so at any time in the foreseeable future. The future payment of dividends depends upon future earnings, capital requirements, financial requirements and other factors that the companies’ board of directors will consider. Since they do not anticipate paying cash dividends on the common stock, return on investment, if any, will depend solely on an increase, if any, in the market value of the common stock.
The conversion of the 40 shares of KAYS’ outstanding Series D Preferred stock by the CEO and an unrelated third-party shareholder would result in the issuance of an additional 14,781,890 shares of KAYS’ common stock, (without taking into effect the conversion into shares of KAYS common stock of any or all outstanding convertible debt described in this Annual Report at December 31, 2023). Accordingly, such market overhang could adversely impact the market price of the common stock.
KAYS has 40 shares of Series D Convertible Preferred Stock outstanding, 20 shares of which are held by our CEO and 20 of which are held by an unrelated third-party shareholder. These preferred shares can be converted into a total of 14,781,890 shares of KAYS common stock which would result in substantial dilution if converted.
Additionally, as of the date of this filing the Company has convertible debt of approximately $7,400,000 principal amount (without taking into effect the accrued interest which could also be converted) which can be converted into KAYS stock at $0.08 (with certain ratchet provisions that would allow stock to be issued at lower prices in event of severe market reductions in the price of KAYS stock), subject to certain ownership volume limitations and could result in further substantial dilution if all converted.
Such market overhang of both the KAYS Series D Preferred Shares and the KAYS Convertible Debt could adversely impact the market price of KAYS’s common stock as a result of the dilution which would result if such securities were converted into shares of KAYS common stock.
Future sales of shares of KAYS common stock pursuant to Rule 144 under the Securities Act could adversely affect the market price of KAYS’s common stock.
KAYS has a substantial number of shares of common stock which were issued in transactions exempt from the registration requirements of the Securities Act and are now available for public sale pursuant to the Rule 144 under the Securities Act. Such sales could adversely affect the market price of KAYS’s common stock.
Because we are not subject to compliance with rules requiring the adoption of certain corporate governance measures, our stockholders have limited protection against interested director transactions, conflicts of interest and similar matters.
Sarbanes-Oxley as well as rule changes proposed and enacted by the SEC, the NYSE/AMEX and the NASDAQ Stock Market as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the NASDAQ Stock Market. Because we are not currently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with voluntary compliance, we have not yet adopted these measures.
We do not currently have independent audit or compensation committees. As a result, directors have the ability, among other things, to determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested- director transactions, conflicts of interest, if any, and similar matters and investors may be reluctant to provide us with funds necessary to expand our operations as a
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, directors and members of board committees required to provide for our effective management as a result of Sarbanes-Oxley. The enactment of Sarbanes-Oxley has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
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Item 1B. Unresolved Staff Comments.
Not applicable.
Item 1C. Cybersecurity.
In the normal course of business, we may collect and store personal information and other sensitive information, including proprietary and confidential business information, trade secrets, intellectual property, patient information, sensitive third-party information and employee information. To protect this information, our existing cybersecurity policies require continuous monitoring and detection programs, network security precautions, encryption of critical data and in-depth security assessments of vendors. We maintain various protections designed to safeguard against cyberattacks, including firewalls and virus detection software. Our information technology (“IT”) team (In-house and outside consultants) s responsible for these ongoing monitoring and detection activities.
The governance of our cybersecurity risks involves active and informed participation from our management team, our IT team and our board of directors. This oversight includes briefings by our IT team on the nature of the risks we face and the steps we are taking to mitigate these risks, as well as immediately reporting any significant cybersecurity incident that occurs to management and the board of directors.
We have not experienced a cybersecurity incident that had a material impact on our business strategy, results of operations, or financial condition. We continue to monitor potential cybersecurity threats and incorporate findings into our risk management strategies.
Item 2. Properties.
On February 28, 2023 the Company concluded the sale of a a 26-acre parcel in Lebanon, Linn County, Oregon that it had previously purchased for $510,000 as part of our focus on moving our cannabis operations overseas. We sold the Property for a price of $769,500, less commissions and customary closing costs and repayment of loans against the transaction. After such repayments, the Company realized net proceeds of approximately $302,000.
On April 21, 2023 the Company concluded the sale of its Salem Retail Cannabis Store (“Store 2”) for $210,000, less a 6% closing
commission and minor closing expenses. After these expenses and paying $75,000 to resolve three non-performing store leases in South Oregon,
the Company netted $118,900.
The Company utilized the net proceeds of approximately $420,000 from both the sale of the Property and Store 2, for general working capital including the development of its planned Oregon psilocybin business and development of its international projects.
Item 3. Legal Proceedings.
From time-to-time KAYS may be party to various legal proceedings in the ordinary course of business. Please see paragraphs below for results of legal proceedings during 2023 and 2022.
Lawsuit from Law Offices of Ross Day
On September 9, 2022 the Company received notice from its Oregon Counsel that Day Law & Associates, P.C. (Attorney Ross Day is a former attorney for the Company) had filed suit in Washington County, Oregon seeking damages in the amount of $16,169.24 for unpaid legal fees, plus any costs, disbursements and attorney fees awarded. On March 30, 2023 the Company was advised from its current Oregon counsel that the Court has appointed an arbitrator, and the Company intends to either seek settlement or otherwise litigate the matter based on the results of the arbitration.
On August 24, 2023 the Company and Day Law & Associates participated in an Arbitration in an attempt to resolve the Matter without Litigation.
On October 11, 2023 the Arbitrator ruled in favor of the Company and awarded the Company $3,000 in legal Fees and $781 in Costs. Since that time the Company has been advised that Day Law & Associates, P.C. appealed the Arbitration Award, but no new hearing date has been set and we are reviewing if the Company wants to allow the Oregon Bar to mediate the case.
Lawsuit from P3 Distributing LLC
On February 23, 2024 the Company received notice from its Oregon Counsel that P3 Distributing L.L.C (a vendor that supplied containers used in the sale of cannabis) had filed suit in Marion County, Oregon seeking damages in the amount of $12,149.00 for unpaid vendor invoices, plus interest at the rate of 9% per annum from February 29, 2020.
The Company is working with its Oregon Counsel to resolve the matter.
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PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.
Market for Common Stock
Our common stock is currently traded on the OTCQB tier of the over-the-counter market operated by OTC Markets Group, Inc. under the symbol “KAYS.” Such market is extremely limited. We can provide no assurance that our shares will continue to be traded on the OTCQB or another exchange, or if traded, that the current public market will be sustainable.
Holders of Our Common Stock
As of the date of this Annual Report, we had 646 holders of record of our common stock. One of these holders is CEDE and Company which is the mechanism used for brokerage firms to hold securities in book entry form on behalf of their clients. As of the date of this Annual Report, CEDE held 8,860,806 shares of common stock for these stockholders. When the Company last received a report from CEDE it showed a log of 7,669 stockholders that consented to release their name to the Company for purposes of stockholder communications. Accordingly, we believe that KAYS has approximately 8,000 beneficial stockholders as of such date.
Securities Authorized for Issuance under Equity Compensation Plans
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future insurance under equity compensations plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 0 shares (1) | n/a | 0 shares | |||
| Equity compensation plans not approved by security holders | 0 shares | n/a | 0 shares | |||
| (1) |
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Recent Sales of Registered and Unregistered Securities (includes common stock, preferred stock and debt issuances/cancellations)
Convertible Debt Issuances
There were no new convertible debt issuances as of December 31, 2023.
Common Stock Issuances-
There were no new common stock issuances as of December 31, 2023.
Item 6. [Reserved].
Not applicable.
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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Results of Operations
Year ended December 31, 2023 compared to year ended December 31, 2022
Revenues
We had revenues of $196,294 for the year ended December 31, 2023, as compared to revenues of $685,379 for the year ended December 31, 2022. The decrease in revenues from 2022 to 2023 was due to the close of a retail shop in Oregon as we focused on moving our cannabis business overseas and concentrated on the development of our Psychedelic Medicine business and the launch of The Sacred Mushroom™ facility in Portland, Oregon.
Cost of Sales
We had a cost of sales of $81,345 on revenues of $196,294 for the year ended December 31, 2023 versus a cost of sales of $225,107 on revenues of $685,379 for the year ended December 31, 2022 .
Operating Expenses
General and administrative were $396,962 for the year ended December 31, 2023, as compared to $525,855 for the year ended December 31, 2022. Salaries and wages were $209,433 for the year ended December 31, 2023 as compared to $383,762 for the year ended December 31, 2022. The decrease in general and administrative expense categories from 2022 to 2023 reflects our shift of focus to overseas development of operations. Salaries and wages decrease was mainly due to the close of retail shop in Oregon.
Professional fees were $752,973 for the year ended December 31, 2023, as compared to $1,262,095 for the year ended December 31, 2022, reflecting a decrease of $509,122. The decrease was primarily due to a decrease in the expense for accounting and consulting. After giving effect to all of the foregoing, total operating expenses were $1,359,368 for the year ended December 31,2023, as compared to $2,171,712 for the year ended December 31, 2022. Accordingly, our operating loss was $1,234,769 for the year ended December 31, 2023, as compared to $1,711,440 for the year ended December 31, 2022.
Interest expense
Interest expense was $665,427 for the year ended December 31, 2023, as compared to $629,386 for the year ended December 31, 2022, reflecting a slight increase of additional debt incurred in 2023.
Net Income (Loss)
After giving effect to an operating loss of $1,244,419, interest expense of $665,427, amortization of debt discount of $387,072, gain on disposal/impairment of fixed assets of $386,229, gain on impairment of right of use assets of $151,082, change in derivative liabilities income of $3,297,215 arising from the decrease of our stock prices which increased the volatility factors used in the derivative calculations, other income of $122,210 which included accounts payable forgiveness of $112,560 and other income $9,650. We had net income from non-controlling interest of $26,794 for the year ended December 31, 2023. Additionally, the Company has accrued a tax liability of $899,344 related to potential taxes due under the IRS Code 280E.
