UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended ~~June~~September 30, 2022

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______

Commission File Number: 000-56230

KONA GOLD BEVERAGE, INC.

(Exact name of registrant as specified in its charter)

Delaware		~~81-5175120~~20-1915692
(State of incorporation)		(I.R.S. Employer Identification No.)

746 North Drive, Suite A, Melbourne, Florida		32934
(Address of principal executive offices)		(Zip Code)

(844) 714-2224

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
	~~Common Stock~~			~~KGKG~~		~~OTC Markets Group Inc.~~

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☐	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
Emerging growth company	☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of ~~August 8,~~November 14, 2022 was ~~1,781,156,866~~1,841,368,987.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		~~F-2~~F-1

Item 1. Condensed Financial Statements		~~F-2~~F-1

	Condensed Consolidated Balance Sheets – ~~June~~September 30, 2022 (Unaudited) and December 31, 2021	F-1

	Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2022 and 2021	F-2

	Condensed Consolidated Statements of ~~Operations~~Changes in Stockholders’ Deficit (Unaudited) for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	F-3

~~Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) for the three and six months ended June 30, 2022 and 2021~~	~~F-4~~

Condensed Consolidated Statements of Cash Flows (Unaudited) for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021	F-5

	Notes to Condensed Financial Statements (Unaudited)	F-6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1

Item 3. Quantitative and Qualitative Disclosures About Market Risk		1314

Item 4. Controls and Procedures		1314

PART II - OTHER INFORMATION		1415

Item 1. Legal Proceedings		1415

Item 1A. Risk Factors		1415

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		1415

Item 3. Defaults Upon Senior Securities		1415

Item 4. Mine Safety Disclosures		1415

Item 5. Other Information		1415

Item 6. Exhibits		15

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
	(Unaudited)						(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	6,188		$	703,825		$	270,793		$	703,825
Accounts receivable, net of allowance for doubtful accounts of $11,961 and $11,926, respectively		24,943			15,993
Accounts receivable, net of allowance for doubtful accounts of $20,661 and $11,926, respectively								56,105			15,993
Inventory, net of reserve for obsolescence of $150,000 and $150,000, respectively		1,189,913			574,811			1,007,879			574,811
Prepaids		-			278,707			-			278,707
Other current assets		59,834			30,373			17,898			30,373
Total current assets		1,280,878			1,603,709			1,352,675			1,603,709

NON-CURRENT ASSETS
Property, plant and equipment, net		327,955			348,037			370,518			348,037
Right-of-use asset, net		870,736			966,955			823,635			966,955
Intangible property, net		71,078			75,955			68,639			75,955
Deposits		15,125			15,125			15,125			15,125
Total assets	$	2,565,772		$	3,009,781		$	2,630,592		$	3,009,781

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	854,360		$	541,123		$	1,041,016		$	541,123
Accrued compensation		219,583			329,583			159,583			329,583
Notes payable, net of discount of $99,031 and $0, respectively, current		198,332			7,974
Notes payable, net of discount of $155,281 and $0, respectively, current								479,260			7,974
Notes payable - related parties, current		1,728,651			6,000			1,787,151			6,000
Acquisition obligations, current		60,000			60,000			663,871			60,000
Lease liabilities, current		224,162			213,837			217,166			213,837
Convertible debt, net of discount of $815,270 and $2,150,067, respectively		84,730			849,933
Convertible debt, net of discount of $564,416 and $2,150,067, respectively								530,584			849,933
Derivative liability		833,000			2,121,000			352,000			2,121,000
Total current liabilities		4,202,818			4,129,450			5,230,631			4,129,450

NON-CURRENT LIABILITIES
Notes payable - related parties, net of current		-			1,525,651			-			1,525,651
Notes payable, net of current		22,219			25,338			71,749			25,338
Acquisition obligations, net of current		606,731			615,317			-			615,317
Lease liabilities, net of current		725,284			838,883			677,866			838,883
Total liabilities		5,557,052			7,134,639			5,980,246			7,134,639

COMMITMENTS AND CONTINGENCIES		-			-			-			-

STOCKHOLDERS’ DEFICIT
Preferred Stock, $.00001 par value, 5,700,250 shares authorized, 988,000 and 988,000 issued and outstanding, respectively		10			10			10			10
Common Stock, $.00001 par value, 2,500,000,000 authorized, 1,709,122,945 and 1,004,709,546, issued and outstanding, respectively		17,091			10,047
Common Stock, $.00001 par value, 2,500,000,000 authorized, 1,806,458,236 and 1,004,709,546, issued and outstanding, respectively								18,065			10,047
Common stock issuable (170,000,000 and 170,000,000 shares)		1,386,497			1,386,497			1,386,497			1,386,497
Additional paid-in capital		16,855,382			10,778,761			17,688,091			10,778,761
Accumulated deficit		(21,250,260	)		(16,300,173	)		(22,442,317	)		(16,300,173	)
Total stockholders’ deficit		(2,991,280	)		(4,124,858	)		(3,349,654	)		(4,124,858	)
Total liabilities and stockholders’ deficit	$	2,565,772		$	3,009,781		$	2,630,592		$	3,009,781

See notes to condensed consolidated financial statements

F-1

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Nine Months Ended September 30, 2022 and 2021

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,						September 30,
	2022			2021			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

REVENUES, NET	$	1,130,546		$	545,375		$	3,299,075		$	1,798,999
COST OF REVENUES		873,319			442,766			2,608,712			1,443,727
Gross profit		257,227			102,609			690,363			355,272

OPERATING EXPENSES
Selling, general and administrative expenses		1,075,044			756,110			3,045,895			1,968,841
LOSS FROM OPERATIONS		(817,817	)		(653,501	)		(2,355,532	)		(1,613,569	)
OTHER INCOME (EXPENSE)
Interest expense		(253,855	)		(817,471	)		(867,209	)		(2,013,337	)
Financing costs		-			-			(260,000	)		-
Change in the fair value of derivative liability		148,000			(740,220	)		(1,523,000	)		(864,589	)
Gain (loss) on extinguishment of debt		(268,810	)		-			(1,141,850	)		95,161
Other income (expense)		425			(19,523	)		5,447			(27,065	)
Total other income (expenses)		(374,240	)		(1,577,214	)		(3,786,612	)		(2,809,830	)

NET LOSS	$	(1,192,057	)	$	(2,230,715	)	$	(6,142,144	)	$	(4,423,399	)

NET LOSS PER COMMON SHARES:
Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.01	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted		1,760,650,640			829,027,793			1,580,864,982			863,927,095

See notes to condensed consolidated financial statements

F-2

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF ~~OPERATIONS~~STOCKHOLDERS’ DEFICIT

For the Three ~~and Six~~ Months Ended ~~June~~September 30, 2022 ~~and~~

(Unaudited)


	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid-		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
June 30, 2022		1,709,122,945	$	17,091		988,000	$	10		170,000,000	$	1,386,497	$	16,855,382	$	(21,250,260	)	$	(2,991,280	)
Common stock issued for conversion of convertible debt and accrued interest		97,335,291		974										609,709					610,683

Warrants related to convertible notes														223,000					223,000

Net loss								-				-				(1,192,057	)		(1,192,057	)
Balance September 30, 2022 (Unaudited)		1,806,458,236	$	18,065		988,000	$	10		170,000,000	$	1,386,497	$	17,688,091	$	(22,442,317	)	$	(3,349,654	)

For the Nine Months Ended September 30, 2022

(Unaudited)

	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid-		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
Balance December 31, 2021		1,004,709,546	$	10,047		988,000	$	10		170,000,000	$	1,386,497	$	10,778,761	$	(16,300,173	)	$	(4,124,858	)
Common stock issued for conversion of convertible debt and accrued interest		775,748,690		7,758										6,462,090					6,469,848

Common stock issued with note payable recorded as debt discount		25,000,000		250										134,750					135,000

Common stock issued with employment agreement		1,000,000		10										8,490					8,500

Warrants related to convertible notes														304,000					304,000

Net loss								-				-				(6,142,144	)		(6,142,144	)
Balance September 30, 2022 (Unaudited)		1,806,458,236	$	18,065		988,000	$	10		170,000,000	$	1,386,497	$	17,688,091	$	(22,442,317	)	$	(3,349,654	)

F-3

For the Three Months Ended September 30, 2021

(Unaudited)

	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid-		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
June 30, 2021		850,772,637	$	8,508		988,140	$	10		170,000,000	$	1,386,497	$	7,473,822	$	(11,472,720	)	$	(2,603,883	)
Common stock issued for conversion of convertible debt and accrued interest		29,195,472		292										406,360					406,652

Common stock issued for compensation		3,100,000		31										55,769					55,800

Warrants related to convertible notes														693,555					693,555

Preferred stock conversion to common stock		140		-		140		-						3		(3	)		-

Net loss												-				(2,230,715	)		(2,230,715	)
Balance September 30, 2021 (Unaudited)		883,068,249	$	8,831		988,280	$	10		170,000,000	$	1,386,497	$	8,629,509	$	(13,703,438	)	$	(3,678,591	)

For the Nine Months Ended September 30, 2021

Three Months Ended Six Months Ended
June 30, June 30,
2022 2021 2022 2021
(unaudited) (unaudited) (unaudited) (unaudited)

REVENUES, NET $ 1,173,398 $ 790,809 $ 2,168,529 $ 1,252,980
COST OF REVENUES 885,517 686,706 1,735,393 1,000,571
Gross profit 287,881 104,103 433,136 252,409

OPERATING EXPENSES
Selling, general and administrative expenses 1,031,515 644,052 1,970,851 1,212,732
LOSS FROM OPERATIONS (743,634 ) (539,949 ) (1,537,715 ) (960,323 )
OTHER INCOME (EXPENSE)
Interest expense (156,459 ) (64,956 ) (587,354 ) (1,195,866 )
Financing costs (286,000 ) - (286,000 ) -
Change in the fair value of derivative liability 122,000 141,497 (1,671,000 ) (124,369 )
Gain (loss) on extinguishment of debt (326,230 ) - (873,040 ) -
Other income (expense) 1,798 (4,967 ) 5,022 (7,542 )
EIDL advance - 95,161 - 95,161
NET LOSS $ (1,388,525 ) $ (373,214 ) $ (4,950,087 ) $ (2,192,939 )

NET LOSS PER COMMON SHARES:
Basic and diluted $ (0.00 ) $ (0.00 ) $ (0.00 ) $ (0.00 )

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted 1,560,391,543 805,263,473 1,363,761,068 805,263,473

(Unaudited)

	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid-		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
Balance December 31, 2020		786,308,041	$	7,864		988,140	$	10		170,000,000	$	1,386,497	$	5,028,012	$	(9,280,036	)	$	(2,857,653	)
Common stock issued for conversion of convertible debt and accrued interest		84,660,068		846										1,528,789					1,529,635

Common stock issued for compensation		3,100,000		31										55,769					55,800

Common stock issued for acquisition		9,000,000		90										270,810					270,900

Warrants related to convertible notes														1,746,126					1,746,126

Preferred stock conversion to common stock		140		-		140		-						3		(3	)		-

Net loss												-				(4,423,399	)		(4,423,399	)
Balance September 30, 2021 (Unaudited)		883,068,249	$	8,831		988,280	$	10		170,000,000	$	1,386,497	$	8,629,509	$	(13,703,438	)	$	(3,678,591	)

See notes to condensed consolidated financial statements

~~F-3~~

~~KONA GOLD BEVERAGE, INC.~~

~~CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT~~

~~For the Three Months Ended June 30, 2022~~

~~(Unaudited)~~

Common Stock Preferred Stock Common Shares Additional Total
$.00001 Par $.00001 Par Issuable Paid- Accumulated Stockholders’
Shares Amount Shares Amount Shares Amount in Capital Deficit Deficit
March 31, 2022 1,482,788,393 $ 14,828 988,000 $ 10 170,000,000 $ 1,386,497 $ 14,098,394 $ (19,861,735 ) $ (4,362,006 )
Common stock issued for conversion of convertible debt and accrued interest 225,334,552 2,253 2,667,498 2,669,751

Common stock issued with employment agreement 1,000,000 10 8,490 8,500

Warrants related to convertible notes 81,000 81,000

Net loss - - - - - - (1,388,525 ) (1,388,525 )
Balance June 30, 2022 (Unaudited) 1,709,122,945 $ 17,091 988,000 $ 10 170,000,000 $ 1,386,497 $ 16,855,382 $ (21,250,260 ) $ (2,991,280 )

~~For the Six Months Ended June 30, 2022~~

~~(Unaudited)~~

Common Stock Preferred Stock Common Shares Additional Total
$.00001 Par $.00001 Par Issuable Paid- Accumulated Stockholders’
Shares Amount Shares Amount Shares Amount in Capital Deficit Deficit
Balance December 31, 2021 1,004,709,546 $ 10,047 988,000 $ 10 170,000,000 $ 1,386,497 $ 10,778,761 $ (16,300,173 ) $ (4,124,858 )
Common stock issued for conversion of convertible debt and accrued interest 678,413,399 6,784 5,852,381 5,859,165

Common stock issued with note payable recorded as debt discount 25,000,000 250 134,750 135,000

Common stock issued with employment agreement 1,000,000 10 8,490 8,500

Warrants related to convertible notes 81,000 81,000

Net loss - - - - - - - (4,950,087 ) (4,950,087 )
Balance June 30, 2022 (Unaudited) 1,709,122,945 $ 17,091 988,000 $ 10 170,000,000 $ 1,386,497 $ 16,855,382 $ (21,250,260 ) $ (2,991,280 )

~~For the Three Months Ended June 30, 2021~~

~~(Unaudited)~~

Common Stock Preferred Stock Common Shares Additional Total
$.00001 Par $.00001 Par Issuable Paid- Accumulated Stockholders’
Shares Amount Shares Amount Shares Amount in Capital Deficit Deficit
March 31, 2021 825,726,839 $ 8,258 988,140 $ 10 170,000,000 $ 1,386,497 $ 6,964,898 $ (11,099,761 ) $ (2,470,098 )
Common stock issued for conversion of convertible debt and accrued interest 25,045,798 250 508,924 509,174

Net loss - - - - - - - (373,214 ) (373,214 )
Balance June 30, 2021 (Unaudited) 850,772,637 $ 8,508 988,140 $ 10 170,000,000 $ 1,386,497 $ 7,473,822 $ (11,472,975 ) $ (2,604,138 )

~~For the Six Months Ended June 30, 2021~~

~~(Unaudited)~~

Common Stock Preferred Stock Common Shares Additional Total
$.00001 Par $.00001 Par Issuable Paid- Accumulated Stockholders’
Shares Amount Shares Amount Shares Amount in Capital Deficit Deficit
Balance December 31, 2020 786,308,041 $ 7,863 988,140 $ 10 170,000,000 $ 1,386,497 $ 5,028,012 $ (9,280,036 ) $ (2,857,654 )
Common stock issued for conversion of convertible debt and accrued interest 55,464,596 555 1,122,429 1,122,984

Common stock issued for acquisition 9,000,000 90 270,810 270,900

Warrants related to convertible notes 1,052,571 1,052,571

Net loss - - - - - - - (2,192,939 ) (2,192,939 )
Balance June 30, 2021 (Unaudited) 850,772,637 $ 8,508 988,140 $ 10 170,000,000 $ 1,386,497 $ 7,473,822 $ (11,472,975 ) $ (2,604,138 )

~~See notes to condensed consolidated financial statements~~

F-4

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Unaudited)


