UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON,Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

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

For the quarterly period ended March 31, 2021June 30, 2023

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

☐ 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 Number: 000-56230

Kona Gold Beverage, Inc.KONA GOLD BEVERAGE, INC.

(Exact name of registrant as specified in its charter)

Delaware20-1915692
(State of incorporation)(I.R.S. Employer Identification No.)

 

Delaware81-5175120
(State or other jurisdiction of incorporation or organization)(IRS Employer Identification No.)
746 North Drive, Suite A
, Melbourne, Florida		32934
(Address of principal executive offices)(Zip Code)

(844) (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:Act

Title of each classTrading Symbol(s)Name of each exchange on which registered
Common StockKGKGOTC 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 May 17, 2021August 21, 2023 was 840,163,2652,294,940,557.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED MARCH 31, 2021

TABLE OF CONTENTS

   Page

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION PART IF-1
   
Item 1. Condensed Financial Statements FINANCIAL INFORMATIONF-1
   
Item 1.Condensed Consolidated Balance Sheets – June 30, 2023 (Unaudited) and December 31, 2022 Financial StatementsiiF-1
   
Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 and 2022 Kona Gold Beverage, Inc.
Unaudited Consolidated Balance Sheets as of March 31, 2021 (Unaudited) and December 31, 2020F-1F-2
   
UnauditedCondensed Consolidated Statements of IncomeChanges in Stockholders’ Deficit (Unaudited) for the Three Months Ended March 31, 2021three and 2020six months ended June 30, 2023 and 2022 F-2F-3
   
UnauditedCondensed Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2021six months ended June, 2023 and 20202022 F-3F-5
   
Notes to Condensed Financial Statements (Unaudited) Unaudited Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2021 and 2020F-4F-6
   
Notes to the Unaudited Consolidated Financial Statements (Unaudited)F-5
S and S Beverage, Inc.
Unaudited Balance Sheet as of January 31, 2021 and audited balance sheet as of December 31, 2020F-41
Unaudited Statements of Loss for the one month ended January 31, 2021 and 2020F-42
Unaudited Statements of Stockholders’ Deficit for the one month ended January 31, 2021 and 2020F-43
Unaudited Statements of Cash Flows for the one month ended January 31, 2021 and 2020F-44
Notes to the Consolidated Financial StatementsF-45
Item 2.Management’s Discussion and Analysis of Financial Condition and Results of Operations 541
   
Item 3.Quantitative and Qualitative Disclosures aboutAbout Market Risk 7714
   
Item 4.Controls and Procedures 7714
   
PART II - OTHER INFORMATION PART II15
   
Item 1. Legal Proceedings OTHER INFORMATION7815
   
Item 1.1A. Risk Factors Legal Proceedings7815
   
Item 1A.Risk Factors78
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds 7815
   
Item 3. Defaults Upon Senior Securities Defaults upon Senior Securities7815
   
Item 4.Mine Safety Disclosures 7815
   
Item 5. Other Information Other Information7815
   
Item 6. Exhibits Exhibits79
SIGNATURES8216

i

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

  June 30, 2023  December 31, 2022 
  (Unaudited)    
ASSETS        
CURRENT ASSETS        
Cash $97,158  $39,788 
Accounts receivable, net of allowance for doubtful accounts of $135,713 and $145,579, respectively  24,245   79,529 
Inventory, net of reserve for obsolescence of $80,000, respectively  551,758   859,179 
Other current assets  -   45,262 
Total current assets  673,161   1,023,758 
         
NON-CURRENT ASSETS        
Property, plant and equipment, net  306,078   348,064 
Right-of-use asset, net  464,408   762,464 
Intangible property, net  61,324   66,201 
Deposits  7,100   15,125 
Total assets $1,512,071  $2,215,612 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES        
Accounts payable and accrued expenses $1,643,459  $1,379,227 
Accrued compensation  219,583   137,083 
Notes payable, net of discount of $160,572 and $218,481, respectively, current  1,089,691   712,499 
Notes payable - related parties, current  1,872,651   1,785,651 
Notes payable      
Acquisition obligations, current  656,330   659,550 
Lease liabilities, current  187,589   209,685 
Convertible debt, net of discount of $269,114 and $183,940, respectively  688,962   411,060 
Total current liabilities  6,358,265   5,294,755 
         
NON-CURRENT LIABILITIES        
Notes payable, net of current  58,014   57,055 
Lease liabilities, net of current  332,622   629,197 
Total liabilities  6,748,901   5,981,007 
         
COMMITMENTS AND CONTINGENCIES  -   - 
         
STOCKHOLDERS’ DEFICIT        
Preferred Stock, $.00001 par value, 5,702,000 shares authorized, 989,000 and 988,000 issued and outstanding, respectively  10   10 
Common Stock, $.00001 par value, 10,500,000,000 authorized, 2,294,940,557 and 2,000,276,378, issued and outstanding, respectively  22,949   20,003 
Common stock issuable (169,998,860 shares)  1,386,489   1,386,497 
Additional paid-in capital  20,094,053   18,441,303 
Accumulated deficit  (26,740,331)  (23,613,208)
Total stockholders’ deficit  (5,236,830)  (3,765,395)
Total liabilities and stockholders’ deficit $1,512,071  $2,215,612 

See notes to condensed consolidated financial statements.

F-1

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited)

  2023  2022  2023  2022 
  Three Months Ended  Six Months Ended 
  June 30,  June 30, 
  2023  2022  2023  2022 
  (unaudited)  (unaudited)  (unaudited)  (unaudited) 
             
REVENUES, NET $929,519  $1,173,398  $2,204,416  $2,168,529 
COST OF REVENUES  742,687   885,517   1,729,546   1,735,393 
Gross profit  186,832   287,881   474,870   433,136 
                 
OPERATING EXPENSES                
Selling, general and administrative expenses  927,718   1,031,515   2,201,679   1,970,851 
LOSS FROM OPERATIONS  (740,886)  (743,634)  (1,726,809)  (1,537,715)
OTHER INCOME (EXPENSE)                
Interest expense  (309,371)  (156,459)  (602,962)  (587,354)
Financing costs  (126,000)  (286,000)  (289,000)  (286,000)
Change in the fair value of derivative liability  -   122,000   -   (1,671,000)
Gain (loss) on extinguishment of debt  (363,346)  (326,230)  (513,520)  (873,040)
Other income (expense)  5,037   1,798   5,168   5,022 
NET LOSS $(1,534,566) $(1,388,525) $(3,127,123) $(4,950,087)
                 
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  2,231,011,986   1,560,391,543   2,156,953,058  $1,560,391,543 

See notes to condensed consolidated financial statements.

F-2

KONA GOLD BEVERAGE, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended June 30, 2023

(Unaudited)

  Shares  Amount  Shares  Amount  Shares  Amount  in Capital  Deficit  Deficit 
  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 March 31, 2023  2,139,440,557  $21,394   989,000  $10   169,998,860  $1,386,489  $19,252,920  $(25,205,765) $(4,544,952)
Common stock issued for conversion of convertible debt and accrued interest  127,500,000   1,275                   572,475       573,750 
Common stock issued for financing costs (LOC)  28,000,000   280                   125,720       126,000 
Warrants related to convertible notes                          137,669       137,669 
Warrants related to services rendered                          5,269       5,269 
                                     
Net loss  -   -   -   -   -   -   -   (1,534,566)  (1,534,566)

Balance June 30, 2023

(Unaudited)

  2,294,940,557  $22,949   989,000  $10   169,998,860  $1,386,489  $20,094,053  $(26,740,331) $(5,236,830)

Balance

  2,294,940,557  $22,949   989,000  $10   169,998,860  $1,386,489  $20,094,053  $(26,740,331) $(5,236,830)

For the Six Months Ended June 30, 2023

(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, 2022  2,000,276,378  $20,003   988,000  $10   169,999,860  $1,386,497  $18,441,303  $(23,613,208) $(3,765,395)
Balance  2,000,276,378  $20,003   988,000  $10   169,999,860  $1,386,497  $18,441,303  $(23,613,208) $(3,765,395)
Common stock issued for conversion of convertible debt and accrued interest  199,500,000   1,995                   886,755       888,750 
Common stock issued for financing costs (LOC)  28,000,000   280                   125,720       126,000 
Warrants related to convertible notes                          287,670       287,670 
Warrants issued for financing costs (ELOC)                          163,000       163,000 
Common stock issued upon cashless exercise of warrants  67,164,179   671                   (671)      - 
Preferred stock issued to a related party for common stock issuable          1,000   -   (1000)  (8)  185,008       185,000 
Warrants related to services rendered                          5,269       5,269 
Net loss  -   -   -   -   -   -   -   (3,127,123)  (3,127,123)

Balance June 30, 2023

(Unaudited)

  2,294,940,557  $22,949   989,000  $10   169,998,860  $1,386,489  $20,094,053  $(26,740,331) $(5,236,830)

Balance

  2,294,940,557  $22,949   989,000  $10   169,998,860  $1,386,489  $20,094,053  $(26,740,331) $(5,236,830)

 

i

F-3

 

PART I - FINANCIAL INFORMATION

For the Three Months Ended June 30, 2022

Item 1. Financial Statements(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)
Balance  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)
Balance  1,709,122,945  $17,091   988,000  $10   170,000,000  $1,386,497  $16,855,382  $(21,250,260) $(2,991,280)

INDEX TO FINANCIAL STATEMENTSFor 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)
Balance  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)
Balance  1,709,122,945  $17,091   988,000  $10   170,000,000  $1,386,497  $16,855,382  $(21,250,260) $(2,991,280)

See notes to condensed consolidated financial statements.

Financial Statements of Kona Gold Beverage, Inc. (formerly known as Kona Gold Solutions, Inc.)
Unaudited Consolidated Balance Sheet as of March 31, 2021 and audited Balance sheet as of December 31, 2020F-1
Unaudited Consolidated Statements of Loss for the three months ended March 31, 2021 and 2020F-2
Unaudited Consolidated Statements of Stockholders’ Deficit for the three months ended March 31, 2021 and 2020F-3
Unaudited Consolidated Statements of Cash Flows for the three months ended March 31, 2021 and 2020F-4
Notes to the Unaudited Consolidated Financial StatementsF-5

ii

 

Balance Sheet

  Unaudited Audited
  Three Months Ended Year Ended
  March 31, December 31,
ASSETS 2021 2020
 
CURRENT ASSETS        
Cash and cash equivalents $56,201  $113,168 
Accounts receivable, net of allowance for doubtful accounts of $3,967 and $5,019, respectively  111,676   — 
Other receivables  14,876   14,876 
Inventory  861,652   660,504 
Other current assets  7,518   5,572 
Total current assets  1,051,923   794,120 
         
NON-CURRENT ASSETS        
Property, plant and equipment, net  178,230   167,872 
Right-of-use asset, net  875,970   912,993 
Intangible property, net  79,441   69,488 
Goodwill  1,275,938   — 
Note receivable, net of allowance $1,500,000 and $0, respectively  —   — 
Deposit  6,500   6,500 
Total non-current assets  2,416,079   1,156,853 
Total assets $3,468,002  $1,950,973 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES        
Accounts payable $257,846  $208,599 
Amounts owed to customers  —   10,508 
Credit card payables  6,544   19,469 
Current note payable - related party  9,000   12,000 
Current lease liability  112,383   149,407 
Convertible debt  1,200,000   900,000.00 
Derivative liability  627,018   361,152.00 
Accrued compensation  318,958   257,500.00 
Accrued stock compensation  1,386,497   1,386,497 
Accrued liabilities  105,033   81,624 
Total current liabilities  4,023,279   3,386,756 
         
NON-CURRENT LIABILITIES        
Line of credit  398,470   398,470 
Line of credit - related party  1,498,151   1,495,151 
Note payable - related party, net of current  56,000   56,000 
Note payable  642,282   — 
PPP note payable  212,648   95,161 
Lease liability, net of current  763,587   763,586 
Total liabilities  7,594,417   6,195,124 
         
         
COMMITMENTS AND CONTINGENCIES (NOTE 13)        
         
STOCKHOLDERS’ DEFICIT        
Preferred Stock Series A, $.00001 par value, 0 shares authorized, 0 issued, and outstanding, respectively  —   — 
Preferred Stock Series B, $.00001 par value, 1,200,000 shares authorized, 488,000 issued and outstanding, respectively  5   5 
Preferred Stock Series C, $.00001 par value, 250, 3,300,000 and 3,300,00 shares authorized, 140 and 0 issued, and outstanding, respectively  —   — 
Preferred Stock Series D, $.00001 par value, 500,000 shares authorized, 500,000 issued, and outstanding, respectively  5   5 
Common Stock, $.00001 par value, 2,500,000,000 authorized, 825,726,839 and 786,308,041, issued and outstanding, respectively  8,257   7,863 
Additional paid-in capital - warrants  1,334,136   281,565 
Additional paid-in capital  5,630,762   4,746,447 
Accumulated deficit  (11,099,579)  (9,280,036)
Total stockholders’ deficit  (4,126,415)  (4,244,151)
Total liabilities and stockholders’ deficit $3,468,002  $1,950,973 

See notes to financial statements

F-1

Kona Gold Beverage, Inc. and Subsidiaries Unaudited

CONSOLIDATED STATEMENTS OF INCOME

  THREE MONTHS ENDED
  March 31,
  2021 2020
REVENUES, NET OF SALES, RETURNS, AND ALLOWANCES OF $28,707 AND $51,159, RESPECTIVELY $462,408  $202,057 
COST OF REVENUES  313,920   145,967 
Gross profit  148,488   56,090 
         
OPERATING EXPENSES        
Selling, general and administrative expenses  568,980   647,219 
Income (Loss) from operations  (420,492)  (591,129)
Other income / (expense)        
Interest expense  (17,373)  (3,807)
Interest expense related to loan origination fee on convertible note  (41,000)  — 
Interest expense related to warrants on convertible note  (1,052,571)  — 
Interest expense on convertible note  (19,966)    
Loss on derivative  (265,866)  — 
Tax expense  (2,275)    
Net Income (Loss) $(1,819,543) $(594,936)
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:        
Basic and diluted  775,469,306   710,868,609 
         
NET LOSS PER COMMON SHARES:        
Basic and diluted $(0.00) $(0.00)

See notes to financial statements


Statements of Stockholders’ Deficit

  Common Stock Preferred Stock Additional   Total
  $.00001 Par $.00001 Par Paid Accumulated Stockholders’
  Shares Amount Shares Amount in Capital Deficit Deficit
               
Balance December 31, 2019  763,967,603  $7,640   4,988,000  $50  $4,155,777  $(6,154,441) $(1,990,976)
Common Stock Issued for Compensation  5,000,000   50           318,450       318,500 
Net Income (loss)                      (594,936)  (594,936)
Balance March 31, 2020  768,967,603  $7,690   4,988,000  $50   4,474,227  $(6,749,377) $(2,267,412)
Common Stock Issued for Sponsorship Agreements  85,000   1           2,577       2,578 
Common Stock Issued for Compensation  5,000,000   50           157,450       157,500 
Warrants related to convertible note                  281,565       281,565 
Net Income (loss)                      (1,066,920)  (1,066,920)
Balance June 30, 2020  774,052,603  $7,741   4,988,000  $50  $4,915,819  $(7,816,297) $(2,892,689)
Common Stock Conversion to Preferred Stock  (140)  (0)  140   0.00           — 
Preferred Stock Conversion to Common Stock  4,000,000   40   (4,000,000)  (40.00)  —       — 
Accrued Common Stock Issues for Compensation  140   0           2       2 
Net Income (loss)                      (509,441)  (509,441)
Balance September 30, 2020  778,052,603  $7,781   988,140  $10  $4,915,821  $(8,325,738) $(3,402,128)
Common Stock Issued for Conversion of Convertible Debt  8,255,438   83           112,191       112,274 
Net Income (loss)                      (954,298)  (954,298)
Balance December 31, 2020  786,308,041  $7,863   988,140  $10  $5,028,012  $(9,280,036) $(4,244,153)
Common Stock Issued for Conversion of Convertible Debt  30,418,798   304           613,505       613,809 
Common Stock Issued for Acquisition  9,000,000   90           270,810       270,900 
Warrants related to convertible note                  1,052,571       1,052,571 
Net Income (loss)                     $(1,819,543) $(1,819,543)
Balance March 31, 2021  825,726,839  $8,257   988,140  $10  $6,964,898  $(11,099,579) $(4,126,416)

See notes to financial statements


Kona Gold Beverage, Inc. and Subsidiaries Unaudited

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the ThreeSix Months Ended March 31,June 30, 2023 and 2022

(Unaudited)

  2021 2020
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:        
Net loss $(1,819,543) $(594,936)
Adjustments to reconcile net income to net cash  provided by operations:                        
Depreciation and Amortization  9,907   4,981 
Common Stock Issued in Exchange for Services  —   — 
Common Stock Issued in Acquisition  270,900   — 
Common Stock Issued for Sponsorship  —   — 
Common Stock Issued for Compensation      318,500 
Preferred Stock Issued for Compensation  —   — 
         
Interest expense related to warrants on convertible debt  1,052,571   — 
Changes in operating assets and liabilities:        
Decrease (increase) in accounts receivable  (122,184)  8,015 
Decrease (increase) in other receivable  —   — 
Decrease (increase) in inventory  (201,148)  (96,608)
Decrease (increase) in prepaids  —   — 
Decrease (increase) in other current assets  (1,946)  (1,723)
Decrease (increase) in deposits  —   — 
Decrease (increase) in right-of-use asset  37,023   17,157 
Increase (decrease) in accounts payable  49,246   90,270 
Increase (decrease) in credit card payable  (12,925)  7,317 
Increase (decrease) in accrued compensation  61,458   — 
Increase (decrease) in accrued stock compensation  —   — 
Increase (decrease) in accrued expenses  23,409   3,587 
Increase (decrease) in derivative liability  265,866   — 
Increase (decrease) in lease liability  (37,023)  (16,537)
Net cash provided by (used in) operating activities  (424,389)  (259,977)
         
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:        
Purchases of property, plant and equipment  (20,265)  (16,881)
Changes in goodwill  (1,275,938)  — 
Changes in intellectual property  (9,953)  2,044 
Net cash provided by (used in) investing activities  (1,306,156)  (14,837)
         
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:        
Proceeds from shareholder payable  —   — 
Changes in note payable - related party  (3,000)  260,120 
Changes in line of credit - related party  —   (3,000)
Changes in note payable - acquisition  642,282     
Changes line of credit  —   — 
Changes in convertible debt  913,809   — 
Changes in PPP note payable  117,487   — 
Net cash provided by (used in) financing activities  1,670,578   257,120 
Net cash increase for period  (59,967)  (17,694)
Cash at beginning of period  113,168   36,223 
Cash at end of period $53,201  $18,529 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for income taxes $—  $— 
Cash paid for interest $17,205  $35,877 
  Six Months Ended June 30, 2023  Six Months Ended June 30, 2022 
  (Unaudited)  (Unaudited) 
CASH USED IN OPERATING ACTIVITIES:        
Net loss $(3,127,123) $(4,950,087)
Adjustments to reconcile net loss to net cash provided by operations:        
Depreciation and amortization  45,951   44,250 
Change in allowance for doubtful accounts  (9,866)  35 
Change in inventory reserves  -   - 
Right-of-use asset amortization  49,786   96,219 
Amortization of debt discount  509,642   480,763 
Amortization of intangible assets  4,877   4,877 
Preferred stock issued for common stock issuable  185,000   - 
Fair value of warrants issued for financing costs  289,000   286,000 
Fair value of warrants issued for services  5,269   - 
Loss on sale of property and equipment  (3,965)  - 
Loss on extinguishment of debt  498,207   873,040 
Loss on termination of operating lease  9,601   - 
Gain on change in fair value of derivative liabilities  -   1,671,000 
Common stock issued for compensation  -   8,500 
Changes in operating assets and liabilities:        
Decrease (increase) in accounts receivable  65,150   (8,985)
Decrease (increase) in inventory  307,422   (615,102)
Decrease (increase) in prepaids  -   278,707 
Decrease (increase) in other current assets  45,262   (29,461)
Decrease (increase) in deposits  1,775   - 
Increase (decrease) in accounts payable and accrued expenses  511,860   450,365 
Increase (decrease) in accrued compensation  82,500   (110,000)
Increase (decrease) in lease liability  (55,608)  (99,476)
Net cash used in operating activities  (585,260)  (1,619,355)
         
CASH USED IN INVESTING ACTIVITIES:        
Purchase of purchase property, plant and equipment  -   (24,168)
Net cash used in investing activities  -   (24,168)
         
CASH PROVIDED BY FINANCING ACTIVITIES:        
Proceeds from note payable - related party  99,000   200,000 
Repayment of note payable - related party  (12,000)  (3,000)
Changes in acquisition obligations  (3,220)  (8,586)
Principal repayments of finance lease obligation  (1,939)  (3,798)
Proceeds from notes payable, net of expenses  783,365   289,389 
Repayment of notes payable  (928,108)  (3,119)
Proceeds from convertible debentures payable, net of expenses  705,532   475,000 
Net cash provided by financing activities  642,630   945,886 
Net cash increase (decrease) for period  57,370   (697,637)
Cash at beginning of period  39,788   703,825 
Cash at end of period $97,158  $6,188 
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for income taxes $-  $- 
Cash paid for interest $11,039  $256 
         
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:        
         
Recording of right of use asset and lease liability $-  $135,000 
Termination of right of use asset $248,270  $- 
Termination of operating lease liability $261,125  $- 
Note payable issued on termination of lease liability $16,206  $- 
Vendor line of credit reclassified to notes payable $247,629  $- 
Common shares issued on conversion of debentures and accrued interest $888,750  $5,859,165 
Fair value of warrants issued upon issuance of convertible notes $287,669  $- 
Derivative liability recorded on issuance of convertible note $-  $680,000 

See notes to condensed consolidated financial statementsstatements.

F-4

F-5

 

Kona Gold Beverage, Inc.

(KONA GOLD BEVERAGE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2023 and 2022

NOTE 1 – OPERATIONS AND GOING CONCERN

The Company was formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

, and in October 2020, changed its name to Kona Gold Beverage, Inc., a Delaware corporation (“Kona Gold,” the “Company,” “we,” “us,” or “our”), owns and operates a line of premier CBD lifestyle brand products.. As of March 31, 2021June 30, 2023, the Company has fourthree wholly-owned subsidiaries: Kona Gold LLC, a Delaware limited liability company (“Kona”), HighDrate LLC, a Florida limited liability company (“HighDrate”), and Gold Leaf Distribution LLC, a Florida limited liability company (“Gold Leaf”),. Kona focuses on the development and marketing of functional and better-for-you beverages: Ooh La Lemin Lemonades that are available in February 2021, the Company acquired alla variety of the capital stock of Ssparkling and S Beverage, Inc. (“Snon-sparkling flavors and S”), a Wisconsin corporation. The Company is primarily focused on product development in the functional beverage sector. Kona Gold creates hemp-infused energy drinks, which includes hemp energy drinks, CBD energy water,Energy Drinks that are low-to-zero calorie functional beverages that are high in B vitamins, amino acids, and also sells Kona Gold merchandise and apparel, which promotes the Company’s beverages.omegas. HighDrate focuses on the development and marketing of CBD-infused energy waters geared towardsto the fitness and wellness markets. S and S focuses on the development and marketing of lemon-flavored beverages under the name OOH LA Lemin. Gold Leaf focuses on the distribution of premium beverages and snacks in key markets.markets, all of which complement our current product offerings.

The Company currently sells its products through resellers, the Company’s websites, and distributors that span across 2718 states. The Company’s products are available in wide variety of stores, including convenience and grocery stores, smoke shops, and gift shops.

As used herein, the terms “Kona Gold,” the “Company,” “we,” “us,” or “our,“our”, refer to Kona Gold individually or, as the context requires, collectively with its subsidiaries on a consolidated basis.

The Company’s Business

The Company has two reportable segments:

●Beverages. Includes three types of beverage products: (i) hemp-infused energy drinks, (ii) CBD-infused energy water, (iii) CBD-infused high-alkaline water, and (iv) lemon flavored beverages, as well as apparel with the Kona Gold logo. The Beverages Segment includes all of Kona’s, HighDrate’s, and S and S’s operations. Additional information regarding these products is below. The Company considers this a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying Consolidated Financial Statements present financial information in a format that is consistent with the internal financial information used by management. The Company does not accumulate revenues by product classification and, therefore, it is impractical to present such information.

●Distribution. Includes the distribution of premium beverages and snacks in key markets. These markets include over 600 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina. In addition to distributing the Company’s own beverage products, the Company also distributes other products, including alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infused jellybeans, all of which complement the Company’s current product offerings. The Distribution Segment includes all of Gold Leaf’s operations.

Beverage Products

The Company’s hemp-infused energy drink is available in both regular and sugar-free options. These energy drinks are infused with organic hemp protein powder and contain essential vitamins and ingredients that give consumers a natural energy boost. Hemp protein contains no gluten and is compatible with a variety of diets, including vegan and Kosher. Our hemp energy drinks are available in eight flavors: classic hemp, platinum hemp, sugar-free hemp, cherry vanilla, bubble gum, candy apple, cotton candy, and pink grapefruit.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

HighDrate’s CBD-infused energy water is great tasting, sugar-free, and powered by the patented technology of Alkame Holdings Inc.’s wholly-owned subsidiary, Alkame Water Inc. (“Alkame”), which uses its advanced water treatment to create a premium oxygenated alkaline water with natural antioxidants. Alkame believes that, pursuant to a double-blind placebo, peer-backed research project that it conducted, its Level 2 – inputs other than Level 1 that are observable, either directly or indirectly; such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets and liabilities in markets technology can boost the immune system and physical performance. HighDrate’s CBD-infused energy water contains 80 mg of caffeine and 10 mg of CBD. The Company believes that CBD aids the body’s endocannabinoid system in neuroprotection, stress recovery, immune balance, and homeostatic regulation. HighDrate’s CBD-infused energy water is available in six flavors: watermelon, kiwi strawberry, tropical coconut, Georgia peach, sour apple, and blue island punch.

The Company’s product “Storm” is a high-alkaline CBD-infused water. This water is also powered by Alkame’s patented technology, which uses its advanced water treatment to create a premium oxygenated alkaline water with natural antioxidants. Storm high-alkaline CBD water contains 20 mg of CBD.

OOH LA Lemin is lemonade for the modern age. It is made natural and refreshing with no added sugar and is low in carbs and only 15 calories. OOH LA Lemin is available in four distinct flavors: original lemonade, peach lemonade, strawberry lemonade, and blue raspberry lemonade.

The Company also sells branded apparel. The Company uses only high-quality textiles and specialty inks and foils, which provide consumers with a premium fit and feel. The Company currently offers shirts, tanks, hats, and towels for sale.

Effects of COVID-19

In January 2020, the World Health Organization (the “WHO”)WHO announced a global health emergency because of a new strain of coronavirus (“COVID-19”)(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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESGoing Concern

A.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.

B.Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual events and results could differ from those assumptions and estimates.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

C.Cash and Cash Equivalents

For the purpose of reporting cash flows, the Company considers all unrestricted, highly liquid investments with an initial maturity of three months or less to be cash equivalents.

D.Fair Value of Financial Instruments

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts payable, accrued liabilities, and notes payable approximate fair value given their short-term nature or effective interest rates. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted price in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarch is as follows:

Level 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – inputs other than Level 1 that are observable, either directly or indirectly; such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

Level 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

The Company analyzes all financial instruments with features of both liabilities and equity under Accounting Standards Codification (“ASC”) 480, Distinguishing Liabilities from Equity, and ASC 815, Derivatives and Hedging (“ASC 815”). Derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives. The effects of interactions between embedded derivatives are calculated and accounted for in arriving at the overall fair value of the financial instruments. In addition, the fair value of free-standing derivative instruments such as warrant and option derivatives are valued using the Black-Scholes models.

The Company uses Level 2 inputs for its valuation methodology for the embedded conversion option liabilities as their fair value were determined by using the Black-Scholes option-pricing model based on various assumptions. The Company’s derivative liabilities are adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

E.Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at net realizable value. The Company determines provisions for uncollectible accounts, sales returns, and claims based upon factors including the credit risk and activity of specific customers, historical trends, and other information. If the Company becomes aware of a specific distributor’s or reseller’s inability to meet its financial obligations, bad debt charges are recorded based on an overall assessment of past due accounts receivable outstanding. There was no bad debt attributed to accounts receivable in the year ended March 31, 2021 and 2020, respectively. These amounts are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss. Management will review annually to determine provisions and record an allowance as deemed necessary. In the opinion of management, a provision was deemed necessary for uncollectible accounts for Kona and no provision was deemed necessary for Gold Leaf. The balance of allowance for Uncollectible Accounts at March 31, 2021 and December 31, 2020 were $3,967, respectively, as reflected in the accompanying Consolidated Balance Sheets.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

F.Inventories

The cost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. The Company’s inventories are valued at the lower cost or net realizable value. The Company’s inventory consists almost entirely of finished and unfinished goods, and freight, which include CBD energy waters, CBD waters, hemp energy drinks, cans for production, and merchandise and apparel. The Company periodically evaluates and adjusts inventories for obsolescence. In the opinion of management, no provision for obsolescence is deemed necessary. The shelf life of all beverage inventory is two years, and at December 31, 2020 and 2019, all inventory was current, as reflected in the accompanying Consolidated Balance Sheets.

G.Property, Plant and Equipment

Property, plant and equipment are reported on the accompanying Consolidated Balance Sheet at cost less accumulated depreciation. Assets with a useful life greater than one year and cost greater than $100 are capitalized. Maintenance and repairs are charged to expense as incurred.

Depreciation is provided using the straight-line method over the estimated useful lives of the asset as follows:

Estimated useful lives (in years)
Furniture and fixtures7
Machinery and equipment7
Vehicles5
Computer equipment5 – 7

H.Goodwill and Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interests in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exist that indicate that a goodwill impairment test should be performed. The Company has selected December 31 as the date to perform the annual impairment test.

