UNITED STATES 

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended June 30, 2021

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

For the transition period from _____________ to _______________

Commission File Number 000-56230

Kona Gold Beverage, Inc. 

(Exact name of registrant as specified in its charter)

Delaware	81-5175120
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)
746 North Drive, Suite A   Melbourne, Florida	32934
(Address of principal executive offices)	(Zip Code)

(844) 714-2224

(Registrant’s telephone number, including area code)

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

Title of each class Trading Symbol(s) Name of each exchange on which registered

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

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

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

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

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

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

The number of shares of the issuer’s common stock, par value $0.00001 per share, outstanding as of August 13, 2021 was 863,488,732.

INDEX TO FORM 10-Q FILING

FOR THE QUARTER ENDED JUNE30, 2021

TABLE OF CONTENTS

		Page
	PART I
	FINANCIAL INFORMATION	1
Item 1.	Financial Statements	1
	Unaudited Consolidated Balance Sheets as of March 31, 2021 and December 31, 2020	1
	Unaudited Consolidated Statements of Income (Unaudited) for the Three Months Ended March 31, 2021 and 2020	2
	Unaudited Consolidated Statements of Cash Flows (Unaudited) for the Three Months Ended March 31, 2021 and 2020	3
	Unaudited Consolidated Statements of Stockholders’ Equity (Unaudited) for the Three Months Ended March 31, 2021 and 2020	4
	Notes to the Unaudited Consolidated Financial Statements (Unaudited)	5
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	48
Item 4.	Controls and Procedures	48
	PART II
	OTHER INFORMATION	49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	49
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	49
Item 3.	Defaults upon Senior Securities	50
Item 4.	Mine Safety Disclosures	50
Item 5.	Other Information	50
Item 6.	Exhibits	51
SIGNATURES		55

i 

Unaudited Consolidated Balance Sheets as of June 30, 2021 and December 31, 2020	F-1
Unaudited Consolidated Statements of Loss for the Six and Three Months Ended June 30, 2021 and 2020	F-2
Unaudited Consolidated Statements of Cash Flows for the Six Months Ended June 30, 2021 and 2020	F-3
Unaudited Consolidated Statements of Stockholders’ Deficit	F-4
Notes to the Unaudited Consolidated Financial Statements	F-5

ii 

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

	Unaudited			Audited
	Six Months Ended			Year Ended
	June 30,			December 31,
ASSETS	2021			2020
CURRENT ASSETS
Cash and cash equivalents	$	94,494		$	113,168
Accounts receivable, net of allowance for doubtful  accounts of $3,967 and $5,019, respectively		333,522			—
Other receivables		14,876			14,876
Inventory		752,951			660,504
Prepaids		10,244			—
Other current assets		8,234			5,572
Total current assets		1,214,321			794,120
NON-CURRENT ASSETS
Property, plant and equipment, net		173,616			167,872
Right-of-use asset, net		838,732			912,993
Intangible property, net		77,092			69,488
Goodwill		1,275,938			—
Note receivable, net of allowance $1,500,000 and $0, respectively		—			—
Deposit		6,500			6,500
Total non-current assets		2,371,878			1,156,853
Total assets	$	3,586,199		$	1,950,973
LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable	$	350,469		$	208,599
Amounts owed to customers		—			10,508
Credit card payables		3,282			19,469
Current note payable - related party		6,000			12,000
Current lease liability		75,144			149,407
Convertible debt		1,300,000			900,000.00
Derivative liability		485,521			361,152.00
Accrued compensation		375,208			257,500.00
Accrued stock compensation		1,386,497			1,386,497
Accrued liabilities		136,657			81,624
Total current liabilities		4,118,778			3,386,756
NON-CURRENT LIABILITIES
Line of credit		398,470			398,470
Line of credit - related party		1,498,151			1,495,151
Note payable - related party, net of current		56,000			56,000
Note payable		624,360			—
PPP note payable		117,487			95,161
Lease liability, net of current		763,588			763,586
Total liabilities		7,576,834			6,195,124
COMMITMENTS AND CONTINGENCIES (NOTE 13)
STOCKHOLDERS’ DEFICIT
Preferred Stock Series A, $.00001 par value, 0 shares authorized, 0 issued, and outstanding, respectively		—			—
Preferred Stock Series B, $.00001 par value, 1,200,000 shares authorized, 488,000 issued and outstanding, respectively		5			5
Preferred Stock Series C, $.00001 par value,  250, 3,300,000 and 3,300,00 shares authorized, 140 and 0 issued, and outstanding, respectively		—			—
Preferred Stock Series D, $.00001 par value, 500,000 shares  authorized, 500,000 issued, and outstanding,  respectively		5			5
Common Stock, $.00001 par value, 2,500,000,000 authorized, 850,772,637 and 786,308,041, issued and outstanding, respectively		8,508			7,863
Additional paid-in capital - warrants		1,334,136			281,565
Additional paid-in capital		6,139,686			4,746,447
Accumulated deficit		(11,472,974	)		(9,280,036	)
Total stockholders’ deficit		(3,990,635	)		(4,244,151	)
Total liabilities and stockholders’ deficit	$	3,586,199		$	1,950,973

F-1

	THREE MONTHS ENDED						SIX MONTHS ENDED
	June 30,						June 30,
	2021			2020			2021			2020
REVENUES, NET OF SALES, RETURNS, AND ALLOWANCES OF $28,707 AND $51,159, RESPECTIVELY	$	790,809		$	227,044		$	1,252,980		$	442,327
COST OF REVENUES		686,706			155,694			1,000,571			314,887
Gross profit		104,103			71,350			252,409			127,440
OPERATING EXPENSES
Selling, general and administrative expenses		644,052			692,556			1,212,732			1,339,769
Income (Loss) from operations		(539,949	)		(621,206	)		(960,323	)		(1,212,329	)
Other income / (expense)
Interest expense		(17,567	)		(13,812	)		(34,941	)		(17,619	)
Interest expense related to loan origination fee on convertible note		(24,000	)		(15,000	)		(65,000	)		(15,000	)
Interest expense related to warrants on convertible note		—			(281,565	)		(1,052,571	)		(281,565	)
Interest expense on convertible note		(23,389	)		—			(43,354	)		—
Gain/(Loss) on derivative		141,497			(148,628	)		(124,369	)		(148,628	)
Tax expense		(4,967	)		—			(7,542	)		—
EIDL advance		95,161			7,000			95,161			7,000
Other income		—			6,291			—			6,291
Net Income (Loss)	$	(373,214	)	$	(1,066,920	)	$	(2,192,939	)	$	(1,661,850	)
WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted		805,263,473			767,772,186			805,263,473			767,772,186
NET LOSS PER COMMON SHARES:
Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

F-2

	Common Stock						Preferred Stock						Additional					Total
	$.00001 Par						$.00001 Par						Paid		Accumulated			Stockholders’
	Shares			Amount			Shares			Amount			in Capital		Deficit			Deficit
Balance December 31, 2019		763,967,603		$	7,640			4,988,000		$	50		$	4,155,777	$	(6,154,441	)	$	(1,990,976	)
Common Stock Issued for Compensation		5,000,000			50									318,450					318,500
Net Income (loss)											—					(1,033,123	)		(1,033,123	)
Balance March 31, 2020		768,967,603		$	7,690			4,988,000		$	50			4,474,227	$	(7,187,564	)	$	(2,705,599	)
Common Stock Issued for Sponsorship Agreements		85,000			1									2,577					2,578
Common Stock Issued for Compensation		5,000,000			50									157,450					157,500
Warrants related to convertible note											—			281,565					281,565
Net Income (loss)																(1,066,920	)		(1,066,920	)
Balance June 30, 2020		774,052,603		$	7,741			4,988,000		$	50		$	4,915,819	$	(8,254,484	)	$	(3,330,876	)
Common Stock Conversion to Preferred Stock		(140	)		(0	)		140			0.00								—
Preferred Stock Conversion to Common Stock		4,000,000			40			(4,000,000	)		(40.00	)		—					—
Accrued Common Stock Issues for Compensation		140			0									2					2
Net Income (loss)																(509,441	)		(509,441	)
Balance September 30, 2020		778,052,603		$	7,781			988,140		$	10		$	4,915,821	$	(8,763,925	)	$	(3,840,315	)
Common Stock Issued for Conversion of Convertible Debt		8,255,438			83						—			112,191					112,274
Net Income (loss)																(516,111	)		(516,111	)
Balance December 31, 2020		786,308,041		$	7,863			988,140		$	10		$	5,028,012	$	(9,280,036	)	$	(4,244,151	)
Common Stock Issued for Conversion of Convertible Debt		30,418,798			304									613,505					613,809
Common Stock Issued for Acquisition		9,000,000			90						—			270,810					270,900
Warrants related to convertible note														1,052,571					1,052,571
Net Income (loss)																(1,819,725	)		(1,819,725	)
Balance March 31, 2021		825,726,839		$	8,257			988,140		$	10		$	6,964,898	$	(11,099,761	)	$	(4,126,597	)
Common Stock Issued for Conversion of Convertible Debt		25,045,798			250						—			508,924					509,174
Net Income (loss)																(373,214	)		(373,214	)
Balance June 30, 2021		850,772,637		$	8,508			988,140		$	10		$	7,473,822	$	(11,472,975	)	$	(3,990,635	)

F-3

	2021			2020
CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES:
Net loss	$	(2,192,939	)	$	(1,661,850	)
Adjustments to reconcile net income to net cash provided by operations:
Depreciation and Amortization		20,503			15,530
Common Stock Issued in Exchange for Services		—			—
Common Stock Issued in Acquisition		270,900			—
Common Stock Issued for Sponsorship		—			2,578
Common Stock Issued for Compensation					476,000
Preferred Stock Issued for Compensation		—			—
Interest expense related to warrants on convertible debt		1,052,571			281,565
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		(344,030	)		(4,381	)
Decrease (increase) in other receivable		—			—
Decrease (increase) in inventory		(92,447	)		(27,924	)
Decrease (increase) in prepaids		(10,244	)		—
Decrease (increase) in intercompany transactions		—
Decrease (increase) in other current assets		(2,662	)		(8,526	)
Decrease (increase) in deposits		—			—
Decrease (increase) in right-of-use asset		74,261			(343,785	)
Increase (decrease) in accounts payable		141,870			21,741
Increase (decrease) in credit card payable		(16,187	)		5,300
Increase (decrease) in accrued compensation		117,708			137,625
Increase (decrease) in accrued stock compensation		—			—
Increase (decrease) in accrued expenses		55,033			17,217
Increase (decrease) in derivative liability		124,369			148,628
Increase (decrease) in lease liability		(74,261	)		324,918
Net cash provided by (used in) operating activities		(875,555	)		(615,364	)
CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property, plant and equipment		(26,247	)		(33,772	)
Changes in goodwill		(1,275,938	)		—
Changes in intellectual property		(7,604	)		4,088
Net cash provided by (used in) investing activities		(1,309,789	)		(29,684	)
CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Changes in note payable - related party		(6,000	)		(6,000	)
Changes in line of credit - related party		3,000			325,500
Changes in note payable - acquisition		624,360			—
Changes line of credit		—			—
Changes in convertible debt		1,522,984			250,000
Changes in PPP note payable		22,326			95,161
Net cash provided by (used in) financing activities		2,166,670			664,661
Net cash increase for period		(18,674	)		19,613
Cash at beginning of period		113,168			36,223
Cash at end of period	$	94,494		$	55,836
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	2,275		$	—
Cash paid for interest	$	34,941		$	35,877
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

F-4

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS

Kona Gold Beverage, Inc., a Delaware corporation (“Kona Gold,” the “Company,” “we,” “us,” or “our”), owns and operates a line of premier CBD lifestyle brand and other products. As of June 30, 2021 the Company has four wholly-owned subsidiaries: Kona Gold LLC, a Delaware limited liability company (“Kona”), HighDrate LLC, a Florida limited liability company (“HighDrate”), Gold Leaf Distribution LLC, a Florida limited liability company (“Gold Leaf”), and S and S Beverage, Inc. (“S and S”), a Wisconsin corporation, which the Company acquired in February 2021. The Company is primarily focused on product development in the functional beverage sector. Kona Gold creates hemp-infused energy drinks, which includes hemp energy drinks, CBD energy water, and also sells Kona Gold merchandise and apparel, which promotes the Company’s beverages. HighDrate focuses on the development and marketing of CBD-infused energy waters geared towards the fitness and wellness markets. S and S creates and sells unique lemon flavored drinks under the “Ooh La Lemin” brand name. Gold Leaf focuses on the distribution of premium beverages and snacks in key markets.

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

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

The Company’s Business

The Company has two reportable segments:

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

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

Beverage Products

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

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

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

F-5

Ooh La Lemin is lemonade for the modern age. Made natural and refreshing with no added sugar, low in carbs, and 15 calories. Ooh La Lemin is available in four distinct flavors: original lemonade, peach lemonade, strawberry lemonade, and blue raspberry lemonade.