	Six Months Ended June 30,						Nine Months Ended September 30,
	2022			2021			2022			2021
	(Unaudited)			(Unaudited)			(Unaudited)			(Unaudited)
CASH USED IN OPERATING ACTIVITIES:
Net loss	$	(4,950,087	)	$	(2,192,939	)	$	(6,142,144	)	$	(4,423,399	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization		44,250			20,503			67,018			32,755
Right-of-use asset		96,219			74,261			143,320			(306,110	)
Amortization of debt discount		480,763			-			702,675			-
Amortization of intangible assets		4,877			-			7,316			-
Change in allowance for doubtful accounts		35			-			35			-
Financing costs		286,000						260,000
Loss on extinguishment of debt		873,040			-			1,141,855			-
Loss on change in the fair value of derivative liabilities		1,671,000			-			1,523,000			-
Interest expense related to warrants on convertible debt		-			1,052,571			-			1,746,126
Common stock issued for compensation		8,500						8,500			55,800
Common stock issued for acquisition		-			270,900			-			270,900
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		(8,985	)		(344,030	)		(40,147	)		(74,223	)
Decrease (increase) in inventory		(615,102	)		(92,447	)		(433,068	)		(206,109	)
Decrease (increase) in prepaids		278,707			(10,244	)		278,707			(62,200	)
Decrease (increase) in other current assets		(29,461	)		(2,662	)		12,475			(945	)
Decrease (increase) in deposits								-			(6,250	)
Increase (decrease) in accounts payable and accrued expenses		450,365			180,716			645,765			84,196
Increase (decrease) in accrued compensation		(110,000	)		117,708			(170,000	)		132,083
Increase (decrease) in derivative liability		-			124,369			-			864,589
Increase (decrease) in lease liability		(99,476	)		(74,261	)		(153,890	)		306,110
Net cash used in operating activities		(1,619,355	)		(875,555	)		(2,148,583	)		(1,586,677	)

CASH USED IN INVESTING ACTIVITIES:
Purchase of property, plant and equipment		(24,168	)		(26,247	)		(42,923	)		(145,912	)
Changes in goodwill					(1,275,938	)					(1,275,938	)
Changes in intellectual property		-			(7,604	)		-			(5,256	)
Net cash used in investing activities		(24,168	)		(1,309,789	)		(42,923	)		(1,427,106	)

CASH PROVIDED BY FINANCING ACTIVITIES:
Changes in line of credit - related party		-			3,000			-			(13,000	)
Changes in acquisition obligations		(8,586	)		624,360			(11,446	)		590,418
Principal repayments of finance lease obligation		(3,798	)		-			(3,798	)		-
Proceeds from note payable – related party		200,000			-			260,000			-
Payment of note payable – related party		(3,000	)		(6,000	)		(4,500	)		(217,000	)
Proceeds from notes payable		289,389			-			542,000			34,763
Payments of notes payable		(3,119	)		-			(5,598	)		-
Proceeds from convertible debentures payable, net of expenses		475,000			1,522,984			981,816			3,029,636
Changes from PPP notes payable		-			22,326			-			22,326
Net cash provided by financing activities		945,886			2,166,670			1,758,474			3,447,143
Net cash decrease for period		(697,637	)		(18,674	)
Net cash increase (decrease) for period								(433,032	)		433,360
Cash at beginning of period		703,825			113,168			703,825			113,168
Cash at end of period	$	6,188		$	94,494		$	270,793		$	546,528

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	-		$	2,275		$	-		$	27,065
Cash paid for interest	$	256		$	34,941		$	533		$	52,091

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Fair value of common shares issued as debt discount on note payable	$	135,000		$	-		$	135,000		$	-
Fair value of common shares issued on conversion of debentures and accrued interest	$	5,859,165		$	-		$	6,469,848		$	-
Derivative liability recorded on issuance of convertible note	$	680,000		$			$	680,000		$
Note payable on vehicle purchase							$	46,576		$	-
Preferred stock conversion to common stock							$	-		$	3

See notes to condensed consolidated financial statements

F-5

KONA GOLD BEVERAGE, INC.

NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three and ~~Six~~Nine Months Ended ~~June~~September 30, 2022 and 2021

(Unaudited)

NOTE 1 – BASIS OF PRESENTATION AND LIQUIDITY

The accompanying interim condensed consolidated financial statements of Kona Gold Beverages, Inc. (the “Company”, “we”, “us”, or “our”), are unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position at ~~June~~September 30, 2022, and the results of operations and cash flows for the ~~six~~nine months ended ~~June~~September 30, 2022, and 2021. The balance sheet as of December 31, 2021, is derived from the Company’s audited financial statements.

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2021, as filed with the Securities and Exchange Commission on April 13, 2022.

The results of operations for the ~~six~~nine months ended ~~June~~September 30, 2022, are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.

Effects of COVID-19

In January 2020, the WHO announced a global health emergency because of a new strain of coronavirus (known as COVID-19) that originated in Wuhan, China and generated significant risks to the international community as the virus spread globally beyond its point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in global exposure. The COVID-19 pandemic is disrupting businesses and affecting production and sales across a range of industries, as well as causing volatility in the financial markets. The extent of the impact of the COVID-19 pandemic on the Company’s consumer demand, sales, and financial performance will depend on certain developments, including, among other things, the duration and spread of the outbreak and the impact on the Company’s consumers and employees, all of which are uncertain and cannot be predicted. Management is actively monitoring this situation and potential impacts on our financial condition, liquidity, and results of operations.

Going Concern

The accompanying financial statements 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. As reflected in the accompanying financial statements, during the ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded a net loss of $~~4,950,087~~6,142,144 and used cash in operations of $~~1,619,355~~2,148,583 and had a stockholders’ deficit of $~~2,991,280~~3,349,654 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2021, has also expressed substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At ~~June~~September 30, 2022, the Company had cash on hand in the amount of $~~6,188~~270,793. Subsequent to ~~June~~September 30, 2022, the Company raised an additional $~~547,500~~250,000 through the sale of a secured promissory note. The Company believes it has sufficient cash and working capital to sustain operations through ~~October~~December 31, 2022. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.

F-6

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

~~Basis of Presentation~~

The accompanying consolidated financial statements are unaudited and include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. These unaudited consolidated financial statements have been prepared on the accrual basis of accounting and in accordance with generally accepted accounting principles (“GAAP”) in the United States.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in valuing warrant liabilities, and assumptions used in the determination of the Company’s liquidity.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer.

All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.

The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Sales are made to customers under terms allowing certain limited rights of return. The Company records an allowance and return for each quarter for 3% of total sales. The Company recorded sales return, and allowance for the three months ending ~~June~~September 30, 2022 and 2021 of ~~approximately~~ $~~36,700~~32,700 and $~~19,800~~16,100, respectively, and the Company recorded sales return, and allowance for the ~~six~~nine months ending ~~June~~September 30, 2022 and 2021 of ~~approximately~~ $~~71,800~~104,500 and $~~57,417~~43,459, respectively which is included in the revenues, net of sales returns and allowances in the accompanying Condensed Consolidated Statements of ~~Loss.~~Operations.

F-7

The following table presents our net revenues, by revenue source, and the period-over-period percentage change, for the period presented:

SCHEDULE OF NET REVENUES BY REVENUE SOURCE

Three Months Ended
June 30,

2022 2021
Revenue Source Revenue Revenue % Change
Distributors $ 219,790 $ 414,937 (47 )%
Amazon and Walmart Marketplace 44,565 39,256 14 %
Online Sales 13,709 21,843 (37 )%
Retail 927,614 328,848 182 %
Shipping 4,420 5,725 (23 )%
Sales Returns and Allowances (36,700 ) (19,800 ) 85 %
Net Revenues $ 1,173,398 $ 790,809 48 %

	Three Months Ended September 30,
	2022			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	223,849		$	150,929			48	%
Amazon and Walmart Marketplace		30,334			41,669			(27	)%
Online Sales		7,998			17,678			(55	)%
Retail		897,549			347,247			159	%
Shipping		3,516			4,451			(21	)%
Sales Returns and Allowances		(32,700	)		(16,599	)		97	%
Net Revenues	$	1,130,546		$	545,375			107	%

	Six Months Ended June 30,									Nine Months Ended September 30,
	2022			2021						2022			2021
Revenue Source	Revenue			Revenue			% Change			Revenue			Revenue			% Change
Distributors	$	413,107		$	672,873			(39	)%	$	635,605		$	784,023			(19	)%
Amazon and Walmart Marketplace		80,089			77,759			3	%		110,478			119,428			(7	)%
Online Sales		22,316			40,047			(44	)%		30,494			57,725			(47	)%
Retail		1,719,015			509,130			238	%		2,616,679			883,825			196	%
Shipping		5,802			10,588			(45	)%		10,319			15,039			(31	)%
Sales Returns and Allowances		(71,800	)		(57,417	)		25	%		(104,500	)		(61,041	)		71	%
Net Revenues	$	2,168,529		$	1,252,980			73	%	$	3,299,075		$	1,798,999			83	%

The following table presents our net revenues by product lines for the period presented:

	Three Months Ended June 30,									Three Months Ended September 30,
	2022			2021						2022			2021
Product Line	Revenue			Revenue			% Change			Revenue			Revenue			% Change
Hemp Energy Drinks	$	50,792		$	113,434			(55	)%	$	25,743		$	123,770			(79	)%
CBD Energy Waters		17,249			31,682			(46	)%		13,686			28,491			(52	)%
Lemonade Drinks		209,976			329,893			(36	)%		222,689			57,911			285	%
Apparel		47			1,027			(95	)%		63			104			(39	)%
Retail		927,614			328,848			182	%		897,549			347,247			159	%
Shipping		4,420			5,725			(23	)%		3,516			4,451			(21	)%
Sales returns and allowance		(36,700	)		(19,800	)		85	%		(32,700	)		(16,599	)		97	%
Net Revenues	$	1,173,398		$	790,809			48	%	$	1,130,546		$	545,375			107	%

Six Months Ended
June 30,
2022 2021
Product Line Revenue Revenue % Change
Hemp Energy Drinks $ 118,574 $ 201,926 (41 )%
CBD Energy Waters 41,588 51,762 (20 )%
Lemonade Drinks 354,238 535,733 (34 )%
Apparel 112 1,258 (91 )%
Retail 1,719,015 509,130 238 %
Shipping 5,802 10,588 (45 )%
Sales returns and allowance (71,800 ) (57,417 ) 25 %
Net Revenues $ 2,168,529 $ 1,252,980 73 %

F-8

	Nine Months Ended September 30,
	2022			2021
Product Line	Revenue			Revenue			% Change
Hemp Energy Drinks	$	148,725		$	316,124			(53	)%
CBD Energy Waters		56,388			75,096			(25	)%
Lemonade Drinks		571,285			568,624			-	%
Apparel		179			1,332			(87	)%
Retail		2,616,679			883,825			196	%
Shipping		10,319			15,039			(31	)%
Sales returns and allowance		(104,500	)		(61,041	)		71	%
Net Revenues	$	3,299,075		$	1,798,999			83	%

Loss per Common Share

Basic earnings (loss) per share is computed by dividing the net income (loss) applicable to common stockholders by the weighted average number of shares of common stock outstanding during the year. Diluted earnings (loss) per share is computed by dividing the net income applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued, using the treasury stock method. Potential common shares are excluded from the computation when their effect is antidilutive.

For the period ended ~~June~~September 30, 2022 and 2021, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

SCHEDULE OF POTENTIAL DILUTIVE SECURITIES


	June 30, 2022		June 30, 2021		September 30, 2022		September 30, 2021
Warrants		178,333,333		70,000,000		278,333,333		170,000,000
Common stock equivalent of Series B Convertible Preferred Stock		488,000		488,000		488,000		488,000
Common stock equivalent of Series C Convertible Preferred Stock		-		140		-		140
Common stock equivalent of Series D Convertible Preferred Stock		500,000		500,000		500,000		500,000
Common stock issuable		170,000,000		170,000,000		169,999,860		170,000,000
Common stock on convertible debentures and accrued interest		161,707,234		80,508,648		333,838,293		209,812,295
Total		511,028,567		321,496,788		783,159,486		550,800,435

Stock Compensation Expense

The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.

The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

Advertising Costs

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs for the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, were $~~105,956~~118,807 and $~~24,100~~45,700, respectively.

F-9

Concentrations

The Company’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Generally, the Company’s policy is to minimize borrowing costs by immediately applying cash receipts to borrowings against its credit facility. From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the FDIC limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.

~~F-9~~

Gross sales. During the three months ended ~~June~~September 30, 2022, the Company reported no customers that accounted for more than 10% of gross sales. During the three months ended ~~June~~September 30, 2021, the Company reported one customer represented 3012% of the Company’s gross sales. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company reported no customers that accounted for more than 10% of gross sales. During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company reported one customer represented 1913% of the Company’s gross sales.

Accounts receivable. As of ~~June~~September 30, 2022, the Company had ~~one customer~~six customers that accounted for 1580% of its gross accounts receivable. As of December 31, 2021, the Company had accounts receivable from two customers that comprised 60% of its gross accounts receivable.

Co-Packers. The raw materials used in the production of the Company’s products are obtained by the Company’s co-packers and consist primarily of materials such as the flavors, caffeine, sugars or sucralose, taurine, vitamins, CBD, and hemp seed protein contained in its beverages, the bottles in which its beverages are packaged, and the labeling on the outside of its beverages. These principal raw materials are subject to price and availability fluctuations. The Company currently relies on a few key co-packers, which in turn rely on a few key suppliers. The Company continually endeavors to have back-up co-packers, which co-packers would in turn depend on their third-party suppliers to supply certain of the flavors and concentrates that are used in the Company’s beverages. The Company is also dependent on these co-packers to negotiate arrangements with their existing suppliers that would enable the Company to obtain access to certain of such concentrates or flavor formulas under certain extraordinary circumstances. Additionally, in a limited number of cases, the Company’s co-packers may have contractual restrictions with their suppliers or the Company’s co-packers may need to obtain regulatory approvals and licenses that may limit the co-packers’ ability to enter into agreements with alternative suppliers. Contractual restrictions in the agreements the Company has with certain distributors may also limit the Company’s ability to enter into agreements with alternative distributors. The Company believes that a satisfactory supply of co-packers will continue to be available at competitive prices, although there can be no assurance in this regard. The Company continually endeavors to contract with additional beverage vendors to ensure the Company has adequate inventory. The Company believes that a satisfactory supply of vendors will continue to be available at competitive prices, although there can be no assurance in this regard.

Purchases from vendors. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company’s one vendor accounted for 33% of all purchases, respectively. During the nine months ended September 30, 2021, the Company’s largest three vendors accounted for ~~approximately~~ 3217%, 20~~%, and~~ 11~~% of all purchases, respectively. During the six months ended June 30, 2021, the Company’s largest four vendors accounted for approximately~~ 33%, 13%, 1214%, and 11% of all purchases, respectively.

Accounts payable. As of ~~June~~September 30, 2022, ~~three~~two vendors accounted for more than ~~10%~~49% the total accounts payable. The Company’s largest ~~four~~two vendors accounted for 10%, 1326% and 2123% of the total accounts payable, respectively. As of December 31, 2021, four vendors accounted for more than 10% the total accounts payable. The Company’s largest four vendors accounted for 20%, 14%, 12%, and 11% of the total accounts payable, respectively.

Fair Value of Financial Instruments

The Company uses various inputs in determining the fair value of its financial assets and liabilities and measures these assets on a recurring basis. Financial assets recorded at fair value are categorized by the level of subjectivity associated with the inputs used to measure their fair value. Accounting Standards Codification Section 820 defines the following levels of subjectivity associated with the inputs:

Level 1—Quoted prices in active markets for identical assets or liabilities.

Level 2—Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly.

Level 3—Unobservable inputs based on the Company’s assumptions.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts receivable, short-term bank loans, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments. The carrying values of capital lease obligations and long-term financing obligations approximate their fair values because interest rates on these obligations are based on prevailing market interest rates.

F-10

Segments

The Company operates in 1one segment for the manufacture and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in economic characteristics, nature of products and services, and procurement, manufacturing, and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 3 – INVENTORY

Inventory is valued at the lower of cost (first-in, first-out) or net realizable value, and net of reserves is comprised of the following:

SCHEDULE OF INVENTORY


	June 30, 2022		December 31, 2021		September 30, 2022		December 31, 2021
Raw materials	$	219,683	$	70,592	$	263,418	$	70,592
Finished goods, net		970,230		504,219		744,461		504,219
Total	$	1,189,913	$	574,811	$	1,007,879	$	574,811

At ~~June~~September 30, 2022 and December 31, 2021, inventory presented above is net of a reserve for slow moving and potentially obsolete inventory of $150,000 and $150,000, respectively.

