Kaya Holdings, Inc 10-Q, filed Aug 15, 2024
Kaya Holdings, Inc. (KAYS)
About this 10-Q
Kaya Holdings, Inc filed this 10-Q on August 15, 2024, covering the quarter ended June 30, 2024.
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter ended June 30, 2024
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File No. 333-177532
KAYA HOLDINGS, INC. (Exact name of registrant as specified in its charter)
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| Delaware | 90-0898007 | |||
| (State of other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) | |||
915 Middle River Drive, Suite 316
Ft. Lauderdale, Florida 33304
(Address of principal executive offices)
(954)-892-6911
(Registrant’s telephone number, including area code)
Securities registered under Section 12(b) of the Exchange Act: None
| Title of each class | Trading symbol(s) | Name of each exchange on which registered | ||
| None |
Securities registered under Section 12(g) of the Exchange Act:
None
(Title of Class)
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ] Yes [X] No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ] Yes [X] No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [ ] No
☒ ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). [X] Yes [ ] No
Non-accelerated filer
As of August 14, 2024, the Issuer had 22,172,835 shares of its common stock outstanding.
INDEX TO QUARTERLY REPORT ON FORM 10 Q
Part I – Financial Information Page
In this Quarterly Report on Form 10-Q, the terms “KAYS,” “the Company,” “we,” “us” and “our” refer to Kaya Holdings, Inc. and its owned and controlled subsidiaries, unless the context indicates otherwise.
Cautionary Note Regarding Forward Looking Statements
Information contained in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.
The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.
Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
Available Information
We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”) that can be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as EDGAR, through the SEC’s website (www.sec.gov).
Kaya Holdings, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2024 and December 31, 2023
| ASSETS | ||||||||
| (Unaudited) | (Audited) | |||||||
| June 30, 2024 | December 31, 2023 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash and equivalents | $ | 61,282 | $ | 29,108 | ||||
| Inventory | — | 9,259 | ||||||
| Prepaid expenses | 25,914 | 58,588 | ||||||
| Total current assets | 87,196 | 96,955 | ||||||
| NON-CURRENT ASSETS: | ||||||||
| Right-of-use asset - operating lease | 119,402 | 29,865 | ||||||
| Property and equipment, net of accumulated depreciation of $218,077 and $216,890 as of June 30, 2024 and December 31, 2023, respectively | 42,454 | 24,875 | ||||||
| Goodwill | 22,472 | 23,682 | ||||||
| Other Assets | 29,156 | 40,479 | ||||||
| Total non-current assets | 213,484 | 118,901 | ||||||
| Total assets | $ | 300,680 | $ | 215,856 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Accounts payable and accrued expense | $ | 605,950 | $ | 589,085 | ||||
| Accounts payable and accrued expense-related parties | 699,345 | 514,972 | ||||||
| Accrued interest | 2,658,697 | 2,369,015 | ||||||
| Right-of-use liability - operating lease | 119,521 | 30,885 | ||||||
| Taxable Payable | 902,163 | 899,344 | ||||||
| Convertible notes payable, net of discount of $0 and $0 | 135,000 | 125,000 | ||||||
| Notes payable | 9,312 | 124,312 | ||||||
| Derivative liabilities | 2,658,222 | 2,752,321 | ||||||
| Total current liabilities | 7,788,210 | 7,404,934 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Notes payable | 500,000 | 500,000 | ||||||
| Notes payable-related party | 250,000 | 250,000 | ||||||
| Convertible notes payable, net of discount of $205,093 and $742 | 7,739,559 | 7,311,410 | ||||||
| Accrued expense-related parties | 500,000 | 500,000 | ||||||
| Total non-current liabilities | 8,989,559 | 8,561,410 | ||||||
| Total liabilities | 16,777,769 | 15,966,344 | ||||||
| STOCKHOLDERS' DEFICIT: | ||||||||
| Common stock , par value $.001; 500,000,000 shares authorized; 0 shares and 22,172,835 shares issued as of June 30, 2024 and 22,172,835 shares outstanding as of December 31, 2023 , respectively | 22,173 | 22,173 | ||||||
| Subscriptions payable | 163,630 | 163,630 | ||||||
| Additional paid in capital | 22,517,652 | 22,493,783 | ||||||
| Accumulated deficit | (37,144,863 | ) | (36,462,263 | ) | ||||
| Accumulated other comprehensive income | (13,866 | ) | (12,617 | ) | ||||
| Total stockholders' deficit attributable to parent company | (14,455,274 | ) | (13,795,294 | ) | ||||
| Non-controlling interest | (2,021,815 | ) | (1,955,194 | ) | ||||
| Total stockholders' deficit | (16,477,089 | ) | (15,750,488 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 300,680 | $ | 215,856 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
4
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Operations
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| For The Three | For The Three | For The | For The | |||||||||||||
| Months Ended | Months Ended | Six-months Ended | Six-months Ended | |||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Net sales | $ | — | $ | 55,116 | $ | 28,009 | $ | 103,361 | ||||||||
| Cost of sales | — | 19,717 | 13,406 | 36,314 | ||||||||||||
| Gross profit | — | 35,399 | 14,603 | 67,047 | ||||||||||||
| Operating expenses: | ||||||||||||||||
| Professional fees | 170,347 | 162,016 | 359,772 | 393,265 | ||||||||||||
| Salaries and wages | 44,168 | 54,008 | 89,083 | 96,139 | ||||||||||||
| General and administrative | 184,721 | 132,688 | 263,570 | 226,834 | ||||||||||||
| Total operating expenses | 399,236 | 348,712 | 712,425 | 716,238 | ||||||||||||
| Operating loss | (399,236 | ) | (313,313 | ) | (697,822 | ) | (649,191 | ) | ||||||||
| Other income (expense): | ||||||||||||||||
| Interest expense | (169,563 | ) | (156,293 | ) | (349,893 | ) | (318,332 | ) | ||||||||
| Amortization of debt discount | (21,157 | ) | (68,010 | ) | (26,795 | ) | (249,553 | ) | ||||||||
| Loss on impairment of right of use assets | — | (67,924 | ) | — | (67,924 | ) | ||||||||||
| Gain on disposal | — | 206,546 | — | 384,429 | ||||||||||||
| Change in derivative liabilities expense | 947,165 | (309,296 | ) | 345,245 | 233,687 | |||||||||||
| Other income (expense) | — | 1,500 | 3,614 | 1,500 | ||||||||||||
| Total other income (loss) | 756,446 | (393,477 | ) | (47,289 | ) | (16,193 | ) | |||||||||
| Net income from continuing operations before income taxes | 357,210 | (706,790 | ) | (745,651 | ) | (665,384 | ) | |||||||||
| Provision for Income Taxes | — | (7,366 | ) | (2,819 | ) | (13,839 | ) | |||||||||
| Net income (loss) | 357,210 | (714,156 | ) | (748,470 | ) | (679,223 | ) | |||||||||
| Net loss attributed to non-controlling interest | (45,182 | ) | 18,612 | (65,870 | ) | (13,614 | ) | |||||||||
| Net income (loss) attributed to Kaya Holdings, Inc. | 402,392 | (732,768 | ) | (682,600 | ) | (665,609 | ) | |||||||||
| Basic net income per common share | $ | 0.02 | $ | (0.03 | ) | $ | — | $ | (0.03 | ) | ||||||
| Weighted average number of common shares outstanding - Basic | 22,172,835 | 22,172,835 | 22,172,835 | 22,172,835 | ||||||||||||
| Diluted net income per common share | $ | — | $ | (0.03 | ) | $ | (0.03 | ) | $ | (0.03 | ) | |||||
| Weighted average number of common shares outstanding - Diluted | 22,172,835 | 22,172,835 | 22,172,835 | 22,172,835 | ||||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
5
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income(Loss)
| (Unaudited) | (Unaudited) | (Unaudited) | (Unaudited) | |||||||||||||
| For The Three | For The Three | For The | For The | |||||||||||||
| Months Ended | Months Ended | Six-months Ended | Six-months Ended | |||||||||||||
| June 30, 2024 | June 30, 2023 | June 30, 2024 | June 30, 2023 | |||||||||||||
| Net income (loss) | $ | 402,392 | $ | (732,768 | ) | $ | (682,600 | ) | $ | (665,609 | ) | |||||
| Other comprehensive expense | ||||||||||||||||
| Foreign currency adjustments | (316 | ) | 435 | (2,000 | ) | 963 | ||||||||||
| Comprehensive income (loss) | 402,076 | (732,333 | ) | (684,600 | ) | (664,646 | ) | |||||||||
| Other comprehensive income(expense) | ||||||||||||||||
| Net loss attirbuted to non-controlling interest | (45,182 | ) | (18,003 | ) | (65,870 | ) | (13,614 | ) | ||||||||
| Comprehensive loss attributable to Kaya Holdings | 447,258 | (714,330 | ) | (618,730 | ) | (651,032 | ) | |||||||||
The accompanying notes are an integral part of these consolidated financial statements.
