NOTE
1 – ORGANIZATION AND NATURE OF THE BUSINESS
Organization
Kaya
Holdings, Inc. FKA (Alternative Fuels Americas, Inc.) is a holding company. The Company was incorporated in 1993 and has engaged in a
number of businesses. Its name was changed on May 11, 2007 to NetSpace International Holdings, Inc. (a Delaware corporation) (“NetSpace”).
NetSpace acquired 100% of Alternative Fuels Americas, Inc. (a Florida corporation) in January 2010 in a stock-for-member interest transaction
and issued 6,567,247 shares of common stock and 100,000 shares of Series C convertible preferred stock to existing shareholders. Certificate
of Amendment to the Certificate of Incorporation was filed in October 2010 changing the Company’s name from NetSpace International
Holdings, Inc. to Alternative Fuels Americas, Inc. (a Delaware corporation). Certificate of Amendment to the Certificate of Incorporation
was filed in March 2015 changing the Company’s name from Alternative Fuels Americas, Inc. (a Delaware corporation) to Kaya Holdings,
Inc.
The
Company has four subsidiaries: Marijuana Holdings Americas, Inc., a Florida corporation (“MJAI”), which is majority-owned
and was formed on March 27, 2014 to maintain ownership of the Company’s Oregon based cannabis operations, 34225 Kowitz Road, LLC,
a wholly-owned Oregon limited liability company which held ownership of the Company’s 26 acre property in Lebanon, Oregon (inactive
since Feb 28, 2023 when the subject property was sold), Kaya Brand International, Inc., a Florida Corporation (“KBI”) which
is majority-owned and was formed on October 14, 2019 to expand the business overseas (active) and Fifth Dimension Therapeutics, Inc.,
a Florida corporation which is majority owned (“FTD”) and was formed on December 13, 2022 to develop and maintain ownership
of the Company’s planned Psychedelic Clinics targeting Psilocybin and Ketamine Treatments
MJAI
develops and operates the Company’s legal cannabis retail operations in Oregon through controlling ownership interests in five
Oregon limited liability companies: MJAI Oregon 1 LLC (active), MJAI Oregon 2 LLC (inactive), MJAI Oregon 3 LLC (inactive) , MJAI Oregon
4 LLC (inactive) and MJAI Oregon 5 LLC (inactive).
MJAI
Oregon 1 LLC is the entity that holds the licenses for the Company’s retail store operations. MJAI Oregon 5 LLC is the entity that
held the license application for the Company’s 26 acre farm property in Lebanon Oregon (property sold 2/28/23, inactive since that
date).
KBI
is the entity that holds controlling ownership interests in Kaya Farms Greece, S.A. (a Greek corporation) and Kaya Shalvah (“Kaya
Farms Israel”, an Israeli corporation). These two entities were formed to facilitate expansion of the Company’s business
in Greece and Israel respectively.
Fifth
Dimension Therapeutics, Inc. (FTD) is the entity that was formed to hold interests in Psilocybin and Ketamine treatment facilities, with
operations initially targeted for Oregon and Florida.
Nature
of the Business
In January 2014, KAYS incorporated MJAI, a wholly
owned subsidiary, to focus on opportunities in the legal recreational and medical marijuana in the United States. MJAI has concentrated
its efforts in Oregon, where through controlled Oregon limited liability companies, it initially secured licenses to operate a medical
marijuana dispensary (an “MMD”) and following legalization of recreational cannabis use in Oregon, secured licenses to operate
four retail outlets and purchased 26 acres for development as a legal cannabis cultivation and manufacturing facility. The Company has
developed the Kaya Shack™ brand for its retail operations and the Kaya Farms ™ brand for its cannabis growing and processing
operations.
On July 3, 2014 opened its first Kaya Shack™
MMD in Portland, Oregon. Between April of 2014 and December 31, 2022, KAYS owned and operated four (4) Kaya Shack™ retail
cannabis medical and recreational dispensaries, three (3) Medical Marijuana Grow sites licensed by the OHA and two (2) Recreational Marijuana
grow sites licensed by the OLCC (all in Oregon). The statuses of these operations are as follows:
The
first Kaya Shack™ (Kaya Shack™ Store 1) opened in 2014 still maintains operations in Portland, Oregon at the same address
as an Oregon Liquor and Cannabis Commission (OLCC) licensed medical and recreational marijuana retailer.
Kaya
Shack™ Store 2 was closed in December, 2022 as part of a sale and surrender agreement that the Company entered into with the OLCC
to resolve an Administrative Action filed by the OLCC (as previously disclosed in the Company’s Annual Report on form 10-K for
the period ending December 31, 2021 filed on April 18, 2022 and in the Company’s Quarterly report for the period ending March 31,
2022 filed on May 16, 2022). Per the terms of the agreement the Company agreed to either enter into a purchase and sale agreement for
its retail license in South Salem by February 1, 2023 (the renewal date) or surrender the license. Since the time of the agreement the
Company has entered into an asset purchase agreement for the sale of its Salem Retail Cannabis Store (“Store 2”) for $210,000.00,
less a 6% closing commission and minor closing expenses. The purchase price has been deposited in escrow, with a closing anticipated
to occur prior to the end of April, 2023, subject to the receipt of approval from the Oregon Liquor Control and Cannabis Commission for
the new licensee. The net book value of the assets as of December 31, 2022 was $0 and
revenue for the year ended December 31, 2022 was approximately $410,880.00.
Kaya
Shack™ Store 3 and Kaya Shack™ Store 4 were both closed due to consolidation moves by the Company in 2020 and 2021, respectively,
and the Company let the licenses lapse.
The
three (3) Medical Marijuana Grows owned and operated by the Company through Oregon Health Authority (OHA) Licensure between 2015 and
2017 were all closed by the Company due to changing market conditions as OLCC Licensure of recreational marijuana came about and medical
grow sites became economically unfeasible.
In
August of 2017, the Company purchased a 26-acre parcel in Lebanon, Linn County, Oregon for $510,000 on which we intended to construct
a Greenhouse Grow and Production Facility (the “Property”) and filed for OLCC licensure. In August of 2022, the Company
entered into an agreement (the “CVC Agreement”) with CVC International, Inc. (“CVC”), an institutional
investor who holds certain of the Company’s Convertible Promissory Notes (the “Notes”), one of which was secured
by a $500,000 mortgage on the Property. CVC released its lien on the Property to enable the Company to sell the Property and utilize
the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC.
