10-Q 1 kays_10q.htm
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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Quarter ended September 30, 2023.

 

Commission File No. 333-177532

 

KAYA HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

 

 
  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

 

As of November 20, 2023, the Issuer had 22,172,835 shares of its common stock outstanding.

 
 

 KAYA HOLDINGS, INC.

 

INDEX TO QUARTERLY REPORT ON FORM 10 Q

 

Part I – Financial Information Page

 

 

Item 1. Condensed Consolidated Financial Statements  Page
  Condensed Consolidated Balance Sheet  3
  Condensed Consolidated Statements of Operation  4
  Condensed Consolidated Statements of Comprehensive Income 5
  Condensed Consolidated Statements of Cash Flows  6
  Statement of Stockholder’s deficit for the nine month period ended September 30, 2023 and the year ended December   31, 2022  7
  Notes to Condensed Consolidated Financial Statements 8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  30
Item 3. Quantitative and Qualitative Disclosures About Market Risk  52
Item 4. Controls and Procedures  52
   
Part II Other Information  
   
Item 1. Legal Proceedings  54
Item 1A. Risk Factors  54
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  54
Item 3. Defaults Upon Senior Securities  54
Item 4. Mine Safety Disclosures  54
Item 5. Other Information  54
Item 6. Exhibits  54
  Signatures  54
   

 

 

 
 

In this Quarterly Report on Form 10-Q, the terms “ KAYS ,” “ the Company ,” “ we ,” “ us ” and “ our ” refer to Kaya Holdings, Inc. and its owned and controlled subsidiaries, unless the context indicates otherwise.

 

Cautionary Note Regarding Forward Looking Statements

 

Information contained in this Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the ‘Exchange Act”). These forward-looking statements are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend” or “project” or the negative of these words or other variations on these words or comparable terminology.

 

The forward-looking statements herein represent our expectations, beliefs, plans, intentions or strategies concerning future events. Our forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations included in any forward-looking statements will come to pass. Moreover, our forward-looking statements are subject to various known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements.

 

Except as required by applicable laws, we undertake no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

Available Information

 

We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”) that can be obtained from the SEC by telephoning 1-800-SEC-0330. The Company’s filings are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval System, known as EDGAR, through the SEC’s website (www.sec.gov).

 

 
 

 

 

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

September 30, 2023 and December 31, 2022

           

 

ASSETS      
   (Unaudited)  (Audited)
   September 30, 2023  December 31, 2022
CURRENT ASSETS:          
Cash and equivalents   60,268   $18,330 
Inventory   13,256    11,990 
Prepaid expenses   49,761    28,158 
Total current assets   123,285    58,478 
           
NON-CURRENT ASSETS:          
Right-of-use asset - operating lease   19,361    182,604 
Assets for sale         516,076 
Property and equipment, net of accumulated depreciation of $217,735 and $358,396 as of September 30, 2023 and December 31, 2022, respectively         26,785             36,720    
Investment in subsidiaries   21,114    22,188 
Other Assets   40,005    27,175 
Total non-current assets   107,265    784,763 
           
Total assets  $230,550   $843,241 
           
           
LIABILITIES AND STOCKHOLDERS' DEFICIT          
           
CURRENT LIABILITIES:          
Accounts payable and accrued expense  $601,154   $961,396 
Accounts payable and accrued expense-related parties   417,777    273,190 
Accrued interest   2,193,365    1,759,669 
Right-of-use liability - operating lease   21,041    93,067 
Taxable Payable   880,062    876,017 
Convertible notes payable, net of discount of $0 and $54,707   25,000    240,293 
Notes payable   109,312    9,312 
Derivative liabilities   3,523,317    6,204,878 
Total current liabilities   7,771,028    10,417,822 
           
NON-CURRENT LIABILITIES:          
Notes payable   355,000       
Notes payable-related party   250,000    250,000 
Convertible notes payable, net of discount of $69,499 and $333,107   7,342,653    7,179,045 
Accrued expense-related parties   500,000    500,000 
Right-of-use liability - operating lease         100,115 
Total non-current liabilities   8,447,653    8,029,160 
           
Total liabilities   16,218,681    18,446,982 
           
STOCKHOLDERS' DEFICIT:          
Convertible preferred stock, Series C, par value $.001; 10,000,000 shares authorized;  0 and 100,000 issued and outstanding at September 30, 2023 and December 31, 2022, respectively                                  
Convertible preferred stock, Series D, par value $.0001; 10,000,000 shares authorized; 40 and 40 issued and outstanding at September 30, 2023 and December 31, 2021, respectively                                                  
Common stock , par value $.001;  500,000,000 shares authorized; 0 shares and 22,172,835 shares issued as of September 30, 2023  and 22,172,835 shares outstanding as of December 31, 2022 , respectively                 22,173                       22,173      
Subscriptions payable   163,630    163,630 
Additional paid in capital   22,478,395    22,277,612 
Accumulated deficit   (36,703,944)   (38,071,960)
Accumulated other comprehensive income (loss)   (14,538)   (11,027)
Total stockholders' deficit attributable to parent company   (14,054,284)   (15,619,572)
Non-controlling interest   (1,933,847)   (1,984,169)
Total stockholders' deficit   (15,988,131)   (17,603,741)
           
Total liabilities and stockholders' deficit  $230,550   $843,241 

 

The accompanying notes are an integral part of these consolidated financial statements.      

