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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 September 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 November 13, 2023 was 2,453,312,419.

 

 

 

 
 

 

TABLE OF CONTENTS

 

PART I - FINANCIAL INFORMATION   F-1
     
Item 1. Condensed Financial Statements   F-1
     
Condensed Consolidated Balance Sheets – September 30, 2023 (Unaudited) and December 31, 2022   F-1
     
Condensed Consolidated Statements of Operations (Unaudited) for the three and nine months ended September 30, 2023 and 2022   F-2
     
Condensed Consolidated Statements of Changes in Stockholders’ Deficit (Unaudited) for the three and nine months ended September 30, 2023 and 2022   F-3
     
Condensed Consolidated Statements of Cash Flows (Unaudited) for the nine months ended September, 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

 

i
 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

KONA GOLD BEVERAGE, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

   September 30,
2023
   December 31,
2022
 
   (Unaudited)     
ASSETS          
CURRENT ASSETS          
Cash  $369,931   $39,788 
Accounts receivable, net of allowance for doubtful accounts of $154,224 and $145,579, respectively   (120,288)   79,529 
Inventory, net of reserve for obsolescence of $80,000, respectively   333,990    859,179 
Other current assets   50,306    45,262 
Total current assets   633,939    1,023,758 
           
NON-CURRENT ASSETS          
Property, plant and equipment, net   279,134    348,064 
Right-of-use asset, net   434,402    762,464 
Intangible property, net   47,006    66,201 
Deposits   7,100    15,125 
Total assets  $1,401,581   $2,215,612 
           
LIABILITIES AND STOCKHOLDERS’ DEFICIT          
CURRENT LIABILITIES          
Accounts payable and accrued expenses  $1,849,053   $1,379,227 
Accrued compensation   325,279    137,083 
Notes payable, net of discount of $83,973 and $218,481, respectively, current   903,264    712,499 
Notes payable - related parties, current   1,829,000    1,785,651 
Acquisition obligations, current   652,788    659,550 
Lease liabilities, current   178,074    209,685 
Convertible debt, net of discount of $236,783 and $183,940, respectively   662,974    411,060 
Total current liabilities   6,400,432    5,294,755 
           
NON-CURRENT LIABILITIES          
Notes payable, net of current   56,835    57,055 
Lease liabilities, net of current   296,983    629,197 
Total liabilities   6,754,250    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, 2,382,423,530 and 2,000,276,378, issued and outstanding, respectively   23,824    20,003 
Common stock issuable (169,998,860 shares)   1,386,489    1,386,497 
Additional paid-in capital   20,495,431    18,441,303 
Accumulated deficit   (27,258,423)   (23,613,208)
Total stockholders’ deficit   (5,352,669)   (3,765,395)
Total liabilities and stockholders’ deficit  $1,401,581   $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 Nine Months Ended September 30, 2023 and 2022

(Unaudited)

 

   2023   2022   2023   2022 
   Three Months Ended   Nine Months Ended 
   September 30,   September 30, 
   2023   2022   2023   2022 
   (unaudited)   (unaudited)   (unaudited)   (unaudited) 
                 
REVENUES, NET  $687,797   $1,130,546   $2,892,213   $3,299,075 
COST OF REVENUES   501,056    873,319    2,230,601    2,608,712 
Gross profit   186,741    257,227    661,612    690,363 
                     
OPERATING EXPENSES                    
Selling, general and administrative expenses   656,607    1,075,044    2,858,287    3,045,895 
LOSS FROM OPERATIONS   (469,866)   (817,817)   (2,196,675)   (2,355,532)
OTHER INCOME (EXPENSE)                    
Gain on extinguishment of debt     42,151       -       42,151       -  
Gain on divestiture   345,619    -    345,619    - 
Interest expense   (176,434)   (253,855)   (779,396)   (867,209)
Financing costs   (5,173)   -    (294,173)   (260,000)
Change in the fair value of derivative liability   -    148,000    -    (1,523,000)
Gain (loss) on extinguishment of debt   (256,792)   (268,810)   (770,312)   (1,141,850)
Other income (expense)   2,403    425    7,571    5,447 
NET LOSS  $(518,092)  $(1,192,057)  $(3,645,215)  $(6,142,144)
                     
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   2,340,337,120    1,760,650,640    2,156,953,058    1,580,864,982 

 

See notes to condensed consolidated financial statements.