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

Effects of COVID-19

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

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Basis of Presentation

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

B. Use of Estimates

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

C. Cash and Cash Equivalents

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

D. Fair Value of Financial Instruments

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

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

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

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

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

F-6

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

E. Accounts Receivable and Allowance for Doubtful Accounts

Accounts receivable are recorded at net realizable value. The Company determines provisions for uncollectible accounts, sales returns, and claims based upon factors including the credit risk and activity of specific customers, historical trends, and other information. If the Company becomes aware of a specific distributor’s or reseller’s inability to meet its financial obligations, bad debt charges are recorded based on an overall assessment of past due accounts receivable outstanding. There was no bad debt attributed to accounts receivable in the year ended June 30, 2021 and 2020, respectively. These amounts are included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss. Management will review annually to determine provisions and record an allowance as deemed necessary. In the opinion of management, a provision was deemed necessary for uncollectible accounts for Kona and no provision was deemed necessary for Gold Leaf. The allowances for Uncollectible Accounts at June 30, 2021 and December 31, 2020 were $9,478 and $3,967, respectively, as reflected in the accompanying Consolidated Balance Sheets.

F. Inventories

The cost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. The Company’s inventories are valued at the lower cost or net realizable value. The Company’s inventory consists almost entirely of finished and unfinished goods, and freight, which include CBD energy waters, CBD waters, hemp energy drinks, lemonades, cans for production, and merchandise and apparel. The Company periodically evaluates and adjusts inventories for obsolescence. In the opinion of management, no provision for obsolescence is deemed necessary. The shelf life of all beverage inventory is two years, and at June 30, 2021, and December 31, 2020, all inventory was current, as reflected in the accompanying Consolidated Balance Sheets.

G. Property, Plant and Equipment

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

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

	Estimated useful lives (in years)
Furniture and fixtures		7
Machinery and equipment		7
Vehicles		5
Computer equipment		5 – 7

H. Goodwill and Intangible Assets

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

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

Management determined that, for the year ending December 31, 2020, there were no identifiable assets or liabilities; therefore, the implied fair value of goodwill is zero. On January 21, 2021, the Company entered into an Agreement and Plan of Merger with S and S and the five S and S Legacy Shareholders and acquired all of the capital stock of S and S. Because of this, goodwill was recorded in the amount of $1,275,938 see Note 5, Goodwill and Intangible Assets. Management determined that there was no impairment of trademarks for the year ending December 31, 2020, see Note 5, Goodwill and Intangible Assets.

F-7

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

I. Leases

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

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

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

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

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

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

On January 1, 2019, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC Topic 606”). The underlying principle of ASC Topic 606 is to recognize revenue to depict the transfer of goods or services to a customer at the amount expected to be collected. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulative effect adjustment was recognized.

To apply these principles, ASC Topic 606 outlines a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes:

1.	Identifying the contract(s) or agreement(s) with a customer;
2.	Identifying the separate performance obligations in the contract or agreement;
3.	Determining the transaction price;
4.	Allocating the transaction price to the separate performance obligations in the contract or agreement; and
5.	Recognizing revenue as each performance obligation is satisfied.

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

F-8

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

Sales are made to customers under terms allowing certain limited rights of return. The Company records an allowance and return for each quarter for 3% of total sales. The Company recorded sales, returns, and allowance at three months ending June 30, 2021 and 2020 of approximately $19,800 and $6,600, respectively, and the six months ending June 30, 2021 and 2020 of approximately $57,400 and $13,400, respectively, which is included in the revenues, net of sales returns and allowances in the accompanying Consolidated Statements of Loss.

K. Cost of Revenues

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

L. Impairment of Long-Lived Assets

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

M. Income Taxes

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

The Company has no recorded liabilities for uncertain tax positions as of the accompanying Consolidated Balance Sheets dated June 30, 2021 and December 31, 2020, respectively.

N. Stock-Based Compensation

FASB’s ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R) (“ASC Topic 718”), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. The Company measures the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value for restricted stock awards is valued using the closing price of the Company’s common stock, par value $0.00001 per share (the “Common Stock”), on the date of grant.

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

O. Advertising Costs

The Company expenses costs of advertising and promotions as incurred. The Company includes in advertising costs inventory given away as promotional merchandise or free samples to create sales. Advertising and promotion costs for the three months ended June 30, 2021 and 2020, was approximately $13,600 and $3,100, respectively, and for the six months ended June 30, 2021 and 2020, was approximately $24,100 and $11,000, respectively, which amounts were included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

F-9

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

P. Concentration of Credit Risk

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

Q. Basic and Diluted Earnings per Share

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

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

R. Segments

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

The Company then applied the management approach to the identification of its two reportable segments – the Beverages Segment, consisting of the operations of Kona, HighDrate, and Ooh La Lemin, and the Distribution Segment, consisting of the operations of Gold Leaf. Specifically, the Company has evaluated guidance in ASC 280-10 and determined that aggregation is consistent with the objectives of ASC 280-10 in that aggregation into two reportable segments allows users of our financial statements to view the Company’s business through the eyes of management based upon the way management reviews performance and makes decisions. Additional factors that were considered included: whether or not an operating segment has similar economic characteristics, the nature of the products/services under each operating segment, the nature of the production/go-to-market process, the type and geographic location of our customers, and the distribution of our products/services. The Company further determined that its logo merchandise and apparel, which revenue comprises approximately 1% of the Company’s gross annual sales, and solely exists for promotion purposes, could be aggregated with the operations in the Beverages Segment. A description of the Company’s products is contained in Note 1, Organization and Description of Business. For additional information regarding the Company’s two reportable segments, please see Note 18, Segments.

S. Registration Rights Agreement

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

F-10

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

F-11

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

F-12

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

F-13

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

T. Recently Issued Accounting Pronouncements

The Company has evaluated all recently issued accounting pronouncements, issued or proposed, by the FASB or other standards-setting bodies as of the period ending June 30, 2021. The Company does not expect a material impact on the Company’s financial position, result of operations, or cash flows from these pronouncements.

NOTE 3 – INVENTORY

Inventory consisted of the following:

	June 30, 2021		December 31, 2020
CBD Energy Water	$	127,461	$	159,813
Hemp Energy Drink		290,886		343,119
Storm CBD Water		27,292		28,692
Ooh La Lemin Drink		74,976		—
Merchandise and Apparel		11,465		11,948
Unfilled Cans, Trays and Sleeves		82,634		38,705
Miscellaneous Beverages		61,328		33,225
Raw Materials		18,853
Other Inventory		50,067		43,362
Point of Sale Inventory		7,989		1,640
Total Inventory	$	752,951	$	660,504

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment consisted of the following:

	June 30, 2021			December 31, 2020
Furniture and Fixtures	$	69,260		$	57,879
Computers and Software		22,752			16,638
Machinery & Equipment		89,567			79,951
Vehicles		67,200			68,135
Less: Accumulated Depreciation		(75,163	)		(54,731	)
Property, plant and equipment, net	$	173,616		$	167,872

Depreciation for the three months ended June 30, 2021 and 2020, was approximately $10,596 and $7,856 respectively, and for the six months ended June 30, 2021 and 2020, was approximately $20,503 and $15,529, respectively, and is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

NOTE 5 – GOODWILL AND INTANGIBLE ASSETS

In April 2019, Gold Leaf acquired 21,000,000 shares, representing 51.65% of the issued and outstanding shares of common stock, $0.01 par value per share, of BigSupersearch.com, Inc., a California corporation (“BigSupersearch”), and 14,000,000 shares of its Series A preferred stock, representing 76.26% of the issued and outstanding shares of preferred stock, for an aggregate of $61,000, which amount included the purchase price, attorney fees, and transfer fees. At the time of the acquisition, BigSupersearch was considered a “shell company” because it had no operations and no assets. Because no transfer of assets or liabilities occurred, the entire $61,000, representing the consideration paid for all of the issued and outstanding capital stock of BigSupersearch, was recorded as goodwill. Gold Leaf has not commenced operations or done anything with BigSupersearch and it still remains a shell company.

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

F-14

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

Management determined that for the year ending December 31, 2019, BigSupersearch had no identifiable assets or liabilities; therefore, the implied fair value of goodwill is zero. Based on this assessment, goodwill was impaired by the full carrying amount of $61,000. At March 31, 2021, and at December 31, 2020, BigSupersearch had $0 in goodwill.

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

Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, we acquired all of the shares of capital stock of S and S from the five holders thereof (the “S and S Legacy Shareholders”). In consideration thereof, we issued to them an aggregate of nine million restricted shares of Kona Gold Beverage, Inc.’s common stock (the “Acquisition Stock”) on a pro rata basis. Kona Gold Beverage, Inc. did not grant them any registration rights in respect of the shares of Acquisition Stock. We also agreed to pay an aggregate of $1,050,000 (the “Aggregate Acquisition Payments”), the majority of which is allocated to certain creditors of S and S (including one of the S and S Legacy Shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is allocated to the five S and S Legacy Shareholders on a pro rata basis. $400,000 of the Aggregate Acquisition Payments are scheduled to be paid in the next two weeks. The balance of the Aggregate Acquisition Payments, including the Remaining Acquisition Payments, are scheduled to be paid in monthly installments, in arrears on the tenth calendar day of each month, commencing on March 10, 2021, at a rate equivalent to $2.00 per case of Lemin Superior Lemonade (the product line of S and S) that we sell until the Aggregate Acquisition Payments have been paid in full. In addition to the Aggregate Acquisition Payments, we also assumed and agreed to pay certain other liabilities of S and S as set forth in the Merger Agreement. Because of this goodwill was recorded in the amount of $1,275,938, see Note 19 – Acquisition of S and S Beverage, Inc.

F-15

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Changes in goodwill are as follows:

	June 30,		December 31,
	2021		2020
Beginning of year	$	—	$	—
Acquired goodwill		1,275,938		—
Impairment		—		—
Total goodwill	$	1,275,938	$	—

Intangible assets consisted of the following:

	June 30,   2021			December 31,   2020
Trademark (HighDrate)	$	81,750		$	81,750
Website Development (Ooh La Lemin)		12,201			—
Less: Accumulated Amortization		(16,859	)		(12,262	)
Total Intangible Asset	$	77,092		$	69,488

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

Fiscal year ending:
December 31, 2021 (remaining 6 months)		4,697
December 31, 2022		9,395
December 31, 2023		9,395
December 31, 2024		9,395
December 31, 2025		9,395
Thereafter		34,815
Finite-Lived Intangible Assets, Net	$	77,092

NOTE 6 – NOTE RECEIVABLE

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

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

F-16

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

	June 30, 2021			December 31, 2020
Investment in Branded Legacy	$	—		$	—
Note receivable		1,500,000			1,500,000
Less: Allowance for doubtful account		(1,500,000	)		(1,500,000	)
Note receivable, net	$	—		$	—

NOTE 7 – STOCK-BASED COMPENSATION

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

The share-based payments granted for the six months ended June 30, 2021 and the year ended December 31, 2020, were 9,000,000  and 10,085,140 shares of the Common Stock, respectively. No stock-based Common Stock was cancelled or forfeited for the six months ended June 30, 2021 and the year ended December 31, 2020, respectively.

For the six months ended June 30, 2021 and 2020, the Company recognized stock-based compensation expense, which is included in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss, as follows:

	Six Months Ended June 30,		Six Months Ended June 30,
	2021		2020
Employee stock awards	$	—	$	476,000
Non-employee stock awards		270,900		2,577
Total stock-based compensation expense	$	270,900	$	478,577

The Company expenses stock-based compensation cost in the current period at the grant date. No future years of compensation is expected for the next five fiscal years. The Company has a balance in accrued stock-based compensation at June 30, 2021 and December 31, 2020, of $1,386,497 and $1,386,497, respectively.

F-17

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 8 – LINE OF CREDIT

On May 5, 2018, Kona entered into a Line of Credit Agreement with Matthew Nicoletti as the lender, which established a revolving line of credit in the amount of up to $400,000. The line of credit matures on May 5, 2022 and is reflected as non-current on the accompanying Consolidated Balance Sheets. Advances under the line of credit bear interest at the rate of 3.75 percent per annum. Payments of principal and accrued interest are payable on the maturity date. At June 30, 2021 and December 31, 2020, the line of credit had an outstanding principal balance of $398,470, respectively, and accrued interest of $39,512 and $32,102, respectively.

NOTE 9 – RELATED PARTY TRANSACTIONS

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

1)

On October 31, 2018, Kona issued a Standard Promissory Note in favor of Robert Clark, as lender, in the original principal amount of $20,000. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The note bears no interest. Principal payments of $500 per month commenced in February 2019, with the final payment due in March 2022. The outstanding principal balance of this note at June 30, 2021 and December 31, 2020 was $5,500 and $8,500, respectively.