3
 

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

 

 

   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
   For The Three  For The Three  For The  For The
   Months Ended  Months Ended  Nine-months Ended  Nine-months Ended
   September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022
             
Net sales  $59,011   $172,968   $162,372   $556,818 
                     
Cost of sales   22,088    59,771    58,402    182,369 
                     
Gross profit   36,923    113,197    103,970    374,449 
                     
Operating expenses:                    
Professional fees   170,405    182,140    563,670    565,529 
Salaries and wages   44,732    94,176    140,871    296,327 
General and administrative   97,916    106,745    324,750    380,920 
Total operating expenses   313,053    383,061    1,029,291    1,242,776 
                      
Operating loss   (276,130)   (269,864)   (925,321)   (868,327)
                     
Other income (expense):                    
Interest expense   (165,774)   (158,880)   (484,106)   (466,319)
Amortization of debt discount   (68,762)   (6,613)   (318,315)   (163,817)
Gain on lease extingueshment   219,006          151,082       
Gain on disposal         17,177    384,429    17,177 
Change in derivative liabilities expense   2,302,249    (6,994,461)   2,535,936    (3,904,639)
Other income   90,423    —      91,923    —   
Total other income (expense)   2,377,142    (7,142,777)   2,360,949    (4,517,598)
                      
Net income (loss) from continuing operations before income taxes   2,101,012    (7,412,641)   1,435,628    (5,385,925)
                     
Provision for Income Taxes   (5,270)   (22,535)   (19,109)   (77,398)
                     
Net income (loss)   2,095,742    (7,435,176)   1,416,519    (5,463,323)
                     
Net Income (loss) attributed to non-controlling interest   62,117    (20,279)   48,503    (78,114)
                     
Net income (loss) attributed to Kaya Holdings, Inc.   2,033,625    (7,414,897)   1,368,016    (5,385,209)
                     
Basic net income (loss) per common share  $0.09   $(0.50)  $0.06   $(0.37)
                     
Weighted average number of common shares outstanding - Basic   22,172,835    14,722,835    22,172,835    14,722,835 
                     
Diluted net income (loss) per common share  $0.00   $0.00   $0.01   $(0.37)
                     
Weighted average number of common shares outstanding - Diluted   143,718,093    14,722,835    143,718,093    14,722,835 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

4
 

  Kaya Holdings, Inc. and Subsidiaries

  Condensed Consolidated Statements of Comprehensive Income    

 

             
   (Unaudited)  (Unaudited)  (Unaudited)  (Unaudited)
   For The  For The  For The  For The
   Three-months Ended  Three-months Ended  Nine-months Ended  Nine-months Ended
   September 30, 2023  September 30, 2022  September 30, 2023  September 30, 2022
             
Net income (loss)   2,033,625   $(7,414,897)  $1,368,016   $(5,385,209)
                     
Other comprehensive expense                    
Foreign currency adjustments   (2,655)   (6,162)   (1,692)   (17,900)
                     
Comprehensive income (loss)   2,030,970    (7,421,059)   1,366,324    (5,403,109)
                     
Other comprehensive income (expense)                    
Net loss attirbuted to non-controlling interest   62,117    (20,279)   48,503    (78,114)
                     
Comprehensive income (loss) attributable to Kaya Holdings   1,968,853    (7,400,780)   1,317,821    (5,324,995)

 

The accompanying notes are an integral part of these consolidated financial statements.    

         

5
 

Kaya Holdings, Inc. and Subsidiaries

Condensed Consolidated Statement of Cashflows

(Unaudited)

 

   For The Nine  For The Nine
   Months Ended  Months Ended
   September 30, 2023  September 30, 2022
OPERATING ACTIVITIES:          
Net income (loss)  $1,368,016   $(5,385,209)
Adjustments to reconcile net income / loss to net cash used in operating activities:          
Adjustment to non-controlling interest   48,503    (78,114)
Depreciation   9,935    17,836 
Imputed interest   16,829    16,829 
Loss (gain) on lease extingushment   (151,082)     
Change in derivative liabilities   (2,535,936)   3,904,639 
Amortization of debt discount   318,315    163,817 
Loss(gain) on debt forgiveness   (91,923)      
Gain on disposal of fixed assets   (384,429)   (17,177)
Changes in operating assets and liabilities:          
Prepaid expense   (33,963)      
Inventory   (2,145)   22,770 
Right-of-use asset   45,499    71,828 
Deposit   (12,925)      
Other assets         (14,679)
Accrued interest   433,696    449,490 
Accounts payable and accrued expenses   14,617   53,272 
Accounts payable and accrued expenses - Related Parties   144,587    121,995 
Right-of-use liabilities   (47,322)   (87,546)
Deferred tax liabilities   4,045    77,398 
           
