UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM 10-Q

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the Quarterly Period Ended ~~September~~March 3031, ~~2016~~2017

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

FOR THE TRANSITION PERIOD FROM _______________________ TO _______________________

Commission File # 000-55208

KONARED CORPORATION

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

99-0366971

(IRS Employer Identification Number)

1101 Via Callejon #200

San Clemente, California 92673-4230
(Address of principal executive offices) (Zip Code)

Tel. (808) 212-1553

(Registrant's telephone no., including area code)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated file, or a smaller reporting company.

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

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

The issuer had ~~148~~181,~~340~~270,~~592~~825 shares of common stock issued and outstanding as of ~~November~~May 1715, ~~2016~~2017.

Table of Contents

KONARED CORPORATION

Table of Contents

			Page
PART I. Financial Information
	Item 1. Financial Statements.
		Balance Sheets at September 30, 2016 (unaudited) and December 31, 2015	1
		Balance Sheets at March 31, 2017 (unaudited) and December 31, 2016	1
		Unaudited Statements of Operations for the three and nine month periods ended September 30, 2016 and September 30, 2015	2
		Unaudited Statements of Operations for the three month periods ended March 31, 2017 and March 31, 2016	2
		Unaudited Statement of Stockholders' Equity (Deficit) for the period from January 1, 2015 through September 30, 2016	3
		Unaudited Statement of Stockholders' Equity (Deficit) for the period from December 31, 2015 through March 31, 2017	3
		Unaudited Statements of Cash Flows for the nine month periods ended September 30, 2016 and September 30, 2015	4
		Unaudited Statements of Cash Flows for the three month periods ended March 31, 2017 and March 31, 2016	4
		Unaudited Supplementary Disclosure of Cash Flow Information	5
		Notes to Unaudited Financial Statements	6
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations		41
	Item 3. Quantitative and Qualitative Disclosures about Market Risk		6460
	Item 4. Controls and Procedures		6460
PART II. Other Information			6662
	Item 1. Legal Proceedings		6662
	Item 1a. Risk Factors		6662
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		6662
	Item 3. Defaults Upon Senior Securities		7264
	Item 4. Mine Safety Disclosures		7264
	Item 5. Other Information		7264
	Item 6. Exhibits		7365
Signatures			7466

Table of Contents

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS (unaudited)

KONARED CORPORATION

BALANCE SHEETS

	September 30, 2016 (unaudited)			December 31, 2015
	March 31, 2017 (unaudited)			December 31, 2016
ASSETS
CURRENT ASSETS
Cash	$	~~118~~148,~~117~~072		$	~~148~~68,~~769~~546
Accounts receivable		~~213~~309,~~662~~960			33120,~~227~~565
Accounts receivable - related party		~~1,800~~—			181,~~000~~800
Inventory		~~347~~370,~~160~~818			~~439~~267,~~158~~830
Prepaid expenses		—			5,953
TOTAL CURRENT ASSETS		828,850			458,741
TOTAL CURRENT ASSETS		680,739			645,107
OTHER ASSETS
Fixed assets (net of accumulated depreciation)		87,~~414~~192			107,~~247~~803
TOTAL OTHER ASSETS		87,~~414~~192			107,~~247~~803
TOTAL ASSETS	$	~~689~~836,~~153~~042		$	~~655~~466,~~354~~544
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	~~530~~465,~~111~~279		$	~~211~~140,~~429~~007
Accounts payable - related party		—			3,156
Short term convertible notes, net of discounts		148,942			209,578
Short term convertible notes payable, net of discounts		435,774			—
Short term debt		100,986			—
Short term debt, net of discounts		77,111			235,237
Short term debt - related party		101,973			103,353
Short term debt - related party		101,337			—
Unearned revenue		182,986			193,020
Unearned revenue		792			1,434
Derivative liability		11,649			11,649
Derivative liability		11,823			11,807
TOTAL CURRENT LIABILITIES		1,011,815			657,607
TOTAL CURRENT LIABILITIES		1,156,948			463,063
LONG TERM LIABILITIES
Convertible note payable, net of discount		755,975			548,881
Long term convertible notes payable, net of discounts		984,975			869,674
TOTAL LONG TERM LIABILITIES		~~755~~984,975			~~548~~869,~~881~~674
TOTAL LIABILITIES		1,~~912~~996,~~923~~790			1,~~011~~527,~~944~~281
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred shares, 10,000 shares with par value $0.001 authorized; no shares issued and outstanding at September 30, 2016 and December 31, 2015		—			—
Preferred shares, 10,000 shares with par value $0.001 authorized; no shares issued and outstanding at March 31, 2017 and December 31, 2016		—			—
Common shares, 877,500,000 shares with par value $0.001 authorized; 147,190,592 and 108,769,515 shares issued and outstanding at September 30, 2016 and December 31, 2015, respectively		147,232			108,787
Common shares, 877,500,000 shares with par value $0.001 authorized; 177,347,287 and 162,932,882 shares issued and outstanding at March 31, 2017 and December 31, 2016, respectively		177,390			162,975
Additional paid in capital		2123,~~379~~154,~~973~~692			1922,~~616~~158,~~012~~506
Accumulated deficit		(2224,~~750~~492,~~975~~830	)		(2023,~~081~~382,~~389~~218	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(1,~~223~~160,~~770~~748	)		(~~356~~1,~~590~~060,737	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	~~689~~836,~~153~~042		$	~~655~~466,~~354~~544

The accompanying notes to financial statements are an integral part of these financial statements

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KONARED CORPORATION

STATEMENTS OF OPERATIONS

(Unaudited)

	Three Months Ended September 30, 2016			Three Months Ended September 30, 2015			Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
	Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
REVENUE:
Product sales	$	~~397~~585,~~899~~218		$	~~168~~145,~~148~~791		$	~~772,083~~		$	~~572,358~~
Product sales - related party		1,800			—			1,800			—
Shipping and delivery		4,847			3,697
Shipping and delivery		4,390			6,270			15,131			15,347
Total sales		590,065			149,488
Total sales		404,089			174,418			789,014			587,705
Cost of Goods Sold		397,228			117,591
Cost of Goods Sold		311,064			131,419			636,401			472,954
GROSS MARGIN		192,837			31,897
GROSS MARGIN		93,025			42,999			152,613			114,751
OPERATING EXPENSES:
OPERATING EXPENSES:
Research and development		518			755
Research and development		—			—			4,685			4,610
Advertising and marketing		41,593			105,449
Advertising and marketing		105,721			70,500			263,394			269,047
General and administrative expenses		847,506			564,486
General and administrative expenses		822,780			804,230			1,973,793			2,098,375
Total operating expenses		889,617			670,690
Total operating expenses		928,501			874,730			2,241,872			2,372,032
Loss from operations		(696,780	)		(638,793	)
Loss from operations		(835,476	)		(831,731	)		(2,089,259	)		(2,257,281	)
OTHER INCOME (EXPENSE):
OTHER INCOME (EXPENSE):
License fee		10,000			—
Interest expense		(73180,~~755~~315	)		(3836,~~100~~396	)		~~(147,287~~	)		~~(212,343~~	)
Amortization expense - notes discounts		(~~152~~243,~~162~~517	)		—(143,403	)		~~(438,968~~	)		—
Change in fair market value of derivative liability		~~4,297~~—			~~1,866~~570			~~5,928~~			~~(35,590~~	)
Loss on equity modification		—			—			—			(41,753	)
Total other income (expense)		(413,832	)		(179,229	)
Total other income (expense)		(221,620	)		(36,234	)		(580,327	)		(289,686	)
Loss before income taxes	$	(1,110,612	)	$	(818,022	)
Loss before income taxes	$	(1,057,096	)	$	(867,965	)	$	(2,669,586	)	$	(2,546,967	)
Provision for income taxes		—			—
Provision for income taxes		—			—			—			—
Net Loss	$	(1,110,612	)	$	(818,022	)
Net Loss	$	(1,057,096	)	$	(867,965	)	$	(2,669,586	)	$	(2,546,967	)
Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)
Basic and diluted loss per common share	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Basic and diluted weighted average shares outstanding		169,235,234			113,140,488
Basic and diluted weighted average shares outstanding		137,077,365			92,620,379			125,325,265			87,237,372

The accompanying notes to financial statements are an integral part of these financial statements

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KONARED CORPORATION

STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)

(Unaudited)