 

F-2
 

 

KONA GOLD BEVERAGE, INC.
STATEMENTS OF STOCKHOLDERS’ DEFICIT

For the Three Months Ended September 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 June 30, 2023   2,294,940,557   $22,949    989,000   $10    169,998,860   $1,386,489   $20,094,053   $(26,740,331)  $      (5,236,830)
Common stock issued for conversion of convertible debt and accrued interest   70,000,000    700                        314,300         315,000 
Common stock issued for ELOC   17,482,973    175                        78,498         78,673 
Warrants related to convertible notes                                 8,580         8,580 
Net loss   -    -    -    -    -    -    -    (518,092)   (518,092)

Balance September 30, 2023

(Unaudited)

   2,382,423,530   $23,824    989,000   $10    169,998,860   $1,386,489   $20,495,431   $(27,258,423)  $(5,352,669)

 

For the Nine Months Ended September 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)
Common stock issued for conversion of convertible debt and accrued interest   269,500,000    2,695                        1,201,055         1,203,751 
Common stock issued for financing costs (LOC)   28,000,000    280                        125,720         126,000 
Common stock issued for ELOC   17,482,973    175                        78,498         78,673 
Warrants related to convertible notes                                 296,250         296,250 
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   -    -    -    -     -    -    -    (3,645,215)   (3,645,215)

Balance September 30, 2023

(Unaudited)

   2,382,423,530   $23,824    989,000   $10    169,998,860   $1,386,489   $20,495,431   $(27,258,423)  $(5,352,669)

 

F-3
 

 

For the Three Months Ended September 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 
June 30, 2022   1,709,122,945   $17,091    988,000   $10    170,000,000   $1,386,497   $16,855,382   $(21,250,260)  $     (2,991,280)
                                              
Common stock issued for conversion of convertible debt and accrued interest   97,335,291    974                        609,709         610,683 
                                              
Warrants related to convertible notes                                 223,000         223,000 
                                              
Net loss   -    -    -    -    -    -    -    (1,192,057)   (1,192,057)
                                              
Balance September 30, 2022 (Unaudited)   1,806,458,236   $18,065    988,000   $10    170,000,000   $1,386,497   $17,688,091   $(22,442,317)  $(3,349,654)

 

For the Nine Months Ended September 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)
                                              
Common stock issued for conversion of convertible debt and accrued interest   775,748,690    7,758                        6,462,090         6,469,848 
                                              
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                                 304,000         304,000 
                                              
Net loss   -    -    -    -    -    -    -    (6,142,144)   (6,142,144)
                                              
Balance September 30, 2022 (Unaudited)   1,806,458,236   $18,065    988,000   $10    170,000,000   $1,386,497   $17,688,091   $(22,442,317)  $(3,349,654)

 

See notes to condensed consolidated financial statements.

 

F-4
 

 

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

For the Nine Months Ended September 30, 2023 and 2022

(Unaudited)

 

   Nine Months Ended
September 30,
2023
   Nine Months Ended
September 30,
2022
 
   (Unaudited)   (Unaudited) 
CASH USED IN OPERATING ACTIVITIES:          
Net loss  $(3,645,215)  $(6,142,144)
Adjustments to reconcile net loss to net cash provided by operations:          
Depreciation and amortization   70,353    67,018 
Change in allowance for doubtful accounts   8,645    35 
Change in inventory reserves   -    - 
Right-of-use asset amortization   79,792    143,320 
Amortization of debt discount   631,542    702,675 
Amortization of intangible assets   10,719    7,316 
Preferred stock issued for common stock issuable   185,000      
Fair value of warrants issued for financing costs   367,673      
Fair value of warrants issued for services   5,269    260,000 
Loss on sale of property and equipment   (1,423)   - 
Gain on extinguishment of debt     (42,151 )     -  
Loss on extinguishment of debt   728,056    1,141,855 
Loss on termination of operating lease   9,601    - 
Gain on change in fair value of derivative liabilities   -    1,523,000 
Common stock issued for compensation   -    8,500 
Changes in operating assets and liabilities:          
Decrease (increase) in accounts receivable   191,172    (40,147)
Decrease (increase) in inventory   525,188    (433,068)
Decrease (increase) in prepaids   -    278,707 
Decrease (increase) in other current assets   (5,044)   12,475 
Decrease (increase) in deposits   1,775    - 
Increase (decrease) in accounts payable and accrued expenses   759,235    645,765 
Increase (decrease) in accrued compensation   188,195    (170,000)
Increase (decrease) in lease liability   (97,106)   (153,890)
Net cash used in operating activities   (28,724)   (2,148,583)
           
CASH USED IN INVESTING ACTIVITIES:          
Purchase of purchase property, plant and equipment   -    (42,923)
Changes in intellectual property   8,475    - 
Net provided by investing activities   8,475    (42,923)
           