        Net cash used in operating activities   (855,683)   (682,851)
           
INVESTING ACTIVITIES:          
Proceeds from sales of fixed assets   693,959    17,177 
Proceeds from sales of Business License   193,900       
Cash paid for impairment of right-of-use asset   (75,000)      
           
        Net cash provided by investing activities   812,859    17,177 
           
FINANCING ACTIVITIES:          
Proceeds from convertible debt   455,000    150,000 
Payments on convertible debt   (370,000)      
           
Net cash provided by financing activities   85,000    150,000 
           
NET INCREASE (DECREASE) IN CASH   42,176    (515,674)
           
Effects of currency translation on cash and cash equivalents   (238)   (9,897)
           
CASH BEGINNING BALANCE   18,330    565,979 
           
CASH ENDING BALANCE  $60,268   $40,408 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Interest paid   28,582       
           
NON-CASH TRANSACTIONS AFFECTING OPERATING, INVESTING    AND FINANCING ACTIVITIES:                                
Settlement of derivative liabilities   145,625       
Adoption of lease standard ASC 842         23,738 
Initial derivative liability on convertible note payable         110,133 
Release of related party accruals and payable   38,329      

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6
 

Kaya Holdings, Inc. and Subsidiaries

Consolidated Statements of Stockholders' Deficit

For the three and nine months ended September 30, 2023 (Unaudited) and the year ended December 31, 2022 (Audited)

 

 

                                                      
   Preferred Stock - Series C  Preferred Stock - Series D  Common Stock  Subscription Payable  Additional Paid-in  Accumulated  Accumulated Comprehensive  Noncontrolling  Total Stockholders'
   Shares  Amount  Shares  Amount  Shares  Amount  Amount  Capital  Deficit  Loss  Interest  Deficit
                                     
Balance, December 31, 2021 (Audited)      $    40   $    14,722,835   $14,723   $163,630   $21,735,185   $(34,495,346)  $(3,719)  $(1,822,378)  $(14,407,905)
                                                             
Imputed interest                               11,158                11,158 
                                                             
Settlement of related party accrued compensation                               52                52 
                                                             
Translation Adjustment                                       (5,969)   (5,769)   (11,738)
                                                             
Net Loss                                   2,029,688        (57,835)   1,971,853 
                                                             
Balance, June 30, 2022 (Unaudited)           40        14,722,835    14,723    163,630    21,746,395    (32,465,658)   (9,688)   (1,885,982)   (12,436,580)
                                                             
Imputed interest               -         -     -     5,671    -     -     -     5,671 
                                                             
Translation Adjustment       -         -         -     -     -     -     (3,212)   (2,950)   (6,162)
                                                             
Net Loss       -         -         -     -     -     (7,414,897)   -     (20,279)   (7,435,176)
                                                             
Balance, September 30, 2022 (Unaudited)      $    40   $    14,722,835   $14,723   $163,630   $21,752,066   $(39,880,555)  $(12,900)  $(1,909,211)   (19,872,247)
                                                             
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)
                                                             
Imputed interest                               5,671                5,671 
                                                             
Release of related party accruals and payable      $       $       $   $   $38,329   $   $   $    38,329 
                                                             
Translation Adjustment      $                                (2,009)   (646)   (2,655)
                                                             
Net Income      $                            2,033,625        62,117    2,095,742 
                                                             
Balance, September 30, 2023      $    40        22,172,835    22,173    163,630    22,478,395    (36,703,944)   (14,538)   (1,933,847)   (15,988,131)

  

The accompanying notes are an integral part of these consolidated financial statements.    

7
 

 

 

NOTE 1 –ORGANIZATION AND NATURE OF THE BUSINESS

 

Organization

 

Kaya Holdings, Inc. FKA (Alternative Fuels Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”). NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. Certificate of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate of Incorporation was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings, Inc.

 

The Company has four subsidiaries: Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned and was formed on March 27, 2014 to maintain ownership of the Company’s Oregon based cannabis operations, 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability company which held ownership of the Company’s 26 acre property in Lebanon, Oregon (inactive since Feb 28, 2023 when the subject property was sold), Kaya Brand International, Inc., a Florida Corporation (“KBI”) which is majority-owned and was formed on October 14, 2019 to expand the business overseas (active) and Fifth Dimension Therapeutics, Inc., a Florida corporation which is majority owned (“FTD”) and was formed on December 13, 2022 to develop and maintain ownership of the Company’s planned Psychedelic Clinics targeting Psilocybin and Ketamine Treatments.

 

MJAI develops and operates the Company’s legal cannabis retail operations in Oregon through controlling ownership interests in five Oregon limited liability companies: MJAI Oregon 1 LLC (active), MJAI Oregon 2 LLC (inactive), MJAI Oregon 3 LLC (inactive) , MJAI Oregon 4 LLC (inactive) and MJAI Oregon 5 LLC (inactive).

