As filed with the Securities and Exchange Commission on December 14, 2020

Registration No. 333-239883

September 22, 2021

Registration No. 333-________

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM S-1

(Pre-Effective Amendment No. 3)

Registration Statement under the Securities Act of 1933

KONA GOLD BEVERAGE, INC.

(Exact name of registrant as specified in its charter)

Kona Gold Beverage, Inc.

746 North Drive, Suite A

Melbourne, Florida32934

(844) (844) 714-2224

(Address, including zip code, and telephone number, including area code,

of registrant’s principal executive offices)

Robert Clark

Chairman of the Board, Chief Executive Officer, and President

746 North Drive, Suite A

Melbourne, Florida 32934

(844) 714-2224

(Name, address, including zip code, and

telephone number, including area code, of agent for service)

With copiescopy to:

Alissa K. Lugo, Esq.

Baker & Hostetler LLP

200 South Orange Avenue, Suite 2300

Orlando, Florida 32801

(407) 649-4015

Randolf W. Katz, Esq.

Clark Hill LLP

1551055 West Seventh Street, 24^th Floor

Los Angeles, California 90017

(213) 417-5310

Approximate date of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declared effective.

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. ☒

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See 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 7(a)(2)(B) of the Securities Act. ☒

CALCULATION OF REGISTRATION FEE

The registrant hereby amends this Registration Statement onTHE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment, which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act ofDATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT, WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF THE SECURITIES ACT OF 1933 or until the registration statement shall become effective onOR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH date as the Commission, acting pursuant to said Section 8(a)DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), may determine.MAY DETERMINE.

The information in this preliminary Prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the Securities and Exchange Commission is effective. This preliminary Prospectus is subject to completion, is not an offer to sell securities, and it is not soliciting an offer to buy these securities, in any state where offers or sales are not permitted.

KONA GOLD BEVERAGE, INC.

Up to 125,947,397340,677,266 Shares of Common Stock

This is the initial public offeringa prospectus (this “Prospectus”) of Kona Gold Beverage, Inc., a Delaware corporation (“Kona Gold,” our “Company,” “we,” “our,” or “us”). This prospectus (this “Prospectus”)It relates to the resale or other disposition by the selling stockholder (the “Selling Stockholder”) identified in this Prospectus and its transferees of up to 125,947,397340,677,266 shares of common stock, par value $0.00001 per share (our “Common Stock”), consisting of (i) up to 105,947,397240,677,266 shares of our Common Stock (the “Conversion“August 2021 Conversion Shares”) issuable upon conversions of secured convertible debentures (the “Debentures”“August 2021 Debentures”) and up to 20,000,000100,000,000 of shares of our Common Stock (the “Warrant“August 2021 Warrant Shares”) issuable upon exercises of a Warrant to Purchase Common Stock (the “Warrant”“August 2021 Warrant”; and, together with the August 2021 Debentures, the August 2021 Conversion Shares, and the August 2021 Warrant Shares, the “Securities”). We issued, or will issue, the Securities to the Selling Stockholder pursuant to that certain Securities Purchase Agreement between the Selling Stockholder and us, dated as of May 14, 2020August 20, 2021 (the “SPA”“August 2021 SPA”), in connection with a private placement. We agreed to register the August 2021 Conversion Shares and August 2021 Warrant Shares pursuant to the terms of the Registration Rights Agreement between the Selling Stockholder and us, dated as of May 14, 2020August 20, 2021 (the “Registration“August 2021 Registration Rights Agreement”). The August 2021 Conversion Shares and August 2021 Warrant Shares are being offered for resale by the Selling Stockholder.

The August 2021 Debentures are due 12 months from their respective issuance dates and are secured by all of our assets and the assets of each of our subsidiaries pursuant to that certain Amended and Restated Security Agreement by and among the Selling Stockholder, our wholly-owned subsidiaries, and us, dated May 14, 2020August 20, 2021 (the “Security“Amended and Restated Security Agreement”). We sold and issuedInitially, the initial Debenture (the “First Debenture”) and the Warrant promptly after entering into the SPA. We sold and issued the second Debenture (the “Second Debenture”) promptly after filing this registration statement on Form S-1 (File No.: 333-239883) (this “Registration Statement”) initially. We anticipate selling and issuing the final Debenture (the “Third Debenture”) promptly after the Securities and Exchange Commission (the “SEC”) declares this Registration Statement effective. Initially, theAugust 2021 Debentures are convertible at the lower of the (i) the fixed conversion price, which is $0.05$0.03 per share, subject to adjustment (the “Fixed Conversion Price”), or (ii) 80%75% 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 “Market Conversion Price”).

The August 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current Fixed Conversion Price of the August 2021 Debentures. For example, if we issued 10,000,000 shares of our Common Stock at a price of $0.03 per share, and we had 778,052,603 shares of our Common Stock issued and outstanding prior to the issuance, then, in accordance with the terms of the Debentures, the new Fixed Conversion Price would be $0.0497 per share. 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 August 2021 Debentures. The August 2021 Conversion Shares include shares of our Common Stock that we may issue from time to time upon conversions of the August 2021 Debentures in payment of then-outstanding principal and accrued interest. If the Market Conversion Price were $0.01019374, and the Debentures were completely converted at the same time, all of the Conversion Shares registered hereunder would be issued (of which approximately 7.8 million shares would be issuable for accrued interest). The allocation of the August 2021 Conversion Shares between principal and interest will depend on the dates of the various conversions of the August 2021 Debentures.

The August 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the August 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 our Common Stock following such conversionsconversion (excluding, for purposes of such determination, shares of our Common Stock issuable upon conversionsconversion of the August 2021 Debentures or exercisesexercise of the August 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 us.

At our option, we have the right to redeem, in part or in whole, the outstanding principal and interest under the August 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 our Common Stock is less than the Fixed Conversion Price and (ii) there is no Equity Conditions failure. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as the 115% Redemption Premium. We must provide the holder 15 business days’ advance notice of our intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The August 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current Fixed Conversion Price of the August 2021 Debentures. For example, if we issued 10,000,000 shares of our Common Stock at a price of $0.02 per share, and we had 872,772,803 shares of our Common Stock issued and outstanding prior to the issuance, then, in accordance with the terms of the August 2021 Debentures, the new Fixed Conversion Price would be $0.0297. 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 August 2021 Debentures.

We also granted the August 2021 Warrant to purchase up to an aggregate of 100 million shares of our Common Stock. The August 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.05$0.03 per share, subject to adjustment. If we fail to maintain an effective registration statement with the SEC covering the resale of the August 2021 Warrant Shares, or if an Event of Default has occurred and is continuing, then the holder may exercise the August 2021 Warrant on a “cashless” basis.

The August 2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the August 2021 Warrant. For example, if we issued shares of our Common Stock at $0.03$0.02 per share, then the exercise price of the August 2021 Warrant would be adjusted to $0.03$0.02 per share. 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 August 2021 Warrant. The Warrant is subject to an “exercise blocker,” such that the Selling Stockholder cannot exercise any portion of the Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of our Common Stock following such exercise (excluding, for purposes of such determination, shares of our Common Stock issuable upon exercises of the Warrant or conversions of the 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 us. See “Description of Securities – Private Placement Transaction” for a more detailed description of the private placement transaction and “Selling Stockholder” for additional information about the Selling Stockholder. 

The Selling Stockholder may offer, sell, or distribute all or a portion of the Conversion Shares and Warrant Shares, the resales of which are registered hereby through public or private transactions and at prevailing market prices or at privately negotiated prices. The Selling Stockholder may retain underwriters, dealers, or agents from time to time. See “Plan of Distribution” for additional information about how the Selling Stockholder may sell the shares of our Common Stock being registered pursuant to this Prospectus. We will not receive any proceeds from the sales of these shares by the Selling Stockholder. We will receive proceeds from the exercises, if any, of the Warrant. We have agreed to bear the expenses relating to this Registration Statement of which this Prospectus forms a part. 

Our Common Stock is quoted on the OTC Markets Group Inc.’s (the “OTCM”) OTCQB^® Venture Market (the “OTCQB”) under the symbol “KGKG.” On December 10, 2020,September 20, 2021, the last reported sales price for our Common Stock was $0.024$0.0157 per share. We are an “emerging growth company,” as defined in the Jumpstart Our Business Startups Act (“JOBS Act”) and, as such, may elect to comply with reduced public company reporting requirements for this and future filings. See “Prospectus Summary – Implications of Being an Emerging Growth Company and a Smaller Reporting Company.”

Investing in our Common Stock involves a high degree of risk. You should consider carefully the section entitled “Risk Factors” in this Prospectus beginning on page 6,4, as well as the other information contained in this Prospectus before you invest.

Neither the SEC nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.

The date of this Prospectus is , 2020

___________ __, 2021

TABLE OF CONTENTS

You should only rely on the information contained in this Prospectus or that we have referred you to. We have not, and the Selling Stockholder has not, authorized anyone to provide you with different information. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any securities other than the shares of our Common Stock offered by this Prospectus. This Prospectus does not constitute an offer to sell or a solicitation of an offer to buy any shares of our Common Stock in any circumstances in which such offer or solicitation is unlawful. Neither the delivery of this Prospectus nor any sale made in connection with this Prospectus means that the information contained in this Prospectus is correct after the date of this Prospectus. The information in this Prospectus is accurate only as of the date on the front cover of this Prospectus. Our business, financial condition, results of operations, and prospects may have changed since that date.

PROSPECTUS SUMMARY

RISK FACTORS

Investing in our securities involves a high degree of risk. You should carefully consider and evaluate all of the information contained in this Prospectus and in the documents that we incorporate by reference into this Prospectus before you decide to purchase our securities. In particular, you should carefully consider and evaluate the risks and uncertainties described under the heading “Risk Factors” in this Prospectus. Any of the risks and uncertainties set forth in this Prospectus, as updated by annual, quarterly, and other reports and documents that we file with the SEC and incorporate by reference into this Prospectus could materially and adversely affect our business, results of operations, and financial condition, which in turn could materially and adversely affect the value of our securities. As a result, you could lose all or part of your investment.

Risks Related to Our Business

We have a limited operating history on which to judge our new business prospects and management.We commenced operations in the beverage industry in 2015. Accordingly, we have only a limited operating history upon which to have to base an evaluation of our business and prospects. Operating results for future periods are subject to numerous uncertainties and we cannot assure you that we will achieve or sustain profitability. Our prospects must be considered in light of the risks encountered by companies in the early stage of development, particularly companies in new and rapid evolving markets. We cannot assure you that we will successfully address any of these risks.

We have incurred losses in recent years and may never achieve or maintain profitability.We have had losses for several years and had an accumulated deficit of $6,154,441$11,472,974 at December 31, 2019,June 30, 2021, which included our net loss of $1,787,669$2,192,939 for the yearsix months ended December 31, 2019,June 30, 2021, as compared to an accumulated deficit of $4,366,772, which included net loss of $356,595 for year ended$9,280,036 at December 31, 2018. Our accumulated deficit was $8,325,733 as of September 30, 2020, which included our net loss of $2,171,292$3,125,595 for the nine monthsyear ended September 30, 2020.December 31, 2020, and an accumulated deficit of $6,154,441, which included net loss of $1,787,669 for year ended December 31, 2019. We have implemented several initiatives intended to improve our revenues and reduce our operating costs with a goal of profitability. If we are unsuccessful in this regard, it will have a material adverse impact on our business, prospects, operating results, and financial condition. Our prior losses have had, and any future losses may continue to have, an adverse effect on our working capital. If we fail to generate revenue and become profitable, or if we are unable to fund our continuing losses, our stockholders could lose all or part of their investment.

Our recurring losses and significant accumulated deficit have raised substantial doubt regarding our ability to continue as a going concern.We have experienced recurring operating losses over the last two years and have a significant accumulated deficit. We expect to continue to generate operating losses and consume significant cash resources for the foreseeable future. Without additional financing, these conditions raise substantial doubt about our ability to continue as a going concern, meaning that we may be unable to continue operations for the foreseeable future or realize assets and discharge liabilities in the ordinary course of operations. If we seek additional financing to fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors or other financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. If we are unable to obtain sufficient funding, our business, prospects, financial condition, and results of operations will be materially and adversely affected and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assets and may receive less than the value at which those assets are carried on our financial statements, and it is likely that our stockholders will lose all or a part of their investment.

We do not have sufficient working capital to fund our planned operations, and, as a result, we may need to raise additional capital in the future, which may not be available when needed, on acceptable terms or at all. We have limited capital resources. To date, we have financed our operations entirely through equity investments by our management and other investors, the incurrence of debt, salary deferments, and stock issuance deferments, and we expect to continue to do so in the foreseeable future. During the nine months ended September 30, 2020 and years ended December 31, 20192020 and 2018,2019, we relied on aggregate of approximately $8.7$3.3 million from incurrence of debt, salary deferments, and stock issuance deferments, to fund our operations. Taking into account the sale and issuance of a $100,000$1,500,000 debenture on August 20, 2021, and the sale and issuance of a $1,500,000 second debenture on upon the later of (i) the Securities Exchange Commission (“SEC”) declaring effective the registration statement or (ii) November 30, 2020 (See Description of Securities – November 2020 Stand-alone Debenture),1, 2021, we believe our current cash resources will fund 3up to 12 months of our financial obligations and operations. Taking into account our planned activities and sources of capital, we believe that we will require approximately $1.9$1 million to fund our financial obligations and operations for the next 12 months; assumingmonths in excess of what we anticipate that approximately $1.6 million of cash and equity compensation is accrued.we will generate from our operations. However, our estimates of our operating revenues and expenses and working capital requirements could be incorrect, and we may use our cash resources faster than we anticipate. Further, some or all of our ongoing or planned investments may not be successful and could further deplete our capital without immediate, or any, cash returns.

Until we can generate sufficient revenues to finance our cash requirements from our operations, which we may never do, we may need to increase our liquidity and capital resources by one or more measures, which may include, among others, reducing operating expenses, restructuring our balance sheet by negotiating with creditors and vendors, entering into strategic partnerships or alliances, or raising additional financing through the issuance of debt, equity, or convertible securities. Further, even if our near-term liquidity expectations prove correct, we may still seek to raise capital through one or more of these financing alternatives. However, we may not be able to obtain capital when needed or desired, on terms acceptable to us or at all.

Inadequate working capital would have a material adverse effect on our business and operations and could cause us to fail to execute our business plan, fail to take advantage of future opportunities, or fail to respond to competitive pressures or customer requirements. A lack of sufficient funding may also require us to significantly modify our business model and/or reduce or cease our operations. Furthermore, if we continue to issue equity or convertible debt securities to raise additional funds, our existing stockholders may experience significant dilution, and the new equity or debt securities may have rights, preferences, and privileges that are superior to those of our existing stockholders. We may incur substantial costs in pursuing any future capital-raising transactions, including investment banking, legal and accounting fees, printing and distribution expenses, and other similar costs, which would reduce the benefit of the capital received from the transaction.

The COVID-19 pandemic could have a material adverse impact on our business, results of operations, and financial condition.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, our products. Uncertainties regarding the economic impact of COVID-19 are likely to result in sustained market turmoil, which could also negatively impact our business, financial condition, and cash flow. For example, to date, COVID-19 has adversely impacted new product launches by Kona and HighDrate, Gold Leaf’s distribution of new product lines, and the commencement of new distribution contracts, all of which adversely affected our business, financial condition, and cash flow.

However, we acquired S and S during the COVID-19 pandemic and increased our product variety due to the acquisition.

Our co-packers source raw materials used in our products from suppliers located in the United States. The impact of COVID-19 on these suppliers, or any of our other suppliers, distributors and resellers, or transportation or logistics providers, may negatively affect the price and availability of our ingredients and/or packaging materials and impact our supply chain. If the disruptions caused by COVID-19 continue for an extended period of time, our ability to meet the demands of our consumers may be materially impacted. To date, we have not experienced any reduction in the available supply of our products. Additionally, many of our employees, including members of our management team, have been working remotely as a result of the closure of our offices and warehouses in compliance with local and state regulations in response to the COVID-19 pandemic. If our operations or productivity become, or continue to be, impacted throughout the duration of the COVID-19 outbreak and government-mandated closures, those occurrences may negatively impact our business, financial condition, and cash flow. The extent to which the COVID-19 pandemic will further impact our 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, we cannot reasonably estimate the impact to our business at this time.

The extent of the effect of COVID-19 on our 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 our business. However, if the pandemic continues for a prolonged period, it could have a material adverse effect on our business, results of operations, financial condition, and cash flow and adversely impact the quoted price of our Common Stock on the OTCQB.

We sell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain or increase the market share of our products.The beverage business is a highly competitive and risky business, and is subject to significant competition and pricing pressures. We compete with many national, regional, and local businesses, many of which have more resources than we do. We could experience increased competition from existing or new companies in the energy and beverage market, which could create increasing pressures to grow our business. Competitors could offer products with prices that may match or are lower than the prices we offer. While we believe that the products we offer are generally competitive with those offered by other companies, continued pricing pressure or improvements in research and shifts in consumer preferences away from hemp-based beverages could adversely impact our consumer base or pricing structure and could have a material and adverse effect on our business, financial condition, results of operations, and cash flow.

Our future growth is largely dependent upon our ability to expand successfully into new markets and new distribution channels, as well as to attract new consumers to our products.Our business operates in markets that are characterized by rapidly changing products, evolving industry standards, and potential new entrants. Our future success depends upon a number of factors, including our ability to expand our product offerings into new territories and locations throughout the United States, including having our products offered in national retail stores such as Costco, Walmart, and Target. We cannot provide any assurance that our products will be offered in any such national chain. Failure to expand our distribution network to include distributors with reach into national retail stores will have an adverse effect on our growth, which, in turn, could adversely affect our business, financial condition, results of operations, and cash flow.