CASH PROVIDED BY FINANCING ACTIVITIES:          
Proceeds from note payable - related party   222,000    260,000 
Repayment of note payable - related party   (136,500)   (4,500)
Changes in acquisition obligations   (6,762)   (11,446)
Principal repayments of finance lease obligation   (5,594)   (3,798)
Proceeds from notes payable, net of expenses   800,930    542,000 
Repayment of notes payable   (1,251,656)   (5,598)
Proceeds from convertible debentures payable, net of expenses   727,974    981,816 
Net cash provided by financing activities   350,392    1,758,474 
Net cash increase (decrease) for period   330,143    (433,032)
Cash at beginning of period   39,788    703,825 
Cash at end of period  $369,931   $270,793 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:          
Cash paid for income taxes  $-   $- 
Cash paid for interest  $14,947   $533 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:          
           
Fair value of common shares issued as debt discount on note payable  $-   $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  $-   $- 
Common shares issued on conversion of debentures and accrued interest  $315,000   $6,469,848 
Fair value of warrants issued upon issuance of convertible notes  $296,250   $- 
Derivative liability recorded on issuance of convertible note  $-   $680,000 
Note payable on vehicle purchase  $-   $46,576 

 

See notes to condensed consolidated financial statements.

 

F-5
 

 

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

For the Three and Nine Months Ended September 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 September 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 nine months ended September 30, 2023, the Company recorded a net loss of $3,645,215 and cash used in operations of $28,724 and had a stockholders’ deficit of $5,352,669 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 September 30, 2023, the Company had cash on hand in the amount of $369,931. 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 September 30, 2023 and December 31, 2022, the allowance was $154,224 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 September 30, 2023 and 2022 of approximately $26,500 and $32,700, 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:

 

   Three Months Ended
September 30,
     
   2023   2022     
Revenue Source  Revenue   Revenue   % Change 
Distributors  $69,317   $223,849    (69)%
Amazon   6,910    30,334    (77)%
Online Sales   7,710    7,998    (4)%
Retail   629,155    897,549    (30)%
Shipping   1,205    3,516    (66)%
Sales Returns and Allowances   (26,500)   (32,700)   (19)%
Net Revenues  $687,797   $1,130,546    (39)%

 

   Nine Months Ended
September 30,
     
   2023   2022     
Revenue Source  Revenue   Revenue   % Change 
Distributors  $384,416   $635,605    (40)%
Amazon   31,828    110,478    (71)%
Online Sales   17,965    30,494    (41)%
Retail   2,545,841    2,616,679    (3)%
Shipping   3,163    10,319    (69)%
Sales Returns and Allowances   (91,000)   (104,500)   (13)%
Net Revenues  $2,892,213   $3,299,075    (12)%

 

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

 

   Three Months
September 30,
     
   2023   2022     
Product Line  Revenue   Revenue   % Change 
Energy Drinks  $4,327   $25,743    (83)%
CBD Energy Waters   14,604    13,686    7%
Lemonade Drinks   65,006    222,689    (71)%
Apparel   -    63    (100)%
Retail   629,155    897,549    (30)%
Shipping   1,205    3,516    (66)%
Sales returns and allowance   (26,500)   (32,700)   (19)%
Net Revenues  $687,797   $1,130,546    (39)%

 

F-8
 

 

   Nine Months
September 30,
     
   2023   2022     
Product Line  Revenue   Revenue   % Change 
Energy Drinks  $16,749   $148,725    (89)%
CBD Energy Waters   36,329    56,388    (36)%
Lemonade Drinks   381,131    571,285    (33)%
Apparel   -    179    (100)%
Retail   2,545,841    2,616,679    (3)%
Shipping   3,163    10,319    (69)%
Sales returns and allowance   (91,000)   (104,500)   (13)%
Net Revenues  $2,892,213   $3,299,075    (12)%

 

Advertising Costs

 

Advertising costs are expensed as incurred and are included in selling and marketing expense. Advertising costs aggregated $98,351 and $118,807 for nine months ending September 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 nine months ending September 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:

 

  

September 30,

2023

  

September 30,

2022

 
Warrants   448,859,099    278,333,333 
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 
Common stock issuable   169,998,860    169,999,860 
Restricted common stock   9,600,000    333,838,293 
Common stock on convertible debentures and accrued interest   1,228,147,778    783,159,486 
Total   2,357,094,737    278,333,333 

 

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 nine months ended September 30, 2023 and 2022, no customers accounted for more than 10% of gross sales.

