As filed with the Securities and Exchange Commission on April 26, 2016
Registration No. 333- 205496

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
POST-EFFECTIVE AMENDMENT NO. 1
TO
FORM S-1 REGISTRATION No. 333-205496
 
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
 
KONARED CORPORATION
 
(Exact name of registrant as specified in its charter)
 
Nevada
 
2080
 
99-0366971
(State or other jurisdiction of
incorporation or organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)
 
1101 Via Callejon #200
San Clemente, CA 92673-4230
Telephone: 808.212.1553
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
 
Shaun Roberts
Chief Executive Officer
1101 Via Callejon #200
San Clemente, CA 92673-4230
Telephone: 808.212.1553
 
Copy of Communications To:
 
Clark Wilson LLP
Suite 900 - 885 West Georgia Street
Vancouver, British Columbia, Canada V6C 3H1
Telephone: 604.687.5700
Facsimile: 604.687.6314
 
(Name, address, including zip code, and telephone number, including area code, of agent for service)
 
Approximate   date   of   commencement   of   proposed   sale   to   the   public :   From   time   to   time   after   the   effective   date   of   this   registration   statement.
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box: þ
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act of 1933, please check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. ¨
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. ¨
 
If   this   Form   is   a   post-effective   amendment   filed   pursuant   to   Rule 462(d) under the Securities Act of 1933, check the following box and list the Securities Act of 1933 registration statement number of the earlier effective registration statement for the same offering. ¨
 
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 definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
Accelerated filer
o
Non-accelerated filer
o
Smaller reporting company
þ
(Do not check if a smaller reporting company)
   
 
 
 
 
Calculation of Registration Fee
 
Title of Each Class
of Securities to be
Registered
 
Amount to be
Registered (1)
Proposed Maximum
Offering Price
Per Share (3)
Proposed Maximum
Aggregate Offering
Price (3)
 
Amount of
Registration Fee
Common Stock
21,666,667 (2)
$0.05 (4)(5)
$1,083,333
$302.62 (5)

(1)
An indeterminate number of additional shares of common stock shall be issuable pursuant to Rule 416 under the Securities Act of 1933 to prevent dilution resulting from stock splits, stock dividends or similar transactions and in such an event the number of shares registered shall automatically be increased to cover the additional shares in accordance with Rule 416.
   
(2)
Consists of (i) 1,666,667 shares of common stock sold to Lincoln Park Capital Fund LLC (“Lincoln Park”) under the purchase agreement dated June 16, 2015 (the “2015 Purchase Agreement”); (ii) 2,666,667 shares of common stock issued to Lincoln Park as the initial commitment shares under the 2015 Purchase Agreement; (iii) up to 15,000,000 shares of common stock that may be sold to Lincoln Park under the 2015 Purchase Agreement; (iv) up to 666,666 shares of common stock that may be issued to Lincoln Park as additional commitment shares under the 2015 Purchase Agreement; and (v) 1,666,667 shares of common stock issued to Peat Financial Ltd. under a securities purchase agreement dated June 30, 2015 (the “PF Agreement”).  The 2015 Purchase Agreement provides that we may sell up to $10,250,000 of our common stock.  We may elect to issue and sell more than 15,000,000 shares (excluding additional commitment shares) to Lincoln Park under the 2015 Purchase Agreement. If we elect to issue and sell more than the 15,000,000 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act of 1933 any such additional shares.
   
(3)
Estimated in accordance with Rule 457(c) under the Securities Act of 1933 solely for the purpose of computing the amount of the registration fee.
   
(4) (5)
The amount of the registration fee included in the Company's Form S-1 filed July 2, 106 was based on the $0.1202 closing price per share for the registrant’s common stock on July 1, 2015, as reported on www.OTCMarkets.com . This amount has been amended to the April 25, 2016 closing price of $0.05, but the amount of the previously paid registration fee has not been amended.
 
The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective on such date as the Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.
 
 

 
Explanatory Note
 
This Post-Effective Amendment No. 1 on Form S-1 (“Post-Effective Amendment No. 1”) is filed by KonaRed Corporation (the “Company”) and amends the Company’s registration statement on Form S-1 (File No. 333-205496), which was declared effective by the Securities and Exchange Commission on July 16, 2015 (the “Registration Statement”). Post-Effective Amendment No. 1 is being filed to incorporate the financial statements and related current information included in the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2015 filed with the Securities and Exchange Commission on April 13, 2016 and to make certain corresponding changes in the Registration Statement. No additional securities are being registered under this Post-Effective Amendment No. 1. All applicable registration fees were paid at the time of the original filing of the Registration Statement.
 
 

 
 
 

 
 
 
 
The information in this prospectus is not complete and may be changed. The selling stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
     
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION DATED APRIL 26, 2016
 
Up to 21,666,667 Shares of Common Stock
 
KONARED CORPORATION
 
_________________________________
 
 

 
The selling stockholders identified in this prospectus may offer and sell up to 21,666,667 shares of our common stock, consisting of: (i) 1,666,667 shares of common stock sold to Lincoln Park Capital Fund LLC (“Lincoln Park”) under the purchase agreement dated June 16, 2015 (the “2015 Purchase Agreement”); (ii) 2,666,667 shares of common stock issued to Lincoln Park as the initial commitment shares under the 2015 Purchase Agreement; (iii) up to 15,000,000 shares of common stock that may be sold to Lincoln Park under the 2015 Purchase Agreement; (iv) up to 666,666 shares of common stock that may be issued to Lincoln Park as additional commitment shares under the 2015 Purchase Agreement (see “The Lincoln Park Transactions” for a description of the 2015 Purchase Agreement); and (v) 1,666,667 shares of common stock issued to Peat Financial Ltd. ("Peat Financial") under a securities purchase agreement dated June 30, 2015 (the “PF Agreement”).  See “Selling Stockholders” for additional information regarding Lincoln Park and Peat Financial.
 
The prices at which selling stockholders may sell the shares will be determined by the prevailing market price for the shares or in negotiated transactions.
 
We are not selling any securities under this prospectus and will not receive any of the proceeds from the sale of shares by the selling stockholders.
 
The selling stockholders may sell the shares of common stock described in this prospectus in a number of different ways and at varying prices. See “Plan of Distribution” for more information about how the selling stockholders may sell the shares of common stock being registered pursuant to this prospectus. Lincoln Park is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended, and Peat Financial and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act of 1933, as amended.
 
We will pay the expenses incurred in registering the shares, including legal and accounting fees. See “Plan of Distribution”.
 
Our common stock is currently quoted on the OTCQB operated by OTC Markets Group, Inc., under the symbol “KRED”. On April 25, 2016, the last reported sale price of our common stock on the OTCQB was $0.05.
 
Investing in our common stock involves risks. See “Risk Factors” beginning on page 8.
 
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
 
The date of this prospectus is ________________, 2015.
 
 
 
 

 
 
 
 
 
TABLE OF CON TE NTS

 
Page

About This Prospectus

You should rely only on the information that we have provided in this prospectus and any applicable prospectus supplement. We have not authorized anyone to provide you with different information. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus and any applicable prospectus supplement. You must not rely on any unauthorized information or representation. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. You should assume that the information in this prospectus and any applicable prospectus supplement is accurate only as of the date on the front of the document, regardless of the time of delivery of this prospectus, any applicable prospectus supplement, or any sale of a security.

As used in this prospectus, the terms “we”, “us”, “our” and “our company” mean KonaRed Corporation unless the context clearly indicates otherwise.






 
 
Prospectus S ummary
 
Our Business
 
Our company is in the business of manufacturing, developing, marketing and distributing for retail sale beverages and nutritional products based on the fruit of the coffee plant. We were incorporated under the laws of the State of Nevada on October 4, 2010 under the name “TeamUpSport Inc.”.   Our business model prior to the acquisition of the health beverage and food business operated under the name “KonaRed” from Sandwich Isles Trading Co, Inc. ('SITC') on October 4, 2013 was to develop and commercialize a website which was to be designed to integrate people’s interest in sport with the new capabilities of online social networking. However, as our company had not successfully developed the business model at the time prior to the entry into an Asset Purchase Agreement with SITC, and had no source of revenue from our business plan, our company determined to seek out a new business opportunity to increase value for our stockholders.
 
On October 4, 2013 we entered into and closed a definitive Asset Purchase Agreement between our company, SITC, and Shaun Roberts and Steven M. Schorr, the principal shareholders, directors and officers of SITC, whereby we completed the acquisition of the KonaRed business from SITC. Prior to the acquisition on October 4, 2013, SITC, a private Hawaiian corporation, had established and operated the KonaRed business since its incorporation on August 22, 2008.
 
In connection with the closing of the asset purchase with SITC, we experienced a change of control and , SITC’s management became our management and the acquisition was treated as a reverse recapitalization for accounting purposes, with SITC as the acquirer for accounting purposes.
 
Since the acquisition, we have continued to be engaged in the KonaRed business of manufacturing, developing, marketing and distributing for retail sale the beverages and nutritional products based on the fruit of the coffee plant. Our principal products are our premium coffee fruit wellness drink, KonaRed Antioxidant Juice and our line of Cold Brew Coffees , offered to wholesale distributors and retail consumers. Our principal executive offices are located at 2829 Ala Kalanikaumaka St., Suite F-133 Koloa, Hawaii, 96756 and our head office and product warehouse is located at 1101 Via Callejon - #200, San Clemente, California 92673. Our products are sold throughout North America, including select locations of retail chains such as Target , Whole Foods Markets, Vitamin Shoppe, 7-11, and Kroger (Fred Meyer, Ralphs, Harris Teeter).
 
Number of Shares Being Offered
 
This prospectus covers the resale by the selling stockholders named in this prospectus of up to may offer and sell up to 21,666,667 shares of our common stock, consisting of: (i) 1,666,667 shares of common stock sold to Lincoln Park under the 2015 Purchase Agreement; (ii) 2,666,667 shares of common stock issued to Lincoln Park as the initial commitment shares under the 2015 Purchase Agreement; (iii) up to 15,000,000 shares of common stock that may be sold to Lincoln Park under the 2015 Purchase Agreement; (iv) up to 666,666 shares of common stock that may be issued to Lincoln Park as additional commitment shares under the 2015 Purchase Agreement (see “The Lincoln Park Transactions” for a description of the 2015 Purchase Agreement); and (v) 1,666,667 shares of common stock issued to Peat Financial under the PF Agreement.  See “Selling Stockholders” for additional information regarding Lincoln Park and Peat Financial.
 
As of April 25, 2016, there were 120,171,593 shares of our common stock outstanding, of which 93,420,353 shares were held by non-affiliates, including the 4,333,334 shares that we have already issued to Lincoln Park under the 2015 Purchase Agreement and 1,666,667 shares of common stock issued to Peat Financial under the PF Agreement. Although the 2015 Purchase Agreement provides that we may sell up to $10,250,000 of our common stock to Lincoln Park, only 20,000,000 shares of our common stock that may be issued and sold to Lincoln Park under the 2015 Purchase Agreement are being offered under this prospectus, which represents (i) 1,666,667 shares that we sold to Lincoln Park in the Initial Purchase, (ii) 2,666,667 Initial Commitment Shares that we issued to Lincoln Park as a commitment fee, (iii) an additional 15,000,000 shares which may be issued to Lincoln Park in the future under the 2015 Purchase Agreement, and (iv) 666,666 Additional Commitment Shares that we are required to issue proportionally in the future, as an additional commitment fee, if and when we sell shares to Lincoln Park under the 2015 Purchase Agreement. The 21,666,667 shares registered in this prospectus (inclusive of the shares already issued to Lincoln Park and Peat Financial) represent approximately 24% of the total number of shares of our common stock outstanding and approximately 30% of the total number of outstanding shares held by non-affiliates, in each case as of the date hereof. If we elect to issue and sell more than the 20,000,000 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park is dependent upon the number of shares we sell to Lincoln Park under the 2015 Purchase Agreement.
 
 
 
 
Agreements with Lincoln Park Capital Fund, LLC
 
On June 16, 2015, we entered into a purchase agreement with Lincoln Park, which we refer to in this prospectus as the “2015 Purchase Agreement”, pursuant to which Lincoln Park has agreed to purchase from us up to $10,250,000 of our common stock (subject to certain limitations) from time to time over a 30-month period.  Also on June 16, 2015, we entered into a registration rights agreement, or the “Registration Rights Agreement”, with Lincoln Park, pursuant to which we have filed with the SEC the registration statement that includes this prospectus to register for resale under the Securities Act of 1933, as amended, or the Securities Act, 20,000,000 of the shares that have been or may be issued to Lincoln Park under the 2015 Purchase Agreement.
 
This prospectus covers the 1,666,667 shares of our common stock that we have already issued to Lincoln Park for a total purchase price of $250,000 as an initial purchase under the 2015 Purchase Agreement (the “Initial Purchase”) and 2,666,667 shares of our common stock, which we refer to in this prospectus as the “Initial Commitment Shares,” already issued to Lincoln Park, as consideration for Lincoln Park’s commitment to purchase additional shares of our common stock pursuant to the 2015 Purchase Agreement. This prospectus also covers an additional 15,000,000 shares of our common stock which may be issued to Lincoln Park in the future pursuant to the 2015 Purchase Agreement and 666,666 shares of our common stock, which we refer to in this prospectus as the “Additional Commitment Shares”, that we are required to issue proportionally in the future, as an additional commitment fee, if and when we sell shares to Lincoln Park pursuant to the 2015 Purchase Agreement. The Additional Commitment Shares are issued pro rata as Lincoln Park purchases up to the additional $10,250,000 of our common stock as directed by us.  For example, if we elect, at our sole discretion, to require Lincoln Park to purchase $100,000 of our stock then we would issue 6,504 Additional Commitment Shares, which is the product of $100,000 (the amount we have elected to sell) divided by $10,250,000 (the remaining total amount we can sell Lincoln Park pursuant to the 2015 Purchase Agreement multiplied by 666,666 (the total number of Additional Commitment Shares). The Additional Commitment Shares will only be issued pursuant to this formula as and when we elect at our discretion to sell stock to Lincoln Park.
 
We do not have the right to commence any further sales to Lincoln Park under the 2015 Purchase Agreement until the SEC has declared effective the registration statement of which this prospectus forms a part. Thereafter, we may, from time to time and at our sole discretion, direct Lincoln Park to purchase up to 150,000 shares of our common stock on any business day, which amount may be increased to up to 350,000 shares, provided the closing price of our common stock exceeds certain thresholds set forth in the 2015 Purchase Agreement.  Additionally, we may direct Lincoln Park to purchase an additional “accelerated amount” under certain circumstances set forth in the 2015 Purchase Agreement.  Except as described in this prospectus, there are no trading volume requirements or restrictions under the 2015 Purchase Agreement, and we will control the timing and amount of any sales of our common stock to Lincoln Park. The purchase price of the shares that may be sold to Lincoln Park pursuant to the 2015 Purchase Agreement will be based on the market price of our common stock immediately preceding the time of sale as computed pursuant to the 2015 Purchase Agreement without any fixed discount; provided that in no event will such shares be sold to Lincoln Park when our closing sale price is less than $0.05 per share, subject to adjustment as provided in the 2015 Purchase Agreement. The purchase price per share will be equitably adjusted for any reorganization, recapitalization, non-cash dividend, stock split, or other similar transaction occurring during the business days used to compute such price. We may at any time in our sole discretion terminate the 2015 Purchase Agreement without fee, penalty or cost upon one business days’ notice.  Lincoln Park may not assign or transfer its rights and obligations under the 2015 Purchase Agreement.
 
Issuances of our common stock in this offering will not affect the rights or privileges of our existing stockholders, except that the economic and voting interests of each of our existing stockholders will be diluted as a result of any such issuance. Although the number of shares of common stock that our existing stockholders own will not decrease, the shares owned by our existing stockholders will represent a smaller percentage of our total outstanding shares after any such issuance to Lincoln Park.
 
Agreement with Peat Financial Ltd.
 
On June 29, 2015, we entered into a securities purchase agreement with Peat Financial Ltd., which we refer to in this prospectus as the PF Agreement, pursuant to which we issued 1,666,667 shares of common stock to Peat Financial, at a purchase price of $0.06 per unit for gross proceeds of $100,000.  Pursuant to the PF Agreement, we agreed to file a registration statement related to the transaction with the SEC covering the shares of common stock.
 
 
 
 
Securities Offered
 
Common stock to be offered by the selling stockholders
21,666,667 shares including (i) 20,000,000 shares, 4,333,334 which have been issued, and 15,666,666 which we may issue under the Purchase Agreement with Lincoln Park ( of which 1,500,000 Additional Shares and 607,966 Additional Commitment Shares remain) and (ii) 1,666,667 sold to Peat Financial.
   
Common stock outstanding prior to this offering
120,171,593  shares
   
Common stock outstanding after this offering (1)
121,671,593  shares
   
Use of Proceeds
We will receive no proceeds from the sale of shares of common stock by Lincoln Park in this offering. However, we may receive up to an additional $10,000,000 under the 2015 Purchase Agreement with Lincoln Park. Any proceeds that we receive from sales to Lincoln Park under the 2015 Purchase Agreement will be used for working capital and general corporate purposes. See “Use of Proceeds.”
   
Risk factors
This investment involves a high degree of risk. See “Risk Factors” for a discussion of factors you should consider carefully before making an investment decision.
   
Symbol on OTC Bulletin Board
KRED

 
Please read this prospectus carefully. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with different information. You should not assume that the information provided by the prospectus is accurate as of any date other than the date on the front of this prospectus.
 
(1)
Assumes the issuance and sale of the remaining 1,500,000 shares that may be issued and sold to Lincoln Park and the issuance of additional commitment shares to Lincoln Park, both pursuant the 2015 Purchase Agreement.
 
 
 
 
 
 
 
 

 
 
 
Ris k Factors
 
An investment in our common stock involves a number of very significant risks.  You should carefully consider the following risks and uncertainties in addition to other information in this prospectus in evaluating our company and our business before purchasing shares of our common stock.  Our business, operating results and financial condition could be seriously harmed as a result of the occurrence of any of the following risks.  You could lose all or part of your investment due to any of these risks. You should invest in our common stock only if you can afford to lose your entire investment.
 
Risks Related To Our Business
 
We have a limited operating history which makes it difficult to evaluate our company or future operations.
 
SITC, which operated our business prior to closing of the Asset Purchase Agreement on October 4, 2013, was incorporated on August 22, 2008, and our company was incorporated on October 4, 2010, and we have only recently begun producing and distributing our products, and do not have a significant operating history with which investors can evaluate our business. Our ability to successfully develop our products, and to realize consistent, meaningful revenues and profit has not been established and cannot be assured. For us to achieve success, our products must receive broader market acceptance by consumers. Without this market acceptance, we will not be able to generate sufficient revenue to continue our business operation. If our products are not widely accepted by the market, our business may fail.
 
Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to generate revenues, manage development costs and expenses, and compete successfully with our direct and indirect competitors.
 
Based upon current plans, we expect to incur operating losses in future periods. This will happen because there are expenses associated with the manufacturing, development, production, marketing, and sales of our products. As a result, we may not generate significant revenues in the future. Failure to generate significant revenues in near future may cause us to suspend or cease activities.
 
These circumstances have lead our independent registered public accounting firm to comment about our company’s ability to continue as a going concern in their audit opinion, which is filed within our Annual Report on Form 10-K for the year ended December 31, 2015 . Management’s primary funding strategy is to raise additional capital through a public offering of its capital stock. These conditions raise substantial doubt about our company’s ability to continue as a going concern. Our financial statements do not include any adjustments relating to the recoverability and potential classification of recorded assets, or the amounts of and classification of liabilities that might be necessary in the event our company cannot continue in existence.
 
We rely on our  CEO, our President , and our Chief Financial Offier for management of our operations and the loss of any of these key individuals could have an adverse effect on our company
 
Our success depends to a certain degree upon our CEO, our President , and our Chief Financial Officer. These individuals are a significant factor in our growth and success. The loss of the service of current management and board and any future additional members of management and the board could have a material adverse effect on our company. Additionally, we do not anticipate having key man insurance in place in respect of our CEO, our President , and other senior officers and/or directors in the foreseeable future.
 
We will need additional funds to produce, market, and distribute our product.
 
We will have to spend additional funds to produce, market and distribute our products. If we cannot raise sufficient capital, we may have to cease operations and you could lose your investment.
 
We will need additional funds to produce line extensions and expand our distribution and retail footprint. Even after we complete the proposed expansion of our product offerings, we will need to spend substantial funds on production, distribution, marketing and sales efforts, which is indicative of a consumer products company. For example, it is often customary when implementing a large retail chain to provide marketing support in the form of advertising, product demos and supplying free samples.
 
 
 
5

 
 
 
There is no guarantee that sufficient sale levels will be achieved.
 
There is no guarantee that the expenditure of money on distribution and marketing efforts will translate into sales or sufficient sales to cover our expenses and result in profits. Consequently, there is a risk that you may lose all of your investment.
 
Our development, marketing, and sales activities are limited by our size.
 
Because we are a small company and do not have much capital, we must limit our product development, marketing, and sales activities. As such, we may not be able to complete our production and business development program to the degree we have planned. If this becomes a reality, we may not ever generate sufficient revenue and you will lose your investment.
 
Changes in the nonalcoholic beverage business environment and retail landscape could adversely impact our financial results.
 
The nonalcoholic beverage business environment is rapidly evolving as a result of, among other things: changes in consumer preferences, including changes based on health and nutrition considerations and obesity concerns; shifting consumer tastes and needs; changes in consumer lifestyles; and competitive product and pricing pressures. In addition, the nonalcoholic beverage retail landscape is very dynamic and constantly evolving, not only in emerging and developing markets, where modern trade is growing at a faster pace than traditional trade outlets, but also in developed markets, where discounters and value stores, as well as the volume of transactions through e-commerce, are growing at a rapid pace. If we are unable to successfully adapt to the rapidly changing environment and retail landscape, our share of sales, volume growth and overall financial results could be negatively affected.
 
Intense competition and increasing competition in the commercial beverage market could hurt our business.
 
The commercial retail beverage industry, and in particular its nonalcoholic beverage segment is highly competitive. Market participants are of various sizes, with various market shares and geographical reach, some of which have access to substantially more sources of capital.
 
We  compete generally with all liquid refreshments, including numerous specialty beverages, such as: SoBe; Snapple; Arizona; Vitamin Water; Gatorade; and Powerade.
 
We compete indirectly with major international beverage companies including but not limited to: the Coca-Cola Company; PepsiCo, Inc.; Nestlé; Dr. Pepper Snapple Group; Groupe Danone; Kraft Foods Group, Inc.; and Unilever. These companies have established market presence in the United States, and offer a variety of beverages that are substitutes to our product. We face potential direct competition from such companies, because they have the financial resources, and access to manufacturing and distribution channels to rapidly enter the health food and beverage market.
 
We compete directly with other consumer products participants in the nascent coffee fruit sector including Bai5 and SoZo. These companies could bolster their position in the nascent coffee fruit sector through additional expenditure and promotion.
 
As a result of both direct and indirect competition, our ability to successfully distribute, market and sell our products, and to gain sufficient market share in the United States to realize profits may be limited, greatly diminished, or totally diminished, which may lead to partial or total loss of your investments in our company.
 
Expansion of the nascent coffee fruit sector or sufficiency of consumer demand in that market for operations to be profitable are not guaranteed.
 
The nascent coffee fruit sector is an emerging market and there is no guarantee that this market will expand or that consumer demand will be sufficiently high to allow our company to successfully market, distribute and sell our product, or to successfully compete with current or future competition, all of which may result in total loss of your investment.
 
Our growth and profitability depends on our management of distribution channels and the performance of third-parties and our relationships with them.
 
In September 2015 we cancelled the  distribution agreement and sale and marketing agreement we entered into with Splash Beverage Group, Inc. on April 23, 2014 and took back full control of our distribution systems. If we are unable to effectively manage our distribution channels, this could undermine our operations, profitability and may result in total loss of your investment The success of our distribution network also depends on the performance of various third parties but no specific third party in particular. Any non-performance or deficient performance by such parties may undermine our operations, profitability, and result in total loss to your investment. To distribute our
 
 
 
 
6

 
 
 
product, we either ship directly to distributors and retailers or use a broker-distributor-retailer network whereby brokers represent our products to distributors and retailers who will in turn sell our product to consumers. The success of this network will depend on the performance various brokers, distributors and retailers of this network. There is a risk that a broker, distributor, or retailer may refuse to or cease to market or carry our product. There is a risk that the mentioned entities may not adequately perform their functions within the network by, without limitation, failing to distribute to sufficient retailers or positioning our product in localities that may not be receptive to our product. Furthermore, such third-parties’ financial position or market share may deteriorate, which could adversely affect our distribution, marketing and sale activities. We also need to maintain good commercial relationships with third-party brokers, distributors and retailers so that they will promote and carry our product. Any adverse consequences resulting from the performance of third-parties or our relationship with them could undermine our operations, profitability and may result in total loss of your investment.
 
Health benefits of the coffee fruit are not guaranteed.
 
Although several studies have suggested there may be health benefits related to the consumption of the coffee fruit, the research is in its infancy stages and health benefits have not been proven. Future research may fail to support such benefits or may indicate that any such benefits are outweighed by negative side effects. The foregoing would likely result in a loss of market share or potential market share and would have an adverse effect on our company and its business and, furthermore, the value of an investment in our company could be reduced or lost entirely.
 
Water scarcity and poor quality could negatively impact our production costs and capacity.
 
Water is the main ingredient in our product. It is also a limited resource, facing unprecedented challenges from overexploitation, increasing pollution, poor management, and climate change. As demand for water continues to increase, as water becomes scarcer, and as the quality of available water deteriorates, we may incur increasing production costs or face capacity constraints that could adversely affect our profitability or net operating revenues in the long run.
 
Increase in the cost, disruption of supply or shortage of ingredients, other raw materials or packaging materials could harm our business.
 
We and our manufacturing partners will use water, the coffee fruit and other ingredients, and packaging materials for bottles such as plastic, aluminum and paper products. The prices for these ingredients, other raw materials and packaging materials fluctuate depending on market conditions. Substantial increases in the prices of our or our bottling partners’ ingredients, other raw materials and packaging materials, to the extent they cannot be recouped through increases in the prices of finished beverage products, would increase our operating costs and could reduce our profitability. Increases in the prices of our finished products resulting from a higher cost of ingredients, other raw materials and packaging materials could affect the affordability of our product and reduce sales.
 
An increase in the cost, a sustained interruption in the supply, or a shortage of some of these ingredients, other raw materials, or packaging materials and containers that may be caused by a deterioration of our or our bottling partners’ relationships with suppliers; by supplier quality and reliability issues; or by events such as natural disasters, power outages, labor strikes, political uncertainties or governmental instability, or the like, could negatively impact our net revenues and profits.
 
Changes in laws and regulations relating to beverage containers and packaging could increase our costs and reduce demand for our products.
 
We and our manufacturers intend to offer non-refillable, recyclable containers in the United States. Legal requirements have been enacted in various jurisdictions in the United States requiring that deposits or certain eco taxes or fees be charged for the sale, marketing and use of certain non-refillable beverage containers. Other proposals relating to beverage container deposits, recycling, eco tax and/or product stewardship have been introduced in various jurisdictions in the United States and overseas, and we anticipate that similar legislation or regulations may be proposed in the future at local, state and federal levels in the United States. Consumers’ increased concerns and changing attitudes about solid waste streams and environmental responsibility and the related publicity could result in the adoption of such legislation or regulations. If these types of requirements are adopted and implemented on a large scale in the geographical regions in which we operate or intent to, they could affect our costs or require changes in our distribution model, which could reduce our net operating revenues or profitability.
 
 
 
 
Significant additional labeling or warning requirements or limitations on the availability of our product may inhibit sales of affected products.
 
Various jurisdictions may seek to adopt significant additional product labeling or warning requirements or limitations on the availability of our product relating to the content or perceived adverse health consequences of our product. If these types of requirements become applicable to our product under current or future environmental or health laws or regulations, they may inhibit sales of our product.
 
Unfavorable general economic conditions in the United States could negatively impact our financial performance.
 
Unfavorable general economic conditions, such as a recession or economic slowdown, in the United States could negatively affect the affordability of, and consumer demand for, our product in the United States. Under difficult economic conditions, consumers may seek to reduce discretionary spending by forgoing purchases of our products or by shifting away from our beverages to lower-priced products offered by other companies. Lower consumer demand for our product in the United States could reduce our profitability.
 
Adverse weather conditions could reduce the demand for our products.
 
The sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the summer months may have a temporary effect on the demand for our product and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.
 
Changes in, or failure to comply with, the laws and regulations applicable to our products or our business operations could increase our costs or reduce our net operating revenues.
 
The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our company’s product will be subject to: the Federal Food, Drug, and Cosmetic Act ; the Federal Trade Commission Act ; the Lanham Act ; state consumer protection laws; competition laws; federal, state, and local workplace health and safety laws, such as the Occupational Safety and Health Act ; various federal, state and local environmental protection laws; and various other federal, state, and local statutes and regulations. Legal requirements also apply in many jurisdictions in the United States requiring that deposits or certain eco taxes or fees be charged for the sale, marketing, and use of certain non-refillable beverage containers. The precise requirements imposed by these measures vary.  Other types of statutes and regulations relating to beverage container deposits, recycling, eco taxes and/or product stewardship also apply in various jurisdictions in the United States. We anticipate that additional, similar legal requirements may be proposed or enacted in the future at the local, state and federal levels in the United States. Changes to such laws and regulations could increase our costs or reduce or net operating revenues.
 
Commitments we have entered into with VDF FutureCeuticals,Inc. may negatively impact the interests of our shareholders.
 
On January 28, 2014, our company entered into a settlement agreement with VDF FutureCeuticals, Inc. ('VDF') and SITC relating to certain claims made by each of the parties regarding certain intellectual property and trademarks used in our business. In connection with the settlement agreement, we entered into a license agreement, senior convertible note, pledge and security agreement, share purchase warrant, registration rights agreement and investor rights agreement with VDF. Pursuant to the foregoing agreements: (i) in exchange for our ongoing compliance with minimum payments and royalties, VDF granted to our company a non-exclusive, non-transferable, non-sublicenseable license to use certain intellectual property and trademarks necessary for the operation of our business; (ii) we promised to make certain payments with such payments convertible into shares of our common stock and secured by our company’s property; (iii) VDF was granted the right to acquire shares of our common stock representing ten percent (10%) of our fully diluted outstanding shares of common stock at an nominal purchase price in the event our company achieves certain milestones; and (iv) we granted VDF certain other rights including, but not limited to, registration rights in respect of any common stock they currently own or may acquire in the future. As a result of the foregoing and additional covenants under the agreements, our company may suffer significant dilution in the future, we may lose some or all of our assets if VDF realizes on the security granted to them, we may incur significant costs in connection with the registration rights granted to VDF, our ability to raise equity or debt may be significantly impacted and our ability to conduct our business will be restricted due to the negative covenants in the various agreements.
 
 
 
8

 
 
 
Risks Related To Our Stock and Public Reporting Requirements
 
Because some of our directors control a large percentage of our common stock, these persons have the ability to influence matters affecting our stockholders.
 
As of the date of this Registration Statement, CEO and director Shaun Roberts directly owns 8,538,314 ( 7.1% ) of our issued and outstanding common shares, and beneficially owns 3,500,000 options to purchase 3,500,000 common shares, and director Steven Schorr directly owns 7,634,647 ( 6.4% ) of our issued and outstanding common shares and beneficially owns 1,000,000 options to purchase 1,000,000 common shares. As a result, they have the ability to influence matters affecting our stockholders, including the election of our directors, the acquisition or disposition of our assets, and the future issuance of our shares of common stock. Because they control such shares, investors may find it difficult to replace our management if they disagree with the way our business is being operated. If these individuals were to act in ways which were not in the best interest of the Company’s other investors, you may lose some or all of the value of your investment in our common stock.
 
