Kaya Holdings, Inc. and Subsidiaries
NOTE
1 – ORGANIZATION AND NATURE OF THE BUSINESS
Organization
Kaya
Holdings, Inc. FKA (Alternative Fuels Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a
number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”).
NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction
and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. Certificate
of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International
Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate of Incorporation
was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings,
Inc.
The
Company has four subsidiaries: Alternative Fuels Americas, Inc, a Florida corporation, which is wholly-owned, Marijuana Holdings Americas,
Inc., a Florida corporation (“MJAI”), which is majority-owned, 34225 Kowitz Road, LLC, a wholly-owned Oregon limited liability
company which holds ownership of the Company’s 26 acre property in Lebanon, Oregon on which it plans to develop a legal cannabis
cultivation and manufacturing facility, and Kaya Brand International, Inc. (KBI) a Florida Corporation which the Company owns 85% of
which was formed on October 14, 2019 to expand the business overseas
MJAI
develops and operates the Company’s legal cannabis retail operations in Oregon through controlling ownership interests in five
Oregon limited liability companies: MJAI Oregon 1 LLC, MJAI Oregon 2 LLC (inactive), MJAI Oregon 3 LLC (inactive) , MJAI Oregon 4 LLC
(inactive) and MJAI Oregon 5 LLC.
MJAI
Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations and pending OLCC Production and Processing
license transfer applications for the 260 Grimes Street property in Eugene, Oregon. MJAI Oregon 5 LLC maintains the Company’s pending
OLCC Producer Application for the Company’s 26 acre farm property in Lebanon Oregon.
KBI
is the entity that holds controlling ownership interests in Kaya Farms Greece, S.A. (a Greek corporation) and Kaya Shalvah (“Kaya
Farms Israel”, an Israeli corporation). These two entities were formed to facilitate expansion of the Company’s business
in Greece and Israel respectively.
Nature
of the Business
In
January 2014, KAYS incorporated MJAI, a wholly-owned subsidiary, to focus on opportunities in the legal recreational and medical marijuana
in the United States. MJAI has concentrated its efforts in Oregon, where through controlled Oregon limited liability companies, it initially
secured licenses to operate a medical marijuana dispensary (an “MMD”) and following legalization of recreational cannabis
use in Oregon, has secured licenses to operate four retail outlets and purchased 26 acres for development as a legal cannabis cultivation
and manufacturing facility. The Company has developed the Kaya Shack™ brand for its retail operations and the Kaya Farms ™
brand for its cannabis gowing and processing operations.
On
July 3, 2014 opened its first Kaya Shack™ MMD in Portland, Oregon. In April 2015, KAYS commenced its own medical marijuana
grow operations for the cultivation and harvesting of legal marijuana thereby becoming the first publicly traded U.S. company to own
a majority interest in a vertically integrated legal marijuana enterprise in the United States. In October 2015, concurrent with Oregon
commencing legal sales of recreational marijuana through MMDs, KAYS opened its second retail outlet in Salem, Oregon, the Kaya Shack™
Marijuana Superstore. During 2015, the Company also consolidated its grow operations and manufacturing operations into a single facility
in Portland, Oregon.
In
2016, Oregon began the process to transition legal marijuana sales from Oregon Health Authority (“OHA”) licensed MMDs and
grow operations to Oregon Liquor Control Commission (“OLCC”) licensed recreational marijuana retailers and producer and processing
facilities. Effective January 1, 2017, all retailers of recreational marijuana were required to have a recreational marijuana sales license
issued by the OLLC for each retail outlet operated.
In
2016 the Company applied for OLLC licenses for its two initial Kaya Shack™ retail outlets (Portland, Oregon and South Salem, Oregon),
and also submitted license applications for its two new locations under construction and development at that time.
In
late December 2016, we received our OLCC recreational license for the South Salem Kaya Shack™ Marijuana Superstore (Kaya Shack™
OLCC Marijuana Retailer License #1) and recreational and medical sales continued without interruption from 2016 through the present at
that location.
On
March 21, 2017, we received our North Salem Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer License #2) a 2,600-square
foot Kaya Shack™ Marijuana Superstore in North Salem, Oregon, whereupon the location opened for business with both recreational
and medical sales.
On
May 2, 2017, we received our OLCC recreational license for our Portland Kaya Shack™ outlet (Kaya Shack™ OLCC Marijuana Retailer
License #3) after a delay of approximately four months. During that period, we were limited to solely medical sales at the Portland location.
Upon receipt of Kaya Shack™ OLCC Marijuana Retailer License #3, recreational sales recommenced at that location.
During
August of 2017, the Company purchased a 26 acre parcel in Lebanon, Linn County, Oregon, on which we intend to construct an 85,000 square
foot Kaya Farms™ Greenhouse Grow and Production Facility at the property.
On
February 15, 2018, we received our OLCC recreational, medical and home delivery license for the Central Salem Kaya ShackTM outlet
(Kaya ShackTM OLCC Marijuana Retailer License #4) a 3,100-square foot Kaya ShackTM Marijuana Superstore in Central
Salem, Oregon. After various construction and permitting delays, On April 12, 2018, the location opened for business with both recreational
and medical sales.
On
August 18, 2018, the Company had concluded the purchase of the Eugene, Oregon based Sunstone Farms manufacturing facility, which was
licensed by the OLCC for both the production of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles.
The purchase included a 12,000 square foot building housing and indoor grow facility, as well as equipment for growing and extraction
activity. The purchase price of $1.3 was paid for by the issuance of 12 million shares of KAYS restricted stock to the seller at closing.
Additionally, the seller purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company, and
became a Board Member of Kaya Holdings. While the shares carried a lock-up-restriction allowing for their staged eligibility for resale
over a 61-month period from the date of the purchase of the facility by KAYS, none of the shares have been submitted for resale.
In
mid-April, 2019 the Company was notified by Sunstone that the OLCC had filed an administrative proceeding and was proposing that Sunstone’s
licenses for the facility purchased by KAYS be cancelled, claiming that Sunstone had not filed paperwork correctly with respect to the
transaction and the historical ownership of Bruce Burwick, the seller of the facility to the Company. Neither the Issuer nor any of its
agents, consultants, employees or related entities was named as a respondent to the action and accordingly could not respond to the proceedings.
On
September 26, 2019, the Company formed the majority owned subsidiary Kaya Brands International, Inc. (“KBI”) to serve as
the Company’s vehicle for expansion into worldwide cannabis markets.
On
November 4, 2019 the Company filed an 8-K announcing that its majority owned subsidiary, Kaya Brands International, Inc. (“KBI”),
had executed a memorandum of understanding (“MOU”) setting forth the terms for KBI’s acquisition of a 50% ownership
interest in Greekkannabis, PC (“GKC”), an Athens, Greece based cannabis company which at the time was awaiting issuance of
a medical cannabis cultivation, processing, and export license from the Greek government.