6
Kaya Holdings, Inc. and Subsidiaries
Consolidated Statement of Cashflows
| (Unaudited) | (Unaudited) | |||||||
| For The | For The | |||||||
| Six-months Ended | Six-months Ended | |||||||
| June 30, 2024 | June 30, 2023 | |||||||
| OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | (682,600 | ) | $ | 2,029,688 | |||
| Adjustments to reconcile net income / loss to net cash used in operating activities: | ||||||||
| Adjustment to non-controlling interest | (65,870 | ) | (57,835 | ) | ||||
| Depreciation | 1,187 | 13,611 | ||||||
| Imputed interest | 11,219 | 11,158 | ||||||
| Change in derivative liabilities | (325,245 | ) | (3,089,822 | ) | ||||
| Amortization of debt discount | 26,795 | 157,204 | ||||||
| Loss (gain) on disposal of fixed assets | — | — | ||||||
| Changes in operating assets and liabilities: | ||||||||
| Prepaid expense | 32,283 | — | ||||||
| Inventory | 9,259 | 11,816 | ||||||
| Right-of-use asset | 52,693 | 45,444 | ||||||
| Other assets | 11,016 | (10,485 | ) | |||||
| Accrued interest | 309,682 | 296,281 | ||||||
| Accounts payable and accrued expenses | 16,865 | 4,160 | ||||||
| Accounts payable and accrued expenses - Related Parties | 184,373 | 85,074 | ||||||
| Right-of-use liabilities | (53,594 | ) | (60,631 | ) | ||||
| Deferred tax liabilities | 2,819 | 54,863 | ||||||
| Net cash provided by (used in) operating activities | (469,118 | ) | (509,474 | ) | ||||
| INVESTING ACTIVITIES: | ||||||||
| Purchase of property and equipment | (18,766 | ) | — | |||||
| Proceeds from sales of subsidiary's stock | 12,650 | — | ||||||
| Net cash provided by (used in) investing activities | (6,116 | ) | — | |||||
| FINANCING ACTIVITIES: | ||||||||
| Proceeds from convertible notes | 622,500 | — | ||||||
| Payments on convertible debt | (115,000 | ) | — | |||||
| Net cash provided by financing activities | 507,500 | — | ||||||
| NET INCREASE (DECREASE) IN CASH | 32,266 | (509,474 | ) | |||||
| Effects of currency translation on cash and cash equivalents | (92 | ) | (9,900 | ) | ||||
| CASH BEGINNING BALANCE | 29,108 | 565,979 | ||||||
| CASH ENDING BALANCE | $ | 61,282 | $ | 46,605 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Interest paid | 10,000 | — | ||||||
| NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING AND FINANCING ACTIVITIES: | ||||||||
| Initial derivative liability on convertible note payable | 231,146 | — | ||||||
| Initial lease | 142,230 | — | ||||||
| Reinvested interest | 29,000 | — | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
7
| Kaya Holdings, Inc. and Subsidiaries | |||||||||||||||||||||||
| Consolidated Statements of Stockholders' Deficit | |||||||||||||||||||||||
| For the three months and six months ended June 30, 2024 (Unaudited) | |||||||||||||||||||||||
| Additional Paid-in Capital | Accumulated Deficit | Accumulated Comprehensive Loss | Noncontrolling Interest | Total Stockholders' Deficit | |||||||||||||||||||
| Subscription Payable | |||||||||||||||||||||||
| Preferred Stock - Series C | Preferred Stock - Series D | Common Stock | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | |||||||||||||||||
| Three months ended June 30, 2024 | |||||||||||||||||||||||
| Balance, March 31, 2024 (Unaudited) | - | $ - | 40 | $ - | 22,172,835 | $ 22,173 | $ 163,630 | $ 22,506,043 | $ (37,547,255) | $(13,614) | $ (1,976,569) | $ (16,845,592) | |||||||||||
| Imputed interest | - | - | - | - | - | - | - | 5,609 | - | - | - | 5,609 | |||||||||||
| Equity transaction (Sale of subsidiary's stock) | - | - | - | - | - | - | - | 6,000 | - | - | - | 6,000 | |||||||||||
| Translation Adjustment | - | - | - | - | - | - | - | - | - | (252) | (64) | (316) | |||||||||||
| Net Income | - | - | - | - | - | - | - | - | 402,392 | - | (45,182) | 357,210 | |||||||||||
| Balance, June 30, 2024 | - | $ - | 40 | $ - | 22,172,835 | $ 22,173 | $ 163,630 | $ 22,517,652 | $ (37,144,863) | $(13,866) | $ (2,021,815) | $ (16,477,089) | |||||||||||
| Six months ended June 30, 2024 | |||||||||||||||||||||||
| Balance, December 31, 2023 (Audited) | - | - | 40 | - | 22,172,835 | 22,173 | 163,630 | 22,493,783 | (36,462,263) | (12,617) | (1,955,194) | (15,750,488) | |||||||||||
| Imputed interest | - | - | - | - | - | - | - | 11,219 | - | - | - | 11,219 | |||||||||||
| Equity transaction (Sale of subsidiary's stock) | - | - | - | - | - | - | - | 12,650 | - | - | - | 12,650 | |||||||||||
| Translation Adjustment | - | - | - | - | - | - | - | - | - | (1,249) | (751) | (2,000) | |||||||||||
| Net Income | (682,600) | (65,870) | (748,470) | ||||||||||||||||||||
| Balance, June 30, 2024 | - | - | 40 | - | 22,172,835 | 22,173 | 163,630 | 22,517,652 | (37,144,863) | (13,866) | (2,021,815) | (16,477,089) | |||||||||||
| Additional Paid-in Capital | Accumulated Deficit | Accumulated Comprehensive Loss | Noncontrolling Interest | Total Stockholders' Deficit | |||||||||||||||||||
| Subscription Payable | |||||||||||||||||||||||
| Preferred Stock - Series C | Preferred Stock - Series D | Common Stock | |||||||||||||||||||||
| Shares | Amount | Shares | Amount | Shares | Amount | Amount | |||||||||||||||||
| Three months ended June 30, 2023 | |||||||||||||||||||||||
| Balance, March 31, 2023 (Unaudited) | - | $ - | 40 | $ - | 22,172,835 | $ 22,173 | $ 163,630 | $ 22,428,785 | $ (38,004,801) | $(12,814) | $ (2,014,080) | $ (17,417,107) | |||||||||||
| Imputed interest | - | - | - | - | - | - | - | 5,610 | - | - | - | 5,610 | |||||||||||
| Translation Adjustment | - | - | - | - | - | - | - | - | - | 285 | 150 | 435 | |||||||||||
| Net Income | - | - | - | - | - | - | - | - | (732,768) | - | 18,612 | (714,156) | |||||||||||
| Balance, June 30, 2023 | - | $ - | 40 | $ - | 22,172,835 | $ 22,173 | $ 163,630 | $ 22,434,395 | $ (38,737,569) | $(12,529) | $ (1,995,318) | $ (18,125,218) | |||||||||||
| Six months ended June 30, 2023 | |||||||||||||||||||||||
| Balance, December 31, 2022 (Audited) | - | - | 40 | - | 22,172,835 | 22,173 | 163,630 | 22,277,612 | (38,071,960) | (11,027) | (1,984,169) | (17,603,741) | |||||||||||
| Imputed interest | - | - | - | - | - | - | - | 11,158 | - | - | - | 11,158 | |||||||||||
| Settlement of derivative liabilities to additional paid in capital | - | - | - | - | - | - | - | 145,625 | - | - | - | 145,625 | |||||||||||
| Translation Adjustment | - | - | - | - | - | - | - | - | - | (1,502) | 2,465 | 963 | |||||||||||
| Net Income | (665,609) | (13,614) | (679,223) | ||||||||||||||||||||
| Balance, June 30, 2023 | - | - | 40 | - | 22,172,835 | 22,173 | 163,630 | 22,434,395 | (38,737,569) | (12,529) | (1,995,318) | (18,125,218) | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
8
Notes to Consolidated Financial Statements
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 (“FDT ”) 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. (FDT) 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:
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.
