Asfiled with the Securities and Exchange Commission on May 22, 2023.

 

RegistrationNo. 333 -[____]

 

 

UNITEDSTATES

SECURITIESAND EXCHANGE COMMISSION

Washington,D.C. 20549

 

FORMS-1

 

RegistrationStatement under the Securities Act of 1933

 

KONAGOLD BEVERAGE, INC.

(Exactname of registrant as specified in its charter)

 

Delaware		2080		20-1915682
(State or other jurisdiction of incorporation or organization)		(Primary Standard Industrial Classification Code Number)		(I.R.S. Employer Identification Number)

 

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

555S. Flower Street, 24th Floor

LosAngeles, CA 90071

(213)417-5310

 

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

 

Ifany of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under theSecurities 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, please check thefollowing box and list the Securities Act registration statement number of the earlier effective registration statement for the sameoffering. ☐

 

Ifthis Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list theSecurities 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 list theSecurities 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,” “smallerreporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

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

 

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.☒

 

THEREGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THEREGISTRANT SHALL FILE A FURTHER AMENDMENT, WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVEIN ACCORDANCE WITH SECTION 8(A) OF THE 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 notan offer to sell securities, and it is not soliciting an offer to buy these securities, in any state where offers or sales are not permitted.

 

PRELIMINARY PROSPECTUS

SUBJECT TO COMPLETION

DATED MAY 22, 2023

 

KONAGOLD BEVERAGE, INC.

 

SellingStockholders 

Upto 702,280,139 Shares of Common Stock

 

Thisis 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 stockholdersidentified in this Prospectus, and their transferees, of up to 702,280,139 shares of our common stock, par value $0.00001 per share (our“Common Stock”).

 

Weare registering the resale of (i) up to 642,224,583 shares of Common Stock issuable under an equity line in the amount of $5,000,000(the “Equity Line”) established by the Equity Purchase Agreement, dated March 30, 2023 (the “EPA”), between theCompany and Mast Hill Fund, L.P. (“Mast Hill”); (ii) 56,000,000 shares of Common Stock issuable upon exercise of a commonstock purchase warrant (the “EPA Warrant”) granted to Mast Hill; and (iii) up to 4,055,556 shares of Common Stock issuedor issuable upon exercise of the common stock purchase warrants (the “Placement Warrants”) granted to J.H. Darbie & Co.(“Darbie”).

 

Asused in this Prospectus, the term “Selling Stockholders” includes Mast Hill, Darbie, and each of them, and any donees, pledgees,transferees, or other successors-in-interest selling shares received after the date of this Prospectus from such Selling Stockholdersas a gift, pledge, or other non-sale related transfer.

 

Pursuantto the EPA, the Company (i) agreed to sell to Mast Hill up to Five Million Dollars ($5,000,000.00) (the “Maximum Commitment Amount”)of shares of our Common Stock (the “Put Shares”) and (ii) granted to Mast Hill the EPA Warrant that is exercisable immediatelyfor the purchase of up to an aggregate of 56,000,000 shares (the “EPA Warrant Shares”) of our Common Stock.

 

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

 

Theactual amount of proceeds we receive pursuant to each Put Notice (each, the “Put Amount”) is determined by multiplying thePut Amount Requested by the applicable purchase price. The purchase price for each of the Put Shares equals 90% of the “MarketPrice,” less the Clearing Costs. Market Price is the average of the two lowest volume weighted average prices of the Company’sCommon Stock on its principal market during the Valuation Period. The Valuation Period is the seven trading days immediately followingthe date on which the shares of Common Stock issued pursuant to the Put Notice were cleared by the Company’s transfer agent. ClearingCosts are the fees incurred by Mast Hill with respect to its brokerage firm, clearing firm, Companytransfer agent fees, and attorney fees, with respect to the Put Shares.

 

TheCommitment Period commenced on March 30, 2023, and ends on the earlier of (i) the date on which Mast Hill shall have purchased Put Sharespursuant to the EPA equal to the Maximum Commitment Amount, (ii) March 30, 2025, (iii) written notice of termination by the Company toMast Hill (which shall not occur during any Valuation Period or at any time that Mast Hill holds any of the Put Shares), (iv) the RegistrationStatement for the Put Shares is no longer effective after its initial effective date, or (v) the date that, pursuant to or within themeaning of any Bankruptcy Law, the Company commences a voluntary case or any person commences a proceeding against the Company, a Custodianis appointed for the Company or for all or substantially all of its property, or the Company makes a general assignment for the benefitof its creditors.

 

Wealso granted to Mast Hill the EPA Warrant to purchase up to an aggregate of 56,000,000 EPA Warrant Shares. The EPA Warrant has a five-yearterm and is immediately exercisable at an exercise price of $0.0045 per share, subject to adjustment and is exercisable by the then-holderon a “cashless” basis. The EPA Warrant contains an adjustment provision that, subject to certain exceptions, reduces theexercise price if we issue shares of Common Stock or common stock equivalents at a price lower than the then-current exercise price ofthe EPA Warrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, andsimilar events will result in an equitable adjustment of the exercise price of the EPA Warrant and, in certain circumstances, the numberof EPA Warrant Shares. The EPA Warrant is subject to an “exercise blocker,” such that Mast Hill cannot exercise any portionof the EPA Warrant that would result in Mast Hill and its affiliates holding more than 4.99% of the then-issued and outstanding sharesof Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exerciseof the EPA Warrant or Put Notice that had not then been exercised, respectively).

 

Inorder to deliver a Put Notice, certain conditions set forth in the EPA must be met. In addition, we are prohibited from delivering aPut Notice if: (i) the sale of Put Shares pursuant to such Put Notice would cause us to issue and sell to Mast Hill, or Mast Hill toacquire or purchase, a number of shares of our Common Stock that, when aggregated with all shares of Common Stock purchased by Mast Hillpursuant to all prior Put Notices issued under the EPA, would exceed the Maximum Commitment Amount; or (ii) the issuance of the EPA WarrantShares upon exercise of the EPA Warrant would cause us to issue and sell to Mast Hill, or Mast Hill to acquire or purchase, an aggregatenumber of shares of Common Stock that would result in Mast Hill beneficially owning more than 4.99% of the issued and outstanding sharesof our common stock (the “Beneficial Ownership Limitation”). For a more complete discussion of the terms and conditions ofthe EPA, see the discussion under the heading “Recent Developments” in the Section entitled “Prospectus Summary.”

 

 

Weare not selling any securities under this Prospectus and will not receive any of the proceeds from the sale of shares of Common Stockby the Selling Stockholders. We will, however, receive proceeds from our sale of our shares of Common Stock under the Equity Line andexercise of the EPA Warrant and the Placement Warrants (collectively, the “Warrants”) if they are exercised for cash. Theresale of the 702,280,139 shares by the Selling Stockholders pursuant to this Prospectus is referred to as the “Offering.”

 

Wemay draw on the Equity Line from time to time, as and when we determine appropriate in accordance with the terms and conditions of theEPA. To date, we have not sold any shares pursuant to the EPA.

 

Eachof the Selling Stockholders is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, asamended (the “Securities Act”). The Selling Stockholders may sell the shares of Common Stock described in this Prospectusin a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the SellingStockholders may sell the shares of Common Stock being registered pursuant to this Prospectus.

 

Wewill pay the expenses incurred in registering the shares of Common Stock, including legal and accounting fees. See “Plan of Distribution.”

 

Wealso entered into a registration rights agreement (the “Registration Rights Agreement”) with Mast Hill, pursuant to whichwe agreed to file a Registration Statement to register the resale of the Put Shares and the resale of the EPA Warrant Shares. Pursuantto the Registration Rights Agreement, we agreed to (i) file the Registration Statement within 45 calendar days from the Closing Date,(ii) use reasonable efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possibleafter the filing thereof, and (iii) use its reasonable efforts to keep such Registration Statement continuously effective under the SecuritiesAct until all of the Put Shares have been sold thereunder or pursuant to Rule 144.

 

OurCommon Stock is quoted on the OTC Markets Group Inc.’s (the “OTCM”) Pink^® Open Market (the “PinkMarket”) under the symbol “KGKG.” On May 15, 2023, the last reported sales price for our Common Stock was $0.0027 pershare.

 

Weare an “emerging growth company” as defined by the Jumpstart Our Business Startups Act of 2012 (the “JOBS Act”)and, as such, we have elected to comply with certain reduced public company reporting requirements for this Prospectus and future filings.However, we have elected not to take advantage of the extended transition period allowed for emerging growth companies for complyingwith new or revised accounting guidance as allowed by Section 107 of the JOBS Act and Section 7(a)(2)(B) of the Securities Act.

 

Investingin our securities involves a high degree of risk. See “Risk Factors” beginning on page 6.

  

Neitherthe U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passedupon the adequacy or accuracy of this Prospectus. Any representation to the contrary is a criminal offense.

 

Thedate of this Prospectus is May [__], 2023

 

 

TABLEOF CONTENTS

 

PROSPECTUS SUMMARY	1
SUMMARY OF THE OFFERING	5
RISK FACTORS	6
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS	17
MARKET, INDUSTRY AND OTHER DATA	17
USE OF PROCEEDS	17
THE SELLING STOCKHOLDERS	18
EQUITY PURCHASE AGREEMENT	19
PLAN OF DISTRIBUTION	20
MARKET PRICE AND DIVIDEND INFORMATION	21
DESCRIPTION OF BUSINESS	22
MANAGEMENT’S DISCUSSION AND ANALYSIS AND RESULTS OF OPERATIONS	28
DESCRIPTION OF PROPERTY	40
LEGAL PROCEEDINGS	40
MANAGEMENT	41
EXECUTIVE COMPENSATION	43
CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS	45
PRINCIPAL STOCKHOLDERS	46
DESCRIPTION OF SECURITIES	48
SHARES ELIGIBLE FOR FUTURE SALE	52
LEGAL MATTERS	53
EXPERTS	53
WHERE YOU CAN FIND MORE INFORMATION	53
INDEX TO FINANCIAL STATEMENTS	54

 

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

 

 

PROSPECTUSSUMMARY

 

Thissummary highlights certain information contained elsewhere in this Prospectus. This summary does not contain all of the information thatmay be important to you. You should read and carefully consider the following summary together with the entire Prospectus, especiallythe “Risk Factors” section of this Prospectus and our consolidated financial statements and the notes thereto appearing elsewherein this Prospectus before deciding to invest in our securities. For more information on our business refer to the “Descriptionof Business” section of this Prospectus. Some of the statements in this Prospectus constitute forward-looking statements that involverisks and uncertainties. Our actual results could differ materially from those anticipated in such forward-looking statements as a resultof certain factors, including those discussed in the “Risk Factors” and other sections of this Prospectus. See “CautionaryNote Regarding Forward-Looking Statements.”

 

CompanyOverview

 

Weare a lifestyle company that specializes in developing premium beverage products in the functional and better-for-you markets. Focusingon better-for-you low-calorie and low-carb lemonade, low-calorie and high-in-vitamins energy drinks, and CBD-infused energy water markets,we believe that we have positioned our brands as premium leaders in their respective markets.

 

Wecurrently sell Kona, HighDrate, and Ooh La Lemin through resellers, our websites, leading ecommerce platforms, and distribution partnersin 18 states. Our products are available in a wide variety of retail locations, including convenience stores, grocery stores, and specialtystores. Gold Leaf distributes our own beverage brands, as well as products purchased for resale from several other beverage manufacturers.These premium beverages are available in more than 1,500 grocery stores, convenience stores, smoke shops, vape shops, and specialty stores.

 

CorporateInformation

 

Wewere originally incorporated as Class-ique Talent Agency, Inc. (“CTA”), under the laws of the State of Nevada in March 1997.In October 2001, CTA entered 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 PhaserTekin exchange for shares of common stock of CTA, resulting in PhaserTek becoming a wholly-owned subsidiary of CTA. In accordance with theterms of the Reorganization Plan, CTA changed its name to PhaserTek Medical, Inc. (“PhaserTek Medical”) in 2002. In 2004,PhaserTek Medical changed its name to Union Equity, Inc. (“UE Nevada”). For purposes of changing UE Nevada’s stateof incorporation, UE Nevada formed Union Equity, Inc. in the State of Delaware (“UE Delaware”) in 2004. Pursuant to Articlesof Merger, in December 2004, UE Nevada merged with and into UE Delaware, the surviving company. In July 2015, we changed our name toKona Gold Solutions, Inc. In October 2020, we changed our name to Kona Gold Beverage, Inc.

 

Wehave three wholly-owned subsidiaries: (i) Kona Gold, LLC (“Kona”), a Delaware limited liability company formed in August2015; (ii) HighDrate, LLC (“HighDrate”), a Florida limited liability company formed in January 2018; and (iii) Gold LeafDistribution LLC (“Gold Leaf”), a Florida limited liability company formed in January 2019.

 

●

Kona focuses on the development and marketing of functional and better-for-you beverages.

 

	○	Its Ooh La Lemin Lemonades are better-for-you, low calorie beverages with non-sparkling and sparkling offerings. Ooh La Lemin Lemonades have no added sugar, are low in carbohydrates, and have only 15 calories for Ooh La Lemin, and only 10 calories for Ooh La Lemin Sparkling. Ooh La Lemin is available in four flavors: (i) Original Lemonade, (ii) Blue Raspberry Lemonade, (iii) Peach Lemonade, and (iv) Strawberry Lemonade. Ooh La Lemin Sparkling is available in six flavors: (i) Original, (ii) Cucumber Watermelon, (iii) Blue Raspberry, (iv) Pineapple Mango, (v) Citrus Splash, and (vi) Huckleberry.
	○	Its Kona Gold Energy Drinks are low-to-zero calorie functional beverages that are high in B vitamins, amino acids, and omegas. Organic hemp seed protein powder differentiates Kona Gold Energy Drinks from other brands. It is considered to be a complete protein and is compatible with a variety of diets, including vegan and Kosher. Kona Gold Energy Drinks are available in six flavors: (i) Classic, (ii) Candy Apple, (iii) Cherry Vanilla, (iv) Cotton Candy, (v) Platinum, and (vi) Pink Grapefruit.

 

	●	HighDrate focuses on the development and marketing of CBD-infused energy waters. HighDrate CBD-infused energy waters are functional beverages that contain zero calories and zero sugar. HighDrate CBD-infused energy waters are geared to the fitness and wellness markets. Our CBD-infused energy waters are powered by Alkame’s patented technology, which provides premium oxygenated alkaline water with natural antioxidants. HighDrate CBD-infused energy waters are available in six flavors: (i) Blue Island Punch, (ii) Georgia Peach, (iii) Kiwi Strawberry, (iv) Sour Apple, (v) Tropical Coconut, and (vi) Watermelon.
	●	Gold Leaf focuses on the distribution of premium beverages, such as alkaline waters, beverages for kids, energy drinks, fruit-flavored sodas, low-carb lemonade, healthy aloe juice drinks, in key markets, all of which complement our current product offerings. These markets include over 1,500 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina.

 

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

 

OurCommon Stock is quoted on the Pink Market under the symbol “KGKG.”

 

 

Implicationsof Being an Emerging Growth Company and a Smaller Reporting Company

 

Wequalify as an “emerging growth company,” as defined in the JOBS Act, enacted in April 2012. For so long as we remain an emerginggrowth company, we are permitted and intend to rely on certain exemptions from various public company reporting requirements, includingthe option to present only two years of audited financial statements and only two years of related “Management’s Discussionand Analysis of Financial Condition and Results of Operations” in this Prospectus, not being required to have our internal controlover financial 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 periodic reportsand proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and any goldenparachute payments not previously approved. In particular, in this Prospectus, we have provided only two years of audited financial statementsand have not included all of the executive compensation related information that would be required if were not an emerging growth company.Accordingly, the information contained herein may be different than the information you receive from other public companies in whichyou hold stock.

 

Wemay take advantage of these provisions until the earliest to occur of (1) the last day of the fiscal year (a) following the fifth anniversaryof the closing of this offering, (b) in which we have total annual gross revenues of at least $1.07 billion, or (c) in which we are deemedto be 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 more than$1.0 billion in non-convertible debt during the prior three-year period.

 

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

 

Weare also a “smaller reporting company,” meaning that the market value of our stock held by non-affiliates is less than $700million and our annual revenue was less than $100 million during the most recently completed fiscal year. We may continue to be a smallerreporting company if either (i) the market value of our stock held by non-affiliates is less than $250 million or (ii) our annual revenuewas less than $100 million during the most recently completed fiscal year and the market value of our stock held by non-affiliates isless than $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, as a smallerreporting company, we may choose to present only the two most recent fiscal years of audited financial statements in our Annual Reportson Form 10-K and, similar to emerging growth companies, smaller reporting companies have reduced disclosure obligations regarding executivecompensation.

 

IntellectualProperty

 

Wehave three trademarks that are 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 also appliedfor a trademark for “Storm” to use in the Beverages Segment. We do not have any patents.

 

RecentDevelopments

 

March2023 Securities Purchase Agreement

 

Pursuantto a Securities Purchase Agreement dated as of March 13, 2023 (the “March SPA”), we, completed a private placement of a SeniorSecured Promissory Note (the “March Senior Note”) with an initial principal amount of $475,000 and the grant of a CommonStock Purchase Warrant (the “March SPA Warrant”) that is exercisable for the purchase of up to an aggregate of 80,000,000shares (the “March SPA Warrant Shares”) of our Common Stock with Mast Hill. In addition, to secure our obligations to MastHill under the March Senior Note, we also entered into a Security Agreement (the “March Security Agreement”) with and infavor of Mast Hill. Our subsidiaries are also parties to the March Security Agreement.

 

Thetransactions contemplated by the March SPA were consummated on March 15, 2023 (the “March SPA Issue Date”). Upon thefunding, we sold and issued the March Senior Note and granted the March SPA Warrant. Pursuant to the March SPA, the purchase pricefor the March Senior Note was $475,000, less $43,500 in fees, which consisted of an 8% “original issue discount” of$38,000 and $5,500 for Mast Hill’s legal fees. In connection with this transaction, we paid Darbie a $30,500 fee.

 

TheMarch Senior Note is due 12 months from its issuance date and is secured by all of our assets and the assets of each of oursubsidiaries pursuant to the March Security Agreement. Initially, the March Senior Note is convertible into shares of our CommonStock (the “March Conversion Shares”) at a fixed conversion price of $0.0045 per share, subject to adjustment due tomerger, consolidation, exchange of shares, recapitalization, reorganization, or similar event as set forth in the March Senior Note(the “March Conversion Price”). The March Senior Note contains an adjustment provision that, subject to certainexceptions, reduces the conversion price if we issue shares of our Common Stock or common stock equivalents at a price lower thanthe then-current March Conversion Price of the March Senior Note. Upon any stock splits, reverse stock splits, distributions, stockdividends, or other similar event, Mast Hill will be entitled to participate in such an event on an “as converted”basis. The March Senior Note is subject to a “conversion blocker” such that Mast Hill cannot convert any portion of theMarch Senior Note that would result in Mast Hill and its affiliates holding more than 4.99% of the then-issued and outstandingshares of our Common Stock following such conversion (excluding, for purposes of such determination, shares of the Common Stockissuable upon conversion of the March Senior Note or exercise of the March SPA Warrant that had not then been converted orexercised, respectively). Mast Hill does not have the right to convert the March Senior Note until six months after the March SPAIssue Date. The March Senior Note accrues interest at an annual rate equal to 10% and is due and payable on its maturity date (orsooner if Mast Hill converts the March Senior Note or otherwise accelerates the maturity date, as provided for in the March SeniorNote). Interest is payable in cash on the maturity date or, in shares of the Common Stock at the then-current March Conversion Priceif Mast Hill converts the March Senior Note or otherwise accelerates the maturity date, as provided for in the March SeniorNote.

 

Atour option, we have the right to redeem, in full, the outstanding principal and interest under the March Senior Note prior to itsmaturity date; provided, that, as of the date of the then-holder’s receipt of the redemption notice, there has not been anEvent of Default. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon,as well as a $750 administrative fee (the “March Redemption Amount”). We must provide seven Trading Days’ (as suchterm is defined in the March Senior Note) prior notice to the then-holder of the March Senior Note of our intent to make aredemption. If such notice of redemption is received six months after the March SPA Issue Date, the then-holder has the right toconvert any or all of such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of theMarch Senior Note prior to such redemption.

 

 

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

 

Wealso granted the March SPA Warrant to purchase up to an aggregate of the 80,000,000 March SPA Warrant Shares. The March SPA Warrant hasa five-year term and is immediately exercisable at an exercise price of $0.0045 per share, subject to adjustment and is exercisable bythe then-holder on a “cashless” basis.

 

TheMarch SPA Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if we issue sharesof our Common Stock or common stock equivalents at a price lower than the then-current exercise price of the March Warrant. Any stocksplits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will resultin an equitable adjustment of the exercise price of the March Warrant and, in certain circumstances, the number of March SPA WarrantShares. The March SPA Warrant is subject to an “exercise blocker,” such that Mast Hill cannot exercise any portion of theMarch SPA Warrant that would result in Mast Hill and its affiliates holding more than 4.99% of the then-issued and outstanding sharesof our Common Stock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable uponexercise of the March SPA Warrant or conversion of the March Senior Note that had not then been exercised or converted, respectively).

 

April2023 Securities Purchase Agreement

 

Pursuantto a Securities Purchase Agreement dated as of April 25, 2023 (the “April SPA”), we completed a private placement of a SeniorSecured Promissory Note (the “April Senior Note”) with an initial principal amount of $230,000 and the grant of a CommonStock Purchase Warrant (the “April Warrant”) that is exercisable for the purchase of up to an aggregate of 43,600,000 shares(the “April Warrant Shares”) of our Common Stock with a third-party investor (the “Mast Hill”). In addition,to secure our obligations to Mast Hill under the April Senior Note, we also entered into a Security Agreement (the “April SecurityAgreement”) with and in favor of Mast Hill. Our subsidiaries are also parties to the April Security Agreement.

 

Thetransactions contemplated by the April SPA were consummated on April 28, 2023 (the “April Issue Date”). Upon the funding,we sold and issued the April Senior Note and granted the April Warrant. Pursuant to the April SPA, the purchase price for the April SeniorNote was $230,000, less $21,900 in fees, which consisted of an 8% “original issue discount” of $18,400 and $3,500 for MastHill’s legal fees. In connection with this transaction, we paid Darbie a $6,400 fee.

 

TheApril Senior Note is due 12 months from its issuance date and is secured by all of our assets and the assets of each of our subsidiariespursuant to the April Security Agreement. The security interest granted to Mast Hill under the April Security Agreement is subordinateto the March Security Agreement. Initially, the April Senior Note is convertible into shares of our Common Stock (the “April ConversionShares”) at a fixed conversion price of $0.004 per share, subject to adjustment due to merger, consolidation, exchange of shares,recapitalization, reorganization, or similar event as set forth in the April Senior Note (the “April Conversion Price”).The April Senior Note contains an adjustment provision that, subject to certain exceptions, reduces the conversion price if we issueshares of our Common Stock or common stock equivalents at a price lower than the then-current April Conversion Price of the April SeniorNote. Upon any stock splits, reverse stock splits, distributions, stock dividends, or other similar event, Mast Hill will be entitledto participate in such an event on an “as converted” basis. The April Senior Note is subject to a “conversion blocker”such that Mast Hill cannot convert any portion of the April Senior Note that would result in Mast Hill and its affiliates holding morethan 4.99% of the then-issued and outstanding shares of our Common Stock following such conversion (excluding, for purposes of such determination,shares of the Common Stock issuable upon conversion of the April Senior Note or exercise of the April Warrant that had not then beenconverted or exercised, respectively). Mast Hill does not have the right to convert the April Senior Note until six months after theApril Issue Date. The April Senior Note accrues interest at an annual rate equal to 10% and is due and payable on its maturity date (orsooner if Mast Hill converts the April Senior Note or otherwise accelerates the maturity date, as provided for in the April Senior Note).Interest is payable in cash on the maturity date or, in shares of the Common Stock at the then-current April Conversion Price if MastHill converts the April Senior Note or otherwise accelerates the maturity date, as provided for in the April Senior Note.

 

Atour option, we have the right to redeem, in full, the outstanding principal and interest under the April Senior Note prior to its maturitydate; provided, that, as of the date of the then-holder’s receipt of the redemption notice, there has not been anEvent of Default. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, aswell as a $750 administrative fee (the “April Redemption Amount”). We must provide seven Trading Days’ (as such termis defined in the April Senior Note) prior notice to the then-holder of the April Senior Note of our intent to make a redemption. Ifsuch notice of redemption is received six months after the April Issue Date, the then-holder has the right to convert any or all of suchto-be-prepaid amount into shares of our common Stock in accordance with the conversion provisions of the April Senior Note prior to suchredemption.

 

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

 

Notwithstandingthe foregoing, if we have paid the mandatory case prepayment to Mast Hill during an applicable calendar month pursuant to the March SeniorNote, then we do not have an obligation to make a mandatory case prepayment in that applicable calendar month with respect to the AprilSenior Note.

 

FirstAmendment to Secured Debenture

 

OnMarch 23, 2023, the Company entered into a First Amendment to Secured Debenture (the “First Amendment”) to amend a SecuredDebenture (the “Debenture”), dated as of March 25, 2022. The original note was in the principal amount of $250,000 and maturedon March 24, 2023. The Debenture is amended and restated in its entirety with the following terms (i) note payable matures March 24,2024; (ii) interest shall accrue on the outstanding principal at a rate equal to twelve percent (12%) per annum; (iii) monthly paymentsof principal and interest shall be made in the amount of $22,212 starting April 24, 2023 until the maturity date, which the entiretyof the balance of principal plus interest is due.

 

 

2023Equity Purchase Agreement

 

Pursuantto an Equity Purchase Agreement dated as of March 30, 2023 (the “EPA”), we (i) agreed to sell to Mast Hill up to $5,000,000(the “Maximum Commitment Amount”) of shares of our Common Stock (the “Put Shares”) and (ii) granted to Mast Hilla Common Stock Purchase Warrant (the “EPA Warrant”) that is exercisable for the purchase of up to an aggregate of 56,000,000shares (the “EPA Warrant Shares”) of our Common Stock.

 

Uponthe terms and conditions set forth in the EPA, we have the right, but not the obligation, to direct Mast Hill, by delivery to Mast Hillof a Put Notice from time to time, to purchase shares of our Common Stock (i) in a minimum amount not less than $25,000.00 and (ii) ina maximum amount up to the lesser of (a) $500,000.00 or (b) 150% of the Average Daily Trading Value of our Common Stock (as defined inthe EPA). At any time and from time to time through and including March 30, 2025 (the “Commitment Period”), except as providedin the EPA, we may deliver a Put Notice to Mast Hill.

 

TheCommitment Period commences on the Execution Date, and ends on the earlier of (i) the date on which Mast Hill has purchased Put Sharespursuant to the EPA equal to the Maximum Commitment Amount, (ii) March 30, 2025, (iii) written notice of termination by us to Mast Hill(which cannot occur during any Valuation Period or at any time that Mast Hill holds any of the Put Shares), (iv) this Registration Statementfor the Put Shares is no longer effective after its initial effective date, or (v) the date that, pursuant to or within the meaning ofany Bankruptcy Law, we commence a voluntary case or any person commences a proceeding against us, a Custodian is appointed for us orfor all or substantially all of our property, or we make a general assignment for the benefit of our creditors.

 

Wealso granted the EPA Warrant to purchase up to an aggregate of 56,000,000 EPA Warrant Shares. The EPA Warrant has a five-year term andis immediately exercisable at an exercise price of $0.0045 per share, subject to adjustment and is exercisable by the then-holder ona “cashless” basis. The EPA Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exerciseprice if we issue shares of Common Stock or common stock equivalents at a price lower than the then-current exercise price of the EPAWarrant. Any stock splits, reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similarevents will result in an equitable adjustment of the exercise price of the EPA Warrant and, in certain circumstances, the number of EPAWarrant Shares. The Warrant is subject to an “exercise blocker,” such that Mast Hill cannot exercise any portion of the EPAWarrant that would result in Mast Hill and its affiliates holding more than 4.99% of the then-issued and outstanding shares of CommonStock following such exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of theEPA Warrant or Put Notice that had not then been exercised, respectively).

 

Finder’sFee Agreement

 

OnMay 26, 2022, we entered into a finder’s fee agreement with Darbie, whereby Darbie provided introduction services to qualifiedfunders for the Company. In consideration for any closing introductions, Darbie would receive a finder’s fee in cash equal to 3%of the gross proceeds of an equity/convertible debt transaction or 3% of the gross proceeds of a non-convertible debt transaction, plusequity in the form of non-callable warrants to purchase common stock equal to 4% of the amount raised.

 

 

SUMMARYOF THE OFFERING

 

Issuer:		Kona Gold Beverage, Inc.
Securities Being Offered by the Selling Stockholders:		Up to 702,280,139 shares of our Common Stock, including: (i) up to 642,224,583 Equity Line shares for Mast Hill, (ii) up to 56,000,000 EPA Warrant Shares for Mast Hill, and (iii) 4,055,556 Placement Warrant shares for Darbie.   Mast Hill will not hold more than 4.99% of the issued and outstanding shares of our Common Stock at any one time.
Offering Price:		The Selling Stockholders may offer, sell, or distribute all or a portion of the shares registered hereby either through public or private transactions at prevailing market prices or at negotiated prices. See “Plan of Distribution.”
Risk of Factors:		The Securities offered hereby involve a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” for a discussion of the factors you should consider carefully before making an investment decision.
Shares of our Common Stock Issued and Outstanding Prior to the Offering:		2,226,940,557 shares (1)
Use of Proceeds:		We will not receive any of the proceeds from the sale of the Common Stock registered hereunder.   We will receive proceeds from Mast Hill upon “Put Notices” presented to Mast Hill by the Company, and pursuant to the EPA. We will also receive proceeds upon the exercise of the EPA Warrant, assuming it is not exercised on a “cashless” basis. We intend to use such proceeds, if any, for general corporate purposes and working capital requirements.
Trading Symbol:		Our Common Stock is currently quoted on the Pink Market under the symbol “KGKG.”
Risk Factors:		See “Risk Factors” and the other information included in this Prospectus for a discussion of factors you should consider carefully before investing in our shares of Common Stock.

 

(1)

Unless we indicate otherwise, the number of shares of our Common Stock outstanding is based on 2,226,940,557 shares of our Common Stock outstanding on May 15, 2023, and excludes the following: (i) up to 50,000,000, 100,000,000, and 8,333,333 shares of our Common Stock issuable upon exercise of warrants granted to YA II PN, Ltd in February 2021, August 2021, and May 2022, respectively; (ii) 488,000 shares of our Common Stock issuable upon conversions of our Series B preferred stock (our “Series B Preferred Stock”); (iii) 1,000 shares of our Common Stock issuable upon conversions of our Series C preferred stock (our “Series C Preferred Stock”); (iv) 500,000,000 shares of our Common Stock issuable upon conversions of our Series D preferred stock (our “Series D Preferred Stock”); (v) 169,998,860 shares of our Common Stock that are issuable at some point in the future to Robert Clark, our Chief Executive Officer, which shares are related to certain accruals for compensation previously earned; (vi) 650,000 shares of our Common Stock that are issuable upon conversions of our Series B Preferred Stock that are issuable at some point in the future to Robert Clark, our Chief Executive Officer, which shares are related to certain accruals for compensation previously earned; (vii) 642,224,583 shares of our Common Stock (the Put Shares) offered for resale by Mast Hill, which shares are issuable by the Company pursuant to the EPA; (viii) 105,555,556 shares of our Common Stock issuable upon conversion of a convertible promissory note issued to Mast Hill in March 2023; (ix) 57,500,000 shares of our Common Stock issuable upon conversion of a convertible promissory note issued to Mast Hill; in April 2023; (e) an aggregate of 123,600,000 shares of our Common Stock issuable upon exercise of common stock purchase warrants that we granted to Mast Hill in connection with the two above-referenced convertible promissory notes; and (x) 56,000,000 shares of our Common Stock issuable upon exercise of the EPA Warrant.

 

 

RISKFACTORS

 

Investingin our securities 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. Inparticular, you should carefully consider and evaluate the risks and uncertainties described under the heading “Risk Factors”in this Prospectus. Any of the risks and uncertainties set forth in this Prospectus, as updated by annual, quarterly, and other reportsand documents that we file with the SEC and incorporate by reference into this Prospectus could materially and adversely affect our business,results of operations, and financial condition, which in turn could materially and adversely affect the value of our securities. As aresult, you could lose all or part of your investment. This Prospectus also contains forward-looking statements that involve risks anduncertainties. Our actual results could differ materially from those anticipated in the forward-looking statements as a result of a numberof factors, including the risks described below. See “Cautionary Note Regarding Forward-Looking Statements.”

 

Wehave a limited operating history on which to judge our new business prospects and management.

 

Wecommenced operations in the beverage industry in 2015. Accordingly, we have only a limited operating history upon which to base an evaluationof our business and prospects. Operating results for future periods are subject to numerous uncertainties and we cannot assure you thatwe will achieve or sustain profitability. Our prospects must be considered in light of the risks encountered by companies in the earlystage of development, particularly companies in new and rapidly evolving markets. We cannot assure you that we will successfully addressany of these risks.

 

Wehave incurred losses in recent years and may never achieve or maintain profitability.

 

Wehave had losses for several years and had an accumulated deficit of $23,613,208 at December 31, 2022, which included our net loss of$7,313,035 for the year ended December 31, 2022, as compared to an accumulated deficit of $16,300,173, which included our net loss of$7,020,137 for the year ended December 31, 2021. As of March 31, 2023, our accumulated deficit had increased to $25,205,765, which increaseincluded our net loss of $1,592,557 for three months ended March 31, 2023. We have implemented several initiatives intended to improveour revenues and reduce our operating costs with a goal of profitability. If we are unsuccessful in this regard, it will have a materialadverse impact on our business, prospects, operating results, and financial condition. Our prior losses have had, and any future lossesmay continue to have, an adverse effect on our working capital. If we fail to generate revenue and become profitable, or if we are unableto fund our continuing losses, our stockholders could lose all or part of their investment.

 

Ourrecurring losses and significant accumulated deficit have raised substantial doubt regarding our ability to continue as a going concern.

 

Wehave experienced recurring operating losses over the last two years and have a significant accumulated deficit. We expect to continueto generate operating 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 operations for theforeseeable future or realize assets and discharge liabilities in the ordinary course of operations. If we seek additional financingto fund our business activities in the future and there remains doubt about our ability to continue as a going concern, investors orother financing sources may be unwilling to provide additional funding on commercially reasonable terms or at all. If we are unable toobtain sufficient funding, our business, prospects, financial condition, and results of operations will be materially and adversely affected,and we may be unable to continue as a going concern. If we are unable to continue as a going concern, we may have to liquidate our assetsand may receive less than the value at which those assets are carried on our financial statements, and it is likely that our stockholderswill lose all or a part of their investment.

 

Wedo not have sufficient working capital to fund our planned operations, and, as a result, we may need to raise additional capital in thefuture, which may not be available when needed, on acceptable terms or at all.

 

Wehave limited capital resources. To date, we have financed our operations entirely through equity investments by our management and otherinvestors, the incurrence of debt, salary deferments, and stock issuance deferments, and we expect to continue to do so in the foreseeablefuture. During the years ended December 31, 2022 and 2021, we relied on aggregate of approximately $6.3 million from incurrence of debt,salary deferments, and stock issuance deferments, to fund our operations.

 

 

Webelieve we will have enough cash to sustain operations through December 31, 2023, utilizing certain funds to be made available by theEPA. Subsequent to December 31, 2022, we received gross proceeds of $990,000 on the sale of notes, including the draw of $200,000 fromthe issuance of $200,000 line of credit on March 7, 2023, the draw of $85,000 from the issuance of $85,000 line of credit on March 9,2023, the issuance of a $475,000 debenture on March 13, 2023, and the issuance of a $230,000 debenture on April 25, 2023, as well asthe entry into the EPA of up to $5,000,000 on March 30, 2023 (that, as of the date of this Prospectus, we have not utilized). Takinginto account our planned activities and sources of capital, we believe that we will not require additional funding of our financial obligationsand operations for the next 12 months in excess of what we anticipate that we will generate from our operations and the potential useof the EPA. However, our estimates of our operating revenues and expenses and working capital requirements could be incorrect, and wemay use our cash resources faster than we anticipate. Further, some or all of our ongoing or planned investments may not be successfuland could further deplete our capital without immediate, or any, cash returns.

 

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

 

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

 

 

TheCOVID-19 pandemic could have a material adverse impact on our business, results of operations, and financial condition.

 

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

 

Wesell our products in highly competitive markets, which results in pressure on our profit margins and limits our ability to maintain orincrease the market share of our products.

 

Thebeverage business is a highly competitive and risky business, and is subject to significant competition and pricing pressures. We competewith many national, regional, and local businesses, many of which have more resources than we do. We could experience increased competitionfrom existing or new companies in the energy and beverage market, which could create increasing pressures to grow our business. Competitorscould offer products with prices that may match or are lower than the prices we offer. While we believe that the products we offer aregenerally competitive with those offered by other companies, continued pricing pressure or improvements in research and shifts in consumerpreferences away from hemp-based beverages could adversely impact our consumer base or pricing structure and could have a material andadverse effect on our business, financial condition, results of operations, and cash flow.

 

Ourfuture growth is largely dependent upon our ability to expand successfully into new markets and new distribution channels, as well asto attract new consumers to our products.

 

Ourbusiness operates in markets that are characterized by rapidly changing products, evolving industry standards, and potential new entrants.Our future success depends upon a number of factors, including our ability to expand our product offerings into new territories and locationsthroughout the United States, including having our products offered in national retail stores such as Costco, Walmart, and Target. Wecannot provide any assurance that our products will be offered in any such national chain. Failure to expand our distribution networkto include distributors with reach into national retail stores will have an adverse effect on our growth, which, in turn, could adverselyaffect our business, financial condition, results of operations, and cash flow.

 

Changesin consumer preferences and perceptions may lessen the demand for our products, which would reduce sales and harm our business.

 

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

 

Increasesin our costs materially affect our operating results.

 

Ourprincipal beverage products contain hemp, CBD, and ginseng. Increases in costs of these, or other ingredients in our products paid byour co-packers, with respect to our Company, or our suppliers, with respect to our Distribution Subsidiary, and the costs of which arepassed on to us, could have a material adverse effect on our profit margins, as well as on our business, financial condition, and operatingresults. Further, other factors, such as inflation, increased food costs, increased labor and employee benefit costs, and increased energycosts may adversely affect our operating costs and we may not be able to pass along any such increased costs to our consumers. Increasesin costs could adversely affect our profitability and operating results.

 

Wedo not have long-term contracts with any of our co-packers or our suppliers, and as a result they could seek to increase prices significantlyor fail to deliver.

 

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

 

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

 

Anyprolonged disruption in the operations of any of our co-packing facilities could harm our business.

 

Allof our distribution is managed domestically. Any prolonged disruption in the operations of any of these facilities, whether due to technicalor labor difficulties, destruction or damage to the facility, real estate issues, or other reasons, could result in increased costs andreduced revenues and our profitability and prospects could be harmed.

 

 

Wemay not be able to manage our co-packing capabilities effectively, which may adversely affect our results of operations.

 

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

 

Ifthe ingredients used in our products are contaminated, alleged to be contaminated, or are otherwise rumored to have adverse effects,our results of operations could be adversely affected.

 

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

 

Ourbusiness depends, in part, on the sufficiency and effectiveness of our marketing.

 

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

 

Lossof key personnel or our inability to attract and retain new qualified personnel could hurt our business and inhibit our ability to operateand grow successfully.

 

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

 

Wemay not be able to protect our intellectual property adequately, which could harm the value of our brands and branded products and adverselyaffect our business.

 

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

 

Wemay be subject to product liability claims or regulatory actions if our products are alleged to have caused significant loss or injury.

 

Wemay be subject to product liability claims, regulatory action, and litigation if our products are alleged to have caused loss or injuryor failed to 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 combination with medicationsor other substances could also occur. In addition, the sale of any ingested product involves a risk of injury due to tampering by unauthorizedthird parties or product contamination. Our products may also be subject to product recalls, including voluntary recalls or withdrawals,if they are alleged to pose a risk of injury or illness, or if they are alleged to have been mislabeled, misbranded, or adulterated,or otherwise to be in violation of governmental regulations. A product liability claim or regulatory action against us could result inincreased costs and could adversely affect our reputation and goodwill with our consumers generally. There can be no assurance that wewill be able to obtain and maintain product liability insurance on acceptable terms or with adequate coverage against potential liabilities.Such insurance is expensive and may not be available in the future on acceptable terms, or at all. The inability to obtain sufficientinsurance coverage on reasonable terms or otherwise to protect against potential product liability claims could result in us becomingsubject to significant liabilities that are uninsured and also could adversely affect our commercial arrangements with third parties.

 

Ourannual and quarterly financial results are subject to significant fluctuations due to a variety of factors, many of which are beyondour control, which makes our results difficult to predict and could cause our results to fall short of expectations.

 

Ouroperating results can vary significantly from quarter-to-quarter and year-to-year depending on various factors, many of which are beyondour control. As a result, comparing our operating results on a period-to-period basis may not be meaningful, and you should not relyon our past results as an indication of our future performance. Our operating results in future quarters may fall below expectations.Each of the following factors may affect our operating results:

 

	●	the level of product and price competition;
	●	variations in the timing and volume of our sales;
	●	our ability to deliver products in a timely manner in sufficient volumes;

 

 

	●	our ability to recognize product trends;
	●	our success in expanding our business network and managing our growth;
	●	our ability to develop and market product enhancements and new products;
	●	the timing of product enhancements, activities of and acquisitions by competitors;
	●	the ability to hire additional qualified employees; and
	●	our ability to control costs.

 

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

 

Wemay require additional capital to finance our operations in the future, but that capital may not be available when it is needed and couldbe dilutive to existing stockholders.

 

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

 

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

 

Thesuccess of our new and existing products Is uncertain.

 

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

 

Ourbusiness is dependent upon market acceptance by consumers.

 

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

 

Ifwe are able to expand our operations, we may be unable to manage our future growth successfully.

 

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

 

 

Anyfuture litigation, or settlements resulting from legal proceedings relating to our business operations, could have a material adverseimpact on our results of operations, and financial condition, and liquidity.

 

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

 

Premiumsfor our insurance coverage may not continue to be commercially justifiable, and our insurance coverage may have limitations and otherexclusions and may not be sufficient to cover our potential liabilities.

 

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

 

RisksRelated to the Regulation of Our Business and Products

 

Weand our co-packers and suppliers are subject to extensive governmental regulation and may be subject to enforcement if we are not incompliance with applicable requirements.

 

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

 

Failureby us, our co-packers, or our suppliers to comply with applicable laws and regulations or to obtain and maintain necessary permits, licenses,and registrations relating to our operations could subject us to administrative and civil penalties, including fines, injunctions, recallsor seizures, warning letters, restrictions on the production or marketing of our products, or refusals to permit the import or exportof 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.

 

TheFDA has stated that it interprets the FDCA to prohibit the sale of food products that contain CBD. The FDA is currently evaluating apotential regulatory pathway for CBD products pursuant to its current authority; but, unless and until such changes are promulgated,the FDA and other federal and state regulatory authorities could take enforcement action to prevent us from marketing beverages withCBD, which could adversely impact 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”), theFDA has stated publicly that it is nonetheless unlawful under the FDCA to introduce food containing CBD into interstate commerce. TheFDCA prohibits the introduction or delivery for introduction into interstate commerce of any food that contains an approved drug or adrug for which substantial clinical investigations have been instituted and made public, unless a statutory exemption applies. The FDAhas publicly stated its conclusion that none of the statutory exceptions has been met for CBD.

 

OnMay 31, 2019, the FDA held a public hearing to obtain scientific data and information about the safety, production, product quality,marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds (such as CBD) to provide the FDA with informationas it considers policy options related to the regulation of these products, particularly in light of the changes to the legal statusof hemp enacted in the Agriculture Improvement Act of 2018 (the “2018 Farm Bill”). The FDA has also formed an internal workinggroup to evaluate the potential pathways to market for CBD products, which could include seeking statutory changes from Congress or promulgatingnew regulations. If legislative action is necessary, such legislative changes could take years to finalize and may not include provisionsthat would enable us to produce, market, and/or sell our CBD products, and the FDA could similarly take years to promulgate new regulations.Additionally, while the FDA’s enforcement focus to date has primarily been on CBD products that are associated with 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 products tous, which could limit or prevent us from marketing our products and have a material adverse impact on our business, financial condition,and results of operations. While the FDA announced on March 5, 2020 that it is currently evaluating a risk-based enforcement policy forCBD to provide more clarity to the industry and the public while the agency takes potential steps to establish a clear regulatory pathway,it remains unclear whether or when the FDA will ultimately issue such an enforcement policy.

 

 

Moreover,local, state, federal, and international CBD, hemp, and cannabis laws and regulations are rapidly changing and subject to evolving interpretations,which could require us to incur substantial costs associated with compliance requirements or alteration of certain aspects of our businessplan in the event that our CBD products become subject to new restrictions. In addition, violations of these laws, or allegations ofsuch violations, 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 administrative policies andprocedures, when and if promulgated, could have on our activities in the hemp and CBD industry. The constant evolution of laws and regulationsmay require us to incur substantial costs associated with legal and compliance fees and ultimately require us to alter our business plan.

 

Ourproducts contain CBD derived from hemp. The 2018 Farm Bill enacted a number of changes to the legal status of hemp and hemp products,including removal from the statutory list of controlled substances. However, implementation of the 2018 Farm Bill is ongoing, and thereis still significant uncertainty regarding the legal status of hemp and hemp-based products under U.S. law.

 

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

 

Inaddition, the 2018 Farm Bill contained provisions that require the USDA, among other things, to promulgate a new regulatory frameworkthat will govern the growth and cultivation of hemp, where hemp grown in compliance with the framework would be permitted in interstatecommerce throughout the United States. On October 31, 2019, the USDA issued an interim final rule (“IFR”) establishing theregulations necessary for domestic hemp production, including provisions for the USDA to approve plans submitted by states and NativeAmerican tribes for the monitoring and regulation of hemp production at the state level. Effective March 22, 2021, The USDA issued thefinal rule, which creates the U.S. Domestic Hemp Production Program. The program provides requirements for maintaining records aboutthe land where hemp is produced, testing the levels of total delta-9 tetrahydrocannabinol, disposing of non-compliant plants, licensinghemp producers, and ensuring compliance under the new program. The Agricultural Marketing Service (AMS) has been delegated authorityto administer the U.S. Domestic Hemp Production Program. While the 2018 Farm Bill requires state and tribal plans to meet certain basicrequirements as outlined in the IFR, nothing preempts or limits state or tribal laws that are more stringent than the 2018 Farm Bill,and the requirements for lawful hemp production will vary from state to state. We and our co-packers and suppliers must expend resourcesto 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.

 

Withinthe United States, we and our co-packers and suppliers face a variety of state and local restrictions on the cultivation of hemp, andif state or local regulatory authorities take enforcement action to prevent us from selling our products, our business, financial condition,and results of operations could be materially adversely impacted.

 

Thegrowth and cultivation of hemp is subject to a complex regulatory framework that is implemented and affected by multiple federal agencies,as well as state and local authorities. In 2014, four years prior to enacting the 2018 Farm Bill, Congress enacted the Agricultural Actof 2014 (the “2014 Farm Bill”) to allow for the limited growth and cultivation of industrial hemp under federal law. Thisstatute allowed institutions of higher education and state departments of agriculture to grow and cultivate industrial hemp for agriculturalor other academic research purposes, or for hemp to be grown under the auspices of a state agricultural pilot program, in states wheresuch growth and cultivation is legal under state law. While the 2014 Farm Bill will be repealed after October 31, 2020, and althoughthe 2018 Farm Bill created a pathway under which hemp and its derivatives, including CBD, would no longer be a Schedule I controlledsubstance under the CSA and would be protected from interference in interstate commerce, the USDA only recently issued the IFR that containsthe regulatory framework that will govern the growth and cultivation of hemp, and, currently, several states continue to operate underthe 2014 Farm 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 other plantof the cannabis genus and derivatives thereof, such as CBD. Currently several states ban the cultivation and possession of hemp or CBD,while others have taken enforcement action against human food products that contain CBD, and states may enact new laws or regulationsthat prohibit or limit the sale of such products at any time. In the event of a change in federal or state laws and regulations thatare adverse to our CBD products, we may be restricted or limited with respect to sale or distribution of those products, which couldadversely impact our intended business plan with respect to such products.

 

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

 

Changesin existing laws or regulations, including how such existing laws or regulations are enforced by federal, state, and local authorities,or the adoption of new laws or regulations may increase our costs and otherwise adversely affect our business, financial condition, andresults of operations.

 

Inaddition to the legal framework applicable to hemp and CBD, the production and marketing of food products is highly regulated, and weand our co-packers and suppliers are subject to a variety of federal and state laws and regulations applicable to food. These laws andregulations 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 violationsof, or liabilities under, such requirements, including any competitor or consumer challenges relating to compliance with such requirements.For example, in connection with the marketing and advertising of our products, we could be the target of claims relating to false ordeceptive advertising, including under the auspices of the FTC and state consumer protection statutes.

 

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

 

 

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

 

Governmentscrutiny, warnings, and public perception could increase our costs of production and increase our legal and regulatory expenses, andif we are unable to comply with the applicable requirements for marketing beverages, we could face substantial civil and criminal penalties.

 

Producing,processing, labeling, packaging, storing, and distributing food products are activities that are subject to extensive federal, state,and local regulation. In the United States, these operations are regulated by the FDA and various state and local public health and agriculturalagencies. The FDA Food Safety Modernization Act of 2011 provides direct recall authority to the FDA for food products and includes anumber of other provisions that are designed to enhance food safety, including increased inspections by the FDA of domestic food facilities.Compliance with government regulation can be costly or may otherwise adversely affect our business. Moreover, failure to comply withapplicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls, or seizures, as well as potentialcriminal sanctions, which could in turn have a material adverse effect on our business, financial condition, and results of operations.

 

Weoperate in a highly regulated environment with constantly evolving legal and regulatory frameworks. Consequently, we are subject to heightenedrisk of legal claims, government investigations, or regulatory enforcement actions. Although we have implemented policies and proceduresdesigned to ensure compliance with existing laws and regulations, there can be no assurance that our employees, temporary workers, contractors,or agents might not violate our policies and procedures. Moreover, a failure to maintain effective regulatory compliance policies andprocedures could lead to violations, unintentional or otherwise, of laws and regulations. Legal claims, government investigations, orregulatory enforcement 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, andoperating results. In addition, the costs and other effects of defending potential and pending litigation and administrative actionsagainst us may be difficult to determine and could materially adversely affect our business, financial condition, and results of operations.

 

Becausethere has been limited study on the effects of CBD, future nonclinical and clinical research studies and analysis of such studies bythird parties, including government agencies, may lead to conclusions that dispute or conflict with our understandings and beliefs regardingthe benefits, viability, safety, dosing, and social acceptance of CBD.

 

Researchin the United States and internationally regarding the benefits, viability, safety, and dosing of isolated cannabinoids (such as CBDor THC) remains in relatively early stages. There have been few clinical trials on the benefits of CBD conducted on humans or animals,including studies focused on the consumption of CBD in foods.

 

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

 

Negativepublicity from being in the hemp and CBD space could have a material adverse effect on our business, financial condition, and resultsof operations.

 

Hempand marijuana are both varieties of the plant, Cannabis sativa L., except that hemp, as defined by federal law for exemption from ScheduleI of the CSA, has a delta-9 THC concentration of not more than 0.3% on a dry weight basis. The same plant with a higher THC content isconsidered to be marijuana, which is legal for medical and recreational use under certain state laws, but which is not legal under federallaw. The similarities between these plants can cause confusion, and our activities with hemp may be incorrectly perceived that we areinvolved in federally illegal marijuana activities.

 

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

 

Ourability to deduct certain business expenses for income tax purposes is subject to uncertainty.

 

Section280E of the Internal Revenue Code of 1986, as amended (the “Code”), prohibits the deduction of certain otherwise ordinarybusiness expenses from carrying on any trade or business that consists of “trafficking” Schedule I or II controlled substances,as defined by the CSA. Under existing Internal Revenue Service guidance, the bulk of operating costs and general administrative costsof trades or businesses that are subject to Section 280E of the Code are not permitted to be deducted. 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 CSA, untilthe USDA implements regulations pursuant to the 2018 Farm Bill, we believe our ability to deduct certain ordinary business expenses requirescompliance with 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 Farm Bill, governmentallydetermined non-compliance with the 2014 Farm Bill by us, our co-packers, or their suppliers may have a material adverse tax effect onus.

 

 

RisksRelated to an Investment in Our Common Stock

 

Thereis currently a limited public market for our Common Stock; a trading market for our Common Stock may never develop; and our Common Stockprices may be volatile and could decline substantially.

 

Althoughfrom April 15, 2020 to March 14, 2022, our Common Stock was quoted on the OTCQB^® Venture Market, an over-the-counter quotationsystem maintained by the OTC Markets Group Inc. (the “OTCM”), under the symbol “KGKG,” and, is currently quotedon the Pink^® Open Market (the “Pink Market”), there has been no material public market for our Common Stock.In the over-the-counter market, our stockholders may find it more difficult to obtain accurate quotations as to the market value of theirshares of our Common Stock and may find fewer buyers to purchase their stock and fewer market makers to support its price than if ourCommon Stock 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 price atwhich they purchased them, at or near quoted bid prices, or at all. Further, an inactive market may also impair our ability to raisecapital by selling additional equity in the future, and may impair our ability to enter into strategic partnerships or acquire companiesor products by using shares of our Common Stock as currency.

 

Weintend to list shares of our Common Stock on a national securities exchange in the future; but, we do not now, and may not in the future,meet the initial listing standards of any national securities exchange, which often provides a more widely-traded and liquid market.Some, but not all, of the factors that may delay or prevent the listing of shares of our Common Stock on a national securities exchangeinclude the following: our stockholders’ equity may be insufficient; the market value of our outstanding Common Stock maybe too low; our net income from operations may be too low or not sustained for the requisite period of time; our Common Stockmay not be sufficiently widely held; we may not be able to secure market makers for our Common Stock; and we may fail to meetother rules and requirements mandated by the several exchanges and markets to have our Common Stock listed. Should we fail to satisfythe initial listing standards of the national securities exchanges, or if our Common Stock is otherwise rejected for listing, and remainsquoted on the Pink Market or again is quoted on the OTCQB^® Venture Market, the quoted price of our Common Stock couldsuffer and the trading market for our Common Stock may become less liquid and our Common Stock price may be subject to increased volatility.

 

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

 

Weare not subject to the rules of a national securities exchange requiring the adoption of certain corporate governance measures and, asa result, our stockholders do not have the same protections.

 

Becauseour Common Stock was quoted on the OTCQB^® Venture Market from April 15, 2020 to March 14, 2022, and currently, is quotedon the Pink Market, we are not subject to the rules of a national securities exchange, such as the New York Stock Exchange, the NYSE-American,or the Nasdaq Stock Market. National securities exchanges generally require more rigorous measures relating to corporate governance thatare designed to enhance the integrity of corporate management. The requirements of the OTCQB^® Venture Market and the PinkMarket afford our stockholders fewer corporate governance protections than those of a national securities exchange. Until we comply withsuch greater corporate governance measures, even though such compliance is not required by the OTCM for quotations of shares of our CommonStock on the OTCQB^® Venture Market or the Pink Market, 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.

 

OurCommon Stock is currently subject to the “penny stock” rules; accordingly, it could adversely affect the market price ofour Common Stock and increase your transaction costs to sell those shares.

 

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

 

Ourstock price has been extremely volatile, which could cause the value of an investment in our Common Stock to decline.

 

Themarket price of our Common Stock has been extremely volatile and could be subject to significant fluctuations due to changes in sentimentin the market regarding our operations or business prospects, among other factors. The public price of our Common Stock following thedate of this Prospectus also could be subject to wide fluctuations in response to the risk factors described in this Prospectus and othersbeyond our control, including:

 

	●	the number of shares of our Common Stock publicly owned and available for trading;
	●	industry trends and the business success of our competitors;
	●	actual or anticipated fluctuations in our quarterly financial and operating results and operating results that vary from the expectations of our management or of securities analysts and investors;
	●	our failure to meet the expectations of the investment community and changes in investment community recommendations or estimates of our future operating results;
	●	announcements of strategic developments, acquisitions, dispositions, financings, product developments, and other materials events by us or our competitors;
	●	regulatory and legislative developments related to our industry;
	●	litigation;
	●	general market conditions;
	●	other domestic macroeconomic factors unrelated to our performance;
	●	additions or departure of key personnel, including any major change in our Board of Directors (our “Board”) or management; and
	●	sales or expected sales of shares of our Common Stock by us, and our officers, directors, and significant stockholders.

 

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

 

 

Becausewe are a “smaller reporting company,” we will not be required to comply with certain disclosure requirements that are applicableto other public companies and we cannot be certain if the reduced disclosure requirements applicable to smaller reporting companies willmake our Common Stock less attractive to investors.

 

Weare a “smaller reporting company,” as defined in Item 10(f)(1) of Regulation S-K. As a smaller reporting company, we areeligible for exemptions from various reporting requirements applicable to other public companies that are not smaller reporting companies,including, but not limited to:

 

	●	reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements, and registration statements;
	●	not being required to comply with the auditor attestation requirements of Section 404(b) of the Sarbanes-Oxley Act of 2002; and
	●	reduced disclosure obligations for our annual and quarterly reports, proxy statements, and registration statements.

 

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

 

Salesby our stockholders of a substantial number of shares of our Common Stock in the public market could adversely affect the market priceof our Common Stock.

 

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

 

Requirementsassociated with being a reporting public company will require significant company resources and management attention.

 

Fromand after December 31, 2020, we became subject to the reporting requirements of the Exchange Act and the other rules and regulationsof the SEC relating to public companies. We are working with independent legal, accounting, and financial advisors to identify thoseareas in which changes should be made to our financial and management control systems to manage our growth and our obligations as anSEC reporting company. These areas include corporate governance, internal control, internal audit, disclosure controls, and proceduresand financial reporting and accounting systems. We have made, and will continue to make, changes in these and other areas, includingour internal control over financial reporting. However, we cannot provide assurances that these and other measures we may take will besufficient to allow us to satisfy our obligations as an SEC reporting company on a timely basis. Further, while we remain an emerginggrowth company, we will not be required to include an attestation report on internal control over financial reporting issued by our independentregistered public accounting firm.

 

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

 

Ourmanagement constitutes some of our largest stockholders, which will allow them to exert significant control over our business and affairsand have actual or potential interests that may depart from those of investors.

 

Asof March 31, 2023, members of our management team beneficially owned approximately 25.03% of our Common Stock. As a result, managementhas the virtual unfettered ability to control substantially all matters submitted to our stockholders for approval including (i) electionof our Board; (ii) removal of any of our directors; (iii) amendment of our Amended and Restated Certificate of Incorporation (our “A&RCertificate of Incorporation”) or our Amended and Restated Bylaws (our “A&R Bylaws”); and (iii) adoption of measuresthat could delay or prevent a change in control or impede a merger, takeover, or other business combination involving us.

 

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

 

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

 

Ourpreferred stock may have rights senior to those of our Common Stock, which could adversely affect holders of our Common Stock.

 

OurA&R Certificate of Incorporation gives our Board the authority to issue one or more additional series of our preferred stock withouta vote or any action by our stockholders. Our Board also has the authority to determine the terms of those various series of our preferredstock, including price, preferences, and voting rights. The rights granted to holders of shares of our preferred stock in the futuremay adversely affect 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 holders ofshares of our Common Stock, which could reduce the amount of available for distribution as dividends to holders of shares of our CommonStock. In addition, an authorized series of our preferred stock may have voting rights that are superior to the voting right of the holdersof shares of our Common Stock.

 

 

Wedo not expect to pay any cash dividends in the foreseeable future.

 

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

 

Wecan sell additional shares of our Common Stock without approval of our stockholders and without offering shares to existing stockholders,which would result in dilution of existing stockholders’ interests in us and could depress our stock price.

 

OurA&R Certificate of Incorporation authorizes 10,500,000,000 shares of our Common Stock, of which 2,226,940,557 are issued and outstandingas of March 31, 2023; 1,200,000 shares of our Series B Preferred Stock, of which 488,000 shares are issued and outstanding as of March31, 2023; 2,000 shares of our Series C Preferred Stock, of which 1,000 shares are issued and outstanding as of March 31, 2023; and 500,000shares of our Series D Preferred Stock, of which 500,000 shares are issued and outstanding as of March 31, 2023, for an aggregate of989,000 issued and outstanding shares of our preferred stock as of March 31, 2023, which shares of issued and outstanding shares of ourpreferred stock are convertible into an aggregate of 500,488,000 shares of our Common Stock. Although our Board intends to utilize itsreasonable business judgment to fulfill its fiduciary obligations to our then-existing stockholders in connection with any future issuanceof our capital stock, the future issuance of additional shares of our Common Stock or preferred stock convertible into shares of ourCommon Stock would cause immediate, and potentially substantial, dilution to our existing stockholders, which could also have a materialeffect on the market value of the shares. In addition, the exercise price of any convertible debt securities or the conversion priceof any convertible equity securities we may sell and issue in the future could be significantly lower than the market price of our CommonStock on the respective issuance, exercise, or conversion date. Alternatively, we could issue equity securities at a significant discountto the market price of our Common Stock on the issuance date, the occurrence of any of such events could have a material adverse effecton the market price of our Common Stock.

 

Further,shares of our Common Stock do not have preemptive rights, which means that we can sell shares of our Common Stock to other persons withoutoffering the holders of shares of our Common Stock, or the purchasers in this offering, the right to purchase their proportionate shareof such offered shares. Therefore, any additional sales of our capital stock by us could dilute an existing stockholder’s ownershipinterest in us.

 

Weare an emerging growth company and a smaller reporting company, and we cannot be certain if the reduced reporting requirements applicableto emerging growth companies and smaller reporting companies will make our Common Stock less attractive to investors.

 

Weare an emerging growth company, as defined in the JOBS Act, enacted in April 2012. For as long as we continue to be an emerging growthcompany, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that arenot emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of theSOX Act, reduced disclosure obligations regarding executive compensation in this Prospectus and our periodic reports and proxy statements,and exemptions from 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 in which wecomplete this offering, although circumstances could cause us to lose that status earlier. We will remain an emerging growth companyuntil the earlier of (1) the last day of the fiscal year (a) following the fifth anniversary of the closing of this offering, (b) inwhich we have total annual gross revenue of at least $1.07 billion, or (c) in which we are deemed to be a large accelerated filer, whichrequires the market value of our Common Stock that is held by non-affiliates to exceed $700 million as of the prior June 30^th,and (2) the date on which we have issued more than $1 billion in non-convertible debt during the prior three-year period.

 

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

 

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

 

Provisionsin our A&R Certificate of Incorporation and A&R Bylaws and Delaware law may discourage a takeover attempt even if a takeovermight be beneficial to our stockholders.

 

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

 

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

 

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

 

 

Claimsfor indemnification by our directors and officers may reduce our available funds to satisfy successful third-party claims against usand may reduce the amount of money available to us.

 

OurA&R Certificate of Incorporation provides that we will indemnify our directors and officers, in each case to the fullest extent permittedby Delaware law. In addition, as permitted by Section 145 of the DGCL, our A&R Certificate of Incorporation provides that:

 

	●	We will indemnify our directors and officers for serving us in those capacities or for serving other business enterprises at our request, to the fullest extent permitted by Delaware law. Delaware law provides that a corporation may indemnify such person if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the corporation and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful.
	●	We may, in our discretion, indemnify employees and agents in those circumstances where indemnification is permitted by applicable law.
	●	We are required to advance expenses, as incurred, to our directors and officers in connection with defending a proceeding, except that such directors or officers shall undertake to repay such advances if it is ultimately determined that such person is not entitled to indemnification.
	●	The rights conferred in our A&R Certificate of Incorporation are not exclusive, and we are authorized to enter into indemnification agreements with our directors, officers, employees, and agents and to obtain insurance to indemnify such persons.
	●	We may not retroactively amend our A&R Certificate of Incorporation or indemnification agreement, if any, to reduce our indemnification obligations to directors, officers, employees, and agents.

 

Wepreviously effected a dividend distribution of common stock of Elev8 Hemp, as our wholly-owned subsidiary, and Branded Legacy, Inc.,formerly known as Elev8 Brands, Inc. and, prior to that, known as PLAD, Inc. (“Branded Legacy”), which may have violatedSection 5 of the Securities Act.

 

Theshares of common stock of Branded Legacy that we distributed to our stockholders were not registered under the Securities Act, and wemay not have fully complied with SEC Legal Bulletin No. 4, which requires a company to satisfy five conditions in connection with thespin-off. As a result, we may have violated Section 5 of the Securities Act in that we did not file a registration statement with theSEC and have the same declared effective by the SEC prior to distributing the shares of Branded Legacy common stock. In addition, itis possible that the SEC could commence an enforcement action against us. For additional information regarding the dividend distribution,see “Management’s Discussion and Analysis and Results of Operations – Liquidity and Capital Resources”for additional information.

 

RisksRelated to Our Securities and this Offering

 

Ourshare price is likely to be volatile and the market price of our shares of Common Stock after this offering may drop below the priceyou pay.

 

Youshould consider an investment in our securities as risky and invest only if you can withstand a significant loss and wide fluctuationsin the market value of your investment. You may be unable to sell your securities at or above the initial public offering price due tofluctuations in the market price of our shares of Common Stock arising from changes in our operating performance or prospects. Some ofthe factors that may cause the market price of our shares of Common Stock to fluctuate or decrease below the price paid in this offeringinclude:

 

	●	regulatory developments or enforcement in the United States with respect to our products;
	●	competition from existing products or new products that may emerge;
	●	changes in estimates or recommendations by securities analysts, if any cover our shares of Common Stock;
	●	fluctuations in the valuation of companies perceived by investors to be comparable to us;
	●	litigation;
	●	future sales of our shares of Common Stock;
	●	share price and volume fluctuations attributable to inconsistent trading volume levels of our shares;
	●	additions or departures of key personnel;
	●	economic and other external factors or other disasters or crises;
	●	general market conditions and market conditions for beverage stocks;
	●	overall fluctuations in U.S. equity markets; and
	●	other factors that may be unanticipated or out of our control.

 

 

CAUTIONARYNOTE REGARDING FORWARD-LOOKING STATEMENTS

 

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

 

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

 

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

 

MARKET,INDUSTRY AND OTHER DATA

 

Unlessotherwise indicated, information contained in this Prospectus concerning our industry and the market in which we operate, including ourmarket position, market opportunity and market size, is based on information from various sources such as industry publications, on assumptionsthat we have made based on such data and other similar sources and on our knowledge of the markets for our products. These data involvea number of assumptions and limitations.

 

Inaddition, projections, assumptions, and estimates of our future performance and the future performance of the industry in which we operateis necessarily subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the sectionentitled “Risk Factors” and elsewhere in this Prospectus. These and other factors could cause results to differ materiallyfrom those expressed in the estimates made by the independent parties and by us.

 

USEOF PROCEEDS

 

ThisProspectus relates to shares of our Common Stock that may be offered and sold from time to time by the Selling Stockholders. We willreceive no proceeds from the sale of shares of Common Stock by the Selling Stockholders in this Offering. The proceeds from the saleswill belong to the Selling Stockholders. However, we will receive proceeds from the sale of the Put Shares to Mast Hill pursuant to theEPA and from the exercise of the Warrants held by the Selling Stockholders if they are exercised for cash and not on a “Cashless”basis.

 

Weintend to use the proceeds that we may receive for general corporate purposes and working capital requirements. There can be no assurancethat we will sell any of the Put Shares or that the Warrants will be exercised. We cannot provide any assurance that we will be ableto draw down any or all of the Maximum Commitment Amount, such that the proceeds received would be a source of financing for us.

 

 

THESELLING STOCKHOLDERS

 

ThisProspectus relates to the possible resale from time to time by the Selling Stockholders named in the table below of any or all of theCommon Stock that has been or may be issued by us to the Selling Stockholders under the EPA. We are registering the Common Stock pursuantto the provisions of the Registration Rights Agreement entered into with Mast Hill in order to permit Mast Hill to offer its shares forresale from time to time.

 

Thetable below presents information regarding the Selling Stockholders and the Common Stock they may offer from time to time under thisProspectus. This table is prepared based on information supplied to us by the Selling Stockholders and reflects holdings as of May 15,2023. As used in this Prospectus, the term “Selling Stockholders” includes each Selling Stockholder, and any donees, pledgees,transferees, or other successors-in-interest selling shares received after the date of this Prospectus from such Selling Stockholdersas a gift, pledge, or other non-sale related transfer. The number of shares in the column “Maximum Number of Common Stock to beOffered Pursuant to this Prospectus” represents all of the Common Stock that each Selling Stockholder may offer under this Prospectus.Each Selling Stockholder may sell some, all or none of its shares offered by this Prospectus. We do not know how long any Selling Stockholderwill hold its shares before selling them, and we currently have no agreements, arrangements, or understandings with the Selling Stockholdersregarding the sale of any of the shares.

 

Beneficialownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act and includes Common Stock withrespect to which the Selling Stockholders have voting and investment power. With respect to the Equity Line with Mast Hill, because thepurchase price of the Common Stock issuable under the EPA is determined on each settlement date, the number of shares that may actuallybe sold by us under the EPA may be fewer than the number of shares being offered by this Prospectus. The fourth column assumes the saleof all of the shares offered by the Selling Stockholders pursuant to this Prospectus. 

 

Name of Selling Stockholders		Number of Shares Owned Prior to Offering				Maximum Number of Shares to be Offered for Resale Pursuant to this Prospectus				Numberof Shares Beneficially Owned After Offering(3)				Percent of the Class to be Owned After Offering
Mast Hill Fund, L.P.			1,047,780,139	(1)			698,224,583	(2)			349,555,556				10.88	(3)
J.H. Darbie & Co.			4,055,556	(4)			4,055,556	(5)			0				0

 

(1)	In addition to the 62,900,000 shares it already owns of record and beneficially, this number represents (a) 642,224,583 shares of our Common Stock (the Put Shares) offered for resale by Mast Hill, which shares are issuable by the Company pursuant to the EPA; (b) 105,555,556 shares of our Common Stock issuable upon conversion of a convertible promissory note issued to Mast Hill in March 2023; (c) 57,500,000 shares of our Common Stock issuable upon conversion of a convertible promissory note issued to Mast Hill; in April 2023; (d) an aggregate of 123,600,000 shares of our Common Stock issuable upon exercise of common stock purchase warrants that we granted to Mast Hill in connection with the two above-referenced convertible promissory notes; and (e) 56,000,000 shares of our Common Stock issuable upon exercise of the EPA Warrant.
(2)	698,224,583 shares of our Common Stock constitute all of the shares being offered by Mast Hill pursuant to this Prospectus.
(3)	Notwithstanding the number of shares of Common Stock and the percentage ownership thereof disclosed in this table, each of the convertible promissory notes and the warrants held by Mast Hill is subject to an “exercise blocker,” such that Mast Hill cannot convert any portion of the promissory notes or exercise any portion of the warrants into the underlying shares of our Common Stock, if such action would result in Mast Hill and its affiliates holding more than 4.99% of the then-issued and outstanding shares of our Common Stock following such conversion or exercise, as applicable.
(4)	Represents the 4,055,556 shares of our Common Stock issuable upon exercise of the Placement Warrant by Darbie.
(5)	4,055,556 shares of our Common Stock constitute all of the shares being offered by Darbie pursuant to this Prospectus.

 

 

EQUITYPURCHASE AGREEMENT

 

OnMarch 30, 2023, we entered into an Equity Purchase Agreement (the “EPA”) with Mast Hill Fund, L.P. (“Mast Hill”).Although we are not required to sell shares under the EPA, the EPA gives us the option to present “Put Notices” to Mast Hill,up to $5,000,000 worth of our Common Stock over the period ending twenty-four months following the Execution Date of the EPA. The $5,000,000was stated as the total amount of available funding in the EPA because this was the maximum amount that Mast Hill agreed to offer usin funding. There is no assurance that the market price of our Common Stock will increase in the future.

 

Thepurchase price of the Common Stock will be equal to 90% of the Market Price of the Company’s Common Stock on the Principal Marketbased on the average of the two (2) lowest volume weighted average prices of the Company’s Common Stock on the Principal Marketduring the seven (7) Trading Days immediately preceding the Put Date of the respective Put Notice for the duration of the Offering; thereis an ownership limit for Mast Hill of 4.99%.

 

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

 

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

 

OnMarch 30, 2023, we also granted a Common Stock Purchase Warrant (the “EPA Warrant”) to purchase up to an aggregate of 56,000,000shares (the “EPA Warrant Shares”) of our Common Stock. The EPA Warrant has a five-year term and is immediately exercisableat an exercise price of $0.0045 per share, subject to adjustment and is exercisable by the then-holder on a “cashless” basis.The EPA Warrant contains an adjustment provision that, subject to certain exceptions, reduces the exercise price if we issue shares ofCommon Stock or common stock equivalents at a price lower than the then-current exercise price of the EPA Warrant. Any stock splits,reverse stock splits, recapitalizations, mergers, combinations and asset sales, stock dividends, and similar events will result in anequitable adjustment of the exercise price of the EPA Warrant and, in certain circumstances, the number of EPA Warrant Shares. The EPAWarrant is subject to an “exercise blocker,” such that the Investor cannot exercise any portion of the EPA Warrant that wouldresult in the Investor and its affiliates holding more than 4.99% of the then-issued and outstanding shares of Common Stock followingsuch exercise (excluding, for purposes of such determination, shares of the Common Stock issuable upon exercise of the EPA Warrant orPut Notice that had not then been exercised, respectively).

 

MastHill is not permitted to engage in short sales involving our Common Stock during the Commitment Period. In accordance with RegulationSHO however, sales of our Common Stock by Mast Hill after delivery of a Put Notice of such number of shares reasonably expected to bepurchased by Mast Hill under a Put will not be deemed a short sale.

 

Aswe draw down on the Equity Line pursuant to the EPA, shares of our Common Stock will be sold into the market by Mast Hill. The sale ofthese shares could cause our stock price to decline. In turn, if our stock price declines and we issue more puts, more shares will comeinto the market, which could cause a further drop in our stock price. You should be aware that there is an inverse relationship betweenthe market price of our Common Stock and the number of shares to be issued under the equity line of credit. We have no obligation toutilize the full amount available under the Equity Line.

 

 

PLANOF DISTRIBUTION

 

Asof the date of this Prospectus, we have 2,226,940,557 shares of Common Stock issued and outstanding. We are registering the resale of642,224,583 shares of Common Stock issuable under the Equity Line in the amount of $5,000,000 established by the EPA dated March 30,2023, between the Company and Mast Hill.

 

Weare also registering 56,000,000 shares of Common Stock that can be purchased pursuant to the EPA Warrant granted to Mast Hill on March30, 2023, and that can be exercised immediately to purchase shares of Common Stock at $0.0045 per share. Once we are presented with anexercise notice, we are obligated to issue a corresponding number of shares pursuant to the exercise notice.

 

Additionally,we are registering 4,055,556 shares of Common Stock that can be purchased pursuant to the Warrant granted to Darbie on July 28, 2022,and that can be exercised immediately to purchase shares of Common Stock at $0.0054 per share. Once we are presented with an exercisenotice, we are obligated to issue a corresponding number of shares pursuant to the exercise notice.

 

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

 

	●	ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
	●	block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
	●	purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
	●	an exchange distribution in accordance with the rules of the applicable exchange;
	●	privately negotiated transactions;
	●	broker-dealers may agree with any Selling Stockholder to sell a specified number of such shares at a stipulated price per share;
	●	through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
	●	a combination of any such methods of sale; or
	●	any other method permitted pursuant to applicable law.

 

TheSelling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this Prospectus.

 

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

 

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

 

Ifwe fail to maintain an effective system of internal control over financial reporting, we may not be able to accurately report our financialresults or prevent fraud. As a result, stockholders could lose confidence in our financial and other public reporting, which would harmour business and the trading price of our shares of Common Stock.

 

TheSelling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters”within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealersor agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts underthe Securities Act. The Selling Stockholders have informed us that they do not have any written or oral agreement or understanding, directlyor indirectly, with any person to distribute our Common Stock.

 

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

 

Becausethe Selling Stockholders may be deemed to be an “underwriter” within the meaning of the Securities Act, it will be subjectto the Prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. In addition, any securities covered bythis Prospectus that qualify for sale pursuant to Rule 144 under the Securities Act may be sold under Rule 144 rather than under thisProspectus. There is no underwriter or coordinating broker acting in connection with the proposed sale of the shares registered by thisProspectus by the Selling Stockholders.

 

Inorder to comply with the applicable securities laws of certain states, the securities will be offered or sold in those states only ifthey have been registered or qualified for sale; an exemption from such registration, or if qualification requirement is available andwith which we have complied. In addition, and without limiting the foregoing, we will be subject to applicable provisions, rules, andregulations under the Exchange Act with regard to security transactions during the period of time when their Registration Statement iseffective.

 

Weare subject to Regulation M of the Securities Exchange Act of 1934. Regulation M governs activities of underwriters, issuers, sellingsecurity holders and others in connection with offerings of securities. Regulation M prohibits distribution participants and their affiliatedpurchasers from bidding for, purchasing or attempting to induce any person to bid for or purchase the securities being distributed. Inconnection with the offer and sale of the shares being offered, our officers and directors will comply with Regulation M.

 

TheSelling Stockholders will determine the price it may sell the Securities offered by this Prospectus, and such sales may be made at fixedprices, market prices prevailing at the time of sale, varying prices determined at the time of sale, or at negotiated prices. We willnot receive any proceeds from the sale of the Securities by the Selling Stockholders.

 

 

MARKETPRICE AND DIVIDEND INFORMATION

 

MarketInformation

 

Asof May 15, 2023, our Common Stock is quoted on the Pink Market under the symbol “KGKG.”

 

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

 

		2023								2022								2021
		Price Range								Price Range								Price Range
		High				Low				High				Low				High				Low
First Quarter		$	0.0082			$	0.0036			$	0.0100			$	0.0033			$	0.0523			$	0.0260
Second Quarter (1)		$	0.0044			$	0.0025			$	0.0296			$	0.0072			$	0.0337			$	0.0231
Third Quarter		$	N/A			$	N/A			$	0.0080			$	0.0052			$	0.0245			$	0.0150
Fourth Quarter		$	N/A			$	N/A			$	0.0061			$	0.0021			$	0.0168			$	0.0052

 

(1)

Second Quarter 2023 price range through May 15, 2023.

 

Theclosing price of our Common Stock as reported on May 15, 2023, was $0.0027 per share.

 

Holders

 

OnMay 15, 2023, there were approximately 99 holders of record of our Common Stock. This does not include an indeterminate number of personswho hold our Common Stock in brokerage accounts and otherwise in “street name.” As of such date, 2,226,940,557 shares ofour Common Stock were issued and outstanding.

 

Dividends

 

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

 

Rule144 – Generally

 

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

 

Aperson who may be deemed an “affiliate” of us or who was our affiliate at any time during the preceding three months, andwho has beneficially owned restricted securities for at least six months, including the affiliates, is entitled to sell within any three-monthperiod, a number of shares that does not exceed the greater of: (1) 1% of the then-outstanding shares of our Common Stock, which equalsapproximately 2,226,940,557 shares based on the number of shares of our Common Stock outstanding as of May 15, 2023, or (2) if and whenour Common Stock is listed on a national securities exchange, the average weekly trading volume of our Common Stock during the four calendarweeks preceding the date on which notice of such sale was filed under Rule 144.

 

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

 

Rule144 – Restrictions on the Use of Rule 144 by Shell Companies or Former Shell Companies

 

Becausewe may be deemed previously to have been a “shell company,” under such circumstances sales of our securities pursuant toRule 144 under the Securities Act may not be made unless, among other things, at the time of a proposed sale, we are subject to the reportingrequirements of Section 13 or 15(d) of the Exchange Act and have filed all reports and other materials required to be filed by Section13 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 circumstances ourunregistered securities may not be sold pursuant to Rule 144 unless we continue to meet such requirements, any unregistered securitieswe issue will have limited liquidity unless we continue to comply with such requirements.

 

 

DESCRIPTIONOF BUSINESS

 

Wewere originally incorporated as Class-ique Talent Agency, Inc. (“CTA”), under the laws of the State of Nevada in March 1997.In October 2001, CTA entered 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 PhaserTekin exchange for shares of common stock of CTA, resulting in PhaserTek becoming a wholly-owned subsidiary of CTA. In accordance with theterms of the Reorganization Plan, CTA changed its name to PhaserTek Medical, Inc. (“PhaserTek Medical”) in 2002. In 2004,PhaserTek Medical changed its name to Union Equity, Inc. (“UE Nevada”). For purposes of changing UE Nevada’s stateof incorporation, UE Nevada formed Union Equity, Inc. in the State of Delaware (“UE Delaware”) in 2004. Pursuant to Articlesof Merger, in December 2004, UE Nevada merged with and into UE Delaware, the surviving company. In July 2015, we changed our name toKona Gold Solutions, Inc. In October 2020, we changed our name to Kona Gold Beverage, Inc.

 

Wehave three wholly-owned subsidiaries: (i) Kona Gold, LLC (“Kona”), a Delaware limited liability company formed in August2015; (ii) HighDrate, LLC (“HighDrate”), a Florida limited liability company formed in January 2018; and (iii) Gold LeafDistribution LLC (“Gold Leaf”), a Florida limited liability company formed in January 2019.

 

●

Kona focuses on the development and marketing of functional and better-for-you beverages.

 

	○	Its Ooh La Lemin Lemonades are better-for-you, low calorie beverages with non-sparkling and sparkling offerings. Ooh La Lemin Lemonades have no added sugar, are low in carbohydrates, and have only 15 calories for Ooh La Lemin, and only 10 calories for Ooh La Lemin Sparkling. Ooh La Lemin is available in four flavors: (i) Original Lemonade, (ii) Blue Raspberry Lemonade, (iii) Peach Lemonade, and (iv) Strawberry Lemonade. Ooh La Lemin Sparkling is available in six flavors: (i) Original, (ii) Cucumber Watermelon, (iii) Blue Raspberry, (iv) Pineapple Mango, (v) Citrus Splash, and (vi) Huckleberry.
	○	Its Kona Gold Energy Drinks are low-to-zero calorie functional beverages that are high in B vitamins, amino acids, and omegas. Organic hemp seed protein powder differentiates Kona Gold Energy Drinks from other brands. It is considered to be a complete protein and is compatible with a variety of diets, including vegan and Kosher. Kona Gold Energy Drinks are available in six flavors: (i) Classic, (ii) Candy Apple, (iii) Cherry Vanilla, (iv) Cotton Candy, (v) Platinum, and (vi) Pink Grapefruit.

 

	●	HighDrate focuses on the development and marketing of CBD-infused energy waters. HighDrate CBD-infused energy waters are functional beverages that contain zero calories and zero sugar. HighDrate CBD-infused energy waters are geared to the fitness and wellness markets. Our CBD-infused energy waters are powered by Alkame’s patented technology, which provides premium oxygenated alkaline water with natural antioxidants. HighDrate CBD-infused energy waters are available in six flavors: (i) Blue Island Punch, (ii) Georgia Peach, (iii) Kiwi Strawberry, (iv) Sour Apple, (v) Tropical Coconut, and (vi) Watermelon.
	●	Gold Leaf focuses on the distribution of premium beverages, such as alkaline waters, beverages for kids, energy drinks, fruit-flavored sodas, low-carb lemonade, healthy aloe juice drinks, in key markets, all of which complement our current product offerings. These markets include over 1,500 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida and South Carolina.

 

BusinessOverview

 

Weare a lifestyle company that specializes in developing premium beverage products in the functional and better-for-you markets. Focusingon better-for-you low-calorie and low-carb lemonade, low-calorie and high-in-vitamins energy drinks, and CBD-infused energy water markets,we believe that we have positioned our brands as premium leaders in their respective markets.

 

Wecurrently sell Kona, HighDrate, and Ooh La Lemin through resellers, our websites, leading ecommerce platforms, and distribution partnersin 18 states. Our products are available in a wide variety of retail locations, including convenience stores, grocery stores, and specialtystores. Gold Leaf distributes our own beverage brands, as well as products purchased for resale from several other beverage manufacturers.These premium beverages are available in more than 1,500 grocery stores, convenience stores, smoke shops, vape shops, and specialty stores.

 

ProductLines

 

Withinour Company, we market three distinct product lines: low-carb and low-calorie lemonades, energy drinks, and CBD-infused energy water,with our trademark logos.

 

OohLa Lemin is a better-for-you lemonade that has no added sugar, is low in carbohydrates, and has only 15 calories and is available infour flavors: (i) Original Lemonade, (ii) Blue Raspberry Lemonade, (iii) Peach Lemonade, and (iv) Strawberry Lemonade. Ooh La Lemin Sparklingis a lemonade that has no added sugar, is low in carbohydrates, and has only 10 calories and is available in six flavors: (i) Original,(ii) Cucumber Watermelon, (iii) Blue Raspberry, (iv) Pineapple Mango, (v) Citrus Splash, and (vi) Huckleberry.

 

KonaGold Energy Drinks are zero-to-low calorie beverages available with no added sugar or with pure sugar cane. These energy drinks are infusedwith organic hemp protein powder and contain essential vitamins and ingredients that give consumers a natural energy boost. Hemp proteincontains no gluten and is compatible with a variety of diets, including vegan and Kosher. Our energy drinks are available in six flavors:(i) Classic, (ii) Candy Apple, (iii) Cherry Vanilla, (iv) Cotton Candy, (v) Platinum, and (vi) Pink Grapefruit.

 

HighDrateCBD-infused energy water is great tasting, zero calorie, no added sugar, and powered by Alkame’s patented technology, which usesits advanced water treatment to create a premium oxygenated alkaline water with natural antioxidants. Alkame believes, based on a double-blindplacebo, peer-backed research project that it conducted, its technology can boost the immune system and physical performance. HighDrateCBD-infused energy water contains 80 mg of caffeine and 10 mg of CBD. We believe that CBD aids the body’s endocannabinoid systemin neuroprotection, stress recovery, immune balance, and homeostatic regulation. HighDrate CBD-infused energy water is available in sixflavors: (i) Blue Island Punch, (ii) Georgia Peach, (iii) Kiwi Strawberry, (iv) Sour Apple, (v) Tropical Coconut, and (vi) Watermelon.

 

 

Distributorsand Resellers

 

Wesell our Ooh La Lemin Lemonades, Kona Gold Energy Drinks, and HighDrate CBD-infused energy waters primarily to beverage distributorsand resellers, retail grocery, smoke shops and specialty stores, wholesalers, merchandisers, convenience stores, and beverage services.We focus on sales to consumers in the functional and better-for-you 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 consumerswho lead a healthy lifestyle based on choices made about daily habits by providing products that provide a healthy alternative in theirbeverage choices. A healthy lifestyle can result in consumers feeling fit and energetic and can reduce their risk for disease. We believeour products help consumers stay hydrated and revitalized, aid in stamina, and allow for faster recovery.

 

Wealso distribute premium beverages and snacks in key markets through our wholly-owned subsidiary, Gold Leaf. Gold Leaf’s marketsinclude over 1,500 accounts in grocery stores, convenience stores, smoke shops, vape shops, and specialty stores located in Florida andSouth Carolina. In addition to distributing the Company’s own beverage products, the Gold Leaf also distributes other products,including alkaline waters, beverages for kids, energy drinks, fruit flavored sodas, low-carb lemonade, healthy aloe juice drinks, andCBD-infused products, all of which complement our current product offerings.

 

IndustryOverview

 

Ourdistributors and resellers and consumers span several industries, including better-for-you lemonades, energy drinks, hemp or CBD drinks,and health and fitness.

 

Better-for-youLemonades

 

Thelemonade market was valued at $13 billion in 2021 and the total revenue is expected to grow at an annual, compounded rate of 6.9% from2022 to 2029, reaching in excess of $22 billion. Lemonade is a natural source of vitamin C and other nutritional benefits in the diet.Lemonade has many health benefits for consumers, such as helping digestion, preventing kidney stones, supporting weight loss, and preventingcancer. For many years, manufacturers have focused on developing innovative products. In terms of new ingredients or new technologies,due to the tendency to appropriate health and welfare, market demand has increased.

 

Thetop five countries in the lemonade drinks market in terms of value and volume are the U.S., Brazil, U.K., Germany, and China. The marketfor lemonade drinks is expanding in North America as a result of rising customer demand for natural beverages that are considered healthy.

 

EnergyDrinks

 

Theenergy drink industry continues grow every year with an estimated $14 billion in sales in the United States in 2021, and sales are expectedto reach $53 billion globally. The energy drink by the name “Red Bull” dominated the industry in 2020, comprising approximately25% of the energy drink market. In 2020, an energy drink by the name of “Monster,” market share was approximately 15%.

 

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

 

Hempor CBD Drinks

 

TheHealth Impact Assessments (HIA) reported that the 2018 Farm Bill poised to restore industrial hemp to nationwide legal production forthe first time since World War II, offering vast opportunities for the industry and investment in a market expected to triple by 2022.With the removal of hemp from federal prohibition under the Controlled Substances Act (CSA), the total hemp industry is expected to grow18.4% from 2018 through 2022. Hemp Business Journal estimates that the hemp-derived CBD market will grow to a $1.3 billion market by2022. The U.S. hemp market, which includes CBD, textiles, and hemp seed, is expected to lead the global market in 2020, representingapproximately 32% of the global market. This growth is fueled by the public’s growing demand for CBD products. The Farm Bill representsa sweeping change in the balance of power in global hemp markets. The United States has historically been an importer of hemp productsfrom Canada, Europe, and China. Now, with the Farm Bill as its tailwind, the U.S. hemp market will expand to lead the global hemp industryby 2020, representing 32% of a 5.7 billion global market in 2020. As the U.S. hemp industry matures, it will transition from being aseed, textile, and industrial product importer to a global exporter.  The Farm Bill aims the industry to accelerate and establishitself as a global hemp powerhouse led by hemp-derived CBD.

 

Healthand Fitness

 

Thehealth and fitness industry, which includes food and beverages, saw consumer awareness drive trends to health and wellness, plant-based,and clean-label products in 2022. We believe that conscious consumerism will continue to drive these trends and that consumers are makingfood and beverage choices based on their personal definition of health. Further, we believe that consumers are looking for healthy alternativesto obtain relief from pain and anxiety, and that CBD has become a viable option because it balances the mind and body. Women have traditionallybeen early adapters of health and wellness trends and CBD-infused products, food, and beverages have been recognized by women to havea connection between happiness and health.

 

 

Competition

 

Thebeverage industry is highly competitive. The principal areas of competition are pricing, packaging, and developing new products and flavors,as well as highly intensive promoting and marketing strategies. Our products compete with a wide range of drinks produced by a relativelylarge number of companies, many of which have substantially greater financial, marketing, and distribution resources than we do. Importantfactors affecting our ability to compete successfully include brand and product image, taste and flavor of products, trade and consumerpromotions, rapid and effective development of new and unique cutting-edge products, attractive and different packaging, brand exposure,and marketing, as well as pricing. We also rely on our beverage distributors to allocate more attention to our products than those ofour competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets. Competitive pressures inthe “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.

 

Ourenergy products have entered an already crowded market, and we aware of both our strengths and shortcomings as we compete in the energydrink market. Our energy products are part of niche industry that includes CBD, hemp seed, organic, and lifestyle, which we believe separatesour energy drinks from others in the market. Within the global CBD beverage market, sales are expected to grow at a faster rate thanconventional energy drinks. In 2020, the CBD beverage market was valued at $3.4 billion, and is expected to reach $14.6 billion by 2026with a compounded annual growth rate of 27.5%. Combined with the THC-infused beverage market, the CBD Beverage Market is expected toreach $1.4 billion in the United States alone by 2025. The Alkaline Water Company, Inc. (NASDAQ and TSXV: WTER), HEXO Corp. (NYSE andTSX: HEXO), Tilray, Inc. (NASDAQ: TLRY), and Canopy Growth Corporation (NYSE: CGC; TSX: WEED) are prominent players in the CBD beveragemarket.

 

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

 

Co-Packing

 

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

 

Ourability to estimate demand for our products is imprecise, particularly with new products, and may be less precise during periods of rapidgrowth, particularly in new markets. If we materially underestimate demand for our products, are unable to secure sufficient ingredientsor 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 adequatelyor timely to ship our products, we might not be able to satisfy demand on a short-term basis. That short-term supply inability may alsoresult in a longer-term reduction in orders for our products.

 

RawMaterials and Suppliers

 

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

 

QualityControl

 

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

 

Distribution

 

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

 

BusinessStrategy

 

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

 

 

MarketingStrategy

 

Oursales and marketing strategy for all of our beverage products is to focus on developing brand awareness through image enhancing programsand product samplings. We use our branded vehicles and other promotional vehicles at events, where we offer samples of our products toconsumers. 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 demandfrom consumers for our products. We collaborate with external marketing companies with diverse experience in product design, innovativethinking, transparency in decision-making, brand metrics, executive management, sales, and strategic marketing. We also support our brandswith prize promotions, price promotions, competitions, endorsements from selected public and sports figures, sports personality endorsements,sampling and sponsorship of selected athletes, teams, series, bands, esports, causes, and events. In-store posters, outdoor posters,social media (directly and through our sponsorships and endorsements), and coupons may also be used to promote our brands.

 

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

 

PromotionStrategy

 

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

 

PricingStrategy

 

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

 

SalesStrategy

 

Oursales strategy is to exploit the low carb and low-calorie beverage market, along with the energy drink and water markets in 2023, withthe groundwork that we laid out in 2021 and 2022. We believe that tradeshows will play a major role in creating market awareness of ourbrands. Currently, our lemonade and energy drinks are available for sale on Amazon.com, Inc.’s website, the largest internet-basedretailer in the United States.

 

Oursales and marketing strategy for all our beverages is to focus our efforts on developing brand awareness through image enhancing programsand product sampling. We use our branded vehicles and other promotional vehicles at events where we offer samples of our products toconsumers. 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 demandfrom consumers for our products. We also support our brands with prize promotions, price promotions, competitions, endorsements fromselected public and sports figures, sports personality endorsements, sampling and sponsorship of selected athletes, teams, series, bands,esports, causes, and events. In-store posters, outdoor posters, social media (directly and through our sponsorships and endorsements)and coupons may also be used to promote our brands.

 

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

 

IntellectualProperty

 

Ourpolicy is to protect our intellectual property through, among other things, a combination of trade secrets, know-how, and trademarks.We have taken measures to protect our trade secrets and know-how, to the extent possible. We have three trademarks. One is for use of“Kona Gold Hemp Energy Drinks” registered in the Company’s name. The second trademark is for the use of “HighDrate”registered in the Company’s name. The third trademark is for the use of “OOH LA LEMIN” registered in the Company’sname. We do not have any patents.

 

GovernmentRegulation and Compliance

 

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

 

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

 

 

Regulationof Hemp and CBD

 

Historically,the DEA regulated CBD, pursuant to the CSA, which establishes a framework of controls over certain substances, depending on whether theyare classified in one of five risk-based schedules. Schedule I substances are the most stringently controlled, as they have been determinedto have a high potential for abuse, there are no currently accepted medical uses in the United States, and there is a lack of acceptedsafety for 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 seeds ofthe plant; the resin extracted from any part of the plant; and every compound mixture, salt, derivative, mixture, or preparationof the plant, its seeds, or its resin (with a few exceptions, such as mature stalks of the plant and seeds incapable of germination).Pursuant to this definition, the DEA interpreted CBD to fall within the statutory definition of “marijuana” as a compoundor derivative of the cannabis plant.

 

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

 

InDecember 2018, Congress enacted the 2018 Farm Bill to allow more broadly for the production of hemp pursuant to state and tribal plansoverseen by the USDA. The 2018 Farm Bill amended the statutory definition of “marijuana” under the CSA specifically to exclude“hemp”, which is defined as any part of the cannabis plant, including the seeds thereof and all derivatives, extracts, cannabinoids,isomers, acids, salts, and salts of isomers, whether growing or not, with a delta-9 THC concentration of not more than 0.3% on a dryweight basis. 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.

 

Underthe 2018 Farm Bill framework, states and Native American tribes may submit to the USDA, through the relevant state department of agriculture,a plan under which the state or Native American tribe will monitor and regulate the production of industrial hemp. For those states thatdo not have an approved state plan, the production of hemp will be subject to a USDA established plan, although states retain the abilityto prohibit hemp production within their borders. On October 31, 2019, the USDA issued the IFR to implement the 2018 Farm Bill, whichestablished the required regulatory framework governing commercial hemp production in the United States. The USDA has begun reviewinghemp production 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 will remaineffective until October 31, 2020 (one year after the date of publication of the IFR). In addition, no state or Native American tribemay prohibit the transportation or shipment of hemp or hemp products produced in accordance with the 2018 Farm Bill through the stateor territory, as applicable. The USDA has interpreted this provision also to apply to interstate transportation of hemp that complieswith the 2014 Farm Bill through October 31, 2020. Effective March 22, 2021, The USDA issued the final rule, which creates the U.S. DomesticHemp Production Program. The program provides requirements for maintaining records about the land where hemp is produced, testing thelevels of total delta-9 tetrahydrocannabinol, disposing of non-compliant plants, licensing hemp producers, and ensuring compliance underthe new program. The Agricultural Marketing Service (AMS) has been delegated authority to administer the U.S. Domestic Hemp ProductionProgram.

 

FDARegulation of Foods

 

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

 

Althoughfoods are not required to obtain premarket approval from the FDA, any substance that is added to or is expected to become a componentof food must be used in accordance with a food additive regulation, unless it is generally recognized as safe (“GRAS”) underthe conditions of its intended use. A food may be adulterated if it uses an ingredient that is neither GRAS nor an approved food additive,and that food may not be legally marketed in the United States. The FDA has confirmed that the use of cannabis or cannabis-derived compoundsin food products is subject to these food additive requirements. At this time, there are no approved food additive petitions or regulationsfor any 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 introduction or delivery for introduction into interstate commerce of any food that contains an approved drugfor which substantial clinical investigations have been instituted and made public (unless certain exceptions apply). Under this prohibition,the FDA has stated that foods that contain CBD are adulterated because CBD is an active ingredient in an FDA-approved drug that was thesubject of substantial clinical investigations before it was marketed as a food, and that none of the exceptions applies.

 

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

 

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

 

 

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

 

Underthe FDCA, the FDA may require the recall of a food product if there is a reasonable probability that the product is adulterated or misbranded,and the use of or exposure to the product will cause serious adverse health consequences or death. In addition, food producers may voluntarilyrecall or withdraw 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:

 

	●	restrictions on the production or marketing of a product;
	●	required modification of promotional materials or issuance of corrective marketing information;
	●	issuance of safety alerts, press releases, or other communications containing warnings or other safety information about a product;
	●	warning or untitled letters;
	●	product seizure or detention;
	●	refusal to permit the import or export of products;
	●	fines, injunctions, or consent decrees; and
	●	imposition of civil or criminal penalties.

 

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

 

TheFDA revised regulations with respect to serving size information and nutrition labeling on food and beverage products, including requirementsto disclose the amount of added sugars in such products. In December 2018, the USDA promulgated regulations requiring that, by January1, 2022, the labels of certain bioengineered foods must include a disclosure that the food is bioengineered. We may incur significantcosts to alter our existing packaging materials to comply with these and other new regulations. Additionally, these new regulations mayimpact, reduce, or otherwise affect the purchase and consumption of our products by consumers.

 

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

 

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

 

EnvironmentalCompliance

 

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

 Insurance

 

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

 

Employees

 

Webelieve the people who work for us are critical to our continued success. As of May 15, 2023, we employed a total of 21 persons, allof whom were employed on a full-time basis. We strive to attract and retain qualified personnel; however, due to the size and scope ofour business, we do not have any formal human capital strategies.

 

 

MANAGEMENT’SDISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

Thefollowing discussion and analysis of the results of operations and financial condition for the years ended December 31, 2022 and 2021and for the three months ended March 31, 2023 and March 31 2022, should be read in conjunction with the financial statements and relatednotes and the other financial information that are included elsewhere in this Prospectus. This discussion includes forward-looking statementsbased upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations, and intentions. Forward-lookingstatements are statements not based on historical information and which relate to future operations, strategies, financial results, orother developments. Forward-looking statements are based upon estimates, forecasts, and assumptions that are inherently subject to significantbusiness, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respectto future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could causeactual results 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 those anticipatedin these forward-looking statements as a result of a number of factors, including those set forth under the “Risk Factors,”“Cautionary Note Regarding Forward-Looking Statements,” and “Description of Business” sections in this Prospectus.We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,”“ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,”“could,” and similar expressions to identify forward-looking statements. We and our representatives may from time to timemake written or oral statements that are “forward-looking,” including statements contained in this Prospectus and other filingswith the SEC, reports to our stockholders, and news releases. All statements that express expectations, estimates, forecasts, or projectionsare forward-looking statements. In addition, other written or oral statements which constitute forward-looking statements may be madeby us or on our behalf. Words such as “expect,” “anticipate,” “intend,” “plan,” “believe,”“seek,” “estimate,” “project,” “forecast,” “may,” “should,” variationsof such words and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees offuture performance and involve risks, uncertainties, and assumptions, which are difficult to predict. Therefore, actual outcomes andresults may differ materially from 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 Prospectus to confirmforward-looking statements to actual results. Important factors on which such statements are based are assumptions concerning uncertainties,including, but not limited to, uncertainties associated with the following:

 

	●	Inadequate capital and barriers to raising the additional capital or to obtaining the financing needed to implement our business plans;
	●	Our failure to earn revenues or profits;
	●	Volatility or decline of our stock price;
	●	Potential fluctuation in our financial results;
	●	Rapid and significant changes in markets;
	●	Litigation with or legal claims and allegations by outside parties;
	●	Impacts from the COVID-19 pandemic; and
	●	Insufficient revenues to cover operating costs.

 

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

 

Resultsof Operations

 

Ourbusiness has grown rapidly since inception in 2015, and we anticipate that our business will continue to grow significantly. For theyear ended December 31, 2022, and the quarter ended March 31, 2023, the Company saw an increase in growth compared to the same periodsof the prior periods. The Company continues to increase our product variety, commencement of new distribution contracts, and expand ourfootprint as a national brand.

 

Wederive our revenue from sales of our products to online consumers, to resellers, and to distributors, Product sales to resellers includesales to convenience stores, grocery stores, and smoke and gift shops that complement our current product offering. Product sales todistributors include our Ooh La Lemin lemonade, our energy drinks, and our HighDrate CBD-infused energy waters. We also distribute ourproducts and other companies’ products at retail.

 

Wehave experienced and expect to continue to experience substantial growth in our operations as we seek to expand through additional productsand acquisitions that complement our current product offerings. We expect that revenue will increase in fiscal year 2023 compared tofiscal year 2022, as the Company anticipates signing more favorable agreements with larger, reputable tier 1 and mid-size distributors,big box stores, and grocery chains. The following is a more detailed discussion of our financial condition and results of operationsfor the periods presented.

 

 

Impactof Inflation

 

Recentinflationary trends have led to a moderate increase in some of the costs to produce and ship our products. To date, we have not passedthe increases in those costs to our consumers. Continued prolonged periods of inflationary pressure on some or all of those costs couldhave a material adverse effect on our profit margins from sales of those products or could require us to increase prices for those products,which could reduce consumer demand for those products.

 

Yearended December 31, 2022 compared to Year ended December 31, 2021

 

Overview

 

Asreflected in the accompanying financial statements, during the year ended December 31, 2022, we incurred a net loss of approximately$7.3 million and used cash in operations of approximately $2.5 million, compared to a net loss of approximately $7.0 million and useof cash in operations of approximately $2.7 million for the year ended December 31, 2021. As of December 31, 2022, we had a stockholders’deficit of approximately $3.8 million.

 

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

 

Revenue

 

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

 

		Year Ended December 31,
		2022				2021
Revenue Source		Revenue				Revenue				% Change
Distributors		$	805,480			$	895,850				(10	)%
Amazon			128,756				154,240				(17	)%
Online Sales			22,647				68,073				(67	)%
Retail			3,609,419				1,420,747				154	%
Shipping			11,484				17,305				(34	)%
Sales Returns and Allowances			(134,750	)			(77,479	)			74	%
Net Revenues		$	4,443,036			$	2,478,736				79	%

 

 

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

 

		Year Ended December 31,
		2022				2021
Product Line		Revenue				Revenue				% Change
Hemp Energy Drinks		$	168,146			$	362,096				(54	)%
CBD Energy Waters			59,250				133,110				(55	)%
Lemonade Drinks			729,306				621,331				17	%
Apparel			181				1,626				(89	)%
Retail			3,609,419				1,420,747				154	%
Shipping			11,484				17,305				(34	)%
Sales returns and allowance			(134,750	)			(77,479	)			74	%
Net Revenues		$	4,443,036			$	2,478,736				79	%

 

Duringthe year ended December 31, 2022, we reported net revenues of $4.4 million, which is an increase of $1.96 million, or 79%, compared tonet revenues of $2.5 million for the year ended December 31, 2021. An increase of $2.2 million of our revenue is attributable to increasedretail revenue, while our product sales decreased in net revenue by $224,371. We attribute the significant increase in retail revenueto attaining a larger percentage of the territories in which we distribute, including the addition of additional distribution to largergrocery and convenience store chains. We attribute the decrease in product sales to certain delays in the rollout of existing productlines in a national retailer, as well as to a change-over in our customer mix from the prior period due to a non-repetitive, regional,one-off customer relationship in the prior period and a different regional customer imposing slotting fees in the prior period, whichwe declined to pay in the current year. We anticipate that the rollout of our drink products with a national retailer that commencedlate in fiscal year 2022 will continue in fiscal year 2023. Additionally, the Company experienced delays in the rebranding of our hempproduct line and the subsequent production. We expect that our product revenue will increase in fiscal year 2023 compared to fiscal year2022, and we do not anticipate further delays. Further, the Company hired additional sales personnel to lead sales efforts as the Companybegan to expand into new territories late in the fiscal year 2022, and the Company signed several new large distributors late in fiscalyear 2022. The Company anticipates continuing signing more favorable agreements with larger, reputable tier 1 and mid-size distributors,big box stores, and grocery chains. In addition, we anticipate that our retail revenue will continue to increase as we broaden our customerbase with increased distribution to additional grocery and convenience chains.

 

Costof Revenues

 

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

 

Duringthe year ended December 31, 2022, we reported cost of revenues of approximately $3.5 million, which is an increase of approximately $1.3million, or approximately 61%, compared to approximately $2.1 million for the year ended December 31, 2021. An increase of $1.6 millionof our cost of revenues is attributable to an increase in our retail distribution in 2022, while our cost of revenues for product salesdecreased $328,477, compared to the prior year period. The cost of revenues increase was smaller than the increase in revenues. Thisis primarily attributed to decreased costs in obtaining our ingredients for our products, for production of our products, and for shippingour products from the prior year period. We expect that we will continue to see an increased cost of revenues in fiscal year 2023, primarilydue to an anticipated increase in revenues. In addition, as the cost of shipping our products continues to remain elevated, we also anticipateincreased costs for obtaining our ingredients for our products, increased costs for production of our products, and increased costs ofshipping our products. We continue to seek alternative methods to reduce costs for production and the cost of shipping our products infiscal year 2023.

 

 

Selling,General and Administrative Expenses

 

Selling,General and Administrative Expenses (“SG&A”) expenses consist primarily of professional fees, salaries and wages, advertising,rent, travel expenses, corporate-related expenses, and general office and administrative expenses related to maintaining our facilities.

 

Selling,General and Administrative Expenses (“SG&A”) expenses consist primarily of professional fees, salaries and wages, advertising,rent, travel expenses, corporate-related expenses, and general office and administrative expenses related to maintaining our facilities.Selling, general and administrative expenses increased in the year ended December 31, 2022, to $4.1 million from $3.4 million, an increaseof $764,458 over the same period last year. The increase was driven by increased operating expenses associated with wages related tohiring additional sales personal, travel expenses, insurance expenses, and legal and accounting fees related to corporate expenses, partiallyoffset by lower professional fees and regional customer imposing slotting fees in the prior period, which we declined to pay in the currentyear. We expect that as we expand our business operations, SG&A expenses will continue to increase.

 

Weexpect that as we expand our business operations and continue to incur additional corporate-related expenses associated with our statusas a fully registered issuer with the SEC under the Securities Exchange Act of 1934, SG&A expenses will continue to increase.

 

Impairmentof Goodwill

 

Impairmentof goodwill for the year ended December 31, 2021 was $1.3 million. In December 2021, we determined that our goodwill asset was impairedand recorded an impairment charge accordingly. No similar activity occurred during the current year period.

 

OtherIncome and Expenses

 

Otherexpense for the year ended December 31, 2022 was $4.2 million, as compared to other expense of $2.6 million for the year ended December31, 2021. The change in balance was due to the increase in interest expense of $58,273, the increase in the change in value of derivativeliabilities of $2.1 million, the increase in loss on extinguishment of debt of $249,831, offset by the decrease in financing costs of$1.0 million, and decreased other expense of $22,262, as compared to the same period last year. In addition, for the year ended December31, 2021, the company recorded a gain on forgiveness of PPP loans of $212,648, which did not occur in the same period of the currentyear.

 

NetLoss

 

Weincurred a net loss of approximately $7.3 million for the year ended December 31, 2022, an increase of approximately $292,898 comparedto the previous year ending December 31, 2021, in which we incurred a net loss of approximately $7.0 million. This net loss is primarilydue to our increase in gross profit, offset by increased SG&A expenses and the increase in other expenses, as discussed above.

 

ThreeMonths ended March 31, 2023 compared to Three Months ended March 31, 2022

 

Overview

 

Asreflected in the accompanying financial statements, during the three months ended March 31, 2023, we incurred a net loss of approximately$1.6 million and used cash in operations of approximately $215,544, compared to a net loss of approximately $3.6 million and use of cashin operations of approximately $669,504 for the three months ended March 31, 2022. As of March 31, 2023, we had a stockholders’deficit of approximately $4.5 million.

 

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

 

Revenue

 

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

 

		Three Months Ended 31,
		2023				2022
Revenue Source		Revenue				Revenue				% Change
Distributors		$	221,746			$	189,952				17	%
Amazon			13,063				35,524				(63	)%
Online Sales			5,236				10,971				(52	)%
Retail			1,070,283				791,402				35	%
Shipping			969				2,382				(59	)%
Sales Returns and Allowances			(36,400	)			(35,100	)			4	%
Net Revenues		$	1,274,897			$	995,131				28	%

 

 

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

 

		Three Months Ended 31,
		2023				2022
Product Line		Revenue				Revenue				% Change
Energy Drinks		$	9,624			$	62,892				(85	)%
CBD Energy Waters			1,867				14,472				(87	)%
Lemonade Drinks			228,554				159,018				44	%
Apparel			-				65				(100	)%
Retail			1,070,283				791,402				35	%
Shipping			969				2,382				(59	)%
Sales returns and allowance			(36,400	)			(35,100	)			4	%
Net Revenues		$	1,274,897			$	995,131				28	%

 

Duringthe three months ended March 31, 2023, we reported net revenues of approximately $1.3 million, which is an increase of approximately$279,766, or approximately 28%, compared to net revenues of approximately $995,131 for the three months ended March 31, 2022. An increaseof approximately $278,881 of our revenue is attributable to increased retail revenue, while our remaining net revenue decreased in netrevenue by approximately $144,247. We attribute the significant increase in retail revenue to obtaining larger retail chains, and attaininga larger percentage of the territory in which the Company distributes. We attribute the slight decrease in remaining net revenue to delaysin production of the Company’s rebranded product line. We expect that our remaining net revenue will increase in the remainingfiscal year 2023 compared to fiscal year 2022. Additionally, the Company anticipates signing more favorable agreements with larger, reputabletier 1 and mid-size distributors, big box stores, and grocery chains. In addition, we anticipate that our retail revenue will continueto increase as we broaden our customer base with increased distribution to additional grocery and convenience chains.

 

Costof Revenues

 

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

 

Duringthe three months ended March 31, 2023, we reported cost of revenues of approximately $986,859, which is an increase of approximately$136,983, or approximately 16%, compared to approximately $849,876 for the three months ended March 31, 2022. This increase is attributedto an increase in sales in both our products and retail distribution in 2023, compared to the prior year period. The cost of revenuesincrease was smaller than the increase in revenues. This is primarily attributed to decreased costs in obtaining our ingredients forour products, for production of our products, and for shipping our products. We expect that we will continue to see an increased costof revenues in the remaining fiscal year 2023, primarily due to an anticipated increase in revenues. In addition, as the cost of shippingour products continues to remain elevated, we also anticipate increased costs for obtaining our ingredients for our products, increasedcosts for production of our products, and increased costs of shipping our products. We continue to seek alternative methods to reducecosts for production and the cost of shipping our products in fiscal year 2023.

 

Selling,General and Administrative Expenses

 

Selling,General and Administrative Expenses (“SG&A”) expenses consist primarily of professional fees, salaries and wages, advertising,rent, travel expenses, sponsorships, and general office and administrative expenses related to maintaining our facilities. Selling, generaland administrative expenses increased in the three months ended March 31, 2023, to approximately $1,273,961 from approximately $939,336,an increase of approximately $334,625 over the same period last year. The increase was driven by increased operating expenses associatedwith hiring additional sales employees, legal and accounting fees, professional fees, and expired product and partially offset by loweradvertising and shipping expenses. We expect that, as we expand our business operations, SG&A expenses will continue to increase.

 

Weexpect that as we expand our business operations and continue to incur additional corporate-related expenses associated with our statusas a fully registered issuer with the SEC under the Securities Exchange Act of 1934, SG&A expenses will continue to increase.

 

OtherIncome and Expenses

 

Otherexpense for the three months ended March 31, 2023 was approximately $606,634, as compared to other expense of approximately $2.8 millionfor the three months ended March 31, 2022. The change was attributable to the decrease in interest expense of approximately $137,304related to decreased debt levels and debt amortization, the decrease in the change in the fair value of derivative liabilities of approximately$2.8 million, a decrease in the loss on debt extinguishment of approximately $396,636, and was offset with the recording of financingcosts of approximately $163,000 in the current period, which did not occur in the prior period.

 

 

NetLoss

 

Weincurred a net loss of approximately $1.6 million for the three months ended March 31, 2023, a decrease of approximately $2.0 millioncompared to the prior year period in which we incurred a net loss of approximately $3.6 million. This net loss is primarily due a slightincrease in SG&A expenses and offset by a significant decrease in other expenses, as discussed above.

 

Liquidityand Capital Resources

 

GoingConcern

 

Theaccompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlementof liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, during the threemonths ended March 31, 2023, the Company recorded a net loss of $1,592,557 and used cash in operations of $215,544 and had a stockholders’deficit of $4,544,952 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a goingconcern within one year after the date of the financial statements being issued. In addition, theCompany’s independent registered public accounting firm, in its report on our December 31, 2022 financial statements, has raisedsubstantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not includeany adjustments that might be necessary if the Company is unable to continue as a going concern. The ability of the Company tocontinue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan.The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

AtMarch 31, 2023, the Company had cash on hand in the amount of $76,609. Subsequent to Mach 31, 2023, the Company received proceeds of$230,000 on the sale of a senior note. The Company believes it has enough cash to sustain operations through December 31, 2023. The continuationof the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations untilit begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, thatit will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may containundue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equityfinancing.

 

NotesPayable with Related Parties

 

Notespayable with related parties consists of the following at March 31, 2023 and December 31, 2022:

 

		March 31, 2023				December 31, 2022
Note payable – related party (a)		$	1,352,651			$	1,352,651
Note payable – related party (b)			260,000				260,000
Note payable – related party (c)			125,500				125,500
Note payable – related party (d)			46,000				47,500
Total notes payable – related parties		$	1,784,151			$	1,785,651

 

(a)

On April 4, 2019, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $1,500,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on April 4, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. At March 31, 2023 and December 31, 2022, outstanding principal was $1,352,651 and $1,352,651, respectively.

 

 

	(b)	On May 6, 2022, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $300,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on May 6, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. At March 31, 2023 and December 31, 2022, outstanding principal was $260,000 and $260,000, respectively.
	(c)	On August 29, 2019, the Company entered into an unsecured Line of Credit Agreement with Robert Clark. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $200,000. Advances under this line of credit bear interest at the rate of 3.75 percent per annum. The line of credit matures on August 29, 2023, at which time all outstanding principal amounts and accrued interest are due and payable. During the period ended March 31, 2023 Mr. Clark made additional advances of $80,000 that were repaid by the end of the period.  At March 31, 2023 and December 31, 2022, outstanding principal was $125,500 and $125,500, respectively.
	(d)	On February 19, 2019, the Company issued an unsecured Standard Promissory Note in Favor of Robert Clark, as lender, in the original principal amount of $70,000. Mr. Clark is the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The note bears no interest. Principal payments of $500 per month commenced in March 2019, with final payment due in March 2021. On March 15, 2022, the Company issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principal of $58,000. On April 3, 2023, the Company issued an Amendment to the original issued Standard Promissory Note in Favor of Robert Clark for the remaining outstanding principal of $46,000 Principal payment of $500 per month, with final payment due in March 2024. The outstanding principal balance of this note at December 31, 2022 was $47,500. During the three months ended March 31, 2023, the Company made principal payments of $1,500, leaving an outstanding principal balance of $46,000 at March 31, 2023.

 

AtDecember 31, 2022, accrued interest on notes payable to related parties was $153,959. During the three months ended March 31, 2023, theCompany added $15,831 of additional accrued interest, leaving an accrued interest balance on the notes payable to related parties of$169,790 at December 31, 2022. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed ConsolidatedBalance Sheets.

 

NotesPayable

 

Notespayable consists of the following at March 31, 2023 and December 31, 2022:

 

		March 31, 2023				December 31, 2022
Note payable (a)		$	25,354			$	26,994
Note payable (b)			43,613				44,550
Note payable (c)			40,256				40,103
Note payable (d)			250,000				250,000
Note payable (e)			207,175				626,388
Note payable (f)			85,000				-
Note payable (g)			196,588				-
Total notes payable			847,986				988,035
Less debt discount (e)			(57,234	)			(218,481	)
Total notes payable, net			790,752				769,554
Notes payable, current portion			(732,753	)			(712,499	)
Notes payable, net of current portion		$	57,999			$	57,055

 

(a)

On August 21, 2021, the Company financed the purchase of a vehicle for $34,763, after making a down payment of $20,000. The loan term is for 60 months, annual interest rate of 5.44%, with monthly principal and interest payments of $665, and secured by the purchased vehicle. At December 31, 2022, the loan balance was $26,994. During the three months ended March 31, 2023, the Company made principal payments of $1,640, leaving a loan balance of $25,354 at March 31, 2023.

 

 

	(b)	On September 30, 2022, the Company financed the purchase of a vehicle for $46,576, after making a down payment. The loan term is for 60 months, annual interest rate of 9.44%, with monthly principal and interest payments of $980, and secured by the purchased vehicle. At December 31, 2022, the loan balance was $44,550.  During the three months ended March 31, 2023, the Company made principal payments of $937, leaving a loan balance of $43,613 at March 31, 2023.
	(c)	In April 2021, the Company entered into a Line of Credit Agreement with Wells Fargo Bank. The Line of Credit is personally guaranteed by Robert Clark, the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $42,000. Advances under this line of credit bear interest at the rate of 11.50% per annum. The line of credit matures in 2023, at which time all outstanding principal amounts and accrued interest are due and payable. As of March 31, 2023 and December 31, 2022, the outstanding principal was $40,256 and $40,103, respectively, which was recorded as the current portion of loan payable on the accompanying Consolidated Balance Sheet.
	(d)	On March 25, 2022, the Company entered into a secured debenture with an otherwise unaffiliated individual in the principal amount of $250,000 that was due on March 23, 2023. On March 23, 2023, the Company entered into a First Amendment to Secured Debenture (the “First Amendment”) to amend a Secured Debenture (the “Debenture”), dated as of March 25, 2022. The Debenture is amended and restated in its entirety with the following terms (i) maturity date was extended to March 24, 2024; (ii) interest accrues on the outstanding principal at a rate equal to 12% per annum; (iii) monthly payments of principal and interest shall be made in the amount of $22,212, starting April 24, 2023 until the maturity date, at which date the entirety of the balance of principal plus interest is due. The secured debenture is secured by nine identified motor vehicles of the Company. As of March 31, 2023 and December 31, 2022, the outstanding balance of the secured debentures amounted to $250,000.   In connection with the issuance of the original debenture in 2022, the Company issued to the lender 25 million shares of the Company’s common stock at a price of $0.004 per share. The Company determined the fair value of the 25 million shares was $135,000, which was recorded as a debt discount against the secured debenture. At December 31, 2022, the unamortized debt discount was $31,531. During the three months ended March 31, 2023, the Company amortized debt discount of $31,531 to interest expense on the loan, leaving no remaining unamortized debt discount at March 31, 2023.
	(e)	On September 30, 2022, November 2, 2022, and December 15, 2022, the Company entered into secured non-interest-bearing advance agreements with unaffiliated third parties for the purchase of future receipts/revenues. Under the agreements, the Company received an aggregate lump sum payment of $561,957, and, in return, the purchaser received a secured right to collect a fix sum of future receipts/revenue of $798,456 to be collected by the Company. In accordance with the agreements, the Company agreed to sell, assign, and transfer to the purchaser of all the Company’s payments, receipts, settlements, and funds paid to or received by or for the account of the Company from time to time on and after the dates of the agreements in payment or settlement of the Company’s existing and future accounts, payment intangibles, credit, debit, and/or stored value card transactions, contract rights, and other entitlements arising from or relating to the payment of monies from the Company’s customers and/or other payors or obligors. Two of the agreements require aggregate weekly payments of $9,019 and the third requires daily payments of $1,291. The Company’s obligations under the agreements are secured by the assets described above, and guaranteed by Robert Clark, the Company’s Chief Executive Officer. As of December 31, 2022, the outstanding balance to be paid amounted to $626,388. During the three months ended March 31, 2023, the Company made payments of $419,213, leaving an aggregate outstanding amount to be paid of $207,175 at March 31, 2023.   Upon execution of the advance and receipt of funds, the Company recorded the difference of $236,499 between the cash collected and the face amount of the obligation as a “note discount” and will amortize the “note discount” as interest expense over the life of the advance. At December 31, 2022, the unamortized “note discount” was $186,950. During the three months ended March 31, 2023, the Company amortized “note discount” of $129,716 to interest expense on the obligation. As of March 31, 2023, the unamortized “note discount” was $57,234.

 

	(f)	On March 9, 2023, the Company entered into a Line of Credit Agreement with American Express National Bank. The Line of Credit is personally guaranteed by Robert Clark, the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $85,000. Advances under this line of credit bear interest at the rate of 19.32% per annum. The line of credit matures on September 9, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. The line of credit requires minimum monthly payments of $5,572. At March 31, 2023, the outstanding principal was $85,000.
	(g)	On March 7, 2023, the Company entered into a Line of Credit Agreement with Celtic Bank. The Line of Credit is personally guaranteed by Robert Clark, the Company’s President, Chief Executive Officer, Secretary, and Chairman of the Board. The agreement established a revolving line of credit in the amount of up to $200,000. Advances under this line of credit bear interest at the rate of 35.90 percent per annum. The line of credit matures on March 7, 2024, at which time all outstanding principal amounts and accrued interest are due and payable. At March 31, 2023, the outstanding principal was $196,588.

 

AtDecember 31, 2022 on item (d), accrued interest on the notes payable was $1,874. During the three months ended March 31, 2023, the Companyadded $5,630 of additional accrued interest on item (d), leaving $7,504 of accrued interest balance on the notes payable on item (d)at March 31, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated BalanceSheets.

 

Asof December 31, 2022, the unamortized debt discount was $218,481. During the three months ended March 31, 2023, the Company amortizeddebt discount of $161,247 to interest expense on the loans. As of March 31, 2023, the unamortized debt discount was $57,234.

 

 

SecuredConvertible Debentures

 

Secureddebentures that are payable to an otherwise unaffiliated third party consists of the following as of March 31, 2023 and December 31,2022:

 

		March 31, 2023				December 31, 2022
Mast Hill Note 1			472,648				595,000
Mast Hill Note 2			475,000				-
Less debt discount			(318,270	)			(183,940	)
Secured debentures, net		$	629,378			$	411,060

 

MastHill

 

OnJuly 28, 2022, the Company issued a senior secured debenture to an otherwise unaffiliated third-party investor (the “Investor”)in the aggregate of $595,000. The debenture bears interest at a rate of 10% per annum, matures on July 28, 2023, and is convertible intoshares of our common stock at a conversion price of $0.0045 per share. If the Company issues subsequent equity instruments at an effectiveprice per share that is lower than the conversion price of $0.0045 per shares, then the conversion price shall be reduced, at the optionof the Holder, to a price equal to the Weighted Average Price (as defined), provided, further, that if the conversion price is equalto or less than $0.003, then the conversion price shall be reduced at the option of the Holder to a price equal to the lower price. Thesenior secured debenture is secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to the SecurityAgreement. The security interest granted to the Investor under the Security Agreement was subordinate to the continuing security interestthat remains in effect pursuant to the previous grant of a security interest in connection with a then-outstanding debenture to an earlierinvestor all tangible and intangible assets. In connection with the issuances of the debenture, the Company granted to the Investor warrantsto purchase up to 100 million shares of the Company’s common stock, which expire on July 28, 2027. The warrants are exercisableat $0.0045 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants grantedof $223,000; and (b) original issue discounts of $92,325 of the debentures for a total of $315,325 which was allocated as debt discount.The debt discount is being amortized to interest expense over the term of the corresponding debentures. As of December 31, 2022, theunamortized debt discount was $183,940. During the three months ended March 31, 2023, the Company amortized debt discount of $78,831to interest expense on the loan. As of March 31, 2023, the unamortized debt discount was $105,109.

 

Asof December 31, 2022 the balance due under the obligation was $595,000. During the three months ended March 31, 2023, the Company converted$157,400 of principal and accrued interest into 72,000,000 shares of common stock with a fair value of $315,000 resulting in a loss onextinguishment of debt of $157,600. As of March 31, 2023, $472,648 was due under the note.

 

MastHill Debenture 2

 

OnMarch 13, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $475,000. The debenturebears interest at a rate of 16% per annum, matures on March 13, 2024, and is convertible into shares of our common stock at a conversionprice of $0.0045 per share.

 

Atour option, we have the right to redeem, in full, the outstanding principal and interest under the debenture prior to its maturity date;provided, that, as of the date of the then-holder’s receipt of the redemption notice, there has not been an Eventof Default. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as wellas a $750 administrative fee (the “Redemption Amount”). We must provide seven Trading Days’ (as such term is definedin the debenture) prior notice to the then-holder of the debenture of our intent to make a redemption. If such notice of redemption isreceived six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount into sharesof our Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

 

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

 

Inconnection with the issuance of the debenture, the Company granted to the Investor warrants to purchase up to 80 million shares of theCompany’s common stock, which expire on March 13, 2028. The warrants are exercisable at $0.0045 per share. As a result of theseissuances and grants, we incurred the following (a) relative fair value of the warrants granted of $150,000 and (b) original issue discountsand fees of $74,00 of the debentures for a total of $224,000, which was allocated as debt discount. The debt discount is being amortizedto interest expense over the term of the corresponding debenture. During the three months ended March 31, 2023, the Company amortizeddebt discount of $10,839 to interest expense on the loan. As of March 31, 2023, the unamortized debt discount was $213,161.

 

Asof March 31, 2023, no shares of common stock were potentially issuable under the conversion terms of the outstanding debentures.

 

AtDecember 31, 2022, accrued interest on the convertible notes payable was $25,756. During the three months ended March 31, 2023, the Companyadded $19,214 of additional accrued interest, and converted $37,466 of accrued interest, leaving an accrued interest balance on the convertiblenotes payable of $7,504 at March 31, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanyingCondensed Consolidated Balance Sheets.

 

Asof December 31, 2022, the unamortized debt discount was $183,940. During the three months ended March 31, 2023, the Company added $224,000related to the issuance of secured debentures, and amortized debt discount of $89,670 to interest expense on the loans. As of March 31,2023, the unamortized debt discount was $318,270.

 

 

CashFlows

 

Insummary, our use of cash has been as follows:

 

		For the Three Months Ended March 31, 2023
Net cash used in operating activities		$	(215,544	)
Net cash used in investing activities		$	-
Net cash provided by financing activities		$	252,365

 

OperatingActivities

 

Cashprovided by or used in operating activities primarily consists of net income adjusted for certain non-cash items, including depreciation,amortization, changes in allowance for doubtful accounts, loss on extinguishment of debt, and the change in the fair value of our derivativeliabilities, and the effect of changes in working capital and other activities. Cash used in operating activities for the three monthsended March 31, 2023 was approximately $215,544 and consisted of a net loss of approximately $1.6 million, adjustments for non-cash items,depreciation, amortization, loss on extinguishment of debt, loss on the change in fair value of derivative liabilities, which in theaggregate total approximately $869,179, and approximately $507,834 used in working capital and other activities.

 

InvestingActivities

 

Cashused in investing activities for three months ended March 31, 2023 was nil and for the three months ended was approximately $21,131 andwas attributable to capital expenditures.

 

FinancingActivities

 

Cashprovided by financing activities for three months ended March 31, 2023 was approximately $252,365 and was comprised of proceeds froma notes payable of $284,595 and proceeds from convertible debentures payable of $401,000, offset by payments on our line of credit torelated party of $1,500, payments of our acquisition obligations of $5,147, payment of our note payable of $424,644, and payment of financelease obligations of $1,939.

 

Off-BalanceSheet Arrangements

 

None.

 

CriticalAccounting Policies

 

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

 

Theaccounting policies that we follow are set forth in Note 2, Summary of Significant Accounting Policies, of our consolidated financialstatements for the year ended December 31, 2022. These accounting policies conform to accounting principles generally accepted in theUnited 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 Update 2016-02,Leases (Topic 842) (“ASC Topic 842”), which requires an entity to recognize a liability and corresponding asset forleases that meet certain criteria. We applied ASC Topic 842 using the modified retrospective approach. Under this approach, we appliedthe new standards to all new leases, and leases which have remaining obligations for financial statements issued for fiscal years beginningafter December 15, 2018. We elected the package of practical expedients permitted under the transition guidance, which allowed us tocarryforward historical lease classification, and not reassess (i) whether a contract was or contained a lease, and (ii) initial directcosts for any leases that existed prior to January 1, 2019. Under this method, we did not restate comparative periods in our financialstatements. We present right-of-use assets resulting from leases separately from other assets as noncurrent, and amortized accordingly.The corresponding lease liabilities are presented separately from other liabilities on the accompanying balance sheets.

 

Werecognize a right-of-use asset and a lease liability at the lease commencement date. The right-of-use asset is initially measured atcost, which comprises the initial amount of the lease liability adjusted for any lease payments made at or before the commencement date,plus any initial direct costs incurred. The amortization period for the right-of-use asset is from the lease commencement date to theearlier 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 or the risk-freerate with the election of the practical expedient. We have elected to use the risk-free rate.

 

Pleaserefer to Note 11, Lease Liabilities, to our consolidated financial statements for the year ended December 31, 2022 for additionalinformation related to our right-of-use assets and lease liabilities.

 

RevenueRecognition and Deferred Revenue

 

Wesell our products, which includes our hemp-infused energy drinks, CBD-infused energy water, low carb and low-calorie lemonade, and apparelwith our trademark logo, to online customers or through resellers and distributors. In evaluating the timing of the transfer of controlof products to customers, we consider several indicators, including significant risks and rewards of products, our right to payment,and the legal title of the products. We recognize revenue from product sales to customers, distributors, and resellers when productsthat do 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 net sales.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 several indicators,including significant risks and rewards of products, our right to payment, and the legal title of the products. We recognize revenuefrom product sales to resellers when products that do not require further services by us are shipped or delivered, when there are nouncertainties surrounding customer acceptance and when collectability is reasonably assured. Cash received by us prior to shipment isrecorded as deferred revenue. 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 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 at the amountexpected to be collected. The implementation of Topic ASC 606 had no impact on the prior period financial statements and no cumulativeeffect adjustment was recognized.

 

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

 

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

 

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

 

 

TheCompany operates in one segment for the manufacture and distribution of its products and those of otherwise unrelated beverage products.In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has beenidentified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources andassessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishesrequirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services,major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualifyfor aggregation under “Segment Reporting” due to their similar customer base and similarities in economic characteristics;nature of products and services; and procurement, manufacturing, and distribution processes. Since the Company operates in one segment,all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

 

Ourrevenue earned is recognized when we satisfy a single performance obligation by transferring control of our products to a customer. Wehave determined that disaggregated revenue by net sales by revenue source would be meaningful and allow investors to understand our businessactivities, historical performance, or future prospects. Disaggregated sales by revenue source, which includes sales to distributors,online sales, sales through Amazon, and distribution sales. This is the same information used by our Chief Operating Decision Maker forevaluating the financial performance of our operations and making resource decisions. We also sell merchandise and apparel that comprisesapproximately 1% of our gross annual sales, and solely exists to promote our beverages. Merchandise and apparel sales are included withthe gross sales for our one operating segment.

 

AccountsReceivable and Allowance for Doubtful Account Receivable

 

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

 

Intangibleassets represent both indefinite lived and definite lived assets. Trademarks are deemed to have definite useful lives of ten years, areamortized, and are tested annually for impairment. Intangible assets are reported on the balance sheet at cost less accumulated amortization.We have selected December 31 as the date to perform the annual impairment test. See Note 2, Summary of Significant Accounting Policies,Subsection Goodwill and Intangible Assets, of our consolidated financial statements for the year ended December 31, 2022, for anadditional description of intangible assets 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” cantake advantage of an extended transition period for complying with new or revised accounting standards. This provision allows an emerginggrowth company to delay the adoption of some accounting standards until those standards would otherwise apply to private companies. Asan emerging growth company, we have irrevocably elected to take “opt out” of taking advantage of the extended transitionperiod afforded by the JOBS Act for the implementation of new or revised accounting standards and, as a result, we will comply with newor revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth publiccompanies 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 emerging growthcompany, we are not required to, among other things, (i) provide an auditor’s attestation report on our system of internal controlsover financial reporting pursuant to Section 404(b), and (ii) comply with any requirement that may be adopted by the Public Company AccountingOversight Board regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional informationabout 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 fifth anniversaryof 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 aredeemed to be a “large accelerated filer” under the rules of the SEC, which means the market value of our common shares thatis held by non-affiliates exceeds $700 million as of the last day of our second quarter, and (2) the date on which we have issued morethan $1.0 billion in non-convertible debt during the prior three-year period.

 

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

 

RecentlyIssued Accounting Pronouncements

 

SeeNote 2, Summary of Significant Accounting Policies to our consolidated financial statements for the year ended December 31, 2022for a discussion of recent accounting pronouncements.

 

DESCRIPTIONOF PROPERTY

 

Wecurrently lease approximately 4,500 square feet of corporate office and warehouse space located at 746 North Drive, Suite A, Melbourne,Florida 32934. The lease is for a five-year term, and expires on May 31, 2023. The initial monthly base rent was approximately $3,994,plus state taxes. The monthly base rent increases annually by three percent, beginning on June 1, 2019 and each June 1^st thereafter.

 

Throughour subsidiary, Gold Leaf, we also lease a 30,000 square foot warehouse and main distribution hub in Greer, South Carolina. The leaseis for a 63-month term that commenced in May 2019. Beginning in April 2022, our monthly rent includes monthly base payments of $10,200,plus applicable monthly CAM fees (Common Area Maintenance). Gold Leaf leases an additional 10,000 square foot building in Conway, SouthCarolina. The lease is for a 62-month period that commenced in October 2021. Our monthly rent is approximately $7,261. Effective December31, 2022, we consolidated our distribution facilities into our main distribution hub in Greer, SC. We believe our office space, warehousespace, and distribution facilities are sufficient to meet our current needs.

 

LEGALPROCEEDINGS

 

Wemay be subject to legal proceedings and claims which arise in the ordinary course of our business. Although occasional adverse decisionsor settlements may occur, we believe that the final disposition of such matters should not have a material adverse effect on our financialposition, results of operations, or liquidity.

Asof the date of this Prospectus, we were not a party to any legal proceedings that could have a material adverse effect on our business,financial condition, or operating results. Further, to our knowledge, no other proceedings have been initiated or threatened againstus.

 

 

MANAGEMENT

 

Directorsand Executive Officers

 

Alldirectors hold office for a one (1)-year period and have been duly elected and qualified. Directors are elected at the annual meetingsto serve for one-year terms or until his or her successor has been elected and qualified, or until his or her death, resignation, orremoval. Each of our executive officers is appointed by and serves at the discretion of the Board.

 

Ourdirectors and executive officers, their ages, positions held, and duration of such are as follows:

 

Name		Age		Position		Date First Elected or Appointed
Robert Clark		46		Chief Executive Officer, President, Chairman of our Board, and Secretary		August 12, 2015
Lori Radcliffe		49		Chief Financial Officer		October 7, 2019
Christopher Selinger		52		Vice President of Sales		September 1, 2018
Matthew Crystal		51		Independent Director		July 26, 2018

 

BusinessExperience

 

Thefollowing is a brief overview of the business experience of each of our directors and executive officers during at least the past fiveyears, including their principal occupations or employment during the period, the name and principal business of the organization bywhich they were employed, and certain of their other directorships:

 

RobertClark, Chief Executive Officer, President, Chairman of our Board, and Secretary

 

RobertClark has served as our Chief Executive Officer, President, and the Secretary and the Chairman of the Board since August 2015. SinceAugust 2015, Mr. Clark also serves as an Audit, Compensation, and Governance and Nominating Committee member. Prior to joining us, Mr.Clark was the President of Branded Legacy (formerly known as Elev8 Brands, Inc.) from 2012 through 2015. Mr. Clark obtained a Bachelorof Science degree from the School of Business at the University of Central Florida in 2003. We believe that Mr. Clark’s backgroundin product development and design, along with more than 12 years of management experience, allows him to have a great understanding ofall levels within a company and successfully bring new products to market qualifies him to serve on our Board.

 

LoriRadcliffe, Chief Financial Officer

 

LoriRadcliffe has served as our Chief Financial Officer since October 2019. Ms. Radcliffe has worked in the accounting field since 2007,most recently as a Senior Accountant at Berman Hopkins Wright & Laham, CPA’s and Associates from 2015 through 2019. Ms. Radcliffeobtained her Bachelor of Science in Business Administration in Accounting from the University of Central Florida in 2016 and her MS inAccounting from Liberty University in 2019.

 

ChristopherSelinger, Vice President of Sales

 

ChristopherSelinger has served as our Vice President of Sales since September 2018. Prior to joining us, Mr. Selinger served as the Southeast OperationsManager of Southeast Beverage Company from 2015 to 2017 and as the Southeast Regional Sales Manager at Calypso Brands (King Juice Company,Inc.) from 2009 to 2015. Mr. Selinger obtained his Associate of Science degree in 1991 from Midland Technical College. We believe thatMr. Selinger’s background in growing Calypso Brands into a national brand gives him a great understanding of all levels withina company such as ours and the methods successfully to bring new products to market.

 

MatthewCrystal, Independent Director

 

MatthewCrystal has served as one of our independent directors since July 26, 2018. Mr. Crystal is also a member of our Audit Committee, CompensationCommittee, and Governance and Nominating Committee. He has over 20 years of experience in direct response marketing, copywriting, andweb development and specializes in technical training, marketing, presenting, and architectural marketing. Mr. Crystal is the co-founder,and since 2014, has been the Vice President of Operations and is currently the Chief Operations Officer of Elite Marketing Pro, LLC,a global community of over 50,000 active small business entrepreneurs in more than 100 countries. Mr. Crystal graduated from FloridaState University in 1994 with a Bachelor of Science degree. We believe that Mr. Crystal’s leadership and marketing experience qualifieshim to serve as a director.

 

DirectorQualifications

 

Webelieve that our directors should have the highest professional and personal ethics and values, consistent with our longstanding valuesand standards. They should be committed to enhancing stockholder value and should have sufficient time to carry out their duties andto provide insight and practical wisdom based on experience. Their service on other boards of public companies should be limited to anumber that permits them, given their individual circumstances, to perform responsibly all director duties for us. Each director mustrepresent the interests of all stockholders. When considering potential director candidates, our Board also considers the candidate’scharacter, judgement, diversity, age, and skills, including business literacy and experience in the context of our needs and the needsof our Board.

 

 

Involvementin Certain Legal Proceedings

 

Noneof our director and executive officers has been involved in any of the following events during the past ten years:

 

	(a)	any petition under the federal bankruptcy laws or any state insolvency laws filed by or against, or an appointment of a receiver, fiscal agent, or similar officer by a court for the business or property of such person, or any partnership in which such person was a general partner at or within two years before the time of such filing, or any corporation or business association of which such person was an executive officer at or within two years before the time of such filing;
	(b)	any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
	(c)	being subject to any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining such person from, or otherwise limiting, the following activities: (i) acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association, or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; engaging in any type of business practice; or (ii) engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of federal or state securities laws or federal commodities laws;
	(d)	being the subject of any order, judgment, or decree, not subsequently reversed, suspended, or vacated, of any federal or state authority barring, suspending, or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (c)(i) above, or to be associated with persons engaged in any such activity;
	(e)	being found by a court of competent jurisdiction (in a civil action), the SEC to have violated a federal or state securities or commodities law, and the judgment in such civil action or finding by the SEC has not been reversed, suspended, or vacated;
	(f)	being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended, or vacated;
	(g)	being the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended, or vacated, relating to an alleged violation of: (i) any federal or state securities or commodities law or regulation; or (ii) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease- and-desist order, or removal or prohibition order; or (iii) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
	(h)	being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

 

FamilyRelationships and Other Arrangements

 

Thereare no family relationships among any of our directors or executive officers.

 

Noneof our directors or executive officers was selected to serve in their respective roles pursuant to any arrangement or understanding betweensuch director or executive officer and any person.

 

Committeesof our Board

 

Wehave an Audit Committee, a Compensation Committee, and a Governance and Nominating Committee. Currently, we have one independent director,Matthew Crystal, who meets the independent director requirements of The Nasdaq Stock Market LLC and the SEC. Mr. Crystal serves on theAudit Committee, Compensation Committee, and Governance and Nominating Committee. Robert Clark, our President, Chief Executive Officer,and Chairman of our Board, serves on the Audit, Compensation, and Governance and Nominating Committees. Each committee has the responsibilitiesdescribed below. During our fiscal year ended December 31, 2022, our Board acted by unanimous written consent two times and we had fourformal Board meetings.

 

AuditCommittee

 

OnJuly 8, 2020, our Board adopted an audit committee charter (the “Audit Committee Charter”) to govern the Audit Committee.Currently, Messrs. Crystal and Clark (Chairman) serve on the Audit Committee. As of the date of this Annual Report, none of the membersqualifies as an “audit committee financial expert.” During our fiscal year ended December 31, 2020, our Audit Committee didnot formally meet.

 

TheAudit Committee Charter requires that each member of the Audit Committee meet the independence requirements of The Nasdaq Stock MarketLLC and the SEC and requires that the Audit Committee have at least one member that qualifies as an “audit committee financialexpert.” We intend to identify potential new directors that can serve as Audit Committee members and satisfy these requirements.In addition to the enumerated responsibilities of the Audit Committee in the Audit Committee Charter, the primary function of the AuditCommittee is to assist our Board in its general oversight of our accounting and financial reporting processes, audits of our financialstatements, and internal control and audit functions. The Audit Committee Charter can be found online at https://konagoldhemp.com/media/pubco/Kona-Gold-Solutions-Audit-Committee-Charter.pdf.

 

 

CompensationCommittee

 

OnJuly 8, 2020, our Board approved and adopted a charter (the “Compensation Committee Charter”) to govern the CompensationCommittee. Currently, Messrs. Crystal and Clark (Chairman) serve as members of the Compensation Committee. Mr. Crystal meets the independencerequirements of The Nasdaq Stock Market LLC and the SEC, qualifies as a “non-employee director” within the meaning of Rule16b-3 under the Exchange Act, and qualifies as an outside director within the meaning of Section 162(m) of the Code. In addition to theenumerated responsibilities of the Compensation Committee in the Compensation Committee Charter, the primary function of the CompensationCommittee is to oversee the compensation of our executives, produce an annual report on executive compensation for inclusion in our proxystatement, if and when required by applicable laws or regulations, and advise our Board on the adoption of policies that govern our compensationprograms. The Compensation Committee Charter may be found online at https://konagoldhemp.com/media/pubco/Kona-Gold-Compensation-Committee-Charter.pdf.During our fiscal year ended December 31, 2022, our Compensation Committee did not formally meet.

 

Governanceand Nominating Committee

 

OnJuly 8, 2020, our Board approved and adopted a charter (the “Nominating Committee Charter”) to govern the Governance andNominating Committee (the “Nominating Committee”). Currently, Messrs. Crystal and Clark (Chairman) serve as members of theNominating Committee. The Nominating Committee Charter requires that each member of the Nominating Committee meets the independence requirementsof Nasdaq and the SEC; however, currently only Mr. Crystal qualifies as independent. In addition to the enumerated responsibilities ofthe Nominating Committee in the Nominating Committee Charter, the primary function of the Nominating Committee is to determine the slateof director nominees for election to the board of directors, to identify and recommend candidates to fill vacancies occurring betweenannual stockholder meetings, to review our policies and programs that relate to matters of corporate responsibility, including publicissues of significance to us and our stockholders, and any other related matters required by federal securities laws. The charter ofthe Nominating Committee may be found online https://konagoldhemp.com/media/pubco/Kona-Gold-Solutions-Nominating-Committee-Charter.pdf.During our fiscal year ended December 31, 2022, our Governance and Nominating Committee did not formally meet.

 

CompensationCommittee Interlocks and Insider Participation

 

Noneof our executive officers serves as a member of the board of directors or compensation committee (or other committee performing equivalentfunctions) of any entity that has one or more executive officers serving on our Board or Compensation Committee.

 

Codeof Ethics