Intangible assets represent both indefinite lived and definite lived assets. Trademarks are deemed to have definite useful lives of ten years, are amortized, and are tested annually for impairment. Intangible assets are reported on the balance sheet at cost less accumulated amortization. The Company has selected December 31 as the date to perform the annual impairment test.

Management determined that, for the year ending December 31, 2020, there were no identifiable assets or liabilities; therefore, the implied fair value of goodwill is zero. On January 21, 2021, the Company entered into an Agreement and Plan of Merger with S and S Beverage, Inc. and its shareholders and acquired all of the capital stock of S and S Beverage Inc. (“S and S”). Because of this, goodwill was recorded in the amount of $1,275,938 see Note 4, Goodwill and Intangible Assets. Management determined that there was no impairment of trademarks for the year ending December 31, 2020. See Note 4, Goodwill and Intangible Assets.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

I.Leases

On January 1, 2019, the Company adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update (“ASU”) 2016-02, Leases (Topic 842) (“ASC Topic 842”), which requires an entity to recognize a liability and corresponding asset for leases that meet certain criteria. The Company applied ASC Topic 842 using the modified retrospective approach. Under this approach, the Company applied the new standards to all new leases, and leases which have remaining obligations for financial statements issued for fiscal years beginning after December 15, 2018. The Company elected the package of practical expedients permitted under the transition guidance, which allowed the Company to carryforward historical lease classification, and not reassess (i) whether a contract was or contained a lease, and (ii) initial direct costs for any leases that existed prior to January 1, 2019. Under this method, the Company did not restate comparative periods in its financial statements. The Company presents right-of-use assets resulting from leases separately from other assets as noncurrent, and amortized accordingly. The corresponding lease liabilities are presented separately from other liabilities on the accompanying Consolidated Balance Sheet.

The Company recognizes a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The amortization period for the right-of-use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate or the risk-free rate with the election of the practical expedient. The Company has elected to use the risk-free rate.

J.Revenue and Provision for Sales, Returns, and Allowances

The Company sells its products, which primarily includes its hemp energy drinks, CBD energy waters, CBD waters, and logo apparel, to online customers or through resellers and distributors. In evaluating the timing of the transfer of control of products to customers, the Company considers several indicators, including significant risks and rewards of products, the Company’s right to payment, and the legal title of the products. The Company recognizes revenue from product sales to customers, distributors, and resellers when products that do not require further services by the Company 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.

The Company also sells its 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, the Company considers several indicators, including significant risks and rewards of products, the Company’s right to payment, and the legal title of the products. The Company recognizes revenue from product sales to resellers when products that do not require further services by the Company are shipped or delivered, when there are no uncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by the Company 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.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On January 1, 2019, the Company adopted 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. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulative effect adjustment was recognized.

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, the Company recognizes 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 the Company, performance is deemed to occur upon shipment or delivery of products to its customers based on the written contract terms, which is also when control is transferred.

The Company evaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenues that would be meaningful. The majority of the Company’s revenue earned from its Beverages Segment and its Distribution Segment is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. The Company does not have significant financing component or payment terms, and it does not have any material unsatisfied performance obligations. The Company’s revenues are obtained in similar geographical locations within the United States. Furthermore, the Company’s operations in each of its reporting segments are expected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of its products and customers are essentially the same. The sales from the Company’s beverage product types are organized as one reportable segment, which the Company refers to as the Beverages Segment, and the sales of the Company’s products and products that are purchased from resellers that are distributed by Gold Leaf is organized as its second reportable segment, which the Company refers to as the Distribution Segment. The Company has also determined that disaggregated revenue by net sales by revenue source would be meaningful and allow investors to understand its business activities, historical performance, or future prospects. Disaggregated sales by revenue source, which includes sales to distributors, online sales, sales through Amazon, and Gold Leaf distribution sales, is included in Note 16, Revenue, to the Consolidated Financial Statements. We also sell merchandise and apparel that comprises approximately 1% of the Company’s gross annual sales, and solely exists to promote its beverages. Therefore, the Company’s merchandise and apparel products are not a reportable segment. Merchandise and apparel sales are included with the gross sales for its Beverages Segment.

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 at the three months ending March 31, 2021 and 2020 of approximately $15,034 and $44,965, respectively, which is included in the revenues, net of sales returns and allowances in the accompanying Consolidated Statements of Loss.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

K.Cost of Revenues

Cost of revenues consist primarily of expenses associated with the delivery and distribution of products. These include expenses related to direct procurement costs and shipping and handling costs. The Company bills shipping and handling fees charged to customers as part of sales and the associated expense as part of cost of revenues. The costs are charged to cost of revenues in the same period that the associated revenue is earned.

L.Impairment of Long-Lived Assets

The Company evaluates its long-lived assets for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company evaluates the recoverability of long-lived assets used in operations by measuring the carrying amount of the assets against their estimated undiscounted future cash flows. If such evaluations indicated that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to fair values. Management completed an impairment review as of December 31, 2020 and determined long-lived assets were not impaired.

M.Income Taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which clarifies the accounting and disclosure requirements for uncertainty in tax positions. It requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing tax positions that are “more likely than not” to occur and then measuring those positions to determine if they are recognizable in the financial statements. Management regularly reviews and analyzes all tax and has determined that no uncertain tax positions requiring recognition have occurred.

The Company has no recorded liabilities for uncertain tax positions as of the accompanying Consolidated Balance Sheets dated March 31, 2021 and December 31, 2020, respectively.

N.Stock-Based Compensation

FASB’s ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R) (“ASC Topic 718”), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. The Company measures 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 the Company’s common stock, par value $0.00001 per share (the “Common Stock”), on the date of grant.

The Company estimates the fair value of each restricted stock award as of the date of grant using the closing price as reported by the OTC Markets Group Inc. (the “OTCM”) on the date of grant. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. The Company accounts for forfeitures of restricted stock as they occur.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

O.Advertising Costs

The Company expenses costs of advertising and promotions as incurred. The Company includes in advertising costs inventory given away as promotional merchandise or free samples to create sales. Advertising and promotion costs for the three months ended March 31, 2021 and 2020, were approximately $10,300 and $12,300, respectively, which amounts were included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

P.Concentration of Credit Risk

The Company maintains cash balances at financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and had determined the credit exposure to be negligible.

Q.Basic and Diluted Earnings per Share

In accordance with FASB’s ASC 260, Earnings per Share, basic income (loss) per common share is calculated using the weighted average number of shares outstanding during the periods reported. Diluted earnings per share include the weighted average effect of all dilutive securities outstanding during the periods presented.

Diluted per-share loss is the same as basic per-share loss when there is a loss from continuing operations.

R.Segments

ASC 280-10, Segment Reporting (“ASC 280-10”), establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company identified two operating segments that report revenue, including both sales to external customers and intersegment sales or transfers, that are 10% or more of the combined revenue, internal and external, of all the Company’s operating segments. Furthermore, each of the operating segments have assets that are 10% or more of the combined assets of all operating segments.

The Company then applied the management approach to the identification of its two reportable segments – the Beverages Segment, consisting of the operations of Kona, HighDrate, and S and S, and the Distribution Segment, consisting of the operations of Gold Leaf. Specifically, the Company has evaluated guidance in ASC 280-10 and determined that aggregation is consistent with the objectives of ASC 280-10 in that aggregation into two reportable segments allows users of our financial statements to view the Company’s business through the eyes of management based upon the way management reviews performance and makes decisions. Additional factors that were considered included: whether or not an operating segment has similar economic characteristics, the nature of the products/services under each operating segment, the nature of the production/go-to-market process, the type and geographic location of our customers, and the distribution of our products/services. The Company further determined that its logo merchandise and apparel, which revenue comprises approximately 1% of the Company’s gross annual sales, and solely exists for promotion purposes, could be aggregated with the operations in the Beverages Segment. A description of the Company’s products is contained in Note 1, Organization and Description of Business. For additional information regarding the Company’s two reportable segments, please see Note 17, Segments.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

S.Registration Rights Agreement

In May 2020, the Company completed a private placement transaction (the “2020 Private Placement”) of three secured convertible debentures (the “2020 Debentures”), convertible for up to 105,947,397 shares (the “2020 Conversion Shares”) of Common Stock and a Warrant to purchase Common Stock (the “2020 Warrant”), exercisable for up to 20,000,000 shares of Common Stock (the “2020 Warrant Shares”), pursuant to that certain Securities Purchase Agreement between an otherwise unaffiliated third-party investor (the “Selling Stockholder”) and the Company, dated as of May 14, 2020 (the “2020 SPA”). The Company sold and issued the initial 2020 Debenture (the “First 2020 Debenture”) and granted the Warrant promptly after entering in the 2020 SPA. The Company sold and issued the second 2020 Debenture (the “Second 2020 Debenture”) promptly after filing the registration statement on Form S-1 (the “2020 Registration Statement”) with the Securities and Exchange Commission (the “SEC”). The Company sold and issued the third 2020 Debenture (the “Third 2020 Debenture”) promptly after the SEC declared the Registration Statement effective. The Company agreed to register the 2020 Conversion Shares and 2020 Warrant Shares pursuant to the terms of the Registration Rights Agreement between the Selling Stockholder and Company, dated as of May 14, 2020 (the “2020 Registration Rights Agreement”).

Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file the Registration Statement with the SEC registering for resale the Conversion Shares and the Warrant Shares within 45 calendar days following the closing of the Private Placement. Further, the Company agreed to use its best efforts to have the Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the effectiveness deadline, or by the 5th trading day following the date on which the Company is notified that the Registration Statement will not be reviewed or is no longer subject to further review and Pursuant to the terms of the 2020 Registration Rights Agreement, the Company agreed to file the 2020 Registration Statement with the SEC registering for resale the 2020 Conversion Shares and the 2020 Warrant Shares within 45 calendar days following the closing of the 2020 Private Placement. Further, the Company agreed to use its best efforts to have the 2020 Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the effectiveness deadline, or by the 5th trading day following the date on which the Company is notified that the 2020 Registration Statement will not be reviewed or is no longer subject to further review and comments. Pursuant to the 2020 Registration Rights Agreement, the Company is subject to partial liquidated damages equal to 2.0% of the aggregate purchase price paid by the holder pursuant to the 2020 SPA for any of the 2020 Debentures then held by the holder for failure to file the 2020 Registration Statement timely, failure to file with the SEC a request for acceleration in accordance with Rule 461 promulgated under the Securities Act of 1933, as amended (the “Securities Act”), within five trading days after the date the Company is notified that the 2020 Registration Statement will not be reviewed or is not subject to further review, the 2020 Registration Statement is not declared effective by the effectiveness deadline, if after effectiveness, the 2020 Registration Statement ceases for any reason to remain continuously effective as required or if the holders are not permitted to utilize the prospectus therein to resell for more than 30 consecutive calendar days or more than an aggregate of 40 calendar days during any 12-month period, or if after the six-month anniversary of the 2020 Registration Rights Agreement, the Company does not have available adequate current public information as set forth in Rule 144(c). The parties agreed that the maximum aggregate liquidated damages payable to a holder of the 2020 Debentures under the 2020 Registration Rights Agreement is 24% of the aggregate purchase price paid by such holder pursuant to the 2020 SPA. The Selling Stockholder has agreed to waive this 30-consecutive-calendar-day provision for so long as the Company utilized its best efforts to file its Annual Report on Form 10-K for its fiscal year ended December 31, 2020, and promptly thereafter files a Post-Effective Amendment to the 2020 Registration Statement, both of which the Company accomplished.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company accounts for registration rights agreements in accordance with ASC subtopic 825-20, Registration Payment Arrangements (“ASC 825-20”). Under ASC 825-20, the Company is required to disclose the nature and terms of the arrangement, the maximum potential amount and to assess each reporting period the probable liability under these arrangements and, if exists, to record or adjust the liability to current period operations. ASC 825-20 specifies that the contingent obligation to make future payments or otherwise transfer consideration under a registration payment arrangement, whether issued as a separate agreement or included as a provision of a financial instrument, should be separately recognized and accounted for as a contingency in accordance with ASC 450-20, Loss Contingencies. The Company recorded no amount for this contingency in other expenses for the year ended December 31, 2020. As a result, there was no contingency recorded as a liability as a component of accrued expenses as of December 31, 2020.

In February 2021, the Company completed an additional private placement transaction (the “2021 Private Placement”) of two secured convertible debentures (the “2021 Debentures”), convertible for up to 154,958,678 shares (the “2021 Conversion Shares”) of Common Stock and granted a Warrant to purchase Common Stock (the “2021 Warrant”), exercisable for up to 50,000,000 shares of Common Stock (the “2021 Warrant Shares”), pursuant to that certain Securities Purchase Agreement between the Selling stockholder and the Company, dated as of February 10, 2021 (the “2021 SPA”). The Company sold and issued the initial 2021 Debenture (the “First 2021 Debenture”) and granted the 2021 Warrant promptly after entering in the 2021 SPA. The Company will sell and issue the second 2021 Debenture (the “Second 2021 Debenture”) promptly after the SEC declares effective the 2021 Registration Statement (as defined below).

The 2021 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the 2021 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.03 per share, subject to adjustment (the “2021 Fixed Conversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2021 Market Conversion Price”). The 2021 Debentures contain 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 price of the 2021 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2021 Debentures. The 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2021 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2021 Debentures or exercise of the 2021 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2021 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2021 Debentures or otherwise accelerates the maturity date, as provided for in the 2021 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2021 Debentures) are then satisfied, in shares of the Common Stock at the 2021 Market Conversion Price on the trading day immediately prior to the date paid.

At the Company’s option, it has the right to redeem, in part or in whole, the outstanding principal and interest under the 2021 Debentures prior to their respective maturity dates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP of the Common Stock is less than the 2021 Fixed Conversion Price, initially $0.03 per share, and (ii) there is no Equity Conditions failure. The Company must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a redemption premium equal to 15% of the outstanding principal amount being redeemed (the “Redemption Premium”). The Company must provide the holder 15 business days’ advance notice of its intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2021 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2021 Debentures.

Pursuant to the 2021 SPA, the purchase price for the First 2021 Debenture was $900,000, less $41,000 for origination fees, which consisted of the “original issue discount” of $36,000 and $5,000 as a structuring fee. Pursuant to the 2021 SPA, the purchase price for the Second 2021 Debenture will be $600,000, less $24,000 as an “original issue discount.”

In connection with the 2021 Private Placement, the Company also granted the 2021 Warrant to purchase up to an aggregate of 50 million shares of the Common Stock. The 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If the Company fails to maintain an effective registration statement with the SEC covering the resale of the 2021 Warrant Shares, or if an Event of Default (as defined below) has occurred and is continuing, then the holder may exercise the 2021 Warrant on a “cashless” basis. “Event of Default” means an event of default under the 2021 SPA or the 2021 Debentures.

The 2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issues shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the 2021 Warrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the exercise price of the 2021 Warrant.

The 2021 Warrant is subject to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion of the 2021 Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of the 2021 Warrant or conversion of the 2021 Debentures that had not then been exercised or converted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65 days’ prior written notice to the Company.

Pursuant to the terms of the 2021 Registration Rights Agreement with the Selling Stockholder, the Company agreed to file a registration statement on Form S-1 (the “2021 Registration Statement”) with the SEC registering for resale the 2021 Conversion Shares and the 2021 Warrant Shares within 30 calendar days following the closing of the 2021 Private Placement. The Selling Stockholder has agreed to waive this 30-calendar-day provision for so long as the Company utilized its best efforts to file its Annual Report on Form 10-K for its fiscal year ended December 31, 2020, and promptly thereafter files the 2021 Registration Statement. Further, the Company agreed to use its best efforts to have the 2021 Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the effectiveness deadline, or by the 5th trading day following the date on which the Company is notified that the 2021 Registration Statement will not be reviewed or is no longer subject to further review and comments. Pursuant to the 2021 Registration Rights Agreement, the Company is subject to partial liquidated damages equal to 2.0% of the aggregate purchase price paid by the holder pursuant to the 2021 SPA for either of the 2021 Debentures then held by the holder for failure to file the 2021 Registration Statement timely, failure to file with the SEC a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five trading days after the date the Company is notified that the 2021 Registration Statement will not be reviewed or is not subject to further review, the 2021 Registration Statement is not declared effective by the effectiveness deadline, if after effectiveness, the 2021 Registration Statement ceases for any reason to remain continuously effective as required or if the holders are not permitted to utilize the prospectus therein to resell for more than 30 consecutive calendar days or more than an aggregate of 40 calendar days during any 12-month period, or if after the six-month anniversary of the 2021 Registration Rights Agreement, the Company does not have available adequate current public information as set forth in Rule 144(c). The parties agreed that the maximum aggregate liquidated damages payable to a holder of the 2021 Debentures under the 2021 Registration Rights Agreement is 24% of the aggregate purchase price paid by such holder pursuant to the 2021 SPA. The Company also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by the Company in connection with the registration of the 2021 Conversion Shares and the 2021 Warrant Shares held by the Selling Stockholder.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

T.Recently Issued Accounting Pronouncements

The Company has evaluated all recently issued accounting pronouncements, issued or proposed, by the FASB or other standards-setting bodies as of the period ending March 31, 2021. The Company does not expect a material impact on the Company’s financial position, result of operations, or cash flows from these pronouncements.

NOTE 2 – INVENTORY

Inventory consisted of the following:

  March 31, 2021 December 31, 2020
CBD Energy Water $147,199  $159,813 
Hemp Energy Drink  303,918   343,119 
Storm CBD Water  29,938   28,692 
Ooh La Lemin Drink  165,966   — 
Merchandise and Apparel  12,149   11,948 
Unfilled Cans, Trays and Sleeves  108,788   38,705 
Miscellaneous Beverages  32,177   33,225 
Other Inventory  59,877   43,362 
Point of Sale Inventory  1,640   1,640 
Total Inventory $861,652  $660,504 

NOTE 3 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

  March 31, 2021 December 31, 2020
Furniture and Fixtures $66,154  $57,879 
Computers and Software  18,855   16,638 
Machinery & Equipment  88,456   79,951 
Vehicles  68,135   68,135 
Less: Accumulated Depreciation  (64,638)  (54,731)
Property, plant and equipment, net $176,962  $167,872 

Depreciation for the three months ended March 31, 2021 and 2020, was approximately $9,907 and $7,673 respectively, and is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 4 – GOODWILL AND INTANGIBLE ASSETS

In April 2019, Gold Leaf acquired 21,000,000 shares, representing all of the issued and outstanding shares of common stock, $0.01 par value per share, of BigSupersearch.com, Inc., a California corporation (“BigSupersearch”), and 14,000,000 shares of its Series A preferred stock, for $61,000, which amount included the purchase price, attorney fees, and transfer fees. At the time of the acquisition, BigSupersearch was considered a “shell company” because it had no operations and no assets. Because no transfer of assets or liabilities occurred, the entire $61,000, representing the consideration paid for all of the issued and outstanding capital stock of BigSupersearch, was recorded as goodwill. Gold Leaf has not commenced operations or done anything with BigSupersearch and it still remains a shell company.

Goodwill may not be amortized. Instead, it is tested at least annually for impairment. Impairment is the condition that exists when the carrying amount of goodwill exceeds its implied fair value. The fair value of goodwill can be measured only as a residual and cannot be measured directly. The Company uses a methodology to determine an amount that achieves a reasonable estimate of the value of goodwill for purposes of measuring an impairment loss. That estimate is referred to as the implied fair value of goodwill.

At December 31, 2019, BigSupersearch had a positive equity and the Company elected to perform a qualitative assessment to determine if it was more likely than not that the fair value of BigSupersearch exceeded its carrying value, including goodwill. In accordance with the Qualitative Assessment outlined in ASC 350-20-35, Goodwill – Subsequent Measurement (“ASC 350-20-35”), an entity has an unconditional option to bypass the qualitative assessment and proceed directly to performing the first step of the goodwill impairment test.

The Quantitative Assessment is a two-step process as outlined in ASC 350-20-35 and is used to identify both the existence of impairment and the amount of impairment. The first step is to determine the fair value. If the carrying amount is greater than zero and its fair value exceeds its carrying amount, then there is no impairment and the second step is not necessary. If the carrying amount of BigSupersearch exceeds the fair value, then goodwill will be measured for impairment in the second step. The amount of impairment loss recorded is the difference in the excess of the carrying amount over its fair value.

Management determined that for the year ending December 31, 2019, BigSupersearch had no identifiable assets or liabilities; therefore, the implied fair value of goodwill is zero. Based on this assessment, goodwill was impaired by the full carrying amount of $61,000. At December 31, 2020, the Company had $0 in goodwill.

On January 21, 2021, the Company entered into an Agreement and Plan of Merger with S and S Beverage, Inc. and its shareholders and acquired all of the capital stock of S and S Beverage Inc. (“S and S”). To consummate the Acquisition, a Certificate of Merger with the Wisconsin Department of Financial Institutions (the “Merger Certificate”) on February 1, 2021. On January 22, 2021, (i) Kona Gold, (ii) KGS Temporary Company, Inc. (the “Acquisition Subsidiary”), (iii) S and S, (iv) William J. Stineman and K&L Beverage, LLC, a Wisconsin limited liability company (as the indemnifying S and S shareholders), and (v) Mr. Stineman (as representative of the S and S Shareholders) entered into the Agreement and Plan of Merger (the “Merger Agreement”). S and S merged with and into our Acquisition Subsidiary; S and S was the surviving entity and became our wholly-owned subsidiary of Kona Gold.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, we acquired all of the shares of capital stock of S and S from the five holders thereof (the “S and S Legacy Shareholders”). In consideration thereof, we issued to them an aggregate of nine million restricted shares of our common stock (the “Acquisition Stock”) on a pro rata basis. We did not grant them any registration rights in respect of the shares of Acquisition Stock. We 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 Legacy Shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is allocated to the S and S Legacy Shareholders on a pro rata basis. $400,000 of the Aggregate Acquisition Payments were paid within approximately two weeks of the closing. The balance of the Aggregate Acquisition Payments, including the Remaining 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, OOH LA Lemin (the product line of S and S) that we sell until the Aggregate Acquisition Payments have been paid in full. In addition to the Aggregate Acquisition Payments, we also assumed and agreed to pay certain other liabilities of S and S as set forth in the Merger Agreement. Because of this goodwill was recorded in the amount of $1,275,938, see Note 18 – Acquisition of S and S Beverage, Inc.

Changes in goodwill are as follows:

  March 31, December 31,
  2021 2020
Beginning of year $—  $— 
Acquired goodwill  1,275,938   — 
Impairment  —   — 
Total goodwill $1,275,938  $— 

Intangible asset consisted of the following:

  March 31, 2021 December 31, 2020
Trademark (HighDrate) $81,750  $81,750 
Website Development (Ooh La Lemin)  12,201   — 
Less: Accumulated Amortization  (14,510)  (12,262)
Total Intangible Asset $79,441  $69,488 

Estimated future amortization expense related to the intangible asset is as follows:

Fiscal year ending:
December 31, 2021 (remaining 9 months)   7,046 
December 31, 2022   9,395 
December 31, 2023   9,395 
December 31, 2024   9,395 
December 31, 2025   9,395 
Thereafter   34,815 
   $79,441 


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 5 – NOTE RECEIVABLE

On May 26, 2016, Robert Clark, formed Elev8 Hemp, LLC, a Delaware limited liability company (“Elev8 Hemp”), on behalf of Ryan Medico, the Company’s then-Chief Financial Officer. Mr. Medico was the sole owner of and served as President of Elev8 Hemp.

In June 2016, the Company entered into a letter of intent with Elev8 Hemp to acquire it, such that it would become the Company’s wholly-owned subsidiary. Pursuant to the letter of intent, on June 7, 2016, the Company entered into an Acquisition Agreement with Elev8 Hemp (the “Elev8 Hemp Acquisition Agreement”), whereby the Company agreed to acquire 100% of the ownership of Elev8 Hemp and, in exchange, the Company agreed to issue to Mr. Medico five million restricted shares of the Common Stock, which had a fair market value of $50,000. The Elev8 Hemp Acquisition Agreement provided that if the Company failed to adequately capitalize the development of Elev8 Hemp to complete its objectives set forth in its business plan, then Mr. Medico would have the option until March 31, 2018 to purchase Elev8 Hemp from the Company for a purchase price of $50,000, which could be paid in shares of the Company’s Common Stock.

On October 10, 2016, the Company entered into a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Elev8 Hemp, as the Company’s wholly-owned subsidiary, and Branded Legacy, Inc., formerly known as Elev8 Brands, Inc. and, prior to that, known as PLAD, Inc. (“Branded Legacy”), to sell 100% of the then-issued and outstanding membership interests of Elev8 Hemp to Branded Legacy in consideration of its issuance to the Company of 200,000,000 shares of its common stock, par value $0.00001. In connection with this transaction, Mr. Medico became the Chief Executive Officer and the sole director of Branded Legacy. The parties desired to enter into the Membership Interest Purchase Agreement because the Company did not have adequate capital to fund the development of Elev8 Hemp’s business, as well as its own. Until July 2018, Mr. Medico also continued to serve as the Company’s Chief Financial Officer.

On April 14, 2017, the Company’s Board of Directors (the “Board”) declared a dividend to its stockholders of an aggregate of 53,196,608 shares of common stock of Branded Legacy. The Company’s stockholders received one share of common stock of Branded Legacy for every 10 shares of the Company’s Common Stock held on the record date. On the record date, we had approximately 104 stockholders, all of whom received this dividend. After the payment of the dividend, the Company held 146,803,392 shares of common stock of Branded Legacy.

On March 6, 2018, the Company entered into a Securities Exchange and Settlement Agreement (the “First Exchange Agreement”) with Branded Legacy. Pursuant to the First Exchange Agreement, the Company exchanged with Branded Legacy the remaining 146,803,392 shares of common stock held by the Company for 2,746,723 shares of Branded Legacy’s Series D preferred stock. The shares of Series D preferred stock were initially convertible into 164,803,380 shares of common stock of Branded Legacy. At December 31, 2018, the balance of the investment in Branded Legacy was $1,648.

On November 26, 2019, we entered into a second Securities and Exchange Agreement with Branded Legacy, whereby we exchanged the remaining investment of 2,746,723 shares of Branded Legacy’s Series D preferred stock for its 10-year, unsecured, non-convertible promissory note in our favor in the original principal amount of $1,500,000 (the “Branded Legacy Note”). All principal and accrued and unpaid interest on the Branded Legacy Note is payable, in full, on November 27, 2029. As of the dates of the foregoing transactions, the Company and Branded Legacy were not considered related parties based upon the guidance set forth in ASC Topic 850, Related Party Disclosures.

Management could not ascertain with certainty of the collectability of the Branded Legacy Note due to the dollar amount and duration of the term; therefore, an allowance for $1,500,000 had been assessed and expensed, which was included in the Consolidated Statements of Loss for the year ended December 31, 2019. The Branded Legacy Note and the investment in Branded Legacy consisted of the following:

  March 31, 2021 December 31, 2020
Investment in Branded Legacy $—  $— 
Note receivable  1,500,000   1,500,000 
Less: Allowance for doubtful account  (1,500,000)  (1,500,000)
Note receivable, net $—  $— 


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 6 – STOCK-BASED COMPENSATION

The Company’s directors, officers, key employees, and non-employees were granted stock-based compensation consisting of restricted stock awards. Stock-based compensation is measured at the grant date, based on the fair value of the award, and is recognized as an expense at the date of issuance. The Company estimates the fair value of each restricted stock award as of the date of grant using closing price as reported by the OTCM on the date of grant. The Board has not adopted any employee stock purchase plans or other incentive plans, nor does the Company grant stock options to its directors, officers, and employees.

The share-based payments granted for the three months ended March 31, 2021 and the year ended December 31, 2020, were 9,000,000 and 10,085,140 shares of the Common Stock, respectively. No stock-based Common Stock was cancelled or forfeited for the three months ended March 31, 2021 and the year ended December 31, 2020, respectively.

For the three months ended March 31, 2021 and 2020, the Company recognized stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss, as follows:

  Three Months Ended March 31, Three Months Ended March 31,
  2021 2020
Employee stock awards $—  $318,500 
Non-employee stock awards  270,900   — 
Total stock-based compensation expense $270,900  $318,500 

The Company expenses stock-based compensation cost in the current period at the grant date. No future years of compensation is expected for the next five fiscal years. The Company has a balance in accrued stock-based compensation at March 31, 2021 and December 31, 2020, of $1,386,497 and $1,386,497, respectively.

NOTE 7 – LINE OF CREDIT

On May 5, 2018, Kona entered into a Line of Credit Agreement with Matthew Nicoletti as the lender, which established a revolving line of credit in the amount of up to $400,000. The line of credit matures on May 5, 2022 and is reflected as non-current on the accompanying Consolidated Balance Sheets. Advances under the line of credit bear interest at the rate of 3.75 percent per annum. Payments of principal and accrued interest are payable on the maturity date. At March 31, 2021 and December 31, 2020, the line of credit had an outstanding principal balance of $398,470, respectively, and accrued interest of $35,787 and $32,102, respectively.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – RELATED PARTY TRANSACTIONS

A.Long-term debt consists of two note payables with a related party:

1)On October 31, 2018, Kona issued a Standard Promissory Note in favor of Robert Clark, as lender, in the original principal amount of $20,000. 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 February 2019, with the final payment due in April 2021. The outstanding principal balance of this note at March 31, 2021 and December 31, 2020 was $7,000 and $8,500, respectively. See, Note 21 – Subsequent Events.

2)On February 19, 2019, Gold Leaf issued a Standard Promissory Note in Favor of Robert Clark, as lender, in the original principal amount of $70,000. 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, 2021, Gold Leaf issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principle of $58,000. Principal payment of $500 per month, with final payment due in March 2022. The outstanding principal balance of this note at March 31, 2021 and December 31, 2020 was $58,000 and $59,500, respectively.

The future maturities are as follows:

December 31, 2021(remaining 9 months) $ 65,000 
  $65,000 

B.Lines of credit consists of two agreements with a related party:

1)On April 4, 2019, Kona entered into a Line of Credit Agreement with Robert Clark. 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, 2021, at which time all outstanding principal amounts and accrued interest are due and payable. At March 31, 2021 and December 31, 2020, outstanding principal was $1,372,651 and $1,369,651, respectively, and accrued interest was $48,757 and $36,397, respectively. See, Note 21 – Subsequent Events.