9
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 March 31, 2024 KBI has formed majority-owned subsidiaries in both Greece and Israel and its local operating subsidiaries have acquired interests in various licenses and entities.
On December 13, 2022 the Company formed Fifth Dimension Therapeutics ™ (“FDT”, a Florida Corporation) to seek to provide psychedelic services to sufferers of treatment resistant mental health diseases such as depression, PTSD and other mental health disorders. 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.
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. On May 7, 2024, the Company had been awarded its license by the Oregon Health Authority to operate its Portland, Oregon psilocybin treatment center, The Sacred Mushroom. On June 4, 2024, The Sacred Mushroom has begun accepting appointments online.
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NOTE 2 – LIQUIDITY AND GOING CONCERN
The Company’s consolidated financial statements as of June 30, 2024 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred net loss of $600,289 for the six months ended June 30, 2024 and net loss of $682,600 for the six months ended June 30, 2023. The net loss is due to the changes in derivative liabilities. At June 30, 2024 the Company has a working capital deficiency of $7,701,014 and is totally dependent on its ability to raise capital. The Company has a plan of operations and acknowledges that its plan of operations may not result in generating positive working capital in the near future. Even though management believes that it will be able to successfully execute its business plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this material uncertainty. Management recognizes that the Company must generate additional funds to successfully develop its operations and activities. Management plans include:
| • | the sale of additional equity and debt securities, |
| • | alliances and/or partnerships with entities interested in and having the resources to support the further development of the Company’s business plan, |
| • | business transactions to assure continuation of the Company’s development and operations, |
| • | development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name. |
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis of Presentation
The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) under the accrual basis of accounting.
Reclassifications
Certain prior period amounts have been reclassified to conform to the current period presentation.
Use of Estimates
The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.
Risks and Uncertainties
The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure.
The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales.
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Principles of Consolidation
The accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries. All significant intercompany balances have been eliminated.
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)
| · | 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 54% of Fifth Dimension Therapeutics, Inc.
Cash and Cash Equivalents
Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.
Inventory
Inventory consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand. Total Value of Finished goods inventory as of June 30, 2024 is $0 and $9,259 as of December 31, 2023. Inventory allowance and impairment were $0 and $0 as of June 30, 2024 and December 31, 2023, respectively.
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-30 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.
Long-lived assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
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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, the 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.
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Provision for Income Taxes
We recorded a provision for income taxes in the amount of $93,910 during the year ended December 31, 2022 compared to $782,107 during the year ended December 31, 2021. Although we have net operating losses that we believe are available to us to offset this entire tax liability, which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Fair Value of Financial Instruments
The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.
The following are the hierarchical levels of inputs to measure fair value:
| • | Level 1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
| • | Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| • | Level 3 – Unobservable inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available. |
| Schedule of fair value assets and liabilities measured on recurring and nonrecurring basis | ||||||||||||
| Fair Value Measurements at June 30, 2024 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | 61,282 | $ | — | $ | — | ||||||
| Total assets | 61,282 | — | — | |||||||||
| Liabilities | ||||||||||||
| Convertible debentures, net of discounts of $205,093 | — | — | 7,874,559 | |||||||||
| Derivative liability | — | — | 2,658,222 | |||||||||
| Total liabilities | — | — | 10,532,781 | |||||||||
| $ | 61,282 | $ | — | $ | (10,532,781 | ) | ||||||
| Fair Value Measurements at December 31, 2023 | ||||||||||||
| Level 1 | Level 2 | Level 3 | ||||||||||
| Assets | ||||||||||||
| Cash | $ | 29,108 | $ | — | $ | — | ||||||
| Total assets | 29,108 | — | — | |||||||||
| Liabilities | ||||||||||||
| Convertible debentures, net of discounts of $742 | — | — | 7,436,410 | |||||||||
| Derivative liability | — | — | 2,752,321 | |||||||||
| Total liabilities | — | — | 10,188,731 | |||||||||
| $ | 29,108 | $ | — | $ | (10,188,731 | ) | ||||||
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The carrying amounts of the Company’s financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable & accrued expenses, certain notes payable and notes payable – related party, approximate their fair values because of the short maturity of these instruments.
The Company accounts for its derivative liabilities, at fair value, on a recurring basis under level 3. See Note 7.
Embedded Conversion Features
The Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of 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.
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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:
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| • | Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
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| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
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| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
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| • | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.
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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.
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The fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The ranges of assumptions for inputs are as follows:
| • | Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
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| • | Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
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| • | Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
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| • | Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.
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Revenue Recognition
Effective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identifying the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.
To confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt of product via cash payment at our retail store; the transaction is recorded at the time of sale in our point-of-sale software system. Revenue is only reported after the 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.
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Related Parties
The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.
Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.
The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements.
The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.
Contingencies
The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.
If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.
Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.
Uncertain Tax Positions
The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended June 30, 2024.
19
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.
NOTE 4 – PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consisted of the following at June 30, 2024 and December 31, 2022:
| Schedule of property, plant and equipment | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| (Unaudited) | (Audited) | |||||||
| Computer | 30,713 | 30,713 | ||||||
| Furniture & Fixtures | 56,978 | 56,978 | ||||||
| HVAC | 25,000 | 25,000 | ||||||
| Land | 17,703 | 17,703 | ||||||
| Leasehold Improvements | 51,070 | 32,304 | ||||||
| Machinery and Equipment | 55,067 | 55,067 | ||||||
| Vehicle | 24,000 | 24,000 | ||||||
| Total | 260,531 | 241,765 | ||||||
| Less: Accumulated Depreciation | (218,077 | ) | (216,890 | ) | ||||
| Property, Plant and Equipment - net | $ | 42,454 | $ | 24,875 | ||||
Depreciation expense totaled of $1,187 and $6,815 for the six months ended June 30, 2024 and June 30, 2023, respectively.