	Common Stock				Additional Paid In			Accumulated
	Shares		Amount		In Capital			Deficit			Total
Ending balance – December 31, 2014		83,496,530	$	83,497	$	16,705,636		$	(16,281,020	)	$	508,113
Ending balance – December 31, 2015		108,769,515	$	108,787	$	19,616,012		$	(20,081,389	)	$	(356,590	)
Common shares issued for cash		332,~~333~~150,~~334~~000		332,~~333~~150		~~346~~1,~~667~~053,850			—			~~350~~1,086,000
Common shares issued under equity line		86,~~550~~450,000		86,~~550~~450		~~621~~316,~~300~~486			—			~~629~~322,~~850~~936
Common shares issued for services		65,~~344~~482,~~022~~750		65,~~345~~484		~~591~~266,~~926~~087			—			~~598,~~271,571
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	)
Common shares issued for cash		19,650,000		19,650		766,350			—			786,000
Common shares issued under equity line for cash		6,450,000		6,450		316,486			—			322,936
Common shares issued for services		3,032,750		3,034		139,849			—			142,883
Common shares issued for equity line underwriting fees		21,529		43		(43	)		—			—
Common shares issued as compensation		7,~~427~~597,544		7,~~428~~598		~~389~~397,~~789~~779			—			~~397~~405,~~217~~377
Common shares issued for interest payments		364,255		365		19,461			—			19,826
Common shares issued for convertible notes redemptions		1,975,000		1,975		120,750			—			122,725
Common shares issued for note redemption		1,475,000		1,475		94,400			—			95,875
Common shares issued for interest payments		486,544		488		24,853			—			25,341
Additional paid-in capital related to convertible note beneficial conversion feature		—		—		37,669			—			37,669
Additional paid-in capital related to warrant issuances		—		—		315,658			—			315,658
Net loss – period ended September 30, 2016		—		—		—			(2,669,586	)		(2,669,586	)
Additional paid-in capital related to convertible notes beneficial conversion features		—		—		47,074			—			47,074
Ending Balance – September 30, 2016		147,190,592	$	147,232	$	21,379,973		$	(22,750,975	)	$	(1,223,770	)
Net loss – year ended December 31, 2016		—		—		—			(3,300,829	)		(3,300,829	)
Ending Balance – December 31, 2016		162,932,882	$	162,975	$	22,158,506		$	(23,382,218	)	$	(1,060,737	)
Common shares issued for cash		4,511,363		4,512		237,988			—			242,500
Common shares issued for convertible notes redemptions		7,153,700		7,154		473,868			—			481,022
Common shares issued for services		2,095,500		2,096		114,499			—			116,595
Common shares issued as compensation		653,842		653		35,961			—			36,615
Additional paid-in capital related to option issuances		—		—		133,870			—			133,870
Net loss – period ended March 31, 2017		—		—		—			(1,110,612	)		(1,10,612	)
Ending Balance – March 31, 2017		177,347,287	$	177,390	$	23,154,692		$	(24,492,830	)	$	(1,160,748	)

The accompanying notes to financial statements are an integral part of these financial statements

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KONARED CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

	Nine Months Ended September 30, 2016			Nine Months Ended September 30, 2015
	Three Months Ended March 31, 2017			Three Months Ended March 31, 2016
OPERATING ACTIVITIES:
Net loss	$	(21,~~669~~110,~~586~~612	)	$	(2818,~~546,967~~022	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		~~1,833~~611			~~6,729~~611
Stock issued for compensation		~~397~~36,~~217~~615			~~257~~50,~~132~~952
Stock issued for services		~~142~~116,~~884~~595			~~307~~32,~~864~~758
Option grants expense		—133,870			~~165,266~~—
Change in fair market value of derivative liability		~~(6,039~~—	)		~~35,590~~(570	)
Amortization of notes payable discounts		~~540~~243,~~439~~517			68164,~~467~~655
Loss on equity modification		—			41,753
Loss on debt conversions		149,487			—
Loss on debt conversion		36,875			—
Change in operating assets and liabilities:
Accounts receivable		(~~164~~187,~~235~~595	)		~~149~~(15,~~798~~546	)
Inventory		91(102,~~998~~988	)		30109,~~593~~319
Prepaid expenses		~~5,953~~—			16(22,~~000~~249	)
Other current assets		—			~~652~~—
Accounts payable and accrued liabilities		~~295~~352,~~022~~653			737,~~803~~633
Accrued interest		3014,~~393~~907			238,~~314~~190
Unearned revenue		(~~642~~10,034	)		~~(2,494~~528	)
NET CASH USED IN OPERATING ACTIVITIES		(1362,~~297,888~~974	)		(1481,~~372,500~~741	)
FINANCING ACTIVITIES:
Proceeds from long term convertible notes payable		~~275~~100,000			~~225~~75,000
Proceeds from short term convertible notes payable		—			650,000
Borrowing on short term debt		100,000			—
Repayments on short term convertible notes payable		—			(440,000	)
Repayments on short term debt		—			(22,500	)
Proceeds from short term debt		—			250,000
Proceeds from issuance of common stock for cash		242,500			384,511
Proceeds from short term debt - related party		100,000			500,000
NET CASH PROVIDED BY FINANCING ACTIVITIES		442,500			437,011
Repayments on short term debt - related party		—			(250,000	)
NET INCREASE (DECREASE) IN CASH		79,526			(44,730	)
Repayments on short term debt		(216,700	)		—
CASH, Beginning of Period		68,546			148,769
Proceeds from issuance of common stock for cash		1,108,936			695,120
CASH, End of Period	$	148,072		$	104,039
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,267,236			1,630,120
NET INCREASE (DECREASE) IN CASH		(30,652	)		257,620
CASH, Beginning of Period		148,769			39,987
CASH, End of Period	$	118,117		$	297,607

The accompanying notes to financial statements are an integral part of these financial statements

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KONARED CORPORATION

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

(Unaudited)

	Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015
	Three Months Ended March 31, 2017		Three Months Ended March 31, 2016
Cash paid during the year for:
Interest	$	—3,945	$	~~174,243~~—
Taxes	$	—	$	—

NON CASH INVESTING AND FINANCING ACTIVITIES

(Unaudited)

	Nine Months Ended September 30, 2016		Nine Months Ended September 30, 2015
	Three Months Ended March 31, 2017		Three Months Ended March 31, 2016
Discount from convertible debentures	$	—	$	107,143
Discount on derivative	$	—	$	1,997
Discount on derivative	$	6,055	$	239,752
Shares issued as commitment fees - offering costs	$	—	$	28
Shares issued as commitment fees - offering costs	$	43	$	2,692
Interest paid by stock issuances	$	—	$	6,952
Interest paid by stock issuances	$	19,825	$	—
Debt converted to common stock	$	327,664	$	—
Settlement of derivative liability related to convertible debenture redemption	$		$	274,108
Discount from warrants	$	—	$	285,645
Conversion of debt to common stock	$	59,000		—

The accompanying notes to financial statements are an integral part of these financial statements

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Deferred Revenue

Revenue from customer purchase agreements is recorded as unearned revenue and amortized over the term of the agreements. At March 31, 2017 and December 31, 2016, unearned revenues were $182,986 and $193,020 respectively. Unearned revenue is comprised of the unamortized portion of a $200,000 cash payment we received during the year ended December 31, 2016 for a non-refundable signing fee from a strategic supplier partnership arrangement; and for online subscriptions wherein we ship a scheduled amount of product to online retail subscribers each month.

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 periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016, the Company wrote off accounts receivable totaling $~~172~~nil and $nil, respectively. There were no allowances for doubtful accounts recorded for the period ended ~~September~~March 3031, ~~2016~~2017 or the year ended December 31, ~~2015~~2016.

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.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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.

Customer shipping expenses

In accordance with guidance provided in EITF Abstracts Issue No. 00-10 'Accounting for Shipping and Handling Fees and Costs', the Company records costs for products shipped to customers within general and administrative expenses, rather than within COGS. Prior to the year ended December 31, 2016, these costs were included within COGS and COGS for the period ended March 31, 2016 shown in these financial statements were adjusted to reflect the change in accounting policy for fiscal 2016. During the periods ended March 31, 2017 and March 31, 2016, customer shipping expenses totaled $59,843 and $20,448 respectively.

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 ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016.

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.

Reclassification

The financial statements for the period ended December 31, 2015 have been reclassified to conform to the 2016 presentation.

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 ~~September~~March 3031, ~~2016~~2017, the Company had outstanding a senior convertible note (the "VDF Note") with a balance of $~~755~~984,975, net of a discount of $1716,~~353~~786. ~~The~~At ~~Company~~March ~~determined~~31, 2017 the VDF Note had an embedded derivative valued at $11,~~823 at September 30, 2016 due to Sr~~649. ~~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, ~~2015~~2016, the VDF Note had a balance of $~~453~~869,~~298,~~674 net of a discount of $1516,~~974~~786 and the embedded derivative liability was valued at $11,~~807~~649. During the period ended ~~September~~March 3031, ~~2016~~2017, $~~275~~115,~~000~~301 of principal was ~~added~~accrued to the VDF Note. This was comprised of a patent license fee ~~payments~~ of ~~totaling~~ $~~275~~100,000 ~~which~~and ~~were~~accrued ~~rolled~~interest ~~over~~of to$15,301. The net amount of the ~~VDF~~Change ~~Note~~in Fair Value of Derivatives for the period ended March 31, 2017 was $nil.

~~The~~There ~~net~~are ~~amount~~no ofembedded ~~the~~derivatives ~~Change~~ in ~~Fair~~any ~~Value~~other ofnotes ~~Derivatives~~issued ~~for~~by the ~~nine month period ended September 30, 2016 was a loss of $5,928, which included the net amount of mark-to-market value changes in the embedded derivatives liabilities of the VDF Note~~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.

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 periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016.

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

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:

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.