 

MJAI Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations. MJAI Oregon 5 LLC is the entity that held the license application for the Company’s 26 acre farm property in Lebanon Oregon (property sold 2/28/23, inactive since that date).

 

KBI is the entity that holds controlling ownership interests in Kaya Farms Greece, S.A. (a Greek corporation) and Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation). These two entities were formed to facilitate expansion of the Company’s business in Greece and Israel respectively.

 

Fifth Dimension Therapeutics, Inc. (FTD) is the entity that was formed to hold interests in Psilocybin and Ketamine treatment facilities, with operations initially targeted for Oregon and Florida.

 

Nature of the Business  

 

In January 2014, KAYS incorporated MJAI, a wholly owned subsidiary, to focus on opportunities in the legal recreational and medical marijuana in the United States. MJAI has concentrated its efforts in Oregon, where through controlled Oregon limited liability companies, it initially secured licenses to operate a medical marijuana dispensary (an “MMD”) and following legalization of recreational cannabis use in Oregon, secured licenses to operate four retail outlets and purchased 26 acres for development as a legal cannabis cultivation and manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail operations and the Kaya Farms ™ brand for its cannabis growing and processing operations.

 

On July 3, 2014 opened its first Kaya Shack™ MMD in Portland, Oregon.  Between April of 2014 and December 31, 2022, KAYS owned and operated four (4) Kaya Shack™ retail cannabis medical and recreational dispensaries, three (3) Medical Marijuana Grow sites licensed by the OHA and two (2) Recreational Marijuana grow sites licensed by the OLCC (all in Oregon). The statuses of these operations are as follows:

 

The first Kaya Shack™ (Kaya Shack™ Store 1) opened in 2014 still maintains operations in Portland, Oregon at the same address as an Oregon Liquor and Cannabis Commission (OLCC) licensed medical and recreational marijuana retailer.

9
 

  

Kaya Shack™ Store 2 was closed in December, 2022 as part of a sale and surrender agreement that the Company entered into with the OLCC to resolve an Administrative Action filed by the OLCC (as previously disclosed in the Company’s Annual Report on form 10-K for the period ending December 31, 2021 filed on April 18, 2022 and in the Company’s Quarterly report for the period ending March 31, 2022 filed on May 16, 2022). Per the terms of the agreement the Company agreed to either enter into a purchase and sale agreement for its retail license in South Salem by February 1, 2023 (the renewal date) or surrender the license. Since the time of the agreement the Company has entered into an asset purchase agreement for the sale of its receipt of approval from the Oregon Liquor Control and Cannabis Commission for the new licensee. On April 21, 2023 the Company concluded the sale of its Kaya Shack™ Store 2 Retail Cannabis Store (“Store 2”) for $210,000, less a 6% closing commission and minor closing expenses. After these expenses and paying $75,000 to resolve three non-performing store leases in South Oregon, the Company netted $118,900. The net book value of the assets as of December 31, 2022 was $0 and revenue for the year ended December 31, 2022 was approximately $410,880.

 

Kaya Shack™ Store 3 and Kaya Shack™ Store 4 were both closed due to consolidation moves by the Company in 2020 and 2021, respectively, and the Company let the licenses lapse.

 

The three (3) Medical Marijuana Grows owned and operated by the Company through Oregon Health Authority (OHA) Licensure between 2015 and 2017 were all closed by the Company due to changing market conditions as OLCC Licensure of recreational marijuana came about and medical grow sites became economically unfeasible. 

In August of 2017, the Company purchased a 26-acre parcel in Lebanon, Linn County, Oregon for $510,000 on which we intended to construct a Greenhouse Grow and Production Facility (the “Property”) and filed for OLCC licensure. In August of 2022, the Company entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the Property. CVC released its lien on the Property to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC. Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which amounted to $270,000 pending the sale of the Property. On February 28, 2023 we sold the Property for a price of $770,312, less commissions and customary closing costs. The net proceeds of the sale were used to repay the advances plus interest (including an additional $100,000 borrowed from another lender interest) and the Company realized net proceeds of approximately $302,111. The land was reflected on the balance sheet as assets held for sale for the year ended December 31, 2022 and 2021, at a value of $516,076.

 

On August 18, 2018, the Company purchased the assets of Eugene, Oregon based Sunstone Farms which was licensed by the OLCC for cannabis production and processing. The purchase included a 12,000 square foot building housing and indoor grow facility, as well as equipment for growing and extraction activity. The purchase price of $1.3 was paid for by the issuance of 12 million shares of KAYS restricted stock, and the seller also purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company, and became a Board Member of Kaya Holdings. In mid-April, 2019 the OLCC filed an administrative proceeding proposing that the facility’s licenses (the “Licenses”) be cancelled, claiming that Sunstone had not filed paperwork correctly with respect to the transaction and the historical ownership of Bruce Burwick, the seller of the facility to the Company. Neither the Issuer nor any of its agents, consultants, employees or related entities was named as a respondent to the action. On March 31, 2021 the Company entered into a settlement with Sunstone and Burwick regarding the failure to deliver to KAYS the Licenses. Bruce Burwick surrendered to KAYS all 1,006,671 shares of our common stock issued to him in connection with the transaction (after adjustments for a 15:1 reverse split this was the 800,003 shares issued for the facility purchase, the 166,667 shares which were issued for $250,000 in cash and 40,001 shares which were issued as annual compensation for Burwick serving as a director of KAYS), and the Company received clear title to the warehouse facility. Burwick received $160,000 from the net proceeds of the sale of the facility's grow license to an unrelated third party, resigned from the Company's board of directors and agreed to work as a non-exclusive consultant to the Company for the next four years for a yearly fee of $35,000.00. On October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000.

