As filed with the Securities and Exchange Commissionon May 26, 2021

Registration No. 333-________

UNITED STATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

FORM S-1

RegistrationStatement under the Securities Act of 1933

KONA GOLDBEVERAGE, INC. 

(Exact name of registrant as specified in itscharter)

KonaGold Beverage, Inc.

746North Drive, Suite A

Melbourne,Florida 32934

(844)714-2224

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

ofregistrant’s principal executive offices)

RobertClark

Chairmanof the Board, Chief Executive Officer, and President

746North Drive, Suite A

Melbourne,Florida 32934

(844)714-2224

(Name,address, including zip code, and

telephonenumber, including area code, of agent for service)

Withcopy to: 

RandolfW. Katz, Esq.

ClarkHill LLP

155West Seventh Street, 24^th Floor

LosAngeles, California 90017

(213)417-5310

Approximatedate of commencement of proposed sale to the public: As soon as practicable after this Registration Statement is declaredeffective.

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

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

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

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

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

Ifan emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period forcomplying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.☒

CALCULATIONOF REGISTRATION FEE

THE REGISTRANT HEREBY AMENDS THIS REGISTRATIONSTATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT,WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OFTHE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATEAS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.

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

KONA GOLD BEVERAGE, INC.

Up to 204,958,678 Sharesof Common Stock

This is a prospectus (this “Prospectus”)of Kona Gold Beverage, Inc., a Delaware corporation (“Kona Gold,” our “Company,” “we,” “our,”or “us”). It relates to the resale or other disposition by the selling stockholder (the “Selling Stockholder”)identified in this Prospectus and its transferees of up to 204,958,678 shares of common stock, par value $0.00001 per share (our “CommonStock”), consisting of (i) up to 154,958,678 shares of our Common Stock (the “February 2021 Conversion Shares”) issuableupon conversions of secured convertible debentures (the “February 2021 Debentures”) and up to 50,000,000 of shares of ourCommon Stock (the “February 2021 Warrant Shares”) issuable upon exercises of a Warrant to Purchase Common Stock (the “February2021 Warrant”; and, together with the February 2021 Debentures, the February 2021 Conversion Shares, and the February 2021 WarrantShares, the “Securities”). We issued, or will issue, the Securities to the Selling Stockholder pursuant to that certain SecuritiesPurchase Agreement between the Selling Stockholder and us, dated as of February 18, 2021 (the “February 2021 SPA”), in connectionwith a private placement. We agreed to register the February 2021 Conversion Shares and February 2021 Warrant Shares pursuant to the termsof the Registration Rights Agreement between the Selling Stockholder and us, dated as of February 18, 2021 (the “February 2021 RegistrationRights Agreement”). The February 2021 Conversion Shares and February 2021 Warrant Shares are being offered for resale by the SellingStockholder.

The February 2021 Debentures are due 12 monthsfrom their respective issuance dates and are secured by all of our assets and the assets of each of our subsidiaries pursuant tothat certain Amended and Restated Security Agreement by and among the Selling Stockholder, our wholly-owned subsidiaries, and us,dated February 18, 2021 (the “Amended and Restated Security Agreement”). Initially, the February 2021 Debentures areconvertible at the lower of the (i) the fixed conversion price, which is $0.03 per share, subject to adjustment (the “FixedConversion Price”), or (ii) 80% of the lowest daily volume weighted average price (“VWAP”) of our Common Stock duringthe 15 trading days immediately preceding the conversion date, subject to adjustment (the “Market Conversion Price”).

The February 2021 Debentures contain an adjustmentprovision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or commonstock equivalents at a price lower than the then-current Fixed Conversion Price of the February 2021 Debentures. For example, ifwe issued 10,000,000 shares of our Common Stock at a price of $0.025 per share, and we had 840,163,265 shares of our Common Stockissued and outstanding prior to the issuance, then, in accordance with the terms of the February 2-21 Debentures, the new FixedConversion Price would be $[0.0____] per share. Any stock splits, reverse stock splits, recapitalizations, mergers, combinationsand asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the February2021 Debentures. The February 2021 Conversion Shares include shares of our Common Stock that we may issue from time to time uponconversions of the February 2021 Debentures in payment of then-outstanding principal and accrued interest. If the Market ConversionPrice were $0.01019374, and the February 2021 Debentures were completely converted at the same time, all of the February 2021 ConversionShares registered hereunder would be issued (of which approximately [___] million shares would be issuable for accrued interest).The allocation of the February 2021 Conversion Shares between principal and interest will depend on the dates of the various conversionsof the February 2021 Debentures.

The February 2021 Debentures are subject toa “conversion blocker” such that the Selling Stockholder cannot convert any portion of the February 2021 Debentures thatwould result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares ofour Common Stock following such conversion (excluding, for purposes of such determination, shares of our Common Stock issuableupon conversion of the February 2021 Debentures or exercise of the February 2021 Warrant that had not then been converted or exercised,respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ priorwritten notice to us.

At our option, we have the right to redeem,in part or in whole, the outstanding principal and interest under the February 2021 Debentures prior to their respective maturitydates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP of our Common Stock is lessthan the Fixed Conversion Price and (ii) there is no Equity Conditions failure. We must pay an amount equal to the principal amountbeing redeemed plus outstanding and accrued interest thereon, as well as the 115% Redemption Premium. We must provide the holder15 business days’ advance notice of our intent to make a redemption, setting forth the amount of principal and interest we desirethen to redeem plus the applicable Redemption Premium.

The February 2021 Debentures contain an adjustmentprovision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or commonstock equivalents at a price lower than the then-current Fixed Conversion Price of the February 2021 Debentures. For example, ifwe issued 10,000,000 shares of our Common Stock at a price of $0.02 per share, and we had 840,163,265 shares of our Common Stockissued and outstanding prior to the issuance, then, in accordance with the terms of the February 2021 Debentures, the new FixedConversion Price would be $0.0497. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales,stock dividends, and similar events will also result in an adjustment of the conversion price of the February 2021 Debentures.

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

The February 2021 Warrant contains an adjustmentprovision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stock or common stockequivalents at a price lower than the then-current exercise price of the February 2021 Warrant. For example, if we issued sharesof our Common Stock at $0.025 per share, then the exercise price of the February 2021 Warrant would be adjusted to $0.025 per share.Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similarevents will also result in an adjustment of the exercise price of the February 2021 Warrant.

Our Common Stock is quoted on the OTC Markets GroupInc.’s (the “OTCM”) OTCQB^® Venture Market (the “OTCQB”) under the symbol “KGKG.”On May 26, 2021, the last reported sales price for our Common Stock was $0.0265 per share. We are an “emerging growth company,”as defined in the Jumpstart Our Business Startups Act (“JOBS Act”) and, as such, may elect to comply with reduced public companyreporting requirements for this and future filings. See “Prospectus Summary – Implications of Being an Emerging Growth Companyand a Smaller Reporting Company.”

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

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

The date of this Prospectus is _____________________,2021

TABLE OF CONTENTS

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

PROSPECTUS SUMMARY

This summary highlights selectedinformation contained elsewhere in this Prospectus. This summary does not contain all the information that you should considerbefore investing in our Common Stock. You should carefully read and consider this entire Prospectus, including “Risk Factors,”“Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the accompanying financialstatements and the related notes to the financial statements before making an investment decision. Unless we specify otherwise,all references in this Prospectus to “KGKG,” “Kona Gold,” our “Company,” “we,” “our,”and “us” refer to Kona Gold Beverage, Inc. and our subsidiaries.

Company Overview

We are a lifestyle company thatspecializes in developing hemp and cannabidiol (“CBD”) products in the functional beverage and fitness markets. Focusingon the hemp energy drink, CBD energy water, and CBD water markets, we believe that we have positioned ourselves as a premium lifestylebrand. We are currently selling products through resellers, our website, and distributors that span across 29 states. Our productsare available in a wide variety of stores, including convenience and grocery stores, smoke shops, and gift shops. We also distributepremium beverages and snacks to over 500 grocery stores, convenience stores, smoke shops, vape shops, and specialty stores locatedin Florida and South Carolina. In addition to distributing our own beverage products, we also distribute other products, includingalkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infusedjellybeans, all of which complement our current product offerings.

Corporate Information

We were originally incorporatedas Class-ique Talent Agency, Inc. (“CTA”), under the laws of the State of Nevada in March 1997. In October 2001, CTAentered into an Agreement and Plan of Reorganization (the “Reorganization Plan”) with PhaserTek, Inc., a Delaware corporation(“PhaserTek”), pursuant to which CTA acquired all of the outstanding shares of common stock of PhaserTek in exchangefor shares of common stock of CTA, resulting in PhaserTek becoming a wholly-owned subsidiary of CTA. In accordance with the termsof the Reorganization Plan, CTA changed its name to PhaserTek Medical, Inc. (“PhaserTek Medical”) in 2002. In 2004, PhaserTekMedical changed its name to Union Equity, Inc. (“UE Nevada”). For purposes of changing UE Nevada’s state of incorporation,UE Nevada formed Union Equity, Inc. in the State of Delaware (“UE Delaware”) in 2004. Pursuant to Articles of Merger,in December 2004, UE Nevada merged with and into UE Delaware, the surviving company. In July 2015, we changed our name to KonaGold Solutions, Inc. In October 2020, we changed our name to Kona Gold Beverage, Inc.

We have four wholly-owned subsidiaries:(i) Kona Gold, LLC (“Kona”), a Delaware limited liability company formed in August 2015; (ii) HighDrate, LLC (“HighDrate”),a Florida limited liability company formed in January 2018; (iii) S and S Beverage, Inc. (“S and S”), a Wisconsin corporationformed in June 2018 that we acquired in February 2021; and (iv) Gold Leaf Distribution LLC (“Gold Leaf”), a Florida limitedliability company formed in January 2019.

Kona focuses on creating greattasting and healthy hemp-infused energy drinks in the functional beverage market for those who lead an active lifestyle. Kona isa proud member of the Hemp Industries Association (“HIA”) and strives to promote the benefits of hemp seed in our products.The hemp seed in our energy drinks contains all 20 amino acids that are already found in the human body. For those leading a healthylifestyle, hemp seed protein is considered to be a complete protein and is compatible with a variety of diets, including veganand Kosher.

HighDrate focuses on the developmentand marketing of CBD-infused energy waters available in a variety of great tasting flavors. HighDrate’s CBD-infused energy watersare geared to the fitness and wellness markets. Our CBD-infused energy waters are powered by the patented technology of AlkameHoldings Inc.’s wholly-owned subsidiary, Alkame Water Inc. (“Alkame”), which provides premium oxygenated alkaline waterwith natural antioxidants. All of our waters are infused with CBD.

S and S focuses on the developmentand marketing of Lemin Superior Lemonade, which is a lemonade that has no added sugar, is low in carbs, and has only 15 calories.Lemin Superior Lemonade is available in four flavors: (i) Original Lemonade, (ii) Blue Raspberry Lemonade, (iii) Peach Lemonade,and (iv) Strawberry Lemonade.

Gold Leaf focuses on the distributionof premium beverages and snacks, such as alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade,healthy aloe juice drinks, as well as CBD-infused jellybeans, in key markets. These markets include over 500 accounts in grocerystores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina.

Implications of Being anEmerging Growth Company and a Smaller Reporting Company

We qualify as an “emerginggrowth company,” as defined in the JOBS Act, enacted in April 2012. For so long as we remain an emerging growth company, weare permitted and intend to rely on certain exemptions from various public company reporting requirements, including the optionto present only two years of audited financial statements and only two years of related “Management’s Discussion and Analysisof Financial Condition and Results of Operations” in this Prospectus, not being required to have our internal control overfinancial reporting audited by our independent registered public accounting firm pursuant to Section 404(b) of the Sarbanes-OxleyAct of 2002, as amended (the “SOX Act”) reduced disclosure obligations regarding executive compensation in our periodicreports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensationand any golden parachute payments not previously approved. In particular, in this Prospectus, we have provided only two years ofaudited financial statements and have not included all of the executive compensation related information that would be requiredif were not an emerging growth company. Accordingly, the information contained herein may be different than the information youreceive from other public companies in which you hold stock.

We may take advantage of theseprovisions until the earliest to occur of (1) the last day of the fiscal year (a) following the fifth anniversary of the closingof this offering, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemed tobe a “large accelerated filer,” under the rules of the SEC, which means the market value of our equity securities thatis held by non-affiliates exceeds $700 million as of the prior June 30^th, and (2) the date on which we have issued morethan $1.0 billion in non-convertible debt during the prior three-year period.

In addition, the JOBS Act providesthat an emerging growth company can take advantage of an extended transition period for complying with new or revised accountingstandards. This provision allows an emerging growth company to delay the adoption of some accounting standards until those standardswould otherwise apply to private companies. We have irrevocably elected to “opt out” of this extended transition period.As a result, we will comply with new or revised accounting pronouncements as of public company effective dates.

We are also a “smallerreporting company,” meaning that the market value of our stock held by non-affiliates is less than $700 million and our annualrevenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smaller reporting companyif either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenue was lessthan $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates is lessthan $700 million. If we are a smaller reporting company at the time we cease to be an emerging growth company, we may continueto rely on exemptions from certain disclosure requirements that are available to smaller reporting companies. Specifically, asa smaller reporting company, we may choose to present only the two most recent fiscal years of audited financial statements inour Annual Reports on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosureobligations regarding executive compensation.

Intellectual Property

We have three trademarks thatare registered with the U.S. Patent and Trademark Office (“USPTO”) for use in the Beverages Segment. One is for use of“Kona Gold Hemp Energy Drinks” in the Beverages Segment. The second trademark is for the use of “HighDrate”in the Beverages Segment. The third trademark is for the use of “OOH LA LEMIN” in the Beverages Segment. We have alsoapplied for a trademark for “Storm” to use in the Beverages Segment. We do not have any patents.

Recent Developments

In January 2020, the WorldHealth 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 beyondits point of origin. In March 2020, the WHO classified the COVID-19 outbreak as a pandemic based on the rapid increase in globalexposure. The COVID-19 pandemic is disrupting businesses and affecting production and sales across a range of industries, as wellas causing volatility in the financial markets. The extent of the impact of the COVID-19 pandemic on our consumer demand, sales,and financial performance will depend on certain developments, including, among other things, the duration and spread of the outbreakand the impact on our consumers and employees, all of which are uncertain and cannot be predicted. To date, COVID-19 has adverselyimpacted new product launches by Kona and HighDrate, Gold Leaf’s distribution of new product lines, and the commencementof new distribution contracts. Management is actively monitoring this situation and potential impacts on our financial condition,liquidity, and results of operations. See “Risk Factors” for additional information regarding certain risks associatedwith the COVID-19 pandemic. However, we acquired S and S during the COVID-19 pandemic and increased our product variety due tothe acquisition.