Changes in consumer preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.We believe we are highly dependent upon positive consumer perceptions of the safety and quality of our products, as well as similar products distributed by other companies. Consumer perception of CBD or hemp products in particular can be substantially influenced by scientific research findings, national media attention, and other publicity about product use. Adverse publicity from these sources regarding the safety, quality, or efficacy of our products could harm our reputation and results of operations. If consumer preferences and perceptions of our products change, the resulting demand for our products could decrease, which could adversely affect our business, financial condition, and results of operations.

Increases in our costs materially affect our operating results.Our principal beverage products contain hemp, CBD, and ginseng. Increases in costs of these, or other ingredients in our products paid by our co-packers, with respect to our Beverages Segment, or our suppliers, with respect to our Distribution Segment, and the costs of which are passed on to us, could have a material adverse effect on our profit margins, as well as on our business, financial condition, and operating results. Further, other factors, such as inflation, increased food costs, increased labor and employee benefit costs, and increased energy costs may adversely affect our operating costs and we may not be able to pass along any such increased costs to our consumers. Increases in costs could adversely affect our profitability and operating results.

We do not have long-term contracts with any of our co-packers or our suppliers, and as a result they could seek to increase prices significantly or fail to deliver. We do not rely on written contracts or long-term arrangements with our co-packers or our suppliers. Although we have not experienced significant problems with our co-packers or our suppliers, as applicable, our co-packers or suppliers may implement significant price increases or may not meet our requirements in a timely fashion, if at all. If any undesirable issues occur with our current co-packers or suppliers, we may be forced to find other co-packers and suppliers. We may encounter difficulties in finding substitute co-packers in a timely manner, if at all, given the strict licensing requirements in the CBD industry and the limited number of co-packers that currently hold such licenses that are necessary to comply with federal law. We may not be able to obtain terms as favorable as those received from our current co-packers and suppliers, which in turn would increase our costs. In addition, it is possible that the substitute co-packers and suppliers may not have the necessary materials to meet our demand.

We must monitor our inventory and product mix against forecasted demand on a continuous basis. If we underestimate demand, we risk having inadequate supplies. We also face the risk of having too much inventory on hand that may reach its expiration date and become unsalable, and we may be forced to rely on markdowns or promotional sales to dispose of excess or slow-moving inventory. If we are unable to manage our supply chain effectively, our operating costs could increase and our profit margins could decrease, which could have a material adverse effect on our financial condition, operating results, and cash flow.

Any prolonged disruption in the operations of any of our co-packing facilities could harm our business.All of our distribution is managed domestically. Any prolonged disruption in the operations of any of these facilities, whether due to technical or labor difficulties, destruction or damage to the facility, real estate issues, or other reasons, could result in increased costs and reduced revenues and our profitability and prospects could be harmed.

We may not be able to manage our co-packing capabilities effectively, which may adversely affect our results of operations.We must accurately forecast demand for all of our products in order to ensure that we have enough products available to meet the needs of our consumers. Our forecasts are based on multiple assumptions that may cause our estimates to be inaccurate and affect our ability to ensure that we have sufficient co-packing capacity to meet the demand for our products, which could prevent us from meeting increased consumer demand and harm our brand and our business. If we do not accurately align our co-packing capabilities with demand, our business, financial condition, and results of operations may be materially adversely affected.

If the ingredients used in our products are contaminated, alleged to be contaminated, or are otherwise rumored to have adverse effects, our results of operations could be adversely affected.We, through our co-packers, buy ingredients from a variety of third-party suppliers. If these materials are alleged or prove to include contaminants that affect the safety or quality of our products or are otherwise rumored to have adverse effects, for any reason, we may sustain the costs of, and possible litigation resulting from, a product recall and need to find alternative ingredients, to delay production, or to discard or otherwise dispose of products, which could materially adversely affect our business, financial condition, and results of operations. In addition, even if product liability claims against us are not successful or are not fully pursued, these claims could be costly and time-consuming and could require our management to spend their time defending claims, rather than operating our business.

Our business depends, in part, on the sufficiency and effectiveness of our marketing.Due to the competitive nature of our industry, we must effectively and efficiently promote and market our products through advertisements to sustain and improve our competitive position in our market. Marketing investments may be costly. In addition, we may, from time to time, change our marketing strategies and spending. We may also change our marketing strategies and spending in response to actions by our consumers, competitors, and other companies that produce and/or distribute beverage products. The sufficiency and effectiveness of our marketing are important to our ability to retain and improve our market share and margins. If our marketing is not successful or if we fail to implement sufficient and effective marketing or adequately respond to changes in industry marketing strategies, our business, financial condition, and results of operations may be adversely affected.

Loss of key personnel or our inability to attract and retain new qualified personnel could hurt our business and inhibit our ability to operate and grow successfully. We have benefited substantially from the leadership and performance of our senior management, as well as other key employees. Our ability to grow our brand successfully hinges on our ability to retain our current management and key employees, and to attract and retain qualified personnel in the future. We cannot provide any assurance that we will be able to retain our personnel or attract new, qualified personnel. In addition, we do not maintain any “key person” life insurance policies. The loss of the services of members of our senior management or key employees could prevent or delay the implementation and completion of our strategic objectives or divert management’s attention to seeking qualified replacements. If we are unable to attract or retain key personnel, our profitability and growth potential could be harmed.

We may not be able to protect our intellectual property adequately, which could harm the value of our brands and branded products and adversely affect our business. We depend in large part on our brands and branded products and believe that they are very important to our business, as well as on our proprietary hemp-infused processes. We rely on a combination of trademarks, trade secrets, and similar intellectual property rights to protect our brands and branded products. The success of our business depends on our continued ability to use our existing trademarks in order to increase brand awareness and further develop our branded products in domestic markets. We own twothree trademarks that are registered with the USPTO and have another trademark registration pending in the United States. We may not be able to protect our trademarks adequately and our use of trademarks may result in liability for trademark infringement, trademark dilution, or unfair competition. We may from time to time be required to institute litigation to enforce our trademarks or other intellectual property rights, or to protect our trade secrets. Such litigation could result in substantial costs and diversion of resources and could negatively affect our sales, profitability, and prospects, regardless of whether we are able to successfully enforce our rights. Our failure to obtain or maintain adequate protection of our intellectual property rights for any reason could have a material adverse effect on our business, results of operations, and financial condition.

We may be subject to product liability claims or regulatory actions if our products are alleged to have caused significant loss or injury.We may be subject to product liability claims, regulatory action, and litigation if our products are alleged to have caused loss or injury or failed to include adequate instructions for use or failed to include adequate warnings concerning possible side effects or interactions with other substances. Previously unknown adverse reactions resulting from consumption of CBD products alone or in combination with medications or other substances could also occur. In addition, the sale of any ingested product involves a risk of injury due to tampering by unauthorized third parties or product contamination. Our products may also be subject to product recalls, including voluntary recalls or withdrawals, if they are alleged to pose a risk of injury or illness, or if they are alleged to have been mislabeled, misbranded, or adulterated, or otherwise to be in violation of governmental regulations. A product liability claim or regulatory action against us could result in increased costs and could adversely affect our reputation and goodwill with our consumers generally. There can be no assurance that we will be able to obtain and maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities. Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficient insurance coverage on reasonable terms or otherwise to protect against potential product liability claims could result in us becoming subject to significant liabilities that are uninsured and also could adversely affect our commercial arrangements with third parties.

Our annual and quarterly financial results are subject to significant fluctuations due to a variety of factors, many of which are beyond our control, which makes our results difficult to predict and could cause our results to fall short of expectations.Our operating results can vary significantly from quarter-to-quarter and year-to-year depending on various factors, many of which are beyond our control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not rely on our past results as an indication of our future performance. Our operating results in future quarters may fall below expectations. Each of the following factors may affect our operating results:

Consequently, our results of operations may decline quickly and significantly in response to changes in order patterns or rapid decreases in demand for our products. We anticipate that fluctuations in operating results will continue in the future; thus, our historical operating results may not be useful to you in predicting our future operating results.

We may require additional capital to finance our operations in the future, but that capital may not be available when it is needed and could be dilutive to existing stockholders.We may require additional capital for future operations.We plan to finance anticipated ongoing expenses and capital requirements with funds generated from the following sources: (i) cash provided by operating activities; (ii) available cash and cash investments; and (iii) capital raised through debt and equity transactions. Current conditions in the capital markets are such that traditional sources of capital may not be available to us when needed or may be available only on unfavorable terms. Our ability to raise additional capital, if needed, will depend on conditions in the capital markets, economic conditions, and a number of other factors, many of which are outside of our control, and on our financial performance. Accordingly, we cannot assure you that we will be able to raise additional capital successfully at all or on terms that are acceptable to us. If we cannot raise additional capital when needed, it may have a material adverse effect on our liquidity, financial condition, results of operations, and prospects. Further, if we raise capital by issuing stock, the holdings of our existing stockholders will be diluted.

If we raise capital by issuing debt securities, such debt securities would rank senior to our Common Stockshares of common stock, $0.00001 par value per share (our “Common Stock”), upon our bankruptcy or liquidation. In addition, we may raise capital by issuing equity securities that may be senior to our Common Stock for the purposes of dividend and liquidating distributions, which may adversely affect the market price of our Common Stock. Finally, upon bankruptcy or liquidation, holders of our debt securities and shares of our preferred stock and our lenders with respect to other borrowings will receive a distribution of our available assets prior to the holders of our Common Stock. Additional equity offerings may dilute the holdings of our existing stockholders or reduce the market price of our Common Stock, or both.

The success of our new and existing products is uncertain.We have committed, and expect to continue to commit, significant resources and capital to develop and market existing product enhancements and new products. These products are relatively untested, and we cannot assure you that we will achieve market acceptance for these products, or other new products that we may offer in the future. Moreover, these and other new products may be subject to significant competition with offerings by new and existing competitors. In addition, new products and enhancements may pose a variety of technical challenges and require us to attract additional qualified employees. The failure to develop and market these new products or enhancements successfully could seriously harm our business, financial condition, and results of operations.

Our business is dependent upon market acceptance by consumers. We are substantially dependent on market acceptance of our products by consumers, our ability to change with consumer tastes, and to meet consumer needs with new products. If consumers do not accept our products, our sales and revenue will either fail to materialize or decline, resulting in a reduction in our operating income or possible increases in losses. Demand for CBD and hemp products is also influenced by the popularity of certain aesthetics, cultural and demographic trends, marketing and advertising expenditures, legality concerns, and general economic conditions. Because these factors can change rapidly, consumer demand also can shift quickly. The success of new product introductions depends on various factors, including product selection and quality, sales and marketing efforts, and timely production. We may not always be able to respond quickly and effectively to changes in consumer taste and demand due to the amount of time and financial resources that may be required to bring new products to market. The inability to respond quickly to market changes could have an impact on our expected growth potential and the growth potential of the market for CBD and hemp beverages. Even if this market develops, we may not succeed in our plan to become a category leader. Although we believe that our products in the United States are gaining better consumer acceptance, we cannot predict the future growth rate and size of this market.

If we are able to expand our operations, we may be unable to manage our future growth successfully.If we are able to expand our operations in the United States, as planned, we may experience periods of rapid growth, which will require additional resources. Any such growth could place substantial strain on our management and our operational, financial, and other resources, and we will need to train, motivate, and manage current employees, as well as attract management, sales, finance and accounting, technical, and other professionals. In addition, we will need to expand the scope of our infrastructure and our physical resources. Any failure to expand these areas and implement appropriate procedures and controls in an efficient manner and at a pace consistent with our business objectives and such growth could have a material adverse effect on our business and results of operations.

Any future litigation, or settlements resulting from legal proceedings relating to our business operations, could have a material adverse impact on our results of operations, and financial condition, and liquidity.From time to time, we may be subject to allegations, and may be party to legal claims and regulatory proceedings, relating to our business operations. Such allegations, claims, and proceedings may be brought by third parties, including our consumers, employees, governmental or regulatory bodies, or competitors. Defending against such claims and proceedings, regardless of their merits or outcomes, is costly and time consuming and may divert management’s attention and personnel resources from our normal business operations, and the outcome of many of these claims and proceedings cannot be predicted. If any of these claims or proceedings were to be determined adversely to us, a judgment, a fine, or a settlement involving a payment of a material sum of money were to occur, or injunctive relief were issued against us, our business, financial condition, and results of operations could be materially adversely affected. Our reputation could also be affected and such adverse litigation results or publicity may also negatively impact our business, financial condition, and results of operations.

Premiums for our insurance coverage may not continue to be commercially justifiable, and our insurance coverage may have limitations and other exclusions and may not be sufficient to cover our potential liabilities.We have insurance to protect our assets, operations, and employees. While we believe our insurance coverage addresses all material risks to which we are exposed and is adequate and customary in our current state of operations, such insurance is subject to coverage limits and exclusions and may not be available for the risks and hazards to which we are exposed. No assurance can be given that such insurance will be adequate to cover our liabilities or will be generally available in the future or, if available, that premiums will be commercially justifiable. In addition, insurance that is otherwise readily available, such as general liability, and directors’ and officers’ insurance, may become more difficult for us to find, and become more expensive, due to our CBD products. We cannot provide any assurance that we will be able to obtain such insurance in the future, or that the cost will be affordable to us. If we are unable to obtain such insurance, or if we were to incur substantial liability that was not covered by insurance or was in excess of policy limits, we may be prevented from entering into certain business sectors, our growth may be inhibited, and we may be exposed to additional risk and financial liabilities, which could have a material adverse effect on our business, results of operations, and financial condition.

Risks Related to the Regulation of Our Business and Products

We and our co-packers and suppliers are subject to extensive governmental regulation and may be subject to enforcement if we are not in compliance with applicable requirements.We and our co-packers and suppliers are subject to a broad range of federal, state, and local laws and regulations that govern, among other issues, the testing, development, production, distribution, marketing, and post-market reporting of foods, including those that contain CBD. These include laws administered by the U.S. Food and Drug Administration (“FDA”), the U.S. Federal Trade Commission (“FTC”), the U.S. Department of Agriculture (“USDA”), and other federal, state, and local regulatory authorities. Because we market products that are regulated as food, we and the companies that co-pack our products are subject to the requirements of the Federal Food, Drug, and Cosmetic Act (“FDCA”) and regulations promulgated thereunder by the FDA. The statute and regulations govern, among other things, the production, composition, ingredients, packaging, labeling, and safety of beverages. The FDA requires that facilities that produce food products comply with a range of requirements, including hazard analysis and preventative controls regulations, current good manufacturing practices (“cGMPs”), and supplier verification requirements. Production facilities are subject to periodic inspection by federal, state, and local authorities. If we cannot successfully contract with co-packers for our products and if they cannot conform to our specifications and the strict regulatory requirements of the FDA and applicable state and local laws, they may be subject to adverse inspectional findings or enforcement actions, which could materially impact our ability to market our products, could result in their inability to continue to co-pack for us, or could result in a recall of our products that have already been distributed. If the FDA or other regulatory authority determines that we or they have not complied with the applicable regulatory requirements, our business, financial condition, and results of operations may be materially adversely impacted. If we do not comply with labeling requirements, including making unlawful claims about our products, we could be subject to public warning letters and possible further enforcement actions (which other companies distributing CBD products have faced).

Failure by us, our co-packers, or our suppliers to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, and registrations relating to our operations could subject us to administrative and civil penalties, including fines, injunctions, recalls or seizures, warning letters, restrictions on the production or marketing of our products, or refusals to permit the import or export of products, as well as potential criminal sanctions, any or all of which could result in increased operating costs resulting in a material effect on our operating results and business. See “Description of Business – Government Regulation and Compliance.”

The FDA has stated that it interprets the FDCA to prohibit the sale of food products that contain CBD. The FDA is currently evaluating a potential regulatory pathway for CBD products pursuant to its current authority; but, unless and until such changes are promulgated, the FDA and other federal and state regulatory authorities could take enforcement action to prevent us from marketing beverages with CBD, which could adversely impact our business, financial condition, and results of operations or cause us to halt product sales altogether.Although hemp and CBD are no longer controlled substances subject to regulation by the U.S. Drug Enforcement Agency (the “DEA”), the FDA has stated publicly that it is nonetheless unlawful under the FDCA to introduce food containing CBD into interstate commerce. The FDCA prohibits the introduction or delivery for introduction into interstate commerce of any food that contains an approved drug or a drug for which substantial clinical investigations have been instituted and made public, unless a statutory exemption applies. The FDA has publicly stated its conclusion that none of the statutory exceptions has been met for CBD. See “Description of Business – Government Regulation and Compliance.”

On May 31, 2019, the FDA held a public hearing to obtain scientific data and information about the safety, production, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds (such as CBD) to provide the FDA with information as it considers policy options related to the regulation of these products, particularly in light of the changes to the legal status of hemp enacted in the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”). The FDA has also formed an internal working group to evaluate the potential pathways to market for CBD products, which could include seeking statutory changes from Congress or promulgating new regulations. If legislative action is necessary, such legislative changes could take years to finalize and may not include provisions that would enable us to produce, market, and/or sell our CBD products, and the FDA could similarly take years to promulgate new regulations. Additionally, while the FDA’s enforcement focus to date has primarily been on CBD products that are associated with therapeutic claims, the agency has recently issued warning letters to companies that market CBD products without such claims. There is an unquantifiable risk that the FDA could take enforcement action against us, our co-packers, or our suppliers, or those marketing similar products to us, which could limit or prevent us from marketing our products and have a material adverse impact on our business, financial condition, and results of operations. While the FDA announced on March 5, 2020 that it is currently evaluating a risk-based enforcement policy for CBD to provide more clarity to the industry and the public while the agency takes potential steps to establish a clear regulatory pathway, it remains unclear whether or when the FDA will ultimately issue such an enforcement policy.