 

10
 

 

On September 26, 2019, the Company formed the majority owned subsidiary Kaya Brands International, Inc. (“KBI”) to serve as the Company’s vehicle for expansion into worldwide cannabis markets. Between September of 2019 and December 31, 2022 KBI has formed majority-owned subsidiaries in both Greece and Israel and its local operating subsidiaries have acquired interests in various licenses and entities as noted below:

 

On June 7, 2020, Kaya Shalvah (“Kaya Farms Israel” or “KFI”), a majority owned subsidiary of KBI) was incorporated by the Company’s Israel Counsel. On March 30, 2021 the Company confirmed that its Israeli subsidiary, Kaya Shalvah has been awarded its initial license and permit from the "YAKAR", the Department for Medical Cannabis in the Israeli Ministry of Health, to develop an Israeli cannabis cultivation and processing facility. This initial license and permit grants Kaya Shalvah permission to proceed with its plans to develop commercial scale cannabis cultivation and processing in Israel. The license and permit are in good order and can be assigned to a location for development and licensure pending approval from the Yakar.

 

On November 27, 2020, Kaya Farms Greece, S.A. (“KFG”, a majority owned subsidiary of KBI) was incorporated by the Company’s Greek Counsel. On December 31, 2020, the Company entered into a joint venture agreement with Greekkannabis, PC (“GKC”, an Athens, Greece based cannabis company) and executed a formal agreement to acquire 50% of GKC which was completed in 2021. GKC has been issued two (2) Installation Licenses for construction of two medical cannabis cultivation and processing projects in Greece- one in Epidaurus, Greece and the other in Thebes, Greece. Neither of the subject properties are currently owned or optioned by GKC or its operating subsidiaries, but the land for the potential project in Epidaurus is owned by one of the Greek Partner’s families and the Land in Thibes is currently available for purchase or option and the Company believes it could acquire either of the Properties once funding and market conditions allow. Alternatively, both licenses are in good order, and can be transferred to a new location pending Greek Government approval.

 

On December 13, 2022, the Company formed Fifth Dimension Therapeutics (“FTD”, a Florida Corporation) to seek to provide psychedelic services to sufferers of treatment resistant mental health diseases such as depression, PTSD and other mental health disorders.

On January 3, 2023 the Oregon Health Authority (the “OHA”) began to accept license applications, allowing each entity to own and operate one (1) Psilocybin manufacturing and processing facility for the production of Psilocybin Mushrooms and derived therapeutics (“Psilocybins”), and up to five (5) Psilocybin Facilitation Centers where clients would go to ingest Psilocybins and experience effects under the supervision of State Licensed Facilitators.

 

The OHA also launched Oregon’s medical cannabis program in 2014, giving KAYS critical experience in comprehending and complying with OHA mandates. The psilocybin opportunity is a logical extension for Kaya Holdings. The purpose, customer, regulations, and operations, as well as our familiarity with Oregon regulators, are synergistic with our current mission, and can be leveraged within our current operational infrastructure. We anticipate being able to respond to market demand rapidly, upon licensing. The licenses to be issued in Oregon will be the first ever State Legal Licensing of Psilocybin Manufacturing and Treatment Centers, and KAYS is positioned to be a first mover due to its operating history in Oregon. The Company has begun the process of enrolling staff that qualify for the licensing into the training programs that have been approved for state certification and is in process of identifying a site for Psilocybin Manufacturing and Processing and up to five (5) sites to open and operate Psilocybin Facilitation Centers, subject to financing and final regulatory approval.

 

On January 25, 2023 the Company confirmed that attorney Glenn E.J. Murphy was welcomed as a founding member to the FDT Board of Directors. Glenn will assist FDT with introductions to pharmaceutical companies seeking data and access to psychedelic patients, as well as advising on the development of intellectual property, structure of potential joint ventures, funding opportunities, acquisitions, and other related endeavors. Glenn has twenty-five years of private and corporate practice, including ten years in-house with the Henkel Group and more than fifteen years in private practice, Glenn's experience has touched on most every aspect of intellectual property practice.