2)

On February 19, 2019, Gold Leaf issued a Standard Promissory Note in Favor of Robert Clark, as lender, in the original principal amount of $70,000. The note bears no interest. Principal payments of $500 per month commenced in March 2019, with final payment due in March 2021. On March 15, 2021, Gold Leaf issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principle of $58,000. Principal payment of $500 per month, with final payment due in March 2022. The outstanding principal balance of this note at June 30, 2021 and December 31, 2020 was $56,500 and $59,500, respectively.

The future maturities are as follows:

December 31, 2021(remaining 6 months)	$	62,000
	$	62,000

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

1)

On April 4, 2019, Kona entered into a Line of Credit Agreement with Robert Clark. The agreement established a revolving line of credit in the amount of up to $1,500,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on April 4, 2022, at which time all outstanding principal amounts and accrued interest are due and payable.  At June 30, 2021 and December 31, 2020, outstanding principal was $1,372,651 and $1,369,651, respectively, and accrued interest was $61,263 and $36,397, respectively.

2)

On August 29, 2019, Gold Leaf entered into a Line of Credit Agreement with Robert Clark. The agreement established a revolving line of credit in the amount of up to $200,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on August 29, 2022, at which time all outstanding principal amounts and accrued interest are due and payable. At June 30, 2021 and December 31, 2020, outstanding principal was $125,500 and $100,000, respectively, and accrued interest was $5,879 and $3,545, respectively.

 NOTE 10 – SECURITIES PURCHASE AGREEMENT, DERIVATIVE LIABILITIES, AND WARRANT

2020 Securities Purchase Agreement

In May 2020, the Company completed the 2020 Private Placement of the 2020 Debentures and the 2020 Warrant pursuant to the 2020 SPA. The Company sold and issued the First 2020 Debenture and granted the 2020 Warrant promptly after entering in the 2020 SPA. The Company sold and issued the Second 2020 Debenture promptly after filing the 2020 Registration Statement initially with the SEC. The Company sold and issued the Third 2020 Debenture promptly after the SEC declared the 2020 Registration Statement effective. The 2020 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the 2020 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.05 per share, subject to adjustment (the “2020 Fixed Conversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2020 Market Conversion Price”). The 2020 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of its Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures. The 2020 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2020 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2020 Debentures or exercise of the 2020 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2020 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2020 Debentures or otherwise accelerates the maturity date, as provided for in the 2020 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2020 Debentures) are then satisfied, in shares of the Common Stock at the 2020 Market Conversion Price on the trading day immediately prior to the date paid.

F-18

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

Pursuant to the 2020 SPA, the purchase price for the First 2020 Debenture was $250,000, less $15,000 for origination fees, which consisted of the “original issue discount” of $10,000 and $5,000 as a structuring fee. On December 23, 2020, the Company converted $100,000 of the principal of, and $12,274 of accrued interest on, the First 2020 Debenture into 8,255,438 shares of the Company’s common stock. On January 25, 2021, the Company converted $150,000 of the principal of, and $1,118 of accrued interest on, the First 2020 Debenture into 7,094,732 shares of the Company’s common stock, see Note 12, Equity Transactions. At June 30, 2021, no balance remains on the principal balance of the First 2020 Debenture.

Pursuant to the 2020 SPA, the purchase price for the Second 2020 Debenture was $250,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 25, 2021, the Company converted $100,000 of the principal of, and $10,410 of accrued interest on, the Second 2020 Debenture into 5,183,613 shares of the Company’s common stock. On February 19, 2021, the Company converted $150,000 of the principal of, and $855 of accrued interest on, the Second 2020 Debenture into 7,252,634 shares of the Company’s common stock see Note 12, Equity Transactions. At June 30, 2021, no balance remains on the principal balance of the First 2020 Debenture.

Pursuant to the 2020 SPA, the purchase price for the Third 2020 Debenture was $500,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 12, 2021, the Company converted $200,000 of the principal of, and $1,425 of accrued interest on, the First 2020 Debenture into 10,887,819 shares of the Company’s common stock, see Note 12, Equity Transactions. On May 5, 2021, the Company converted $300,000 of the principal of, and $7,496 of accrued interest on, the First 2020 Debenture into issued an aggregate of 14,436,426 shares of common stock, see Note 12, Equity Transactions. At June 30, 2021, no balance remains on the principal balance of the Third 2020 Debenture.

2021 Securities Purchase Agreement

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

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

F-19

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

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

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

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

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

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

F-20

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

At June 30, 2021, the principal balance of the First 2021 Debenture is $900,000.

On May 5, 2021, the Company and YA II PN, LTD entered into a Limited Amendment Agreement dated as of May 5, 2021, by and between Kona Gold Beverage, Inc., a Delaware corporation (the “Company”), and YA II PN, LTD., a Cayman Islands exempt company (“Investor”). The Company and the Investor agree to a partial Second Closing, whereby the Investor will purchase a portion of the intended Second Convertible Debenture (the “Partial Second Convertible Debenture”) in the face amount of $200,000 for a purchase price of $192,000 (the “Partial Second Convertible Debenture Purchase Price”) within 1 business day following the date hereof. The Investor and the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), Registration Rights Agreement (the “Registration Rights Agreement”) and related Transaction Documents (as this term is defined in the Securities Purchase Agreement) dated February 10, 2021, the date thereof, pursuant to which the Investor agreed to purchase secured Convertible Debentures (individually referred to as the “First Convertible Debenture” and the “Second Convertible Debenture”) upon various conditions precedent as articulated in Section 8(a) and (b) of the Securities Purchase Agreement and in the Transaction Documents, see above Note 9 – Securities Purchase Agreement, Derivative Liabilities, And Warrant.

Pursuant to the 2021 SPA, the purchase price for the Second 2021 Debenture was $600,000, less $200,000 for the “Partial Second Convertible Debenture”, dated May 5, 2021, less for origination fees, which consisted of the “original issue discount” of $16,000. On June 9, 2021, the Company converted $200,000 of the principal of, and $1,578 of accrued interest on the Second 2021 Debenture into 6,719,269 shares of the Company’s common stock see Note 11, equity transactions. At June 30, 2021, the principal balance of the Second 2021 Debenture is $400,000.

Derivative Liability

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

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

	June 30, 2021
Stock Price	$	0.0232
Exercise Price	$	0.0204
Expected Life		1
Volatility		81.9	%
Dividend Yield		0	%
Risk-Free Interest Rate		0.08	%
Fair Value	$	485,521

The following table summarizes the changes in the Company’s assets and liabilities measured at fair value as of June 30, 2021:

	June 30, 2021		Quoted prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Convertible promissory notes with embedded conversion option	$	485,521		$	485,521
Total	$	485,521		$	485,521

The following table sets forth a summary of change in fair value of the Company’s derivative liabilities for the year ended June 30, 2021:

F-21

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

Fair value, January 1, 2020	$	—
Change in fair value of embedded conversion features of debenture included in earnings		—
Embedded conversion option liability recorded in connection with the issuance of 2020 debenture		148,628
Fair value, June 30, 2020	$	148,628
Change in fair value of embedded conversion features of debenture included in earnings		(39,725	)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures		108,903
Fair value, September 30, 2020	$	217,806
Change in fair value of embedded conversion features of debenture included in earnings		(69,051	)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures		212,397
Fair value, December 31, 2020	$	361,152
Change in fair value of embedded conversion features of debenture included in earnings		(202,443
Embedded conversion option liability recorded in connection with the issuance of 2021 debentures		468,309
Fair value, March 31, 2021	$	627,018
Change in fair value of embedded conversion features of debenture included in earnings		(307,585	)
Embedded conversion option liability recorded in connection with the issuance of 2021 debentures		166,088
Fair value, June 30, 2021	$	485,521

Warrant

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

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

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

During the year ended December 31, 2020, the Company granted the 2020 Warrant that was immediately exercisable for up to 20,000,000 shares of Common Stock. During the six months ended June 30, 2021, the Company granted the 2021 Warrant that was immediately exercisable for up to 50,000,000 shares of Common Stock. The 2020 Warrant and the 2021 Warrant, respectively, was fully expensed as an interest expense related to the 2020 Warrant and the 2021 Warrant issued in connection with the consummation of the transactions contemplated by the 2020 SPA and 2021 SPA, respectively, and no liability was recorded as of June 30, 2021 and December 31, 2020, respectively.

NOTE 11 – PAYCHECK PROTECTION PROGRAM LOAN

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

F-22

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

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

On April 27, 2021, the Paycheck Protection Promissory Note, dated May 4, 2020, in the original principal amount of $95,161 (the “PPP Loan”) with Wells Fargo Bank, N.A was forgiven for the full amount. The PPP Loan was made under, and is subject to, the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act the (“CARES Act”) and is administered by the U.S. Small Business Administration.

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

NOTE 12 – EQUITY TRANSACTIONS

Preferred Stock

The Company’s issued and outstanding preferred stock, par value $0.00001 per share, at June 30, 2021 and December 31, 2020 was 988,140, respectively. The Board, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series.

Series A Preferred Stock

The Company had authorized 4,000,000 shares of Series A Preferred Stock, par value of $0.00001 per share (the “Series A Preferred Stock”), of which no shares were authorized, issued or outstanding at June 30, 2021 and December 31, 2020 and 4,000,000 shares were authorized, issued and outstanding at June 30, 2021 and December 31, 2020. Each share of Series A Preferred Stock, when outstanding, could have been converted into one share of the Common Stock.

Series B Preferred Stock

The Company had authorized 1,200,000 shares of Series B Preferred Stock, par value of $0.00001 per share (the “Series B Preferred Stock”), of which 488,000 were issued and outstanding at June 30, 2021 and December 31, 2020, respectively. Each share of Series B Preferred Stock may be converted into one share of the Common Stock.

Series C Preferred Stock

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

F-23

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2021 and December 31, 2020, the Company had authorized 250 shares, respectively, of Series C Preferred Stock of which 140, respectively, were issued and outstanding at June 30, 2021 and December 31, 2020, respectively. At such dates, each share of the Series C Preferred Stock was convertible into one and 1,000 shares, respectively of the Common Stock.

Series D Preferred Stock

The Company had authorized 500,000 shares of Series D Preferred Stock, par value of $0.00001 per share (the “Series D Preferred Stock”), of which 500,000 shares were issued and outstanding at June 30, 2021 and December 31, 2020, respectively. Each share of the Series D Preferred Stock may be converted into 1,000 shares of Common Stock.

Common Stock

The Company had authorized 2,500,000,000 shares of the Common Stock, of which 850,772,637 shares were issued and outstanding at June 30, 2021 and 786,308,041 were issued and outstanding at December 31, 2020.

Equity Transactions

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

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

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

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

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

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

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

On May 5, 2021, the Company issued an aggregate of 14,436,426 shares of Common Stock upon the conversion of $300,000 of the principal of, and $7,496 of accrued interest on, the Third 2020 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0266. The Third 2020 Debenture was converted at the conversion price of $0.0213, which was the lower of the 2021 Fixed Conversion Price and the 2021 Market Conversion Price.

On June 9, 2021, the Company issued an aggregate of 6,719,269 shares of Common Stock upon the conversion of $200,000 of the principal of, and $1,578 of accrued interest on, the Second 2021 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0237. The Second 2021 Debenture was converted at the conversion price of $0.030, which was the lower of the 2021 Fixed Conversion Price and the 2021 Market Conversion Price.

F-24

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

For other equity issuances during the six months ended June 30, 2021 and the year ended December 31, 2020, please see Note 13, Employees, and Note 14, Sponsorships.

NOTE 13 – EMPLOYEES

On August 12, 2015, the Company entered into an Employment Agreement with Robert Clark (the “Clark Employment Agreement”). On December 1, 2016, the Company entered into an Amendment to Employment Agreement (the “Clark Amendment”; and, together with the Clark Employment Agreement, the “Amended Clark Employment Agreement”). Pursuant to the terms of the Amendment Clark Employment Agreement, the Company agreed to issue, among other securities, 200,000,000 shares of the Common Stock. Immediately, Mr. Clark decided to defer receipt of 80,000,000 of such shares; thus leaving 120,000,000 shares of the Common Stock to be issued to him. Those 120,000,000 shares of the Common Stock were issued to Mr. Clark, as follows: (i) on October 28, 2015, the Company issued 30,000,000 of such shares at the per-share fair market value of $0.015, based on the closing price of the Common Stock as reported by the OTCM on the date of issuance; (ii) on March 2, 2016, the Company issued 40,000,000 of such shares at the per-share fair market value of $0.0250 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance; and (iii) on Mary 16, 2016, the Company issued 50,000,000 of such shares at the per-share fair market value of $0.0036 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance. The Company accrued 80,000,000 shares of the Common Stock on December 31, 2016 that were not issued. At the date of accrual, the per-share fair market value of the shares was $0.0025 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance. On April 19, 2018, 40,000,000 shares were cancelled and returned to the Company for accrual valued at $1,000,000 by Mr. Clark. On July 31, 2019, an additional 50,000,000 shares were cancelled and returned to the Company for accrual valued at $180,000. Accordingly, as of June 30, 2020, Mr. Clark was the record and beneficial owner of 17,100,000 of shares of the Common Stock and, subject to the July 2020 issuance to Mr. Clark of 140 shares of Series C Preferred, the Company accrued and owed to Mr. Clark an aggregate of 170,000,000 shares to be reissued to him upon his request pursuant to the terms of the oral agreement with him.