2)On August 29, 2019, Gold Leaf entered into a Line of Credit Agreement with Robert Clark. 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, 2021, at which time all outstanding principal amounts and accrued interest are due and payable. At March 31, 2021 and December 31, 2020, outstanding principal was $125,500 and $100,000, respectively, and accrued interest was $4,706 and $3,545, respectively.

 NOTE 9 – SECURITIES PURCHASE AGREEMENT, DERIVATIVE LIABILITIES, AND WARRANT

2020 Securities Purchase Agreement

In May 2020, the Company completed the 2020 Private Placement of the 2020 Debentures and the 2020 Warrant pursuant to the 2020 SPA. The Company sold and issued the First 2020 Debenture and granted the 2020 Warrant promptly after entering in the 2020 SPA. The Company sold and issued the Second 2020 Debenture promptly after filing the 2020 Registration Statement initially with the SEC. The Company sold and issued the Third 2020 Debenture promptly after the SEC declared the Registration Statement effective. The 2020 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the 2020 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.05 per share, subject to adjustment (the “2020 Fixed Conversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2020 Market Conversion Price”). The 2020 Debentures contain 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


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures. The 2020 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2020 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2020 Debentures or exercise of the 2020 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2020 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2020 Debentures or otherwise accelerates the maturity date, as provided for in the 2020 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2020 Debentures) are then satisfied, in shares of the Common Stock at the 2020 Market Conversion Price on the trading day immediately prior to the date paid.

At the Company’s option, it has the right to redeem, in part or in whole, the outstanding principal and interest under the 2020 Debentures prior to their respective maturity dates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP of the Common Stock is less than the 2020 Fixed Conversion Price, initially $0.05 per share, and (ii) there is no Equity Conditions failure. The Company must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a redemption premium equal to 15% of the outstanding principal amount being redeemed (the “Redemption Premium”). The Company must provide the holder 15 business days’ advance notice of its intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The 2020 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of the Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures.

Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file the Registration Statement with the SEC registering for resale the Conversion Shares and the Warrant Shares within 45 calendar days following the closing of the 2020 Private Placement. The Company also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by the Company in connection with the registration of the Conversion Shares and the Warrant Shares held by the Selling Stockholder.

Pursuant to the 2020 SPA, the purchase price for the First 2020 Debenture was $250,000, less $15,000 for origination fees, which consisted of the “original issue discount” of $10,000 and $5,000 as a structuring fee. On December 23, 2020, the Company converted $100,000 of the principal of, and $12,274 of accrued interest on, the First 2020 Debenture into 8,255,438 shares of the Company’s common stock. On January 25, 2021, the Company converted $150,000 of the principal of, and $1,118 of accrued interest on, the First 2020 Debenture into 7,094,732 shares of the Company’s common stock, see Note 11, equity transactions. At March 31, 2021, no balance remains on the principal balance of the First 2020 Debenture.

Pursuant to the 2020 SPA, the purchase price for the Second 2020 Debenture was $250,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 25, 2021, the Company converted $100,000 of the principal of, and $10,410 of accrued interest on, the Second 2020 Debenture into 5,183,613 shares of the Company’s common stock. On February 19, 2021, the Company converted $150,000 of the principal of, and $855 of accrued interest on, the Second 2020 Debenture into 7,252,634 shares of the Company’s common stock see Note 11, equity transactions. At March 31, 2021, no balance remains on the principal balance of the First 2020 Debenture.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the 2020 SPA, the purchase price for the Third 2020 Debenture was $500,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 12, 2021, the Company converted $200,000 of the principal of, and $1,425 of accrued interest on, the First 2020 Debenture into 10.887,819 shares of the Company’s common stock, see Note 11, equity transactions. At March 31, 2021, the principal balance of the Third 2020 Debenture is $300,000.

2021 Securities Purchase Agreement

In February 2021, the Company completed a private placement transaction (the “2021 Private Placement”) with the Selling Stockholder of two secured convertible debentures (the “2021 Debentures”), convertible for up to 154,958,678 shares (the “2021 Conversion Shares”) of Common Stock and granted a Warrant to purchase Common Stock (the “2021 Warrant”), exercisable for up to 50,000,000 shares of Common Stock (the “2021 Warrant Shares”), pursuant to that certain Securities Purchase Agreement between the Selling stockholder and the Company, dated as of February 10, 2021 (the “2021 SPA”). The Company sold and issued the initial 2021 Debenture (the “First 2021 Debenture”) and granted the 2021 Warrant promptly after entering in the 2021 SPA. The Company will sell and issue the second 2021 Debenture (the “Second 2021 Debenture”) promptly after the SEC declares effective the 2021 Registration Statement (as defined below). On May 5, 2021, the Company and the Selling Stockholder entered into a Limited Amendment Agreement, pursuant to which we agreed to a partial Second Closing, whereby the Selling Stockholder purchased a portion of the intended Second Convertible Debenture in the face amount of $200,000 for a purchase price of $192,000.

The 2021 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the 2021 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.03 per share, subject to adjustment (the “2021 Fixed Conversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2021 Market Conversion Price”). The 2021 Debentures contain 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 price of the 2021 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2021 Debentures. The 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2021 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2021 Debentures or exercise of the 2021 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2021 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2021 Debentures or otherwise accelerates the maturity date, as provided for in the 2021 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2021 Debentures) are then satisfied, in shares of the Common Stock at the 2021 Market Conversion Price on the trading day immediately prior to the date paid.

At the Company’s option, it has the right to redeem, in part or in whole, the outstanding principal and interest under the 2021 Debentures prior to their respective maturity dates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP of the Common Stock is less than the 2021 Fixed Conversion Price, initially $0.03 per share, and (ii) there is no Equity Conditions failure. The Company must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a redemption premium equal to 15% of the outstanding principal amount being redeemed (the “Redemption Premium”). The Company must provide the holder 15 business days’ advance notice of its intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2021 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2021 Debentures.

Pursuant to the 2021 SPA, the purchase price for the First 2021 Debenture was $900,000, less $41,000 for origination fees, which consisted of the “original issue discount” of $36,000 and $5,000 as a structuring fee. Pursuant to the 2021 SPA, the purchase price for the Second 2021 Debenture will be $600,000, less $24,000 as an “original issue discount.”

In connection with the 2021 Private Placement, the Company also granted the 2021 Warrant to purchase up to an aggregate of 50 million shares of the Common Stock. The 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If the Company fails to maintain an effective registration statement with the SEC covering the resale of the 2021 Warrant Shares, or if an Event of Default (as defined below) has occurred and is continuing, then the holder may exercise the 2021 Warrant on a “cashless” basis. “Event of Default” means an event of default under the 2021 SPA or the 2021 Debentures.

The 2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issues shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the 2021 Warrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the exercise price of the 2021 Warrant.

The 2021 Warrant is subject to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion of the 2021 Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of the 2021 Warrant or conversion of the 2021 Debentures that had not then been exercised or converted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65 days’ prior written notice to the Company.

Pursuant to the terms of the 2021 Registration Rights Agreement with the Selling Stockholder, the Company agreed to file a registration statement on Form S-1 (the “2021 Registration Statement”) with the SEC registering for resale the 2021 Conversion Shares and the 2021 Warrant Shares within 30 calendar days following the closing of the 2021 Private Placement. The Selling Stockholder has agreed to waive this 30-calendar-day provision for so long as the Company utilized its best efforts to file its Annual Report on Form 10-K for its fiscal year ended December 31, 2020, and promptly thereafter files the 2021 Registration Statement. Further, the Company agreed to use its best efforts to have the 2021 Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the effectiveness deadline, or by the 5th trading day following the date on which the Company is notified that the 2021 Registration Statement will not be reviewed or is no longer subject to further review and comments. Pursuant to the 2021 Registration Rights Agreement, the Company is subject to partial liquidated damages equal to 2.0% of the


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

aggregate purchase price paid by the holder pursuant to the 2021 SPA for either of the 2021 Debentures then held by the holder for failure to file the 2021 Registration Statement timely, failure to file with the SEC a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five trading days after the date the Company is notified that the 2021 Registration Statement will not be reviewed or is not subject to further review, the 2021 Registration Statement is not declared effective by the effectiveness deadline, if after effectiveness, the 2021 Registration Statement ceases for any reason to remain continuously effective as required or if the holders are not permitted to utilize the prospectus therein to resell for more than 30 consecutive calendar days or more than an aggregate of 40 calendar days during any 12-month period, or if after the six-month anniversary of the 2021 Registration Rights Agreement, the Company does not have available adequate current public information as set forth in Rule 144(c). The parties agreed that the maximum aggregate liquidated damages payable to a holder of the 2021 Debentures under the 2021 Registration Rights Agreement is 24% of the aggregate purchase price paid by such holder pursuant to the 2021 SPA. The Company also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by the Company in connection with the registration of the 2021 Conversion Shares and the 2021 Warrant Shares held by the Selling Stockholder.

Pursuant to the 2021 SPA, the purchase price for the First 2021 Debenture was $900,000, less $41,000 for origination fees, which consisted of the “original issue discount” of $36,000 and $5,000 as a structuring fee. At March 31, 2021, the principal balance of the First 2021 Debenture is $900,000.

Derivative Liability

The 2020 and 2021 Debentures have been accounted for utilizing ASC 815. The Company has incurred a liability for the estimated fair value of the First 2020 Debenture. The estimated fair value of the 2020 Debentures has been calculated using the Black-Scholes fair value option-pricing model with key input variables provided by management, as of the date of issuance, with the valuation offset against additional paid in capital, and at each reporting date, with changes in fair value recorded as gains or losses on revaluation in other income (expense). The Company identified embedded features in the 2020 and 2021 Debentures, which caused the 2020 and 2021 Debentures to be classified as a liability. These embedded features included the right for the holder to request for the Company to settle the amounts owed pursuant to the 2020 and 2021 Debentures to the holder by paying an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the 2020 and 2021 Debentures on the date of the consummation of a fundamental transaction. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as a derivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

The derivative liabilities were valued using Black-Scholes pricing model with the following average assumptions:

  March 31, 2021
Stock Price $0.0327 
Exercise Price $0.0276 
Expected Life  1 
Volatility  99.5%
Dividend Yield  0%
Risk-Free Interest Rate  .06%
     
Fair Value $627,018 


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The following table summarizes the changes in the Company’s assets and liabilities measured at fair value as of March 31, 2021:

  March 31, 2021 Quoted prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs
(Level 3)
         
                 
Convertible promissory notes with embedded conversion option $627,018     $627,018    
Total $627,018     $627,018    

The following table sets forth a summary of change in fair value of the Company’s derivative liabilities for the year ended March 31, 2021:

Fair value, January 1, 2020 $— 
Change in fair value of embedded conversion features of debenture included in earnings  — 
Embedded conversion option liability recorded in connection with the issuance of 2020 debenture  148,628 
 Fair value, June 30, 2020 $148,628 
Change in fair value of embedded conversion features of debenture included in earnings  (39,725)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures  108,903 
 Fair value, September 30, 2020 $217,806 
Change in fair value of embedded conversion features of debenture included in earnings  (69,051)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures  212,397 
Fair value, December 31, 2020 $361,152 
Change in fair value of embedded conversion features of debenture included in earnings  (202,443)
Embedded conversion option liability recorded in connection with the issuance of 2021 debentures  468,309 
Fair value, March 31, 2021 $627,018 

Warrant

The Company also granted the 2020 Warrant and the 2021 Warrant to purchase up to an aggregate of 20 million shares and 50 million shares of Common Stock, respectively. The 2020 Warrant and the 2021 Warrant each has a three-year term and each is immediately exercisable at an exercise price of $0.05 per share for the 2020 Warrant and $0.03 per share for the 2021 Warrant, each subject to adjustment. If the Company fails to maintain an effective registration statement with the SEC covering the resale of the 2020 Warrant Shares and the 2021 Warrant Shares, or if an Event of Default (as defined below) has occurred and is continuing, then the holder may exercise, respectively, the 2020 Warrant and the 2021 Warrant on a “cashless” basis. “Event of Default” means an event of default under the 2020 SPA and the 2021 SPA or the 2020 Debentures and the 2021 Debentures, respectively.

The 2020 Warrant and the 2021 Warrant, respectively, contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issues shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the 2020 Warrant and the 2021 Warrant, respectively. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the exercise price of the 2020 Warrant and the 2021 Warrant, respectively.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The 2020 Warrant and the 2021 Warrant, respectively, is subject to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion, respectively, of the 2020 Warrant that and the 2021 Warrant would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable, respectively, upon exercise of the 2020 Warrant and the 2021 Warrant or conversion of the 2020 Debentures and the 2021 Debentures, respectively, that had not then been exercised or converted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65 days’ prior written notice to the Company.

During the year ended December 31, 2020, the Company granted the 2020 Warrant that was immediately exercisable for up to 20,000,000 shares of Common Stock. During the three months ended March 31, 2021, the Company granted the 2021 Warrant that was immediately exercisable for up to 50,000,000 shares of Common Stock. The 2020 Warrant and the 2021 Warrant, respectively, was fully expensed as an interest expense related to the 2020 Warrant and the 2021 Warrant issued in connection with the consummation of the transactions contemplated by the 2020 SPA and 2021 SPA, respectively, and no liability was recorded as of March 31, 2021 and December 31, 2020, respectively.

NOTE 10 – PAYCHECK PROTECTION PROGRAM LOAN

On May 4, 2020, the Company entered into a Paycheck Protection Promissory Note in the original principal amount of $95,161 (the “PPP Loan”) with Wells Fargo Bank, N.A. The PPP Loan was made under, and is subject to, the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act the (“CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The current term of the PPP Loan is two years, with a maturity date of May 6, 2022 and it contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred until the date on which the amount of the forgiveness determined under the PPP Program Requirements is remitted to Lender and shall continue monthly until loan maturity. If the Borrower fails to apply for forgiveness within 10 months after the last day of the Covered Period, as defined in the PPP Program Requirements, monthly principal and interest payments shall commence 10 months from the last day of the Covered Period. Payments of principal and interest must be made on such date as designated by Lender in the months that they are due Thereafter, principal and interest are payable monthly and may be prepaid by us at any time prior to maturity with no prepayment penalties.

In January 2021, the Company entered into a Paycheck Protection Promissory Note in the original principal amount of $117,487 (the “PPP Loan 2”) with Wells Fargo Bank, N.A. The PPP Loan was made under, and is subject to, the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act the (“CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The current term of the PPP Loan is five years, with a maturity date of January 2026 and it contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred for the first six months of the term of the PPP Loan, or November 2020. Thereafter, principal and interest are payable monthly and may be prepaid by us at any time prior to maturity with no prepayment penalties.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loan. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. The Company has used the proceeds of the PPP Loan for salaries and wages, building lease expense, and utilities. However, no assurance is provided that the Company will be able to obtain forgiveness of the PPP Loan in whole or in part.

In May 2020, the Company also received an advance in the amount of $7,000 as part of the Economic Injury Disaster Loan program offered by the U.S. Small Business Administration. This advance was received after the Company filed its application with regarding to the PPP. The advance was not included in any of the documentation related to the PPP Loan. The Company is in the process of determining how this advance will be included as part of the PPP Loan forgiveness.

NOTE 11 – EQUITY TRANSACTIONS

Preferred Stock

The Company’s issued and outstanding preferred stock, par value $0.00001 per share, at March 31, 2021 and December 31, 2020 was 988,140, 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.

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 authorized, issued or outstanding at March 31, 2021 and December 31, 2020 and 4,000,000 shares were authorized, issued and outstanding at March 31, 2021 and December 31, 2020. Each share of Series A Preferred Stock, when outstanding, could have been converted into one share of the 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 March 31, 2021 and December 31, 2020, respectively. Each share of Series B Preferred Stock may be converted into one share of the 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.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2021 and December 31, 2020, the Company had authorized 250 shares, respectively, of Series C Preferred Stock of which 140, respectively, were issued and outstanding at March 31, 2021 and December 31, 2020, respectively. At such dates, each share of the Series C Preferred Stock was convertible into one and 1,000 shares, respectively of the Common Stock.

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 March 31, 2021 and December 31, 2020, respectively. Each share of the Series D Preferred Stock may be converted into 1,000 shares of Common Stock.

Common Stock

The Company had authorized 2,500,000,000 shares of the Common Stock, respectively, of which 825,726,839 shares were issued and outstanding at March 31, 2021 and 786,308,041 were issued and outstanding at December 31, 2020.

Equity Transactions

On July 10, 2020, the Company issued an aggregate of 4,000,000 shares of Common Stock upon the conversion of an aggregate of 4,000,000 shares of our Series A Preferred Stock by Robert Clark and Joseph Thornburg. The shares of our Common Stock on the date of issuance had a per-share fair market value of $0.0346, which was based on the closing price of our Common Stock as reported by the OTCM on the date of issuance. We issued the shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the shares of our Common Stock issuable upon conversion did not involve any public offering).

On December 23, 2020, the Company issued an aggregate of 8,255,438 shares of Common Stock upon the conversion of $100,000 of the principal of, and $12,274 of accrued interest on, the First 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0170. The First 2020 Debenture was converted at the conversion price of $0.0136, which was the lower of the 2020 Fixed Conversion Price and the 2020 Market Conversion Price.

On January 12, 2021, the Company issued an aggregate of 10,887,819 shares of Common Stock upon the conversion of $200,000 of the principal of, and $1,425 of accrued interest on, the Third 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0231. The Third 2020 Debenture was converted at the conversion price of $0.0185, which was the lower of the 2020 Fixed Conversion Price and the 2020 Market Conversion Price.

On January 25, 2021, the Company issued an aggregate of 7,094,732 shares of Common Stock upon the conversion of $150,000 of the principal of, and $1,118 of accrued interest on, the First 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0266. The First 2020 Debenture was converted at the conversion price of $0.0213, which was the lower of the 2020 Fixed Conversion Price and the 2020 Market Conversion Price.

On January 25, 2021, the Company issued an aggregate of 5,183,613 shares of Common Stock upon the conversion of $100,000 of the principal of, and $10,411 of accrued interest on, the Second 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0266. The Second 2020 Debenture was converted at the conversion price of $0.0213, which was the lower of the 2020 Fixed Conversion Price and the 2020 Market Conversion Price.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the Agreement and Plan of Merger with S and S Beverage, Inc., the Company issued 9,000,000 shares of its common stock to the legacy S and S Beverage, Inc. shareholders as follows: 6,300,000 shares to K & L Beverage; 1,980,000 shares to William J. Stineman; 360,000 shares to William F. Stineman; 270,000 shares to Gary Kramer; and 90,000 shares to Steven Sirus. The per-share fair market value of the common stock was $0.0301, based on the closing price of the Company’s common stock, as reported by OTC Markets Group Inc. on February 5, 2021, the date on which the Company filed its Current Report on Form 8-K disclosing the acquisition.

On February 19, 2021, the Company issued an aggregate of 7,252,634 shares of Common Stock upon the conversion of $150,000 of the principal of, and $855 of accrued interest on, the Second 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0260. The Second 2020 Debenture was converted at the conversion price of $0.0208, which was the lower of the 2020 Fixed Conversion Price and the 2020 Market Conversion Price.

For other equity issuances during the three month ended March 31, 2021 and the year ended December 31, 2020, please see Note 12, Employees and Note 13, Sponsorships.

NOTE 12 – EMPLOYEES

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. Those 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 at the per-share fair market value of $0.015, based on the closing price of the Common Stock as reported by the OTCM on the date of issuance; (ii) on March 2, 2016, the Company issued 40,000,000 of such shares at the per-share fair market value of $0.0250 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance; and (iii) on Mary 16, 2016, the Company issued 50,000,000 of such shares at the per-share fair market value of $0.0036 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance. The Company accrued 80,000,000 shares of the Common Stock on December 31, 2016 that were not issued. At the date of accrual, the per-share fair market value of the shares was $0.0025 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance. On April 19, 2018, 40,000,000 shares were cancelled and returned to the Company for accrual valued at $1,000,000 by Mr. Clark. On July 31, 2019, an additional 50,000,000 shares were cancelled and returned to the Company for accrual valued at $180,000. Accordingly, as of June 30, 2020, Mr. Clark was the record and beneficial owner of 17,100,000 of shares of the Common Stock and, subject to the July 2020 issuance to Mr. Clark of 140 shares of Series C Preferred, the Company accrued and owed to Mr. Clark an aggregate of 170,000,000 shares to be reissued to him upon his request pursuant to the terms of the oral agreement with him.

The Company issued 5,000,000 shares of Common Stock on January 27, 2020 to Lori Radcliffe pursuant to that certain Employment Agreement dated October 7, 2019, by and between Ms. Radcliffe and the Company. At the date of issuance, the per-share fair market value of the shares was $0.0637 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance, for a total value of $318,500.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

On April 3, 2020, the Company issued 5,000,000 shares of the Common Stock to Paul O’Renick pursuant to an Employment Agreement dated October 1, 2019 in exchange for compensation owed in the amount of $157,500 for services provided. At the date of issuance, the per-share fair market value was $0.0315 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance.

NOTE 13 – SPONSORSHIPS

On May 1, 2019, the Company entered into a sponsorship agreement with Ryan Dodd, a professional waterski jumper (the “Dodd Agreement”), whereby the Company agreed to pay monthly sponsorship fees of $1,250 for one year. On May 23, 2019, the Company issued Mr. Dodd 262,500 shares of Common Stock. At the date of issuance, the shares of Common Stock had a fair market value of $0.131 per share based on the closing price of the Common Stock on the date of issuance as reported by the OTCM, representing $34,388 as payment for the Company’s sponsorship. The Dodd Agreement was extended in January 2020 for an additional one-year term. On April 3, 2020, the Company issued 85,000 shares of the Common Stock to Ryan Dodd pursuant to the Dodd Agreement. At the date of issuance, the per-share fair market value was $0.0315 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance, representing a payment of $2,578 for sponsorship fees.

NOTE 14 – COMMITMENTS AND CONTINGENCIES

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties, and other sources are recorded when it is probable that a liability has been incurred and the amount of the assessment can be reasonably estimated. The following represents the Company’s commitments and contingencies as of December 31, 2020:

Operating Lease – The Company currently 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-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 three percent, beginning on June 1, 2019 and each June 1st thereafter. During the lease year that commenced on June 1, 2020, the Company’s monthly base rent will be $4,114. For the three months ended March 31, 2021, the Company recognized operating lease expense of $13,180, which is included in in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

NOTE 15 – LEASE LIABILITIES

The Company reported the following operating lease liabilities as of March 31, 2021:

A.Right-of-Use Operating Lease – On May 22, 2019, Gold Leaf entered into a lease agreement for 30,000 square feet of office and warehouse space in Greer County, South Carolina. The agreement includes monthly payments of $13,429, and included a $6,500 deposit. For the three months ended March 31, 2021, the Company recognized right-of-use operating lease expense of $28,125, which is included in in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

B.On March 17, 2020, Kona entered into a lease agreement for equipment. The agreement includes monthly payments of $676. For the three months ended March 31, 2021, the Company recognized right-of-use operating lease expense of $1,859, which is included in in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Amounts recognized as right-of-use assets, net related to operating leases are included in noncurrent assets in the accompanying Consolidated Balance Sheet, while related lease liabilities are included in current portion of long-term debt and long-term debt. At March 31, 2021 and December 31, 2020, the right-of-use asset and lease liability related to the operating leases were as follows:

  March 31, 2021 December 31, 2020
Right-of-use asset $1,072,094  $1,072,094 
Amortization of right-of-use asset  (196,124)  (159,101)
Right-of-use asset, net $875,970  $912,993 
         
Operating lease liability        
Current portion of long-term lease $112,383  $149,407 
Long-term lease  763,587   763,586 
Total operating lease liability $875,970  $912,993 

The future payments due under operating leases is as follows:

Fiscal year ending:   
December 31, 2021 (9 months remaining)  112,383 
December 31, 2022  154,416 
December 31, 2023  160,631 
December 31, 2024  167,587 
December 31, 2025  167,537 
2026 and thereafter  113,416 
  $875,970 

NOTE 16 – REVENUE

The Company determined that the majority of the Company’s revenue earned from its two reporting segments is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. The Company does not have a significant financing component or payment terms, and the Company does not have any material unsatisfied performance obligations. The Company’s revenues are obtained in similar geographical locations within the United States. The Company’s operating segments are expected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of our products and customers are essentially the same. Furthermore, the Company regularly reviews disaggregated revenue by source for evaluating the financial performance of its operations and making resource decisions. The Company’s revenue is broken down by the following:

●Distributors – revenue derived from direct sales to distributors for resale of its products: Kona Gold hemp-infused energy drinks, HighDrate CBD-infused energy waters, Storm CBD-infused water, and OOH LA Lemin lemonade beverages.
●Amazon Sales – revenue derived from customer purchases through Amazon.com of our Kona Gold hemp-infused energy drinks.
●Online Sales – revenue derived from customer purchases through the Company’s websites: KonaGoldHemp.com, HighDrateMe.com, and drinklemin.com of the following products: Kona Gold hemp-infused energy drinks and apparel, HighDrate CBD-infused energy waters, Storm CBD-infused water, and OOH LA Lemin lemonade beverages.
●Gold Leaf Distribution – revenue derived from Gold Leaf, which is the Company’s wholly-owned subsidiary, that focuses on the distribution of premium beverages and snacks in key markets. These markets include over 600 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina. Gold Leaf’s product line includes alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infused jellybeans, all of which complement the Company’s current product offerings.
●Shipping – revenue derived from shipping from direct sales of the Company’s product through KonaGoldHemp.com, HighDrateMe.com, and drinklemin.com.
●Sales Returns and Allowances – the amount reduced from all revenue sources to allow for product returns.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

  Three Months Ended March 31,  
  2020 2021  
Revenue Source Revenue Revenue % Change
       
Distributors $107,292  $243,788   127%
Amazon  27,358   38,502   41%
Online Sales  11,189   18,204   63%
Gold Leaf Distribution  54,836   180,217   229%
Shipping  5,006   5,110   2%
Sales Returns and Allowances  (3,624)  (23,413)  546%
Net Revenues $202,057  $462,408   129%

The following tables presents our net revenues, by revenue source, as a percentage of total net revenues for the periods presented:

  Three Months Ended March 31,
Revenues 2020 2021
Distributors and Resellers  53%  53%
Amazon  14%  8%
Online Sales  6%  4%
Gold Leaf Distribution  27%  39%
Shipping  2%  1%
Sales Returns, and Allowances  (2)%  (5)%

NOTE 17 – SEGMENTS

The Company has two reportable segments:

●Beverages. Includes three types of beverage products: (i) hemp-infused energy drinks, (ii) CBD-infused energy water, (iii) CBD-infused high-alkaline water, and (iv) lemon-flavored beverages, as well as apparel with the Kona Gold logo. The Beverages Segment includes all of Kona’s and HighDrate’s operations. The Company considers this a single operating segment for purposes of presenting financial information and evaluating performance. As such, the accompanying Consolidated Financial Statements present financial information in a format that is consistent with the internal financial information used by management. We do not accumulate revenues by product classification and, therefore, it is impractical to present such information.
●Distribution. Includes the distribution of premium beverages and snacks in key markets. These markets include over 300 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina. In addition to distributing the Company’s own beverage products, the Company also distributes other products, including alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infused jellybeans, all of which complement the Company’s current product offerings. The Distribution Segment includes all of Gold Leaf’s operations.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Amounts that do not relate to a reportable segment have been allocated to “Corporate and Eliminations.”

The following tables present information about our reportable segments.

  March 31, 2021 December 31, 2020
CURRENT ASSETS:        
Beverages Segment $1,242,543  $933,148 
Distribution Segment  (190,620)  (139,028)
Corporate and eliminations  —   — 
Total Current Assets $1,051,923  $794,120 
         
NON-CURRENT ASSETS:        
Beverages Segment $2,319,444  $1,063,074 
Distribution Segment  87,569   85,546 
Corporate and eliminations  9,066   8,233 
Total Non-Current Assets $2,416,079  $1,156,853 
         
CURRENT LIABILITIES:        
Beverages Segment $2,617,407  $1,880,762 
Distribution Segment  50,590   80,442 
Corporate and eliminations  1,997,564   1,425,552 
Total Current Liabilities $4,664,771  $3,376,248 
         
NON-CURRENT LIABILITIES:        
Beverages Segment $2,715,776  $2,616,018 
Distribution Segment  213,080   192,350 
Corporate and eliminations  —   — 
Total Non-Current Liabilities $2,928,856  $2,808,368 

  Three Months Ended March 31,
  2020 2021
REVENUES, NET OF SALES, RETURNS, AND ALLOWANCES:        
Beverages Segment $179,927  $310,093 
Distribution Segment  54,836   180,351 
Corporate and Eliminations  (32,706)  (28,036)
Total Revenues, Net of Sales, Returns, and Allowances $202,057  $462,408 
         
COST OF REVENUES:        
Beverages Segment  138,063   193,369 
Distribution Segment  40,610   128,750 
Corporate and Eliminations  (32,706)  (8,199)
Total Cost of Revenues $145,967  $313,920 
         
OPERATING EXPENSES:        
Beverages Segment $529,515  $410,914 
Distribution Segment  38,148   90,888 
Corporate and Eliminations  79,556   67,178 
Total Operating Expenses $647,219  $568,980 
         
OTHER INCOME / (EXPENSE):        
Beverages Segment $(3,807) $(16,213)
Distribution Segment  —   (1,160)
Corporate and Eliminations  —   (1,381,678)
Total Other Income / (Expense) $(3,807) $(1,399,051)
         
NET LOSS:        
Beverages Segment $(571,014) $(310,403)
Distribution Segment  (23,922)  (40,447)
Corporate and Eliminations  —   (1,468,693)
Total Net Loss $(594,936) $(1,819,543)

F-34

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 18 – 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. and its shareholders and acquired all of the capital stock of S and S Beverage Inc. (“S and S”). To consummate the Acquisition, a Certificate of Merger with the Wisconsin Department of Financial Institutions (the “Merger Certificate”) on February 1, 2021. On January 22, 2021, (i) Kona Gold, (ii) KGS Temporary Company, Inc. (Kona Gold Beverage, Inc. “Acquisition Subsidiary”), (iii) S and S, (iv) William J. Stineman and K&L Beverage, LLC, a Wisconsin limited liability company (as the indemnifying S and S shareholders), and (v) Mr. Stineman (as representative of the S and S Shareholders) entered into the Agreement and Plan of Merger (the “Merger Agreement”). S and S merged with and into our Acquisition Subsidiary; S and S was the surviving entity and became our wholly-owned subsidiary of Kona Gold Beverage, Inc.

Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, we acquired all of the shares of capital stock of S and S from the five holders thereof (the “S and S Legacy Shareholders”). In consideration thereof, we issued to them an aggregate of nine million restricted shares of Kona Gold Beverage, Inc.’s common stock (the “Acquisition Stock”) on a pro rata basis. Kona Gold Beverage, Inc. did not grant them any registration rights in respect of the shares of Acquisition Stock. We 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 Legacy Shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is allocated to the S and S Legacy Shareholders on a pro rata basis. $400,000 of the Aggregate Acquisition Payments are scheduled to be paid in the next two weeks. The balance of the Aggregate Acquisition Payments, including the Remaining 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, now named OOH LA Lemin (the product line of S and S), that we sell until the Aggregate Acquisition Payments have been paid in full. In addition to the Aggregate Acquisition Payments, we also assumed and agreed to pay certain other liabilities of S and S as set forth in the Merger Agreement.


The following is a balance sheet comparison of S and S Beverage as of January 21, 2021:

Balance Sheet Book Value Fair Value
Accounts receivable, net of allowance of $24,280 $9,437  $33,717 
Inventory  240,797   249,648 
Property, plant and equipment, net (Website Development)  12,201   12,201 
Total Assets $262,435  $295,566 
Accounts payable and accrued liabilities $55,553   $ 956. 
Outstanding checks  23,058   — 
Interest payable  11,915   — 
Due to customers  19,667   — 
Current note payable - related party  811,761   1,050,000.00 
Common Stock, $30.05 par value, 10,000 shares issued and outstanding, respectively  300,500     
Additional paid-in-capital  437,701     
Accumulated deficit  (1,397,720)    
Total liabilities and stockholders’ deficit $262,435     

The following is the accounts included in the Company’s accompanying balance sheet dated March 31, 2021 as a result of the acquisition:

Balance Sheet  
Accounts receivable $33,717 
Website Development (Ooh La Lemin)  12,201 
Goodwill  1,275,938 
Total Assets $1,321,856 
Accounts payable and accrued liabilities $956 
Loan on Acquisition  650,000 
Due to merger payments  400,000 
Common stock, $.00001 par value, 9,000,000 shares issued  90 
Additional paid-in capital  270,810.00 
Total liabilities and stockholders’ deficit $1,321,856 

NOTE 19 – GOING CONCERN

The accompanying Consolidated 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 Consolidated Financial Statements, duringfinancial statements, in the threesix months ending March 31, 2021,ended June 30, 2023, the Company incurredrecorded a net loss of $1,819,543,$3,127,123 and used cash in operations of $312,712$585,260 and had a stockholders’ deficit of $4,126,416$5,236,830 as of March 31, 2021. In the year ending December 31, 2020, the Company incurred a net loss of $3,125,595, used cash in operations of $1,370,123 and had a stockholders’ deficit of $4,244,153 as of December 31, 2020.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company attributes this increase to losses incurred from corporate related expenses. During the first quarter of fiscal 2021, the Company signed a Securities Purchase Agreement, whereas, the Company incurred interest expense to warrants on a convertible note and a loss on the derivatives, which were integral to the growth of the Company. In addition, the Company attributes the increase to costs related to our Beverages Segment of selling, general and administrative expenses, specifically salaries, which are integral to the success of the Company. The Company continues to be impacted by the COVID-19 pandemic during the first quarter of the 2021 fiscal year as the Company makes an effort to sign more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains.that date. These contracts saw unforeseen delays and were additionally impacted by the COVID-19 pandemic during the 2020 fiscal year. The COVID-19 delayedfactors raise substantial doubt about the Company’s launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. Despite the increase, the Company realized an increase in sales in the first quarter of fiscal 2021 over the previous first quarter of fiscal 2020. The Company attributes thisability to the acquisition of S and S Beverage, Inc. which has added to the Company’s portfolio. In addition, the Company has signed more favorable with larger, reputable tier 1 and mid-size distributors and grocery chain that saw unforeseen delays and were impacted by the COVID-19 pandemic. We expect that revenue will increase in the remaining three quarters of fiscal year 2021 as distribution related to our current distributors affected by COVID-19 that have resumed distribution will continue to see fewer impacts from the COVID-19 pandemic going forward. The Company will continue to sign favorable agreements with larger, tier 1 and mid-size distributors in our Beverages Segment during fiscal 2021.

As a result, the Company’s continuation as a going concern is dependentwithin one year after the date of the financial statements being issued. In addition, the Company’s independent registered public accounting firm, in its report on our December 31, 2022 financial statements, has raised substantial doubt about the Company’s 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. 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.going concern. The accompanying Consolidated Financial StatementsCompany’s financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. 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. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 20 – CONCENTRATIONS

TheAt June 30, 2023, the Company had certain customers whose revenue individually represented 10%cash on hand in the amount of $97,158. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or moreequity 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

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation. These 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 total revenue, less intercompany transactions.liquidity.

Accounts Receivable

Accounts receivable are generally recorded at the invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition certainto specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.

The allowance for accounts receivable is established through a provision reducing the carrying value of receivables. At June 30, 2023 and December 31, 2022, the allowance was $135,713 and $145,579, respectively.

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 had outstanding accounts receivablesat the amount expected to be collected. ASC 606 creates a five-step model that individually represented 10%requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or moreagreement 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.

F-7

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 for returns for each quarter for 3% of total outstanding accounts receivables, less intercompany transactions, but before receivable allowances. These customers are as follows:

Insales. The Company recorded an allowance for sales return at the accompanying Consolidated Balance Sheet as of March 31, 2021, the Company’s net accounts receivable were $111,676, representing total accounts receivablethree months ending June 30, 2023 and 2022 of approximately $153,213 less sales returns$36,400 and allowance of approximately $37,570 and less doubtful accounts of approximately $3,967. In the accompanying Consolidated Balance Sheet as of December 31, 2020, the Company’s net accounts receivable were $(10,508)$35,100, representing total accounts receivable of approximately $22,166 less sales returns and allowance of approximately $28,707 and less doubtful accounts of approximately $3,967. The breakdown of the Company’s accounts receivablerespectively, which is as follows:

  March 31, 2021 December 31, 2020
Total Accounts Receivable $153,213  $22,166 
Less: Sales Returns and Allowances  37,570   28,707 
Less: Doubtful Accounts  3,967   3,967 
Accounts Receivable, net $111,676  $(10,508)


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company determined that three customers accounted for approximately 51% (or approximately 21%, 19%, and 11%), or an aggregate of $78,224, of the outstanding total accounts receivable of $153,213 as of March 31, 2021. The Company determined that four customers accounted for approximately 76% (or approximately 26%, 22%, 14% and 14%), or an aggregate of $16,904, of the outstanding total accounts receivable of $22,166 as of December 31, 2020.

Innetted against revenue in the accompanying Consolidated Statements of LossLoss.

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

SCHEDULE OF NET REVENUES BY REVENUE

  Three Months Ended June 30,    
  2023  2022    
Revenue Source Revenue  Revenue  % Change 
Distributors $119,143  $219,790   (46)%
Amazon  11,855   44,565   (73)%
Online Sales  5,019   13,709   (63)%
Retail  820,613   927,614   (12)%
Shipping  989   4,420   (78)%
Sales Returns and Allowances  (28,100)  (36,700)  (23)%
Net Revenues $929,519  $1,173,398   (21)%

  Six Months Ended June 30,    
  2023  2022    
Revenue Source Revenue  Revenue  % Change 
Distributors $315,090  $413,107   (24)%
Amazon  24,918   80,089   (69)%
Online Sales  10,254   22,316   (54)%
Retail  1,916,696   1,719,015   11%
Shipping  1,958   5,802   (66)%
Sales Returns and Allowances  (64,500)  (71,800)  (10)%
Net Revenues $2,204,416  $2,168,529   2%

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

  Three Months June 30,    
  2023  2022    
Product Line Revenue  Revenue  % Change 
Energy Drinks $3,700  $50,792   (93)%
CBD Energy Waters  18,738   17,249   9%
Lemonade Drinks  113,579   209,976   (46)%
Apparel  -   47   (100)%
Retail  820,613   927,614   (12)%
Shipping  989   4,420   (78)%
Sales returns and allowance  (28,100)  (36,700)  (23)%
Net Revenues $929,519  $1,173,398   (21)%

F-8

  Six Months June 30,    
  2023  2022    
Product Line Revenue  Revenue  % Change 
Energy Drinks $12,356  $118,574   (90)%
CBD Energy Waters  21,431   41,588   (48)%
Lemonade Drinks  316,475   354,238   (11)%
Apparel  -   112   (100)%
Retail  1,916,696   1,719,015   11%
Shipping  1,958   5,802   (66)%
Sales returns and allowance  (64,500)  (71,800)  (10)%
Net Revenues $2,204,416  $2,168,529   2%

Advertising Costs

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs aggregated $52,472 and $105,956 for six months ended March 31, 2021, one customer represented 12%ending June 30, 2023 and 2022, respectively.

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 totalstock 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.

Loss per Common Share

Basic earnings (loss) per share is computed by dividing the net revenueincome (loss) applicable to common stockholders by the weighted average number of $462,408shares 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 six months ending June 30, 2023 and 2022, 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,

2023

  

June 30,

2022

 
Warrants  394,575,211   178,333,333 
Common stock equivalent of Series B Convertible Preferred Stock  488,000   488,000 
Common stock equivalent of Series C Convertible Preferred Stock  1,000   - 
Common stock equivalent of Series D Convertible Preferred Stock  500,000,000   500,000,000 
Common stock issuable  169,998,860   170,000,000 
Restricted common stock  9,600,000   - 
Common stock on convertible debentures and accrued interest  528,932,727   161,028,567 
Total  1,603,595,798   511,028,567 
Anti-dilutive Shares  1,603,595,798   511,028,567 

F-9

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.

Segments

During the 2022 fiscal year, the Company consolidated and restructured its operations. The Company now operates in one 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.

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.

Gross sales. During the three and six months ended MarchJune 30, 2023 and 2022, no customers accounted for more than 10% of gross sales.

Accounts receivable. As of June 30, 2023, the Company had accounts receivable from four customers that comprised 21%, 21%, 15% and 10%, respectively, of its gross accounts receivable. As of December 31, 2021. In2022, the accompanying Consolidated StatementsCompany had accounts receivable from two customers that comprised 27% and 20%, respectively, of Loss for the three months ended March 31, 2020, no one customer represented 10% or more of the Company’s total net revenue of $202,057 for the three months ended March 31, 2020.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. With respect to Gold Leaf’s operations, 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.

The Company had certain vendors that individually represented 10% or more of the Company’s inventory purchases. For

Purchases from vendors. During the three months ended March 31, 2021,June 30, 2023, the Company purchased 73%Company’s largest two vendors accounted for approximately 26% and 27% of its inventory from five vendors for the three months ended March 31, 2021. Of these vendors, $21,988 is due to these vendors as of the balance sheet dated March 31, 2021. Forall purchases, respectively. During the year ended December 31, 2020,2022, the Company’s largest one vendor accounted for approximately 34% of all purchases, respectively.

Accounts payable. As of June 30, 2023, two vendors accounted for more than 10% the total accounts payable. The Company’s largest two vendors accounted for 25%, and 18% of the total accounts payable, respectively. As of December 31, 2022, two vendors accounted for more than 10% the total accounts payable. The Company’s largest two vendors accounted for 31%, and 18% of the total accounts payable, respectively.

F-10

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 didbeginning January 1, 2023, and early adoption is permitted. The Company does not purchase in excess of 10% of its inventory from any single vendor.

NOTE 21 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through May 17, 2021,believe the date that the March 31, 2021 Consolidated Financial Statements were issued, and has determined the following events have occurred that would warrant additional disclosure:

(1)In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In January 2020, the WHO declared the COVID-19 outbreak a “Public Health Emergency of International Concern.” This worldwide outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans intended to control the spread of the virus. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses and facilities. These restrictions, and future prevention and mitigation measures, have had an adversepotential impact on global economic conditions and are likely to have an adverse impact on consumer confidence and spending, which could materially adversely affect the supply of, as well as the demand for, the Company’s products. Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil, which could also negatively impact the Company’s business, financial condition, and cash flow.


Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The extent of the effect of COVID-19 on the Company’s operationalnew guidance and related codification improvements will be material to its financial performance will depend on future developments, including the duration, spread, and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business. However, as the pandemic continued for much of the 2020 fiscal year and if it continues for a prolonged period in the 2021 fiscal year, it could have a continuing material adverse effect on the Company’s business,position, results of operations financial condition, and cash flow and adversely impact the quoted price of the Common Stock on the OTCM’s OTCQB® Venture Market.flows.

The extent to which the COVID-19 pandemic will further impact the Company’s business will depend on future developments and, given the uncertainty around the extent and timing of the potential future spread or mitigation and around the imposition or relaxation of protective measures, the Company cannot reasonably estimate the impact to its business at this time.

(2)On April 27, 2021, the Paycheck Protection Promissory Note, dated May 4, 2020, in the original principal amount of $95,161 (the “PPP Loan”) with Wells Fargo Bank, N.A. was forgiven for the full amount. The PPP Loan was made under, and is subject to, the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act the (“CARES Act”) and is administered by the U.S. Small Business Administration.
(3)On May 5, 2021, the Company and the Selling Stockholder entered into a Limited Amendment Agreement, dated as of May 5, 2021, pursuant to which the parties agreed to a partial Second Closing of the transactions contemplated by the 2021 SPA, whereby the Selling Stockholder purchased a portion of the intended Second Convertible Debenture (the “Partial Second Convertible Debenture”) in the face amount of $200,000 for a purchase price of $192,000.
(4)On May 5, 2021, the CompanyOther recent accounting pronouncements issued an aggregate of 14,436,426 shares of Common Stock upon the conversion of $300,000 of the principal of, and $7,496 of accrued interest on, the Third 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0266. The Third 2020 Debenture was converted at the conversion price of $0.0213, which was the lower of the 2021 Fixed Conversion Price and the 2021 Market Conversion Price.
(5)On April 4, 2021, the Company signed a Note Modification Amendment to a Standard Promissory Note Agreement with a related party originally dated January 15, 2019 for the principal sum of $20,000. The Note Modification Amendment extends the due date of the principal sum for one year, payable on April 4, 2022.
(6)On April 4, 2021, the Company signed a Modification Amendment to a Line of Credit and Security Agreement with a related party originally dated April 4, 2019 for the principal sum up to $1,500,000 plus interest, fees and costs. The Modification Amendment extends the due date of the principal sum for one year, payable on April 4, 2022.


INDEX TO FINANCIAL STATEMENTS

Financial Statements of S and S Beverage, Inc.
Unaudited Balance Sheet as of January 31, 2021 and audited balance sheet as of December 31, 2020F-41
Unaudited Statements of Loss for the one month ended January 31, 2021 and 2020F-42
Unaudited Statements of Stockholders’ Deficit for the one month ended January 31, 2021 and 2020F-43
Unaudited Statements of Cash Flows for the one month ended January 31, 2021 and 2020F-44
Notes to the Consolidated Financial StatementsF-45


S and S Beverage, Inc.

BALANCE SHEETS

  January 31 December 31,
  2021 2020
     
ASSETS        
CURRENT ASSETS        
Cash and cash equivalents $—  $— 
Accounts receivable, net of allowance of $24,280 and $0, respectively  9,438   9,438 
Inventory  240,797   240,797 
Total current assets  250,235   250,235 
NON-CURRENT ASSETS        
Property, plant and equipment, net  12,200   12,200 
Total assets $262,435  $262,435 
         
LIABILITIES AND STOCKHOLDERS’ DEFICIT        
CURRENT LIABILITIES        
Accounts payable and accrued liabilities $55,553  $78,782 
Outstanding checks  23,058   6,362 
Interest payable  11,915   11,915 
Due to customers  19,667   19,667 
Current note payable - related party  811,761   801,761 
Total current liabilities  921,954   918,487 
NON-CURRENT LIABILITIES        
Note payable – related party, net of current  —   — 
Total liabilities  921,954   918,487 
         
COMMITMENTS AND CONTINGENCIES        
         
STOCKHOLDERS’ DEFICIT        
Common Stock, $30.05 par value, 10,000 shares issued and outstanding, respectively  300,500   300,500 
Additional paid-in capital  437,701   437,701 
Accumulated deficit  (1,397,720)  (1,394,253)
Total stockholders’ deficit  (659,519)  (656,052)
Total liabilities and stockholders’ deficit $262,435  $262,435 

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


S and S Beverage, Inc.

STATEMENTS OF LOSS

  January 31,
  2021 2020
   
REVENUES $572  $11,520 
COST OF REVENUES  1,130   36,605 
Gross profit  (558)  (25,085)
         
OPERATING EXPENSES        
Selling, general and administrative expenses  2,909   57,316 
Income (Loss) from operations  (3,467)  (82,401)
Other income / (expense)  —   — 
Net Income (Loss) $(3,467) $(82,401)
         
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:        
Basic and diluted  10,000   10,000 
         
NET LOSS PER COMMON SHARE:        
Basic and diluted $(0.35) $(8.24)

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


S and S Beverage, Inc.

STATEMENTS OF STOCKHOLDERS’ DEFICIT

  Common Stock
$.00001 Par		 Additional Paid-in Accumulated Total
Stockholders’
  Shares Amount Capital Deficit Deficit
Balance December 31, 2019  10,000  $300,500  $412,701  $(765,784) $(52,583)
One-month Net Income (Loss)              (82,401)  (82,401)
Balance January 31, 2020  10,000  $300,500  $412,701  $(848,185) $(134,984)
Loan Forgiveness          25,000       25,000 
11-month Net Income (loss)              (546,068)  (546,068)
Balance December 31, 2020  10,000  $300,500  $437,701  $(1,394,253) $(656,052)
Net Income (loss)              (3,457)  (3,467)
Balance January 31, 2021  10,000  $300,500  $437,701  $(1,397,720) $(659,519)

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


S and S Beverage, Inc.

STATEMENTS OF CASH FLOWS

  For the One Month Ended
January 31,
  2021 2020
     
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:        
Net Income $(3,467) $(82,401)
Adjustments to reconcile net income to net cash provided by operations:        
Depreciation  —   — 
Changes in operating assets and liabilities:        
Decrease (increase) in accounts receivable  —   16,024)
Decrease (increase) in inventory  —   (18,757)
Increase (decrease) in accounts payable  (23,229)  15,830 
Increase (decrease) in interest payable  —   — 
Increase (decrease) in due to/from  —   (27,886)
Net cash provided by (used in) operating activities  (26,696)  (97,190)
         
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:        
Purchases of property, plant and equipment  —   — 
Net cash provided by (used in) investing activities  —   — 
         
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:        
Changes in note payable – related party  10,000   45,001 
Net cash provided by (used in) financing activities  10,000   45,001 
Net cash increase/(decrease) for period  (16,696)  (52,189)
Cash at beginning of period  (6,362)  30,075 
Cash at end of period $(23,058) $(22,114)
         
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:        
Cash paid for income taxes $—  $— 
Cash paid for interest $—  $— 

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

F-44

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

S and S Beverage, Inc. (the “Company”), a Wisconsin Corporation, owns and operates a line of superior lemonade products in four distinct flavors under the Lemin brand. The Company is primarily focused on product development in the functional beverage sector.

Accounting Standards Codification subtopic Segment Reporting 280-10 (“ASC 280-10”) establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker,FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or decision-making group, in making decisions howare not believed by management to allocate resources and assess performance. The information disclosed herein materially represents all the financial information related to the Company’s onlyhave a material principal operating segment.

The Company currently sells its products through resellers, the Company website, and distributors that span across the United States. The Company’s products are available in wide variety of stores, including convenience and grocery stores, and gift shops.

Effects of COVID-19

In January 2020, the World Health Organization (the “WHO”) announced a global health emergency because of a new strain of coronavirus (“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.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A.Basic 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.

B.Use of estimates

The preparation of the consolidated financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thepresent or future financial statements. Estimates also affect the reported amounts of revenue and expenses during the reporting period. Actual events and results could differ from those assumptions and estimates.


C.Cash and cash equivalents

For the purpose of reporting cash flows, the Company considers all unrestricted, highly liquid investments with an initial maturity of three months or less to be cash equivalents.

D.Fair value of financial instruments

The estimated fair values for financial instruments are determined at discrete points in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts payable, accrued liabilities, and notes payable approximate fair value given their short-term nature or effective interest rates. The accounting guidance establishes a three-tiered hierarchy, which prioritizes the inputs used in the valuation methodologies in measuring fair value. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted price in active markets for identical assets or liabilities and the lowest priority to unobservable inputs. The fair value hierarch is as follows:

Leve 1 – quoted prices in active markets for identical assets or liabilities;

Level 2 – inputs other than Level 1 that are observable, either directly or indirectly; such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets and liabilities in markets that are not active, or inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities; or

LevelNOTE 3 – unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.INVENTORY

E.Accounts receivable

Accounts receivable are recorded at net realizable value. The Company determines provisions for uncollectible accounts, sales returns, and claims based upon factors including the credit risk and activity of specific customers, historical trends, and other information. In the circumstance that the Company becomes aware of a specific customer’s inability to meet its financial obligations, bad debt charges are recorded based on an overall assessment of past due accounts receivable outstanding. No bad debt was recorded in the accompanying statement of income one month ending January 31, 2021 and 2020, respectively. Management will review annually to determine provisions and record an allowance as deemed necessary. In the opinion of management, no provisionInventory is deemed necessary for sales returns and all accounts were deemed collectible at December 31, 2020. The balance of allowance for Uncollectible Accounts as of January 31, 2021 and December 31, 2020 is $24,280, respectively.

F.Inventories

The Company’s inventories are valued at the lower of cost (first-in, first-out) or net realizable value. The Company’s inventories consist almost entirelyvalue, and net of finished goods and freight. We periodically evaluate and adjust inventories for obsolescence. In the opinion of management, no provision for obsolescencereserves is deemed necessary. The shelf life of all beverage inventory is two years, and ascomprised of the balance sheets dated January 31, 2021following:

SCHEDULE OF INVENTORY

  

June 30,

2023

  

December 31,

2022

 
Raw materials $158,390  $198,605 
Finished goods, net  393,368   660,574 
Total $551,758  $859,179 

At June 30, 2023 and December 31, 2020, all2022, inventory presented above is current.net of a reserve for slow moving and potentially obsolete inventory of $80,000, respectively.

G.Property, plant and equipment

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

Property plant and equipment are reported on the balance sheet at cost less accumulated depreciation. Assets with a useful life greater than one year and cost greater than $100 are capitalized. Maintenance and repairs are charged to expense as incurred.


Depreciation is provided using the straight-line method over the estimated useful livescomprised of the asset as follows:following:

Estimated useful lives (in years)
Furniture and fixtures7
Machinery and equipment7
Vehicles5
Computer equipment5 – 7

H.Revenue recognition

We sell our Lemin Superior Lemonade, now named OOH LA Lemin, through resellersSCHEDULE OF PROPERTY, PLANT AND EQUIPMENT

  

June 30,

2023

  

December 31,

2022

 
Furniture and Fixtures $78,944  $78,134 
Computers and Software  36,667   36,667 
Machinery & Equipment  121,158   118,003 
Vehicles  310,348   310,348 
Total cost  547,117   543,152 
Property, plant and equipment, gross  547,117   543,152 
Accumulated depreciation  (241,039)  (195,088)
Property, plant and equipment, net $306,078  $348,064 

Depreciation for the six months ended June 30, 2023 and distributors. In evaluating the timing of the transfer of control of products to our distributors2022, was $45,951 and resellers, 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 distributors and resellers when products that do not require further services by us are shipped, when there are no uncertainties surrounding product acceptance, and when collectability is reasonably assured.

On January 1, 2019, the Company adopted 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. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulative effect adjustment was recognized.

To apply these principles, Topic 606 outlines a five-step process:

1.Identify the contract with a customer.
2.Identify the separate performance obligations in the contract.
3.Determine the transaction price.
4.Allocate the transaction price to the separate performance obligations in the contract.
5.Recognize revenue when (or as) the entity satisfies a performance obligation

Pursuant to ASC Topic 606, the Company recognizes 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 the Company, performance is deemed to occur upon shipment or delivery of products to its customers based on the written contract terms, which is also when control is transferred.

The Company evaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine if disaggregation of revenues that would be meaningful. The Company’s revenue is earned from its sale of Lemin Superior Lemonade, now named OOH LA Lemin,$44,250 respectively, and is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. The Company does not have significant financing component or payment terms, and it does not have any material unsatisfied performance obligations. The sales from the Company’s beverages are organized as one reportable segment.

I.Cost of revenue

Cost of revenues consists primarily of expenses associated with the delivery and distribution of products. These include expenses related to direct procurement costs and shipping and handling costs. The Company bills shipping and handling fees charged to customers as part of sales and the associated expense as part of cost of revenues. The costs are charged to cost of revenues in the same period that the associated revenue is earned.


J.Impairment of long-lived assets

The Company evaluates its long-lived assets for financial impairment as events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable. The Company evaluates the recoverability of long-lived assets used in operations by measuring the carrying amount of the assets against their estimated undiscounted future cash flows. If such evaluations indicated that the future undiscounted cash flows of certain long-lived assets are not sufficient to recover the carrying value of such assets, the assets are adjusted to fair values. Management completed an impairment review as of December 31, 2020 and determined long-lived assets were not impaired.

K.Income taxes

The Company accounts for income taxes in accordance with FASB ASC 740, Income Taxes, which clarifies the accounting and disclosure requirements for uncertainty in tax positions. It requires a two-step approach to evaluate tax positions and determine if they should be recognized in the financial statements. The two-step approach involves recognizing tax positions that are “more likely than not” to occur and then measuring those positions to determine if they are recognizable in the financial statements. Management regularly reviews and analyzes all tax and has determined that no uncertain tax positions requiring recognition have occurred.

The Company has no recorded liabilities for uncertain tax positions as of the accompanying Consolidated Balance Sheets dated December 31, 2020 and December 31, 2019, respectively.

L.Advertising costs

The Company expenses costs of advertising and promotions as incurred. The Company includes in advertising costs inventory given away as promotional merchandise or free samples to create sales. Advertising and promotion costs for the one month ended January 31, 2021 and 2020, were approximately $286 and $2,195, respectively, which amounts were included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Loss.

M.Concentration of Credit Risk

The Company maintain cash balances at financial institutions. Accounts at each institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and had determined the credit exposure to be negligible.

N.Basic and diluted earnings per share

In accordance with accounting guidance now codifies as FASB ASC 260 (Earnings per Share), basic income (loss) per common share is calculated using the weighted average number of shares outstanding during the periods reported. Diluted earnings per share include the weighted average effect of all dilutive securities outstanding during the periods presented.NOTE 5 – INTANGIBLE ASSETS

Diluted per share loss is the same as basic per share loss when there is a loss from continuing operations.


O.Segments

ASC 280-10, Segment Reporting (“ASC 280-10”), establishes standards for reporting information regarding operating segments in annual financial statements and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for related disclosures about products and services and geographic areas. Operating segments are identified as components of an enterprise about which separate discrete financial information is available for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resources and assess performance. The Company identified one operating segment that reports revenue, including both sales to external customers and intersegment sales or transfers, that are 10% or more of the combined revenue, internal and external, of the Company’s operating segment.

P.Recently issued accounting pronouncements

The Company has evaluated all recently issued accounting pronouncements, issued or proposed, by the FASB or other standards-setting bodies as of the period ending September 30, 2020. The Company does not expect a material impact on the Company’s financial position, result of operations, or cash flows from these pronouncements.

NOTE 2 – INVENTORY

InventoryIntangible asset consisted of the following:

SCHEDULE OF INTANGIBLE ASSET

  

June 30,

2023

  

December 31,

2022

 
Intangible Assets        
Trademarks $85,340  $85,340 
Website development  12,200   12,200 
Accumulated amortization  (36,216)  (31,339)
Total Intangible Assets, net of amortization $61,324  $66,201 

During the six months ended June 30, 2023 and 2022, the Company recorded amortization expense of $4,877, 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 
2023 (remaining)  $4,877 
2024   9,754 
2025   9,754 
2026   9,754 
2027   9,754 
Thereafter   17,431 
Total  $61,324 

F-11

 

  January 31, 2021 

December 31,

2020

Lemin $234,885  $234,885 
Trays, Cans and Sleeves  5,912   5,912 
Raw Materials  —   — 
Total Inventory $240,797  $240,797 

NOTE 36 – PROPERTY, PLANT AND EQUIPMENTNOTES PAYABLE – RELATED PARTIES

Property, plant and equipment consistedNotes payable with related parties consists of the following:following at June 30, 2023 and December 31, 2022:

  January 31, 2021 

December 31,

2020

Start-up Cost $11  $11 
Website Costs  14,500   14,500 
Less: Accumulated Depreciation  (2,311)  (2,311)
Property, plant and equipment, net $12,200  $12,200 

Amortization expense for the one month ended January 31, 2021 and 2020 was $0, respectively.