  

On March 13, 2023, Bryan Arnold (one of KAYS Vice Presidents and its longest serving Oregon Employee) completed his OHA Certified Psilocybin Education through the Changra Institute and became one of the first eighteen graduates to obtain Psilocybin Facilitator certification in the State of Oregon. Bryan’s Facilitation License application has been approved by the OHA, and he now may oversee up to five (5) Psilocybin Treatment Facilities and up to one (1) Psilocybin Production Facility. 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 February 15, 2023 KAYS reached an agreement in principle with Florida-based Total Holistic Center™ ("Total Holistic") to assist FDT with the development of its ketamine treatment model as a first step in the launch of its planned Fifth Dimension Therapeutics Mind Care Clinics and Telehealth Services. The Company has not yet proceeded with any further work to open ketamine clinics as it instead elected to concentrate on opening a Psilocybin Treatment Service Center in Portland, Oregon.

 

 

11
 

 

NOTE 2 –LIQUIDITY AND GOING CONCERN

 

The Company’s consolidated financial statements as of September 30, 2023 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company had net income of $1,368,016 for the nine months ended September 30, 2023 and net loss of $5,385,209 for the nine months ended September 30, 2022. The increase in net income is due to the changes in derivative liabilities, as well as the company’s gain on disposal. At September 30, 2023 the Company has a working capital deficiency of $7,647,743 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 ensure continuation of the Company’s development and operations,

 

  development of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name.

 

NOTE 3 –SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION

 

Basis of Presentation

 

The accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) under the accrual basis of accounting.

 

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation.

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.

 

Risks and Uncertainties

 

The Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including the potential risk of business failure.  

 

The Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings.  The factors expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate success of the product, (ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions and (iv) the related volatility of prices pertaining to the cost of sales. 

     

Fiscal Year The Company’s fiscal year-end is December 31.

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Principles of Consolidation

The accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries. All significant intercompany balances have been eliminated.

 

Wholly owned subsidiaries:

  · Alternative Fuels Americas, Inc. (a Florida corporation)

 

  · 34225 Kowitz Road, LLC (an Oregon LLC)

 

Majority-owned subsidiaries:

Kaya Brands International, Inc. (a Florida Corporation)

Kaya Shalvah (“Kaya Farms Israel”, an Israeli corporation) majority owned subsidiary of KBI)

Kaya Farms Greece, S.A. (a Greek Corporation) majority owned subsidiary of KBI)

 

  · Marijuana Holdings Americas, Inc. (a Florida corporation)

 

  o MJAI Oregon 1 LLC

 

  o MJAI Oregon 2 LLC (inactive)

 

  o MJAI Oregon 3 LLC (inactive)

 

  o MJAI Oregon 4 LLC (inactive)

 

  o MJAI Oregon 5 LLC (inactive)

 

Non-Controlling Interest

 

The company owned 55% of Marijuana Holdings Americas until September 30, 2019. Starting October 1, 2019, Kaya Holding, Inc. owns 65% of Marijuana Holdings Americas, Inc. As of September 30, 2023, Kaya owns 65% of Marijuana Holdings Americas, Inc.

 

The company owned 85% of Kaya Brands International, Inc. until July 31, 2020. Starting August 1, 2020, Kaya Holding, Inc. owns 65% of Kaya Brands International, Inc.

 

The Company owns 65% of Fifth Dimension Therapeutics, Inc.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.

 

Inventory

 

Inventory consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in, first-out method.  The Company periodically reviews historical sales activity to determine potentially obsolete items and also evaluates the impact of any anticipated changes in future demand.  Total Value of Finished goods inventory as of September 30, 2023 is $13,256 and $11,990 as of December 31, 2022. Inventory allowance and impairment were $0 and $0 as of September 30, 2023 and December 31, 2022, 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.

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Long-lived assets

 

The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.

 

Accounting for the Impairment of Long-Lived Assets

 

We evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets.

 

Assets Held for Sale

The Company classifies an asset group (‘asset’) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii) the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized in general and administrative expenses in the period in which the held for sale criteria are met. Conversely, gains are generally not recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell at each reporting period until the asset is no longer classified as held for sale.

Operating Leases

 

We lease our retail stores under non-cancellable operating leases. Most store leases include tenant allowances from landlords, rent escalation clauses and/or contingent rent provisions. We recognize rent expense on a straight-line basis over the lease term, excluding contingent rent, and record the difference between the amount charged to expense and the rent paid as a deferred rent liability.

 

Deferred Rent and Tenant Allowances

 

Deferred rent is recognized when a lease contains fixed rent escalations. We recognize the related rent expense on a straight-line basis starting from the date of possession and record the difference between the recognized rental expense and cash rent payable as deferred rent. Deferred rent also includes tenant allowances received from landlords in accordance with negotiated lease terms. The tenant allowances are amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession.

 

Earnings Per Share

 

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.

 

Provision for Income Taxes

 

We recorded a provision for income taxes in the amount of $19,109 during the nine months ended September 30, 2023 compared to $77,398 during the nine months ended September 30, 2022. Due to the net operating income we have, 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.

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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.