Moreover, local, state, federal, and international CBD, hemp, and cannabis laws and regulations are rapidly changing and subject to evolving interpretations, which could require us to incur substantial costs associated with compliance requirements or alteration of certain aspects of our business plan in the event that our CBD products become subject to new restrictions. In addition, violations of these laws, or allegations of such violations, could disrupt our business and result in a material adverse effect on our operations. It is also possible that regulations may be enacted in the future that will be directly applicable to our products. We cannot predict the nature of any future laws, regulations, interpretations, or applications, nor can we determine what effect additional governmental regulations or administrative policies and procedures, when and if promulgated, could have on our activities in the hemp and CBD industry. The constant evolution of laws and regulations may require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan.

Our products contain CBD derived from hemp. The 2018 Farm Bill enacted a number of changes to the legal status of hemp and hemp products, including removal from the statutory list of controlled substances. However, implementation of the 2018 Farm Bill is ongoing, and there is still significant uncertainty regarding the legal status of hemp and hemp-based products under U.S. law. Our products that contain CBD are subject to various state and federal laws regarding the production and sale of hemp-based products. Historically, the DEA had interpreted CBD to be subject to the Controlled Substances Act (the “CSA”) under the definition for “marijuana,” a Schedule I controlled substance. However, the 2018 Farm Bill removed “hemp,” from the definition of “marijuana.” “Hemp” is defined as the plant, Cannabis sativa L., and any part of that plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 tetrahydrocannabinol (“THC”) concentration of not more than 0.3% on a dry weight basis. As a result of the enactment of the 2018 Farm Bill, and since we believe that the CBD contained in our products and the hemp from which it is derived meet the definition of “hemp,” we believe that our CBD products and the hemp from which they are derived are not Schedule I controlled substances under the CSA. However, there is a risk that we could be subject to enforcement action, including prosecution, if any of our products are determined not to meet the definition of “hemp” and to constitute “marijuana” under the CSA based on THC levels or other violations, which would have a negative impact on our business and operations.

In addition, the 2018 Farm Bill contained provisions that require the USDA, among other things, to promulgate a new regulatory framework that will govern the growth and cultivation of hemp, where hemp grown in compliance with the framework would be permitted in interstate commerce throughout the United States. On October 31, 2019, the USDA issued an interim final rule (“IFR”) establishing the regulations necessary for domestic hemp production, including provisions for the USDA to approve plans submitted by states and Native American tribes for the monitoring and regulation of hemp production at the state level. While the 2018 Farm Bill requires state and tribal plans to meet certain basic requirements as outlined in the IFR, nothing preempts or limits state or tribal laws that are more stringent than the 2018 Farm Bill, and the requirements for lawful hemp production will vary from state to state. We and our co-packers and suppliers must expend resources to monitor the evolving federal and state legal landscape for hemp production, and any violations of these laws, or alleged violations, could disrupt our business and result in a material adverse effect on our operations.

Within the United States, we and our co-packers and suppliers face a variety of state and local restrictions on the cultivation of hemp, and if state or local regulatory authorities take enforcement action to prevent us from selling our products, our business, financial condition, and results of operations could be materially adversely impacted.The growth and cultivation of hemp is subject to a complex regulatory framework that is implemented and affected by multiple federal agencies, as well as state and local authorities. In 2014, four years prior to enacting the 2018 Farm Bill, Congress enacted the Agricultural Act of 2014 (the “2014 Farm Bill”) to allow for the limited growth and cultivation of industrial hemp under federal law. This statute allowed institutions of higher education and state departments of agriculture to grow and cultivate industrial hemp for agricultural or other academic research purposes, or for hemp to be grown under the auspices of a state agricultural pilot program, in states where such growth and cultivation is legal under state law. While the 2014 Farm Bill will be repealed after October 31, 2020, and although the 2018 Farm Bill created a pathway under which hemp and its derivatives, including CBD, would no longer be a Schedule I controlled substance under the CSA and would be protected from interference in interstate commerce, the USDA only recently issued the IFR that contains the regulatory framework that will govern the growth and cultivation of hemp, and, currently, several states continue to operate under the 2014 Farm Bill. Alongside the current federal regulatory developments, state and local authorities have enacted their own restrictions on the cultivation or sale of hemp or hemp-derived CBD, including laws that ban the cultivation or possession of hemp or any other plant of the cannabis genus and derivatives thereof, such as CBD. Currently several states ban the cultivation and possession of hemp or CBD, while others have taken enforcement action against human food products that contain CBD, and states may enact new laws or regulations that prohibit or limit the sale of such products at any time. In the event of a change in federal or state laws and regulations that are adverse to our CBD products, we may be restricted or limited with respect to sale or distribution of those products, which could adversely impact our intended business plan with respect to such products.

The USDA has only recently issued the IFR and started accepting state and tribal hemp production plans for review, and it remains to be seen which states will submit their own regulatory plans for the cultivation of hemp and which will become subject to the USDA framework. The timing and content of state regulatory plans may impact our ability to obtain sufficient quantities of CBD at an acceptable price and on a timely basis. If our current co-packers and suppliers were to face increased regulation or be unable to continue to supply our business, we may be unable to fulfill orders for our products or find a suitable replacement co-packers and suppliers in a timely fashion or with comparable pricing. If our current co-packers or suppliers or any future co-packers or suppliers fail to comply with the applicable regulatory requirements, our business may suffer.

Changes in existing laws or regulations, including how such existing laws or regulations are enforced by federal, state, and local authorities, or the adoption of new laws or regulations may increase our costs and otherwise adversely affect our business, financial condition, and results of operations. In addition to the legal framework applicable to hemp and CBD, the production and marketing of food products is highly regulated, and we and our co-packers and suppliers are subject to a variety of federal and state laws and regulations applicable to food. These laws and regulations apply to many aspects of our business, including the co-packing, packaging, labeling, distribution, advertising, sale, quality, and safety of our products. We could incur costs, including fines, penalties, and third-party claims, in the event of any violations of, or liabilities under, such requirements, including any competitor or consumer challenges relating to compliance with such requirements. For example, in connection with the marketing and advertising of our products, we could be the target of claims relating to false or deceptive advertising, including under the auspices of the FTC and state consumer protection statutes.

The regulatory environment in which we operate could change significantly and adversely in the future. The laws and regulations that apply to our products and business may change in the future and we may incur (directly or indirectly through our co-packers or suppliers) material costs to comply with current or future laws and regulations or any required product recalls. Any change in production, labeling, or marketing requirements for our products may lead to an increase in costs or interruptions in our production or raw material supply, either or both of which could adversely affect our operations and financial condition. For example, recent federal and state attention to the sale of CBD-containing products, and specifically food products that contain CBD, could result in standards or requirements that mandate changes to our current product ingredients, labeling, or marketing. New or revised government laws and regulations could significantly limit our ability to operate our business as it is currently being conducted, result in additional compliance costs, and, in the event of noncompliance, could lead to administrative or civil remedies, including fines, injunctions, withdrawals, recalls, or seizures and confiscations, as well as potential criminal sanctions.

Any such changes or actions by the FDA or other regulatory agencies could have a material adverse effect on our co-packers, our suppliers, and our business, financial condition, and results of operations.

Government scrutiny, warnings, and public perception could increase our costs of production and increase our legal and regulatory expenses, and if we are unable to comply with the applicable requirements for marketing beverages, we could face substantial civil and criminal penalties.Producing, processing, labeling, packaging, storing, and distributing food products are activities that are subject to extensive federal, state, and local regulation. In the United States, these operations are regulated by the FDA and various state and local public health and agricultural agencies. The FDA Food Safety Modernization Act of 2011 provides direct recall authority to the FDA for food products and includes a number of other provisions that are designed to enhance food safety, including increased inspections by the FDA of domestic food facilities. Compliance with government regulation can be costly or may otherwise adversely affect our business. Moreover, failure to comply with applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls, or seizures, as well as potential criminal sanctions, which could in turn have a material adverse effect on our business, financial condition, and results of operations.

We operate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Consequently, we are subject to heightened risk of legal claims, government investigations, or regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliance with existing laws and regulations, there can be no assurance that our employees, temporary workers, contractors, or agents might not violate our policies and procedures. Moreover, a failure to maintain effective regulatory compliance policies and procedures could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims, government investigations, or regulatory enforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subject us to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition, and operating results. In addition, the costs and other effects of defending potential and pending litigation and administrative actions against us may be difficult to determine and could materially adversely affect our business, financial condition, and results of operations.

Because there has been limited study on the effects of CBD, future nonclinical and clinical research studies and analysis of such studies by third parties, including government agencies, may lead to conclusions that dispute or conflict with our understandings and beliefs regarding the benefits, viability, safety, dosing, and social acceptance of CBD.Research in the United States and internationally regarding the benefits, viability, safety, and dosing of isolated cannabinoids (such as CBD or THC) remains in relatively early stages. There have been few clinical trials on the benefits of CBD conducted on humans or animals, including studies focused on the consumption of CBD in foods.

Future research and clinical trials may draw opposing conclusions to statements contained in current articles, reports, and studies regarding CBD or could reach different or negative conclusions regarding the medical benefits, viability, safety, dosing, or other facts and perceptions related to CBD, which could adversely affect acceptance of CBD in foods and the demand for such products. Future research may also cause regulatory authorities to change how they enforce regulatory restrictions applicable to hemp and CBD. We cannot predict any negative research and clinical trial findings in the future that may have a material adverse impact on our business, financial condition, and results of operation.

Negative publicity from being in the hemp and CBD space could have a material adverse effect on our business, financial condition, and results of operations. Hemp and marijuana are both varieties of the plant, Cannabis sativa L., except that hemp, as defined by federal law for exemption from Schedule I of the CSA, has a delta-9 THC concentration of not more than 0.3% on a dry weight basis. The same plant with a higher THC content is considered to be marijuana, which is legal for medical and recreational use under certain state laws, but which is not legal under federal law. The similarities between these plants can cause confusion, and our activities with hemp may be incorrectly perceived that we are involved in federally illegal marijuana activities.

Further, despite growing support for the cannabis industry and the legalization of marijuana in certain U.S. states, many individuals and businesses remain opposed to the cultivation and sale of cannabis and cannabis-derived products. Any negative publicity resulting from an incorrect perception that we operate in the marijuana space could result in a loss of current or future business. It could also adversely affect the public’s perception of us or our Common Stock and could lead to reluctance by new parties to do business with or to invest in us. We cannot assure you that additional business partners, including, but not limited to, financial institutions and distributors and resellers, will not attempt to end or curtail their relationships with us. Any such negative press or impacts to our business relationships could have a material adverse effect on our business, financial condition, and results of operations.

Our ability to deduct certain business expenses for income tax purposes is subject to uncertainty.Section 280E of the Internal Revenue Code of 1986, as amended (the “Code”), prohibits the deduction of certain otherwise ordinary business expenses from carrying on any trade or business that consists of “trafficking” Schedule I or II controlled substances, as defined by the CSA. Under existing Internal Revenue Service guidance, the bulk of operating costs and general administrative costs of trades or businesses that are subject to Section 280E of the Code are not permitted to be deducted. Although the 2018 Farm Bill created a pathway under which hemp and its derivatives, including CBD, would no longer be a Schedule I controlled substance under the CSA, until the USDA implements regulations pursuant to the 2018 Farm Bill, we believe our ability to deduct certain ordinary business expenses requires compliance with the 2014 Farm Bill. We do not believe that Section 280E of the Code currently forbids our deduction of otherwise ordinary business expenses because we believe that we are in compliance with the 2014 Farm Bill and/or the products we sell are from co-packers and suppliers that are compliant with the 2014 Farm Bill. However, until the USDA promulgates regulations under the 2018 Farm Bill, governmentally determined non-compliance with the 2014 Farm Bill by us, our co-packers, or their suppliers may have a material adverse tax effect on us.

Risks Related to an Investment in Our Common Stock

There is currently a limited public market for our Common Stock; a trading market for our Common Stock may never develop; and our Common Stock prices may be volatile and could decline substantially.Although our Common Stock is quoted on the OTCQB, an over-the-counter quotation system maintained by OTCM, under the symbol “KGKG,” there has been no material public market for our Common Stock. In the over-the-counter market, our stockholders may find it more difficult to obtain accurate quotations as to the market value of their shares of our Common Stock and may find fewer buyers to purchase their stock and fewer market makers to support its price than if our Common Stock were listed on a national securities exchange, such as the New York Stock Exchange, the NYSE-American, or the Nasdaq Stock Market. As a result of these and other factors, investors may be unable to resell shares of our Common Stock at or above the price at which they purchased them, at or near quoted bid prices, or at all. Further, an inactive market may also impair our ability to raise capital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companies or products by using shares of our Common Stock as currency.

Moreover, there can be no assurance that the Selling Stockholder will sell any or all of its Conversion Shares or Warrant Shares and there may initially be a lack of supply of, or demand for, shares of our Common Stock. In the case of a lack of supply for shares of our Common Stock, the quoted price of our Common Stock may rise to an unsustainable level, particularly in instances where institutional investors may be discouraged from purchasing our Common Stock because they are unable to purchase a block of shares in the open market due to a potential unwillingness of the Selling Stockholder to sell the amount of shares at the price offered by such investors and the greater influence individual investors have in setting the trading price. In the case of a lack of demand for shares of our Common Stock, the quoted price of our Common Stock could decline significantly and rapidly at any time.

We intend to list shares of our Common Stock on a national securities exchange in the future; but, we do not now, and may not in the future, meet the initial listing standards of any national securities exchange, which often provides a more widely-traded and liquid market. Some, but not all, of the factors that may delay or prevent the listing of shares of our Common Stock on a national securities exchange include the following: our stockholders’ equity may be insufficient; the market value of our outstanding Common Stock may be too low; our net income from operations may be too low or not sustained for the requisite period of time; our Common Stock may not be sufficiently widely held; we may not be able to secure market makers for our Common Stock; and we may fail to meet other rules and requirements mandated by the several exchanges and markets to have our Common Stock listed. Should we fail to satisfy the initial listing standards of the national securities exchanges, or if our Common Stock is otherwise rejected for listing, and remains quoted on the OTCQB or is suspended by the OTCM from the OTCQB, the quoted price of our Common Stock could suffer and the trading market for our Common Stock may become less liquid and our Common Stock price may be subject to increased volatility.

Therefore, an active, liquid, and orderly trading market for our Common Stock may not initially develop or be sustained, which could significantly depress the public price of our Common Stock and/or result in significant volatility, which could affect your ability to sell your shares of our Common Stock. Even if an active trading market were to develop for our Common Stock, the market price of our Common Stock may be highly volatile and subject to wide fluctuations. Our financial performance, government regulatory action, tax laws, interest rates, and market conditions in general could have a significant impact on the future market price of our Common Stock.

We are not subject to the rules of a national securities exchange requiring the adoption of certain corporate governance measures and, as a result, our stockholders do not have the same protections.We are quoted on the OTCQB and are not subject to the rules of a national securities exchange, such as the New York Stock Exchange, the NYSE-American,NYSE American, or the Nasdaq Stock Market. National securities exchanges generally require more rigorous measures relating to corporate governance that are designed to enhance the integrity of corporate management. The requirements of the OTCQB afford our stockholders fewer corporate governance protections than those of a national securities exchange. Until we comply with such greater corporate governance measures, even though such compliance is not required by the OTCM for quotations of shares of our Common Stock on the OTCQB, our stockholders will have fewer protections, such as those related to director independence, stockholder approval rights, and governance measures that are designed to provide oversight of a corporation’s management by its board of directors.

We do not have a class of our securities registered under Section 12 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Until we do, or we become subject to Section 15(d) of the Exchange Act, we will be a “voluntary filer.” We are not currently required to file periodic reports with the SEC under Section 13(a) or Section 15(d) of the Exchange Act. Until we become subject to those reporting requirements, we are a “voluntary filer.” We are currently considered to be a non-reporting issuer under the Exchange Act. We will not be required to file reports under Section 13(a) or 15(d) of the Exchange Act until the earlier to occur of: (i) our registration of a class of securities under Section 12 of the Exchange Act, which would be required if we list a class of securities on a national securities exchange or if we meet the size requirements set forth in Section 12(g) of the Exchange Act, or which we may voluntarily elect to undertake at an earlier date or (ii) the effectiveness of this or any other registration statement under the Securities Act relating to our Common Stock through the end of our fiscal year in which that registration statement was declared effective by the SEC. Until we become subject to the reporting requirements of Section 13(a) of the Exchange Act, we will not become subject to the SEC’s proxy rules, and large holders of our capital stock will not be subject to beneficial ownership reporting requirements under Sections 13 or 16 of the Exchange Act and their related rules. As a result, our stockholders and potential investors may not have available to them as much or as robust information as they might have if and when we become subject to those requirements. In addition, if we do not voluntarily register (or are not required to register) a class of securities under Section 12 of the Exchange Act, and remain a “voluntary filer”, we could cease filing annual, quarterly, or current reports under the Exchange Act following the end of our fiscal year in which that registration statement was declared effective.

Our Common Stock is currently subject to the “penny stock” rules; accordingly, it could adversely affect the market price of our Common Stock and increase your transaction costs to sell those shares.The SEC has adopted Rule 3a51-1, which defines a “penny stock” as any equity security that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain exceptions. Because the price of our Common Stock is less than $5.00 (and we do not meet any of the alternative exemptive criteria), our Common Stock is deemed to be a penny stock. For any transaction involving a penny stock, unless exempt, Rule 15g-9 requires that a broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive (i) the purchaser’s written acknowledgment of the receipt of a risk disclosure statement; (ii) a written agreement to transactions involving penny stocks; and (iii) a signed and dated copy of a written suitability statement. Generally, brokers may be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult for investors to dispose of our Common Stock and cause a decline in the market value of our Common Stock.