In
February, 2020 the Company renewed the OLCC Marijuana Retailer Licenses #1, 2 and 4 listed above and did not renew OLCC Marijuana Retailer
License #3 and ceased operations at that location. The Company is currently seeking to transfer OLCC License #4 to another location.
On
April 22, 2020 KAYS/KBI received confirmation from its Greek Counsel that the Greek Government had approved and issued the Crucial Installation
License for the GKC facility which is the subject of the previously announced MoU executed by and between KBI and GKC. The license allows
for construction of a medical cannabis cultivation and process facility which includes twelve (12) 35,000 square foot of light deprivation
greenhouses and an additional 50,000 square foot building for workspace, storage and administrative offices situated on fifteen acres
of land in Thibes, Greece.
On
June 7, 2020 Kaya Shalvah (“Kaya Farms Israel”) was incorporated by the Company’s Israel Counsel, Sullivan & Worcester.
KBI owns a majority of Kaya Farms Israel.
On
October 15, 2020 the OLCC approved a settlement between the OLCC and Sunstone Marketing Partners that required that the licenses for
the Eugene Oregon based Sunstone Farms facility be sold to a third party (other than KAYS) or surrendered. For more information, please
see Note 15, Subsequent Events and Part II-Other Information, Item 1, Legal Proceedings elsewhere in this filing.
On
November 27, 2020 Kaya Farms Greece, S.A. (“KFG)” was incorporated by the Company’s Greek Counsel Dalakos, Fassolis
and Theofanopoulos of Piraeus, Greece. KBI owns a majority of KFG.
On
December 31, 2020, the Company entered into a joint venture agreement with Greekkbannabis., and and On January 11, 2021, KAYS/KBI, through
a majority owned subsidiary of KBI (Kaya Farms Greece or “KFG") and Greekkannabis (“GKC") executed an agreement
for KBI to acquire 50% of GKC. The terms are as follows:
1.
Prior to the execution of the transaction, the GKC shareholders owned a total of 320 shares (100%) of GKC.
2.
Pursuant to first section of the contract, KBI has initially acquired 80 shares of GKC (from the current shareholders) for payment
of 30,000 Euros- 20,000 Euros have been paid from the $31,688 (25,000 Euros) sent to Greece on December 31, 2020 and the remaining 10,000
Euros is due to be paid by June 30, 2022. This leaves current shareholders on GKC side with 240 shares.
3.
GKC is in process of issuing an additional 160 shares of GKC to KFG in exchange for additional paid in capital by KFG of 16,000 Euros.
At the conclusion of the process (minutes of meetings have to be published in Greek Government publications, etc which will take a few
months), KFG will own 50% of GKC (240 shares) and the current shareholders of GKC will own 50% (240 shares).
5.
An operating agreement is currently being drafted that allows for 5 board members (2 from KFG and 3 from GKC). Ilias will become the
President and Panos will become the vice president and Managing Director. Final terms will include the provision that a super majority
(80%) is required to enter into a transaction in excess of 100K Euros and also to issue new shares, encumber/sell existing shares,
enter into decisions regarding infrastructure, development and construction decisions, etc.
On
March 31, 2021 the Company entered into a settlement with Sunstone Capital Partners, LLC, Sunstone Marketing Partners LLC and Bruce Burwick,
the principal of Sunstone and a director of Kays, regarding the failure to deliver to KAYS the Oregon Cannabis Production and Processing
Licenses that were part of a warehouse purchase transaction in August 2018.
On
July 28, 2021 the Company announced that all terms had been satisfied. Pursuant to the terms of the settlement, Bruce Burwick surrendered
to KAYS 1,006,671 shares of our common stock issued to him in connection with the transaction (800,003 shares which were issued for the
facility purchase, 166,667 shares which were issued for $250,000 in cash and 40,001 shares which were issued as annual compensation for
Burwick serving as a director of KAYS). The shares have been submitted to KAYS' transfer agent for cancellation. In addition, the Company
received clear title to the warehouse facility, which enables the Company to sell it without restriction. As part of the settlement,
Burwick received $160,000 from the net proceeds of the sale of the facility's grow license to an unrelated third party, resigned from
the Company's board of directors and agreed to work as a non-exclusive consultant to the Company for the next four years for a yearly
fee of $35,000.00.
KAYS
has listed the warehouse property for sale with the goal of using the realized funds to propel progress in our U.S., Israel and Greece,
as well as improve our balance sheet. Projects we plan to focus on include launching Kaya Harmony™ - Kaya Farms™ U.S.A.,
introducing a number of consumer product brands, redesigning our Kaya Shack™ stores, launching CBD brands in Europe, and acquiring
land in Israel through an Israeli government tender program
NOTE
2 – LIQUIDITY AND GOING CONCERN
The
Company’s consolidated financial statements as of September 30, 2021 have been prepared on a going concern basis, which contemplates
the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company incurred net
income of $7,608,398 for the nine months ended September 30, 2021 and a net loss of $15,482,804 for the nine months ended September 30,
2020. The increase in net income is due to the changes in derivative liabilities, offset by the increase in amortization of debt discount,
as well as the company continues to have operating losses. At September 30, 2021 the Company has a working capital deficiency of $11,950,359
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:
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the
sale of additional equity and debt securities,
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alliances
and/or partnerships with entities interested in and having the resources to support the further development of the Company’s
business plan,
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business
transactions to assure continuation of the Company’s development and operations,
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development
of a unified brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name.
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NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis
of Presentation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted
in the United States of America (U.S. GAAP) under the accrual basis of accounting.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period presentation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such
estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable
and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate
of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount,
estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ
significantly from estimates.
Risks
and Uncertainties
The
Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including
the potential risk of business failure.
The
Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors
expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate
success of the product, (ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions
and (iv) the related volatility of prices pertaining to the cost of sales.
Fiscal
Year
The
Company’s fiscal year-end is December 31.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries.
All significant intercompany balances have been eliminated.
Wholly-owned
subsidiaries:
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Alternative
Fuels Americas, Inc. (a Florida corporation)
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34225
Kowitz Road, LLC (an Oregon LLC)
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Majority-owned
subsidiaries:
Kaya
Brands International, Inc. (a Florida Corporation)
Kaya
Shalvah (“Kaya Farms Israel”, an Israeli corporation) majority owned subsidia y of KBI)
Kaya
Farms Greece, S.A. (a Greek Corporation) majority owned subsidiary of KBI)
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Marijuana
Holdings Americas, Inc. (a Florida corporation)
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MJAI
Oregon 2 LLC (inactive)
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MJAI
Oregon 3 LLC (inactive)
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MJAI
Oregon 4 LLC (inactive)
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Non-Controlling
Interest
The
company owned 55% of Marijuana Holdings Americas until September 30, 2019. Starting October 1, 2019, Kaya Holding, Inc. owns 65% of Marijuana
Holdings Americas, Inc. As of December 31, 2019 Kaya owns 65% of Marijuana Holdings Americas, Inc.