NOTE 5 – NON-CURRENT ASSETS
Other assets consisted of the following at March 31, 2024 and December 31, 2023:
| Schedule of other assets | June 30, 2024 | December 31, 2023 | ||||||
| Other receivable | 10,740 | 11,047 | ||||||
| Rent deposits | 12,925 | 23,941 | ||||||
| Security deposits | 5,491 | 5,491 | ||||||
| Total Non-current assets | 29,156 | 40,479 |
During the six months ended June 30, 2024, our other receivables decreased $307, related to changes of currency exchange rate. The decrease of the rent deposit was primarily due to the Company terminated the lease of Oregan shop and $11,016 rent deposit of MJAI was used to pay the rent.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The accounts payable and accrued expenses consisted of the following at June 30, 2024 and December 31, 2023 :
| Schedule of accounts payable and accrued expenses | ||||||||
| June 30, 2024 | December 31, 2023 | |||||||
| Accounts payable | 578,776 | 561,551 | ||||||
| Accrued expenses | 27,174 | 27,534 | ||||||
| Total | 605,950 | 589,085 | ||||||
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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 4.77% to 5.37%, volatility ranging from 154.81% to 174.23%, trading prices $0.033 per share and a conversion price ranging from $0.0264 to $0.08 per share. The total derivative liabilities associated with these notes were $2,600,509 at June 30, 2024 and $2,752,321 at December 31, 2023. As of June 30, 2024, the Company had four new convertible notes and two short-term non-convertible note were transferred to convertible notes after due in 2024.
See Below Summary Table
| Schedule of Convertible Debt | |||||||
| Convertible Debt Summary | |||||||
| Debt Type | Debt Classification | Interest Rate | Due Date | Ending | |||
| CT | LT | 6/30/2024 | 12/31/2023 | ||||
| A | Convertible | X | 10.0% | 1-Jan-17 | 25,000 | $ 25,000 | |
| B | Convertible | X | 8.0% | 31-Dec-25 | 82,391 | 82,391 | |
| C | Convertible | X | 8.0% | 31-Dec-25 | 41,195 | 41,195 | |
| D | Convertible | X | 8.0% | 31-Dec-25 | 262,156 | 262,156 | |
| O | Convertible | X | 8.0% | 31-Dec-25 | 136,902 | 136,902 | |
| P | Convertible | X | 8.0% | 31-Dec-25 | 66,173 | 66,173 | |
| Q | Convertible | X | 8.0% | 31-Dec-25 | 65,274 | 65,274 | |
| S | Convertible | X | 8.0% | 31-Dec-25 | 63,205 | 63,205 | |
| T | Convertible | X | 8.0% | 31-Dec-25 | 313,634 | 313,634 | |
| CC | Convertible | X | 12.0% | 1-Jan-24 | 110,000 | 100,000 | |
| KK | Convertible | X | 8.0% | 31-Dec-25 | 188,000 | 188,000 | |
| LL | Convertible | X | 8.0% | 31-Dec-25 | 749,697 | 749,697 | |
| MM | Convertible | X | 8.0% | 31-Dec-25 | 124,690 | 124,690 | |
| NN | Convertible | X | 8.0% | 31-Dec-25 | 622,588 | 622,588 | |
| OO | Convertible | X | 8.0% | 31-Dec-25 | 620,908 | 620,908 | |
| PP | Convertible | X | 8.0% | 31-Dec-25 | 611,428 | 611,428 | |
| Convertible | X | 8.0% | 31-Dec-25 | 180,909 | 180,909 | ||
| RR | Convertible | X | 8.0% | 31-Dec-25 | 586,804 | 586,804 | |
| SS | Convertible | X | 8.0% | 31-Dec-25 | 174,374 | 174,374 | |
| TT | Convertible | X | 8.0% | 31-Dec-25 | 345,633 | 345,633 | |
| UU | Convertible | X | 8.0% | 31-Dec-25 | 171,304 | 171,304 | |
| VV | Convertible | X | 8.0% | 31-Dec-25 | 121,727 | 121,727 | |
| XX | Convertible | X | 8.0% | 31-Dec-25 | 112,734 | 112,734 | |
| YY | Convertible | X | 8.0% | 31-Dec-25 | 173,039 | 173,039 | |
| ZZ | Convertible | X | 8.0% | 31-Dec-25 | 166,603 | 166,603 | |
| AAA | Convertible | X | 8.0% | 31-Dec-25 | 104,641 | 104,641 | |
| BBB | Convertible | X | 8.0% | 31-Dec-25 | 87,066 | 87,066 | |
| DDD | Convertible | X | 8.0% | 31-Dec-25 | 75,262 | 75,262 | |
| EEE | Convertible | X | 8.0% | 31-Dec-25 | 160,619 | 160,619 | |
| GGG | Convertible | X | 8.0% | 31-Dec-25 | 79,422 | 79,422 | |
| JJJ | Convertible | X | 8.0% | 31-Dec-25 | 52,455 | 52,455 | |
| LLL | Convertible | X | 8.0% | 31-Dec-25 | 77,992 | 77,992 | |
| MMM | Convertible | X | 8.0% | 31-Dec-25 | 51,348 | 51,348 | |
| PPP | Convertible | X | 8.0% | 31-Dec-25 | 95,979 | 95,979 | |
| SSS | Convertible | X | 8.0% | 31-Dec-25 | 75,000 | 75,000 | |
| TTT | Convertible | X | 8.0% | 31-Dec-25 | 80,000 | 80,000 | |
| VVV | Convertible | X | 8.0% | 31-Dec-25 | 75,000 | 75,000 | |
| WWW | Convertible | X | 8.0% | 31-Dec-25 | 60,000 | 60,000 | |
| XXX | Convertible | X | 8.0% | 31-Dec-25 | 100,000 | 100,000 | |
| YYY | Convertible | X | 8.0% | 31-Dec-25 | 50,000 | 50,000 | |
| ZZZ | Convertible | X | 8.0% | 31-Dec-25 | 40,000 | 40,000 | |
| AAAA | Convertible | X | 8.0% | 31-Dec-25 | 66,000 | 66,000 | |
| BBBB | Convertible | X | 12.0% | 1-Mar-23 | - | 150,000 | |
| CCCC | Convertible | X | 10.0% | 1-Mar-23 | - | 120,000 | |
| DDDD | Convertible | X | 10.0% | 31-Dec-24 | - | 100,000 | |
| EEEE | Convertible | X | 10.0% | 25-Dec-25 | 15,000 | - | |
| FFFF | Convertible | X | 10.0% | 23-Jan-26 | 60,000 | - | |
| GGGG | Convertible | X | 10.0% | 12-Mar-26 | 150,000 | - | |
| HHHH | Convertible | X | 10.0% | 15-Mar-26 | 107,500 | - | |
| IIII | Convertible | X | 10.0% | 1-May-26 | 150,000 | - | |
| JJJJ | Convertible | X | 10.0% | 4-Jun-26 | 150,000 | - | |
| Total Convertible Debt | 8,079,652 | 7,807,152 | |||||
| Less: Discount | (205,093) | (387,819) | |||||
| Convertible Debt, Net of Discounts | $ 7,874,559 | $ 7,419,333 | |||||
| Convertible Debt, Net of Discounts, Current | $ 135,000 | $ 240,288 | |||||
| Convertible Debt, Net of Discounts, Long-term | $ 7,739,559 | $ 7,179,045 | |||||
21
FOOTNOTES FOR CONVERTIBLE DEBT ACTIVITY FOR YEAR ENDED DECEMBER31, 2023
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, of 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.