The February 2021 Private Placement

This Prospectus relates to the resaleor other disposition by the Selling Stockholder and its transferees of up to 204,958,678 shares of our Common Stock, consisting of (i)up to 154,958,678 February 2021 Conversion Shares issuable upon conversions of the February 2021 Debentures and up to 50,000,000 February2021 Warrant Shares issuable upon exercises of the February 2021 Warrant. In February 2021, we completed a private placement transaction(the “February 2021 Private Placement”) of the February 2021 Debentures and the February 2021 Warrant. The February 2021 Debenturesmature 12 months from their respective issuance dates and are secured by all of our assets and the assets of each of our subsidiaries.The February 2021 Debentures 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 February 2021 Debentures or otherwise accelerates the maturity dates, as provided forin the February 2021 Debentures). Interest is payable either in cash, or if certain Equity Conditions (as defined below) are then satisfied,in shares of our Common Stock at the Market Conversion Price on the trading day immediately prior to the date paid. “Equity Conditions”means that each of the following conditions is satisfied: (i) on each day during the period beginning two weeks prior to the applicabledate of determination and ending on and including the applicable date of determination (the “Equity Conditions Measuring Period”),all applicable shares of our Common Stock to be issued in connection with the event requiring determination are eligible for sale withoutrestriction and without the need for registration under any applicable federal or state securities laws; (ii) on each day during the EquityConditions Measuring Period, shares of our Common Stock are designated for quotation on the principal market and have not been suspendedfrom trading on such exchange or market nor has delisting or suspension by such exchange or market been threatened or pending either (A)in writing by such exchange or market or (B) by falling below the then-effective minimum listing maintenance requirements of such exchangeor market; (iii) during the Equity Conditions Measuring Period, we have delivered the February 2021 Conversion Shares upon conversionsof the February 2021 Debentures to the converting holder of the February 2021 Debentures on a timely basis; (iv) any applicable sharesof our Common Stock to be issued in connection with the event requiring determination may be issued in full without violating the termsof the February 2021 Debentures and the rules or regulations of the primary market; (v) during the Equity Conditions Measuring Period,(A) no event of default as occurred or (B) no event that with the passage of time or the giving of notice has occurred that, by givingnotice, would constitute an event of default; and (vi) we do not have any knowledge of any fact that would cause any applicable sharesof our Common Stock to be issued in connection with the event requiring determination not to be eligible for sale without restrictionand without the need for registration under any applicable or state securities laws.

Initially, the February 2021Debentures are convertible at the lower of the (i) Fixed Conversion Price or (ii) Market Conversion Price. The February 2021 Debenturesare subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion of the February 2021Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstandingshares of our Common Stock following such conversions (excluding, for purposes of such determination, shares of our Common Stockissuable upon conversions of the February 2021 Debentures or exercises of the February 2021 Warrant that had not then been convertedor exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least65 days’ prior written notice to us.

At our option, we have the rightto redeem, in part or in whole, the outstanding principal and interest under the February 2021 Debentures prior to their respectivematurity dates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP of our Common Stockis less than the Fixed Conversion Price, initially $0.03 per share and (ii) there is no Equity Conditions failure. We must payan amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a redemption premiumequal to 15% of the outstanding principal amount being redeemed (the “Redemption Premium”). We must provide the holder15 business days advance notice of our intent to make a redemption, setting forth the amount of principal and interest we desirethen to redeem plus the applicable Redemption Premium.

The February 2021 Debenturescontain an adjustment provision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of ourCommon Stock or common stock equivalents at a price lower than the then-current Fixed Conversion Price of the February 2021 Debentures.For example, if we issued 10,000,000 shares of our Common Stock at a price of $0.02 per share, and we had 840,163,265 shares ofour Common Stock issued and outstanding prior to the issuance, then, in accordance with the terms of the February 2021 Debentures,the new Fixed Conversion Price would be $0.0497. Any stock splits, reverse stock splits, recapitalizations, mergers, combinationsand asset sales, stock dividends, and similar events will also result in an adjustment of the conversion price of the February2021 Debentures.

We also granted the February2021 Warrant to purchase up to an aggregate of 50 million shares of our Common Stock. The February 2021 Warrant has a three-yearterm and is immediately exercisable at an exercise price of $0.03 per share, subject to adjustment. If we fail to maintain an effectiveregistration statement with the SEC covering the resale of the February 2021 Warrant Shares, or if an Event of Default (as definedbelow) has occurred and is continuing, then the holder may exercise the February 2021 Warrant on a “cashless” basis.“Event of Default” means an event of default under the SPA or the February 2021 Debentures.

The February 2021 Warrant containsan adjustment provision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stockor common stock equivalents at a price lower than the then-current exercise price of the February 2021 Warrant. For example, ifwe issued shares of our Common Stock at $0.02 per share, then the exercise price of the February 2021 Warrant would be adjustedto $0.02 per share. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends,and similar events will also result in an adjustment of the exercise price of the February 2021 Warrant.

The February 2021 Warrant issubject to an “exercise blocker,” such that the Selling Stockholder cannot exercise any portion of the February 2021Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstandingshares of our Common Stock following such exercise (excluding, for purposes of such determination, shares of our Common Stock issuableupon exercises of the February 2021 Warrant or conversions of the February 2021 Debentures that had not then been exercised orconverted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65days’ prior written notice to us.

Pursuant to the terms of theFebruary 2021 Registration Rights Agreement, we agreed to file a registration statement with the SEC registering for resale theshares of our Common Stock underlying the February 2021 Debentures and the February 2021 Warrant within 45 calendar days followingthe closing of the Private Placement.

Corporate Information

Our principal executive officeis located at 746 North Drive, Suite A, Melbourne, Florida 32934. We also have a warehouse in Greer, South Carolina that servesas the main distribution center for Gold Leaf. Our telephone number is (844) 714-2224. We maintain the following website addresses:www.konagoldhemp.com, www.highdrateme.com, and www.goldleafdist.com.

Our Common Stock is quoted on the OTCQB under thesymbol “KGKG.”

THE OFFERING

RISK FACTORS

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

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

We have incurred losses in recent yearsand may never achieve or maintain profitability. We have had losses for several years and had an accumulated deficit of$9,280,036 at December 31, 2020, which included our net loss of $3,125,595 for the year ended December 31, 2020, as compared toan accumulated deficit of $6,154,441, which included net loss of $1,787,669 for year ended December 31, 2019. We have implementedseveral initiatives intended to improve our revenues and reduce our operating costs with a goal of profitability. If we are unsuccessfulin this regard, it will have a material adverse impact on our business, prospects, operating results, and financial condition.Our prior losses have had, and any future losses may continue to have, an adverse effect on our working capital. If we fail togenerate revenue and become profitable, or if we are unable to fund our continuing losses, our stockholders could lose all or partof their investment.

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

We do not have sufficient working capitalto fund our planned operations, and, as a result, we may need to raise additional capital in the future, which may not be availablewhen needed, on acceptable terms or at all. We have limited capital resources. To date, we have financed our operationsentirely through equity investments by our management and other investors, the incurrence of debt, salary deferments, and stockissuance deferments, and we expect to continue to do so in the foreseeable future. During the years ended December 31, 2020 and2019, we relied on aggregate of approximately $3.3 million from incurrence of debt, salary deferments, and stock issuance deferments,to fund our operations. Taking into account the sale and issuance of a $900,000 debenture on February 18, 2021, the sale and issuanceof a $200,000 “partial” second debenture on 6 2021, and the prospective sale and issuance of an additional $400,000 debenturewhen this Registration Statement that we are obligated to file in respect of the shares of our Common Stock underlying those threedebentures is declared effective by the SEC, we believe our current cash resources will fund three months of our financial obligationsand operations. Taking into account our planned activities and sources of capital, we believe that we will require approximately$2 million to fund our financial obligations and operations for the next 12 months in excess of what we anticipate that we willgenerate from our operations. However, our estimates of our operating revenues and expenses and working capital requirements couldbe incorrect, and we may use our cash resources faster than we anticipate. Further, some or all of our ongoing or planned investmentsmay not be successful and could further deplete our capital without immediate, or any, cash returns.

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

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

The COVID-19 pandemic could have a materialadverse impact on our business, results of operations, and financial condition. In December 2019, a novel strain of coronaviruswas reported to have surfaced in Wuhan, China. In January 2020, the WHO declared the COVID-19 outbreak a “Public Health Emergencyof International Concern.” This worldwide outbreak has resulted in the implementation of significant governmental measures,including lockdowns, closures, quarantines, and travel bans intended to control the spread of the virus. Companies are also takingprecautions, such as requiring employees to work remotely, imposing travel restrictions, and temporarily closing businesses andfacilities. These restrictions, and future prevention and mitigation measures, have had an adverse impact on global economic conditionsand are likely to have an adverse impact on consumer confidence and spending, which could materially adversely affect the supplyof, as well as the demand for, our products. Uncertainties regarding the economic impact of COVID-19 are likely to result in sustainedmarket turmoil, which could also negatively impact our business, financial condition, and cash flow. For example, to date, COVID-19has adversely impacted new product launches by Kona and HighDrate, Gold Leaf’s distribution of new product lines, and the commencementof new distribution contracts, all of which adversely affected our business, financial condition, and cash flow. However, we acquiredS and S during the COVID-19 pandemic and increased our product variety due to the acquisition.

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

The extent of the effect of COVID-19 on ouroperational and financial performance will depend on future developments, including the duration, spread, and intensity of theoutbreak, all of which are uncertain and difficult to predict, considering the rapidly evolving landscape. As a result, it is notcurrently possible to ascertain the overall impact of COVID-19 on our business. However, if the pandemic continues for a prolongedperiod, it could have a material adverse effect on our business, results of operations, financial condition, and cash flow andadversely impact the quoted price of our Common Stock on the OTCQB.

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

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

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

Increases in our costs materially affectour operating results. Our principal beverage products contain hemp, CBD, and ginseng. Increases in costs of these, orother ingredients in our products paid by our co-packers, with respect to our Beverages Segment, or our suppliers, with respectto our Distribution Segment, and the costs of which are passed on to us, could have a material adverse effect on our profit margins,as well as on our business, financial condition, and operating results. Further, other factors, such as inflation, increased foodcosts, increased labor and employee benefit costs, and increased energy costs may adversely affect our operating costs and we maynot be able to pass along any such increased costs to our consumers. Increases in costs could adversely affect our profitabilityand operating results.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Risks Related to the Regulation of Our Businessand Products

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

Failure by us, our co-packers, or our suppliersto comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses, and registrations relatingto our operations could subject us to administrative and civil penalties, including fines, injunctions, recalls or seizures, warningletters, restrictions on the production or marketing of our products, or refusals to permit the import or export of products,as well as potential criminal sanctions, any or all of which could result in increased operating costs resulting in a materialeffect on our operating results and business.

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

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

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

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

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

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

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

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

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

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

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

We operate in a highly regulated environmentwith constantly evolving legal and regulatory frameworks. Consequently, we are subject to heightened risk of legal claims, governmentinvestigations, or regulatory enforcement actions. Although we have implemented policies and procedures designed to ensure compliancewith existing laws and regulations, there can be no assurance that our employees, temporary workers, contractors, or agents mightnot violate our policies and procedures. Moreover, a failure to maintain effective regulatory compliance policies and procedurescould lead to violations, unintentional or otherwise, of laws and regulations. Legal claims, government investigations, or regulatoryenforcement actions arising out of our failure or alleged failure to comply with applicable laws and regulations could subjectus to civil and criminal penalties that could materially and adversely affect our product sales, reputation, financial condition,and operating results. In addition, the costs and other effects of defending potential and pending litigation and administrativeactions against us may be difficult to determine and could materially adversely affect our business, financial condition, and resultsof operations.

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

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

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

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

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

Risks Related to an Investment in Our Common Stock

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

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

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

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

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

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

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

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

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

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

Requirements associated with being areporting public company will require significant company resources and management attention. From and after December 31,2020, we became subject to the reporting requirements of the Exchange Act and the other rules and regulations of the SEC relatingto public companies. We are working with independent legal, accounting, and financial advisors to identify those areas in whichchanges should be made to our financial and management control systems to manage our growth and our obligations as an SEC reportingcompany. These areas include corporate governance, internal control, internal audit, disclosure controls, and procedures and financialreporting and accounting systems. We have made, and will continue to make, changes in these and other areas, including our internalcontrol over financial reporting. However, we cannot provide assurances that these and other measures we may take will be sufficientto allow us to satisfy our obligations as an SEC reporting company on a timely basis. Further, while we remain an emerging growthcompany, we will not be required to include an attestation report on internal control over financial reporting issued by our independentregistered public accounting firm.

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

Our management constitutes some of our largeststockholders, which will allow them to exert significant control over our business and affairs and have actual or potential intereststhat may depart from those of investors. As of May 26, 2021, members of our management team beneficially owned approximately 47.21%of our Common Stock. As of May 26, 2021, but assuming that all of the May 2020 Warrant Shares, February 2021 Conversion Shares, and February2021 Warrant Shares are issued and sold by the Selling Stockholder, members of our management team would beneficially own approximately41.57% of our Common Stock. As a result, management has the virtual unfettered ability to control substantially all matters submittedto our stockholders for approval including (i) election of our Board; (ii) removal of any of our directors; (iii) amendment of our Amendedand Restated Certificate of Incorporation (our “A&R Certificate of Incorporation”) or our Amended and Restated Bylaws(our “A&R Bylaws”); and (iii) adoption of measures that could delay or prevent a change in control or impede a merger,takeover, or other business combination involving us.

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

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

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

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

We can sell additional shares of our CommonStock without approval of our stockholders and without offering shares to existing stockholders, which would result in dilution of existingstockholders’ interests in us and could depress our stock price. Our A&R Certificate of Incorporation authorizes 2,500,000,000shares of our Common Stock, of which 840,163,265 are issued and outstanding as of May 26, 2021; 1,200,000 shares of our Series B PreferredStock, of which 488,000 shares are issued and outstanding as of May 26, 2021; 250 shares of our Series C Preferred Stock, of which 140shares are issued and outstanding as of May 26, 2021; and 500,000 shares of our Series D Preferred Stock, of which 500,000 shares areissued and outstanding as of May 26, 2021, for an aggregate of 988,140 issued and outstanding shares of our preferred stock as of May26, 2021, which shares of issued and outstanding shares of our preferred stock are convertible into an aggregate of 500,488,140 sharesof our Common Stock. Although our Board intends to utilize its reasonable business judgment to fulfill its fiduciary obligations to ourthen-existing stockholders in connection with any future issuance of our capital stock, the future issuance of additional shares of ourCommon Stock or preferred stock convertible into shares of our Common Stock would cause immediate, and potentially substantial, dilutionto our existing stockholders, which could also have a material effect on the market value of the shares. In addition, the exercise priceof any convertible debt securities or the conversion price of any convertible equity securities we may sell and issue in the future couldbe significantly lower than the market price of our Common Stock on the respective issuance, exercise, or conversion date. Alternatively,we could issue equity securities at a significant discount to the market price of our Common Stock on the issuance date, the occurrenceof any of such events could have a material adverse effect on the market price of our Common Stock.

Further, shares of our Common Stock do nothave preemptive rights, which means that we can sell shares of our Common Stock to other persons without offering the holders ofshares of our Common Stock, or the purchasers in this offering, the right to purchase their proportionate share of such offeredshares. Therefore, any additional sales of our capital stock by us could dilute an existing stockholder’s ownership interest inus.

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

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

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

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

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

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

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

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

CAUTIONARY NOTE REGARDING FORWARD-LOOKINGSTATEMENTS

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

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

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

USE OF PROCEEDS

We will not receive any proceeds from the saleof the February 2021 Conversion Shares or the February 2021 Warrant Shares by the Selling Stockholder. We will receive proceedsfrom the exercise of the February 2021 Warrant, if exercised at all, as to which there can be no assurance. The maximum aggregategross proceeds that we could receive from the full exercise of the February 2021 Warrant would be $1,000,000. We will bear allother costs, fees, and expenses incurred by us, or by the Selling Stockholder, in effecting the registration of the Securitiescovered by this Prospectus. The Selling Stockholder, however, will pay any other expenses incurred in selling the February 2021Conversion Shares and February 2021 Warrant Shares, including any brokerage commissions or costs of sale.