NOTE 4–SCHEDULE OF NOTES PAYABLE RELATED PARTY TRANSACTIONS

  

June 30,

2023

  

December 31,

2022

 
       
Note payable – related party (a) $1,352,651  $1,352,651 
Note payable – related party (b)  350,000   260,000 
Note payable – related party (c)  125,500   125,500 
Note payable – related party (d)  44,500   47,500 
Total notes payable – related parties $1,872,651  $1,785,651 

 A.(a)Long-term debt consistsOn April 4, 2019, the Company entered into an unsecured Line of twoCredit 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, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. At June 30, 2023 and December 31, 2022, 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, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. During the period ended June 30, 2023, Mr. Clark made additional advances of $99,000, and $9,000 of that was repaid by the end of the period. At June 30, 2023 and December 31, 2022, outstanding principal was $350,000 and $260,000, respectively.
(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, 2023, at which time all outstanding principal amounts and accrued interest are due and payable. At June 30, 2023 and December 31, 2022, outstanding principal was $125,500 and $125,500, respectively.
(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 payablesbears 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. On April 3, 2023, the Company issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principal of $46,000 Principal payment of $500 per month, with final payment due in March 2024. The outstanding principal balance of this note at December 31, 2022 was $47,500. During the six months ended June 30, 2023, the Company made principal payments of $3,000, leaving an outstanding principal balance of $44,500 at June 30, 2023.

At December 31, 2022, accrued interest on notes payable to related parties was $153,959. During the six months ended June 30, 2023, the Company added $32,252 of additional accrued interest, leaving an accrued interest balance on the notes payable to related parties of $186,211 at December 31, 2022. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

F-12

NOTE 7 – NOTES PAYABLE

Notes payable consists of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF NOTES PAYABLE

  

June 30,

2023

  

December 31,

2022

 
       
Note payable (a) $23,702  $26,994 
Note payable (b)  41,694   44,550 
Note payable (c)  39,343   40,103 
Note payable (d)  205,576   250,000 
Note payable (e)  418,567   626,388 
Note payable (f)  68,283   - 
Note payable (g)  137,278   - 
Note payable (h)  110,000   - 
Note payable (i)  247,629   - 
Note payable (j)  16,206   - 
Total notes payable  1,308,278   988,035 
Less debt discount  (160,572)  (218,481)
Total notes payable, net  1,147,706   769,554 
Notes payable, current portion  (1,089,692)  (712,499)
Notes payable, net of current portion $58,014  $57,055 

(a)On August 21, 2021, the Company financed the purchase of a related party: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, 2022, the loan balance was $26,994. During the six months ended June30, 2023, the Company made principal payments of $3,292, leaving a loan balance of $23,702 at June 30, 2023.

 

(b)1)Long-term debt consistsOn September 30, 2022, the Company financed the purchase of one 8%a vehicle for $46,576, after making a down payment. The loan term is for 60 months, annual interest per annum note payable for $200,000 from a related party. Paymentsrate of $9,045 per month is due beginning October 17, 2018. On June 1, 2020, an additional $35,000 was received,9.44%, with monthly principal and on January 14, 2021, an additional $10,000 was received oninterest payments of $980, and secured by the same note, under new terms that the Note shall be payable in one (1) payment of principle plus interest at or before the maturity date of November 1, 2023.  In the accompanying balance sheets dated January 31, 2021 andpurchased vehicle. At December 31, 2020,2022, the loan balance was $44,550. During the six months ended June 30, 2023, the Company made principal payments of $2,856, leaving a loan balance of the note payable is $123,761, and $113,761, respectively, and accrued interest was $11,776, respectively.


2)Long-term debt consists of one 8% interest per annum note payable for $612,700 from a related party on November 1, 2019. Note shall be payable in one (1) payment of principle plus interest$41,694 at or before the maturity date of November 1,June 30, 2023. On December 31, 2019, $412,700 has been forgiven in full by the related party. In the accompanying balance sheets dated January 31, 2021, and December 31, 2020, the balance of the note payable is $200,000, respectively.

 

(c)3)Long-term debt consistsIn April 2021, the Company entered into a Line of one 2% interest per annum note payable for $300,000 fromCredit 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 related party on February 1, 2020. Note shall be payablerevolving line of credit in one (1) paymentthe amount of principle plusup to $42,000. Advances under this line of credit bear interest at or before the maturity date three (3) days after the salerate of substantially11.50% per annum. The line of credit matures in 2023, at which time all outstanding principal amounts and accrued interest are due and payable. As of the assets or equity. In the accompanying balance sheets dated January 31, 2021,June 30, 2023 and December 31, 2020,2022, the balanceoutstanding principal was $39,343 and $40,103, respectively, which was recorded as the current portion of loan payable on the note payable is $300,000, respectively, and accrued interest was $9.953, respectively.accompanying Consolidated Balance Sheet.

 

(d)4)Long-term debt consistsOn March 25, 2022, the Company entered into a secured debenture with an otherwise unaffiliated individual in the principal amount of one 0%$250,000 that was due on March 23, 2023. On March 23, 2023, the Company entered into a First Amendment to Secured Debenture (the “First Amendment”) to amend a Secured Debenture (the “Debenture”), dated as of March 25, 2022. The Debenture is amended and restated in its entirety with the following terms (i) maturity date was extended to March 24, 2024; (ii) interest accrues on the outstanding principal at a rate equal to 12% per annum note payable for $200,000 from a related party on July 31, 2020. Noteannum; (iii) monthly payments of principal and interest shall be payablemade in one (1) paymentthe amount of principle plus interest at or before$22,212, starting April 24, 2023 until the maturity date, three (3) days afterat which date the saleentirety of substantially all of the assets or equity. In the accompanying balance sheets dated January 31, 2021, and December 31, 2020, the balance of principal plus interest is due. The secured debenture is secured by nine identified motor vehicles of the note payable is $198,000, respectively,Company. At December 31, 2022, the outstanding balance of the secured debentures amounted to $250,000. During the six months ended June 30, 2023, the Company made principal payments of $44,424, leaving a loan balance of $ 205,576 at June 30, 2023.
In connection with the issuance of the original debenture in 2022, 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. At December 31, 2022, the unamortized debt discount was $31,531. During the six months ended June 30, 2023, the Company amortized debt discount of $31,531 to interest expense on the loan, leaving no remaining unamortized debt discount at June 30, 2023.
F-13

(e)

During the year ended December 31, 2022, the Company entered into secured non-interest-bearing advance agreements with unaffiliated third parties for the purchase of future receipts/revenues. Under the agreements, the Company received an aggregate lump sum payment of $561,957, and, accruedin return, the purchaser received a secured right to collect a fix sum of future receipts/revenue of $798,456 to be collected by the Company. During the six months ended June 30, 2023, the Company entered into additional secured non-interest bearing advance agreements for which the Company received an aggregate lump sum payment of $501,000, and, in return, the purchaser received a secured right to collect a fix sum of future receipts/revenue of $597,500 to be collected by the Company. In accordance with the agreements, 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 dates of the agreements 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 agreements require aggregate daily to weekly payments ranging from $1,291 to $1,958 The Company’s obligations under the agreements are secured by the assets described above, and guaranteed by Robert Clark, the Company’s Chief Executive Officer. As of December 31, 2022, the outstanding balance to be paid amounted to $626,388. During the six months ended June 30, 2023, the Company entered into additional agreements of $512,500, and made payments of $720,323, leaving an aggregate outstanding amount to be paid of $418,567 at June 30, 2023.

During the year ended December 31, 2022, upon execution of the advance and receipt of funds, the Company recorded the difference of $236,499 between the cash collected and the face amount of the obligation as a “note discount” and will amortize the “note discount” as interest expense over the life of the advance. At December 31, 2022, the unamortized “note discount” was $0, respectively.$186,950. During the six months ended June 30, 2023, the recorded an additional unamortized “note discount” of $191,150 related to new advance agreements, and the Company amortized “note discount” of $259,059 to interest expense on the obligation. As of June 30, 2023, the unamortized “note discount” was $150,572.

 

 (f)5)On March 9, 2023, the Company entered into a Line of Credit Agreement with American Express National 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 $85,000. Advances under this line of credit bear interest at the rate of 19.32% per annum. The line of credit matures on September 9, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. The line of credit requires minimum monthly payments of $5,572. At June 30, 2023, the outstanding principal was $68,283.

(g)Long-term debt consistsOn March 7, 2023, the Company entered into a Line of one 8%Credit Agreement with Celtic 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 $200,000. Advances under this line of credit bear interest at the rate of 35.90 percent per annumannum. The line of credit matures on March 7, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. At June 30, 2023, the outstanding principal was $137,278.

(h)On June 30, 2023, the Company entered into a note payable with IQ Financial, Inc. in the principal amount of $110,000, with an original issue discount of $10,000, resulting in net proceeds for $25,000$100,000. The note has no stated interest and is due on July 31, 2023. For so long as the note remains unpaid, the Company shall pay within two days of receipt of customer payments on specific customer invoices listed in the note payable.
The original issue discount of $10,000 was recorded as a debt discount against the note payable, leaving a $10,000 of remaining unamortized debt discount at June 30, 2023.

(i)On May 15, 2023, the Company entered into a Revolving Credit Agreement (the “Revolver”) with a vendor. The Revolver allows the Company to purchase goods from a related party on April 30, 2020. Note shall be payable inits vendor time to time. The unpaid principal balance of the Revolver may not exceed $250,000 through May 31, 2023, $225,000 through July 31, 2023, and $200,000 through $200,000 through December 31, 2023, at any one (1) payment of principle plus interest at or before thetime. The Revolver has a maturity date of November 1, 2023. On November 30, 2020, this debt was forgiven. In the accompanying balance sheet dated January 31, 2021, and December 31, 2020, there2023 and bears no interest rate. At June 30, 2023, the outstanding balance of the Revolver was $247,629.
In connection with the issuance of the Revolver, the Company issued to the vendor 28 million shares of the Company’s common stock at a price of $0.0045 per share. The Company determined the fair value of the 28 million shares was $126,000, which was recorded as financing costs in the condensed consolidated statement of operations during the six months ended June 30, 2023.

(j)On June 2, 2023, the Company entered into a note payable with RFMD-LLC in the principal amount of $16,206, with an interest rate of 8% per annum, and a maturity date of December 31, 2023. The note was issued in related to the termination of an operating lease (see Note 10). At June 30, 2023, the outstanding principal was $16,206. original issue discount of $10,000, resulting in net proceeds for $100,000. The note has no stated interest and is no balance due respectively.on July 31, 2023. For so long as the note remains unpaid, the Company shall pay within two days of receipt of customer payments on specific customer invoices listed in the note payable.

 

The future maturities are as follows:At December 31, 2022 on item (d), accrued interest on the notes payable was $1,874. During the six months ended June 30, 2023, the Company added $7,995 of additional accrued interest on item (d), leaving $9,689 of accrued interest balance on the notes payable item (d) at June 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

As of December 31, 2022, the unamortized debt discount was $218,481. During the six months ended June 30, 2023, the Company added $201,150 of debt discount related to the issuance of debentures, and amortized debt discount of $259,059 to interest expense on the loans. As of June 30, 2023, the unamortized debt discount was $160,652.

F-14

 

December 31, 2021 – December 31, 2022  $— 
November 1, 2023   798,261 
   $798,261 

NOTE 58 – EQUITY TRANSACTIONSSECURED CONVERTIBLE DEBENTURES

Common Stock

Secured debentures that are payable to an otherwise unaffiliated third party consists of the following as of June 30, 2023 and December 31, 2022:

SCHEDULE OF SECURED DEBENTURES PAYABLE TO RELATED PARTY

  

June 30,

2023

  

December 31,

2022

 
       
Mast Hill Note 1  204,457   595,000 
Mast Hill Note 2  467,912   - 
Mast Hill Note 3  230,000   - 
Mast Hill Note 4  55,707   - 
Mast Hill Note  55,707   - 
Less debt discount  (269,114)  (183,940)
Secured debentures, net $688,962  $411,060 

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 is convertible into shares of our common stock at a conversion price of $0.0045 per share. If the Company has authorized 10,000issues 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 is 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 was subordinate to the continuing security interest that remains in effect pursuant to the previous grant of a security interest in connection with a then outstanding debenture to an earlier investor all tangible and intangible assets. In connection with the issuances of the debentures, the Company granted to the Investor 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 December 31, 2022, the unamortized debt discount was $183,940. During the six months ended June 30, 2023, the Company amortized debt discount of $157,662 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $26,278.

As of December 31, 2022 the balance due under the obligation was $595,000. During the six months ended June 30, 2023, the Company converted $390,543 of principal and accrued interest into 199,500,000 shares of common stock with a parfair value of $30.50,$888,750 resulting in a loss on extinguishment of which 10,000 weredebt of $513,520. As of June 30, 2023, $204,247 was due under the note.

Mast Hill Debenture 2

On March 13, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $475,000. The debenture bears interest at a rate of 10% per annum, matures on March 13, 2024, and is convertible into shares of our common stock at a conversion price of $0.0045 per share.

F-15

At our option, we have the right to redeem, in full, the outstanding principal and interest under the debenture prior to its maturity date; provided, that, as of the onedate of the then-holder’s receipt of the redemption notice, there has not been an Event of Default. We 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”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our 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 any or all of such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

Further, commencing on May 10, 2023, and continuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to the sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and payable on May 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to 80 million shares of the Company’s common stock, which expire on March 13, 2028. 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 $150,000; and (b) original issue discounts and fees of $74,000 of the debentures for a total of $224,000 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the six months ended January 31, 2021June 30, 2023, the Company amortized debt discount of $10,839 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $213,161.

As of June 30, 2023, $467,912 was due under the note.  

Mast Hill Debenture 3

On April 25, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $230,000. The debenture bears interest at a rate of 10% per annum, matures on April 25, 2024, and is convertible into shares of our common stock at a conversion price of $0.0040 per share.

At our option, we have the yearright to redeem, in full, the outstanding principal and interest under the debenture 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. We 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”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our 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 any or all of such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

Further, commencing on May 10, 2023, and continuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to the sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and payable on May 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to 43.6 million shares of the Company’s common stock, which expire on April 25, 2028. The warrants are exercisable at $0.0040 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $56,000; and (b) original issue discounts and fees of $28,000 of the debentures for a total of $84,300 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the six months ended June 30, 2023, the Company amortized debt discount of $15,243 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $69,057.

As of June 30, 2023, $230,000 was due under the note.

F-16

Mast Hill Debenture 4

On June 14, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $55,706. The debenture bears interest at a rate of 10% per annum, matures on June 14, 2024, and is convertible into shares of our common stock at a conversion price of $0.0040 per share.

At our option, we have the right to redeem, in full, the outstanding principal and interest under the debenture 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. We 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”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our 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 any or all of such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

Further, commencing on July 10, 2023, and continuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to the sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and payable on July 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to approximately 20.9 million shares of the Company’s common stock, which expire on June 14, 2028. The warrants are exercisable at $0.0040 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $19,000; and (b) original issue discounts and fees of $8,457 of the debentures for a total of $27,457 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the six months ended June 30, 2023, the Company amortized debt discount of $1,204 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $26,253.

As of June 30, 2023, $55,707 was due under the note.

As of June 30, 2023, no shares of common stock were potentially issuable under the conversion terms of the outstanding debentures.

At December 31, 2020, respectively.2022, accrued interest on the convertible notes payable was $25,756. During the six months ended June 30, 2023, the Company added $40,039 of additional accrued interest, and converted $45,358 of accrued interest, leaving an accrued interest balance on the convertible notes payable of $20,437 at June 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.


Transactions

As of December 31, 2022, the unamortized debt discount was $183,940. During the six months ended June 30, 2023, the Company added $334,757 related to the issuance of secured debentures, and amortized debt discount of $250,583 to interest expense on the loans. As of June 30, 2023, the unamortized debt discount was $269,114.

NOTE 9 – ACQUISITION OBLIGATION

On January 21, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kona Gold Beverage, Inc. (“Kona Gold”), pursuant to which itS and S and its shareholders and acquired all of the capital stock of S and S. In consideration thereof, the Company. The partiesCompany issued to the Merger Agreement are (i) Kona Gold, (ii) KGS Temporary Company, Inc., a wholly-owned subsidiarythem an aggregate of nine million restricted shares of Kona Gold (“Acquisition Subsidiary”), (iii) the Company, (iv) William J. Stineman and K&L Beverage, LLC (as the indemnifying parties on behalf of the Company’s shareholders), and (v) Mr. Stineman (as representative of the Company’s shareholders). As a result of the transactions contemplated by the Merger Agreement, the Company merged with and into the Acquisition Subsidiary. The Company was the surviving entity and became Kona Gold’s wholly-owned subsidiary. The Merger Agreement contains customary representations, warranties, covenants, and agreements of the parties, including certain indemnification rights in favor of Kona Gold that are customary for a transaction of that nature and magnitude. The two individual members of K&L Beverage, LLC, agreed to guarantee its indemnification obligations. To consummate the Acquisition, a Certificate of Merger was filed with the Wisconsin Department of Financial Institutions (the “Merger Certificate”) on February 1, 2021.

In consideration of the transactions contemplated by the Merger Agreement, Kona Gold issued to the Company’s shareholders an aggregate of nine million restricted shares of itsInc.’s common stock (the “Acquisition Stock”) onof a pro rata basis. Kona Goldfair value of $243,000. The Company did not grant them any registration rights in respect of the shares of Acquisition Stock. Kona GoldThe Company also agreed to pay an aggregate of $1,050,000$1,050,000 (the “Aggregate Acquisition Payments”), the majority of which is allocated to certain creditors of the Company’s creditorsS and S (including one of the Company’sS and S’s legacy shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is$89,249 was allocated and paid to the Company’sfive S and S legacy shareholders on a pro rata basis. $400,000The Company paid approximately $400,000 of the Aggregate Acquisition Payments were paid by February 11, 2021.at the closing of the transaction. The balance of theremaining Aggregate Acquisition Payments, including the Remaining 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$2.00 per case of Lemin Superior Lemonade (the product line of S and S that we have now named OOH LA Lemin,branded as Ooh La Lemin) that Kona Gold and the Company sellswe sell until the Aggregate Acquisition Payments have been paid in full. The balance payable under the obligation was $659,550 at December 31, 2022. During the period ended June 30, 2023, the Company paid $3,220 of the remaining Aggregate Acquisition Payments, leaving an acquisition obligation balance of $656,330 at June 30, 2023

F-17

NOTE 10 – 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.

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-year term and expires on May 31, 2023. The monthly base rent increases annually by 3 percent. In May 2023, the Company extended the lease through May 31, 2024. The initial monthly base rent was approximately $4,628, plus state taxes.

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.

The Company leases a 10,000 square foot building in Conway, South Carolina. The lease is for a 62-month period 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. In October 2021, the Company recognized an operating lease right of use (“ROU”) asset and lease liability of $345,649, related to the Conway, South Carolina operating lease utilizing a present value rate of 10%.

On June 1, 2023, the Company entered into a lease termination agreement with its landlord for its building in Conway, South Carolina. The Company’s deposit of $7,500 was applied to outstanding rent, and the Company recorded the removal of its right-of-use asset of $248,270, and corresponding operating lease liability of $261,125 on June 1, 2023. Furthermore, the Company recorded a loss on termination of the lease of $9,601 during the six months ended June 30, 2023, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations. The Company issued the Landlord a promissory note for $16,206, with interest at a rate of 8% per annum, and a maturity date of December 31, 2023. The lease agreement was terminated effective June 30, 2023.

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 months ended June 30, 2023 and 2022, lease costs totaled $54,467 and $49,210, respectively.

Our ROU asset balance was $762,464 as of December 31, 2022. During the six months ended June 30, 2023, the Company recorded amortization of ROU assets of $49,786 related to its leases and removed an ROU asset of $248,270, resulting in an ROU asset balance of $464,408 as of June 30, 2023.

As of December 31, 2022, lease liabilities totaled $838,882, comprised of finance lease liabilities of $17,824 and operating lease liabilities of $821,058. During the six months ended June 30, 2023, the Company made payments of $1,939 against its finance lease liability, $55,608 against its operating lease liability and removed $261,125 against its terminated operating lease liability. At June 30, 2023, lease liabilities totaled $520,210, of which the current portion of lease liabilities was $187,589, leaving a long-term lease liabilities balance of $332,622.

F-18

As of June 30, 2023, the weighted average remaining lease terms for operating lease and finance lease are 1.75 years and 3.96 years, respectively. As of June 30, 2023, 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

Years Ending December 31, Amount 
2023 (remaining) $119,970 
2024  197,491 
2025  170,059 
2026  113,790 
2027 and thereafter  - 
Total payments  601,310 
Less: Amount representing interest  (81,100)
Present value of net minimum lease payments  520,210 
Less: Current portion  (187,589)
Non-current portion $332,622 

NOTE 11 – STOCKHOLDERS’ EQUITY

Preferred Stock

The Company’s issued and outstanding preferred stock, par value $0.00001 per share, at June 30, 2023 and December 31, 2022 was 989,000 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.

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 30, 2023 and December 31, 2022, 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 30, 2023 and December 31, 2022, respectively. Each share of Series B Preferred Stock may be converted into one share of Common Stock.

Series C Preferred Stock

On February 13, 2023, the Company increased the authorized number of Series C Preferred Stock from 250 to 2,000 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. On July 8, 2020, the Company amended the terms of the Series C Preferred Stock filed 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 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.

At June 30, 2023, 1,000 shares of Series C Preferred Stock were issued and outstanding, and at December 31, 2022, no shares of Series C Preferred Stock were issued and outstanding.

F-19

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 30, 2023 and December 31, 2022, respectively. Each share of the Series D Preferred Stock may be converted into 1,000 shares of Common Stock.

Common Stock

On February 13, 2023, the Company increased the authorized number of shares of Common Stock from 2,500,000,000 to 10,500,000,000 shares, par value $0.00001 per share (the “Common Stock”), by filing a Certificate of Amendment to the amended and restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The Company has authorized 10,500,000,000 shares of the Common Stock, of which 2,294,940,557 shares were issued and outstanding at June 30, 2023, and 2,000,276,378 shares were issued and outstanding at December 31, 2022, respectively.

Equity Transactions

During the six months ended June 30, 2023, the Company issued an aggregate of 28,000,000 shares of Common Stock for payment of financing costs of $126,000.

During the six months ended June 30, 2023, the Company issued an aggregate of 199,500,000 shares of Common Stock with a fair value of $897,750 upon the conversion of $390,543 of principal, and $47,357 of accrued interest on its secured convertible debentures, at an average price of $0.0022 resulting in a loss on extinguishment of debt of $549,850 (see Note 8).

During the six months ended June 30, 2023, the Company issued an aggregate of 67,164,179 shares of Common Stock on the cashless exercise of warrants.

2023 Equity Purchase Agreement

Pursuant to an Equity Purchase Agreement (the “Purchase Agreement”) dated as of March 30, 2023 (the “EPA”), the Company (i) agreed to sell to the same entity with whom we had entered into the Securities Purchase Agreement dated as of March 13, 2023 up to $5,000,000.00 (the “Maximum Commitment Amount”) of shares of our Common Stock (the “Put Shares”) and (ii) granted to that Investor a Common Stock Purchase Warrant (the “Warrant”) that is exercisable for the purchase of up to an aggregate of 56,000,000 shares (the “Warrant Shares”) of our Common Stock.

Upon the terms and conditions set forth in the Purchase Agreement, the Company has the right, but not the obligation, to direct the Investor, by delivery to the Investor of a Put Notice from time to time, to purchase shares of our Common Stock (i) in a minimum amount not less than $25,000.00 and (ii) in a maximum amount up to the lesser of (a) $500,000.00 or (b) 150% of the Average Daily Trading Value of our Common Stock (as defined in the Purchase Agreement). At any time and from time to time through and including March 30, 2025 (the “Commitment Period”), except as provided in the Purchase Agreement, the Company may deliver a Put Notice to the Investor.

F-20

The Commitment Period commences on the Execution Date, and ends on the earlier of (i) the date on which the Investor shall have purchased Put Shares pursuant to the Purchase Agreement equal to the Maximum Commitment Amount, (ii) March 30, 2025, (iii) written notice of termination by the Company to the Investor (which shall not occur during any Valuation Period or at any time that the Investor holds any of the Put Shares), (iv) the Registration Statement for the Put Shares is no longer effective after its initial effective date, or (v) the date that, pursuant to or within the meaning of any Bankruptcy Law, the Company commences a voluntary case or any person commences a proceeding against the Company, a Custodian is appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefit of its creditors.

We also granted the Warrant to purchase up to an aggregate of the 56,000,000 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 we issue shares of 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, 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 Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of the Warrant or Put Notice that had not then been exercised, respectively). The fair value of the warrants was determined to be $163,000 and was recorded as a finance cost in the statement of operations.

NOTE 12 – SHARE BASED COMPENSATION

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 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 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 amounts are reflected as common stock issuable as of June 30, 2023 and December 31, 2022.

Issuance of Class C Preferred Stock to a related party

On February 16, 2023, we issued 1,000 shares of our Series C Preferred Stock to Robert Clark, CEO and major shareholder. The Company determined the fair value of the shares was $185,000 using a monte carlo valuation method. We issued these shares of common stock pursuant to the exemption from registration provided by Section 4(a)(2) of the Securities Act as not involving a public offering.

F-21

Summary of Warrants

A summary of warrants for the six months ended June 30, 2023 is as follows:

SCHEDULE OF SUMMARY OF WARRANTS

     Weighted 
  Number  Average 
  of  Exercise 
  Warrants  Price 
Balance outstanding, December 31, 2022  278,333,333   0.0223 
Warrants granted  203,406,057   0.0042 
Warrants exercised  (87,164,179)  0.0149 
Warrants expired or forfeited  -   - 
Balance outstanding, June 30, 2023  394,575,211  $0.0146 
Balance exercisable, June 30, 2023  394,575,211  $0.0146 

Information relating to outstanding warrants at June 30, 2023, 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

 
$0.0030 - 0.0048   236,241,878   4.68  $0.0043   236,241,878  $0.0043 
$0.03   158,333,333   1.01  $0.03   158,333,333  $0.03 
     394,575,211   3.21  $0.0146   394,575,211  $0.0146 

Based on the fair market value of $0.0022 per share on June 30, 2023, there was no intrinsic value attributed to both the outstanding and exercisable warrants at June 30, 2023.

In connection with the issuance of senior convertible secured debentures on March 13, 2023 (see Note 8), the Company granted warrants with a relative fair value of $285,000 to purchase up to an aggregate of 80,000,000 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 $285,000, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0044 per share, the expected term of three years, volatility of 257%, dividend rate of 0%, and risk-free interest rate of 3.88%.

In connection with the issuance of 2023 Equity Purchase Agreement on March 30, 2023 (see Note 11), the Company granted warrants to purchase up to an aggregate of 56,000,000 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 fair value of these warrants at grant date was $165,000, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0044 per share, the expected term of three years, volatility of 257%, dividend rate of 0%, and risk-free interest rate of 3.88%.

In connection with the issuance of senior convertible secured debentures on April 25, 2023 (see Note 8), the Company granted warrants with a relative fair value of $89,000 to purchase up to an aggregate of 43,600,000 shares of the Common Stock. Each warrant has a five-year term from issuance and is immediately exercisable at an exercise price of $0.0040 per share, subject to adjustment. The relative fair value of these warrants at grant date was $89,000, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0028 per share, the expected term of three years, volatility of 233%, dividend rate of 0%, and risk-free interest rate of 3.62%.

In connection with the issuance of senior convertible secured debentures on June 14, 2023 (see Note 8), the Company granted warrants with a relative fair value of $37,000 to purchase up to an aggregate of 20,889,945 shares of the Common Stock. Each warrant has a five-year term from issuance and is immediately exercisable at an exercise price of $0.0030 per share, subject to adjustment. The relative fair value of these warrants at grant date was $37,000, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0024 per share, the expected term of three years, volatility of 232%, dividend rate of 0%, and risk-free interest rate of 4.37%.

In connection with a broker that is assisting the Company in its financing transactions, the Company granted warrants to purchase up to an aggregate of 2,916,112 shares of the Common Stock. Each warrant has a five-year term from issuance and is immediately exercisable at an weighted average exercise price of $0.0043 per share, subject to adjustment. The fair value of these warrants at grant date was $5,269, which was determined using a Black-Scholes-Merton option pricing model with the following assumptions: fair value of our stock price of $0.0026 per share, the expected term of three years, volatility of 225%, dividend rate of 0%, and weighted average risk-free interest rate of 3.28%.

NOTE 13 – SUBSEQUENT EVENTS

Cashless Conversion of Secured Convertible Debentures

On July 10, 2023, the Company issued an aggregate of 40,000,000 shares of Common Stock to Mast Hill upon the conversion of $85,151 of principal, and $2,849 of accrued interest at an exercise price of $0.0021. We issued these shares of common stock pursuant to the exception from registration provided by Section 3(a)(9) of the Securities Act, we did not receive any funds resulting from the conversions as we had received funds from Mast Hill Fund from the secured debentures that we sold in July 2022.

F-22

August 2023 Security Purchase Agreement

Pursuant to a Securities Purchase Agreement dated as of August 8, 2023 (the “SPA”), the Company, completed a private placement of a Senior Secured Promissory Note (the “Senior Note”) with an initial principal amount of $63,000 and the grant of a common stock purchase Warrant (the “Warrant”) that is exercisable for the purchase of up to an aggregate of 28,600,000 shares (the “Warrant Shares”) of our Common Stock with a third-party investor (the “Investor”). In addition, to secure our obligations to the Aggregate Acquisition Payments, Kona Gold assumedInvestor under the Senior Note, we also entered into a Security Agreement (the “Security Agreement”) with and agreed to pay certain other liabilitiesin favor of the CompanyInvestor. Our subsidiaries are also parties to the Security Agreement.

The transactions contemplated by the SPA were consummated on August 8, 2023 (the “Issue Date”). Upon the funding, we sold and issued the Senior Note and granted the Warrant. Pursuant to the SPA, the purchase price for the Senior Note was $63,000, less $6,220 in fees, which consisted of an 12% “original issue discount” of $1,890 and $2,500 for the Investor’s legal fees.

The Senior Note is due 12 months from its issuance date and is secured by all of our assets and the assets of each of our 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 shares of our Common Stock (the “Conversion Shares”) at a fixed conversion price of $0.003 per share, subject to adjustment due to merger, consolidation, exchange of shares, recapitalization, reorganization, or similar event as set forth in the Merger Agreement.