Because we can issue additional shares of common stock, our stockholders may experience dilution in the future.
 
We expect to experience significant negative cash flow from operations for the foreseeable future and expect to require working capital to fund our operations.  If we continue to issue shares under the 2015 Purchase Agreement, dilution will occur for existing shareholders. Additionally, we cannot be certain that alternative financing will be available on favorable terms when required, or at all. If we are unable to raise sufficient capital, or are unable to repay the debt, then we may cease operations, become insolvent, declare bankruptcy or be otherwise wound up, all of which may result in the loss of all or substantially all of the investment capital of the shareholders. We are authorized to issue up to 877,500,000 common shares and 10,000 preferred shares and as of April 25, 2016 had 120,171,593 common shares and no preferred shares outstanding. We have the authority to issue more shares, and to determine the rights, preferences and privileges of such shares, without the consent of any of our shareholders. If we raise additional funds through the issuance of equity, equity - related or debt securities, the securities may have rights, preferences or privileges senior to those of the rights of our common stock and those shareholders may experience dilution in the net tangible book value per share of their investment in our common shares.
 
Trading on the OTCQB may be volatile and sporadic, which could depress the market price of our common stock and make it difficult for our stockholders to resell their shares.
 
Our common stock is quoted on the OTC Markets Group’s OTCQB over-the-counter market. Trading in stock quoted on the OTCQB is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Moreover, the OTCQB and other over-the-counter trading systems do not benefit from the same type of Market-Maker trading systems utilized by stock exchanges such as the NYSE and AMEX and quotation systems such as the NASDAQ in which trading of a security is enhanced by to the presence of Market-Maker(s) who are dedicated to the trading of a particular listed company’s shares. Rather, on the OTCQB and other over-the-counter markets, there is no assurance that a bid/ask will be posted to facilitate trading of an over the counter listed issue at any particular point in time. As a result, trading of securities on the OTCQB and other over-the-counter systems is often more sporadic than the trading of securities listed on the NYSE, AMEX, NASDAQ or similar large stock exchanges or stock markets. Accordingly, shareholders may have difficulty selling their shares at any particular point in time.
 
A decline in the price of our common stock could affect our ability to raise further working capital, it may adversely impact our ability to continue operations and we may go out of business.
 
A prolonged decline in the price of our common stock could result in a reduction in the liquidity of our common stock and a reduction in our ability to raise capital. Because we may attempt to acquire a significant portion of the funds we need in order to conduct our planned operations through the sale of equity securities, a decline in the price of our common stock could be detrimental to our liquidity and our operations because the decline may cause investors not to choose to invest in our stock. If we are unable to raise the funds we require for all our planned operations, we may be forced to reallocate funds from other planned uses and may suffer a significant negative effect on our business plan and operations, including our ability to develop new products and continue our current operations. As a result, our business may suffer, and not be successful and we may go out of business. We also might not be able to meet our financial obligations if we cannot raise enough funds through the sale of our common stock and we may be forced to go out of business.
 
 
 
9

 
 
 
Because we do not intend to pay any cash dividends on our shares of common stock in the near future, our stockholders will not be able to receive a return on their shares unless they sell them.
 
We intend to retain any future earnings to finance the development and expansion of our business. We do not anticipate paying any cash dividends on our common stock in the near future. The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend. Unless we pay dividends, our stockholders will not be able to receive a return on their shares unless they sell them.
 
Our stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations which may limit a stockholder’s ability to buy and sell our stock.
 
Our stock is a penny stock. The Securities and Exchange Commission (“SEC”) has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.
 
FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
 
In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.
 
Risks Related to the Offering
 
The sale or issuance of our common stock to Lincoln Park may cause dilution and the sale of the shares of common stock acquired by Lincoln Park, or the perception that such sales may occur, could cause the price of our common stock to fall.
 
On June 16, 2015, we entered into the 2015 Purchase Agreement with Lincoln Park, pursuant to which Lincoln Park has committed to purchase up to $10,250,000 of our common stock. Concurrently with the execution of the 2015 Purchase Agreement, we issued 2,666,667 shares of our common stock to Lincoln Park as a fee for its commitment to purchase shares of our common stock under the 2015 Purchase Agreement and 1,666,667 shares of our common stock for the Initial Purchase. The shares that may be sold pursuant to the 2015 Purchase Agreement may be sold by us to Lincoln Park at our discretion from time to time over a 30-month period commencing after the SEC has declared effective the registration statement of which this prospectus forms a part. The purchase price for the shares that we may sell to Lincoln Park under the 2015 Purchase Agreement will fluctuate based on the price of our common stock. Depending on market liquidity at the time, sales of such shares may cause the trading price of our common stock to fall.
 
 
 
10

 
 
 
We generally have the right to control the timing and amount of any sales of our shares to Lincoln Park, except that, pursuant to the terms of our agreements with Lincoln Park, we would be unable to sell shares to Lincoln Park if and when the closing sale price of our common stock is below $0.05 per share, subject to adjustment as set forth in the 2015 Purchase Agreement. Additional sales of our common stock, if any, to Lincoln Park will depend upon market conditions and other factors to be determined by us. Lincoln Park may ultimately purchase all, some or none of the shares of our common stock that may be sold pursuant to the 2015 Purchase Agreement and, after it has acquired shares, Lincoln Park may sell all, some or none of those shares. Therefore, sales to Lincoln Park by us could result in substantial dilution to the interests of other holders of our common stock.
 
Pursuant to the terms of the 2015 Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $10,250,000 of our common stock, inclusive of the 1,666,667 shares issued to Lincoln Park for $250,000 in the Initial Purchase and exclusive of the 2,666,667 Initial Commitment Shares issued to Lincoln Park as a commitment fee (which have already been issued to Lincoln Park and are part of this offering). Depending on the price per share at which we sell our common stock to Lincoln Park, we may be authorized to issue and sell to Lincoln Park under the 2015 Purchase Agreement more shares of our common stock than are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the 2015 Purchase Agreement.
 
Additionally, the sale of a substantial number of shares of our common stock to Lincoln Park, or the anticipation of such sales, could make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect sales. Moreover, we may sell our common stock to Lincoln Park at prices that are less than the last reported sale price of our common stock on the day that we sell the shares to Lincoln Park. The purchase price at which we have the right to sell our shares to Lincoln Park is based on the lower of the average three lowest closing sale prices of our shares for the prior twelve days or the lowest sale price on the day we elect to sell shares.  Accordingly, this price may be less than the last reported sale price of our common stock as reported on the OTCQB, and such sales to Lincoln Park may thereby have a dilutive effect on our stockholders depending on the tangible book value of our shares at the time of the sale (examples follow in the table below). Additionally, when we sell shares to Lincoln Park, we will also issue additional commitment shares in connection with each sale.  The additional commitment shares are issued pro rata based on the ratio of the share amount we sell to Lincoln Park up to $10,250,000.  Accordingly, if for example  we elect, at our sole discretion, to require Lincoln Park to purchase $100,000 of our stock then we would issue 6,504 Additional Commitment Shares, which is the product of $100,000 (the amount we have elected to sell) divided by $10,250,000 (the remaining total amount we can sell Lincoln Park pursuant to the 2015 Purchase Agreement multiplied by 666,666 (the total number of Additional Commitment Shares).
 
Under the terms of the 2015 Purchase Agreement the price of our shares cannot trade below a minimum low price of $0.05 per share on a day on which we choose to sell shares to Lincoln Park. However, if the minimum $0.05 price is met on a sale date, sales to Lincoln Park may be made based on an average trailing average price formula. This formula specifies that the average of the three (3) lowest closing sale prices during the preceding consecutive twelve (12) trading day period immediately preceding the sale date would be used as the sale price on the sale date. The effect of this is that even if our shares have traded at a substantial discount to the $0.05 minimum low price during the preceding twenty one day period, we still have the right to sell shares to Lincoln Park, but the per share price for such sales would be based on the trailing average price formula.
 
If you invest in our common stock in this offering, your ownership will be diluted to the extent of the difference between the offering price per share and the pro forma net tangible book value per share as adjusted to give effect to this offering. Dilution results from the fact that the per share offering price the common stock in this offering is substantially in excess of the book value per share attributable to the shares of common stock held by existing shareholders. The following table shows how the maximum sale of shares under this offering would affect pro forma net tangible book value dilution, based on a series of share price levels:
 
We may not be able to access sufficient funds under the 2015 Purchase Agreement with Lincoln Park when needed.
 
Our ability to sell shares to Lincoln Park and obtain funds under the 2015 Purchase Agreement is limited by the terms and conditions in the 2015 Purchase Agreement, including restrictions on when we may sell shares to Lincoln Park, restrictions on the amounts we may sell to Lincoln Park at any one time, and a limitation on our ability to sell shares to Lincoln Park to the extent that it would cause Lincoln Park to beneficially own more than 9.99% of our outstanding common stock. In addition, any amounts we sell under the 2015 Purchase Agreement may not satisfy all of our funding needs, even if we are able and choose to sell all $10,250,000 under the 2015 Purchase Agreement.
 
 
 
11

 
 
 
Assuming all 15,000,000 additional shares of our common stock being offered under this prospectus that may be purchased by Lincoln Park are sold at $0.05 per share (the floor price mentioned above), we would receive $750,000. If we elect to issue and sell more than the 15,000,000 shares offered under this prospectus to Lincoln Park, which we have the right, but not the obligation, to do, we must first register for resale under the Securities Act of 1933 any such additional shares.
 
We elected to enter into the 2015 Purchase Agreement with Lincoln Park as we expect that amount of capital over the next 12 months will be required for us to fully implement our business, operating and development plans. The extent we rely on Lincoln Park as a source of funding will depend on a number of factors including, the prevailing market price of our common stock and the extent to which we are able to secure working capital from other sources. If obtaining sufficient funding from Lincoln Park were to prove unavailable or prohibitively dilutive, we will need to secure another source of funding in order to satisfy our working capital needs. Even if we sell all $10,250,000 under the 2015 Purchase Agreement to Lincoln Park, we may still need additional capital to fully implement our business, operating and development plans. Should the financing we require to sustain our working capital needs be unavailable or prohibitively expensive when we require it, the consequences could be a material adverse effect on our business, operating results, financial condition and prospects.
 
Because there is a limited market for our common stock, shareholders may have difficulty in selling our common stock and our common stock may be subject to significant price swings.
 
There can be no assurance that an active market for our Common stock will develop. If an active public market for our Common stock does not develop, shareholders may not be able to re-sell the Common stock that they own and affect the value of their Common stock.
 
Forward-Looki ng Statements
 
This prospectus contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expects”, “plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, including the risks in the section entitled “Risk Factors”, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
 
Use of P roceeds
 
This prospectus relates to shares of our common stock that may be offered and sold from time to time by the selling stockholders identified in this prospectus. We will receive no proceeds from the sale of shares of common stock by the selling stockholders in this offering. However, we may receive gross proceeds of up to $10,250,000 under the 2015 Purchase Agreement over an approximately 30-month period, assuming that we sell the full amount to Lincoln Park under the 2015 Purchase Agreement. We will also pay for expenses of this offering, except that the selling stockholders will pay any broker discounts or commissions or equivalent expenses applicable to the sale of their shares.
 
Since proceeds from share sales made to Lincoln Park under the terms of the 2015 Purchase Agreement are based on trade date market prices, or a pricing formula which incorporates an average of trailing share prices, it is possible that we will receive substantially less than $10,250,000 in proceeds for share sales made under the 2015 Purchase Agreement. Specifically, in order for us to receive the full $10,250,000 contemplated in the 2015 Purchase Agreement, the per share price of all of the 15,000,000 shares specified for sale would have to be sold at, or above, an average price of $0.683 per share, which is above the 52-week high trade price of $ 0.22 at which our shares have traded. Factors which might negatively impact the price we receive also include the possibility of: general negative market reaction to the presence of a large selling shareholder; and many other tangible and intangible factors regarding acceptance of our products by consumers and our ability to execute our business plan. To April 25, 2016, 13,500,000 shares have been sold and if we were to sell the remaining 1,500,000 remaining shares to Lincoln Park included the 2015 Purchase Agreement at our closing market price 0.05 as of April 25, 2016 , the net offering proceeds we would receive would be $ 75,000 .
 
 
 
 
 
12

 
 
 
Any proceeds from Lincoln Park that we receive under the 2015 Purchase Agreement will be used for working capital and other general corporate purposes. The nature, amounts and timing of our expenditures will depend on numerous factors, including the status of our product sales and marketing efforts, the amount of proceeds actually raised from sales under the 2015 Purchase Agreement, and the amount of cash generated through our existing sales channels and any additional sales and distribution agreements into which we may enter. Accordingly, our management will have significant flexibility in applying any net proceeds that we receive pursuant to the 2015 Purchase Agreement.
 
Dil ut ion
 
If you purchase shares of our common stock offered under this prospectus, your interest will be diluted immediately to the extent of the difference between the offering price per share of our common stock and the pro forma net tangible book value per share of our common stock after this offering. Net tangible book value per share is the amount that results from subtracting total liabilities from total assets and then dividing by total shares outstanding. As of April 25, 2016, our net tangible book value per share is $0.00 based on current shares outstanding of 120,171,593 and assets of $655,354 and liabilities of $1,011,944 as reported in our latest audited financial statements for the year ended December 31, 2015.
 
Net tangible book value (deficit) dilution per share represents the difference between the amount per share of common stock paid by the purchasers who purchase shares of our common stock offered under this prospectus and the pro forma net tangible book value (deficit) per share in common stock immediately after purchase of shares of our common stock offered under this prospectus.
 
When using current shares outstanding of 120,171,593 and after giving effect to our sale of 1,666,667 Initial Sale Shares;  up to 1,500,000 remaining Additional Shares of common stock to Lincoln Park at a purchase price of $ 0.05 per share, being the closing trade price of our common stock as reported on the OTCQB on April 25, 2016 ; issuance of 2,666,667 Initial Commitment Shares; issuance of 1,666,667 shares to Peat Financial; and issuance of the 666,666 Additional Commitment shares, our pro forma net tangible book value as of December   31, 2015 would have been $0.00 per share . This is based on: (i) total liabilities of $ 1,011,944 ; (ii) adjusted total assets of $ 730,354 , which includes incoming cash of $75,000 from the remaining potential share sales to Lincoln Park (based on the last reported trading price of $0.05 per share), inclusive of the $100,000 from the share sale to Peat Financial as recorded in our cash balance at December 31, 2015 , plus $ 655,354 of assets as of December 31, 2015 ; and (iii) adjusted shares outstanding of 122,279,059 , based on 120,171,593 shares outstanding on April 25, 2016 plus issuance of the remaining 1,500,000 Additional Shares and remaining 607,466 Additional Commitment Shares to Lincoln Park. This represents an immediate increase of net tangible book value of $ 0.00 per share to our existing stockholders and an immediate dilution of $(0.05) per share to purchasers of shares of our common stock under this prospectus. The following table illustrates this per share dilution:
 
The following table illustrates this per share dilution:
 
Offering price per share (using the last reported sale price of our common stock on July 1, 2015)
  $ 0.05  
Net tangible book value per share as of  December  31, 2015
  $ 0.00  
Increase in net tangible book value per share attributable to this offering
  $ 0.00  
Pro forma net tangible book value per share after this offering
  $ 0.00  
Dilution per share to purchasers
  $ (0.05 )
 
Lincoln Park may sell shares of our common stock at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. The price that the purchasers of our common stock offered under this prospectus will pay for the shares sold by Lincoln Park will likely be higher than the price Lincoln Park paid for the shares. Accordingly, the amount of dilution to such purchasers may be significantly higher.
 
 
 
 
 
 
Selling S to ckholders
 
The selling stockholders identified in this prospectus may offer and sell up to 21,666,667 shares of our common stock, consisting of (i) 1,666,667 shares of common stock issued to Lincoln Park under the 2015 Purchase Agreement; (ii) 2,666,667 shares of common stock issued to Lincoln Park as the initial commitment shares under the 2015 Purchase Agreement; (iii) up to 15,000,000 shares of common stock that may be sold to Lincoln Park under the 2015 Purchase Agreement; (iv) up to 666,666 shares of common stock that may be issued to Lincoln Park as additional commitment shares under the 2015 Purchase Agreement; and (v) 1,666,667 shares of common stock issued to Peat Financial under a securities purchase agreement dated June 29, 2015.
 
None of the selling stockholders had or have any position or office, or other material relationship with us or any of our affiliates over the past three years. None of the selling stockholders is a broker-dealer or an affiliate of a broker-dealer.
 
We may require the selling stockholders to suspend the sales of the shares of our common stock being offered pursuant to this prospectus upon the occurrence of any event that makes any statement in this prospectus or the related registration statement untrue in any material respect or that requires the changing of statements in those documents in order to make statements in those documents not misleading.
 
The following table presents information regarding the selling stockholders and the shares that they may offer and sell from time to time under this prospectus. The table is prepared based on information supplied to us by the selling stockholders, and reflects their holdings as of July 1, 2015 at the time of the filing of the S- 1 plus adjustments known by the Company since that date . Neither the selling stockholders nor any of their affiliates has held a position or office, or had any other material relationship, with us or any of our predecessors or affiliates. Beneficial ownership is determined in accordance with Rule 13d-3(d) promulgated by the SEC under the Exchange Act. The percentage of shares beneficially owned prior to the offering is based on 120,171,593 shares of our common stock actually outstanding as of April 25, 2016 .
 
 
 
 
 
 
Name of Selling
Stockholder
Shares
Beneficially
Owned
by the Selling
Stockholder
before the
Offering (1)
 
Percentage of
Outstanding
Shares
Beneficially
Owned Before
the Offering (2)
 
 
 
 
Total Shares
Offered in the
Offering
Shares
Beneficially
Owned
by the Selling
Stockholder
after the
Offering (3)
Lincoln Park Capital Fund, LLC (4)
14,219,698 (5)
10.9%
20,000,000
-
Peat Financial Ltd (6)
1,666,667 (5)
1.2%
1,666,667
-
Totals
7,136,365
12.1%
21,666,667
-
 
Notes  
   
(1)
Beneficial ownership is determined in accordance with SEC rules and generally includes voting or investment power with respect to shares of common stock. Shares of common stock subject to options, warrants and convertible debentures currently exercisable or convertible, or exercisable or convertible within 60 days, are counted as outstanding.
   
(2)
The denominator for this calculation is 130,057,957 common shares. This is based on: (i) 120,171,593   shares of our common stock outstanding as of April 25, 2016 including (i) 1,666,667 Initial Sale Shares issued to Lincoln Park for a total purchase price of $250,000 on June 16, 2015 under the 2015 Purchase Agreement; (ii) 2,666,667 Initial Commitment Shares issued to Lincoln Park as a fee on June 16,2015 for its commitment to purchase additional shares of our common stock under the 2015 Purchase Agreement, all of which shares are covered by the registration statement of which this prospectus forms a part; (iii) 1,666,667 shares issued to Peat Financial; plus (iv) 1,136,364 warrants to purchase 1,136,364 shares of our common stock issued to Lincoln Park on January 27, 2014 under the January Purchase Agreement; plus 3,750,000 warrant to purchase 3,750,000 shares of our common stock issued to Lincoln Park on August 18, 2015; plus 5,000,000 warrant to purchase 5,000,000 shares of our common stock issued to Lincoln Park on November 23, 2015 . Although we may at our discretion elect to issue to Lincoln Park up to an aggregate additional amount of $10,000,000 of our common stock under the 2015 Purchase Agreement, other than the shares described in the immediately preceding sentence, such shares are not included in determining the percentage of shares beneficially owned before this offering.
 
 
 
 
(3)
Because the selling stockholders may offer and sell all or only some portion of the 21,666,667 shares of our common stock being offered pursuant to this prospectus and may acquire additional shares of our common stock in the future, we cannot provide an estimate of the number and percentage of shares of our common stock that any of the selling stockholders will hold upon termination of the offering.
   
(4)
Josh Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park, are deemed to be beneficial owners of all of the shares of common stock owned by Lincoln Park. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the 2015 Purchase Agreement. Lincoln Park is not a licensed broker dealer or an affiliate of a licensed broker dealer. Messrs. Cope and Scheinfeld have shared voting and investment power over the shares being offered under the prospectus filed with the SEC in connection with the transactions contemplated under the 2015 Purchase Agreement.
   
 (5)
Represents: (i) 1,666,667 Initial Sale Shares issued to Lincoln Park for a total purchase price of $250,000 on June 16, 2015 under the 2015 Purchase Agreement; plus (ii) 2,666,667 Initial Commitment Shares issued to Lincoln Park as a fee on June 16, 2015 for its commitment to purchase additional shares of our common stock under the 2015 Purchase Agreement, all of which shares are covered by the registration statement of which this prospectus forms a part; plus (iii)  1,136,364 warrants to purchase 1,136,364 common shares issued to Lincoln Park under the January Purchase Agreement, all of which are covered by the prospectus included in the registration statement pertaining to the January Purchase Agreement; plus 3,750,000 warrant to purchase 3,750,000 shares of our common stock issued to Lincoln Park on August 18, 2015; plus 5,000,000 warrant to purchase 5,000,000 shares of our common stock issued to Lincoln Park on November 23, 2015 . See the description under the subheading “The Offering” - “Agreements with Lincoln Park Capital Fund, LLC” for more information about the 2015 Purchase Agreement and the January Purchase Agreement.
   
 (6)
Represents 1,666,667 shares of our common stock issued to Peat Financial on June 30, 2015 for a total purchase price of $100,000 under the PF Agreement.  Mr. Wayne Wearer is deemed to be beneficial owners of all of the shares of common stock owned by Peat Financial.
 
The Li ncoln Park Transactions
 
The 2015 Purchase Agreement
 
On June 16, 2015, we entered into the 2015 Purchase Agreement and the Registration Rights Agreement with Lincoln Park. Pursuant to the terms of the 2015 Purchase Agreement, Lincoln Park has agreed to purchase from us up to $10,250,000 of our common stock (subject to certain limitations) from time to time over a 30-month period. Pursuant to the terms of the Registration Rights Agreement, we have filed with the SEC the registration statement of which this prospectus forms a part to register for resale under the Securities Act of 1933 the shares that have been or may be issued to Lincoln Park under the 2015 Purchase Agreement.
 
Concurrently with the execution of the 2015 Purchase Agreement on June 16, 2015, we sold 1,666,667 shares of common stock sold to Lincoln Park under the 2015 Purchase Agreement and issued 2,666,667 shares of common stock issued to Lincoln Park as the Initial Commitment Shares under the 2015 Purchase Agreement. Other than the shares of our common stock that we have already issued to Lincoln Park as described above, we do not have the right to commence any further sales to Lincoln Park under the 2015 Purchase Agreement until the SEC has declared effective the registration statement of which this prospectus forms a part. Thereafter and upon satisfaction of the other conditions set forth in the 2015 Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to 150,000 shares of our common stock (each such purchase a “Regular Purchase”), at a purchase price per share based on the market price of our common stock immediately preceding the time of sale; provided, however, that (i) the Regular Purchase may be increased to up to 200,000 shares, provided that the closing sale price of the Common Stock is not below $0.30 on the purchase date, (ii) the Regular Purchase may be increased to up to 275,000 shares, provided that the closing sale price of the Common Stock is not below $0.40 on the purchase date, and (iii) the Regular Purchase may be increased to up to 350,000 Purchase Shares, provided that the closing sale price of the Common Stock is not below $0.50 on the purchase date (all of which share and dollar amounts shall be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction). We may deliver multiple Regular Purchase notices to Lincoln Park so long as at least one business day has passed since the most recent Regular Purchase was completed.
 
 
 
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We may also issue up to 666,666 shares, as Additional Commitment Shares, pro rata as Lincoln Park purchases the up to $10,250,000 of our stock as directed by us. For example we elect, at our sole discretion, to require Lincoln Park to purchase $100,000 of our stock then we would issue 6,504 Additional Commitment Shares, which is the product of $100,000 (the amount we have elected to sell) divided by $10,250,000 (the remaining total amount we can sell Lincoln Park pursuant to the 2015 Purchase Agreement multiplied by 666,666 (the total number of Additional Commitment Shares). The pro rata Additional Commitment Shares will only be issued pursuant to this formula as and when we elect at our discretion to sell stock to Lincoln Park. Except as described in this prospectus, there are no trading volume requirements or restrictions under the 2015 Purchase Agreement, and we will control the timing and amount of any sales of our common stock to Lincoln Park.
 
The purchase price per share for each such Regular Purchase will be the lower of:
 
the lowest sale price for our common stock on the purchase date of such shares; or
 
the arithmetic average of the three lowest closing sale prices for our common stock during the 12 consecutive business days ending on the business day immediately preceding the purchase date of such shares.
 
Lincoln Park may not assign or transfer its rights and obligations under the 2015 Purchase Agreement.
 
Accelerated Purchases
 
Subject to the terms and conditions of the 2015 Purchase Agreement, in addition to Regular Purchases, we also have the right, but not the obligation, to direct Lincoln Park from time to time, and Lincoln Park will have the obligation, to buy shares of our common stock an accelerated purchase price on an accelerated purchase date in an amount equal to an accelerated purchase share amount (each such purchase, an “Accelerated Purchase”).
 
In accordance with our company’s right to direct an Accelerated Purchase, we may deliver a notice for an Accelerated Purchase to Lincoln Park only on a purchase date on which we also properly submitted a regular purchase notice for a Regular Purchase and the closing sale price of our common stock is not below $0.30.
 
The price for such Accelerated Purchase will be the lower of:
 
ninety-two percent (92%) of the volume weighted average price of our common stock on a principal market during (A) the entire trading day on the Accelerated Purchase date, if the volume of shares of our common stock traded on a principal market on the Accelerated Purchase date has not exceeded the Accelerated Purchase share volume maximum, or (B) the portion of the trading day of the Accelerated Purchase date until such time at which the volume of shares of our common stock traded on a principal market has exceeded the Accelerated Purchase share volume maximum; or
 
the closing sale price of our common stock on the Accelerated Purchase date (to be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split, reverse stock split or other similar transaction).
 
For the purposes of the foregoing, the Accelerated Purchase share volume maximum means the number of shares of our common stock traded on a principal market on the Accelerated Purchase date equal to (i) the amount of shares of our common stock directed by our company to be purchased on the notice for the Accelerated Purchase, divided by (ii) 0.30.
 
For the purposes of the foregoing, the Accelerated Purchase share amount means the number of shares of our common stock directed by our company to be purchased by Lincoln Park, which number shall not exceed the lesser of (i) 200% of the number of shares of our common stock to be purchased by Lincoln Park pursuant to the corresponding Regular Purchase notice for a corresponding Regular Purchase and (ii) 0.30 multiplied by the trading volume of our common stock on a principal market on the accelerated Purchase date.
 
For the purchase of the foregoing, the date for the Accelerated Purchase is the business day immediately following the applicable purchase date with respect to the corresponding Regular Purchase.
 
 
 
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Minimum Purchase Price
 
Under the 2015 Purchase Agreement, we have set a floor price of $0.05 per share. Lincoln Park shall not purchase any shares of our common stock on any day that the closing sale price of our common stock is below the floor price. The floor price will be appropriately adjusted for any reorganization, recapitalization, non-cash dividend, stock split or other similar transaction and, effective upon the consummation of any such event, the floor price will be the lower of (i) the adjusted price and (ii) $1.00.
 
Events of Default
 
Events of default under the 2015 Purchase Agreement include, but are not limited to, the following:
 
 
the effectiveness of the registration statement of which this prospectus forms a part lapses for any reason (including, without limitation, the issuance of a stop order), or any required prospectus supplement and accompanying prospectus are unavailable for the resale by Lincoln Park of our common stock offered hereby, and such lapse or unavailability continues for a period of 10 consecutive business days or for more than an aggregate of 30 business days in any 365-day period;
 
 
suspension by our principal market of our common stock from trading for a period of three consecutive business days;
 
 
the de-listing of our common stock from our principal market, provided our common stock is not immediately thereafter trading on the New York Stock Exchange, the NASDAQ Global Market, the NASDAQ Global Select Market, the NASDAQ Capital Market, the NYSE Amex or the OTC Bulletin Board or OTC Markets (or nationally recognized successor to any of the foregoing);
 
 
the transfer agent’s failure for three business days to issue to Lincoln Park shares of our common stock which Lincoln Park is entitled to receive under the 2015 Purchase Agreement;
 
 
any breach of the representations or warranties or covenants contained in the 2015 Purchase Agreement or any related agreement which has or which could have a material adverse effect on us subject to a cure period of five business days;
 
 
any voluntary or involuntary participation or threatened participation in insolvency or bankruptcy proceedings by or against us; or
 
 
if at any time we are not eligible to transfer our common stock electronically or a material adverse change in our business, financial condition, operations or prospects has occurred.
 
Lincoln Park does not have the right to terminate the 2015 Purchase Agreement upon any of the events of default set forth above. During an event of default, all of which are outside of Lincoln Park’s control, we cannot initiate a Regular Purchase or an Accelerated Purchase under the 2015 Purchase Agreement.
 
Our Termination Rights
 
We have the unconditional right, at any time, for any reason and without any payment or liability to us, to give notice to Lincoln Park to terminate the 2015 Purchase Agreement. In the event of bankruptcy proceedings by or against us, the 2015 Purchase Agreement will automatically terminate without action of any party.
 
No Short-Selling or Hedging by Lincoln Park
 
Lincoln Park has agreed that neither it nor any of its affiliates shall engage in any direct or indirect short-selling or hedging of our common stock during any time prior to the termination of the 2015 Purchase Agreement.
 
Effect of Performance of the 2015 Purchase Agreement on Our Stockholders
 
All 15,000,000 shares being offered under this prospectus which may be sold by us to Lincoln Park under the 2015 Purchase Agreement are expected to be freely tradable. It is anticipated that shares being offered will be sold over a period of up to 30 months commencing on the date that the registration statement of which this prospectus forms a part becomes effective. The sale by Lincoln Park of a significant amount of shares being offered under this prospectus at any given time could cause the market price of our common stock to decline and to be highly volatile. Lincoln Park may ultimately purchase all, some or none of the 15,000,000 additional shares of common stock being
 
 
 
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offered under this prospectus. If we sell these shares to Lincoln Park, Lincoln Park may sell all, some or none of such shares. Therefore, sales to Lincoln Park by us under the 2015 Purchase Agreement may result in substantial dilution to the interests of other holders of our common stock. In addition, if we sell a substantial number of shares to Lincoln Park under the 2015 Purchase Agreement, or if investors expect that we will do so, the actual sales of shares or the mere existence of our arrangement with Lincoln Park may make it more difficult for us to sell equity or equity-related securities in the future at a time and at a price that we might otherwise wish to effect such sales. However, we have the right to control the timing and amount of any sales of our shares to Lincoln Park and the 2015 Purchase Agreement may be terminated by us at any time at our discretion without any cost to us.
 
Pursuant to the terms of the 2015 Purchase Agreement, we have the right, but not the obligation, to direct Lincoln Park to purchase up to $10,250,000 of our common stock. Depending on the price per share at which we sell our common stock to Lincoln Park, we may be authorized to issue and sell to Lincoln Park under the 2015 Purchase Agreement more shares of our common stock than are offered under this prospectus. If we choose to do so, we must first register for resale under the Securities Act of 1933 any such additional shares, which could cause additional substantial dilution to our stockholders. The number of shares ultimately offered for resale by Lincoln Park under this prospectus is dependent upon the number of shares we direct Lincoln Park to purchase under the 2015 Purchase Agreement.
 