~~F-11~~

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

Property and equipment is comprised of the following:

SCHEDULE OF PROPERTY ~~PLANT~~ AND EQUIPMENT


	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021
Furniture and Fixtures	$	77,154		$	75,070		$	79,965		$	75,070
Computers and Software		32,325			29,196			33,191			29,196
Machinery & Equipment		116,754			108,799			116,754			108,799
Vehicles		250,093			239,093			311,747			239,093
Total cost		476,326			452,158			541,657			452,158
Accumulated depreciation		(148,371	)		(104,121	)		(171,139	)		(104,121	)
Property, plant and equipment, net	$	327,955		$	348,037		$	370,518		$	348,037

F-11

Depreciation expense is included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of ~~Loss Depreciation.~~Loss. For the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, depreciation expense was $~~44,250~~67,018 and $~~20,503~~32,755, respectively.

NOTE 5 – ACQUISITION OF S AND S BEVERAGE, INC.

On January 21, 2021, the Company entered into an Agreement and Plan of Merger with S and S Beverage, Inc. (“S and S”) and its shareholders and acquired all of the capital stock of S and S. In consideration thereof, the Company issued to them an aggregate of ~~9000000~~nine million restricted shares of Kona Gold Beverage, Inc.’s common stock (the “Acquisition Stock”). The Company did not grant them any registration rights in respect of the shares of Acquisition Stock. The Company also agreed to pay an aggregate of $1,050,000 (the “Aggregate Acquisition Payments”), the majority of which is allocated to certain creditors of S and S (including one of the S and S’s legacy shareholders) and ~~approximately~~ $89,249 was allocated and paid to the five S and S legacy shareholders on a pro rata basis. The Company paid ~~approximately~~ $400,000 of the Aggregate Acquisition Payments at the closing of the transaction. The remaining Aggregate Acquisition Payments are scheduled to be paid in monthly installments, in arrears on the tenth calendar day of each month, commencing on March 10, 2021, at a rate equivalent to $2.00 per case of Lemin Superior Lemonade (the product line of S and S that we have now branded as Ooh La Lemin) that we sell until the Aggregate Acquisition Payments have been paid in full. The acquisition obligation balance was $675,317 at December 31, 2021. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company paid $~~8,586~~11,446 of the remaining Aggregate Acquisition Payments, leaving an acquisition obligation balance of $~~666,731~~663,871 at ~~June~~September 30, 2022, of which $~~60,000~~is ~~expected to be~~ currently due.

Proforma information for the ~~three~~three- and ~~six month~~nine-month period ended ~~June~~September 30, ~~2022~~2021 has been omitted as the operations of S and S prior to the acquisition were de minimis. ~~During the three months ended June 30, 2022, revenue of $209,861, loss from operations of $10,258, and $5,675~~ ~~of net loss was attributable to S and S. During the six months ended June 30, 2022, revenue of $368,879, loss from operations of $95,923, and $89,116~~ ~~of net loss was attributable to S and S.~~

NOTE 6 – INTANGIBLE ASSETS

Intangible asset consisted of the following:

SCHEDULE OF INTANGIBLE ASSET

June 30,
2022

December 31,
2021

Trademarks $ 85,340 $ 85,340
Website development 12,200 12,200
Accumulated amortization (26,462 ) (21,585 )
Total Intangible Assets, net of amortization $ 71,078 $ 75,955

~~F-12~~

	September 30, 2022			December 31, 2021

Trademarks	$	85,340		$	85,340
Website development		12,200			12,200
Accumulated amortization		(28,901	)		(21,585	)
Total Intangible Assets, net of amortization	$	68,639		$	75,955

During the ~~six~~nine months ended ~~June~~September 30, 2022, ~~and 2021,~~ the Company recorded amortization expense of $~~4,877~~7,316 ~~and $~~0~~, respectively.~~. The following table summarizes the amortization expense to be recorded in future periods for intangible assets that are subject to amortization:

SCHEDULE OF ESTIMATED FUTURE AMORTIZATION EXPENSE


Year Ending	Amortization		Amortization
2022 (remaining)	$	4,877	$	2,438
2023		9,754		9,754
2024		9,754		9,754
2025		9,754		9,754
2026		9,754		9,754
Thereafter		27,185		27,185
Total	$	71,078	$	68,639

F-12

NOTE 7 – NOTES PAYABLE – RELATED PARTIES

Notes payable with related parties consists of the following at ~~June~~September 30, 2022 and December 31, 2021:

SCHEDULE OF NOTES PAYABLE RELATED PARTY

							September 30, 2022			December 31, 2021
	June 30, 2022			December 31, 2021

Note payable – related party (a)							$	1,352,651		$	1,352,651
Note payable – related party ~~(a)~~(b)	$	1,352,651		$	1,352,651			260,000			-
Note payable – related party (b)		200,000			-
Note payable – related party – past due (c)								125,500			125,500
Note payable – related party ~~(c)~~(d)		125,500			125,500			49,000			53,500
Note payable – related party (e)		50,500			53,500
Total notes payable – related parties		1,728,651			1,531,651			1,787,151			1,531,651
Notes payable – related parties, current portion		(1,728,651	)		(6,000	)		(1,787,151	)		(6,000	)
Notes payable – related parties, net of current portion	$	-		$	1,525,651		$	-		$	1,525,651

	(a)	On April 4, 2019, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $1,500,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on April 4, 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022 and December 31, 2021, outstanding principal was $1,352,651 and $1,352,651, respectively.

	(b)	On May 6, 2022, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $300,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on May 6, 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022, the outstanding principal was $~~200,000~~260,000.

	~~(b)~~(c)	On August 29, 2019, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $200,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on August 29, ~~2022~~2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022 and December 31, 2021, outstanding principal was $125,500 and $125,500, respectively.

	~~(c)~~(d)	On February 19, 2019, the Company issued an unsecured Standard Promissory Note in Favor of Robert Clark, as lender, in the original principal amount of $70,000. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The note bears no interest. Principal payments of $500 per month commenced in March 2019, with final payment due in March 2021. On March 15, 2022, the Company issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principal of $58,000. Principal payment of $500 per month, with final payment due in March 2023. The outstanding principal balance of this note at December 31, 2021 was $53,500. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company made principal payments of $~~3,000~~4,500, leaving an outstanding principal balance of $~~50,500~~49,000 at ~~June~~September 30, 2022.

~~F-13~~

At December 31, 2021, accrued interest on notes payable to related parties was $95,873. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company added $~~27,033~~31,035 of additional accrued interest, leaving an accrued interest balance on the notes payable to related parties of $~~122,906~~126,908 at ~~June~~September 30, 2022. Accrued interest inis included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

F-13

NOTE 8 – NOTES PAYABLE

Notes payable consists of the following at ~~June~~September 30, 2022 and December 31, 2021:

SCHEDULE OF NOTES PAYABLE

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021

Note payable (a)	$	30,193		$	33,312		$	28,606		$	33,312
Note payable (b)		39,389			-			46,576			-
Note payable (c)		250,000			-			41,108			-
Less debt discount (c)		(99,031	)		-
Note payable (d)								340,000			-
Note payable (e)								250,000			-
Less debt discount (e)								(155,281	)		-
Total notes payable, net		220,551			33,312			551,009			33,312
Notes payable, current portion		(198,332	)		(7,974	)		(479,260	)		(7,974	)
Notes payable, net of current portion	$	22,219		$	25,338		$	71,749		$	25,338

	(a)	On August 21, 2021, the Company financed the purchase of a vehicle for $34,763, after making a down payment of $20,000. The loan term is for 60 months, annual interest rate of 5.44%, with monthly principal and interest payments of $665, and secured by the purchased vehicle. At December 31, 2021, the loan balance was $33,312. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company made principal payments of $~~3,119~~4,706, leaving a loan balance of $~~30,193~~28,606 at ~~June~~September 30, 2022, of which $~~7,974~~1,587 was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheet.

	(b)	On September 30, 2022, the Company financed the purchase of a vehicle for $46,576, after making a down payment. The loan term is for 60 months, annual interest rate of 9.44%, with monthly principal and interest payments of $980, and secured by the purchased vehicle. As of September 30, 2022, no principal payments were made, leaving a loan balance of $46,576 at September 30, 2022, of which $1,846 was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheet.

	~~(b)~~(c)	In April 2021, the Company entered into a Line of Credit Agreement with Wells Fargo Bank. The Line of Credit is personally guaranteed by Robert Clark, the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $42,000. Advances under this line of credit bear interest at the rate of 11.50 percent per annum. The line of credit matures in 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022, the outstanding principal was $~~39,389~~41,108, which was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheet.

	~~(c)~~(d)	On September 30, 2022, the Company entered into a secured non-interest bearing advance agreement with an unaffiliated third party for the purchase of future receipts/revenues. Under the agreements, the Company received a lump sum payment of $250,000, and in return, the lender receives a secured right to collect a fix sum of future receipts/revenue of $340,000 to be collected by the Company. In accordance with the agreement, the Company agreed to sell, assign and transfer to the Purchaser of all the Company’s payments, receipts, settlements and funds paid to or received by or for the account of the Company from time to time on and after the date hereof in payment or settlement of the Company’s existing and future accounts, payment intangibles, credit, debit and/or stored value card transactions, contract rights and other entitlements arising from or relating to the payment of monies from the Company’s customers and/or other payors or obligors. The loan is payable in weekly payments of $7,728, is secured by these assets described above, and is guaranteed by Robert Clark, the Company’s Chief Executive Officer. Upon execution of the advance and receipt of funds, the Company recorded the difference of $90,000 between the cash collected and the face amount of the note as a note discount, and will amortize the note discount as interest expense over the life of the advance.

	(e)	On March 25, 2022, the Company entered into a secured debenture with an otherwise unaffiliated individual in the principal amount of $250,000. The secured note payable matures on March 24, 2023, and bears interest at the rate of 0.97 percent per annum. The secured debenture is secured by nine (9) identified motor vehicles of the Company. In connection with the issuance of the debenture, the Company issued to the lender 25 million shares of the Company’s common stock at a price of $0.004 per share. The Company determined the fair value of the 25 million shares was $135,000, which was recorded as a debt discount against the secured debenture. As of ~~June~~September 30, 2022, the outstanding balance of the secured debentures amounted to $250,000 and the unamortized debt discount was $~~99,031~~65,281, which was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheets.

F-14

At December 31, 2021, there was 0no accrued interest on the notes payable. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company added $~~651~~1,262 of additional accrued interest, leaving an$1,262 of accrued interest balance on the notes payable ~~of $651~~at ~~June~~September 30, 2022. Accrued interest in included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

~~F-14~~

NOTE 9 – SECURED CONVERTIBLE DEBENTURES

Secured debentures that are payable to an otherwise unaffiliated third party consists of the following as of ~~June~~September 30, 2022 and December 31, 2021:

SCHEDULE OF SECURED DEBENTURES PAYABLE TO RELATED PARTY

	September 30, 2022			December 31, 2021

YA II PN, Ltd.	$	500,000		$	3,000,000
Mast Hill		595,000			-
Secured debentures		1,095,000			3,000,000
Less debt discount		(564,416	)		(2,150,067	)
Secured debentures, net	$	530,584		$	849,933

June 30,
2022

December 31,
2021

YA II PN, Ltd. $ 900,000 $ 3,000,000
Less debt discount (815,270 ) (2,150,067 )
Secured debentures, net $ 84,730 $ 849,933

YA II PN, Ltd.

During the year ended December 31, 2021, the Company issued secured debentures to an otherwise unaffiliated third-party investor (the “Selling Stockholder”) in the aggregate of $4,500,000. The debentures are secured by all tangible and intangible assets of the Company and are also convertible into shares of our common stock at a conversion price of $0.03per share or a per share amount equivalent to the weighted average (among the principal of the debentures) of 76.7% of the lowest VWAP of the Company’s common stock during the 15 trading days immediately preceding the conversion date, whichever is lower. As the ultimate determination of shares to be issued upon conversion of these debentures can exceed the current number of available authorized shares, we determined that the conversion features of these convertible debentures are not considered indexed to our Company’s own capital stock and characterized the fair value of the conversion features as derivative liability. In connection with the issuances of the debentures, the Company granted to the Selling Stockholder warrants to purchase up to 150million shares of the Company’s common stock. The warrants are exercisable at $0.03per ~~share.~~share, ~~Fifty~~Twenty million of the warrants will expire on May 14, 2023, fifty million of the warrants will expire on February 10, 2024 and 100,000,0000 of the warrants will expire on August 20, 2024. As a result of these issuances and grants, we incurred the following (a) derivative liability of $3,982,000 related to the conversion feature of the debentures; (b) relative fair value of the warrants granted of $1,581,000; and (c) and original issue discounts of $195,000 of the debentures for a total of $5,758,000, of which, $4,423,000 was accounted as debt discount and the remaining $1,335,000 as financing ~~costs~~costs.. The debt discount is being amortized to interest expense over the term of the corresponding debentures.

As of December 31, 2021, the outstanding balance of the secured debentures amounted to $3,000,000, with an unamortized debt discount ~~was~~of $2,150,067, or a net balance of $849,933.

During the nine months ended September 30, 2022, the note holder converted principal of $3,000,000 and accrued interest of $140,876, or a total $3,140,876, into 775,748,690 shares of the Company’s common stock with a fair value of $6,469,848. The Company followed the general extinguishment model to record the conversions and settlement of the debt. As such, the Company removed the debt and accrued interest totaled $3,140,876, the related unamortized debt discount totaled $1,784,879 at the date of conversion. In addition, the Company revalued the derivative related to the bifurcated conversion option to its fair value of $3,972,000 at the date of the conversion and removed that amount. As a result, the Company recorded a loss on extinguishment of debt of $1,141,850.

F-15

On May 5, 2022, the Company issued similar debentures to the Selling Stockholder in the aggregate amount of $500,000. The debentures bear interest at a rate of 8% per annum, secured by all of the tangible and intangible assets of the Company and are also convertible into shares of the Company’s common stock at a conversion price of $0.03 per share or 80% of the lowest daily volume weighted average price (“VWAP”) of ~~Common Stock~~the Company’s common stock during the 10 trading days immediately preceding the conversion date. As the ultimate determination of shares of common stock to be issued upon conversion of these debentures can exceed the current number of available authorized shares, the Company determined that the conversion features of these debentures are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as a derivative liability (see Note 10). In connection with the issuances of these debentures, the Company also granted to the selling stockholder warrants to purchase up to 8,333,333 shares of common stock. The warrants are exercisable at $0.03 per share and will expire in three years from their grant date. As a result of these issuances, the Company incurred the following (a) derivative liability of $680,000 related to the conversion feature of the debentures; (b) relative fair value of the warrants granted of $81,000; and (c) and original issue discount of $25,000 for a total of $786,000, of which, $500,000 was accounted as debt discount and the remaining $286,000 as financing costs. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company amortized debt discount of $~~443,764~~198,335 to interest expense.

~~During the six months ended June 30, 2022, the note holder converted principal of $2,600,000~~ ~~and accrued interest of $137,128, or a total $2,737,128, into~~ ~~678,413,399~~ ~~shares of common stock with a fair value of $5,859,165. The Company followed the general extinguishment model to record the conversions and settlement of the debt. As such, the Company removed the debt and accrued interest totaled $2,737,128, the related unamortized debt discount totaled $1,354,280~~ ~~at the date of conversion. In addition, the Company revalued the derivative related to the bifurcated conversion option to its fair value of $3,639,000 at the date of the conversion andremoved that amount. As a result, the Company recorded a loss on extinguishment of debt of $873,040~~.

As of ~~December 31, 2021, the outstanding balance of the secured debentures amounted to $3,000,000, with an unamortized debt discount of $2,150,067, or a net balance of $849,933. As of June~~September 30, 2022, the outstanding balance of the secured debentures amounted to $~~900,000~~500,000, with an unamortized debt discount of $~~815,270~~301,645, or a net balance of $~~84,730~~198,355. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company amortized debt discount of $~~444,793~~563,542 to interest ~~expense.~~expense on the YA II PN, Ltd. loans.