 

  Fair Value Measurements at September 30, 2023
    Level 1       Level 2       Level 3
Assets                    
Cash $ 60,268     $ -     $ -
Total assets   60,268       -       -
Liabilities                    
Convertible debentures, net of discounts of $69,499   -       -       7,367,653
Derivative liability   -       -       3,523,317
Total liabilities   -       -       10,890,970
  $ 60,268     $ -     $ (10,890,970)
                     
                     
  Fair Value Measurements at December 31, 2022
    Level 1       Level 2       Level 3
Assets                    
Cash $ 18,330     $ -     $ -
Total assets   18,330       -       -
Liabilities                    
Convertible debentures, net of discounts of $387,814   -       -       7,419,338
Derivative liability   -       -       6,204,878
Total liabilities   -       -       13,624,216
  $ 18,330     $ -     $ (13,624,216)

 

15
 

 

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 10.

 

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.

 

16
 

 

The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.

 

For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.

 

The amendments in Part 1 of this Update are a cost savings relative to former accounting. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.

 

The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.

 

The Company adopted this new standard on January 1, 2019; however, the Company needs to continue the derivative liabilities due to variable conversion price on some of the convertible instruments. As such, it did not have a material impact on the Company’s consolidated financial statements. 

 

Beneficial Conversion Feature

 

For conventional convertible debt where the rate of conversion is below market value, the Company records a "beneficial conversion feature" ("BCF") and related debt discount.

 

When the Company records a BCF, the relative fair value of the BCF is recorded as a debt discount against the face amount of the respective debt instrument (offset to additional paid in capital) and amortized to interest expense over the life of the debt.

 

Debt Issue Costs and Debt Discount

 

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt.  These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense over the life of the debt. If a conversion of the underlying debt occurs, a proportionate share of the unamortized amounts is immediately expensed.

 

Original Issue Discount

 

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount.  The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense over the life of the debt.

 

Extinguishments of Liabilities

 

The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) “Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities”. When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized.

 

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Stock-Based Compensation - Employees

 

The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.  

 

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.  

 

If the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

 

 

Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees’ expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments.  Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified method to calculate expected term of share options and similar instruments as the company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

 

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

 

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on estimated number of awards that are ultimately expected to vest.

 

The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.

 

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Stock-Based Compensation – Non-Employees

 

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 expands the scope of the Topic 718 to include stock-based payments granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for stock-based payments to non-employees are aligned with those of employees, most notably aligning the award measurement date with the grant date of an award. The new guidance is required to be adopted using the modified retrospective transition approach. The Company adopted the new guidance effective January 1, 2019, with an immaterial impact on its financial statements and related disclosures.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model.  The ranges of assumptions for inputs are as follows:

 

 

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments.  The Company uses historical data to estimate holder’s expected exercise behavior.  If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

 

Expected volatility of the entity’s shares and the method used to estimate it.  Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.  The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility.  If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

 

Expected annual rate of quarterly dividends.  An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends.  The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

 

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.  The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

Revenue Recognition

  

Effective January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identifying the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

To confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis- product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at the 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.

 

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Cost of Sales

 

Cost of sales represents costs directly related to the purchase of goods and third party testing of the Company’s pr

 

Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include a. affiliates of the Company; b. Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825–10–15, to be accounted for by the equity method by the investing entity; c. trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d. principal owners of the Company; e. management of the Company; f. other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g. Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The consolidated financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements.

 

The disclosures shall include: a. the nature of the relationship(s) involved; b. a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c. the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d. amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Contingencies

 

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against the Company or unasserted claims that may result in such proceedings, the Company evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought therein.

 

If the assessment of a contingency indicates that it is probable that a material loss has been incurred and the amount of the liability can be estimated, then the estimated liability would be accrued in the Company’s financial statements. If the assessment indicates that a potentially material loss contingency is not probable but is reasonably possible, or is probable but cannot be estimated, then the nature of the contingent liability, and an estimate of the range of possible losses, if determinable and material, would be disclosed.

 

Loss contingencies considered remote are generally not disclosed unless they involve guarantees, in which case the guarantees would be disclosed. However, there is no assurance that such matters will not materially and adversely affect the Company’s business, consolidated financial position, and consolidated results of operations or consolidated cash flows.

 

Uncertain Tax Positions

 

The Company did not take any uncertain tax positions and had no adjustments to its income tax liabilities or benefits pursuant to the provisions of Section 740-10-25 for the reporting period ended September 30, 2023.

 

Subsequent Events

 

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements are issued.

  

Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

 

Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.

 

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.

 

20
 

 

NOTE 4 –PROPERTY, PLANT AND EQUIPMENT

 

Property, plant and equipment consisted of the following at September 30, 2023 and December 31, 2022:  

 

       
   September 30,
2023
  December 31, 2022
   (Unaudited)  (Audited)
ATM Machine  $     $5,600 
Computer   30,713    30,713 
Furniture & Fixtures   59,733    42,965 
HVAC   25,000    44,430 
Land   17,703    17,702 
Leasehold Improvements   32,304    147,636 
Machinery and Equipment   55,067    69,312 
Sign         12,758 
Vehicle   24,000    24,000 
Total   244,520    395,116 
Less: Accumulated Depreciation   (217,735)   (358,396)
Property, Plant and Equipment - net  $26,785   $36,720 

 

Depreciation expense totaled $9,935 and $17,836 for the nine months ended September 30, 2023 and 2022, respectively.