This compares to a net loss from non-controlling interest of $155,080 for the year ended December 31, 2022, after giving effect to an operating loss of $1,711,440, interest expense of $629,386, amortization of debt discount of $303,398 and gain on disposal of $17,177 offset by other income from a change in derivative liabilities expense of $1,010,737. The net income attributable to the Company for 2023 and net loss attributable to the Company for 2022 was $1,609,697 and $3,731,694, respectively.
Liquidity and Capital Resources
During 2023 our cash position increased by $10,778 to $29,108 and our negative working capital deficit was $7,307,979.
As of December 31, 2023, our working capital consisted of cash of $29,108, inventories of $9,259 and prepaid expenses of $58,588 as compared to cash of $18,330, inventories of $11,990 and prepaid expenses of $28,158 as of December 31, 2022.
Our current liabilities include accounts payable and accrued expenses of $589,085, accounts payable and accrued expenses-related parties of $514,972, accrued interest of $2,369,015, current portion of lease liability of $30,885, tax liability of $899,344, convertible notes payable- net of discount of $25,000, notes payable of $124,312 and derivative liabilities of $2,752,321 as compared to current liabilities include accounts payable and accrued expenses of $961,396, accounts payable and accrued expenses-related parties of $273,190 accrued interest of $1,759,669 current portion of lease liability of $93,067, tax liability of $876,017 convertible notes payable- net of discount of $240,293, notes payable of $9,312 and derivative liabilities of $6,204,878 as of December 31, 2022.
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The following table sets forth the major sources and uses of cash for the years ended December 31, 2023 and 2022:
| 2023 | 2022 | |||||||
| Net cash (used in) operating activities | $ | (1,045,799 | ) | $ | (918,799 | ) | ||
| Net cash provided by investing activities | $ | 812,859 | $ | 17,177 | ||||
| Net cash provided by financing activities | $ | 245,000 | $ | 370,000 | ||||
| Net increase in cash | $ | 12,060 | $ | 531,622 | ||||
Cash Used in Operating Activities
During 2023, we had cash of $1,045,799 used in operating activities, as compared to cash used in operations of $918,799 in 2022.
Cash Provided by (Used in) Investing Activities
During 2023, we had cash of $812,859 provided by investing activities, as compared to $17,177 provided by investing activities in 2022. Income in 2023 and 2022 consisted of property and equipment proposal.
Cash Provided by Financing Activities
During 2023, $615,000 of notes payable was issued and $370,000 of convertible notes were paid off, as compared to $370,000 of convertible debt issued in 2022.
Additional Capital
As of December 31, 2023, we had cash of $29,108 and a working capital deficiency of $7,307,979 as compared to cash of $18,330 and a working capital deficiency of $10,359,344 at December 31, 2022.
Management believes that it will require additional capital, in addition to anticipated revenues from operations to fund expansion of the Company’s operations and ultimately achieve profitability. The Company intends to seek such additional capital from further private offerings of equity and/or debt securities. However, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition, cash flows and results of operations may be materially and adversely affected.
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Critical Accounting Estimates
The following are deemed to be the most significant accounting estimates affecting us and our results of operations:
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.
To confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt of product via cash payment at our retail store; the transaction is recorded at the time of sale in our point of sale software system. Revenue is only reported after product has been delivered to the customer and the customer has paid for the product with cash.
To date the only other revenue we have received is for ATM transactions and revenue from this activity is only reported after we receive payment via check from the ATM service provider company.
Fair value of financial instruments
The Company follows the provisions of ASC 820. This Topic defines fair value, establishes a measurement framework and expands disclosures about fair value measurements. We apply these provisions to estimate the fair value of our financial instruments including cash, accounts payable and accrued expenses, and notes payable.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Our deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E favorable to cannabis businesses.
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Provision for Income Taxes
We recorded a provision for income taxes in the amount of $876,017 during the year ended December 31, 2022 compared to $782,107 during the year ended December 31, 2021. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Recently Issued Accounting Pronouncements
From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years, and interim periods within those There are no other recently issued accounting pronouncements that the Company has yet to adopt that are expected to have a material effect on its financial position, results of operations, or cash flows. fiscal years, beginning after December 15, 2019. Early adoption is permitted. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The standard also allows for early adoption of any removed or modified disclosures upon issuance while delaying adoption of the additional disclosures until their effective date. The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.
In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. This standard simplifies the accounting for income taxes. This standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted for all entities, The Company is currently assessing the impact of adopting this standard on its consolidated financial statements.
In November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.
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Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk.
Not applicable.
Item 8. Financial Statements and Supplementary Data.
See the Index of Consolidated Financial Statements on page F-1 below.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A. Disclosure controls and procedures
Under the direction of our Chairman and President, who is our principal, executive, financial and accounting officer, we evaluated our disclosure controls and procedures as of December 31, 2023. Our Chairman and President, who is our principal, executive, financial and accounting officer, concluded that our disclosure controls and procedures were not effective as of December 31, 2023.
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and President, who is our principal, executive, financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and President, who is our principal, executive, financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our fourth fiscal quarter covered by this report. Based on the foregoing, our Chairman and President concluded that our disclosure controls and procedures were not effective. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our Chairman and President, who is our principal, executive, financial and accounting officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ▪ | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; | |
| ▪ | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | |
| ▪ | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s Chairman and President, who is our principal, executive, financial and accounting officer, assessed the effectiveness of the Company’s internal control over financial reporting as of December 31, 2023. In making this assessment, the Company’s Chairman and President, used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.
Based on the assessment performed, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s internal control over financial reporting, as of December 31, 2023, is not effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements in accordance with generally accepted accounting principles. Further, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has identified material weaknesses in internal control over financial reporting as of December 31, 2023.
Based on an evaluation, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of December 31, 2023 (the “Evaluation Date”), to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) accumulated and communicated to the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Each of the following is deemed a material weakness in our internal control over financial reporting:
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| ▪ | We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures. | |
| ▪ | We did not maintain proper segregation of duties for the preparation of our financial statements. We currently have only one officer overseeing all transactions. This has resulted in several deficiencies, including the lack of control over preparation of financial statements and proper application of accounting policies | |
| ▪ | Lack of controls over related party transactions: As of December 31, 2023, the Company did not establish a formal written policy for the approval, identification and authorization of related party transactions. |
The Company’s Chairman and President, who is our principal, executive, financial and accounting officer, believes that the material weaknesses set forth in the two items above did not have an effect on our financial results. However, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, believes that the lack of a functioning audit committee results in ineffective oversight in the establishment and monitoring of required internal controls and financial procedures, which could result in a material misstatement in our consolidated financial statements in future periods.
Changes in Internal Control over Financial Reporting
There was no change in our internal controls or in other factors that could affect these controls during the fourth quarter of the year ended December 31, 2023 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
Item 9B. Other Information
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PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Directors and Executive Officers
Our directors and executive officers and their respective ages and titles are as follows:
| Name | Age | Position(s) and Office(s) Held |
| Craig Frank | 63 | Chairman of the Board, President, Chief Executive Officer, Acting Chief Financial Officer, Director |
| Carrie Schwarz | 63 | Director |
| Mitchell Chupak | 69 | Director |
Set forth below is a brief description of the background and business experience of our directors and executive officers.
Craig Frank became Chairman of the Board, President, Chief Executive Officer and a Director of the Company in January 2010. He assumed the appointed position of acting Chief Financial Officer in 2012. For the past 15 years, Mr. Frank has served as Chairman and CEO of Tudog International Consulting, a Florida-based company with business advisory, business development, market research, training, and merchant banking divisions. During his tenure at Tudog, Mr. Frank has worked with more than 200 companies from 19 countries. In addition, in such capacity, he developed the business plan for a biofuels company based in Central America, and is the co-founder of the Company’s predecessor, which we acquired in January 2010. He remains Tudog’s Chairman. Mr. Frank is a widely published author with articles on business matters featured in magazines and newsletters internationally, including publications of the Guatemala America Chamber of Commerce, the Israel Export Institute, the Romania Chamber of Commerce, and the World Association of Small and Medium Sized Enterprises. He is also an in-demand speaker at international conferences, including the Florida Sterling Council, the International Project Management Association, The Central American Center for Entrepreneurship, the Israel Center for Entrepreneurial Studies, and the Pino Center for Entrepreneurship at Florida International University. The Company believes that Mr. Frank’s consulting and entrepreneurial experience brings significant value to our management team.
Carrie Schwarz, who became a director in January 2010, has served as the Managing Partner of Athena Assets Management, a New York based hedge fund specializing in investments of special situation publicly traded securities since 2002. Ms. Schwarz has also been a Portfolio Manager at Metropolitan Capital, a New York based hedge fund. From 1999 to 2001 Ms. Schwarz was an executive at Bank of America Securities, where she built and managed a proprietary Risk Arbitrage Department. From 1991 to 1999 she founded and managed Athena Investment Partners, L.P., a hedge fund that focused on special situations. Prior thereto, she was with American Porters, L.P., a hedge fund that focused on risk arbitrage, which she joined as a junior analyst in 1995 and ultimately rose to become Head of Research and a partner. Ms. Schwarz serves on the board of directors of the American Friends of the Weizmann Institute of Science. We believe that her financial industry experience makes her a valuable member of the board of directors.