~~F-15~~

As of ~~June~~September 30, 2022, ~~161,707,234~~124,958,049 shares of common stock were potentially issuable under the conversion terms of the ~~two partially converted~~outstanding debentures.

Mast Hill

On July 28, 2022, the Company issued senior secured debentures to an otherwise unaffiliated third-party investor (the “Investor”) in the aggregate of $595,000. The debentures bear interest at a rate of 10% per annum, mature on July 28, 2023, and are convertible into shares of our common stock at a conversion price of $0.0045 per share. If the Company issues subsequent equity instruments at an effective price per share that is lower than the conversion price of $0.0045 per shares, then the conversion price shall be reduced, at the option of the Holder, to a price equal to the Weighted Average Price (as defined), provided, further, that if the conversion price is equal to or less than $0.003, then the conversion price shall be reduced at the option of the Holder to a price equal to the lower price. The senior secured debentures are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to the Security Agreement. The security interest granted to the Investor under the Security Agreement is subordinate to the continuing security interest that remains in effect pursuant to the previous grant of a security interest in connection with a still-outstanding debenture to an earlier investor all tangible and intangible assets. In connection with the issuances of the debentures, the Company granted to the Selling Stockholder warrants to purchase up to 100 million shares of the Company’s common stock, which expire on July 28, 2027. The warrants are exercisable at $0.0045 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $223,000; and (b) original issue discounts of $92,325 of the debentures for a total of $315,325 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. As of September 30, 2022, the unamortized debt discount was $262,771.

As of September 30, 2022, 147,745,854 shares of common stock were potentially issuable under the conversion terms of the outstanding debentures.

At December 31, 2021, accrued interest on the convertible notes payable was $54,110. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company added $~~77,785~~109,854 of additional accrued interest, and converted $~~137,128~~140,876 of accrued interest into common stock, leaving an accrued interest balance on the convertible notes payable of $~~4,767~~23,088 at ~~June~~September 30, 2022. Accrued interest inis included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

NOTE 10 – DERIVATIVE LIABILITY

The FASB has issued authoritative guidance whereby instruments which do not have fixed settlement provisions are deemed to be derivative instruments. During fiscal year 2021, the Company issued convertible debentures, which, if converted into common stock, can potentially exceed the current number of available authorized shares of the Company (see Note 11). Since the number of shares is not explicitly limited, the Company is unable to conclude that enough authorized and unissued shares are available to settle the conversion option. In accordance with the FASB authoritative guidance, the conversion features have been characterized as derivative liabilities to be re-measured at the end of every reporting period with the change in value reported in the statement of operations.

F-16

As of ~~June~~September 30, 2022 and December 31, 2021, the derivative liabilities were valued using the Binomial pricing model and/or Black Scholes pricing model with the following assumptions:

SCHEDULE OF DERIVATIVE LIABILITY

	At June 30, 2022			Remaining 2022			New Derivative 2022			At December 31, 2021			At September 30, 2022			Remaining 2022			New Derivative 2022			At December 31, 2021

Stock Price	$	0.0086		$	.0120		$	.0168		$	0.0052		$	0.0060		$	.0120		$	.0168		$	0.0052
Exercise Price	$	0.0058		$	.0062		$	.0082		$	0.0039		$	0.0048		$	.0062		$	.0082		$	0.0039
Expected Life (Years)		0.85			0.34			1.00			0.74			0.59			0.34			1.00			0.74
Volatility		171	%		171	%		132	%		95	%		172	%		171	%		132	%		95	%
Dividend Yield		0	%		0	%		0	%		0	%		0	%		0	%		0	%		0	%
Risk-Free Interest Rate		2.80	%		1.72	%		2.16	%		0.39	%		4.05	%		1.72	%		2.16	%		0.39	%

Fair value:
Conversion feature	$	833,000		$	3,639,000		$	680,000		$	2,121,000		$	352,000		$	3,972,000		$	680,000		$	2,121,000

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the conversion feature of the notes was based on the remaining term of the notes. The expected dividend yield was based on the fact that the Company has not customarily paid dividends in the past and does not expect to pay dividends in the future.

~~During~~As discussed in Note 8, during the ~~six~~period, the Company converted $3,000,000 of convertible notes. At issuance it was determined that the conversion feature of these notes contained a conversion feature that resulted in a derivative liability, the fair value of which was $2,121,000 at December 31, 2021. These convertible notes were converted to common shares during the period. As such, prior to conversion the Company revalued the derivatives to their fair value at the date of extinguishment of $3,972,000, resulting in change in fair value of $1,851,000. The Company removed the fair value of derivative of $3,972,000 at date of extinguishment, which has been included in the net loss on extinguishment.

In addition, during the nine months ended ~~June~~September 30, 2022, the Company recognized derivative liabilities of $680,000upon issuance of additional secured convertible debentures ~~(see Note 9), and the derivative liability balance was increased by $1,671,000, representing the change in the fair value of the derivative liability from the respective prior period recorded as a component of other expenses~~(See note above). ~~In addition, prior to the conversion of certain notes payable, the derivative liability balance related to the embedded conversion feature of these notes were revalued to $3,639,000~~ ~~and extinguished upon conversion.~~ The remaining derivative liabilities were revalued at $~~833,000~~352,000 at ~~June~~September 30, 2022.

NOTE 11 – LEASE LIABILITIES

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company leases its office and warehouse locations, and certain warehouse equipment. Leases with an initial term of 12 months or less are not included on the balance sheets.

~~F-16~~

Operating Leases

The Company leases approximately 4,500 square feet of corporate office and warehouse space located at 746 North Drive, Suite A, Melbourne, Florida 32934. The lease is for a ~~five~~five-year~~-year~~ term and expires on May 31, 2023. The initial monthly base rent was approximately $3,994, plus state taxes. The monthly base rent increases annually by 3 percent.

The Company leases a 30,000 square foot warehouse and main distribution hub in Greer, South Carolina. The lease is for a 63-month term that commenced in May 2019 and expires on August 1, 2026. Beginning in April 2020, the Company’s monthly rent includes monthly base payments of $10,200, plus applicable monthly CAM fees (“Common Area Maintenance”). The monthly base rent increases annually by 2 percent.

F-17

The Company leases a 10,000 square foot distribution hub in Conway, South Carolina. The lease is for a 62-month term that commenced in October 2021 and expires in November 2026. The Company’s monthly rent is approximately $7,261 plus applicable monthly CAM fees (Common Area Maintenance). The monthly base rent increases annually by 1.5 percent.

Finance Leases

On March 17, 2020, the Company entered into a lease agreement for equipment. The finance lease is for a 62-month term that commenced in April 2020 and expires in March 2025. The agreement includes monthly payments of $676.

During the ~~six~~nine months ended ~~June~~September 30, 2022 and 2021, lease costs totaled $152,841 and $93,569, respectively.

Our ROU asset balance was $966,955 as of December 31, 2021. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company recorded reduction of ROU assets of $~~96,219~~143,320 related to its leases, resulting in an ROU asset balance of $~~870,736~~823,635 as of ~~June~~September 30, 2022.

As of December 31, 2021, lease liabilities totaled $1,052,720, comprised of finance lease liabilities of $~~25,481~~$25,481 and operating lease liabilities of $1,027,239. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company made payments of $3,798 against its finance lease liability and $~~99,476~~153,890 against its operating lease liability. As of ~~June~~September 30, 2022, lease liabilities totaled $~~949,446~~895,032, comprised of finance lease liabilities of $~~21,683~~19,753 and operating lease liabilities of $~~927,763~~875,279. At ~~June~~September 30, 2022, the current portion of lease liabilities was $~~224,162~~217,166, leaving a long-term lease liabilities balance of $~~725,284~~677,866.

As of ~~June~~September 30, 2022, the weighted average remaining lease terms for operating lease and finance lease are ~~4.14~~3.87 years and ~~2.75~~2.50 years, respectively. As of ~~June~~September 30, 2022, the weighted average discount rate for operating lease is 10.00% and 2.09% for finance lease.

Future minimum lease payments under the leases are as follows:

SCHEDULE OF FUTURE MINIMUM LEASE PAYMENTS ~~DUE UNDER OPERATING lEASES~~

Years Ending December 31, Amount
2022 (remaining) $ 154,969
2023 282,347
2024 262,715
2025 261,083
2026 and thereafter 198,217
Total payments 1,159,331
Less: Amount representing interest (209,885 )
Present value of net minimum lease payments 949,446
Less: Current portion (224,162 )
Non-current portion $ 725,284

~~F-17~~

Years Ending December 31,	Amount
2022 (remaining)	$	77,686
2023		282,347
2024		262,715
2025		261,083
2026 and thereafter		198,217
Total payments		1,082,048
Less: Amount representing interest		(187,016	)
Present value of net minimum lease payments		895,032
Less: Current portion		(217,166	)
Non-current portion	$	677,866

NOTE 12 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company’s issued and outstanding preferred stock, par value $0.00001 per share, at ~~June~~September 30, 2022 and December 31, 2021 was 988,000 and 988,000, respectively. The Board, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations, and restrictions of the shares of each series.

F-18

Series A Preferred Stock

The Company had authorized 4,000,000 shares of Series A Preferred Stock, par value of $0.00001 per share (the “Series A Preferred Stock”), of which no shares were issued or outstanding at ~~June~~September 30, 2022 and December 31, 2021, respectively. Each share of Series A Preferred Stock, when outstanding, could have been converted into one share of Common Stock.

Series B Preferred Stock

The Company had authorized 1,200,000 shares of Series B Preferred Stock, par value of $0.00001 per share (the “Series B Preferred Stock”), of which 488,000 were issued and outstanding at ~~June~~September 30, 2022 and December 31, 2021, respectively. Each share of Series B Preferred Stock may be converted into one share of Common Stock.

Series C Preferred Stock

On July 8, 2020, the Company reduced the authorized number of Series C Preferred Stock from 3,300,000 to 250 shares, par value $0.00001 per share (the “Series C Preferred Stock”), by filing a Certificate of Designation of the Preferences, Rights, and Limitations of the Series C Preferred Stock with the Secretary of State of the State of Delaware. The Company also amended the terms of the Series C Preferred Stock. The holders of shares of the Series Preferred C Stock are now entitled to 2,000,000 votes for every share of our Series Preferred C Stock held. The holders of the Series Preferred C Stock are not entitled to receive dividends. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment will be made to the holders of any stock ranking junior to the Series C Preferred Stock, the holders of the Series C Preferred Stock will be entitled to be paid out of the Company’s assets an amount equal to $1.00 in the aggregate for all issued and outstanding shares of the Series C Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares) (the “Preference Value”). After the payment of the full applicable Preference Value of each share of the Series C Preferred Stock, our remaining assets legally available for distribution, if any, will be distributed ratably to the holders of the Common Stock. The Series C Preferred Stock has conversion rights, whereby each share of the Series C Preferred Stock automatically converts into one share of Common Stock on the one-year anniversary of the issuance date.

The Company has authorized 250 shares, of Series C Preferred Stock of which 140 shares were issued and outstanding December 31, 2020. In July 2021, each share of the Series C Preferred Stock automatically converted into one share of Common Stock on the one-year anniversary of the issuance date. At ~~June~~September 30, 2022 and December 31, 2021, no shares of Series C Preferred Stock were issued and outstanding.

Series D Preferred Stock

The Company had authorized 500,000 shares of Series D Preferred Stock, par value of $0.00001 per share (the “Series D Preferred Stock”), of which 500,000 shares were issued and outstanding at ~~June~~September 30, 2022 and December 31, 2021, respectively. Each share of the Series D Preferred Stock may be converted into 1,000 shares of Common Stock.

Common Stock

The Company has authorized 2,500,000,000 shares of the Common Stock, respectively, of which ~~1,709,122,945~~1,806,458,236 shares were issued and outstanding at ~~June~~September 30, 2022, and 1,004,709,546 were issued and outstanding at December 31, 2021.

~~F-18~~

Equity Transactions

On April 1, 2022, the Company granted 1,000,000 shares of Common Stock to Peter Troy pursuant to that certain Employment Agreement dated October 1, 2021, by and between Mr. Troy and the Company. At the date of grant, the fair market value of the shares was $0.0085 per share based on the closing price of the Common Stock, for a total value of $8,500.

F-19

During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company issued an aggregate of ~~678,413,399~~775,748,690 shares of Common Stock with a fair value of $~~5,859,165~~6,496,848 upon the conversion of $~~2,600,000~~3,000,000 of principal, and $~~137,128~~140,876 of accrued interest on its secured convertible debentures, at an average price of $0.0040 (see Note 9).

During the ~~six~~nine months ended ~~June~~September 30, 2022, and in connection with the issuance of the debenture, the Company issued to the lender 25,000,000 shares of the Company’s common stock at a price of $0.0040 per share (see Note 8). The fair value of the 25,000,000 shares issued was $135,000 and recorded as a debt discount in the accompanying condensed consolidated balance sheet.

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company issued an aggregate of ~~55,464,596~~84,660,068 shares of Common Stock with a fair value of $~~1,122,984~~1,529,635 upon the conversion of $~~1,100,000~~1,500,000 of principal, and $~~22,882~~29,635 of accrued interest on its secured convertible debentures, at an average price of $~~0.0204~~0.0181.

During the ~~six~~nine months ended ~~June~~September 30, 2021, the Company issued 9,000,000 shares of its Common Stock with a fair value of $270,900 for the acquisition of S and S.

Common Stock Issuable

On August 12, 2015, the Company entered into an Employment Agreement with Robert Clark (the “Clark Employment Agreement”). On December 1, 2016, the Company entered into an Amendment to Employment Agreement (the “Clark Amendment”; and, together with the Clark Employment Agreement, the “Amended Clark Employment Agreement”). Pursuant to the terms of the Amendment Clark Employment Agreement, the Company agreed to issue, among other securities, 200,000,000 shares of the Common Stock. Immediately, Mr. Clark decided to defer receipt of 80,000,000 of such shares; thus leaving 120,000,000 shares of the Common Stock to be issued to him.

The 120,000,000 shares of the Common Stock were issued to Mr. Clark, as follows: (i) on October 28, 2015, the Company issued 30,000,000 of such shares; (ii) on March 2, 2016, the Company issued 40,000,000 of such, and (iii) on ~~Mary~~May 16, 2016, the Company issued 50,000,000 of such shares. On April 19, 2018, (i) 40,000,000 shares were cancelled and returned to the Company, and on July 31, 2019, (ii) an additional 50,000,000 shares were cancelled and returned to the Company. Accordingly, as of December 31, 2019, the Company owed to Mr. Clark an aggregate of ~~170,000,000~~169,999,860 shares to be reissued to him upon his request pursuant to the terms of the oral agreement with him which were valued at $1,386,497 based on their fair value at the date of grant. The common shares issuable balance at ~~June~~September 30, 2022 and December 31, 2021 were $1,386,497.

Summary of Warrants

A summary of warrants for the ~~six~~nine months ended ~~June~~September 30, 2022, is as follows:

SCHEDULE OF SUMMARY OF WARRANTS

			Weighted				Weighted
	Number		Average		Number		Average
	of		Exercise		of		Exercise
	Warrants		Price		Warrants		Price
Balance outstanding, December 31, 2021		170,000,000	$	0.03		170,000,000	$	0.0300
Warrants granted		8,333,333		0.03		108,333,333		0.0065
Warrants exercised		-		-		-		-
Warrants expired or forfeited		-		-		-		-
Balance outstanding, June 30, 2022		178,333,333	$	0.03
Balance exercisable, June 30, 2022		178,333,333	$	0.03
Balance outstanding, September 30, 2022						278,333,333	$	0.0223
Balance exercisable, September 30, 2022						278,333,333	$	0.0223

~~F-19~~F-20

Information relating to outstanding warrants at ~~June~~September 30, 2022, summarized by exercise price, is as follows:

SCHEDULE OF OUTSTANDING WARRANTS

		Outstanding						Exercisable
Exercise Price Per Share		Shares		Life (Years)		Weighted Average Exercise Price		Shares		Weighted Average Exercise Price
$	0.0045		100,000,000		4.83	$	0.0045		100,000,000	$	0.0045
$	0.03		158,333,333		1.76	$	0.03		158,333,333	$	0.03
$	0.05		20,000,000		0.62	$	0.05		20,000,000	$	0.02
			278,333,333		2.78	$	0.03		278,333,333	$	0.03

Outstanding Exercisable
Exercise Price Per Share Shares
Life
(Years)

Weighted
Average
Exercise Price
Shares
Weighted
Average
Exercise Price

$ 0.03 158,333,333 2.01 $ 0.03 158,333,333 $ 0.03
$ 0.05 20,000,000 0.87 $ 0.05 20,000,000 $ 0.02
178,333,333 1.89 $ 0.03 178,333,333 $ 0.03

Based on the fair market value of $~~0.0086~~0.0060 per share on ~~June~~September 30, 2022, ~~there was no~~the intrinsic value ~~attributed~~attributable to both the outstanding and exercisable warrants is $150,000at ~~June~~September 30, 2022.