 

Accounts receivable. As of September 30, 2023, the Company had accounts receivable from two customers that comprised 12% 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 September 30, 2023, the Company’s largest three vendors accounted for approximately 55%, 12%, and 10% 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 September 30, 2023, two vendors accounted for more than 10% the total accounts payable. The Company’s largest two vendors accounted for 29%, and 17% 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 – DIVESTITURE

 

Proceeds from disposals during the nine months ended September 30, 2023 totaled $500,000, which primarily related to sales of our ownership interests in sparkling and non-sparkling Ooh La Lemin Lemonades.

 

NOTE 4 – 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:

 

  

September 30,

2023

  

December 31,

2022

 
Raw materials  $70,915   $198,605 
Finished goods, net   263,075    660,574 
Total  $333,990   $859,179 

 

At September 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 5 – PROPERTY, PLANT AND EQUIPMENT

 

Property and equipment is comprised of the following:

 

  

September 30,

2023

  

December 31,

2022

 
Furniture and Fixtures  $78,944   $78,134 
Computers and Software   36,667    36,667 
Machinery & Equipment   118,616    118,003 
Vehicles   310,348    310,348 
Total cost   544,575    543,152 
Accumulated depreciation   (265,441)   (195,088)
Property, plant and equipment, net  $279,134   $348,064 

 

Depreciation for the nine months ended September 30, 2023 and 2022, was $72,982 and $67,018 respectively, and is included in selling, general and administrative expenses in the accompanying Condensed Consolidated Statements of Loss.

 

NOTE 6 – INTANGIBLE ASSETS

 

Intangible asset consisted of the following:

 

  

September 30,

2023

  

December 31,

2022

 
Intangible Assets          
Trademarks  $81,750   $85,340 
Website development   -    12,200 
Accumulated amortization   (34,744)   (28,901)
Total Intangible Assets, net of amortization  $47,006   $68,639 

 

During the nine months ended September 30, 2023 and 2022, the Company recorded amortization expense of $7,316, 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)  $2,044 
2024   8,175 
2025   8,175 
2026   8,175 
2027   8,175 
Thereafter   12,262 
Total  $47,006 

 

F-11
 

 

NOTE 7 – NOTES PAYABLE – RELATED PARTIES

 

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

 

  

September 30,

2023

  

December 31,

2022

 
         
Note payable – related party (a)  $1,310,500   $1,352,651 
Note payable – related party (b)   345,000    260,000 
Note payable – related party (c)   125,500    125,500 
Note payable – related party (d)   48,000    47,500 
Total notes payable – related parties  $1,829,000   $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. During the nine months ending September 30, 2023, Mr. Clark absolved $42,151. At September 30, 2023 and December 31, 2022, outstanding principal was $1,310,500 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 September 30, 2023, Mr. Clark made additional advances of $217,000, and $132,000 of that was repaid by the end of the period. At September 30, 2023 and December 31, 2022, outstanding principal was $345,000 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 September 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 nine months ended September 30, 2023, the Company received an additional amount of $5,000 and made principal payments of $4,500, leaving an outstanding principal balance of $48,000 at September 30, 2023.

 

At December 31, 2022, accrued interest on notes payable to related parties was $153,959. During the nine months ended September 30, 2023, the Company added $49,551 of additional accrued interest, leaving an accrued interest balance on the notes payable to related parties of $203,510 at September 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

 

F-12
 

 

NOTE 8 – NOTES PAYABLE

 

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

 

  

September 30,

2023

  

December 31,

2022

 
         
Note payable (a)  $22,025   $26,994 
Note payable (b)   39,730    44,550 
Note payable (c)   39,261    40,103 
Note payable (d)   205,576    250,000 
Note payable (e)   291,043    626,388 
Note payable (f)   62,857    - 
Note payable (g)   77,968    - 
Note payable (h)   -    - 
Note payable (i)   289,406    - 
Note payable (j)   16,206    - 
Total notes payable   1,044,072    988,035 
Less debt discount   (83,973)   (218,481)
Total notes payable, net   960,099    769,554 
Notes payable, current portion   (903,264)   (712,499)
Notes payable, net of current portion  $56,835   $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 nine months ended September 30, 2023, the Company made principal payments of $4,969, leaving a loan balance of $22,025 at September 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 nine months ended September 30, 2023, the Company made principal payments of $4,820, leaving a loan balance of $39,730 at September 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 September 30, 2023 and December 31, 2022, the outstanding principal was $39,261 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 nine months ended September 30, 2023, the Company made principal payments of $44,424, leaving a loan balance of $ 205,576 at September 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 nine months ended September 30, 2023, the Company amortized debt discount of $31,531 to interest expense on the loan, leaving no remaining unamortized debt discount at September 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 nine months ended September 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 nine months ended September 30, 2023, the Company entered into additional agreements of $586,750, and made payments of $922,096, leaving an aggregate outstanding amount to be paid of $291,043 at September 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 nine months ended September 30, 2023, the recorded an additional unamortized “note discount” of $191,150 related to new advance agreements, and the Company amortized “note discount” of $294,127 to interest expense on the obligation. As of September 30, 2023, the unamortized “note discount” was $83,973.