DETERMINATION OF OFFERING PRICE

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

THE SELLING STOCKHOLDER

The shares of our Common Stock being offeredby the Selling Stockholder are issuable upon conversions of the February 2021 Debentures and by the exercises of the February 2021Warrant. For additional information regarding the issuance of the February 2021 Debentures and the grant of the February 2021 Warrant,see “Description of Securities – Private Placement Transaction.” We are registering the resale of the February2021 Conversion Shares and February 2021 Warrant Shares in order to permit the Selling Stockholder to offer them in the mannersprovided in this Prospectus for resale from time to time. Except as otherwise noted and except for the ownership of the February2021 Debentures issued and the February 2021 Warrant granted pursuant to the 2020 SPA, the Selling Stockholder has not had anymaterial relationship with us within the past three years.

The table below lists the Selling Stockholderand other information regarding the beneficial ownership of the shares of our Common Stock by the Selling Stockholder. The secondcolumn lists the number of shares of our Common Stock beneficially owned by the Selling Stockholder, based on its ownership ofthe February 2021 Debentures and the February 2021 Warrant, as of May 26, 2021, assuming conversion of all the February 2021 Debenturesand exercise of the February 2021 Warrant held by the Selling Stockholder on that date, without regard to any limitations on conversionsor exercises.

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

In accordance with the terms of the February2021 Registration Rights Agreement with the Selling Stockholder, this Prospectus generally covers the resale of at least 204,958,678shares of our Common Stock issuable to the Selling Stockholder pursuant to the SPA. Because the conversion price of the February2021 Debentures and the exercise price of the February 2021 Warrant may be adjusted, the number of shares that will actually beissued may be more or less than the number of shares being offered by this Prospectus. The fourth column assumes the sale of allof the shares offered by the Selling Stockholder pursuant to this Prospectus.

Under the terms of the February 2021 Debenturesand the February 2021 Warrant, the Selling Stockholder cannot convert any portion of the February 2021 Debentures or exercise anyportion of the February 2021 Warrant that would result in the Selling Stockholder, together with its affiliates, holding more than4.99% of the then-outstanding shares of our Common Stock following such conversions or exercises, excluding for purposes of suchdetermination shares of our Common Stock issuable upon conversions of the February 2021 Debentures or exercises of the February2021 Warrant that have not been converted. The number of shares in the second column does not reflect this limitation. The SellingStockholder may sell all, some or none of its February 2021 Conversion Shares or February 2021 Warrant Shares in this offering.See “Plan of Distribution.”

PLAN OF DISTRIBUTION

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

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

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

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

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

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

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

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

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

DESCRIPTION OF SECURITIES

General

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

Authorized and Outstanding Securities

We have authorized 2,500,000,000 shares of our CommonStock, par value of $0.00001 per share, of which 840,163,265 shares were issued and outstanding as of May 26, 2021. We have authorized10,000,000 shares of our preferred stock, par value of $0.00001, of which 988,140 shares were issued and outstanding as of May 26, 2021.The following table sets forth the authorized and issued and outstanding securities as of May 26, 2021:

Common Stock

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

Preferred Stock

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

Series A PreferredStock

The holders of sharesof our Series A Preferred Stock did not have voting rights and were not entitled to share ratably in dividends, if any, as couldhave been declared from time to time by our Board in its discretion from funds legally available therefor, subject to preferencesthat could have been applicable to our preferred stock, if any, then issued and outstanding. In the event of a liquidation, dissolution,or winding up of the Company, the holders of shares of our Series A Preferred Stock could have been entitled to share pro rataall assets remaining after payment in full of all liabilities, subject to prior distribution rights of our preferred stock, ifany, then issued and outstanding. Our Series A Preferred Stock had conversion rights, whereby each share of our Series A PreferredStock was convertible into one share of our Common Stock. On July 10, 2020, all then-issued and outstanding shares of our SeriesA Preferred Stock were converted. On July 13, 2020, we amended and restated our A&R Certificate of Incorporation, which hadthe effect of formally withdrawing the designation for our Series A Preferred Stock. Accordingly, our Series A Preferred Stockno longer exists as of the date hereof.

Series B PreferredStock

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

Series C PreferredStock

The holders of shares of our Series PreferredC Stock are entitled to 2,000,000, votes for every share of our Series Preferred C Stock held. The holders of our Series PreferredC Stock are not entitled to receive dividends. Upon any liquidation, dissolution, or winding up of our Company, whether voluntaryor involuntary, before any distribution or payment will be made to the holders of any stock ranking junior to our Series C PreferredStock, the holders of our Series C Preferred Stock will be entitled to be paid out of our assets an amount equal to $1.00 in theaggregate for all issued and outstanding shares of our Series C Preferred Stock (as adjusted for any stock dividends, combinations,splits, recapitalizations, and the like with respect to such shares) (the “Preference Value”). After the payment ofthe full applicable Preference Value of each share of our Series C Preferred Stock, our remaining assets legally available fordistribution, if any, will be distributed ratably to the holders of our Common Stock. Our Series C Preferred Stock has conversionrights, whereby each share of our Series C Preferred Stock automatically converts into one share of our Common Stock on the one-yearanniversary of the issuance date. Prior to July 8, 2020, the Certificate of Designation for our Series C Preferred Stock providedfor conversion rights, whereby each share of our Series C Preferred Stock was convertible into 1,000 shares of our Common Stock.

Series D PreferredStock

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

May 2020 Warrant; February 2021 Warrant

Other than the May 2020 Warrant and the February2021 Warrant granted in connection with the May 2020 Private Placement and the February 2021 Private Placement, respectively,we do not have any other outstanding warrants. See “Private Placement Transactions” below for additional informationregarding the May 2020 Warrant and the February 2021 Warrant.

Options

We currently do not have any options outstanding.

May 2020 Private Placement Transaction

In May 2020, we completed the Private Placementof the May 2020 Debentures and the May 2020 Warrant. We sold and issued the First May 2020 Debenture and granted the May 2020 Warrantpromptly after entering into the SPA. We sold and issued the Second May 2020 Debenture promptly after filing this RegistrationStatement initially. We sold and issued the Third May 2020 Debenture promptly after filing the Annual Report for the period endingDecember 31, 2020. The May 2020 Debentures mature 12 months from their respective issuance dates and are secured by all of ourassets and the assets of each of our subsidiaries. The May 2020 Debentures accrue interest at an annual rate equal to 8% and aredue and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the May 2020 Debentures or otherwiseaccelerates the maturity date, as provided for in the May 2020 Debentures). Interest is payable either in cash or, if certain EquityConditions are then satisfied, in shares of our Common Stock at the Market Conversion Price on the trading day immediately priorto the date paid.

Initially, the May 2020 Debentures are convertibleat the lower of the (i) Fixed Conversion Price or (ii) Market Conversion Price. The May 2020 Debentures are subject to a “conversionblocker” such that the Selling Stockholder cannot convert any portion of the May 2020 Debentures that would result in theSelling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of our Common Stock followingsuch conversion (excluding, for purposes of such determination, shares of our Common Stock issuable upon conversion of the May2020 Debentures or exercise of the May 2020 Warrant that had not then been converted or exercised, respectively). The Selling Stockholdercan increase that 4.99% “conversion blocker” to 9.99% upon at least 65 days’ prior written notice to us.

At our option, we have the right to redeem,in part or in whole, the outstanding principal and interest under the May 2020 Debentures prior to their respective maturity dates;provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the lowest daily volume weighted average price(“VWAP”) of our Common Stock is less than the Fixed Conversion Price and (ii) there is no Equity Conditions failure.We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as theRedemption Premium. We must provide the holder 15 business days’ advance notice of our intent to make a redemption, setting forththe amount of principal and interest we desire then to redeem plus the applicable Redemption Premium.

The May 2020 Debentures contain an adjustmentprovision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or commonstock equivalents at a price lower than the then-current Fixed Conversion Price of the May 2020 Debentures. For example, if weissued 10,000,000 shares of our Common Stock at a price of $0.025 per share, and we had 840,163,265 shares of our Common Stockissued and outstanding prior to the issuance, then, in accordance with the terms of the May 2020 Debentures, the new Fixed ConversionPrice would be [$0.0___]. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stockdividends, and similar events will also result in an adjustment of the conversion price of the May 2020 Debentures.

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

The May 2020 Warrant contains an adjustmentprovision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stock or common stockequivalents at a price lower than the then-current exercise price of the May 2020 Warrant. For example, if we issued shares ofour Common Stock at $0.025 per share, then the exercise price of the May 2020 Warrant would be adjusted to $0.025 per share. Anystock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar eventswill also result in an adjustment of the exercise price of the May 2020 Warrant.

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

Pursuant to the terms of the May 2020 RegistrationRights Agreement, we filed a registration statement with the SEC registering for resale the May 2020 Conversion Shares and theMay 2020 Warrant Shares. All of the May 2020 Conversion Shares were sold pursuant to that Registration Statement. We also agreed,among other things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred byus in connection with the registration of the Securities held by the Selling Stockholder.

February 2021 Private Placement Transaction

On February 18, 2021, we completed the February2021 Private Placement of the February 2021 Debentures and the February 2021 Warrant. We sold and issued the First February 2021Debenture and granted the February 2021 Warrant promptly after entering into the February 2021 SPA. We sold and issued a “partial”Second February 2021 Debenture on May 6, 2021 in the original principal amount of $200,000. We will issue and sell the balanceof the Second February 2021 Debenture in the original principal amount of $400,000 when this Registration Statement, which we areobligated to file, has been declared effective by the SEC. The February 2021 Debentures mature 12 months from their respectiveissuance dates and are secured by all of our assets and the assets of each of our subsidiaries. The February 2021 Debentures accrueinterest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the Selling Stockholderconverts the February 2021 Debentures or otherwise accelerates the maturity date, as provided for in the February 2021 Debentures).Interest is payable either in cash or, if certain Equity Conditions are then satisfied, in shares of our Common Stock at the MarketConversion Price on the trading day immediately prior to the date paid.

Initially, the February 2021 Debentures areconvertible at the lower of the (i) February 2021 Fixed Conversion Price of $0.03 per share or (ii) the February 2021 Market ConversionPrice. The February 2021 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convertany portion of the February 2021 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99%of the then-issued and outstanding shares of our Common Stock following such conversion (excluding, for purposes of such determination,shares of our Common Stock issuable upon conversion of the February 2021 Debentures or exercise of the February 2021 Warrant thathad not then been converted or exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker”to 9.99% upon at least 65 days’ prior written notice to us.

At our option, we have the right to redeem,in part or in whole, the outstanding principal and interest under the February 2021 Debentures prior to their respective maturitydates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP of our Common Stockis less than the Fixed Conversion Price and (ii) there is no Equity Conditions failure. We must pay an amount equal to the principalamount being redeemed plus outstanding and accrued interest thereon, as well as the 115% Redemption Premium. We must provide theholder 15 business days’ advance notice of our intent to make a redemption, setting forth the amount of principal and interestwe desire then to redeem plus the applicable Redemption Premium.

The February 2021 Debentures contain an adjustmentprovision that, subject to certain exceptions, reduces the Fixed Conversion Price if we issue shares of our Common Stock or commonstock equivalents at a price lower than the then-current Fixed Conversion Price of the February 2021 Debentures. For example, ifwe issued 10,000,000 shares of our Common Stock at a price of $0.025 per share, and we had 840,163,265 shares of our Common Stockissued and outstanding prior to the issuance, then, in accordance with the terms of the February 2021 Debentures, the new FixedConversion Price would be [$0.0___]. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and assetsales, stock dividends, and similar events will also result in an adjustment of the conversion price of the February 2021 Debentures.

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

The February 2021 Warrant contains an adjustmentprovision that, subject to certain exceptions, reduces the exercise price if we issue shares of our Common Stock or common stockequivalents at a price lower than the then-current exercise price of the February 2021 Warrant. For example, if we issued sharesof our Common Stock at $0.025 per share, then the exercise price of the February 2021 Warrant would be adjusted to $0.025 per share.Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similarevents will also result in an adjustment of the exercise price of the February 2021 Warrant.

The February 2021 Warrant is subject to an“exercise blocker,” such that the Selling Stockholder cannot exercise any portion of the February 2021 Warrant that wouldresult in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued and outstanding shares of our CommonStock following such exercise (excluding, for purposes of such determination, shares of our Common Stock issuable upon exerciseof the February 2021 Warrant or conversion of the February 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 noticeto us.

Pursuant to the terms of the February 2021Registration Rights Agreement, we agreed to file this registration statement with the SEC registering for resale the shares ofour Common Stock underlying the February 2021 Debentures and the February 2021 Warrant within 45 calendar days following the closingof the Private Placement. We have received a waiver of that time limit from the Selling Stockholder. We also agreed, among otherthings, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by us in connectionwith the registration of the Securities held by the Selling Stockholder.

Penny Stock Considerations

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

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

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

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

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

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

Undesignated Preferred Stock

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

Stockholder Meetings

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

Requirements for Advance Notificationof Stockholder Nominations and Proposals

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

Removal of Directors

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

Stockholders Not Entitled to CumulativeVoting

Our A&R Certificate of Incorporation doesnot permit stockholders to cumulate their votes in the election of directors.

Delaware Anti-Takeover Statute

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

Choice of Forum

Our A&R Bylaws provide that, unless weconsent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will, to the fullestextent permitted by applicable law, be the sole and exclusive forum for: (i) any derivative action or proceeding brought on ourbehalf, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors or officers (or affiliateof any of the foregoing) to us or to our stockholders, (iii) any action asserting a claim arising pursuant to any provision ofthe DGCL or of our A&R Certificate of Incorporation or our A&R Bylaws, or (iv) any other action asserting a claim arisingunder, in connection with, and governed by the internal affairs doctrine; provided, that the exclusive forum provisions willnot apply to suits brought to enforce any liability or duty created by the Securities Act or the Exchange Act, or to any claimfor which the federal courts have exclusive jurisdiction. Any person or entity purchasing or otherwise acquiring any interestin shares of our capital stock will be deemed to have notice of, and consented to, the provisions of our A&R Bylaws describedin the preceding sentence.

Amendment of the Provisions of our A&RBylaws

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

Amendment of Charter Provisions

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

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

Conflicts of Interest

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

Limitation of Liability and IndemnificationMatters

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

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

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

Transfer Agent

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

MARKET PRICE AND DIVIDEND INFORMATION

Market Information

As of May 26, 2021, our Common Stock is quoted on the OTCQB under the symbol“KGKG.”

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

The closing price of our Common Stock as reported on May 26, 2021, was$0.0265 per share.

Holders

On May 26, 2021, there were approximately 95 holdersof record of our Common Stock. This does not include an indeterminate number of persons who hold our Common Stock in brokerage accountsand otherwise in “street name.” As of such date, 840,163,265 shares of our Common Stock were issued and outstanding.

Dividends

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

Rule 144 - Generally

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

A person who may be deemed an “affiliate”of us or who was our affiliate at any time during the preceding three months, and who has beneficially owned restricted securities forat least six months, including the affiliates, is entitled to sell within any three-month period, a number of shares that does not exceedthe greater of: (1) 1% of the then-outstanding shares of our Common Stock, which equals approximately 840,163,265 shares based on thenumber of shares of our Common Stock outstanding as of May 26, 2021, or (2) if and when our Common Stock is listed on a national securitiesexchange, the average weekly trading volume of our Common Stock during the four calendar weeks preceding the date on which notice of suchsale was filed under Rule 144.