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

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

NOTE 14 – SPONSORSHIPS

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

NOTE 15 – COMMITMENTS AND CONTINGENCIES

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

Operating Lease – The Company currently leases approximately 4,500 square feet of corporate office and warehouse space located at 746 North Drive, Suite A, Melbourne, Florida 32934. The lease is for a five-year term, and expires on May 31, 2023. The initial monthly base rent was approximately $3,994, plus state taxes. The monthly base rent increases annually by three percent, beginning on June 1, 2019 and each June 1st thereafter. During the lease year that commenced on June 1, 2020, the Company’s monthly base rent will be $4,114. For the three and six months ended June 30, 2021, the Company recognized operating lease expense of $13,673 and $22,699, respectively, which is included in in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

F-25

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 16 – LEASE LIABILITIES

The Company reported the following operating lease liabilities  as of June 30, 2021:

A.

Right-of-Use Operating Lease – On May 22, 2019, Gold Leaf entered into a lease agreement for 30,000 square feet of office and warehouse space in Greer County, South Carolina. The agreement includes monthly payments of $13,429, and included a $6,500 deposit. For the three and six months June 30, 2021, the Company recognized right-of-use operating lease expense of $40,287 and $67,145, respectively, which is included in in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

B.

On March 17, 2020, Kona entered into a lease agreement for equipment. The agreement includes monthly payments of $676. For the three and six months June 30, 2021, the Company recognized right-of-use operating lease expense of $1,866 and $3,726, respectively, which is included in in selling, general and administrative expenses in the accompanying Consolidated Statements of Loss.

Amounts recognized as right-of-use assets, net related to operating leases are included in noncurrent assets in the accompanying Consolidated Balance Sheet, while related lease liabilities are included in current portion of long-term debt and long-term debt. At June 30, 2021 and December 31, 2020, the right-of-use asset and lease liability related to the operating leases were as follows:

	June 30, 2021			December 31,   2020
Right-of-use asset	$	1,072,094		$	1,072,094
Amortization of right-of-use asset		(233,362	)		(159,101	)
Right-of-use asset, net	$	838,732		$	912,993
Operating lease liability
Current portion of long-term lease	$	75,144		$	149,407
Long-term lease		763,588			763,586
Total operating lease liability	$	838,732		$	912,993

The future payments due under operating leases is as follows:

Fiscal year ending:
December 31, 2021 (6 months remaining)		75,144
December 31, 2022		154,416
December 31, 2023		160,631
December 31, 2024		167,587
December 31, 2025		167,537
2026 and thereafter		113,417
Operating Leases, Future Minimum Payments Due	$	838,732

NOTE 17 – REVENUE

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

● Distributors – revenue derived from direct sales to distributors for resale of its products: Kona Gold hemp-infused energy drinks, HighDrate CBD-infused energy waters, Storm CBD-infused water, and Ooh La Lemin lemonade beverages.

● Amazon Sales – revenue derived from customer purchases through Amazon.com of our Kona Gold hemp-infused energy drinks.

● Online Sales – revenue derived from customer purchases through the Company’s websites: KonaGoldHemp.com, HighDrateMe.com, and drinklemin.com of the following products: Kona Gold hemp-infused energy drinks and apparel, HighDrate CBD-infused energy waters, Storm CBD-infused water, and Ooh La Lemin lemonade beverages.

● Gold Leaf Distribution – revenue derived from Gold Leaf, which is the Company’s wholly-owned subsidiary, that focuses on the distribution of premium beverages and snacks in key markets. These markets include over 600 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina. Gold Leaf’s product line includes alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infused jellybeans, all of which complement the Company’s current product offerings.

● Shipping – revenue derived from shipping from direct sales of the Company’s product through KonaGoldHemp.com, HighDrateMe.com, and drinklemin.com.

● Sales Returns and Allowances – the amount reduced from all revenue sources to allow for product returns.

F-26

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

	Three Months Ended June 30,
	2020			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	98,249		$	414,937			322	%
Amazon		46,078			39,256			(15	)%
Online Sales		15,663			21,843			39	%
Gold Leaf Distribution		68,436			328,848			381	%
Shipping		5,218			5,725			10	%
Sales Returns and Allowances		(6,600	)		(19,800	)		200	%
Net Revenues	$	227,044		$	790,809			248	%

	Six Months Ended June 30,
	2020			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	235,198		$	672,873			186	%
Amazon		60,479			77,759			29	%
Online Sales		26,687			40,047			50	%
Gold Leaf Distribution		123,138			509,130			313	%
Shipping		10,225			10,588			(4	)%
Sales Returns and Allowances		(13,400	)		(57,417	)		328	%
Net Revenues	$	442,327		$	1,252,980			183	%

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

	Three Months Ended June 30,
Revenues	2020			2021
Distributors and Resellers		43	%		5	%
Amazon		20	%		5	%
Online Sales		7	%		3	%
Gold Leaf Distribution		30	%		42	%
Shipping		2	%		1	%
Sales Returns, and Allowances		(3	)%		(3	)%

	Six Months Ended June 30,
Revenues	2020			2021
Distributors and Resellers		53	%		54	%
Amazon		14	%		6	%
Online Sales		6	%		3	%
Gold Leaf Distribution		28	%		41	%
Shipping		2	%		1	%
Sales Returns, and Allowances		(3	)%		(5	)%

NOTE 18 – SEGMENTS

The Company has two reportable segments:

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

● Distribution. Includes the distribution of premium beverages and snacks in key markets. These markets include over 300 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina. In addition to distributing the Company’s own beverage products, the Company also distributes other products, including alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infused jellybeans, all of which complement the Company’s current product offerings. The Distribution Segment includes all of Gold Leaf’s operations.

F-27

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

The following tables present information about our reportable segments.

	June 30, 2021			December 31, 2020
CURRENT ASSETS:
Beverages Segment	$	1,326,832		$	824,835
Distribution Segment		(175,370	)		(146,894	)
Corporate and eliminations		62,859			105,671
Total Current Assets	$	1,214,321		$	783,612
NON-CURRENT ASSETS:
Beverages Segment	$	2,276,364		$	1,063,074
Distribution Segment		86,836			85,546
Corporate and eliminations		8,678			8,233
Total Non-Current Assets	$	2,371,878		$	1,156,853
CURRENT LIABILITIES:
Beverages Segment	$	2,707,020		$	1,879,305
Distribution Segment		87,482			72,576
Corporate and eliminations		1,948,636			1,424,367
Total Current Liabilities	$	4,743,138		$	3,376,248
NON-CURRENT LIABILITIES:
Beverages Segment	$	2,633,966		$	2,616,018
Distribution Segment		199,730			192,350
Corporate and eliminations		—			—
Total Non-Current Liabilities	$	2,833,696		$	2,808,368

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2021			2020			2021
REVENUES, NET OF SALES, RETURNS, AND ALLOWANCES:
Beverages Segment	$	187,171		$	500,156		$	367,099		$	810,082
Distribution Segment		65,326			328,848			120,162			509,130
Corporate and Eliminations		(25,453	)		(38,195	)		(44,934	)		(66,232	)
Total Revenues, Net of Sales, Returns, and Allowances	$	227,044		$	790,809		$	442,327		$	1,252,980
COST OF REVENUES:
Beverages Segment	$	118,807			470,069			256,870			663,438
Distribution Segment		49,115			234,995			89,726			363,690
Corporate and Eliminations		(12,228	)		(18,358	)		(31,709	)		(26,557	)
Total Cost of Revenues	$	155,694		$	686,706		$	314,887		$	1,000,571
OPERATING EXPENSES:
Beverages Segment	$	507,957		$	362,251		$	1,043,180		$	779,500
Distribution Segment		90,013			110,074			128,161			200,662
Corporate and Eliminations		94,586			171,727			168,428			232,670
Total Operating Expenses	$	692,556		$	644,052		$	1,339,769		$	1,212,732
OTHER INCOME / (EXPENSE):
Beverages Segment	$	(5,626	)	$	65,417		$	(9,433	)	$	46,929
Distribution Segment		5,105			7,210			5,105			5,749
Corporate and Eliminations		(445,193	)		94,108			(445,193	)		(1,285,294	)
Total Other Income / (Expense)	$	(445,714	)	$	166,735		$	(449,521	)	$	(1,232,616	)
NET LOSS:
Beverages Segment	$	(445,219	)	$	(266,747	)	$	(942,384	)	$	(585,827	)
Distribution Segment		(68,697	)		(9,011	)		(92,620	)		(49,473	)
Corporate and Eliminations		(553,004	)		(97,456	)		(626,846	)		(1,557,639	)
Total Net Loss	$	(1,066,920	)	$	(373,214	)	$	(1,661,850	)	$	(2,192,939	)

F-28

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

NOTE 19 – ACQUISITION OF S AND S BEVERAGE, INC.

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

Pursuant to the Merger Agreement, and subject to the terms and conditions contained therein, we acquired all of the shares of capital stock of S and S from the five S and S Legacy Shareholders. In consideration thereof, we issued to them an aggregate of nine million restricted shares of Kona Gold Beverage, Inc.’s common stock (the “Acquisition Stock”) on a pro rata basis. Kona Gold Beverage, Inc. did not grant them any registration rights in respect of the shares of Acquisition Stock. We also agreed to pay an aggregate of $1,050,000 (the “Aggregate Acquisition Payments”), the majority of which is allocated to certain creditors of S and S (including one of the S and S Legacy Shareholders) and approximately $89,000 of which (the “Remaining Acquisition Payments”) is allocated to the five S and S Legacy Shareholders on a pro rata basis. $400,000 of the Aggregate Acquisition Payments are scheduled to be paid in the next two weeks. The balance of the Aggregate Acquisition Payments, including the Remaining Acquisition Payments, are scheduled to be paid in monthly installments, in arrears on the tenth calendar day of each month, commencing on March 10, 2021, at a rate equivalent to $2.00 per case of Lemin Superior Lemonade (the product line of S and S) that we sell until the Aggregate Acquisition Payments have been paid in full. In addition to the Aggregate Acquisition Payments, we also assumed and agreed to pay certain other liabilities of S and S as set forth in the Merger Agreement.

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

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

The following are the accounts included in the Company’s accompanying balance sheet dated June 30, 2021 as a result of the S and S transaction:

F-29

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

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

NOTE 20 – GOING CONCERN

The accompanying Consolidated Financial Statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying Consolidated Financial Statements, during the three months ending June 30, 2021, the Company incurred a net loss of $373,214, and during the six months ending June 30, 2021, incurred a net loss of $2,192,939, used cash in operations of $875,555 and had a stockholders’ deficit of $3,990,635 as of June 30, 2021. In the year ending December 31, 2020, the Company incurred a net loss of $3,125,595, used cash in operations of $1,370,123 and had a stockholders’ deficit of $4,244,153 as of December 31, 2020.

The Company attributes this increase to losses incurred from corporate related expenses during the six months ending June 30, 2021. During the first quarter of fiscal 2021, the Company signed a Securities Purchase Agreement, whereas, the Company incurred interest expense to warrants on a convertible note and a loss on the derivatives, which were integral to the growth of the Company. During the second quarter, the Company attributes the increase to costs related to our Beverage Segment of selling, general and administrative expenses, specifically salaries, which are integral to the success of the Company. The Company continued to be impacted by the COVID-19 pandemic during the second quarter of the 2021 fiscal year as the Company continues its efforts to sign more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains. These contracts saw unforeseen delays and were additionally impacted by the COVID-19 pandemic during the 2020 fiscal year. COVID-19 delayed the Company’s launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. COVID-19 continues to impact the Company in fiscal year 2021 with logistical delays in delivery of our products to customers. In addition, the Company has experienced delays in obtaining product related to logistical delays. Despite the increase in losses and impacts from COVID-19, the Company realized an increase in sales in the first two quarters of fiscal 2021 over the previous first two quarters of fiscal 2020. The Company attributes this to the acquisition of S and S, which has added to the Company’s portfolio. In addition, the Company has signed more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains that resulted in unforeseen delays and had been impacted by the COVID-19 pandemic. We expect that revenue will increase during the balance of fiscal 2021 as distribution related to our current distributors that had been affected by COVID-19, but have resumed more normal distribution, are seeing fewer forward-looking impacts from the COVID-19 pandemic. The Company expects that it will continue to enter additional, larger, more favorable agreements with larger, tier 1 and mid-size distributors in our Beverage Segment during the balance of fiscal 2021.