On January 23, 2024, the Company received $61,200 from selling 2.4 units to the Cayman Venture Capital Fund, including $60,000 convertible debt and 120,000 FDT shares at $0.01 per share and total value was $1,200 . Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on January 23, 2026. This note has a price adjustment provision: if the stock price 20 days before the conversion notice proceeding is less than $0.16 per share, the conversion price should be adjusted to the less of: 50% of the average closing price or the historical price for the 20 trading days before proceeding the conversion notice, but in any event the conversion price should be not less than $0.04 per share or more than $0.08 per share 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 January 31, 2024, the Company signed an agreement with a third-party individual to transfer one non-convertible promissory note, including $15,000 principal and $300 accrual interest to purchase 0.6 unit, which included $15,000 convertible note and 30,000 FDT shares which is $0.01 per share and total value was $300. The convertible notes interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on January 31, 2026. This note has a price adjustment provision: if the stock price 20 days before the conversion notice proceeding is less than $0.16 per share, the conversion price should be adjusted to the less of: 50% of the average closing price or the historical price for the 20 trading days before proceeding the conversion notice, but in any event the conversion price should be not less than $0.04 per share or more than $0.08 per share 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 March 12, 2024, the Company received $150,000 from selling 6 units to the Cayman Venture Capital Fund, including $150,000 convertible debt and 300,000 FDT shares which is $0.01 per share and total value is $3,000 . 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 12, 2026. This note has a price adjustment provision: if the stock price 20 days before the conversion notice proceeding is less than $0.16 per share, the conversion price should be adjusted to the less of: 50% of the average closing price or the historical price for the 20 trading days before proceeding the conversion notice, but in any event the conversion price should be not less than $0.04 per share or more than $0.08 per share 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 March 15, 2024, one of a promissory non-convertible notes was expired. The Company signed a purchase agreement with this third-party individual to purchase 4.3 units using the matured note, including $100,000 principal and $96,500 accrual interest. The 4.3 units included $107,500 convertible note and 215,000 FDT shares which is $0.01 per share and total value was $2,150. The convertible notes 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 31, 2026. This note has a price adjustment provision: if the stock price 20 days before the conversion notice proceeding is less than $0.16 per share, the conversion price should be adjusted to the less of: 50% of the average closing price or the historical price for the 20 trading days before proceeding the conversion notice, but in any event the conversion price should be not less than $0.04 per share or more than $0.08 per share. 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.
22
On May 1, 2024, the Company received $130,000 deposit plus $23,000 accrued interest reinvest in selling 6 units to the Cayman Venture Capital Fund. The 6 units included $150,000 convertible debt and 300,000 FDT shares which is $0.01 per share and total value is $3,000. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on May 1, 2026. This note has a price adjustment provision: if the stock price 20 days before the conversion notice proceeding is less than $0.16 per share, the conversion price should be adjusted to the less of: 50% of the average closing price or the historical price for the 20 trading days before proceeding the conversion notice, but in any event the conversion price should be not less than $0.04 per share or more than $0.08 per share 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 June 4, 2024, the Company received $153,000 (containing $150,000 deposit and $3,000 accrual interest reinvest) from selling 6 units to the Cayman Venture Capital Fund, including $150,000 convertible debt and 300,000 FDT shares which is $0.01 per share and total value is $3,000. Interest is stated at 10%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due on June 4, 2026. This note has a price adjustment provision: if the stock price 20 days before the conversion notice proceeding is less than $0.16 per share, the conversion price should be adjusted to the less of: 50% of the average closing price or the historical price for the 20 trading days before proceeding the conversion notice, but in any event the conversion price should be not less than $0.04 per share or more than $0.08 per share 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.
NOTE 8 – NON-CONVERTIBLE DEBT
| Schedule of nonconvertible debt | ||||||||
June 30, 2024 |
December 31, 2023 | |||||||
| Note 5 | $ | 9,312 | $ | 9,312 | ||||
| Note 6 | 500,000 | 500,000 | ||||||
| Note 7 | — | 100,000 | ||||||
| Note 8 | — | 15,000 | ||||||
| Current non-convertible notes | 9,312 | 124,312 | ||||||
| Non-current convertible notes | 500,000 | 500,000 | ||||||
| Total non-convertible notes | $ | 509,312 | $ | 624,312 | ||||
(5) On September 16, 2016, the Company received a total of $31,661 to be used for equipment in exchange for a two year note in the aggregate amount of $31,661 with interest accruing at 18% per year and a 10% loan fee. The note is in default as of June 30, 2024 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 total. As of June 30, 2024, the outstanding balance of the note is $500,000.
(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 was matured on March 31, 2024 and the $100,000 principal and $9,650 accrual interest were transferred to $107,500 convertible note and $2,150 stocks of FDT.
(8) On December 15, 2023 the Company received $15,000 working capital loan from another investor. On January 31, 2024, the Company signed a purchase agreement with the investor to reclass the $15,000 principal to convertible note and $300 accrual interest to purchase 30,000 FDT shares.
(9) As of June 30, 2024 Cayman Venture Capital Fund reinvest $29,000 accrual interest of promissory notes into convertible notes and FDT stock purchases.
23
| B-Related Party | ||||||||
| Loan payable - Stockholder, 0%, Due December 31, 2025 (1) | $ | 250,000 | $ | 250,000 | ||||
| $ | 250,000 | $ | 250,000 |
| (1) | The $250,000 non-convertible note was issued as part of a Debt Modification Agreement dated January 2, 2014. On January 1, 2019, the holder of the note extended the due date until December 31, 2021. The interest rate of the non-convertible note is 0%. The Company used the stated rate of 9% as imputed interest rate, which was $78,719 and $67,500 as of June 30, 2024 and year ended December 31, 2023, respectively. As of June 30, 2024, 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.
FDT increased the authorized preferred stock from 85 to 90 shares and issued an additional 9 preferred stock to Kaya Holdings. As the result of the stock changes, the Company’s ownership of FDT changed to approximately 54%.
The Company sold 1,265,000 shares of FDT as of June 30, 2024 for $12,650. It doesn’t affect the control right of the Company.
As of June 30, 2024, there were 22,172,835 shares of common stock outstanding and 1,100,000 shares subscription payable which total was 23,272,835 shares and no new issuances of common stock during the six months ended June 30, 2024.
24
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 4.77% to 5.37%, volatility ranging from 154.81% to 174.23%, trading prices ranging from $0.033 per share and a conversion price ranging from $0.0264 to $0.08 per share. The total derivative liabilities associated with these notes were $2,658,222 at June 30, 2024 and $2,752,321 at December 31, 2023.
As a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt is summarized as follow:
| Balance as of December 31, 2023 | $ | 2,752,321 | ||
| Change in Derivative value | (325,245 | ) | ||
| Initial derivative | 231,146 | |||
| Balance as of June 30, 2024 | $ | 2,658,222 |
The Company recorded the debt discount to the extent of the gross proceeds raised and expanded 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 $231,146 and $0 for the new notes issued as of June 30, 2024 and December 31, 2023, respectively.