Additionally, CVC agreed to advance certain sums against the sale of the Property (“Advances”), which amounted to
$270,000 pending the sale of the Property. On February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary
closing costs. The net proceeds of the sale were used to repay the advances plus interest (including an additional $100,000 borrowed
from another lender interest) and the Company realized net proceeds of approximately $302,000,000. The land is reflected on the balance
sheet as assets held for sale for the year ended December 31, 2022 and 2021, at a value of $516,076.
On
August 18, 2018, the Company purchased the assets of Eugene, Oregon based Sunstone Farms which was licensed by the OLCC for cannabis
production and processing. The purchase included a 12,000 square foot building housing and indoor grow facility, as well as equipment
for growing and extraction activity. The purchase price of $1.3 was paid for by the issuance of 12 million shares of KAYS restricted
stock, and the seller also purchased 2.5 million restricted shares for $250,000 in cash in a private transaction with the Company, and
became a Board Member of Kaya Holdings. In mid-April, 2019 the OLCC filed an administrative proceeding proposing that the facility’s
licenses (the “Licenses”) be cancelled, claiming that Sunstone had not filed paperwork correctly with respect to the
transaction and the historical ownership of Bruce Burwick, the seller of the facility to the Company. Neither the Issuer nor any of its
agents, consultants, employees or related entities was named as a respondent to the action. On March 31, 2021 the Company entered into
a settlement with Sunstone and Burwick regarding the failure to deliver to KAYS the Licenses. Bruce Burwick surrendered to KAYS all 1,006,671
shares of our common stock issued to him in connection with the transaction (after adjustments for a 15:1 reverse split this was the
800,003 shares issued for the facility purchase, the 166,667 shares which were issued for $250,000 in cash and 40,001 shares which were
issued as annual compensation for Burwick serving as a director of KAYS), and the Company received clear title to the warehouse facility.
Burwick received $160,000 from the net proceeds of the sale of the facility's grow license to an unrelated third party, resigned from
the Company's board of directors and agreed to work as a non-exclusive consultant to the Company for the next four years for a yearly
fee of $35,000.00. On October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for
gross proceeds of $1,325,000.
On
September 26, 2019, the Company formed the majority owned subsidiary Kaya Brands International, Inc. (“KBI”) to serve as
the Company’s vehicle for expansion into worldwide cannabis markets. Between September of 2019 and December 31, 2022 KBI has formed
majority-owned subsidiaries in both Greece and Israel and its local operating subsidiaries have acquired interests in various licenses
and entities as noted below:
On June 7, 2020, Kaya Shalvah (“Kaya
Farms Israel” or “KFI”), a majority owned subsidiary of KBI) was incorporated by the Company’s Israel Counsel.
On March 30, 2021 the Company confirmed that its Israeli subsidiary, Kaya Shalvah has been awarded its initial permit from the "YAKAR",
the Department for Medical Cannabis in the Israeli Ministry of Health, to develop an Israeli cannabis cultivation and processing facility.
This initial permit grants Kaya Shalvah permission to proceed with its plans to develop commercial scale cannabis cultivation and processing
in Israel.
On November 27, 2020, Kaya Farms Greece,
S.A. (“KFG”, a majority owned subsidiary of KBI) was incorporated by the Company’s Greek Counsel. On December 31, 2020,
the Company entered into a joint venture agreement with Greekkannabis, PC (“GKC”, an Athens, Greece based cannabis company)
and executed a formal agreement to acquire 50% of GKC which was completed in 2021. GKC has been issued two (2) Installation Licenses for
construction of two medical cannabis cultivation and processing projects in Greece- one in Epidaurus, Greece and the other in Thebes,
Greece. Neither of the subject properties are currently owned or optioned by GKC or its operating subsidiaries, but the land for the potential
project in Epidaurus is owned by one of the Greek Partner’s families and the Land in Thebes is currently available for purchase
or option and the Company believes it could acquire either of the Properties once funding and market conditions allow. Alternatively,
both licenses are in good order, and can be transferred to a new location pending Greek Government approval.
On December 13, 2022 the Company formed Fifth Dimension
Therapeutics ™ (“FTD”, a Florida Corporation) to seek to
provide psychedelic services to sufferers of treatment resistant mental health diseases such as depression, PTSD and other mental health
disorders. The Company has begun to populate the Board of FTD and its oldest Oregon employee, Bryan Arnold, has become one of the initial
eighteen graduates to obtain Psilocybin Facilitator certification in the State of Oregon. Bryan’s Facilitation application (along
with the other 17 graduates of this first state approved course) is currently pending review with the OHA, and the Company expects to
file a Facilitation Clinic License application once he is approved and they have secured appropriate space on good terms. Additionally,
the Company expects to enroll additional potential licensee candidates within the coming months to bolster its ranks of OHA Licensed Psilocybin
Facilitators. open its first Psilocybin Clinic.
NOTE
2 – LIQUIDITY AND GOING CONCERN
The Company’s consolidated financial statements
as of December 31, 2022 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement
of liabilities and commitments in the normal course of business. The Company incurred net loss of $3,576,614 for the year ended
December 31, 2022 and net income of $9,724,262 for the twelve months ended December 31, 2021. The decrease in net income is due to the
changes in derivative liabilities, the decrease in amortization of debt discount and derivative liabilities expense, as well as the company
continues to have operating losses. At December 31, 2022 the Company has a working capital deficiency of $10,359,344 and is totally dependent
on its ability to raise capital. The Company has a plan of operations and acknowledges that its plan of operations may not result in
generating positive working capital in the near future. Even though management believes that it will be able to successfully execute
its business plan, which includes third-party financing and capital issuance, and meet the Company’s future liquidity needs, there
can be no assurances in that regard. These matters raise substantial doubt about the Company’s ability to continue as a going concern.
The consolidated financial statements do not include any adjustments that might result from the outcome of this material uncertainty.
Management recognizes that the Company must generate additional funds to successfully develop its operations and activities. Management
plans include:
| • |
|
the
sale of additional equity and debt securities, |
| • |
|
alliances and/or partnerships
with entities interested in and having the resources to support the further development of the Company’s business plan, |
| • |
|
business transactions to
assure continuation of the Company’s development and operations, |
| • |
|
development of a unified
brand and the pursuit of licenses to operate recreational and medical marijuana facilities under the branded name. |
NOTE
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND BASIS OF PRESENTATION
Basis
of Presentation
The
accompanying consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted
in the United States of America (U.S. GAAP) under the accrual basis of accounting.
Reclassifications
Certain
prior period amounts have been reclassified to conform to the current period presentation.
Use
of Estimates
The
preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such
estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable
and inventory, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate
of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount,
estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.
Making
estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of
a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating
its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ
significantly from estimates.