NOTE 6 – COMMITMENTS AND CONTINGENCIES

Liabilities for loss contingencies arising from claims, assessments, litigation, fines, penalties and other sources are recorded when it is probableSenior Note (the “Conversion Price”). The Senior Note contains an adjustment provision that, subject to certain exceptions, reduces the conversion price if we issue shares of our Common Stock or common stock equivalents at a liability has been incurred andprice lower than the amountthen-current Conversion Price of the assessment canSenior Note. Upon any stock splits, reverse stock splits, distributions, stock dividends, or other similar event, the Investor will be reasonably estimated.

NOTE 7 – GOING CONCERN

entitled to participate in such an event on an “as converted” basis. The accompanying Consolidated Financial Statements have been prepared onSenior Note is subject to a going concern basis, which contemplates“conversion blocker” such that the realizationInvestor cannot convert any portion of assets and the settlement of liabilities and commitmentsSenior Note that would result in the normal courseInvestor and its affiliates holding more than 4.99% of business. As reflectedthe then-issued and outstanding shares of our 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 12% 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 accompanying Consolidated Financial Statements, duringSenior Note). Interest is payable in cash on the one month ended January 31, 2021,maturity date or, in shares of the Company incurred a net loss of $3,467, used cashCommon Stock at the then-current Conversion Price if the Investor converts the Senior Note or otherwise accelerates the maturity date, as provided for in operations of $26,696the Senior Note.

At our option, we have the right to redeem, in full, the outstanding principal and had a stockholders’ deficit of $659,519interest under the Senior Note prior to its maturity date; provided, that, as of January 31, 2021. As reflectedthe date of the then-holder’s receipt of the redemption notice, there has not been an Event of Default. We 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”). We must provide seven Trading Days’ (as such term is defined in the accompanying Consolidated Financial Statements, during the year ended December 31, 2020, the Company incurred a net loss of $628,469, used cash in operations of $584,438 and had a stockholders’ deficit of $656,052 as of December 31, 2020.

The Company attributes this lossSenior Note) prior notice to the Company being impacted bythen-holder of the COVID-19 pandemic duringSenior Note of our intent to make a redemption. If such notice of redemption is received six months after the fiscal year 2020 and duringIssue Date, the first month of fiscal year 2021. The COVID-19 delayedthen-holder has the distribution of products during most of 2020 – drink line broadening items. In addition, the Company finalized its acquisition in January 2021, and sales were reduced during this time. See Note 9, Subsequent Events.


As a result, the Company’s continuation as a going concern is dependent on the abilityright to obtain additional financing until we can generate sufficient cash flow from operations to meet our obligations. Were we not acquired, we would have continued to seek additional debt or equity financing to continue our operations. There is no assurance that we will ever be profitable or that debt or equity financing would have been available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. Obtaining commercial loans, assuming those loans would have been available, would have increased our liabilities and future cash commitments. If we were unable to obtain financing or be acquired in the amounts and on terms deemed acceptable to us, we would have been unable to continue our business, as planned, and as a result might have been required to scale back or cease operations for our business, the result of which would be that our stockholders would have lost someconvert any or all of their investment.such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of the Senior Note prior to such redemption.

Further, commencing on May 10, 2023, and continuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to the sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and payable on May 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. However, if we have made a per-case redemption payment to the holder pursuant to the terms of the “Mast Hill Debenture 2”, then, for such month, the mandatory payment under this Senior Note is waived. The accompanying Financial Statementsabove-referenced seven trading days’ prior notice and conversion provisions do not includeapply to any adjustments that might be necessary if the Company were unable to continue as a going concern.

NOTE 8 – CONCENTRATIONS

The Company has certain customers whose revenue individually represented 10% or more of the Company’s total revenue, or outstanding accounts receivable individually represented 10% or moremandatory redemption payments.

We also granted the Warrant to purchase up to an aggregate of the Company’s total outstanding accounts receivable, as follows:28,600,000 Warrant Shares. The Warrant has a five-year term and is immediately exercisable at an exercise price of $0.003 per share, subject to adjustment and is exercisable by the then-holder on a “cashless” basis.

ForThe Warrant contains an adjustment provision that, subject to certain exceptions, reduces the one month ended January 31, 2021, no customers individually represented 10%exercise price if we issue shares of our Common Stock or morecommon stock equivalents at a price lower than the then-current exercise price of the Company’s total revenue,Warrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and four customers accounted for 100%, or $33,718,asset sales, stock dividends, and similar events will result in an equitable adjustment of the outstanding accounts receivable,exercise price of the Warrant and, in certain circumstances, the Company has recordednumber of Warrant Shares. The Warrant is subject to an allowance for uncollectible accounts“exercise blocker,” such that the Investor cannot exercise any portion of $24,280. The net accounts receivable for the year ending December 31, 2020 is $9,438Warrant that would result in the accompanying balance sheet. For the year ended December 31, 2020, three customers individually represented 77%, or approximately $255,300Investor and its affiliates holding more than 4.99% of the Company’s total revenue,then-issued and four customers accountedoutstanding shares of our Common Stock following such exercise (excluding, for 100%, or $33,718,purposes of such determination, shares of the outstanding accounts receivable, and the Company has recorded an allowance for uncollectible accounts of $24,280. The net accounts receivable for the year ending December 31, 2020 is $9,438 in the accompanying balance sheet.

The Company had certain vendors that individually represented 10% or moreCommon Stock issuable upon exercise of the Company’s inventory purchases, as follows:

For the one month ended January 31, 2021 balance sheet, the Company did not purchase any inventory from any vendor.. For the year ended December 31, 2020 balance sheet, the Company purchased 100%Warrant or conversion of the Company’s inventory from three vendors, of which $4,365 amount was due to these vendors.Senior Note that had not then been exercised or converted, respectively).

F-23

 

NOTE 9 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through May 17, 2021, the date which the January 31, 2021 Financial Statements were issued, and has determined the following events have occurred that would warrant additional disclosure:

(1)In December 2019, a novel strain of coronavirus was reported to have surfaced in Wuhan, China. In January 2020, the WHO declared the COVID-19 outbreak a “Public Health Emergency of International Concern.” This worldwide outbreak has resulted in the implementation of significant governmental measures, including lockdowns, closures, quarantines, and travel bans intended to control the spread of the virus. Companies are also taking precautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses and facilities. These restrictions, and future prevention and mitigation measures, have had an adverse impact on global economic conditions and are likely to have an adverse impact on consumer confidence and spending, which could materially adversely affect the supply of, as well as the demand for, the Company’s products. Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil, which could also negatively impact the Company’s business, financial condition, and cash flow.


The extent of the effect of COVID-19 on the Company’s operational and financial performance will depend on future developments, including the duration, spread, and intensity of the outbreak, all of which are uncertain and difficult to predict considering the rapidly evolving landscape. As a result, it is not currently possible to ascertain the overall impact of COVID-19 on the Company’s business. However, if the pandemic continues for a prolonged period, it could have a material adverse effect on the Company’s business, results of operations, financial condition, and cash flow.

The extent to which the COVID-19 pandemic will further impact the Company’s business will depend on future developments and, given the uncertainty around the extent and timing of the potential future spread or mitigation and around the imposition or relaxation of protective measures, the Company cannot reasonably estimate the impact to its business at this time.

(2)On January 21, 2021, the Company entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Kona Gold Beverage, Inc. (“Kona Gold”), pursuant to which it acquired all of the capital stock of the Company. The parties to the Merger Agreement are (i) Kona Gold, (ii) KGS Temporary Company, Inc., a wholly-owned subsidiary of Kona Gold (“Acquisition Subsidiary”), (iii) the Company, (iv) William J. Stineman and K&L Beverage, LLC (as the indemnifying parties on behalf of the Company’s shareholders), and (v) Mr. Stineman (as representative of the Company’s shareholders). As a result of the transactions contemplated by the Merger Agreement, the Company merged with and into the Acquisition Subsidiary. The Company was the surviving entity and became Kona Gold’s wholly-owned subsidiary. The Merger Agreement contains customary representations, warranties, covenants, and agreements of the parties, including certain indemnification rights in favor of Kona Gold that are customary for a transaction of that nature and magnitude. The two individual members of K&L Beverage, LLC, agreed to guarantee its indemnification obligations. To consummate the Acquisition, a Certificate of Merger was filed with the Wisconsin Department of Financial Institutions (the “Merger Certificate”) on February 1, 2021.
In consideration of the transactions contemplated by the Merger Agreement, Kona Gold issued to the Company’s shareholders an aggregate of nine million restricted shares of its common stock (the “Acquisition Stock”) on a pro rata basis. Kona Gold did not grant any registration rights in respect of the shares of Acquisition Stock. Kona Gold also agreed to pay an aggregate of $1,050,000 (the “Aggregate Acquisition Payments”), the majority of which is allocated to certain of the Company’s creditors (including one of the Company’s legacy shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is allocated to the Company’s shareholders on a pro rata basis. $400,000 of the Aggregate Acquisition Payments were paid by February 11, 2021. The balance of the Aggregate Acquisition Payments, including the Remaining 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, now named OOH LA Lemin, that Kona Gold and the Company sells until the Aggregate Acquisition Payments have been paid in full. In addition to the Aggregate Acquisition Payments, Kona Gold assumed and agreed to pay certain other liabilities of the Company as set forth in the Merger Agreement.


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

KONA GOLD BEVERAGE, INC. 

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months ended March 31, 2021, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the Unaudited consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”).

Note about Forward-Looking Statements

This Quarterly Report on Form 10-Q includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “intends,” “plans,” “expects,” or “anticipates,” and do not reflect historical facts.

Specific forward-looking statements contained in this portion of the Quarterly Report include, but are not limited to: (i) statements that are based on current projections and expectations about the markets in which we operate, (ii) statements about current projections and expectations of general economic conditions, (iii) statements about specific industry projections and expectations of economic activity, (iv) statements relating to our future operations, prospects, results, and performance, (v) statements about the Chapter 11 Case, (vi) statements that the cash on hand and additional cash generated from operations together with potential sources of cash through issuance of debt or equity will provide the Company with sufficient liquidity for the next 12 months, and (vii) statements that the outcome of pending legal proceedings will not have a material adverse effect on business, financial position and results of operations, cash flow or liquidity.

Forward-looking statements involve risks, uncertainties and other factors, which may cause our actual results, performance or achievements to be materially different from those expressed or implied by such forward-looking statements. Factors and risks that could affect our results, future performance and capital requirements and cause them to materially differ from those contained in the forward-looking statements include those identified in our 2020 Form 10-K under Item 1A “Risk Factors”, as well as other factors that we are currently unable to identify or quantify, but that may exist in the future.

In addition, the foregoing factors may generally affect our business, results of operations and financial position. Forward-looking statements speak only as of the date the statements were made. We do not undertake and specifically decline any obligation to update any forward-looking statements. Any information contained on our websites www.konagoldbeverage.com, www.konagoldhemp.com, www.highdrateme.com, and www.goldleafdist.com or any other websites referenced in this Quarterly Report are not part of this Quarterly Report.


The following discussion and analysis of the results of operations and financial condition for the three and six months ended March 31, 2021June 30, 2023 and March 31, 20202022 should be read in conjunction with the financial statements and related notes and the other financial information that are included.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 Registration Statement.Annual 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 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 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.thereto which are included in this Annual 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; however, ingrow significantly. In the yearsix months ended December 31, 2020,June 30, 2023, the Company saw unforeseen delaysa slight increase in signing more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains and we were additionally impacted bygrowth compared to the COVID-19 pandemic duringsame period of the fiscal year.prior year period. The COVID-19 delayed the Company’s launch of aCompany continues to increase our product variety, commencement of new products during most of the 2020 fiscal year – drinksdistribution contracts, and non-drink line broadening items. Our Beverages Segment has three mainexpand our footprint as a national brand.

We derive our revenue streams: product sales from online consumers, product sales through resellers, and product sales from distributors. In the first quarter of fiscal year 2021, we expanded our beverages segment with the acquisition of an additional beverage company, expanding our product line. Product sales include sales of our energy drinks, HighDrate CBD-infused energy waters, lemon-flavored beveragesproducts to online consumers, to resellers, and apparel such as t-shirts and hats. In early 2019, we expanded our operations with the creation of a distribution center, which now functions as our Distribution Segment. Our Distribution Segment has one main revenue stream: productto distributors, Product sales to resellers include sales to convenience stores, grocery stores, orand smoke and gift shops whichthat complement our current product offering. Product sales to distributors include sales of our beverages, as well as beveragesOoh La Lemin lemonade, our energy drinks, and snacks purchased for resale from severalour HighDrate CBD-infused energy waters. We also distribute our products and other beverage producers.companies’ products at retail.

We have experienced and expect to continue to experience substantial growth in our operations as we seek to expand withthrough additional products and acquisitions that complement our current product offerings. We expect that revenue will increase in fiscal year 2021 as distribution related2023 compared to our current distributors affected by COVID-19 that have resumed distribution, will continue to see fewer impacts from the COVID-19 pandemic going forward. Despite the impact from COVID-19 on our revenues in the fiscal year 2020, we still anticipate to sign larger,2022, as the Company anticipates signing more favorable agreements with larger, reputable tier 1 and mid-size distributors, in our Beverages Segment during fiscal 2021.Thebig box stores, and grocery chains. The following is a more detailed discussion of our financial condition and results of operations for the period presented.

Three Months Ended March 31, 2021ended June 30, 2023 compared to the Three Months Ended March 31, 2020ended June 30, 2022

Overview

As reflected in the accompanying financial statements, during the three months ended March 31, 2021,June 30, 2023, we incurred a net loss of approximately $1.8$1.5 million, and used cash in operations of approximately $424,400, compared to a net loss of approximately $594,900 and used cash in operations of approximately $260,000$1.4 million for the three months ended March 31, 2020.June 30, 2022. As of March 31, 2021,June 30, 2023, we had a stockholders’ deficit of approximately $4.1$5.2 million. The financial statements of our newly acquired lemon-flavored beverages subsidiary are consolidated into the accompanying financial statements for the months of February and March 2021.

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

1

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 March 31,  
  2021 2020  
Revenue Source Revenue Revenue % Change
Distributors $243,788  $107,292   127%
Amazon  38,502   27,358   41%
Online Sales  18,204   11,189   63%
Gold Leaf Distribution  180,217   54,836   229%
Shipping  5,110   5,006   2%
Sales Returns and Allowances  (23,413)  (3,624)  546%
Net Revenues $462,408  $202,057   129%


  Three Months Ended
June 30,		    
  2023  2022    
Revenue Source Revenue  Revenue  % Change 
Distributors $119,143  $219,790   (46)%
Amazon  11,855   44,565   (73)%
Online Sales  5,019   13,709   (63)%
Retail  820,613   927,614   (12)%
Shipping  989   4,420   (78)%
Sales Returns and Allowances  (28,100)  (36,700)  (23)%
Net Revenues $929,519  $1,173,398   (21)%

The following table presents our net revenues by revenue source, as a percentage of total net revenuesproduct lines for the periodsperiod presented:

  Three Months Ended March 31,
Revenues 2021 2020
Distributors and Resellers  53%  53%
Amazon  8%  14%
Online Sales  4%  6%
Gold Leaf Distribution  39%  27%
Shipping  1%  2%
Sales Returns and Allowances  (5)%  (2)%
  Three Months June 30,    
  2023  2022    
Product Line Revenue  Revenue  % Change 
Energy Drinks $3,700  $50,792   (93)%
CBD Energy Waters  18,738   17,249   9%
Lemonade Drinks  113,579   209,976   (46)%
Apparel  -   47   (100)%
Retail  820,613   927,614   (12)%
Shipping  989   4,420   (78)%
Sales returns and allowance  (28,100)  (36,700)  (23)%
Net Revenues $929,519  $1,173,398   (21)%

During the three months ended March 31, 2021,June 30, 2023, we reported net revenues of approximately $462,400,$929,519, which is an increasea decrease of approximately $260,400,$243,879, or approximately 129%21%, compared to net revenues of approximately $202,100$1.2 million for the three months ended March 31, 2020. An increaseJune 30, 2022. A decrease of approximately $130,200 was attributed$107,001 of our revenue is attributable to our Beverages Segment,decreased retail revenue, while our Distribution Segment reported an increaseremaining net revenue decreased in net revenue ofby approximately $125,500.$136,878. We attribute thisthe decrease in retail revenue to a loss of a vendor that we purchase certain products from and the subsequent loss in distribution to customers that we sold those products to. We attribute the decrease in remaining net revenue to delays in production of the Company’s product line. We expect that our remaining net revenue will increase in salesthe remaining fiscal year 2023 compared to an effort to signfiscal year 2022. Additionally, the Company anticipates signing more favorable agreements with larger, reputable tier 1 and mid-size distributors, big box stores, and grocery chains. These contracts saw unforeseen delays and were additionally impacted by the COVID-19 pandemic during the fiscal year. The COVID-19 delayed the Company’s launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. We expectIn addition, we anticipate that revenue will increase in the last three quarters of the fiscal year 2021 as distribution related to our current distributors affected by COVID-19 that have resumed distribution,retail revenue will continue to see fewer impacts from the COVID-19 pandemic going forward. We anticipateincrease as we broaden our customer base with increased distribution to sign larger, more favorable agreements with larger, tier 1additional grocery and mid-size distributors in our Beverages Segment during the remaining three quarter of fiscal 2021.We also attribute this increase to the acquisition of a beverage company that broadened our drink product line in our Beverages Segment. In addition, we have continued to add drink and non-drink line broadening products to our Distribution Segment.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.

2

During the three months ended March 31, 2021,June 30, 2023, we reported cost of revenues of approximately $313,900,$742,689, which is an increasea decrease of approximately $168,000,$142,830, or approximately 115%16%, compared to approximately $146,000$885,517 for the three months ended March 31, 2020.June 30, 2022. This increasedecrease is attributed to an increasethe decrease in sales in both our Beverages Segmentproducts and Distribution Segmentretail distribution in the first quarter of fiscal 2021,2023, compared to the prior year period. The cost of sales increaserevenues decrease was slightly belowless than the increasedecrease in sales.revenues. This is primarily attributed to broadeningdecreased costs in obtaining our product lineingredients for our products, for production of our products, and for shipping our products. We expect that we will continue to see comparable cost of revenues to the revenues in boththe remaining fiscal year 2023. In addition, as the cost of shipping our Beverages Segmentproducts 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 Distribution Segment with drinksproducts. We continue to seek alternative methods to reduce costs for production and non-drinkthe cost of shipping our products with higher consumer demand, and a reduction in cost for larger purchase quantities.fiscal year 2023.

Selling, General and Administrative Expenses

Selling, General and Administrative Expenses (“SG&A&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.


SG&A Selling, general and administrative expenses were approximately $569,000 for the three months ended March 31, 2021, compared to approximately $647,200 millionincreased in the three months ended March 31, 2020, a decrease of $78,200, or approximately 12%. The decrease in SG&A expenses was primarily due to a decrease in salaries and wages of 52% attributed to our Beverages Segment; a decrease in legal and accounting fees of 21% attributed to our corporate-related activities; and a decrease in advertising and promotion of 25% attributed to our Beverages Segment. This decrease was offset by a significant increase in professional fees of 11,900% attributed to our corporate related activities; a significant increase in insurance of 285% attributed to both our Beverages Segment and our Distribution Segment; an increase of 13% in rent expense attributed to both our Beverages Segment and our Distribution Segment; and a 285% increase in OTCM fees attributed to corporate-related expenses.

Salaries and wages were approximately $212,000 in the three months ended March 31, 2021, comparedJune 30, 2023, to approximately $443,000 for the three months ended March 31, 2020,$927,719 from approximately $1,031,515, a decrease of approximately $231,000, which was attributed to our Beverages Segment. This$103,796 over the same period last year. The decrease was the result of issuance of shares of the Company’s common stock made in the prior year to employees pursuant to their agreements. Legal and accounting fees were approximately $51,500 for the three months ended March 31, 2021, a decrease of approximately $14,000, which was attributed to our corporate related activities. This decrease was the result of audit relateddriven by decreased operating expenses in the prior year. Advertising and promotional fees were approximately $7,900 in the three months ended March 31, 2021, compared to approximately $10,500 for the three months ended March 31, 2020, a decrease of approximately $2,600, which was attributed to our Beverages Segment. This decrease was the result of slower sales during the first month of fiscal 2021 as distributionassociated with lower advertising costs, legal expense related to our current distributors continued to be affected by COVID-19. Insurance expense was approximately $22,700 for the three months ended March 31, 2021, compared to approximately $5,000 for the three months ended March 31, 2020, an increase of approximately $17,700. This increase was attributed to both our Beverages Segmentcorporate activity, and our Distribution Segmentrent, vehicle, and the result of signing larger, more favorable agreementsshipping expenses associated with larger, tier 1 and mid-size distributors and customers. Rent expenses were approximately $37,700 for the three months ended March 31, 2021, compared to approximately $33,300 for the three months ended March 31, 2020, an increase of approximately $4,400. This increase was attributed to both our Beverages Segment and our Distribution Segment and the resultclosing one of our movingdistribution facilities and partially offset by salaries and wages. We expect that, as we expand our business operations, SG&A expenses will continue to a larger warehouse facility that was necessary due to our anticipated growth. OTCM fees attributed to corporate-related expenses were approximately $26,200 for the three months ended March 31, 2021, compared to approximately $6,800 for the three months ended March 31, 2020, an increase of approximately $19,400. This increase was the result of fees paid to the OTCM to have our Common Stock quoted on the OTCQB versus the OTC Pink.increase.

We expect that as we expand our business operations and continue to incur additional corporate-related expenses associated with having our Common Stock quoted on the OTCQB and being required to file certain reports and other informationstatus as a fully registered issuer with the SEC under the Securities Exchange Act of 1934, SG&A expenses will increasecontinue to increase.

Other Income and Expenses

Other expense for both our Beverages Segment and Distribution Segment. We anticipate hiring additional personal in fiscal 2021 that are integralthe three months ended June 30, 2023 was approximately $790,680, as compared to other expense of approximately $644,891 for the three months ended June 30, 2022. The change was attributable to the successdecrease in interest expense of our growing Company.approximately $152,912 related to decreased debt levels and debt amortization, the decrease in the change in the fair value of derivative liabilities of approximately $122,000, a decrease in the loss on debt extinguishment of approximately $34,116 and was offset with the recording of financing costs of approximately $160,000 in the current period, which did not occur in the prior period.

Net Loss

We incurred a net loss of approximately $1.8$1.5 million for the three months ended March 31, 2021,June 30, 2023, an increase of approximately $1.3 million$143,041 compared to the previousprior year three months ending March 31, 2020,period in which hadwe incurred a net loss of approximately $595,000$1.4 million. This net loss is primarily corporate-relateddue to a slight increase in other expenses that are necessary for our growth, which include interest expense relatedand offset by a slight decrease in SG&A expenses, as discussed above.

Six Months ended June 30, 2023 compared to Three Months ended June 30, 2022

Overview

As reflected in the Warrant issued in connection with the Debentures and non-cash expense on our derivative liability. The fair value of the Debentures will be re-measured each reporting period until the Debentures are either converted or expire. In each reporting periodaccompanying financial statements, during the term of the Debentures, the change in the fair value will either be recognized as a non-cash expense or non-cash income. The change in the fair value of the Debentures is not impacted by our actual operations but instead is strongly tied to the change in the market value of our Common Stock.

Segments – Three Months Ended March 31, 2021 and 2020

For the threesix months ended March 31, 2021June 30, 2023, we incurred a net loss of approximately $3.1 million and 2020, we had two reportable segments: (i) Beverages Segment and (ii) Distribution Segment. Amounts that are not allocated to either of these reportable segments is reportedused cash in “Corporate and Eliminations.” We evaluate performance and allocate resources based on net revenue, cost of revenues, and gross profit. Information regarding the operations of these reportable segments is as follows:


  Three Months Ended
Unaudited Segment Financial Data March 31, 2021 March 31, 2020
Net revenue:        
Beverages $310,093  $179,927 
Distribution  180,351   54,836 
Corporate and Eliminations  (28,036)  (32,706)
Net revenue $462,408  $202,057 
         
Cost of Revenues:        
Beverages $193,369  $138,063 
Distribution  128,750   40,610 
Corporate and Eliminations  (8,199)  (32,706)
Cost of Revenues $313,920  $145,967 
         
Gross Profit:        
Beverages $116,724  $202,057 
Distribution  51,601   145,967 
Corporate and Eliminations  (19,837)  — 
Gross Profit $148,888  $56,090 

Liquidityapproximately $585,260, compared to a net loss of approximately $4.9 million and Capital Resources

Going Concern

We have incurred operating losses since inception and have negativeuse of cash flow fromin operations since inception.of approximately $1.6 million for the six months ended June 30, 2022. As of March 31, 2021,June 30, 2023, we had a stockholders’ deficit of approximately $4.1$5.2 million.

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

3

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,    
  2023  2022    
Revenue Source Revenue  Revenue  % Change 
Distributors $315,090  $413,107   (24)%
Amazon  24,918   80,089   (69)%
Online Sales  10,254   22,316   (54)%
Retail  1,916,696   1,719,015   11%
Shipping  1,958   5,802   (66)%
Sales Returns and Allowances  (64,500)  (71,800)  (10)%
Net Revenues $2,204,416  $2,168,529   2%

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

  Six Months June 30,    
  2023  2022    
Product Line Revenue  Revenue  % Change 
Energy Drinks $12,356  $118,574   (90)%
CBD Energy Waters  21,431   41,588   (48)%
Lemonade Drinks  316,475   354,238   (11)%
Apparel  -   112   (100)%
Retail  1,916,696   1,719,015   11%
Shipping  1,958   5,802   (66)%
Sales returns and allowance  (64,500)  (71,800)  (10)%
Net Revenues $2,204,416  $2,168,529   2%

During the six months ended June 30, 2023, we reported net revenues of approximately $2.204 million, which is an increase of approximately $35,887, or approximately 2%, compared to net revenues of approximately $2.169 million for the three months ended June 30, 2022. An increase of approximately $197,681 of our revenue is attributable to increased retail revenue, while our remaining net revenue decreased in net revenue by approximately $161,794. We attribute the increase in retail revenue to obtaining larger retail chains, and attaining a larger percentage of the territory in which the Company distributes. We attribute the decrease in remaining net revenue to delays in production of the Company’s product line. We expect that our remaining net revenue will increase in the remaining fiscal year 2023 compared to fiscal year 2022. Additionally, 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

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.

4

During the six months ended June 30, 2023, we reported cost of revenues of approximately $1.7 million, which is a decrease of approximately $5,847, or approximately 0%, compared to approximately $1.7 for the six months ended June 30, 2022. This is comparable to the prior year period. The cost of revenues decrease was less than the decrease in revenues. This is primarily attributed to decreased costs 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 comparable cost of revenues to the revenues in the remaining fiscal year 2023. 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 2023.

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 six months ended June 30, 2023, to approximately $2.2 million from approximately $2.0, an increase of approximately $230,829 over the same period last year. The increase was driven by increased operating expenses associated with hiring additional sales employees, professional fees, and expired product and partially offset by lower advertising, shipping expenses, travel expenses, legal fees, and rent associated with the closing of one of distribution warehouses. 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, SG&A expenses will continue to increase.

Other Income and Expenses

Other expense for the six months ended June 30, 2023 was approximately $1.4 million, as compared to other expense of approximately $3.4 million for the six months ended June 30, 2022. The change was attributable to the decrease in the change in the fair value of derivative liabilities of approximately $1.7 million, which did not occur in the current period, and a decrease in the loss on debt extinguishment of approximately $359,520, and was offset with increase in in the recording of financing costs of approximately 3,000, and an increase in interest expense of approximately $15,608 related to increased debt levels and debt amortization.

Net Loss

We incurred a net loss of approximately $3.1 million for the six months ended June 30, 2023, a decrease of approximately $1.8 million compared to the prior year period in which we incurred a net loss of approximately $1.8 million during the three months ended March 31, 2021. We also utilized cash$5.0 million. This decrease in operations of approximately $424,400 during the three months ended March 31, 2021. Asnet loss is primarily due to a result, our continuationsignificant decrease in other expenses, 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.discussed above.

Our consolidatedLiquidity and Capital Resources

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which implies we maycontemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, in the six months ended June 30, 2023, the Company recorded a net loss of $3,127,123 and used cash in operations of $585,260 and had a stockholders’ deficit of $5,236,830 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. In addition, the Company’s independent registered public accounting firm, in its report on our December 31, 2022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The ability of the Company to meet our obligationscontinue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue our operations foras a going concern.

5

At June 30, 2023, the next fiscal year.Company had cash on hand in the amount of $97,158. The continuation of ourthe Company as a going concern is dependent upon ourits ability to obtain necessary debt or equity financing to continue operations until we beginit begins generating positive cash flow.

There is no No assurance can be given that we will ever be profitable or that debt or equityany future financing will be available or, if available, that it will be on terms that are satisfactory to usthe Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuancecase of additional equity securities by us would result in a significantdebt financing or cause substantial 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,stockholders, in case or equity financing.

Notes Payable

Notes payable consists of 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 recoverabilityfollowing at June 30, 2023 and classification of assets or the amounts and classifications of liabilities that may result should we be unable to continue as a going concern.December 31, 2022:

  

June 30,

2023

  December 31,
2022		 
       
Note payable (a) $23,702  $26,994 
Note payable (b)  41,694   44,550 
Note payable (c)  39,343   40,103 
Note payable (d)  205,576   250,000 
Note payable (e)  418,567   626,388 
Note payable (f)  68,283   - 
Note payable (g)  137,278   - 
Note payable (h)  110,000   - 
Note payable (i)  247,629   - 
Note payable (j)  16,206   - 
Total notes payable  1,308,278   988,035 
Less debt discount  (160,572)  (218,481)
Total notes payable, net  1,147,706   769,554 
Notes payable, current portion  (1,089,692)  (712,499)
Notes payable, net of current portion $58,014  $57,055 

Lines of Credit

Since inception, we have financed our operations primarily through internally generated funds, private sales of stock, accruals of compensation, and the use of our lines of credit. In summary, our lines of credit are as follows:


  Total Amount Available Interest Rate
(per annum)		 

Outstanding Principal Balance

as of
March 31, 2021

 Accrued Interest as of March 31, 2021
Kona Gold Line of Credit #1 – Related Party $1,500,000   3.75% $1,372,651  $48,757 
Kona Gold Line of Credit #2a $400,000   3.75% $398,470  $35,787 
Gold Leaf Line of Credit – Related Party $200,000   3.75% $125,500  $4,706 

(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, 2022, the loan balance was $26,994. During the six months ended June30, 2023, the Company made principal payments of $3,292, leaving a loan balance of $23,702 at June 30, 2023.
This line
(b)On September 30, 2022, the Company financed the purchase of credita 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. At December 31, 2022, the loan balance was provided$44,550. During the six months ended June 30, 2023, the Company made principal payments of $2,856, leaving a loan balance of $41,694 at June 30, 2023.
(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 Matthew Nicoletti, an otherwise unaffiliated third party to whom we previously sold and issued certain shares of our Series B Preferred Stock (as then constituted) and Series C Preferred Stock (as then constituted), all of which have been converted into shares of our Common Stock and sold into the public market. Mr. Nicoletti is no longer the record or beneficial owner of any of our equity. There was no connection between our prior equity transactions with Mr. Nicoletti and our entry into this line of credit.