The
company owned 85% of Kaya Brands International, Inc. until July 31, 2020. Starting August 1, 2020, Kaya Holding, Inc. owns 65% of Kaya
Brands International, Inc.
Cash
and Cash Equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.
Inventory
Inventory
consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in,
first-out method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also
evaluates the impact of any anticipated changes in future demand. Total Value of Finished goods inventory as of September
30, 2021 is $35,840 and $47,618 as of December 31, 2020. Inventory allowance and impairment were $0 and $0 as of September 30, 2021 and
December 31, 2020, respectively.
Property
and Equipment
Property
and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable.
Depreciation
of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-30 years of
the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred.
Upon
sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain
or loss is reflected in the statements of operations.
Long-lived
assets
The
Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits
of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets
over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected
future cash flows.
Accounting
for the Impairment of Long-Lived Assets
We
evaluate long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may
not be recoverable. Upon such an occurrence, recoverability of assets to be held and used is measured by comparing the carrying amount
of an asset to forecasted undiscounted net cash flows expected to be generated by the asset. If the carrying amount of the asset exceeds
its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the
fair value of the asset. For long-lived assets held for sale, assets are written down to fair value, less cost to sell. Fair value is
determined based on discounted cash flows, appraised values or management's estimates, depending upon the nature of the assets.
Operating
Leases
We
lease our retail stores under non-cancellable operating leases. Most store leases include tenant allowances from landlords, rent escalation
clauses and/or contingent rent provisions. We recognize rent expense on a straight-line basis over the lease term, excluding contingent
rent, and record the difference between the amount charged to expense and the rent paid as a deferred rent liability.
Deferred
Rent and Tenant Allowances
Deferred
rent is recognized when a lease contains fixed rent escalations. We recognize the related rent expense on a straight-line basis starting
from the date of possession and record the difference between the recognized rental expense and cash rent payable as deferred rent. Deferred
rent also includes tenant allowances received from landlords in accordance with negotiated lease terms. The tenant allowances are
amortized as a reduction to rent expense on a straight-line basis over the term of the lease starting at the date of possession.
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.
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:
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Level
1 – Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
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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.
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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.
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Schedule of fair value of financial instruments
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Fair
Value Measurements at September 30, 2021
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Level
1
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Level
2
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Level
3
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Assets
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Cash
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$
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56,266
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$
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-
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$
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Total
assets
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56,266
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Liabilities
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Convertible
debentures, net of discounts of $612,311
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6,899,406
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Short
term debt, net of discounts of $-0-
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Derivative
liability
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8,102,629
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Total
liabilities
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15,002,035
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$
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56,266
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$
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-
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$
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15,002,035
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Fair
Value Measurements at December 31, 2020
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Level
1
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Level
2
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Level
3
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Assets
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Cash
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$
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43,162
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$
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-
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$
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Total
assets
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43,162
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Liabilities
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Convertible
debentures, net of discounts of $494,930
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6,762,817
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Short
term debt, net of discounts of $-0-
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Derivative
liability
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-
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17,328,904
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Total
liabilities
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24,091,721
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$
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43,162
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$
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-
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$
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24,091,721
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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 it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features
that qualify as embedded derivatives.
For
derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value
and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based
simple derivative financial instruments, the Company uses the Binomial option-pricing model to value the derivative instruments at inception
and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as
liabilities or as equity, is re-assessed at the end of each reporting period.
In
July 2017, the FASB issued ASU 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivative
and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified
as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. The amendment also clarifies existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject
to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options),
including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain
provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not
have an accounting effect.
Prior
to this Update, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a
liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether
it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine
whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative
accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming
the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option
meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to
an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the
bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
The
amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts
in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope
exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under
the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments
with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer
bifurcated.
For
entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator
adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument,
while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible
instruments are unaffected by the Topic 260 amendments in this Update.
The
amendments in Part 1 of this Update are a cost savings relative to former accounting. This is because, assuming the required criteria
for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair
value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible
instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that
have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating
an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of
the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each
reporting period.
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.
Stock-Based
Compensation - Employees
The
Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions
under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting
Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods
or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration
received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The
measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance
is complete or the date on which it is probable that performance will occur.
If
the Company is a newly formed corporation or shares of the Company are thinly traded, the use of share prices established in the Company’s
most recent private placement memorandum (based on sales to third parties) (“PPM”), or weekly or monthly price observations
would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger
spread between the bid and asked quotes and lack of consistent trading in the market.
The
fair value of share options and similar instruments is estimated on the date of grant using a Binomial Option Model option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
|
•
|
|
Expected
term of share options and similar instruments: The expected life of options and similar instruments represents
the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i)
of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents
the period of time the options and similar instruments are expected to be outstanding taking into consideration
of the contractual term of the instruments and employees’ expected exercise and post-vesting employment
termination behavior into the fair value (or calculated value) of the instruments. Pursuant to
paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected
term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical
exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period
of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its
share option grants or the types of employees that receive share option grants such that its historical exercise
data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has
or expects to have significant structural changes in its business such that its historical exercise data may
no longer provide a reasonable basis upon which to estimate expected term. The Company uses the simplified
method to calculate expected term of share options and similar instruments as the company does not have sufficient
historical exercise data to provide a reasonable basis upon which to estimate expected term.
|
|
•
|
|
Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected,
the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The
Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options
or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly
price observations would generally be more appropriate than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
|
|
•
|
|
Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the
contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The
expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield
for periods within the expected term of the share options and similar instruments.
|
|
•
|
|
Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
|
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.
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 expends the scope of the Topic 718 to include
stock-based payments granted to non-employees. Under the new guidance, the measurement date and performance and vesting conditions for
stock-based payments to non-employees are aligned with those of employees, most notably aligning the award measurement date with the
grant date of an award. The new guidance is required to be adopted using the modified retrospective transition approach. The Company
adopted the new guidance effective January 1, 2019, with an immaterial impact on its financial statements and related disclosures.