Risks
and Uncertainties
The
Company’s operations are subject to risk and uncertainties including financial, operational, regulatory and other risks including
the potential risk of business failure.
The
Company has experienced, and in the future expects to continue to experience, variability in its sales and earnings. The factors
expected to contribute to this variability include, among others, (i) the uncertainty associated with the commercialization and ultimate
success of the product, (ii) competition inherent at other locations where product is expected to be sold (iii) general economic conditions
and (iv) the related volatility of prices pertaining to the cost of sales.
Fiscal
Year
The
Company’s fiscal year-end is December 31.
Principles
of Consolidation
The
accompanying consolidated financial statements include the accounts of Kaya Holdings, Inc. and all wholly and majority-owned subsidiaries.
All significant intercompany balances have been eliminated.
Wholly owned subsidiaries:
| |
· |
Alternative Fuels Americas,
Inc. (a Florida corporation) |
| |
· |
34225 Kowitz Road, LLC
(an Oregon LLC) |
| |
|
|
Majority-owned
subsidiaries:
Kaya
Brands International, Inc. (a Florida Corporation)
Kaya
Shalvah (“Kaya Farms Israel”, an Israeli corporation) majority owned subsidiary of KBI)
Kaya
Farms Greece, S.A. (a Greek Corporation) majority owned subsidiary of KBI)
| |
· |
Marijuana Holdings Americas,
Inc. (a Florida corporation) |
| |
o |
MJAI Oregon 2 LLC (inactive) |
| |
o |
MJAI Oregon 3 LLC (inactive) |
| |
o |
MJAI Oregon 4 LLC (inactive) |
| |
o |
MJAI Oregon 5 LLC (inactive) |
Non-Controlling
Interest
The
company owned 55% of Marijuana Holdings Americas until September 30, 2019. Starting October 1, 2019, Kaya Holding, Inc. owns 65% of Marijuana
Holdings Americas, Inc. As of December 31, 2022, Kaya owns 65% of Marijuana Holdings Americas, Inc.
The
company owned 85% of Kaya Brands International, Inc. until July 31, 2020. Starting August 1, 2020, Kaya Holding, Inc. owns 65% of Kaya
Brands International, Inc.
The
Company owns 75% of Fifth Dimension Therapeutics, Inc.
Cash
and Cash Equivalents
Cash
and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions
and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.
Inventory
Inventory
consists of finished goods purchased, which are valued at the lower of cost or market value, with cost being determined on the first-in,
first-out method. The Company periodically reviews historical sales activity to determine potentially obsolete items and also
evaluates the impact of any anticipated changes in future demand. Total Value of Finished goods inventory as of December 31,
2022 is $11,990 and $51,484 as of December 31, 2021. Inventory allowance and impairment were $0 and $0 as of December 31, 2022 and December
31, 2021, 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.
We
are subject to certain tax risks and treatments that could negatively impact our results of operations
Section
280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled
substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits
against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification
allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and
general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative
and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E
favorable to cannabis businesses.
Provision
for Income Taxes
We
recorded a provision for income taxes in the amount of $93,910 during the year ended December 31, 2022 compared to $782,107 during the
year ended December 31, 2021. Although we have net operating losses that we believe are available to us to offset this entire tax liability,
which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Fair
Value of Financial Instruments
The
Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair
value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the
case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants
would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework
for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical
level.
The
following are the hierarchical levels of inputs to measure fair value:
| • |
|
Level 1 – Observable
inputs that reflect quoted market prices in active markets for identical assets or liabilities. |
| • |
|
Level 2 - Inputs reflect
quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities
in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived
principally from or corroborated by observable market data by correlation or other means. |
| • |
|
Level 3 – Unobservable
inputs reflecting the Company’s assumptions incorporated in valuation techniques used to determine fair value. These assumptions
are required to be consistent with market participant assumptions that are reasonably available. |
Schedule of Fair Value Assets And Liabilities Measured On Recurring And Nonrecurring Basis
| |
Fair
Value Measurements at December 31, 2022 |
| |
|
Level
1 |
|
|
|
Level
2 |
|
|
|
Level
3 |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| Cash |
$ |
18,330 |
|
|
$ |
- |
|
|
$ |
- |
|
| Total
assets |
|
18,330 |
|
|
|
- |
|
|
|
- |
|
| Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible
debentures, net of discounts of $387,814 |
|
- |
|
|
|
- |
|
|
|
7,419,338 |
|
| Short
term debt, net of discounts of $-0- |
|
- |
|
|
|
- |
|
|
|
- |
|
| Derivative
liability |
|
- |
|
|
|
- |
|
|
|
6,204,878 |
|
| Total
liabilities |
|
- |
|
|
|
- |
|
|
|
13,624,216 |
|
| |
$ |
18,330 |
|
|
$ |
- |
|
|
$ |
(13,624,216) |
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
| |
Fair
Value Measurements at December 31, 2021 |
| |
|
Level
1 |
|
|
|
Level
2 |
|
|
|
Level
3 |
|
| Assets |
|
|
|
|
|
|
|
|
|
|
|
| Cash |
$ |
565,979 |
|
|
$ |
- |
|
|
$ |
- |
|
| Total
assets |
|
565,979 |
|
|
|
- |
|
|
|
- |
|
| Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
| Convertible
debentures, net of discounts of $477,634 |
|
- |
|
|
|
- |
|
|
|
6,959,518 |
|
| Short
term debt, net of discounts of $-0- |
|
- |
|
|
|
- |
|
|
|
- |
|
| Derivative
liability |
|
- |
|
|
|
- |
|
|
|
4.980.563 |
|
| Total
liabilities |
|
- |
|
|
|
- |
|
|
|
11,940,081 |
|
| |
$ |
565,979 |
|
|
$ |
- |
|
|
$ |
(11,940,081) |
|
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 8.
Embedded
Conversion Features
The
Company evaluates embedded conversion features within convertible debt under ASC 815 “Derivatives and Hedging” to determine
whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value
with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument
is evaluated under ASC 470-20 “Debt with Conversion and Other Options” for consideration of any beneficial conversion feature.
Derivative
Financial Instruments
The Company does not use derivative instruments to
hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of its financial instruments, including stock
purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives.
For derivative financial instruments that are accounted
for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with
changes in the fair value reported as charges or credits to income. For option-based simple derivative financial instruments, the Company
uses the Binomial option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification
of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is reassessed at the end
of each reporting period.