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

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~~short ~~payable~~term -debt, ~~related~~net ~~party~~of discounts, ~~short~~long term ~~debt~~convertible note, net of ~~discounts~~discount, 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 ~~September~~March 3031, ~~2016~~2017	As of December 31, ~~2015~~2016
Cash	$~~118~~148,~~117~~072	$~~148~~68,~~769~~546
Accounts receivable	~~213~~309,~~662~~960	33120,~~227~~565
Accounts receivable - related party	~~1,800~~-	181,~~000~~800
Inventories	~~347~~370,~~160~~818	~~439~~267,~~158~~830
Prepaid expenses	-	5,953
Acc/payable and accrued liabilities	465,279	140,007
Acc/payable and accrued liabilities	530,111	211,429
Short term convertible notes, net of discounts	148,942	209,578
Accounts payable - related party	-	3,156
Short term debt	100,986	-
Short term convertible notes, net of discounts	435,774	-
Short term debt - related party	101,973	103,353
Short term debt, net of discounts	77,111	235,237
Long term convertible note, net of discount	984,975	869,674
Short term debt - related party	101,337	-
Unearned revenue	182,986	193,020
Long term convertible note, net of discount	755,975	548,881
Level 1 total	$2,813,991	$1,974,373
Unearned revenue	792	1,434
Derivative liability	$11,649	$11,649
Level 1 total	$2,581,839	$1,645,244
Level 2 total	$11,649	$11,649
Derivative liability	$11,823	$11,807
(nil)	-	-
Level 2 total	$11,823	$11,807
	-	-
Level 3 total	$Nil	$Nil

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.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

Advertising

Costs for advertising are expensed when incurred. Advertising ~~costs~~and ~~for~~marketing ~~the~~costs ~~nine month period ended September 30, 2016~~ totaled $4741,~~802~~593 and $~~108~~105,~~499~~449 for the ~~nine~~periods ~~month period~~ ended ~~September~~March 3031, ~~2016.~~2017 ~~The~~and ~~Company~~March ~~also~~31, ~~incurs~~2016, ~~marketing~~respectively. ~~expenses~~Costs for product promotion and investor relations ~~which~~ are ~~combined~~included with advertising to form ~~the~~ advertising and marketing ~~line item in our statement of operations~~expenses. ~~Excluding~~When ~~advertising,~~ these other ~~promotional~~ costs ~~were~~are excluded, advertising comprised $~~215~~8,~~592~~563 and $~~160~~7,~~548~~830 for the ~~nine month~~ periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016, 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 ~~nine month~~ periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016: (a) depreciation for furniture and equipment of $~~1,572~~524 and $~~1,572~~524 was respectively recorded; and (b) depreciation for warehouse fixtures of $~~261~~87 and $~~261~~87 was respectively recorded. Accumulated depreciation for all fixed assets totaled $67,~~260~~482 at ~~September~~March 3031, ~~2016~~2017.

Maintenance and repairs are expensed as incurred while renewals and betterments are capitalized.

Maintenance and repairs will be expensed as incurred while renewals and betterments will be capitalized.

Recent Accounting Pronouncements

In ~~July~~April 2016, ~~2015,~~ the Financial Accounting Standards Board ("FASB") issued Accounting ~~Standard~~Standards Update ("'ASU"') ~~2015~~No. 2016-~~11,~~15 ~~Simplifying~~' ~~the~~Statement ~~Measurement~~ of ~~Inventory,~~Cash ~~which~~Flows ~~requires~~(Topic ~~that~~230) ~~inventory~~- beClassification ~~measured within the scope~~ of ~~the~~Certain ~~Update~~Cash atReceipts ~~the~~and ~~lower~~Cash ofPayments ~~cost~~because ~~and~~stakeholders ~~net~~had ~~realizable~~indicated ~~value.~~that ~~Net~~there ~~realizable value~~ is ~~the~~diversity ~~estimated selling prices~~ in ~~the~~practice ~~ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. For public business entities, the amendments~~ in ~~this~~how ~~Update~~certain ~~are effective for fiscal years beginning after December 15, 2016, including interim periods within those~~cash

~~fiscal~~receipts ~~years~~and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash Flows, and other Topics. This Update addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. The amendments in this Update apply to all entities, including both business entities and not-for-profit entities that are required to bepresent ~~applied~~a ~~prospectively~~statement ~~with~~of ~~earlier~~cash ~~application~~flows ~~permitted~~under Topic 230. Among the eight issues, there were two which appeared germane to the Company: (i) Debt Prepayment or Debt Extinguishment Costs, which provided guidance that Cash payments for debt prepayment or debt extinguishment costs should be classified as cash outflows for financing activities; and (ii) Separately Identifiable Cash Flows and Application of the ~~beginning~~Predominance Principle, which provided guidance that the classification of cash receipts and payments that have aspects of more than one class of cash flows should be determined first by applying specific guidance in generally accepted accounting principles (GAAP). In the absence of specific guidance, an ~~interim~~entity should determine each separately identifiable source or ~~annual~~use ~~reporting~~within ~~period.~~the ~~This~~cash ~~ASU~~receipts ~~conforms~~and ~~with~~cash payments on the ~~Company's~~basis ~~current~~of ~~protocol~~the ~~for~~nature ~~evaluating~~of ~~inventory~~the ~~and~~underlying cash flows. An entity should then classify each separately identifiable source or use within the ~~Company~~cash ~~will~~receipts ~~prospectively~~and ~~implement~~payments ~~adoption~~on the basis of ~~this~~their ~~ASU~~nature in financing, investing, or operating activities. ~~The~~In ~~Company~~situations ~~does~~in ~~not~~which ~~expect~~cash ~~the~~receipts ~~adoption~~and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the ~~ASU~~appropriate classification should depend on the activity that is likely to ~~have~~be athe ~~significant~~predominant ~~impact~~source onor ~~our~~use ~~consolidated~~of ~~financial~~cash ~~statements~~flows for the item.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)

OnThe ~~April~~amendments 7in this Update are effective for public business entities for fiscal years beginning after December 15, ~~2015~~2017, ~~the~~and ~~Financial~~interim ~~Accounting~~periods ~~Standards~~within ~~Board~~those ~~("FASB")~~fiscal ~~issued~~years. ~~ASU~~For ~~2015-03,~~all ~~Simplifying~~other entities, the ~~Presentation~~amendments ofare ~~Debt~~effective ~~Issuance~~for ~~Costs~~fiscal years beginning after December 15, ~~which~~2018, ~~requires~~and ~~debt~~interim ~~issuance~~periods ~~costs~~within ~~related~~fiscal toyears abeginning ~~recognized~~after ~~debt~~December ~~liability~~15, to2019. beEarly ~~presented~~adoption onis ~~the~~permitted, ~~balance~~including ~~sheet~~adoption asin aan ~~direct~~interim ~~deduction~~period. ~~from~~If an entity early adopts the ~~debt~~amendments ~~liability~~in an interim period, ~~similar~~any toadjustments ~~the~~should ~~presentation~~be reflected as of ~~debt~~the ~~discounts. The~~beginning ~~ASU~~of isthe ~~effective~~fiscal ~~for~~year ~~public~~that ~~business~~includes ~~entities~~that ~~for~~interim ~~fiscal~~period. ~~years~~An ~~beginning~~entity ~~after~~that ~~December~~elects ~~15,~~early ~~2015,~~adoption ~~and~~must ~~interim~~adopt ~~periods~~all ~~within~~of ~~those~~the ~~fiscal~~amendments ~~years. Early~~in ~~application~~the issame ~~permitted~~period. ~~The~~ This ASU ~~requires~~conforms ~~retrospective~~with ~~application~~the toCompany's ~~all~~current ~~prior~~protocols ~~periods~~and ~~presented~~the inCompany ~~the~~expects ~~financial~~to ~~statements~~adopt this ASU once it becomes effective. The Company ~~has~~does ~~elected~~ not toexpect ~~early~~the ~~adopt~~adoption of the ASU ~~2015-03~~to have a significant impact on our consolidated financial statements.