The Company recorded a change in the value of embedded derivative liabilities gain of $325,245 as of June 30, 2024 and a gain of $3,297,215 for the year ended December 31, 2023.
The Company reclassified derivative liabilities of $0 to additional paid in capital due to debt repayments for the six months ended June 30, 2024 and $155,342 for year ended December 31, 2023
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 $205,093 and $742 as of June 30, 2024 and December 31, 2023, respectively.
The Company recorded the amortization of debt discount of $26,795 and $249,553 for the six months ended June 30, 2024 and 2023, respectively.
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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, compensations were paid partially over the periods. As of March 31, 2024, the accrued compensation was approximately $500,000. By agreement of the parties, the accrued compensation will not be paid until December 1, 2026 and has been recorded as a long-term liability . As of June 30, 2024, the Company also had $569,773of 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 June 30, 2024, the Company had $138,227 due to Bruce.
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.
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 – 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 April 30, 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. In February 2024, the landlord and the Company agreed to terminate the lease and the Company own $8,650 rent after $5,000 against the rent deposit. As of June 30, 2024, right of use liabilities and right of use assets are all $0.
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.
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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. The lease commencement date is April 1, 2024 at a rate of $10,761 per month and $142,230 right of use assets and right of use liability were recorded.
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 $12,585 and operating lease liabilities of $119,402 as of June 30, 2024. Rent expenses for the six months ended June 31, 2024 and 2023 were $79,481 and $29,041, respectively. The big changes were due to the new lease in Oregon.
| Schedule of future minimum rental payments for operating leases | ||
| Maturity of Lease Liabilities at June 30, 2024 | ||
| Amount | ||
| 2024 | 49,630 | |
| 2025 | 53,805 | |
| Total lease payments | 103,435 | |
| Less: Imputed interest | 16,086 | |
| Present value of lease liabilities | $ | 119,521 |
| Schedule of operating lease assets and liability | |||||||
| Leased assets | Operating Lease Liability | Remaining months | Weighted average | ||||
| As of June 30, 2024 | remaining term | ||||||
| KAYA | 6,485 | 3 | 0.16 | ||||
| FDT | 113,036 | 11 | 10.4 | ||||
| Total | 119,521 | 10.56 | |||||
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Note 15 - SUBSEQUENT EVENTS
Events that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events, which provide evidence about conditions that existed after the balance sheet date, require disclosure in the accompanying notes.
On July 22, 2024, the Company received $125,000 from CVC International, which together with $28,000 in accrued interest owed the investor, was applied to the purchase in a private transaction of 6 units consisting of a $150,000 convertible note and 300,000 shares of common stock of FDT, valued at $0.01 per share. Interest on the note accrues at the rate of 10% per annum. The note and accrued interest is convertible at any time prior to maturity (July 22, 2024) at the option of the Institutional Investor into shares of the Company’s common stock, at a conversion price of $0.08 per share. In addition to customary adjustments, for stock splits, stock dividends and other recapitalization events, the conversion price and number of shares issuable upon conversion of the note is subject to adjustment if the market price of the Company’s common stock 20 days before notice of conversion is given is less than $0.16 per share, in which case, the conversion price would be adjusted to the lesser of 50% of the average closing price or the historical price for the 20 trading days before receipt of the conversion notice, but in no event, less than $0.02 per share or more than $0.08 per share.
On July 31, 2024 the Company entered into Note Modification Agreements with the following Institutional Investors: CVC International Ltd, NWP Finance LTD, Lindsey R Perry Jr. and Gray Lady Capital. Pursuant to the existing Note Agreements held by these entities, after the issuance of the Note to CVC International Ltd. on July 22, 2024 the conversion prices for all Notes held by these institutional investors were adjusted to reflect those of the new Note, and all Notes held by these institutional investors were extended until December 31, 2026.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Business Overview
PART I
Item 1. Business.
Overview
Kaya Holdings, Inc is a holding company focusing on wellness and mental health through operations in 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 has again broken ground with the licensing and 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. The Company currently has one retail cannabis license in Oregon and two medical marijuana production and processing licenses in Greece.
In addition, we also began looking at opportunities within the pending legalization of Psilocybin treatments in Oregon 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 for the licensing of Psilocybin Manufacturing and Testing operations 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.
On April 25, 2024 the Company received notice from the OHA that its license had been approved and we commenced operations on August 1, 2024. It is our understanding is that we are the first US Public Company to own and operate a US based licensed Psychedelic Treatment Facility.
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Our 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.
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. On April 25, 2024 the Company received notice from the OHA that its license had been approved and we commenced operations on August 1, 2024. It is our understanding is that we are the first US Public Company to own and operate a US based licensed Psychedelic Treatment Facility.
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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 approximately 46.5 million American adults (18%) battle an anxiety disorder such as Post Traumatic Stress Disorder (PTSD) and Panic Disorders, 24.5 million American adults (9.5%) suffer from depressive illness (with someone committing suicide every 40 seconds), 17.3 million American adults (6.7%) have been diagnosed with Alcohol Use Disorder, 18.3 million American adults (7.1%) are considered drug dependent, and 11.4 million American women (8.5%) and 3 million 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.
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).
KAYS facility offers 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.
The Sacred Mushroom™ Psychedelic Treatment Facility
It has been shown that Set and Setting are the keys to the successful psilocybin journeys. (Set as in mindset, Setting as in the place). With this in mind, the curators at The Sacred Mushroom™ (“TSM”) carefully considered every detail to enable an extraordinary setting. TSM provides guests access to psilocybin treatments in a spacious, comfortable, carefully controlled environment under licensure by the OHA (OHA).
Situated in downtown Portland in Old Chinatown, The Sacred Mushroom™ is less than 30 minutes from Portland International Airport (PDX) and conveniently accessible by public transportation. The Sacred Mushroom™ is seven floors above the city of Portland, with panoramic views of the city skyline and Mount Hood. The Sacred Mushroom™ encompasses approximately 11,000 sq ft. and provides 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.
With peaceful gardens, engaging sensory areas, and comfortable seating everywhere, every inch of our 11,000 square feet has been designed with your psilocybin journey in mind.
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Entrance and Reception
A warm and welcoming entrance with plants everywhere
and engaging images projected onto the wall.
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Psilocybin Administration/Integration Area
A large inviting room with video conferencing and comforting amenities.
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The East Room Group Areas
A Serenity Fountain greets our guests as they enter the East Room Group Area.
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Sitting areas with carefully selected and spaced plants allow for
both privacy and flow through connectivity.
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A large kitchen area allows for a comfortable café setting.
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Stunning views of Downtown Portland and Mount Hood from the café Area.
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The West Room Activity & Garden Areas
Our West Wing is centered around an indoor garden that “brings the outdoors in”
affording our guests the ultimate in psilocybin journey experiences.
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Garden areas complete with grass mat seating merge with sitting areas
and high-resolution wall projections.
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As with the East area, stunning views of Downtown Portland abound in this area of the facility.
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Areas dedicated to yoga and body movement, as well as spaces for art expression
and journaling allow guests to pursue different activities.
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Private Treatment Rooms
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Comfort focused rooms with adjustable beds, seating, and a wide range of amenities
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The Global Psilocybin and Psychedelic Medicine Industry
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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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.
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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.
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.
Kaya Farms™ Cannabis
Kaya Buddie™ Strain Specific Cannabis Cigarettes
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Kaya Brands International
In 2019 KAYS formed Kaya Brands International, Inc. (“Kaya International” or “KBI”), to leverage its experience and expand into worldwide cannabis markets. KBI’s current initiative includes Greece, with additional areas under consideration.