Mitchell Chupak became a director in December, 2020 to fill a vacancy created by the resignation of Jordi Arimany. Mitchell Chupak has resided in Israel since 1972, where since 1997, he has been the Director of Development for the Jaffa Institute, the largest not for profit social service agency serving southern portions of Tel-Aviv-Jaffa, Israel and its suburbs. During his over 25 years at the Jaffa Institute, Mr. Chupak has grown the organization extensively and is responsible for development of major social services, educational and community projects for which he secured millions of dollars in funding. He developed funding sources worldwide and enlisted the aid of major donors in the United States, Canada, Europe, Australia, and South America.
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In 2005, Mr. Chupak created the Israel Fundraisers Forum to assist other non-profit organizations better understand methods of fundraising. The forum, with which he has been associated since its founding, promotes professionalism in fundraising and development and assists both organizations and individual fundraisers to improve methods of the profession.
We believe that Mr. Chupak’s spectrum of experience in both management and funding will add value our board of directors.
Terms of Office
Our directors are appointed for a one-year term to hold office until the next annual meeting of our stockholders and until a successor is appointed and qualified, or until their removal, resignation, or death. Executive officers serve at the pleasure of the board of directors.
Board Committees
Two of our three directors are “independent” within the scope of the rules adopted by the NASDAQ Stock Market and the SEC: Ms. Schwarz and Mr. Chupak. However, our board of directors does not currently have an audit committee, a compensation committee, or a corporate governance committee. We plan to establish such committees in the near future.
Board of Directors Role in Risk Oversight
Members of the board of directors have periodic meetings with management and the Company’s independent auditors to perform risk oversight with respect to the Company’s internal control processes. Our board is currently comprised of a majority of independent directors. The Company believes that the board’s role in risk oversight does not materially affect the leadership structure of the Company.
Code of Ethics
We adopted a Code of Business Conduct and Ethics (the “Ethics Code”) on February 28, 2013 that includes provisions ranging from conflicts of interest to compliance with all applicable laws and regulations. All officers, directors and employees are bound by the Ethics Code, violations of which may be reported to any independent member of the board of directors.
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Item 11. Executive Compensation
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our Chief Executive Officer and acting Chief Financial Officer, who is our sole executive officer, for the years ended December 31, 2023 and December 31, 2022.
SUMMARY COMPENSATION TABLE
| Name and principal position | Year | Salary ($) | Bonus ($) |
Stock Awards (#) |
Option Awards (#) |
Non-Equity Incentive Plan Compensation($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) | ||||||||||||||||||
Craig Frank CEO/Acting CFO
|
2023 | $300,000 |
|
0 | 0 | 0 | 0 | $300,000 (1) |
|||||||||||||||||||
| 2022 | $300,000 | 1,500,000 (3) |
0 | 0 | 0 | 0 | $300,000 (2) |
| (1) | Mr. Frank’s compensation for 2023 was a total of $194,273 paid in cash and $105,727 in accruals. |
| (2) | Mr. Frank’s compensation for 2022 was a total of $218,802 paid in cash and $81,198 in accruals. |
| (3) | Represents “restricted ” shares of our common stock valued at $0.10 per share. |
Mr. Frank's compensation was paid to The Tudog Group, Inc., of which Mr. Frank is the Chairman and a principal.
Employment and Consulting Agreements
The Company is currently not a party to any employment agreement with its executive officers. The Company has consulting agreements with The Tudog Group, of which firm Mr. Frank is Chairman and a Principal, for the services of Mr. Frank as CEO and acting CFO, and with BMN Consultants, Inc of which non-officer or affiliate William David Jones is President
Outstanding Equity Awards at Fiscal Year-End
| None. |
Compensation of Directors
Our non-employee directors are compensated with the issuance of restricted common stock in amounts determined annually by the board of directors. During the year ended December 31, 2023, no shares were issued to our Directors but in 2024 we expect to issue both Carrie Schwarz and Mitchell Chupak (our two non-employee directors) shares of restricted stock for their work in 2023 and additional shares of restricted shares of KAYS stock for their work in 2024.
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2022 Equity Incentive Stock Plan
In 2022 we adopted a new equity incentive plan (the 2022 Equity Incentive Plan) as our prior plan expired in 2021
Our 2022 Incentive Stock Plan, as amended (the “Plan”) provides for equity incentives to be granted to our employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the Plan, restricted stock awards, other stock- based awards, or any combination of the foregoing. The Plan is administered by the board of directors.
As of December 31, 2022 awards covering 4,550,000 shares have been issued under the Plan and 450,000 shares of common stock were available for issuance under the Plan.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth the beneficial ownership of our common stock by each director and executive officer, by all directors and executive officers as a group and by each other person known by us to beneficially own 5% or more of our common stock as of the date of this Annual Report. The address of each such person is c/o the Company 915 Middle River Drive, Suite 316, Fort Lauderdale, FL, 33304.
| Name and Address of Beneficial Owner and Directors and Executive officers: | Number of Shares of Common Stock | Number of Shares of Preferred Stock | Percentage of shares (4) | |||||||||
| Craig Frank (1)(2) | 2,113,345 | 20 | 25.71 | |||||||||
| Carrie Schwarz | 360,002 | 0 | * | |||||||||
| Mitchel Chupak | 350,601 | 0 | * | |||||||||
| All directors and | ||||||||||||
| executive officers, | ||||||||||||
| as a group (three | ||||||||||||
| persons) (1)(2) | 2,823,948 | 20 | 27.64 | % | ||||||||
| Other 5% or greater | ||||||||||||
| stockholders: | ||||||||||||
| Ilan Sarid | 1,533,131 | 4.14 | % | |||||||||
| RLH Financial Partners, Inc (3) | 20 | 20 | % | |||||||||
* Less than 1%
| 1. | includes shares beneficially owned by Tudog International Consulting and Drora Frank. |
| 2. | Includes 7,390,945 shares of common stock issuable upon conversion of 20 shares of our Series D Convertible Preferred Stock held by Mr. Frank, which shares vote on an “as converted” basis. |
| 3. | Includes 4,907,611 shares of our common stock issuable upon conversion of 20 shares of our Series D Convertible Preferred Stock held by RLH Financial Partners, Inc. which shares vote on an “as converted” basis. |
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Securities Authorized for Issuance under Equity Compensation Plans
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted-average exercise price of outstanding options, warrants and rights | Number of securities remaining available for future insurance under equity compensations plans (excluding securities reflected in column (a)) | |||
| Equity compensation plans approved by security holders | 0 shares (1) | n/a | 450,000 shares | |||
| Equity compensation plans not approved by security holders | 0 shares | n/a | ||||
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
None.
Review, Approval and Ratification of Related Party Transactions
Given our small size and limited financial resources, we have not adopted formal policies and procedures for the review, approval or ratification of transactions with our executive officers, directors and significant stockholders. However, all such matters are approved by our independent directors as well as the board of directors as a whole prior to implementation.
Item 14. Principal Accountant Fees and Services.
Audit Fees
The following is a summary of the fees billed to us for professional services (a) for the years ended December 31, 2023 and 2022 by M&K CPAS, PLLC our independent public registered accounting firm .
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| 2023 | 2022 | |||||||
| Audit fees | $ | 40,425 | $ | 38,000 | ||||
| Audit-related fees | -0- | -0- | ||||||
| Tax fees | -0- | -0- | ||||||
| All other fees- quarterly reviews (3 quarters) | $ | 22,050 | $ | 21,000 | ||||
| $ | 62,475 | $ | 59,000 | |||||
Audit fees consist of billings for the audit of the Company’s consolidated financial statements included in our Annual Reports on Form 10-K and reviews of the consolidated financial statements included in the Company’s Quarterly Reports on Form 10-Q.
The Company does not have an Audit Committee. It is the Company’s policy to have its Chief Executive Officer preapprove all audit and permissible non-audit services provided by the independent public accountants, subject to approval by the board of directors.
These services may include audit, audit-related, tax and other services. Pre-approval is generally for up to one year, is detailed as to the particular service or category of services and is generally subject to a specific budget. Unless there are significant variations from the pre-approved services and fees, the independent public accountants and management generally are not required to formally report to the Board of Directors regarding actual services and related fees.
PART IV
Item 15. Exhibits and Financial Statement Schedules.
| a) | The following documents are filed as part of this Annual Report: | |
| (1) | Financial Statements – The following Consolidated Financial Statements of the Company are contained in Item 8 of this Annual Report: | |
| • | Reports of Independent Registered Public Accounting Firms | |
| • | Consolidated Balance Sheets at December 31, 2023 and 2022 | |
| • | Consolidated Statements of Operations for the years ended December 31, 2023 and 2022 | |
| • | Consolidated Statements of Stockholders’ Deficit for the years ended December 31, 2023 and 2022 | |
| • | Consolidated Statements of Cash Flows for the years ended December 31, 2023 and 2022 | |
| • | Notes to the Consolidated Financial Statements. | |
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| (2) | Financial Statement Schedules were omitted, as they are not required or are not applicable, or the required information is included in the Consolidated Financial Statements. | |
| (3) | Exhibits – The following exhibits are filed with this report or are incorporated herein by reference to a prior filing, in accordance with Rule 12b32 under the Exchange Act: |
| (1) | Filed as an Exhibit to the Company’s Registration Statement on Form S-1, as amended (File No. 333-177532) and incorporated herein by reference. |
| (2) | Amendments to the Certificate of Incorporation are filed as Exhibits to the Company’s Current Reports on Form 8-K dated April 23, 2015 and March 22, 2017 and are incorporated herein by reference. |
| (3) | Filed as an Exhibit to the Company’s Annual Report on Form 10-K for the year ended December 31, 2013 and incorporated herein by reference. |
| (4) | Filed as an Exhibit to the Company’s annual Report on Form 10-K for the year ended December 31, 2017 and Incorporated herein by reference. |
| (5) | Filed herewith. |
+ Management compensation arrangement.
Item 16. Form 10-K Summary.
None.