In ~~January~~April ~~2015~~2016, ~~the~~ FASB issued ASU ~~2015~~No. 2016-~~01,~~10 ~~Income~~'Revenue ~~Statement~~from ~~–Extraordinary~~Contracts ~~and~~with ~~Unusual~~Customers ~~Items~~(Topic 606). This follows the May 28, as2014, ~~part~~FASB and the International Accounting Standards Board (IASB) issuance of ~~its~~a ~~initiative~~converged standard on recognition of revenue from contracts with customers. The amendments in this Update affect entities with transactions included within the scope of Topic 606. The scope of that Topic includes entities that enter into contracts with customers to ~~reduce~~transfer ~~complexity~~goods or services (that are an output of the entity's ordinary activities) in ~~accounting~~exchange ~~standards~~for consideration. ~~This~~ ~~Update~~The ~~eliminates~~core ~~from~~principle ~~GAAP~~of the ~~concept~~guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of ~~extraordinary~~promised ~~items~~goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in this Update ~~are~~affect ~~effective~~the ~~for~~guidance ~~fiscal~~in ~~years~~Accounting Standards Update 2014-09, ~~and~~Revenue ~~interim~~from ~~periods~~Contracts ~~within~~with ~~those~~Customers ~~fiscal~~(Topic ~~years~~606), ~~beginning~~which ~~after~~is ~~December~~not ~~15,~~yet ~~2015~~effective. AThe ~~reporting~~effective ~~entity~~date ~~may~~and ~~apply~~transition requirements for the amendments ~~prospectively.~~in Athis ~~reporting~~Update ~~entity~~are ~~also~~the ~~may~~same ~~apply~~as the ~~amendments~~effective ~~retrospectively~~date toand ~~all~~transition ~~prior~~requirements ~~periods~~in ~~presented~~Topic in606 ~~the~~(and ~~financial~~any ~~statements.~~other ~~Early~~Topic ~~adoption~~amended isby ~~permitted~~Update ~~provided~~2014-09). ~~that~~Accounting ~~the~~Standards ~~guidance~~Update is2015-14, ~~applied~~Revenue from ~~the~~Contracts ~~beginning~~with Customers (Topic 606): Deferral of the ~~fiscal~~Effective ~~year~~Date, defers the effective date of Update 2014-09 by one year. The Company will evaluate this standard and may implement adoption of once the standard becomes effective. ~~This~~The ~~Update~~Company isdoes not ~~expected~~expect the adoption of the standard to have a significant impact on ~~the~~our ~~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 $22,750,975 as of September 30, 2016; and has a incurred a net loss for the current nine month period of $2,669,586. 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, during the nine month period ended September 30, 2016 the Company received a loan of $100,000 from a director and raised $786,000 through several private placement equity offerings and $322,936 through share sales under its 2015 Purchase Agreement Equity Line. On August 11, 2016 the last shares which had been registered under the 2015 Equity Line were sold. Subsequently there has not been a new registration statement on Form S-1 filed which would allow for further share sales under the 2015 Purchase Agreement. We anticipate we will continue to raise funds through private placement equity sales in the near future.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

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 $24,492,830 as of March 31, 2017 and has a incurred a net loss for the current period of $1,110,612. These factors, among others, raise substantial doubt about the Company's ability to continue as a going concern for a reasonable period of time. As needed, 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, during the period ended March 31, 2017, the Company received a loan of $100,000 from a long term shareholder of the Company director, raised $242,500 from private placement equity offerings, and benefited from conversion of $327,664 of debt into equity. We anticipate we will continue to raise funds through private placement equity sales in the near future.

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:

		September 30, 2016			December 31, 2015
		March 31, 2017		December 31, 2016
Raw materials	$	$105,434	~~100,504~~$	105,035	$	~~100,702~~
Finished goods		265,384	~~246,656~~	162,795		~~338,456~~
Inventory allowance		—	—	—		—
Total	$	$370,818	~~347,160~~$	267,830	$	~~439,158~~

During the period ended ~~September~~March 3031, ~~2016,~~2017 ~~the Company initially wrote down inventory by $43,868 during the first three months of this nine month period~~ and ~~then reclassified~~ the write down as reserved inventory available for use in the second three months of this nine month period. This inventory was then used for marketing purposes and removed from reserved inventory and recorded as a marketing expense during the second three month period. During the year ended December 31, ~~2015~~2016, the Company respectively wrote down inventory by $2612,~~760~~034 and $24,769, respectively to account for expired inventory which had been write-off and disposed of, and for minor manufacturing process shrinkages. The Company recognized $nil and $nil recovery in inventory allowance respectively for the period ended ~~September~~March 3031, ~~2016~~2017 and the year ended December 31, ~~2015~~2016. At ~~September~~March 3031, ~~2016~~2017 the Company had $nil of reserved inventory and all inventory was valued at full cost.

NOTE 5 – ~~Prepaid~~Fixed ~~Expenses and Other Current~~ Assets

~~Prepaid~~Fixed ~~expenses~~assets at ~~September~~March 3031, 2017 and December 31, 2016 ~~were~~respectively comprised: (a) furniture and equipment totaling $~~nil~~5,019 and $5,543, net of accumulated depreciation of $6,183 and $5,659; and ~~for~~(b) ~~the~~warehouse ~~year~~fixtures ~~ended~~totaling ~~December~~$2,173 31and $2,260, ~~2015~~net ~~were~~of ~~comprised~~accumulated depreciation of $51,~~953~~299 ~~for~~and ~~manufacturing runs~~$1,212.

NOTE 6 – Fixed Assets

Fixed assets at September 30, 2016 and December 31, 2015 respectively comprised: (a) furniture and equipment totaling $6,067 and $2,434, net of accumulated depreciation of $5,135 and $3,563; and (b) warehouse fixtures totaling $2,347 and $2,608, net of accumulated depreciation of $1,125 and $864.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 6 – Amortization of License Fee

During the year ended December 31, 2016, unearned revenue included a cash payment we received for a non-refundable signing fee of $200,000 from a strategic supplier partnership arrangement (the "FP Agreement"). The FP Agreement was executed on October 28, 2016 and because this was included in a license fee agreement, to conform with generally accepted accounting principles it is recorded as unearned revenue which is to be amortized over the five year life of the agreement.

Revenue amortizations under the FP License agreement have been, and will be, recorded as income based on the following schedule:

Total for the Year Ended	Amount
2016	$7,014
2017 - Quarter One	$10,000
2017 - Quarter Two	$10,000
2017 - Quarter Three	$10,000
2017 - Quarter Four	$10,000
2018 - total	$40,000
2019 - total	$40,000
2020 - total	$40,000
2021 - total	$32,877
TOTAL	$200,000

NOTE 7 – Short Term Debt, Short Term Debt - Related Party & Short Term Convertible Notes

September 2015 Notes:

OnAt ~~September~~March 3031, ~~2015 ("Issuance Date")~~2017, ~~subject to securities purchase agreements we issued two subordinated promissory notes ("September 2015 Note One" and "September 2015 Note Two", collectively,~~ the ~~"September~~balances ~~2015~~on ~~Notes") to two lenders (~~the "September 2015 ~~Lenders"). The September 2015~~ Notes provided 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 were ~~not~~$nil ~~secured~~ and ~~are~~both ~~subordinated to senior~~ notes ~~issued~~were byfully ~~the Company~~repaid.

On September 30, 2015, we issued two subordinated promissory notes ("September 2015 Note One" and "September 2015 Note Two", collectively, the "September 2015 Notes") to two lenders (the "September 2015 Lenders"). The September 2015 Notes included customary default provisions, were not secured and were subordinated to senior notes issued by the Company. September 2015 Note One had a face value of $100,000 and September 2015 Note Two had a face value of $150,000. The interest rate on each note was 8% per annum and this amount fully accrued upon issuance and added $8,000 to September 2015 Note One and $12,000 to September 2015 Note Two to bring the total balances due on each note to $108,000 and $162,000, respectively. The September 2015 Notes each included a 10% original issuance discount ("OID") which resulted in total net proceeds to the Company of $225,000. As an inducement for the loans, on September 30, 2015 the September 2015 Lenders received five‑year warrants, with cashless exercise rights, to purchase restricted shares of our common stock at an exercise price of $0.08 per share. September 2015 Note One Lender received 1,250,000 warrants which was valued using a Black-Scholes model at $67,115; and September 2015 Note Two Lender received 1,875,000 warrants which ~~was~~were valued using a Black-Scholes model at non-cash cost of $100,673. During the period ended March 31, 2016, a total of $41,718 of the warrant discounts on the September 2015 Notes was recorded as amortization expenses and a total $6,216 of the OID amortizations was recorded as interest expenses.

At December 31, 2015, the balance on September 2015 Note One was $50,269. This included the face value of $100,000 plus accrued interest of $8,000 and was net of an unamortized warrant discount totaling $50,245 and an unamortized OID discount of $7,486. During the year ended December 31, 2015, $16,870 of the warrant discount was recorded as an amortization expense and $2,514 of the OID was recorded as interest expense. During the nine month period ended September 30, 2016, the Company timely made a series of scheduled cash payments on September 2015 Note One totaling $49,000, and on August 30, 2016 redeemed the balance of $59,000 due through issuance of 1,475,000 shares valued at $95,875 based on a market close price of $0.065 per share on date of issuance. The $36,875 difference between the cash redemption balance and the value of the shares redemption was recorded as non-cash interest expense. During the nine month period ended September 30, 2016, the remaining $50,245 of the warrant discount on September 2015 Note One was recorded as an amortization expense and the remaining $7,486 OID was recorded as interest expense. The September 2015 Note One is now fully repaid and there are no further payments due.