Notes Payable – Related Party

We had the following outstanding notes payable from a related party during the three months ended March 31, 2021:

Note (1) Issuance Date Original Borrowing Amount Interest Rate Maturity Date Largest Outstanding Balance since January 1,
2018		 Outstanding Balance as of March 31, 2021
Long-term Loan – Kona Gold October 31, 2018 $20,000   0% April 4, 2022 $20,000  $7,000 
Long-term Loan – Gold Leaf February 19, 2019 $70,000   0% March 15, 2022 $70,000  $58,000 

(1)Each of the notes payable was issued by us in favor of Robert Clark, ourthe Company’s President, Chief Executive Officer, Secretary, and Chairman of ourthe 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 hf 11.50% per annum. The line of credit matures in 2023, at which time all outstanding principal amounts and accrued interest are due and payable. As of June 30, 2023 and December 31, 2022, the outstanding principal was $39,343 and $40,103, respectively, which was recorded as the current portion of loan payable on the accompanying Consolidated Balance Sheet.

6

(d)

On March 25, 2022, the Company entered into a secured debenture with an otherwise unaffiliated individual in the principal amount of $250,000 that was due on March 23, 2023. On March 23, 2023, the Company entered into a First Amendment to Secured Debenture (the “First Amendment”) to amend a Secured Debenture (the “Debenture”), dated as of March 25, 2022. The Debenture is amended and restated in its entirety with the following terms (i) maturity date was extended to March 24, 2024; (ii) interest accrues on the outstanding principal at a rate equal to 12% per annum; (iii) monthly payments of principal and interest shall be made in the amount of $22,212, starting April 24, 2023 until the maturity date, at which date the entirety of the balance of principal plus interest is due. The secured debenture is secured by nine identified motor vehicles of the Company. At December 31, 2022, the outstanding balance of the secured debentures amounted to $250,000. During the six months ended June 30, 2023, the Company made principal payments of $44,424, leaving a loan balance of $ 205,576 at June 30, 2023.

In connection with the issuance of the original debenture in 2022, 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. At December 31, 2022, the unamortized debt discount was $31,531. During the six months ended June 30, 2023, the Company amortized debt discount of $31,531 to interest expense on the loan, leaving no remaining unamortized debt discount at June 30, 2023.
(e)

During the year ended December 31, 2022, the Company entered into secured non-interest-bearing advance agreements with unaffiliated third parties for the purchase of future receipts/revenues. Under the agreements, the Company received an aggregate lump sum payment of $561,957, and, in return, the purchaser received a secured right to collect a fix sum of future receipts/revenue of $798,456 to be collected by the Company. During the six months ended June 30, 2023, the Company entered into additional secured non-interest bearing advance agreements for which the Company received an aggregate lump sum payment of $501,000, and, in return, the purchaser received a secured right to collect a fix sum of future receipts/revenue of $597,500 to be collected by the Company. In accordance with the agreements, 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 dates of the agreements 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 agreements require aggregate daily to weekly payments ranging from $1,291 to $1,958 The Company’s obligations under the agreements are secured by the assets described above, and guaranteed by Robert Clark, the Company’s Chief Executive Officer. As of December 31, 2022, the outstanding balance to be paid amounted to $626,388. During the six months ended June 30, 2023, the Company entered into additional agreements of $512,500, and made payments of $720,323, leaving an aggregate outstanding amount to be paid of $418,567 at June 30, 2023.

During the year ended December 31, 2022, upon execution of the advance and receipt of funds, the Company recorded the difference of $236,499 between the cash collected and the face amount of the obligation as a “note discount” and will amortize the “note discount” as interest expense over the life of the advance. At December 31, 2022, the unamortized “note discount” was $186,950. During the six months ended June 30, 2023, the recorded an additional unamortized “note discount” of $191,150 related to new advance agreements, and the Company amortized “note discount” of $259,059 to interest expense on the obligation. As of June 30, 2023, the unamortized “note discount” was $150,572.

(f)On March 9, 2023, the Company entered into a Line of Credit Agreement with American Express National 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 $85,000. Advances under this line of credit bear interest at the rate of 19.32% per annum. The line of credit matures on September 9, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. The line of credit requires minimum monthly payments of $5,572. At June 30, 2023, the outstanding principal was $68,283.
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(g)

On March 7, 2023, the Company entered into a Line of Credit Agreement with Celtic 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 $200,000. Advances under this line of credit bear interest at the rate of 35.90 percent per annum. The line of credit matures on March 7, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. At June 30, 2023, the outstanding principal was $137,278.

(h)On June 30, 2023, the Company entered into a note payable with IQ Financial, Inc. in the principal amount of $110,000, with an original issue discount of $10,000, resulting in net proceeds for $100,000. The note has no stated interest and is due on July 31, 2023. For so long as the note remains unpaid, the Company shall pay within two days of receipt of customer payments on specific customer invoices listed in the note payable.
The original issue discount of $10,000 was recorded as a debt discount against the note payable, leaving a $10,000 of remaining unamortized debt discount at June 30, 2023.
(i)On May 15, 2023, the Company entered into a Revolving Credit Agreement (the “Revolver”) with a vendor. The Revolver allows the Company to purchase goods from its vendor time to time. The unpaid principal balance of the Revolver may not exceed $250,000 through May 31, 2023, $225,000 through July 31, 2023, and $200,000 through $200,000 through December 31, 2023, at any one time. The Revolver has a maturity date of December 31, 2023 and bears no interest rate. At June 30, 2023, the outstanding balance of the Revolver was $247,629.
In connection with the issuance of the Revolver, the Company issued to the vendor 28 million shares of the Company’s common stock at a price of $0.0045 per share. The Company determined the fair value of the 28 million shares was $126,000, which was recorded as financing costs in the condensed consolidated statement of operations during the six months ended June 30, 2023.
(j)On June 2, 2023, the Company entered into a note payable with RFMD-LLC in the principal amount of $16,206, with an interest rate of 8% per annum, and a maturity date of December 31, 2023. The note was issued in related to the termination of an operating lease (see Note 10). At June 30, 2023, the outstanding principal was $16,206. original issue discount of $10,000, resulting in net proceeds for $100,000. The note has no stated interest and is due on July 31, 2023. For so long as the note remains unpaid, the Company shall pay within two days of receipt of customer payments on specific customer invoices listed in the note payable.

Note Receivable – Branded LegacyAt December 31, 2022 on item (d), accrued interest on the notes payable was $1,874. During the six months ended June 30, 2023, the Company added $7,995 of additional accrued interest on item (d), leaving $9,689 of accrued interest balance on the notes payable item (d) at June 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

On May 26, 2016, Robert Clark formed Elev8 Hemp, LLC, a Delaware limited liability company (“Elev8 Hemp”), on behalfAs of Ryan Medico, our then-Chief Financial Officer. Mr. MedicoDecember 31, 2022, the unamortized debt discount was $218,481. During the sole ownersix months ended June 30, 2023, the Company added $201,150 of and served as President of Elev8 Hemp.

In June 2016, we entered into a letter of intent with Elev8 Hemp to acquire it, such that it would become our wholly-owned subsidiary. Pursuantdebt discount related to the letterissuance of intent,debentures, and amortized debt discount of $259,059 to interest expense on the loans. As of June 7, 2016, we entered into30, 2023, the unamortized debt discount was $160,652. 

Secured Convertible Debentures

Secured debentures that are payable to an Acquisition Agreement with Elev8 Hemp (the “Elev8 Hemp Acquisition Agreement”), whereby we agreed to acquire 100%otherwise unaffiliated third party consists of the ownership of Elev8 Hemp and, in exchange, we agreed to issue to Mr. Medico five million restricted shares of our Common Stock, which had a fair market value of $50,000. The Elev8 Hemp Acquisition Agreement provided that, if we failed to adequately capitalize the development of Elev8 Hemp to complete its objectives set forth in its business plan, Mr. Medico would have the option until March 31, 2018 to repurchase Elev8 Hemp from us for a purchase price of $50,000, which could be paid in shares of our Common Stock.

On October 10, 2016, we entered into a Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Branded Legacy, to sell 100% of the issued and outstanding membership interests of Elev8 Hemp to Branded Legacy in consideration of Branded Legacy’s issuance to us of 200,000,000 shares of its common stock, par value $0.00001. In connection with this transaction, Mr. Medico became the Chief Executive Officer and sole director of Branded Legacy. The parties desired to enter into the Membership Interest Purchase Agreement because we did not have adequate capital to fund the development of Elev8 Hemp’s business, as well as our own. Until July 2018, Mr. Medico also continued to serve as our Chief Financial Officer.


On April 14, 2017, our Board declared a dividend to our stockholders of an aggregate of 53,196,608 shares of common stock of Branded Legacy. Our stockholders received one share of common stock of Branded Legacy for every 10 shares of our Common Stock held on the record date. On the record date, we had approximately 104 stockholders, all of whom received this dividend. After the payment of the dividend, we held 146,803,392 shares of common stock of Branded Legacy.

On March 6, 2018, we entered into a Securities Exchange and Settlement Agreement (the “First Exchange Agreement”) with Branded Legacy. Pursuant to the First Exchange Agreement, we exchanged with Branded Legacy the remaining 146,803,392 shares of its common stock held by us for 2,746,723 shares of Branded Legacy’s Series D preferred stock. The shares of Series D preferred stock were initially convertible into 164,803,380 shares of Branded Legacy’s common stock.

On November 26, 2019, we entered into a second Securities and Exchange Agreement with Branded Legacy, whereby we exchanged the 2,746,723 shares of Branded Legacy’s Series D preferred stock for its 10-year Promissory Note in our favor in the original principal amount of $1,500,000 (the “Branded Legacy Note”). The Branded Legacy Note is unsecured, non-convertible, and all principal and accrued and unpaid interest thereon is due and payable on November 27, 2029.

In more recent discussions with our independent registered public accounting firm, we determined that the Branded Legacy Note should be classified as a note receivable on our balance sheetsfollowing as of March 31, 2021June 30, 2023 and December 31, 2020, with a full reservation due to current doubts about collectability due to the dollar amount and duration of the term of the Branded Legacy Note, rather than disclosing the note receivable as an “investment” but not recording it on the balance sheets. Because of this re-classification, the Branded Legacy Note is no longer an off-balance sheet arrangement.2022:

  

June 30,

2023

  

December 31,

2022

 
       
Mast Hill Note 1  204,457   595,000 
Mast Hill Note 2  467,912   - 
Mast Hill Note 3  230,000   - 
Mast Hill Note 4  55,707   - 
Less debt discount  (269,114)  (183,940)
Secured debentures, net $688,962  $411,060 

Paycheck Protection Promissory Note and Economic Injury Disaster Loan

8

Mast Hill

On May 4, 2020, we entered into a Paycheck Protection Promissory Note in the original principal amount of $95,161 (the “PPP Loan”) with Wells Fargo Bank, N.A. The PPP Loan was made under, and is subject to, the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The current term of the PPP Loan is two years, with a maturity date of May 6,July 28, 2022, and it contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred for the first six months of the term of the PPP Loan, or November 2020. Thereafter, principal and interest are payable monthly and may be prepaid by us at any time prior to maturity with no prepayment penalties.

In January 2021, the Company entered into a Paycheck Protection Promissory Note in the original principal amount of $117,487 (the “PPP Loan 2”) with Wells Fargo Bank, N.A. The PPP Loan was made under, and is subjectissued senior secured debentures to the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act the (“CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The current term of the PPP Loan is five years, with a maturity date of January 2026 and it contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred for the first six months of the term of the PPP Loan, or November 2020. Thereafter, principal and interest are payable monthly and may be prepaid by us at any time prior to maturity with no prepayment penalties.

Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loan. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. We have used the proceeds of the PPP Loan for salaries and wages, building lease expense, and utilities. However, no assurance is provided that we will be able to obtain forgiveness of the PPP Loan in whole or in part.


In May 2020, we also received an advance in the amount of $7,000 as part of the Economic Injury Disaster Loan program offered by the U.S. Small Business Administration. This advance was received after we filed our application with regarding to the PPP. The advance was not included in any of the documentation related to the PPP Loan. We are in the process of determining how this advance will be included as part of the PPP Loan forgiveness.

2020 Securities Purchase Agreement

In May 2020, the Company completed the 2020 Private Placement of the 2020 Debentures and the 2020 Warrant pursuant to the 2020 SPA with an otherwise unaffiliated third-party investor (the “Selling Stockholder”“Investor”). The Company sold and issued the First 2020 Debenture and granted the 2020 Warrant promptly after entering in the 2020 SPA.aggregate of $595,000. The debentures bear interest at a rate of 10% per annum, mature on July 28, 2023, and is convertible into shares of our common stock at a conversion price of $0.0045 per share. If the Company sold and issuedissues subsequent equity instruments at an effective price per share that is lower than the Second 2020 Debenture promptly after filingconversion price of $0.0045 per shares, then the 2020 Registration Statement initially withconversion price shall be reduced, at the SEC.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 Company sold and issued the Third 2020 Debenture promptly after the SEC declared the Registration Statement effective. The 2020 Debentures are due 12 months from their respective issuance dates and aresenior secured debentures is secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certainthe Security Agreement. The security interest granted to the Investor under the Security Agreement bywas subordinate to the continuing security interest that remains in effect pursuant to the previous grant of a security interest in connection with a then outstanding debenture to an earlier investor all tangible and amongintangible assets. In connection with the Selling Stockholder,issuances of the debentures, the Company granted to the Investor warrants to purchase up to 100 million shares of the Company’s subsidiaries,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 Company. Initially, the 2020 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.05 per share, subject to adjustment (the “2020 Fixed Conversion Price”), or (ii) 80%following (a) relative fair value of the lowest daily volume weighted average price (“VWAP”)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 December 31, 2022, the unamortized debt discount was $183,940. During the six months ended June 30, 2023, the Company amortized debt discount of $157,662 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $26,278.

As of December 31, 2022 the balance due under the obligation was $595,000. During the six months ended June 30, 2023, the Company converted $390,543 of principal and accrued interest into 199,500,000 shares of common stock with a fair value of $888,750 resulting in a loss on extinguishment of debt of $513,520. As of June 30, 2023, $204,247 was due under the note.

Mast Hill Debenture 2

On March 13, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $475,000. The debenture bears interest at a rate of 10% per annum, matures on March 13, 2024, and is convertible into shares of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2020 Market Conversion Price”). The 2020 Debentures contain 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 price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures. The 2020 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2020 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2020 Debentures or exercise of the 2020 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2020 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2020 Debentures or otherwise accelerates the maturity date, as provided for in the 2020 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2020 Debentures) are then satisfied, in shares of the Common Stock at the 2020 Market Conversion Price on the trading day immediately prior to the date paid.$0.0045 per share.

At the Company’sour option, it haswe have the right to redeem, in part or in whole,full, the outstanding principal and interest under the 2020 Debenturesdebenture prior to their respectiveits maturity dates;date; provided, that, as of the date of the holder’sthen-holder’s receipt of the redemption notice, (i) the VWAPthere has not been an Event of the Common Stock is less than the 2020 Fixed Conversion Price, initially $0.05 per share, and (ii) there is no Equity Conditions failure. The CompanyDefault. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a redemption premium equal$750 administrative fee (the “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to 15%the then-holder of the outstanding principal amount being redeemed (the “Redemption Premium”). The Company must provide the holder 15 business days’ advance noticedebenture of itsour intent to make a redemption. If such notice of redemption setting forthis received six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount into shares of principalour Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

Further, commencing on May 10, 2023, and interestcontinuing on the tenth day of each calendar month thereafter, we desire thenare required to redeem plusan amount equivalent to the applicable Redemption Premium.

sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and payable on May 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The 2020 Debentures contain an adjustment provision that, subjectabove-referenced seven trading days’ prior notice and conversion provisions do not apply to certain exceptions, reduces the conversion price if the Company issues sharesany of the Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures.mandatory redemption payments.


Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file the Registration Statement with the SEC registering for resale the Conversion Shares and the Warrant Shares within 45 calendar days following the closing of the 2020 Private Placement. The Company also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by the Company inIn connection with the registrationissuances of the Conversion Shares anddebentures, the Warrant Shares held by the Selling Stockholder.

PursuantCompany granted to the 2020 SPA, theInvestor warrants to purchase price for the First 2020 Debenture was $250,000, less $15,000 for origination fees, which consisted of the “original issue discount” of $10,000 and $5,000 as a structuring fee. On December 23, 2020, the Company converted $100,000 of the principal of, and $12,274 of accrued interest on, the First 2020 Debenture into 8,255,438 shares of the Company’s common stock. On January 25, 2021, the Company converted $150,000 of the principal of, and $1,118 of accrued interest on, the First 2020 Debenture into 7,094,732up to 80 million shares of the Company’s common stock, see Note 11, equity transactions. Atwhich expire on March 31, 2021, no balance remains on any13, 2028. 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 2020 Debentures.warrants granted of $150,000; and (b) original issue discounts and fees of $74,000 of the debentures for a total of $224,000 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the six months ended June 30, 2023, the Company amortized debt discount of $10,839 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $213,161.

As of June 30, 2023, $467,912 was due under the note.

9

Mast Hill Debenture 3

Pursuant

On April 25, 2023, the Company issued an additional senior secured debenture to the 2020 SPA,Investor in the purchase price for the Second 2020 Debenture was $250,000, less $10,000 for origination fees, which consistedaggregate of the “original issue discount”$230,000. The debenture bears interest at a rate of $10,000 fee. On January10% per annum, matures on April 25, 2021, the Company converted $100,000 of the principal of,2024, and $10,410 of accrued interest on, the Second 2020 Debentureis convertible into 5,183,613 shares of the Company’s common stock. On February 19, 2021, the Company converted $150,000 of the principal of, and $855 of accrued interest on, the Second 2020 Debenture into 7,252,634 shares of the Company’sour common stock see Note 11, equity transactions. At March 31, 2021, no balance remains on any of the 2020 Debentures.

Pursuant to the 2020 SPA, the purchase price for the Third 2020 Debenture was $500,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 12, 2021, the Company converted $200,000 of the principal of, and $1,425 of accrued interest on, the First 2020 Debenture into 10.887,819 shares of the Company’s common stock, see Note 11, equity transactions. At March 31, 2021, the principal balance of the Third 2020 Debenture is $300,000. As of the date of this Quarterly Report, no balance remains on any of the 2020 Debentures.

2021 Securities Purchase Agreement

In February 2021, the Company completed a private placement transaction (the “2021 Private Placement”) of two secured convertible debentures (the “2021 Debentures”), convertible for up to 154,958,678 shares (the “2021 Conversion Shares”) of Common Stock and granted a Warrant to purchase Common Stock (the “2021 Warrant”), exercisable for up to 50,000,000 shares of Common Stock (the “2021 Warrant Shares”), pursuant to that certain Securities Purchase Agreement between the Selling Stockholder and the Company, dated as of February 10, 2021 (the “2021 SPA”). The Company sold and issued the initial 2021 Debenture (the “First 2021 Debenture”) and granted the 2021 Warrant promptly after entering in the 2021 SPA. The Company will sell and issue the second 2021 Debenture (the “Second 2021 Debenture”) promptly after the SEC declares effective the 2021 Registration Statement (as defined below). On May 5, 2021, the Company and the Selling Stockholder entered into a Limited Amendment Agreement, pursuant to which the partis agreed to a partial Second Closing, whereby the Selling Stockholder purchased a portion of the intended Second Convertible Debenture in the face amount of $200,000 for a purchase price of $192,000.

The 2021 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the 2021 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.03 per share, subject to adjustment (the “2021 Fixed Conversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2021 Market Conversion Price”). The 2021 Debentures contain 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 price of the 2021 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2021 Debentures. The 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2021 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2021 Debentures or exercise of the 2021 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2021 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2021 Debentures or otherwise accelerates the maturity date, as provided for in the 2021 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2021 Debentures) are then satisfied, in shares of the Common Stock at the 2021 Market Conversion Price on the trading day immediately prior to the date paid.$0.0040 per share.


At the Company’sour option, it haswe have the right to redeem, in part or in whole,full, the outstanding principal and interest under the 2021 Debenturesdebenture prior to their respectiveits maturity dates; date; provided, that, as of the date of the holder’sthen-holder’s receipt of the redemption notice, (i) the VWAPthere has not been an Event of the Common Stock is less than the 2021 Fixed Conversion Price, initially $0.03 per share, and (ii) there is no Equity Conditions failure. The CompanyDefault. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a redemption premium equal$750 administrative fee (the “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to 15%the then-holder of the outstanding principal amount being redeemed (the “Redemption Premium”). The Company must provide the holder 15 business days’ advance noticedebenture of itsour intent to make a redemption. If such notice of redemption setting forthis received six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2021 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2021 Debentures.

Pursuant to the 2021 SPA, the purchase price for the First 2021 Debenture was $900,000, less $41,000 for origination fees, which consisted of the “original issue discount” of $36,000 and $5,000 as a structuring fee. Pursuant to the 2021 SPA, the purchase price for the Second 2021 Debenture will be $600,000, less $24,000 as an “original issue discount.”

In connection with the 2021 Private Placement, the Company also granted the 2021 Warrant to purchase up to an aggregate of 50 million shares of the Common Stock. The 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If the Company fails to maintain an effective registration statement with the SEC covering the resale of the 2021 Warrant Shares, or if an Event of Default (as defined below) has occurred and is continuing, then the holder may exercise the 2021 Warrant on a “cashless” basis. “Event of Default” means an event of default under the 2021 SPA or the 2021 Debentures.

The 2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issuesinto shares of our Common Stock or common stock equivalents at a price lower thanin accordance with the then-current exercise priceconversion provisions of the 2021 Warrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinationsdebenture prior to such redemption.

Further, commencing on May 10, 2023, and assetcontinuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to the sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and payable on May 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales stock dividends,during a relevant month. The above-referenced seven trading days’ prior notice and similar events will also result in an adjustmentconversion provisions do not apply to any of the exercise pricemandatory redemption payments.

In connection with the issuances of the 2021 Warrant.

The 2021 Warrant is subjectdebentures, the Company granted to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion of the 2021 Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstandingInvestor warrants to purchase up to 43.6 million shares of the Common StockCompany’s common stock, which expire on April 25, 2028. The warrants are exercisable at $0.0040 per share. As a result of these issuances and grants, we incurred the following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of the 2021 Warrant or conversion of the 2021 Debentures that had not then been exercised or converted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65 days’ prior written notice to the Company.


Pursuant to the terms of the 2021 Registration Rights Agreement with the Selling Stockholder, the Company agreed to file a registration statement on Form S-1 (the “2021 Registration Statement”) with the SEC registering for resale the 2021 Conversion Shares and the 2021 Warrant Shares within 30 calendar days following the closing of the 2021 Private Placement. The Selling Stockholder has agreed to waive this 30-calendar-day provision for so long as the Company utilized its best efforts to file its Annual Report on Form 10-K for its fiscal year ended December 31, 2020, and promptly thereafter files the 2021 Registration Statement. Further, the Company agreed to use its best efforts to have the 2021 Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the effectiveness deadline, or by the 5th trading day following the date on which the Company is notified that the 2021 Registration Statement will not be reviewed or is no longer subject to further review and comments. Pursuant to the 2021 Registration Rights Agreement, the Company is subject to partial liquidated damages equal to 2.0% of the aggregate purchase price paid by the holder pursuant to the 2021 SPA for either of the 2021 Debentures then held by the holder for failure to file the 2021 Registration Statement timely, failure to file with the SEC a request for acceleration in accordance with Rule 461 promulgated under the Securities Act, within five trading days after the date the Company is notified that the 2021 Registration Statement will not be reviewed or is not subject to further review, the 2021 Registration Statement is not declared effective by the effectiveness deadline, if after effectiveness, the 2021 Registration Statement ceases for any reason to remain continuously effective as required or if the holders are not permitted to utilize the prospectus therein to resell for more than 30 consecutive calendar days or more than an aggregate of 40 calendar days during any 12-month period, or if after the six-month anniversary of the 2021 Registration Rights Agreement, the Company does not have available adequate current public information as set forth in Rule 144(c). The parties agreed that the maximum aggregate liquidated damages payable to a holder of the 2021 Debentures under the 2021 Registration Rights Agreement is 24% of the aggregate purchase price paid by such holder pursuant to the 2021 SPA. The Company also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by the Company in connection with the registration of the 2021 Conversion Shares and the 2021 Warrant Shares held by the Selling Stockholder.

Pursuant to the 2021 SPA, the purchase price for the First 2021 Debenture was $900,000, less $41,000 for origination fees, which consisted of the “original issue discount” of $36,000 and $5,000 as a structuring fee. At March 31, 2021, the principal balance of the First 2021 Debenture is $900,000.

Derivative Liability

The 2020 Debentures and the 2021 Debentures have been accounted for utilizing ASC 815. The Company has incurred a liability for the estimated(a) relative fair value of the 2020 Debentures. The estimated fair valuewarrants granted of $56,000; and (b) original issue discounts and fees of $28,000 of the 2020 Debentures has been calculated usingdebentures for a total of $84,300 which was allocated as debt discount. The debt discount is being amortized to interest expense over the Black-Scholes fair value option-pricing model with key input variables term of the corresponding debentures. During the six months ended June 30, 2023, the Company amortized debt discount of $15,243 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $69,057.

As of June 30, 2023, $230,000 was due under the note.

Mast Hill Debenture 4

On June 14, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $55,706. The debenture bears interest at a rate of 10% per annum, matures on June 14, 2024, and is convertible into shares of our common stock at a conversion price of $0.0040 per share.

At our option, we have the right to redeem, in full, the outstanding principal and interest under the debenture prior to its maturity date; provided by management,, that, as of the date of issuance, with the valuation offset against additional paid in capital, and at each reporting date, with changes in fair value recorded as gains or losses on revaluation in other income (expense). The Company identified embedded features inthen-holder’s receipt of the 2020 Debentures and the 2021 Debentures, which caused the 2020 Debentures and the 2021 Debentures to be classified as a liability. These embedded features included the right for the holder to request for the Company to settle the amounts owed pursuant to the 2020 Debentures and the 2021 Debentures to the holder by payingredemption notice, there has not been an Event of Default. We must pay an amount of cash equal to the Black-Scholes valueprincipal amount being redeemed plus outstanding and accrued interest thereon, as well as a $750 administrative fee (the “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the remaining unexercised portiondebenture of our intent to make a redemption. If such notice of redemption is received six months after the 2020 Debentures andIssue Date, the 2021 Debentures onthen-holder has the dateright to convert any or all of the consummation of a fundamental transaction. The accounting treatment of derivative financial instruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as a derivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balance sheet date.

The derivative liabilities were valued using Black-Scholes pricing model with the following average assumptions:

  March 31, 2021
Stock Price $0.0327 
Exercise Price $0.0276 
Expected Life  1 
Volatility  99.5%
Dividend Yield  0%
Risk-Free Interest Rate  .06%
     
Fair Value $628,018 


The following table summarizes the changes in the Company’s assets and liabilities measured at fair value as of March 31, 2021:

  March 31, 2021 Quoted prices in Active Markets for Identical Assets (Level 1) Significant Other Observable Inputs (Level 2) Significant Unobservable Inputs
(Level 3)
         
Convertible promissory notes with embedded conversion option $627,018     $627,018    
Total $627,018     $627,018    

The following table sets forth a summary of change in fair value of the Company’s derivative liabilities for the quarter ended March 31, 2021:

Fair value, January 1, 2020 $— 
Change in fair value of embedded conversion features of debenture included in earnings  — 
Embedded conversion option liability recorded in connection with the issuance of 2020 debenture  148,628 
 Fair value, June 30, 2020 $148,628 
Change in fair value of embedded conversion features of debenture included in earnings  (39,725)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures  108,903 
 Fair value, September 30, 2020 $217,806 
Change in fair value of embedded conversion features of debenture included in earnings  (69,051)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures  212,397 
Fair value, December 31, 2020 $361,152 
Change in fair value of embedded conversion features of debenture included in earnings  (202,443)
Embedded conversion option liability recorded in connection with the issuance of 2021 debentures  468,309 
Fair value, March 31, 2021 $627,018 

2020 Warrant and 2021 Warrant

The Company also granted the 2020 Warrant and the 2021 Warrant to purchase up to an aggregate of 20 million shares and 50 million shares of Common Stock, respectively. The 2020 Warrant and the 2021 Warrant each has a three-year term and each is immediately exercisable at an exercise price of $0.05 per share for the 2020 Warrant and $0.03 per share for the 2021 Warrant, each subject to adjustment. If the Company fails to maintain an effective registration statement with the SEC covering the resale of the 2020 Warrant Shares and the 2021 Warrant Shares, or if an Event of Default (as defined below) has occurred and is continuing, then the holder may exercise, respectively, the 2020 Warrant and the 2021 Warrant on a “cashless” basis. “Event of Default” means an event of default under the 2020 SPA and the 2021 SPA or the 2020 Debentures and the 2021 Debentures, respectively.