In
July 2017, the FASB issued ASU 2017-11 Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480); Derivative
and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial
instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified
as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument
is indexed to an entity’s own stock. The amendment also clarifies existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a
derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial
instruments, the amendments require entities that present earnings per share (“EPS”) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject
to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, Debt-Debt with Conversion and Other Options),
including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain
provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not
have an accounting effect.
Prior
to this Update, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a
liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether
it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine
whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative
accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming
the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option
meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to
an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the
bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
The
amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, Derivatives and Hedging—Contracts
in Entity’s Own Equity, which is considered in determining whether an equity-linked financial instrument qualifies for a scope
exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under
the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments
with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer
bifurcated.
For
entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator
adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument,
while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible
instruments are unaffected by the Topic 260 amendments in this Update.
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 December 31, 2022.
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.
Assets Held for Sale
The Company classifies an
asset group (‘asset’) as held for sale in the period that (i) it has approved and committed to a plan to sell the asset, (ii)
the asset is available for immediate sale in its present condition, (iii) an active program to locate a buyer and other actions required
to sell the asset have been initiated, (iv) the sale of the asset is probable and transfer of the asset is expected to qualify for recognition
as a completed sale within one year (subject to certain events or circumstances), (v) the asset is being actively marketed for sale at
a price that is reasonable in relation to its current fair value, and (vi) it is unlikely that significant changes to the plan will be
made or that the plan will be withdrawn. The Company initially and subsequently measures a long-lived asset that is classified as held
for sale at the lower of its carrying value or fair value less any costs to sell. Any loss resulting from this measurement is recognized
in general and administrative expenses in the period in which the held for sale criteria are met. Conversely, gains are generally not
recognized on the sale of a long-lived asset until the date of sale. Upon designation as an asset held for sale, the Company stops recording
depreciation or amortization expense on the asset. The Company assesses the fair value of assets held for sale less any costs to sell
at each reporting period until the asset is no longer classified as held for sale.
NOTE
4 – PROPERTY, PLANT AND EQUIPMENT
Property,
plant and equipment consisted of the following at December 31, 2022 and December 31, 2021:
Schedule of Property Plant And Equipment
| | |
December
31, 2022
| |
December
31, 2021
|
| | |
(Audited) | |
(Audited) |
| ATM Machine | |
$ | 5,600 | | |
$ | 5,600 | |
| Computer | |
| 30,713 | | |
| 30,713 | |
| Furniture & Fixtures | |
| 42,965 | | |
| 42,965 | |
| HVAC | |
| 44,430 | | |
| 44,430 | |
| Land | |
| 17,702 | | |
| 17,702 | |
| Leasehold Improvements | |
| 147,636 | | |
| 147,636 | |
| Machinery and Equipment | |
| 69,312 | | |
| 69,312 | |
| Sign | |
| 12,758 | | |
| 12,758 | |
| Vehicle | |
| 24,000 | | |
| 51,872 | |
| Total | |
| 395,116 | | |
| 422,988 | |
| Less: Accumulated Depreciation | |
| (358,396 | ) | |
| (364,331 | ) |
| Property, Plant and Equipment
- net | |
$ | 36,720 | | |
$ | 58,657 | |
Depreciation
expense totaled of $21,937 and $119,039 for the twelve months ended December 31, 2022 and 2021, respectively. Due to the closure of 2
stores, the Company removed net assets of $173,658 and recorded a 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 to $14,992.
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. The Company recorded a net gain on disposal of assets of
$28,983.
Additionally,
the second Fiat was transferred to Mr. Frank in lieu of $17,000 in
fees owed him. See Note 11 for additional information.
On
October 12, 2021, KAYS completed the sale of its Eugene, Oregon Cannabis Production and Processing Facility for gross proceeds of $1,325,000.
The Company recorded a net gain on disposal of $113,861.
During
the year ended December 31, 2022, the Company sold a third vehicle which reduced our assets and accumulated depreciation by $13,936
and recorded a gain on disposal of assets of $17,177.
NOTE 5 – ASSETS HELD FOR SALE
The carrying amount of assets classified as held for
sale at December 31, 2022 and 2021, is $516,076.
At December 31, 2022 and 2021, assets held for sale
mainly referred to property the Company owned in Lebanon, Oregon, which the Company had intended to develop as a cannabis grow and production
facility. All transactions that resulted in the reclassification of assets held for sale at December 31, 2022, are already completed
in 2023. See Note 18 for more details.
NOTE
6 – NON-CURRENT ASSETS
Other
assets consisted of the following at December 31, 2022 and December 31, 2021:
Schedule of other assets noncurrent
| | |
December
31, 2022 (Audited) | |
December
31, 2021 (Audited) |
| Other Receivable | |
$ | 10,668 | | |
$ | — | |
| Rent Deposits | |
| 11,016 | | |
| 11,016 | |
| Security Deposits | |
| 5,491 | | |
| 71,143 | |
| Non-Current Assets | |
$ | 27,175 | | |
$ | 82,159 | |
Due
to the closure of 2 stores, the Company recorded a loss on deposits expensed against rent of $11,016, during year ended December 31,
2021. During year-end December 31, 2022, the Company impaired $74,509 in deposits for the Greece operation that was forfeited .
NOTE
7 – CONVERTIBLE DEBT
These
debts have a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.”
The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts
on convertible debt. Discounts have been amortized to interest expense over the respective term of the related note. In determining the
indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a risk-free interest rate of
ranging from 4.40% to 4.77%, volatility ranging from 170.53% to 179.63%, trading prices ranging from $0.06 per share to $0.10 per share
and a conversion price ranging from $005 to $0.08 per share. The total derivative liabilities associated with these notes were $6,204,878
at December 31, 2022 and $4,980,563 at December 31, 2021.