At December 31, 2015, the balance on September 2015 Note Two was $75,403. This included the face value of $150,000 plus accrued interest of $12,000 and was net of an unamortized warrant discount totaling $75,367 and an unamortized OID discount of $11,230. During the year ended December 31, 2015, $25,306 of the warrant discount was recorded as an amortization expense and $3,770 of the OID was recorded as interest expense. During the nine month period ended September 30, 2016, the Company timely made a series of scheduled cash payments on September 2015 Note One totaling $88,500, and prior to scheduled redemption date, on September 23, 2016 the lender extended the maturity date of the note to November 14, 2016 in exchange for the right to convert the balance of $73,500 into common shares of the Company at a price of $0.04 per share. On date of issuance, the Company's closing share price was $0.0605 and this created a beneficial conversion feature which was valued at $37,699 for the conversion right, of which $5,071 was recorded as an amortization expense during the period ended September 3, 2016. During the nine month period ended September 3, 2016, the $72,872 of the

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 – Short Term Debt, Short Term Debt - Related Party & Short Term Convertible Notes (continued)

~~warrant~~During ~~discount~~the onperiod ended March 31, 2017, the holder of September 2015 Note Two ~~was~~converted ~~recorded~~the asremaining anbalance ~~amortization~~of ~~expense and~~ $1065,~~858~~000 ofdue on the ~~OID~~note ~~was~~into ~~recorded~~1,625,000 asshares ~~interest~~valued ~~expense.~~at At$128,463 ~~September~~based ~~30,~~on ~~2016,~~a ~~the~~market ~~balance~~close prices on ~~September~~dates ~~2015~~of ~~Note~~issuance. ~~Two~~The ~~was~~conversions resulted in a $3963,~~260.~~463 ~~This~~difference ~~included~~between the ~~remaining~~cash ~~face~~redemption ~~value~~balance and ~~accrued~~the ~~interest~~value ~~totaling~~of ~~$73,500~~the ~~and~~shares redemption which was ~~net~~treated ofas a conversion loss and recorded as an ~~unamortized~~additional ~~conversion~~non-cash ~~right~~interest ~~discount~~expense. ofConcurrent with the conversions, the remaining $3216,~~598~~527 ~~and~~of the warrant discount on September 2015 Note Two was recorded as an ~~unamortized~~amortization ~~OID~~expense ~~discount~~and ofthe remaining $18,~~642~~062 OID was recorded as interest expense.

During the year ended December 31, 2016, the Company timely met a series of scheduled cash payments on September 2015 Note One totaling $49,000 and on August 30, 2016 redeemed the balance of $59,000 due through issuance of 1,475,000 shares valued at $95,875 based on a market close price on date of issuance. The $36,875 difference between the cash redemption balance and the value of the shares redemption was treated as a conversion loss and recorded as an additional non-cash interest expense. At time of redemption on August 30, 2016 the remaining $50,245 of the warrant discount on September 2015 Note One was recorded as an amortization expense and the remaining $7,486 OID was recorded as interest expense.

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 bears 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~~March 31, ~~2015~~2017, the balance on the December 2015 Note ~~including accrued interest~~ was $~~109,565,~~nil net of an unamortized OID of $9,235. During the year ended December 31, 2015, $764 of the OID was recorded as interest expense. At September 30, 2016, the balance on the December 2015 Note including accrued interest was $37,851, net of unamortized OID of $1,749. During the nine month period ended September 30, 2016, the Company timely made two scheduled cash payments totaling $79,200, and ~~during this period $7,486 of~~ the ~~OID~~note was ~~recorded~~fully ~~as interest expense~~repaid.

~~Short~~On ~~Term~~December ~~Debt~~3, 2015, 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 bears 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 was due and payable in full on December 3, 2016 ("Maturity Date") and had a re-payment ~~Related~~schedule ~~Party:~~which required payments of $39,600 respectively on sixth, ninth and twelfth month anniversary dates of issuance. The December 2015 Notes included an aggregate $10,000 original issuance discount ("OID") which resulted in net proceeds of $100,000. The December 2015 Note provides for customary events of default was not secured, and was subordinated to senior notes issued by the Company and ranked 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 a non-cash cost of $30,050. During the period ended March 31, 2017, the holder of December 2015 Note converted the remaining balance of $39,600 due on the note into 990,000 shares valued at $61,578 based on a market close price on date of issuance. The conversion resulted in a $21,978 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. Concurrent with the conversion, the remaining $6,340 of the BCF discount on the December 2015 Note was recorded as an amortization expense and the remaining $1,179 OID was recorded as interest expense. During the period ended March 31, 2016, $2,486 of the OID amortization was recorded as an interest expense. At December 31, 2016, the balance on the December 2015 Note was $32,081. This included the remaining face value and accrued interest totaling $39,600, net of an unamortized BCF discount of $6,340 and an unamortized OID discount of $1,179. During the year ended December 31, 2016, the Company timely met two scheduled cash payments totaling $79,200 and, prior to scheduled redemption date, on December 2, 2016 the lender extended the maturity date of the note to March 7, 2016 in exchange for 300,000 shares of the Company and the right to convert the balance of $39,600 into common shares of the Company at a price of $0.04 per share. On December 2, 2016, the Company's closing share price was $0.05 which created a BCF valued at $9,405 and a non-cash cost for the shares issuance of $15,000.

On July 31, 2016 (the "Issuance Date"), the Company issued a $100,000 note (the "RP Note") to a director of the Company for a loan. The RP Note has a maturity date of January 27, 2017 and is classified as short term related party debt. The RP Note bears interest at 8% per annum due at maturity and may be prepaid in whole, or in part, at any time before each maturity date without prepayment penalty. 340,000 restricted common shares of the Company were issued to the lender as a fee valued at $0.0456 per share based on market for an aggregate cost $15,504. At September 30, 2016, the balance due on the RP Note was $101,337 including $1,337 of accrued interest for the period ended September 30, 2016.

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 – Short Term Debt, Short Term Debt - Related Party & Short Term Convertible Notes (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 iswas originally due and payable in full on December 31, 2016 ~~(the "Maturity Date")~~ and LPC Note One ~~is now classified as short term convertible 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. 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 Conversion 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, on August 18, 2015 the Company granted LPC a3,750,000 six year ~~warrant~~warrants, which includes a cashless exercise provision, to purchase 3,750,000 restricted shares of our common stock at an exercise price of $0.10 per share which was valued using a Black-Scholes model at a non-cash cost of $277,014. At ~~issuance~~August ~~date~~18, 2015, 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. On December 16, 2016, prior to the scheduled redemption dates, LPC extended the maturities of each of its two notes from December 31, 2016 to December 31, 2017 in return for issuance by the Company of 7,000,000 six year warrants, with cashless exercise rights, to purchase 7,000,000 restricted shares of our common stock at an exercise price of $0.05 per share. The warrants were valued using a Black-Scholes model at a non-cash cost of $315,658, of which $143,481 was ascribed as an increase to the discount of LPC Note One and $172,177 was ascribed as an increase to the discount of LPC Note Two.

~~During~~At March 31, 2017, the ~~year~~recorded ~~ended~~balance ~~December~~on ~~31,~~LPC ~~2015,~~Note One was $60116,~~628~~066 ofwhich included the ~~discount~~remaining ~~was~~face ~~recorded~~value asof ~~an amortization expense~~$250,000 plus $63,~~737~~125 ofaccrued interest for the ~~OID~~three ~~was~~months ~~recorded~~ended asMarch ~~interest~~31, ~~expense~~2017, net of unamortized warrant and ~~accrued~~BCF ~~interest~~discounts oftotaling $4133,~~688~~737 ~~was~~and ~~paid~~an ~~through~~unamortized ~~issuance~~OID discount of 90$3,~~286 restricted common shares~~322. At December 31, ~~2015~~2016, the recorded balance on LPC Note One was $6768,~~365~~086 which included the remaining face value of 250,000, net of an unamortized ~~discount~~warrant ofand BCF discounts totaling $~~164~~177,~~372~~505 and an unamortized OID discount of $184,~~263~~409. During the ~~nine~~periods ~~month~~ended ~~period~~March ~~ended~~31, ~~September~~2017 30and March 31, 2016, $~~123~~43,~~053~~741 ofand ~~the discount was recorded as an amortization expense~~$40,868, ~~$13~~respectively,~~673~~ of the ~~OID~~BCF ~~was~~and warrant discounts were recorded as ~~interest~~amortization ~~expense~~expenses, and ~~accrued interest of~~ $91,~~514~~087 ~~was~~and ~~paid via issuances of 135~~$4,~~915 restricted common shares. At September 30~~541, ~~2016~~respectively, of the ~~recorded~~OID ~~balance~~amortization ~~on LPC Note One~~ was ~~$204,092,~~recorded ~~net~~as ofinterest ~~an unamortized discount of $41,317 and an unamortized OID of $4,591~~expenses.

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 7 – Short Term Debt, Short Term Debt - Related Party & Short Term Convertible Notes (continued)

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 iswas originally due and payable in full on December 31, 2016 ~~(the "Maturity Date")~~. ~~LOC Note Two is now classified as short term convertible 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. LPC Note Two has a $30,000 ~~original issuance discount ("~~OID") which resulted in net proceeds of $270,000. The Company has the right to prepay LPC Note Two, 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 Two is not secured and is subordinated to the VDF Note, ~~ranks~~ranked 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 Conversion 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 On November 23, 2015, as an inducement for the loan, the Company granted LPC a5,000,000 six year ~~warrant~~warrants, which includes a cashless exercise provision, to purchase 5,000,000 shares of our restricted common stock at an exercise price of $0.07 per share which was valued using a Black-Scholes model at a cost of $253,098. At ~~issuance~~November ~~date~~23, 2015, 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. On December 16, 2016, prior to the scheduled redemption dates, LPC extended the maturities of each of its two notes from December 31, 2016 to December 31, 2017 in return for issuance by the Company of 7,000,000 six year warrants, with cashless exercise rights, to purchase 7,000,000 restricted shares of our common stock at an exercise price of $0.05 per share. The warrants were valued using a Black-Scholes model at a non-cash cost of $315,658, of which $143,481 was ascribed as an increase to the discount of LPC Note One and $172,177 was ascribed as an increase to the discount of LPC Note Two.

