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

For the quarterly period ended June 30, 2021March 31, 2022

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

For the transition period from ____________________ to ______________________

Commission File NumberNumber: 000-56230

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

(Exact name of registrant as specified in its charter)

(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

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.

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 $0.00001$0.0001 per share, outstanding as of August 13, 2021May 11, 2022 was 863,488,7321,573,544,060.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED JUNE30, 2021

TABLE OF CONTENTS

PART I -– FINANCIAL INFORMATION

ItemITEM 1. Financial StatementsFINANCIAL STATEMENTS

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See notes to condensed consolidated financial statements

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

See notes to condensed consolidated financial statements

KONA GOLD BEVERAGE, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

See notes to condensed consolidated financial statements

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

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(formerly known as Kona Gold Solutions, Inc.)For the Three Months Ended March 31, 2022 and 2021

(Unaudited)

See notes to condensed consolidated financial statements

KONA GOLD BEVERAGE, INC.

NOTES TO THE UNAUDITEDCONDENSED CONSOLIDATED FINANCIAL STATEMENTS

Three Months Ended March 31, 2022 and 2021

(Unaudited)

NOTE 1 – ORGANIZATIONBASIS OF PRESENTATION AND DESCRIPTION OF BUSINESSLIQUIDITY

The accompanying interim condensed consolidated financial statements of Kona Gold Beverage,Beverages, Inc. (the “Company”, a Delaware corporation (“Kona Gold,” the “Company,” “we,” “us,”“we”, “us”, or “our”), ownsare unaudited, but in the opinion of management contain all adjustments, including normal recurring adjustments, necessary to present fairly our financial position at March 31, 2022, and operates a linethe results of premier CBD lifestyle brandoperations and other products. As of June 30, 2021cash flows for the Company has four wholly-owned subsidiaries: Kona Gold LLC, a Delaware limited liability company (“Kona”), HighDrate LLC, a Florida limited liability company (“HighDrate”), Gold Leaf Distribution LLC, a Florida limited liability company (“Gold Leaf”),three months ended March 31, 2022, and S and S Beverage, Inc. (“S and S”), a Wisconsin corporation, which the Company acquired in February 2021. The Companybalance sheet as of December 31, 2021, is primarily focused on product developmentderived from the Company’s audited financial statements.

Certain information and footnote disclosures normally included in financial statements that have been prepared in accordance with accounting principles generally accepted in the functional beverage sector. Kona Gold creates hemp-infused energy drinks, which includes hemp energy drinks, CBD energy water,United States of America have been condensed or omitted pursuant to the rules and also sells Kona Gold merchandiseregulations of the Securities and apparel, which promotesExchange Commission regarding interim financial reporting. We believe that the disclosures contained in these condensed financial statements are adequate to make the information presented herein not misleading. For further information, refer to the financial statements and the notes thereto included in the Company’s beverages. HighDrate focusesAnnual Report on the development and marketing of CBD-infused energy waters geared towards the fitness and wellness markets. S and S creates and sells unique lemon flavored drinks under the “Ooh La Lemin” brand name. Gold Leaf focuses on the distribution of premium beverages and snacks in key markets.

The Company currently sells its products through resellers, the Company’s websites, and distributors that span across 27  states. The Company’s products are available in wide variety of stores, including grocery stores, convenience stores, smoke shops, and gift shops.

As used herein, the terms “Kona Gold,” the “Company,” “we,” “us,” or “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:

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.

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 lemonadeForm 10-K for the modern age. Made naturalfiscal year ended December 31, 2021, as filed with the Securities and refreshing with no added sugar, low in carbs, and 15 calories. Ooh La Lemin is available in four distinct flavors: original lemonade, peach lemonade, strawberry lemonade, and blue raspberry lemonade.Exchange Commission on April 13, 2022.

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 towelsresults of operations for sale.the three months ended March 31, 2022, are not necessarily indicative of the results of operations to be expected for the full fiscal year ending December 31, 2022.