Sales of shares held by our affiliates thatare not “restricted” are subject to such volume limitations, but are not subject to the holding period requirement. Salesunder Rule 144 by our affiliates are also subject to certain requirements as to the manner of sale, notice, and availability ofcurrent public information about us. A person who is not deemed to have been our affiliate of our Company at any time during the90 days preceding a sale by such person, and who has beneficially owned the restricted shares for at least one year, is entitledto sell such shares under Rule 144 without regard to any of the restrictions described above. We cannot estimate the number ofshares of our Common Stock that our existing stockholders will elect to sell under Rule 144.

Rule 144 – Restrictions on the Useof Rule 144 by Shell Companies or Former Shell Companies

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

DESCRIPTION OF THE BUSINESS

Company Overview

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

We currently sell Kona, HighDrate, and S andS products through resellers, our websites, and distributors that span across 27 states. Our products are available in a wide varietyof stores, including convenience and grocery stores, smoke shops, and gift shops. Gold Leaf also distributes our own products,as well as products purchased for resale from several other beverage manufacturers. These premium beverages and snacks are availablein more than 600 grocery stores, convenience stores, smoke shops, vape shops, and specialty stores.

Reportable Segments

We have two reportable segments:

Product Lines

Within our beverages segment, we market fivedistinct product types: hemp-infused energy drinks, CBD-infused energy water, CBD-infused high-alkaline water, low carb and lowcalorie lemonade, and apparel with our trademark logo.

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

HighDrate’s CBD-infused energy water is greattasting, sugar-free, and powered by Alkame’s patented technology, which uses its advanced water treatment to create a premium oxygenatedalkaline water with natural antioxidants. Alkame believes based on a double-blind placebo, peer-backed research project that itconducted, its technology can boost the immune system and physical performance. HighDrate’s CBD-infused energy water contains 80mg of caffeine and 10 mg of CBD. We believe that CBD aids the body’s endocannabinoid system in neuroprotection, stress recovery,immune balance, and homeostatic regulation. HighDrate’s CBD-infused energy water is available in six flavors: watermelon, kiwistrawberry, tropical coconut, Georgia peach, sour apple, and blue island punch.

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

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

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

Distributors and Resellers

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

We also distribute premium beverages and snacksin key markets through our wholly-owned subsidiary, Gold Leaf. Gold Leaf distributes our products as well as products purchasedfor resale from several other beverage manufacturers. The distributed products include alkaline waters, beverages for kids, energydrinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, and CBD-infused jellybeans, all of which complementour current product offerings.

Industry Overview

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

Energy Drinks

The energy drink industry continues grow everyyear with an estimated $12 billion in sales in the United States in 2020, and sales are expected to reach $53 billion globally.The energy drink by the name “Red Bull” dominated the industry in 2020, comprising approximately 25% of the energy drinkmarket. In 2020, an energy drink by the name of “Monster,” market share was approximately 15%.

The introduction of “Red Bull” in1997, and the many other energy drinks that followed in its footsteps, has helped turn the energy drink industry into significantchoice of consumers in the overall beverage industry. The rise of “Red Bull” and “Monster,” which accountedfor 40 percent of the energy drink sales in the United States in 2020, has resulted in the energy drink industry rivaling the coffeeindustry. Energy drinks have an average of 200 mg of caffeine, which is equivalent to about two cups of coffee. The liquid anddry coffee industry accounted for approximately $102.5 billion in sales in 2019, which grew from $4.1 billion dollars in 2003.Starbucks Corporation was the sales leader of the coffee industry with approximately 40% of the market share in 2018, followedby Dunkin’ Brands Inc. with 40% of the market share in 2019.

Hemp or CBD Drinks

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

Health and Fitness

The health and fitness industry, which includesfood and beverages, saw consumer awareness drive trends towards health and wellness, plant-based, and clean-label products in 2019and 2020. We believe that conscious consumerism will continue to drive these trends in 2021. We believe that consumers are makingfood and beverage choices based on their personal definition of health. Further, we believe that consumers are looking for healthyalternatives to obtain relief from pain and anxiety, and that CBD has become a viable option because it balances the mind and body.Women have traditionally been early adapters of health and wellness trends and CBD-infused products, food, and beverages have beenrecognized by women to have a connection between happiness and health.

Apparel

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

Competition

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

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

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

Co-Packing

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

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

Raw Materials and Suppliers

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

Quality Control

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

Distribution

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

Business Strategy

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

Marketing Strategy

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

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

Promotion Strategy

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

Pricing Strategy

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

Sales Strategy

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

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

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

Intellectual Property

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

Government Regulation and Compliance

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

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

Regulation of Hemp and CBD

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

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

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

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

FDA Regulation of Foods

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

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

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

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

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

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

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

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

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

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

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

Environmental Compliance

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

Insurance

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

Employees

We believe the people who work for us are criticalto our continued success. As of May 26, 2021, we employed a total of 11 persons, all of whom were employed on a full-time basis. We striveto attract and retain qualified personnel; however, due to the size and scope of our business, we do not have any formal human capitalstrategies.

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

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS

KONA GOLD BEVERAGE, INC.

The following discussion and analysis of the resultsof operations and financial condition for the years ended December 31, 2020 and 2019 should be read in conjunction with the financialstatements and related notes and the other financial information that are included elsewhere herein. This discussion includes forward-lookingstatements 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, financialresults, or other developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subjectto 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 andcould cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. Wedisclaim any obligation to update forward-looking statements. Actual results and the timing of events could differ materially from thoseanticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,”“Cautionary Note Regarding Forward-Looking Statements,” and “Description of Business” sections herein. We usewords 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 oralstatements that are “forward-looking,” including statements contained herein and other filings with the SEC, reports to ourstockholders, 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 suchas “expect,” “anticipate,” “intend,” “plan,” “believe,” “seek,”“estimate,” “project,” “forecast,” “may,” “should,” variations of such wordsand similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performanceand involve risks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materiallyfrom what is expressed or forecasted in or suggested by such forward-looking statements.

We undertake no obligation to update or revise anyof the forward-looking statements after the date of this Registration Statement to confirm forward-looking statements to actual results.Important factors on which such statements are based are assumptions concerning uncertainties, including, but not limited to, uncertaintiesassociated with the following:

The following discussion should be read in conjunctionwith the financial statements and the notes thereto which are included herein. This discussion contains forward-looking statements thatinvolve risks, uncertainties, and assumptions. Our actual results may differ substantially from those anticipated in any forward-lookingstatements included in this discussion as a result of various factors.

Results of Operations

Overview

Our business has grown rapidly sinceinception, and we anticipate that our business will continue to grow; however, in the year ended December 31, 2020, the Companysaw unforeseen delays in signing more favorable agreements with larger, reputable tier 1 and mid-size distributors and grocerychains and we were additionally impacted by the COVID-19 pandemic during the fiscal year. The COVID-19 pandemic delayed our launchof a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. Our BeveragesSegment has three main revenue streams: product sales from online consumers, product sales through resellers, and product salesfrom distributors. Product sales include sales of our energy drinks, HighDrate CBD-infused energy waters, and apparel such as t-shirtsand hats. In early 2019, we expanded our operations with the creation of a distribution center, which now functions as our DistributionSegment. Our Distribution Segment has one main revenue stream: product sales to convenience stores, grocery stores, or smoke andgift shops, which complement our current product offering. Product sales include sales of our beverages, as well as beverages andsnacks purchased for resale from several other beverage producers.

We have experienced and expect to continueto experience substantial growth in our operations as we seek to expand through additional products and acquisitions that complementour current product offerings. We expect that revenue will increase in fiscal year 2021 compared to fiscal year 2020, as distributionby our current distributors, who were, and whose clients were, affected by COVID-19 has resumed and we expect to see fewer COVID-19pandemic-related distribution impacts for the balance of fiscal year 2021. Based on those expectations, we now anticipate signingmore favorable agreements with larger, reputable tier 1 and mid-size distributors that we had anticipated in our Beverage Segmentfor fiscal 2020. The following is a more detailed discussion of our financial condition and results of operations for the periodpresented.

Year ended December 31, 2020 comparedto Year ended December 31, 2019

Overview

As reflected in the accompanying financialstatements, during the year ended December 31, 2020, we incurred a net loss of approximately $3.1 million and used cash in operationsof approximately $1.4 million, compared to a net loss of approximately $1.8 million and use of cash in operations of approximately$1.2 million for the year ended December 31, 2019. As of December 31, 2020, we had a stockholders’ deficit of approximately $4.2million.

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

Revenue

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

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

During the year ended December 31, 2020,we reported net revenues of approximately $910,200, which is a decrease of approximately $721,500, or approximately 44%, comparedto net revenues of approximately $1.6 million for the year ended December 31, 2019. A decrease of approximately $917,200 was attributedto our Beverages Segment, while our Distribution Segment reported an increase in net revenue of approximately $249,300. We attributea portion of the decrease in sales to the discontinuation of smaller distributor agreements in an effort to sign more favorableagreements with larger, reputable tier 1 and mid-size distributors and grocery chains. These contracts saw unforeseen delays andwere additionally impacted by the COVID-19 pandemic during the fiscal year. The COVID-19 pandemic delayed the Company’s launchof a variety of new products during most of the 2020 fiscal year – drinks and non-drink line broadening items. We expectthat revenue will increase in fiscal year 2021 compared to fiscal year 2020, as distribution by our current distributors, who were,and whose clients were, affected by COVID-19 has resumed and we expect to see fewer COVID-19 pandemic-related distribution impactsfor the balance of fiscal year 2021. Based on those expectations, we now anticipate signing more favorable agreements with larger,reputable tier 1 and mid-size distributors that we had anticipated in our Beverage Segment for fiscal 2020.

Cost of Revenues

Cost of revenues consists primarilyof expenses associated with products sold to distributors and resellers, including product and shipping costs. Costs also includecredit card fees, fees incurred for sales that occur on Amazon.com, and other transaction fees related to the processing of consumertransactions. 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 fromour co-packers.

During the year ended December 31, 2020,we reported cost of revenues of approximately $654,200, which is a decrease of approximately $659,900, or approximately 50%, comparedto approximately $1.3 million for the year ended December 31, 2019. This decrease is attributed to a reduction in sales primarilyin our Beverages Segment in 2020, compared to the prior year period. In addition, the cost of products decreased slightly becausewe increased our purchase quantities based on our sales expectations from the prior fiscal year. Our increased sales expectationswere before the unforeseen impacts from COVID-19. As a result, as of December 31, 2020, we had significant inventory on-hand.

Selling, General and AdministrativeExpenses

SG&A expenses consist primarilyof professional fees, salaries and wages, advertising, rent, travel expenses, sponsorships, and general office and administrativeexpenses related to maintaining our facilities.

SG&A expenses were approximately$2.6 million for the year ended December 31, 2020, compared to approximately $3.6 million in the year ended December 31, 2019,a decrease of $1 million, or approximately 27%. The decrease in SG&A expenses was primarily due to a decrease in bad debt expenseof 99% attributed to our Beverages Segment; a decrease in professional fees of 87% attributed to our corporate-related activities;a decrease in advertising and promotion of 71% attributed to our Beverage Segment; a 56% decrease in sponsorship fees attributedto our Beverages Segment; and a 58% decrease in travel expenses attributed to our Beverages Segment. This decrease was offset bya significant increase in salaries and wages of 97% attributed to both our Beverages Segment and our Distribution Segment; a significantincrease in legal and accounting fees of 2,476% attributed to our corporate-related expenses; an increase in vehicle expense of410% attributed to our Distribution Segment; an increase of 100% in rent expense attributed to both our Beverages Segment and ourDistribution Segment; and a 127% increase in fees to the OTCM attributed to corporate-related expenses.

Bad debt expense was approximately $41,700in the year ended December 31, 2020, compared to approximately $1.5 million for the year ended December 31, 2019, a decrease ofapproximately $1.47 million, which was attributed to our Beverages Segment. This decrease was the result of an allowance for doubtfulaccount that was allocated to a $1.5 million note receivable. Professional fees were approximately $105,600 in the year ended December31, 2020, compared to approximately $811,500 for the year ended December 31, 2019, a decrease of approximately $705,900, whichwas attributed to our corporate-related activities. This decrease was the result of payments made in the prior year to a memberof our Board pursuant to his agreement. Advertising and promotional fees were approximately $36,900 in the year ended December31, 2020, compared to approximately $125,300 for the year ended December 31, 2019, a decrease of approximately $88,300, which wasattributed to our Beverages Segment. This decrease was the result of decreased sales during the COVID-19 pandemic. Travel expenseswere approximately $26,200 in the year ended December 31, 2020, compared to approximately $61,900 for the year ended December 31,2019, a decrease of approximately $35,700, which was attributed to our Beverages Segment. This decrease was the result of a reductionin travel due to restrictions from the COVID-19 pandemic. Salaries and wages were approximately $1.4 million in the year endedDecember 31, 2020, compared to approximately $688,500 for the year ended December 31, 2019, an increase of approximately $669,800,of which approximately $616,000 was attributed to our Beverage Segment and an increase of approximately $53,700 was attributedto our Distribution Segment. This increase was the result of hiring additional personnel, who are essential and integral to oursuccess. Legal and accounting fees were approximately $558,800 in the year ended December 31, 2020, compared to approximately $21,700for the year ended December 31, 2019, an increase of approximately $537,100, which was attributed to our Common Stock becomingquoted on the OTCQB, rather than as historically quoted on the OTC Pink, and the filing of our Registration Statement with theSEC. Vehicle expenses were approximately $62,500 in the year ended December 31, 2020, compared to approximately $12,300 for theyear ended December 31, 2019, an increase of approximately $50,200, which was attributed to our Distribution Segment, as the resultof maintenance and fuel that were integral to our Distribution Segment as sales increased over the prior year. Rent expenses wereapproximately $199,300 for the year ended December 31, 2020, compared to approximately $101,600 for the year ended December 31,2019, an increase of approximately $97,700. This increase was attributed to both our Beverages Segment and our Distribution Segmentand the result of our moving to a larger warehouse facility that was necessary due to our anticipated growth. OTCM fees attributedto corporate-related expenses were approximately $63,800 for the year ended December 31, 2020, compared to approximately $28,100for the year ended December 31, 2019, an increase of approximately $35,700. This increase was the result of fees paid to the OTCMfor our Common Stock becoming quoted on the OTCQB, rather than as historically quoted on the OTC Pink.

We expect that as we expand our businessoperations and incur additional corporate-related expenses associated with our Common Stock being quoted on the OTCM and our becominga fully registered issuer with the SEC under the Securities Exchange Act of 1934, SG&A expenses will increase for both ourBeverages Segment and Distribution Segment.

Net Loss

We incurred a net loss of approximately$3.1 million for the year ended December 31, 2020, an increase of approximately $1.3 million compared to the previous year endingDecember 31, 2019, in which we incurred a net loss of approximately $1.8 million. This net loss is primarily due to the SG&Aexpenses related to our Beverages Segment and corporate-related expenses that are necessary for our growth, and other corporate-relatedexpenses, which include interest expense related to the 2020 Warrant that we issued in May 2020 in connection with three Debenturesand non-cash expense on our derivative liability. The fair value of the Debentures will be re-measured each reporting period untilthe Debentures are either converted or expire. In each reporting period during the term of the Debentures, the change in the fairvalue will either be recognized as a non-cash expense or non-cash income. The change in the fair value of the Debentures is notimpacted by our actual operations but instead is strongly tied to the change in the market value of our Common Stock.