The following table sets forth the amount of gross proceeds we would receive from Lincoln Park from our sale of shares to Lincoln Park under the 2015 Purchase Agreement at varying assumed purchase prices for the remaining 1,500,000 Additional Shares included in this offering that may be issued to Lincoln Park under the 2015 Purchase Agreement:
 
           
Percentage of
       
           
Outstanding Shares
   
Proceeds from the Sale
 
Assumed Average
         
After Giving Effect to
   
of Shares to Lincoln
 
Purchase Price Per
   
Number of Shares to
   
the Issuance to Lincoln
   
Park Under the 2015
 
Share (2)
   
be Issued
   
Park (1)(3)
   
Purchase Agreement
 
$ 0.05       1,500,000       1.2 %   $ 75,000  
$ 0.10       1,500,000       1.2 %   $ 150,000  
$ 0.15       1,500,000       1.2 %   $ 225,000  
$ 0.20       1,500,000       1.2 %   $ 300,000  
$ 0.25       1,500,000       1.2 %   $ 375,000  
____________________________
(1)
The denominator is 122,171,593 which is based on 120,171,593 shares outstanding as of April 25, 2016 , including (i) 1,666,667 Initial Sale Shares; (ii) 2,666,667 Initial Commitment Shares; (iii) 1,666,667 shares issued to Peat Financial; plus (iv) 1,500,000 remaining Additional Shares which we would have sold to Lincoln Park at the applicable assumed average purchase price per share; plus (v) 607,466 remaining Add itional Commitment Shares.
(2)
Under the 2015 Purchase Agreement, we may not sell and Lincoln Park may not purchase any shares on a day in which the closing sale price of our common stock is below $0.05, as may be adjusted in accordance with the 2015 Purchase Agreement.
(3)
Under the 2015 Purchase Agreement, we may not sell and Lincoln Park may not purchase shares to the extent that it would cause Lincoln Park to beneficially own more than 9.99% of our outstanding common stock.

 
Plan of Dis tr ibution
 
Each of the selling stockholders named above may, from time to time, sell any or all of their shares of common stock on the OTCQB operated by the OTC Markets Group or any other stock exchange, market or trading facility on which the shares of our common stock are traded or in private transactions. These sales may be at fixed prices, at prevailing market prices at the time of sale, at varying prices or at negotiated prices. The selling stockholders may use any one or more of the following methods when selling shares:
 
 
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
 
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
 
 
 
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privately negotiated transactions;
 
broker-dealers may agree with the selling stockholders to sell a specified number of such shares at a stipulated price per share;
 
a combination of any such methods of sale; or
 
any other method permitted pursuant to applicable law.
 
In order to comply with the securities laws of certain states, if applicable, the shares may be sold only through registered or licensed brokers or dealers. In addition, in certain states, the shares may not be sold unless they have been registered or qualified for sale in the state or an exemption from the state’s registration or qualification requirement is available and complied with.
 
Lincoln Park is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended and Peat Financial and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of Section 2(a)(11) of the Securities Act of 1933, as amended in connection with such sales.
 
Lincoln Park has informed us that it intends to use an unaffiliated broker-dealer to effectuate all sales, if any, of the common stock that it may purchase from us pursuant to the 2015 Purchase Agreement. Such sales will be made at prices and at terms then prevailing or at prices related to the then current market price. Each such unaffiliated broker-dealer may be an underwriter within the meaning of Section 2(a)(11) of the Securities Act of 1933. Lincoln Park has informed us that each such broker-dealer will receive commissions from Lincoln Park that will not exceed customary brokerage commissions.
 
Brokers, dealers, underwriters or agents participating in the distribution of the shares as agents may receive compensation in the form of commissions, discounts, or concessions from the selling stockholders and/or purchasers of the common stock for whom the broker-dealers may act as agent. The compensation paid to a particular broker-dealer may be less than or in excess of customary commissions. Neither we nor the selling stockholders can presently estimate the amount of compensation that any agent will receive.
 
We know of no existing arrangements between the selling stockholders or any other stockholder, broker, dealer, underwriter or agent relating to the sale or distribution of the shares offered by this prospectus. At the time a particular offer of shares is made, a prospectus supplement, if required, will be distributed that will set forth the names of any agents, underwriters or dealers and any compensation from the selling stockholder, and any other required information.
 
We will pay the expenses incident to the registration, offering, and sale of the shares to Lincoln Park and Peat Financial. We have agreed to indemnify Lincoln Park and certain other persons against certain liabilities in connection with the offering of shares of common stock offered hereby, including liabilities arising under the Securities Act of 1933 or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities. Lincoln Park has agreed to indemnify us against liabilities under the Securities Act of 1933 that may arise from certain written information furnished to us by Lincoln Park specifically for use in this prospectus or, if such indemnity is unavailable, to contribute amounts required to be paid in respect of such liabilities.
 
Lincoln Park has represented to us that at no time prior to the 2015 Purchase Agreement has Lincoln Park or its agents, representatives or affiliates engaged in or effected, in any manner whatsoever, directly or indirectly, any short sale (as such term is defined in Rule 200 of Regulation SHO of the Exchange Act) of our common stock or any hedging transaction, which establishes a net short position with respect to our common stock. Lincoln Park agreed that during the term of the 2015 Purchase Agreement, it, its agents, representatives or affiliates will not enter into or effect, directly or indirectly, any of the foregoing transactions.
 
We have advised the selling stockholders that they are required to comply with Regulation M promulgated under the Exchange Act. With certain exceptions, Regulation M precludes the selling stockholder, any affiliated purchasers, and any broker-dealer or other person who participates in the distribution from bidding for or purchasing, or attempting to induce any person to bid for or purchase any security which is the subject of the distribution until the entire distribution is complete. Regulation M also prohibits any bids or purchases made in order to stabilize the price of a security in connection with the distribution of that security. All of the foregoing may affect the marketability of the securities offered by this prospectus.
 
This offering will terminate on the date that all shares offered by this prospectus have been sold by the selling stockholders.
 
Our common stock is quoted on the OTCQB under the symbol “KRED”.
 
 
 
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Descrip ti on of Securities
 
General
 
This prospectus includes 21,666,667 shares of common stock offered by the selling stockholders. The following description of our common stock is only a summary. You should also refer to our certificate of incorporation and bylaws, which have been filed as exhibits to the registration statement of which this prospectus forms a part.
 
Our authorized capital stock consists of 877,500,000 shares of common stock, with a par value of $0.001 per share. As of April 25, 2016, there were 120,171,593 shares of our common stock issued and outstanding held by approximately 182 stockholders of record of our common stock. We are also authorized to issue 10,000 shares of preferred stock at a par value of $ 0.001, of which there are no preferred shares issued and outstanding.
 
Voting Rights
 
Our common stock is entitled to one vote per share on all matters submitted to a vote of our stockholders, including the election of directors. Except as otherwise required by law, the holders of our common stock possess all voting power. Two stockholders present and being, or representing by proxy, will constitute a quorum at all meetings of the stockholders for the transaction of business except as otherwise provided by statute or by the articles of incorporation. When a quorum is present or represented at any meeting, the vote of the stockholders of a majority of the stock having voting power present in person or represented by proxy will be sufficient to elect members of our board of directors or to decide any question brought before such meeting, unless the question is one upon which by express provision of statute or of the articles of incorporation, a different vote is required in which case such express provision will govern and control the decision of such question. Except as otherwise required by law, any action required to be taken at a meeting of our stockholders, or any other action which may be taken at a meeting of our stockholders, may be taken without a meeting, without prior notice and without a vote if written consents are signed by our stockholders representing a majority of the shares entitled to vote at such a meeting.
 
Our board of directors has the power to amend our bylaws. As a result, our board of directors can change the quorum and voting requirements at a meeting of our stockholders, subject to the applicable laws.
 
Other Rights
 
The holders of our common stock are entitled to receive the dividends as may be declared by our board of directors out of funds legally available for dividends. Our board of directors is not obligated to declare a dividend. Any future dividends will be subject to the discretion of our board of directors and will depend upon, among other things, future earnings, the operating and financial condition of our company, its capital requirements, general business conditions and other pertinent factors. It is not anticipated that dividends will be paid in the foreseeable future.
 
Anti-Takeover Provisions
 
Some features of the Nevada Revised Statutes, which are further described below, may have the effect of deterring third parties from making takeover bids for control of our company or may be used to hinder or delay a takeover bid. This would decrease the chance that our stockholders would realize a premium over market price for their shares of common stock as a result of a takeover bid.
 
Acquisition of Controlling Interest
 
The Nevada Revised Statutes contain provisions governing acquisition of controlling interest of a Nevada corporation. These provisions provide generally that any person or entity that acquires certain percentage of the outstanding voting shares of a Nevada corporation may be denied voting rights with respect to the acquired shares, unless the holders of a majority of the voting power of the corporation, excluding shares as to which any of such acquiring person or entity, an officer or a director of the corporation, and an employee of the corporation exercises voting rights, elect to restore such voting rights in whole or in part. These provisions apply whenever a person or entity acquires shares that, but for the operation of these provisions, would bring voting power of such person or entity in the election of directors within any of the following three ranges:
 
 
20% or more but less than 33 1/3%;
 
33 1/3% or more but less than or equal to 50%; or
 
more than 50%.
 
 
 
 
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The stockholders or board of directors of a corporation may elect to exempt the stock of the corporation from these provisions through adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation and bylaws do not exempt our common stock from these provisions.
 
These provisions are applicable only to a Nevada corporation, which:
 
 
has 200 or more stockholders of record, at least 100 of whom have addresses in Nevada appearing on the stock ledger of the corporation; and
 
does business in Nevada directly or through an affiliated corporation.
 
 
At this time, we do not have 100 stockholders of record who have addresses in Nevada appearing on the stock ledger of our company nor do we believe that we do business in Nevada directly or through an affiliated corporation. Therefore, we believe that these provisions do not apply to acquisitions of our shares and will not until such time as these requirements have been met. At such time as they may apply to us, these provisions may discourage companies or persons interested in acquiring a significant interest in or control of our company, regardless of whether such acquisition may be in the interest of our stockholders.
 
Combination with Interested Stockholder
 
The Nevada Revised Statutes contain provisions governing combination of a Nevada corporation that has 200 or more stockholders of record with an interested stockholder. As of April 26, 2016 , we had approximately 182 stockholders of record. Therefore we believe that these provisions do not apply to us. If we obtain over 200 stockholders of record, these provisions may also have effect of delaying or making it more difficult to effect a change in control of our company.
 
A corporation affected by these provisions may not engage in a combination within three years after the interested stockholder acquires his, her or its shares unless the combination or purchase is approved by the board of directors before the interested stockholder acquired such shares. Generally, if approval is not obtained, then after the expiration of the three-year period, the business combination may be consummated with the approval of the board of directors before the person became an interested stockholder or a majority of the voting power held by disinterested stockholders, or if the consideration to be received per share by disinterested stockholders is at least equal to the highest of:
 
 
the highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement of the combination or within three years immediately before, or in, the transaction in which he, she or it became an interested stockholder, whichever is higher;
 
 
the market value per share on the date of announcement of the combination or the date the person became an interested stockholder, whichever is higher; or
 
 
if higher for the holders of preferred stock, the highest liquidation value of the preferred stock, if any.
 
Generally, these provisions define an interested stockholder as a person who is the beneficial owner, directly or indirectly of 10% or more of the voting power of the outstanding voting shares of a corporation. Generally, these provisions define combination to include any merger or consolidation with an interested stockholder, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction or a series of transactions with an interested stockholder of assets of the corporation having:
 
 
an aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation;
 
an aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or
 
representing 10% or more of the earning power or net income of the corporation.
 
Articles of Incorporation and Bylaws
 
There are no provisions in our articles of incorporation or our bylaws that would delay, defer or prevent a change in control of our company and that would operate only with respect to an extraordinary corporate transaction involving our company or any of our subsidiaries, such as merger, reorganization, tender offer, sale or transfer of substantially all of its assets, or liquidation.
 
 
 
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E xp erts and Counsel
 
The financial statements as of December 31, 2015 and December 31, 2014 and for the years then ended included in this prospectus and in the related registration statement have been so included in reliance for the years ended December 31, 2015 and December 31, 2014 on the report of M&K CPAS, PLLC, an independent registered public accounting firm (the report on the financial statements contains an explanatory paragraph regarding our company’s ability to continue as a going concern) appearing elsewhere in this prospectus and the related registration statement, given on the authority of said firm as experts in auditing and accounting.
 
Sichenzia Ross Friedman Ference LLP, New York, New York has provided an opinion on the validity of the shares of our common stock being offered pursuant to this prospectus.
 
Interest of N am ed Experts and Counsel
 
No expert named in the registration statement of which this prospectus forms a part as having prepared or certified any part thereof (or is named as having prepared or certified a report or valuation for use in connection with such registration statement) or counsel named in this prospectus as having given an opinion upon the validity of the securities being offered pursuant to this prospectus or upon other legal matters in connection with the registration or offering such securities was employed for such purpose on a contingency basis. Also at the time of such preparation, certification or opinion or at any time thereafter, through the date of effectiveness of such registration statement or that part of such registration statement to which such preparation, certification or opinion relates, no such person had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in our company or any of its parents or subsidiaries. Nor was any such person connected with our company or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer or employee.
 
Informat io n With Respect to Our Company
 
Descripti on of Business
 
Corporate Information
 
Our company is in the business of manufacturing, developing, marketing and distributing for retail sale the beverages and nutritional products based on the fruit of the coffee plant. We were incorporated under the laws of the State of Nevada on October 4, 2010 under the name “TeamUpSport Inc.”.  Our business model prior to the acquisition of the health beverage and food business operated under the name “KonaRed” from SITC on October 4, 2013 was to develop and commercialize our website, which was to be a website designed to integrate into a single online offering of people’s interest in sport with the new capabilities of online social networking. However, as our company had not successfully developed the business model at the time prior to the entry into an Asset Purchase Agreement with SITC, and had no source of revenue from our business plan, our company determined to seek out a new business opportunity to increase value for our stockholders.
 
On October 4, 2013 we entered into and closed a definitive Asset Purchase Agreement between our company, SITC, and Shaun Roberts and Steven M. Schorr, the principal shareholders, directors and officers of SITC, whereby we completed the acquisition of the KonaRed business from SITC. Prior to the acquisition on October 4, 2013, SITC, a private Hawaiian corporation, had established and operated the KonaRed business since its incorporation on August 22, 2008.
 
In connection with the closing of the asset purchase with SITC, we experienced a change of control, as our existing director resigned, new directors who were nominees of SITC were appointed to our board and SITC was issued shares that constituted 59.07% of our issued and outstanding shares of our common stock. Additionally, SITC’s management became our management and the acquisition was treated as a reverse recapitalization for accounting purposes, with SITC as the acquirer for accounting purposes.
 
Since the acquisition, we have continued to be engaged in the KonaRed business of manufacturing, developing, marketing and distributing for retail sale the beverages and nutritional products based on the fruit of the coffee plant, and the sales of other coffee products, such as our line of Cold Brew Coffees and our line of whole coffee beans. Our principal products are our premium coffee fruit wellness drink, KonaRed Antioxidant Juice and our Coffee Brew Coffees, offered to wholesale distributors and retail consumers. Our executive offices are located at 2829 Ala Kalanikaumaka St., Suite F-133 Koloa, Hawaii, 96756 and our head office and product warehouse is located at 1101 Via Callejon - #200, San Clemente, California 92673- 4230 . Our products are sold throughout North America, including select locations of certain retail chains such as Target , Whole Foods Markets, Vitamin Shoppe, 7-11, and Kroger (Fred Meyer, Ralphs, Harris Teeter).
 
 
 
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Beverage Products
 
KonaRed's principal product line is our premium coffee fruit wellness drinks. Recently we also introduced a new line of Cold Brew Coffee which we expect may become our dominant product. KonaRed Original Antioxidant Juice, Cold Brew Coffees and Kona coffees are offered to retail consumers across the United States, Canada and Asia. Previously discarded as a byproduct of coffee production, the fruit surrounding the coffee seed (coffee bean) has been recognized as containing powerful anti-oxidants.
 
KonaRed’s anti-oxidant beverage products consist of the following proprietary formulations:
 
16 oz. KonaRed Original Antioxidant Juice (2 servings)

 

 
 
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10.5 oz. KonaRed Original Antioxidant Juice (1 serving)
 
10.5 oz. KonaRed Antioxidant (1 serving) Additional Flavor Combinations Including Organic Green Tea and Coconut Water

 

 

 

 
 
 
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12oz. RTD Cold Brew Coffees
 
In February 2016 we introduced a new line of Ready-to-Drink ('RTD') Cold Brew Coffees. These include the flavors of 'Original', 'Hawaiian Vanilla' and 'Espresso'. Sales of this product have expanded quickly and the line is now being sold in retailers along the West Coast and Hawaii, as well as online.
 
 
 

 

 
 
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Wellness Products
 
We also produce wellness nutritional products which are now available at select locations of Vitamin Shoppe nationwide and in several major chains in Hawaii. Primary among these is our antioxidant KonaRed Hawaiian Superfruit Powder Tub and our Wake-up Performance Powder Packets.
 
KonaRed Hawaiian Superfruit Powder
 
100% soluble coffee fruit powder made from coffee fruit from Kona, Hawaii
 
KonaRed Wake Up Performance Powder Packets
 
1 tub with 30 packets
 
 
 
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Coffee Bean Products
 
During summer 2015 we launched sales of KonaRed Coffee Beans in three varieties.
 
 
100% Kona Coffee beans
 
 

 

 

 
 
27

 
 
 
Coffee Bean Products
 
100% Kona Coffee beans with Hawaiian Coffeeberry
 
 
 
28

 
 
 
Coffee Bean Products
 
Blend of 10% Kona Coffee plus 90% Columbian Coffee

 
 
 
29

 
 
 
Industrial Ingredient Division Launch
 
During 2015, we started industrial sales of raw coffee fruit powders and liquid extracts to other companies B2B and are now offering an American made, U.S. Hawaiian grown coffee fruit supply to the world. We expect this product line to be a major revenue generator and our bottom line will benefit also due to the comparatively higher gross margin we earn on raw material sales.
 
Use of Patents
 
A key element of our business is the License we have been provided by VDF FutureCeuticals Inc. ("VDF") which provides us with the use of VDF's coffee fruit patents and Coffeeberry ® trademark license. The License Agreement has effectively formed a strategic alliance between KonaRed and VDF and eliminated competition and patent defense costs between the parties for rights to valuable proprietary coffee fruit research and development ("R&D").
 
The License Agreement provides us with access to use of VDF's patents, as existing and/or modified in the future, along with the processes, products, methods, compositions and know-how developed by VDF related to the patented Coffee Cherry related inventions, trade secrets and know-how.
 
Trademarks
 
We have filed and received several trademarks that we use in our daily business
 
KonaRed
Nature’s Best Kept Secret
Powdered by Aloha
Paradise in a Bottle
 
Operations, Facilities and Distribution Method for Our Products
 
Our distribution facility is a 10,000 square foot facility located in San Clemente, California. We use an outsourcing business model based on utilizing third parties for the bulk of our non-core business operations, such as manufacturing and coffee fruit extraction, while maintaining in-house control of critical marketing, product development and warehousing/shipping functions.
 
Supply and Distribution for Our Product

Our company’s ability to secure exclusive Kona-based and other Hawaiian coffee fruit has elevated the stature of the home grown brand image and allows our company to operate without constraints in the supply chain far out into the future. We have been successful in securing agreements structured as 5-year arrangements containing roll-over provisions. These agreements are based on our commitment  to exclusively purchase coffee fruit from the supplier, and the supplier is obligated to provide coffee fruit exclusively to our company. Our company’s principal supplier of raw coffee fruit is Greenwell Farms, Inc., a Hawaii corporation with a long established history as a major Hawaiian coffee supplier.
 
We determine the amount of dried coffee fruit to purchase from our suppliers based on our annual sales forecasts and have historically been accurate at estimating supply quantities based on projected sales. Since the fruit surrounding the coffee bean was previously discarded as a byproduct of coffee production, such raw material has also remained readily available from coffee farms located in Hawaii and internationally. Therefore, although we currently have a principal supplier, in the event that we lose a principal supplier, we are confident that we would be able to secure raw material from other suppliers.
 
Our production process is based on our company taking possession of the dried coffee fruit from the grower, shipping the dried coffee fruit to our San Clemente warehouse for storage, and then subsequently sending required quantities to subcontractors for value-added processing. The value-added processing consists of water based extraction whereby the dried coffee fruit is reduced to liquid extract. This processing generally takes approximately 24 hours to complete.
 
 
 
30

 
 
 
For our company’s beverage production, the coffee fruit finished goods are sent to a 3rd party flavor house which makes the KonaRed concentrate and then ships it to our company’s bottling vendors. The process for Cold Brew Coffee is similar.  Notably, we own the proprietary beverage formulas. Pallets of the ready-to-drink product items (defined as "Stock-keeping Units", or "SKUs") are then shipped back to our company’s warehouse, or third party inventory transit service providers, and disseminated to either distributors, or shipped directly to retailers.

Market

We believe our company has established a frontrunner position in the coffee fruit category, boasting a numerous retail entrees since its recent product launch. We first establish our products in the upstart coffee fruit sector on our home turf in Hawaii and then have expanded across the United States and Canada by winning placements at Target , Kroger, Vitamin Shoppe and other major retailers. Moving forward we plan to consolidate and expand on our domestic success and work toward developing international distribution opportunities in South East Asia, beginning with Japan, Korea and China.
 
Expansion into Japan

In April 1, 2015 we began the process of expansion into Japan by executing an agreement with Asplund Co. Ltd. for distribution of our beverage products into 250 retail stores specializing in nutritional products.

Sales Strategy
 
Our sales strategy for beverage products and nutritional supplement products is to sell and ship directly from our warehouse in San Clemente, California.  We have a direct sales team of four individuals, two in Hawaii and two in Southern California whose main job is to secure new customers directly in person. We have also retained manufacturers’ sales representatives who work to increase our overall sales efforts.
 
We've learned the importance of supporting our distributor network through “on the ground” sales personnel and will add to our sales force as markets develop. For an emerging product such as ours, merchandising follow-up, dialog with store managers, and coordination of promotions and pricing are critical in maintaining brand momentum. We anticipate adding sales staff to meet demand for our recently introduced line of Cold Brew Coffees.
 
Although KonaRed was invented as a wellness product, we believe consumer acceptance of our beverage products now places us both within the 'functional beverage' and 'premium juice' retail categories, as well as dairy shelves with cold brew coffees and the coffee isle with our whole bean coffee line.  A 'functional beverage' is defined as one which has certain attributes, such as Antioxidants, whereas a 'premium juice' is simply a tasty product which consumers enjoy.
 
In summary, our sales expansion priorities are:

(1)  expansion of wholesale distribution
(2)  retail chain success
(3)  growth of direct to retail sales
(4)  growth of direct to consumer sales, and
(5)  development of raw material ingredient sales
 
Major Industry Participants
 
The entrance of leading beverage monoliths into the functional beverage category has tightened pricing but also created a vibrant mergers and acquisitions environment for emerging brands like KonaRed.
 
Takeovers and mergers are a hallmark of our industry. Recent beverage industry deals have included:

Coca Cola acquired Zico Coconut Water in January  2014; 
Pepsi acquired a majority stake in O.N.E. Coconut Water in April 2012; 
InBev has made a series of investments in Sambazon (in August 2012, December 2011, and December 2008); 
InBev has also made a series of investments in Vita Coco in May 2012 and December 2010; and 
Undertaking of a long-term strategic deal wherein Coca-Cola will acquire an approximately 16.7% equity stake
 
 
 
31

 

 
Market Development and Metrics

Our long-term objective is to develop KonaRed into a nutritional company which supplies consumers with a variety of high quality food and beverage products. We plan to achieve this based on a strategy of expanding our retail footprint through a series of revenue generating distribution channels.
 
Presently, our predominant focus is our beverage business and we are generating revenues through the following distribution channels:
 
 
Direct Store Distributors :
The direct store distributors (“DSDs”) channel comprises wholesale distributors who maintain in-house inventories of multiple brands of beverage products, such as juices, beer, and water, which they sell to retail stores and other wholesalers. DSD is a business process that manufacturers use to both sell and distribute goods directly to point of sales or point of consumption including additional product and market related services such as merchandising.  In order to fulfill growing demand from retailers, DSDs specializing in the beverage channels are expanding their functional beverage categories to include the type of products in which KonaRed specializes.
     
 
Broadline Distributors :
The broadline distributors channel includes wholesalers who specialize in distribution of natural food products to retail stores. Examples of our broadline distributor customers presently include: United Natural Foods Inc. (“UNFI”), DPI Specialty Foods (“DPI”), and Nature’s Best. A broadline distributor services a wide variety of accounts with a wide variety of products ranging from food, beverages and supplies in the natural channel selling to retailers like Whole Foods Markets. 
     
 
Direct to Retail :
During our growth phase we have developed a direct to retail sales channel to grocery stores such as Albertson’s and specialty retail stores such as Jamba Juice. We intend to continue to service and develop this channel further. Direct to retailer includes major retail chains with 500 locations or more where the KonaRed product ships direct to the retailer’s distribution centers and the retailers are responsible for the distribution to each retail store. 
     
 
Online Retail :
The KonaRed brand has gained an increasing following of Internet based customers who purchase our products directly through our website. We plan to expand this channel though on-line marketing initiatives in parallel with our brand recognition marketing campaigns. In April, 2016 we re-launched our website after a major overhaul which included addition of the Shopify platform to promote efficient online sales.
     
 
Raw Material Ingredient Sales :
In 2016 we launched our coffee fruit raw ingredient materials division and will be expanding this revenue channel in cooperation with VDF.

To develop this strategy we continually evaluate: product line sales, product line specific gross margin, individual products costs and pricing of individual product lines. Growth of our retail footprint will continue to be evaluated through the growth of our client base in each specific distribution channel.
 
Competition
 
The beverage industry is extremely competitive. The principal areas of competition include pricing, packaging, development of new products and flavors, and marketing campaigns. Our product is competing directly with a wide range of drinks produced by a relatively large number of manufacturers. Most of these brands have enjoyed broad, well-established national recognition for years, through well-funded ad and other marketing campaigns. In addition, companies manufacturing these products generally have far greater financial, marketing, and distribution resources than we do.
 
Important factors that will affect our ability to compete successfully include taste and flavor of our product, trade and consumer promotions, the development of new, unique and cutting edge products, attractive and unique packaging, branded product advertising, pricing, and the success of our distribution network.
 
We also compete to secure distributors who agree to market our product over those of our competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets.
 
 
 
32

 
 
 
Our products compete generally with all liquid refreshments, including numerous specialty beverages, such as: SoBe; Snapple; Arizona; Vitamin Water; Gatorade; and Powerade. We compete directly with other consumer products participants in the nascent coffee fruit sector including Bai5 and SoZo Coffeeberry. As we are still a relatively new business and we have modest revenues, we believe that we are a small company in the general liquid refreshments market and health liquid refreshment market.
 
Intellectual Property
 
KonaRed ® is a registered trademark in the United States and in Japan and we intend to seek a number of trademarks for slogans and product designs. We also hold trademark rights to the “Paradise in a Bottle ® ” tag line; and rights to a suite of international CoffeeBerry ® trademarks provided under our License with VDF. We believe we have the rights to use the necessary processing and manufacturing intellectual property relating to processing and manufacturing our base ingredient (the coffee fruit) and our proprietary beverage formulas. However, we do not own the manufacturing process for making the finished beverages. We intend to aggressively assert our rights under trade secret, unfair competition, trademark and copyright laws to protect our intellectual property, including product design, product research and concepts and recognized trademarks. These rights are protected through the acquisition of patents and trademark registrations, the maintenance of trade secrets, the development of trade dress, and, where appropriate, litigation against those who are, in our opinion, infringing these rights.
 
While there can be no assurance that registered trademarks will protect our proprietary information, we intend to assert our intellectual property rights against any infringer. Although any assertion of our rights could result in a substantial cost to, and diversion of effort by, our Company, management believes that the protection of our intellectual property rights will be a key component of our operating strategy.

Partnership Initiative with VDF FutureCeuticals Inc.

To the mutual satisfaction of the parties, on January 28, 2014 KonaRed settled a patent dispute which had been pending since 2011 with VDF by forming a partnership with them.
 
VDF (www.futureceuticals.com ) is a leader in the bio-research, development, and manufacture of high-quality fruit, vegetable, and grain-based nutraceutical and functional food ingredients. VDF is committed to discovery-based research that leads to the expansion of human health, and is the trusted partner-of-choice for companies in search of creative, ethical solutions for the health and wellness needs of today’s consumer. Its sister company, Van Drunen Farms, was founded over one hundred years ago, and has grown into one of the largest dried food ingredient manufacturers and suppliers in the world.
 
VDF is a major biotech and ingredient supplier and owner of the patent-protected CoffeeBerry ® coffee fruit technology, a proprietary set of agricultural and industrial processes and a line of unique ingredients. VDF's patents and processes capture the same potent nutrition inherent in coffee fruit which had formed the basis of two provisional patent applications made by KonaRed based on the proprietary research and development which had been fully developed by KonaRed.
 
The partnership brings together the flavor profile of KonaRed’s beverages and the ingenuity, innovation, and ongoing chemistry and clinical research of VDF’s globally integrated CoffeeBerry® coffee fruit ingredient platform.

Seasonality of Business
 
The sales of our products are influenced to some extent by weather conditions in the markets in which we operate. Unusually cold or rainy weather during the summer months may have a temporary effect on the demand for our product and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.
 
Research and Development Costs During the Last Two Years
 
Benefiting from its relationship with VDF, KonaRed has been able to reduce its R&D costs over fiscal years 2015 and 2014, having spent approximately $6,502 and $3,931, respectively.
 
Our R&D has focused on quinic acid, an antioxidant that is in greater abundance in the KonaRed beverage than any other molecule. With a molar mass of 192.17 g/mol, quinic acid is small by comparison to other organic chemicals known as polyphenols. Much of our research has been directed towards attempts to confirm whether there is a correlation between small molecular mass and high bioavailability (the body’s ability to readily absorb a substance introduced). In addition, our research has been focused on whether antioxidants with a high oxygen radical absorbance capacity, a method of measuring antioxidant capacities in biological samples, and a high bioavailability may
 
 
 
33

 
 
 
provide a way to increase one’s cellular metabolic efficiency (“CME”). We believe that it is possible that increased CME may result in increased energy, reduction of metabolic oxygen related stress at the cellular level and reduction of inflammation. We intend to continue our research to the extent of our limited funds and to examine whether the consumption of KonaRed products, if established as substances that increase CME, might provide positive effects on human health  by decelerating the death of cells without negative side effects. Such research is in a very preliminary stage, there is no proof that KonaRed can produce health benefits for humans, and we do not have the funds required to conduct an extensive research program on the matter.
 
In 2012, a series of tests were conducted at Cayetano University in Lima, Peru by a team of research physicians to determine the antiviral and anti-inflammatory properties of KonaRed in a clinical environment. The Cayetano University studies were commissioned by our Company. They were in-vitro (test tube) based studies and not human trials. The KonaRed extract was found to improve cell viability, increase T cell proliferation and improve antiviral defense. The foregoing conclusions were based on the results of antiviral activity and cell proliferate effect of KonaRed on mice.
 
In these limited tests, KonaRed’s coffee fruit demonstrated an antiviral effect, improving cell viability, increasing T cell proliferation and improving antiviral defense. The body’s first line of defense against viruses is the immune system. This comprises cells and other mechanisms that defend the host from infection in a non-specific manner. Because viruses use vital metabolic pathways within host cells to replicate, they are difficult to eliminate without using drugs that cause toxic effects to host cells in general. The foregoing limited studies suggested that KonaRed beverage’s coffee fruit could have antiviral effects upon consumption by humans.
 
As in any research and development program, further investigation and study is required. Whether KonaRed's beverage ultimately proves to be a useful CME supplement, and does so without negative effectives, and whether the promotion of CME proves to have therapeutic effects on humans, is unknown.  To the extent our Company has funds available for research and development, management intends to pursue this line of research and investigation on a limited basis. 
 