In connection with the issuance of senior convertible secured debentures on July 28, 2022 (see Note 9), the Company granted warrants with a relative fair value of $223,000 to purchase up to an aggregate of 100,000,000 shares of the Common Stock. Each warrant has a five-year term from issuance and is immediately exercisable at an exercise price of $0.0045 per share, subject to adjustment. The relative fair value of these warrants at grant date was $223,000, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0060 per share, the expected term of three years, volatility of 133%, dividend rate of 0%, and risk-free interest rate of 2.81%.

In connection with the issuance of convertible secured debentures on May 2, 2022 (see Note 9), the Company granted warrants with a relative fair value of $~~103,000~~81,000 to purchase up to an aggregate of 8,333,333 shares of the Common Stock. Each warrant has a three-year term from issuance and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. The relative fair value of these ~~options~~warrants at grant date was ~~approximately~~ $~~103,000~~81,000, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0180 per share, the expected term of three years, volatility of 132%, dividend rate of 0%, and risk-free interest rate of 2.16%.

NOTE 13 – SUBSEQUENT EVENTS

Subsequent to ~~June~~September 30, 2022, the Company issued an aggregate of ~~72,033,921~~34,910,751 shares of Common Stock to YA II PN, Ltd. upon the conversion of $~~300,000~~100,000 of principal, and $~~2,542~~15,205 of accrued interest on its secured convertible debentures, at an average price of $~~0.0042~~0.0033 (see Note 9).

~~Pursuant to a Securities Purchase Agreement dated July 28,~~On November 2, 2022, ~~(the “SPA”),~~ the Company ~~completed~~entered into a ~~private placement of a Senior Secured Promissory Note (the “Senior Note”)~~secured non-interest bearing advance agreement with an ~~initial principal amount of $595,000~~ ~~and the grant of a common stock purchase Warrant (the “Warrant”) that is exercisable~~unaffiliated third party for the purchase of upfuture receipts/revenues. Under the agreements, the Company received a lump sum payment of $168,000 after fees, and in return, the lender receives a secured right to ~~an aggregate~~collect a fix sum of future receipts/revenue of $~~100,000,000~~241,500 ~~million shares (the “Warrant Shares”)~~to be collected by the Company. In accordance with the agreement, the Company agreed to sell, assign and transfer to the Purchaser of ~~its Common Stock with an otherwise unrelated third-party investor (the “Investor”). In addition, to secure~~all the Company’s ~~obligations~~payments, receipts, settlements and funds paid to or received by or for the account of the Company from time to time on and after the date hereof in payment or settlement of the Company’s existing and future accounts, payment intangibles, credit, debit and/or stored value card transactions, contract rights and other entitlements arising from or relating to the ~~Investor under~~payment of monies from the ~~Senior Note, the Company also entered into a Security Agreement (the “Security Agreement”) with and~~Company’s customers and/or other payors or obligors. The loan is payable in ~~favor of the Investor. The Company’s subsidiaries are also parties to the Security Agreement.~~

The transactions contemplated by the SPA were consummated on July 29, 2022 (the “Issue Date”). Upon the funding, the Company sold and issued the Senior Note and granted the Warrant. Pursuant to the SPA, the purchase price for the Senior Note was $~~595,000, less $92,325~~ ~~in fees, which consisted of an~~ 8~~% “original issue discount”~~daily payments of $~~47,500~~1,725, ~~due diligence and structuring fees of $38,325, and $6,500~~ ~~for the Investor’s legal fees.~~

~~The Senior Note is due 12 months from its issuance date and~~ is secured by ~~all~~these assets described above, and is guaranteed by Robert Clark, the Company’s Chief Executive Officer. Upon execution of the ~~Company’s assets~~advance and receipt of funds, the Company recorded the difference of $73,500 between the cash collected and the assets of each of its subsidiaries pursuant to the Security Agreement. The security interest granted to the Investor under the Security Agreement is subordinate to the continuing security interest that remains in effect pursuant to the previous grant of a security interest in connection with a still-outstanding debenture to an earlier investor. Initially, the Senior Note is convertible into sharesface amount of the ~~Company’s Common Stock (the “Conversion Shares”) at~~note as a ~~fixed conversion price of $0.0045~~ ~~per share, subject to adjustment due to merger, consolidation, exchange of shares, recapitalization, reorganization, or similar event~~note discount, and will amortize the note discount as ~~set forth in~~interest expense over the Senior Note (the “Conversion Price”). The Senior Note contains an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of its Common Stock or common stock equivalents at a price lower than the then-current Conversion Pricelife of the Senior Note. Upon any stock splits, reverse stock splits, distributions, stock dividends, or other similar event, the Investor will be entitled to participate in such an event on an “as converted” basis. The Senior Note is subject to a “conversion blocker” such that the Investor cannot convert any portion of the Senior Note that would result in the Investor and its affiliates holding more than ~~4.99~~advance.% of the then-issued and outstanding shares of the Company’s Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the Senior Note or exercise of the Warrant that had not then been converted or exercised, respectively). The Investor does not have the right to convert the Senior Note until six months after the Issue Date. The Senior Note accrues interest at an annual rate equal to 10% and is due and payable on its maturity date (or sooner if the Investor converts the Senior Note or otherwise accelerates the maturity date, as provided for in the Senior Note). Interest is payable in cash on the maturity date or, in shares of the Common Stock at the then-current Conversion Price if the Investor converts the Senior Note or otherwise accelerates the maturity date, as provided for in the Senior Note.

~~F-19~~F-21

~~At our option, the Company has the right to redeem, in full, the outstanding principal and interest under the Senior Note prior to its maturity date;~~ ~~provided~~, ~~that~~, as of the date of the then-holder’s receipt of the redemption notice there has not been an Event of Default. The Company must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a $~~750~~ administrative fee (the “Redemption Amount”). The Company must provide seven Trading Days’ (as such term is defined in the Senior Nate) prior notice to the then-holder of the Senior Note of its intent to make a redemption. If such notice of redemption is received six months after the Issue Date, the then-holder has the right to convert the Senior Note prior to such redemption.

~~The Company also granted the Warrant to purchase up to an aggregate of the~~ ~~100,000,000~~ ~~Warrant Shares. The Warrant has a~~ ~~five-year term and is immediately exercisable at an exercise price of $0.0045~~ ~~per share, subject to adjustment and is exercisable by the then-holder on a “cashless” basis.~~

The Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issues shares of its Common Stock or common stock equivalents at a price lower than the then-current exercise price of the Warrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will result in an equitable adjustment of the exercise price of the Warrant and also, in certain circumstances, the number of Warrant Shares. The Warrant is subject to an “exercise blocker,” such that the Investor cannot exercise any portion of the Warrant that would result in the Investor and its affiliates holding more than ~~4.99~~% of the then-issued and outstanding shares of the Company’s Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of the Warrant or conversion of the Senior Note that had not then been exercised or converted, respectively).

~~F-20~~

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis of the results of operations and financial condition for the three and ~~six~~nine months ended ~~June~~September 30, 2022 and 2021 should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere in this Quarterly Report. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,” “Cautionary Note Regarding Forward-Looking Statements,” and “Description of Business” sections in this ~~Annual~~Quarterly Report. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements. We and our representatives may from time to time make written or oral statements that are “forward-looking,” including statements contained in this ~~Annual~~Quarterly Report and other filings with the SEC, reports to our stockholders, and news releases. All statements that express expectations, estimates, forecasts, or projections are forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be made by us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,” “estimate,” “project,” “forecast,” “may,” “should,” variations of such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materially from what is expressed or forecasted in or suggested by such forward-looking statements.

We undertake no obligation to update or revise any of the forward-looking statements after the date of this ~~Annual Reports~~Quarterly Report to confirm forward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties, including, but not limited to, uncertainties associated with the following:

	●	Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;

	●	Our failure to earn revenues or profits;

	●	Volatility or decline of our stock price;

	●	Potential fluctuation in our financial results;

	●	Rapid and significant changes in markets;

	●	Litigation with or legal claims and allegations by outside parties;

	●	Impacts from the COVID-19 pandemic; and

	●	Insufficient revenues to cover operating costs.

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this ~~Annual~~Quarterly Report. This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ substantially from those anticipated in any forward-looking statements included in this discussion as a result of various factors.

Results of Operations

Overview

Our business has grown rapidly since inception in 2015, and we anticipate that our business will continue to grow significantly. In the three months ended ~~June~~September 30, 2022, the Company saw an increase in growth compared to the same period of the prior year period, as distribution by our current distributors and new distributors, who were, and whose clients were, affected by COVID-19 had resumed and saw fewer COVID-19 pandemic-related distribution impacts. The Company acquired S and S Beverage, Inc. (“S and S”), in early 2021, which increased our product variety, resulting in the commencement of new distribution contracts.

We derive our revenue from sales of our products to online consumers, to resellers, and to distributors, Product sales to resellers include sales to convenience stores, grocery stores, and smoke and gift shops that complement our current product offering. Product sales to distributors include four energy drinks, our HighDrate CBD-infused energy waters, and our apparel, such as t-shirts and hats. In early 2021, we broadened our product line to include Ooh La Lemin lemonade. We also distribute our products and other companies’ products at retail. In late 2021, we expanded our distribution operations with the addition of a second distribution center.

We have experienced and expect to continue to experience substantial growth in our operations as we seek to expand through additional products and acquisitions that complement our current product offerings. We expect that revenue will continue to increase in fiscal year 2022 compared to fiscal year 2021, as distribution by our current distributors, who were, and whose clients were, affected by COVID-19 has resumed and we expect to see fewer COVID-19 pandemic-related distribution impacts for fiscal year 2022. Based on those expectations, we now anticipate signing more favorable agreements with larger, reputable tier 1 and mid-size distributors, big box stores, and grocery chains. The following is a more detailed discussion of our financial condition and results of operations for the period presented.

Impact of Inflation

Recent inflationary trends have led to a moderate increase in some of the costs to produce and ship our products. To date, we have not passed the increases in those costs to our consumers. Continued prolonged periods of inflationary pressure on some or all of those costs could have a material adverse effect on our profit margins from sales of those products or could require us to increase prices for those products, which could reduce consumer demand for those products.

Three Months ended ~~June~~September 30, 2022 compared to Three Months ended ~~June~~September 30, 2021

Overview

As reflected in the accompanying financial statements, during the three months ended ~~June~~September 30, 2022, we incurred a net loss of ~~approximately $1,388,525,~~$1,192,057 and used cash in operations of $2,148,583, compared to a net loss of ~~approximately $373,214~~$2,230,715 and used cash in operations of $1,586,677 for the three months ended ~~June~~September 30, 2021. As of September 30, 2022, we had a stockholders’ deficit of $3,349,654.

The following is a more detailed discussion of our financial condition and results of operations for the period presented, along with prior periods.

Revenue

The following table presents our net revenues, by revenue source, and the period-over-period percentage change, for the period presented:

	Three Months Ended June 30,									Three Months Ended September 30,
	2022			2021						2022			2021
Revenue Source	Revenue			Revenue			% Change			Revenue			Revenue			% Change
Distributors	$	219,790		$	414,937			(47	)%	$	223,849		$	150,929			48	%
Amazon and Walmart Marketplace		44,565			39,256			14	%		30,334			41,669			(27	)%
Online Sales		13,709			21,843			(37	)%		7,998			17,678			(55	)%
Retail		927,614			328,848			182	%		897,549			347,247			159	%
Shipping		4,420			5,725			(23	)%		3,516			4,451			(21	)%
Sales Returns and Allowances		(36,700	)		(19,800	)		85	%		(32,700	)		(16,599	)		97	%
Net Revenues	$	1,173,398		$	790,809			48	%	$	1,130,546		$	545,375			107	%

The following table presents our net revenues by product lines for the periods presented:

	Three Months Ended June 30,									Three Months Ended September 30,
	2022			2021						2022			2021
Product Line	Revenue			Revenue			% Change			Revenue			Revenue			% Change
Hemp Energy Drinks	$	50,792		$	113,434			(55	)%	$	25,743		$	123,770			(79	)%
CBD Energy Waters		17,249			31,682			(46	)%		13,686			28,491			(52	)%
Lemonade Drinks		209,976			329,893			(36	)%		222,689			57,911			285	%
Apparel		47			1,027			(95	)%		63			104			(39	)%
Retail		927,614			328,848			182	%		897,549			347,247			158	%
Shipping		4,420			5,725			(23	)%		3,516			4,451			(21	)%
Sales returns and allowance		(36,700	)		(19,800	)		85	%		(32,700	)		(16,599	)		97	%
Net Revenues	$	1,173,398		$	790,809			48	%	$	1,130,546		$	545,375			107	%

During the three months ended ~~June~~September 30, 2022, we reported net revenues of ~~approximately $1,173,398,~~$1,130,546, which is an increase of ~~approximately $382,589,~~$585,171, or ~~approximately 48%~~107%, compared to net revenues of ~~approximately $790,809~~$545,375 for the three months ended ~~June~~September 30, 2021. An increase of ~~approximately $598,881~~$550,302 of our revenue is attributable to increased retail revenue, while our product sales ~~decreased~~increased in net revenue by ~~approximately $216,290.~~$34,869. We attribute the significant increase in retail revenue to attaining a larger percentage of the territory in which the Company distributes, including the addition of a third distribution hub in late fiscal 2021 and the hiring of additional employees to service this territory. We attribute the increase in product sales from the prior period to the signing of new agreements in new territories, the commencing of an anticipated rollout of our drink products with a national retailer late in the third quarter, and the hiring of additional sales representatives to service new territories. We anticipate that the rollout of our drink products with a national retailer will continue in the fourth quarter. The Company will continue to experience delays in the rebranding our hemp product line and the subsequent production in the remainder of fiscal year 2022. Despite this delay, we expect that our product revenue will increase in the remaining fiscal year 2022 compared to fiscal year 2021. Further, the additional sales personnel the Company hired will continue to lead sales efforts as the Company expands into the new territories. The Company anticipates signing more favorable agreements with larger, reputable tier 1 and mid-size distributors, big box stores, and grocery chains in these new territories. In addition, we anticipate that our retail revenue will continue to increase as we broaden our customer base with increased distribution to additional grocery and convenience chains.

Cost of Revenues

Cost of revenues consists primarily of expenses associated with products sold to distributors and resellers, including product and shipping costs. Costs also include credit card fees, fees incurred for sales that occur on Amazon.com, and other transaction fees related to the processing of consumer transactions. Typically, we expect that the cost of revenues will increase as a direct correlation to increases in sales. Thus, our cost of revenues increases on an absolute basis versus on a percentage of sales basis. At the same time, when sales increase, thereby increasing our orders with our co-packers, our cost of products decreases because of the volume discounts we receive from our co-packers.