Our stock price has been extremely volatile, which could cause the value of an investment in our Common Stock to decline.The market price of our Common Stock has been extremely volatile and could be subject to significant fluctuations due to changes in sentiment in the market regarding our operations or business prospects, among other factors. The public price of our Common Stock following the date of this Prospectus also could be subject to wide fluctuations in response to the risk factors described in this Prospectus and others beyond our control, including:

In addition, the stock market in general has experienced extreme price and volume fluctuations that often have been unrelated or disproportionate to the operating performance of those companies. Securities class action litigation has often been instituted against companies following periods of volatility in the overall market and in the market price of a company’s securities. Such litigation, if instituted against us, could result in very substantial costs, divert our management’s attention and resources and harm our business, operating results, and financial condition.

Because we are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that are applicable to other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies will make our Common Stock less attractive to investors.We are a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. As a smaller reporting company, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies, including, but not limited to:

We will remain a smaller reporting company until the end of the fiscal year in which (1) we have a public common equity float of more than $250 million, or (2) we have annual revenues for the most recently completed fiscal year of more than $100 million plus we have any public common equity float or public float of more than $700 million. We also would not be eligible for status as smaller reporting company if we become an investment company, an asset-backed issuer, or a majority-owned subsidiary of a parent company that is not a smaller reporting company.

Sales by our stockholders of a substantial number of shares of our Common Stock in the public market could adversely affect the market price of our Common Stock. A substantial portion of the total outstanding shares of our Common Stock may be sold into the market at any time. Some of these shares are owned by our executive officers and directors, and we believe that such holders have no current intention to sell a significant number of shares of our stock. If all of the major stockholders were to decide to sell large amounts of stock over a short period of time, such sales could cause the market price of our Common Stock to drop significantly, even if our business were doing well.

Requirements associated with being a reporting public company will require significant company resources and management attention.Once this Registration Statement has been declared effective, From and after December 31, 2020, we will becomebecame subject to the reporting requirements of the Exchange Act and the other rules and regulations of the SEC relating to public companies, through no earlier than the end of our fiscal year that this Registration Statement is declared effective.companies. We are working with independent legal, accounting, and financial advisors to identify those areas in which changes should be made to our financial and management control systems to manage our growth and our obligations as an SEC reporting company. These areas include corporate governance, internal control, internal audit, disclosure controls, and procedures and financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internal control over financial reporting. However, we cannot provide assurances that these and other measures we may take will be sufficient to allow us to satisfy our obligations as an SEC reporting company on a timely basis. Further, while we remain an emerging growth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independent registered public accounting firm.

In addition, compliance with reporting and other requirements applicable to SEC reporting companies will create additional costs for us, will require the time and attention of management, and will require the hiring of additional personnel and legal, audit, and other professionals. We cannot predict or estimate the amount of the additional costs we may incur, the timing of such costs, or the impact that our management’s attention to these matters will have on our business and operations.

Our management constitutes some of our largest stockholders, which will allow them to exert significant control over our business and affairs and have actual or potential interests that may depart from those of investors. As of December 10, 2020,September 20, 2021, members of our management team beneficially owned approximately 49.23% of our outstanding shares of Common Stock; 100%, or 140 shares of our Series C Preferred Stock, each of which is convertible into one share of our Common Stock; and 100%, or 500,000 shares, of our Series D Preferred Stock, each of which is convertible into 1,000 shares46.21% of our Common Stock. As such, management owns approximately 52.1%of September 20, 2021, but assuming that all of the May 2020 Warrant Shares, February 2021 Conversion Shares that remain outstanding, February 2021 Warrant Shares, August 2021 Conversion Shares, and August 2021 Warrant Shares are issued and sold by the Selling Stockholder, members of our voting power and controls us.management team would beneficially own approximately 35.95% of our Common Stock. As a result, management has the virtual unfettered ability to control substantially all matters submitted to our stockholders for approval including (i) election of our Board; (ii) removal of any of our directors; (iii) amendment of our Amended and Restated Certificate of Incorporation (or(our “A&R Certificate of Incorporation”) or our Amended and Restated Bylaws (our “A&R Bylaws”); and (iii) adoption of measures that could delay or prevent a change in control or impede a merger, takeover, or other business combination involving us.

In addition, management’s stock ownership may discourage a potential acquirer from making a tender offer or otherwise attempting to obtain control of us, which in turn could reduce our stock price or prevent our stockholders from realizing a premium over our stock price.

Any investors will own a minority percentage of our Common Stock and will have minority voting rights.

Our preferred stock may have rights senior to those of our Common Stock, which could adversely affect holders of our Common Stock.Our A&R Certificate of Incorporation gives our Board the authority to issue one or more additional series of our preferred stock without a vote or any action by our stockholders. Our Board also has the authority to determine the terms of those various series of our preferred stock, including price, preferences, and voting rights. The rights granted to holders of shares of our preferred stock in the future may adversely affect the rights of holders of shares of our Common Stock. Any such authorized series of preferred stock may have a liquidation preference – a pre-set distribution in the event of a liquidation of our Company – that would reduce the amount available for distribution to the holders of shares of our Common Stock or may have dividend rights superior to those provided to the holders of shares of our Common Stock, which could reduce the amount of available for distribution as dividends to holders of shares of our Common Stock. In addition, an authorized series of our preferred stock may have voting rights that are superior to the voting right of the holders of shares of our Common Stock.

We do not expect to pay any cash dividends in the foreseeable future.We intend to retain our future earnings, if any, in order to reinvest in the development and growth of our business and, therefore, do not intend to pay dividends on our Common Stock for the foreseeable future. Any future determination to pay dividends will be at the discretion of our Board and will depend on our financial condition, results of operations, capital requirements, and such other factors as our Board deems relevant. Accordingly, investors may need to sell their shares of our Common Stock to realize a return on their investment, and they may not be able to sell such shares at or above the price paid for them.

We can sell additional shares of our Common Stock without approval of our stockholders and without offering shares to existing stockholders, which would result in dilution of existing stockholders’ interests in us and could depress our stock price.price. Our A&R Certificate of Incorporation authorizes 2,500,000,000 shares of our Common Stock, of which 778,052,603872,772,803 are issued and outstanding as of December 10, 2020;September 20, 2021; 1,200,000 shares of our Series B Preferred Stock, of which 488,000 shares are issued and outstanding as of December 10, 2020;September 20, 2021; 250 shares of our Series C Preferred Stock, of which 140 shares are issued and outstanding as of December 10, 2020;September 20, 2021; and 500,000 shares of our Series D Preferred Stock, of which 500,000 shares are issued and outstanding as of December 10, 2020,September 20, 2021, for an aggregate of 988,140 issued and outstanding shares of our preferred stock as of December 10, 2020,September 20, 2021, which shares of issued and outstanding shares of our preferred stock are convertible into an aggregate of 500,488,140 shares of our Common Stock. Although our Board intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to our then-existing stockholders in connection with any future issuance of our capital stock, the future issuance of additional shares of our Common Stock or preferred stock convertible into shares of our Common Stock would cause immediate, and potentially substantial, dilution to our existing stockholders, which could also have a material effect on the market value of the shares. In addition, the exercise price of any convertible debt securities or the conversion price of any convertible equity securities we may sell and issue in the future could be significantly lower than the market price of our Common Stock on the respective issuance, exercise, or conversion date. Alternatively, we could issue equity securities at a significant discount to the market price of our Common Stock on the issuance date, the occurrence of any of such events could have a material adverse effect on the market price of our Common Stock.

Further, shares of our Common Stock do not have preemptive rights, which means that we can sell shares of our Common Stock to other persons without offering the holders of shares of our Common Stock, or the purchasers in this offering, the right to purchase their proportionate share of such offered shares. Therefore, any additional sales of our capital stock by us could dilute an existing stockholder’s ownership interest in us.

We are an emerging growth company and a smaller reporting company, and we cannot be certain if the reduced reporting requirements applicable to emerging growth companies and smaller reporting companies will make our Common Stock less attractive to investors.We are an emerging growth company, as defined in the JOBS Act, enacted in April 2012. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the SOX Act, reduced disclosure obligations regarding executive compensation in this Prospectus and our periodic reports and proxy statements, and exemptions from the‘the requirements of holding nonbinding advisory votes on executive compensation and stockholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years following the year in which we complete this offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of this offering, (b) in which we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, which requires the market value of our Common Stock that is held by non-affiliates to exceed $700 million as of the prior June 30^th, and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as that standards apply to private companies. We have irrevocably elected to “opt out” of this exemption and, therefore, we will adopt new or revised accounting standards at the time public companies adopt the new or revised accounting standards and, therefore, we will adopt new or revised accounting standards at the time private companies adopt the new or revised accounting standards.

Even after we no longer qualify as an emerging growth company, we may still qualify as a “smaller reporting company,” which would allow us to continue to take advantage of many of the same exemptions from disclosure requirements, including not being required to comply with the auditor attestation requirements of Section 404 of the SOX, and reduced disclosure obligations regarding executive compensation in this Prospectus and our periodic reports and proxy statements, to the extent we are required to make such filings. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.

Provisions in our A&R Certificate of Incorporation and A&R Bylaws and Delaware law may discourage a takeover attempt even if a takeover might be beneficial to our stockholders.Provisions contained in our A&R Certificate of Incorporation and A&R Bylaws could make it more difficult for a third party to acquire us. Provisions in our A&R Certificate of Incorporation and A&R Bylaws impose various procedural and other requirements, which could make it more difficult for stockholders to effect certain corporate actions. For example, our A&R Certificate of Incorporation authorizes our Board to determine the rights, preferences, privileges, and restrictions of unissued series of our preferred stock without any vote or action by our stockholders. Thus, our Board can authorize and issue shares of our preferred stock with voting or conversion rights that could dilute the voting power of holders of other series of our capital stock. These rights may have the effect of delaying or deterring a change of control of us. Additionally, our A&R Certificate of Incorporation and/or A&R Bylaws establish limitations on the removal of directors and on the ability of our stockholders to call special meetings and include advance notice requirements for nominations for election to our Board and for proposing matters that can be acted upon at stockholder meetings.

Moreover, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the General Corporation Law of the State of Delaware (the “DGCL”), which prohibits an “interested stockholder” owning in excess of 15% of our outstanding voting stock from merging or combining with us for a period of three years after the date of the transaction in which such stockholder acquired in excess of 15% of our outstanding voting stock, unless the merger or combination is approved in a prescribed manner.

See “Description of Securities – Anti-Takeover Effects of Provisions of Our A&R Certificate of Incorporation, Our A&R Bylaws and Delaware Law.” These provisions could limit the price that certain investors might be willing to pay in the future for shares of our Common Stock.

Claims for indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against us and may reduce the amount of money available to us.Our A&R Certificate of Incorporation provides that we will indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. In addition, as permitted by Section 145 of the DGCL, our A&R Certificate of Incorporation provides that:

We previously effected a dividend distribution of common stock of Elev8 Hemp, as our wholly-owned subsidiary, and Branded Legacy, Inc., formerly known as Elev8 Brands, Inc. and, prior to that, known as PLAD, Inc. (“Branded Legacy”), which may have violated Section 5 of the Securities Act. The shares of common stock of Branded Legacy that we distributed to our stockholders were not registered under the Securities Act, and we may not have fully complied with SEC Legal Bulletin No. 4, which requires a company to satisfy five conditions in connection with the spin-off. As a result, we may have violated Section 5 of the Securities Act in that we did not file a registration statement with the SEC and have the same declared effective by the SEC prior to distributing the shares of Branded Legacy common stock. In addition, it is possible that the SEC could commence an enforcement action against us. For additional information regarding the dividend distribution, see “Management’s Discussion and Analysis and Results of Operations – Liquidity and Capital Resources” for additional information.

The issuance of shares of our Common Stock upon conversions of the Debentures and upon exercises of the Warrant may dilute the percentage ownership of then-existing stockholders and, then, the resale of shares of our Common Stock by the Selling Stockholder could adversely affect the prevailing market price of our Common Stock. We are registering 125,947,397 shares of our Common Stock for resale by the Selling Stockholder, which includes the 105,947,397 Conversion Shares that are issuable upon conversions of the Debentures and the 20,000,000 Warrant Shares issuable upon exercises of the Warrant. The number of shares of our Common Stock that will ultimately be issued upon conversions of the Debentures will depend upon the conversion price of the Debentures at the times of conversion and, depending on the conversion price, could exceed more than the number of shares we are registering hereunder. The issuance of the Conversion Shares and the Warrant Shares will result in substantial dilution to the then-existing stockholders. Further, the number of shares ultimately offered for sale by the Selling Stockholder under this Prospectus is dependent upon the number of shares the Selling Stockholder elects to sell from time to time. Depending upon market liquidity at the time, sales of shares of our Common Stock issued upon the conversions and exercises of the Debentures and the Warrant, respectively, may cause the trading price of our Common Stock to decline. The Selling Stockholder may sell all, some, or none of the shares of our Common Stock that it holds or comes to hold upon the conversion of the Debentures and the exercise of the Warrant. Sales by the Selling Stockholder of shares of our Common Stock that it acquired upon such conversions and exercises and sold under the Registration Statement, of which this Prospectus is a part, may result in dilution to the interests of other holders of our Common Stock. The sale of a substantial number of shares of our Common Stock by the Selling Stockholder in this offering, or the anticipation of such sales, could make it more difficult for us to sell our equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Prospectus includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts contained in this Prospectus, including statements regarding our future financial position, business strategy and plans, objectives of management for future operations, and statements related to the expected effects on our business on our business from the COVID-19 pandemic, and other similar matters, are forward-looking statements. The words “believe,” “may,” “estimate,” “continue,” “anticipate,” “intend,” “should,” “plan,” “expect,” and similar expressions, as they relate to us, are intended to identify forward-looking statements. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy, and financial needs. These forward-looking statements are subject to a number of risks, uncertainties, and assumptions described in “Risk Factors” and elsewhere in this Prospectus.

Other sections of this Prospectus may include additional factors that could adversely affect our business and financial performance. Moreover, we operate in a highly regulated, very competitive, and rapidly changing environment. New risk factors emerge from time to time and it is not possible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements.

We undertake no obligation to update publicly or revise any forward-looking statements. You should not rely upon forward-looking statements as predictions of future events or performance. We cannot assure you that the events and circumstances reflected in the forward-looking statements will be achieved or will occur. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance, or achievements. We have an ongoing obligation to continually disclose material future changes in our Company and its operations.

USE OF PROCEEDS

We will not receive any proceeds from the sale of the August 2021 Conversion Shares or the August 2021 Warrant Shares by the Selling Stockholder. We will receive proceeds from our sale of the second of the August 2021 Debentures on later of (i) the SEC declaring effective the registration statement or (ii) November 1, 2021, in the amount of $1,440,000, net of the original issue discount of $60,000. We will receive proceeds from the exercise of the August 2021 Warrant, if exercised at all, as to which there can be no assurance. The maximum aggregate gross proceeds that we could receive from the full exercise of the August 2021 Warrant would be $1,000,000.$3,000,000. We will bear all other costs, fees, and expenses incurred by us, or by the Selling Stockholder, in effecting the registration of the Securities covered by this Prospectus. The Selling Stockholder, however, will pay any other expenses incurred in selling the August 2021 Conversion Shares and August 2021 Warrant Shares, including any brokerage commissions or costs of sale.

DETERMINATION OF OFFERING PRICE

The Selling Stockholder will determine the price it may sell the Securities offered by this Prospectus, and such sales may be made at fixed prices, market prices prevailing at the time of sale, varying prices determined at the time of sale, or at negotiated prices. We will not receive any proceeds from the sale of the Securities by the Selling Stockholder.

THE SELLING STOCKHOLDER

The shares of our Common Stock being offered by the Selling Stockholder are issuable upon conversions of the August 2021 Debentures and by the exercises of the August 2021 Warrant. For additional information regarding the issuance of the August 2021 Debentures and the grant of the August 2021 Warrant, see “Description of Securities – Private Placement Transaction.” We are registering the resale of the August 2021 Conversion Shares and August 2021 Warrant Shares in order to permit the Selling Stockholder to offer them in the manners provided in this Prospectus for resale from time to time. Except as otherwise noted and except for the ownership of the August 2021 Debentures issued and the August 2021 Warrant granted pursuant to the 2020 SPA, the Selling Stockholder has not had any material relationship with us within the past three years.

The table below lists the Selling Stockholder and other information regarding the beneficial ownership of the shares of our Common Stock by the Selling Stockholder. The second column lists the number of shares of our Common Stock beneficially owned by the Selling Stockholder, based on its ownership of the August 2021 Debentures and the August 2021 Warrant, as of December 10, 2020,September 20, 2021, assuming conversion of all the August 2021 Debentures and exercise of the August 2021 Warrant held by the Selling Stockholder on that date, without regard to any limitations on conversions or exercises.

The third column lists the shares of our Common Stock being offered by this Prospectus by the Selling Stockholder.

In accordance with the terms of the August 2021 Registration Rights Agreement with the Selling Stockholder, this Prospectus generally covers the resale of at least 125,947,397340,677,266 shares of our Common Stock issuable to the Selling Stockholder pursuant to the August 2021 SPA. Because the conversion price of the August 2021 Debentures and the exercise price of the August 2021 Warrant may be adjusted, the number of shares that will actually be issued may be more or less than the number of shares being offered by this Prospectus. The fourth column assumes the sale of all of the shares offered by the Selling Stockholder pursuant to this Prospectus.

Under the terms of the August 2021 Debentures and the August 2021 Warrant, the Selling Stockholder cannot convert any portion of the August 2021 Debentures or exercise any portion of the August 2021 Warrant that would result in the Selling Stockholder, together with its affiliates, holding more than 4.99% of the then-outstanding shares of our Common Stock following such conversions or exercises, excluding for purposes of such determination shares of our Common Stock issuable upon conversions of the August 2021 Debentures or exercises of the August 2021 Warrant that have not been converted. The number of shares in the second column does not reflect this limitation. The Selling Stockholder may sell all, some or none of its August 2021 Conversion Shares or August 2021 Warrant Shares in this offering. See “Plan of Distribution.”