Government Regulation
 
Our products are considered to be synonymous with coffee for regulatory purposes and are thus sold under the U.S. Food and Drug Administration’s (“FDA”) “Generally Regarded as Safe” (“GRAS”) regulatory umbrella. Accordingly, we are not required to petition for FDA approval of our coffee fruit offerings, which would be typical under standard dietary supplement guidelines. However, our Company has registered all of its supply chain subcontractors with the FDA as required and has met and answered all inquiries by the FDA. We believe we are in full compliance with all FDA regulations.
 
The advertising, distribution, labeling, production, safety, sale, and transportation in the United States of our product are subject to: the Federal Food, Drug, and Cosmetic Act ; the Federal Trade Commission Act ; the Lanham Act ; state consumer protection laws; competition laws; federal, state and local workplace health and safety laws; various federal, state and local environmental protection laws; and various other federal, state and local statutes and regulations. It will be our policy to comply with any and all legal requirements.
 
Employees
 
In addition to Shaun Roberts, who is our Chief Executive Officer and a director, Kyle Redfield, who is our President and Chief Operating Officer , and John Dawe who is our Chief Financial Officer, and Secretary and Treasurer, we currently employ 7 full time and 1 part employees whom all work in the United States. Our operations are overseen directly by management that engages our employees to carry on our business. Our management oversees all responsibilities in the areas of corporate administration, business development, and research; and as needed we engage the services of other professionals for legal, audit and other technical services. We intend to expand our current management to retain other skilled directors, officers, and employees with experience relevant to our business focus. Our management’s relationships will provide the foundation through which we expect to grow our business in the future. We believe that the skill-set of our management team will be a primary asset in the development of our brands and trademarks.
 
 

 
Descrip ti on of Property
 
Our principal office and warehouse is located at 1101 Via Callejon #200, San Clemente, California 92673-4230. The Company shares a lease for this facility with Malie, Inc., (“Malie”) a company owned by our CEO and his spouse, who is the CEO of Malie. We also utilize offices provided by our CEO and CFO. The current distribution facility lease has a term of June 1, 2014 to May 31, 2016 and presently requires total lease payments of $10,139 per month, of which the Company's portion is $7,790 per month. On February 25, 2016, the Company and Malie extended the lease for an additional 24 month term and committed to total lease payments of $10,466 for June 1, 2016 to May 31, 2017 and $10,793 for June 1, 2017 to May 31, 2018. The Company's portion of payments under the extended term arrangements are $6,461 for June 1, 2016 to May 31, 2017 and $6,663 for June 1, 2017 to May 31, 2018. For the year ended December 31, 2015 our Company paid a total of $92,479 (averaging $7,707 per month) of the total lease expense of $120,360 (averaging $10,030 per month). For the year ended December 31, 2014, our Company paid a total $90,471 (averaging $7,539 per month) of the total lease expense of $117,744 (averaging $9,812 per month). We believe that the condition of our principal office and warehouse are satisfactory, suitable and adequate for our current needs.
 
Fixed assets currently shown on our balance sheet are comprised of furniture and warehouse fixtures and at present the Company has no material property balances which are classified as assets under generally accepted accounting principles.
 
Legal Pr oc eedings
 
On December 30, 2015, our former beverage distributor, Splash Beverage Group ('SBG'), filed the following action in Broward County Circuit Court, Florida: Splash Beverage Group, Inc. v. KonaRed Corporation Case No. 15-022541 CACE 09 regarding the Company's cancellation of the beverage distribution agreement ("CDA") and the sales and marketing agreement ('SMA") the parties had executed on April 23, 2014. The Company had cancelled the SMA on September 16, 2015 and the CDA on September 23, 2015. The Company believes SBG's allegations are both factually and legally unfounded and the likelihood of a material loss in this matter is considered to be remote and any damages the Company may pay are not currently estimable.
 
On September 22, 2015 we settled a claim from two related parties that a service provider engaged by SBG to provide social media postings services to the Company had violated the copyrights of two related clients regarding certain pictures used by the service provider. We had received this claim on March 27, 2015 and settled the matter for a net payment of $75,000, of which the Company's insurance providers paid $59,000 and the company paid $16,000.
 
Other than as aforementioned, t here are no material, active, or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our officer and director, or any registered or beneficial shareholders are an adverse party or has a material interest adverse to us.
 
Market Price of and Dividends on Our C ommon Equity and Related Stockholder Matters
 
Market information
 
Our common stock is currently quoted on the OTCQB operated by the OTC Markets Group, under the symbol “KRED”. Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may have little to do with a company’s operations or business prospects.
 
OTCQB securities are not listed or traded on the floor of an organized national or regional stock exchange. Instead, OTCQB securities transactions are conducted through a telephone and computer network connecting dealers in stocks. OTCQB issuers are traditionally smaller companies that do not meet the financial and other listing requirements of a regional or national stock exchange.
 
Our common stock became eligible for quotation on the OTCQB on May 9, 2012. During the year ended December 31, 2012, and for the nine months ended September 30, 2013, no shares of our common stock traded. Set forth below are the range of high and low prices for our common stock from Yahoo! Finance for the period indicated. The quotations reflect inter-dealer prices, without retail mark-up, mark-down or commissions and may not necessarily represent actual transactions:
 
 
 
 

Quarter Ended:
 
High
   
Low
 
FY2013:
           
December 31, 2013
  $ 0.80     $ 0.63  
FY2014:
               
March 31, 2014
  $ 1.36     $ 0.654  
June 30, 2014
  $ 0.789     $ 0.48  
September 30, 2014
  $ 0.5475     $ 0.25  
December 31, 2014
  $ 0.3473     $ 0.1359  
FY2015:
               
March 31, 2015
  $ 0.24     $ 0.061  
June 30, 2015
  $ 0.2216     $ 0.105  
September 30, 2015
  $ 0.18     $ 0.07  
December 31, 2015
  $ 0.08     $ 0.05  
FY2016:
               
March 31, 2016
  $ 0.07     $ 0.04  
 
On April 25, 2016 , the closing price for our common stock as reported by the OTCQB was $0.05 per share.
 
Transfer Agent
 
Our shares of common stock are issued in registered form. The transfer agent and registrar for our common stock is Island Stock Transfer, located at 15500 Roosevelt Boulevard, Suite 301, Clearwater, Florida 33760.
 
Holders of Common Stock
 
As of April 25, 2016 , there were approximately 182 registered holders of record of our common stock. As of such date,  120,171,593 shares were issued and outstanding.
 
Dividends
 
We have not declared any dividends since incorporation and do not anticipate that we will do so in the foreseeable future. Subject to compliance with applicable corporate laws, our directors will determine if and when dividends should be declared and paid in the future based on our financial position at the relevant time. All shares of our common stock are entitled to an equal share of any dividends declared and paid.
 
 
 
 
 
 
 
 
 
 
 
 
 
FINANCIAL STATEM EN TS AND SUPPLEMENTARY DATA
 
Fiscal Years Ended December 31, 2015 and December 31, 2014 :

 
 
REPORT OF INDEPENDENT REGISTERED   P UBLIC ACCOUNTING FIRM
 
 
To the Board of Directors 
KonaRed Corporation
 
We have audited the accompanying balance sheets of KonaRed Corporation as of December 31, 2015 and 2014 and the related statement of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of KonaRed Corporation as of December 31, 2015 and 2014, and the results of its operations, changes in stockholders’ equity (deficit) and cash flows for the periods then ended in conformity with accounting principles generally accepted in the United States of America.
 
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered recurring losses from operations, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ M&K CPAS, PLLC
 
www.mkacpas.com
Houston, Texas
April 13, 2016






 

KONARED COR PO RATION
BALANCE SHEETS
 
 
   
December 31,
2015
   
December 31,
2014
 
             
ASSETS
           
             
CURRENT ASSETS
           
Cash
  $ 148,769     $ 39,987  
Accounts receivable
    33,227       274,640  
Accounts receivable - related party
    18,000       3,600  
Inventory
    439,158       508,338  
Prepaid expenses
    5,953       16,000  
Other current assets
          652  
TOTAL CURRENT ASSETS
    645,107       843,217  
                 
OTHER ASSETS
               
Fixed assets (net of accumulated depreciation)
    10,247       12,691  
TOTAL OTHER ASSETS
    10,247       12,691  
TOTAL ASSETS
  $ 655,354     $ 855,908  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)
               
                 
CURRENT LIABILITIES
               
Accounts payable and accrued liabilities
  $ 211,429     $ 195,183  
Accounts payable - related party
    3,156        
Short term debt, net of discounts
    235,237        
Unearned revenue
    1,434       3,443  
Derivative liability
    11,807       9,168  
TOTAL CURRENT LIABILITIES
    463,063       207,794  
                 
LONG-TERM LIABILITIES
               
Convertible notes payable, net of discounts
    548,881       140,001  
TOTAL LONG-TERM LIABILITIES
    548,881       140,001  
TOTAL LIABILITIES
    1,011,944       347,795  
                 
COMMITMENTS AND CONTINGENCIES
           
                 
STOCKHOLDERS’ EQUITY (DEFICIT)
               
Preferred shares, 10,000 shares with par value $0.001 authorized; no shares issued and outstanding at December 31, 2015 and December 31, 2014.
           
Common shares, 877,500,000 shares with par value $0.001  authorized; 108,769,514 and 83,496,530 shares issued  and outstanding at December 31, 2015 and December 31, 2014, respectively
      108,787         83,497  
Additional paid in capital
    19,616,012       16,705,636  
Accumulated deficit
    (20,081,389 )     (16,281,020 )
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)
    (356,590 )     508,113  
                 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
  $ 655,354     $ 855,908  
 
 
The accompanying notes to financial statements are an integral part of these financial statements
 
 
 
KONARED CORP OR ATION
STATEMENTS OF OPERATIONS
 
 
   
Year ended
December 31, 2015
   
Year ended
December 31, 2014
 
             
REVENUE:
           
Product sales
  $ 571,824     $ 1,124,994  
Product sales - related party
    39,600       35,947  
Shipping and delivery
    24,079       93,293  
Total sales
    635,503       1,254,234  
                 
Cost of goods sold
    541,069       1,094,037  
GROSS MARGIN
    94,434       160,197  
                 
OPERATING EXPENSES:
               
Research and development
    6,502       3,931  
Advertising and marketing
    435,390       967,164  
General and administrative expenses
    2,992,549       3,792,560  
Total operating expenses
    3,434,441       4,763,655  
                 
Loss from operations
    (3,340,007 )     (4,603,458 )
                 
OTHER INCOME (EXPENSE):
               
Interest expense
    (255,372 )     (1,007 )
Amortization expense - notes discounts
    (128,200 )      
Change in fair market value of derivative liabilities
    (35,037 )     1,838  
Loss on equity modification
    (41,753 )      
Total other income (expense)
    (460,362 )     831  
Loss before income taxes
  $ (3,800,369 )   $ (4,602,627 )
Provision for income taxes
           
Net loss
  $ (3,800,369 )   $ (4,602,627 )
                 
Basic and diluted loss per common share
  $ (0.04 )   $ (0.06 )
Basic and diluted weighted average shares outstanding
    91,278,322       77,208,523  
 

 

 
 
 
 
The accompanying notes to financial statements are an integral part of these financial statements
 
 
 
KONARED COR PO RATION
STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)
 
 
   
Common Stock
    Additional     Accumulated        
   
Shares
   
Amount
   
Paid In Capital
   
Deficit
   
Total
 
                               
Ending balance – December 31, 2013
    72,366,667       72,367       11,969,774       (11,678,393 )     363,748  
Common shares issued for cash
    1,818,182       1,818       998,182             1,000,000  
Common shares issued under equity line
    3,697,889       3,698       1,696,303             1,700,001  
Common shares issued for services
    4,052,759       4,053       837,655             841,708  
Common shares issued for equity line underwriting fees
    903,633       904       (904 )            
Common shares issued as compensation
    657,400       657       397,465             398,122  
Additional paid-in capital related to option grants
                  807,161             807,161  
Net loss – year ended December 31, 2014
                      (4,602,627 )     (4,602,627 )
Ending balance – December 31, 2014
    83,496,530     $ 83,497     $ 16,705,636     $ (16,281,020 )   $ 508,113  
                                         
Common shares issued for cash
    3,333,334       3,333       346,667             350,000  
Common shares issued under equity line
    8,550,000       8,550       621,300             629,850  
Common shares issued for services
    6,344,022       6,345       591,926             598,271  
Common shares issued for equity line underwriting fees
    2,708,656       2,724       (2,724 )            
Common shares issued as compensation
    4,238,341       4,238       346,645             350,883  
Common shares issued for interest payments
    98,631       100       6,171             6,271  
Additional paid-in capital related to option grants
                220,960             220,960  
Additional paid-in capital related to warrant issuances
                453,046             453,046  
Additional paid-in capital related to convertible notes beneficial conversion features
                209,743             209,743  
Additional paid-in capital related to convertible notes redemption
                74,889             74,889  
Additional paid-in capital related to equity modification
                41,753             41,753  
Net loss – year ended December 31, 2015
                      (3,800,369 )     (3,800,369 )
Ending Balance – December 31, 2015
    108,769,514     $ 108,787     $ 19,616,012     $ (20,081,389 )   $ (356,590 )
 
 
 
 

 
 
 
 
 
 
The accompanying notes to financial statements are an integral part of these financial statements
 
 
 
KONARED CORP OR ATION
STATEMENTS OF CASH FLOWS
 
 
   
Year Ended
December 31, 2015
   
Year Ended
December 31, 2014
 
             
OPERATING ACTIVITIES:
           
Net loss
  $ (3,800,369 )   $ (4,602,627 )
Adjustments to reconcile net loss to net cash used in operating activities:
               
Bad debt expense
    6,020       2,204  
Depreciation expense
    2,444       1,983  
Stock issued for compensation
    350,883       398,123  
Stock issued for services
    598,272       841,707  
Option grants expense
    220,960       807,161  
Change in fair market value of derivative liabilities
    35,037       (1,838 )
Amortization of notes payable discounts
    197,905       216  
Loss on equity modification
    41,753        
Change in operating assets and liabilities:
               
Accounts receivable
    220,993       (254,022 )
Inventory
    69,180       (118,211 )
Prepaid expenses
    10,047       (8,500 )
Other current assets
    652       2,848  
Accounts payable and accrued liabilities
    19,402       (79,501 )
Accrued interest
    19,281        
Unearned revenue
    (2,009 )     1,961  
NET CASH USED IN OPERATING ACTIVITIES
    (2,009,549 )     (3,008,496 )
                 
INVESTING ACTIVITIES:
               
Purchase of fixed assets
          (14,674 )
NET CASH USED IN INVESTING ACTIVITIES
          (14,674 )
                 
FINANCING ACTIVITIES:
               
Proceeds from short term debt
    325,000        
Proceeds from short term debt - related party
    500,000        
Repayments on short term debt - related party
    (500,000 )      
Proceeds from convertible notes payable
    1,213,481       150,000  
Repayments on convertible notes payable
    (400,000 )      
Proceeds from issuance of common stock for cash
    979,850       2,700,001  
NET CASH PROVIDED BY FINANCING ACTIVITIES
    2,118,331       2,850,001  
                 
NET INCREASE (DECREASE) IN CASH
    108,782       (173,169 )
                 
CASH, Beginning of Period
    39,987       213,156  
                 
CASH, End of Period
  $ 148,769     $ 39,987  

 
 
 
The accompanying notes to financial statements are an integral part of these financial statements
 
 
 
KONARED CORPORATION
 
 
SUPPLEMENTAL DISCLOSURE OF CA SH FLOW INFORMATION
 
   
Year Ended
December 31, 2015
   
Year Ended
December 31, 2014
 
             
Cash paid during the year for:
           
Interest
  $ 128,458     $ 15,693  
Taxes
  $     $  
 
 
 
NON CASH INVESTING AND F IN ANCING ACTIVITIES
 
   
Year Ended
December 31, 2015
   
Year Ended
December 31, 2014
 
             
Discounts on derivative
  $ 241,710     $ 11,006  
Discounts on warrants
  $ 453,046     $  
Interest paid by stock issuances
  $ 6,271     $  
Shares issued as commitment fees - offering costs
  $ 2,724     $ 904  
Discounts from beneficial conversion features
  $ 209,743     $  
Settlement of derivative liability
  $ 274,108     $  
 
 
 
 
 
 
 
 
 
 
 
 
The accompanying notes to financial statements are an integral part of these financial statements
 
 
 
KONARED CORP OR ATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 1 – Nature of Organization
 
KonaRed Corporation (“KonaRed”, "KonaRed Corporation", "us", “we”, the “Registrant”, or the “Company”) was incorporated in the State of Nevada on October 4, 2010 as TeamUpSport Inc. Prior to, and in anticipation of, closing of an asset purchase agreement (the "Asset Agreement") with Sandwich Isles Trading Co, Inc., on September 9, 2013 our company effected a name change by merging with our wholly-owned Nevada subsidiary named “KonaRed Corporation” with our company as the surviving corporation under the new name “KonaRed Corporation”. On October 4, 2013 pursuant to the terms the Asset Agreement, we acquired substantially all of the assets, property and undertaking of the health beverage and food business (the "Business") operated under the name “KonaRed” from Sandwich Isles Trading Co., Inc. ("SITC") which was a private company incorporated in Hawaii on August 22, 2008 and dissolved on May 23, 2014. As a result of October 4, 2013 acquisition of the Business from Sandwich Isles Trading Co., Inc. ("SITC") we ceased to be a “shell company” as defined in Rule 12b-2 of the Securities Exchange Act of 1934 (the “Exchange Act”).
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies
 
Basis of Presentation and Fiscal Year
 
These financial statements have been presented by the Company in accordance with accounting principles generally accepted in the United States and are expressed in U.S. dollars. The Company’s fiscal year-end is December 31st.
 
Use of Estimates
The preparation of these financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses in the reporting period. The Company regularly evaluates estimates and assumptions related to recoverability of long-lived assets, and deferred income tax asset valuations. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between estimates and the actual results, future results of operations will be affected.
 
Financial Instruments
The Company’s financial instruments consist principally of cash, accounts receivable, inventory, accounts payable, notes payable and related party debt. The Company believes that the recorded values of all of these financial instruments approximate their current fair values because of the short term nature and respective maturity dates or durations.
 
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. There were no cash equivalents recorded for the periods ended December 31, 2015 and December 31, 2014.
 
 
 
 

KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
Accounts Receivable
Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. During the years ended December 31, 2015 and December 31, 2014, the Company wrote off accounts receivable totaling $6,020 and $2,204, respectively. There were no allowances for doubtful accounts recorded for the years ended December 31, 2015 and December 31, 2014.
 
Inventories
Inventories are composed of raw materials and finished goods. Our raw materials inventory is comprised of dried coffee fruit and other input components, such as labels, caps, and packaging materials. Our finished goods inventory process begins when we take possession of dried coffee fruit from coffee growers in Hawaii. We then ship the raw material to our California warehouse for storage and then send required quantities to subcontractors for value-added processing; or we ship the raw materials directly from Hawaii to the processors. For our beverage products which include coffee fruit, value-added processing then occurs whereby the dried coffee fruit is converted to liquid extract through water based extraction. The extracts are then shipped from the raw materials processors to our California warehouse or directly to our bottling contractors. The bottling contractors then add our proprietary extract to other ingredients to produce our finished goods. Our cold brew coffee is manufactured using a comparable process. Finished goods are shipped back to either our Company’s warehouse or third party transit agents and subsequently disseminated to either distributors or shipped directly to retailers. The process for production of our nutritional wellness products follows a similar manufacturing chain, but does not involve a bottling process.
 
Inventories are valued at the lower of cost, as determined on an average basis, or market. Market value is determined by reference to selling prices at, or around, balance sheet date or by management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if a valuation allowance is required. If a valuation allowance is required, an offsetting entry is made which expenses the reserved inventory to cost of goods sold during the period in which the valuation was required. Subsequently, if this reserved inventory is used in future periods, an offset is entered to cost of goods sold which decreases cost of goods sold during that subsequent period. Costs of raw material and finished goods inventories include purchase and related costs incurred in bringing the products to their present location and condition. Labor, direct and indirect overhead, and the processing, bottling and shipping costs incurred during 3 rd party manufacturing are factored into the costs of our inventories.
 
 
 
 
 

KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
Revenue Recognition
Sales revenue consists of amounts earned from customers through the sales of its finished products via wholesale and direct online retail channels. The Company also operates a branded ingredients division that sells raw material fruit powder and extracts to wholesale customers. Sales revenue is recognized when persuasive evidence of an arrangement exists, price is fixed or determinable, title to and risk of loss for the product has passed, which is generally when the products are received by the customers, and collectability is reasonably assured. Customers accept goods FOB shipping point. Goods are sold on a final sale basis and in the normal course of business the Company does not accept sales returns. In circumstances where returns are negotiated, sales returns which are accepted are returned to inventory and deducted from sales revenue.
 
Cost of goods sold
Cost of goods sold ('COGS') primarily consist of raw materials purchases and third party processing costs. COGS also include: warehousing and distribution costs for inbound freight charges; shipping and handling costs; purchasing and receiving costs; costs for our labor; direct and indirect overhead costs; and the processing, bottling and shipping costs charged by 3 rd party manufacturers.
 
Income Taxes
In accordance with ASC 740 - Income Taxes, the provision for income taxes is computed using the asset and liability method. Under the asset and liability method, deferred income tax assets and liabilities are determined based on the differences between the financial reporting and tax bases of assets and liabilities and are measured using the currently enacted tax rates and laws. A valuation allowance is provided for the amount of deferred tax assets that, based on available evidence, are not expected to be realized.
 
The Company also follows the guidance related to accounting for income tax uncertainties. In accounting for uncertainty in income taxes, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in these financial statements is the benefit that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority.
 
No liability for unrecognized tax benefits was recorded as of December 31, 2015 and December 31, 2014.
 
Stock Based Payments
We account for share-based awards to employees in accordance with ASC 718 “Stock Compensation”. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the period in which the related services are rendered.
 
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
Derivative financial instruments
In accordance with ASC 820–10–35–37 Fair Value in Financial Instruments ; ASC 815 Accounting for
Derivative Instruments and Hedging Activities ; and ASC 815–40 (formerly Emerging Issues Task Force (“EITF”) Issue No. 00–19 and EITF 07–05), the Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations.
 
As of December 31, 2015, the Company had outstanding a senior convertible note (the "VDF Note") with a balance of $453,298, net of a discount of $15,974. The Company determined the VDF Note had an embedded derivative valued at $11,807 at December 31, 2015 due to Sr. Note One having a provision which required adjustments to the conversion price to compensate for dilutive stock issuance events unrelated to the VDF Note. As of December 31, 2014, the VDF Note had a balance of $140,001, net of a discount of $10,790 and the embedded derivative liability was valued at $9,168. During the period ended December 31, 2015, $318,481 of principal was added to the VDF Note. This was comprised of $300,000 of patent license fees which were rolled over to the VDF Note and accrued interest for the year ended December 31, 2015 of $18,481.
 
On January 20, 2015 the Company also issued an unsecured subordinate convertible debenture with a face value of $440,000 (the "Subordinated Debenture"), which after deducting a $40,000 original issue discount ('OID'), provided funds of $400,000. The Subordinated Debenture was initially valued as having a balance of $207,074, net of a discount of $232,926. The Company determined the Subordinated Debenture initially had an embedded derivative liability valued at $232,926 due to it providing for adjustments to the conversion price. On June 5, 2015, the Company redeemed the Subordinated Debenture and paid the lender a prepayment premium of $68,929, calculated as 15% of face value principal of $440,000 plus accrued interest of $19,529, for a total redemption payment of $528,458. $5,788 of the OID was amortized to interest expense over the life of the note and the repayment of the remaining balance of $34,212 OID was recorded as an interest expense at time of redemption.
Because there was a derivative liability recorded for the Subordinated Debenture, the derivative component was marked-to-market at time of redemption and the resulting net loss of $41,182 was added to the Change in Fair Value of Derivatives for the period ended December 31, 2015.
 
The net amount of the Change in Fair Value of Derivatives for the period ended December 31, 2015 was a loss of $35,037, which included the loss on the derivative loss on the Subordinated Debenture and the net amount of mark-to-market value changes in the embedded derivatives liabilities of the VDF Note of $6,145 for the year ended December 31, 2015.
 
There are no embedded derivatives in any other notes issued by the Company.
 
Research and Development
Costs incurred in developing the ability to create and manufacture products for sale are included in research and development. Once a product is commercially feasible and starts to sell to third party customers, the classification of such costs as development costs stops and such costs are recorded as costs of production, which are included in cost of goods sold. Research and development costs are expensed when incurred.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
Basic and Diluted Net Loss per Share
The Company computes loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock warrants and options, using the treasury stock method; and convertible preferred stock and convertible debt using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. The Company currently has options, warrants and convertible debt outstanding, and no convertible preferred stock has been issued. Common stock equivalents pertaining to the options, warrants and convertible debt were not included in the computation of diluted net loss per common share in these financial statements because the effect would have been anti-dilutive due to the net losses for the years ended December 31, 2015 and December 31, 2014.
 
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations of credit risk consist of cash and trade receivables. The Company places its cash with high credit quality financial institutions. At times such cash may be in excess of the FDIC limit. With respect to trade receivables, the Company routinely assesses the financial strength of its customers and, as a consequence, believes that the receivable credit risk exposure is limited.
 
Related parties
A party is considered to be related to the Company if the party directly or indirectly or through one or more intermediaries, controls, is controlled by, or is under common control with the Company. Related parties also include principal owners of the Company, its management, members of the immediate families of principal owners of the Company and its management and other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests. A party which can significantly influence the management or operating policies of the transacting parties or if it has an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests is also a related party.
 
Fair Value Measurements
As defined in ASC 820 “Fair Value Measurements”, fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. The Company classifies fair value balances based on the observability of those inputs. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).
 
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities.
 
Level 2 – Pricing inputs are other than quoted prices in active markets included in level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors, and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars.
 
Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value.
 
The Company's Level 1 assets and liabilities consist of cash, accounts receivable, accounts receivable - related party, inventories net, of any inventory allowance, prepaid expenses, other current assets, accounts payable and accrued liabilities, accounts payable - related party, short term debt, net of discounts, and unearned revenue. Pursuant to ASC 820, the fair value of these assets and liabilities is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. Level 2 assets and liabilities consist of a derivative liability arising from a convertible note payable. Pursuant to ASC 820, the fair value of this liability is determined based on Level 2 inputs, which consisted of a valuation by an accredited third party expert. We do not currently have any assets or liabilities which are classified under the criterion of Level 3.
 
Level components:
 
As of
December 31,
2015
   
As of
December 31,
2014
 
Cash
  $ 148,769     $ 39,987  
Accounts receivable
    33,227       274,640  
Accounts receivable - related party
    18,000       3,600  
Inventories, net of allowance
    439,158       508,338  
Prepaid expenses
    5,953       16,000  
Other current assets
    -       652  
Acc/payable and accrued liabilities
    211,429       195,183  
Accounts payable - related party
    3,156       -  
Short term debt, net of discounts
    235,237       -  
Unearned revenue
    1,434       3,443  
Level 1 total
  $ 1,096,363     $ 1,041,843  
                 
Derivative liability
  $ 11,807     $ 9,168  
Level 2 total
  $ 11,807     $ 9,168  
      -       -  
Level 3 total   $ Nil     $ Nil  


 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
It is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from the financial instruments which it holds.
 
Advertising
Costs for advertising are expensed when incurred. Advertising costs totaled $175,432 and $110,498 for the years ended December 31, 2015 and December 31, 2014, respectively. The Company also incurs marketing expenses for product promotion and investor relations which are combined with advertising to form the advertising and marketing line item in our statement of operations. Excluding advertising, these other promotional costs totaled $259,958 and $856,666 for the years ended December 31, 2015 and December 31, 2014, respectively.
 
Fixed Assets
Fixed assets are recorded at cost. Depreciation is calculated on a straight line method over the estimated useful lives of the various assets as follows:
 
ASSET
Depreciation Term
   
Furniture and equipment
5 - 7 years
Warehouse fixtures
10 years
 
During the years ended December 31, 2015 and December 31, 2014: (a) depreciation for furniture and equipment of $2,096 and $1,467 was respectively recorded; and (b) depreciation for warehouse fixtures of $348 and $516 was respectively recorded. Accumulated depreciation for all fixed assets totaled $4,427 at December 31, 2015.
 
Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.
 
Recent Accounting Pronouncements
In July , 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standard Update (“ASU”) 2015-11, Simplifying the Measurement of Inventory, which requires that inventory be measured within the scope of the Update at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments in this Update are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments in this Update are to be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. This ASU conforms with the Company's current protocol for evaluating inventory and the Company will prospectively implement adoption of this ASU. The Company does not expect the adoption of the ASU to have a significant impact on our consolidated financial statements.
 
On April 7, 2015, the Financial Accounting Standards Board (“FASB”) issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs, which requires debt issuance costs related to a recognized debt liability to be presented on the balance sheet as a direct deduction from the debt liability, similar to the presentation of debt discounts.  The ASU is effective for public business entities for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years.  Early application is permitted.  The ASU requires retrospective application to all prior periods presented in the financial statements. The Company has elected not to early adopt ASU 2015-03.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)
 
In January 2015, the FASB issued ASU 2015-01, Income Statement –Extraordinary and Unusual Items, as part of its initiative to reduce complexity in accounting standards.  This Update eliminates from GAAP the concept of extraordinary items. The amendments in this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. A reporting entity may apply the amendments prospectively. A reporting entity also may apply the amendments retrospectively to all prior periods presented in the financial statements. Early adoption is permitted provided that the guidance is applied from the beginning of the fiscal year of adoption. This Update is not expected to have a significant impact on the Company’s financial statements.
 
Management does not anticipate that the adoption of these standards will have a material impact on the financial statements.
 
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
 
 
NOTE 3 – Going Concern
 
The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. Since inception, the Company has incurred losses totaling $20,081,389 as of December 31, 2015; and has a incurred a net loss for the current year of $3,800,369. These factors, among others, raise substantial doubt about the Company’s ability to continue as a going concern for a reasonable period of time. If necessary, the Company will pursue additional equity and/or debt financing while managing cash flows from operations in an effort to provide funds to meet its obligations on a timely basis and to support future business development. The financial statements do not contain any adjustments to reflect the possible future effects on the classification of assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. To address these issues, on June 5, 2015 the Company entered into a new equity line share purchase agreement (the “2015 Purchase Agreement”), pursuant to which we may make sales of shares of our common stock, subject to certain limitations set forth in the 2015 Purchase Agreement. To December 31, 2015, cash proceeds from this equity line and related private placement offering of our common shares totaled $979,850. The Company also entered into five notes which raised net cash proceeds of $820,000 during the year ended December 31, 2015. Subsequent to the year ended December 31, 2015, the Company has raised an additional $235,740 from equity line sales of our common shares and $171,000 from a private placement unit offering.
 
 
 
 
 

 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 4 – Inventory
 
Inventory includes raw materials and finished goods. Finished goods contain direct materials and other manufacturing costs charged directly by third party manufacturing vendors. Inventory consists of the following:
 
   
December 31, 2015
   
December 31, 2014
 
             
Raw materials
  $ 100,702     $ 157,839  
Finished goods
    338,456       350,499  
Inventory allowance
           
Total
  $ 439,158     $ 508,338  
 
During the years ended December 31, 2015 and December 31, 2014, the Company respectively wrote down inventory by $26,760 and $49,249 to account for expired inventory which had been write-off and disposed of, and for minor manufacturing process shrinkages. The write off during the year ended December 31, 2014 included $18,732 of inventory which had been reserved in prior periods. The Company recognized $nil and $nil recovery in inventory allowance respectively for the years ended December 31, 2015 and December 31, 2014. At December 31, 2015 the Company had $nil of reserved inventory and all inventory was valued at full cost.
 