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SIGNATURES
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Company has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: April 16, 2024
| KAYA HOLDINGS, INC. | ||
| By: | /s/ Craig Frank | |
| Craig Frank | ||
| Chairman of the Board, President, Chief Executive Officer, Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer | ||
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, this Annual Report on Form 10K has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
| Signature | Title | Date |
| / s/ Craig Frank | Chairman of the Board, President, Chief Executive Officer, | |
| Craig Frank | Acting Chief Financial Officer and Director (Principal Executive, Financial and Accounting Officer) | April 16, 2024 |
| /s/ Carrie Schwarz | Director | April 16, 2024 |
| Carrie Schwarz | ||
| /s/ Mitchel Chupak | Director | April 16, 2024 |
| Mitchel Chupak |
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INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
34
Reports of Independent Registered Public Accounting Firm
/s/
M&K CPAS, PLLC
We have served as the Company’s auditor since 2018
To
the Board of Directors and
Stockholders of Kaya Holdings, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Kaya Holdings, Inc. (the Company) as of December 31, 2023 and 2022, and the related consolidated statements of operations, comprehensive income (loss) stockholders’ deficit, and cash flows for each of the years in the two-year period ended December 31, 2023, and the related notes (collectively referred to as the financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2023 and 2022, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2023, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company has an accumulated deficit and a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinions on the critical audit matter or on the accounts or disclosures to which it relates.
Derivative Liabilities
As discussed in Note 10, the Company borrows funds through the use of convertible notes payable that contain a conversion price that may be fixed or fluctuates with the stock price.
Auditing management’s estimates of the fair value of the derivative liability involves significant judgements and estimates given the embedded conversion features of the notes.
To evaluate the appropriateness of the fluctuation of the conversion price, the embedded conversion feature requires bifurcation from the host contract and is recorded as a liability subject to market adjustments as of each reporting period. Significant judgment is exercised by the Company in determining derivative liability values for these convertible note agreements, including the use of a specialist engaged by management.
We evaluated management’s conclusions regarding their derivative liability and reviewed support for the significant inputs used in the valuation model, as well as assessing the model for reasonableness. Additionally, we evaluated management’s disclosure of the Derivative Liabilities calculations in Note 10 of the consolidated financial statements.
/s/ M&K CPAS, PLLC
We have served as the Company’s auditor since 2018
The Woodlands, TX
April 16, 2024
Firm ID
F-1
Kaya Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
December 31, 2023 and December 31, 2022
| ASSETS | ||||||||
| (Audited) | (Audited) | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash and equivalents | $ | |||||||
| Inventory | ||||||||
| Prepaid expenses | ||||||||
| Total current assets | ||||||||
| NON-CURRENT ASSETS: | ||||||||
| Right-of-use asset - operating lease | ||||||||
| Assets for sale | ||||||||
| Property and equipment, net of accumulated depreciation of $ |
||||||||
| Goodwill | ||||||||
| Other Assets | ||||||||
| Total non-current assets | ||||||||
| Total assets | $ | $ | ||||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expense | $ | $ | ||||||
| Accounts payable and accrued expense-related parties | ||||||||
| Accrued interest | ||||||||
| Right-of-use liability - operating lease | ||||||||
| Taxable Payable | ||||||||
| Convertible
notes payable, net of discount of $ | ||||||||
| Notes payable | ||||||||
| Derivative liabilities | ||||||||
| Total current liabilities | ||||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Notes payable | ||||||||
| Notes payable-related party | ||||||||
| Convertible
notes payable, net of discount of $ | ||||||||
| Accrued expense-related parties | ||||||||
| Right-of-use liability - operating lease | ||||||||
| Total non-current liabilities | ||||||||
| Total liabilities | ||||||||
| STOCKHOLDERS' DEFICIT: | ||||||||
| Convertible preferred stock, Series C, par value $; shares authorized; and issued and outstanding at December 31, 2023 and December 31, 2022, respectively | ||||||||
| Convertible preferred stock, Series D, par value $; shares authorized; and issued and outstanding at December 31, 2023 and December 31, 2021, respectively | ||||||||
| Common stock , par value $; shares authorized; 0 shares and shares issued as of December 31, 2023 and shares outstanding as of December 31, 2022 , respectively | |
|
||||||
| Subscriptions payable | ||||||||
| Additional paid in capital | ||||||||
| Accumulated deficit | ( | ) | ( | ) | ||||
| Accumulated other comprehensive income (loss) | ( | ) | ( | ) | ||||
| Total stockholders' deficit attributable to parent company | ( | ) | ( | ) | ||||
| Non-controlling interest | ( | ) | ( | ) | ||||
| Total stockholders' deficit | ( | ) | ( | ) | ||||
| Total liabilities and stockholders' deficit | $ | $ | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-2
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
| (Audited) | (Audited) | |||||||
| For The | For The | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Net sales | $ | $ | ||||||
| Cost of sales | ||||||||
| Gross profit | ||||||||
| Operating expenses: | ||||||||
| Professional fees | $ | $ | ||||||
| Salaries and wages | ||||||||
| General and administrative | ||||||||
| Total operating expenses | ||||||||
| Operating loss | ( | ) | ( | ) | ||||
| Other income (expense): | ||||||||
| Interest expense | $ | ( | ) | $ | ( | ) | ||
| Amortization of debt discount | ( | ) | ( | ) | ||||
| Gain on impairment of right of use assets | ||||||||
| Gain on sale of land | ||||||||
| Gain on sale of business license | ||||||||
| Change in derivative liabilities expense | ( | ) | ||||||
| Gain of AP forgiveness | ||||||||
| Other income | ||||||||
| Total other income (expense) | ( | ) | ||||||
| Net income (loss) from continuing operations before income taxes | ( | ) | ||||||
| Provision for Income Taxes | $ | ( | ) | $ | ( | ) | ||
| Net income (loss) | ( | ) | ||||||
| Net Income (loss) attributed to non-controlling interest | ( | ) | ||||||
| Net income (loss) attributed to Kaya Holdings, Inc. | ( | ) | ||||||
| Basic net income (loss) per common share | $ | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - Basic | ||||||||
| Diluted net income (loss) per common share | $ | $ | ( | ) | ||||
| Weighted average number of common shares outstanding - Diluted | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-3
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income (Loss)
| (Audited) | (Audited) | |||||||
| For The | For The | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| Net income (loss) | $ | $ | ( | ) | ||||
| Other comprehensive expense | ||||||||
| Foreign currency adjustments | ( | ) | ||||||
| Comprehensive income (loss) | ( | ) | ||||||
| Other comprehensive income (expense) | ||||||||
| Net loss attributed to non-controlling interest | ( | ) | ||||||
| Comprehensive income (loss) attributable to Kaya Holdings | ( | ) | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-4
| Kaya Holdings, Inc. and Subsidiaries |
| Consolidated Statements of Stockholders' Deficit |
| For the three months and year ended December 31, 2023 (Audited) and the year ended December 31, 2022 (Audited) |
| Preferred Stock - Series C | Preferred Stock - Series D | Common Stock | Subscription Payable | Additional Paid-in | Accumulated | Accumulated Comprehensive | Noncontrolling | Total Stockholders' | ||||||||||||||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | Capital | Deficit | Loss | Interest | Deficit | |||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2021 (Audited) | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Common stock issued for services - related parties | — | — | ||||||||||||||||||||||||||||||||||||||||||||||
| Settlement of related party accrued compensation | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Translation Adjustment | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Net Loss | — | — | — | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 (Unaudited) | — | ( | ) | ( | ) | ( | ) | ( | ) | |||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2022 (Audited) | — | $ | $ | $ | $ | $ | $ | ( | ) | $ | ( | ) | $ | ( | ) | ( | ) | |||||||||||||||||||||||||||||||
| Imputed interest | — | — | — | |||||||||||||||||||||||||||||||||||||||||||||
| Settlement of derivative liabilities to additional paid in capital | — | $ | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Release of related party accruals and payable | — | $ | — | $ | — | $ | $ | $ | $ | $ | $ | |||||||||||||||||||||||||||||||||||||
| Translation Adjustment | — | $ | — | — | ( | ) | ||||||||||||||||||||||||||||||||||||||||||
| Net Income | — | $ | — | — | ||||||||||||||||||||||||||||||||||||||||||||
| Balance, December 31, 2023 | — | $ | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||||||||||||||||||||||||||||||||
The accompanying notes are an integral part of these consolidated fin.
F-5
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statement of Cashflows
(Unaudited)
| For The | For The | |||||||
| Year Ended | Year Ended | |||||||
| December 31, 2023 | December 31, 2022 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | $ | ( |
) | ||||
| Adjustments to reconcile net income / loss to net cash used in operating activities: | ||||||||
| Adjustment to non-controlling interest | ( |
) | ||||||
| Depreciation | ||||||||
| Imputed interest | ||||||||
| Loss (gain) on impairment of right-of-use asset | ( |
) | ||||||
| Change in derivative liabilities | ( |
) | ||||||
| Amortization of debt discount | ||||||||
| Impairment expense | ||||||||
| Shares issued for service | ||||||||
| Shares issued for service - related parties | ||||||||
| Gain on disposal of fixed assets | ( |
) | ||||||
| Gain on sale of business license | ( |
) | ||||||
| Gain on sale of land | ( |
) | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expense | ( |
) | ( |
) | ||||
| Inventory | ||||||||
| Right-of-use asset | ||||||||
| Deposit | ( |
) | ||||||
| Other assets | ( |
) | ||||||
| Accrued interest | ||||||||
| Accounts payable and accrued expenses | ( |
) | ||||||
| Accounts payable and accrued expenses - Related Parties | ||||||||
| Right-of-use liabilities | ( |
) | ( |
) | ||||
| Deferred tax liabilities | ||||||||
| Net cash used in operating activities | ( |
) | ( |
) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Proceeds from sales of fixed assets | ||||||||
| Proceeds from sales of Business License | ||||||||
| Cash paid for impairment of right-of-use asset | ( |
) | ||||||
| Net cash provided by investing activities | ||||||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from notes payable | ||||||||
| Payments on convertible debt | ( |
) | ||||||
| Net cash provided by financing activities | ||||||||
| NET INCREASE (DECREASE) IN CASH | ( |
) | ||||||
| Effects of currency translation on cash and cash equivalents | ( |
) | ( |
) | ||||
| CASH BEGINNING BALANCE | ||||||||
| CASH ENDING BALANCE | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | ||||||||
| NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Settlement of derivative liabilities | ||||||||
| Adoption of lease standard ASC 842 | ||||||||
| Initial derivative liability on convertible note payable | ||||||||
| Release of related party accruals and payable | ||||||||
| Settlement of related party liabilities in excess of net book value of asset distributed | ||||||||
| Preferred stock exchange-related party | ||||||||
The accompanying notes are an integral part of these consolidated financial statements.