Effects of COVID-19

In January 2020, the 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.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the three months ended March 31, 2022, the Company recorded a net loss of $3,561,562 and used cash in operations of $669,504 and had a stockholders’ deficit of $4,362,006 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. As a result, management has concluded that there is substantial doubt about the Company’s ability to continue as a going concern. The Company’s independent registered public accounting firm, in its report on the Company’s consolidated financial statements for the year ended December 31, 2021, has also expressed substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At March 31, 2022, the Company had cash on hand in the amount of $296,792. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

The preparation of the consolidated financial statements in conformity with GAAPgenerally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosuredisclosures of contingent assets and liabilities at the date of the financial statements. Estimates also affectstatements, and the reported amounts of revenuerevenues and expenses during the reporting period. Actual events and 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 estimates.

Forintangible assets, 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.

The estimated fair valuesvaluation allowance for financialdeferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments are determined at discrete pointsissued for services, and assumptions used in time based on relevant market information. These estimates involve uncertainties and cannot be determined with precision. The carrying amounts of accounts payable, accruedvaluing warrant 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 inputsassumptions 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 an be corroborated by observable market data for substantially the full termdetermination of the assets or liabilities; orCompany’s liquidity.

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.Revenue Recognition

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.

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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.

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 0 bad debt attributed to accounts receivable in the year ended June 30, 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 allowances for Uncollectible Accounts at June 30, 2021 and December 31, 2020 were $9,478 and $3,967, respectively, as reflected in the accompanying Consolidated Balance Sheets.

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, lemonades, 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 June 30, 2021, and December 31, 2020, all inventory was current, as reflected in the accompanying Consolidated Balance Sheets.

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:

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 and the five S and S Legacy Shareholders and acquired all of the capital stock of S and S. Because of this, goodwill was recorded in the amount of $1,275,938 see Note 5, Goodwill and Intangible Assets. Management determined that there was no impairment of trademarks for the year ending December 31, 2020, see Note 5, Goodwill and Intangible Assets.

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 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.

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.

On January 1, 2019, the Company adopted ASU No. 2014-09,accordance with Accounting Standards Codification (ASC) 606, 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 customercustomers 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 outlinescreates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes:

Pursuant to ASC Topic 606,include (1) identifying the Company recognizes revenue whencontract or agreement with a customer, (2) identifying our performance obligations underin the termscontract 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 a contractsales 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 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.

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company evaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenuesat 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.time. The Company does not have any significant financing componentcontracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or payment terms,discounts that could cause revenue to be allocated or adjusted over time. Shipping and it does not have any material unsatisfied performance obligations. The Company’s revenueshandling activities are obtained in similar geographical locations withinperformed before the United States. Furthermore,customer obtains control of the Company’s operations in each of its reporting segments are expectedgoods and therefore represent a fulfillment activity rather than a promised service 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 salescustomer.

All of the Company’s products are offered for sale as finished goods only, and products thatthere are purchasedno performance obligations required post-shipment for customers to derive the expected value from resellers that are distributed by Gold Leaf is organized as its second reportable segment, which the Company refers to as the Distribution Segment. them.

The Company has also determined that disaggregated revenue by netdoes 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 by revenue source would be meaningfulcontracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts 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%reasonableness of the Company’s gross annual sales, and solely exists to promote its beverages. Therefore, the Company’s merchandise and apparel products are notour conclusions on a reportable segment. Merchandise and apparel sales are included with the gross sales for its Beverages Segment.quarterly basis.

Sales are made to customers under terms allowing certain limited rights of return. The Company records an allowance and return for each quarter for 3%3% of total sales. The Company recorded sales returns,return, and allowance atfor the three months ending June 30,March 31, 2022 and 2021 and 2020 of approximately $19,80035,100 and $6,600, respectively, and the six months ending June 30, 2021 and 2020 of approximately $57,400 and $13,40023,413, respectively, which is included in the revenues, net of sales returns and allowances in the accompanying Condensed Consolidated Statements of Loss.