 

(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 September 30, 2023, the outstanding principal was $62,857.

 

(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 September 30, 2023, the outstanding principal was $77,968.

 

(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. At September 30, 2023, there was no outstanding balance.
   
  The original issue discount of $10,000 was recorded as a debt discount against the note payable, at September 30, 2023, there was no remaining unamortized debt discount.

 

(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 September 30, 2023, the outstanding balance of the Revolver was $289,406.
   
  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 nine months ended September 30, 2023.

 

(j) On June 2, 2023, the Company entered into a note payable with RFMD-LLC in the principal amount of $16,206, with an interest rate of 8% per annum, and a maturity date of December 31, 2023. The note was issued in related to the termination of an operating lease (see Note 10). At September 30, 2023, the outstanding principal was $16,206. 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.

 

At December 31, 2022 on item (d), accrued interest on the notes payable was $1,874. During the nine months ended September 30, 2023, the Company added $11,795 of additional accrued interest on item (d), leaving $13,669 of accrued interest balance on the notes payable item (d) at September 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

 

As of December 31, 2022, the unamortized debt discount was $218,481. During the nine months ended September 30, 2023, the Company added $201,150 of debt discount related to the issuance of debentures, and amortized debt discount of $335,658 to interest expense on the loans. As of September 30, 2023, the unamortized debt discount was $83,973.

 

F-14
 

 

NOTE 9 – SECURED CONVERTIBLE DEBENTURES

 

Secured debentures that are payable to an otherwise unaffiliated third party consists of the following as of September 30, 2023 and December 31, 2022:

 

  

September 30,

2023

  

December 31,

2022

 
         
Mast Hill Note 1   119,306    595,000 
Mast Hill Note 2   431,744    - 
Mast Hill Note 3   230,000    - 
Mast Hill Note 4   55,707    - 
Mast Hill Note 5   63,000    - 
Less debt discount   (236,783)   (183,940)
Secured debentures, net  $662,974   $411,060 

 

Mast Hill

 

On July 28, 2022, the Company issued senior secured debentures to an otherwise unaffiliated third-party investor (the “Investor”) in the aggregate of $595,000. The debentures bear interest at a rate of 10% per annum, mature on July 28, 2023, and is convertible into shares of our common stock at a conversion price of $0.0045 per share. If the Company issues subsequent equity instruments at an effective price per share that is lower than the conversion price of $0.0045 per shares, then the conversion price shall be reduced, at the option of the Holder, to a price equal to the Weighted Average Price (as defined), provided, further, that if the conversion price is equal to 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. The senior secured debentures is secured by all of the Company’s assets and the assets of each of its subsidiaries pursuant to the Security Agreement. The security interest granted to the Investor under the Security Agreement was subordinate to the continuing security interest that remains in effect pursuant to the previous grant of a security interest in connection with a then outstanding debenture to an earlier investor all tangible and intangible assets. In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to 100 million shares of the Company’s common stock, which expire on July 28, 2027. The warrants are exercisable at $0.0045 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $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, the unamortized debt discount was $183,940. During the nine months ended September 30, 2023, the Company amortized debt discount of $168,607 to interest expense on the loan. As of September 30, 2023, the unamortized debt discount was $15,333.

 

As of December 31, 2022 the balance due under the obligation was $595,000. During the nine months ended September 30, 2023, the Company converted $475,694 of principal and accrued interest into 239,500,000 shares of common stock with a fair value of $1,075,355 resulting in a loss on extinguishment of debt of $513,520. As of September 30, 2023, $119,306 was due under the note.

 

Mast Hill Debenture 2

 

On March 13, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $475,000. The debenture bears interest at a rate of 10% per annum, matures on March 13, 2024, and is convertible into shares of our common stock at a conversion price of $0.0045 per share.

 

F-15
 

 

At our 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 Event 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 “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our intent to make a redemption. If such notice of redemption is received six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount into shares of 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 equivalent to 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 redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

 

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to 80 million shares of the Company’s common stock, which expire on March 13, 2028. The warrants are exercisable at $0.0045 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $150,000; and (b) original issue discounts and fees of $74,000 of the debentures for a total of $224,000 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the nine months ended September 30, 2023, the Company amortized debt discount of $78,987 to interest expense on the loan. As of September 30, 2023, the unamortized debt discount was $145,013.