Segments – Twelve MonthsEnded December 31, 2020 and 2019

For the years ended December 31, 2020and 2019, we had two reportable segments: (i) Beverages Segment and (ii) Distribution Segment. Amounts that are not allocated toeither of these reportable segments is reported in “Corporate and Eliminations.” We evaluate performance and allocateresources based on net revenue, cost of revenues, and gross profit. Information regarding the operations of these reportable segmentsis as follows:

Liquidity and Capital Resources

Going Concern

We have incurred operating losses sinceinception and have negative cash flow from operations since inception. As of December 31, 2020, we had a stockholders’ deficitof approximately $4.2 million and we incurred a net loss of approximately $3.1 million during the year ended December 31, 2020.We also utilized cash in operations of approximately $1.4 million during the year ended December 31, 2020. As a result, our continuationas a going concern is dependent on our ability to obtain additional financing until we can generate sufficient cash flow from operationsto meet our obligations. We intend to continue to seek additional debt or equity financing to continue our operations.

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

There is no assurance that we will everbe profitable or that debt or equity financing will be available to us in the amounts, on terms, and at times deemed acceptableto us, if at all. The issuance of additional equity securities by us would result in a significant dilution in the equity interestsof our current stockholders. Obtaining commercial loans, assuming those loans would be available, would increase our liabilitiesand future cash commitments. If we are unable to obtain financing in the amounts and on terms deemed acceptable to us, we may beunable 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 statementsdo not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or theamounts and classifications of liabilities that may result should we be unable to continue as a going concern.

Lines of Credit

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

Notes Payable – Related Party

We had the following outstanding notespayable from a related party during the nine months ended September 30, 2020:

Note Receivable – Branded Legacy

On May 26, 2016, Robert Clark formedElev8 Hemp, LLC, a Delaware limited liability company (“Elev8 Hemp”), on behalf of Ryan Medico, our then-Chief FinancialOfficer. Mr. Medico was the sole owner of and served as President of Elev8 Hemp.

In June 2016, we entered into a letterof 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”), wherebywe agreed to acquire 100% of the ownership of Elev8 Hemp and, in exchange, we agreed to issue to Mr. Medico five million restrictedshares of our Common Stock, which had a fair market value of $50,000. The Elev8 Hemp Acquisition Agreement provided that, if wefailed to adequately capitalize the development of Elev8 Hemp to complete its objectives set forth in its business plan, Mr. Medicowould have the option until March 31, 2018 to repurchase Elev8 Hemp from us for a purchase price of $50,000, which could be paidin shares of our Common Stock.

On October 10, 2016, we entered intoa Membership Interest Purchase Agreement (the “Membership Interest Purchase Agreement”) with Branded Legacy, to sell100% of the issued and outstanding membership interests of Elev8 Hemp to Branded Legacy in consideration of Branded Legacy’s issuanceto us of 200,000,000 shares of its common stock, par value $0.00001. In connection with this transaction, Mr. Medico became theChief Executive Officer and sole director of Branded Legacy. The parties desired to enter into the Membership Interest PurchaseAgreement because we did not have adequate capital to fund the development of Elev8 Hemp’s business, as well as our own. UntilJuly 2018, Mr. Medico also continued to serve as our Chief Financial Officer.

On April 14, 2017, our Board declareda dividend to our stockholders of an aggregate of 53,196,608 shares of common stock of Branded Legacy. Our stockholders receivedone 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 146,803,392shares of common stock of Branded Legacy.

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

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

In more recent discussions with our independent registeredpublic accounting firm, we determined that the Branded Legacy Note should be classified as a note receivable on our balance sheets asof December 31, 2020 and 2019, with a full reservation due to current doubts about collectability due to the dollar amount and durationof the term of the Branded Legacy Note, rather than disclosing the note receivable as an “investment” but not recording iton the balance sheets. Because of this re-classification, the Branded Legacy Note is no longer an off-balance sheet arrangement.

Paycheck Protection Promissory Noteand Economic Injury Disaster Loan

On May 4, 2020, we entered into a PaycheckProtection Promissory Note in the original principal amount of $95,161 (the “PPP Loan”) with Wells Fargo Bank, N.A. ThePPP 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 administeredby the U.S. Small Business Administration. The PPP provides for loans to qualifying businesses for amounts up to 2.5 times of theaverage monthly payroll expenses of the qualifying business. The current term of the PPP Loan is two years, with a maturity dateof May 6, 2022 and it contains a favorable fixed annual interest rate of 1.00%. Payments of principal and interest on the PPP Loanare deferred for the first six months of the term of the PPP Loan, or November 2020. Thereafter, principal and interest are payablemonthly and may be prepaid by us at any time prior to maturity with no prepayment penalties.

Under the terms of the CARES Act, recipientscan 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”), andon the maintenance of employee and compensation levels during a certain time period following the funding of the PPP Loan. Theamount of loan forgiveness will be reduced if the borrower terminates employees or reduces salaries during the eight-week period.We have used the proceeds of the PPP Loan for salaries and wages, building lease expense, and utilities. However, no assuranceis provided that we will be able to obtain forgiveness of the PPP Loan in whole or in part.

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

2020 Securities Purchase Agreement

In May 2020, the Company completed the2020 Private Placement of the 2020 Debentures and the 2020 Warrant pursuant to the 2020 SPA. The Company sold and issued the First2020 Debenture and granted the 2020 Warrant promptly after entering in the 2020 SPA. The Company sold and issued the Second 2020Debenture promptly after filing the 2020 Registration Statement initially with the SEC. The Company sold and issued the Third 2020Debenture promptly after the SEC declared the Registration Statement effective. The 2020 Debentures are due 12 months from theirrespective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant tothat certain Security Agreement by and among the Selling Stockholder, the Company’s subsidiaries, and the Company. Initially, the2020 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 “2020Market Conversion Price”). The 2020 Debentures contain an adjustment provision that, subject to certain exceptions, reducesthe conversion price if the Company issues shares of its Common Stock or common stock equivalents at a price lower than the then-currentconversion price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and assetsales, stock dividends, and similar events will also result in an adjustment of the conversion price of the 2020 Debentures. The2020 Debentures are subject to a “conversion blocker” such that the Selling Stockholder cannot convert any portion ofthe 2020 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issuedand outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares ofthe Common Stock issuable upon conversion of the 2020 Debentures or exercise of the 2020 Warrant that had not then been convertedor exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon at least65 days’ prior written notice to the Company. The 2020 Debentures accrue interest at an annual rate equal to 8% and are due andpayable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2020 Debentures or otherwise acceleratesthe 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 thetrading day immediately prior to the date paid.

At the Company’s option, it has theright to redeem, in part or in whole, the outstanding principal and interest under the 2020 Debentures prior to their respectivematurity dates; provided, that, as of the date of the holder’s receipt of the redemption notice, (i) the VWAP ofthe Common Stock is less than the 2020 Fixed Conversion Price, initially $0.05 per share, and (ii) there is no Equity Conditionsfailure. 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 amountof principal and interest we desire then to redeem plus the applicable Redemption Premium.

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

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

Pursuant to the 2020 SPA, the purchaseprice for the First 2020 Debenture was $250,000, less $15,000 for origination fees, which consisted of the “original issuediscount” of $10,000 and $5,000 as a structuring fee. On December 23, 2020, the Company converted $100,000 of the principalof, and $12,274 of accrued interest on, the First 2020 Debenture into 8,255,438 shares of the Company’s common stock, see Note11, equity transactions. At December 31, 2020, the principal balance of the First 2020 Debenture is $150,000.

Pursuant to the 2020 SPA, the purchaseprice for the Second 2020 Debenture was $250,000, less $10,000 for origination fees, which consisted of the “original issuediscount” of $10,000 fee. At December 31, 2020, the principal balance of the Second 2020 Debenture is $250,000.

Pursuant to the 2020 SPA, the purchaseprice for the Third 2020 Debenture was $500,000, less $20,000 for origination fees, which consisted of the “original issuediscount” of $20,000 fee. At December 31, 2020, the principal balance of the Third 2020 Debenture is $500,000.

Derivative Liability

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

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

The following table summarizes the changesin the Company’s assets and liabilities measured at fair value as of December 31, 2020:

The following table sets forth a summaryof change in fair value of the Company’s derivative liabilities for the year ended December 31, 2020:

Warrant

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

The2020 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issuesshares of our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the 2020 Warrant.Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similarevents will also result in an adjustment of the exercise price of the 2020 Warrant.

The2020 Warrant is subject to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion ofthe 2020 Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued andoutstanding shares of the Common Stock following such exercise (excluding, for purposes of such determination, shares of the CommonStock issuable upon exercise of the 2020 Warrant or conversion of the 2020 Debentures that had not then been exercised or converted,respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least 65 days’prior written notice to the Company.

Duringthe year ended December 31, 2020, the Company granted the 2020 Warrant that was immediately exercisable for up to 20,000,000 sharesof Common Stock. The 2020 Warrant was fully expensed as an interest expense related to the 2020 Warrant issued in connection withthe consummation of the transactions contemplated by the 2020 SPA, and no liability was recorded as of December 31, 2020.

CashFlows

Insummary, our use of cash has been as follows:

OperatingActivities

Cashprovided by or used in operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation,amortization, stock-based compensation, interest expense related to the Warrant issued in the Private Placement, and the effectof changes in working capital and other activities. Cash used in operating activities for the year ended December 31, 2020 wasapproximately $1.4 million and consisted of a net loss of approximately $3.1 million, adjustments for non-cash items, includingadjustments related to the issuance of shares of our Common Stock for a sponsorship as well as compensation, interest expenserelated to the Warrant, and depreciation of approximately $800,400, and approximately $955,100 provided by working capital andother activities.

InvestingActivities

Cashused in investing activities for year ended December 31, 2020 was approximately $51,400 and was attributable to capital expenditures.

FinancingActivities

Cashprovided by financing activities for year ended December 31, 2020 was approximately $1.4 million and was due to proceeds fromlines of credit of approximately $403,000, proceeds from convertible debt of approximately $1.0 million, proceeds from the PPPLoan of approximately $95,000, and $12,000 was used to pay principal on a note payable.

Non-CashInvesting and Financing Activities

Forthe year ended December 31, 2020, there were no non-cash investing and financing activities.

Off-BalanceSheet Arrangements

At December 31, 2020, we had no off-balance sheetarrangements, commitments, or guarantees that require additional disclosure or measurement.

CriticalAccounting Policies

Ourdiscussion 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 preparationof 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 onan ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangibleassets, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions thatare believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions.

Theaccounting policies that we follow are set forth in Note 2, Summary of Significant Accounting Policies, of our consolidatedfinancial statements for the year ended December 31, 2020. These accounting policies conform to accounting principles generallyaccepted in the United States, and have been consistently applied in the preparation of the consolidated financial statements.

Leases

OnJanuary 1, 2019, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update2016-02, Leases (Topic 842) (“ASC Topic 842”), which requires an entity to recognize a liability and correspondingasset 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 forfiscal years beginning after December 15, 2018. We elected the package of practical expedients permitted under the transitionguidance, which allowed us to carryforward historical lease classification, and not reassess (i) whether a contract was or containeda lease, and (ii) initial direct costs for any leases that existed prior to January 1, 2019. Under this method, we did not restatecomparative periods in our financial statements. We present right-of-use assets resulting from leases separately from other assetsas noncurrent, and amortized accordingly. The corresponding lease liabilities are presented separately from other liabilitieson the accompanying balance sheets.

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

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

Pleaserefer to Note 15, Lease Liabilities, to our consolidated financial statements for the year ended December 31, 2020 foradditional information related to our right-of-use assets and lease liabilities.

RevenueRecognition and Deferred Revenue

Wesell our products, which includes our hemp energy drink, CBD energy water, CBD water, and logo apparel, to online customers orthrough resellers and distributors. In evaluating the timing of the transfer of control of products to customers, we considerseveral 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 servicesby 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 transactionsrelated to shipping and handling, represent revenues earned for the goods provided and are included in net sales. Costs of shippingand handling are included in cost of products sold.

Wealso sell our products, and beverages purchased for resale from several other beverage manufacturers, to convenience stores, grocerystores, and smoke and gift shops. In evaluating the timing of the transfer of control of products to customers, we consider severalindicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. Werecognize 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 byus prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rightsof return. Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for thegoods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.

OnJanuary 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 atthe amount expected to be collected. The implementation of Topic ASC 606 had no impact on the prior period financial statementsand no cumulative effect adjustment was recognized.

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

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

Weevaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenues thatwould be meaningful. The majority of our revenue earned from our Beverages Segment and our Distribution Segment is recognizedwhen we satisfy a single performance obligation by transferring control of our products to a customer. We do not have significantfinancing components or payment terms, and we do not have any material unsatisfied performance obligations. Our revenues are obtainedin similar geographical locations within the United States. Furthermore, the operations in each of our reporting segments areexpected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of our products andcustomers are essentially the same. The sales from our beverage product types are organized as one reportable segment, which werefer to as the Beverages Segment, and the sales of our products and products that are purchased from resellers that are distributedby Gold Leaf is organized as our second reportable segment, which we refer to as the Distribution Segment. We have also determinedthat 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, onlinesales, sales through Amazon, and Gold Leaf distribution sales. This is the same information used by our Chief Operating DecisionMaker for evaluating the financial performance of our operations and making resource decisions. We also sell merchandise and apparelthat comprises approximately 1% of our gross annual sales, and solely exists to promote our beverages. Therefore, our merchandiseand apparel products are not a reportable segment. Merchandise and apparel sales are included with the gross sales for our BeveragesSegment.

AccountsReceivable and Allowance for Doubtful Account Receivable

Accountsreceivable are recorded at net realizable value. We determine provisions for uncollectible accounts, sales returns, and claimsbased upon factors including the credit risk and activity of specific distributors and resellers, historical trends, and otherinformation. 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

Thecost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. Our inventoriesare 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, cans for production, and merchandise and apparel.We periodically evaluate and adjust inventories for obsolescence. In the opinion of management, no provision for obsolescenceis deemed necessary. The shelf life of all beverage inventory is two years, and as of December 31, 2020, we had approximately$660,500 of product in inventory, which was a decrease of approximately $26,400, compared to approximately $686,900 at December31, 2019. We expect the balance of inventory to increase in direct relation to the increase in sales that we expect. See Note2, Summary of Significant Accounting Policies, Subsection F, Inventories, of our consolidated financial statementsfor the year ended December 31, 2020, for an additional description of our inventory that had a material effect on our consolidatedfinancial statements.

Goodwilland Intangible Assets

Goodwillarises 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 liabilitiesassumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefiniteuseful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances existsthat indicate that a goodwill impairment test should be performed. We have selected December 31 as the date to perform the annualimpairment test.

Intangibleassets 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 accumulatedamortization. We have selected December 31 as the date to perform the annual impairment test. See Note 2, Summary of SignificantAccounting Policies, Subsection H, Goodwill and Intangible Assets, of our consolidated financial statements for the year endedDecember 31, 2020, for an additional description of intangible assets that had a material effect on our consolidated financialstatements.