PLAN OF DISTRIBUTION

The Selling Stockholder of the shares of our Common Stock and any of its respective pledgees, assignees, and successors-in-interest may, from time to time, sell any or all of its respective shares of our Common Stock on the OTCQB or any other stock exchange, market, or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. The Selling Stockholder may use any one or more of the following methods when selling shares:

The Selling Stockholder may also sell shares under Rule 144 under the Securities Act, if available, rather than under this Prospectus.

Broker-dealers engaged by the Selling Stockholder may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholder (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with Financial Industry Regulatory Authority, Inc. (“FINRA”) Rule 2121; and, in the case of a principal transaction, a markup or markdown in compliance with FINRA Rule 2121.

In connection with the sale of shares of our Common Stock or interests therein, the Selling Stockholder may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of our Common Stock in the course of hedging the positions they assume. The Selling Stockholder may also enter into option or other transactions with broker-dealers or other financial institutions or the creation of one or more derivative securities, which require the delivery to such broker-dealer or other financial institution of shares offered by this Prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this Prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholder and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. The Selling Stockholder has informed us that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute our Common Stock. In no event shall any broker-dealer receive fees, commissions, and markups which, in the aggregate, would exceed eight percent (8%).

We are required to pay certain fees and expenses incurred by us incident to the registration of the shares. We have agreed to indemnify the Selling Stockholder against certain losses, claims, damages, and liabilities, including liabilities under the Securities Act.

Because the Selling Stockholder may be deemed to be an “underwriter” within the meaning of the Securities Act, it will be subject to the Prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered by this Prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under this Prospectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the August 2021 Conversion Shares and the August 2021 Warrant Shares by the Selling Stockholder.

We agreed to keep this Prospectus effective until the earlier of (i) the date on which the August 2021 Conversion Shares and the August 2021 Warrant Shares may be resold by the Selling Stockholder without registration and without regard to any current public information requirements by reason of Rule 144(b)(i) under the Securities Act or any other rule of similar effect or (ii) all of the shares have been sold pursuant to this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the August 2021 Conversion Shares and the August 2021 Warrant Shares may not simultaneously engage in market making activities with respect to our Common Stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholder will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of our Common Stock by the Selling Stockholder or any other person. We will make copies of this Prospectus available to the Selling Stockholder and have informed it of the need to deliver a copy of this Prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).

DESCRIPTION OF SECURITIES

General

The following summary includes a description of material provisions of our capital stock; however, the description does purport to be complete and is subject to, and is qualified by, our A&R Certificate of Incorporation, our Certificate of Designation of the Preferences, Rights, and Limitations of our Series B Convertible Preferred Stock, Certificate of Designation of the Preferences, Rights, and Limitations of our Series C Convertible Preferred Stock, our Certificate of Designation of the Preferences, Rights, and Limitations of our Series D Convertible Preferred Stock, and our A&R Bylaws, all of which are filed as exhibits to this Registration Statement of which this Prospectus is a part.

Authorized and Outstanding Securities

We have authorized 2,500,000,000 shares of our Common Stock, par value of $0.00001 per share, of which 778,052,603872,772,803 shares were issued and outstanding as of December 10, 2020.September 20, 2021. We have authorized 10,000,000 shares of our preferred stock, par value of $0.00001, of which 988,140 shares were issued and outstanding as of December 10, 2020.September 20, 2021. The following table sets forth the authorized and issued and outstanding securities as of December 10, 2020:

September 20, 2021:

Common Stock

The holders of shares of our Common Stock are entitled to one vote per share on all matters requiring a vote of the stockholders, including the election of directors. Holders of shares of our Common Stock do not have cumulative voting rights. Holders of shares of our Common Stock are entitled to share ratably in dividends, if any, as may be declared from time to time by our Board in its discretion from funds legally available therefor, subject to preferences that may be applicable to our preferred stock, if any, then outstanding. We have never declared any dividends and, at present, we have no plans to declare any dividends. In the event of a liquidation, dissolution, or winding up of the Company, the holders of shares of our Common Stock are entitled to share pro rata all assets remaining after payment in full of all liabilities, subject to prior distribution rights of our preferred stock, if any, then outstanding. Our Common Stock has no preemptive or conversion rights or other subscription rights. There are no redemption or sinking fund provisions applicable to our Common Stock.

Preferred Stock

Our A&R Certificate of Incorporation authorizes our Board, subject to any limitations prescribed by law, without further stockholder approval, to establish and to issue from time to time one or more series of our preferred stock, par value $0.00001 per share, and to designate the rights, privileges, preferences, restrictions, and limitations of any given series of preferred stock. Accordingly, our Board, without stockholder approval, may issue shares of our preferred stock with dividend, liquidation, conversion, voting, or other rights that could adversely affect the voting power or other rights of the holders of our Common Stock. The issuance of our preferred stock could have the effect of restricting dividends payable to holders of our Common Stock, diluting the voting power of our Common Stock, impairing the liquidation rights of our Common Stock, or delaying or preventing a change in control of us, all without further action by our stockholders.

Series A Preferred Stock

The holders of shares of our Series A Preferred Stock did not have voting rights and were not entitled to share ratably in dividends, if any, as could have been declared from time to time by our Board in its discretion from funds legally available therefor, subject to preferences that could have been applicable to our preferred stock, if any, then issued and outstanding. In the event of a liquidation, dissolution, or winding up of the Company, the holders of shares of our Series A Preferred Stock could have been entitled to share pro rata all assets remaining after payment in full of all liabilities, subject to prior distribution rights of our preferred stock, if any, then issued and outstanding. Our Series A Preferred Stock had conversion rights, whereby each share of our Series A Preferred Stock was convertible into one share of our Common Stock. On July 10, 2020, all then-issued and outstanding shares of our Series A Preferred Stock were converted. On July 13, 2020, we amended and restated our A&R Certificate of Incorporation, which had the effect of formally withdrawing the designation for our Series A Preferred Stock. Accordingly, our Series A Preferred Stock no longer exists as of the date hereof.

Series B Preferred Stock

The holders of shares of our Series B Preferred Stock do not have voting rights and are not entitled to share ratably in dividends, if any, as may be declared from time to time by our Board in its discretion from funds legally available therefor, subject to preferences that may be applicable to our preferred stock, if any, then issued and outstanding. In the event of a liquidation, dissolution, or winding up of our Company, the holders of shares of our Series B Preferred Stock are entitled to share pro rata $1.00 as a liquidation preference. Originally, each share of our Series B Preferred Stock had conversion rights, whereby each share of our Series B Preferred Stock was convertible into 1,000 shares of our Common Stock. On July 12, 2018, we amended the designation such that each share of our Series B Preferred Stock could then be converted into one share of our Common Stock.

Series C Preferred Stock

The holders of shares of our Series Preferred C Stock are entitled to 2,000,000, votes for every share of our Series Preferred C Stock held. The holders of our Series Preferred C Stock are not entitled to receive dividends. Upon any liquidation, dissolution, or winding up of our Company, whether voluntary or involuntary, before any distribution or payment will be made to the holders of any stock ranking junior to our Series C Preferred Stock, the holders of our Series C Preferred Stock will be entitled to be paid out of our assets an amount equal to $1.00 in the aggregate for all issued and outstanding shares of our 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 our Series C Preferred Stock, our remaining assets legally available for distribution, if any, will be distributed ratably to the holders of our Common Stock. Our Series C Preferred Stock has conversion rights, whereby each share of our Series C Preferred Stock automatically converts into one share of our Common Stock on the one-year anniversary of the issuance date. Prior to July 8, 2020, the Certificate of Designation for our Series C Preferred Stock provided for conversion rights, whereby each share of our Series C Preferred Stock was convertible into 1,000 shares of our Common Stock.

Series D Preferred Stock

The holders of shares of our Series D Preferred Stock have full voting rights and powers equal to the voting rights and powers of the holders of shares of our Common Stock. The holders of shares of our Series D Preferred Stock, voting as a separate class, are entitled to elect a majority of our directors. The holders of shares of our Common Stock and other classes and series of our capital stock, voting together as a single class, are entitled to elect our remaining directors. The holders of shares of our Series D Preferred Stock do not have any preferential dividend rights and are entitled to receive dividends, if any, only if, when, and as declared by our Board. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment shall be made to the holders of any stock ranking junior to our Series D Preferred Stock, the holders of our Series D Preferred Stock will be entitled to be paid out of our assets an amount equal to $1.00 in the aggregate for all issued and outstanding shares of Series D Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares). After the payment of the full applicable Preference Value of each share of our Series D Preferred Stock, our remaining assets legally available for distribution, if any, will be distributed ratably to the holders of our Common Stock. Our Series D Preferred Stock has conversion rights, whereby each share of Series D Preferred Stock is convertible into 1,000 shares of our Common Stock.

WarrantsMay 2020 Warrant; February 2021 Warrant; August 2021 Warrant

Other than the May 2020 Warrant, the February 2021 Warrant, and the August 2021 Warrant granted in connection with the May 2020 Private Placement, the February 2021 Private Placement and the August 2021 Private Placement, respectively, we do not have any other outstanding warrants. See “Private Placement Transaction”Transactions” below for additional information regarding the May 2020 Warrant, the February 2021 Warrant, and the August 2021 Warrant.

Options

We currently do not have any options outstanding.

May 2020 Private Placement Transaction

In May 2020, we completed the Private Placement of the May 2020 Debentures and the May 2020 Warrant. We sold and issued the First May 2020 Debenture and granted the May 2020 Warrant promptly after entering into the SPA. We sold and issued the Second May 2020 Debenture promptly after filing this Registration Statement initially. We anticipate sellingsold and issuingissued the Third May 2020 Debenture promptly after filing the SEC declares this Registration Statement effective.Annual Report for the period ending December 31, 2020. The May 2020 Debentures mature 12 months from their respective issuance dates and are secured by all of our assets and the assets of each of our subsidiaries. The May 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 May 2020 Debentures or otherwise accelerates the maturity date, as provided for in the May 2020 Debentures). Interest is payable either in cash or, if certain Equity Conditions are then satisfied, in shares of our Common Stock at the Market Conversion Price on the trading day immediately prior to the date paid.

Initially, the May 2020 Debentures are convertible at the lower of the (i) Fixed Conversion Price or (ii) Market Conversion Price. The May 2020 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the May 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 our Common Stock following such conversion (excluding, for purposes of such determination, shares of our Common Stock issuable upon conversion of the May 2020 Debentures or exercise of the May 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 us.

At our option, we have the right to redeem, in part or in whole, the outstanding principal and interest under the May 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 VWAPlowest daily volume weighted average price (“VWAP”) of our Common Stock is less than the Fixed Conversion Price and (ii) there is no Equity Conditions failure. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as the Redemption Premium. We must provide the holder 15 business days’ advance notice of our intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The May 2020 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current Fixed Conversion Price of the May 2020 Debentures. For example, if we issued 10,000,000 shares of our Common Stock at a price of $0.03 per share, and we had 778,052,603 shares of our Common Stock issued and outstanding prior to the issuance, then, in accordance with the terms of the Debentures, the new Fixed Conversion Price would be $0.0497. 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 May 2020 Debentures.

We also granted the May 2020 Warrant to purchase up to an aggregate of 20 million shares of our Common Stock. The May 2020 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.05 per share, subject to adjustment. If we fail to maintain an effective registration statement with the SEC covering the resale of the May 2020 Warrant Shares, or if an Event of Default has occurred and is continuing, then the holder may exercise the May 2020 Warrant on a “cashless” basis.

The May 2020 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the May 2020 Warrant. For example, if we issued shares of our Common Stock at $0.03$0.02 per share, then the exercise price of the May 2020 Warrant would be adjusted to $0.03$0.02 per share. 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 May 2020 Warrant.

The May 2020 Warrant is subject to an “exercise blocker,” such that the Selling Stockholder cannot exercise any portion of the May 2020 Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of our Common Stock following such exercise (excluding, for purposes of such determination, shares of our Common Stock issuable upon exercise of the May 2020 Warrant or conversion of the May 2020 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 us.

Pursuant to the terms of the May 2020 Registration Rights Agreement, we agreed to filefiled a registration statement with the SEC registering for resale the May 2020 Conversion Shares and the May 2020 Warrant Shares within 45 calendar days following the closingShares. All of the Private Placement.May 2020 Conversion Shares were sold pursuant to that Registration Statement. We also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by us in connection with the registration of the Securities held by the Selling Stockholder.

November 2020 Stand-alone DebentureFebruary 2021 Private Placement Transaction

In November 30, 2020, in anticipationOn February 18, 2021, we completed the February 2021 Private Placement of our sellingthe February 2021 Debentures and issuing the ThirdFebruary 2021 Warrant. We sold and issued the First February 2021 Debenture and granted the February 2021 Warrant promptly after entering into the SEC declares this Registration Statement effective, weFebruary 2021 SPA. We sold and issued a secured “stand-alone” debenture (the “Stand-alone Debenture”) to“partial” Second February 2021 Debenture on May 6, 2021 in the Selling Stockholder in theoriginal principal amount of $100,000. The terms$200,000. We will issue and sell the balance of the Stand-aloneSecond February 2021 Debenture in the original principal amount of $400,000 when this Registration Statement, which we are substantially similarobligated to file, has been declared effective by the termsSEC. The February 2021 Debentures mature 12 months from their respective issuance dates and are secured by all of our assets and the assets of each of our subsidiaries. The February 2021 Debentures except as disclosed in this paragraph. The Stand-alone Debenture did not have any original issue discount. The Stand-alone Debenture accruesaccrue interest at an annual rate equal to 10%, with six months of interest at that rate guaranteed. The Stand-alone Debenture is8% and are due and payable on their respective maturity dates (or sooner if the earlier of itsSelling Stockholder converts the February 2021 Debentures or otherwise accelerates the maturity date, (May 30, 2021)as provided for in the February 2021 Debentures). Interest is payable either in cash or, if certain Equity Conditions are then satisfied, in shares of our Common Stock at the Market Conversion Price on the trading day immediately prior to the date on which we sell and issuepaid.

Initially, the Third Debenture. If we redeemFebruary 2021 Debentures are convertible at the Stand-alone Debenture on or before December 30, 2020, we will pay a redemption premium of five percentlower of the then-outstanding(i) February 2021 Fixed Conversion Price of $0.03 per share or (ii) the February 2021 Market Conversion Price. The February 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the February 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 our Common Stock following such conversion (excluding, for purposes of such determination, shares of our Common Stock issuable upon conversion of the February 2021 Debentures or exercise of the February 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 us.

At our option, we have the right to redeem, in part or in whole, the outstanding principal and interest under the February 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 our Common Stock is less than the Fixed Conversion Price and (ii) there is no Equity Conditions failure. We must pay an amount equal to the principal amount being redeemed plus the outstanding and accrued interest thereon, as well as the 115% Redemption Premium. We must provide the holder 15 business days’ advance notice of our intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The February 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current Fixed Conversion Price of the February 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 February 2021 Debentures.

We also granted the February 2021 Warrant to purchase up to an aggregate of 50 million shares of our Common Stock. The February 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If we fail to maintain an effective registration statement with the SEC covering the resale of the February 2021 Warrant Shares, or if an Event of Default has occurred and is continuing, then the holder may exercise the February 2021 Warrant on a “cashless” basis.

The February 2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the redeemedexercise price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the February 2021 Warrant. For example, if we issued shares of our Common Stock at $0.02 per share, then the exercise price of the February 2021 Warrant would be adjusted to $0.02 per share. 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 February 2021 Warrant.

The February 2021 Warrant is subject to an “exercise blocker,” such that the Selling Stockholder cannot exercise any portion of the principal. Thereafter,February 2021 Warrant that would result in the redemption premium is ten percent. The conversion rightsSelling Stockholder and its affiliates holding more than 4.99% of the Stand-alone Debenture arethen-issued and outstanding shares of our Common Stock following such exercise (excluding, for purposes of such determination, shares of our Common Stock issuable upon exercise of the same asFebruary 2021 Warrant or conversion of the February 2021 Debentures except 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 us.

Pursuant to the Stand-alone Debenture is not convertible until on or after its maturity date.terms of the February 2021 Registration Rights Agreement, we agreed to file this registration statement with the SEC registering for resale the shares of our Common Stock underlying the February 2021 Debentures and the February 2021 Warrant within 30 calendar days following the closing of the Private Placement. We did not grant any registration rightshave received a waiver of that time limit from the Selling Stockholder. We also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by us in connection with our sale and issuancethe registration of the Stand-alone Debenture.Securities held by the Selling Stockholder.

August 2021 Private Placement Transaction

On August 20, 2021, we completed the August 2021 Private Placement of the August 2021 Debentures and the August 2021 Warrant. We sold and issued the first August 2021 Debenture and granted the August 2021 Warrant promptly after entering into the August 2021 SPA. We will issue and sell the second August 2021 Debenture in the original principal amount of $1,500,000, promptly upon the later of (i) the SEC declaring effective the Registration Statement or (ii) November 1, 2021. The August 2021 Debentures mature 12 months from their respective issuance dates and are secured by all of our assets and the assets of each of our subsidiaries. The August 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 August 2021 Debentures or otherwise accelerates the maturity date, as provided for in the August 2021 Debentures). Interest is payable either in cash or, if certain Equity Conditions are then satisfied, in shares of our Common Stock at the Market Conversion Price on the trading day immediately prior to the date paid.

Initially, the August 2021 Debentures are convertible at the lower of the (i) August 2021 Fixed Conversion Price of $0.03 per share or (ii) the August 2021 Market Conversion Price. The August 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the August 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 our Common Stock following such conversion (excluding, for purposes of such determination, shares of our Common Stock issuable upon conversion of the August 2021 Debentures or exercise of the August 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 us.