 

During the nine months ended September 30, 2023, the Company made principal payments of $43,256. As of September 30, 2023, $431,744 was due under the note.

 

Mast Hill Debenture 3

 

On April 25, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $230,000. The debenture bears interest at a rate of 10% per annum, matures on April 25, 2024, and is convertible into shares of our common stock at a conversion price of $0.0040 per share.

 

At our 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 Event 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 “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our intent to make a redemption. If such notice of redemption is received six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount into shares of 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 equivalent to 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 redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

 

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to 43.6 million shares of the Company’s common stock, which expire on April 25, 2028. The warrants are exercisable at $0.0040 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $56,000; and (b) original issue discounts and fees of $28,000 of the debentures for a total of $84,300 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the nine months ended September 30, 2023, the Company amortized debt discount of $32,649 to interest expense on the loan. As of September 30, 2023, the unamortized debt discount was $51,651.

 

As of September 30, 2023, $230,000 was due under the note.

 

F-16
 

 

Mast Hill Debenture 4

 

On June 14, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $55,706. The debenture bears interest at a rate of 10% per annum, matures on June 14, 2024, and is convertible into shares of our common stock at a conversion price of $0.0040 per share.

 

At our 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 Event 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 “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our intent to make a redemption. If such notice of redemption is received six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

 

Further, commencing on July 10, 2023, and continuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to 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 July 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

 

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to approximately 20.9 million shares of the Company’s common stock, which expire on June 14, 2028. The warrants are exercisable at $0.0040 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $19,000; and (b) original issue discounts and fees of $8,457 of the debentures for a total of $27,457 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the nine months ended September 30, 2023, the Company amortized debt discount of $15,028 to interest expense on the loan. As of September 30, 2023, the unamortized debt discount was $12,429.

 

As of September 30, 2023, $55,707 was due under the note.

 

Mast Hill Debenture 5

 

On August 10, 2023, the Company issued an additional senior secured debenture to the Investor in the aggregate of $63,000. The debenture bears interest at a rate of 12% per annum, matures on June 14, 2024, and is convertible into shares of our common stock at a conversion price of $0.0030 per share.

 

At our 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 Event of Default. We must pay an amount equal to the principal amount being redeemed plus outstanding and accrued interest thereon, as well as a $1,000 administrative fee (the “Redemption Amount”). We must provide seven Trading Days’ (as such term is defined in the debenture) prior notice to the then-holder of the debenture of our intent to make a redemption. If such notice of redemption is received six months after the Issue Date, the then-holder has the right to convert any or all of such to-be-prepaid amount into shares of our Common Stock in accordance with the conversion provisions of the debenture prior to such redemption.

 

Further, commencing on July 10, 2023, and continuing on the tenth day of each calendar month thereafter, we are required to redeem an amount equivalent to 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 July 10, 2023 for the cases sold during the month of March, 2023. Mandatory redemption payments are based upon revenues recognized by us in accordance with US GAAP for each such month, rather than upon the receipt by us of funds received from sales during a relevant month. The above-referenced seven trading days’ prior notice and conversion provisions do not apply to any of the mandatory redemption payments.

 

In connection with the issuances of the debentures, the Company granted to the Investor warrants to purchase up to approximately 28.6 million shares of the Company’s common stock, which expire on August 10, 2028. The warrants are exercisable at $0.0030 per share. As a result of these issuances and grants, we incurred the following (a) relative fair value of the warrants granted of $8,580; and (b) original issue discounts and fees of $4,390 of the debentures for a total of $12,970 which was allocated as debt discount. The debt discount is being amortized to interest expense over the term of the corresponding debentures. During the nine months ended September 30, 2023, the Company amortized debt discount of $613 to interest expense on the loan. As of September 30, 2023, the unamortized debt discount was $12,357.

 

As of September 30, 2023, $63,000 was due under the note.

 

As of September 30, 2023, no shares of common stock were potentially issuable under the conversion terms of the outstanding debentures.

 

At December 31, 2022, accrued interest on the convertible notes payable was $25,756. During the nine months ended September 30, 2023, the Company added $60,934 of additional accrued interest, and converted $67,569 of accrued interest, leaving an accrued interest balance on the convertible notes payable of $19,121 at September 30, 2023. Accrued interest is included in accounts payable and accrued expenses in the accompanying Condensed Consolidated Balance Sheets.