See
Below Summary Table
Schedule of Convertible Debt
| Convertible
Debt Summary |
| |
Debt
Type |
Debt
Classification |
Interest
Rate |
Due
Date |
Ending
|
| CT
|
LT
|
12/31/2022 |
12/31/2021 |
| |
|
|
|
|
|
|
|
| A |
Convertible |
X
|
|
10.0% |
1-Jan-17 |
25,000
|
$ 25,000
|
| B |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
82,391
|
82,391
|
| C |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
41,195
|
41,195 |
| D |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
262,156
|
262,156
|
| O |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
136,902
|
136,902
|
| P |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
66,173
|
66,173
|
| Q |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
65,274
|
65,274
|
| S |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
63,205
|
63,205
|
| T |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
313,634
|
313,634
|
| CC |
Convertible |
|
X
|
10.0% |
1-Jan-24 |
100,000
|
100,000
|
| KK |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
188,000
|
188,000
|
| LL |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
749,697
|
749,697
|
| MM |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
124,690
|
124,690
|
| NN |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
622,588
|
622,588
|
| OO |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
620,908
|
620,908
|
| PP |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
611,428
|
611,428
|
| QQ |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
180,909
|
180,909
|
| RR |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
586,804
|
586,804
|
| SS |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
174,374
|
174,374
|
| TT |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
345,633
|
345,633
|
| UU |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
171,304
|
171,304
|
| VV |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
121,727
|
121,727
|
| XX |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
112,734
|
112,734
|
| YY |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
173,039
|
173,039
|
| ZZ |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
166,603
|
166,603
|
| AAA |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
104,641
|
104,641
|
| BBB |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
87,066
|
87,066
|
| DDD |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
75,262
|
75,262
|
| EEE |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
160,619
|
160,619
|
| GGG |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
79,422
|
79,422
|
| JJJ |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
52,455
|
52,455
|
| LLL |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
77,992
|
77,992
|
| MMM |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
51,348
|
51,348
|
| PPP |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
95,979
|
95,979
|
| SSS |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
75,000
|
75,000
|
| TTT |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
80,000
|
80,000
|
| VVV |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
75,000
|
75,000
|
| WWW |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
60,000
|
60,000
|
| XXX |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
100,000
|
100,000
|
| YYY |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
50,000
|
50,000
|
| ZZZ |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
40,000
|
40,000
|
| AAAA |
Convertible |
|
X
|
8.0% |
1-Jan-25 |
66,000
|
66,000
|
| BBBB |
Convertible |
X
|
|
12.0% |
1-Mar-23 |
150,000
|
-
|
| CCCC |
Convertible |
X
|
|
10.0% |
1-Mar-23 |
120,000
|
-
|
| DDDD |
Convertible |
X
|
|
10.0% |
31-Dec-24 |
100,000
|
-
|
| |
|
|
|
|
|
|
|
| Total
Convertible Debt |
7,807,152
|
7,437,152
|
| Less:
Discount |
(387,814) |
(477,634) |
| Convertible
Debt, Net of Discounts |
$ 7,419,338
|
$ 6,959,518
|
| Convertible
Debt, Net of Discounts, Current |
$ 240,293
|
$ 25,000
|
| Convertible
Debt, Net of Discounts, Long-term |
$ 7,179,045
|
$ 6,934,518
|
FOOTNOTES FOR CONVERTIBLE DEBT ACTIVITY FOR YEAR
ENDED DECEMBER 31, 2022
On August 8, 2022, the Company received
$150,000 from the issuance of convertible debt to the Cayman Venture Capital Fund pursuant to the January 2018 Financing Agreement, as
amended. Interest is stated at 12%. The Note and Interest is convertible into common shares at $0.08 per share. The Note is Due in March
1, 2024. This note has a price adjustment provision. Therefore, the Company accounted for these Notes under ASC Topic 815-15 “Embedded
Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability with an offset
to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related note. 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 November 8, 2022, the Company received
$120,000 from the issuance of convertible debt with a third- party individual. Interest is stated at 10%. The Note and Interest is convertible
into common shares at $0.08 per share. The Note is Due on March 1, 2023. This note has a price adjustment provision. Therefore, the
Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation
is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized
to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the
Company used the Binomial Options Pricing Model, see Note 10 for further details.
On December 12, 2022, the Company received $100,000
from the issuance of convertible debt with a third- party individual. Interest is stated at 10%. The Note and Interest is convertible
into common shares at $0.08 per share. The Note is Due on December 31, 2024. This note has a price adjustment provision. Therefore,
the Company accounted for these Notes under ASC Topic 815-15 “Embedded Derivative.” The derivative component of the obligation
is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized
to interest expense over the respective term of the related note. In determining the indicated value of the convertible note issued, the
Company used the Binomial Options Pricing Model, see Note 10 for further details.
On December 31, 2022, the Company and various
noteholders agree to modify the maturity date to December 31,2025 of all notes that were due to mature on December 31, 2024. No other
terms of the convertible notes were changed.
NOTE
8 – NON-CONVERTIBLE DEBT
Schedule of Nonconvertible Debt
| | |
December 31, 2022 | |
December 31, 2021 |
| Note 5 | |
$ | 9,312 | | |
$ | 9,312 | |
| Total Non-Convertible Debt | |
$ | 9,312 | | |
$ | 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 in default as of December 31,
2022 with an outstanding balance of $9,312.
Schedule Of Related Party Transactions
| B-Related
Party |
|
|
|
|
|
|
|
|
| Loan
payable - Stockholder, 0%, Due December 31, 2025 (1) |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
| |
|
$ |
250,000 |
|
|
$ |
250,000 |
|
| (1) |
|
The
$250,000 non-convertible note was issued as part of a Debt Modification Agreement dated January 2, 2014. On January 1, 2019, the
holder of the note extended the due date until December 31, 2021. The interest rate of the non-convertible note is 0%. The
Company used the stated rate of 9% as imputed interest rate, which was $22,500 and $22,500 for the year ended December 31, 2022 and
year ended December 31, 2021, respectively. As of December 31, 2022, the balance of the debt was $250,000. On December
31, 2021, the Company entered into an agreement to further extend the debt until December 31, 2025, with no additional interest for
the extension period. |
NOTE
9 – STOCKHOLDERS’ EQUITY
The Company has 10,000,000 shares of preferred stock
authorized with a par value of $0.001, of which 100,000 shares have been designated as Series C convertible preferred stock (“Series
C” or “Series C preferred stock”). The Company has 10,000,000 shares of preferred stock authorized. The Board has the
authority to issue the shares in one or more series and to fix the designations, preferences, powers and other rights, as it deems appropriate.
Each share of Series C has 434 votes on any matters
submitted to a vote of the stockholders of the Company and is entitled to dividends equal to the dividends of 434 shares of common stock.
Each share of Series C preferred stock is convertible at any time at the option of the holder into 434 shares of common stock.
On December 27, 2021, the Company entered into an
Exchange Agreement with Craig Frank and BMN Consultants, Inc. for 50,000 Series C Preferred Shares of Kaya Holdings held by Mr. Frank
and 50,000 Series C Preferred Shares of Kaya Holdings optioned by BMN from Mr. Frank and Ilan Sarid (pursuant to stock options extended
to BMN in 2010), 100,000 total shares.