The
fair value of share options and similar instruments is estimated on the date of grant using a Binomial option-pricing valuation model. The
ranges of assumptions for inputs are as follows:
|
•
|
|
Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting
Standards Codification the expected term of share options and similar instruments represents the period of
time the options and similar instruments are expected to be outstanding taking into consideration of the contractual
term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value)
of the instruments. The Company uses historical data to estimate holder’s expected exercise
behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded
the contractual term of the share options and similar instruments is used as the expected term of share options
and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable
basis upon which to estimate expected term.
|
|
•
|
|
Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected,
the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The
Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options
or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly
price observations would generally be more appropriate than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
|
|
•
|
|
Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the
contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The
expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield
for periods within the expected term of the share options and similar instruments.
|
|
•
|
|
Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The
risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected
term of the share options and similar instruments.
|
Revenue
Recognition
Effective
January 1, 2018, the Company adopted ASC 606 – Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue
from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1)
identifying the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price;
(4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation
is satisfied.
To
confirm, all of our OLCC licensed cannabis retail sales operations are conducted and operated on a “cash and carry” basis-
product(s) from our inventory accounts are sold to the customer(s) and the customer settles the account at time of receipt of product
via cash payment at our retail store; the transaction is recorded at the time of sale in our point of sale software system. Revenue is
only reported after product has been delivered to the customer and the customer has paid for the product with cash.
To
date the only other revenue we have received is for ATM transactions and revenue from this activity is only reported after we receive
payment via check from the ATM service provider company.
Cost
of Sales
Cost
of sales represents costs directly related to the purchase of goods and third party testing of the Company’s products.
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, 2021.
Subsequent
Events
The
Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The
Company will evaluate subsequent events through the date when the financial statements are issued.
Pursuant
to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when
they are widely distributed to users, such as through filing them on EDGAR.
Recently
Issued Accounting Pronouncements
From
time to time, new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as
of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are
not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.
In
August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives
and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06
simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments
and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary
complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods
within those fiscal years. The Company is currently evaluating the impact ASU 2020-06 will have on its financial statements.
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following at September 30, 2021 and December 31, 2020:
Schedule of property, plant and equipment
|
|
|
|
|
|
|
|
|
|
|
|
|
September
30, 2021
|
|
December
31, 2020
|
|
(Unaudited)
|
(Audited)
|
|
ATM
Machine
|
|
$
|
5,600
|
|
|
$
|
5,600
|
|
|
Computer
|
|
|
18,990
|
|
|
|
18,990
|
|
|
Furniture
& Fixtures
|
|
|
43,466
|
|
|
|
43,466
|
|
|
HVAC
|
|
|
41,768
|
|
|
|
41,768
|
|
|
Land
|
|
|
697,420
|
|
|
|
697,420
|
|
|
Leasehold
Improvements
|
|
|
142,979
|
|
|
|
142,979
|
|
|
Machinery
and Equipment
|
|
|
312,331
|
|
|
|
312,331
|
|
|
Sign
|
|
|
12,758
|
|
|
|
12,758
|
|
|
Structural
|
|
|
1,017,359
|
|
|
|
1,017,359
|
|
|
Vehicle
|
|
|
51,872
|
|
|
|
79,744
|
|
|
Total
|
|
|
2,344,543
|
|
|
|
2,372,415
|
|
|
Less:
Accumulated Depreciation
|
|
|
(612,311)
|
|
|
|
(547,469)
|
|
|
Property,
Plant and Equipment - net
|
|
$
|
1,732,232
|
|
|
$
|
1,824,946
|
|
Depreciation
expense totaled of $92,715 and $165,981 for the six months ended September 30, 2021 and 2020, respectively. Due to the closure of 2 stores,
the Company removed net asset of $173,658 and record loss of disposal of fixed asset $173,658 during the years ended December 31, 2020.
On
August 30, 2021 the Company elected to dispose of two (2) of the four (4) Fiat cars that it owned that it was not using. The four cars
were originally purchased in September of 2017 for prices ranging from $13,584.00 to $14,992.00.
After
a review of market pricing the Company was able to sell one of the cars to Carvana for $14,460, after adjustments for cost removed and
accumulated depreciation removal, the sale resulted in a gain on settlement.
Additionally,
the second Fiat was transferred to Mr. Frank in lieu of $15,000.00 in fees owed him. See Note 11 for additional information.
NOTE
5 – NON-CURRENT ASSETS
Other
assets consisted of the following at September 30, 2021 and December 31, 2020:
Schedule
of non current assets
|
|
|
|
|
|
|
|
|
30-Sep-21
|
|
31-Dec-20
|
|
|
|
(Unaudited)
|
|
(Audited)
|
|
Rent
Deposits
|
|
$
|
11,016
|
|
|
$
|
11,016
|
|
|
Security
Deposits
|
|
|
6,241
|
|
|
|
5,491
|
|
|
Down
Payment
|
|
|
66,080
|
|
|
|
0
|
|
|
Non-Current
Assets
|
|
$
|
83,337
|
|
|
$
|
16,507
|
|
Due
to the closure of 2 stores, the Company expensed rent deposit of $11,016 during the years ended December 31, 2020.
NOTE
6 – CONVERTIBLE DEBT
These
debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the
indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of
ranging from 0.11% to 0.47%, volatility ranging from 106% to 142%, trading prices ranging from $0.020 per share to $0.66 per share and
a conversion price ranging from $0.15 per share to $0.38 per share. The total derivative liabilities associated with these notes were
$8,102,629 at September 30, 2021 and $17,328,904 at December 31, 2020.