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

SCHEDULE OF NET REVENUES BY REVENUE

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

Loss per Common Share

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

For the period ended March 31, 2022 and 2021, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

SCHEDULE OF POTENTIAL DILUTIVE SECURITIES

Cost of revenues consist primarily of expenses associated with the deliveryStock Compensation Expense

The Company periodically issues stock options and distribution of products. These include expenses relatedrestricted stock awards to direct procurement costsemployees and shippingnon-employees in non-capital raising transactions for services and handlingfor financing costs. The Company bills shippingaccounts for such grants issued and handling fees charged to customersvesting 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 partcompensation expense on the straight-line basis over the vesting period. Recognition of sales and the associatedcompensation expense as part of cost of revenues. The costs are charged to cost of revenuesfor non-employees is in the same period thatand manner as if the associated revenue is earned.

Company had paid cash for the services. The Company evaluatesrecognizes the fair value of stock-based compensation within its long-lived assets for financial impairment as events or changes in circumstances indicate thatStatements of Operations with classification depending on 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 amountnature 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.services rendered.

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 June 30, 2021 and December 31, 2020, respectively.

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 forCompany’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, awardsand future dividends. Compensation expense is valued usingrecorded based upon the closing price ofvalue derived from the Company’s common stock, par value $0.00001 per share (the “Common Stock”),Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the date of grant.Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

The Company estimates the fair value of each restricted stock awardAdvertising Costs

Advertising costs are expensed 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 awardincurred and is recognized over the vesting period during which an employee is required to provide serviceare included in exchange for the award. The Company accounts for forfeitures of restricted stock as they occur.

The Company expenses costs of advertisingaggregated $52,419 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$10,300 for the three months ended June 30,March 31, 2022 and 2021, and 2020, was approximately $13,600respectively. and $3,100, respectively, and for the six months ended June 30, 2021 and 2020, was approximately $24,100 and $11,000, respectively, which amounts were 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.)Concentrations

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

The Company maintainsCompany’s cash balances at financial institutions. Accounts at each institutionon deposit with banks are insuredguaranteed 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 months ended March 31, 2022, the Company reported no customers that accounted for more than 10% of gross sales. During the three months ended March 31, 2021, the Company reported one customer represented 12% of the Company’s gross sales.

Accounts receivable. As of March 31, 2022, the Company had no customers that accounted for 10% or more of its gross accounts receivable. As of December 31, 2021, the Company had accounts receivable from two customers that comprised 60% of its gross accounts receivable.

Co-Packers. The raw materials used in the production of the Company’s products are obtained by the Company’s co-packers and consist primarily of materials such as the flavors, caffeine, sugars or sucralose, taurine, vitamins, CBD, and hemp seed protein contained in its beverages, the bottles in which its beverages are packaged, and the labeling on the outside of its beverages. These principal raw materials are subject to price and availability fluctuations. The Company has not experienced any lossescurrently relies on a few key co-packers, which in such accounts and periodically evaluates the credit worthinessturn 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 financial institutionsflavors and had determinedconcentrates that are used in the credit exposureCompany’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 negligible.available at competitive prices, although there can be no assurance in this regard. The Company continually endeavors to contract with additional beverage vendors to ensure the Company has adequate inventory. The Company believes that a satisfactory supply of vendors will continue to be available at competitive prices, although there can be no assurance in this regard.

Purchases from vendors. During the period ended March 31, 2022, the Company’s largest three vendors accounted for approximately 27%, 12%, and 10% of all purchases, respectively. During the period ended March 31, 2021, the Company’s largest four vendors accounted for approximately 29%, 16%, 11%, and 10% of all purchases, respectively.