At our option, we have the right to redeem, in part or in whole, the outstanding principal and interest under the August 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 our Common Stock is less than the Fixed Conversion Price and (ii) there is no Equity Conditions failure. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as the 115% Redemption Premium. We must provide the holder 15 business days’ advance notice of our intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The August 2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current Fixed Conversion Price of the August 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 August 2021 Debentures.

We also granted the August 2021 Warrant to purchase up to an aggregate of 100 million shares of our Common Stock. The August 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If we fail to maintain an effective registration statement with the SEC covering the resale of the August 2021 Warrant Shares, or if an Event of Default has occurred and is continuing, then the holder may exercise the August 2021 Warrant on a “cashless” basis.

The August 2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the August 2021 Warrant. For example, if we issued shares of our Common Stock at $0.02 per share, then the exercise price of the August 2021 Warrant would be adjusted to $0.02 per share. 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 August 2021 Warrant.

The August 2021 Warrant is subject to an “exercise blocker,” such that the Selling Stockholder cannot exercise any portion of the August 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 our Common Stock following such exercise (excluding, for purposes of such determination, shares of our Common Stock issuable upon exercise of the August 2021 Warrant or conversion of the August 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 us.

Pursuant to the terms of the August 2021 Registration Rights Agreement, we agreed to file this registration statement with the SEC registering for resale the shares of our Common Stock underlying the August 2021 Debentures and the August 2021 Warrant within 30 calendar days following the closing of the Private Placement. We have received a waiver of that time limit from the Selling Stockholder. We also agreed, among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by us in connection with the registration of the Securities held by the Selling Stockholder.

Penny Stock Considerations

Our Common Stock is deemed to be “penny stock,” as that term is generally defined in the Exchange Act to mean an equity security with a per-share price of less than $5.00. Our shares of Common Stock, thus, will be subject to rules that impose sales practice and disclosure requirements on broker-dealers who engage in certain transactions involving a penny stock.

Under the penny stock regulations, a broker-dealer selling a penny stock to anyone other than an established customer or accredited investor must make a special suitability determination regarding the purchaser and must receive the purchaser’s written consent to the transaction prior to the sale, unless the broker-dealer is otherwise exempt. Generally, an individual with a net worth in excess of $1,000,000 (excluding the value of the individual’s house) or an individual, who, in the two prior years had, and has a reasonable expectation that in the current year will have, an annual income exceeding $200,000 individually or $300,000 together with his or her spouse is considered to be an accredited investor. In addition, under the penny stock regulations, the broker-dealer is required to:

Because of these regulations, broker-dealers may encounter difficulties in their attempt to buy or sell shares of our Common Stock, which may affect the ability of the Selling Stockholder or other holders to sell their shares in the secondary market and have the effect of reducing the level of trading activity in the secondary market. These additional sales practice and disclosure requirements could impede the sale of our Common Stock. In addition, the liquidity for shares of our Common Stock may be decreased, with a corresponding decrease in the price of those shares. Our shares of Common Stock are likely to be subject to such penny stock rules for the foreseeable future.

Anti-Takeover Effects of Provisions of Our A&R Certificate of Incorporation, Our A&R Bylaws, and Delaware Law

Some provisions of our A&R Certificate of Incorporation, our A&R Bylaws, and Delaware law could make the following transactions more difficult: an acquisition of us by means of a tender offer; an acquisition of us by means of a proxy contest or otherwise; or the removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that our stockholders may otherwise consider to be in their best interest or in our best interests, including transactions that provide for payment of a premium over the market price for our shares of Common Stock.

These provisions, summarized below, are intended to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our Board. We believe that the benefits of the increased protection of our potential ability to negotiate with the proponent of an unfriendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Undesignated Preferred Stock

The ability of our Board, without action by our stockholders, to issue up to 9,011,860 shares of our undesignated preferred stock with voting or other rights or preferences solely as designated by our Board could impede the success of any attempt to change control of us. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management of our Company.

Stockholder Meetings

Our A&R Bylaws provide that a special meeting of stockholders may be called only by the Chair of our Board, our Chief Executive Officer, our president, or a majority of the members of our Board.

Requirements for Advance Notification of Stockholder Nominations and Proposals

Our A&R Bylaws establish advance notice procedures with respect to stockholder proposals to be brought before a stockholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of our Board or a committee of our Board. Additionally, vacancies and newly created directorships may be filled only by a vote of a majority of the directors then in office, even though less than a quorum, and not by the stockholders.

Removal of Directors

Our A&R Bylaws provide that a director may be removed from office by our stockholders with or without cause, upon the approval of the holders of at least a majority in voting power of the outstanding shares of stock entitled to vote in the election of directors.

Stockholders Not Entitled to Cumulative Voting

Our A&R Certificate of Incorporation does not permit stockholders to cumulate their votes in the election of directors.

Delaware Anti-Takeover Statute

We are subject to Section 203 of the DGCL, which prohibits persons deemed to be “interested stockholders” from engaging in a “business combination” with a publicly-held Delaware corporation for three years following the date these persons become interested stockholders unless the business combination is, or the transaction in which the person became an interested stockholder was, approved in a prescribed manner or another prescribed exception applies. Generally, an “interested stockholder” is a person who, together with affiliates and associates, owns, or, in certain cases, within three years prior to the determination of interested stockholder status did own, 15% or more of a corporation’s voting stock. Generally, a “business combination” includes a merger, asset or stock sale, or other transaction resulting in a financial benefit to the interested stockholder. The existence of this provision may have an anti-takeover effect with respect to transactions not approved in advance by our Board.

Choice of Forum

Our A&R Bylaws provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullest extent permitted by applicable law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers (or affiliate of any of the foregoing) to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision of the DGCL or of our A&R Certificate of Incorporation or our A&R Bylaws, or (iv) any other action asserting a claim arising under, in connection with, and governed by the internal affairs doctrine; provided, that the exclusive forum provisions will not apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act, or to any claim for which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our A&R Bylaws described in the preceding sentence.

Amendment of the Provisions of our A&R Bylaws

Our A&R Bylaws provide that our Board has the power to make, amend, alter, or repeal our A&R Bylaws.

Amendment of Charter Provisions

Our A&R Certificate of Incorporation may be amended as provided for by Delaware law.

The provisions of Delaware law, our A&R Certificate of Incorporation, and our A&R Bylaws could have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our Common Stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in the composition of our Board and management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Conflicts of Interest

Delaware law permits corporations to adopt provisions renouncing any interest or expectancy in certain opportunities that are presented to the corporation or its officers, directors, or stockholders. Our A&R Bylaws provide that no contract or other transaction between us and one or more of our directors or any other corporation, firm, association, or entity in which one or more of our directors are directors or officers or are financially interested, will be either void or voidable because of such relationship or interest or because such director or directors are present at the meeting of our Board or one of its committees that authorizes, approves, or ratifies such contract or transaction or because his, her, or their votes are counted for such purpose, if: (i) the fact of such relationship or interest is disclosed or known to our Board or committee thereof that authorizes, approves, or ratifies the contract or transaction by a vote or consent sufficient for the purpose without counting the votes or consents of such interested directors; (ii) the fact of such relationship or interest is disclosed or known to the stockholders entitled to vote and they authorize, approve, or ratify such contract or transaction by vote or written consent; or (iii) the contract or transaction is fair and reasonable to us at the time it is authorized by our Board, a committee thereof, or the stockholders. Conflicted or interested directors may be counted in determining the presence of a quorum at a meeting of our Board or a committee thereof that authorizes, approves, or ratifies such contract or transaction.

Limitation of Liability and Indemnification Matters

Our A&R Certificate of Incorporation limits the liability of our directors for monetary damages for breach of their fiduciary duty as directors, except to the extent such exemption or limitation thereof is not permitted under the DGCL and applicable law. Delaware law provides that such a provision may not limit the liability of directors:

Any amendment, repeal, or modification of these provisions will be prospective only and would not affect any limitation on liability of a director for acts or omissions that occurred prior to any such amendment, repeal, or modification.

Our A&R Certificate of Incorporation also requires us to pay any expenses incurred by any director or officer in defending against any such action, suit, or proceeding in advance of the final disposition of such matter to the fullest extent permitted by law, subject to the receipt of an undertaking by or on behalf of such person to repay all amounts so advanced if it shall ultimately be determined that such person is not entitled to be indemnified as authorized by our A&R Bylaws or otherwise. We have entered or will enter into indemnification agreements with each of our directors and executive officers. We believe that the limitation of liability provision in our A&R Bylaws facilitates our ability to continue to attract and retain qualified individuals to serve as directors and officers.

Transfer Agent

The transfer agent for our Common Stock is Action Stock Transfer at 2469 East Fort Union Boulevard, Suite 214, Salt Lake City, Utah 84121. The transfer agent’s telephone number is (801) 274-1088.

MARKET PRICE AND DIVIDEND INFORMATION

Market Information

As of April 14, 2020,September 20, 2021, our Common Stock is quoted on the OTCQB under the symbol “KGKG.”

The table below sets forth the high and low closing prices of our Common Stock during the periods indicated, as reported by the OTCM. The market quotations reflect inter-dealer prices, without retail mark-up, markdown, or commissions and may not reflect actual transactions.

The closing price of our Common Stock as reported on December 10, 2020,September 20, 2021, was $0.024$0.0157 per share.

Holders

Holders

On December 10, 2020September 20, 2021, there were approximately 9096 holders of record of our Common Stock. This does not include an indeterminate number of persons who hold our Common Stock in brokerage accounts and otherwise in “street name.” As of such date, 778,052,603872,772,803 shares of our Common Stock were issued and outstanding.

Dividends

We currently intend to retain all available funds and any future earnings to support our operations and finance the growth and development of our business. We do not intend to pay cash dividends on our Common Stock for the foreseeable future. Any future determination related to dividend policy will made at the discretion of our Board.

Rule 144 -– Generally

In general, under Rule 144 of the Securities Act, as currently in effect, a person (or persons whose shares are required to be aggregated), who is not our affiliate at any time during the preceding three months, and who has beneficially owned the relevant shares of our Common Stock for at least six months, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares of our Common Stock into the public markets; provided, that current public information about us is available and, after owning such shares for at least one year, including the holding period of any prior owner other than one of our affiliates, would be entitled to sell an unlimited number of shares of our Common Stock into the public markets without restriction.

A person who may be deemed an “affiliate” of us or who was our affiliate at any time during the preceding three months, and who has beneficially owned restricted securities for at least six months, including the affiliates, is entitled to sell within any three-month period, a number of shares that does not exceed the greater of: (1) 1% of the then-outstanding shares of our Common Stock, which equals approximately 7,780,526872,772,803 shares based on the number of shares of our Common Stock outstanding as of December 10, 2020,September 20, 2021, or (2) if and when our Common Stock is listed on a national securities exchange, the average weekly trading volume of our Common Stock during the four calendar weeks preceding the date on which notice of such sale was filed under Rule 144.

Sales of shares held by our affiliates that are not “restricted” are subject to such volume limitations, but are not subject to the holding period requirement. Sales under Rule 144 by our affiliates are also subject to certain requirements as to the manner of sale, notice, and availability of current public information about us. A person who is not deemed to have been our affiliate of our Company at any time during the 90 days preceding a sale by such person, and who has beneficially owned the restricted shares for at least one year, is entitled to sell such shares under Rule 144 without regard to any of the restrictions described above. We cannot estimate the number of shares of our Common Stock that our existing stockholders will elect to sell under Rule 144.

Rule 144 – Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies

Because we may be deemed previously to have been a “shell company,” under such circumstances sales of our securities pursuant to Rule 144 under the Securities Act may not be made unless, among other things, at the time of a proposed sale, we are subject to the reporting requirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section 13 or 15(d) of the Exchange Act, as applicable, during the preceding 12 months, other than Form 8-K reports. Because, as a possible former shell company, the reporting requirements of Rule 144(i) will apply regardless of holding period, restrictive legends on certificates for shares of our Common Stock cannot be removed except in connection with an actual sale that is subject to an effective registration statement under, or an applicable exemption from the registration requirements of, the Securities. Because under such circumstances our unregistered securities may not be sold pursuant to Rule 144 unless we continue to meet such requirements, any unregistered securities we issue will have limited liquidity unless we continue to comply with such requirements.

DESCRIPTION OF THE BUSINESS

Company Overview

We were originally incorporated as CTA under the laws of the State of Nevada in Mach 1997. In October 2001, CTA entered into the Reorganization Plan with PhaserTek, pursuant to which CTA acquired all of the outstanding shares of common stock of PhaserTek in exchange for shares of common stock of CTA, resulting in PhaserTek becoming a wholly-owned subsidiary of CTA. In accordance with the terms of the Reorganization Plan, CTA changed its name to PhaserTek Medical in 2002. In 2004, PhaserTek Medical changed its name to UE Nevada. For purposes of changing UE Nevada’s state of incorporation, UE Nevada formed UE Delaware in 2004. Pursuant to Articles of Merger, in December 2004, UE Nevada merged with and into UE Delaware, the surviving company. In July 2015, we changed our name to Kona Gold Solutions, Inc. In October 2020, we changed our name to Kona Gold Beverage, Inc.

We have three wholly-owned subsidiaries.

Business Overview

We are a lifestyle company that specializes in developing premier hemp and CBD products in the functional beverage and fitness markets. Focusing on the hemp energy drink, CBD energy water, and CBD water markets, we believe that we have positioned ourselves as a premium lifestyle brand.

We currently sell Kona, HighDrate, and HighDrateS and S products through resellers, our websites, and distributors that span across 2927 states. Our products are available in a wide variety of stores, including convenience and grocery stores, smoke shops, and gift shops. Gold Leaf also distributes our own products, as well as products purchased for resale from several other beverage manufacturers. These premium beverages and snacks are available in more than 500600 grocery stores, convenience stores, smoke shops, vape shops, and specialty stores.

Reportable Segments

We have two reportable segments:

Product Lines

WeWithin our beverages segment, we market fourfive distinct product types: hemp-infused energy drinks, CBD-infused energy water, CBD-infused high-alkaline water, low carb and low calorie lemonade, and apparel with our trademark logo.

Our 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 Alkame’s patented technology, which uses its advanced water treatment to create a premium oxygenated alkaline water with natural antioxidants. Alkame believes based on a double-blind placebo, peer-backed research project that it conducted, its 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. We believe 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.

S and S’s Ooh La Lemin is a lemonade that has no added sugar, is low in carbohydrates, and has only 15 calories and is available in four flavors: (i) Original Lemonade, (ii) Blue Raspberry Lemonade, (iii) Peach Lemonade, and (iv) Strawberry Lemonade.

Our 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.

We also sell branded apparel. We use only high-quality textiles and specialty inks and foils, which provide consumers with a premium fit and feel. We currently offer shirts, tanks, hats, and towels for sale. Revenues generated from sales of our apparel historically has represented approximately 1% of our gross annual sales.

Distributors and Resellers

We sell our products primarily to beverage distributors and resellers, retail grocery, smoke shops and specialty stores, wholesalers, merchandisers, convenience stores, and beverage services. We focus on sales to consumers in the functional beverages sector that lead an active lifestyle and need a balance that will meet their needs of providing their minds and bodies with a focused boost and quick recovery. Our beverages support consumers that lead a healthy lifestyle based on choices made about daily habits by providing products that provide a healthy alternative in their beverage choices. A healthy lifestyle can result in consumers feeling fit and energetic and can reduce their risk for disease. We believe our products help consumers stay hydrated, revitalized, aided in stamina, and allow for faster recovery. Hemp protein contains no gluten and is compatible with a variety of diets, including vegan and Kosher. The hemp seed protein contained in our energy drinks is a great protein that contains all 20 amino acids found in the human body.

We also distribute premium beverages and snacks in key markets through our wholly-owned subsidiary, Gold Leaf. Gold Leaf distributes our products as well as products purchased for resale from several other beverage manufacturers. The distributed products include 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 our current product offerings.

Industry Overview

Our distributors and resellers and consumers span across several industries, including energy drinks, hemp or CBD drinks, health and fitness, and apparel.

Energy Drinks

The energy drink industry continues grow every year with an estimated $8.25$12 billion in sales in the United States in 2018,2020, and sales are expected to reach $10.91$53 billion by 2023.globally. The energy drink by the name “Red Bull” dominated the industry in 2018,2020, comprising approximately 35%25% of the energy drink market. In 2018,2020, an energy drink by the name of “Monster,” increased its market share towas approximately 26%. Finally, an energy drink by the name of “Rockstar” had a 2018 market share of approximately 2.5%15%.

The introduction of “Red Bull” in 1997, and the many other energy drinks that followed in its footsteps, has helped turn the energy drink industry into significant choice of consumers in the overall beverage industry. The rise of “Red Bull” and “Monster,” which accounted for nearly half40 percent of the energy drink sales in the United States in 2018,2020, has resulted in the energy drink industry rivaling the coffee industry. Energy drinks have an average of 200 mg of caffeine, which is equivalent to about two cups of coffee. The liquid and dry coffee industry accounted for approximately $12.03$102.5 billion in sales in 2018,2019, which grew from $4.1 billion dollars in 2003. Starbucks Corporation was the sales leader of the coffee industry with approximately 40% of the market share in 2018, followed by Dunkin’ Brands Inc. with 21.9%40% of the market share in 2018.2019.

Hemp or CBD Drinks

The HIA reported that the 2018 Farm Bill poised to restore industrial hemp to nationwide legal production for the first time since World War II, offering vast opportunities for the industry and investment in a market expected to triple in four years. With the removal of hemp from federal prohibition under the CSA, the total hemp industry is expected to grow 18.4% from 2018 through 2022. Hemp Business Journal estimates that the hemp-derived CBD market will grow to a $1.3 billion market by 2022. The U.S. hemp market, which includes CBD, textiles, and hemp seed, is expected to lead the global market in 2020, representing approximately 32% of the global market. This growth is fueled by the public’s growing demand for CBD products. The 2018 Farm Bill aims the industry to accelerate and establish itself as a global hemp powerhouse led by hemp-derived CBD, and establishes legal production for CBD.