See
Below Summary Table
Convertible Debt
|
|
|
|
|
|
|
|
|
|
Convertible
Debt Summary
|
|
|
Debt Type
|
Debt Classification
|
Interest Rate
|
Due Date
|
Ending
|
|
CT
|
LT
|
9/30/2021
|
12/31/2020
|
|
|
|
|
|
|
|
|
|
|
A
|
Convertible
|
X
|
|
10.0%
|
1-Jan-17
|
25,000
|
$ 25,000
|
|
B
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
82,391
|
82,391
|
|
C
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
41,195
|
41,195
|
|
D
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
262,156
|
262,156
|
|
O
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
136,902
|
136,902
|
|
P
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
66,173
|
66,173
|
|
Q
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
65,274
|
65,274
|
|
S
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
63,205
|
63,205
|
|
T
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
313,634
|
313,634
|
|
BB
|
Convertible
|
X
|
|
10.0%
|
1-Jan-20
|
-
|
50,000
|
|
CC
|
Convertible
|
X
|
|
10.0%
|
1-Jan-20
|
100,000
|
100,000
|
|
KK
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
188,000
|
188,000
|
|
LL
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
749,697
|
749,697
|
|
MM
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
124,690
|
124,690
|
|
NN
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
622,588
|
622,588
|
|
OO
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
620,908
|
620,908
|
|
PP
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
611,428
|
611,428
|
|
QQ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
180,909
|
180,909
|
|
RR
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
586,804
|
586,804
|
|
SS
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
174,374
|
174,374
|
|
TT
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
345,633
|
345,633
|
|
UU
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
171,304
|
171,304
|
|
VV
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
121,727
|
113,322
|
|
XX
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
112,734
|
112,734
|
|
YY
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
173,039
|
173,039
|
|
ZZ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
166,603
|
166,603
|
|
AAA
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
104,641
|
104,641
|
|
BBB
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
87,066
|
87,066
|
|
CCC
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
-
|
25,000
|
|
DDD
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
75,262
|
75,262
|
|
EEE
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
160,619
|
160,619
|
|
GGG
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
79,422
|
79,422
|
|
HHH
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
-
|
35,000
|
|
JJJ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
52,455
|
52,455
|
|
LLL
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
77,992
|
77,992
|
|
MMM
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
51,348
|
51,348
|
|
PPP
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
95,979
|
95,979
|
|
RRR
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
-
|
15,000
|
|
SSS
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
75,000
|
75,000
|
|
TTT
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
80,000
|
80,000
|
|
UUU
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
-
|
20,000
|
|
VVV
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
75,000
|
75,000
|
|
WWW
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
60,000
|
-
|
|
XXX
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
100,000
|
-
|
|
YYY
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
50,000
|
-
|
|
ZZZ
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
40,000
|
-
|
|
AAAA
|
Convertible
|
|
X
|
8.0%
|
1-Jan-24
|
66,000
|
-
|
|
|
|
|
|
|
|
|
|
|
Total Convertible
Debt
|
7,437,152
|
7,257,747
|
|
Less:
Discount
|
(537,746)
|
(494,930)
|
|
Convertible Debt,
Net of Discounts
|
$ 6,899,406
|
$ 6,762,817
|
|
Convertible
Debt, Net of Discounts, Current
|
$ 125,000
|
$ 363,243
|
|
Convertible Debt,
Net of Discounts, Long-term
|
$ 6,774,406
|
$ 6,399,574
|
FOOTNOTES
FOR CONVERTIBLE DEBT ACTIVITY FOR NINE MONTHS ENDED SEPTEMBER 30, 2021
(BB)
On
September 23, 2015 the Company received a total of $50,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $50,000 with interest accruing at 10%. The note is convertible after September 23, 2015 and is convertible into the Company’s
common stock at a conversion rate of $0.15 per share. The market value of the stock at the date when the debt becomes convertible was
$1.17. The debt issued is a result of a financing transaction and contain a beneficial conversion feature. The accrued interest of $5,000
was converted to 166,666 shares of common stock on September 15, 2019. The accrued interest of $5,000 was paid in cash in the year of
2020. On January 1, 2019, due date of this note was extended until January 1, 2020. No gain or loss on conversion was recorded as conversions
were made within the terms of agreement. On May 18, 2021, the noteholder converted the remaining principal of $50,000 and accrued interest
of $10,197. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
(CC)
On
September 23, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $100,000 with interest accruing at 10%. The note was convertible after September 23, 2015 and was convertible into the Company’s
common stock at a conversion rate of $.45 per share. The market value of the stock at the date when the debt becomes convertible was
$1.17. The debt issued is a result of a financing transaction and contain a beneficial conversion feature. On May 18, 2021, the noteholder
converted the accrued interest of $26,712. The remaining balance of principal and interest was $100,000 and $0, respectively, at September
30, 2021.
(CCC)
On
December 21, 2018, the Company received $25,000 from the issuance of convertible debt. Interest is stated at 8%. The Note and Interest
is convertible into common shares at $.75 per share. On January 22, 2019, the ratchet provision was activated due to issuance of another
convertible note. As such, the conversion price was decreased from $.75 per share to $.45 per share. As the change is greater than 10%,
the discount of $25,000 was recorded as a loss on extinguishment. The maturity date of the notes had been extended to January 1, 2024.
This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on
convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model, see Note 9 for further details. On May 24,
2021, the noteholder converted the remaining principal of $29,055 and accrued interest of $969. The remaining balance of principal and
interest was $0 and $0, respectively, at September 30, 2021.
(HHH)
On
April 22, 2019 the Company received $35,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January
2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per
share. The maturity date of the notes had been extended to January 1, 2024. This note has a price adjustment provision. Therefore,
the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation
is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized
to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued,
the Company used the Binomial Options Pricing Model, see Note 9 for further details. On May 24, 2021, the noteholder converted the remaining
principal of $39,741 and accrued interest of $1,325. The remaining balance of principal and interest was $0 and $0, respectively, at
September 30, 2021.
(RRR)
On
January 8, 2020, the Company received $15,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January
2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per
share. The maturity date of the notes had been extended to January 1, 2024. This note has a price adjustment provision. Therefore,
the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation
is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized
to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued,
the Company used the Binomial Options Pricing Model, see Note 9 for further details. On May 24, 2021, the noteholder converted the remaining
principal of $16,177 and accrued interest of $539. The remaining balance of principal and interest was $0 and $0, respectively, at September
30, 2021.
(UUU)
On
August 13, 2020, the Company received $20,000 from the issuance of convertible debt to the High Net Worth Investor pursuant to the January
2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per
share. The Note is Due in January of 2024. This note has a price adjustment provision. Therefore, the Company accounted for these
Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified
as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective
term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing
Model, see Note 9 for further details. On May 24, 2021, the noteholder converted the remaining principal of $20,614 and accrued interest
of $687. The remaining balance of principal and interest was $0 and $0, respectively, at September 30, 2021.
(WWW)
On
January 22, 2021, the Company received $60,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the
January 2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15
per share. The Note is Due in January of 2024. This note has a price adjustment provision. Therefore, the Company accounted for
these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued
and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense
over the respective term of the related note. In determining the indicated value of the convertible note issued, the Company used the
Binomial Options Pricing Model, see Note 9 for further details..
(XXX)
On
February 28, 2021, the Company received $100,000 from the issuance of convertible debt to a High Net Worth Investor. Interest is stated
at 8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 2024. This note
has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on
convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model, see Note 9 for further details.
(YYY)
On
March 31, 2021, the Company received $50,000 from the issuance of convertible debt to a High Net Worth Investor. Interest is stated at
8%. The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 2024. This note has
a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on
convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model, see Note 9 for further details.
(ZZZ)
On
May 4, 2021, the Company received $40,000 from the issuance of convertible debt to a High Net Worth Investor. Interest is stated at 8%.
The Note and Interest is convertible into common shares at $0.15 per share. The Note is Due in January of 2024. This note has a
price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on
convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model, see Note 9 for further details.