Kaya Farms 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.
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.
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.
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.
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 Thebes 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.
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Kaya Kannabis- Epidaurus, Greece Project
Site of Epidaurus Land and Overview of Building Complex
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.
Epidaurus Project with 50K square feet of already constructed buildings.
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Government Regulation
We are subject to general business regulations and laws, as well as regulations and laws directly applicable to our operations. As we continue to expand the scope of our operations, the application of existing laws and regulations could include matters such as pricing, advertising, consumer protection, quality of products, and intellectual property ownership. In addition, we will also be subject to new laws and regulations directly applicable to our activities.
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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Results of Operations
Three months ended June 30, 2024 compared to three months ended June 30, 2023
Revenues
We had revenues of $0, for the three months ended June 30, 2024, as compared to revenues of $55,116 for the three months ended June 30, 2023. The decrease in revenue is due to our close of Oregon cannabis footprint as we are working to prepare the opening of a OHA State Licensed Psilocybin Treatment Center in Oregon.
Cost of Goods Sold
Our cost of goods sold for the three months ended June 30, 2024 was $0, compared to cost of goods sold of $19,717 for the three months ended June 30, 2023. The decrease in cost of goods sold was due to lower levels of sales due to our Oregon cannabis business closing as we are preparing to open a OHA State Licensed Psilocybin Treatment Center in Oregon.
Salaries and Wages
Salaries and Wages decreased to $44,168 for the three months ended June 30, 2024 as compared to $54,008 for the three months ended June 30, 2023. The decrease in salaries and wages was due to the close of retail shop in Oregon.
Selling, General and Administrative Expenses
Selling, general and administrative increased to $184,721 for the three months ended June 30, 2024 as compared to $132,688 for the three months ended June 30, 2023.
Professional Fees
Professional fees were $95,347 for the three months ended June 30, 2024, as compared to $162,016 for the three months ended June 30, 2023.
Gain or Loss on Impairment of Assets
Gain on impairment of assets was $0 for the three months ended June 30, 2023, as compared to $206,546 for the three months ended June 30, 2023.
Gain or Loss on Impairment of right of use assets
Gain or loss on impairment of right of use assets was $0 for the three months ended June 30, 2023, as compared to $67,924 for the three months ended June 30, 2023.
Interest Expense
Interest expense and debt amortization expense increased slightly to $169,563 for the three months ended June 30, 2024 from $156,293 for the three months ended June 30, 2023.
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Amortization of Debt Discount
Amortization of debt discount was $21,157 for the three months ended June 30, 2024, as compared to $68,010 for the three months ended June 30, 2023.
Change in Fair Value of Embedded Derivative Liabilities
Change in fair value of embedded derivative liabilities was a gain of $947,166 for the three months ended June 30, 2024 compared to a loss of $309,296 for the three months ended June 30, 2023. These changes were due to the change in stock price as well as the volatility factors used in the derivative calculations.
Other Income/(Loss)
Other income was a gain of $756,446 for the three months ended June 30, 2024 as compared to a loss of $393,477 for the three months ended June 30, 2023. The increased loss was due largely to a change in derivative liability expenses resulting from a change in stock price as well as the volatility factors used in the derivative calculations.
Net Income (Loss)
We incurred net income of $432,210 for the three months ended June 30, 2024, as compared to net loss of $714,156 for the three months ended June 30, 2023. The majority of our income during the three-month period ending June 30, 2024 was a result of the derivative liabilities associated with our Convertible Debt and a reduction in our stock price as well as the more volatility factors used in the derivative calculations. The non-controlling interest for the three months ended June 30, 2024 and 2023 was a loss of $45,182 and a gain of $18,612 respectively.
Six months ended June 30, 2024 compared to six months ended June 30, June 30, 2023
Revenues
We had revenues of $28,009 for the six months ended June 30, 2024 as compared to revenues of $103,361 for the six months ended June 30, 2023. The decrease in revenue is due to our closing of Oregon cannabis shop as we are working to open a OHA State Licensed Psilocybin Treatment and Production Facility in Oregon.
Cost of Goods Sold
Our cost of goods sold for the six months ended June 30, 2024 was $13,406 compared to cost of goods sold of $36,314 for the six months ended June 30, 2023. The decrease in cost of goods sold was due to lower levels of sales due to our closing Oregon cannabis shop as we are working to open a OHA State Licensed Psilocybin Treatment and Production Facility in Oregon.
Salaries and Wages
Salaries and Wages decreased to $89,083 for the six months ended June 30, 2024 as compared to $96,139 for the six months ended June 30, 2023. The slight decrease in salaries and wages was due to the close of retail shop in Oregon.
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Selling, General and Administrative Expenses
Selling, general and administrative increased to $263,570 for the six months ended June 30, 2024 as compared to $226,834 for the six months ended June 30, 2023. The slight increase was primarily due increase in the brand-new psilocybin treatment center marketing and office expenses.
Professional Fees
Professional fees were $284,772 for the six months ended June 30, 2024 as compared to $393,265 for the six months ended June 30, 2023. The decrease in professional fees was primarily related to an decrease in expenses for consulting expenses.
Gain or Loss on Impairment of Assets
Gain on impairment of assets was $0 for the six months ended June 30, 2024, as compared to $384,429 for the six months ended June 30, 2023 which included gain from sales of the land and sale of the Salem retail cannabis store.
Gain or Loss on Impairment of right of use assets
Gain or loss on impairment of right of use assets was $0 for the six months ended June 30, 2024, as compared to $67,924 for the six months ended June 30, 2023.
Interest Expense
Interest expense and debt amortization expense decreased to $349,893 for the six months ended June 30, 2024 from $318,332 for the six months ended June 30, 2023. The increase was related to an increase in debt incurred over the past 6 months for our operations.
Amortization of Debt Discount
Amortization of debt discount was $26,795 for the six months ended June 30, 2024, as compared to $249,553 for the six months ended June 30, 2023.
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Change in fair value of embedded derivative liabilities was a gain of $325,245 for the six months ended June 30, 2024 compared to a gain of $233,687 for the six months ended June 30, 2023. These changes were due to the change in stock price as well as the volatility factors used in the derivative calculations.
Net Income attributed to Kaya Holdings Inc.
We had net loss of $607,600 for the six months ended June 30, 2024 as compared to net loss of $665,609 for the six months ended June 30, 2023.
The majority of our net loss during the six months ended June 30, 2024 was a result of the large amount of operating expenses with limited revenue. The non-controlling interest for the six months ended June 30, 2024 and June 30, 2023 was a loss of $65,870 and a loss of $13,614 respectively.
Liquidity and Capital Resources
During the second quarter of 2024 our cash position increase by $32,174 to $61,282 and our negative working capital deficit was $7,701,014.
As of June 30, 2024, our working capital consisted of cash of $61,282, inventories of $0 and prepaid expenses of $25,914 as compared to cash of $125,887, inventories of $12,569 and prepaid expenses of $11,153, as of June 30, 2023.
Our current liabilities include accounts payable and accrued expenses of $605,950, accounts payable and accrued expenses-related parties of $699,345, accrued interest of $2,658,697, current portion of lease liability of $119,521, potential tax liability of $902,163, convertible notes payable- net of discount of $25,000, notes payable of $9,312 and derivative liabilities of $2,658,222, as compared to accounts payable and accrued expenses of $910,023, accounts payable and accrued expenses-related parties of $280,301 accrued interest of $2,038,262, current portion of lease liability of $29,716, potential tax liability of $889,856, convertible notes payable- net of discount of $25,000, notes payable of $9,312 and derivative liabilities of $5,825,566 as of June 30, 2023.