As a result, the Company’s continuation as a going concern is dependent on the ability to obtain additional financing until we can generate sufficient cash flow from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations. There is no assurance that we will ever be profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptable to us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interests of our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilities and future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or cease operations for our business, the result of which would be that our stockholders would lose some or all of their investment. The accompanying Consolidated Financial Statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

NOTE 21 – CONCENTRATIONS

The Company had certain customers whose revenue individually represented 10% or more of the Company’s total revenue, less intercompany transactions. In addition, certain customers had outstanding accounts receivables that individually represented 10% or more of the Company’s total outstanding accounts receivables, less intercompany transactions, but before receivable allowances. These customers are as follows:

F-30

Kona Gold Beverage, Inc.

(formerly known as Kona Gold Solutions, Inc.)

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

In the accompanying Consolidated Balance Sheet as of June 30, 2021, the Company’s net accounts receivable were $333,442, representing total accounts receivable of approximately $413,392, less sales returns and allowance of approximately $57,417, less doubtful accounts of approximately $9,478, and less intercompany transactions of approximately $13,055. In the accompanying Consolidated Balance Sheet as of December 31, 2020, the Company’s net accounts receivable were $(10,508), representing total accounts receivable of approximately $22,166 less sales returns and allowance of approximately $28,707 and less doubtful accounts of approximately $3,967. The breakdown of the Company’s accounts receivable is as follows:

	June 30, 2021		December 31, 2020
Total Accounts Receivable	$	413,472	$	22,166
Less: Sales Returns and Allowances		57,417		28,707
Less: Doubtful Accounts		9,478		3,967
Less: Intercompany Transactions		13,055		—
Accounts Receivable, net	$	333,522	$	(10,508	)

The Company determined that two customers accounted for approximately 69% (or approximately 58% and 11%), or an aggregate of $284,045, of the outstanding total accounts receivable of $413,472 as of June 30, 2021. The Company determined that four customers accounted for approximately 76% (or approximately 26%, 22%, 14% and 14%), or an aggregate of $16,904, of the outstanding total accounts receivable of $22,166 as of December 31, 2020.

In the accompanying Consolidated Statements of Loss for the three months ended June 30, 2021, one customer represented 30% of the Company’s total net revenue of $790,809 for the three months ended June 30, 2021. In the accompanying Consolidated Statements of Loss for the three months ended June 30, 2020, no one customer represented 10% of the Company’s total net revenue of $277,044 for the three months ended June 30, 2020. In the accompanying Consolidated Statements of Loss for the six months ended June 30, 2021, one customer represented 19% of the Company’s total net revenue of $1,252,980 for the six months ended June 30, 2021. In the accompanying Consolidated Statements of Loss for the six months ended June 30, 2020, no one customer represented 10% or more of the Company’s total net revenue of $442,327 for the six months ended June 30, 2020.

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

The Company had certain vendors that individually represented 10% or more of the Company’s inventory purchases. For the three months ended June 30, 2021, the Company purchased 48% of its inventory from two vendors. Of these vendors, $47,334 is due to these vendors as of the balance sheet dated June 30, 2021. For the year ended December 31, 2020, the Company did not purchase in excess of 10% of its inventory from any single vendor. 

NOTE 22 – SUBSEQUENT EVENTS

Management has evaluated subsequent events through August 13, 2021, the date that the June 30, 2021 Consolidated Financial Statements were issued, and has determined the following events have occurred that would warrant additional disclosure:

(1)	On June 9, 2021, the Company issued an aggregate of 9,616,095 shares of Common Stock upon the conversion of $150,000 of the principal of, and $3,858 of accrued interest on, the Second 2021 Debenture. At the time of conversion, the VWAP during the previous 15 trading days was $0.0200. The Second 2021 Debenture was converted at the conversion price of $0.0160, which was the lower of the 2021 Fixed Conversion Price and the 2021 Market Conversion Price.
(2)	The Company issued 3,000,000 shares of Common Stock on July 30, 2020 to William J Stineman pursuant to that certain Employment Agreement dated December 15, 2020, by and between Mr. Stineman and the Company. At the date of issuance, the per-share fair market value of the shares was $0.018 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance, for a total value of $54,000.
(3)	The Company issued 100,000 shares of Common Stock on July 30, 2020 to John Torrence pursuant to performance award by and between Mr. Torrence and the Company. At the date of issuance, the per-share fair market value of the shares was $0.018 based on the closing price of the Common Stock as reported by the OTCM on the date of issuance, for a total value of $1,800.

F-31

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

For a description of our significant accounting policies and an understanding of the significant factors that influenced our performance during the three months and six months ended June 30, 2021, this “Management’s Discussion and Analysis of Financial Condition and Results of Operations” (hereafter referred to as “MD&A”) should be read in conjunction with the Unaudited consolidated financial statements, including the related notes, appearing in Part I, Item 1 of this Quarterly Report on Form 10-Q, as well as our Annual Report on Form 10-K for the fiscal year ended December 31, 2020 (the “2020 Form 10-K”).

Note about Forward-Looking Statements

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

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

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

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

The following discussion and analysis of the results of operations and financial condition for the three and six months ended June 30, 2021 and June 30, 2020 should be read in conjunction with the financial statements and related notes and the other financial information that are included. 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,” “Special Note Regarding Forward-Looking Statements,” and “Business” sections in our most recent Annual Report on form 10-K. 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 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 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:

1

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

● Our failure to earn revenues or profits;

● Volatility or decline of our stock price;

● Potential fluctuation in our financial results;

● Rapid and significant changes in markets;

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

● Impacts from the COVID-19 pandemic; and

● Insufficient revenues to cover operating costs.

The following discussion should be read in conjunction with the financial statements and the notes thereto. 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.

2

Results of Operations . . . .

Overview

Our business has grown rapidly since inception, and we anticipate that our business will continue to grow; however, in the 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.  In the six months ending June 30, 2021, the Company has seen an increase in net revenue of 248% over the same period ending June 30, 2020. The COVID-19 delayed the Company’s launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. Our Beverages Segment has three 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 expanded our operations with the creation of a distribution center, which now functions as our Distribution Segment. Our Distribution Segment has one main revenue stream: product sales to convenience stores, grocery stores, or smoke and gift shops, which complement our current product offering. Product sales include sales of 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 with additional products and acquisitions that complement our current product offerings. We are now experiencing the initial expected increase in revenue in fiscal 2021, as distribution related to our current distributors that had been affected by COVID-19, but have resumed more normal distribution, are seeing fewer forward-looking impacts from the COVID-19 pandemic. Nevertheless, COVID-19 continues to impact the Company in fiscal 2021 with certain logistical delays in the delivery of our products to customers. In addition, the Company has experienced delays in obtaining product related to logistical delays.   Despite the impact from COVID-19 on our revenues in fiscal 2020, but cognizant of the apparent turn-around in revenues for the first quarter of fiscal 2021, we have already entered, and anticipate that we will continue to enter, larger, more favorable agreements with larger, tier 1 and mid-size distributors and grocery chains in our Beverage Segment during fiscal 2021. The following is a more detailed discussion of our financial condition and results of operations for the period presented.

Three Months Ended June 30, 2021 compared to the Three Months Ended June 30, 2020

Overview

As reflected in the accompanying financial statements, during the three months ended June 30, 2021, we incurred a net loss of approximately $373,200, compared to a net loss of approximately $1.1 million for the three months ended June 30, 2020. As of June 30, 2021, we had a total stockholders’ deficit of approximately $4.0 million, an approximate $220 thousand improvement since December 31, 2020.

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

Revenue

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

	Three Months Ended June 30,
	2020			2021
Revenue Source		Revenue			Revenue		% Change
Distributors	$	98,249		$	414,937		322	%
Amazon		46,078			39,256		(15	)%
Online Sales		15,663			21,843		39	%
Gold Leaf Distribution		68,436			328,848		381	%
Shipping		5,218			5,725		10	%
Sales Returns and Allowances		(6,600	)		(19,800	)	200	%
Net Revenues	$	227,044		$	790,809		248	%

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

	Three Months Ended June 30,
Revenues	2020			2021
Distributors and Resellers		43	%		52	%
Amazon		20	%		5	%
Online Sales		7	%		3	%
Gold Leaf Distribution		30	%		42	%
Shipping		2	%		1	%
Sales Returns, and Allowances		(3	)%		(3	)%

3

During the three months ended June 30, 2021, we reported net revenue of approximately $790,800, which is an increase of approximately $563,800, or approximately 248%, compared to net revenues of approximately $227,000 for the three months ended June 30, 2020. An increase of approximately $303,400  was attributed to our Beverages Segment, while our Distribution Segment reported an increase in net revenue of approximately $260,400. We attribute this increase in sales to our entering larger, more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains. These contracts saw unforeseen delays and were additionally impacted by the COVID-19 pandemic during the 2020 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. We also attribute this increase to the acquisition of a beverage company in the first quarter of fiscal 2021 that broadened our drink product line in our Beverage Segment. In addition, we have continued to add drink and non-drink line broadening products to our Distribution Segment. We expect that revenue will continue to increase during the balance of fiscal 2021, as distribution related to our current distributors that had been affected by COVID-19, but have resumed more normal distribution, are seeing fewer forward-looking impacts from the COVID-19 pandemic. We anticipate that we will continue to enter additional larger, more favorable agreements with larger, tier 1 and mid-size distributors in our Beverage Segment during the balance of fiscal 2021   .  

Cost of Revenues

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

During the three months ended June 30, 2021, we reported cost of revenues of approximately $686,700, which is an increase of approximately $531,000, or approximately 341%, compared to approximately $155,700 for the three months ended June 30, 2020. This increase is attributed to an increase in sales in both our Beverages Segment and Distribution Segment in the second quarter of fiscal 2021, compared to the prior year’s period. The cost of sales increase exceeded the increase in sales, primarily due to (i) increased costs of ingredients for our products in our Beverage Segment, (ii) increased costs of production for our products in our Beverage Segment, and (iii) increased costs of shipping our product in our Beverage Segment . The Company is currently seeking alternatives to our production in an effort to reduce the cost of sales in the remaining 2021 fiscal year. In addition, the Company will continue to seek additional funding that will allow us to reduce the costs of productions for our production through more efficient production methods.

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 $644,100 for the three months ended June 30, 2021, compared to approximately $692,600 in the three months ended June 30, 2020, a decrease of approximately $48,500, or approximately 7%.  The decrease in SG&A expenses was primarily due to a decrease in salaries and wages of 29% attributed to our Beverages Segment and a decrease in vehicle expense of 52% attributed to our Distribution Segment. This decrease was offset by an increase in legal and accounting fees of 82% attributed to our corporate related activities; a significant increase in bad debt of 764% attributed to our Beverages Segment; an increase of 34% in rent expense attributed to both our Beverages Segment and our Distribution Segment; an increase to our advertising and promotion expenses of 331% attributed to our Beverage Segment; and a 54% increase in OTCM fees attributed to corporate-related expenses.

Salaries and wages were approximately $281,600 in the three months ended June 30, 2021, compared to approximately $445,400 for the three months ended June 30, 2020, a decrease of approximately $163,800, which was attributed to our Beverage Segment. This decrease was the result of issuance of shares of the Company’s common stock made in the prior year to employees pursuant to their agreements, which issuances were not duplicated in the current year. Vehicle expense was approximately $14,500 in the three months ended June 30, 2021, compared to approximately $30,700 for the three months ended June 30, 2020, a decrease of approximately $16,200, which was attributed to our Distribution Segment. This decrease was the result of repairs made to our delivery vehicles   . Legal and accounting fees were approximately $150,200 for the three months ended June 30, 2021, an increase of approximately $67,800, which was attributed to our corporate related activities. This increase was the result of audit related and legal expenses related to our securities filings in the current year. Bad debt was approximately $23,300 in the three months ended June 30, 2021, compared to approximately $2,700 for the three months ended June 30, 2020, an increase of approximately $20,600, which was attributed to our Beverages Segment. This decrease was the result of uncollectible accounts from accounts associated with our acquisition of a beverage company. Rent expenses were approximately $56,113 for the three months ended June 30, 2021, compared to approximately $41,800 for the three months ended Jun e 30, 2020, an increase of approximately $12,300. 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  . Advertising and promotion expenses were approximately $13,500 for the three months ended June 30, 2021, compared to approximately $3,100 for the three months ended June 30, 2020, an increase of approximately $10,400. This increase was attributed to our Beverages Segment and the result of additional promotion activities in support of our newly acquired beverage company. OTCM fees attributed to corporate-related expenses were approximately $30,800 for the three months ended June 30, 2021, compared to approximately $20,000 for the three months ended June 30, 2020, an increase of approximately $10,800. This increase was the result of fees paid to the OTCM in connection with our Common Stock now being quoted on the OTCQB instead of the OTC Pink.

4

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, SG&A expenses will increase for both our Beverages Segment and Distribution Segment. We anticipate hiring additional personal in fiscal 2021 who would be integral to the success of our growing Company.