Pursuant to the terms and conditions of this
Agreement, the Holders each agreed to (a) waive payment of approximately $338,000 of Accrued Compensation; (b) defer payment of the remaining
balance of Accrued Compensation owed to each of them of approximately $250,000 until January 1, 2025 ; and (c) exchange the 50,000 Series
C Shares ( at total of 100,000) for twenty (20) Series D Convertible Preferred Shares of Kaya Holdings Stock. Mr. Frank’s Series
D shares were issued to Mr. Frank and the Series D shares issued for the option held by BMN were issued to RLH Financial Services pursuant
to a private sale between BMN and RLH whereby RLH acquired the shares in exchange for a promissory note in the amount of $1,000,000.
Each Share of 40 Series D Preferred Stock is convertible,
at the option of the holder thereof, at any time and from time to time, into one percent (1%) of the Company’s Fully Diluted Capitalization
as of the Conversion Date. This resulted in a related party gain of $559,058.
The Company has 500,000,000 shares of common stock
authorized with a par value of $0.001. Each share of common stock has one vote per share for the election of directors and all other items
submitted to a vote of stockholders. The common stock does not have cumulative voting rights, preemptive, redemption or conversion rights.
On December 15, 2022, the Board of Directors approved
the issuance of 2,900,000 shares of common stock to various individuals for services rendered to the Company. The shares were issued in
accordance with Rule 144. The shares were valued at the market price of $0.0685 per share on the date of issuance.
On
December 15, 2022, the Board of Directors approved the issuance of 4,550 ,000
shares of common stock to recipients of the plan (the shares were issued prior to the end of 2022). The remaining balance of the shares
available in the plan is 450,000 shares. A total of 2,100,000 of these shares were issued as Officer and Director Compensation as follows:
1,500,000 shares of common stock to our CEO Craig Frank 300,000 shares of common stock to Carries Schwarz 300,000 shares of
common stock to Mitchell Chupak, as annual award compensation, per their agreements.
The balance of 1,750,000 shares of commons stock was issued
third parties for ser ices rendered to the Company. By agreement the shareholders agreed to a three-year lock-up agreement. The shares
were valued at the market price of $0.0685 per share on the date of issuance.
As of December 31, 2022, there were 22,172,835 shares
of common stock outstanding.
NOTE
10 - DERIVATIVE LIABILITIES
Effective
January 1, 2019, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a
liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, Derivatives and Hedging, to determine whether
it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine
whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative
accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming
the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option
meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to
an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the
bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.
However,
due to a recognition of tainting, due to variable conversion price on some of the convertible notes, all convertible notes are
considered to have a derivative liability, therefore the Company accounted for these Notes under ASC Topic 815-15 “Embedded
Derivative.” The derivative component of the obligation is initially valued and classified as a derivative liability
with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective term of the related
note. In determining the indicated value of the convertible note issued, the Company used the Binomial Options Pricing Model with a
risk-free interest rate of ranging 4.40% to 4.77%, volatility ranging from 170.53% to 179.63%, trading prices ranging from $0.06 per
share to $0.10 per share and a conversion price ranging from $005 to $0.08 per share. The total derivative liabilities associated
with these notes were $4,741,207 at December 31, 2022 and $4,980,563 at December 31, 2021.
As
a result of the application of ASC No. 815, the fair value of the ratchet feature related to convertible debt and warrants is summarized
as follow:
Schedule Of Derivative Liabilities At Fair Value
| Balance as of December 31, 2021 | |
$ | 4,980,563 | |
| Initial | |
| 213,579 | |
| Change in Derivative Values | |
| 1,010,736 | |
| Conversion of debt-reclass to APIC | |
| — | |
| Balance as of December 31, 2022 | |
$ | 6,204,878 | |
The
Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the
derivative liability, as it exceeded the gross proceeds of the note.
The Company recorded initial derivative liabilities
of $213,579 and $589,033 for the new notes issued for years ended December 31, 2022 and 2021, respectively.
The
Company recorded derivative liability expense of $0 and $566,080 for the years ended December 31, 2022 and 2021, respectively.
The
Company recorded a change in the value of embedded derivative liabilities expense of $1,010,737 and a gain of $12,947,095 for the year
ended December 31, 2022 and 2021, respectively.
NOTE
11 – DEBT DISCOUNT
The
Company recorded the debt discount to the extent of the gross proceeds raised and expensed immediately the remaining fair value of the
derivative liability, as it exceeded the gross proceeds of the note.
Debt
discount amounted to $387,814 and $477,637 as of December 31, 2022 and 2021, respectively.
The
Company recorded the amortization of debt discount of $303,339 and $333,296 for the years ended December 31, 2022 and 2021, respectively.
The
Company reclassified derivative liabilities of $0 to additional paid in capital due to debt conversion for the year ended December 31,
2022 and $283,326 for year ended December 31, 2021
NOTE
12 – RELATED PARTY TRANSACTIONS
At
December 31, 2014, the Company was indebted to an affiliated shareholder of the Company for $840,955, which consisted of $737,100 principal
and $103,895 accrued interest, with interest accruing at 10%. On January 2, 2014, the Company entered into a Debt Modification Agreement
whereby the total amount of the debt was reduced to $750,000 and no interest accrued until December 31, 2015. $500,000 of the debt is
convertible into 50,000 Series C Convertible Preferred Shares of KAYS. The remaining $250,000 is not convertible.
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. On December
31, 2021, the Company entered into an agreement to further extend the debt until December 31, 2025, with no additional interest for the
extension period, 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 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. 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.
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 monthly compensation of $25,000. Due to the liquidity of the Company, the compensations were paid
partially over the periods. As of December 31, 2022, the accrued compensation was approximately $500,000. By
agreement of the parties, the accrued compensation will not be paid until January 1,, 2025 and has been recorded as a long-term liability.
As of December 31, 2022, the Company also had $273,190 of accounts payable due to Tudog International Consulting, Inc. and BMN Consultants,
Inc.
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 $1,909,211 representing the equity not currently owned by the Company.
The financial statements have been consolidated with the Company.
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.
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.
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.
After a review of market pricing the Company
was able to sell one of the cars to Carvana for $14,460.00 and the funds were used for general working capital. Additionally, the second
Fiat was transferred to Mr. Frank in lieu of $15,000 in fees owed him. After adjusting for net book value, the Company recorded $12,453
to additional paid in capital.
On December 27, 2021 the Company entered into an Exchange
Agreement with Craig Frank and BMN Consultants, Inc. for 50,000 Series C Preferred Shares of Kaya Holdings held by Mr. Frank and 50,000
Series C Preferred Shares of Kaya Holdings optioned by BMN from Mr. Frank and Ilan Sarid (pursuant to stock options that they each extended
to BMN in 2010), 100,000 total shares.