(AAAA)
On
May 6, 2021, the Company received $66,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January
2018 Financing Agreement, as amended. Interest is stated at 8%. The Note and Interest is convertible into common shares at $0.15 per
share. The Note is Due in January of 2024. This note has a price adjustment provision. Therefore, the Company accounted for these
Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation is initially valued and classified
as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective
term of the related note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing
Model, see Note 9 for further details.
NOTE
7 – NON-CONVERTIBLE DEBT
Non-related party
|
|
|
|
|
|
|
|
September 30,
2021
|
|
December 31,
2020
|
|
Note 5
|
|
|
9,312
|
|
|
|
9,312
|
|
|
Note BBBB
|
|
|
55,000
|
|
|
|
-
|
|
|
Note CCCC
|
|
|
150,000
|
|
|
|
-
|
|
|
Total Non-Convertible Debt
|
|
|
214,312
|
|
|
|
9,312
|
|
(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 default as of September 30, 2021 with an outstanding
balance of $9,312.
(BBBB)
On July 22, 2021, the Company received a total of $55,000 to be used for operating expenses, which matures on March 31, 2022. The note
bears interest accruing at 9% per year.
(CCCC)
On August 1, 2021, the Company received a total of $150,000 to be used for operating expenses, which matures on March 31, 2022. The note
bears interest accruing at 10% per year.
Related
Party
|
|
|
|
|
|
|
|
|
|
|
B-Related
Party
|
|
|
|
|
|
|
|
|
|
Loan
payable - Stockholder, 0%, Due December 31, 2021 (1)
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
|
|
$
|
250,000
|
|
|
$
|
250,000
|
|
|
(1)
|
|
The
$250,000 non-convertible note was issued as part of a Debt Modification Agreement dated January 2, 2014. On January 1, 2019, the
holder of the note extended the due date until December 31, 2021. The interest rate of the non-convertible note is 0%. The
Company used the stated rate of 9% as imputed interest rate, which was $16,767 and $16,875 for the nine months ended September 30,
2021 and 2020, respectively. As of September 30, 2021, the balance of the debt was $250,000.
|
NOTE
8 – STOCKHOLDERS’ EQUITY
The
Company has 10,000,000 shares of preferred stock authorized with a par value of $0.001, of which 100,000 shares have been designated
as Series C convertible preferred stock (“Series C” or “Series C preferred stock”). The Board has the authority
to issue the shares in one or more series and to fix the designations, preferences, powers and other rights, as it deems appropriate.
Each
share of Series C has 434 votes on any matters submitted to a vote of the stockholders of the Company and is entitled to dividends equal
to the dividends of 434 shares of common stock. Each share of Series C preferred stock is convertible at any time at the option of the
holder into 434 shares of common stock.
The
Company has 500,000,000 shares of common stock authorized with a par value of $0.001. Each share of common stock has one vote per share
for the election of directors and all other items submitted to a vote of stockholders. The common stock does not have cumulative voting
rights, preemptive, redemption or conversion rights.
On
February 13, 2020, the Company sold a 0.25 subscription unit for $12,500. Each unit consists of 66,667 post-reverse split shares of the
Company's common stock; 66,667 one-year class A warrants at an exercise price of $0.12 per Company's post-reverse split share; 66,667
two-year class B warrants at an exercise price of $0.18 per Company's post-reverse split share; and 1,000,000 shares of common stock
of Kaya Brands International, Inc, which is a majority-owned subsidiary of the Company. As of September 30, 2021, the shares had not
been issued.
On
July 13, 2020, a total of 533,333 shares of common stock of Kaya Holding Inc. were issued for services performed; 266,667 shares were
issued to a non-management consultant and related parties and 266,666 shares were issued to a related party The shares were valued at
$264,000. Total of 480,000 shares of common stock has been issued for service performed by employees. The shares were valued at $237,600.
On
July 20, 2020, total of 683,753 shares of common stock of Kaya Holdings Inc. were issued in satisfaction of 5 promissory notes. The total
principal and interest converted were $102,563. There was no gain or loss on conversion as the conversion was done per terms of the note
agreement.
On
October 7, 2020, a total of 66,667 shares of common stock of Kaya Holding Inc. were issued for services performed. The shares were valued
at fair value of $26,392
The
above issuances reflected a 15 to 1 reverse stock split, which resulted in a total of 14,264,409 outstanding as of December 31, 2020
and 402 rounding shares issued in 2020.
On
January 22, 2021, the Company sold and issued 50,000 shares of common stock for gross proceeds of $15,000.
On
March 8, 2021, the Company sold 66,666 shares of common stock for gross proceeds of $20,000 and issued on March 11,2021.
On
March 5, 2021, total of 41,666 shares of common stock had been issued from stock payable for stock subscripted in 2020.
On
May 18, 2021 the Company received conversion notices totaling 579,390 shares, which were issued on June 7, 2021. This settled convertible
debt and interest totaling $86,909.
On
May 24, 2021 the Company received conversion notices totaling 727,375 shares, which were issued on June 7, 2021. This settled convertible
debt and interest totaling $109,106. There was no gain/loss on these conversions, as they were made within the terms of the note agreements.
On
July 26, 2021, the Company reached an agreement with a shareholder and board member for the return of 1,006,671 shares of common stock.
The par value of the shares were accounted for in additional paid in capital, in the amount of $1,007.
NOTE
9 DERIVATIVE LIABILITIES
Effective
January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a
liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether
it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine
whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative
accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming
the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option
meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to
an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the
bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
However,
due to a recognition of tainting, due to variable conversion price on some of the convertible notes, all convertible notes are considered
to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. In determining the indicated
value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of ranging from
0.05% to 2.63%, volatility ranging from 84.63% to 243.22%, trading prices ranging from $0.42 per share to $6.15 per share and a conversion
price ranging from $0.15 per post- reverse split share to $0.38 per share.
As
a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized
as follow:
Derivative liabilities
|
|
|
|
|
|
|
Balance as
of December 31, 2020
|
|
$
|
17,328,904
|
|
|
Initial
|
|
|
882,080
|
|
|
Change in Derivative Values
|
|
|
(9,825,029)
|
|
|
Conversion of debt-reclass
to APIC
|
|
|
(283,326)
|
|
|
Balance as of September
30, 2021
|
|
$
|
8,102,629
|
|
The
Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the
derivative liability, as it exceeded the gross proceeds of the note.
The
Company recoded initial derivative liabilities of $882,080 and $584,485 for the new notes issued for nine months ended September 30,
2021 and 2020, respectively.
The
Company recorded derivative liability expense of $566,080 and $319,484 for the nine months ended September 30, 2021 and 2020, respectively.
