10-Q/A: Kaya Holdings Files Amended Quarterly Report After Accounting Review, Reports Net Income Driven by Derivative Gains

Kaya Holdings, Inc. has filed an amended quarterly report for the period ending June 30, 2024, to reflect the completion of a required accounting review, reporting a net income primarily due to changes in derivative liabilities.

Summary

• Kaya Holdings, Inc. filed an amended quarterly report on Form 10-Q/A for the quarter ended June 30, 2024, due to an initial filing error before the completion of a required SAS 70 review by its independent accounting firm.
• The company reported a net income of $357,210 for the three months ended June 30, 2024, compared to a net loss of $714,156 for the same period in 2023.
• For the six months ended June 30, 2024, the company reported a net loss of $748,470, compared to a net loss of $679,223 for the same period in 2023.
• The net income for the quarter was primarily driven by a gain of $947,165 in the change of derivative liabilities, while the net loss for the six months was due to high operating expenses and limited revenue.
• The company's revenue decreased to $0 for the three months ended June 30, 2024, from $55,116 in the same period of 2023, and to $28,009 for the six months ended June 30, 2024, from $103,361 in the same period of 2023, due to the closure of its Oregon cannabis operations.
• As of June 30, 2024, the company had a working capital deficiency of $7,701,014 and is dependent on its ability to raise capital.
• The company's total assets were $300,680, and total liabilities were $16,777,769 as of June 30, 2024.
• The company has a plan to generate additional funds through the sale of equity and debt securities, alliances, and business transactions.

Sentiment

Score: 4

Explanation: The document presents a mixed picture. While the company achieved a net income for the quarter, this was primarily due to derivative gains, not core operations. The significant revenue decline, working capital deficiency, and dependence on capital raises are concerning. The successful licensing of the psilocybin center is a positive development, but the overall financial health of the company is weak.

Positives

• The company achieved a net income of $357,210 for the three months ended June 30, 2024, a significant improvement compared to the net loss in the same period of 2023.
• The company successfully obtained a license for its psilocybin treatment center, The Sacred Mushroom, and commenced operations on August 1, 2024.
• The company is actively pursuing financing and strategic partnerships to support its growth plan.

Negatives

• The company experienced a significant decrease in revenue due to the closure of its Oregon cannabis operations.
• The company has a substantial working capital deficiency of $7,701,014 as of June 30, 2024.
• The company's net loss for the six months ended June 30, 2024, was $748,470, indicating ongoing financial challenges.
• The company is heavily reliant on its ability to raise capital to continue operations.

Risks

• The company's ability to continue as a going concern is uncertain due to its working capital deficiency and dependence on raising capital.
• The company faces risks related to the evolving regulatory landscape for both cannabis and psilocybin.
• The company faces significant competition in both the cannabis and psychedelic medicine sectors.
• The company's financial results are subject to variability due to market conditions and regulatory changes.
• The company's internal controls over financial reporting were deemed ineffective as of June 30, 2024.

Future Outlook

Management believes that further proceeds from financing transactions, combined with existing and anticipated revenues, will alleviate the company's financial difficulties and meet its working capital needs for a period of between twelve and eighteen months. However, there is no assurance that further funding will be achieved or that the company will not require additional financing sooner.

Management Comments

• The company is working to prepare the opening of a OHA State Licensed Psilocybin Treatment Center in Oregon.
• The company plans to operate The Sacred Mushroom as part of its Fifth Dimension Therapeutics, Inc. subsidiary (FDT).
• The company intends to work cooperatively with select pharmaceutical companies to maximize the curative and therapeutic potential of psilocybin.

Industry Context

The company is operating in the rapidly growing legal cannabis and psychedelic medicine sectors. The company is leveraging its experience in the cannabis industry to enter the emerging psilocybin market. The company is positioning itself to be a first mover in the US psychedelic therapeutics industry.

Comparison to Industry Standards

• The company's revenue decline is a significant deviation from industry growth trends in the cannabis sector, indicating a strategic shift towards psilocybin.
• The company's psilocybin treatment center, The Sacred Mushroom, is one of the first licensed facilities in the US, placing it ahead of many competitors in this emerging market.
• The company's pricing strategy for psilocybin treatments aims to be more accessible than some competitors, potentially giving it a competitive advantage.
• The company's focus on a vertically integrated model, including cultivation and processing, is similar to some successful cannabis companies, but is unique in the psilocybin space.
• The company's financial performance, particularly its working capital deficiency, is a concern compared to more established players in both the cannabis and psychedelic industries.

Corporate Governance

Legal Proceedings

• The company is working with its Oregon Counsel to resolve a lawsuit from P3 Distributing LLC seeking damages of $12,149.00 for unpaid vendor invoices.
• The company previously participated in an arbitration with Law Offices of Ross Day, which resulted in an award in favor of the company, but the company agreed to waive the award in consideration of Day Law dropping the matter.

Related Party Transactions

• The company has a $250,000 non-convertible note payable to a related party, with a 0% interest rate, due December 31, 2025.
• The company has accrued compensation due to Tudog International Consulting, Inc. and BMN Consultants, Inc. of approximately $500,000, which will not be paid until December 1, 2026.
• The company has $138,227 due to Bruce Burwick as of June 30, 2024.
• The Tudog Group, BMN Consultants, Inc, Inc and 495 Oxford Consulting, Inc forgiven totally $38,329 of payable expense.

Stakeholder Impact

• Shareholders face the risk of dilution due to potential equity offerings.
• Employees may be affected by the company's financial instability and potential restructuring.
• Customers of the company's cannabis operations have been impacted by the closure of retail locations.
• Suppliers and creditors face the risk of non-payment due to the company's financial difficulties.
• The company's entry into the psilocybin market may provide new treatment options for patients with mental health disorders.

Next Steps

• The company will focus on the development of its planned Oregon psilocybin business.
• The company will continue the development of its international projects in Greece.
• The company will seek further financing transactions to support its growth plan.

Key Dates

Keywords

Kaya Holdings, psilocybin, cannabis, psychedelic treatment, financial results, derivative liabilities, working capital, The Sacred Mushroom, Oregon, convertible debt