Health and Fitness

The health and fitness industry, which includes food and beverages, saw consumer awareness drive trends towards health and wellness, plant-based, and clean-label products in 2019.2019 and 2020. We believe that conscious consumerism will continue to drive these trends in 2020.2021. We believe that consumers are making food and beverage choices based on their personal definition of health. Further, we believe that consumers are looking for healthy alternatives to obtain relief from pain and anxiety, and that CBD has become a viable option because it balances the mind and body. Women have traditionally been early adapters of health and wellness trends and CBD-infused products, food, and beverages have been recognized by women to have a connection between happiness and health.

Apparel

The global apparel market is projected to grow to $1.5 trillion dollars in 2020, compared to $1.3 trillion in 2015. Brand names and logos for leading energy drink companies such as Monster and Rockstar can be found on men’s and women’s apparel around the world; however, the biggest apparel companies not affiliated with energy drinks control the majority of the market. Energy drink apparel is not expected to be a large contributor to the apparel industry.

Competition

The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, and developing new products and flavors, as well as highly intensive promoting and marketing strategies. Our products compete with a wide range of drinks produced by a relatively large number of companies, many of which have substantially greater financial, marketing, and distribution resources than we do. Important factors affecting our ability to compete successfully include brand and product image, taste and flavor of products, trade and consumer promotions, rapid and effective development of new and unique cutting-edge products, attractive and different packaging, brand exposure, and marketing, as well as pricing. We also rely on our beverage distributors to allocate more attention to our products than those of our competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets. Competitive pressures in the “alternative,” energy, coffee, and “functional” beverage categories could cause our products to maintain or to lose market share or we could experience price erosion, which could have a material adverse effect on our business and results of operations.

Our energy products have entered an already crowded market, and we aware of both our strengths and shortcomings as we compete in the energy drink market. Our energy products are part of niche industry that includes CBD, hemp seed, organic, and lifestyle, which we believe separates our energy drinks from others in the market. Within the global CBD beverage market, sales are expected to grow at a faster rate than conventional energy drinks. In 2018, the CBD beverage market was valued at $2.09 million, and is expected to reach $11.38 million by 2025 with a compounded annual growth rate of 27.4%. Combined with the THC-infused beverage market, the CBD Beverage Market is expected to reach $1.4 billion in the United States alone by 2025. The Alkaline Water Company, Inc. (NASDAQ and TSXV: WTER), CannTrust Holdings, Inc. (NYSE: CTST; TSX: TRST), HEXO Corp. (NYSE and TSX: HEXO), Tilray, Inc. (NASDAQ: TLRY), and Canopy Growth Corporation (NYSE: CGC; TSX: WEED) are prominent players in the CBD beverage market.

We compete not only for consumer preference, but also for maximum marketing and sales efforts by multi-brand licensed bottlers, brokers, and distributors and resellers, many of which have a principal affiliation with competing companies and brands. Our products compete with all liquid refreshments and in many cases with products of much larger and, in many cases better financed competitors. Our energy drinks compete directly with Red Bull, Monster, and Rockstar. We also compete with smaller companies.

Co-Packing

We do not directly produce our hemp-infused energy drinks, Storm CBD-infused waters, or HighDrate CBD-infused energy waters, or Ooh La Lemin lemonade, but instead outsource the production of our products with our specifications to third-party bottlers and co-packers. We use co-packers to produce our beverage products. The co-packers are responsible for the production and packaging of the finished products, including the procurement of all required ingredients and packaging materials. We have partnered with multiple co-packers in the United States to provide fulfillment of our products from quality, low-cost sources. These partners are integral to our success, providing, we believe, the ability to scale as needed. We store all of our products, except for Ooh La Lemin, in our warehouses located in Greer, South Carolina and Melbourne, Florida. Ooh La Lemin is stored in our co-packer’s warehouse.

Our ability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapid growth, particularly in new markets. If we materially underestimate demand for our products, are unable to secure sufficient ingredients or raw materials, including, but not limited to, aluminum cans, plastic bottles, caps, labels, flavors, juice concentrates, coffee, tea, dietary ingredients, other ingredients, and certain sweeteners, are unable to procure adequate packing arrangements, or are unable adequately or timely to ship our products, we might not be able to satisfy demand on a short-term basis. That short-term supply inability may also result in a longer-term reduction in orders for our products.

Raw Materials and Suppliers

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

Quality Control

All quality control is handled by our co-packers. To date, we have not had any quality issues with our products. In the future, if any quality issues were to arise, we expect that we would resolve them with the specific co-packer involved or engage a new co-packer for our products.

Distribution

Distribution patterns in the energy drink and water industries are such that large buying groups dictate what products are used in their channels. Working with these large buying groups could open large distribution channels that could potentially supply our product offerings in several market segments. We have distribution agreements with each distributor with which we partner that distributes our products. Our distribution agreements are for a one-year term and typically automatically renews unless the distributor or we terminate the agreement. We ship product directly from our distribution center in South Carolina or our warehouse in Florida to our distribution partners in the United States. Our distributors consist of state-wide tier 1 distributors and regional small-to-medium size distributors.

Business Strategy

We have pursued specific and definable market segments with a multi-tiered, multi-channel approach. We have leveraged our products with direct sales and a distribution strategy using established beverage distributors. We are pursuing direct-ship opportunities, such as grocery stores and convenient stores, which would allow us to ship product to one location where the direct-ship store could then self-distribute our product to its multiple retail locations. We also continue to focus on our online presence by selling our products on popular e-commerce websites, such as Amazon.com, where we ship bulk product to its warehouse and Amazon handles all product fulfillment. Finally, we operate two e-commerce websites, where we sell directly to consumers in the United States. We continue to look to online retail markets and additional established distributors for revenue growth.

Marketing Strategy

Our sales and marketing strategy for all of our beverage products is to focus on developing brand awareness through image enhancing programs and product samplings. We use our branded vehicles and other promotional vehicles at events, where we offer samples of our products to consumers. We utilize “push-pull” methods to enhance shelf and display space exposure in sales outlets (including racks, coolers, and barrel coolers), advertising, in-store promotions, and in-store placement of point-of-sale materials to encourage demand from consumers for our products. We also support our brands with prize promotions, price promotions, competitions, endorsements from selected public and sports figures, sports personality endorsements, sampling and sponsorship of selected athletes, teams, series, bands, esports, causes, and events. In-store posters, outdoor posters, social media (directly and through our sponsorships and endorsements), and coupons may also be used to promote our brands.

We believe that one of the keys to success in the beverage industry is differentiation, making our brands and products visually appealing and distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different and unique. The labels and graphics for many of our products are redesigned and refreshed from time to time in order to maximize their visibility and identification, wherever they may be placed in stores, which we continue to reevaluate from time to time.

Promotion Strategy

Public relations and industry media have helped in our over-all market awareness plans. Our announcements of distribution partnerships have assisted in identifying new partners to distribute our products. We believe that announcing these partnerships in industry specific media help expand market awareness of our products. Feature articles and product reviews have also helped launch and support brand awareness. We include our products in industry specific buying guides, which has assisted in creating new relationship with distributors and retail outlets. Finally, we focus on creating products that we believe taste great and use attractive branding with our labels and other materials to catch consumers’ attention either in person at a retail store or online on a website.

Pricing Strategy

We strive to set the pricing of products at levels that are competitive with leaders in each respective market segment. We offer industry-standard discounts to distributors and retailers. We do not typically include quantity discounts but such discounts may be negotiated with major buying groups.

Sales Strategy

Our sales strategy is to exploit the energy drink and water markets in 2020,2021, with the groundwork that we laid out in 2019.2020. We believe that tradeshows will play a major role in creating market awareness of our brands. Currently, our energy drinks are available for sale on Amazon.com, Inc.’s website, the largest internet-based retailer in the United States.

Our sales and marketing strategy for all our beverages is to focus our efforts on developing brand awareness through image enhancing programs and product sampling. We use our branded vehicles and other promotional vehicles at events where we offer samples of our products to consumers. We utilize “push-pull” methods to enhance shelf and display space exposure in sales outlets (including racks, coolers, and barrel coolers), advertising, in-store promotions, and in-store placement of point-of-sale materials to encourage demand from consumers for our products. We also support our brands with prize promotions, price promotions, competitions, endorsements from selected public and sports figures, sports personality endorsements, sampling and sponsorship of selected athletes, teams, series, bands, esports, causes, and events. In-store posters, outdoor posters, social media (directly and through our sponsorships and endorsements) and coupons may also be used to promote our brands.

We believe that one of the keys to success in the beverage industry is differentiation, making our brands and products visually appealing and distinctive from other beverages on the shelves of retailers. We review our products and packaging on an ongoing basis and, where practical, endeavor to make them different and unique. The labels and graphics for many of our products are redesigned and refreshed from time to time to maximize their visibility and identification, wherever they may be placed in stores, which we continue to reevaluate from time to time.

Intellectual Property

Our policy is to protect our intellectual property through, among other things, a combination of trade secrets, know-how, and trademarks. We have taken measures to protect our trade secrets and know-how, to the extent possible. We have twothree trademarks. One is for use of “Kona Gold Hemp Energy Drinks” in the Beverages Segment. The second trademark is for the use of “HighDrate” in the Beverages Segment. The third trademark is for the use of “OOH LA LEMIN” in the Beverages Segment. We have also applied for a trademark for “Storm” to use in the Beverages Segment. We do not have any patents.

Government Regulation and Compliance

The production, distribution, and sale in the United States of many of our products are subject to various U.S. federal and state regulations, including, but not limited to: the FDCA; the Occupational Safety and Health Act; various environmental statutes; the Safe Drinking Water and Toxic Enforcement Act of 1986 (“California Proposition 65”); and a number of other federal, state, and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, marketing, labeling, and ingredients of such products.

Further, the regulation of food products in the United States, including products containing CBD, is complex, multi-faceted, and currently undergoing significant change. The FDA, the FTC, the USDA, and other regulatory authorities at the federal, state, and local levels extensively regulate, among other things, the research, development, testing, composition, production, import, export, labeling, storage, distribution, promotion, marketing, and post-market reporting of foods, including those that contain CBD. We, along with our third-party suppliers, co-packers, and third-party bottlers, are required to navigate a complex regulatory framework. The various federal, state, and local regulations regarding foods containing CBD are evolving, and we continue to monitor those developments. However, we cannot predict the timing, scope, or terms of any new or revised state, federal or local regulations relating to animal foods containing CBD.

Regulation of Hemp and CBD

Historically, the DEA regulated CBD, pursuant to the CSA, which establishes a framework of controls over certain substances, depending on whether they are classified in one of five risk-based schedules. Schedule I substances are the most stringently controlled, as they have been determined to have a high potential for abuse, there are no currently accepted medical uses in the United States, and there is a lack of accepted safety for use of the substance under medical supervision. The CSA classifies “marijuana” as a Schedule I controlled substance and previously defined “marijuana” to include all parts of the cannabis plant, whether growing or not; the seeds of the plant; the resin extracted from any part of the plant; and every compound mixture, salt, derivative, mixture, or preparation of the plant, its seeds, or its resin (with a few exceptions, such as mature stalks of the plant and seeds incapable of germination). Pursuant to this definition, the DEA interpreted CBD to fall within the statutory definition of “marijuana” as a compound or derivative of the cannabis plant.

In February 2014, Congress enacted the 2014 Farm Bill to allow for the limited growth and cultivation of industrial hemp, which was defined as including all parts of the cannabis plant, whether growing or not, with a delta-9 THC concentration of not more than 0.3% on a dry weight basis. This statute also allowed, as permitted by state law, the growing and cultivating of industrial hemp under the auspices of a state agricultural pilot program and by institutions of higher education and state departments of agriculture.

In December 2018, Congress enacted the 2018 Farm Bill to allow more broadly for the production of hemp pursuant to state and tribal plans overseen by the USDA. The 2018 Farm Bill amended the statutory definition of “marijuana” under the CSA specifically to exclude “hemp”, which is defined as any part of the cannabis plant, including the seeds thereof and all derivatives, extracts, cannabinoids, isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 THC concentration of not more than 0.3% on a dry weight basis. Under this definition, as long as CBD meets the statutory definition of “hemp,” then it is no longer a Schedule I controlled substance under the CSA. However, the 2018 Farm Bill did not modify the FDCA and specifically preserved the FDA’s authority to regulate products containing cannabis or cannabis-derived compounds, such as CBD, pursuant to the FDCA.

Under the 2018 Farm Bill framework, states and Native American tribes may submit to the USDA, through the relevant state department of agriculture, a plan under which the state or Native American tribe will monitor and regulate the production of industrial hemp. For those states that do not have an approved state plan, the production of hemp will be subject to a USDA established plan, although states retain the ability to prohibit hemp production within their borders. On October 31, 2019, the USDA issued the IFR to implement the 2018 Farm Bill, which established the required regulatory framework governing commercial hemp production in the United States. The USDA has begun reviewing hemp production plans submitted by state and tribal governments, although several states have informed the USDA that they will continue to operate under their 2014 Farm Bill pilot programs for the time being. Pursuant to the 2018 Farm Bill, the 2014 Farm Bill will remain effective until October 31, 2020 (one year after the date of publication of the IFR). In addition, no state or Native American tribe may prohibit the transportation or shipment of hemp or hemp products produced in accordance with the 2018 Farm Bill through the state or territory, as applicable. The USDA has interpreted this provision also to apply to interstate transportation of hemp that complies with the 2014 Farm Bill through October 31, 2020.

FDA Regulation of Foods

The FDA regulates foods under the FDCA and its implementing regulations. The FDCA defines “food” as articles used for food or drink for people or animals, which includes products that are intended primarily for nutritional use, taste, or aroma and the components of such products. The FDA also imposes certain requirements on foods relating to their composition, production, labeling, and marketing. Among other items, the facilities in which our products and ingredients are produced must register with the FDA, comply with cGMPs and comply with a range of food safety requirements.

Although foods are not required to obtain premarket approval from the FDA, any substance that is added to or is expected to become a component of food must be used in accordance with a food additive regulation, unless it is generally recognized as safe (“GRAS”) under the conditions of its intended use. A food may be adulterated if it uses an ingredient that is neither GRAS nor an approved food additive, and that food may not be legally marketed in the United States. The FDA has confirmed that the use of cannabis or cannabis-derived compounds in food products is subject to these food additive requirements. At this time, there are no approved food additive petitions or regulations for any cannabis-derived food additive and, while the FDA has issued a “no questions” response to certain GRAS notifications for hemp seed products, these GRAS determinations do not encompass hemp and CBD products more generally.

Additionally, the FDCA prohibits the introduction or delivery for introduction into interstate commerce of any food that contains an approved drug for which substantial clinical investigations have been instituted and made public (unless certain exceptions apply). Under this prohibition, the FDA has stated that foods that contain CBD are adulterated because CBD is an active ingredient in an FDA-approved drug that was the subject of substantial clinical investigations before it was marketed as a food, and that none of the exceptions applies.

Although the FDA has stated that it interprets the FDCA to prohibit the introduction or delivery for introduction into interstate commerce of any food into which CBD has been added and has taken enforcement action against marketers of certain CBD products (some in collaboration with the FTC), the FDA is in the process of evaluating its regulatory approach to products containing cannabis and cannabis-derived compounds. The FDA has formed an internal working group to evaluate the issue and on May 31, 2019 held a public hearing to obtain scientific data and information about the safety, producing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds. The hearing featured extensive discussion from a variety of stakeholders regarding the use of hemp and CBD in FDA-regulated products, including foods. At the hearing, FDA stated that, while it does not have a policy of enforcement discretion with respect to any CBD products, the agency’s biggest concern is the marketing of products that puts the health and safety of consumers at risk, such as those claiming to prevent, diagnose, mitigate, treat, or cure serious diseases in the absence of requisite drug approvals.

Further, on March 5, 2020, the FDA issued a report to Congress that was required under the 2018 Farm Bill in which the agency announced that it is currently evaluating a risk-based enforcement policy for CBD to provide more clarity to the industry and the public while the agency takes potential steps to establish a clear regulatory pathway. Although it is unclear whether or when the FDA will ultimately issue such an enforcement policy, the agency reemphasized that it will continue to take action against unlawful CBD products that pose a risk of harm to the public, including products with therapeutic claims; products that include contaminants such as heavy metals, THC, and other harmful substances; products associated with false statements, such as omitted ingredients and incorrect statements about the amount of CBD; and products marketed to vulnerable populations, such as infants and children.

The labeling of foods is regulated by both the FDA and state regulatory authorities. FDA regulations require proper identification of the product, a net quantity statement, a statement of the name and place of business of the producer or distributor, and proper listing of all of the ingredients in order of predominance by weight. The FDA may classify some of our products differently than we do and may impose more stringent regulations, which could lead to possible enforcement action.

Under the FDCA, the FDA may require the recall of a food product if there is a reasonable probability that the product is adulterated or misbranded, and the use of or exposure to the product will cause serious adverse health consequences or death. In addition, food producers may voluntarily recall or withdraw their products from the market. If the FDA believes that our products are adulterated, misbranded, or otherwise marketed in violation of the FDCA, the agency may take further enforcement action, including:

Legislation may be introduced in the United States at the federal, state, and municipal level in respect of each of the subject areas. Public health officials and health advocates are increasingly focused on the public health consequences associated with obesity, especially as it affects children, and are seeking legislative change to reduce the consumption of sweetened beverages. There also has been an increased focus on caffeine content in beverages.