F-6
NOTE 1 – ORGANIZATION AND NATURE OF THE BUSINESS
Organization
Kaya Holdings, Inc. FKA (Alternative Fuels Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings, Inc.
The Company has four subsidiaries: Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned and was formed on March 27, 2014 to maintain ownership of the Company’s Oregon based cannabis operations, 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability company which held ownership of the Company’s 26 acre property in Lebanon, Oregon (inactive since Feb 28, 2023 when the subject property was sold), Kaya Brand International, Inc., a Florida Corporation (“KBI”) which is majority-owned and was formed on October 14, 2019 to expand the business overseas (active) and Fifth Dimension Therapeutics, Inc., a Florida corporation which is majority owned (“FTD”) and was formed on December 13, 2022 to develop and maintain ownership of the Company’s planned Psychedelic Treatment Centers offering psilocybin treatments.
MJAI Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations. MJAI Oregon 5 LLC is the entity that held the license application for the Company’s 26 acre farm property in Lebanon Oregon (property sold 2/28/23, inactive since that date).
KBI is the entity that holds controlling ownership interests in Kaya Farms Greece, S.A. (a Greek corporation) and Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation). These two entities were formed to facilitate expansion of the Company’s business in Greece and Israel respectively.
Fifth Dimension Therapeutics, Inc. (FTD) is the entity that was formed to hold interests in psychedelic treatment facilities, with operations initially targeted for Oregon where FDT holds a 49% stake in FDT Oregon 1, LLC (“FDT1”, an Oregon limited liability company) and has an irrevocable option to acquire the remaining 51% stake in FDT1 after the sunsetting in January 1, 2025 of Oregon’s residency requirements for majority ownership in entities that hold OHA issued Psilocybin Licenses.
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.
On July 3, 2014 opened its first Kaya Shack™ MMD in Portland, Oregon. Between April of 2014 and December 31, 2023, KAYS owned and operated four (4 ) Kaya Shack™ retail cannabis medical and recreational dispensaries, three (3) Medical Marijuana Grow sites licensed by the OHA and two (2) Recreational Marijuana grow sites licensed by the OLCC (all in Oregon). The statuses of these operations are as follows:
F-7
The first Kaya Shack™ (Kaya Shack™ Store 1) opened in 2014 in Portland, Oregon at the same address as an Oregon Liquor and Cannabis Commission (OLCC) licensed medical and recreational marijuana retailer. On March 11, 2024, the Company notified the Oregon Liquor Control Commission (the “OLCC”) that we were temporarily closing this location. The Company is currently evaluating redeploying this remaining dispensary license to serve as a delivery hub for Portland residents, tourists and The Sacred Mushroom™ guests, among others.
Kaya Shack™ Store 2 was closed in December, 2022 as part of a sale and surrender agreement that the Company entered into with the OLCC to resolve an Administrative Action filed by the OLCC (as previously disclosed in the Company’s Annual Report on form 10-K for the period ending December 31, 2021 filed on April 18, 2022 and in the Company’s Quarterly report for the period ending March 31, 2022 filed on May 16, 2022). Per the terms of the agreement the Company agreed to either enter into a purchase and sale agreement for its retail license in South Salem by February 1, 2023 (the renewal date) or surrender the license. On April 21, 2023 the Company concluded the sale of Store 2 for $210,000, less a 6% closing commission and minor closing expenses. After these expenses and paying $75,000 to resolve three non-performing store leases in South Oregon, the Company netted $118,900.
Kaya Shack™ Store 3 and Kaya Shack™ Store 4 were both closed due to consolidation moves by the Company in 2020 and 2021, respectively, and the Company let the licenses lapse.
In August of 2017, the Company purchased a 26-acre parcel in Lebanon, Linn County, Oregon for $510,000 on which we intended to construct a Greenhouse Grow and Production Facility (the “Property”) and filed for OLCC licensure. In August of 2022, the Company entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the Property. CVC released its lien on the Property to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC. Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which amounted to $270,000 pending the sale of the Property. On February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the sale were used to repay the advances plus interest (including an additional $100,000 borrowed from another lender interest) and the Company realized net proceeds of approximately $302,000,000. The land is reflected on the balance sheet as assets held for sale for the year ended December 31, 2022 at a value of $516,076. The land was sold in 2023.
On September 26, 2019, the Company formed the majority owned subsidiary Kaya Brands International, Inc. (“KBI”) to serve as the Company’s vehicle for expansion into worldwide cannabis markets. Between September of 2019 and December 31, 2023 KBI has formed majority-owned subsidiaries in both Greece and Israel and its local operating subsidiaries have acquired interests in various licenses and entities.
F-8
On December 13, 2022 the Company formed Fifth Dimension Therapeutics ™ (“FTD”, a Florida Corporation) to seek to provide psychedelic services to sufferers of treatment resistant mental health diseases such as depression, PTSD and other mental health disorders. On January 3, 2023 the Oregon Health Authority (the “OHA”) began to accept license applications, allowing each entity to own and operate one (1) Psilocybin manufacturing and processing facility for the production of Psilocybin Mushrooms and derived therapeutics (“Psilocybins”), and up to five (5) Psilocybin Facilitation Centers where clients would go to ingest Psilocybins and experience effects under the supervision of State Licensed Facilitators.
On January 25, 2023 the Company confirmed that attorney Glenn E.J. Murphy was welcomed as a founding member to the FDT Board of Directors. Glenn will assist FDT with introductions to pharmaceutical companies seeking data and access to psychedelic patients, as well as advising on the development of intellectual property, structure of potential joint ventures, funding opportunities, acquisitions, and other related endeavors. Glenn has twenty-five years of private and corporate practice, including ten years in-house with the Henkel Group and more than fifteen years in private practice, Glenn's experience has touched on most every aspect of intellectual property practice.
On March 13, 2023, Bryan Arnold (one of KAYS Vice Presidents and its longest serving Oregon Employee) completed his OHA Certified Psilocybin Education through the Changra Institute and became one of the first eighteen graduates to obtain Psilocybin Facilitator certification in the State of Oregon. Bryan’s Facilitation License application has been approved by the OHA, and he now may oversee up to five (5) Psilocybin Treatment Facilities and up to one (1) Psilocybin Production Facility. Additionally, the Company expects to enroll additional potential licensee candidates within the coming months to bolster its ranks of OHA Licensed Psilocybin Facilitators as it moves forward with plans to open its first Psilocybin Clinic, subject to completion of financing and regulatory approvals.
F-9
On November 14, 2023 the Company filed a license application with the Oregon Department of Health (the “OHA”) for the licensure of The Sacred Mushroom™, an approximately 11,000 square foot psilocybin treatment center located in Portland, Oregon which would serve as the Company’s flagship psilocybin facility.
On March 6, 2024, the OHA completed its Psilocybin Service Center License Inspection and itemized three (3) facility structural/layout items that they wanted addressed/modified prior to issuing the facility license. The Company is currently completing the items and expects to have the follow-up inspection and final license issuance issued prior to the end of April, 2024.
NOTE 2 – LIQUIDITY AND GOING CONCERN
The Company’s consolidated financial statements as of December 31, 2023 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred net income of $1,609,697 for the year ended December 31, 2023 and net losses of $3,576,614 for the twelve months ended December 31, 2022. The increase in net income is due to the changes in derivative liabilities and the gain on disposal. At December 31, 2023 the Company has a working capital deficiency of $7,307,979 and is totally dependent on its ability to raise capital. The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive working capital in the near future. Even though management believes that it will be able to successfully execute its business plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this material uncertainty. Management recognizes that the Company must generate additional funds to successfully develop its operations and activities. Management plans include:
| • | the sale of additional equity and debt securities, |
| • | alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan, |
| • | business transactions to assure continuation of the Company’s development and operations, |
| • | development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name. |
F-10
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.
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.
Majority-owned subsidiaries:
Fifth Dimension Therapeutics, Inc. (a Florida Corporation)
Kaya Brands International, Inc. (a Florida Corporation)
Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation) majority owned subsidiary of KBI)
Kaya Farms Greece, S.A. (a Greek Corporation) majority owned subsidiary of KBI)
F-11
| · | Marijuana Holdings Americas, Inc. (a Florida corporation) |
| o | MJAI Oregon 1 LLC |
Non-Controlling Interest
The company owned 55% of Marijuana Holdings Americas until September 30, 2019. Starting October 1, 2019, Kaya Holding, Inc. owns 65% of Marijuana Holdings Americas, Inc. As of December 31, 2022, Kaya owns 65% of Marijuana Holdings Americas, Inc.
The company owned 85% of Kaya Brands International, Inc. until July 31, 2020. Starting August 1, 2020, Kaya Holding, Inc. owns 65% of Kaya Brands International, Inc.
The Company owns 65% of Fifth Dimension Therapeutics, Inc.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.