Net Loss

We incurred a net loss of approximately $373,200 for the three months ended June 30, 2021, a decrease of approximately $693,700, compared to the previous three months ending June 30, 2020, which had a net loss of approximately $1.1 million. This decrease in net loss in the three months ended June 30, 2021 is primarily related to the reduction in corporate-related expenses associated with Our Debentures.   The fair value of the Debentures are 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 a non-cash event and is not impacted by our actual operations but instead is strongly tied to the change in the market value of our Common Stock.

Six Months Ended June 30, 2021 compared to the Six Months Ended June 30, 2020

Overview

As reflected in the accompanying financial statements, during the six months ended June 30, 2021, we incurred a net loss of approximately $2.2 million and used cash in operations of approximately $875,600, compared to a net loss of approximately $1.7 million and used cash in operations of approximately $615,400 for the six months ended June 30, 2020. As of June 30, 2021, we had a stockholders’ deficit of approximately $4.0 million, an approximate $220 thousand improvement since December 31, 2020.

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

Revenue

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

	Six Months Ended June 30,
	2020			2021
Revenue Source	Revenue			Revenue			% Change
Distributors	$	235,198		$	672,893			186	%
Amazon		60,479			77,759			29	%
Online Sales		26,687			40,047			50	%
Gold Leaf Distribution		123,138			509,130			313	%
Shipping		10,225			10,588			(4	)%
Sales Returns and Allowances		(13,400	)		(57,417	)		328	%
Net Revenues	$	442,327		$	1,252,980			183	%

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

	Six Months Ended June 30,
Revenues	2020			2021
Distributors and Resellers		53	%		54	%
Amazon		14	%		6	%
Online Sales		6	%		3	%
Gold Leaf Distribution		28	%		41	%
Shipping		2	%		1	%
Sales Returns, and Allowances		(3	)%		(-5	)%

During the six months ended June 30, 2021, we reported net revenues of approximately $1,252,980, which is an increase of approximately $810,700, or approximately 183%, compared to net revenue of approximately $442,300 for the six months ended June 30, 2020. An increase of approximately $424,700 was attributed to our Beverages Segment, while our Distribution Segment reported an increase in net revenue of approximately $386,000.  We attribute this increase in sales to our entering larger, more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocery chains. These contracts saw unforeseen delays and were additionally impacted by the COVID-19 pandemic during the 2020 fiscal year. The COVID-19 pandemic delayed the Company’s launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. We also attribute this increase to the acquisition of a beverage company in the first quarter of fiscal 2021 that broadened our drink product line in our Beverage Segment. In addition, we have continued to add drink and non-drink line broadening products to our Distribution Segment. We expect that revenue will continue to increase during the balance of fiscal 2021, as distribution related to our current distributors that had been affected by COVID-19, but since have resumed more normal distribution, are seeing fewer forward-looking impacts from the COVID-19 pandemic. We anticipate that we will continue to enter additional larger, more favorable agreements with larger, tier 1 and mid-size distributors in our Beverage Segment during the balance of fiscal 2021.

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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 six months ended June 30, 2021, we reported cost of revenues of approximately $1,000.500, which is an increase of approximately 685,700, or approximately 218%, compared to approximately $314,900 for the six months ended June 30, 2020. This increase is attributed to an increase in sales in both our Beverages Segment and Distribution Segment in the second quarter of fiscal 2021, compared to the prior year period. The cost of sales increase was above the increase in sales. This is attributed to an increased cost in obtaining our ingredients for our product line in our Beverage Segment, an increased cost for production of our product in our Beverage Segment, and an increased cost of shipping our product in our Beverage Segment.

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 $1,212,700 for the six months ended June 30, 2021, compared to approximately $1,339,800 in the six months ended June 30, 2020, a decrease of $127,000, or approximately 9%. The decrease in SG&A expenses was primarily due to a decrease in salaries and wages of 43% attributed to our Beverages Segment; and a decrease in sponsorships of 56% attributed to our Beverage Segment. This decrease was offset by a significant increase in professional fees of 355% attributed to our corporate related activities; a significant increase in insurance of 179% attributed to both our Beverage Segment and our Distribution Segment; a significant increase to bad debt expense of 764% attributed to our Beverage Segment; an increase of 52% in rent expense attributed to both our Beverages Segment and our Distribution Segment; an increase to legal and accounting fees of 36% attributed to our corporate-related expenses; and a 113% increase in OTCM fees attributed to corporate-related expenses.

Salaries and wages were approximately $521,400 in the six months ended June 30, 2021, compared to approximately $918,300 for the six months ended June 30, 2020, a decrease of approximately $396,900, which was attributed to our Beverage Segment. This decrease was the result of issuance of shares of the Company’s common stock made in the prior year to employees pursuant to their agreements, which issuances were not duplicated in the current year. Sponsorships were approximately $8,100 in the six months ended June 30, 2021, compared to approximately $18,500 for the six months ended June 30, 2020, a decrease of approximately $10,400, which was attributed to our Beverage Segment. This decrease was the result of terminating sponsorships that were no longer advantageous to the Company. Professional fees were approximately $94,500 for the six months ended June 30, 2021, compared to approximately $20,800 for the six months ended June 30, 2020, an increase of approximately $73,700, which was attributed to our corporate related activities. Insurance expense was approximately $24,800 for the six months ended June 30, 2021, compared to approximately $9,300 for the six months ended June 30, 2020, an increase of approximately $16,700. This increase was attributed to both our Beverages Segment and our Distribution Segment and the result of our entering larger, more favorable agreements with larger, tier 1 and mid-size distributors and customers. Bad debt was approximately $23,300 in the six months ended June 30, 2021, compared to approximately $2,700 for the six months ended June 30, 2020, an increase of approximately $20,600, which was attributed to our Beverages Segment. This decrease was the result of uncollectible accounts from accounts associated with our acquisition of a beverage company. Rent expenses were approximately $93,900 for the six months ended June 30, 2021, compared to approximately $61,900 for the six months ended June 30, 2020, an increase of approximately $31,900. 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. Legal and accounting fees were approximately $201,700 for the six months ended June 30, 2021, an increase of approximately $53,500, compared to approximately $148,300 for the six months ended June 30, 2020, which was attributed to our corporate related activities. This increase was the result of audit related and legal expenses related to securities in the current year that integral to the success of our Company. OTCM fees attributed to corporate-related expenses were approximately $57,000 for the six months ended June 30, 2021, compared to approximately $26,800 for the six months ended June 30, 2020, an increase of approximately $30,200. This increase was the result of fees paid to the OTCM in connection with our Common Stock now being quoted on the OTCQB instead of OTC Pink.

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, SG&A expenses will increase for both our Beverages Segment and Distribution Segment. We anticipate hiring additional personal in fiscal 2021 who would be integral to the success of our growing Company.

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Net Loss

We incurred a net loss of approximately $2.2 million for the six months ended June 30, 2021, an increase of approximately $531,100 compared to the previous six months ending June 30, 2020, which had a net loss of approximately $1.7 million. This net loss is primarily corporate-related expenses that are necessary for our growth, which include interest expense related to the Warrant granted in connection with the February 2021 sale and issuance of the Debentures and non-cash expense on our derivative liability. The fair value of the Debentures will be re-measured each reporting period until the Debentures are either converted or expire. In each reporting 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 a non-cash event and 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 Six Months Ended June 30, 2021 and 2020

For the three and six months ended June 30, 2021 and 2020, we had two reportable segments: (i) Beverages Segment and (ii) Distribution Segment. Amounts that are not allocated to either of these reportable segments are 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:

	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2021			2020			2021
REVENUES, NET OF SALES, RETURNS, AND ALLOWANCES:
Beverages Segment	$	187,171		$	500,156		$	367,099		$	810,082
Distribution Segment		65,326			328,848			120,162			509,130
Corporate and Eliminations		(25,453	)		(38,195	)		(44,934	)		(66,232	)
Total Revenues, Net of Sales, Returns, and Allowances	$	227,044		$	790,809		$	442,327		$	1,252,980
COST OF REVENUES:
Beverages Segment	$	118,807			470,069			256,870			663,438
Distribution Segment		49,115			234,995			89,726			363,690
Corporate and Eliminations		(12,228	)		(18,358	)		(31,709	)		(26,557	)
Total Cost of Revenues	$	155,694		$	686,706		$	314,887		$	1,000,571
Gross profit:
Beverages	$	68,364		$	30,087		$	110,229		$	146,644
Distribution		16,211			93,853			30,436			145,440
Corporate and Eliminations		(13,225			(19,837	)		(13,225			(39,675	)
Gross profit	$	71,350		$	104,103		$	127,440		$	252,409

Liquidity and Capital Resources

Going Concern

We have incurred operating losses since inception and have negative cash flow from operations since inception. As of June 30, 2021, we had a stockholders’ deficit of approximately $4.0 million and we incurred a net loss of approximately $2.2 million during the six months ended June 30, 2021. We also utilized cash in operations of approximately $875,600 during the six months ended June 30, 2021. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flow from operations to meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.

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

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

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Lines of Credit

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

	Total Amount Available		Interest Rate (per annum)			Outstanding Principal Balance   as of June 30, 2021		Accrued Interest as of June 30, 2021
Kona Gold Line of Credit #1 – Related Party	$	1,500,000		3.75	%	$	1,372,651	$	61,263
Kona Gold Line of Credit #2a	$	400,000		3.75	%	$	398,470	$	39,512
Gold Leaf Line of Credit – Related Party	$	200,000		3.75	%	$	125,500	$	5,879

^a This line of credit was provided by Matthew Nicoletti, an otherwise unaffiliated third party to whom we previously sold and issued certain shares of our Series B Preferred Stock (as then constituted) and Series C Preferred Stock (as then constituted), all of which have been converted into shares of our Common Stock and sold into the public market. Mr. Nicoletti is no longer the record or beneficial owner of any of our equity. There was no connection between our prior equity transactions with Mr. Nicoletti and our entry into this line of credit.

Notes Payable – Related Party

We had the following outstanding notes payable from a related party during the six months ended June 30, 2021:

Note (1)	Issuance Date	Original Borrowing Amount		Interest Rate			Maturity Date	Largest Outstanding Balance since January 1, 2018		Outstanding Balance as of June 30, 2021
Long-term Loan – Kona Gold	October 31, 2018	$	20,000		0	%	April 4, 2022	$	20,000	$	5,500
Long-term Loan – Gold Leaf	February 19, 2019	$	70,000		0	%	March 15, 2022	$	70,000	$	56,500

(1) Each of the notes payable was issued by us in favor of Robert Clark, our President, Chief Executive Officer, Secretary, and Chairman of our Board.

Note Receivable – Branded Legacy

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

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

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

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

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

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

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

Paycheck Protection Promissory Note and Economic Injury Disaster Loan

On May 4, 2020, we entered into a Paycheck Protection Promissory Note in the original principal amount of $95,161 (the “First PPP Loan”) with Wells Fargo Bank, N.A. The PPP Loan was made under, and was subject to, the terms and conditions of the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic Security Act (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The term of the First PPP Loan was two years, with a maturity date of May 6, 2022 and a fixed annual interest rate of 1.00%. Payments of principal and interest on the First PPP Loan were deferred for the first six months of the term of the First PPP Loan, or November 2020. Thereafter, principal and interest were payable monthly and may be prepaid by us at any time prior to maturity with no prepayment penalties. On April 27, 2021, the First PPP Loan was forgiven for the full amount.

In January 2021, the Company entered into a second Paycheck Protection Promissory Note in the original principal amount of $117,487 (the “Second PPP Loan”) with Wells Fargo Bank, N.A. The Second PPP Loan was made under, and is subject to, the terms and conditions of the PPP and is administered by the U.S. Small Business Administration. The current term of the Second PPP Loan is five years with a maturity date of January 2026 and it contains a fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred for the first six months of the term of the PPP Loan, or November 2020. Thereafter, principal and interest are payable monthly and may be prepaid by us at any time prior to maturity with no prepayment penalties.

Under the terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loan granted under the PPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposes as set forth in the PPP, including, but not limited to, payroll costs, mortgage interest, rent or utility costs (collectively, “Qualifying Expenses”), and on the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loan. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period. We have used the proceeds of the First PPP Loan and Second PPP Loan for salaries and wages, building lease expense, and utilities. Upon commencement of each loan, we could not provide any assurance that we would be able to obtain forgiveness of either of them in whole or in part.

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

2020 Securities Purchase Agreement

In May 2020, the Company completed the 2020 Private Placement of the 2020 Debentures and the 2020 Warrant pursuant to the 2020 SPA. The Company sold and issued the First 2020 Debenture and granted the 2020 Warrant promptly after entering in the 2020 SPA. The Company sold and issued the Second 2020 Debenture promptly after filing the 2020 Registration Statement initially with the SEC. The Company sold and issued the Third 2020 Debenture promptly after the SEC declared the Registration Statement effective. The 2020 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the 2020 Debentures are convertible at the lower of (i) the fixed conversion price, which is $0.05 per share, subject to adjustment (the “2020 Fixed Conversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversion date, subject to adjustment (the “2020 Market Conversion Price”). The 2020 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Company issues shares of its Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures. The 2020 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the 2020 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stock issuable upon conversion of the 2020 Debentures or exercise of the 2020 Warrant that had not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to the Company. The 2020 Debentures accrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2020 Debentures or otherwise accelerates the maturity date, as provided for in the 2020 Debentures). Interest is payable either in cash or, if certain Equity Conditions (as defined in the 2020 Debentures) are then satisfied, in shares of the Common Stock at the 2020 Market Conversion Price on the trading day immediately prior to the date paid.