During the three months ended September 30, 2022, we reported cost of revenues of $873,319, which is an increase of $430,553, or 97%, compared to $442,766 for the three months ended September 30, 2021. This increase is attributed to an increase in sales in both our products and retail distribution in 2022, compared to the prior year period. The cost of revenues increase was less than the increase in revenues. This is primarily attributed to increased costs in the prior period in obtaining our ingredients for our products, for production of our products, and for shipping our products. We expect that we will continue to see an increased cost of revenues in the remaining fiscal year 2022, primarily due to an anticipated increase in revenues. In addition, as the cost of shipping our products continues to remain elevated, we also anticipate increased costs for obtaining our ingredients for our products, increased costs for production of our products, and increased costs of shipping our products. We continue to seek alternative methods to reduce costs for production and the cost of shipping our products in fiscal year 2022.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses (“SG&A”) expenses consist primarily of professional fees, salaries and wages, advertising, rent, travel expenses, sponsorships, and general office and administrative expenses related to maintaining our facilities. Selling, general and administrative expenses increased in the three months ended September 30, 2022, to $1,075,044 from $756,110, an increase of $318,934 over the same period last year. The increase was driven by increased operating expenses associated with hiring additional sales employees, advertising and marketing, travel expenses, legal and accounting fees, rent related to an additional distribution warehouse, vehicle and shipping expenses, and partially offset by lower professional fees. We expect that, as we expand our business operations, SG&A expenses will continue to increase.

We expect that as we expand our business operations and continue to incur additional corporate-related expenses associated with our status as a fully registered issuer with the SEC under the Securities Exchange Act of 1934, as amended (the “1934 Act”), SG&A expenses will continue to increase.

Other Income and Expenses

Other expense for the three months ended September 30, 2022, was $374,240, as compared to other expense of $1,577,214 for the three months ended September 30, 2021. The change was attributable to the decrease in interest expense of $563,616 related to our debt levels and debt amortization, the decrease in the change in the fair value of derivative liabilities of $888,220, and a loss on extinguishment of debt of $268,810, which did not occur in the prior year period, all of which changes are non-cash expenses.

Net Loss

We incurred a net loss of $1,192,057 for the three months ended September 30, 2022, a decrease of $1,038,658 compared to the prior year period in which we incurred a net loss of $2,230,715. The decrease in net loss is primarily due to increased gross profit offset by increased SG&A expenses and the decrease in other expenses, as discussed above.

Nine Months ended September 30, 2022 compared to Nine Months ended September 30, 2021

Overview

As reflected in the accompanying financial statements, during the nine months ended September 30, 2022, we incurred a net loss of $6,142,144 and used cash in operations of $2,148,583, compared to a net loss of $4,423,399 and used cash in operations of $1,586,677 for the nine months ended September 30, 2021. As of September 30, 2022, we had a stockholders’ deficit of $3,349,654.

The following is a more detailed discussion of our financial condition and results of operations for the period presented, along with prior periods.

Revenue

The following table presents our net revenues, by revenue source, and the period-over-period percentage change, for the period presented:

	Nine Months Ended September 30,
	2022			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	635,605		$	784,023			(19	)%
Amazon and Walmart Marketplace		110,478			119,428			(7	)%
Online Sales		30,494			57,725			(47	)%
Retail		2,616,679			883,825			196	%
Shipping		10,319			15,039			(31	)%
Sales Returns and Allowances		(104,500	)		(61,041	)		71	%
Net Revenues	$	3,299,075		$	1,798,999			79	%

The following table presents our net revenues by product lines for the periods presented:

	Nine Months Ended September 30,
	2022			2021
Product Line	Revenue			Revenue			% Change
Hemp Energy Drinks	$	148,725		$	316,124			(53	)%
CBD Energy Waters		56,388			75,096			(25	)%
Lemonade Drinks		571,285			568,624			-	%
Apparel		179			1,332			(87	)%
Retail		2,616,679			883,825			196	%
Shipping		10,319			15,039			(31	)%
Sales returns and allowance		(104,500	)		(61,041	)		71	%
Net Revenues	$	3,299,075		$	1,798,999			83	%

During the nine months ended September 30, 2022, we reported net revenues of $3,299,075, which is an increase of $1,500,076, or 83%, compared to net revenues of $1,798,999 for the nine months ended September 30, 2021. An increase of $1,732,854 of our revenue is attributable to increased retail revenue, while our product sales decreased in net revenue by $232,778. We attribute the significant increase in retail revenue to attaining a larger percentage of the territory in which the Company distributes, including the addition of a third distribution hub in late fiscal 2021 and the hiring of additional employees to service this territory. We attribute the decrease in product sales to certain delays in production of a new product line and existing product lines, as well as to a change-over in our customer mix from the prior period due to a non-repetitive, regional, one-off customer relationship in the prior period and a different regional customer imposing slotting fees in the current period (which fees we declined to pay). We anticipate that the rollout of our drink products with a national retailer ~~will commence~~that commenced late in the third ~~quarter.~~quarter will continue in the remaining fiscal year 2022. Additionally, the Company experienced delays in the rebranding of our hemp product line and the subsequent production. We expect that our product revenue will increase in the remaining fiscal year 2022 compared to fiscal year 2021, and we do not anticipate further delays. ~~Additionally,~~Further, the Company hired additional sales personnel to lead sales efforts as the Company ~~expands~~began to expand into new territories ~~and~~late in the third quarter. The Company anticipates to continue signing more favorable agreements with larger, reputable tier 1 and mid-size distributors, big box stores, and grocery chains. In addition, we anticipate that our retail revenue will continue to increase as we broaden our customer base with increased distribution to additional grocery and convenience chains.

Cost of Revenues

During the ~~three~~nine months ended ~~June~~September 30, 2022, we reported cost of revenues of ~~approximately $885,517,~~$2,608,712, which is an increase of ~~approximately $198,837,~~$1,164,985, or ~~approximately 29%~~81%, compared to ~~approximately $686,706~~$1,443,727 for the ~~three~~nine months ended ~~June~~September 30, 2021. This increase is attributed to an increase in sales in ~~both~~ our products and retail distribution in 2022, compared to the prior year period. The cost of revenues increase was less than the increase in revenues. This is primarily attributed to increased costs in the prior period in obtaining our ingredients for our products, for production of our products, and for shipping our products. We expect that we will continue to see an increased cost of revenues in the remaining fiscal year 2022, primarily due to an anticipated increase in revenues. In addition, as the cost of shipping our products continues to remain elevated, we also anticipate increased costs for obtaining our ingredients for our products, increased costs for production of our products, and increased costs of shipping our products. We continue to seek alternative methods to reduce costs for production and the cost of shipping our products in fiscal year 2022.

~~Selling, General and Administrative Expenses~~

Selling, General and Administrative Expenses (“SG&A”) expenses consist primarily of professional fees, salaries and wages, advertising, rent, travel expenses, sponsorships, and general office and administrative expenses related to maintaining our facilities. Selling, general and administrative expenses increased in the three months ended June 30, 2022, to approximately $1,031,515 from approximately $644,052, an increase of approximately $387,463 over the same period last year. The increase was driven by increased operating expenses associated with hiring additional sales employees, advertising and marketing, travel expenses, legal and accounting fees, rent related to an additional distribution warehouse, vehicle and shipping expenses, and partially offset by lower professional fees. We expect that, as we expand our business operations, SG&A expenses will continue to increase.

~~Other Income and Expenses~~

Other expense for the three months ended June 30, 2022 was approximately $644,891, as compared to other income of approximately $166,735 for the three months ended June 30, 2021. The change was attributable to the increase in interest expense of approximately $91,503 related to increased debt levels and debt amortization, the decrease in the change in the fair value of derivative liabilities of approximately $19,497, a loss on debt extinguishment of approximately $326,230, and financing costs of $286,000, which did not occur in the prior year period, all of which changes are non-cash expenses.

~~Net Loss~~

We incurred a net loss of approximately $1,388,525 for the three months ended June 30, 2022, an increase of approximately $1,015,311 compared to the prior year period in which we incurred a net loss of approximately $373,214. The three month net loss is primarily due to increased gross profit offset by increased SG&A expenses and the increase in other expenses, as discussed above.

~~Six Months ended June 30, 2022 compared to Six Months ended June 30, 2021~~

~~Overview~~

As reflected in the accompanying financial statements, during the six months ended June 30, 2022, we incurred a net loss of approximately $4,975,087 and used cash in operations of approximately $1,619,355, compared to a net loss of approximately $2,192,939 and used cash in operations of approximately $875,555 for the six months ended June 30, 2021. As of June 30, 2022, we had a stockholders’ deficit of approximately $2,991,280.

~~The following is a more detailed discussion of our financial condition and results of operations for the period presented, along with prior periods.~~

~~Revenue~~

~~The following table presents our net revenues, by revenue source, and the period-over-period percentage change, for the period presented:~~

Six Months Ended June 30,
2022 2021
Revenue Source Revenue Revenue % Change
Distributors $ 413,107 $ 672,873 (39 )%
Amazon and Walmart Marketplace 80,089 77,759 3 %
Online Sales 22,316 40,047 (44 )%
Retail 1,719,015 509,130 238 %
Shipping 5,802 10,588 (45 )%
Sales Returns and Allowances (71,800 ) (57,417 ) 25 %
Net Revenues $ 2,168,529 $ 1,252,980 73 %

~~The following table presents our net revenues by product lines for the periods presented:~~

Six Months Ended June 30,
2022 2021
Product Line Revenue Revenue % Change
Hemp Energy Drinks $ 118,574 $ 201,926 (41 )%
CBD Energy Waters 41,588 51,762 (20 )%
Lemonade Drinks 354,238 535,733 (34 )%
Apparel 112 1,258 (91 )%
Retail 1,719,015 509,139 238 %
Shipping 5,802 10,588 (25 )%
Sales returns and allowance (71,800 ) (57,417 ) 25 %
Net Revenues $ 2,168,529 $ 1,252,980 73 %

During the six months ended June 30, 2022, we reported net revenues of approximately $2,168,529, which is an increase of approximately $915,549, or approximately 73%, compared to net revenues of approximately $1,252,980 for the six months ended June 30, 2021. An increase of approximately $1,209,999 of our revenue is attributable to increased retail revenue, while our product sales decreased in net revenue by approximately $294,450. We attribute the significant increase in retail revenue to attaining a larger percentage of the territory in which the Company distributes, including the addition of a third distribution hub in late fiscal 2021 and the hiring of additional employees to service this territory. We attribute the decrease in product sales to certain delays in production of a new product line and existing product lines, as well as to a change-over in our customer mix from the prior period due to a non-repetitive, regional, one-off customer relationship in the prior period and a different regional customer imposing slotting fees in the current period (which fees we declined to pay). ~~We anticipate that the rollout of our drink products~~ with a national retailer will commence late in the third quarter. Additionally, the Company experienced delays in the rebranding of our hemp product line and the subsequent production. We expect that our product revenue will increase in the remaining fiscal year 2022 compared to fiscal year 2021, and we do not anticipate further delays. Additionally, the Company hired additional sales personnel to lead sales efforts as the Company expands into new territories and the Company anticipates signing more favorable agreements with larger, reputable tier 1 and mid-size distributors, big box stores, and grocery chains. In addition, we anticipate that our retail revenue will continue to increase as we broaden our customer base with increased distribution to additional grocery and convenience chains.

~~Cost of Revenues~~

During the six months ended June 30, 2022, we reported cost of revenues of approximately $1,735,393, which is an increase of approximately $734,822, or approximately 73%, compared to approximately $1,000,571 for the six months ended June 30, 2021. This increase is attributed to an increase in sales in both our products and retail distribution in 2022, compared to the prior year period. The cost of revenues increase was comparable to the increase in revenues for the same period. We expect that we will continue to see an increased cost of revenues in the remaining fiscal year 2022, primarily due to an anticipated increase in revenues. In addition, as the cost of shipping our products continues to remain elevated, we also anticipate increased costs for obtaining our ingredients for our products, increased costs for production of our products, and increased costs of shipping our products. We continue to seek alternative methods to reduce costs for production and the cost of shipping our products in fiscal year 2022.

Selling, General and Administrative Expenses

SG&A expenses consist primarily of professional fees, salaries and wages, advertising, rent, travel expenses, sponsorships, and general office and administrative expenses related to maintaining our facilities. Selling, general and administrative expenses increased in the ~~six~~nine months ended ~~June~~September 30, 2022, to ~~approximately~~ $~~1,970,851~~3,045,895 from ~~approximately~~ $~~1,212,732~~1,968,841, an increase of ~~approximately~~ $~~939,336~~1,077,054 over the same period last year. The increase was driven by increased operating expenses associated with hiring additional sales employees, advertising and marketing, travel expenses, legal and accounting fees, rent related to an additional distribution warehouse, vehicle and shipping expenses, and partially offset by lower professional fees. We expect that, as we expand our business operations, SG&A expenses will continue to increase.

We expect that as we expand our business operations and continue to incur additional corporate-related expenses associated with our status as a fully registered issuer with the SEC under the ~~Securities Exchange~~1934 Act, ~~of 1934,~~ SG&A expenses will continue to increase.

Other Income and Expenses

Other expense for the ~~six~~nine months ended ~~June~~September 30, 2022, was ~~approximately $3,412,372,~~$3,786,612, as compared to other expense of ~~approximately $1,232,616~~$2,809,830 for the ~~six~~nine months ended ~~June~~September 30, 2021. The change was attributable to the decrease in interest expense of ~~approximately $608,512~~$1,146,128 related to our debt levels and debt amortization, the increase in the change in the fair value of derivative liabilities of ~~approximately $1,546,631, a~~$658,411, an increase in our loss on ~~debt~~ extinguishment of ~~approximately $873,040,~~debt of $1,237,011, and financing costs of ~~$286,000,~~$260,000, which did not occur in the prior year period, all of which changes are non-cash expenses.

Net Loss

We incurred a net loss of ~~approximately $4,950,087~~$6,142,144 for the ~~six~~nine months ended ~~June~~September 30, 2022, an increase of ~~approximately $2,757,148~~$1,718,745 compared to the prior year period in which we incurred a net loss of ~~approximately $2,192,939.~~$4,423,399. This net loss is primarily due to increase in gross profit, offset by increased SG&A expenses and the increase in other expenses, as discussed above.

Liquidity and Capital Resources

Going Concern

We have incurred operating losses since inception and have negative cash flow from operations since inception. As of ~~June~~September 30, 2022, we had a stockholders’ deficit of ~~approximately $2,991,280~~$3,349,654 and we incurred a net loss of ~~approximately $4,950,087~~$6,142,144 during the ~~six~~nine months ended ~~June~~September 30, 2022. We also utilized cash in operations of ~~approximately $1,619,355~~$2,148,583 during the ~~six~~nine months ended ~~June~~September 30, 2022. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flow from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.

Our consolidated financial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations and continue our operations for the next fiscal year. The continuation of our Company as a going concern is dependent upon our ability to obtain necessary debt or equity financing to continue operations until we begin generating positive cash flow. Refer to auditors going concern.

There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Notes Payable with Related Parties

Notes payable with related parties consists of the following at ~~June~~September 30, 2022 and December 31, 2021:

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021

Note payable – related party (a)	$	1,352,651		$	1,352,651		$	1,352,651		$	1,352,651
Note payable – related party (b)		200,000			-			260,000			-
Note payable – related party (c)		125,500			125,500
Note payable – related party – past due (c)								125,500			125,500
Note payable – related party ~~(e)~~(d)		50,500			53,500			49,000			53,500
Total notes payable – related parties		1,728,651			1,531,651			1,787,151			1,531,651
Notes payable – related parties, current portion		(1,728,651	)		(6,000	)		(1,787,151	)		(6,000	)
Notes payable – related parties, net of current portion	$	-		$	1,525,651		$	-		$	1,525,651

	(a)	On April 4, 2019, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $1,500,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on April 4, 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022 and December 31, 2021, outstanding principal was $1,352,651 and $1,352,651, respectively.

	(b)	On May 6, 2022, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $300,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on May 6, 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022, the outstanding principal was ~~$200,000.~~$260,000.

	~~(b)~~
	(c)	On August 29, 2019, the Company entered into aan unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $200,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on August 29, ~~2022,~~2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022 and December 31, 2021, outstanding principal was $125,500 and $125,500, respectively.

	~~(c)~~(d)	On February 19, 2019, the Company issued an unsecured Standard Promissory Note in Favor of Robert Clark, as lender, in the original principal amount of $70,000. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The note bears no interest. Principal payments of $500 per month commenced in March 2019, with final payment due in March 2021. On March 15, 2022, the Company issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principal of $58,000. Principal payment of $500 per month, with final payment due in March 2023. The outstanding principal balance of this note at December 31, 2021 was $53,500. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company made principal payments of ~~$3,000,~~$4,500, leaving an outstanding principal balance of ~~$50,500~~$49,000 at ~~June~~September 30, 2022.