 
NOTE 5 – Prepaid Expenses and Other Current Assets
 
Prepaid expenses at December 31, 2015 were comprised a prepayment $5,953 for a manufacturing run and prepaid expenses $16,000 at December 31, 2014 were comprised of prepayments to two service providers.
 
Other current assets at December 31, 2015 were $nil and at December 31, 2014 totaled $652 which were comprised of a manufacturing deposit of $652. During the year ended December 31, 2014 a $3,500 rental deposit was written off.
 
 
NOTE 6 – Fixed Assets
 
Fixed assets at December 31, 2015 and December 31, 2014 respectively comprised: (a) furniture and equipment totaling $7,639 and $9,735, net of accumulated depreciation of $3,563 and $1,467; and (b) warehouse fixtures totaling $2,608 and $2,956, net of accumulated depreciation of $864 and $516.
 
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 7 – Short Term Debt and Short Term Debt - Related Party
 
Short Term Debt
 
September 2015 Notes:
On September 30, 2015 ("Issuance Date") , subject to securities purchase agreements we issued two subordinated promissory notes (the “September 2015 Notes”) to two lenders (the “September 2015 Lenders”) in the aggregate amount of $250,000 (the "Original Principal") . The September 2015 Notes bear interest at 8% per annum and this amount fully accrued upon execution of the loans and added $20,000 to the balance due at Issuance Date. The principal and interest is due and payable in full on September 30, 2016 (“Maturity Date”) with monthly prepayments of 3% of the Original Principal on the fourth through sixth monthly anniversaries of the Issuance Date and monthly prepayments or 10% of the Original Principal on the seventh through eleventh monthly anniversaries of the Issuance Date. The September 2015 Notes included an aggregate $25,000 original issuance discount ("OID") which resulted in net proceeds of $225,000.   The Company has the right to prepay the September 2015 Notes, pursuant to the terms thereof, at any time, provided it pays the then outstanding balance and accrued interest. The September 2015 Notes provide for customary events of default such as failing to timely make payments and the occurrence of certain fundamental defaults, as described in the September 2015 Notes. The interest rate shall be 18% upon the occurrence of an event of default and repayment of the note at an amount equal to 120% of the outstanding principal and interest due. The September 2015 Notes are not secured and are subordinated to senior notes issued by the Company.   As an inducement for the loans, the Company granted the September 2015 Lenders five-year warrant s to purchase an aggregate of 3,125,000 shares of our common stock at an exercise price of $0.08 per share valued using a Black-Scholes model at $167,788. The w arrants include cashless exercise rights.   At December 31, 2015, the balance on the September 2015 Notes was $125,672, including accrued interest of $20,000 and net of unamortized discounts totaling $125,612 related to the inducement warrants and an unamortized OID of $18,716. During the year ended December 31, 2015, $42,176 of the warrants discount was recorded as an amortization expense and $6,284 of the OIDs were recorded as interest expense. Subsequent to the year ended December 3, 2015, the Company has made timely payment of the payments due on the fourth to sixth monthly anniversaries of Issuance Date.
 
December 2015 Note:
On December 30, 2015 ("Issuance Date"), subject to a securities purchase agreement we issued a subordinated promissory note (the “December 2015 Note”) to one lender (the “December 2015 Lender”) in the aggregate amount of $110,000 (the "Original Principal"). The December 2015 Note bear interest at 8% per annum and this amount fully accrued upon execution of the loan and added $8,800 to the balance due at Issuance Date. The principal and interest is due and payable in full on December 3, 2016 (“Maturity Date”) and has a re-payment schedule which requires payments of $39,600 respectively on sixth, ninth and twelfth month anniversary dates of Issuance Date. The December 2015 Notes included an aggregate $10,000 original issuance discount ("OID") which resulted in net proceeds of $100,000. The Company has the right to prepay the December 2015 Note, pursuant to the terms thereof, at any time, provided it pays the then outstanding balance and accrued interest. The December 2015 Note provides for customary events of default such as failing to timely make payments and the occurrence of certain fundamental defaults, as described in the December 2015 Note. If there should be occurrence of an event of default, repayment of the note will be due at an amount equal to 120% of the outstanding principal and interest due.  The Note is not secured and is subordinated to senior notes issued by the Company and ranks equally with other debt issued by the Company. As an inducement for the loan, the Company issued the December 2015 Lender 500,000 restricted common shares valued at $30,050. At December 31, 2015, the balance on the December 2015 Note was $109,565, including accrued interest of $8,800 and net of unamortized OID of $9,235. During the year ended December 31, 2015, $764 of the OID was recorded as interest expense.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 7 – Short Term Debt and Short Term Debt - Related Party
 
Short Term Debt - Related Party
 
Interim Note:
On June 5, 2015 (the “Issuance Date”), the Company issued a $500,000 note (the “Interim Note”) to a corporation affiliated with a director of the Company. This Note was classified as related party debt and had a maturity date of December 5, 2015. The Interim Note required two payments of $250,000 on the three and six month anniversaries of Issuance, allowed for re-payment at any time without penalty, and  accrued interest at 12% per annum. 1,700,000 restricted common shares of the Company were issued to the lender as an inducement fee. As security for the Interim Note, the Company’s Chief Executive Officer pledged 3,333,333 shares of the Company (the "Pledge"), which he owns, as security for the Interim Note (the "Pledge Shares"). If the Company had defaulted on the Interim Note, the portion of the Pledge Shares equivalent to the amount due would have been released to re-pay the loan. The Company made early re-payments of $50,000 on June 23, 2015 and $211,556 on August 19, 2015 as full settlement of the first installment of Interim Note, including $11,556 of accrued interest then due; and on November 24, 2015 made early repayment of the second installment totaling $253,534, including $3,534 of accrued interest then due; and on that date the Pledge was dissolved. At December 31, 2015, the balance due on the Interim Note was $nil.
 
 
NOTE 8 – Convertible Notes Payable
 
VDF Note:
On January 28, 2014, we entered into a patent settlement with VDF FutureCeuticals, Inc.("VDF") with respect to a prior action filed by VDF. In connection with the License Agreement and other agreements which formed the settlement, we issued a senior convertible note (the "VDF Note") to VDF, whereby we promised to pay VDF a principal amount equal to the sum of: (i) the aggregate amount of accrued and unpaid license fee payments, plus (ii) accrued interest on the VDF Note. The maturity of the VDF Note is December 31, 2018 unless accelerated pursuant to an event of default or the License Agreement is terminated and all accrued and unpaid obligations under the VDF Note have been paid. Due to its term, the VDF Note is classified as long term debt. Interest on the note is 7% per annum, subject to an adjustment to 12% for events of default. On the maturity date, we must pay VDF all principal, unpaid interest and late charges, if any, and we have the right, subject to certain limitations, to prepay principal at any time and from time to time. The VDF Note is secured through the Pledge and Security Agreement executed with VDF and is senior to any other debt issued by the Company. At any time VDF has the option to convert any principal outstanding on the VDF Note into shares of our common stock at a Conversion Price determined by the terms of the VDF Note. Key terms of the VDF Note include that: (i) VDF is granted an adjustment to the conversion price upon the issuance of shares of our common stock, stock options or other convertible securities; (ii) no indebtedness shall rank senior to the payments due under the VDF Note unless prior written consent of VDF is obtained; and (iii) payments under the VDF Note are secured by a Security Agreement. The VDF Note provides that we may, at our option, roll-over to the VDF Note quarterly $75,000 License fee payments and accrued interest. During the year ended December 31, 2015, we rolled-over License fee payments of $300,000 plus accrued interest for the year $18,481 for a total addition to the VDF Note of $318,481. During the year ended December 31, 2014, we rolled-over License fee payments of $150,000 plus accrued interest for the year of $791 for a total addition to the VDF Note of $150,791. At December 31, 2015, the VDF Note had an outstanding balance $453,298, net of a discount of $15,974 resulting from the embedded derivative; and at December 31, 2014 the outstanding balance was $140,001, net of a discount of $10,790.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 8 – Convertible Notes Payable (continued)
 
Originally the Conversion Price of the Senior Convertible Note was $0.65 per share. On December 19, 2014, this was adjusted to $0.6163 per share based on our issuance of stock options. On January 20, 2015 the Conversion Price was adjusted to $0.5623 based on our issuance of an unsecured subordinate convertible debenture to a third party; on June 15, 2015 the Conversion Price was adjusted to $0.5572 as the result of re-pricing of warrants issued to a third party; on September 30, 2015 the Conversion Price was adjusted to $0.4536 based on our issuance of a fixed conversion price convertible debenture to a third party, and issuances of warrants and stock to third parties; and on December 31, 2015 the Conversion Price was adjusted to $0.3823 based on our issuance of a fixed conversion price convertible debenture to a third party, and issuances of warrants and stock to third parties.
 
Subordinate Debenture:
On January 20, 2015, we entered into a convertible debt purchase agreement with a third party, for the issuance of up to $1,100,000 of unsecured subordinated convertible debentures (the “Subordinate Debenture”) maturing 18 months from each issuance date and the Company issued to the lender an Unsecured Subordinate Debenture with a face value principal amount of $440,000 (which includes $40,000 in original issue discount) for $400,000 in cash. Due to its term, the Unsecured Subordinate Debenture was classified as short term debt. The Unsecured Subordinate Debenture was initially valued as having a balance of $207,074, net of a discount of $232,926. The Company determined this note initially had an embedded derivative liability valued at $232,926 due to the convertible note agreement providing for adjustments to the conversion price. On June 5, 2015, the Company redeemed this note and paid the lender a prepayment premium of $68,929, calculated as 15% of face value principal of $400,000 plus accrued interest and OID of $59,529, for a total redemption payment of $528,458. Because there was a derivative liability recorded for this note, the derivative component of the note was marked-to-market at time of redemption and the resulting net loss of $41,182 was recorded at redemption as an amortization expense. $5,788 OID was amortized to interest expense over the life of the note and the repayment of the remaining $34,212 OID was recorded as an interest expense at time of redemption. Repayment of the Unsecured Subordinate Debenture effected a termination of the Convertible Debt Purchase Agreement. This variable rate convertible debenture is now repaid in full and extinguished.



 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 8 – Convertible Notes Payable (continued)
 
LPC Note One:
On August 18, 2015, we issued a Senior Convertible Note (“LPC Note One”) to a third party ("LPC") in the amount of $250,000. LPC Note One was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016 (the “Maturity Date”). Due to its term, the Convertible Note is classified as long term debt. Interest may be paid via issuance of the Company’s common stock if the Company meets certain conditions that would allow the issuance of the Company’s common stock without any trading restrictions. For the period ended December 31, 2015 $4,688 of accrued interest was paid via issuance of 66,964 restricted common shares priced at the Conversion Price of LPC Note One of $0.07 per clause 2(a) of LPC Note One. LPC Note One has a $25,000 original issuance discount ("OID") which resulted in net proceeds of $225,000.   The Company has the right to prepay LPC Note One, pursuant to the terms thereof, at any time, provided it pays a prepayment amount of 120% of the then outstanding balance, accrued interest and interest payable from the date of prepayment to the Maturity Date. LPC Note One provides for customary events of default such as failing to timely make payments and the occurrence of certain fundamental defaults, as described in LPC Note One. LPC Note One is not secured and is subordinated to the VDF Note, ranks equally with LPC Note Two, and ranks above other debt issued by the Company. The principal amount of LPC Note One and all accrued interest is convertible at the option of LPC into shares of our common stock at any time at a fixed C onversion Price of $0.07 per share, subject to adjustments for stock splits, stock dividends, stock combinations or other similar transactions as provided in LPC Note One.   At no time may LPC Note One be converted into shares of our common stock if such conversion would result in LPC   and its affiliates owning an aggregate of shares of our common stock in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage may increase to 9.99% upon not less than 61 days prior written notice.   As an inducement for the loan, the Company granted LPC a six year warrant to purchase 3,750,000 shares of our common stock at an exercise price of $0.10 per share valued using a Black-Scholes model at $277,014. At issuance date, LPC Note One also included a beneficial conversion feature ("BCF") of $107,143 because the exercise price of LPC Note One was set below the market price of our stock when the note was executed. Since the combined warrant discount and BCF exceeded the face value of the note less OID, the warrant discount for LPC Note One was capped at $117,857, resulting in a total discount of $225,000. Th is w arrant has a cashless exercise right.   At December 31, 2015, the recorded balance on LPC Note One was $67,365, net of an unamortized discount of $164,372 and an unamortized OID of $18,263. During the year ended December 31, 2015, $60,628 of the  discount was recorded as an amortization expense and $6,737 of the OID was recorded as interest expense.
 
LPC Note Two:
On November 23, 2015, we issued a Senior Convertible Note (“LPC Note Two”) to a third party ("LPC") in the amount of $300,000. LPC Note Two was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016 (the “Maturity Date”). Due to its term, the Convertible Note is classified as long term debt. Interest may be paid via issuance of the Company’s common stock if the Company meets certain conditions that would allow the issuance of the Company’s common stock without any trading restrictions. For the period ended December 31, 2015 $1,583 of accrued interest was paid via issuance of 31,667 restricted common shares priced at the Conversion Price of LPC Note Two of $0.05 per clause 2(a) of LPC Note Two. LPC Note Two has a $30,000 original issuance discount ("OID") which resulted in net proceeds of $270,000.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 8 – Convertible Notes Payable (continued)
 
The Company has the right to prepay LPC Note One, pursuant to the terms thereof, at any time, provided it pays a prepayment amount of 120% of the then outstanding balance, accrued interest and interest payable from the date of prepayment to the Maturity Date. LPC Note Two provides for customary events of default such as failing to timely make payments and the occurrence of certain fundamental defaults, as described in LPC Note Two. LPC Note One is not secured and is subordinated to the VDF Note, ranks equally with LPC Note One, and ranks above other debt issued by the Company. The principal amount of LPC Note Two and all accrued interest is convertible at the option of LPC into shares of our common stock at any time at a fixed C onversion Price of $0.05 per share, subject to adjustments for stock splits, stock dividends, stock combinations or other similar transactions as provided in LPC Note Two.   At no time may LPC Note Two be converted into shares of our common stock if such conversion would result in LPC   and its affiliates owning an aggregate of shares of our common stock in excess of 4.99% of the then outstanding shares of our common stock, provided such percentage may increase to 9.99% upon not less than 61 days prior written notice.   As an inducement for the loan, the Company granted LPC a six year warrant to purchase 5,000,000 shares of our common stock at an exercise price of $0.07 per share valued using a Black-Scholes model at $253,098. At issuance date, LPC Note Two also included a beneficial conversion feature ("BCF") of $102,600 because the exercise price of LPC Note Two was set below the market price of our stock when the note was executed. Since the combined warrant discount and BCF exceeded the face value of the note less OID, the warrant discount for LPC Note Two was capped at $167,400, resulting in a total discount of $270,000. Th is w arrant has a cashless exercise right.   At December 31, 2015, the recorded balance on LPC Note Two was $28,218, net of an unamortized discount of $244,604 and an unamortized OID of $27,178. During the year ended December 31, 2015, $25,396 of the  discount was recorded as an amortization expense and $2,822 of the OID was recorded as interest expense.











 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 9 – Derivatives
 
In connection with the issuance of debt or equity instruments, the Company may sell options or warrants to purchase our common stock. In certain circumstances, the convertible debt, options or warrants may be classified as derivative liabilities, rather than as equity. Additionally, the debt or equity instruments may contain embedded derivative instruments, such as embedded derivative features which in certain circumstances may be required to be bifurcated from the associated host instrument and accounted for separately as a derivative instrument liability.
 
The Company's derivative instrument liabilities are re-valued at the end of each reporting period, with changes in the fair value of the derivative liability recorded as charges or credits to income in the period in which the changes occur. For options, warrants and bifurcated embedded derivative features that are accounted for as derivative instrument liabilities, the Company estimates fair value using either quoted market prices of financial instruments with similar characteristics or other valuation techniques. The valuation techniques require assumptions related to the remaining term of the instruments and risk-free rates of return, our current common stock price and expected dividend yield, and the expected volatility of our common stock price over the life of the option.
 
The following table summarizes the convertible debt derivative activity for the period ending December 31, 2015:
 
 
Description
 
Convertible
Notes
 
 
Total
Fair Value at December 31, 2013
$
$
Increase due to issuance of senior convertible debenture
 
11,006
 
11,006
Change in Fair Value
 
(1,838)
 
(1,838)
Fair Value at December 31, 2014
$
9,168
$
9,168
Increase due to issuance of subordinate convertible debenture
 
241,710
 
241,710
Reduction due to redemption of subordinate convertible debenture
 
(274,108)
 
(274,108)
Change in Fair Value
 
35,037
 
35,037
Fair Value at December 31, 2015
$
11,807
$
11,807
 
 
For the year ended December 31, 2015 the change in the fair market value of the derivative liability of $35,037 was recorded as Other Expense. For the year ended December 31, 2014, the change in the fair market value of the derivative liability of $(1,838) were recorded as Other Income.
 
The lattice methodology was used to value the derivative liabilities related to the convertible notes, with the following assumptions.
 
Assumptions:
December 31, 2015
December 31, 2014
     
Dividend yield
0.00%
0.00%
Risk-free rate for term
1.31%
1.65%
Volatility
133%
117%
Maturity dates
3 years
4 years
Stock Price
$0.055
$0.141


 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 10 – Related Party Transactions
 
During the years ended December 31, 2015 and December 31, 2014, related party transactions included:
 
Chief Executive Officer, Director, Board Chair
For the year ended December 31, 2015: (i) cash compensation of $130,000; (ii) Black-Scholes expense amortization of $220,960 related to 2,500,000 options granted on December 19, 2014 of which 750,000 vested on June 30, 2015 and 750,000 vested on December 31, 2015; and (iii) the loan of two vehicles by the CEO to the Company for the sole use by two sales staff in return for the Company providing $37,421 toward lease and loan payments on the vehicles. For the year ended December 31, 2014: (i) cash compensation of $130,000; (ii) issuance of 250,499 shares as past services compensation at $0.627 per share, totaling $157,063; (iii) cancelation of December 12, 2013 option grant totaling 1,000,000 unvested options; and (iv) Black-Scholes expense recording and amortization totaling $159,825 related to 2,500,000 options granted on December 19, 2014 (1,000,000 of which vested immediately and  750,000 which vested on each of June 30, 2015 and December 31, 2015).
 
President and Chief Operating Officer
For the period ended December 31, 2015: (i) cash compensation, including COBRA benefits, of $116,526 for the period from August 10 (employment start date) to December 310, 2015; (ii) issuance on August 10, 2015 of a signing bonus of 1,333,333 restricted common shares at $0.107 per share for aggregate deemed compensation of $142,667; (iii) issuance on October 2, 2015 of 502,283 restricted common shares at $0.078 per share for aggregate deemed compensation of $39,178; and (iv) issuance on December 31, 2015 of 1,262,047 restricted common shares at $0.05448 per share for aggregate deemed compensation of $68,750. At December 31, 2015, the Company had an account payable of $3,156 due to the President & COO for expenses related to the year ended December 3,1 2015. For the year ended December 31, 2014: n/a.
 
Chief Financial Officer, Secretary and Treasurer
For the year ended December 31, 2015: (i) cash compensation of $125,000; (ii) issuance on April 30, 2015 of 131,579 restricted common shares at a price of $0.19 per share for aggregate deemed compensation of $25,000; (iii) issuance on July 9, 2015 of 320,513 restricted common shares at $0.1102 per share for aggregate deemed compensation of $25,000; (iv) issuance on October 2, 2015 of 320,513 restricted common shares at $0.078 per share for aggregate deemed compensation of $25,000; and (v) issuance on December 31, 2015 of 458,926 restricted common shares at $0.05448 per share for aggregate deemed compensation of $25,000. For the year ended December 31, 2014: (i) cash payment of consulting fees of $22,500 for services provided from January 1 to March 17, 2014; (ii) cash compensation of $76,500 for period from March 18 to December 31, 2014; (ii) issuance on April 15, 2014 of 50,000 shares at $0.80 per share for aggregate deemed compensation of $40,000; (iii) issuance on August 19, 2014 of 25,000 shares at $0.373 per share for aggregate deemed compensation of $9,325; and (iv) Black-Scholes expense recording of $114,236 for 750,000 options granted on December 19, 2014 which vested immediately. Share payments and options grants were executed by issuances to Mr. Dawe's holding company GBG Management Services Inc.
 
Former Vice-President and Chief Operating Officer
For the year ended December 31, 2015: n/a. For the year ended December 31, 2014: (i) Compensation and termination settlement of $47,613 for period of May 1 to August 14, 2014; and (ii) issuance of 25,000 shares as compensation at $0.62 per share, totaling $15,000.
 
 
 

 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 10 – Related Party Transactions (continued)
 
Former Chief Financial Officer, Secretary and Treasurer; spouse of President and CEO
For the year ended December 31, 2015: cash compensation of $3,875 for accounting services. For the year ended December 31, 2014: (i) cash compensation as CFO of $23,175 from January 1 to March 17, 2014; (ii) cash compensation as employee of $20,325 for period from March 18 to December 31, 2014; (iii) cancelation of December 12, 2013 option grant of 1,000,000 options which fully vested on grant date; and (v) Black-Scholes expense recording of $152,314 for 1,000,000 options granted on December 19, 2014 which vested immediately.
 
(Currently serving) Director; (former) Chief Scientific Officer
For the year ended December 31, 2015: cash compensation or $4,000 for consulting services. For the year ended December 31, 2014: (i) Payment of $60,000 as the final installment of CSO contract buy-out negotiated during fiscal 2013; (ii) issuance of 83,167 shares for past services compensation as director at $0.627 per share, totaling $51,146; (iii) cancelation of December 12, 2013 option grant totaling 1,000,000 unvested options; and (iv) Black-Scholes expense recording of $152,314 for 1,000,000 options granted on December 19, 2014 which vested immediately.
 
Independent Director One:
For the year ended December 31, 2015: payment of $19,447 as interest and issuance of 1,700,000 restricted common shares at $0.1402/share as an inducement fee of $238,340 for a short term loan of $500,000 to the Company. For the year ended December 31, 2014: (i) issuance of 83,167 shares for past services compensation as director at $0.627 per share, totaling $51,146; (ii) cancelation of January 7, 2014 option grant totaling 750,000 options; and (iii) Black-Scholes expense recording of $114,236 for 750,000 options granted on December 19, 2014 which vested immediately.
 
Independent Director Two:
For the year ended December 31, 2015: $39,600 of revenue was derived from product sales to a company owned by Independent Director Two and at December 31, 2015 the Company had an account receivable due of $18,000 related to these sales. For the year ended December 31, 2014: (i) issuance of 83,167 shares for past services compensation as director at $0.627 per share, totaling $51,146; (ii) Black-Scholes expense recording of $114,236 for 750,000 options granted on December 19, 2014 which vested immediately; and (iii) $35,947 of revenue was derived from product sales to a company owned by Independent Director Two and at December 31, 2014 the Company had an account receivable due of $3,600 related to these sales.
 
At December 31, 2015 and December 31, 2014, the Company had related party accounts payable of $nil and $nil, respectively; and shareholder loans of $nil and $nil, respectively.
 
 
NOTE 11 – Equity
 
Overview:
 
Our authorized capital stock consists of 877,500,000 shares of common stock, with a par value of $0.001 per share; and 10,000 shares of preferred stock at a par value of $0.001. The holders of common stock have dividend rights, liquidation rights and voting rights of one vote for each share of common stock. There are no preferred shares issued and outstanding and the terms of any future preferred shares issuances will be as determined by the Board of Directors. As of December 31, 2015, there were 108,769,514 shares of our common stock issued and outstanding.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
2015 Share Transactions
 
On February 6, 2015 we issued 600 restricted common shares at $0.0752 per share to an employee ("Employee One") for compensation. These share issuances were issued based on market close price on issue date for deemed payments totaling of $45. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On February 6, 2015, we issued 11,000 restricted common shares at $0.0752 per share to a professional athlete ("Ambassador One") for endorsement services rendered. These shares were issued at market close price on issue date for deemed compensation of $827. These shares were issued to US persons with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On April 30, 2015 we issued 131,579 restricted common shares at $0.19 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On May 1, 2015, we issued 300,000 restricted common shares to a third party for professional services rendered, such issuance which was valued at $0.20 per share for a deemed aggregate proceeds of $60,000, such grant being valued based on market close price on issue date. These shares were issued to one U.S. person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On June 5, 2015, we issued 1,700,000 restricted common shares valued market close price on date of issue at $0.1402 for aggregate deemed proceeds of $238,340 to a related party as a fee for a loan to the Company. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On June 9, 2015 we issued 1,200 restricted common shares at $0.14 per share to Employee One for compensation. These share issuances were issued based on market close price on issue date for deemed payments totaling of $168. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
2015 Equity Line: On June 16, 2015, we entered into a $10,250,000 purchase agreement (the "2015 Purchase Agreement") and registration rights agreement (the "2015 Registration Rights Agreement") (collectively the "2015 Equity Line") with an Illinois limited liability company ("LPC"). As part of the 2015 Equity Line, on June 15, 2015, the Company amended a warrant which had been issued to LPC on January 27, 2014, to modify the exercise price from $0.65 to $0.15. The fair value of this warrant re-pricing was calculated based on the difference between Black Scholes option pricing model valuations on original grant date of January 27, 2014 and re-pricing date of June 15, 2015. This expense was recorded as a loss on equity modification of $41,753, with an offset to additional paid in capital. Upon signing the 2015 Purchase Agreement, LPC purchased 1,666,667 shares of our common stock at $0.15 per share for proceeds of $250,000 as an initial purchase under the agreement. These shares were issued to a U.S. person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended. Subsequently, under the terms of the 2015 Registration Rights Agreement, we filed a Registration Statement on Form S-1 with the U.S. Securities and Exchange Commission (“SEC”) covering the initially issued shares and subsequent shares that may be issued to LPC. This Form S-1 was filed on July 6, 2015 and was deemed Effective by the SEC on July 16, 2015. Under the 2015 Equity Line we have the right, in our sole discretion, over a 30-month period to sell up to an additional $10 million of our common stock to LPC in amounts from up to 150,000 shares per sale to up to 350,000 shares per sale, depending on certain conditions as set forth in the 2015 Purchase Agreement. There are no upper limits to the price LPC may pay to purchase our common stock and the purchase price of shares of Common Stock sold pursuant to the 2015 Purchase Agreement will be based on prevailing market prices of our Common Stock at the time of sales without any fixed discount, and the Company will control the timing and amount of any sales of Common Stock to LPC. In addition, the Company may direct LPC to purchase additional amounts as accelerated purchases if on the date of a regular purchase the closing sale price of the Common Stock is not below the threshold price as set forth in the 2015 Purchase Agreement. LPC shall not have the right nor the obligation to purchase any shares of our common stock on any business day that the price of our common stock is below the floor price as set forth in the 2015 Purchase Agreement. The 2015 Equity Line may be terminated by us at any time at our discretion without any monetary cost to us. The 2015 Purchase Agreement contains customary representations, warranties, covenants, closing conditions and indemnification and termination provisions by, among and for the benefit of the parties. LPC has covenanted not to cause or engage in any manner whatsoever, any direct or indirect short selling or hedging of the Company’s shares of common stock. In consideration for entering into the 2015 Equity Line, we issued to LPC 2,666,667 shares of our common stock as a commitment fee and may issue up to an additional 666,666 shares as commitment fees pro rata if and when we sell to LPC up to an additional $10 million of our common stock. The 2015 Equity Line  may be terminated by us at any time at our discretion without any monetary cost to us. Actual sales of shares of Common Stock to LPC under the 2015 Equity Line will depend on a variety of factors to be determined by the Company from time to time, including (among others) market conditions, the trading price of the Common Stock and determinations by the Company as to available and appropriate sources of funding for the Company and its operations. During the period ended December 31, 2015 we issued 8,550,000 sale shares and 41,989 per sale commitment shares under the 2015 Equity Line for aggregate cash proceeds of $629,850. Proceeds received by the Company are used for general corporate purposes.
 
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
On June 30, 2015, 1,666,667 shares of restricted common shares were issued to investor, unrelated to LPC, under a securities purchase agreement dated June 30, 2015 at a price of $0.06 per share for aggregate proceeds of $100,000. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended. These shares were included in the Registration Statement on Form S-1 filed on July 6, 2015,which was made Effective by the SEC on July 16, 2015.
 
On July 6, 2015, we issued 6,025 restricted common shares at $0.1188 per share to Ambassador One for professional athlete endorsement services rendered. These shares were issued at market close price on issue date for deemed compensation of $716. These shares were issued to US persons with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On July 9, 2015 we issued 226,860 restricted common shares at $0.1102 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On August 11, 2015, we issued 1,333,333 restricted common shares to our new President & Chief Operating Officer at $0.107. These shares were valued based on market close price on issue date for deemed proceeds of $142,667. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 15, 2015, we issued 1,000 restricted common shares at $0.075 per share to Employee One for compensation. These share issuances were issued based on market close price on issue date for deemed payments totaling of $75. These shares were issued to US persons with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 18, 2015, we issued 26,000 restricted common shares at $0.0901 per share to a consultant for services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $2,343. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 24, 2015, we issued 12,500 restricted common shares at $0.0829 per share to a professional athlete ("Ambassador Two") for endorsement services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $1,036. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
On September 30, 2015, we issued 9,000 restricted common shares at $0.078 per share to Ambassador One for endorsement services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $702. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 30, 2015, we issued 50,000 restricted common shares at $0.078 per share to a consultant for services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $3,900. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 30, 2015 we issued 320,513 restricted common shares at $0.078 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On September 30, 2015 we issued 502,283 restricted common shares at $0.078 per share as compensation to our President & COO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $39,178. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended..
 
On October 20, 2015, we issued 348,472 restricted common shares at an agreed price of $0.0699 per share for aggregate deemed compensation of $24,358 to a beverage distributor per terms of a services agreement. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On October 21, 2015, we issued 1,381,025 restricted common shares at a contractually agreed price of $0.07241 per share for aggregate deemed compensation of $100,000 to a service provider ("Service Provider") for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On October 27, 2015, we issued 2,000,000 restricted common shares at a contractually agreed price of $0.068 per share for aggregate deemed compensation of $136,000 to Service Provider for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
On December 3, 2015, we issued 500,000 restricted common shares valued market close price on date of issue at $0.0601 for aggregate deemed proceeds of $30,050 to a lender as a fee for a loan to the Company. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 8, 2015, we issued to LPC: (a) 66,964 restricted common shares valued at the LPC Note One Conversion Price of $0.07 for interest of $4,688 accrued on LPC Note One to December 31, 2015; and (b) 31,667 restricted common shares valued at the LPC Note Two Conversion Price of $0.05 for interest of $1,583 accrued on LPC Note Two to December 31, 2015. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 31, 2015 we issued 458,926 restricted common shares at $0.05448 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On December 31, 2015 we issued 1,262,047 restricted common shares at $0.05448 per share as compensation to our President & COO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $68,750. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended..
 
2014 Share Transactions
 
On January 27, 2014, we issued 1,818,182 units to two investors in a non-brokered private placement, at a purchase price of $0.55 per unit for gross proceeds of $1,000,000. Each unit consisted of one share of our common stock and one non-transferable common share purchase warrant, with each warrant entitling the holder to acquire one additional share of our common stock at a price of $0.65 per share for a period of six years. We issued: (i) 681,818 of these units to one non-US person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in an offshore transaction in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended; and (ii) 1,136,364 of these units to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these units to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended. Pursuant to the securities purchase agreements with each investor, we also agreed to file a Form S-1 registration statement related to the transaction with the SEC covering the shares underlying the units (excluding shares issuable upon exercise of the warrants); such Form S-1, which also included shares related to our Equity Line (detailed below), was filed and subsequently deemed Effective by the SEC on May 8, 2014.
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
2014 Equity Line: On February 3, 2014, we entered into an Equity Line Agreement and a Registration Rights Agreement with  an Illinois limited liability company ("LPC"), pursuant to which we have the right to sell to LPC up to $12,000,000 in shares of our common stock, subject to certain limitations set forth in the 2014 Equity Line Agreement. The Term of the 2014 Equity Line was thirty months and shares under the 2014 Equity Line were registered with the SEC in a Form S-1 which was deemed Effective on May 8, 2014. The 2014 Equity Line is no longer effective due to our stock being below the floor price and because the Form S-1 has now become stale. In consideration for entering into the Equity Line Agreement, we issued LPC 872,727 common shares as a commitment fee and could issue up to 218,182 additional shares on a per share basis. During the year ended December 31, 2014, we issued 30,906 additional commitment shares during 17 transactions. The cost of the 903,633 shares issued for 2014 Equity Line underwriting fees were recorded as an addition of $904 to common stock and a subtraction of $904 from Additional Paid in Capital. During the year ended December 31, 2014 we issued 3,697,889 shares under the Equity Line for aggregate proceeds of $1,700,001.
 