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

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

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

Pursuant to the 2020 SPA, the purchase price for the First 2020 Debenture was $250,000, less $15,000 for origination fees, which consisted of the “original issue discount” of $10,000 and $5,000 as a structuring fee. On December 23, 2020, the Company converted $100,000 of the principal of, and $12,274 of accrued interest on, the First 2020 Debenture into 8,255,438 shares of the Company’s common stock. On January 25, 2021, the Company converted $150,000 of the principal of, and $1,118 of accrued interest on, the First 2020 Debenture into 7,094,732 shares of the Company’s common stock, see Note 11, equity transactions. At June 30, 2021, no balance remains on the principal balance of the First 2020 Debenture.

Pursuant to the 2020 SPA, the purchase price for the Second 2020 Debenture was $250,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 25, 2021, the Company converted $100,000 of the principal of, and $10,410 of accrued interest on, the Second 2020 Debenture into 5,183,613 shares of the Company’s common stock. On February 19, 2021, the Company converted $150,000 of the principal of, and $855 of accrued interest on, the Second 2020 Debenture into 7,252,634 shares of the Company’s common stock see Note 11, equity transactions. At June 30, 2021, no balance remains on the principal balance of the First 2020 Debenture.

Pursuant to the 2020 SPA, the purchase price for the Third 2020 Debenture was $500,000, less $10,000 for origination fees, which consisted of the “original issue discount” of $10,000 fee. On January 12, 2021, the Company converted $200,000 of the principal of, and $1,425 of accrued interest on, the First 2020 Debenture into 10.887,819 shares of the Company’s common stock, see Note 11, equity transactions. On May 5, 2021, the Company converted $300,000 of the principal of, and $7,496 of accrued interest on, the First 2020 Debenture into issued an aggregate of 14,436,426 shares of common stock, see Note 11, equity transactions. At June 30, 2021, no balance remains on the principal balance of the Third 2020 Debenture.

2021 Securities Purchase Agreement

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

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

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

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

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

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

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

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

On May 5, 2021, the Company and YA II PN, LTD entered into a Limited Amendment Agreement dated as of May 5, 2021, by and between Kona Gold Beverage, Inc., a Delaware corporation (the “Company”), and YA II PN, LTD., a Cayman Islands exempt company (“Investor”). The Company and the Investor agree to a partial Second Closing, whereby the Investor will purchase a portion of the intended Second Convertible Debenture (the “Partial Second Convertible Debenture”) in the face amount of $200,000 for a purchase price of $192,000 (the “Partial Second Convertible Debenture Purchase Price”) within 1 business day following the date hereof. The Investor and the Company entered into a Securities Purchase Agreement (the “Securities Purchase Agreement”), Registration Rights Agreement (the “Registration Rights Agreement”) and related Transaction Documents (as this term is defined in the Securities Purchase Agreement) dated February 10, 2021, the date thereof, pursuant to which the Investor agreed to purchase secured Convertible Debentures (individually referred to as the “First Convertible Debenture” and the “Second Convertible Debenture”) upon various conditions precedent as articulated in Section 8(a) and (b) of the Securities Purchase Agreement and in the Transaction Documents, see above Note 9 – Securities Purchase Agreement, Derivative Liabilities, And Warrant.

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Pursuant to the 2021 SPA, the purchase price for the First 2021 Debenture was $900,000, less $41,000 for origination fees, which consisted of the “original issue discount” of $36,000 and $5,000 as a structuring fee. At June 30, 2021, the principal balance of the First 2021 Debenture is $900,000. Pursuant to the 2021 SPA, the purchase price for the Second 2021 Debenture was $600,000, less $200,000 for the “Partial Second Convertible Debenture”, dated May 5, 2021, less origination fees, which consisted of the “original issue discount” of $16,000. On June 9, 2021, the Company converted $200,000 of the principal of, and $1,578 of accrued interest on the Second 2021 Debenture into 6,719,269 shares of the Company’s common stock see Note 11, equity transactions. At June 30, 2021, the principal balance of the Second 2021 Debenture is $400,000.

Derivative Liability

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

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

	June 30, 2021
Stock Price	$	0.0232
Exercise Price	$	0.0204
Expected Life		1
Volatility		81.9	%
Dividend Yield		0	%
Risk-Free Interest Rate		.08	%
Fair Value	$	485,521

The following table summarizes the changes in the Company’s assets and liabilities measured at fair value as of June 30, 2021:

	June 30, 2021		Quoted prices in Active Markets for Identical Assets (Level 1)	Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Convertible promissory notes with embedded conversion option	$	485,521		$	485,521
Total	$	485,521		$	485,521

The following table sets forth a summary of change in fair value of the Company’s derivative liabilities for the year ended June 30, 2021:

Fair value, January 1, 2020	$	—
Change in fair value of embedded conversion features of debenture included in earnings		—
Embedded conversion option liability recorded in connection with the issuance of 2020 debenture		148,628
Fair value, June 30, 2020	$	148,628
Change in fair value of embedded conversion features of debenture included in earnings		(39,725	)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures		108,903
Fair value, September 30, 2020	$	217,806
Change in fair value of embedded conversion features of debenture included in earnings		(69,051	)
Embedded conversion option liability recorded in connection with the issuance of 2020 debentures		212,397
Fair value, December 31, 2020	$	361,152
Change in fair value of embedded conversion features of debenture included in earnings		(202,443
Embedded conversion option liability recorded in connection with the issuance of 2021 debentures		468,309
Fair value, March 31, 2021	$	627,018
Change in fair value of embedded conversion features of debenture included in earnings		307,585	)
Embedded conversion option liability recorded in connection with the issuance of 2021 debentures		166,088
Fair value, June 30, 2021	$	485,521

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Warrants

The Company also granted the 2020 Warrant and the 2021 Warrant to purchase up to an aggregate of 20 million shares and 50,000,000 shares of the Common Stock, respectively. The 2020 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.05 per share, subject to adjustment. The 2021 Warrant has a three-year term and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If the Company fails to maintain an effective registration statement with the SEC covering the resale of the 2020 Warrant Shares and the 2021 Warrant Shares, or if an Event of Default (as defined below) has occurred and is continuing, then the holder may exercise, respectively, the 2020 Warrant and the 2021 Warrant on a “cashless” basis. “Event of Default” means an event of default under the 2020 SPA and the 2021 SPA or the 2020 Debentures and the 2021 Debentures, respectively.

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

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

During the year ended December 31, 2020, the Company granted the 2020 Warrant that was immediately exercisable for up to 20,000,000 shares of Common Stock. During the three months ended June 30, 2021, the Company granted the 2021 Warrant that was immediately exercisable for up to 50,000,000 shares of Common Stock. The 2020 Warrant and the 2021 Warrant, respectively, were fully expensed as an interest expense related to the 2020 Warrant and the 2021 Warrant issued in connection with the consummation of the transactions contemplated by the 2020 SPA and 2021 SPA, respectively, and no liability was recorded as of June 30, 2021 and December 31, 2020, respectively.

Cash Flows

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

	For the Six Months Ended June 30, 2021
Net cash used in operating activities	$	(875,555	)
Net cash used in investing activities	$	(1,309,789	)
Net cash provided by financing activities	$	2,166,670

Operating Activities

Cash provided by or used in operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation, amortization, stock-based payments, interest expense related to the Warrant issued in the Private Placement, and the effect of changes in working capital and other activities. Cash used in operating activities for the six months ended June 30, 2021 was approximately $875,600 and consisted of a net loss of approximately $2.2 million, adjustments for non-cash items, including adjustments related to the issuance of shares of our Common Stock for an acquisition, interest expense related to the Warrant, and depreciation of approximately $1.3 million, and approximately $26,600 used in working capital and other activities.

Investing Activities

Cash used in investing activities for the six months ended June 30, 2021 was approximately $1.3 million and was attributable to capital expenditures of approximately, $30,200, and goodwill of approximately $1.28 million, which was attributed to an acquisition.

Financing Activities

Cash provided by financing activities for six months ended June 30, 2021 was approximately $2.1 million and was due to proceeds from lines of credit of approximately $3,000, proceeds from convertible debt of approximately $1.5 million, proceeds from note payable for an acquisition of approximately $624,400, changes from the PPP Loan of approximately $22,300, and $6,000 was used to pay principal on a note payable.

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Non-Cash Investing and Financing Activities

For the six months ended June 30, 2021, there were no non-cash investing and financing activities.

Off-Balance Sheet Arrangements

 None.

Critical Accounting Policies

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

The accounting policies that we follow are set forth in Note 2, Summary of Significant Accounting Policies, of our consolidated financial statements for the three and six months ended June 30, 2021. These accounting policies conform to accounting principles generally accepted in the United States, and have been consistently applied in the preparation of the consolidated financial statements.

Leases

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

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

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

Please refer to Note 16, Lease Liabilities, to our consolidated financial statements for the six months ended June 30, 2021 for additional information related to our right-of-use assets and lease liabilities.

Revenue Recognition and Deferred Revenue

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

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

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On January 1, 2019, we adopted ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC Topic 606”). The underlying principle of ASC Topic 606 is to recognize revenue to depict the transfer of goods or services to a customer at the amount expected to be collected. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulative effect adjustment was recognized.

To apply these principles, ASC Topic 606 outlines a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which includes:

1.	Identifying the contract(s) or agreement(s) with a customer;
2.	Identifying the separate performance obligations in the contract or agreement;
3.	Determining the transaction price;
4.	Allocating the transaction price to the separate performance obligations in the contract or agreement; and
5.	Recognizing revenue as each performance obligation is satisfied.

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

We evaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenues that would be meaningful. The majority of our revenue earned from our Beverages Segment and our Distribution Segment is recognized when we satisfy a single performance obligation by transferring control of our products to a customer. We do not have significant financing components or payment terms, and we do not have any material unsatisfied performance obligations. Our revenues are obtained in similar geographical locations within the United States. Furthermore, the operations in each of our reporting segments are expected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of our products and customers are essentially the same. The sales from our beverage product types are organized as one reportable segment, which we refer to as the Beverages Segment, and the sales of our products and products that are purchased from resellers that are distributed by Gold Leaf is organized as our second reportable segment, which we refer to as the Distribution Segment. We have also determined that disaggregated revenue by net sales by revenue source would be meaningful and allow investors to understand our business activities, historical performance, or future prospects. Disaggregated sales by revenue source, which includes sales to distributors, online sales, sales through Amazon, and Gold Leaf distribution sales. This is the same information used by our Chief Operating Decision Maker for evaluating the financial performance of our operations and making resource decisions. We also sell merchandise and apparel that comprises approximately 1% of our gross annual sales, and solely exists to promote our beverages. Therefore, our merchandise and apparel products are not a reportable segment. Merchandise and apparel sales are included with the gross sales for our Beverages Segment.

Accounts Receivable and Allowance for Doubtful Account Receivable

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

Inventory

The cost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. Our inventories are valued at the lower of cost or net realizable value. Our inventory consists almost entirely of finished and unfinished goods, and freight, which include CBD energy waters, CBD waters, hemp energy drinks, lemonades, cans for production, and merchandise and apparel. We periodically evaluate and adjust inventories for obsolescence. In the opinion of management, no provision for obsolescence is deemed necessary. The shelf life of all beverage inventory is two years, and as of June 30, 2021, we had approximately $753,000 of product in inventory, which was an increase of approximately $92,500, compared to approximately $660,500 at December 31, 2020. We expect the balance of inventory to increase in direct relation to the increase in sales that we expect. See Note 2, Summary of Significant Accounting Policies, Subsection F, Inventories, of our consolidated financial statements for the six months ended June 30, 2021, for an additional description of our inventory that had a material effect on our consolidated financial statements.

Goodwill and Intangible Assets

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

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Intangible assets represent both indefinite lived and definite lived assets. Trademarks are deemed to have definite useful lives of ten years, are amortized, and are tested annually for impairment. Intangible assets are reported on the balance sheet at cost less accumulated amortization. We have selected December 31 as the date to perform the annual impairment test. See Note 2, Summary of Significant Accounting Policies, Subsection H, Goodwill and Intangible Assets, of our consolidated financial statements for the three and six months ended June 30, 2021, for an additional description of intangible assets that had a material effect on our consolidated financial statements.