Stock-BasedCompensation

FASB’sASC Topic 718, Stock Compensation (formerly, FASB Statement 123R), prescribes accounting and reporting standards for all stock-basedpayment transactions in which employee and non-employee services are acquired. We measure the cost of employee and non-employeeservices received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value forrestricted stock awards is valued using the closing price of our Common Stock on the date of grant. For our 2020 and 2019 fiscalyears, we recognized stock-based compensation expense of approximately $1.1 million, and $1.1 million, respectively. For the firstnine months of our 2020 and 2019 fiscal years, we recognized stock-based compensation expense of approximately $478,600 and $1.1million, respectively. We had a balance in accrued stock-based compensation at December 31, 2020 and 2019 of approximately $1.4million, respectively. See Note 6, Stock-Based Compensation, of our consolidated financial statements for the year endedDecember 31, 2019 for an additional description of our stock-based compensation that had a material effect on our consolidatedfinancial statements.

RelatedParty Transactions

SeeNote 8, Related Party Transactions, to our consolidated financial statements for the year ended December 31, 2020 for anadditional description of related party transactions that had a material effect on our consolidated financial statements.

EmergingGrowth Company Status

OnApril 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 allowsan emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to privatecompanies. As an emerging growth company, we have irrevocably elected to take “opt out” of taking advantage of theextended 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 requiredfor non-emerging growth public companies on a case-by-case basis.

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

Wewill remain an emerging growth company until the earlier to occur of (1) the last day of our fiscal year (a) following the fifthanniversary of the completion of this offering, (b) in which we have total annual gross revenues of at least $1.07 billion, or(c) in which we are deemed to be a “large accelerated filer” under the rules of the SEC, which means the market valueof our common shares that is held by non-affiliates exceeds $700 million as of the last day of our second quarter, and (2) thedate 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 resultof this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscalyear. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliatesis less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and themarket value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we ceaseto be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smallerreporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of auditedfinancial statements in our Annual Reports on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduceddisclosure obligations regarding executive compensation.

RecentlyIssued Accounting Pronouncements

SeeNote 2, Summary of Significant Accounting Policies, Subsection S, Recently Issued Accounting Pronouncements, to our consolidatedfinancial statements for the year ended December 31, 2020 for a discussion of recent accounting pronouncements.

SAND S BEVERAGE INC.

Thefollowing discussion and analysis of the results of operations and financial condition for the year ended December 31, 2020 andshould be read in conjunction with the financial statements and related notes and the other financial information that are includedelsewhere herein. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historicalinformation and which relate to future operations, strategies, financial results, or other developments. Forward-looking statementsare based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitiveuncertainties 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 differmaterially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation toupdate forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in theseforward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,”“Cautionary Note Regarding Forward-Looking Statements,” and “Description of Business” sections herein.We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”“ongoing,” “expect,” “believe,” “intend,” “may,” “will,”“should,” “could,” and similar expressions to identify forward-looking statements. We and our representativesmay from time to time make written or oral statements that are “forward-looking,” including statements contained herein.All statements that express expectations, estimates, forecasts, or projections are forward-looking statements. In addition, otherwritten 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 expressionsare intended to identify such forward-looking statements. These statements are not guarantees of future performance and involverisks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materiallyfrom what is expressed or forecasted in or suggested by such forward-looking statements.

Weundertake no obligation to update or revise any of the forward-looking statements to confirm forward-looking statements to actualresults. Important factors on which such statements are based are assumptions concerning uncertainties, including, but not limitedto, uncertainties associated with the following:

Thefollowing discussion should be read in conjunction with the financial statements and the notes thereto which are included herein.This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results maydiffer substantially from those anticipated in any forward-looking statements included in this discussion as a result of variousfactors.

Resultsof Operations

FiscalYear Ended December 31, 2020 compared to the Fiscal Year Ended December 31, 2019

Overview

Wesell our Lemin Superior Lemonade, now named OOH LA Lemin. Our business was formed in 2018 and net revenues increased from $278,000in our initial year of operations to approximately $865,000 in fiscal year 2019, our first full year of operations. The COVID-19pandemic resulted in reduced net revenues for our 2020 fiscal year. We anticipate that growth in our business will restart in2021 as the effects of the pandemic begin to recede and by virtue of our acquisition by Kona Gold. For fiscal year 2020, we hadnet revenues of approximately $343,000, a decrease of approximately $522,000 from fiscal year 2019.

Ourdecrease in revenue is primarily due to the effects of the COVID-19 pandemic. The following is a more detailed discussion of ourfinancial condition and results of operations for the period presented.

Revenue

Thedecrease in our net revenues from our 2020 fiscal year to our 2019 fiscal year resulted primarily from the effects of the COVID-19pandemic.

Costof Revenue

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

Costof revenue for our 2020 fiscal year was approximately $340,000 (or 99% of net revenues), which was a decrease of approximately$279,000, or 55%, compared to our 2019 fiscal year, in which cost of revenue was approximately $619,000 (or 72% of net revenues).This decrease is directly related to the $522,000 decrease in net revenues.

Weexpect cost of revenue as a percentage of net revenues to rebound to 2019 levels, if not to improve by virtue of the expectedreceding effects of the COVID-19 pandemic and our acquisition by Kona Gold.

Selling,General and Administrative Expenses

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

SG&Aexpenses decreased by approximately $403,000 to approximately $607,000 in our 2020 fiscal year, from approximately $1.01 millionin our 2019 fiscal year. The decrease in SG&A expenses was primarily due to our attempts to reduce our expenses in responseto the reduction in net revenues in fiscal year 2020.

NetLoss

Weincurred a net loss of approximately $628,000 in our 2020 fiscal year, a decrease of $147,000, as compared to a net loss of approximately$775,000 in our 2019 fiscal year. This year-over-year decrease in net loss is primarily due to the $403,000 decrease in SG&Aexpenses more than offsetting the $243,000 decrease in gross profit. We expect that both gross profit and SG&A expenses willincrease on a going forward basis by virtue of the expected receding effects of the COVID-19 pandemic and our acquisition by KonaGold.

GoingConcern

Wehave incurred operating losses since inception and have negative cash flow from operations since inception. As of December 31,2020, we had a stockholders’ deficit of approximately $656,000 and we incurred a net loss of approximately $628,000 duringthe fiscal year ended December 31, 2020. We also utilized cash in operations of approximately $584,000 during the fiscal yearended December 31, 2020. As a result, our continuation as a going concern is dependent on our ability to obtain additional financinguntil we can generate sufficient cash flow from operations to meet our obligations. We believe that our acquisition by Kona Goldwill provide sufficient financing to continue our operations.

Ourfinancial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations andcontinue our operations for the next fiscal year.

Thereis no assurance that we will ever be profitable or that our acquisition by Kona Gold will provide sufficient financing to sustainand increase our operations in accordance with our business plan. The financial statements do not include any adjustments to reflectthe possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilitiesthat may result should we be unable to continue as a going concern.

NotesPayable – Related Party

Wehad the following outstanding notes payable from a related party during the year ended December 31, 2020:

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

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

CashFlows

Insummary, our use of cash has been as follows:

OperatingActivities

Cashprovided by or used in operating activities for the year ended December 31, 2020 was approximately $585,000, which consisted ofthe net amounts of cash provided by or used in accounts receivable, inventory, accounts payable, interest payable, and customerpayments.

InvestingActivities

Wedid not have any cash provided by or used in investing activities for the year ended December 31, 2020.

FinancingActivities

Cashprovided by financing activities for the year ended December 31, 2020 was approximately $548,000, all of which was due to notespayable from related parties.

Non-CashInvesting and Financing Activities

Forthe year ended December 31, 2020, there were no non-cash investing and financing activities.

Off-BalanceSheet Arrangements

At December 31, 2020, we had no off-balance sheetarrangements, commitments, or guarantees that require additional disclosure or measurement.

 
Critical Accounting Policies

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

Theaccounting policies that we follow are set forth in Note 2, Summary of Significant Accounting Policies, of our financialstatements for the year ended December 31, 2020, as included in our financial statements. These accounting policies conform toaccounting principles generally accepted in the United States, and have been consistently applied in the preparation of the financialstatements.

RevenueRecognition

Wesell our Lemin Superior Lemonade through resellers and distributors. In evaluating the timing of the transfer of control of productsto our distributors and resellers, we consider several indicators, including significant risks and rewards of products, our rightto payment, and the legal title of the products. We recognize revenue from product sales to distributors and resellers when productsthat do not require further services by us are shipped, when there are no uncertainties surrounding product acceptance, and whencollectability is reasonably assured.

OnJanuary 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 atthe amount expected to be collected. The implementation of Topic ASC 606 had no impact on the prior period financial statementsand no cumulative effect adjustment was recognized.

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

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

Weevaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenues thatwould be meaningful. The majority of our revenue earned from our Beverages Segment and our Distribution Segment is recognizedwhen we satisfy a single performance obligation by transferring control of our products to a customer. We do not have significantfinancing components or payment terms, and we do not have any material unsatisfied performance obligations. Our revenues are obtainedin similar geographical locations within the United States. Furthermore, the operations in each of our reporting segments areexpected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of our products andcustomers are essentially the same. The sales from our beverage product types are organized as one reportable segment, which werefer to as the Beverages Segment, and the sales of our products and products that are purchased from resellers that are distributedby Gold Leaf is organized as our second reportable segment, which we refer to as the Distribution Segment. We have also determinedthat 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, onlinesales, sales through Amazon, and Gold Leaf distribution sales. This is the same information used by our Chief Operating DecisionMaker for evaluating the financial performance of our operations and making resource decisions.

AccountsReceivable and Allowance for Doubtful Account Receivable

Accountsreceivable are recorded at net realizable value. We determine provisions for uncollectible accounts, sales returns, and claimsbased upon factors including the credit risk and activity of specific distributors and resellers, historical trends, and otherinformation. 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. Approximately $24,000 and -0- were recorded for bad debt in the accompanyingstatements of income years ending December 31, 2020 and 2019, respectively. Management will review annually to determine provisionsand record an allowance as deemed necessary. In the opinion of management, no provision is deemed necessary for sales returnsand, but for the fiscal year 2020 allowance for bad debt, all accounts were deemed collectible at December 31, 2020 and 2019,respectively. The balance of allowance for Uncollectible Accounts as of December 31, 2020 and 2019 is $24,280 and $0, respectively.

Inventory

Ourinventory is valued at the lower cost or net realizable value. At the end of fiscal year 2020, our inventory consisted almostentirely of finished goods (approximately $235,000), an increase of $90,000 from finished goods inventory at the end of the prioryear (approximately $144,000). Ram materials inventory decreased by $81,000 between the years. The increase in finished goodsinventory and the decrease in in raw materials inventory is primarily due to the effects of the COVID-19 pandemic (decreased netrevenues and related decrease in purchases of raw materials). We periodically evaluate and adjust inventories for obsolescence.In the opinion of management, no provision for obsolescence is deemed necessary. As of the balance sheet dated December 31, 2020and December 31, 2019, all inventory is current.

RelatedParty Transactions

SeeNote 4, Related Party Transactions, to our financial statements for the year ended December 31, 2020 for an additionaldescription of related party transactions that had a material effect on our financial statements.

RecentlyIssued Accounting Pronouncements

SeeNote 2, Summary of Significant Accounting Policies, Subsection P, Recently Issued Accounting Pronouncements, to our financialstatements for the year ended December 31, 2020 included in our financial statements for a discussion of recent accounting pronouncements.

KONAGOLD BEVERAGE, INC.

Thefollowing discussion and analysis of the results of operations and financial condition for the three months ended March 31, 2021and March 31, 2020 should be read in conjunction with the financial statements and related notes and the other financial informationthat are included. This discussion includes forward-looking statements based upon current expectations that involve risks anduncertainties, such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not basedon historical information and which relate to future operations, strategies, financial results, or other developments. Forward-lookingstatements 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 futurebusiness decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actualresults to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaimany obligation to update forward-looking statements. Actual results and the timing of events could differ materially from thoseanticipated in these forward-looking statements as a result of a number of factors, including those set forth under the “RiskFactors,” “Cautionary Note Regarding Forward-Looking Statements,” and “Description of Business”sections in this Registration Statement. We use words such as “anticipate,” “estimate,” “plan,”“project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,”“may,” “will,” “should,” “could,” and similar expressions to identify forward-lookingstatements. 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 statementsthat express expectations, estimates, forecasts, or projections are forward-looking statements. In addition, other written ororal 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 expressionsare intended to identify such forward-looking statements. These statements are not guarantees of future performance and involverisks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materiallyfrom what is expressed or forecasted in or suggested by such forward-looking statements.

Weundertake no obligation to update or revise any of the forward-looking statements after the date of this to confirm forward-lookingstatements 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:

Thefollowing discussion should be read in conjunction with the financial statements and the notes thereto. This discussion containsforward-looking statements that involve risks, uncertainties, and assumptions. Our actual results may differ substantially fromthose anticipated in any forward-looking statements included in this discussion as a result of various factors.

Resultsof Operations

Overview

Ourbusiness has grown rapidly since inception, and we anticipate that our business will continue to grow; however, in the year endedDecember 31, 2020, the Company saw unforeseen delays in signing more favorable agreements with larger, reputable tier 1 and mid-sizedistributors and grocery chains and we were additionally impacted by the COVID-19 pandemic during the fiscal year. The COVID-19delayed the Company’s launch of a variety of new products during most of the 2020 fiscal year – drinks and non-drinkline broadening items. Our Beverages Segment has three main revenue streams: product sales from online consumers, product salesthrough resellers, and product sales from distributors. In the first quarter of fiscal year 2021, we expanded our beverages segmentwith the acquisition of an additional beverage company, expanding our product line. Product sales include sales of our energydrinks, HighDrate CBD-infused energy waters, lemon-flavored beverages and apparel such as t-shirts and hats. In early 2019, weexpanded our operations with the creation of a distribution center, which now functions as our Distribution Segment. Our DistributionSegment has one main revenue stream: product sales to convenience stores, grocery stores, or smoke and gift shops, which complementour current product offering. Product sales include sales of our beverages, as well as beverages and snacks purchased for resalefrom several other beverage producers.

Wehave experienced and expect to continue to experience substantial growth in our operations as we seek to expand with additionalproducts and acquisitions that complement our current product offerings. We expect that revenue will increase in fiscal year 2021as distribution related to our current distributors affected by COVID-19 that have resumed distribution, will continue to seefewer impacts from the COVID-19 pandemic going forward. Despite the impact from COVID-19 on our revenues in the fiscal year 2020,we still anticipate to sign larger, more favorable agreements with larger, tier 1 and mid-size distributors in our Beverages Segmentduring fiscal 2021.The following is a more detailed discussion of our financial condition and results of operations for the periodpresented.

ThreeMonths Ended March 31, 2021 compared to the Three Months Ended March 31, 2020

Overview

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

Thefollowing is a more detailed discussion of our financial condition and results of operations for the period presented, along withprior periods.

Revenue

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

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

Duringthe three months ended March 31, 2021, we reported net revenues of approximately $462,400, which is an increase of approximately$260,400, or approximately 129%, compared to net revenues of approximately $202,100 for the three months ended March 31, 2020.An increase of approximately $130,200 was attributed to our Beverages Segment, while our Distribution Segment reported an increasein net revenue of approximately $125,500. We attribute this increase in sales to an effort to sign more favorable agreements withlarger, reputable tier 1 and mid-size distributors and grocery chains. These contracts saw unforeseen delays and were additionallyimpacted by the COVID-19 pandemic during the fiscal year. The COVID-19 delayed the Company’s launch of a variety of newproducts during most of the 2020 fiscal year – drinks and non-drink line broadening items. We expect that revenue will increasein the last three quarters of the fiscal year 2021 as distribution related to our current distributors affected by COVID-19 thathave resumed distribution, will continue to see fewer impacts from the COVID-19 pandemic going forward. We anticipate to signlarger, more favorable agreements with larger, tier 1 and mid-size distributors in our Beverages Segment during the remainingthree quarter of fiscal 2021.We also attribute this increase to the acquisition of a beverage company that broadened our drinkproduct line in our Beverages Segment. In addition, we have continued to add drink and non-drink line broadening products to ourDistribution Segment.