 

As of December 31, 2022, the unamortized debt discount was $183,940. During the nine months ended September 30, 2023, the Company added $348,727 related to the issuance of secured debentures, and amortized debt discount of $295,884 to interest expense on the loans. As of September 30, 2023, the unamortized debt discount was $236,783.

 

NOTE 10 – ACQUISITION OBLIGATION

 

On January 21, 2021, the Company entered into an Agreement and Plan of Merger with S and S and its shareholders and acquired all of the capital stock of S and S. In consideration thereof, the Company issued to them an aggregate of nine million restricted shares of Kona Gold Beverage, Inc.’s common stock (the “Acquisition Stock”) of a fair value of $243,000. The Company did not grant them any registration rights in respect of the shares of Acquisition Stock. The Company also agreed to pay an aggregate of $1,050,000 (the “Aggregate Acquisition Payments”), the majority of which is allocated to certain creditors of S and S (including one of the S and S’s legacy shareholders) and approximately $89,249 was allocated and paid to the five S and S legacy shareholders on a pro rata basis. The Company paid approximately $400,000 of the Aggregate Acquisition Payments at the closing of the transaction. The remaining Aggregate Acquisition Payments, including the Remaining Acquisition Payments, are scheduled to be paid in monthly installments, in arrears on the tenth calendar day of each month, commencing on March 10, 2021, at a rate equivalent to $2.00 per case of Lemin Superior Lemonade (the product line of S and S that we have now branded as Ooh La Lemin) that we sell until the Aggregate Acquisition Payments have been paid in full. The balance payable under the obligation was $659,550 at December 31, 2022. During the period ended September 30, 2023, the Company paid $6,762 of the remaining Aggregate Acquisition Payments, leaving an acquisition obligation balance of $652,788 at September 30, 2023

 

F-17
 

 

NOTE 11 – LEASE LIABILITIES

 

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company leases its office and warehouse locations, and certain warehouse equipment. Leases with an initial term of 12 months or less are not included on the balance sheets.

 

Operating Leases

 

The Company leases approximately 4,500 square feet of corporate office and warehouse space located at 746 North Drive, Suite A, Melbourne, Florida 32934. The lease is for a five-year term and expires on May 31, 2023. The monthly base rent increases annually by 3 percent. In May 2023, the Company extended the lease through May 31, 2024. The initial monthly base rent was approximately $4,628, plus state taxes.

 

The Company leases a 30,000 square foot warehouse and main distribution hub in Greer, South Carolina. The lease is for a 63-month term that commenced in May 2019 and expires on August 1, 2026. Beginning in April 2020, the Company’s monthly rent includes monthly base payments of $10,200, plus applicable monthly CAM fees (“Common Area Maintenance”). The monthly base rent increases annually by 2 percent.

 

The Company leases a 10,000 square foot building in Conway, South Carolina. The lease is for a 62-month period that commenced in October 2021 and expires in November 2026. The Company’s monthly rent is approximately $7,261 plus applicable monthly CAM fees (Common Area Maintenance). The monthly base rent increases annually by 1.5 percent. In October 2021, the Company recognized an operating lease right of use (“ROU”) asset and lease liability of $345,649, related to the Conway, South Carolina operating lease utilizing a present value rate of 10%.

 

On June 1, 2023, the Company entered into a lease termination agreement with its landlord for its building in Conway, South Carolina. The Company’s deposit of $7,500 was applied to outstanding rent, and the Company recorded the removal of its right-of-use asset of $248,270, and corresponding operating lease liability of $261,125 on June 1, 2023. Furthermore, the Company recorded a loss on termination of the lease of $9,601 during the nine months ended September 30, 2023, which is included in selling, general and administrative expenses in the condensed consolidated statements of operations. The Company issued the Landlord a promissory note for $16,206, with interest at a rate of 8% per annum, and a maturity date of December 31, 2023. The lease agreement was terminated effective June 30, 2023.

 

Finance Leases

 

On March 17, 2020, the Company entered into a lease agreement for equipment. The finance lease is for a 62-month term that commenced in April 2020 and expires in March 2025. The agreement includes monthly payments of $676.

 

During the nine months ended September 30, 2023 and 2022, lease costs totaled $136,726 and $152,841, respectively.

 

Our ROU asset balance was $762,464 as of December 31, 2022. During the nine months ended September 30, 2023, the Company recorded amortization of ROU assets of $79,792 related to its leases and removed an ROU asset of $248,270, resulting in an ROU asset balance of $434,402 as of September 30, 2023.