Stock-Based Compensation

FASB’s ASC Topic 718, Stock Compensation (formerly, FASB Statement 123R), prescribes accounting and reporting standards for all stock-based payment transactions in which employee and non-employee services are acquired. We measure the cost of employee and non-employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value for restricted stock awards is valued using the closing price of our Common Stock on the date of grant. For our six months ended June 30, 2021, and 2020, we recognized stock-based compensation expense of approximately $270,900, and $478,600, respectively. We had a balance in accrued stock-based compensation at June 30, 2021 and December 31, 2020 of approximately $1.4 million, respectively. See Note 6, Stock-Based Compensation, of our consolidated financial statements for the six months ended June 30, 2021 for an additional description of our stock-based compensation that had a material effect on our consolidated financial statements.

Related Party Transactions

See Note 8, Related Party Transactions, to our consolidated financial statements for the six months ended June 30, 2021 for an additional description of related party transactions that had a material effect on our consolidated financial statements.

Emerging Growth Company Status

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

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

We will remain an emerging growth company until the earlier to occur of (1) the last day of our fiscal year (a) following the fifth anniversary of the completion of the December 31, 2020 offering, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares that is held by non-affiliates exceeds $700 million as of the last day of our second quarter, and (2) the date on which we have issued more than $1.0 billion in non-convertible debt during the prior three-year period.

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

Recently Issued Accounting Pronouncements

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

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As a Smaller Reporting Company, we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure control and Procedures. We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)). Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2021, the period covered in this Report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control Over Financial Reporting. There were no changes in the Company’s internal control over financial reporting during the quarter ended June 30, 2021, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Inherent Limitations on the Effectiveness of Controls

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

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

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PART II – OTHER INFORMATION

ITEM 1. Legal Proceedings

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

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

ITEM 1A. Risk Factors

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

ITEM 2. Unregistered Sales of Equity Securities and Use of funds

None

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ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

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ITEM 6. Exhibits

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

2.1	Agreement and Plan of Merger among Kona Gold Beverage Inc., KGS Temporary Company, Inc., S and S Beverage Inc., William J. Stineman and K&L Beverage, LLC (as the indemnifying S and S shareholders), and William J. Stineman (as representative of the S and S Shareholders), dated January 22, 2021 is incorporated herein by reference to Exhibit 2.1 of the Company’s Current Report on Form 8-K, filed with the SEC on February 5, 2021.
3.1	Amended and Restated Certificate of Incorporation is incorporated herein by reference to Exhibit 3.1 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
3.2	Amended and Restated By-Laws is incorporated herein by reference to Exhibit 3.2 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
3.3	Certificate of Designation of the Preferences, Rights, and Limitations of the Series B Preferred Stock is incorporated herein by reference to Exhibit 3.3 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
3.4	Certificate of Designation of the Preferences, Rights, and Limitations of the Series C Preferred Stock is incorporated herein by reference to Exhibit 3.4 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
3.5	Certificate of Designation of the Preferences, Rights, and Limitations of the Series D Preferred Stock is incorporated herein by reference to Exhibit 3.5 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
3.6	Certificate of Amendment to Amendment and Restated Certificate of Incorporation, is incorporated herein by reference to Exhibit 3.6 of Amendment No. 1 to the Company Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.
3.7	Articles of Merger Merging KGS Temporary Company, Inc. with and into S and S Beverage Inc., as filed with the Wisconsin Department of Financial Institutions on February 1, 2021 is incorporated herein by reference to Exhibit 3.7 of the Company’s Current Report on Form 8-K, filed with the SEC on February 5, 2021.
4.1	Form of Debenture is incorporated herein by reference to Exhibit 4.1 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
4.2	Form of Warrant is incorporated herein by reference to Exhibit 4.2 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
4.3	Form of Stand-alone Debenture is incorporated herein by reference to Exhibit 4.3 of the Company’s Registration Statement on Form S-1 (File No.333-239883), filed with the SEC on December 14, 2020.
4.4	Form of Secured Convertible Debenture of the Company sold and issued to YA II PN, Ltd., on February 11, 2021 is incorporated herein by reference to Exhibit 4.4 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.
4.4a	Certificate of Scrivener’s Error in respect of the February 10, 2021 Secured Convertible Debenture, executed as of the 18th day of February, 2021 is incorporated herein by reference to Exhibit 4.4a of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 17, 2021.
4.4b	Certificate of Scrivener’s Error in respect of the February 10, 2021 Secured Convertible Debenture, executed as of the 15th day of March, 2021 is incorporated herein by reference to Exhibit 4.4b of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 17, 2021.
4.4c	Form of Secured Convertible Debenture of the Company sold and issued to YA II PN, Ltd., on May 5, 2021 is incorporated herein by reference to Exhibit 4.4c of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 17, 2021.
4.5	Form of Warrant of the Company granted to YA II PN, Ltd., on February 11, 2021 is incorporated herein by reference to Exhibit 4.3 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.

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10.1	Securities Purchase Agreement by and between the Company and YA II PN, Ltd., dated May 14, 2020 is incorporated herein by reference to Exhibit 10.1 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.2	Registration Rights Agreement by and between the Company and YA II PN, Ltd., dated May 14, 2020 is incorporated herein by reference to Exhibit 10.2 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.3	Independent Contractor Agreement by and between Kona Gold LLC and OPTN Companies Inc., dated April 15, 2020 is incorporated herein by reference to Exhibit 10.3 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.4	Board of Directors Offer Letter between the Company and Matthew Crystal, dated July 24, 2018 is incorporated herein by reference to Exhibit 10.4 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.5	Board of Directors Offer Letter between the Company and William Jeffrey Outlaw, dated September 3, 2019 is incorporated herein by reference to Exhibit 10.5 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.6	Form of Distribution Agreement is incorporated herein by reference to Exhibit 10.6 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.7	Membership Interest Purchase Agreement by and among Elev8 Hemp LLC, PLAD, Inc., and the Company, dated October 10, 2016, is incorporated herein by reference to Exhibit 10.7 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.8	Securities Exchange and Settlement Agreement by and between Elev8 Brands, Inc. and the Company, dated March 6, 2018, is incorporated herein by reference to Exhibit 10.8 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.9	Securities Exchange and Settlement Agreement by and between Elev8 Brands, Inc. and the Company, dated November 26, 2019 is incorporated herein by reference to Exhibit 10.9 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.10	Employment Agreement by and between Christopher Selinger and the Company, dated September 1, 2018 is incorporated herein by reference to Exhibit 10.10 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.11	Lease Agreement by and between Kona Gold, LLC and Hay Investment Properties, Inc., dated June 1, 2018 is incorporated herein by reference to Exhibit 10.11 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.12	Triple Net Lease Agreement by and between Gold Leaf Distribution, LLC and 3090 S. Hwy 14, LLC, dated May 22, 2019 is incorporated herein by reference to Exhibit 10.12 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.13	Lease Modification Agreement by and between Gold Leaf Distribution, LLC and 3090 S. Hwy 14, LLC, dated April 21, 2020 is incorporated herein by reference to Exhibit 10.13 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.14	Line of Credit Agreement by and between Robert Clark and Gold Leaf Distribution, LLC, dated August 29, 2019 is incorporated herein by reference to Exhibit 10.14 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.15	Line of Credit Agreement by and between Robert Clark and Kona Gold, LLC, dated April 4, 2019 is incorporated herein by reference to Exhibit 10.15 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.15a	Line of Credit Agreement by and between Robert Clark and Kona Gold, LLC, dated April 4, 2019 is incorporated herein by reference to Exhibit 10.15a of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 17, 2021.
10.16	Line of Credit Agreement by and between Matthew Nicoletti and Kona Gold, LLC, dated May 5, 2018 is incorporated herein by reference to Exhibit 10.16 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.17	Standard Promissory Note issued by Gold Leaf Distribution in favor of Robert Clark, dated February 19, 2019 is incorporated herein by reference to Exhibit 10.17 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.17a	Standard Promissory Note Modification Agreement to February 19, 2019 Standard Promissory Note issued by Gold Leaf Distribution LLC in favor of Robert Clark, dated March 15, 2021 is incorporated herein by reference to Exhibit 10.17a of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 17, 2021.
10.18	Standard Promissory Note issued by Kona Gold, LLC in favor of Robert Clark, dated January 15, 2019 is incorporated herein by reference to Exhibit 10.18 of Amendment No. 1 to the Company Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.
10.18a*	Standard Promissory Note Modification Agreement to January 15, 2019 Standard Promissory Note issued by Kona Gold, LLC in favor of Robert Clark, dated April 4, 2021.

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10.19	Employment Agreement by and between the Company and Robert Clark, dated August 12, 2015 is incorporated herein by reference to Exhibit 10.19 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.20	Employment Agreement by and between the Company and Lori Radcliffe, dated October 8, 2019 is incorporated herein by reference to Exhibit 10.20 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.21	Amendment to Employment Agreement by and between the Company and Robert Clark, dated December 1, 2016 is incorporated herein by reference to Exhibit 10.21 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.22	Agreement by and between the Company and Ryan Dodd, dated May 1, 2019 is incorporated herein by reference to Exhibit 10.22 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.23	Amendment to Employment Agreement by and between Christopher Selinger and Kona Gold Solutions, Inc., dated May 1, 2020 is incorporated herein by reference to Exhibit 10.23of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.24	Amendment to Employment Agreement by and between Christopher Selinger and the Company, dated January 1, 2019 is incorporated herein by reference to Exhibit 10.24 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.25	Security Agreement by and between the Company and YA II PN, Ltd., dated May 14, 2020 is incorporated herein by reference to Exhibit 10.25 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.26	Line of Credit and Security Agreement Modification Agreement by and between Kona Gold LLC and Robert Clark, dated April 1, 2020 is incorporated herein by reference to Exhibit 10.26 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.27	Line of Credit and Security Agreement Modification Agreement by and between Gold Leaf Distribution LLC and Robert Clark, dated April 1, 2020 is incorporated herein by reference to Exhibit 10.27 of the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on July 16, 2020.
10.27a*	Line of Credit and Security Agreement Modification Agreement #2 by and between Gold Leaf Distribution LLC and Robert Clark, dated August 13, 2021.
10.28	Terms of Oral Agreement between the Company and Robert Clark is incorporated herein by reference to Exhibit 10.28 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.
10.29	Waiver Agreement by and between the Company and YA II PN, Ltd., dated October 14, 2020, is incorporated herein by reference to Exhibit 10.29 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.
10.30	Paycheck Protection Promissory Note issued in favor of Wells Fargo Bank, N.A. dated May 4, 2020, is incorporated herein by reference to Exhibit 10.30 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.
10.31	Paycheck Protection Promissory Note issued in favor of Wells Fargo Bank, N.A. dated May 4, 2020, is incorporated herein by reference to Exhibit 10.31 of Amendment No. 1 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on October 26, 2020.
10.32	Securities Purchase Agreement by and between the Company and YA II PN, Ltd., dated November 30, 2020, is incorporated herein by reference to Exhibit 10.32 to the Company’s Registration Statement on Form S-1 (File No.: 333-239883), filed with the SEC on December 14, 2020.
10.33	Form of Securities Purchase Agreement between the Company and YA II PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.28 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.
10.33a	Form of Limited Amendment Agreement to Securities Purchase Agreement between the Company and YA II PN, Ltd., for a transaction that closed on February 11, 2021, dated as of May 5, 2021 is incorporated herein by reference to Exhibit 10.33a of the Company’s Quarterly Report on Form 10-Q, filed with the SEC on May 17, 2021.

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10.34	Form of Registration Rights Agreement by and between the Company and YA II PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.29 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.
10.35	Form of Amended and Restated Security Agreement of the Company and its subsidiaries in favor of YA II PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.30 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.
10.36	Form of Intellectual Property Security Agreement of the Company and its subsidiaries in favor of YA II PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.31 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.
10.37	Form of Amended and Restated Global Guaranty Agreement of the Company and its subsidiaries in favor of YA II PN, Ltd., for a transaction that closed on February 11, 2021 is incorporated herein by reference to Exhibit 10.32 of the Company’s Current Report on Form 8-K, filed with the SEC on February 18, 2021.
31.1*	Certification of Principal Executive Officer Pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934.
31.2*	Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Rule 13a-14(a) of the Securities Act of 1934.
32.1*	Certification of Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.
32.2*	Certification of Principal Financial Officer and Principal Accounting Officer Pursuant to Section 1350 of Chapter 63 of Title 18 of the United States Code.

Ex. 101.INS*	XBRL Instance Document
Ex. 101.SCH*	XBRL Taxonomy Extension Schema Document
Ex. 101.CAL*	XBRL Taxonomy Extension Calculation Linkbase Document
Ex. 101.DEF*	XBRL Taxonomy Extension Definition Linkbase Document
Ex. 101.LAB*	XBRL Taxonomy Extension Label Linkbase Document
Ex. 101.PRE*	XBRL Taxonomy Extension Presentation Linkbase Document

* Filed herewith

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Kona Gold Beverage, Inc.
Dated: August 16, 2021	/s/ Robert Clark
	President and Chief Executive Officer
	(Principal Executive Officer)
Dated: August 16, 2021	/s/ Lori Radcliffe
	Chief Financial Officer
	(Principal Financial Officer)

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