Financing Transactions
On May 1, 2024, the Company received $130,000.00 of capital from the Institutional Investor. The $130,00 (along with $23,000 in interest that was owed the Investor) was invested in a private placement.
On June 4, 2024, the Company received $150,000.00 of capital from the Institutional Investor. The $150,00 (along with $3,000 in interest that was owed the Investor) was invested in a private placement.
On July 22, 2024, the Company received $125,000.00 of capital from the Institutional Investor. The $125,000 (along with $28,000 in interest that was owed the Investor) was invested in a private placement.
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Use of Proceeds
The proceeds from financing transactions that the Company has and may enter into will be used for general working capital to fund our growth plan, including the development of its planned Oregon psilocybin business and development of its international projects in Greece.
Plan of Operations
Management believes that further proceeds expected to be received from financing transactions that it is seeking to enter into, combined with existing and anticipated revenues, will alleviate the Company’s financial difficulties to a significant extent and will allow the Company to meet its anticipated working capital needs for a period of between twelve and eighteen months from the date of this report. However, there can be no assurance that further funding from the contemplated financings will be achieved, or if achieved that they will be successful to the level required to meet the Company’s cash needs, or that management’s belief will be correct and that the Company will not sooner require additional financing to meet its working capital needs prior to achieving profitability or positive cash flow. Moreover, we may not be successful in raising additional capital on commercially reasonable terms, if and when needed, in which case our business, financial condition, cash flows and results of operations may be materially and adversely affected.
Note Conversions
No notes were converted during the period.
Employee Stock Plan Issuances and Director and Officer Restricted Stock issuances
No Employee Stock Plan Issuances or Director and Officer Restricted Stock Issuances were issued during the period.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
Under the direction of our Chairman and President, who is our principal, executive, financial and accounting officer, we evaluated our disclosure controls and procedures as of June 30, 2024. Our Chairman and President, who is our principal, executive, financial and accounting officer, concluded that our disclosure controls and procedures were not effective as of June 30, 2024.
We maintain disclosure controls and procedures that are designed to ensure that the information required to be disclosed in the reports that we file under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chairman and President, who is our principal, executive, financial and accounting officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can only provide reasonable assurance of achieving the desired control objectives, and in reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
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As required by SEC Rule 13a-15(b), we carried out an evaluation, under the supervision and with the participation of our management, including our Chairman and President, who is our principal, executive, financial and accounting officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of our fourth fiscal quarter covered by this report. Based on the foregoing, our Chairman and President concluded that our disclosure controls and procedures were not effective. It should be noted that the design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
Management’s Report on Internal Control Over Financial Reporting
Our management of is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our Chairman and President, who is our principal, executive, financial and accounting officer and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:
| ▪ | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
| ▪ | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and | |
| ▪ | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
The Company’s Chairman and President, who is our principal, executive, financial and accounting officer, assessed the effectiveness of the Company’s internal control over financial reporting as of June 30, 2024.. In making this assessment, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013). The COSO framework is based upon five integrated components of control: control environment, risk assessment, control activities, information and communications and ongoing monitoring.
Based on the assessment performed, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s internal control over financial reporting, as of June 30, 2023. is not effective to provide reasonable assurance regarding the reliability of its financial reporting and the preparation of its financial statements in accordance with generally accepted accounting principles. Further, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has identified material weaknesses in internal control over financial reporting as of June 30, 2024.
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Based on an evaluation, the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, has concluded that the Company’s disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act were not effective as of June 30, 2024. (the “Evaluation Date”), to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms; and (ii) accumulated and communicated to the Company’s Chairman and President, who is our principal, executive, financial and accounting officer, as appropriate to allow timely decisions regarding required disclosure. Each of the following is deemed a material weakness in our internal control over financial reporting:
| ▪ | We do not have an audit committee. While we are not currently obligated to have an audit committee, including a member who is an “audit committee financial expert,” as defined in Item 407 of Regulation S-K, under applicable regulations or listing standards; however, it is management’s view that such a committee is an important internal control over financial reporting, the lack of which may result in ineffective oversight in the establishment and monitoring of internal controls and procedures. | |
| ▪ | We did not maintain proper segregation of duties for the preparation of our financial statements. We currently have only one officer overseeing all transactions. This has resulted in several deficiencies, including the lack of control over preparation of financial statements and proper application of accounting policies | |
| ▪ | Lack of controls over related party transactions: As of June 30, 2024, 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 first quarter of the year ended June 30, 2024 that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
From time-to-time KAYS be party to various legal proceedings in the ordinary course of business. Please see paragraphs below for status and results of legal proceedings during Q-1 2023.
Lawsuit from Law Offices of Ross Day
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, and 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.
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Since that time the Company had been advised that Day Law & Associates, P.C. appealed the Arbitration Award, and the parties were scheduled to appear before the Oregon Bar to mediate the case. However, the Company subsequently agreed to waive the Award in consideration of Day Law dropping the matter.
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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Item 1A. Risk Factors.
See “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2023.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
Please see Note 7 to the Notes to Consolidated Financial Statements included in Part I, Item 1 of this Report with respect to unregistered sales of securities during the three months ended June 30, 2023.
The securities described therein were issued in private transactions pursuant to the exemption from registration afforded by Section 4(a)(20 of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
None
Item 6. Exhibits
| Exhibit No. | Description of Exhibit | ||
| 31.1 | Section 302 Certification | ||
| 32.1 | Section 906 Certification |
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SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: August 14, 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)
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Exhibit 31.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
AND CHIEF FINANCIAL OFFICER PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Craig Frank, Chairman, President, Chairman, President, Chief Executive Officer and Acting Chief Financial Officer of Kaya Holdings, Inc., a Delaware corporation (the “Registrant”), certify that:
| 1. | I have reviewed this Form 10-Q for the quarter ended June 30, 2024 of the Registrant; |
| 2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
| 3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this report; |
| 4. | I, as the Registrant’s sole officer, am responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e)and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15 (f) and 15d-15(f)) for the registrant and have: |
| a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under my supervision, to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
| b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under my supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
c) Evaluated the effectiveness of the Registrant’s disclosure controls and procedures and presented in this report my conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
| d) | Disclosed in this report any change in the Registrant’s internal control over financial reporting that occurred during the Registrant’s most recent fiscal quarter (the Registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the Registrant’s internal control over financial reporting; and |
| 5. | I, as the Registrant’s sole officer, have disclosed, based on my most recent evaluation of internal control over financial reporting, to the Registrant’s auditors and the audit committee of the Registrant’s board of directors (or persons performing the equivalent functions): |
| a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the Registrant’s ability to record, process, summarize and report financial information; and |
| b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal control over financial reporting. |
Date: August 14, 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)
Exhibit 32.1
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED
PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Kaya Holdings, Inc., a Delaware corporation (the “Company”) on Form 10-Q for the quarter year ended June 30,, 2024 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Craig Frank, the Chairman, President, Chief Executive Officer and Acting Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, that:
| 1. | The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| 2. | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
|
Date: August 14, 2024
KAYA HOLDINGS, INC .
By: /s/ Craig Frank
Chairman, President, Chief Executive Officer and Acting Chief Financial Officer (Principal Executive, Financial and Accounting Officer)