At December 31, 2021, accrued interest on notes payable to related parties was $95,873. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company added ~~$27,033~~$31,035 of additional accrued interest, leaving an accrued interest balance on the notes payable to related parties of ~~$122,906~~$126,908 at ~~June~~September 30, 2022. Accrued interest inis included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

Notes Payable

Notes payable consists of the following at ~~June~~September 30, 2022 and December 31, 2021:

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021

Note payable (a)	$	30,193		$	33,312		$	28,606		$	33,312
Note payable (b)		39,389			-			46,576			-
Note payable (c)		250,000			-			41,108			-
Less debt discount (c)		(99,031	)		-
Note payable (d)								340,000			-
Note payable (e)								250,000			-
Less debt discount (e)								(155,281	)		-
Total notes payable, net		220,551			33,312			551,009			33,312
Notes payable, current portion		(198,332	)		(7,974	)		(479,260	)		(7,974	)
Notes payable, net of current portion	$	22,219		$	25,338		$	71,749		$	25,338

	(a)	On August 21, 2021, the Company financed the purchase of a vehicle for $34,763, after making a down payment of $20,000. The loan term is for 60 months, annual interest rate of 5.44%, with monthly principal and interest payments of $665, and secured by the purchased vehicle. At December 31, 2021, the loan balance was $33,312. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company made principal payments of ~~$3,119,~~$4,706, leaving a loan balance of ~~$30,193~~$28,606 at ~~June~~September 30, 2022, of which ~~$7,974~~$1,587 was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheet.

	(b)	On September 30, 2022, the Company financed the purchase of a vehicle for $46,576, after making a no down payment. The loan term is for 60 months, annual interest rate of 9.44%, with monthly principal and interest payments of $980, and secured by the purchased vehicle. As of September 30, 2022, no principal payments were made, leaving a loan balance of $46,576 at September 30, 2022, of which $1,846 was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheet.

	~~(b)~~(c)	In April 2021, the Company entered into a Line of Credit Agreement with Wells Fargo Bank. The Line of Credit is personally guaranteed by Robert Clark, the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $42,000. Advances under this line of credit bear interest at the rate of 11.50 percent per annum. The line of credit matures in 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At ~~June~~September 30, 2022, the outstanding principal was ~~$39,389,~~$41,108, which was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheet.

	~~(c)~~(d)	On September 30, 2022, the Company entered into a secured non-interest bearing advance agreement with an unaffiliated third party for the purchase of future receipts/revenues. Under the agreements, the Company received a lump sum payment of $250,000, and in return, the lender receives a secured right to collect a fix sum of future receipts/ revenue of $340,000 to be collected by the Company. In accordance with the agreement, the Company agreed to sell, assign and transfer to the Purchaser of all the Company’s payments, receipts, settlements and funds paid to or received by or for the account of the Company from time to time on and after the date hereof in payment or settlement of the Company’s existing and future accounts, payment intangibles, credit, debit and/or stored value card transactions, contract rights and other entitlements arising from or relating to the payment of monies from the Company’s customers and/or other payors or obligors. The loan is payable in weekly payments of $7,728, is secured by these assets described above, and is guaranteed by Robert Clark, the Company’s Chief Executive Officer. Upon execution of the advance and receipt of funds, the Company recorded the difference of $90,000 between the cash collected and the face amount of the note as a note discount, and will amortize the note discount as interest expense over the life of the advance.

(e)

On March 25, 2022, the Company entered into a secured debenture with an otherwise unaffiliated individual in the principal amount of $250,000. The secured note payable matures on March 24, 2023, and bears interest at the rate of 0.97 percent per annum. The secured debenture is secured by nine (9) identified motor vehicles of the Company. In connection with the issuance of the debenture, the Company issued to the lender 25 million shares of the Company’s common stock at a price of $0.004 per share. The Company determined the fair value of the 25 million shares was $135,000, which was recorded as a debt discount against the secured debenture. As of ~~June~~September 30, 2022, the outstanding balance of the secured debentures amounted to $250,000 and the unamortized debt discount was ~~$99,031,~~$65,281, which was recorded as the current portion of loan payable on the accompanying Condensed Consolidated Balance Sheets.

At December 31, 2021, there was no accrued interest on the notes payable. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company added ~~$651~~$1,262 of additional accrued interest, leaving an$1,262 of accrued interest balance on the notes payable ~~of $651~~ at ~~June~~September 30, 2022. Accrued interest in included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

Secured Convertible Debentures

Secured debentures that are payable to an otherwise unaffiliated third party consists of the following as of ~~June~~September 30, 2022 and December 31, 2021:

	June 30, 2022			December 31, 2021			September 30, 2022			December 31, 2021

YA II PN, Ltd.	$	900,000		$	3,000,000		$	500,000		$	3,000,000
Mast Hill								595,000			-
Less debt discount		(790,270	)		(2,150,067	)		(564,416	)		(2,150,067	)
Secured debentures, net	$	109,730		$	849,933		$	530,584		$	849,933

YA II PN, Ltd.

During the year ended December 31, 2021, the Company issued secured debentures to an otherwise unaffiliated third-party investor (the “Selling Stockholder”) in the aggregate of $4,500,000. The debentures are secured by all tangible and intangible assets of the Company and are also convertible into shares of our common stock at a conversion price of $0.03 per share or a per share amount equivalent to the weighted average (among the principal of the debentures) of 76.7% of the lowest ~~VWAP~~volume weighted average price (“VWAP”) of the Company’s common stock during the 15 trading days immediately preceding the conversion date, whichever is lower. As the ultimate determination of shares to be issued upon conversion of these debentures can exceed the current number of available authorized shares, we determined that the conversion features of these convertible debentures are not considered indexed to our Company’s own capital stock and characterized the fair value of the conversion features as derivative liability. In connection with the issuances of the debentures, the Company granted to the Selling Stockholder warrants to purchase up to ~~170~~150 million shares of the Company’s common stock. The warrants are exercisable at $0.03 per share. Twenty million of the warrants will expire on May 14, 2023, 50fifty million of the warrants will expire on February 10, 2024 and ~~100,000,000~~100,000,0000 of the warrants will expire on August 20, 2024. As a result of these issuances and grants, we incurred the following (a) derivative liability of $3,982,000 related to the conversion feature of the debentures; (b) relative fair value of the warrants granted of $1,581,000; and (c) and original issue discounts of $195,000 of the debentures for a total of $5,758,000, of which, $4,423,000 was accounted as debt discount and the remaining $1,335,000 as financing costs. The debt discount is being amortized to interest expense over the term of the corresponding debentures. ~~As of December 31, 2021, the unamortized debt discount was $2,150,067.~~

On May 5, 2022, the Company issued similar debentures to the Selling Stockholder in the aggregate amount of $500,000. The debentures bear interest at a rate of 8% per annum, secured by all of the tangible and intangible assets of the Company and are also convertible into shares of the Company’s common stock at a conversion price of $0.03 per share or 80% of the lowest daily ~~volume weighted average price (“VWAP”) of Common Stock~~VWAP during the 10 trading days immediately preceding the conversion date. As the ultimate determination of shares of common stock to be issued upon conversion of these debentures can exceed the current number of available authorized shares, the Company determined that the conversion features of these debentures are not considered indexed to the Company’s own stock and characterized the fair value of the conversion features as a derivative liability (see Note 10). In connection with the issuances of these debentures, the Company also granted to the selling stockholder warrants to purchase up to 8,333,333 shares of common stock. The warrants are exercisable at $0.03 per share and will expire in three years from their grant date. As a result of these issuances, the Company incurred the following (a) derivative liability of ~~$546,000~~$680,000 related to the conversion feature of the debentures; (b) relative fair value of the warrants granted of $81,000; and (c) and original issue discount of $25,000 for a total of ~~$674,000,~~$786,000, of which, $500,000 was accounted as debt discount and the remaining ~~$152,000~~$286,000 as financing costs. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the ~~year~~nine months ended ~~December 31, 2021,~~September 30, 2022, the Company amortized debt discount of ~~$443,793~~$198,335 to interest expense.

During the ~~six~~nine months ended ~~June~~September 30, 2022, the ~~Selling Stockholder~~note holder converted principal of ~~$2,600,000~~$3,000,000 and accrued interest of ~~$137,128,~~$140,876, or a total ~~$2,737,128,~~$3,140,876, into ~~678,413,399~~775,748,690 shares of common stock with a fair value of ~~$5,859,165.~~$6,469,848. The Company followed the general extinguishment model to record the conversions and settlement of the debt. ~~The~~As such, the Company removed the debt and accrued interest totaled ~~$2,737,128,~~$3,140,876, the related unamortized debt discount totaled ~~$790,270, and~~$1,784,879 at the ~~shares issued were measured at their respective fair value upon conversion which amounted to $5,859,165.~~date of conversion. In addition, the Company revalued the derivative related to the bifurcated conversion option ~~derivatives, after a final mark-up~~ to ~~$3,639,000, were also removed.~~its fair value of $3,972,000 at the date of the conversion and removed that amount. As a result, the Company recorded a loss on extinguishment of debt of ~~$873,040.~~$1,141,850.

As of December 31, 2021, the outstanding balance of the secured debentures amounted to $3,000,000, with an unamortized debt discount of $2,150,067, or a net balance of $849,933.

As of ~~June~~September 30, 2022, the outstanding balance of the secured debentures amounted to ~~$900,000,~~$500,000, with an unamortized debt discount of ~~$790,270,~~$301,645, or a net balance of ~~$109,730.~~$198,355. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company amortized debt discount of ~~$444,793~~$563,542 to interest ~~expense.~~expense on the YA II PN, Ltd. loans.

As of ~~June~~September 30, 2022, ~~161,707,234~~124,958,049 shares of common stock were potentially issuable under the conversion terms of the ~~two partially converted~~ outstanding debentures.

Mast Hill

As of September 30, 2022, 147,745,854 shares of common stock were potentially issuable under the conversion terms of the outstanding debentures.

At December 31, 2021, accrued interest on the convertible notes payable was $54,110. During the ~~six~~nine months ended ~~June~~September 30, 2022, the Company added ~~$77,785~~$109,854 of additional accrued interest, and converted ~~$137,128~~$140,876 of accrued interest into common stock, leaving an accrued interest balance on the convertible notes payable of ~~$4,767~~$23,088 at ~~June~~September 30, 2022. Accrued interest in included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

Cash Flows

In summary, our use of cash has been as follows:

	For the Six Months Ended June 30, 2022			For the Nine Months Ended September 30, 2022
Net cash used in operating activities	$	(1,619,356	)	$	(2,148,853	)
Net cash used in investing activities	$	(24,168	)	$	(42,923	)
Net cash provided by financing activities	$	945,886		$	1,758,474

Operating Activities

Cash provided by or used in operating activities primarily consists of net ~~income~~loss adjusted for certain non-cash items, including depreciation, amortization, financing costs, changes in allowance for doubtful accounts, loss on extinguishment of debt, and the change in the fair value of our derivative liabilities, stock-based compensation, and the effect of changes in working capital and other activities. Cash used in operating activities for the ~~six~~nine months ended ~~June~~September 30, 2022 was ~~approximately $1,619,355~~$2,148,583 and consisted of a net loss of ~~approximately $4,950,087,~~$6,142,144, adjustments for non-cash items, depreciation, amortization, financing costs, loss on extinguishment of debt, loss on the change in fair value of derivative liabilities, and ~~stock based~~stock-based compensation, which in the aggregate total ~~approximately $3,464,684,~~$3,853,719, and ~~approximately $113,952~~$139,842 used in working capital and other activities.

Investing Activities

Cash used in investing activities for ~~six~~nine months ended ~~June~~September 30, 2022 was ~~approximately $24,168~~$42,923 and was attributable to capital expenditures.

Financing Activities

Cash provided by financing activities for ~~six~~nine months ended ~~June~~September 30, 2022 was ~~approximately $945,886~~$1,758,474 and was comprised of proceeds from a notes payable of ~~$964,389,~~$1,783,816, offset by ~~payment~~payments on our ~~line~~notes payable of ~~credit to related party of $3,000,~~$10,098, payments of our acquisition obligations of ~~$8,586, payment of our note payable of $3,119,~~$11,446, and payment of finance lease obligations of $3,798.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our consolidated financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, and expenses, and related disclosure of contingent assets and liabilities. We evaluate our estimates on an ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangible assets, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

The accounting policies that we follow are set forth in Note 2, Summary of Significant Accounting Policies, of our consolidated financial statements for the period ended ~~June~~September 30, 2022. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the consolidated financial statements.

1011

Revenue Recognition and Deferred Revenue

We sell our products, which includes our hemp energy drink, CBD energy water, CBD water, and logo apparel, to online customers or through resellers and distributors. In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. We recognize revenue from product sales to customers, distributors, and resellers when products that do not require further services by us are shipped, when there are no uncertainties surrounding customer acceptance, and when collectability is reasonably assured. Sales are made to customers under terms allowing certain limited rights of return. Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.

We also sell our products, and beverages purchased for resale from several other beverage manufacturers, to convenience stores, grocery stores, and smoke and gift shops. In evaluating the timing of the transfer of control of products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. We recognize revenue from product sales to resellers when products that do not require further services by us are shipped or delivered, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by us prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rights of return. Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.

We recognize revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC Topic 606”). The underlying principle of ASC Topic 606 is to recognize revenue to depict the transfer of goods or services to a customer at the amount expected to be collected. To apply these principles, ASC Topic 606 outlines a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes:

	1.	Identifying the contract(s) or agreement(s) with a customer;

	2.	Identifying the separate performance obligations in the contract or agreement;

	3.	Determining the transaction price;

	4.	Allocating the transaction price to the separate performance obligations in the contract or agreement; and

	5.	Recognizing revenue as each performance obligation is satisfied.

Pursuant to ASC Topic 606, we recognize revenue when performance obligations under the terms of a contract are satisfied, which occurs typically upon the transfer of control, including the risks and rewards of ownership. With respect to us, performance is deemed to occur upon shipment or delivery of products to our customers based on the written contract terms, which is also when control is transferred.

Our revenue earned is recognized when we satisfy a single performance obligation by transferring control of our products to a customer. We have determined that disaggregated revenue by net sales by revenue source would be meaningful and allow investors to understand our business activities, historical performance, or future prospects. Disaggregated sales by revenue source, which includes sales to distributors, online sales, sales through Amazon, and distribution sales. This is the same information used by our Chief Operating Decision Maker for evaluating the financial performance of our operations and making resource decisions. We also sell merchandise and apparel that comprises approximately 1% of our gross annual sales, and solely exists to promote our beverages. Merchandise and apparel sales are included with the gross sales for our one operating segment.

1112

During the prior year, the Company consolidated and restructured its operations. The Company now operates in one segment for the manufacture and distribution of our products and those of otherwise unrelated beverage products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in economic characteristics; nature of products and services; and procurement, manufacturing, and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Stock-Based Compensation

FASB’s ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. We measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value for restricted stock awards is valued using the closing price of our Common Stock on the date of grant. For our ~~three and six~~nine months ending ~~June~~September 30, 2022 and 2021, we recognized ~~$85,000~~$18,500 and $55,800, respectively of stock-based compensation expense. ~~We recognized no stock-based compensation during the prior year period.~~ See Note 13, Share-Based Compensation, of our consolidated financial statements for the ~~six~~nine months ended ~~June~~September 30, 2022, for an additional description of our stock-based compensation that had a material effect on our consolidated financial statements.

Emerging Growth Company Status

On April 5, 2012, the JOBS Act, was enacted. The JOBS Act provides that, among other things, an “emerging growth company” can take advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. As an emerging growth company, we have irrevocably elected to take “opt out” of taking advantage of the extended transition period afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth public companies on a case-by-case basis.

We intend to rely on certain of the other exemptions and reduced reporting requirements provided by the JOBS Act. As an emerging growth company, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b), and (ii) comply with any requirement that may be adopted by the Public Company Accounting Oversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis).