On April 14, 2014, we issued 50,000 restricted shares at $0.80 closing market price per share to a consultant ('CFO consultant') for aggregate deemed compensation totaling $40,000. These shares were issued to one non-US person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On May 1, 2014, 25,000 restricted common shares were issued to our former Vice President & Chief Operating Officer as a signing bonus at a price of $0.62 per share based on market close price on issue date, for aggregate deemed compensation of $15,500. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On May 22, 2014 KonaRed Corporation filed a Form S-8 Registration Statement to register a total of 4,000,000 shares with the SEC to be used for director, officer and employee compensation share issuances. An initial group of these shares (the "Award Shares") were then separately registered under the Securities Act, by filing on June 4, 2014, as amended, a Post-Effective amendment   to the Form S-8 Registration Statement which contained a re-offer prospectus in reference to the Award Shares. Allocation of the Award Shares included a compensation bonus of 250,499 shares to our CEO and 83,167 Award Shares to each of our three other directors at a price of $0.627 per share based on market close price on issue date , for aggregate deemed compensation for past services of $313,500.
 
On August 19, 2014, we issued 25,000 restricted shares at $0.373 closing market price per share to CFO consultant for aggregate deemed compensation totaling $9,325. These shares were issued to one non-US person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On October 1, 2014, 50,000 restricted common shares were issued to an employee for prior services rendered at a price of $0.3449 based on market close price on issue date for deemed compensation of $17,245. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
On October 1, 2014, 7,400 restricted common shares were issued to Employee One for prior services rendered at a price of $0.3449 based on market close price on issue date for deemed compensation of $2,552. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On October 21, 2014, we issued 352,759 restricted common shares at a contractually agreed price of $0.2835 per share for aggregate deemed compensation of $100,000 to a service provider ("Service Provider") for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 1, 2014, we issued 2,000,000 restricted common shares at $0.251 closing market price for aggregate deemed compensation of $502,000 to Service Provider for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 31, 2014, we issued 1,700,000 restricted common shares at $0.141 closing market price for aggregate deemed compensation of $239,700 to Service Provider for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
Warrants
 
2015
On June 15, 2015, as part of the 2015 Equity Line the Company amended 1,136,364 warrants (the "January 27, 2014 Warrants") which had been issued to LPC on January 27, 2014, to modify the exercise price from $0.65 to $0.15. None of these warrants have yet been exercised. The fair value of this warrant re-pricing was calculated based on the difference between Black Scholes option pricing model valuations on original grant date of January 27, 2014 and re-pricing date of June 15, 2015. This expense was recorded as a loss on equity modification of $41,753, with an offset to additional paid in capital.
 
On August 18, 2015, as an inducement for execution of LPC Note #1, the Company granted LPC six year warrants (the "August 18, 2015 Warrants") to purchase 3,750,000 shares of restricted common stock at an exercise price of $0.10 per share. Because these warrants are related to issuance of debt, the value of the warrant was required to be recorded as a discount to LPC Note #1 with an offset to additional paid in capital. The original costing of the warrants using a Black-Scholes option pricing model was $277,014, but this amount was reduced to a discount of $117,857 based on the net amount of the face value of the LPC Note #1 of $250,000, less the OID of $25,000, less the BCF of $107,143. These warrants include a cashless exercise right and have the same ownership limitation included in LPC Note #1. None have yet been exercised.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
On September 30, 2015, as an inducement for execution of the September 2015 Notes, the Company granted the September 2015 Lenders five-year warrant s (the "September 30, 2015 Warrants") to purchase an aggregate of 3,125,000 shares of our common stock at an exercise price of $0.08 per share. These warrants include cashless exercise rights and none have yet been exercised. Because these warrants were related to issuance of debt, the value of the warrants based on a Black-Scholes option pricing model was required to be recorded as a discount of $167,788 to the September 2015 Notes with an offset to additional paid in capital.
 
On November 23, 2015, as an inducement for execution of LPC Note #2, the Company granted LPC six year warrants (the "November 23, 2015 Warrants") to purchase 5,000,000 shares of restricted common stock at an exercise price of $0.07 per share. Because these warrants are related to issuance of debt, the value of the warrants was required to be recorded as a discount to LPC Note #2 with an offset to additional paid in capital. The original costing of the warrants using a Black-Scholes option pricing model was $253,098, but this amount was reduced to a discount of $167,400 based on the net amount of the face value of the LPC Note #1 of $300,000, less the OID of $30,000, less the BCF of $102,600. The se w arrants include a cashless exercise right and has the same ownership limitation included in LPC Note #2. None have yet been exercised.
 
2014
On January 27, 2014, we issued 681,818 units to an investor in a non-brokered private placement at a purchase price of $0.55 per unit for gross proceeds of $375,000. Each unit was comprised of one common share and one six year warrant exercisable into one common share at a price of $0.65 per share. None of these warrants have yet been exercised.
 
On January 27, 2014, we issued 1,136,364 units to LPC in a non-brokered private placement at a purchase price of $0.55 per unit for gross proceeds of $625,000. Each unit was comprised of one common share and one six year warrant exercisable into one common share at a price of $0.65 per share. None of these warrants have yet been exercised. As referenced in the above information regarding 2015, on June 15, 2015, as part of the 2015 Equity Line the Company amended 1,136,364 warrants which had been issued to LPC on January 27, 2014, to modify the exercise price from $0.65 to $0.15.






 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
The fair valuations for warrants which were required to be valued were done on date of grant using a Black Scholes option pricing model with the following assumptions:
 
Warrant
Risk free
rate*
Dividend
yield
Volatility
period
Volatility
rate
Estimated
life
Exercise
Price
Grant Date
Stock price
               
November 23, 2015 Warrants
0.85%
0.0%
2.0 years
89%
6.0 years
$0.17
$0.17
September 30, 2015 Warrants
1.37%
0.0%
2.0 years
89%
5.0 years
$0.08
$0.08
August 18, 2015 Warrants
1.78%
0.0%
2.0 years
89%
6.0 years
$0.10
$0.10
January 27, 2014 Warrants (re-priced)
1.56%
0.0%
2.0 years
91%
4.65 years
$0.15
$0.14
January 27, 2014 Warrants (original)
1.56%
0.0%
2.0 years
91%
4.65 years
$0.65
$0.14
October 4, 2013 Warrants
1.40%
0.0%
5 years
429%
1.5 years
$0.65
$0.65
*(based on US Treasury Constant Maturities matching estimated life)
 
The following table summarizes the Company’s warrant activity for the years ended December 31, 2015 and December 31, 2014:
 
 
Number of
Warrants
 
Weighted-Average
Exercise Price
Weighted-Average Remaining Term
(in years)*
 
Intrinsic
Value**
             
Outstanding at December 31, 2013
3,966,666
$
0.65
2.79
$
Nil
January 27, 2014 - Granted with Units
1,818,182
 
0.65
4.08
 
Nil
Outstanding at December 31, 2014
5,784,848
$
0.63
3.20
$
Nil
August 18, 2015 - Granted for loan fee
3,750,000
 
0.10
5.64
 
Nil
September 30, 2015 - Granted for loan fee
3,125,000
 
0.08
4.75
 
Nil
November 23, 2015 - Granted for loan fee
5,000,000
 
0.07
5.90
 
Nil
Outstanding at December 31, 2015
17,659,848
$
0.24
4.76
$
Nil
 
*  (remaining term as of December 31, 2015)
**(intrinsic value based on the closing share price of $0.055 on December 31, 2015)
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
Options:
 
On November 25, 2013, the Company issued 250,000 three year options (the "November 25, 2013 Options") to purchase 250,000 restricted shares of common stock to a consultant ("Consultant") for past services rendered. The options vested immediately and are exercisable at $0.70 per share. The cost of these options was recorded as $173,806 at November 25, 2013 using a Black-Scholes option pricing model based on inputs shown in the table below.
 
On December 12, 2013, the Company adopted an incentive stock option plan (the "Stock Option Plan"). The Stock Option Plan allows for the issuance of up to 11,000,000 options to acquire 11,000,000 restricted shares of the Company's common stock, with a maximum exercise period of ten years, to be granted to eligible employees, officers, directors, and consultants. On December 12, 2013 3,000,000 options were granted under the Stock Option Plan to directors and officers of the Company.
 
With respect to the options granted on December 12, 2013, for the years ended December 31, 2013 and December 31, 2014 Black-Scholes valuation costs were recorded as follows: (a) service period amortization of $47,141 for 2013 for 1,000,000 five year options granted to CEO exercisable at $0.45 per share with vesting after October 4, 2014 if the share price of the Company was above $1.00 per share; (b) service period amortization of $47,141 for 2013 for 1,000,000 five year options granted to (former) CSO ("Director One") exercisable at $0.45 per share with vesting after October 4, 2014 if the share price of the Company was above $1.00 per share; (c) expensing of $732,886 in 2013 for 1,000,000 five year options granted to (former) CFO exercisable at $0.74 per share which vested immediately. On December 19, 2014, all of above options grants were cancelled with the consent of the grantees.
 
Due to the cancellation on December 19, 2014 of the unvested options which had been granted to the CEO and former CSO on December 12, 2013 and the 750,000 vested options which had been granted to Director Two on January 7, 2014, prior Black-Scholes expenses for these options were reversed for the year ended December 31, 2014.
 
On December 19, 2014, 6,750,000 options (the "December 19, 2014 Options") were granted under the Stock Option Plan. Black-Scholes valuation costs for these options were recorded as follows based on the input factors detailed in the table below: (1) During the year ended December 31, 2014: (a) expensing of $152,314 for 1,000,000 five year options granted to CEO exercisable at $0.17 per share which vested immediately; (b) 2014 service period amortization of $7,511 for 1,500,000 options granted to CEO exercisable at $0.17 per share of which 750,000 vest on June 30, 2015, and 750,000 vest on December 31, 2015; (c) expensing of $152,314 each for individual grants of 1,000,000 five year options each granted to Director One and Employee exercisable at $0.17 per share which vested immediately; (d) expensing of $114,236 each for individual grants of 750,000 five year options each granted to Director Two, Director Three, and CFO exercisable at $0.17 per share which vested immediately; and (2) During the year ended December 31, 2015: $220,960 for 2015 service period amortization for 1,500,000 options granted to CEO December 19, 2014 of which 750,000 vested on June 30, 2015; and 750,000 of which vested on December 31, 2015.
 
The expensing and amortization of all options grants have been credited to Additional Paid-In Capital.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 11 – Equity (continued)
 
The fair valuations for outstanding options were done on date of grant using a Black Scholes option pricing model with the following assumptions:
 
Option
Risk free rate*
Dividend yield
Volatility period
Volatility
rate
Estimated life
Exercise
Price
Grant Date Stock price
               
December 19, 2014 Options
0.85%
0.0%
2.5 years
205%
2.5 years
$0.17
$0.17
November 25, 2013 Options
0.57%
0.0%
3 years
34%
1.0 years
$0.70
$0.72
*(based on US Treasury Constant Maturities matching estimated life)
 
A summary of changes in outstanding stock options for the year ended December 31, 2015 and December 31, 2014 is as follows:
 
 
Number of
Options
 
Weighted-Average
Exercise Price
Weighted-Average Remaining
Contractual Term
(in years)*
 
Intrinsic
Value**
             
Outstanding at December 31, 2013
3,250,000
$
0.90 1
0.70 1
$
-
January 7, 2014 – Grant to director
750,000
 
-
-
 
-
December 19, 2014 - Cancellations
(3,750,000)
 
-
-
 
-
December 19, 2014 - Grants to directors, officers and employee
6,750,000
 
0.17
4.97
 
nil
Outstanding at December 31, 2014
7,000,000
$
0.19
3.86
$
-
(no option issuances were made in 2015)
-
 
-
-
 
-
Outstanding at December 31, 2015
7,000,000
$
0.19
3.86
$
-
 
*  (remaining term as of December 31, 2015)
**(intrinsic value based on the closing share price of $0.055 on December 31, 2015)
1 (Weighted average price and term for 2013 Outstanding Balance is based on 250,000 non-cancelled options issued in 2013)
 
 
The following table summarizes information about the options outstanding at December 31, 2015:
 
    Options Outstanding   Options Exercisable
Exercise
Prices
 
Options
Outstanding
Weighted
Average
Exercise
Price
 
 
Aggregate
Intrinsic
Value**
Weighted
Average
Remaining Contractual Life (years)*
 
Options
Outstanding
Weighted
Average
Exercise
Price
 
 
Aggregate
Intrinsic
Value**
Weighted
Average
Remaining Contractual Life (years)*
                     
$0.70
 
   250,000
$0.70
$nil
0.90
 
   250,000
$0.70
$nil
0.90
$0.17
 
6,750,000
$0.17
$nil
3.97
 
6,750,000
$0.17
$nil
3.97
Totals
 
7,000,000
$0.19
$nil
3.86
 
7,000,000
$0.19
$nil
3.86
 
*  (remaining term as of December 31, 2015)
**(intrinsic value based on the closing share price of $0.055 on December 31, 2015)
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 12 – Commitments and Contingencies
 
Lease
Our company shares a lease for a 10,000 square foot facility in San Clemente, California, with Malie, Inc., (“Malie”) a company owned by our CEO and his spouse, who is the CEO of Malie. The current lease has a term of June 1, 2014 to May 31, 2016 and presently requires total lease payments of $10,139 per month, of which the Company's portion is $7,790 per month. On February 25, 2016, the Company and Malie extended the lease for an additional 24 month term and committed to total lease payments of $10,466 for June 1, 2016 to May 31, 2017 and $10,793 for June 1, 2017 to May 31, 2018. The Company's portion of payments under the extended term arrangements are $6,461 for June 1, 2016 to May 31, 2017 and $6,663 for June 1, 2017 to May 31, 2018. For the year ended December 31, 2015 our Company paid a total of $92,479 (averaging $7,707 per month) of the total lease expense of $120,360 (averaging $10,030 per month). For the year ended December 31, 2014, our Company paid a total $90,471 (averaging $7,539 per month) of the total lease expense of $117,744 (averaging $9,812 per month).
 
Total remaining commitments due under the lease include:
 
Year
Amount
2016
$123,957 
2017
$127,227 
2018
$53,965 
2019 and thereafter
$Nil 
 
Litigation
On December 30, 2015, our former beverage distributor, Splash Beverage Group ('SBG'), filed the following action in Broward County Circuit Court, Florida: Splash Beverage Group, Inc. v. KonaRed Corporation Case No. 15-022541 CACE 09 regarding the Company's cancellation of the beverage distribution agreement ("CDA") and the sales and marketing agreement ('SMA") the parties had executed on April 23, 2014. The Company had cancelled the SMA on September 16, 2015 and the CDA on September 23, 2015. The Company believes SBG's allegations are both factually and legally unfounded and the likelihood of a material loss in this matter is considered to be remote and any damages the Company may pay are not currently estimable.
 
On September 22, 2015 we settled a claim from two related parties that a service provider engaged by SBG to provide social media postings services to the Company had violated the copyrights of two related clients regarding certain pictures used by the service provider. We had received this claim on March 27, 2015 and settled the matter for a net payment of $75,000, of which the Company's insurance providers paid $59,000 and the company paid $16,000.
 
Various lawsuits, claims and other contingencies arise in the ordinary course of the Company’s business activities. As of the date of these financial statements, other than the aforementioned contingency we know of no threatened or pending lawsuits, claims or other similar contingencies.
 
VDF Agreements
On January 28, 2014 we entered into a coffee fruit patent license, Coffeeberry ® trademark license and raw materials supply agreement (the "License Agreement") with VDF FutureCeuticals, Inc. ("VDF"). This arrangement included a settlement agreement (the "Settlement Agreement") and is structured on a series of agreements to settle claims asserted by and against the parties with respect to an action filed by VDF against our predecessor company SITC; and resolve a petition for cancellation of certain trademark registrations filed by SITC. Copies of the agreements which formed the settlement were included with our filing of a Current Report on Form 8-K on February 3, 2014. A summary of each agreement is as follows:
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 12 – Commitments and Contingencies (continued)
 
1.  Settlement Agreement
Under the Settlement Agreement the parties mutually filed voluntary dismissals with respect to the foregoing claim and petition for cancelation. The parties released each other from liability arising or accruing prior to January 28, 2014 for past monetary damages for any patent infringements and all other claims that the parties brought or could have brought prior to January 28, 2014. In addition, our Company agreed to  formally abandon all pending patent applications directed to coffee berries or coffee berry technology and cancel with prejudice all trademark proceedings.
 
2.   License Agreement
The License Agreement comprises a coffee fruit patent license, Coffeeberry ® trademark license and raw materials supply agreement. The key elements include:
 
(a) Patents and Trademark License
In exchange for our ongoing compliance with certain Alternative Minimum Payments and royalties (and the terms and conditions related to raw materials discussed below), VDF granted us a non-exclusive, non-transferrable, non-sublicensable license to use and practice certain VDF patent rights and a non-exclusive license to use certain VDF trademarks and trademark rights.
 
(b) Raw Materials
VDF will supply us with raw materials. We are also permitted to have raw materials manufactured by a third party (subject to some limitations) solely for the use in the products that we sell. Additionally, we must share with VDF all details of certain input raw materials.
 
The License Agreement requires us to make quarterly payments, which may be a base amount (an "Alternative Minimum Payment", or "AMP"), or be grossed up to a higher amount subject to our use of rights under the License. The amount and schedule for the remaining AMPs is as follows:
 
Three Month Period Ended
Due Date
Amount
     
March 31, 2016
May 15, 2016
$75,000
June 30, 2016
August 14, 2016
$100,000
September 30, 2016
November 14, 2016
$100,000
December 31, 2016
February 14, 2017
$100,000
March 31, 2017
May 15, 2017
$100,000
June 30, 2017
August 14, 2017
$100,000
September 30, 2017
November 14, 2017
$100,000
December 31, 2017
February 14, 2018
$100,000
March 31, 2018
May 15, 2018
$100,000
June 30, 2018
August 14, 2018
$125,000
September 30, 2018
November 14, 2018
$125,000
December 31, 2018
February 14, 2019
$125,000
March 31, 2019
May 15, 2019
$125,000
Each quarter end thereafter
45 days after each quarter end
$150,000
 
 
 

 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 12 – Commitments and Contingencies (continued)
 
AMP's are due forty five days after the end of each reporting period and we may rollover AMPs to the VDF senior convertible note (the "VDF Note"). During the year ended December 31, 2015, we rolled over four AMPs to VDF Note and during the year ended December 31, 2014, we made one cash license payment and rolled over three AMPs to the VDF Note.
 
3.  VDF Note
The VDF Note is a senior convertible note with a maturity date of December 31, 2018. Payment requirements are accelerated: (i) pursuant to an event of default; or (ii) if the License Agreement is terminated. Interest on the Senior Convertible Note is 7% per annum, subject to adjustment to 12% for events of default. On the maturity date, we must pay VDF all principal, unpaid interest and late charges, if any, and we have the right, subject to certain limitations, to prepay principal at any time and from time to time. No indebtedness of our company shall rank senior to the payments due under the VDF Note unless prior written consent of VDF is obtained; and payments under the note are secured by the Security Agreement as described below. At any time and at the option of VDF, any principal outstanding under the VDF Note may be converted into restricted common shares of the Company based on the terms of the VDF Note. As described above in Note 8 - Long Term Debt, the conversion price of the VDF Note is presently $0.3823 per share.
 
4.  Pledge and Security Agreement
Under the Pledge and Security Agreement, we pledged collaterally assigned and granted to VDF a security interest in all of our right, title and interest, whether now owned or hereafter acquired, in and to our Company’s property to secure the prompt and complete payment and performance of obligations existing under any of the agreements.
 
5.  Warrant
We issued VDF a warrant (the "VDF Warrant") entitling VDF, from any time after the occurrence of a Warrant Exercise Event until the fifteenth anniversary of the issuance of the VDF Warrant, to purchase from our Company, shares of our common stock representing ten percent (10%) of our fully diluted outstanding shares of common stock at a purchase price of $0.001 per share. A Warrant Exercise Event comes into being if any of the following events occur:
 
i. our Company reports $25,000,000 or more of gross sales in any fiscal year in our audited financial statements for such fiscal year;
ii. our Company has a class of securities listed for trading on the New York Stock Exchange, the American Stock Exchange or NASDAQ;
iii. our Company maintains an aggregate market capitalization of our company’s outstanding capital stock of at least $125,000,000 for twenty (20) consecutive trading days based on the closing prices for the shares of our common stock as reported on the OTC Bulletin Board; or
iv. our Company has a change of control as defined in the VDF Warrant.
 
No circumstances have yet occurred which classify as a Warrant Exercise Event and therefore there is no right in place for VDF to exercise the VDF Warrant.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 12 – Commitments and Contingencies (continued)
 
6.  Registration Rights Agreement
Under the Registration Rights Agreement we granted VDF, or an assignee, demand registration rights and incidental registration rights with respect to: (i) any shares of our common stock issued upon conversion of the VDF Note; (ii) any shares of our common stock issued upon exercise of the VDF Warrant; and (iii) any shares of our common stock acquired by VDF or an assignee from our Company after the date of the Registration Rights Agreement upon exercise or conversion of other convertible securities that are acquired by VDF or an assignee from our Company after the date of the Registration Rights Agreement. Pursuant to VDF’s demand registration right, at any time or from time to time, a holder or holders holding a majority of registrable securities then outstanding may require our Company to use our best efforts to effect the registration under the Securities Act of 1933, as amended, of all or part of their respective registrable securities (subject to any limits that may be imposed by the Securities and Exchange Commission pursuant to Rule 415 under the Securities Act), by delivering a written request to our company. In addition to the registration rights granted to VDF, there are restrictions on our granting of registration rights to other parties.
 
7.  Investor Rights Agreement
Under the Investor Rights Agreement VDF has the right to designate that number of nominees to our board of directors such that the total number of directors designated by VDF is in proportion to its percentage ownership of the outstanding voting power of the Company. From and after the date of the Investor Rights Agreement and until such time as: (i) the VDF Note has terminated; (ii) the VDF Warrant has terminated or been exercised; and (iii) VDF’s percentage interest is less than 1%, if VDF does not have a designee on our board of directors, VDF shall have the right to appoint one individual as a non-voting observer entitled to attend meetings of our board of directors. Also pursuant to the Investor Rights Agreement, for so long as: (i) the VDF Note remains outstanding, (ii) the VDF Warrant remains outstanding, or (iii) VDF owns a percentage interest equal or greater to 10%, we will require VDF’s consent before taking certain corporate actions, including, among others: (a) amending our constating documents, (b) making any material change to the nature of our business, (c) incurring indebtedness exceeding $7,500,000 at any one time outstanding; or (d) declaring or paying dividends.
 
 
NOTE 13 – Income Taxes
 
The Company is subject to federal income taxes in the United States. The Company has had not net yet had net income on which to pay income taxes and therefore has not yet paid any income taxes, nor are there any income taxes owing. Income taxes at the statutory rate are reconciled to the Company’s actual income taxes as follows:
 
Income tax benefit at statutory rate resulting from net operating Loss carry-forward
    (35 %)
Deferred income tax valuation allowance
    35 %
Actual tax rate
    0 %
 


 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 13 – Income Taxes (continued)
 
The Company's deferred tax assets, valuation allowance, and change in valuation allowance are as follows (“NOL” denotes Net Operating Loss):
 
Year
Ended
 
Estimated
NOL
Carry-forward
   
NOL
Expires
   
Estimated
Tax
Benefit
from NOL
   
Valuation
Allowance
   
Net Tax
Benefit
 
                               
2010
  $ (2,163,191 )     2030     $ (757,117 )   $ 757,117     $  
2011
  $ (2,707,508 )     2031     $ (947,628 )   $ 947,628     $  
2012
  $ (2,895,416 )     2032     $ (1,013,396 )   $ 1,013,396     $  
2013
  $ (3,912,278 )     2033     $ (1,369,297 )   $ 1,369,297     $  
2014
  $ (2,557,259 )     2034     $ (895,040 )   $ 895,040     $  
2015
  $ (2,397,312 )     2035     $ (839,059 )   $ 839,059     $  
    $ (16,632,964 )           $ (5,821,537 )   $ 5,821,537     $  
 
The total valuation allowance for the year ended December 31, 2015 is $5,821,537 which increased by $839,059 for the year ended December 31, 2015.
 
As of December 31, 2015 and December 31, 2014, the Company has no unrecognized income tax benefits. The Company’s policy for classifying interest and penalties associated with unrecognized income tax benefits is to include such items as tax expense. No interest or penalties have been recorded during the years ended December 31, 2015 and December 31, 2014 and no interest or penalties have been accrued as of December 31, 2015 and December 31, 2014. As of December 31, 2015 and December 31, 2014, the Company did not have any amounts recorded pertaining to uncertain tax positions.
 
The tax years from 2010 and forward remain open to examination by federal and state authorities due to net operating loss and credit carry-forwards. The Company is currently not under examination by the Internal Revenue Service or any other taxing authorities.
 
 
NOTE 14 – Concentration Risks
 
Our revenue is derived from sales of our beverage products, nutritional products and ingredient raw materials. Our beverage sales made up approximately 63% and 90% respectively of total sales during the years ended December 31, 2015 and December 31, 2014. For the years ended December 31, 2015 and December 31, 2014, beverage sales were concentrated by customer based on our former distributor SBG accounting for 13% and 47% of respective annual sales, and combined sales from two major retail store chains accounting for respective annual sales of 26% and 20%. Together these three companies accounted for respective sales totals of 39% and 67% for the years ended December 31, 2015 and December 31, 2014. On September 23, 2015 we have terminated our distribution agreement with SBG and in May 2015 we ended sales to one of the major retail stores due to a change in their pricing which was applicable to all vendors. Although the market for our products is elastic and current purchasers of our products are replaceable, our concentration of sales creates risk to future revenues.
 
 
 
 
 
KONARED CORPORATION
NOTES TO FINANCIAL STATEMENTS
 
 
NOTE 14 – Concentration Risks (continued)
 
At year end December 31, 2015, our accounts receivable had a concentration of 76% among three customers. At year end December 31, 2014, our accounts receivable had a concentration of 82% owing from SBG.
 
These concentration of our accounts receivable create a potential risk to future working capital in the event that we were not able to collect all, or a majority, of outstanding accounts receivable balances.
 
 
NOTE 15 – Subsequent Events
 
Subsequent to the year ended December 31, 2015, the Company issued 4,650,000, Sale Shares and 15,724 per sale Commitment Shares under the 2015 Equity Line for aggregate proceeds of $235,740.
 
Subsequent to the year ended December 31, 2015, the Company made shares issuances to staff and service providers. In issuing these shares we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended. These included: (a) 651,269 restricted common shares to a service provider on January 8, 2016 at a negotiated price of $0.05 per share for deemed aggregate compensation of $32,563; (b) 600 restricted common shares to Employee One on January 1, 2016 at market close price of $0.0614 per share for deemed aggregate compensation of $37; (c) 5,000 restricted common shares to an employee on January 11, 2016 at market close price of $0.064 per share for deemed compensation of $320; and (d) 3,500 restricted common shares at market close price of $0.0559 on March 4, 2015 to a professional athlete endorser for deemed compensation of $196.
 
Subsequent to the year ended December 31, 2015, on February 1, 2016, the Company's CEO and President & COO executed the following changes to their employment agreements which were approved by the Compensation Committee: (a) temporarily lower the CEO's annual cash compensation by 25% to $97,500 until January 1, 2017, unless reset sooner under the terms of his agreement addendum, and add a share bonus plan using $130,000 per annum as the grant calculation base; and (b) temporarily lower the President & COO's annual cash compensation by 25% to $206,250 until January 1, 2017, unless reset sooner under the terms of the Agreement Addendum, and add a share bonus plan using $275,000 per annum as the grant calculation base.
 
Subsequent to the year ended December 31, 2015, in February 2015 we executed a private placement unit offering which raised $171,000 through the sale of 4,275,000 units. This offering terminated on March 29, 2016 and was priced at $0.04 per unit with each unit being comprised of one restricted common share price plus one five year warrant exercisable to purchase one restricted common share at $0.055 per share. These shares were issued to four US persons who are accredited investors (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended) or qualified under the terms Rule 506 Regulation D, and in issuing these shares we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
It was management's assessment that there were no other events which should be classified as subsequent events for the period of these financial statements.
 
 
 
 
 
 
Management’s Discussion and Analysis of Financial C on dition and Results of Operations
 
Overview
 
We were incorporated under the laws of the State of Nevada on October 4, 2010. Our business model was to develop and commercialize our website, www.teamupsport.com, which was to be a website designed to integrate into a single online offering, people’s interest in sport with the new capabilities of online social networking. However, as we had not successfully developed business model at the time prior to the entry into the Asset Purchase Agreement with SITC, and had no source of revenue from our business plan, we determined to seek out a new business opportunity to increase value for our stockholders.
 
On October 4, 2013, we completed the acquisition of our current business pursuant to the Asset Purchase Agreement with SITC. As a result of the acquisition, we have determined to pursue the business of the health beverage and food business. Inception under this section “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” refers to the inception of the business of SITC as a result of our acquisition of the business of SITC. The following discussion of the financial condition and results of operations should be read together with the mentioned financial statements and the notes to those financial statements included in registration statement.
 
The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report, particularly in the section entitled “Risk Factors”.
 
The financial statements and dollar amounts included herein are stated in United States Dollars and are prepared in accordance with United States generally accepted accounting principles.
 
Critical Accounting Policies
 
Basis of presentation
 
The financial statements of the company have been prepared in accordance with the accounting principles generally accepted in the United States of America.
 
Inventories
 
Inventories are primarily raw materials and finished goods. Inventories are valued at the lower of, cost as determined on an average basis, or market. Market value is determined by reference to selling prices after the balance sheet date or to management’s estimates based on prevailing market conditions. Management writes down the inventories to market value if it is below cost. Management also regularly evaluates the composition of its inventories to identify slow-moving and obsolete inventories to determine if valuation allowance is required. Costs of raw material and finish goods inventories include purchase and related costs incurred in bringing the products to their present location and condition.
 
Revenue recognition
 
Sales revenue consists of amounts earned from customers through the sale of its consumer products and from delivery fees. Sales revenue is recognized when persuasive evidence of an arrangement exists, price is fixed or determinable, title to and risk of loss for the product has passed, which is generally when the products are received by the customers, and collectability is reasonably assured. Customers accept good FOB shipping point. Goods are sold on a final sale basis and in the normal course of business the Company does not accept sales returns.
 
Cost of goods sold
 
Cost of goods sold consists primarily of selling of raw materials and finished goods purchased from vendors as well as warehousing and distribution costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.
 
 
 
77

 
 
Stock Based Payments
 
We account for share-based awards to employees in accordance with ASC 718 “Stock Compensation”. Under this guidance, stock compensation expense is measured at the grant date, based on the fair value of the award, and is recognized as an expense over the estimated service period (generally the vesting period) on the straight-line attribute method. Share-based awards to non-employees are accounted for in accordance with ASC 505-50 “Equity”, wherein such awards are expensed over the period in which the related services are rendered.
 