 

As of December 31, 2022, lease liabilities totaled $838,882, comprised of finance lease liabilities of $17,824 and operating lease liabilities of $821,058. During the nine months ended September 30, 2023, the Company made payments of $5,594 against its finance lease liability, $97,106 against its operating lease liability and removed $261,125 against its terminated operating lease liability. At September 30, 2023, lease liabilities totaled $475,057, of which the current portion of lease liabilities was $178,074, leaving a long-term lease liabilities balance of $296,983.

 

F-18
 

 

As of September 30, 2023, the weighted average remaining lease terms for operating lease and finance lease are 1.50 years and 3.81 years, respectively. As of September 30, 2023, the weighted average discount rate for operating lease is 10.00% and 2.09% for finance lease.

 

Future minimum lease payments under the leases are as follows:

 

Years Ending December 31,  Amount 
2023 (remaining)  $57,521 
2024   197,491 
2025   170,059 
2026   113,790 
2027 and thereafter   - 
Total payments   538,861 
Less: Amount representing interest   (63,804)
Present value of net minimum lease payments   475,057 
Less: Current portion   (178,074)
Non-current portion  $296,983 

 

NOTE 12 – STOCKHOLDERS’ EQUITY

 

Preferred Stock

 

The Company’s issued and outstanding preferred stock, par value $0.00001 per share, at September 30, 2023 and December 31, 2022 was 989,000 and 988,000, respectively. The Board, without further stockholder approval, may issue preferred stock in one or more series from time to time and fix or alter the designations, relative rights, priorities, preferences, qualifications, limitations and restrictions of the shares of each series.

 

Series A Preferred Stock

 

The Company had authorized 4,000,000 shares of Series A Preferred Stock, par value of $0.00001 per share (the “Series A Preferred Stock”), of which no shares were issued or outstanding at September 30, 2023 and December 31, 2022, respectively. Each share of Series A Preferred Stock, when outstanding, could have been converted into one share of Common Stock.

 

Series B Preferred Stock

 

The Company had authorized 1,200,000 shares of Series B Preferred Stock, par value of $0.00001 per share (the “Series B Preferred Stock”), of which 488,000 were issued and outstanding at September 30, 2023 and December 31, 2022, respectively. Each share of Series B Preferred Stock may be converted into one share of Common Stock.

 

Series C Preferred Stock

 

On February 13, 2023, the Company increased the authorized number of Series C Preferred Stock from 250 to 2,000 shares, par value $0.00001 per share (the “Series C Preferred Stock”), by filing a Certificate of Designation of the Preferences, Rights, and Limitations of the Series C Preferred Stock with the Secretary of State of the State of Delaware. On July 8, 2020, the Company amended the terms of the Series C Preferred Stock filed a Certificate of Designation of the Preferences, Rights, and Limitations of the Series C Preferred Stock with the Secretary of State of the State of Delaware. The holders of shares of the Series Preferred C Stock are now entitled to 2,000,000 votes for every share of our Series Preferred C Stock held. The holders of the Series Preferred C Stock are not entitled to receive dividends. Upon any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary, before any distribution or payment will be made to the holders of any stock ranking junior to the Series C Preferred Stock, the holders of the Series C Preferred Stock will be entitled to be paid out of the Company’s assets an amount equal to $1.00 in the aggregate for all issued and outstanding shares of the Series C Preferred Stock (as adjusted for any stock dividends, combinations, splits, recapitalizations, and the like with respect to such shares) (the “Preference Value”). After the payment of the full applicable Preference Value of each share of the Series C Preferred Stock, our remaining assets legally available for distribution, if any, will be distributed ratably to the holders of the Common Stock. The Series C Preferred Stock has conversion rights, whereby each share of the Series C Preferred Stock automatically converts into one share of Common Stock on the one-year anniversary of the issuance date.

 

At September 30, 2023, 1,000 shares of Series C Preferred Stock were issued and outstanding, and at December 31, 2022, no shares of Series C Preferred Stock were issued and outstanding.

 

F-19
 

 

Series D Preferred Stock

 

The Company had authorized 500,000 shares of Series D Preferred Stock, par value of $0.00001 per share (the “Series D Preferred Stock”), of which 500,000 shares were issued and outstanding at September 30, 2023 and December 31, 2022, respectively. Each share of the Series D Preferred Stock may be converted into 1,000 shares of Common Stock.

 

Common Stock

 

On February 13, 2023, the Company increased the authorized number of shares of Common Stock from 2,500,000,000 to 10,500,000,000 shares, par value $0.00001 per share (the “Common Stock”), by filing a Certificate of Amendment to the amended and restated Certificate of Incorporation with the Secretary of State of the State of Delaware. The Company has authorized