Pursuant to the terms and conditions of this
Agreement, the Holders each agreed to (a) waive payment of approximately $338,000 of Accrued Compensation; (b) defer payment of the remaining
balance of Accrued Compensation owed to each of them of approximately $250,000 until January 1, 2025 ; and (c) exchange the 50,000 Series
C Shares ( at total of 100,000) for twenty (20) Series D Convertible Preferred Shares of Kaya Holdings Stock. Each Share of 40 Series
D Preferred Stock is convertible, at the option of the holder thereof, at any time and from time to time, into one percent (1%) of the
Company’s Fully Diluted Capitalization as of the Conversion Date. This resulted in a related party gain, which was applied to APIC. Mr.
Frank’s Series D shares were issued to Mr. Frank and the Series D shares issued for the option held by BMN were issued to RLH Financial
Services pursuant to a private sale between BMN and RLH whereby RLH acquired the shares in exchange for a promissory note in the amount
of $1,000,000.
On December 1, 2022,
the Company priced its one remaining vehicle with Carvana and received an offer for $14,510 In lieu of accepting the bid and partially
paying Mr. Frank’s invoices which were still due from August, 2022, the Company agreed to transfer title to the car to him in settlement
of $17,000.00 in fees that were due him in August (these are fees that are not being deferred and would otherwise be paid in cash, and
cost the Company $2,490.00 more in fees if the car was sold).
On
December 15, 2022 the Board of Directors approved the issuance of a total of 2,100,000 shares as Officer and Director Compensation as
follows:1,500,000 shares of common stock to our CEO Craig Frank 300,000
shares to Carries Schwarz 300,000 shares to Mitchell Chupak, as annual award compensation, per their agreements.
NOTE
13 – STOCK OPTION PLAN
On
September 15, 2022 the Company approved the 2022 Equity Incentive Plan, which provides for equity incentives to be granted to the Company’s
employees, executive officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with
an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2022 Incentive Stock Plan,
restricted stock awards, other stock based awards, or any combination of the foregoing. The 2022 Incentive Stock Plan is administered
by the board of directors.
On
December 15, 2022 the Board of Directors approved the issuance of 4, 550,000 shares
of stock to recipients of the plan (the shares were issued prior to the end of 2022). The remaining balance of the shares available in
the plan is 450,000 shares. The shares were valued at $0.0685, the closing market price on the date of issuance.
NOTE
14 – WARRANTS
On
September 8, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 210,772
paid and non-assessable post -reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant
Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory
note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September
9, 2017. As of December 31, 2019, the note was paid in full. As of December 31, 2022, the warrants have expired.
On
September 9, 2015 the Company received a total of $100,000 from an accredited investor in exchange for a two year note in the aggregate
amount of $100,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 210,772
paid and non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant
Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $100,000, 10% promissory
note due September 9, 2017 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or September
9, 2017. As of December 31, 2019, the note was paid in full. As of December 31, 2022, the warrants have expired.
On
May 9, 2016 the Company received a total of $75,000 from an accredited investor in exchange for a two year note in the aggregate amount
of $75,000 with interest accruing at 10%. The note holder is entitled to subscribe for and purchase from the company 158,079 paid and
non-assessable post-reverse split shares of the Common Stock at the price of $0.4744455 per post-reverse split share (the “Warrant
Exercise Price”) for a period of five (5) years commencing from the earlier of such time as that certain $75,000, 10% promissory
note due May 9, 2018 has been fully repaid or the start of the Acceleration Period as defined in “The Note” or May 9, 2018.
As of December 31, 2019, the note was paid in full.
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, 2021 |
332,825
|
0.4744455 |
1.09
|
| Granted |
- |
- |
- |
| Exercised |
- |
- |
- |
| Expired |
(16,667) |
- |
- |
| Balance
as of December 31, 2022 |
316,158
|
0.4744455 |
0.36
|
NOTE
15 – COMMITMENTS AND CONTINGENCIES
Operating
Leases
The
Company has several operating leases for an office in Fort Lauderdale, Florida and four retail store locations in Oregon under arrangements
classified as leases under ASC 842.
Effective June
1, 2019, the Company leased the office space in Fort Lauderdale, Florida under a 2-year operating lease expiring May 31, 2021 at a rate
of $1,802 per month. On June 1, 2021 the lease was extended for another year and on June 1 in 2022 the lease was extended for an additional
year. The current monthly payment inclusive of sales tax and operating expenses is $2,079 with right of use liabilities of $0. 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
May 15, 2014, the Company leased a unit in Portland, Oregon under a 5-year operating lease expiring May 15, 2019. In May 2019, the lease
had been extended to May 15, 2024. The total amount of rental payments due over the lease term is being charged to rent expense according
to the straight-line method over the term of the lease. The current monthly payment is $2,950 with right of use liabilities of $45,884
as of December 31,
2022.
Effective May
22, 2015, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring May 31, 2020. In May 2020, the lease had
been extended to May 31, 2025. The total amount of rental payments due over the lease term is being charged to rent expense according
to the straight-line method over the term of the lease. The lease was extended for an additional 5 years. The current monthly payment
is $5,140 with right of use liabilities of $137,138 as of December 31, 2022. This lease is
in process of being terminated pursuant to agreement reached with landlord- see note below.
Effective April
15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The total amount of rental
payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The
current monthly payment is $0 with right of us liabilities of $0. This lease is in process of being terminated pursuant to agreement reached
with landlord- see note below.
Effective April
15, 2016, the Company leased a unit in Salem, Oregon under a 5-year operating lease expiring April 15, 2021. The total amount of rental
payments due over the lease term is being charged to rent expense according to the straight-line method over the term of the lease. The
current monthly payment is $0 with right of us liabilities of $0. This lease is in process of being terminated pursuant to agreement reached
with landlord- see note below.
As noted above, the one (1) lease that the Company
entered into on June 1, 2015 and the two (2) leases that the Company entered into effective April 15, 20 16 are in the process of being
terminated with $75,000.00 in currently escrowed funds from the sale of one of the Company’s stores to be transferred to the landlord
(subject to final closing of the store sale) in exchange for a satisfaction of the three leases prior to the end of April.
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
$182,604 and operating lease liabilities of $193,182 as of December 31, 2022. Operating lease expense for the years ended December 31,
2022 and 2021 were $193,182 and $194,689, respectively. 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 has
recorded $0 in impairment charges related to right-of-use assets during the year ended December 31, 2022.