During the ~~year~~period ended ~~December~~March 31, ~~2015~~2017, LPC converted $25225,~~396~~000 ofprincipal ~~the~~and ~~discount~~$1,935 ~~was~~accrued ~~recorded~~interest asdue anon ~~amortization~~the ~~expense,~~note $2into 4,~~822~~538,700 ofshares ~~the~~valued ~~OID~~at ~~was~~$290,981 ~~recorded~~based ason ~~interest~~market ~~expense,~~close ~~and~~prices ~~accrued~~on ~~interest~~dates of ~~$7,561~~issuance. ~~was~~The ~~paid~~conversions ~~via~~resulted ~~issuance~~in ofa ~~151~~$64,~~680~~046 ~~restricted~~difference ~~common~~between ~~shares.~~the Atcash ~~December~~redemption ~~31,~~balance ~~2015,~~and the ~~recorded~~value ~~balance~~of onthe ~~LPC~~shares ~~Note~~redemption ~~Two~~which was ~~$28,218,~~treated ~~net~~as ofa anconversion ~~unamortized~~loss ~~discount~~and ofrecorded ~~$244,604~~as ~~and~~ an ~~unamortized~~additional ~~OID~~non-cash ofinterest ~~$27,178~~expense. ~~During~~Concurrent with the ~~nine month period ended September 30~~conversions, ~~2016,~~ $~~183~~168,~~119~~907 of the warrant discount was recorded as an amortization expense, and $204,~~346~~938 ~~of the~~ OID was recorded as interest expense. For the period ended March 31, ~~and~~2017, ~~accrued~~excluding ~~interest~~the ofconversion amortization adjustments, $913,~~514~~693 ~~was~~of ~~paid~~the ~~via~~remaining ~~issuances~~warrant ofdiscount ~~228,340~~was ~~restricted~~recorded ~~common~~as ~~shares.~~amortization Atexpense ~~September~~and ~~30,~~$400 ~~2016,~~of the remaining OID was recorded ~~balance~~as oninterest ~~LPC~~expense. ~~Note~~For ~~Two~~the ~~was~~period ~~$231~~ended March 31,~~323~~ 2016, ~~net~~$60,817 of anthe ~~unamortized~~warrant discount ofwas ~~$61,485~~recorded ~~and~~as anamortization ~~unamortized~~expense ~~OID~~and of $6,~~832~~757 of the OID was recorded as interest expense.

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NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 87 – Short Term Debt, Short Term Debt - Related Party & Short Term Convertible Notes ~~Payable~~(continued)

At March 31, 2017, the recorded balance on LPC Note Two was $32,876. This included the remaining face value of $75,000, net of an unamortized warrant and BCF discount totaling $41,838 and an unamortized OID of $1,224. At December 31, 2016, the recorded balance on LPC Note Two was $69,000. This included the remaining face value of $300,000, net of an unamortized discount of $224,438 and an unamortized OID of $6,562.

RP Note:

On July 31, 2016, the Company issued a $100,000 note (the "RP Note") to a director of the Company for a loan. The RP Note had an original maturity date of January 27, 2017 and is classified as short term related party debt. The RP Note bears interest at 8% per annum due at maturity and may be prepaid in whole, or in part, at any time before each maturity date without prepayment penalty. As an inducement for the loan, the Company issued 340,000 restricted common shares to the lender at a non-cash cost of $15,504 valued at market close price on date of issue. At December 31, 2016, the balance due on the RP Note was $103,353 including $3,353 of accrued interest for the year ended December 31, 2016. On January 27, 2017, the lender extended the maturity of the RP Note to July 27, 2017 in return for 340,000 restricted common shares valued at $16,952 at market close price on date of issue. During the period ended March 31, 2017, $3,945 of accrued interest was paid to the lender in cash and at March 31, 2017, the balance due on the RP Note was $101,973, which included $1,973 of accrued interest for the period ended March 31, 2017.

SFC Note:

On February 14, 2017, the Company issued a $100,000 note (the "SFC Note") to a long term shareholder of the Company for a loan. The SFC Note has maturity date of August 13, 2017 and bears interest at 8% per annum due at maturity and may be prepaid in whole, or in part, at any time before each maturity date without prepayment penalty. As an inducement for the loan, the Company issued 340,000 restricted common shares to the lender at a non-cash cost of $23,800 valued at market close price on date of issue. At March 31, 2017, the balance due on the SFC Note was $100,986 including $986 of accrued interest for the period ended March 31, 2017.

NOTE 8 – Convertible Long Term Note Payable

VDF Note:

On January 28, 2014, we entered into a patent settlement with VDF FutureCeuticals, Inc. ("VDF") ~~with~~at ~~respect to a prior action filed by VDF. In connection with the License Agreement and other agreements~~ which ~~formed~~time ~~the settlement, we issued~~ a senior convertible note (the "VDF Note") was issued to VDF, whereby we ~~promised~~agreed to pay ~~VDF a~~ principal ~~amount~~ equal to the sum of: ~~(i) the~~ aggregate ~~amount of~~ accrued and unpaid patent 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~~conversion ~~Price~~price determined by the terms of the VDF Note., ~~Key~~which ~~terms of the VDF Note include that: (i) VDF~~ is ~~granted~~subject anto adjustment tobased ~~the~~on ~~conversion~~our ~~price upon the~~ issuance of ~~shares of our common~~ stock, ~~stock~~and ~~options or~~ other ~~convertible~~ securities; ~~(ii)~~and ~~no indebtedness shall rank senior to the payments due under the VDF Note unless prior written consent of VDF~~ is ~~obtained;~~currently ~~and~~$0.2157 ~~(iii)~~per ~~payments under the VDF Note are secured by a Security Agreement~~share. The VDF Note provides that we may, at our option, roll-over to the VDF Note ~~quarterly License fee payments and accrued interest.~~

During the year ended December 31, 2015, we rolled-over License fee payments totaling $300,000 plus accrued interest for the year $18,481 for a total addition to the VDF Note of $318,481. 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. During the nine month period ended September 30, 2016, we rolled-over License fee payments totaling $275,000 and recorded accrued interest of $29,056 on the note. At September 30, 2016, the VDF Note had an outstanding balance $755,975, net of a discount of $17,353 resulting from the embedded derivative.

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; 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; on March 31, 2016, the Conversion Price was adjusted to $0.3434 based on our issuance of stock and warrants to third parties; on June 30, 2016, the Conversion Price was adjusted to $0.2883 based on our issuance of stock and warrants to third parties; and on September 30, 2016, the Conversion Price was adjusted to $0.2606 based on our issuance of stock and warrants to third parties.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 8 – Convertible Long Term Note Payable (continued)

quarterly License fee payments and accrued interest and ranks senior to any other debt issued by the Company unless written consent of VDF is obtained to amend the ranking. At March 31, 2017, the VDF Note had an outstanding balance $984,975. This included the principal due of $1,001,761, net of a discount of $16,786 resulting from the embedded derivative. During the period ended March 31, 2017, a roll-over of a License fee of $100,000 was accrued to the VDF Note. At December 31, 2016, the VDF Note had an outstanding balance $869,674. This included the principal due of $886,460, net of a discount of $16,786 resulting from the embedded derivative. During the year ended December 31, 2016, License fee payments accrued to the VDF Note totaled $375,000 and accrued interest of $42,188 was added for a total addition to the VDF Note of $417,188.

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.

Also as shown in the table below, prior to conversion into shares, in 2015 the Company repaid in cash a variable rate convertible note which had been issued in 2015. The Company no longer has any variable rate convertible debt outstanding and ~~at September 30, 2016~~ the anti-dilution clause of the VDF Senior Convertible Note ~~was~~is the only liability of the Company which created a derivative liability.

The following table summarizes the ~~convertible debt~~ derivative activity for the year ended December 31, ~~2015~~2016 and during the period ended ~~September~~March 3031, ~~2016~~2017:

Description		Total
Fair Value of derivative liabilities at December 31, 2014	$	9,168
Increase due to issuance of convertible debentures		241,710
Reduction due to redemption of convertible debentures		(274,108)
Change in Fair Value		35,037
Fair Value of derivative liabilities at December 31, 2015	$	11,807
Increase due to issuance of convertible debenture - VDF license fee rollover		1,997
Increase due to issuance of convertible debenture - VDF license fee rollovers		7,416
Change in Fair Value		(~~570~~7,574)
Fair Value of derivative liabilities at March 31, 2016	$	13,234
Fair Value of derivative liabilities at December 31, 2016	$	11,649
Increase due to issuance of convertible debenture - VDF license fee rollover		2,353
Increase due to issuance of convertible debenture - VDF license fee rollovers		-
Change in Fair Value		~~(1,061)~~-
Fair Value of derivative liabilities at June 30, 2016	$	14,526
Fair Value of derivative liabilities at March 31, 2017	$	11,649
Increase due to issuance of convertible debenture - VDF license fee rollover		1,705
Change in Fair Value		(4,408)
Fair Value of derivative liabilities at September 30, 2016	$	11,823

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 9 – Derivatives (continued)

The lattice methodology was used to value the derivative liabilities related to the convertible notes, with the following assumptions.