We will remain an emerging growth company until the earlier to occur of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of this offering, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last day of our second quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

We are also a “smaller reporting company” meaning that the market value of our stock held by non-affiliates plus the proposed aggregate amount of gross proceeds to us as a result of this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Report on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executive compensation.

1213

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies to our consolidated financial statements for the period ended ~~June~~September 30, 2022 for a discussion of recent accounting pronouncements.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure control and Procedures

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of ~~June~~September 30, 2022, the period covered in this Report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the ~~Securities Exchange~~1934 Act ~~of 1934, as amended,~~ is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting

There were no changes in the Company’s internal control over financial reporting during the quarter ended ~~June~~September 30, 2022, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

Management does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control systems are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in a cost-effective control system, no evaluation of internal control over financial reporting can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud, if any, have been or will be detected.

These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of a simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

1314

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We know of no other material pending legal proceedings to which we or any of our subsidiaries is a party or to which any of our assets or properties, or the assets or properties of any of our subsidiaries, are subject and, to the best of our knowledge, no adverse legal activity is anticipated or threatened. In addition, we do not know of any such proceedings contemplated by any governmental authorities.

We know of no material proceedings in which any of our directors, officers, or affiliates, or any registered or beneficial stockholder is a party adverse to us or any of our subsidiaries or has a material interest adverse to us or any of our subsidiaries.

ITEM 1A. RISK FACTORS

We are a smaller reporting company as defined by Rule 12b-2 of the ~~Securities Exchange~~ 1934 Act ~~of 1934~~ and are not required to provide the information under this item.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None that has not been previously disclosed in a Current Report on Form 8-K.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

The following exhibits are filed with or incorporated by reference into this Quarterly Report.

3.1	Amended and Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

3.2	Amended and Restated By-Laws is incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

3.3	Certificate of Designation of the Preferences, Rights, and Limitations of the Series B Preferred Stock is incorporated herein by reference to Exhibit 3.3 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

3.4	Certificate of Designation of the Preferences, Rights, and Limitations of the Series C Preferred Stock is incorporated herein by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

3.5	Certificate of Designation of the Preferences, Rights, and Limitations of the Series D Preferred Stock is incorporated herein by reference to Exhibit 3.5 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

3.6	Certificate of Amendment to Amendment and Restated Certificate of Incorporation, is incorporated herein by reference to Exhibit 3.6 of Amendment No. 1 to the Company Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.

4.1	Form of Debenture is incorporated herein by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

4.2	Warrant is incorporated herein by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

4.3	Form of Stand-alone Debenture is incorporated herein by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-1 (File No.333-239883), filed with the SEC on December 14, 2020.

4.4	Form of Secured Convertible Debenture of the registrant sold and issued to YAII PN, Ltd., on February 11, 2021 is incorporated herein by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

4.4a	Form of Secured Convertible Debenture of the registrant sold and issued to YAII PN, Ltd., on February 11, 2021 is incorporated herein by reference to Exhibit 4.4a of the Company’s Quarterly Current Report on Form 10-Q, filed with the SEC on November 15, 2021.

4.5	Form of Warrant of the registrant granted to YAII PN, Ltd., on February 11, 2021 is incorporated herein by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

4.6	Form of Secured Convertible Debenture of the registrant sold and issued to YAII PN, Ltd., effective August 23, 2021 is incorporated herein by reference to Exhibit 4.6 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

4.7	Form of Warrant of the registrant granted to YAII PN, Ltd., effective August 23, 2021 is incorporated herein by reference to Exhibit 4.7 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

4.8	Form of Secured Convertible Debenture of the registrant sold and issued to YAII PN, Ltd., effective May 4, 2022 is incorporated herein by reference to Exhibit 4.8 of the Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2022.

4.9	Form of Warrant of the registrant granted to YAII PN, Ltd., effective May 4, 2022 is incorporated herein by reference to Exhibit 4.9 of the Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2022.

4.10	Form of Secured Convertible Senior Note of the registrant sold and issued to Mast Hill Fund, L.P., dated July 28, 2022 is incorporated herein by reference to Exhibit 4.10 of the Company’s Current Report on Form 8-K, filed with the SEC on August 3, 2022.

4.11	Form of Warrant of the registrant granted to Mast Hill Fund, L.P., dated July 28, 2022 is incorporated herein by reference to Exhibit 4.11 of the Company’s Current Report on Form 8-K, filed with the SEC on August 3, 2022.

10.1	Securities Purchase Agreement by and between the Company and YAII PN, Ltd., dated May 14, 2020 is incorporated herein by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.2	Registration Rights Agreement by and between the Company and YAII PN, Ltd., dated May 14, 2020 is incorporated herein by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.3	Independent Contractor Agreement by and between Kona Gold LLC and OPTN Companies Inc., dated April 15, 2020 is incorporated herein by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.4	Board of Directors Offer Letter between the Company and Matthew Crystal, dated July 24, 2018 is incorporated herein by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.5	Board of Directors Offer Letter between the Company and William Jeffrey Outlaw, dated September 3, 2019 is incorporated herein by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.6	Form of Distribution Agreement is incorporated herein by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.7	Membership Interest Purchase Agreement by and among Elev8 Hemp LLC, PLAD, Inc., and the Company, dated October 10, 2016, is incorporated herein by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.8	Securities Exchange and Settlement Agreement by and between Elev8 Brands, Inc., and the Company, dated March 6, 2018, is incorporated herein by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.9	Securities Exchange and Settlement Agreement by and between Elev8 Brands, Inc., and the Company, dated November 26, 2019 is incorporated herein by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.10	Employment Agreement by and between Christopher Selinger and the Company, dated September 1, 2018 is incorporated herein by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.11	Lease Agreement by and between Kona Gold, LLC and Hay Investment Properties, Inc., dated June 1, 2018 is incorporated herein by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.12	Triple Net Lease Agreement by and between Gold Leaf Distribution, LLC and 3090 S. Hwy 14, LLC, dated May 22, 2019 is incorporated herein by reference to Exhibit 10.12 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.13	Lease Modification Agreement by and between Gold Leaf Distribution, LLC and 3090 S. Hwy 14, LLC, dated April 21, 2020 is incorporated herein by reference to Exhibit 10.13 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.14	Line of Credit Agreement by and between Robert Clark and Gold Leaf Distribution, LLC, dated August 29, 2019 is incorporated herein by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.15	Line of Credit Agreement by and between Robert Clark and Kona Gold, LLC, dated April 4, 2019 is incorporated herein by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.16	Line of Credit Agreement by and between Matthew Nicoletti and Kona Gold, LLC, dated May 5, 2018 is incorporated herein by reference to Exhibit 10.16 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.17	Standard Promissory Note issued by Gold Leaf Distribution in favor of Robert Clark, dated February 19, 2019 is incorporated herein by reference to Exhibit 10.17 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.18	Standard Promissory Note issued by Kona Gold, LLC in favor of Robert Clark, dated January 15, 2019 is incorporated herein by reference to Exhibit 10.18 of Amendment No. 1 to the Company Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.

10.19	Employment Agreement by and between the Company and Robert Clark, dated August 12, 2015 is incorporated herein by reference to Exhibit 10.19 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.20	Employment Agreement by and between the Company and Lori Radcliffe, dated October 8, 2019 is incorporated herein by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.20a	Employment Agreement Amendment by and between the Company and Lori Radcliffe, dated September 14, 2021 is incorporated herein by reference to Exhibit 10.20a of the Company’s Registration Statement on Form S-1, filed with the SEC on September 22, 2021.

10.21	Amendment to Employment Agreement by and between the Company and Robert Clark, dated December 1, 2016 is incorporated herein by reference to Exhibit 10.21 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.22	Agreement by and between the Company and Ryan Dodd, dated May 1, 2019 is incorporated herein by reference to Exhibit 10.22 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.23	Amendment to Employment Agreement by and between Christopher Selinger and Kona Gold Solutions, Inc., dated May 1, 2020 is incorporated herein by reference to Exhibit 10.23of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.24	Amendment to Employment Agreement by and between Christopher Selinger and the Company, dated January 1, 2019 is incorporated herein by reference to Exhibit 10.24 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.25	Security Agreement by and between the Company and YAII PN, Ltd., dated May 14, 2020 is incorporated herein by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.26	Line of Credit and Security Agreement Modification Agreement by and between Kona Gold LLC and Robert Clark, dated April 1, 2020 is incorporated herein by reference to Exhibit 10.26 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.27	Line of Credit and Security Agreement Modification Agreement by and between Gold Leaf Distribution LLC and Robert Clark, dated April 1, 2020 is incorporated herein by reference to Exhibit 10.27 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.

10.28	Terms of Oral Agreement between the Company and Robert Clark is incorporated herein by reference to Exhibit 10.28 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.

10.29	Waiver Agreement by and between the Company and YAII PN, Ltd., dated October 14, 2020, is incorporated herein by reference to Exhibit 10.29 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.

10.30	Paycheck Protection Promissory Note issued in favor of Wells Fargo Bank, N.A. dated May 4, 2020, is incorporated herein by reference to Exhibit 10.30 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.

10.31	Paycheck Protection Promissory Note issued in favor of Wells Fargo Bank, N.A. dated May 4, 2020, is incorporated herein by reference to Exhibit 10.31 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.

10.32	Securities Purchase Agreement by and between the Company and YAII PN, Ltd., dated November 30, 2020, is incorporated herein by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on December 14, 2020.

10.33	Form of Securities Purchase Agreement between the registrant and YAII PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.28 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

10.34	Form of Registration Rights Agreement by and between the registrant and YAII PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.29 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

10.35	Form of Amended and Restated Security Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.30 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

10.36	Form of Intellectual Property Security Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.31 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

10.37	Form of Amended and Restated Global Guaranty Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.32 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

10.38	Form of Securities Purchase Agreement between the registrant and YAII PN, Ltd., for a transaction that closed and funded on August 23, 2021 is incorporated herein by reference to Exhibit 10.38 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

10.39	Form of Registration Rights Agreement by and between the registrant and YAII PN, Ltd., for a transaction that closed and funded on August 23, 2021 is incorporated herein by reference to Exhibit 10.39 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

10.40	Form of Second Amended and Restated Security Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed and funded on August 23, 2021 is incorporated herein by reference to Exhibit 10.40 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

10.41	Form of Intellectual Property Security Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed and funded on August 23, 2021 is incorporated herein by reference to Exhibit 10.41 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

10.42	Form of Second Amended and Restated Global Guaranty Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed and funded on August 23, 2021 is incorporated herein by reference to Exhibit 10.42 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.

10.43	Agreement of Lease by and between Gold Leaf Distribution, LLC and RFMD-SC, LLC, dated August 30, 2021 is incorporated herein by reference to Exhibit 10.43 of the Company’s Registration Statement on Form S-1, filed with the SEC on September 22, 2021.

10.44	Form of Securities Purchase Agreement between the registrant and YAII PN, Ltd., for a transaction that closed and funded on May 4, 2022 is incorporated herein by reference to Exhibit 10.44 of the Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2022.

10.45	Form of Security Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed and funded on May 4, 2022 is incorporated herein by reference to Exhibit 10.45 of the Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2022.

10.46	Form of Intellectual Property Security Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed and funded on May 4, 2022 is incorporated herein by reference to Exhibit 10.46 of the Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2022.

10.47	Form of Global Guaranty Agreement of the registrant and its subsidiaries in favor of YAII PN, Ltd., for a transaction that closed and funded on May 4, 2022 is incorporated herein by reference to Exhibit 10.47 of the Company’s Current Report on Form 8-K, filed with the SEC on May 5, 2022.

10.48	Form of Securities Purchase Agreement between the registrant and Mast Hill Fund, L.P., for a transaction that closed and funded on July 29, 2022 is incorporated herein by reference to Exhibit 10.48 of the Company’s Current Report on Form 8-K, filed with the SEC on August 3, 2022.

10.49	Form of Security Agreement of the registrant and its subsidiaries in favor of Mast Hill Fund, L.P., for a transaction that closed and funded on July 29, 2022 is incorporated herein by reference to Exhibit 10.49 of the Company’s Current Report on Form 8-K, filed with the SEC on August 3, 2022.

10.50	Revenue Purchase Agreement between the registrant and NewCo Capital Group VI, LLC, effective as of September 30, 2022 is incorporated herein by reference to Exhibit 10.50 of the Company’s Amended Registration Statement on Form S-1 (File No.: 333-267199), filed with the SEC on October 14, 2022.

10.51*	Revenue Purchase Agreement between the registrant and Cobalt Funding Solutions effective as of November 2, 2022 is incorporated herein.

21.1	List of subsidiaries of the registrant is incorporated herein by reference to Exhibit 21.1 of the Company’s Annual Report on Form 10-K, filed with the SEC on April 15, 2021.

31.1*	Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

31.2*	Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

32.1*	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

32.2*	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

101.INS*	Inline XBRL Instance Document

101.SCH*	Inline XBRL Taxonomy Extension Schema Document

101.CAL*	Inline XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF*	Inline XBRL Taxonomy Extension Definition Linkbase Document

101.LAB*	Inline XBRL Taxonomy Extension Label Linkbase Document

101.PRE*	Inline XBRL Taxonomy Extension Presentation Linkbase Document

104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

	*Filed herewith

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	KONA GOLD BEVERAGE, INC.

~~August 12,~~November 14, 2022	By:	/s/ Robert Clark
		Robert Clark
		Chief Executive Officer

~~August 12,~~November 14, 2022	By:	/s/ Lori Radcliffe
		Lori Radcliffe
		Chief Financial Officer


	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2022			2021			2022			2021
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

REVENUES, NET	$	1,173,398		$	790,809		$	2,168,529		$	1,252,980
COST OF REVENUES		885,517			686,706			1,735,393			1,000,571
Gross profit		287,881			104,103			433,136			252,409

OPERATING EXPENSES
Selling, general and administrative expenses		1,031,515			644,052			1,970,851			1,212,732
LOSS FROM OPERATIONS		(743,634	)		(539,949	)		(1,537,715	)		(960,323	)
OTHER INCOME (EXPENSE)
Interest expense		(156,459	)		(64,956	)		(587,354	)		(1,195,866	)
Financing costs		(286,000	)		-			(286,000	)		-
Change in the fair value of derivative liability		122,000			141,497			(1,671,000	)		(124,369	)
Gain (loss) on extinguishment of debt		(326,230	)		-			(873,040	)		-
Other income (expense)		1,798			(4,967	)		5,022			(7,542	)
EIDL advance		-			95,161			-			95,161
NET LOSS	$	(1,388,525	)	$	(373,214	)	$	(4,950,087	)	$	(2,192,939	)

NET LOSS PER COMMON SHARES:
Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted		1,560,391,543			805,263,473			1,363,761,068			805,263,473

	Three Months Ended June 30,
	2022			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	219,790		$	414,937			(47	)%
Amazon and Walmart Marketplace		44,565			39,256			14	%
Online Sales		13,709			21,843			(37	)%
Retail		927,614			328,848			182	%
Shipping		4,420			5,725			(23	)%
Sales Returns and Allowances		(36,700	)		(19,800	)		85	%
Net Revenues	$	1,173,398		$	790,809			48	%

	Six Months Ended June 30,
	2022			2021
Product Line	Revenue			Revenue			% Change
Hemp Energy Drinks	$	118,574		$	201,926			(41	)%
CBD Energy Waters		41,588			51,762			(20	)%
Lemonade Drinks		354,238			535,733			(34	)%
Apparel		112			1,258			(91	)%
Retail		1,719,015			509,130			238	%
Shipping		5,802			10,588			(45	)%
Sales returns and allowance		(71,800	)		(57,417	)		25	%
Net Revenues	$	2,168,529		$	1,252,980			73	%

	Six Months Ended June 30,
	2022			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	413,107		$	672,873			(39	)%
Amazon and Walmart Marketplace		80,089			77,759			3	%
Online Sales		22,316			40,047			(44	)%
Retail		1,719,015			509,130			238	%
Shipping		5,802			10,588			(45	)%
Sales Returns and Allowances		(71,800	)		(57,417	)		25	%
Net Revenues	$	2,168,529		$	1,252,980			73	%