The
Company recorded a change in the value of embedded derivative liabilities expense of $9,825,029 and $13,232,597 for the nine months ended
September 30, 2021 and 2020, respectively.
The
Company recorded a reclassification of derivatives liabilities to additional paid in capital due to conversion of date of $283,326 during
the nine months ended September 30, 2021.
NOTE
10 – DEBT DISCOUNT
The
Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the
derivative liability, as it exceeded the gross proceeds of the note.
Debt
discount amounted to $537,746 and $542,624 as of September 30, 2021 and 2020, respectively.
The
Company recorded the amortization of debt discount of $273,184 and $194,061 for the nine months ended September 30, 2021 and 2020, respectively.
NOTE
11 – RELATED PARTY TRANSACTIONS
At
December 31, 2014, the Company was indebted to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal
and $103,895 accrued interest, with interest accruing at 10%. On January 2, 2014, the Company entered into a Debt Modification Agreement
whereby the total amount of the debt was reduced to $750,000 and no interest accrued until December 31, 2015. $500,000 of the debt is
convertible into 50,000 Series C Convertible Preferred Shares of KAYS. The remaining $250,000 is not convertible.
On
December 31, 2015, the Company entered into an agreement to extend the debt until December 31, 2017 with no additional interest for the
extension period. On January 1, 2018 the Company entered into an agreement to further extend the debt until December 31, 2021 with no
additional interest for the extension period.
At
December 2017, the company was indebted to Craig Frank, Chairman, CEO and Acting CFO for KAYS, in the amount of $7,737 for travel and
miscellaneous expenses incurred by Mr. Frank from travel and related activities in Oregon.
In
each of 2018 and 2019, the Company issued stock grants to Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock for their
service as board members. The stock was issued from Treasury as restricted stock and carries a one-year restriction before it can be
registered for resale pursuant to Rule 144.
In
2018 and 2019, the Company issued stock grants to Craig Frank for 3,000,00 shares of KAYS stock each year, pursuant to his employment
agreement via board resolution. Jordi Arimany and Carrie Schwarz for 100,000 shares of KAYS stock. The stock was issued from Treasury
as restricted stock and carries a one year restriction before it can be registered for resale pursuant to Rule 144.
In
August, 2018 KAYS entered into an agreement with Bruce Burwick, (who subsequently joined the Board of Directors and became an affiliate
of the Company) to purchase the Eugene, Oregon based Sunstone Farms grow and manufacturing facility, which is licensed by the OLCC for
both the production (growing) of medical and recreational marijuana flower and the processing of cannabis concentrates/extracts/edibles.
The purchase includes a 12,000 square foot building housing an indoor grow facility, as well as equipment for growing and extraction
activity. KAYS paid Bruce Burwick $1,300,000.00 for the real property and schedule of equipment that was and is used to operate the facility.
Bruce
Burwick acquired the property for satisfaction of a promissory note due him for $1,433,000.00. The purchase price of $1.3 million for
the OLCC licensed marijuana production and processing facility, consisting of the building and equipment was paid for by the issuance
of 12 million shares of KAYS restricted stock to the seller at closing. The shares carry a lock-up-restriction that allows for their
staged eligibility for resale over a 61-month period from the date of the purchase of the facility by KAYS. Additionally, the seller
purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company. The proceeds from the sale of
those shares were and are being used for acquisition related expenses, transitional operating costs and facility capital improvements
with respect to the production and processing facility we purchased.
In
2021, the Company formed Kaya Farm Greece, which is a majority owned subsidiary of Kaya Brands International, Inc., with 70% ownership.
The remaining 30% is owned by related parties of the Company. Subsequently, Kaya Farm Greece entered an acquisition agreement to acquire
50% GREEKKANNABIS S.A. (GK) The remaining 50% of GREEKKANNABIS S.A. is currently owned by Ilias Kammenos (President of GK) and Panagiotis
Kininis (Vice president of GK). There is non-controlling capital of $27,273 representing the equity not currently owned by the Company.
The financial statements have been consolidated with the Company.
On
October 14, 2019 the shareholder submitted a conversion notice and the $500,000 in convertible debt was converted into 50,000 Series
C Preferred shares of KAYS stock. The stock was issued from Treasury as restricted stock and carries a minimum of one year restriction
before it can be registered for resale pursuant to Rule 144.
In
2019, the Company issued a stock grant to Bruce Burwick for 100,000 shares of KAYS stock for his service as a board member. The stock
was issued from Treasury as restricted stock and carries a one-year restriction before it can be registered for resale pursuant to Rule
144.
In
2019, the Company entered into amended consulting agreements with Tudog International Consulting, Inc. which provides CEO services to
the Company through Craig Frank, an Officer of the Company and BMN Consultants, Inc. which provides business development and financial
consulting services to the Company through William David Jones, a non-officer Consultant to the Company. Pursuant to the amended consulting
agreements, each entity is entitled to a monthly compensation of $25,000. Due to the liquidity of the Company, the compensations were
paid partially over the periods. As of Septemner 30, 2021, the accrued compensation was approximately $970,405, whereas, $820,405 was
carried over from prior years. As of September 30,2021, the Company also had $18,274 of accounts payable due to Tudog International
Consulting, Inc. and BMN Consultants, Inc.
On
March 31, 2021 the Company entered into a settlement with Sunstone Capital Partners, LLC, Sunstone Marketing Partners LLC and Bruce Burwick,
the principal of Sunstone and a director of Kays, regarding the failure to deliver to KAYS the Oregon Cannabis Production and Processing
Licenses that were part of a warehouse purchase transaction in August 2018.
On
July 28, 2021 the Company announced that all terms had been satisfied. Pursuant to the terms of the settlement, Bruce Burwick surrendered
to KAYS 1,006,671 shares of our common stock issued to him in connection with the transaction (800,003 shares which were issued for the
facility purchase, 166,667 shares which were issued for $250,000 in cash and 40,001 shares which were issued as annual compensation for
Burwick serving as a director of KAYS). The shares have been submitted to KAYS' transfer agent for cancellation. In addition, the Company
received clear title to the warehouse facility, which enables the Company to sell it without restriction.
As part of the settlement, Burwick received $160,000 from the net proceeds of the sale of the facility's grow license to an unrelated
third party, resigned from the Company's board of directors and agreed to work as a non-exclusive consultant to the Company for the next
four years for a yearly fee of $35,000.00.
KAYS
has listed the warehouse property for sale with the goal of using the realized funds to propel progress in our U.S., Israel and Greece,
as well as improve our balance sheet. Projects we plan to focus on include launching Kaya Harmony™ - Kaya Farms™ U.S.A.,
introducing a number of consumer product brands, redesigning our Kaya Shack™ stores, launching CBD brands in Europe, and acquiring
land in Israel through an Israeli government tender program.