Assumptions:	~~September~~December 3031, 2016	~~December 31, 2015~~
Dividend yield	0.00%	~~0.00%~~
Risk-free rate for term	0.8885%	~~1.31%~~
Volatility	9278%	~~133%~~
Maturity dates	2~~.25~~ years	~~3 years~~
Stock Price	$0.~~05615~~0499	~~$0.055~~

NOTE 10 – Related Party Transactions

During the ~~nine month~~ periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016, related party transactions included:

Chief Executive Officer, Director and Board Chair.

For the ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017: (i) compensation of $8124,~~249~~375; (ii) office rent of $111,~~700~~950; and (iii) ~~issuance~~Black-Scholes ofnon-cash ~~150,366~~expense ~~restricted~~amortization ~~common shares at a closing market price~~ of $~~0.054 per share on date of issue~~35,861 ~~for~~related ~~deemed~~to ~~compensation of $8~~1,~~125; (iv) issuance of 333~~063,~~781~~782 ~~restricted~~options ~~common~~granted ~~shares at a closing market price of $0.049~~ on ~~date~~March ~~of issue for deemed compensation of $16~~6,~~355;~~ ~~(v)~~2017 ~~issuance~~which ofvested ~~164,841 restricted common shares at a closing market price of $0~~immediately.~~0497~~ per share on date of issue for deemed compensation of $8,193; (vi) issuance of 435,180 restricted common shares at a closing market price of $0.05802 per share on date of issue for deemed compensation of $25,249; (vii) issuance of 193,848 restricted common shares at a closing market price of $0.0561 per share on date of issue for deemed compensation of $10,875. For the ~~nine month~~ period ended ~~September~~March 3031, ~~2015~~2016: (i) compensation of $9727,~~500~~083; (ii) office rent of $113,~~700~~900; and (iii) ~~Black-Scholes~~issuance ~~expense amortization~~ of ~~$165~~150,~~266~~366 ~~related~~restricted tocommon ~~1,500,000~~shares ~~options~~at ~~granted~~a oncost ~~December 19, 2014~~ of ~~which~~$0.05404 ~~750,000~~per ~~vested on June 30~~share, ~~2015~~for ~~and~~aggregate ~~750,000~~deemed ~~vested~~compensation onof ~~December 31~~$8, ~~2015~~125.

President and Chief Operating Officer, Director.

For the ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017: (i) compensation of $~~171~~51,~~876~~563; and (ii) ~~issuance~~Black-Scholes ofnon-cash ~~318,081~~expense ~~restricted~~amortization ~~common shares at a closing market price~~ of $~~0.054 per share on date of issue for deemed compensation of $17~~83,~~188;~~481 ~~(iii)~~related ~~issuance~~to ~~of 254~~2,~~441~~476,377 ~~restricted~~options ~~common~~granted ~~shares~~on atMarch a6, ~~closing~~2017 ~~market~~which ~~price~~vested ~~of $0~~immediately.~~049~~ ~~per~~For ~~share~~the onperiod ~~date~~ended ofMarch ~~issue for deemed compensation of $12~~31,~~468;~~ 2016: (ivi) ~~issuance of 348,702 restricted common shares at a closing market price of $0.0497 per share on date of issue for deemed~~ compensation ~~of $17~~,~~330;~~ ~~(v)~~including ~~issuance~~COBRA ~~of 1~~benefits,~~333,333~~ ~~restricted common shares at a closing market price~~ of $~~0.049 per share on date of issue for deemed compensation of $65~~61,~~333~~421; (viii) ~~issuance~~payment ofby ~~906,634~~the ~~restricted~~Company ~~common shares at a closing market price~~ of $~~0.05802~~3,156 ~~per share on date~~ of ~~issue~~related ~~for~~party ~~deemed~~accounts ~~compensation of $52,603~~payable; and (~~vii~~iii) issuance of 1318,~~382,532~~081 restricted common shares at a ~~closing~~cost ~~market price~~ of $0.~~0561~~05404 per share, ~~on date of issue~~ for aggregate deemed compensation of $7717,~~560~~188. For the ~~nine month~~ period ended ~~September~~March 3031, 2015: ~~(i)~~nil ~~compensation~~transactions ofdue ~~$39,178;~~to ~~and~~hiring ~~(ii)~~date ~~issuance~~being ofAugust 110,~~333,333~~ ~~restricted common shares at a closing market price of $0~~2015.~~107 per share on date of issue for deemed compensation of $142,667.~~

Chief Financial Officer, Secretary and Treasurer:

For the period ended March 31, 2017: (i) compensation of $23,438; (ii) office rent of $1,125; and (iii) issuance of 653,842 restricted common shares at a non-cash cost of $0.056 per share, for aggregate deemed compensation of $36,615. For the period ended March 31, 2016: (i) compensation of $31,250; (ii) office rent of $2,250; and (iii) issuance of 462,663 restricted common shares at a cost of $0.05404 per share, for aggregate deemed compensation of $25,000.

Non-executive Director One:

For the periods ended March 31, 2017 and March 31, 2016: nil transactions, respectively.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 10 – Related Party Transactions (continued)

~~Chief~~Non-executive ~~Financial~~Director ~~Officer, Secretary and Treasurer~~Two:

For the ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017: (i) ~~compensation~~purchase of ~~$93~~909,~~750;~~091 ~~(ii) office rent of $6,750; (iii) issuance of 462,663~~ restricted common shares at ~~a closing market price of~~ $0.~~054~~055 per share ~~on date of issue~~ for ~~deemed~~aggregate ~~compensation~~proceeds of $2550,000; ~~(iv)~~by ~~issuance~~a ofholding ~~507,202~~company ~~restricted~~wholly ~~common~~owned ~~shares~~by atDirector aTwo; ~~closing~~and ~~market~~(ii) ~~price~~extension of ~~$0.0497~~the ~~per~~maturity ~~share~~of ona ~~date~~prior loan of ~~issue~~$100,000 ~~for~~to ~~deemed~~the ~~compensation~~Company ofin ~~$25,208;~~return ~~and~~for ~~(v)~~an ~~issuance~~inducement fee of ~~426~~340,~~040~~000 restricted common shares priced at a closing market ~~price~~ of $0.~~0561~~0488 per share on date of issue for a deemed ~~compensation~~non-cash cost of $2316,~~901~~592. For the ~~nine month~~ period ended ~~September~~March 3031, ~~2015~~2016: ~~(i)~~purchase ~~compensation~~ of ~~$93~~1,~~750; (ii) office rent of $6~~875,~~750;~~000 ~~(iii)~~units ~~issuance~~priced ~~of 131,579 restricted common shares~~ at ~~a closing market price of~~ $0.1904 per ~~share~~unit ~~on date of issue~~ for ~~deemed~~aggregate ~~compensation~~proceeds of $2575,000; ~~and~~with ~~(iii)~~each ~~issuance~~unit ofincluding ~~226,860~~one restricted common ~~shares~~share atand aone ~~closing~~five ~~market~~year ~~price~~warrant ofexercisable at $0.~~1102~~055 per share. onFor ~~date~~the ofperiod ~~issue~~ended ~~for~~March ~~deemed~~31, ~~compensation~~2015: ofnil ~~$25,000~~transactions.

~~Director~~Non-executive ~~and~~Retiring ~~co-founder~~Director:

~~For~~During the ~~nine month~~ period ended ~~September~~March 3031, ~~2016:~~2017 ~~nil~~Retiring ~~transactions~~Director resigned from the Board at which time the Company re-priced 750,000 options he held from an exercise price of $0.17 ~~For~~per share to an exercise price of $0.05 per share and issued him an additional 150,000 options with the ~~nine~~same ~~month~~three year remaining maturity. The exercise price of the new options was set on date of grant and these options vested immediately. The combined Black-Scholes options pricing model cost of the transactions was $14,528. For the period ended ~~September~~March 3031, ~~2015~~2016: ~~consulting~~receipt ~~fees~~by the Company of payment from Retiring Director of $418,000 of related party accounts receivable.

~~Independent~~Non-executive Director ~~One~~Three:

For the ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017: ~~(i)~~nil ~~purchase by a holding company wholly owned by Independent Director One of 1,875,000 units priced at $0~~transactions.04 ~~per unit for aggregate proceeds of $75,000 with each unit including one restricted common share and one five year warrant exercisable at $0.055 per share in Unit Offer One;~~ (~~ii)~~Not-applicable ~~purchase by Independent Director One of 500,000 units priced at $0.04 per unit~~ for ~~aggregate proceeds of $20,000 with each unit including one restricted common share and one five year warrant exercisable at $0.055 per share in Unit Offer Two; (iii) provision of a loan of $100,000 to~~ the Company in return for an inducement fee of 340,000 restricted common shares priced at a closing market of $0.0456 per share on date of issue for a deemed cost of $15,504; and (iv) accrual of $1,337 interest on the loan at September 30, 2016. For the nine month period ended ~~September~~March 3031, ~~2015:~~2016 ~~(i)~~due ~~provision~~to ofDirector aThree ~~loan~~joining ~~of $500,000 to~~ the ~~Company~~Board in ~~return~~October ~~for an inducement fee of 1,700,000 restricted common shares priced at a closing market of $0.1402 per share on date of issue for a deemed cost of $238,340; (ii~~2016) ~~repayment by the Company of $250,000 toward the loan; and (iii) accrual of $11,556 interest on the loan at September 30, 2015~~.