Costof Revenues

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

Duringthe three months ended March 31, 2021, we reported cost of revenues of approximately $313,900, which is an increase of approximately$168,000, or approximately 115%, compared to approximately $146,000 for the three months ended March 31, 2020. This increase isattributed to an increase in sales in both our Beverages Segment and Distribution Segment in the first quarter of fiscal 2021,compared to the prior year period. The cost of sales increase was slightly below the increase in sales. This is attributed tobroadening our product line in both our Beverages Segment and our Distribution Segment with drinks and non-drink products withhigher consumer demand, and a reduction in cost for larger purchase quantities.

Selling,General and Administrative Expenses

SG&Aexpenses consist primarily of professional fees, salaries and wages, advertising, rent, travel expenses, sponsorships, and generaloffice and administrative expenses related to maintaining our facilities.

SG&Aexpenses were approximately $569,000 for the three months ended March 31, 2021, compared to approximately $647,200 million inthe three months ended March 31, 2020, a decrease of $78,200, or approximately 12%. The decrease in SG&A expenses was primarilydue to a decrease in salaries and wages of 52% attributed to our Beverages Segment; a decrease in legal and accounting fees of21% attributed to our corporate-related activities; and a decrease in advertising and promotion of 25% attributed to our BeveragesSegment. This decrease was offset by a significant increase in professional fees of 11,900% attributed to our corporate relatedactivities; a significant increase in insurance of 285% attributed to both our Beverages Segment and our Distribution Segment;an increase of 13% in rent expense attributed to both our Beverages Segment and our Distribution Segment; and a 285% increasein OTCM fees attributed to corporate-related expenses.

Salariesand wages were approximately $212,000 in the three months ended March 31, 2021, compared to approximately $443,000 for the threemonths ended March 31, 2020, a decrease of approximately $231,000, which was attributed to our Beverages Segment. This decreasewas the result of issuance of shares of the Company’s common stock made in the prior year to employees pursuant to theiragreements. Legal and accounting fees were approximately $51,500 for the three months ended March 31, 2021, a decrease of approximately$14,000, which was attributed to our corporate related activities. This decrease was the result of audit related expenses in theprior year. Advertising and promotional fees were approximately $7,900 in the three months ended March 31, 2021, compared to approximately$10,500 for the three months ended March 31, 2020, a decrease of approximately $2,600, which was attributed to our Beverages Segment.This decrease was the result of slower sales during the first month of fiscal 2021 as distribution related to our current distributorscontinued to be affected by COVID-19. Insurance expense was approximately $22,700 for the three months ended March 31, 2021, comparedto approximately $5,000 for the three months ended March 31, 2020, an increase of approximately $17,700. This increase was attributedto both our Beverages Segment and our Distribution Segment and the result of signing larger, more favorable agreements with larger,tier 1 and mid-size distributors and customers. Rent expenses were approximately $37,700 for the three months ended March 31,2021, compared to approximately $33,300 for the three months ended March 31, 2020, an increase of approximately $4,400. This increasewas attributed to both our Beverages Segment and our Distribution Segment and the result of our moving to a larger warehouse facilitythat was necessary due to our anticipated growth. OTCM fees attributed to corporate-related expenses were approximately $26,200for the three months ended March 31, 2021, compared to approximately $6,800 for the three months ended March 31, 2020, an increaseof approximately $19,400. This increase was the result of fees paid to the OTCM to have our Common Stock quoted on the OTCQB versusthe OTC Pink.

Weexpect that as we expand our business, operations, and incur additional corporate-related expenses associated with having ourCommon Stock quoted on the OTCQB and being required to file certain reports and other information with the SEC, SG&A expenseswill increase for both our Beverages Segment and Distribution Segment. We anticipate hiring additional personal in fiscal 2021that are integral to the success of our growing Company.

NetLoss

Weincurred a net loss of approximately $1.8 million for the three months ended March 31, 2021, an increase of approximately $1.3million compared to the previous year three months ending March 31, 2020, which had a net loss of approximately $595,000 million.This net loss is primarily corporate-related expenses that are necessary for our growth, which include interest expense relatedto the Warrant issued in connection with the Debentures and non-cash expense on our derivative liability. The fair value of theDebentures will be re-measured each reporting period until the Debentures are either converted or expire. In each reporting periodduring the term of the Debentures, the change in the fair value will either be recognized as a non-cash expense or non-cash income.The change in the fair value of the Debentures is not impacted by our actual operations but instead is strongly tied to the changein the market value of our Common Stock.

Segments– Three Months Ended March 31, 2021 and 2020

Forthe three months ended March 31, 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 is reported in “Corporate and Eliminations.”We evaluate performance and allocate resources based on net revenue, cost of revenues, and gross profit. Information regardingthe operations of these reportable segments is as follows:

Liquidityand Capital Resources

GoingConcern

Wehave incurred operating losses since inception and have negative cash flow from operations since inception. As of March 31, 2021,we had a stockholders’ deficit of approximately $4.1 million and we incurred a net loss of approximately $1.8 million duringthe three months ended March 31, 2021. We also utilized cash in operations of approximately $424,400 during the three months endedMarch 31, 2021. As a result, our continuation as a going concern is dependent on our ability to obtain additional financing untilwe can generate sufficient cash flow from operations to meet our obligations. We intend to continue to seek additional debt orequity financing to continue our operations.

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

Thereis 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 significantdilution 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 deemedacceptable to us, we may be unable to continue our business, as planned, and as a result may be required to scale back or ceaseoperations for our business, the result of which would be that our stockholders would lose some or all of their investment. Theconsolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverabilityand classification of assets or the amounts and classifications of liabilities that may result should we be unable to continueas a going concern.

Linesof Credit

Sinceinception, 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:

NotesPayable – Related Party

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

NoteReceivable – Branded Legacy

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

InJune 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 “Elev8Hemp Acquisition Agreement”), whereby we agreed to acquire 100% of the ownership of Elev8 Hemp and, in exchange, we agreedto issue to Mr. Medico five million restricted shares of our Common Stock, which had a fair market value of $50,000. The Elev8Hemp Acquisition Agreement provided that, if we failed to adequately capitalize the development of Elev8 Hemp to complete itsobjectives set forth in its business plan, Mr. Medico would have the option until March 31, 2018 to repurchase Elev8 Hemp fromus for a purchase price of $50,000, which could be paid in shares of our Common Stock.

OnOctober 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 considerationof Branded Legacy’s issuance to us of 200,000,000 shares of its common stock, par value $0.00001. In connection with thistransaction, Mr. Medico became the Chief Executive Officer and sole director of Branded Legacy. The parties desired to enter intothe Membership Interest Purchase Agreement because we did not have adequate capital to fund the development of Elev8 Hemp’sbusiness, as well as our own. Until July 2018, Mr. Medico also continued to serve as our Chief Financial Officer.

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

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

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

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

PaycheckProtection Promissory Note and Economic Injury Disaster Loan

OnMay 4, 2020, we entered into a Paycheck Protection Promissory Note in the original principal amount of $95,161 (the “PPPLoan”) with Wells Fargo Bank, N.A. The PPP Loan was made under, and is subject to, the terms and conditions of the PaycheckProtection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and Economic SecurityAct (the “CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides for loans toqualifying businesses for amounts up to 2.5 times of the average monthly payroll expenses of the qualifying business. The currentterm of the PPP Loan is two years, with a maturity date of May 6, 2022 and it contains a favorable fixed annual interest rateof 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 maturitywith no prepayment penalties.

InJanuary 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 conditionsof the Paycheck Protection Program (the “PPP”), which was established as part of the Coronavirus Aid, Relief and EconomicSecurity Act the (“CARES Act”) and is administered by the U.S. Small Business Administration. The PPP provides forloans 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 annualinterest rate of 1.00%. Payments of principal and interest on the PPP Loan are deferred for the first six months of the term ofthe PPP Loan, or November 2020. Thereafter, principal and interest are payable monthly and may be prepaid by us at any time priorto maturity with no prepayment penalties.

Underthe terms of the CARES Act, recipients can apply for and receive forgiveness for all, or a portion of the loan granted under thePPP. Such forgiveness will be determined, subject to limitations, based on the use of loan proceeds for certain permissible purposesas 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 followingthe funding of the PPP Loan. The amount of loan forgiveness will be reduced if the borrower terminates employees or reduces salariesduring the eight-week period. We have used the proceeds of the PPP Loan for salaries and wages, building lease expense, and utilities.However, no assurance is provided that we will be able to obtain forgiveness of the PPP Loan in whole or in part.

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

2020Securities Purchase Agreement

InMay 2020, the Company completed the 2020 Private Placement of the 2020 Debentures and the 2020 Warrant pursuant to the 2020 SPAwith an otherwise unaffiliated third-party investor (the “Selling Stockholder”). The Company sold and issued the First2020 Debenture and granted the 2020 Warrant promptly after entering in the 2020 SPA. The Company sold and issued the Second 2020Debenture promptly after filing the 2020 Registration Statement initially with the SEC. The Company sold and issued the Third2020 Debenture promptly after the SEC declared the Registration Statement effective. The 2020 Debentures are due 12 months fromtheir respective issuance dates and are secured by all of the Company’s assets and the assets of each of its subsidiariespursuant 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, subjectto 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 “2020Market Conversion Price”). The 2020 Debentures contain an adjustment provision that, subject to certain exceptions, reducesthe conversion price if the Company issues shares of its Common Stock or common stock equivalents at a price lower than the then-currentconversion price of the 2020 Debentures. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations andasset 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 portionof the 2020 Debentures that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issuedand outstanding shares of the Common Stock following such conversion (excluding, for purposes of such determination, shares ofthe Common Stock issuable upon conversion of the 2020 Debentures or exercise of the 2020 Warrant that had not then been convertedor exercised, respectively). The Selling Stockholder can increase that 4.99% “conversion blocker” to 9.99% upon atleast 65 days’ prior written notice to the Company. The 2020 Debentures accrue interest at an annual rate equal to 8% andare due and payable on their respective maturity dates (or sooner if the Selling Stockholder converts the 2020 Debentures or otherwiseaccelerates the maturity date, as provided for in the 2020 Debentures). Interest is payable either in cash or, if certain EquityConditions (as defined in the 2020 Debentures) are then satisfied, in shares of the Common Stock at the 2020 Market ConversionPrice on the trading day immediately prior to the date paid.

Atthe Company’s option, it has the right to redeem, in part or in whole, the outstanding principal and interest under the2020 Debentures prior to their respective maturity dates; provided, that, as of the date of the holder’s receiptof 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 plusoutstanding and accrued interest thereon, as well as a redemption premium equal to 15% of the outstanding principal amount beingredeemed (the “Redemption Premium”). The Company must provide the holder 15 business days’ advance notice ofits intent to make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicableRedemption Premium.

The2020 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Companyissues shares of the Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2020Debentures. 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.

Pursuantto the terms of the Registration Rights Agreement, the Company agreed to file the Registration Statement with the SEC registeringfor 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 feesand expenses incurred by the Company in connection with the registration of the Conversion Shares and the Warrant Shares heldby the Selling Stockholder.

Pursuantto the 2020 SPA, the purchase price for the First 2020 Debenture was $250,000, less $15,000 for origination fees, which consistedof 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’scommon stock. On January 25, 2021, the Company converted $150,000 of the principal of, and $1,118 of accrued interest on, theFirst 2020 Debenture into 7,094,732 shares of the Company’s common stock, see Note 11, equity transactions. At March31, 2021, no balance remains on any of the 2020 Debentures.

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

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

2021Securities Purchase Agreement

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

The2021 Debentures are due 12 months from their respective issuance dates and are secured by all of the Company’s assets andthe assets of each of its subsidiaries pursuant to that certain Security Agreement by and among the Selling Stockholder, the Company’ssubsidiaries, 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 dailyvolume weighted average price (“VWAP”) of our Common Stock during the 15 trading days immediately preceding the conversiondate, subject to adjustment (the “2021 Market Conversion Price”). The 2021 Debentures contain an adjustment provisionthat, subject to certain exceptions, reduces the conversion price if the Company issues shares of its Common Stock or common stockequivalents 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 adjustmentof the conversion price of the 2021 Debentures. The 2021 Debentures are subject to a “conversion blocker” such thatthe Selling Stockholder cannot convert any portion of the 2021 Debentures that would result in the Selling Stockholder and itsaffiliates 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 ofthe 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 Debenturesaccrue interest at an annual rate equal to 8% and are due and payable on their respective maturity dates (or sooner if the SellingStockholder 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, inshares of the Common Stock at the 2021 Market Conversion Price on the trading day immediately prior to the date paid.

Atthe Company’s option, it has the right to redeem, in part or in whole, the outstanding principal and interest under the2021 Debentures prior to their respective maturity dates; provided, that, as of the date of the holder’s receipt of theredemption 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 outstandingand 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 intentto make a redemption, setting forth the amount of principal and interest we desire then to redeem plus the applicable RedemptionPremium.

The2021 Debentures contain an adjustment provision that, subject to certain exceptions, reduces the conversion price if the Companyissues shares of Common Stock or common stock equivalents at a price lower than the then-current conversion price of the 2021Debentures. 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.

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

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

The2021 Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if the Company issuesshares 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 similarevents will also result in an adjustment of the exercise price of the 2021 Warrant.

The2021 Warrant is subject to an “exercise blocker” such that the Selling Stockholder cannot exercise any portion ofthe 2021 Warrant that would result in the Selling Stockholder and its affiliates holding more than 4.99% of the then-issued andoutstanding shares of the Common Stock following such exercise (excluding, for purposes of such determination, shares of the CommonStock 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.

Pursuantto the terms of the 2021 Registration Rights Agreement with the Selling Stockholder, the Company agreed to file a registrationstatement on Form S-1 (the “2021 Registration Statement”) with the SEC registering for resale the 2021 ConversionShares and the 2021 Warrant Shares within 30 calendar days following the closing of the 2021 Private Placement. The Selling Stockholderhas agreed to waive this 30-calendar-day provision for so long as the Company utilized its best efforts to file its Annual Reporton 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 notifiedthat the 2021 Registration Statement will not be reviewed or is no longer subject to further review and comments. Pursuant tothe 2021 Registration Rights Agreement, the Company is subject to partial liquidated damages equal to 2.0% of the aggregate purchaseprice paid by the holder pursuant to the 2021 SPA for either of the 2021 Debentures then held by the holder for failure to filethe 2021 Registration Statement timely, failure to file with the SEC a request for acceleration in accordance with Rule 461 promulgatedunder the Securities Act, within five trading days after the date the Company is notified that the 2021 Registration Statementwill not be reviewed or is not subject to further review, the 2021 Registration Statement is not declared effective by the effectivenessdeadline, if after effectiveness, the 2021 Registration Statement ceases for any reason to remain continuously effective as requiredor if the holders are not permitted to utilize the prospectus therein to resell for more than 30 consecutive calendar days ormore than an aggregate of 40 calendar days during any 12-month period, or if after the six-month anniversary of the 2021 RegistrationRights Agreement, the Company does not have available adequate current public information as set forth in Rule 144(c). The partiesagreed that the maximum aggregate liquidated damages payable to a holder of the 2021 Debentures under the 2021 Registration RightsAgreement is 24% of the aggregate purchase price paid by such holder pursuant to the 2021 SPA. The Company also agreed, amongother things, to indemnify the Selling Stockholder from certain liabilities and to pay all fees and expenses incurred by the Companyin connection with the registration of the 2021 Conversion Shares and the 2021 Warrant Shares held by the Selling Stockholder.