Accounts payable. As of March 31, 2022, one vendor accounted for 14% of the total accounts payable. As of December 31, 2021, four vendors accounted for more than 10% the total accounts payable. The Company’s largest four vendors accounted for 20%, 14%, 12%, and 11% of the total accounts payable, respectively.

Fair Value of Financial Instruments

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

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

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

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

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

Segments

The Company operates in one segment for the manufacture and distribution of our products. In accordance with FASB’sthe “Segment Reporting” Topic of the ASC, 260, Earnings per Share, basic income (loss) per common sharethe 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 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 isbased on a loss from continuing operations.

ASC 280-10, Segment Reporting (“ASC 280-10”),management approach to segment reporting, establishes standards for reportingrequirements to report selected segment information regarding operating segments in annual financial statementsquarterly and requires selected information for those segments to be presented in interim financial reports issued to stockholders. ASC 280-10 also establishes standards for relatedreport annually entity-wide disclosures about products and services, major customers, and geographic areas. Operating segments are identified as componentsthe 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 an enterprise about which separate discreteproducts and services, and procurement, manufacturing and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is availableeffective for evaluation by the chief operating decision maker, or decision-making group, in making decisions how to allocate resourcesCompany beginning January 1, 2023, and assess performance.early adoption is permitted. The Company identified two operating segments that report revenue, including both salesdoes not believe the potential impact of the new guidance and related codification improvements will be material to external customersits financial position, results of operations and intersegment sales or transfers,cash flows.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) “Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40).” ASU 2020-06 reduces the number of accounting models for convertible debt instruments by eliminating the cash conversion and beneficial conversion models. The diluted net income per share calculation for convertible instruments will require the Company to use the if-converted method. For contracts in an entity’s own equity, the type of contracts primarily affected by this update are freestanding and embedded features that are 10% or moreaccounted for as derivatives under the current guidance due to a failure to meet the settlement conditions of the combined revenue, internalderivative scope exception. This update simplifies the related settlement assessment by removing the requirements to (i) consider whether the contract would be settled in registered shares, (ii) consider whether collateral is required to be posted, and external, of all(iii) assess shareholder rights. ASU 2020-06 is effective January 1, 2024, for 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 Ooh La Lemin, and the Distribution Segment, consistingprovisions of this update can be adopted using either the operations of Gold Leaf. Specifically,modified retrospective method or a fully retrospective method. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Effective January 1, 2021, the Company has evaluated guidance in ASC 280-10adopted ASU 2020-06 and determined that aggregation is consistent with the objectives of ASC 280-10 in that aggregation into two reportable segments allows users ofadoption did not have an impact on 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 18, Segments.related disclosures.

In May 2020,Other recent accounting pronouncements issued by the Company completed a private placement transaction (the “2020 Private Placement”)FASB, its Emerging Issues Task Force, the American Institute of three secured convertible debentures (the “2020 Debentures”), convertible for up to 105,947,397 shares (the “2020 Conversion Shares”) of Common StockCertified Public Accountants, 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 2020 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”).

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Pursuant to the terms of the Registration Rights Agreement, the Company agreed to file the 2020 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 2020 Registration Statement declared effective by the SEC as soon as practicable, but in no event later than the effectiveness deadline,did not or by the 5^th 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 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 5^th 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 permittedbelieved by management 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 is utilizing 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. The Commission declared effective both the 2020 Registration Statement and the Post-Effective Amendment to the 2020 Registration Statement.

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 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).

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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.

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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. The Commission declared effective the 2021 Registration Statement.

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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 June 30, 2021. The Company does not expect a material impact on the Company’s present or future financial position, result of operations, or cash flows from these pronouncements.statements.

NOTE 3 – INVENTORY

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

SCHEDULE OF INVENTORY

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

NOTE 4 –PROPERTY, PLANT AND EQUIPMENT

Property plant and equipment consistedis comprised of the following:

SCHEDULE OF PROPERTY, PLANT AND EQUIPMENT