Schedule Of Future Minimum Rental Payments For Operating Leases
| Maturity
of Lease Liabilities at December 31, 2022 |
|
Amount |
| |
2023 |
|
109,600 |
| |
2024 |
|
76,617 |
| |
2025 |
|
27,041
|
| |
Later
years |
|
-
|
| |
Total
lease payments |
|
213,258 |
| |
Less:
Imputed interest |
|
(2,006) |
| |
Present
value of lease liabilities |
$ |
193,182 |
NOTE
16- INCOME TAXES
On
December 22, 2017, the U.S. enacted the Tax Cuts and Jobs Act (the “Act”), which significantly changed U.S. tax law. The
Act lowered the Company’s U.S. statutory federal income tax rate from 35% to 21% effective January 1, 2018, while also imposing
a deemed repatriation tax on previously deferred foreign income.
The
Act also created a new minimum tax on certain future foreign earnings. The impact of the Act increase the Company’s deferred tax
asset related to the Company’s net operating loss by approximately $3,427,125 and increase the Company’s valuation allowance
by approximately $3,427,125 resulting in no impact to the Company’s financials.
We
record tax positions as liabilities in accordance with ASC 740 and adjust these liabilities when our judgement changes as a result of
the evaluation of new information not previously available. Because of the complexity of some of these uncertainties, the ultimate resolution
may result in a payment that is materially different from our current estimate of the recognized tax benefit liabilities. These differences
will be reflected as increases or decreases to income tax expense in the period in which new information is available. As of December
31, 2022, and 2021 we have not recorded any uncertain tax positions in our financial statements.
The
effective US Federal Income Corporate Tax Rates for 2022 and 2021 are 21% and 21%, respectively.
The
Company has net operating loss carry forwards of approximately $14,305,991 at December 31, 2022 that do not expire. However, utilization
of these losses may be limited pursuant to Section 382 of the Internal Revenue Code due to a recapitalization in 2007 and subsequent
stock issuances.
The
Company has a deferred tax asset as shown in the following:
Schedule
of Deferred Tax Assets and Liabilities
| | |
| |
|
| | |
Year Ending December 31, 2022 | |
Year Ending December 31, 2021 |
| Deferred Tax Asset | |
| 3,255,125 | | |
| 2,891,850 | |
| Valuation Allowance | |
| (3,255,125 | ) | |
| (2,891,850 | ) |
| Net Deferred Tax Asset | |
$ | — | | |
$ | — | |
We
are subject to certain tax risks and treatments that could negatively impact our results of operations
Section
280E of the Internal Revenue Code, as amended, prohibits businesses from deducting certain expenses associated with trafficking controlled
substances (within the meaning of Schedule I and II of the Controlled Substances Act). The IRS has invoked Section 280E in tax audits
against various cannabis businesses in the U.S. that are permitted under applicable state laws. Although the IRS issued a clarification
allowing the deduction of certain expenses, the scope of such items is interpreted very narrowly and the bulk of operating costs and
general administrative costs are not permitted to be deducted. While there are currently several pending cases before various administrative
and federal courts challenging these restrictions, there is no guarantee that these courts will issue an interpretation of Section 280E
favorable to cannabis businesses.
Provision
for Income Taxes
We
recorded a provision for income taxes in the amount of $876,017 during the year ended December 31, 2022 compared to $782,107 during the
year ended December 31, 2021. Although we have net operating losses that we believe are available to us to offset this entire tax liability,
which arises under Section 280E of the Code because we are a cannabis company, as a conservative measure, we have accrued this liability.
Note
17- SUBSEQUENT EVENTS
Events that occur after the balance sheet date but before the financial
statements were available to be issued must be evaluated for recognition or disclosure. The effects of subsequent events that provide
evidence about conditions that existed at the balance sheet date are recognized in the accompanying financial statements. Subsequent events,
which provide evidence about conditions that existed after the balance sheet date, require disclosure in the accompanying notes.
As previously reported in our Quarterly Report on
Form 10-Q for the quarter ended September 30, 2023, the Company entered into an agreement (the “CVC Agreement”) with
CVC International, Inc. (“CVC”), an institutional investor who holds certain of the Company’s Convertible Promissory
Notes (the “Notes”), one of which was secured by a $500,000 mortgage on the property the Company owned in Lebanon,
Oregon, which the Company intended to develop as a cannabis grow and production facility (the “Property”).
Pursuant
to the CVC Agreement, CVC released its $500,000 mortgage lien on the Property, to enable the Company to sell the Property and utilize
the proceeds therefrom for the benefit of the Company and its shareholders, without having to repay CVC the $500,000 Note held by CVC.
Additionally,
CVC agreed to advance certain sums against the sale of the Property (“Advances”), which included $150,000 advanced
at the time the CVC Agreement was entered into and $120,000 which was advanced to the Company on November 10, 2022. The advances bear
interest at the rate of 10% per annum and are convertible into shares of our common stock at $0.08 per share, subject to market adjustment.
On
February 28, 2023 we sold the Property for a price of $769,500, less commissions and customary closing costs. The net proceeds of the
sale were used to repay the advances and an additional short-term loan of $100,000 (plus interest due of $5,000). After such repayments,
the Company realized net proceeds of approximately $302,000. The land is reflected on the balance sheet as assets held for sale for the
year ended December 31, 2022 and 2021, at a value of $516,076.
Additionally,
the Company has entered into an asset purchase agreement for the sale of its Salem Retail Cannabis Store (“Store 2”)
for $210,000.00, less a 6% closing commission and minor closing expenses. The purchase price has been deposited in escrow, with a closing
anticipated to occur prior to the end of April 2023, as the OLCC has approved the license transfer. $75,000 of the proceeds has been
set aside from the escrowed deposit to settle the three (3) leases that the Company had in Salem, Oregon (Store 2 which was the subject
of this sale and Stores 3 and 4 which had been closed previously; all 3 leases were with the same landlord. The net book value of the
assets as of December 31, 2022 was $9,111 and revenue for the year ended December 31, 2022 was approximately $410,880.00.
The
Company intends to utilize the net proceeds of approximately $500,000 from both the sale of the Property and Store 2, for general working
capital including the resolution of its three non-performing store leases in South Oregon, the development of its planned Oregon Psilocybin
business and planned Florida hybrid Ketamine Clinic and Telehealth business, as well as for the enhancement of its Portland Kaya Shack
Retail Cannabis store to create a streamlined model designed to facilitate franchising efforts and development of its international projects.
On
April 19, 2023, the Company negotiated a Lease Release agreement for a lease of space for MJAI Oregon 1, LLC. Under the terms of the
release the landlord agreed to release the Company from the lease and to settle all claims against the Company for a one-time payment
of $75,000.