Inventory
Inventory consists
of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out
method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates
the impact of any anticipated changes in future demand. Total Value of Finished goods inventory as of December 31, 2023 is
$
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-30 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Long-lived assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
F-12
Accounting for the Impairment of Long-Lived Assets
We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets.
Operating Leases
We lease our retail stores under non-cancellable operating leases. Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. We recognize rent expense on a straight-line basis over the lease term, excluding contingent rent, and record the difference between the amount charged to expense and the rent paid as a deferred rent liability.
Deferred Rent and Tenant Allowances
Deferred rent is recognized when a lease contains fixed rent escalations. We recognize the related rent expense on a straight-line basis starting from the date of possession and record the difference between the recognized rental expense and cash rent payable as deferred rent. Deferred rent also includes tenant allowances received from landlords in accordance with negotiated lease terms. The tenant allowances are amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession.
In accordance with ASC 260, Earnings per Share, the Company calculates basic earnings per share by dividing net income (loss) by the weighted average number of common shares outstanding during the period. Diluted earnings per share are computed if the Company has net income; otherwise it would be anti-dilutive and would result from the conversion of a convertible note.
Income Taxes
The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the “more likely than not” criteria of ASC 740.
ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the “more-likely-than-not” threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.
We are subject to certain tax risks and treatments that could negatively impact our results of operations
Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking-controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E favorable to cannabis businesses.
F-13
Provision for Income Taxes
We recorded a provision for income taxes in the amount of $93,910 during the year ended December 31, 2022 compared to $782,107 during the year ended December 31, 2021. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| • | Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
| • | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
F-14
Schedule of Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis
| Fair Value Measurements at December 31, 2023 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $742 | - | - | |||||||||
| Derivative liability | - | - | |||||||||
| Total liabilities | - | - | |||||||||
| $ | $ | - | $ | ( |
|||||||
| Fair Value Measurements at December 31, 2022 | |||||||||||
| Level 1 | Level 2 | Level 3 | |||||||||
| Assets | |||||||||||
| Cash | $ | $ | $ | ||||||||
| Total assets | |||||||||||
| Liabilities | |||||||||||
| Convertible debentures, net of discounts of $477,634 | - | - | |||||||||
| Derivative liability | - | - | |||||||||
| Total liabilities | - | - | |||||||||
| $ | $ | - | $ | ( |
|||||||
The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 7.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
F-15
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company uses the Binomial option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end of each reporting period.
In July 2017, the FASB issued ASU 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivative and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendment also clarifies existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.
Prior to this Update, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.
For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
F-16
The amendments in Part 1 of this Update are a cost savings relative to former accounting. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.
The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.
The Company adopted this new standard on January 1, 2019; however, the Company needs to continue the derivative liabilities due to variable conversion price on some of the convertible instruments. As such, it did not have a material impact on the Company’s consolidated financial statements.
Beneficial Conversion Feature
For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.
When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.
Debt Issue Costs and Debt Discount
The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.
Original Issue Discount
For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded as a 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 405-20 “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.
Stock-Based Compensation - Employees
The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing valuation model. The ranges of assumptions for inputs are as follows:
F-17
| • | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
| |
| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
| |
| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
| |
| • | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.
|
F-18
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.
|
F-19
Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identifying the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
To confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt of product via cash payment at our retail store; the transaction is recorded at the time of sale in our point of sale software system. Revenue is only reported after product has been delivered to the customer and the customer has paid for the product with cash.
To date the only other revenue we have received is for ATM transactions and revenue from this activity is only reported after we receive payment via check from the ATM service provider company.
Cost of Sales
Cost of sales represents costs directly related to the purchase of goods and third party testing of the Company’s products.
F-20
Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements.
The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended December 31, 2023.
F-21
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.
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 November 2023, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2023-07, Improvements to Reportable Segment Disclosures (Topic 280). This ASU updates reportable segment disclosure requirements by requiring disclosures of significant reportable segment expenses that are regularly provided to the Chief Operating Decision Maker (“CODM”) and included within each reported measure of a segment's profit or loss. This ASU also requires disclosure of the title and position of the individual identified as the CODM and an explanation of how the CODM uses the reported measures of a segment’s profit or loss in assessing segment performance and deciding how to allocate resources. The ASU is effective for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. Adoption of the ASU should be applied retrospectively to all prior periods presented in the financial statements. Early adoption is also permitted. This ASU will likely result in us including the additional required disclosures when adopted. We are currently evaluating the provisions of this ASU and expect to adopt them for the year ending December 31, 2024.
In December 2023, the FASB issued ASU No. 2023-09, Improvements to Income Tax Disclosures (Topic 740). The ASU requires disaggregated information about a reporting entity’s effective tax rate reconciliation as well as additional information on income taxes paid. The ASU is effective on a prospective basis for annual periods beginning after December 15, 2024. Early adoption is also permitted for annual financial statements that have not yet been issued or made available for issuance. This ASU will result in the required additional disclosures being included in our consolidated financial statements, once adopted.
F-22
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at December 31, 2023 and December 31, 2022:
Schedule of Property Plant And Equipment
| December 31, 2023 | December 31, 2022 | |||||||
| (Audited) | (Audited) | |||||||
| ATM Machine | $ | $ | ||||||
| Computer | ||||||||
| Furniture & Fixtures | ||||||||
| HVAC | ||||||||
| Land | ||||||||
| Leasehold Improvements | ||||||||
| Machinery and Equipment | ||||||||
| Sign | ||||||||
| Vehicle | ||||||||
| Total | ||||||||
| Less: Accumulated Depreciation | ( | ) | ( | ) | ||||
| Property, Plant and Equipment - net | $ | $ | ||||||
Depreciation
expense totaled of $
During the year ended December 31, 2023, the Company sold the retail store in Oregon which had no net assets as all fixed assets of Oregon store were fully depreciated and the Company recorded $206,546 as gain from sale of the business license. The Company also sold two safes which were fully depreciated before 2022. The gain of this disposal was $1,800.
NOTE 5 – NON-CURRENT ASSETS
Other assets consisted of the following at December 31, 2023 and December 31, 2022:
Schedule of other assets noncurrent
| December 31, 2023 (Audited) | December 31, 2022 (Audited) | |||||||
| Other Receivable | $ | $ | ||||||
| Rent Deposits | ||||||||
| Security Deposits | ||||||||
| Non-Current Assets | $ | $ | ||||||
During the year ended December 31, 2023, our other receivables increased $379, related to changes of currency exchange rate. The increase of the rent deposit was primarily due to the new lease signed on September 22, 2023, which term has not begun as of December 31, 2023.
F-23
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The accounts payable and accrued expenses consisted of the following at December 31, 2023 and December 31, 2022 :
Schedule of Accounts Payable and Accrued Liabilities
| December 31, 2023 | December 31, 2022 | |||||||
| Accounts payable | ||||||||
| Accrued expenses | ||||||||
| Total | ||||||||
During the year ended December 31, 2023, the Company recorded $112,560 accounts payable as income from AP forgiveness
NOTE 7 – CONVERTIBLE DEBT
These debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from 4.23% to 5.26%, volatility ranging from 145.03% to 179.9%, trading prices $0.042 per share and a conversion price ranging from $0.034 to $0.08 per share. The total derivative liabilities associated with these notes were $2,752,321 at December 31, 2023 and $6,204,878 at December 31, 2022. As of December 31, 2023, one convertible note chose not to extend, and the maturity date is in the beginning of 2024. We reclassed it from long-term to short-term convertible notes.
See Below Summary Table
Schedule of Convertible Debt
| Convertible Debt Summary | |||||||
| Debt Type | Debt Classification | Interest Rate | Due Date | Ending | |||
| CT | LT | 12/31/2023 | 12/31/2022 | ||||
| A | Convertible | X | 1-Jan-17 | |
$ | ||
| B | Convertible | X | 31-Dec-25 | |
| ||
| C | Convertible | X | 31-Dec-25 | |
| ||
| D | Convertible | X | 31-Dec-25 | |
| ||
| O | Convertible | X | 31-Dec-25 | |
| ||
| P | Convertible | X | 31-Dec-25 | |
| ||
| Q | Convertible | X | 31-Dec-25 | |
| ||
| S | Convertible | X | 31-Dec-25 | |
| ||
| T | Convertible | X | 31-Dec-25 | |
| ||
| CC | Convertible | X | 01-Jan-24 | |
| ||
| KK | Convertible | X | 31-Dec-25 | |
| ||
| LL | Convertible | X | 31-Dec-25 | |
| ||
| MM | Convertible | X | 31-Dec-25 | |
| ||
| NN | Convertible | X | 31-Dec-25 | |
| ||
| OO | Convertible | X | 31-Dec-25 | |
| ||
| PP | Convertible | X | 31-Dec-25 | |
| ||
| Convertible | X | 31-Dec-25 | |
| |||
| RR | Convertible | X | 31-Dec-25 | |
| ||
| SS | Convertible | X | 31-Dec-25 | |
| ||
| TT | Convertible | X | 31-Dec-25 | |
| ||
| UU | Convertible | X | 31-Dec-25 | |
| ||
| VV | Convertible | X | 31-Dec-25 | |
| ||
| XX | Convertible | X | 31-Dec-25 | |
| ||
| YY | Convertible | X | 31-Dec-25 | |
| ||
| ZZ | Convertible | X | 31-Dec-25 | |
| ||
| AAA | Convertible | X | 31-Dec-25 | |
| ||
| BBB | Convertible | X | 31-Dec-25 | |
| ||
| DDD | Convertible | X | 31-Dec-25 | |
| ||
| EEE | Convertible | X | 31-Dec-25 | |
| ||
| GGG | Convertible | X | 31-Dec-25 | |
| ||
| JJJ | Convertible | X | 31-Dec-25 | |
| ||
| LLL | Convertible | X | 31-Dec-25 | |
| ||
| MMM | Convertible | X | 31-Dec-25 | |
| ||
| PPP | Convertible | X | 31-Dec-25 | |
| ||
| SSS | Convertible | X | 31-Dec-25 | |
| ||
| TTT | Convertible | X | 31-Dec-25 | |
| ||
| VVV | Convertible | X | 31-Dec-25 | |
| ||
| WWW | Convertible | X | 31-Dec-25 | |
| ||
| XXX | Convertible | X | 31-Dec-25 | |
| ||
| YYY | Convertible | X | 31-Dec-25 | |
| ||
| ZZZ | Convertible | X | 31-Dec-25 | |
| ||
| AAAA | Convertible | X | 31-Dec-25 | |
| ||
| BBBB | Convertible | X | 1-Mar-23 | - | | ||
| CCCC | Convertible | X | 1-Mar-23 | - | | ||
| DDDD | Convertible | X | 31-Dec-25 | - | | ||
| Total Convertible Debt | |
| |||||
| Less: Discount | ( |
( | |||||
| Convertible Debt, Net of Discounts | $ |
$ | |||||
| Convertible Debt, Net of Discounts, Current | $ |
$ | |||||
| Convertible Debt, Net of Discounts, Long-term | $ |
$ | |||||
F-24
FOOTNOTES FOR CONVERTIBLE DEBT ACTIVITY FOR YEAR ENDED DECEMBER31, 2023
On August 8, 2022, the Company received $150,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as amended. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due in March 1, 2024. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note.