On
August 30, 2021 the Company elected to dispose of two (2) of the four (4) Fiat cars that it owned that it was not using. The four cars
were originally purchased in September of 2017 for prices ranging from $13,584.00 to $14,992.00.
One
of the Fiat was transferred to Mr. Frank in lieu of $15,000.00 in fees owed him. After adjusting for net book value, the Company
recorded $12,453 to additional paid in capital.
NOTE
12 – STOCK OPTION PLAN
In
2011 the Alternative Fuels America, Inc. 2011 Incentive Stock Plan (the “Plan”), which provides for equity incentives to
be granted to the Company’s employees, executive officers or directors or to key advisers or consultants. Equity incentives may
be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant
to the 2011 Incentive Stock Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2011 Incentive
Stock Plan is administered by the board of directors.
On
July 22, 2020, the Board of Directors approved the issuance of 666,667 shares of stock to recipients of the plan (the shares are to be
issued after the 2020 June 30 Quarterly filing is completed). Upon issuance the remaining balance of the shares available in the plan
will be 60,333 shares.
NOTE
13 – WARRANTS
On
September 8, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 210,772
paid and non-assessable post -reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant
Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory
note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September
9, 2017. As of December 31, 2019, the note was paid in full.
On
September 9, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 210,772
paid and non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant
Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory
note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September
9, 2017. As of December 31, 2019, the note was paid in full.
On
May 9, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount
of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 158,079 paid and
non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant
Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory
note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 9, 2018.
As of December 31, 2019, the note was paid in full.
On
May 17, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount
of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 158,079 paid and
non-assessable shares of the Common Stock at the price of $0.4744455 per share (the “Warrant Exercise Price”) for a period
of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory note due May 17, 2018 has been fully
repaid or the start of the Acceleration Period as defined in “The Note” or May 17, 2018. As of December 31, 2019, the note
was paid in full.
Warrants
issued to Non-Employees
Schedule
of warrants
|
|
|
|
|
|
|
Warrants
Issued
|
Weighted
Average Exercise Price
|
Weighted
Average Contract Terms Years
|
|
Balance
as of December 31, 2020
|
316,158
|
0.47
|
0.36
|
|
Granted
|
-
|
-
|
-
|
|
Exercised
|
-
|
-
|
-
|
|
Expired
|
-
|
-
|
-
|
|
Balance
as of September 30, 2021
|
316,158
|
0.47
|
0.12
|
NOTE
14 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company has several operating leases for an office and store lease in Fort Lauderdale, Florida and several locations in Oregon under
arrangements classified as leases under ASC 842.
Effective
June 12, 2017, the Company leased the office space in Fort Lauderdale, Florida under a 5-year operating lease expiring June 30, 2022.
The lease provides for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments
of $4,017 and culminating in a monthly payment of $4,839. The total amount of rental payments due over the lease term is being charged
to rent expense according to the straight-line method over the term of the lease. The lease was terminated on July 3, 2019 and the Company
agreed to issue landlord 500,000 shares of common stock as penalty for early termination.
Effective
June 1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021. The
rental payment is $1,802 per month. The total amount of rental payments due over the lease term is being charged to rent expense according
to the straight-line method over the term of the lease.
Effective
May 15, 2014, the Company leased an unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019, the lease
had been extended to May 15, 2024. The lease provides for increases in future minimum annual rental payments based on defined annual
increase beginning with monthly payments of $2,250 and culminating in a monthly payment of $2,632. The total amount of rental payments
due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The lease
is now on a month-to-month basis.
Effective
June 1, 2015, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. The lease provides for
increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $3,584 and culminating
in a monthly payment of $4,034. The total amount of rental payments due over the lease term is being charged to rent expense according
to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective
April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides
for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,367 and
culminating in a monthly payment of $4,915. The total amount of rental payments due over the lease term is being charged to rent expense
according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
Effective
April 15, 2016, the Company leased an unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The lease provides
for increases in future minimum annual rental payments based on defined annual increase beginning with monthly payments of $4,617 and
culminating in a monthly payment of $5,196. The total amount of rental payments due over the lease term is being charged to rent expense
according to the straight-line method over the term of the lease. The lease is now on a month-to-month basis.
The
Company utilizes the incremental borrowing rate in determining the present value of lease payments unless the implicit rate is readily
determinable. The Company used an estimated incremental borrowing rate of 9.32% to estimate the present value of the right of use liability.
The
Company has right-of-use assets of $278,638 and operating lease liabilities of $320,127 as of September 30, 2021. Operating lease expense
for the nine months ended September 30, 2021 were $150,822. Due to the closure of 2 stores, the Company evaluated long-lived assets for
impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Hence, the
Company have recorded $87,151 in impairment charges related to right-of-use assets during the year ended December 31, 2020.
Schedule of commitments
and contingencies
|
|
|
|
|
Maturity
of Lease Liabilities at September, 2021
|
|
Amount
|
|
2021
|
|
|
|
44,699
|
|
|
2022
|
|
|
|
120,960
|
|
|
2023
|
|
|
|
99,204
|
|
|
Later years
|
|
|
|
103,658
|
|
|
Total lease payments
|
|
|
|
368,520
|
|
|
Less: Imputed interest
|
|
|
|
(48,394
|
)
|
|
Present value
of lease liabilities
|
|
|
$
|
356,795
|
|
Note
15- SUBSEQUENT EVENTS
Events
that occur after the balance sheet date but before the financial statements were available to be issued must be evaluated for recognition
or disclosure. The effects of subsequent events that provide evidence about conditions that existed at the balance sheet date are recognized
in the accompanying financial statements. Subsequent events, which provide evidence about conditions that existed after the balance sheet
date, require disclosure in the accompanying notes. Management evaluated the activity of the Corporation through the date the financial
statements were issued, and concluded that no subsequent events have occurred that would require recognition in the financial statements
or disclosure in the notes to the financial statements, other than those listed below.
Sale
of Eugene, Oregon Cannabis Facility for $1.325mm
On
October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000,
generating a cash influx of approximately $0.09 per share for the Company (the “Eugene Warehouse Sale”). The sale
was part of our recently announced settlement with Sunstone Farms, and it also resulted in the cancellation of 1,006,671 shares of KAYS
stock, decreasing the Company’s issued and outstanding shares by approximately 6.5% to 14.7 million shares. Funds received
from the sale were and are being used to repay certain debt and strengthen our balance sheet and for general working capital purposes,
as well as provide the initial stage capital for some of the Company’s U.S. and global expansion activities, including its planned
cultivation sites in Greece and Israel.