The 2020 Warrant and the 2021 Warrant, respectively, contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issuessuch to-be-prepaid amount into shares of our Common Stock or common stock equivalents at a price lower thanin accordance with the then-current exercise priceconversion provisions of the 2020 Warrantdebenture prior to such redemption.

10

Further, commencing on July 10, 2023, and continuing on the 2021 Warrant, respectively. Any stock splits, reverse stock splits, recapitalizations, mergers, combinationstenth day of each calendar month thereafter, we are required to redeem an amount equivalent to the sum of $2.00 for each 12-count case of our beverages that we sell in the ordinary course, calculated two months in arrears. Accordingly, the first redemption payment is due and assetpayable on July 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales stock dividends,during a relevant month. The above-referenced seven trading days’ prior notice and similar events will also result in an adjustmentconversion provisions do not apply to any of the exercise pricemandatory redemption payments.

In connection with the issuances of the 2020 Warrant anddebentures, the 2021 Warrant, respectively.


The 2020 Warrant andCompany granted to the 2021 Warrant, respectively, is subjectInvestor warrants to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion, respectively, of the 2020 Warrant that and the 2021 Warrant would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstandingpurchase up to approximately 20.9 million shares of the Common StockCompany’s common stock, which expire on June 14, 2028. The warrants are exercisable at $0.0040 per share. As a result of these issuances and grants, we incurred the following such exercise (excluding,(a) relative fair value of the warrants granted of $19,000; and (b) original issue discounts and fees of $8,457 of the debentures for purposesa total of such determination,$27,457 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the six months ended June 30, 2023, the Company amortized debt discount of $1,204 to interest expense on the loan. As of June 30, 2023, the unamortized debt discount was $26,253.

As of June 30, 2023, $55,707 was due under the note.

As of June 30, 2023, no shares of common stock were potentially issuable under the Common Stock issuable, respectively, upon exerciseconversion terms of the 2020 Warrant andoutstanding debentures.

At December 31, 2022, accrued interest on the 2021 Warrant or conversion of the 2020 Debentures and the 2021 Debentures, respectively, that had not then been exercised or converted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65 days’ prior written notice to the Company.

convertible notes payable was $25,756. During the yearsix months ended June 30, 2023, the Company added $40,039 of additional accrued interest, and converted $45,358 of accrued interest, leaving an accrued interest balance on the convertible notes payable of $20,437 at June 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

As of December 31, 2020,2022, the unamortized debt discount was $183,940. During the six months ended June 30, 2023, the Company granted the 2020 Warrant that was immediately exercisable for up to 20,000,000 shares of Common Stock. During the three months ended March 31, 2021, the Company granted the 2021 Warrant that was immediately exercisable for up to 50,000,000 shares of Common Stock. The 2020 Warrant and the 2021 Warrant, respectively, was fully expensed as an interest expenseadded $334,757 related to the 2020 Warrantissuance of secured debentures, and amortized debt discount of $250,583 to interest expense on the 2021 Warrant issued in connection withloans. As of June 30, 2023, the consummation of the transactions contemplated by the 2020 SPA and 2021 SPA, respectively, and no liabilityunamortized debt discount was recorded as of March 31, 2021 and December 31, 2020, respectively.$269,114.

Cash Flows

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

 For the Three Months Ended March 31, 2021 For the Six
Months Ended
June 30, 2023		 
Net cash used in operating activities $(424,389) $(585,260)
Net cash used in investing activities $(1,306,156) $- 
Net cash provided by financing activities $1,673,578  $642,629 

Operating Activities

Cash provided by or used in operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortization, stock-based payments, interest expense related tochanges in allowance for doubtful accounts, loss on extinguishment of debt, and the Warrants issuedchange in the two private placements,fair value of our derivative liabilities, and the effect of changes in working capital and other activities. Cash used in operating activities for the threesix months ended March 31, 2021June 30, 2023 was approximately $424,400$585,260 and consisted of a net loss of approximately $1.8$3.1 million, adjustments for non-cash items, including adjustments related todepreciation, amortization, loss on extinguishment of debt, loss on the issuancechange in fair value of shares of our Common Stock for an acquisition, interest expense related toderivative liabilities, which in the two warrant, and depreciation ofaggregate total approximately $1.3 million,$1,583,502, and approximately $61,800 provided by$958,352 used in working capital and other activities.

Investing Activities

Cash used in investing activities for the threesix months ended March 31, 2021June 30, 2023 was approximately $1.3 million and was attributable to capital expenditures of approximately, $30,200, and goodwill of approximately $1.28 million, which was attributed to the S and S acquisition.nil.

11

Financing Activities

Cash provided by financing activities for threesix months ended March 31, 2021June 30, 2023 was approximately $1.7 million$642,629 and was due tocomprised of proceeds from linesa notes payable of credit$783,365, proceeds from related party of approximately $3,000,$99,000, and proceeds from convertible debtdebentures payable of approximately $913,800 million, proceeds from a$712,620, offset by payments on our line of credit to related party of $12,000, payments of our acquisition obligations of $3,220, payment of our note payable for the Sof $935,196, and S acquisition, proceeds from the PPP Loanpayment of approximately $117,500, and $3,000 was used to pay principal on a note payable.finance lease obligations of $1,939.

Non-Cash Investing and Financing Activities

For the three months ended March 31, 2021, there were no non-cash investing and financing activities.


Off-Balance Sheet Arrangements

At March 31, 2021, we had no off-balance sheet arrangements, commitments, or guarantees that require additional disclosure or measurement.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 three monthsquarter ended March 31, 2021.June 30, 2023. 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.

Leases

On January 1, 2019, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update 2016-02, Leases (Topic 842) (“ASC Topic 842”), which requires an entity to recognize a liability and corresponding asset for leases that meet certain criteria. We applied ASC Topic 842 using the modified retrospective approach. Under this approach, we applied the new standards to all new leases, and leases which have remaining obligations for financial statements issued for fiscal years beginning after December 15, 2018. We elected the package of practical expedients permitted under the transition guidance, which allowed us to carryforward historical lease classification, and not reassess (i) whether a contract was or contained a lease, and (ii) initial direct costs for any leases that existed prior to January 1, 2019. Under this method, we did not restate comparative periods in our financial statements. We present right-of-use assets resulting from leases separately from other assets as noncurrent, and amortized accordingly. The corresponding lease liabilities are presented separately from other liabilities on the accompanying balance sheets.

We recognize a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured at cost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date, plus any initial direct costs incurred. The amortization period for the right-of-use asset is from the lease commencement date to the earlier of the end of the lease term or the end of the useful life of the asset.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the incremental borrowing rate or the risk-free rate with the election of the practical expedient. We have elected to use the risk-free rate.

Please refer to Note 15, Lease Liabilities, to our consolidated financial statements for the three months ended March 31, 2021 for additional information related to our right-of-use assets and lease liabilities.


Revenue Recognition and Deferred Revenue

We sell our products, which includes our hemp energy drink, CBD energy water, CBD water, lemon-flavored beverages, 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.

On January 1, 2019, we adoptedWe 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. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulative effect adjustment was recognized.

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:

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

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

3.
3.Determining the transaction price;

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

5.
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.

We evaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenues that would be meaningful. The majority of ourOur revenue earned from our Beverages Segment and our Distribution Segment is recognized when we satisfy a single performance obligation by transferring control of our products to a customer. We do not have significant financing components or payment terms, and we do not have any material unsatisfied performance obligations. Our revenues are obtained in similar geographical locations within the United States. Furthermore, the operations in each of our reporting segments are expected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of our products and customers are essentially the same. The sales from our beverage product types are organized as one reportable segment, which we refer to as the Beverages Segment, and the sales of our products and products that are purchased from resellers that are distributed by Gold Leaf is organized as our second reportable segment, which we refer to as the Distribution Segment. We have also 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 Gold Leaf 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. Therefore, our merchandise and apparel products are not a reportable segment. Merchandise and apparel sales are included with the gross sales for our Beverages Segment.one operating segment.


Accounts ReceivableDuring the prior year, the Company consolidated and Allowancerestructured its operations. The Company now operates in one segment for Doubtful Account Receivable

Accounts receivable are recorded at net realizable value. We determine provisionsthe 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 uncollectible accounts, sales returns, and claims based upon factors including the credit risk and activity of specific distributors and resellers, historical trends, and other information. If we become aware of a specific distributor’s or reseller’s inability to meet its financial obligations, bad debt charges are recorded based on an overall assessment of past due accounts receivable outstanding. In the opinion of management, a provision was deemed necessary for uncollectible accounts.

Inventory

The cost of inventory using the standard cost method,entire Company. Existing guidance, which approximates actual costis based on a first-in, first-out method. Our inventories are valued atmanagement 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 lowercountries 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 cost or net realizable value. Our inventory consists almost entirely of finishedproducts and unfinished goods,services; and freight, which include CBD energy waters, CBD waters, hemp energy drinks, lemon-flavored beverages, cans for production,procurement, manufacturing and merchandise and apparel. We periodically evaluate and adjust inventories for obsolescence. Indistribution processes. Since the opinion of management, no provision for obsolescence is deemed necessary. The shelf life ofCompany operates in one segment, all beverage inventory is two years, and as of March 31, 2021, we had approximately $861,700 of product in inventory, which was an increase of approximately $201,200, compared to approximately $660,500 at December 31, 2020. We expect the balance of inventory to increase in direct relation to the increase in sales that we expect. See Note 2, Summary of Significant Accounting Policies, Subsection F, Inventories, of our consolidated financial statements for the year ended March 31, 2021, for an additional description of our inventory that had a material effect on our consolidated financial statements.

Goodwill and Intangible Assets

Goodwill arises from business combinations and is generally determined as the excess of the fair value of the consideration transferred, plus the fair value of any noncontrolling interestsinformation required by “Segment Reporting” can be found in the acquiree, over the fair value of the net assets acquired and liabilities assumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances exists that indicate that a goodwill impairment test should be performed. We have selected December 31 as the date to perform the annual impairment test.

Intangible assets represent both indefinite lived and definite lived assets. Trademarks are deemed to have definite useful lives of ten years, are amortized, and are tested annually for impairment. Intangible assets are reported on the balance sheet at cost less accumulated amortization. We have selected December 31 as the date to perform the annual impairment test. See Note 2, Summary of Significant Accounting Policies, Subsection H, Goodwill and Intangible Assets, of our consolidated financial statements for the three months ended March 31, 2021, for an additional description of intangible assets that had a material effect on our consolidatedaccompanying 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 threesix months ended March 31, 2021,ending June 30, 2023 and 2020,2022, we recognized no stock-based compensation expense of approximately $270,900, and $318,500, respectively. We had a balance in accrued stock-based compensation at March 31, 2021 and December 31, 2020 of approximately $1.4 million, respectively.expense. See Note 6,12, Stock-BasedShare-Based Compensation,of our consolidated financial statements for the threesix months ended March 31, 2021June 30, 2023, for an additional description of our stock-based compensation that had a material effect on our consolidated financial statements.


Related Party Transactions 

See Note 8, Related Party Transactions, to our consolidated financial statements for the three months ended March 31, 2021 for an additional description of related party transactions that had a material effect on our consolidated financial statements.

S and S Acquisition

On January 21, 2021, we entered into an Agreement and Plan of Merger with S and S Beverage, Inc. and its shareholders, pursuant to which we acquired S and S and its line of lemon-flavored beverages (the “S and S Acquisition”). To consummate the S and S Acquisition, we filed a Certificate of Merger with the Wisconsin Department of Financial Institutions on February 1, 2021. In consideration with the S and S Acquisition, we 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 its shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is allocated to its shareholders on a pro rata basis. $400,000 of the Aggregate Acquisition Payments were paid within two weeks of the closing of the transaction. The balance of the Aggregate Acquisition Payments, including the Remaining 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 OOH LA Lemin (the product line of S and S) that we sell until the Aggregate Acquisition Payments have been paid in full. In addition to the Aggregate Acquisition Payments, we also assumed and agreed to pay certain other liabilities of S and S as set forth in the Merger Agreement.

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.

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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 declarationcompletion of effectiveness of our Registration Statement on Form S-1 (December 31, 2020),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.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies Subsection S, Recently Issued Accounting Pronouncements,to our consolidated financial statements for the three monthsperiod ended March 31, 2021June 30, 2023 for a discussion of recent accounting pronouncements.


S AND S BEVERAGE, INC.

The following discussion and analysis of the results of operations and financial condition for the one month January 31, 2021 and should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere herein. 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 herein. 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 herein. 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 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;
●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 herein. 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

One Month Ended January 31, 2021 compared to the One Month Ended January 31, 2020

Overview

We sell our Lemin Superior Lemonade, now named OOH LA Lemin. Our business was formed in 2018 and net revenues increased from $278,000 in our initial year of operations to approximately $865,000 in fiscal year 2019, our first full year of operations. The COVID-19 pandemic resulted in reduced net revenues for our 2020 fiscal year. For the first month ended January 31, 2021, we had net revenues of approximately $600, a decrease of approximately $10,500 from the previous one month ended January 31, 2020. This decrease was anticipated, and we anticipate that growth in our business will restart in the last eleven months of 2021 as the effects of the pandemic begin to recede and by virtue of our acquisition by Kona Gold Beverage, Inc. (“Kona Gold”).

Our decrease in revenue is primarily due to the effects of the COVID-19 pandemic, and a halt in operations as a result of finalizing our acquisition by Kona Gold. The following is a more detailed discussion of our financial condition and results of operations for the period presented.

Revenue

The decrease in our net revenues from our one month ended January 31, 2020 to our January 31, 2021 fiscal year resulted primarily from a decrease in operations in during our acquisition by Kona Gold.

Cost of Revenue

Cost of revenue consists primarily of expenses associated with the products sold to distributors and resellers and consumers, including product and shipping costs. Typically, we expect that the cost of revenue will increase overall as a direct correlation to increases in sales. However, due to the decrease in sales, we had a correlating decrease in the cost of revenue.

Cost of revenue for our one month ended January 31, 2021 was approximately $1,100 (or 198% of net revenue), which was a decrease of approximately $35,500, or 97%, compared to our one month ended January 31, 2020, in which cost of revenue was approximately $36,600 (or 318% of net revenues). This decrease is directly related to the decrease in net revenues. The high percentage of net revenue is primarily the result of fees charged to the Company for product space, or slotting fees, by our customers.

We expect cost of revenue as a percentage of net revenues to rebound, if not to improve by virtue of the expected receding effects of the COVID-19 pandemic and our acquisition by Kona Gold.

Selling, General and Administrative Expenses

SG&A expenses consist primarily of professional fees, salaries and wages, advertising, travel expenses, and general office and administrative expenses related to maintaining our operations.

SG&A expenses decreased by approximately $54,400 to approximately $2,900 in our one month ended January 31, 2021, from approximately $57,300 in our one month ended January 31, 2020. The decrease in SG&A expenses was primarily due to a decrease in all expenses in preparation for our acquisition by Kona Gold.

Net Loss

We incurred a net loss of approximately $3,500 in our one month ended January 31, 2021, a decrease of $78,900, as compared to a net loss of approximately $82,400 in our one month ended January 31, 2020. This decrease in net loss is primarily due to the decrease in SG&A expenses more than offsetting the decrease in gross profit. We expect that both gross profit and SG&A expenses will increase on a going forward basis by virtue of the expected receding effects of the COVID-19 pandemic and our acquisition by Kona Gold.

Going Concern

We have incurred operating losses since inception and have negative cash flow from operations since inception. As of January 31, 2021, we had a stockholders’ deficit of approximately $659,500 and we incurred a net loss of approximately $3,500 during the one month ended January 31, 2021. We also utilized cash in operations of approximately $26,700 during the one month ended January 31, 2021. 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 believe that our acquisition by Kona Gold will provide sufficient financing to continue our operations.

Our 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.

There is no assurance that we will ever be profitable or that our acquisition by Kona Gold will provide sufficient financing to sustain and increase our operations in accordance with our business plan. The 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 – Related Party

We had the following outstanding notes payable from a related party during the one month ended January 31, 2021:

●Initial principal balance of $200,000 and 8% interest per annum (incurred in 2018 fiscal year). At January 31, 2021, the principal balance was $113,761.

●Initial principal balance of $612,700 and 8% interest per annum (incurred in 2019 fiscal year). At January 31, 2021, the principal balance was $200,000.

●Initial principal balance of $300,000 and 2% interest per annum (incurred in 2020 fiscal year). At January 31, 2021, the principal balance was $300,000.

●Initial principal balance of $200,000 and 0% interest per annum (incurred in 2020 fiscal year). At January 31, 2021, the principal balance was $198,000.

The future maturities of the related parties’ notes payable are as follows:

December 31, 2021 – December 31, 2022 $— 
November 1, 2023  811,761 
  $811,761 

In connection with the acquisition of the Company by Kona Gold, all outstanding notes payable are being repaid in accordance with the schedule set forth in the acquisition agreement.

Cash Flows

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

  For the One Month Ended January 31, 2021
Net cash used in operating activities $(26,696)
Net cash used in investing activities $0 
Net cash provided by financing activities $10,000 

Operating Activities

Cash provided by or used in operating activities for the one month ended January 31, 2021 was approximately $26,700, which consisted of the net amounts of cash provided by or used in accounts receivable, inventory, accounts payable, interest payable, and customer payments.

Investing Activities

We did not have any cash provided by or used in investing activities for the one month ended January 31, 2021.

Financing Activities

Cash provided by financing activities for the one month ended January 3, 2021 was approximately $10,000, all of which was due to notes payable from a related party.

Non-Cash Investing and Financing Activities

For the month ended January 31, 2021, there were no non-cash investing and financing activities.


Off-Balance Sheet Arrangements

At January 31, 2021, we had no off-balance sheet arrangements, commitments, or guarantees that require additional disclosure or measurement.

Critical Accounting Policies

Our discussion and analysis of results of operations and financial condition are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of our 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 financial statements for the one month ended January 31, 2021, as included in our financial statements. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the financial statements.

Revenue Recognition

We sell our Lemin Superior Lemonade, now named OOH LA Lemin, through resellers and distributors. In evaluating the timing of the transfer of control of products to our distributors and resellers, 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 distributors and resellers when products that do not require further services by us are shipped, when there are no uncertainties surrounding product acceptance, and when collectability is reasonably assured.

On January 1, 2019, we adopted 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. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulative effect adjustment was recognized.

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.

We evaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine if disaggregation of revenues that would be meaningful. Our revenue is earned from our sale of Lemin Superior Lemonade, now named OOH LA Lemin, and is recognized when it satisfies a single performance obligation by transferring control of its products to a customer. We do not have significant financing components or payment terms, and we do not have any material unsatisfied performance obligations. Our revenues are obtained in similar geographical locations within the United States. The sales from our beverages are organized as one reportable segment.


Accounts Receivable and Allowance for Doubtful Account Receivable

Accounts receivable are recorded at net realizable value. We determine provisions for uncollectible accounts, sales returns, and claims based upon factors including the credit risk and activity of specific distributors and resellers, historical trends, and other information. If we become aware of a specific distributor’s or reseller’s inability to meet its financial obligations, bad debt charges are recorded based on an overall assessment of past due accounts receivable outstanding. In the opinion of management, a provision was deemed necessary for uncollectible accounts. No bad debt was recorded in the accompanying statements of income for one month ended January 31, 2021 and 2020, respectively. Management will review annually to determine provisions and record an allowance as deemed necessary. In the opinion of management, a provision is deemed necessary for allowances for the one month ended January 31, 2021 and year ended December 31, 2020. The balance of allowance for Uncollectible Accounts as of January 31, 2021 and December 31, 2020 is $24,280, respectively.

Inventory

Our inventory is valued at the lower cost or net realizable value. At the end of one month ended January 31, 2021, our inventory consisted almost entirely of finished goods and raw materials (approximately $240,800), which was no increase from inventory at the end of the prior year ended December 31, 2020. The no change in inventory is primarily due to the decrease in operations for our acquisition by Kona Gold. We periodically evaluate and adjust inventories for obsolescence. In the opinion of management, no provision for obsolescence is deemed necessary. As of the balance sheet dated January 31, 2021 and December 31, 2020, all inventory is current.

Related Party Transactions 

See Note 4, Related Party Transactions, to our financial statements for the one month ended March 31, 2021 for an additional description of related party transactions that had a material effect on our financial statements.

Recently Issued Accounting Pronouncements

See Note 2, Summary of Significant Accounting Policies, Subsection P, Recently Issued Accounting Pronouncements, to our financial statements for the one month ended January 31, 2021 included in our financial statements for a discussion of recent accounting pronouncements.


ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a Smaller Reporting Company, we areA 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 March 31, 2021,June 30, 2023, 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 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 March 31, 2021,June 30, 2023, 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.


PART II – OTHER INFORMATION

ITEM 1. Legal ProceedingsLEGAL 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 FactorsRISK FACTORS

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

ITEM 2. Unregistered Sales of Equity Securities and Use of FundsUNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Pursuant to the Agreement and Plan of Merger with S and S Beverage, Inc., we issued 9,000,000 shares of our common stock to the five legacy S and S shareholders. The per-share fair market value of the common stock was $0.0301, based on the closing price of the Company’s common stock, as reported by OTC Markets Group Inc. on February 5, 2021, the date on which we filed ourNone that has not been previously disclosed in a Current Report on Form 8-K disclosing the acquisition. We issued those shares in reliance on the exemption from registration pursuant to Section 4(a)(2) of the Securities Act (in that the issuance of the shares did not involve any public offering).8-K.

ITEM 3. Defaults Upon Senior SecuritiesDEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. Mine Safety DisclosuresMINE SAFETY DISCLOSURE

None.Not applicable.

ITEM 5. Other InformationOTHER INFORMATION

None.


15

ITEM 6. ExhibitsEXHIBITS

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

2.13.1Agreement and Plan of Merger among Kona Gold Beverage Inc., KGS Temporary Company, Inc., S and S Beverage Inc., William J. Stineman and K&L Beverage, LLC (as the indemnifying S and S shareholders), and William J. Stineman (as representative of the S and S Shareholders), dated January 22, 2021 is incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed with the SEC on February 5, 2021.
3.1Amended 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.
3.2Amended 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.
3.3Certificate 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.
3.4Certificate 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.
3.5Certificate 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.
3.6Certificate 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.
3.7ArticlesCertificate of Merger Merging KGS Temporary Company, Inc. withAmendment to the amended and into S and S Beverage Inc., as filed with the Wisconsin Departmentrestated Certificate of Financial Institutions on February 1, 2021Incorporation is incorporated herein by reference to Exhibit 3.7 of the Company’s Current Report on Form 8-K, filed with the SEC on February 5, 2021.17, 2023.
4.13.8Certificate of Amendment to the amended and restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.8 of the Company’s Current Report on Form 8-K, filed with the SEC on February 17, 2023.
4.1Form 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.
4.2Form of 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.

16
 

4.3
4.3s 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.
4.4Form of Secured Convertible Debenture of the Companyregistrant sold and issued to YA IIYAII 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*4.4aCertificate of Scrivener’s Error in respect of the February 10, 2021 Secured Convertible Debenture, executed as of the 18th day of February, 2021.
4.4b*Certificate of Scrivener’s Error in respect of the February 10, 2021 Secured Convertible Debenture, executed as of the 15th day of March, 2021.
4.4c*Form of Secured Convertible Debenture of the Companyregistrant sold and issued to YA IIYAII PN, Ltd., on May 5,February 11, 2021 is incorporated herein by reference to Exhibit 4.4a of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on November 15, 2021.
4.5Form of Warrant of the Companyregistrant granted to YA IIYAII 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.
4.6Form 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.
4.7Form of Warrant of the registrant granted to YAII PN, Ltd., effective August 23, 2021 is incorporated here8in by reference to Exhibit 4.7 of the Company’s Current Report on Form 8-K, filed with the SEC on August 23, 2021.
4.8Form 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.
4.9Form 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.
4.10Form 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.
4.11Form 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.
4.12Form of Secured Convertible Senior Note of the registrant sold and issued to Mast Hill Fund, L.P., for a transaction that closed and funded on March 15, 2023 is incorporated herein by reference to Exhibit 4.12 of the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2023.
4.13Form of Warrant of the registrant granted to Mast Hill Fund, L.P., for a transaction that closed and funded on March 15, 2023 is incorporated herein by reference to Exhibit 4.13 of the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2023.
4.14Form of Warrant of the registrant granted to Mast Hill Fund L.P., dated March 30, 2023 is incorporated herein by reference to Exhibit 4.14 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2023.
4.15Form of Secured Convertible Senior Note of the registrant sold and issued to Mast Hill Fund, L.P., for a transaction that closed and funded on April 28, 2023 is incorporated herein by reference to Exhibit 4.15 of the Company’s Current Report on Form 8-K, filed with the SEC on May 1, 2023.
4.16Form of Warrant of the registrant granted to Mast Hill Fund, L.P., for a transaction that closed and funded on April 28, 2023 is incorporated herein by reference to Exhibit 4.16 of the Company’s Current Report on Form 8-K, filed with the SEC on May 1, 2023.

17
 

10.1Securities Purchase Agreement by and between the Company and YA IIYAII 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.
10.2Registration Rights Agreement by and between the Company and YA IIYAII 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.
10.3Independent 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.
10.4Board 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.
10.5Board 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


10.6Form 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
10.7Membership 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.
10.8Securities 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.
10.9Securities 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.
10.10Employment 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.

18
 

10.11
10.11Lease 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.
10.12Triple 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.
10.13Lease 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.
10.14Line 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.
10.15Line 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.
10.15a*Line of Credit and Security Agreement Modification Agreement #2 to April 4, 2019 Line of Credit Agreement by and between Robert Clark and Kona Gold, LLC, dated April 4, 2021.
10.16Line 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.
10.17Standard Promissory Note issued by Gold Leaf Distribution LLC 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.
10.17a*Standard Promissory Note Modification Agreement to February 19, 2019 Standard Promissory Note issued by Gold Leaf Distribution, LLC in favor of Robert Clark, dated March 15, 2021.
10.18Standard 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.
10.18a*Standard Promissory Note Modification Agreement to January 15, 2019 Standard Promissory Note issued by Kona Gold, LLC in favor of Robert Clark, dated April 4, 2021.
10.19Employment 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.

19
 

10.20
10.20Employment 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.
  
10.20aEmployment 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
10.21Amendment 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.
10.22Agreement 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.
10.23Amendment 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.
10.24Amendment 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.
10.25Security Agreement by and between the Company and YA IIYAII 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


10.26Line 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.
10.27Line 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.

20
 

10.28
10.28Terms 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.
10.29Waiver Agreement by and between the Company and YA IIYAII 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.
10.30Paycheck 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.
10.31Paycheck 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.
10.32Securities Purchase Agreement by and between the Company and YA IIYAII 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.
10.33Form of Securities Purchase Agreement between the Companyregistrant and YA IIYAII 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.
10.33a*10.34Form of Limited Amendment Agreement to Securities Purchase Agreement between the Company and YA II PN, Ltd., for a transaction that closed on February 11, 2021, dated as of May 5, 2021.
10.34Form of Registration Rights Agreement by and between the Companyregistrant and YA IIYAII 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.
10.35Form of Amended and Restated Security Agreement of the Companyregistrant and its subsidiaries in favor of YA IIYAII 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.
10.36Form of Intellectual Property Security Agreement of the Companyregistrant and its subsidiaries in favor of YA IIYAII 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.
10.37Form of Amended and Restated Global Guaranty Agreement of the Companyregistrant and its subsidiaries in favor of YA IIYAII 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.
31.1*Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14(a) of the Securities Act of 1934.
32.1*Certification of Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2*Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

 

Ex. 101.INS*21
 

10.38Form 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.
10.39Form 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.
10.40Form 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.
10.41Form 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.
10.42Form 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.
10.43Agreement 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.
10.44Form 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.
10.45Form 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.
10.46Form 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.

22

10.47Form 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.
10.48Form 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.
10.49Form 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.
10.50Revenue 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.
10.51Revenue Purchase Agreement between the registrant and Cobalt Funding Solutions effective as of November 2, 2022 is incorporated herein by reference to Exhibit 10.51 of the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2022, filed with the SEC on November 14, 2022.
10.52Equity Purchase Agreement between the registrant and Mast Hill Funds L.P., dated as of March 30, 2023 is incorporated herein by reference to Exhibit 10.52 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2023.
10.53Registration Rights Agreement between the registrant and Mast Hill Funds L.P., dated as of March 30, 2023 is incorporated herein by reference to Exhibit 10.53 of the Company’s Annual Report on Form 10-K, filed with the SEC on March 31, 2023.
10.54Form of Securities Purchase Agreement between the registrant and Mast Hill Fund, L.P., for a transaction that closed and funded on March 15, 2023 is incorporated herein by reference to Exhibit 10.52 of the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2023.
10.55Form 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 March 15, 2023 is incorporated herein by reference to Exhibit 10.53 of the Company’s Current Report on Form 8-K, filed with the SEC on March 21, 2023.
10.56Form of Securities Purchase Agreement between the registrant and Mast Hill Fund, L.P., for a transaction that closed and funded on April 28, 2023 is incorporated herein by reference to Exhibit 10.56 of the Company’s Current Report on Form 8-K, filed with the SEC on May 1, 2023.
10.57Form 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 April 28, 2023 is incorporated herein by reference to Exhibit 10.57 of the Company’s Current Report on Form 8-K, filed with the SEC on May 1, 2023.
21.1List 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
Ex. 101.SCH*Inline XBRL Taxonomy Extension Schema Document
Ex. 101.CAL*Inline XBRL Taxonomy Extension Calculation Linkbase Document
Ex. 101.DEF*Inline XBRL Taxonomy Extension Definition Linkbase Document
Ex. 101.LAB*Inline XBRL Taxonomy Extension Label Linkbase Document
Ex. 101.PRE*Inline XBRL Taxonomy Extension Presentation Linkbase Document

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

 


23

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.KONA GOLD BEVERAGE, INC.
Dated: May 17, 2021August 21, 2023By:/s/ Robert Clark
President and

Robert Clark

Chief Executive Officer

(Principal Executive Officer)
August 21, 2023
Dated: May 17, 2021By:/s/ Lori Radcliffe

Lori Radcliffe

Chief Financial Officer

(Principal Financial Officer)

24

82