On November 8, 2022, the Company received $120,000 from the issuance of convertible debt with a third- party individual. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on March 1, 2023. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note.
On December 12, 2022, the Company received $100,000 from the issuance of convertible debt with a third- party individual. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on December 31, 2024. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note.
On February 28, 2023, the Company sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the sale were used to repay the convertible notes described above which total principal was $370,000.On December 31, 2022, the Company and various noteholders agree to modify the maturity date to December 31,2025 of all notes that were due to mature on December 31, 2024. No other terms of the convertible notes were changed.
NOTE 8 – NON-CONVERTIBLE DEBT
| December 31, 2023 | December 31, 2022 | |||||||
| Note 5 | ||||||||
| Note 6 | ||||||||
| Note 7 | ||||||||
| Note 8 | ||||||||
| Current non-convertible notes | ||||||||
| Non-current convertible notes | ||||||||
| Total Non-convertible notes | ||||||||
(5) On September 16, 2016, the Company received a total of $31,661 to be used for equipment in exchange for a two year note in the aggregate amount of $31,661 with interest accruing at 18% per year and a 10% loan fee. The note is in default as of December 31, 2023 with an outstanding balance of $9,312.
(6) On June 12, 2023, the Company issued a 10% promissory note in the amount of $350,000 with 10% interest rate, payable to CVC International Ltd, secured by 10% of monthly total revenues from all sources of Kaya Holdings, Inc. and any of its subsidiaries. and the noteholder also received 10 Series A preferred shares in FDT, which are convertible into a total of 10% of the common shares. The due date of the note is June 12, 2025. At the end of September 2023, the company paid $5,000, which is 10% of the total revenues from all sources of Kaya Holdings, Inc to the Holder and the Holder agreed to reinvest it as the additional of the note. On October 6, 2023, the Company received another $145,000 from the same investor to increase the promissory note to $500,000 totally.
F-25
(7) On August 28, 2023 the Company received $100,000 from the issuance of working capital loan to another investor. Interest is stated at 10%. The Note is Due in March 15, 2024.
(8) On December 15, 2023 the Company received $15,000 working capital loan from another investor with no interest.
Schedule Of Related Party Transactions
| B-Related Party | ||||||||
| Loan payable - Stockholder, 0%, Due December 31, 2025 (1) | $ | $ | ||||||
| $ | $ |
| (1) | The $250,000 non-convertible note was issued as part of a Debt Modification Agreement dated January 2, 2014. On January 1, 2019, the holder of the note extended the due date until December 31, 2021. The interest rate of the non-convertible note is 0%. The Company used the stated rate of 9% as imputed interest rate, which was $22,500 and $22,500 for the year ended December 31, 2022 and year ended December 31, 2021, respectively. As of December 31, 2022, the balance of the debt was $250,000. On December 31, 2021, the Company entered into an agreement to further extend the debt until December 31, 2025, with no additional interest for the extension period. |
NOTE 9 – STOCKHOLDERS’ EQUITY
The Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001, of which 100,000 shares have been designated as Series C convertible preferred stock (“Series C” or “Series C preferred stock”). The Company has 10,000,000 shares of preferred stock authorized. The Board has the authority to issue the shares in one or more series and to fix the designations, preferences, powers and other rights, as it deems appropriate.
Each share of Series C has 434 votes on any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 434 shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the holder into 434 shares of common stock.
Pursuant to the terms and conditions of this Agreement, the Holders each agreed to (a) waive payment of approximately $338,000 of Accrued Compensation; (b) defer payment of the remaining balance of Accrued Compensation owed to each of them of approximately $250,000 until January 1, 2025 ; and (c) exchange the 50,000 Series C Shares ( at total of 100,000) for twenty (20) Series D Convertible Preferred Shares of Kaya Holdings Stock. Mr. Frank’s Series D shares were issued to Mr. Frank and the Series D shares issued for the option held by BMN were issued to RLH Financial Services pursuant to a private sale between BMN and RLH whereby RLH acquired the shares in exchange for a promissory note in the amount of $1,000,000.
Each Share of 40 Series D Preferred Stock is convertible, at the option of the holder thereof, at any time and from time to time, into one percent (1%) of the Company’s Fully Diluted Capitalization as of the Conversion Date. This resulted in a related party gain of $559,058.
The Company has 500,000,000 shares of common stock authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.
As of December 31, 2023, there were 22,172,835 shares of common stock outstanding and no new issuances of common stock during the year ended December 31, 2023.
F-26
NOTE 10 – DERIVATIVE LIABILITIES
Effective January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
However, due to a recognition of tainting, due to variable conversion price on some of the convertible notes, all convertible notes are considered to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging 4.23% to 5.26%, volatility ranging from 145.03% to 179.9%, trading prices ranging from $0.042 per share and a conversion price ranging from $0.037 to $0.08 per share. The total derivative liabilities associated with these notes were $2,752,321 at December 31, 2023 and $6,204,878 at December 31, 2022.
As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized as follow:
Schedule Of Derivative Liabilities At Fair Value
| Balance as of December 31, 2022 | $ | |||
| Change in Derivative values | ( | ) | ||
| Settlement of derivative to APIC | ( | ) | ||
| Balance as of December 31, 2023 | $ |
Operating Lease, Lease Income
| Maturity of lease liabilities at December 31, 2023 | Amount | |||
| 2024 | | |||
| 2025 | ||||
| Total lease payments | | |||
| Less: imputed interest | ( | |||
| Present value of lease liabilities | | |||
The Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the derivative liability, as it exceeded the gross proceeds of the note.
The Company recorded initial derivative liabilities of $0 and $213,579 for the new notes issued for years ended December 31, 2023 and 2022, respectively.
The Company recorded a change in the value of embedded derivative liabilities gain of $3,297,215 and an expense of $1,010,737 for the year ended December 31, 2023 and 2022, respectively.
The Company recorded a change in the value of embedded derivative liabilities gain of $2,713,741 and an expense of $1,010,737 for the year ended December 31, 2023 and 2022, respectively.
The Company reclassified derivative liabilities of $155,342 to additional paid in capital due to debt repayments for the year ended December 31, 2023 and $0 for year ended December 31, 2021
NOTE 11 – 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 $742 and $387,814 as of December 31, 2023 and 2022, respectively.
The Company recorded the amortization of debt discount of $387,072 and $303,198 for the years ended December 31, 2023 and 2022, respectively.
F-27
NOTE 12 – RELATED PARTY TRANSACTIONS
At December 31, 2014, the Company was indebted to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal and $103,895 accrued interest, with interest accruing at 10%. On January 2, 2014, the Company entered into a Debt Modification Agreement whereby the total amount of the debt was reduced to $750,000 and no interest accrued until December 31, 2015. $500,000 of the debt is convertible into 50,000 Series C Convertible Preferred Shares of KAYS. The remaining $250,000 is not convertible.
In 2019, the Company entered into amended consulting agreements with Tudog International Consulting, Inc. which provides CEO services to the Company through Craig Frank, an Officer of the Company and BMN Consultants, Inc. which provides business development and financial consulting services to the Company through William David Jones, a non-officer Consultant to the Company. Pursuant to the amended consulting agreements, each entity is entitled to monthly compensation of $25,000. Due to the liquidity of the Company, the compensations were paid partially over the periods. As of December 31, 2022, the accrued compensation was approximately $500,000. By agreement of the parties, the accrued compensation will not be paid until January 1,, 2025 and has been recorded as a long-term liability . As of December 31, 2023, the Company also had $371,773 of accrued compensation due to Tudog International Consulting, Inc. and BMN Consultants, Inc.
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. As of December 31, 2023, the Company had $138,227 due to Bruc e.
On December 1, 2022, the Company priced a its one remaining vehicle with Carvana and received a offer for $14,510 In lieu of accepting the bid and partially paying Mr. Frank’s invoices which were still due from August, 2022, the Company agreed to transfer title to the car to him in settlement of $17,000.00 in fees that were due him in August (these are fees that are not being deferred and would otherwise be paid in cash, and cost the Company $2,490.00 more in fees if the car was sold).
On December 15, 2022 the Board of Directors approved the issuance of a total of 2,100,000 shares as Officer and Director Compensation as follows:1,500,000 shares of common stock to our CEO Craig Frank 300,000 shares to Carries Schwarz 300,000 shares to Mitchell Chupak, as annual award compensation, per their agreements.