RESULTS OF OPERATIONS

The following discussion and analysis covers material changes in the financial condition of our Company for the years ended December 31, 2015 and December 31, 2014. A summary is as follows:

   
Year ended
December 31, 2015
   
Year ended
December 31, 2014
 
Total sales
  $ 635,503     $ 1,254,234  
Cost of goods sold
    541,069       1,094,037  
GROSS MARGIN
    94,434       160,197  
Operating Expenses:                
Research and development
    6,502       3,931  
Advertising and marketing
    435,390       967,164  
General and administrative
    1,822,434       1,745,569  
Non-cash compensation
    1,170,115       2,046,991  
Total Operating expenses
    3,434,441       4,763,655  
Loss from operations
    (3,340,007 )     (4,603,458 )
Other non-cash income (expense)
    (204,990 )     1,838  
Interest expense
    (255,372 )     (1,007 )
NET LOSS
  $ (3,800,369 )   $ (4,602,627 )
                 
Net loss per share, fully diluted
  $ (0.04 )   $ (0.06 )
 
Total Sales

Total sales are comprised of product sales and shipping and delivery fees. During the year ended December 31, 2015 we recorded total sales of $635,503 compared with total sales of $1,254,234 for the year ended December 31, 2014, representing a decrease of 49%. Product sales and shipping and delivery fees for the year ended December 31, 2015 were $611,424 and $24,079 respectively, compared with $1,160,941 and $93,293 for the year ended December 31, 2014.
 
We attribute the comparative decrease in sales during the year ended December 31, 2015 to the lack of success of beverage distribution arrangements and our decreased expenditure on advertising and marketing due to a reduction in working capital from reduced sales. To rebuild our revenue base we chose to take back control of our brand. In August 2015, we hired former POM Wonderful executive Kyle Redfield to provide new leadership, restructure and create new revenue streams and in September 2015 we terminated our former master beverage distributor.
 
Cost of Goods Sold
 
As referenced in our Description of Business above, our production is based on an outsourcing business model which utilizes third parties for the bulk of our non-core business operations, such as coffee fruit extraction and product manufacturing. The main component of our cost of goods sold ('COGS') relates to costing the finished goods which are drawn from our inventory when sold. These finished goods primarily include bottles of different types of our coffee beverages in various container and lot sizes which have been manufactured in a staged process for us by third parties and delivered to our warehouse, or to inventory logistics service providers, for distribution. Costing is done by applying specific unit sales to unit product costs based on the costs per unit recorded in our inventory system. Costs per unit in the inventory system include per unit manufacturing charges from outsource manufacturers.
 
 
 
 
78

 
 
 
Along with the current period cost of inventory which has been used for product sales, COGS also include expensing of inventory which has: (i) been disposed of because it has expired and/or become obsolete; and (ii) been subject to a write-down reserve because the inventory has been deemed to be potentially useful, but has been slow moving for a significant period of time. During the year ended December 31, 2015, we disposed of $26,760 of obsolete inventory and during the year ended December 31, 2014, we disposed of $49,249 of obsolete current inventory, net of $18,732 of inventory which previously had previously been reserved. Obsolete inventory during 2015 was primarily comprised of dried coffee fruit raw material which had an expired useful life. Obsolete inventory during 2014 was comprised both of dried coffee fruit raw materials which had expired, old labels which included outdated information, and remaining inventory of a discontinued product. At year end December 31, 2015 we had no further reserves of outdated inventory.
 
For the years ended December 31, 2015 and December 31, 2014, COGS were $541,069 and $1,094,037, or 85% and 87% of sales. This corresponds to gross margin percentages of 15% and 13%. As order flow increases we should benefit from less expensive shipping costs and the economies of scale of larger production runs. We project COGS will decrease during fiscal 2016 and gross margin will improve.
 
COGS primary components for the years ended December 31, 2015 and December 31, 2014 are as follows: (i) manufacturing costs, which include both in-house and outsourced manufacturing costs, totaled $384,293 versus $746,377, respectively; (ii) customer shipping which totaled $92,907 versus $175,515, respectively; (iii) shipping and inventory delivery which totaled $16,051 versus $61,563, respectively. and (iv) packaging which totaled $14,368 versus $44,902, respectively.
 
Operating Expenses
 
Our operating expenses are classified into three categories:

- Research and development
- Advertising and marketing
- General and administrative expenses

Research and Development

Research and development costs were $6,502 and $3,931, respectively for years ended December 31, 2015 and December 31, 2014, respectively, for a comparative increase of 65%. Increases in research and development costs are attributable to development of new products, such as our Cold Brew Coffee line. We project R&D costs will remain near current levels during the upcoming fiscal year.

Advertising and Marketing

Advertising and marketing costs were $435,390 for the year ended December 31, 2015, compared with $967,164 for the year ended December 31, 2014, representing a decrease of 55%. Primary components of advertising and marketing cost during the years ended December 31, 2015 versus December 31, 2014 were as follows: (i) sales and marketing fees paid to our former beverage distributor based on the sales they produced were $8,377 versus $241,306, representing an decrease of 97%; (ii) the cost of free samples and product demonstrations was $93,478 versus $231,883, representing a decrease of 60%; (iii) advertising and graphic art costs were $211,284 versus $160,548, representing an increase of 32%; (iv) website expenses were $27,580 versus $75,976, representing a decrease of 64%; and (iv) other marketing expenses including sponsorship and public relations initiatives totaled $94,671 versus $357,451, representing a decrease of 74%. We project advertising and marketing costs will increase during our upcoming fiscal year.
 
 
 
 
79

 

 
General and Administrative
General and administrative ('G&A') costs were $2,992,549 for the year ended December 31, 2015 compared to and $3,792,560 for the year ended December 31, 2014, representing a decrease of 21%. We project general and administrative expenses will remain at current levels or increase moderately during the coming fiscal year.
 
G&A costs include cash expand non-cash expenses. Non-cash expenses include Black-Scholes option and warrant grant costing and amortization expenses, stock based compensation expenses, stock issued for services, and depreciation expenses. For the years ended December 31, 2015 and December 31, 2014, G&A cash expenses comprised $1,822,434 and $1,745,569, or 61% and 46% of total expenses; and G&A non-cash expenses comprised $1,170,115 and $2,046,991 or 39% and 54% respectively of total G&A. Year over year G&A cash expenses increased by 4% and G&A non-cash expenses decreased by 43%.
 
Major items within expenses paid in cash for years ended December 31, 2015 and December 31, 2014 included: (i) payroll of $835,912 versus $745,262, representing an increase of 12%; (ii) professional and consultant fees of $221,558 versus $337,316, representing a decrease of 34%; (iii) VDF License fees and related interest expenses of $318,481 versus $150,791, representing an increase of 111%; and (iv) total rent expenses of $116,089 versus $113,356, representing an increase of 2%.
 
During the year ended December 31, 2015, payroll increases were due to the addition of executive, warehouse and office support staff. Professional and consulting fees decreases related to reduced legal expenses. Rent increases were due to the tiered increases within our warehouse lease.
 
Other Income (Expense)
 
During the year ended December 31, 2015 we incurred an other expense totaling $460,362; and during the year ended December 31, 2014 we recorded other income of $831. Other income (expense) for years ended December 31, 2015 and December 31, 2014 included: (i) cash interest paid of $128,458 and non-cash interest accruals of $126,914, for total interest expense of $255,372 in 2015, versus $1,007 in non-cash interest accrual in 2014; (ii) amortization expense for discounts on notes payable of $128,200 in 2015, versus $nil in 2014; (iii) non-cash expense for the fair market value of a derivative liability of 35,037 in 2015, versus non-cash income for the fair market value of a derivative liability of $1,838 in 2014; and a non-cash expense of $41,753 related to the re-set of the exercise price of previously issued warrants in 2015, versus $nil in 2014. Other than interest expenses for currently outstanding debt and further non-cash derivative related gains or losses which may arise during the coming year, we cannot project other income (expense) items in the near term.
 
Net Loss
 
Our net losses for the years ended December 31, 2015 versus December 31, 2014 were $3,800,369, or $0.04 per share, versus $4,602,627, or $0.06 per share.
 
 
 
 
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Liquidity and Capital Resources

Our financial position as at December 31, 2015 and December 31, 2014 was as follows:
 
Net Working Capital
   
As of
December 31, 2015
   
As of
December 31, 2014
 
             
Current Assets
  $ 645,107     $ 843,217  
Current Liabilities
    463,063       207,794  
Net Working Capital (Deficit)
  $ 182,044     $ 635,423  
 
At December 31, 2015 we had cash on hand of $148,769, accounts receivable of $33,227, accounts receivable - related party of $18,000; inventory of $439,158, prepaid expenses of $5,953, and other current assets of $nil. This compares with cash on hand of $39,987, accounts receivable of $274,640, accounts receivable - related party of $3,600; inventory of $508,338, prepaid expenses of $16,000, and other current assets of $652 at December 31, 2014.
 
Our net working capital decreased to a balance of $182,044 at December 31, 2015 from a balance of $635,423 at December 31, 2014. At present, we project we will need to raise additional capital during the coming twelve months to fund our strategic plans.
 
Our cash flows for the years ended December 31, 2015 and December 31, 2014 were as follows:
 
Cash Flows
   
Year ended
December 31, 2015
   
Year ended
December 31, 2014
 
             
Net cash (used) by operating activities
  $ (2,009,549 )   $ (3,008,496 )
Net cash provided/(used) in investing activities
          (14,674 )
Net cash provided by financing activities
    2,118,331       2,850,001  
Increase (decrease) in cash during the period
    108,782       (173,169 )
Cash, beginning of period
    39,987       213,156  
Cash, end of period
  $ 148,769     $ 39,987  
 
Comparative figures for Net cash (used) by Operating Activities is comprised of the net loss of $3,800,369 for the year ended December 31, 2015 versus a net loss of $4,602,627 for the year ended December 31, 2014, and also includes comparative non-cash add-backs of: (i) Black-Scholes options grant expense amortizations of $220,960 versus $807,161; (ii) Black-Scholes warrant issuance expense amortizations of $197,905 versus $216; (iii) stock issued for compensation of $350,883 versus $398,123; and (iv) stock issued for services of $598,272 versus $841,707.
 
Total non-cash items in computation of our cash flow comprise: $1,453,274, or 38%, of our total net loss of $3,800,369 for the year ended December 31, 2015; and $2,049,556, or 45%, of our total net loss of $4,602,627 for year ended December 31, 2014.
 
Other key elements included in net cash (used) by operating activities for the comparative years ended December 31, 2015 versus December 31, 2014 comprised: (i) a decrease in accounts receivable of $220,993 in 2015 versus an increase in accounts receivable of $254,022 in 2014; (ii) a decrease in inventory of $69,180 in 2015 versus an increase of $118,211 in 2014; and (iii) an increase in accounts payable and accrued liabilities of $19,402 in 2015 versus a decrease in accounts payable and accrued liabilities of $79,501 in 2014.
 
 
 
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Cash Raised from Equity Sales

During the year ended December 31, 2015, the Company raised $350,000 cash from two private placements of its restricted common shares and $629,850 through equity line sales of common shares which have been registered in a Form S-1. During the year ended December 31, 2014, the Company raised $1,000,000 from two private placements unit sales and $1,700,001 through equity line sales of common shares which have been registered in a Form S-1.

Cash Raised from Debt

During the year ended December 31, 2015, the Company raised: (a) net proceeds from short term debt of $325,000, which was comprised of three short term promissory notes which provided net proceeds of $90,000, $135,000 and $100,000 respectively; (b) net proceeds of $Nil from short term debt - related party, which was comprised of an advance of $500,000 from a director of the Company and a repayment to him of $500,000; and (c) net proceeds of $813,481 from convertible notes payable which was comprised of: (i) net proceeds of $Nil from one lender who advanced net $400,000 and received repayment of that $400,000, (ii) two fixed exercise price convertible notes from the same lender which provided net proceeds of $225,000 and $270,000 respectively, and (iii) net proceeds of $318,481 from VDF from the rollover of $300,000 of License Fee payments and $18,481 of accrued interest. During the year ended December 31, 2014, the Company raised net proceeds from short debt and short term debt - related party of $Nil and $Nil respectively; and raised net proceeds from convertible notes of $150,000 which was comprised of $150,000 from the rollover of License Fee payments due to VDF.

Off-Balance Sheet Arrangements

We had no significant off-balance sheet arrangements at December 31, 2015 or December 31, 2014 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
Material Events and Uncertainties
 
Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable early stage companies in rapidly evolving markets. There can be no assurance that we will successfully address such risks, expenses and difficulties.
 
Changes in and Disagreements with A cc ountants on Accounting and Financial Disclosure
 
On March 26, 2014, the company engaged M&K CPAS PLLC, ('M&K') an independent registered public accounting firm, as the Company’s new principal independent accountant and accordingly dismissed Anton & Chia LLP ('A&C') that same day. The Company had not previously consulted with M&K regarding any accounting, or auditing matters.
 
A&C's audit report on the financial statements of the Company for the year ended December 31, 2013 did not did not contain an adverse opinion or disclaimer of opinion, or qualification or modification as to uncertainty, audit scope, or accounting principles, except that such report on our financial statements contained an explanatory paragraph in respect to the substantial doubt about our ability to continue as a going concern.
 
During the fiscal year ended December 31, 2013 and in the subsequent interim period through the date of resignation, there were no disagreements, resolved or not, with A&C on any matter of accounting principles or practices, financial statement disclosure, or auditing scope and procedure, which disagreement(s), if not resolved to the satisfaction of A&C, would have caused A&C to make reference to the subject matter of the disagreement(s) in connection with its report. During the Company's fiscal year ended December 31, 2013 and in the subsequent interim period through the date of resignation, there were no reportable events as described in Item 304(a)(1)(v) of Regulation S-K.
 
Our Company provided A&C with a copy of the foregoing disclosures and requested that A&C furnish our Company with a letter addressed to the SEC stating whether or not it agrees with the above statements.  A copy of such letter is filed as Exhibit 16.1 to our Current Report on Form 8-K filed March 27, 2014.
 
We did not consult with M&K before their appointment regarding either the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on our financial statements.  The decision to change our principal independent accountant and engage M&K was reviewed and approved by the board of directors of our Company.
 
 
 
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Dire ct ors and Executive Officers
 
Directors and Executive Officers
 
As at April 26, 2016 , our directors and executive officers, their ages, positions held, and duration of such, are as follows:
 
 
Name
 
Position
 
Age
Date First Elected
or Appointed
Shaun Roberts
Chief Executive Officer and Director
46
October 4, 2013
Kyle Redfield
President, Chief Operating Officer
34
August 10, 2015
John Dawe
Chief Financial Officer, Treasurer and Secretary
56
March 18, 2014
Steven M. Schorr
Director
62
October 4, 2013
Gonzalo Camet
Director
45
October 4, 2013
William Van Dyke
Director
52
March 18, 2014

Our officers’ remain in their respective position until termination or resignation.
 
Business Experience
 
The following is a brief account of the education and business experience of each director and executive officer during at least the past five years, indicating each person’s business experience, principal occupation during the period, and the name and principal business of the organization by which they were employed.
 
Shaun Roberts - Chief Executive Officer, Director, and Board Chair
 
Mr. Roberts is a co-founder of the business and has been chief executive officer, director and board chair since its inception in 2008. Mr. Roberts oversees all operations and raised the capital which formed our business. On a day to day basis Mr. Roberts manages processes for raising capital, product development, sales, distribution and marketing.  He started his career as Los Angeles sales manager for Waxie Sanitary Supply in 1994, the largest privately held janitorial supply company in the United States. Mr. Roberts then worked as Western Regional Sales Manager for ABM, Inc. from 1996 to 1998, a facility management services and fortune 1000 company. Mr. Robert’s co-founded Fluid Concepts, LLC in 1998, which developed, created and sold industrial and retail eco-friendly cleaning products into the southern California marketplace. In 2003, Mr. Roberts co-founded Malie, Inc., a spa and beauty products company which now has retail locations in the U.S. and Japan and wholesale distribution around the globe. Mr. Roberts’ role at Fluid Concepts and Malie were reduced to a board member position in 2008. Mr. Roberts attended the economics program of San Diego State University from 1990-1993.
 
We believe that Mr. Roberts is qualified to serve on our board of directors because of his knowledge of our current operations in addition to his education and business experiences described above.
 
Kyle Redfield - President and Chief Operating Officer
 
On August 10, 2015, Kyle Redfield was hired as the Company's President and Chief Operating Officer and on that date, Mr. Roberts resigned his position as President in favor of Mr. Redfield. For the four and a half years prior to joining the Company, Mr. Redfield was General Manager of Industrial Sales at POM Wonderful, LLC, and a member of its Executive Management Team. POM Wonderful is a major fresh fruit, beverage and fruit extracts company. The Wonderful Company, parent company to POM Wonderful, generated $3.5 billion in sales as of October 2014. At POM Wonderful, Mr. Redfield's achievements included the start-up of the Industrial Division and growing POM Wonderful's revenue significantly within his tenure. Mr. Redfield managed a global sales team, designed and implemented all sales and marketing support materials, while overseeing all marketing, overhead and operational trade expenditures. While expanding national and global sales reach and revenue growth, he created multiple processes for customer service, shipping, technical and regulatory compliance, finance and production, and was responsible for full management of profit & loss, overhead, and budgeting. Prior to his position with POM Wonderful, Mr. Redfield was Director of Sales for B&D Nutritional Products from 2007 to 2011; and was an account executive at Five Points Capital, Inc. during 2006. Mr. Redfield received a Bachelor of Economics degree from the University of Colorado in May, 2006. Mr. Redfield's role at the Company is to oversee KonaRed’s global sales efforts, new product development, staff management, forecasting, production, distribution and day-to-day operations.
 
 

 
John Dawe - Chief Financial Officer, Secretary and Treasurer

On March 18, 2014, the Company engaged Mr. John Dawe as Chief Financial Officer, and Secretary and Treasurer. Mr. Dawe brings more than 33 years of financial, business, and executive level experience to KonaRed Corporation, having served as Treasurer, VP Finance, and CEO for various finance-related entities since 1993. Mr. Dawe’s experience includes profitably managing a $1.1 billion asset portfolio as treasurer of a credit union   and he has substantial expertise running start-up companies . In 2002 Mr. Dawe founded DAS Corporate Services Inc. (“DAS”) a private company which provides maintenance of accounting and reporting systems for U.S. publicly traded companies. Mr. Dawe controls and has been CEO of DAS through to current date, but is no longer active in its day to day management. Since 2006 to current date Mr. Dawe has also controlled and been President of GBG Management Services Inc., a private company which provides management consulting services to small businesses, but is no longer involved in active in its day to day management. Mr. Dawe received a Bachelor of Commerce degree from the University of British Columbia in 1983; and was awarded the designation of Chartered Financial Analyst (“CFA”) in 1988.
 
Gonzalo Camet - Director, Member of Compensation Committee
 
Gonzalo Camet was an early investor in our predecessor company SITC and has provided advisor services to our business over the course of its development. On October 4, 2013, Mr. Camet was appointed to the board of directors of our Company and was subsequently appointed also as a Member of the Compensation Committee of the Board. Mr. Camet is one of the main shareholders of JJC Holding Corp and between 2001 to 2015 was  Chief Financial Officer of the JJC Group of Companies, one of the largest engineering and construction businesses in Peru. Mr. Camet also served as Chief Financial Officer of the agricultural division of the JJC Group of Companies from 2001 to 2015. Mr. Camet now resides in Spain where he is establishing a real estate investment business.
 
We believe Mr. Camet is qualified to serve on the board of directors because of his knowledge and experience in strategic business development and finance.
 
Steven M. Schorr - Director
 
Mr. Schorr is a co-founder of the business and was our Chief Scientific Officer prior to retirement from this role in 2013. From inception in 2008 to 2013, Mr. Schorr played a key role in the KonaRed product conception, design and development, manufacturing and production, directing scientific research and legal management. Subsequent to retirement, Mr. Schorr has continued his role as a member of the board of directors of the Company. Mr. Schorr is the author of 20 U.S. and international patents, including five patents related to aeroponic technology (the process of growing plants in an air or mist environment without the use of soil). Mr. Schorr is also a director of Bioponic Phytoceuticals, Inc., a private company engaged in the development, formulation and production of products for sale in the global complementary alternative medicine and natural product markets.
 
We believe that Mr. Schorr is qualified to serve on our board of directors because of his knowledge of coffee berry chemistry and our current operations in addition to his education and business experiences described above.

William Van Dyke - Director, Member of Compensation Committee

On March 18, 2014, we appointed Mr. William Van Dyke to our Board. Mr. Van Dyke has been the chairman and CEO of B&D Nutritional Ingredients since 1993 . As the founder, Mr. Van Dyke has been the pivotal force behind B&D’s development into a full-service, North American sales and marketing company. His sales and marketing career in the dietary supplement industry spans more than 20 years. As the Council for Responsible Nutrition’s 2000-2002 Chairman, Mr. Van Dyke has served on numerous committees throughout his 20-year involvement with CRN. Mr. Van Dyke has also served on the board of directors for other industry organizations.
 
We believe Mr. Van Dyke is qualified to serve on the board of directors because of his specialized industry knowledge in addition to his education and business experience in finance and the Dietary Supplement and Functional Food category .
 
Committees of the Board
 
The Compensation Committee is comprised of the Company's two independent directors and is responsible for the review of all executive compensation matters.
 
We do not have a separate audit committee at this time. Our entire board of directors acts as our audit committee.
 
 
 
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Family Relationships
 
There are presently no family relationships among our directors or officers.
 
Involvement in Certain Legal Proceedings
 
Our directors, executive officers and promoters have not been involved in any of the following events during the past ten years:
 
(1)
a petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
   
(2)
a conviction in a criminal proceeding or named in a pending criminal proceeding (excluding traffic violations and other minor offenses);
   
(3)
being the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

 
(i)
acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
     
 
(ii)
engaging in any type of business practice; or
     
 
(iii)
engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;

(4)
being the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (3)(i) above, or to be associated with persons engaged in any such activity;
   
(5)
being found by a court of competent jurisdiction in a civil action or by the SEC to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
   
(6)
being found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
   
(7)
being the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

 
(i)
any Federal or State securities or commodities law or regulation; or

 
(ii)
any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order; or
     
 
(iii)
any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or

(8)
being the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization, any registered entity, or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
 
 
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Executive Co mpensation
 
The summary compensation table below covers all compensation paid by our Company to the following persons who we will collectively refer to as the Named Executive Officers, for all services rendered in all capacities to us for the fiscal years ended December 31, 2015 and December 31, 2014. These named executive officers include: (a) all individuals serving as principal executive officers of our Company during the years ended December 31, 2015 and December 31, 2014; (b) each of two most highly compensated executive officers of our Company other than its principal executive officer who were serving as executive officers at December 31, 2015 and December 31, 2014 whose compensation exceeded $100,000; and (c) up to two additional individuals for whom disclosure would have been provided under (b) but for the fact that the individual was not serving as executive officer at December 31, 2015 or December 31, 2014.
 
Summary Compensation Table – Years Ended December 31, 2015 and December 31, 2014

Name and Principal Positions
Fiscal
Year
Salary
($)
Restricted Stock Awards/SARs (1)
($)
Securities Underlying Options/SARs (1)
(#)
All Other
Compensation (2)
($)
           
Shaun Roberts
CEO
2015
2014
$130,000
$130,000
$Nil
$Nil
Nil
2,500,000 (3)
$Nil
$316,888 (3)
Kyle Redfield (4)
President & COO
 
2015
$108,197
 
$250,595
 
Nil
 
$Nil
John Dawe
CFO and Secretary & Treasurer
2015
2014
$125,000
$76,500 (5)
$100,000 (5)
$49,325 (5)
Nil
750,000 (5)
$Nil
$114,236 (5)

Notes:
(1)   SAR’s are “Stock Appreciation Rights”. We have to date not issued any SARs.   LTIP’s are “Long-Term Incentive Plans”. We have to date not created any LTIPs.
(2)   Other than for Mr. Roberts, Mr. Redfield, and Mr. Dawe, there are no employment agreements in place which include compensatory plans or arrangements for our executive officers resulting from resignation, retirement, or other termination of employment, or from a change of control. As detailed below, there are employment agreements in place for Mr. Roberts, Mr. Redfield and Mr. Dawe, which include compensatory plans or arrangements for our executive officers resulting from resignation, retirement, or other termination of employment, or from a change of control. As stated in their agreements, Mr. Roberts and Mr. Dawe would each receive one and a half times annual total compensation based on Involuntary Termination Unrelated to Change of Control; and two times annual total compensation for Involuntary Termination Related to Change of Control.
(3) On December 19, 2014, Mr. Roberts was granted 2,500,000 options of which 1,000,000 vested immediately and 750,000 vested each on June 30, 2015 and December 31, 2015. For the year ended December 31, 2014, the non-cash Black-Scholes cost of Grant Two was recorded as $159,825, of which $7,511was for amortization of the of the options which vest in fiscal 2015 over the service period ended December 31, 2014. During the year ended December 31, 2014, Mr. Roberts was granted 250,499 shares which were registered under a Form S-8 which had a value of $0.627 per share on issuance date, and had a total deemed compensation value of $157,063.
(4) Mr. Redfield joined the Company on August 10, 2015.
(5) Prior to being engaged as our CFO on March 18, 2014, Mr. Dawe was paid consulting fees of $22,500 for services provided from January 1 to March 17, 2014. In the position of CFO, Mr. Dawe's compensation was $76,500 for period from March 18 to December 31, 2014. During his tenure as a consultant, Mr. Dawe also received fee payments in restricted shares totaling $49,325. For the year ended December 31, 2014, the non-cash Black-Scholes cost of the 750,000 immediately vested options granted on December 19, 2014 was recorded as $114,236. Share payments and option grants were executed through issuances to GBG Management Services, Inc., a company controlled by Mr. Dawe.
 
 
 
 
 
 
 
 
 
Employment or Consulting Agreements
 
Shaun Roberts – Chief Executive Officer
On October 4, 2013, we entered into an executive employment agreement with Mr. Roberts as our company’s Chief Executive Officer for an annual base salary of $130,000 for a 3 year term. Mr. Roberts is also eligible to participate in a target bonus and year-end bonus plan whereby Mr. Roberts is eligible to receive a cash bonus or securities bonus based on milestones described in further detail in the employment agreement. Mr. Roberts is also eligible to receive benefits made generally available by our Company and shall be reimbursed for all reasonable out-of-pocket business expenses. In the event of: (i) an involuntary termination of Mr. Robert’s employment for any reasons other than cause, death or disability; or (ii) Mr. Robert’s resignation for good reason, he shall be entitled to: (A) 1.5 times his annual base salary and target bonus, paid in a single lump sum in cash on the 60th day following the termination date; (B) for a period of up to 18 months following the termination date, Mr. Roberts and where applicable, his spouse and eligible dependents, will continue to be eligible to receive applicable medical coverage as described in the employment agreement; and (C) with respect to any outstanding stock options held by Mr. Roberts as of the termination date that are not vested and exercisable as of such date, our Company shall accelerate the vesting and such options will remain exercisable until the earlier of (i) a period of one year after the termination date or (ii) the original term of the option; and (D) Mr. Roberts shall receive any amounts earned, accrued or owing but not yet paid to him as of his termination date. In the event Mr. Roberts employment is terminated on account of: (i) an involuntary termination by our Company for any reason other than cause, death or disability; or (ii) Mr. Roberts voluntarily terminates employment with our Company on account of a resignation for good reason, in either case that occurs: (x) at the same time as, or within the 12 month period following, the consummation of a change of control; or (y) within the 60 day period prior to the date of a change of control where the change in control was under consideration at the time of Mr. Robert’s termination date, then he shall be entitled to: (A) 2 times his annual base salary and target bonus; (B) for a period of up to 24 months following the termination date, Mr. Roberts and where applicable, his spouse and eligible dependents, will continue to be eligible to receive applicable medical coverage as described in the employment agreement; (C) with respect to any outstanding stock options held by Mr. Roberts as of the termination date that are not vested and exercisable as of such date, our Company shall accelerate the vesting and such options will remain exercisable until the earlier of: (i) a period of one year after the termination date, or (ii) the original term of the option; and (D) Mr. Roberts shall receive any amounts earned, accrued or owing but not yet paid to him as of his termination date. During the term of the employment agreement and for a period of 1 year from the termination of the agreement, Mr. Roberts shall not be employed by a direct competitor in the coffee fruit business, directly or indirectly. Mr. Roberts employment agreement was amended on February 1, 2016 to temporarily lower annual cash compensation by 25% to $97,500 until January 1, 2017, unless reset sooner under the terms of the Agreement Addendum, and add a share bonus plan using $130,000 per annum as the grant calculation base.
 
Kyle Redfield – President and Chief Operating Officer
Mr. Redfield's compensation includes a base salary of $275,000 per annum paid biweekly and a standard quarterly bonus of 100% of quarterly base salary to be paid in cash subject to certain conditions, or through issuances of restricted common shares of the Company. The Agreement has a three year term and automatically renews for additional one year renewal periods provided, however, that within the sixty to ninety day period prior to the expiration of the Initial Term or any Renewal Term, at its discretion, the Compensation Committee of the Board of Directors may propose such amendments to the Agreement as it deems appropriate. Should Mr. Redfield exceed a set of mutually agreed performance targets, his base salary shall be increased to a level of $325,000 per annum at the six month anniversary of the Effective Date of the Agreement. The Agreement provides that heath care and other benefits generally made available to other executives of the company will be provided to Mr. Redfield and that he shall be reimbursed for all reasonable 0ut-of-pocket business expenses. If Mr. Redfield is terminated during the first twelve months of this Agreement he will be paid three months base salary within sixty days following termination. During any subsequent period, upon termination Mr. Redfield would receive the initial three months base salary severance for his first twelve months of employment, plus three months additional base salary for each subsequent twelve month period of employment, such additional severance to be pro-rated for the period during which Termination occurred. Taken together, all severance would not exceed a payment of twelve months base salary. Mr. Redfield was issued 1,333,333 restricted common shares of the Company as a signing bonus and will receive additional issuances of 1,333,333 restricted common shares each on the twelve month and twenty four month anniversaries of Effective Date. The Agreement has a non-compete clause wherein, during the term of the Agreement and for a period of two years from the termination of the Agreement, Mr. Redfield agrees not to be employed by a direct competitor in the coffee fruit business, directly or indirectly. Mr. Redfield's employment agreement was amended on February 1, 2016 to temporarily lower annual cash compensation by 25% to $206,250 until January 1, 2017, unless reset sooner under the terms of the Agreement Addendum, and add a share bonus plan using $275,000 per annum as the grant calculation base.
 
 
 
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John Dawe – Chief Financial Officer, Secretary and Treasurer
On December 29, 2014, we entered into an executive employment agreement (the "Agreement") with  John Dawe as our Company’s Chief Financial Officer, and Secretary and Treasurer for an annual base salary of $125,000 paid in equal monthly installments. Mr. Dawe will also be granted a bonus of 100% of base salary per annum to be paid, subject to  the Company having sufficient cash resources, in quarterly cash payments; or in Form S-8 common shares of the Company. The Agreement has a three year term and automatically renews for additional one year renewal periods provided, however, that within the sixty to ninety day period prior to the expiration of the Initial Term or any Renewal Term, at its discretion, the Compensation Committee of the Board of Directors may propose such amendments to the Agreement as it deems appropriate. Excluding healthcare, Mr. Dawe will receive benefits made generally available by our company and shall be reimbursed for all reasonable out-of-pocket business expenses and is also eligible to participate in any future target bonus system, if implemented, and is eligible to receive a one-time bonus if certain strategic goals are met. In the event of: (i) an involuntary termination of Executive's employment for any reasons other than cause, death or disability; or (ii) resignation for good reason, he shall be entitled to: (A) one and one-half times (or two times, in the event of a Change of Control) his annual compensation paid in a single lump sum in cash on the 60th day following the termination date; and (B) with respect to any outstanding Company stock options held as of his Termination Date that are not vested and exercisable as of such date, the Company shall accelerate the vesting of stock options, if any, which would have vested and become exercisable within the eighteen month period after Termination Date, such options to remain exercisable until the earlier of: (A) a period of one year after Termination Date; or (B) the original term of the option; and (C) Executive shall receive any amounts earned, accrued or owing but not yet paid to him as of Termination Date. During the term of the employment agreement and for a period of 1 year from the termination of the agreement, Executive shall not be employed by a direct competitor in the coffee fruit business, directly or indirectly. Mr. Dawe may opt to have his shares compensation, and/or options grants issued to either, or a combination of, DAS Corporate Services Inc. or GBG Management Services Inc., which are companies controlled by him. Mr. Dawe's Agreement was amended on November 10, 2015 to change the type of stock which might be granted from being S-8 registered common shares to being restricted common shares.
 