The FDA revised regulations with respect to serving size information and nutrition labeling on food and beverage products, including requirements to disclose the amount of added sugars in such products. In December 2018, the USDA promulgated regulations requiring that, by January 1, 2022, the labels of certain bioengineered foods must include a disclosure that the food is bioengineered. We may incur significant costs to alter our existing packaging materials to comply with these and other new regulations. Additionally, these new regulations may impact, reduce, or otherwise affect the purchase and consumption of our products by consumers.

Proposals to limit or restrict the sale and/or advertising of energy drinks to minors or persons below a specified age, to restrict the venues in which energy drinks can be sold, or to restrict the use of the Supplemental Nutrition Assistance Program (formerly food stamps) to purchase energy drinks have been raised or enacted in certain states, counties, and municipalities throughout the United States. Any such limitations or restrictions could adversely affect our business, financial condition, or results of operations.

We also may in the future be affected by other existing, proposed, and potential future regulations or regulatory actions, any of which could adversely affect our business, financial condition, and results of operations. Changes in government regulation, or failure to comply with existing regulations, could adversely affect our business, financial condition, and results of operations.

Environmental Compliance

Our facilities in the United States are subject to federal, state, and local environmental laws and regulations. Compliance with these provisions has not had, nor do we expect such compliance will have, any material adverse effect upon our capital expenditures, net income, or competitive position. We believe that we are not subject to any material costs for compliance with any environmental laws.

Insurance

Our products are subject to risks. While we have planned for these contingencies and have purchased insurance to address potential liabilities associated with product production, there can be no assurance that all potential liabilities will be covered by insurance or that the insurance coverage will be adequate.

Employees

We believe the people who work for us are critical to our continued success. As of December 10, 2020,September 20, 2021, we employed a total of nine14 persons, all of whom were employed on a full-time basis. We strive to attract and retain qualified personnel; however, due to the size and scope of our business, we do not have any formal human capital strategies.

Many of our employees, including members of our management team, were reporting to work remotely due to the COVID-19 pandemic, which resulted in the closure of our offices in Florida for a period of time. These employees have returned slowly to our offices, and we are once again fully operational. Our warehouses operated as normal.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

KONA GOLD BEVERAGE, INC.

The following discussion and analysis of the results of operations and financial condition for the three and nine months ended September 30, 2020 and 2019 and the years ended December 31, 20192020 and 20182019 should be read in conjunction with the financial statements and related notes and the other financial information that are included elsewhere in this Prospectus.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 in this Registration Statement.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 in this Prospectusherein 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 ProspectusRegistration Statement 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:

The following discussion should be read in conjunction with the financial statements and the notes thereto which are included in this Prospectus.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

Three Months Ended September 30, 2020 compared to Three Months Ended September 30, 2019

Overview

As reflectedOur business has grown rapidly since inception, and we anticipate that our business will continue to grow; however, in the accompanying financial statements,year ended December 31, 2020, the Company saw unforeseen delays in signing more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains and we were additionally impacted by the COVID-19 pandemic during the fiscal year. The COVID-19 pandemic delayed our launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. Our Beverages Segment has three months ended September 30, 2020,main revenue streams: product sales from online consumers, product sales through resellers, and product sales from distributors. Product sales include sales of our energy drinks, HighDrate CBD-infused energy waters, and apparel such as t-shirts and hats. In early 2019, we incurredexpanded our operations with the creation of a net lossdistribution center, which now functions as our Distribution Segment. Our Distribution Segment has one main revenue stream: product sales to convenience stores, grocery stores, or smoke and gift shops, which complement our current product offering. Product sales include sales of approximately $509,400,our beverages, as well as beverages and snacks purchased for resale from several other beverage producers.

We have experienced and expect to continue to experience substantial growth in our operations as we seek to expand through additional products and acquisitions that complement our current product offerings. We expect that revenue will increase in fiscal year 2021 compared to a net loss of approximately $959,200fiscal year 2020, as distribution by our current distributors, who were, and whose clients were, affected by COVID-19 has resumed and we expect to see fewer COVID-19 pandemic-related distribution impacts for the three months ended September 30, 2019. Asbalance of September 30, 2020,fiscal year 2021. Based on those expectations, we now anticipate signing more favorable agreements with larger, reputable tier 1 and mid-size distributors that we had a stockholders’ deficit of approximately $3.4 million.

anticipated in our Beverage Segment for fiscal 2020. The following is a more detailed discussion of our financial condition and results of operations for the period presented, along with prior periods. 

Revenue

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

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

During the three months ended September 30, 2020, we reported net revenues of approximately $312,700, which is a decrease of approximately $164,400, or 34%, compared to approximately $477,100 for the three months ended September 30, 2019. We attribute this decrease to the discontinuation of agreements with smaller distributors in the Beverages Segment in an effort to sign more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains. Distribution of our products pursuant to these agreements was impacted by unforeseen delays, as well as the COVID-19 pandemic during the first three quarters of 2020. The COVID-19 pandemic not only impacted these new distribution agreements, but also delayed product distributions by our current distributors. The COVID-19 pandemic also delayed our launch of a variety of new products in both our Beverages Segment and our Distribution Segment, which include drinks and non-drink line broadening items. We expect that revenue will remain consistent in the last quarter of fiscal 2020, as compared to the third quarter of fiscal 2020, as our distributors that have been affected by COVID-19 will continue to see impacts from COVID-19, despite their resuming some of their distributions. Despite the impact from COVID-19 on our revenues in the first three quarters of 2020, we still anticipate that we will sign more favorable agreements with larger, tier 1 and mid-size distributors in our Beverages Segment during the last quarter of fiscal 2020.

Cost of Revenuespresented.

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

During the three monthsYear ended September 30, 2020, we reported cost of revenues of approximately $222,100, which is a decrease of approximately $168,800, or 43%, compared to approximately $391,000 for the three months ended September 30, 2019. This decrease is attributed to a reduction in sales between the periods primarily in our Beverages Segment. In addition, the cost of products decreased slightly because we increased our purchase quantities based on our sales expectations from the prior fiscal year. Our increased sales expectations were before the unforeseen impacts from COVID-19. As a result, as of September 30, 2020, we had significant inventory on-hand.

Selling, General and Administrative Expenses

Selling, general and administrative (“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.

SG&A expenses decreased by approximately $545,200, or 52%, to approximately $500,200 for the three months ended September 30,December 31, 2020 compared to approximately $1,045,400 in the three monthsYear ended September 30, 2019. The decrease in SG&A expenses was primarily due to a 97% decrease in professional fees attributed to our corporate-related expenses; an 84% decrease in travel expenses attributed to our Beverages Segment; and an 80% decrease in advertising and promotional fees attributed to our Beverages Segment. These decreases were offset by an increase of 84% in salaries and wages; an infinite increase in legal and accounting attributed to our corporate-related expenses, and a 362% increase in public company fees related to our corporate-related expenses.

Professional fees were approximately $20,500 in the three months ended September 30, 2020, compared to approximately $800,400 for the three months ended September 30, 2019, a decrease of $779,600, of which was attributed to our corporate-related activities. This decrease was the result of payments made in the prior year to a board member pursuant to his agreement. Travel expenses were approximately $2,700 in the three months ended September 30, 2020, compared to approximately $16,900 for the three months ended September 30, 2019, a decrease of $14,100, of which was attributed to our Beverages Segment. This decrease was the result of a reduction in travel due to restrictions from the COVID-19 pandemic. Advertising and promotional fees were approximately $3,800 in the three months ended September 30, 2020, compared to approximately $26,800 for the three months ended September 30, 2019, a decrease of $23,000, which was attributed to our Beverages Segment. This decrease was the result of decreased sales during the COVID-19 pandemic.

Salaries and wages were approximately $216,700 in the three months ended September 30, 2020, compared to approximately $118,000 for the three months ended September 30, 2019, an increase of $98,700, of which approximately $89,700 was attributed to our Beverages Segment and $9,000 was attributed to our Distribution Segment. This increase was the result of hiring additional personnel, who are essential and integral to our success. Legal and accounting fees were approximately $80,100 in the three months ended September 30, 2020, compared to approximately $0 for the three months ended September 30, 2019, an increase of $80,100, which was attributed to our moving from the OTC Pink to the OTCQB, and the filing of this Registration Statement with the SEC.

Despite the decrease in SG&A expenses in the three months ended September 30, 2020, we expect that as we expand our business, operations, and incur additional corporate-related expenses associated with having our Common Stock quoted on the OTCQB and being required to file certain reports and other information with the SEC, we believe SG&A expenses will increase for both our Beverages Segment and Distribution Segment. 

Net Loss

We incurred a net loss of approximately $509,400 for the three months ended September 30, 2020, a decrease of approximately $449,800 compared to the previous three months ending September 30, 2019, which had a net loss of approximately $959,200. This improvement in net loss was primarily due to the decrease in SG&A expenses related to our Beverages Segment and other corporate-related activities that were necessary for our growth, interest expense related to the Warrant issued in connection with the Debentures, which was attributed to corporate-related activities, and non-cash expense on our derivative liability, which was also attributed to corporate-related activities. Specifically, our net loss for the three months ended September 30, 2020 consisted of gross profit of approximately $90,600, less SG&A expenses of approximately $500,200 and other expenses of approximately $99,800. The fair value of the Debentures will be re-measured each reporting period until the Debentures are either converted or expire. In each reporting period 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.

Nine Months Ended September 30, 2020 compared to Nine Months Ended September 30,December 31, 2019

Overview

As reflected in the accompanying financial statements, during the nine monthsyear ended September 30,December 31, 2020, we incurred a net loss of approximately $2.2$3.1 million and used cash in operations of approximately $872,500,$1.4 million, compared to a net loss of approximately $1.4$1.8 million and useduse of cash in operations of approximately $633,100$1.2 million for the nine monthsyear ended September 30,December 31, 2019. As of September 30,December 31, 2020, we had a stockholders’ deficit of approximately $3.4$4.2 million.

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

Revenue

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

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

During the nine monthsyear ended September 30,December 31, 2020, we reported net revenues of approximately $741,800,$910,200, which is a decrease of approximately $797,500,$721,500, or approximately 52%44%, compared to net revenues of approximately $1.5$1.6 million for the nine monthsyear ended September 30,December 31, 2019. A decrease of approximately $986,300$917,200 was attributed to our Beverages Segment, while our Distribution Segment reported an increase in net revenue of approximately $188,800.$249,300. We attribute thisa portion of the decrease in our Beverages Segmentsales to the discontinuation of unfavorablesmaller distributor agreements in an effort to sign more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains. Distribution of our products pursuant to these agreements wasThese contracts saw unforeseen delays and were additionally impacted by unforeseen delays, as well as the COVID-19 pandemic during the first nine months of September 30, 2020.fiscal year. The COVID-19 pandemic not only impacted these new distribution agreements, but also delayed product distribution by our current distributors. The COVID-19 pandemic also delayed ourthe Company’s launch of a variety of new products in bothduring most of our Beverages and Distribution Segments, which include boththe 2020 fiscal year – drinks and non-drink line broadening items. We expect that revenue will remain consistentincrease in the last quarter of fiscal 2020,year 2021 compared with the third quarterto fiscal year 2020, as distribution by our current distributors, who were, and whose clients were, affected by COVID-19 will continuehas resumed and we expect to see fewer COVID-19 pandemic-related distribution impacts fromfor the COVID-19 pandemic, despite resuming their distributions. Despite the impact from COVID-19balance of fiscal year 2021. Based on our revenues in the first three quarters of 2020,those expectations, we stillnow anticipate signing more favorable agreements with larger, reputable tier 1 and mid-size distributors that we had anticipated in our BeveragesBeverage Segment during the last quarter offor fiscal 2020.

Cost of Revenues

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

During the nine monthsyear ended September 30,December 31, 2020, we reported cost of revenues of approximately $523,800,$654,200, which is a decrease of approximately $652,000,$659,900, or approximately 55%50%, compared to approximately $1.2$1.3 million for the nine monthsyear ended September 30,December 31, 2019. This decrease is attributed to a reduction in sales primarily in our Beverages Segment in the first nine months of 2020, compared to the prior year period. In addition, the cost of products decreased slightly because we increased our purchase quantities based on our sales expectations from the prior fiscal year. Our increased sales expectations were before the unforeseen impacts from COVID-19. As a result, as of September 30,December 31, 2020, we had significant inventory on-hand.

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.

SG&A expenses were approximately $1.8$2.6 million for the nine monthsyear ended September 30,December 31, 2020, compared to approximately $1.7$3.6 million in the nine monthsyear ended September 30,December 31, 2019, an increasea decrease of $121,600,$1 million, or approximately 7%27%. The increasedecrease in SG&A expenses was primarily due to ana decrease in bad debt expense of 99% attributed to our Beverages Segment; a decrease in professional fees of 87% attributed to our corporate-related activities; a decrease in advertising and promotion of 71% attributed to our Beverage Segment; a 56% decrease in sponsorship fees attributed to our Beverages Segment; and a 58% decrease in travel expenses attributed to our Beverages Segment. This decrease was offset by a significant increase in salaries and wages of 105%97% attributed to both our Beverages Segment and our Distribution Segment; a significant increase in legal and accounting fees of 13,300%2,476% attributed to our corporate-related expenses; an increase in vehicle expense of 782%410% attributed to our Distribution Segment; an increase of 39%100% in rent expense attributed to both our Beverages Segment and our Distribution Segment; and a 112%127% increase in fees to the OTCM fees attributed to corporate-related expenses. These increases were offset by

Bad debt expense was approximately $41,700 in the year ended December 31, 2020, compared to approximately $1.5 million for the year ended December 31, 2019, a 94% decrease in professional fees attributed to our corporate-related activities; a 70% decrease in advertising and promotional fees attributed to our Beverages Segment; a 55% decrease in sponsorship fees attributed to our Beverages Segment; and a 55% decrease in travel expensesof approximately $1.47 million, which was attributed to our Beverages Segment.

This decrease was the result of an allowance for doubtful account that was allocated to a $1.5 million note receivable. Professional fees were approximately $45,300$105,600 in the nine monthsyear ended September 30,December 31, 2020, compared to approximately $811,500 for the nine monthsyear ended September 30,December 31, 2019, a decrease of approximately $766,200,$705,900, which was attributed to our corporate-related activities. This decrease was the result of payments made in the prior year to a member of our Board pursuant to his agreement. Advertising and promotional fees were approximately $20,900$36,900 in the nine monthsyear ended September 30,December 31, 2020, compared to approximately $70,700$125,300 for the nine monthsyear ended September 30,December 31, 2019, a decrease of approximately $49,700,$88,300, which was attributed to our Beverages Segment. This decrease was the result of decreased sales during the COVID-19 pandemic. Travel expenses were approximately $21,700$26,200 in the nine monthsyear ended September 30,December 31, 2020, compared to approximately $48,400$61,900 for the nine monthsyear ended September 30,December 31, 2019, a decrease of approximately $26,700,$35,700, which was attributed to our Beverages Segment. This decrease was the result of a reduction in travel due to restrictions from the COVID-19 pandemic. Salaries and wages were approximately $1.1$1.4 million in the nine monthsyear ended September 30,December 31, 2020, compared to approximately $551,100$688,500 for the nine monthsyear ended September 30,December 31, 2019, an increase of approximately $580,000,$669,800, of which approximately $532,300$616,000 was attributed to our Beverage Segment and an increase of approximately $47,700$53,700 was attributed to our Distribution Segment. This increase was the result of hiring additional personnel, who are essential and integral to our success. Legal and accounting fees were approximately $228,100$558,800 in the nine monthsyear ended September 30,December 31, 2020, compared to approximately $1,700$21,700 for the nine monthsyear ended September 30,December 31, 2019, an increase of approximately $226,400,$537,100, which was attributed to our moving fromCommon Stock becoming quoted on the OTCQB, rather than as historically quoted on the OTC Pink, to the OTCQB, and the filing of our Registration Statement with the SEC. Vehicle expenses were approximately $52,800$62,500 in the nine monthsyear ended September 30,December 31, 2020, compared to approximately $6,000$12,300 for the nine monthsyear ended September 30,December 31, 2019, an increase of approximately $46,800,$50,200, which was attributed to our Distribution Segment, as the result of maintenance and fuel that were integral to our Distribution Segment as sales increased over the prior year. Rent expenses were approximately $117,000$199,300 for the nine monthsyear ended September 30,December 31, 2020, compared to approximately $84,000$101,600 for the nine monthsyear ended September 30,December 31, 2019, an increase of approximately $32,900.$97,700. This increase was attributed to both our Beverages Segment and our Distribution Segment and the result of our moving to a larger warehouse facility that was necessary due to our anticipated growth. OTCM fees attributed to corporate-related expenses were approximately $50,900$63,800 for the nine monthsyear ended September 30,December 31, 2020, compared to approximately $24,000$28,100 for the nine monthsyear ended September 30,December 31, 2019, an increase of approximately $26,900.$35,700. This increase was the result of fees paid to the OTCM to havefor our Common Stock becoming quoted on the OTCQB, versusrather than as historically quoted on the OTC Pink.

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

Net Loss

We incurred a net loss of approximately $2.2$3.1 million for the nine monthsyear ended September 30,December 31, 2020, an increase of approximately $816,500$1.3 million compared to the previous nine monthsyear ending September 30,December 31, 2019, in which hadwe incurred a net loss of approximately $1.4$1.8 million. This net loss is primarily due to the SG&A expenses related to our Beverages Segment and corporate-related expenses that are necessary for our growth, and other corporate-related expenses, which include interest expense related to the 2020 Warrant that we issued in May 2020 in connection with thethree 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 period 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 and Nine Months Ended September 30, 2020 compared to September 30, 2019

For the three and nine months ended September 30, 2020 and 2019, we had two reportable segments: (i) the Beverages Segment and (ii) the Distribution Segment. Amounts that are not allocated to either of these reportable segments is reported 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: