KONA GOLD BEVERAGE, INC. [KGKG] Filings

10-Q 1 form10-q.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

For the quarterly period ended June 30, 2023

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

For the transition period from _______ to _______

Commission File Number: 000-56230

KONA GOLD BEVERAGE, INC.

(Exact name of registrant as specified in its charter)

Delaware		20-1915692
(State of incorporation)		(I.R.S. Employer Identification No.)

746 North Drive, Suite A, Melbourne, Florida		32934
(Address of principal executive offices)		(Zip Code)

(844) 714-2224

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

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

Title of each class		Trading Symbol(s)		Name of each exchange on which registered
Common Stock		KGKG		OTC Markets Group Inc.

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

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

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

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

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

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

The number of shares of the issuer’s common stock, par value $0.0001 per share, outstanding as of August 21, 2023 was 2,294,940,557.

TABLE OF CONTENTS

PART I - FINANCIAL INFORMATION		F-1

Item 1. Condensed Financial Statements		F-1

Condensed Consolidated Balance Sheets – June 30, 2023 (Unaudited) and December 31, 2022		F-1

Condensed Consolidated Statements of Operations (Unaudited) for the three and six months ended June 30, 2023 and 2022		F-2

Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) for the three and six months ended June 30, 2023 and 2022		F-3

Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June, 2023 and 2022		F-5

Notes to Condensed Financial Statements (Unaudited)		F-6

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		1

Item 3. Quantitative and Qualitative Disclosures About Market Risk		14

Item 4. Controls and Procedures		14

PART II - OTHER INFORMATION		15

Item 1. Legal Proceedings		15

Item 1A. Risk Factors		15

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		15

Item 3. Defaults Upon Senior Securities		15

Item 4. Mine Safety Disclosures		15

Item 5. Other Information		15

Item 6. Exhibits		16

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	June 30, 2023			December 31, 2022
	(Unaudited)
ASSETS
CURRENT ASSETS
Cash	$	97,158		$	39,788
Accounts receivable, net of allowance for doubtful accounts of $135,713 and $145,579, respectively		24,245			79,529
Inventory, net of reserve for obsolescence of $80,000, respectively		551,758			859,179
Other current assets		-			45,262
Total current assets		673,161			1,023,758

NON-CURRENT ASSETS
Property, plant and equipment, net		306,078			348,064
Right-of-use asset, net		464,408			762,464
Intangible property, net		61,324			66,201
Deposits		7,100			15,125
Total assets	$	1,512,071		$	2,215,612

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued expenses	$	1,643,459		$	1,379,227
Accrued compensation		219,583			137,083
Notes payable, net of discount of $160,572 and $218,481, respectively, current		1,089,691			712,499
Notes payable - related parties, current		1,872,651			1,785,651
Notes payable
Acquisition obligations, current		656,330			659,550
Lease liabilities, current		187,589			209,685
Convertible debt, net of discount of $269,114 and $183,940, respectively		688,962			411,060
Total current liabilities		6,358,265			5,294,755

NON-CURRENT LIABILITIES
Notes payable, net of current		58,014			57,055
Lease liabilities, net of current		332,622			629,197
Total liabilities		6,748,901			5,981,007

COMMITMENTS AND CONTINGENCIES		-			-

STOCKHOLDERS’ DEFICIT
Preferred Stock, $.00001 par value, 5,702,000 shares authorized, 989,000 and 988,000 issued and outstanding, respectively		10			10
Common Stock, $.00001 par value, 10,500,000,000 authorized, 2,294,940,557 and 2,000,276,378, issued and outstanding, respectively		22,949			20,003
Common stock issuable (169,998,860 shares)		1,386,489			1,386,497
Additional paid-in capital		20,094,053			18,441,303
Accumulated deficit		(26,740,331	)		(23,613,208	)
Total stockholders’ deficit		(5,236,830	)		(3,765,395	)
Total liabilities and stockholders’ deficit	$	1,512,071		$	2,215,612

See notes to condensed consolidated financial statements.

F-1

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

For the Three and Six Months Ended June 30, 2023 and 2022

(Unaudited)

	2023			2022			2023			2022
	Three Months Ended						Six Months Ended
	June 30,						June 30,
	2023			2022			2023			2022
	(unaudited)			(unaudited)			(unaudited)			(unaudited)

REVENUES, NET	$	929,519		$	1,173,398		$	2,204,416		$	2,168,529
COST OF REVENUES		742,687			885,517			1,729,546			1,735,393
Gross profit		186,832			287,881			474,870			433,136

OPERATING EXPENSES
Selling, general and administrative expenses		927,718			1,031,515			2,201,679			1,970,851
LOSS FROM OPERATIONS		(740,886	)		(743,634	)		(1,726,809	)		(1,537,715	)
OTHER INCOME (EXPENSE)
Interest expense		(309,371	)		(156,459	)		(602,962	)		(587,354	)
Financing costs		(126,000	)		(286,000	)		(289,000	)		(286,000	)
Change in the fair value of derivative liability		-			122,000			-			(1,671,000	)
Gain (loss) on extinguishment of debt		(363,346	)		(326,230	)		(513,520	)		(873,040	)
Other income (expense)		5,037			1,798			5,168			5,022
NET LOSS	$	(1,534,566	)	$	(1,388,525	)	$	(3,127,123	)	$	(4,950,087	)

NET LOSS PER COMMON SHARES:
Basic and diluted	$	(0.00	)	$	(0.00	)	$	(0.00	)	$	(0.00	)

WEIGHTED AVERAGE NUMBER OF COMMON SHARES:
Basic and diluted		2,231,011,986			1,560,391,543			2,156,953,058		$	1,560,391,543

See notes to condensed consolidated financial statements.

F-2

KONA GOLD BEVERAGE, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended June 30, 2023

(Unaudited)

	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
Balance March 31, 2023		2,139,440,557	$	21,394		989,000	$	10		169,998,860	$	1,386,489	$	19,252,920	$	(25,205,765	)	$	(4,544,952	)
Common stock issued for conversion of convertible debt and accrued interest		127,500,000		1,275										572,475					573,750
Common stock issued for financing costs (LOC)		28,000,000		280										125,720					126,000
Warrants related to convertible notes														137,669					137,669
Warrants related to services rendered														5,269					5,269

Net loss		-		-		-		-		-		-		-		(1,534,566	)		(1,534,566	)
Balance June 30, 2023 (Unaudited)		2,294,940,557	$	22,949		989,000	$	10		169,998,860	$	1,386,489	$	20,094,053	$	(26,740,331	)	$	(5,236,830	)
Balance		2,294,940,557	$	22,949		989,000	$	10		169,998,860	$	1,386,489	$	20,094,053	$	(26,740,331	)	$	(5,236,830	)

For the Six Months Ended June 30, 2023

(Unaudited)

	Common Stock				Preferred Stock				Common Shares						Additional						Total
	$.00001 Par				$.00001 Par				Issuable						Paid			Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares			Amount			in Capital			Deficit			Deficit
Balance December 31, 2022		2,000,276,378	$	20,003		988,000	$	10		169,999,860		$	1,386,497		$	18,441,303		$	(23,613,208	)	$	(3,765,395	)
Balance		2,000,276,378	$	20,003		988,000	$	10		169,999,860		$	1,386,497		$	18,441,303		$	(23,613,208	)	$	(3,765,395	)
Common stock issued for conversion of convertible debt and accrued interest		199,500,000		1,995												886,755						888,750
Common stock issued for financing costs (LOC)		28,000,000		280												125,720						126,000
Warrants related to convertible notes																287,670						287,670
Warrants issued for financing costs (ELOC)																163,000						163,000
Common stock issued upon cashless exercise of warrants		67,164,179		671												(671	)					-
Preferred stock issued to a related party for common stock issuable						1,000		-		(1000	)		(8	)		185,008						185,000
Warrants related to services rendered																5,269						5,269
Net loss		-		-		-		-		-			-			-			(3,127,123	)		(3,127,123	)
Balance June 30, 2023 (Unaudited)		2,294,940,557	$	22,949		989,000	$	10		169,998,860		$	1,386,489		$	20,094,053		$	(26,740,331	)	$	(5,236,830	)
Balance		2,294,940,557	$	22,949		989,000	$	10		169,998,860		$	1,386,489		$	20,094,053		$	(26,740,331	)	$	(5,236,830	)

F-3

For the Three Months Ended June 30, 2022

(Unaudited)

	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid-		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
March 31, 2022		1,482,788,393	$	14,828		988,000	$	10		170,000,000	$	1,386,497	$	14,098,394	$	(19,861,735	)	$	(4,362,006	)
Balance		1,482,788,393	$	14,828		988,000	$	10		170,000,000	$	1,386,497	$	14,098,394	$	(19,861,735	)	$	(4,362,006	)

Common stock issued for conversion of convertible debt and accrued interest		225,334,552		2,253										2,667,498					2,669,751

Common stock issued with employment agreement		1,000,000		10										8,490					8,500

Warrants related to convertible notes														81,000					81,000

Net loss		-		-		-		-		-		-		-		(1,388,525	)		(1,388,525	)

Balance June 30, 2022 (Unaudited)		1,709,122,945	$	17,091		988,000	$	10		170,000,000	$	1,386,497	$	16,855,382	$	(21,250,260	)	$	(2,991,280	)
Balance		1,709,122,945	$	17,091		988,000	$	10		170,000,000	$	1,386,497	$	16,855,382	$	(21,250,260	)	$	(2,991,280	)

For the Six Months Ended June 30, 2022

(Unaudited)

	Common Stock				Preferred Stock				Common Shares				Additional					Total
	$.00001 Par				$.00001 Par				Issuable				Paid-		Accumulated			Stockholders’
	Shares		Amount		Shares		Amount		Shares		Amount		in Capital		Deficit			Deficit
Balance December 31, 2021		1,004,709,546	$	10,047		988,000	$	10		170,000,000	$	1,386,497	$	10,778,761	$	(16,300,173	)	$	(4,124,858	)
Balance		1,004,709,546	$	10,047		988,000	$	10		170,000,000	$	1,386,497	$	10,778,761	$	(16,300,173	)	$	(4,124,858	)

Common stock issued for conversion of convertible debt and accrued interest		678,413,399		6,784										5,852,381					5,859,165

Common stock issued with note payable recorded as debt discount		25,000,000		250										134,750					135,000

Common stock issued with employment agreement		1,000,000		10										8,490					8,500

Warrants related to convertible notes														81,000					81,000

Net loss		-		-		-		-		-		-		-		(4,950,087	)		(4,950,087	)

Balance June 30, 2022 (Unaudited)		1,709,122,945	$	17,091		988,000	$	10		170,000,000	$	1,386,497	$	16,855,382	$	(21,250,260	)	$	(2,991,280	)
Balance		1,709,122,945	$	17,091		988,000	$	10		170,000,000	$	1,386,497	$	16,855,382	$	(21,250,260	)	$	(2,991,280	)

See notes to condensed consolidated financial statements.

F-4

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Six Months Ended June 30, 2023 and 2022

(Unaudited)

	Six Months Ended June 30, 2023			Six Months Ended June 30, 2022
	(Unaudited)			(Unaudited)
CASH USED IN OPERATING ACTIVITIES:
Net loss	$	(3,127,123	)	$	(4,950,087	)
Adjustments to reconcile net loss to net cash provided by operations:
Depreciation and amortization		45,951			44,250
Change in allowance for doubtful accounts		(9,866	)		35
Change in inventory reserves		-			-
Right-of-use asset amortization		49,786			96,219
Amortization of debt discount		509,642			480,763
Amortization of intangible assets		4,877			4,877
Preferred stock issued for common stock issuable		185,000			-
Fair value of warrants issued for financing costs		289,000			286,000
Fair value of warrants issued for services		5,269			-
Loss on sale of property and equipment		(3,965	)		-
Loss on extinguishment of debt		498,207			873,040
Loss on termination of operating lease		9,601			-
Gain on change in fair value of derivative liabilities		-			1,671,000
Common stock issued for compensation		-			8,500
Changes in operating assets and liabilities:
Decrease (increase) in accounts receivable		65,150			(8,985	)
Decrease (increase) in inventory		307,422			(615,102	)
Decrease (increase) in prepaids		-			278,707
Decrease (increase) in other current assets		45,262			(29,461	)
Decrease (increase) in deposits		1,775			-
Increase (decrease) in accounts payable and accrued expenses		511,860			450,365
Increase (decrease) in accrued compensation		82,500			(110,000	)
Increase (decrease) in lease liability		(55,608	)		(99,476	)
Net cash used in operating activities		(585,260	)		(1,619,355	)

CASH USED IN INVESTING ACTIVITIES:
Purchase of purchase property, plant and equipment		-			(24,168	)
Net cash used in investing activities		-			(24,168	)

CASH PROVIDED BY FINANCING ACTIVITIES:
Proceeds from note payable - related party		99,000			200,000
Repayment of note payable - related party		(12,000	)		(3,000	)
Changes in acquisition obligations		(3,220	)		(8,586	)
Principal repayments of finance lease obligation		(1,939	)		(3,798	)
Proceeds from notes payable, net of expenses		783,365			289,389
Repayment of notes payable		(928,108	)		(3,119	)
Proceeds from convertible debentures payable, net of expenses		705,532			475,000
Net cash provided by financing activities		642,630			945,886
Net cash increase (decrease) for period		57,370			(697,637	)
Cash at beginning of period		39,788			703,825
Cash at end of period	$	97,158		$	6,188

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	11,039		$	256

SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

Recording of right of use asset and lease liability	$	-		$	135,000
Termination of right of use asset	$	248,270		$	-
Termination of operating lease liability	$	261,125		$	-
Note payable issued on termination of lease liability	$	16,206		$	-
Vendor line of credit reclassified to notes payable	$	247,629		$	-
Common shares issued on conversion of debentures and accrued interest	$	888,750		$	5,859,165
Fair value of warrants issued upon issuance of convertible notes	$	287,669		$	-
Derivative liability recorded on issuance of convertible note	$	-		$	680,000

See notes to condensed consolidated financial statements.

F-5

KONA GOLD BEVERAGE, INC.
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Three and Six Months Ended June 30, 2023 and 2022

NOTE 1 – OPERATIONS AND GOING CONCERN

The Company was formerly known as Kona Gold Solutions, Inc., and in October 2020, changed its name to Kona Gold Beverage, Inc., a Delaware corporation (“Kona Gold,” the “Company,” “we,” “us,” or “our”). As of June 30, 2023, the Company has three wholly-owned subsidiaries: Kona Gold LLC, a Delaware limited liability company (“Kona”), HighDrate LLC, a Florida limited liability company (“HighDrate”), and Gold Leaf Distribution LLC, a Florida limited liability company (“Gold Leaf”). Kona focuses on the development and marketing of functional and better-for-you beverages: Ooh La Lemin Lemonades that are available in a variety of sparkling and non-sparkling flavors and Kona Gold Energy Drinks that are low-to-zero calorie functional beverages that are high in B vitamins, amino acids, and omegas. HighDrate focuses on the development and marketing of CBD-infused energy waters geared to the fitness and wellness markets. Gold Leaf focuses on the distribution of premium beverages and snacks in key markets, all of which complement our current product offerings.

The Company currently sells its products through resellers, the Company’s websites, and distributors that span across 18 states. The Company’s products are available in wide variety of stores, including convenience and grocery stores, smoke shops, and gift shops.

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

Effects of COVID-19

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

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. As reflected in the accompanying financial statements, in the six months ended June 30, 2023, the Company recorded a net loss of $3,127,123 and used cash in operations of $585,260 and had a stockholders’ deficit of $5,236,830 as of that date. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date of the financial statements being issued. In addition, the Company’s independent registered public accounting firm, in its report on our December 31, 2022 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern. The Company’s financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to raise additional funds and implement its business plan. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

At June 30, 2023, the Company had cash on hand in the amount of $97,158. The continuation of the Company as a going concern is dependent upon its ability to obtain necessary debt or equity financing to continue operations until it begins generating positive cash flow. No assurance can be given that any future financing will be available or, if available, that it will be on terms that are satisfactory to the Company. Even if the Company is able to obtain additional financing, it may contain undue restrictions on our operations, in the case of debt financing or cause substantial dilution for our stockholders, in case or equity financing.

F-6

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

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

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Those estimates and assumptions include estimates for reserves of uncollectible accounts receivable, assumptions used in valuing inventories at net realizable value, impairment testing of recorded long-term tangible and intangible assets, the valuation allowance for deferred tax assets, accruals for potential liabilities, assumptions made in valuing stock instruments issued for services, and assumptions used in valuing warrant liabilities, and assumptions used in the determination of the Company’s liquidity.

Accounts Receivable

Accounts receivable are generally recorded at the invoiced amounts net of an allowance for expected losses. The Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.

The allowance for accounts receivable is established through a provision reducing the carrying value of receivables. At June 30, 2023 and December 31, 2022, the allowance was $135,713 and $145,579, respectively.

Revenue Recognition

The Company recognizes revenue in accordance with Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers (“ASC 606”). The underlying principle of ASC 606 is to recognize revenue to depict the transfer of goods or services to customers at the amount expected to be collected. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s), which include (1) identifying the contract or agreement with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.

Revenue and costs of sales are recognized when control of the products transfers to our customer, which generally occurs upon shipment from our facilities. The Company’s performance obligations are satisfied at that time. The Company does not have any significant contracts with customers requiring performance beyond delivery, and contracts with customers contain no incentives or discounts that could cause revenue to be allocated or adjusted over time. Shipping and handling activities are performed before the customer obtains control of the goods and therefore represent a fulfillment activity rather than a promised service to the customer.

F-7

All of the Company’s products are offered for sale as finished goods only, and there are no performance obligations required post-shipment for customers to derive the expected value from them.

The Company does not allow for returns, except for damaged products when the damage occurred pre-fulfillment. Damaged product returns have historically been insignificant. Because of this, the stand-alone nature of our products, and our assessment of performance obligations and transaction pricing for our sales contracts, we do not currently maintain a contract asset or liability balance for obligations. We assess our contracts and the reasonableness of our conclusions on a quarterly basis.

Sales are made to customers under terms allowing certain limited rights of return. The Company records an allowance for returns for each quarter for 3% of total sales. The Company recorded an allowance for sales return at the three months ending June 30, 2023 and 2022 of approximately $36,400 and $35,100, respectively, which is netted against revenue in the accompanying Consolidated Statements of Loss.

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

SCHEDULE OF NET REVENUES BY REVENUE

	Three Months Ended June 30,
	2023			2022
Revenue Source	Revenue			Revenue			% Change
Distributors	$	119,143		$	219,790			(46	)%
Amazon		11,855			44,565			(73	)%
Online Sales		5,019			13,709			(63	)%
Retail		820,613			927,614			(12	)%
Shipping		989			4,420			(78	)%
Sales Returns and Allowances		(28,100	)		(36,700	)		(23	)%
Net Revenues	$	929,519		$	1,173,398			(21	)%

	Six Months Ended June 30,
	2023			2022
Revenue Source	Revenue			Revenue			% Change
Distributors	$	315,090		$	413,107			(24	)%
Amazon		24,918			80,089			(69	)%
Online Sales		10,254			22,316			(54	)%
Retail		1,916,696			1,719,015			11	%
Shipping		1,958			5,802			(66	)%
Sales Returns and Allowances		(64,500	)		(71,800	)		(10	)%
Net Revenues	$	2,204,416		$	2,168,529			2	%

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

	Three Months June 30,
	2023			2022
Product Line	Revenue			Revenue			% Change
Energy Drinks	$	3,700		$	50,792			(93	)%
CBD Energy Waters		18,738			17,249			9	%
Lemonade Drinks		113,579			209,976			(46	)%
Apparel		-			47			(100	)%
Retail		820,613			927,614			(12	)%
Shipping		989			4,420			(78	)%
Sales returns and allowance		(28,100	)		(36,700	)		(23	)%
Net Revenues	$	929,519		$	1,173,398			(21	)%

F-8

	Six Months June 30,
	2023			2022
Product Line	Revenue			Revenue			% Change
Energy Drinks	$	12,356		$	118,574			(90	)%
CBD Energy Waters		21,431			41,588			(48	)%
Lemonade Drinks		316,475			354,238			(11	)%
Apparel		-			112			(100	)%
Retail		1,916,696			1,719,015			11	%
Shipping		1,958			5,802			(66	)%
Sales returns and allowance		(64,500	)		(71,800	)		(10	)%
Net Revenues	$	2,204,416		$	2,168,529			2	%

Advertising Costs

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs aggregated $52,472 and $105,956 for six months ending June 30, 2023 and 2022, respectively.

Stock Compensation Expense

The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.

The fair value of the Company’s stock options is estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

Loss per Common Share

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

For the six months ending June 30, 2023 and 2022, the calculations of basic and diluted loss per share are the same because potential dilutive securities would have had an anti-dilutive effect. The potentially dilutive securities consisted of the following:

	June 30, 2023		June 30, 2022
Warrants		394,575,211		178,333,333
Common stock equivalent of Series B Convertible Preferred Stock		488,000		488,000
Common stock equivalent of Series C Convertible Preferred Stock		1,000		-
Common stock equivalent of Series D Convertible Preferred Stock		500,000,000		500,000,000
Common stock issuable		169,998,860		170,000,000
Restricted common stock		9,600,000		-
Common stock on convertible debentures and accrued interest		528,932,727		161,028,567
Total		1,603,595,798		511,028,567
Anti-dilutive Shares		1,603,595,798		511,028,567

F-9

Fair Value of Financial Instruments

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

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

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

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

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

Segments

During the 2022 fiscal year, the Company consolidated and restructured its operations. The Company now operates in one segment for the manufacture and distribution of our products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer and President, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements 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 qualify for 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.

Concentrations

The Company’s cash balances on deposit with banks are guaranteed by the Federal Deposit Insurance Corporation (FDIC) up to $250,000. Generally, the Company’s policy is to minimize borrowing costs by immediately applying cash receipts to borrowings against its credit facility. From time to time, however, the Company may be exposed to risk for the amounts of funds held in bank accounts in excess of the FDIC limit. To minimize the risk, the Company’s policy is to maintain cash balances with high quality financial institutions.

Gross sales. During the three and six months ended June 30, 2023 and 2022, no customers accounted for more than 10% of gross sales.

Accounts receivable. As of June 30, 2023, the Company had accounts receivable from four customers that comprised 21%, 21%, 15% and 10%, respectively, of its gross accounts receivable. As of December 31, 2022, the Company had accounts receivable from two customers that comprised 27% and 20%, respectively, of its gross accounts receivable.

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

Purchases from vendors. During the three months ended June 30, 2023, the Company’s largest two vendors accounted for approximately 26% and 27% of all purchases, respectively. During the year ended December 31, 2022, the Company’s largest one vendor accounted for approximately 34% of all purchases, respectively.

Accounts payable. As of June 30, 2023, two vendors accounted for more than 10% the total accounts payable. The Company’s largest two vendors accounted for 25%, and 18% of the total accounts payable, respectively. As of December 31, 2022, two vendors accounted for more than 10% the total accounts payable. The Company’s largest two vendors accounted for 31%, and 18% of the total accounts payable, respectively.

F-10

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments. ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning January 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.

Other recent accounting pronouncements issued by the FASB, its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

NOTE 3 – INVENTORY

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

SCHEDULE OF INVENTORY

	June 30, 2023		December 31, 2022
Raw materials	$	158,390	$	198,605
Finished goods, net		393,368		660,574
Total	$	551,758	$	859,179

At June 30, 2023 and December 31, 2022, inventory presented above is net of a reserve for slow moving and potentially obsolete inventory of $80,000, respectively.

NOTE 4 – PROPERTY, PLANT AND EQUIPMENT

Property and equipment is comprised of the following:

	June 30, 2023			December 31, 2022
Furniture and Fixtures	$	78,944		$	78,134
Computers and Software		36,667			36,667
Machinery & Equipment		121,158			118,003
Vehicles		310,348			310,348
Total cost		547,117			543,152
Property, plant and equipment, gross		547,117			543,152
Accumulated depreciation		(241,039	)		(195,088	)
Property, plant and equipment, net	$	306,078		$	348,064

Depreciation for the six months ended June 30, 2023 and 2022, was $45,951 and $44,250 respectively, and is included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Loss.

NOTE 5 – INTANGIBLE ASSETS

Intangible asset consisted of the following:

SCHEDULE OF INTANGIBLE ASSET

	June 30, 2023			December 31, 2022
Intangible Assets
Trademarks	$	85,340		$	85,340
Website development		12,200			12,200
Accumulated amortization		(36,216	)		(31,339	)
Total Intangible Assets, net of amortization	$	61,324		$	66,201

During the six months ended June 30, 2023 and 2022, the Company recorded amortization expense of $4,877, respectively. The following table summarizes the amortization expense to be recorded in future periods for intangible assets that are subject to amortization:

Year Ending	Amortization
2023 (remaining)	$	4,877
2024		9,754
2025		9,754
2026		9,754
2027		9,754
Thereafter		17,431
Total	$	61,324

F-11

NOTE 6 – NOTES PAYABLE – RELATED PARTIES

Notes payable with related parties consists of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF NOTES PAYABLE RELATED PARTY

	June 30, 2023		December 31, 2022

Note payable – related party (a)	$	1,352,651	$	1,352,651
Note payable – related party (b)		350,000		260,000
Note payable – related party (c)		125,500		125,500
Note payable – related party (d)		44,500		47,500
Total notes payable – related parties	$	1,872,651	$	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 June 30, 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. During the period ended June 30, 2023, Mr. Clark made additional advances of $99,000, and $9,000 of that was repaid by the end of the period. At June 30, 2023 and December 31, 2022, outstanding principal was $350,000 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. At June 30, 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 six months ended June 30, 2023, the Company made principal payments of $3,000, leaving an outstanding principal balance of $44,500 at June 30, 2023.

At December 31, 2022, accrued interest on notes payable to related parties was $153,959. During the six months ended June 30, 2023, the Company added $32,252 of additional accrued interest, leaving an accrued interest balance on the notes payable to related parties of $186,211 at December 31, 2022. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

F-12

NOTE 7 – NOTES PAYABLE

Notes payable consists of the following at June 30, 2023 and December 31, 2022:

SCHEDULE OF NOTES PAYABLE

	June 30, 2023			December 31, 2022

Note payable (a)	$	23,702		$	26,994
Note payable (b)		41,694			44,550
Note payable (c)		39,343			40,103
Note payable (d)		205,576			250,000
Note payable (e)		418,567			626,388
Note payable (f)		68,283			-
Note payable (g)		137,278			-
Note payable (h)		110,000			-
Note payable (i)		247,629			-
Note payable (j)		16,206			-
Total notes payable		1,308,278			988,035
Less debt discount		(160,572	)		(218,481	)
Total notes payable, net		1,147,706			769,554
Notes payable, current portion		(1,089,692	)		(712,499	)
Notes payable, net of current portion	$	58,014		$	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 six months ended June30, 2023, the Company made principal payments of $3,292, leaving a loan balance of $23,702 at June 30, 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 six months ended June 30, 2023, the Company made principal payments of $2,856, leaving a loan balance of $41,694 at June 30, 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 June 30, 2023 and December 31, 2022, the outstanding principal was $39,343 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. At December 31, 2022, the outstanding balance of the secured debentures amounted to $250,000. During the six months ended June 30, 2023, the Company made principal payments of $44,424, leaving a loan balance of $ 205,576 at June 30, 2023.

	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 six months ended June 30, 2023, the Company amortized debt discount of $31,531 to interest expense on the loan, leaving no remaining unamortized debt discount at June 30, 2023.

F-13

(e)

During the year ended December 31, 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. During the six months ended June 30, 2023, the Company entered into additional secured non-interest bearing advance agreements for which the Company received an aggregate lump sum payment of $501,000, and, in return, the purchaser received a secured right to collect a fix sum of future receipts/revenue of $597,500 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. The agreements require aggregate daily to weekly payments ranging from $1,291 to $1,958 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 six months ended June 30, 2023, the Company entered into additional agreements of $512,500, and made payments of $720,323, leaving an aggregate outstanding amount to be paid of $418,567 at June 30, 2023.

During the year ended December 31, 2022, 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 six months ended June 30, 2023, the recorded an additional unamortized “note discount” of $191,150 related to new advance agreements, and the Company amortized “note discount” of $259,059 to interest expense on the obligation. As of June 30, 2023, the unamortized “note discount” was $150,572.

(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 June 30, 2023, the outstanding principal was $68,283.

(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 June 30, 2023, the outstanding principal was $137,278.

(h)	On June 30, 2023, the Company entered into a note payable with IQ Financial, Inc. in the principal amount of $110,000, with an original issue discount of $10,000, resulting in net proceeds for $100,000. The note has no stated interest and is due on July 31, 2023. For so long as the note remains unpaid, the Company shall pay within two days of receipt of customer payments on specific customer invoices listed in the note payable.

	The original issue discount of $10,000 was recorded as a debt discount against the note payable, leaving a $10,000 of remaining unamortized debt discount at June 30, 2023.

(i)	On May 15, 2023, the Company entered into a Revolving Credit Agreement (the “Revolver”) with a vendor. The Revolver allows the Company to purchase goods from its vendor time to time. The unpaid principal balance of the Revolver may not exceed $250,000 through May 31, 2023, $225,000 through July 31, 2023, and $200,000 through $200,000 through December 31, 2023, at any one time. The Revolver has a maturity date of December 31, 2023 and bears no interest rate. At June 30, 2023, the outstanding balance of the Revolver was $247,629.

	In connection with the issuance of the Revolver, the Company issued to the vendor 28 million shares of the Company’s common stock at a price of $0.0045 per share. The Company determined the fair value of the 28 million shares was $126,000, which was recorded as financing costs in the condensed consolidated statement of operations during the six months ended June 30, 2023.

KONA GOLD BEVERAGE, INC. [KGKG] Filings
10-Q	[2023-08-21]
S-1	[2023-05-22]
10-Q	[2023-05-15]
10-K	[2023-03-31]
10-Q	[2022-11-14]
S-1	[2022-08-31]
10-Q	[2022-08-12]
10-Q	[2022-05-13]
10-K	[2022-04-13]
10-Q	[2021-11-15]
S-1	[2021-09-22]
10-Q	[2021-08-17]
S-1	[2021-05-27]
10-Q	[2021-05-17]
10-K	[2021-04-15]
S-1	[2020-07-16]