Resignation, Retirement, Other Termination, or Change in Control Arrangements
 
Other than as provided in the compensation agreements for Messrs. Roberts, Redfield and Dawe, the Company has no contract, agreement, plan or arrangement, whether written or unwritten, that provides for payments to directors or executive officers at, following, or in connection with the resignation, retirement or other termination of its directors or executive officers, or a change in control of our Company or executive officers’ responsibilities following a change in control.
 
Outstanding Equity Awards at Fiscal Year-End
 
Excluding common shares which were issued for compensation, settlement of accounts payable, and settlement of shareholder advances, and other than the option grants described below, there were no outstanding equity, or equity equivalent, awards as of December 31, 2015 and December 31, 2014 with respect to each named executive officer.
 
Stock Option Grants

During the years ended December 31, 2015 and December 31, 2014, the Company granted options to the following Named Executive Officers as follows:
 
 
 
 
 
 
 
 
88

 
 
 
                  
Option/SAR (1) Grants in Last Fiscal Year Issued to Executive
 
Name
Fiscal
Year
Number of
Securities
Underlying Options
or SAR’s
Percent of
Total Options or SARs Granted to Employee in Fiscal Year (3)
Exercise Price
($/share)
Expiration
Date
Grant Date
Value
($) (2)
             
Shaun Roberts
2829 Ala Kalanikaumaka St.,
Suite F-133, Koloa, HI 96756
2015
2014
Nil
2,500,000 (4)
Nil
37.0%
n/a
$0.17
December
19, 2019
$Nil
$380,786 (5)
Kyle Redfield (6)
1101 Via Callejon #200,
San Clemente, CA 92673-4230
 
 
2015
 
Nil
Nil
n/a
n/a
$Nil
John Dawe (7)
1101 Via Callejon #200,
San Clemente, CA 92673-4230
2015
2014
 
Nil
750,000 (7)
 
Nil
11.1%
 
n/a
$0.17
 
December
19, 2019
 
$Nil
$114,236
Notes:
(1)   SAR’s are “Stock Appreciation Rights”.
(2) Grant date value as calculated by Black-Scholes Option Pricing Model valuations.
(3) Based on a net total of 6,750,000 options granted during the year ended December 31, 2014.
(4) 1,000,000 of the options granted to Mr. Roberts on December 19, 2014 vested immediately and 750,000 vested on June 300, 2015 and 750,000 vested on December 31, 2015.
(5) For the year ended December 31, 2014, Mr. Roberts' immediately vested options were recorded as non-cash Black-Scholes expense of $152,314 plus $7,511 for the service period amortization of his non-vested options from grant date to December 31, 2014. The stated cost in the table includes the total Black-Scholes non-cash cost for both vested and non-vested options.
(6) Mr. Redfield joined the Company on August 10, 2015.
(7) Mr. Dawe's options were issued to GBG Management Services Inc. a company controlled by Mr. Dawe.


 
Aggregated Option/SAR Exercises and Fiscal Year-End Option/SAR Issued to Executive
 
Name
Fiscal
Year
Shares Acquired on Exercise
(#)
Value
Realized
($)
Number of Securities
Underlying Unexercised
Options/SARs at
Fiscal year-end
(#)
Value of Unexercised
In-the-Money Options/SARs
at Fiscal year-end (1)
($)
       
Exercisable
Unexercisable
Exercisable
Unexercisable
Shaun Roberts
2829 Ala Kalanikaumaka St.,
Suite F-133, Koloa, HI 96756
2015
2014
Nil
Nil
 
$Nil
$Nil
2,500,000
1,000,000
n/a
1,500,000
 
$Nil
$Nil
 
n/a
n/a
Kyle Redfield (2)
1101 Via Callejon #200,
San Clemente, CA 92673-4230
 
 
2015
 
Nil
 
Nil
Nil
Nil
$Nil
$Nil
John Dawe (7)
1101 Via Callejon #200,
San Clemente, CA 92673-4230
2015
2014
Nil
Nil
 
$Nil
$Nil
750,000
750,000
n/a
n/a
 
$Nil
$Nil
 
n/a
n/a
Notes:
(1) Based on a year-end closing trade price of $0.055 per share.
(2) Mr. Redfield joined the Company on August 10, 2015.

 
 
89

 
 
 
Security Ownership of C ertain Beneficial Owners and Management
 
Under SEC rules, a person (or group of persons) is deemed to be a “beneficial owner” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
 
Under SEC rules, a person (or group of persons) is deemed to be a "beneficial owner" of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security. Accordingly, more than one person may be deemed to be a beneficial owner of the same security. A person is also deemed to be a beneficial owner of any security, which that person has the right to acquire within 60 days, such as options or warrants to purchase our common stock.
 
The following table provides certain information regarding the ownership of our common stock, as of April 25, 2016 by: (i) each of our Named Executive officers; (ii) each of our directors; and (iii) all of our executive officers and directors as a group.
 
Name and Address of Beneficial Owner
 
Amount and Nature
of Beneficial Owner (1)
   
Percent of Class (2)
 
Shaun Roberts , Chief Executive Officer and Director
2829 Ala Kalanikaumaka St., Suite F-133, Koloa, HI 96756
    12,038,314 (3)     9.7 %
Kyle Redfield , President and Chief Operating Officer
1101 Via Callejon #200, San Clemente, CA 92673-4230
    3,100,163 (4)     2.6 %
John Dawe , Chief Financial Officer, Treasurer and Secretary
1101 Via Callejon #200, San Clemente, CA 92673-4230
    1,962,878 (5)     1.6 %
Gonzalo Camet , Director
Malecón Paul Harris 200 Dpto. 504, Lima, Peru 04
    9,126,131 (6)     7.4 %
Steven Schorr , Director
2829 Ala Kalanikaumaka St., Suite F-133, Koloa, HI 96756
    8,634,647 (7)     7.1 %
William Van Dyke , Director
1101 Via Callejon #200, San Clemente, CA 92673-4230
    1,014,107 ( 8 )     0.8 %
All Directors and Officers as a Group (6 Persons)
    35,876,240       29.7 %
Notes:
(1)   Except as otherwise indicated, we believe that the beneficial owners of the common stock listed above, based on information furnished by such owners, have sole investment and voting power with respect to such shares, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Common stock subject to options or warrants currently exercisable or exercisable within 60 days, are deemed outstanding for purposes of computing the percentage ownership of the person holding such option or warrants, but are not deemed outstanding for purposes of computing the percentage ownership of any other person.
(2) The denominator for this percentage calculation is based on the 120,171,593 issued and outstanding common shares of the Company as of April 25, 2016 .
(3)  Shaun Roberts is the spouse of our former CFO Dana Roberts. The shares held by each and the shares which would held if all currently exercisable options held by each were exercised are shown only as the holdings of each of these individuals and are not cumulatively shown for each as beneficially owned holdings since this would incorrectly inflate the total shareholding of all directors and officers as a group.
(4)  Shaun Roberts owns 8,538,314 shares of the Company and owns 2,500,000 options to purchase 2,500,000 shares, of which 1,000,000 options are immediately exercisable. Dana Roberts owns no shares of the Company and owns 1,000,000 options immediately exercisable to purchase 1,000,000 common shares.
(5) John Dawe owns 1,212,878 shares and 750,000  immediately exercisable stock options of the Company indirectly through his holding company GBG Management Services Inc..
(6) Gonzalo Camet directly owns 1,774,185 shares and indirectly owns 4,226,946 shares through his holding company Solait Corp. for a total of 6,001,131 shares. Mr. Camet also directly owns 750,000 options immediately exercisable to purchase 750,000 common shares; and Solait Corp owns 1,875,000 immediately exercisable warrants to purchase 1,875,000 shares; and Mr. Camet owns 500,000 immediately exercisable warrants to purchase 500,000 shares.
(7)  Steven Schorr owns 7,634,647 shares of the Company and 1,000,000 immediately exercisable options to purchase 1,000,000 shares.
(8)  William Van Dyke owns 264,107 shares of the Company and 750,000 immediately exercisable options to purchase 750,000 common shares.
 
Change in Control
 
We are not aware of any arrangement that might result in a change in control in the future.
 
 
 
90

 
 
 
Transactions with Related Persons, Prom ot ers and Certain Control Persons and Corporate Governance
 
Certain Business Relationships
 
Shared Lease
Our company shares a lease for a 10,000 square foot facility in San Clemente, California, with Malie, Inc., (“Malie”) a company owned by our CEO and his spouse, who is the CEO of Malie. The current lease has a term of June 1, 2014 to May 31, 2016 and presently requires total lease payments of $10,139 per month, of which the Company's portion is $7,790 per month. On February 25, 2016, the Company and Malie extended the lease for an additional 24 month term and committed to total lease payments of $10,466 for June 1, 2016 to May 31, 2017 and $10,793 for June 1, 2017 to May 31, 2018. The Company's portion of payments under the extended term arrangements are $6,461 for June 1, 2016 to May 31, 2017 and $6,663 for June 1, 2017 to May 31, 2018. For the year ended December 31, 2015 our Company paid a total of $92,479 (averaging $7,707 per month) of the total lease expense of $120,360 (averaging $10,030 per month). For the year ended December 31, 2014, our Company paid a total $90,471 (averaging $7,539 per month) of the total lease expense of $117,744 (averaging $9,812 per month).
 
Director Independence
 
We currently act with four directors consisting of Shaun Roberts, Steven M. Schorr, Gonzalo Camet and William Van Dyke. Our common stock is quoted on the OTCQB operated by the OTC Markets Group, which does not impose any director independence requirements. Under NASDAQ rule 5605(a)(2), a director is not independent if he or she is also an executive officer or employee of the corporation or was, at any time during the past three years, employed by the corporation. Using this definition of independent director, we have two independent directors, Gonzalo Camet and William Van Dyke.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Where Y ou Can Find More Information
 
We file annual, quarterly and current reports, proxy statements and other information with the Securities and Exchange Commission (the “ SEC ”). Such filings are available to the public over the internet at the SEC’s website at http://www.sec.gov.
 
We have filed with the SEC a registration statement on Form S-1 under the Securities Act of 1933 with respect to the securities offered under this prospectus. This prospectus, which forms a part of that registration statement, does not contain all information included in the registration statement. Certain information is omitted and you should refer to the registration statement and its exhibits.
 
You may review a copy of the registration statement at the SEC’s public reference room at 100 F Street, N.E. Washington, D.C. 20549 on official business days during the hours of 10 a.m. to 3 p.m. You may obtain information on the operation of the public reference room by calling the SEC at 1-800-SEC-0330. You may also read and copy any materials we file with the SEC at the SEC’s public reference room. Our filings and the registration statement can also be reviewed by accessing the SEC’s website at http://www.sec.gov.
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 


 
[*] Shares
 
KonaRed Corporation
 
Common Stock
 
 


 
 
 
 
 

 
________________, 2015
 
 

 
 
No finder, dealer, sales person or other person has been authorized to give any information or to make any representation in connection with this offering other than those contained in this prospectus and, if given or made, such information or representation must not be relied upon as having been authorized by our company. This prospectus does not constitute an offer to sell or a solicitation of an offer to buy any of the securities offered hereby by anyone in any jurisdiction in which such offer or solicitation is not authorized or in which the person making such offer or solicitation is not qualified to do so or to any person to whom it is unlawful to make such offer or solicitation. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or any sale of these securities. Our business, financial condition, results of operation and prospects may have changed after the date of this prospectus.
 
 
 

 

 
 
Information Not Required in Prospectus
 
Other Expen se s of Issuance and Distribution
 
The following table sets forth the costs and expenses payable by us in connection with the issuance and distribution of the securities being registered hereunder. The selling stockholders will bear no expenses associated with this offering except for any broker discounts and commissions or equivalent applicable to the sale of their shares. All of the amounts shown are estimates, except for the SEC registration fees.
 
SEC registration fees
  $ 302.62  
         
Accounting fees and expenses
  $ 2,956.88  
         
Legal fees and expenses
  $ 30,000  
         
Miscellaneous expenses
  $ 2,500  
         
Total
  $ 35,759.50  

 
Indemnificat io n of Directors and Officers
 
Nevada Revised Statutes provide that:
 
 
a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct was unlawful;
 
a corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred by him or her in connection with the defense or settlement of the action or suit if he or she acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction, after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation, unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for such expenses as the court deems proper; and
 
to the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation must indemnify him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection with the defense.
 
Nevada Revised Statutes provide that we may make any discretionary indemnification only as authorized in the specific case upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination must be made:
 
 
by our stockholders;
 
by our board of directors by majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding;
 
 
 
94

 
 
 
 
if a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent legal counsel in a written opinion;
 
if a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent legal counsel in a written opinion; or
 
by court order.
 
Our bylaws provide that our company shall indemnify our directors or former directors, against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually and reasonably incurred by him or them including an amount paid to settle an action or satisfy a judgment inactive criminal or administrative action or proceeding to which he is or they are made a party by reason of his or her being or having been our director or a director of such corporation, including an action brought by our company. Each of our directors on being elected or appointed is deemed to have contracted with our company on the terms of the foregoing indemnity.
 
At the discretion of our directors, our company may indemnify a director or former director of a corporation of which our company is or was a shareholder and the heirs and personal representatives of any such person.
 
At the discretion of our directors, our company may indemnify any of our officers, employees or agents, or of a corporation of which our company is or was a shareholder (notwithstanding that he is also a Director), and his or her heirs and personal representatives against all costs, charges and expenses incurred by him or them and resulting from his or her acting as an officer, employee or agent of our company. In addition our company shall indemnify the Secretary (notwithstanding that he is also a Director), and his or her respective heirs and legal representatives against all costs, charges and expenses incurred by him or them and arising out of the functions assigned to the Secretary by the Nevada corporate law or our Articles and each such Secretary, on being appointed is deemed to have contracted with our company on the terms of the foregoing indemnity.
 
At the discretion of our directors, our company may purchase and maintain insurance for the benefit of a person who is or was serving as a Director, officer, employee or agent of our or as a director, officer, employee or agent of a corporation of which our company is or was a shareholder and his or her heirs or personal representatives against a liability incurred by him as a Director, officer, employee or agent.
 
Recent S ales of Unregistered Securities
 
On February 6, 2015 we issued 600 restricted common shares at $0.0752 per share to an employee ("Employee One") for compensation. These share issuances were issued based on market close price on issue date for deemed payments totaling of $45. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On February 6, 2015, we issued 11,000 restricted common shares at $0.0752 per share to a professional athlete ("Ambassador One") for endorsement services rendered. These shares were issued at market close price on issue date for deemed compensation of $827. These shares were issued to US persons with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On April 30, 2015 we issued 131,579 restricted common shares at $0.19 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On May 1, 2015, we issued 300,000 restricted common shares to a third party for professional services rendered, such issuance which was valued at $0.20 per share for a deemed aggregate proceeds of $60,000, such grant being valued based on market close price on issue date. These shares were issued to one U.S. person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
 
 
95

 
 
 
On June 5, 2015, we issued 1,700,000 restricted common shares valued market close price on date of issue at $0.1402 for aggregate deemed proceeds of $238,340 to a related party as a fee for a loan to the Company. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On June 9, 2015 we issued 1,200 restricted common shares at $0.14 per share to Employee One for compensation. These share issuances were issued based on market close price on issue date for deemed payments totaling of $168. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On June 30, 2015, 1,666,667 shares of restricted common shares were issued to investor, unrelated to LPC, under a securities purchase agreement dated June 30, 2015 at a price of $0.06 per share for aggregate proceeds of $100,000. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended. These shares were included in the Registration Statement on Form S-1 filed on July 6, 2015,which was made Effective by the SEC on July 16, 2015.
 
On July 6, 2015, we issued 6,025 restricted common shares at $0.1188 per share to Ambassador One for professional athlete endorsement services rendered. These shares were issued at market close price on issue date for deemed compensation of $716. These shares were issued to US persons with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On July 9, 2015 we issued 226,860 restricted common shares at $0.1102 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On August 11, 2015, we issued 1,333,333 restricted common shares to our new President & Chief Operating Officer at $0.107. These shares were valued based on market close price on issue date for deemed proceeds of $142,667. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 15, 2015, we issued 1,000 restricted common shares at $0.075 per share to Employee One for compensation. These share issuances were issued based on market close price on issue date for deemed payments totaling of $75. These shares were issued to US persons with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 18, 2015, we issued 26,000 restricted common shares at $0.0901 per share to a consultant for services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $2,343. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 24, 2015, we issued 12,500 restricted common shares at $0.0829 per share to a professional athlete ("Ambassador Two") for endorsement services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $1,036. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 30, 2015, we issued 9,000 restricted common shares at $0.078 per share to Ambassador One for endorsement services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $702. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
 
 
96

 
 
 
On September 30, 2015, we issued 50,000 restricted common shares at $0.078 per share to a consultant for services rendered. These share issuances were issued based on market close price on issue date for deemed payments totaling of $3,900. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 30, 2015 we issued 320,513 restricted common shares at $0.078 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
On October 20, 2015, we issued 348,472 restricted common shares at an agreed price of $0.0699 per share for aggregate deemed compensation of $24,358 to a beverage distributor per terms of a services agreement. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On September 30, 2015 we issued 502,283 restricted common shares at $0.078 per share as compensation to our President & COO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $39,178. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On October 21, 2015, we issued 1,381,025 restricted common shares at a contractually agreed price of $0.07241 per share for aggregate deemed compensation of $100,000 to a service provider ("Service Provider") for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On October 27, 2015, we issued 2,000,000 restricted common shares at a contractually agreed price of $0.068 per share for aggregate deemed compensation of $136,000 to Service Provider for services rendered. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 3, 2015, we issued 500,000 restricted common shares valued market close price on date of issue at $0.0601 for aggregate deemed proceeds of $30,050 to a lender as a fee for a loan to the Company. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 8, 2015, we issued to LPC: (a) 66,964 restricted common shares valued at the LPC Note One Conversion Price of $0.07 for interest of $4,688 accrued on LPC Note One to December 31, 2015; and (b) 31,667 restricted common shares valued at the LPC Note Two Conversion Price of $0.05 for interest of $1,583 accrued on LPC Note Two to December 31, 2015. These shares were issued to one US person, who is an accredited investor (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended), and in issuing these shares to this person we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
On December 31, 2015 we issued 458,926 restricted common shares at $0.05448 per share as compensation to our CFO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $25,000. These shares were issued to one non-U.S. person (as that term is defined in Regulation S of the Securities Act of 1933, as amended) in offshore transactions in which we relied on the exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended.
 
 
 
97

 
 
 
On December 31, 2015 we issued 1,262,047 restricted common shares at $0.05448 per share as compensation to our President & COO. These shares were valued per terms of his compensation agreement for aggregate deemed compensation totaling $68,750. These shares were issued to one US person with reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
Subsequent to the year ended December 31, 2015, the Company made shares issuances to staff and service providers. In issuing these shares we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended. These included: (a) 651,269 restricted common shares to a service provider on January 8, 2016 at a negotiated price of $0.05 per share for deemed aggregate compensation of $32,563; (b) 600 restricted common shares to Employee One on January 1, 2016 at market close price of $0.0614 per share for deemed aggregate compensation of $37; (c) 5,000 restricted common shares to an employee on January 11, 2016 at market close price of $0.064 per share for deemed compensation of $320; and (d) 3,500 restricted common shares at market close price of $0.0559 on March 4, 2015 to a professional athlete endorser for deemed compensation of $196.
 
In February 2016 and April 2016, we executed private placement unit offerings which raised $231,000 through the sale of 5,775,000 units. These offerings were priced at $0.04 per unit with each unit being comprised of one restricted common share price plus one five year warrant exercisable to purchase one restricted common share at $0.055 per share. These shares were issued to four US persons who are accredited investors (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933, as amended) or qualified under the terms Rule 506 Regulation D, and in issuing these shares we relied on the exemptions from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.
 
E xh ibits
 
Exhibit
Number
 
Description
 
Filed
(3)
Articles of Incorporation and Bylaws
 
3.1
Articles of Incorporation
(attached as an exhibit to our Registration Statement on Form S-1, filed on August 22, 2011)
3.2
Bylaws
(attached as an exhibit to our Registration Statement on Form S-1, filed on August 22, 2011)
3.3
Articles of Merger dated effective September 9, 2013
(attached as an exhibit to our current report on Form 8-K, filed on September 13, 2013)
3.4
Certificate of Change dated effective September 9, 2013
(attached as an exhibit to our current report on Form 8-K, filed on September 13, 2013)
(5)
Opinion regarding Legality
 
5.1
Opinion of Sichenzia Ross Friedman Ference LLP regarding the legality of the securities being registered
(attached as an exhibit to our Registration Statement on Form S-1 filed on July 6, 2015 and incorporated herein by reference)
(10)
Material Contracts
 
10.1
Binding Letter agreement dated June 5, 2013 with Sandwich Isles Trading Company, Inc.
(attached as an exhibit to our current report on Form 8-K, filed on June 11, 2013)
10.2
Asset Purchase Agreement dated October 4, 2013 with Sandwich Isles Trading Co. Inc.
(attached as an exhibit to our current report on Form 8-K, filed on October 10, 2013)
10.3
Employment Agreement dated October 4, 2013 with Shaun Roberts
(attached as an exhibit to our current report on Form 8-K, filed on October 10, 2013)
10.4
Consultant Agreement dated October 4, 2013 with Bioponic Phytoceauticals, Inc. (a company controlled by Steven M. Schorr)
(attached as an exhibit to our current report on Form 8-K, filed on October 10, 2013)
 
 
 
 
98

 
 
 
10.5
Binding Letter agreement dated June 5, 2013 with Sandwich Isles Trading Company, Inc.
(attached as an exhibit to our current report on Form 8-K, filed on June 11, 2013)
10.6
Form of subscription agreement
(attached as an exhibit to our current report on Form 8-K, filed on November 25, 2013)
10.7
Form of warrant
(attached as an exhibit to our current report on Form 8-K, filed on November 25, 2013)
10.8
Termination Agreement dated as of December 16, 2013 and effective November 1, 2013 between Konared Corporation and Bioponic Phytoceauticals, Inc.
(attached as an exhibit to our current report on Form 8-K filed on December 18, 2013)
10.9
2013 Stock Option Plan
(attached as an exhibit to our current report on Form 8-K filed on January 10, 2014)
10.10
Form of Stock Option Agreement (U.S. persons)
(attached as an exhibit to our current report on Form 8-K filed on January 10, 2014)
10.11
Form of Stock Option Agreement (non-U.S. persons)
(attached as an exhibit to our current report on Form 8-K filed on January 10, 2014)
10.12
Form of Stock Option Agreement (U.S. persons – no plan)
(attached as an exhibit to our current report on Form 8-K filed on January 16, 2014)
10.13
Form of securities purchase agreement (non U.S. purchaser)
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.14
Form of securities agreement (U.S. purchaser)
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.15
Form of warrant certificate (non U.S. Purchaser)
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.16
Form of warrant certificate (U.S. Purchaser)
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.17
Senior Convertible Note
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.18
Pledge and Security Agreement
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.19
Warrant
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.20
Registration Rights Agreement
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.21
Investor Rights Agreement
(attached as an exhibit to our current report on Form 8-K, filed on February 3, 2014)
10.22
Purchase Agreement, dated as of February 3, 2014, by and between KonaRed Corporation and Lincoln Park Capital Fund, LLC. (attached as an exhibit to our current report on Form 8-K, filed on February 5, 2014) ('January Purchase Agreement')
(attached as an exhibit to our current report on Form 8-K, filed on February 5, 2014)
10.23
Registration Rights Agreement, dated as of February 3, 2014, by and between KonaRed Corporation and Lincoln Park Capital Fund, LLC. (attached as an exhibit to our current report on Form 8-K, filed on February 5, 2014)
(attached as an exhibit to our current report on Form 8-K, filed on February 5, 2014)
10.24
Resignation letter received from Dana Roberts
(attached as an exhibit to our current report on Form 8-K, filed on March 19, 2013)
10.25
Services Agreement with John Dawe
(attached as an exhibit to our current report on Form 8-K, filed on March 19, 2013)
 
 
 
 
99

 
 
 
10.26
Splash Beverages Sales and Marketing Agreement
(attached as an exhibit to our current report on Form 8-K, filed on April 28, 2014)
10.27
2014 Flexible Stock Plan
(attached as an exhibit to our current report on Form 8-K, filed on May 21, 2014)
10.28
Sandwich Isles Trust Agreement
(attached as an exhibit to registration statement on Form S-1/A, filed on December 4, 2014)
10.29
Services Agreement with John Dawe
(attached as an exhibit to our current report on Form 8-K, filed on December 29, 2014)
10.30
Convertible Debenture Purchase Agreement
(attached as an exhibit to our current report on Form 8-K filed on January 23, 2015)
10.31
Term Sheet with Promissory Note
(attached as an exhibit to our current report on Form 8-K filed on June 8, 2015)
10.32
Purchase Agreement, dated June 16, 2015, by and between the Company and Lincoln Park Capital Fund, LLC
(attached as an exhibit to our current report on Form 8-K filed on June 18, 2015)
10.33
Registration Rights Agreement, dated June 16, 2015, by and between the Company and Lincoln Park Capital Fund, LLC
(attached as an exhibit to our current report on Form 8-K filed on June 18, 2015)
10.34
Amended Warrant, dated June 15, 2015
(attached as an exhibit to our current report on Form 8-K filed on June 18, 2015)
10.35
Form of subscription agreement
Filed herewith
10.36
Employment Agreement by and between KonaRed Corporation  and Kyle Redfield executed August 10, 2015
(attached as an exhibit to our current report on Form 8-K, filed on August 11, 2015)
10.37
Purchase Agreement, dated as of August 18, 2015, by and between KonaRed Corporation  and Lincoln Park Capital Fund, LLC
(attached as an exhibit to our current report on Form 8-K filed on August 18, 2015)
10.38
Senior Convertible Note issued to Lincoln Park Capital Fund, LLC August 18, 2015
(attached as an exhibit to our current report on Form 8-K filed on August 18, 2015)
10.39
Warrant issued to Lincoln Park Capital Fund, LLC August 18, 2015
(attached as an exhibit to our current report on Form 8-K filed on August 18, 2015)
10.40
Subordinated Promissory Note issued to Solait Corp June 5, 2015
(attached as an exhibit to our current report on Form 8-K filed on June 6, 2015)
10.41
Purchase Agreement, dated as of September 30, 2015, by and between KonaRed Corporation  and Black Mountain Equities Inc.
(attached as an exhibit to our current report on Form 8-K filed on October 1, 2015)
10.42
Subordinated Promissory Note issued to Black Mountain Equities Inc. September 30, 2015
(attached as an exhibit to our current report on Form 8-K filed on October 1, 2015)
10.43
Warrant issued to Black Mountain Equities Inc. September 30, 2015
(attached as an exhibit to our current report on Form 8-K filed on October 1, 2015)
10.44
Purchase Agreement, dated as of September 30, 2015, by and between KonaRed Corporation  and Gemini Master Fund, Ltd.
(attached as an exhibit to our current report on Form 8-K filed on October 1, 2015)
10.45
Subordinated Promissory Note issued to Gemini Master Fund, Ltd. September 30, 2015
(attached as an exhibit to our current report on Form 8-K filed on October 1, 2015)
10.46
Warrant issued to Gemini Master Fund, Ltd. September 30, 2015
(attached as an exhibit to our current report on Form 8-K filed on October 1, 2015)
 
 
 
100

 
 
 
10.47
Purchase Agreement, dated as of November 23, 2015, by and between KonaRed Corporation  and Lincoln Park Capital Fund, LLC
(attached as an exhibit to our current report on Form 8-K filed on November 23, 2015)
10.48
Senior Convertible Note issued to Lincoln Park Capital Fund, LLC November 23, 2015
(attached as an exhibit to our current report on Form 8-K filed on November 23, 2015)
10.49
Warrant issued to Lincoln Park Capital Fund, LLC November 23, 2015
(attached as an exhibit to our current report on Form 8-K filed on November 23, 2015)
10.50
Purchase Agreement, dated as of December 3, 2015, by and between KonaRed Corporation  and Vista Capital Investments LLC
(attached as an exhibit to our current report on Form 8-K filed on December 4, 2015)
10.51
Subordinated Promissory Note issued to Vista Capital Investments LLC. December 3, 2015
(attached as an exhibit to our current report on Form 8-K filed on December 4, 2015)
10.52
Unit offer form of subscription agreement including warrant
(attached as an exhibit to our annual report on Form 10-K filed on April 13, 2016)
(23)
Consents of Experts and Counsel
 
23.2
Consent of Sichenzia Ross Friedman Ference LLP (included in Exhibit 5.1)
(attached as exhibit 5.1 to our Registration Statement on Form S-1 filed on July 6, 2015 and incorporated herein by reference)
(101)
Interactive Data File
 
101.INS
XBRL Instance Document
Filed herewith
101.SCH
XBRL Taxonomy Extension Schema Document
Filed herewith
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
Filed herewith
101.DEF
Taxonomy Extension Definition Linkbase Document
Filed herewith
101.LAB
Taxonomy Extension Labels Linkbase Document
Filed herewith
101.PLE
XBRL Taxonomy Extension Presentation Linkbase Document
Filed herewith
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
101

 
 
 
U nd ertakings
 
The undersigned registrant hereby undertakes:
 
1.
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
     
 
i.
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
 
ii.
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the SEC pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
 
iii.
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
     
2.
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof;
     
3.
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering; and
     
4.
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
5.
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
 
i.
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424;
 
ii.
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
 
iii.
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
 
iv.
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser;
 
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act of 1933 and will be governed by the final adjudication of such issue.
 
 
 
 
Sign at ures
 
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this amendment to the registration statement to be signed on its behalf by the undersigned, thereunto duly authorized in the City of Koloa in the State of Hawaii:
 
KONARED CORPORATION
 
By:
/s/ Shaun Roberts
 
 
Shaun Roberts
 
 
Chief Executive Officer and Director
 
 
(Principal Executive Officer)
 
 
Dated: April 26, 2016
 
     
     
By:
/s/ John Dawe
 
 
John Dawe
 
 
Chief Financial Officer
 
 
(Principal Financial Officer and Principal Accounting Officer)
 
 
Dated: April 26, 2016
 
 
 
Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
 
/s/ Shaun Roberts
 
Shaun Roberts
 
Chief Executive Officer and Director
 
(Principal Executive Officer)
 
Dated: April 26, 2016
 
   
/s/ John Dawe
 
John Dawe
 
Chief Financial Officer
 
(Principal Financial Officer and Principal Accounting Officer)
 
Dated: April 26, 2016
 
   
   
/s/ Steven M. Schorr
 
Steven M. Schorr
 
Director
 
Dated: April 26, 2016
 
   
   
/s/ Gonzalo Camet
 
Gonzalo Camet
 
Director
 
Dated: April 26, 2016
 
   
   
/s/ Bill Van Dyke
 
Bill Van Dyke
 
Director
 
Dated: April 26, 2016
 
 
 
103

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