 

NOTE 5 –ASSETS HELD FOR SALE

 

At December 31, 2022 assets held for sale mainly referred to property the Company owned in Lebanon, Oregon, which the Company had intended to develop as a cannabis grow and production facility. All transactions that resulted in the reclassification of assets held for sale at December 31, 2022, are already completed in 2023.

As previously reported in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, the Company entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the property the Company owned in Lebanon, Oregon, which the Company intended to develop as a cannabis grow and production facility (the “Property”).

Pursuant to the CVC Agreement, CVC released its $500,000 mortgage lien on the Property, to enable the Company to sell the Property and utilize the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC.

Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which included $150,000 advanced at the time the CVC Agreement was entered into and $120,000 which was advanced to the Company on November 10, 2022. The advances bear interest at the rate of 10% per annum and are convertible into shares of our common stock at $0.08 per share, subject to market adjustment.

On February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the sale were used to repay the advances and an additional short-term loan of $100,000 (plus interest due of $5,000). After such repayments, the Company realized a gain on disposal of assets of $177,883.

The carrying amount of assets classified as held for sale at September 30, 2023 and December 31, 2022 was $0 and $516,076, respectively.

NOTE 6 –NON-CURRENT ASSETS

 

Other assets consisted of the following at September 30, 2023 and December 31, 2022:

 

       
  

September 30,

2023

(Unaudited)

 

December 31, 2022

(Audited)

Rent Deposits  $23,941   $11,016 
Security Deposits   5,491    5,491 
Other Receivable   10,573    10,668 
Non-Current Assets  $40,005   $27,175 

 

During the nine months ended September 30, 2023, our other receivables decreased $95, related to changes of currency exchange rate. The increase of the rent deposit was primarily due to the new lease signed on September 22, 2023.

  

21
 

 

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 5.03% to 5.53%, volatility ranging from 149.93% to 196.65%, trading prices was $0.045 per share and a conversion price ranging from $0.04 to $0.08 per share. The total derivative liabilities associated with these notes were $3,523,317 at September 30, 2023 and $6,204,878 at December 31, 2022.

 

See Below Summary Table

 

Convertible Debt Summary
  Debt Type Debt Classification Interest Rate Due Date  Ending
 CT  LT 9/30/2023 12/31/2022
               
A Convertible  X     10.0% 1-Jan-17                 25,000  $             25,000
B Convertible      X 8.0% 1-Jan-25                 82,391                 82,391
C Convertible      X 8.0% 1-Jan-25                 41,195                 41,195
D Convertible      X 8.0% 1-Jan-25               262,156               262,156
O Convertible      X 8.0% 1-Jan-25               136,902               136,902
P Convertible      X 8.0% 1-Jan-25                 66,173                 66,173
Q Convertible      X 8.0% 1-Jan-25                 65,274                 65,274
S Convertible      X 8.0% 1-Jan-25                 63,205                 63,205
T Convertible      X 8.0% 1-Jan-25               313,634               313,634
CC Convertible      X 10.0% 1-Jan-25               100,000               100,000
KK Convertible      X 8.0% 1-Jan-25               188,000               188,000
LL Convertible      X 8.0% 1-Jan-25               749,697               749,697
MM Convertible      X 8.0% 1-Jan-25               124,690               124,690
NN Convertible      X 8.0% 1-Jan-25               622,588               622,588
OO Convertible      X 8.0% 1-Jan-25               620,908               620,908
PP Convertible      X 8.0% 1-Jan-25               611,428               611,428
QQ Convertible      X 8.0% 1-Jan-25               180,909               180,909
RR Convertible      X 8.0% 1-Jan-25               586,804               586,804
SS Convertible      X 8.0% 1-Jan-25               174,374               174,374
TT Convertible      X 8.0% 1-Jan-25               345,633               345,633
UU Convertible      X 8.0% 1-Jan-25               171,304               171,304
VV Convertible      X 8.0% 1-Jan-25               121,727               121,727
XX Convertible      X 8.0% 1-Jan-25               112,734               112,734
YY Convertible      X 8.0% 1-Jan-25               173,039               173,039
ZZ Convertible      X 8.0% 1-Jan-25               166,603               166,603
AAA Convertible      X 8.0% 1-Jan-25               104,641               104,641
BBB Convertible      X 8.0% 1-Jan-25                 87,066                 87,066
DDD Convertible      X 8.0% 1-Jan-25                 75,262                 75,262
EEE Convertible      X 8.0% 1-Jan-25               160,619               160,619
GGG Convertible      X 8.0% 1-Jan-25                 79,422                 79,422
JJJ Convertible      X 8.0% 1-Jan-25                 52,455