In 2023, The Tudog Group, BMN Consultants, Inc, Inc and 495 Oxford Consulting, Inc which all provide services to the Company through Craig Frank and William David Jones, forgiven totally $38,329 of payable expense. The payable forgiveness were recorded as Additional paid in capital.
F-28
NOTE 13 – STOCK OPTION PLAN
On September 15, 2022 the Company approved the 2022 Equity Incentive Plan, which provides for equity incentives to be granted to the Company’s employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2022 Incentive Stock Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2022 Incentive Stock Plan is administered by the board of directors. The remaining balance of the shares available in the plan is 450,000 shares.
NOTE 14 – WARRANTS
On September 8, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 210,772 paid and non-assessable post -reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of December 31, 2019, the note was paid in full. As of December 31, 2023, the warrants have expired.
On September 9, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 210,772 paid and non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September 9, 2017. As of December 31, 2019, the note was paid in full. As of December 31, 2023, the warrants have expired.
On May 9, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 158,079 paid and non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 9, 2018. As of December 31, 2019, the note was paid in full. As of December 31, 2023, the warrants have expired.
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. As of December 31, 2023, the warrants have expired.
Warrants issued to Non-Employees
Schedule Of Warrants
| Warrants Issued | Weighted Average Exercise Price | Weighted Average Contract Terms Years | |
| Balance as of December 31, 2022 | |
||
| Granted | - | - | |
| Exercised | - | - | |
| Expired | ( |
- | - |
| Balance as of December 31, 2023 |
F-29
NOTE 15 – COMMITMENTS AND CONTINGENCIES
Operating Leases
The Company has several operating leases for an office in Fort Lauderdale, Florida and four retail store locations in Oregon under arrangements classified as leases under ASC 842.
Effective June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021 at a rate of $1,802 per month. On June 1, 2021 the lease was extended for another year and on June 1 in 2022 the lease was extended for an additional year. The current monthly payment inclusive of sales tax and operating expenses is $2,136 with right of use liabilities of $18,722. The lease was terminated on May 30, 2023. On October 1, 2023, the lease was extended for another year.
Effective May 15, 2014, the Company leased a unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019, the lease had been extended to May 15, 2024. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The current monthly payment is $3,100 with right of use liabilities of $12,163 as of December 31, 2023.
Effective May 22, 2015, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. In May 2020, the lease had been extended to May 31, 2025. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease was extended for an additional 5 years. The current monthly payment is $5,140 with right of use liabilities of $124,819 as of March 31, 2023.This lease was terminated as of April 19, 2023 as part of a settlement with the Landlord on the three (3) outstanding retail store leases that the Company had outstanding in Salem, Oregon for locations that were closed, and no funds are owed for the leases.
Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The current monthly payment is $0 with right of us liabilities of $0. This lease was terminated as of April 19, 2023 as part of a settlement with the Landlord on the three (3) outstanding retail store leases that the Company had outstanding in Salem, Oregon for locations that were closed, and no funds are owed for the leases.
Effective April 15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The total amount of rental payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The current monthly payment is $0 with right of us liabilities of $0. This lease was terminated as of April 19, 2023 as part of a settlement with the Landlord on the three (3) outstanding retail store leases that the Company had outstanding in Salem, Oregon for locations that were closed, and no funds are owed for the leases.
On September 21, 2023, the Company executed a lease for approximately 11,000 square feet of space in Portland, OR for its psilocybin business. The space takes up the entire seventh floor of commercial building which has floor to ceiling windows offering sweeping views of the Portland Skyline, and has an existing substantial kitchen/ café area that the Company intends to utilize for a “Microdosing Café” concept, as well as already constructed rooms that the Company intends to utilize for individual and group Psilocybin sessions. The lease is for one year with option for an additional two years, if all conditions are met. The lease does not commence until such time as the Company has received notice of OHA Psilocybin Service Center License approval for the location.
F-30
The Company has escrowed $51,817.75 with an Oregon-licensed attorney in Oregon (“Escrow Holder”) pursuant to an escrow agreement between Tenant, Landlord and the Escrow Holder, of which $38,893.75 (the “Prepaid Rent”) is prepaid Base Rent and Additional Rent for months 1 through 5 of the Term and $12,925 is the Security Deposit (defined below). Tenant shall pay all fees charged by the Escrow Holder for holding the Prepaid Rent and Security Deposit pursuant to the escrow agreement. The Prepaid Rent and Security Deposit shall be released to Landlord promptly upon Lease Commencement. Tenant shall promptly execute any documents required by Escrow Company for such release upon Lease Commencement
As noted above, the one (1) lease that the Company entered into on June 1, 2015 and the two (2) leases that the Company entered into effective April 15, 2016 were terminated as part of a settlement with the landlord entered into on April 19, 2023 concurrent with a payment of $75,000 which resolved all outstanding liabilities of the Company and its subsidiaries for the leases. The Company booked $151,082 as gain from this ROU settlement.
The Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily determinable. The Company used an estimated incremental borrowing rate of 9.32% to estimate the present value of the right of use liability.
The Company has right-of-use assets of $29,865 and operating lease liabilities of $30,885 as of December 31, 2023. Operating lease expenses for the year ended December 31, 2023 and 2022 were $83,202 and $193,182, respectively. The big changes were due to the termination of the three stores lease. As the closure of 3 stores, the Company evaluated long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Hence, the Company has recorded $151,082 in impairment gain related to right-of-use assets during the year ended December 31, 2023.
Schedule Of Future Minimum Rental Payments For Operating Leases
| Maturity of lease liabilities at December 31, 2023 | Amount | |||
| 2024 | ||||
| 2025 | ||||
| Total lease payments | ||||
| Less: imputed interest | ( | |||
| Present value of lease liabilities | ||||
Lessee, Operating Lease, Liability
| Leased assets | Operating Lease Liability As of December 31, 2023 | Remaining months | Weighted average remaining term | |||||||||
| KAYA | ||||||||||||
| MJAI | ||||||||||||
| Total | ||||||||||||
F-31
NOTE 16 - INCOME TAXES
We record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December 31, 2023, and 2022 we have not recorded any uncertain tax positions in our financial statements.
The effective US Federal Income Corporate Tax Rates for 2023 and 2022 are 21% and 21%, respectively.
The Company has net operating loss carry forwards of approximately $16,778542 at December 31, 2023 that do not expire. However, utilization of these losses may be limited pursuant to Section 382 of the Internal Revenue Code due to a recapitalization in 2007 and subsequent stock issuances.
The Company has a deferred tax asset as shown in the following:
Schedule of Deferred Tax Assets and Liabilities
| Year Ending December 31, 2023 | Year Ending December 31, 2022 | |||||||
| Deferred Tax Asset | ||||||||
| Valuation Allowance | ( | ) | ( | ) | ||||
| Net Deferred Tax Asset | $ | $ | ||||||
We are subject to certain tax risks and treatments that could negatively impact our results of operations
Section 280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E favorable to cannabis businesses.
Provision for Income Taxes
We recorded a provision for income taxes in the amount of $899,344 during the year ended December 31, 2023 compared to $876,017 during the year ended December 31, 2022. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Note 17 - 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.
On January 23, 2024, the Company received $61,200.00 and on March 12, 2024 the Company received an additional $150,000 in capital from the Institutional Investor. The $210,200 (along with $3,000 in interest that was owed the Investor) was invested in a private placement.
On January 31, 2024, the Company received $15,300 from another accredited investor to purchase .6 Units of the Private Placement.
On February 21, 2024, the OHA advised the Company that they had satisfactorily completed the review of its Psilocybin Service Center Licensing Application and that they were ready to inspect the facility for a compliance review prior to issuing the facility license.
On March 6, 2024, the OHA completed its Psilocybin Service Center License Inspection and itemized three (3) facility structural/layout items that they wanted addressed/modified prior to issuing the facility license. The Company is currently completing the items and expects to have the follow-up inspection and final license issuance issued prior to the end of April, 2024.
F-33
Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Craig Frank, Chairman of the Board, President, Chief Executive Officer and Chief Acting Financial Officer of Kaya Holdings, Inc. (the “ Registrant ”), certify that:
| 1. | I have reviewed this report on Form 10-K for the year ended December 31, 2023 of the Registrant (the “ Report ”); | |
| 2. | Based on my knowledge, the Report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by the Report; | |
| 3. | Based on my knowledge, the financial statements, and other financial information included in the Report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in the Report; | |
| 4. | I am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-a15(f) and 15d-15(f) for the Registrant and have: |
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which the Report is being prepared; | |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; | |
| c) | evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in the Report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by the Report based on such evaluation; and | |
| d) | disclosed in the Report any change in the Registrant’s internal controls over financial reporting that occurred during the Registrant’s fourth fiscal quarter that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting. |
| 5. | I have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant's auditors and the audit committee of the Registrant's board of directors (or persons performing the equivalent functions): | |||
| a) | All significant deficiencies and material weaknesses in the design or operation of internal controls which are reasonably likely to adversely affect the Registrant's ability to record, process, summarize and report financial information; and | |||
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant's internal controls. | |||
Dated: April 16, 2024
| KAYA HOLDINGS, INC.. | ||
| By: | /s/ Craig Frank | |
| Craig Frank, Chairman, President Chief Executive Officer, Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer) | ||
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT
TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Annual Report of Kaya Holdings, Inc. (the " Company ") on Form 10-K for the year ended December 31, 2021, as filed with the Securities and Exchange Commission on the date hereof (the " Repor t"), I, Craig Frank, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer), certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, to the best of our knowledge, that:
| 1. | the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and | |
| 2. | the information contained in the Report fully presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: April 16, 2024
| 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) | ||