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

DerivativeLiability

The2020 Debentures and the 2021 Debentures have been accounted for utilizing ASC 815. The Company has incurred a liability for theestimated fair value of the 2020 Debentures. The estimated fair value of the 2020 Debentures has been calculated using the Black-Scholesfair value option-pricing model with key input variables provided by management, as of the date of issuance, with the valuationoffset against additional paid in capital, and at each reporting date, with changes in fair value recorded as gains or losseson 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 theright for the holder to request for the Company to settle the amounts owed pursuant to the 2020 Debentures and the 2021 Debenturesto the holder by paying an amount of cash equal to the Black-Scholes value of the remaining unexercised portion of the 2020 Debenturesand the 2021 Debentures on the date of the consummation of a fundamental transaction. The accounting treatment of derivative financialinstruments requires that the Company treat the whole instrument as liability and record the fair value of the instrument as aderivative as of the inception date of the instrument and to adjust the fair value of the instrument as of each subsequent balancesheet date.

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

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

Thefollowing table sets forth a summary of change in fair value of the Company’s derivative liabilities for the quarter endedMarch 31, 2021:

2020Warrant and 2021 Warrant

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

The2020 Warrant and the 2021 Warrant, respectively, contains an adjustment provision that, subject to certain exceptions, reducesthe exercise price if the Company issues shares of our Common Stock or common stock equivalents at a price lower than the then-currentexercise 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 priceof the 2020 Warrant and the 2021 Warrant, respectively.

The2020 Warrant and the 2021 Warrant, respectively, is subject to an “exercise blocker” such that the Selling Stockholdercannot exercise any portion, respectively, of the 2020 Warrant that and the 2021 Warrant would result in the Selling Stockholderand 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 Warrantand the 2021 Warrant or conversion of the 2020 Debentures and the 2021 Debentures, respectively, that had not then been exercisedor converted, respectively). The Selling Stockholder can increase that 4.99% “exercise blocker” to 9.99% upon at least65 days’ prior written notice to the Company.

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

CashFlows

Insummary, our use of cash has been as follows:

OperatingActivities

Cashprovided 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 Warrants issued in the two private placements, and the effectof changes in working capital and other activities. Cash used in operating activities for the three months ended March 31, 2021was approximately $424,400 and consisted of a net loss of approximately $1.8 million, adjustments for non-cash items, includingadjustments related to the issuance of shares of our Common Stock for an acquisition, interest expense related to the two warrant,and depreciation of approximately $1.3 million, and approximately $61,800 provided by working capital and other activities.

InvestingActivities

Cashused in investing activities for the three months ended March 31, 2021 was approximately $1.3 million and was attributable tocapital expenditures of approximately, $30,200, and goodwill of approximately $1.28 million, which was attributed to the S andS acquisition.

FinancingActivities

Cashprovided by financing activities for three months ended March 31, 2021 was approximately $1.7 million and was due to proceedsfrom lines of credit of approximately $3,000, proceeds from convertible debt of approximately $913,800 million, proceeds froma note payable for the S and S acquisition, proceeds from the PPP Loan of approximately $117,500, and $3,000 was used to pay principalon a note payable.

Non-CashInvesting and Financing Activities

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

Off-BalanceSheet Arrangements

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

CriticalAccounting Policies

Ourdiscussion 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 preparationof 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 onan ongoing basis, including those related to provisions for uncollectible accounts receivable, inventories, valuation of intangibleassets, and contingencies and litigation. We base our estimates on historical experience and on various other assumptions thatare believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carryingvalues of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimatesunder different assumptions or conditions.

Theaccounting policies that we follow are set forth in Note 2, Summary of Significant Accounting Policies, of our consolidatedfinancial statements for the three months ended March 31, 2021. These accounting policies conform to accounting principles generallyaccepted in the United States, and have been consistently applied in the preparation of the consolidated financial statements.

Leases

OnJanuary 1, 2019, we adopted the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Update2016-02, Leases (Topic 842) (“ASC Topic 842”), which requires an entity to recognize a liability and correspondingasset 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 forfiscal years beginning after December 15, 2018. We elected the package of practical expedients permitted under the transitionguidance, which allowed us to carryforward historical lease classification, and not reassess (i) whether a contract was or containeda lease, and (ii) initial direct costs for any leases that existed prior to January 1, 2019. Under this method, we did not restatecomparative periods in our financial statements. We present right-of-use assets resulting from leases separately from other assetsas noncurrent, and amortized accordingly. The corresponding lease liabilities are presented separately from other liabilitieson the accompanying balance sheets.

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

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

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

RevenueRecognition and Deferred Revenue

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

Wealso sell our products, and beverages purchased for resale from several other beverage manufacturers to convenience stores, grocerystores, and smoke and gift shops. In evaluating the timing of the transfer of control of products to customers, we consider severalindicators, including significant risks and rewards of products, our right to payment, and the legal title of the products. Werecognize 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 byus prior to shipment is recorded as deferred revenue. Sales are made to customers under terms allowing certain limited rightsof return. Amounts billed to customers in sales transactions related to shipping and handling, represent revenues earned for thegoods provided and are included in net sales. Costs of shipping and handling are included in cost of products sold.

OnJanuary 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 atthe amount expected to be collected. The implementation of Topic ASC 606 had no impact on the prior period financial statementsand no cumulative effect adjustment was recognized.

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

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

Weevaluated the guidance in ASC 606-10-50-5 and the related implementation guidance to determine disaggregation of revenues thatwould be meaningful. The majority of our revenue earned from our Beverages Segment and our Distribution Segment is recognizedwhen we satisfy a single performance obligation by transferring control of our products to a customer. We do not have significantfinancing components or payment terms, and we do not have any material unsatisfied performance obligations. Our revenues are obtainedin similar geographical locations within the United States. Furthermore, the operations in each of our reporting segments areexpected to have essentially the same future prospects, similar gross margins, sales trends, and the nature of our products andcustomers are essentially the same. The sales from our beverage product types are organized as one reportable segment, which werefer to as the Beverages Segment, and the sales of our products and products that are purchased from resellers that are distributedby Gold Leaf is organized as our second reportable segment, which we refer to as the Distribution Segment. We have also determinedthat 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, onlinesales, sales through Amazon, and Gold Leaf distribution sales. This is the same information used by our Chief Operating DecisionMaker for evaluating the financial performance of our operations and making resource decisions. We also sell merchandise and apparelthat comprises approximately 1% of our gross annual sales, and solely exists to promote our beverages. Therefore, our merchandiseand apparel products are not a reportable segment. Merchandise and apparel sales are included with the gross sales for our BeveragesSegment.

AccountsReceivable and Allowance for Doubtful Account Receivable

Accountsreceivable are recorded at net realizable value. We determine provisions for uncollectible accounts, sales returns, and claimsbased upon factors including the credit risk and activity of specific distributors and resellers, historical trends, and otherinformation. 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

Thecost of inventory using the standard cost method, which approximates actual cost based on a first-in, first-out method. Our inventoriesare 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, lemon-flavored beverages, cans for production, andmerchandise and apparel. We periodically evaluate and adjust inventories for obsolescence. In the opinion of management, no provisionfor obsolescence is deemed necessary. The shelf life of all beverage inventory is two years, and as of March 31, 2021, we hadapproximately $861,700 of product in inventory, which was an increase of approximately $201,200, compared to approximately $660,500at 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 financialstatements for the year ended March 31, 2021, for an additional description of our inventory that had a material effect on ourconsolidated financial statements.

Goodwilland Intangible Assets

Goodwillarises 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 liabilitiesassumed as of the acquisition date. Goodwill acquired in a purchase business combination and determined to have an indefiniteuseful life are not amortized, but tested for impairment at least annually or more frequently if events and circumstances existsthat indicate that a goodwill impairment test should be performed. We have selected December 31 as the date to perform the annualimpairment test.

Intangibleassets 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 accumulatedamortization. We have selected December 31 as the date to perform the annual impairment test. See Note 2, Summary of SignificantAccounting Policies, Subsection H, Goodwill and Intangible Assets, of our consolidated financial statements for the threemonths ended March 31, 2021, for an additional description of intangible assets that had a material effect on our consolidatedfinancial statements.

Stock-BasedCompensation

FASB’sASC Topic 718, Stock Compensation (formerly, FASB Statement 123R), prescribes accounting and reporting standards for all stock-basedpayment transactions in which employee and non-employee services are acquired. We measure the cost of employee and non-employeeservices received in exchange for an award of equity instruments based on the grant-date fair value of the award. Fair value forrestricted stock awards is valued using the closing price of our Common Stock on the date of grant. For our three months endedMarch 31, 2021, and 2020, we recognized stock-based compensation expense of approximately $270,900, and $318,500, respectively.We had a balance in accrued stock-based compensation at March 31, 2021 and December 31, 2020 of approximately $1.4 million, respectively.See Note 6, Stock-Based Compensation, of our consolidated financial statements for the three months ended March 31, 2021for an additional description of our stock-based compensation that had a material effect on our consolidated financial statements.

RelatedParty Transactions

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

Sand S Acquisition

OnJanuary 21, 2021, we entered into an Agreement and Plan of Merger with S and S Beverage, Inc. and its shareholders, pursuant towhich we acquired S and S and its line of lemon-flavored beverages (the “S and S Acquisition”). To consummate theS and S Acquisition, we filed a Certificate of Merger with the Wisconsin Department of Financial Institutions on February 1, 2021.In consideration with the S and S Acquisition, we agreed to pay an aggregate of $1,050,000 (the “Aggregate Acquisition Payments”),the majority of which is allocated to certain creditors of S and S (including one of its shareholders) and approximately $89,000of which (the “Remaining Acquisition Payments”) is allocated to its shareholders on a pro rata basis. $400,000 ofthe Aggregate Acquisition Payments were paid within two weeks of the closing of the transaction. The balance of the AggregateAcquisition Payments, including the Remaining Acquisition Payments, are scheduled to be paid in monthly installments, in arrearson the tenth calendar day of each month, commencing on March 10, 2021, at a rate equivalent to $2.00 per case of OOH LA Lemin(the product line of S and S) that we sell until the Aggregate Acquisition Payments have been paid in full. In addition to theAggregate Acquisition Payments, we also assumed and agreed to pay certain other liabilities of S and S as set forth in the MergerAgreement.

EmergingGrowth Company Status

OnApril 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 allowsan emerging growth company to delay the adoption of some accounting standards until those standards would otherwise apply to privatecompanies. As an emerging growth company, we have irrevocably elected to take “opt out” of taking advantage of theextended 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 requiredfor non-emerging growth public companies on a case-by-case basis.

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

Wewill remain an emerging growth company until the earlier to occur of (1) the last day of our fiscal year (a) following the fifthanniversary of the declaration of effectiveness of our Registration Statement on Form S-1 (December 31, 2020), (b) in which wehave 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 millionas 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 debtduring 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 resultof this offering is less than $700 million and our annual revenue was less than $100 million during the most recently completed fiscalyear. We may continue to be a smaller reporting company after this offering if either (i) the market value of our stock held by non-affiliatesis less than $250 million or (ii) our annual revenue was less than $100 million during the most recently completed fiscal year and themarket value of our stock held by non-affiliates is less than $700 million. If we are a smaller reporting company at the time we ceaseto be an emerging growth company, we may continue to rely on exemptions from certain disclosure requirements that are available to smallerreporting companies. Specifically, as a smaller reporting company we may choose to present only the two most recent fiscal years of auditedfinancial statements in our Annual Reports on Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduceddisclosure obligations regarding executive compensation.

RecentlyIssued Accounting Pronouncements

SeeNote 2, Summary of Significant Accounting Policies, Subsection S, Recently Issued Accounting Pronouncements, to our consolidatedfinancial statements for the three months ended March 31, 2021 for a discussion of recent accounting pronouncements.

SAND S BEVERAGE, INC.

Thefollowing discussion and analysis of the results of operations and financial condition for the one month January 31, 2021 andshould be read in conjunction with the financial statements and related notes and the other financial information that are includedelsewhere herein. This discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties,such as our plans, objectives, expectations, and intentions. Forward-looking statements are statements not based on historicalinformation and which relate to future operations, strategies, financial results, or other developments. Forward-looking statementsare based upon estimates, forecasts, and assumptions that are inherently subject to significant business, economic, and competitiveuncertainties 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 differmaterially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation toupdate forward-looking statements. Actual results and the timing of events could differ materially from those anticipated in theseforward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,”“Cautionary Note Regarding Forward-Looking Statements,” and “Description of Business” sections herein.We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”“ongoing,” “expect,” “believe,” “intend,” “may,” “will,”“should,” “could,” and similar expressions to identify forward-looking statements. We and our representativesmay from time to time make written or oral statements that are “forward-looking,” including statements contained herein.All statements that express expectations, estimates, forecasts, or projections are forward-looking statements. In addition, otherwritten 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 expressionsare intended to identify such forward-looking statements. These statements are not guarantees of future performance and involverisks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes and results may differ materiallyfrom what is expressed or forecasted in or suggested by such forward-looking statements.

Weundertake no obligation to update or revise any of the forward-looking statements to confirm forward-looking statements to actualresults. Important factors on which such statements are based are assumptions concerning uncertainties, including, but not limitedto, uncertainties associated with the following:

Thefollowing discussion should be read in conjunction with the financial statements and the notes thereto which are included herein.This discussion contains forward-looking statements that involve risks, uncertainties, and assumptions. Our actual results maydiffer substantially from those anticipated in any forward-looking statements included in this discussion as a result of variousfactors.

Resultsof Operations

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

Overview

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

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

Revenue

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

Costof Revenue

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

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

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

Selling,General and Administrative Expenses

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

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

NetLoss

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

GoingConcern

Wehave incurred operating losses since inception and have negative cash flow from operations since inception. As of January 31,2021, we had a stockholders’ deficit of approximately $659,500 and we incurred a net loss of approximately $3,500 duringthe one month ended January 31, 2021. We also utilized cash in operations of approximately $26,700 during the one month endedJanuary 31, 2021. As a result, our continuation as a going concern is dependent on our ability to obtain additional financinguntil we can generate sufficient cash flow from operations to meet our obligations. We believe that our acquisition by Kona Goldwill provide sufficient financing to continue our operations.

Ourfinancial statements have been prepared on a going concern basis, which implies we may not continue to meet our obligations andcontinue our operations for the next fiscal year.

Thereis no assurance that we will ever be profitable or that our acquisition by Kona Gold will provide sufficient financing to sustainand increase our operations in accordance with our business plan. The financial statements do not include any adjustments to reflectthe possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilitiesthat may result should we be unable to continue as a going concern.

NotesPayable – Related Party

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

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

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

CashFlows

Insummary, our use of cash has been as follows:

OperatingActivities

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

InvestingActivities

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

FinancingActivities