~~Independent~~Non-executive Director ~~Two~~Four:

For the ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017: ~~(i)~~nil ~~receipt~~transactions. ~~by the Company of payment by Independent Director Two to the Company of $18,000 of related party accounts receivable which was outstanding at December 31, 2015; and~~ (~~ii)~~Not-applicable ~~an arm's length purchase by a company owned by Independent Director Two~~ for ~~$1,800 of raw material products, such order which was recorded as a related party accounts receivable at September 30, 3016. For~~ the ~~nine month~~ period ended ~~September~~March 3031, ~~2015:~~2016 ~~$18,000~~due ~~of revenue was derived from arm's length raw materials product sales~~ to aDirector ~~company~~Four ~~owned~~joining bythe ~~Independent~~Board ~~Director~~in ~~Two~~December 2016).

AtNon-executive September 30, 2016 and December 31, 2015, the Company had related party accounts payable of $nil and $3,156, respectively; related party accounts receivable of $1,800 and $18,000, respectively; and shareholder loans (excluding the loan provided by Independent Director ~~One) of $nil and $nil, respectively.~~Five:

For the period ended March 31, 2017: issuance of 250,000 restricted common shares at a non-cash cost of $0.0484 per share for aggregate deemed compensation of $12,100 as an inducement to join the Board. (Not-applicable for the period ended March 31, 2016 due to Director Five joining the Board in January 2017).

At March 31, 2017 and December 31, 2016, 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 March 31, 2017, there were 177,347,287 shares of our common stock issued and outstanding.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

~~Overview:~~2017 Share Transactions

~~Our~~On ~~authorized~~January ~~capital~~23, ~~stock~~2017, ~~consists~~we ofissued ~~877~~250,~~500,~~000 ~~shares~~restricted of common ~~stock,~~shares ~~with~~at ~~a par value of~~ $0.~~001~~0484 per share; ~~and~~to ~~10,000~~a ~~shares~~new ofdirector ~~preferred~~at ~~stock~~market atclose aprice ~~par~~on ~~value~~date of ~~0.001.~~grant ~~The~~as ~~holders~~an ofinducement ~~common~~fee ~~stock~~for ~~have~~joining ~~dividend~~our ~~rights,~~Board ~~liquidation~~for ~~rights~~a ~~and~~deemed ~~voting~~non-cash ~~rights~~cost of $12,100. These shares were issued to one ~~vote~~Accredited ~~for~~Investor ~~each~~(as ~~share~~that term is defined in Rule 501 of ~~common~~Regulation ~~stock.~~D ~~There~~under ~~are~~the noSecurities ~~preferred~~Act ~~shares~~of ~~issued~~1933, ~~and~~as ~~outstanding~~amended) ~~and~~or qualified under the terms ofRule ~~any~~506 ~~future~~Regulation ~~preferred~~D, and in issuing these shares ~~issuances~~we ~~will~~relied beon asthe ~~determined~~exemptions byfrom the ~~Board~~registration ofrequirements ~~Directors.~~provided Asfor ofin ~~September~~Rule ~~30,~~506 ~~2016,~~Regulation ~~there~~D ~~were~~and/or ~~147,190,592 shares~~Section 4(a)(2) of ~~our~~the ~~common~~Securities ~~stock~~Act ~~issued~~of ~~and~~1933, ~~outstanding~~as amended.

~~2016~~On ~~Share~~January ~~Transactions~~26, 2017, we issued 340,000 restricted common shares at $0.0488 per share to an Accredited Investor related party at market close price on date of grant as an inducement fee extension of the maturity of a promissory note for a deemed non-cash cost of $16,592. 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 February ~~August~~14, 112017, ~~2016~~we ~~the~~remedially ~~last~~executed ~~shares~~a ~~which~~private ~~had~~placement ~~been~~related ~~registered~~to ~~under~~Unit Offer #3 which raised $15,000 through the ~~Company's~~sale ~~2015~~of ~~Equity~~375,000 ~~Line~~units. ~~were~~Each ~~sold~~unit was priced at $0.04 ~~Subsequently~~per ~~there~~unit ~~has~~and ~~not~~comprised ~~been~~of aone ~~new~~restricted ~~registration~~common ~~statement~~share onprice ~~Form~~plus ~~S-1~~one ~~filed~~five ~~which~~year ~~would~~warrant ~~allow~~exercisable ~~for~~to ~~further~~purchase ~~share~~one ~~sales~~restricted ~~under~~common ~~the~~share ~~2015~~at ~~Purchase~~$0.055 ~~Agreement~~per share. ~~During~~The fair market value of the ~~nine~~shares ~~month~~and ~~period~~embedded ~~ended~~value ~~September~~of ~~30,~~the ~~2016,~~warrants is based on the ~~Company~~valuations done for Unit Offer #3. These shares were issued ~~6,450,000~~to ~~Sale~~one ~~Shares~~non-U.S. ~~and~~person 21(as that term is defined in Regulation S of the Securities Act of 1933,~~529~~ ~~per~~as ~~sale~~amended) ~~Commitment~~in ~~Shares~~offshore ~~under~~transactions in which we relied on the ~~2015~~exemptions ~~Equity~~from ~~Line~~the registration requirements provided for ~~aggregate~~in ~~proceeds~~Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended. The warrants were valued using a Black-Scholes model at a non-cash cost of $~~322~~16,~~936~~463. At March 31, 2017, none of these warrants had been exercised.

On ~~January~~February 114, ~~2016~~2017, we issued ~~600~~340,000 restricted common shares to an Accredited Investor long term shareholder at $0.~~0614~~07 per share at market close price on date of grant toas an ~~employee~~inducement fee for a $100,000 promissory note for a deemed ~~compensation~~non-cash cost of $3723,800. These shares were issued to one USnon-U.S. person ~~with~~(as ~~reliance~~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 ~~Rule 506~~ Regulation DS and/or Section 4(~~a)(~~2) of the Securities Act of 1933, as amended.

OnDuring January 8, ~~2016~~2017, in two transactions we issued ~~651,269~~at ~~restricted~~total of 1,625,000 common shares at $0.0504 per share atfor ~~market~~conversion ~~close~~by ~~price~~September on2015 ~~date~~Note ofTwo ~~grant~~Purchaser ~~for~~of ~~deemed~~the ~~compensation~~remaining of $3265,~~563~~000 todue aon ~~service~~September ~~provider~~2015 asNote ~~final~~Two. ~~payment~~The ~~for~~market ~~services~~values ~~rendered.~~of ~~These~~the shares ~~were~~totaled ~~issued~~$128,463 tobased ~~one~~on USa ~~person,~~market ~~who~~close isprices anon ~~accredited~~dates ~~investor~~of ~~(as~~issuance. ~~that~~The ~~term~~conversions isresulted ~~defined~~ in ~~Rule~~a ~~501~~$63,463 ofdifference ~~Regulation~~between Dthe ~~under~~cash ~~the~~redemption ~~Securities~~balance ~~Act~~and the value of ~~1933,~~the shares redemption which was treated as ~~amended),~~a conversion loss and inrecorded ~~issuing~~as ~~these~~an ~~shares~~additional tonon-cash ~~this~~interest ~~person~~expense. weThese ~~relied~~conversions onfully paid the ~~exemptions~~note ~~from~~and ~~the~~no ~~registration~~further ~~requirements~~payments ~~provided~~are ~~for~~due. inThese ~~Rule~~shares ~~506~~were ~~Regulation~~issued Dto ~~and/or~~an ~~Section~~Accredited ~~4(a)(2)~~Investor ofwith reliance on the exemptions from registration requirements provided in the Securities Act of 1933, as amended, Section 4(1) and Rule 144.

OnDuring ~~January~~February, 112017, ~~2016~~ we issued 51,500,000 restricted common shares to two prior unit offering subscribers for exercises of 1,500,000 warrants they held at the exercise price $0.~~064~~055 per share tofor anproceeds ~~employee~~of at$82,500. ~~market~~These ~~close~~subscribers ~~price~~are onAccredited ~~date~~Investors (as that term is defined in Rule 501 of ~~grant~~Regulation ~~for~~D ~~deemed~~under ~~compensation~~the Securities Act of ~~$320. These~~1933, ~~shares~~as ~~were~~amended) ~~issued~~or toqualified ~~one~~under USthe ~~person~~terms ~~with~~Rule ~~reliance~~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.

In February 2016, 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. The fair market value of the shares based on closing market prices on dates of sale was $227,160 and the embedded value of the warrants based on a Black-Scholes option pricing model was $182,910. 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.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

On February 22, 2017, we issued 990,000 common shares at $0.04 per share for conversion by December 2015 Lender of the remaining $39,600 due on the December 2015 Note. The value of the shares was $61,578 based on a market close price on date of issuance. The conversion resulted in a $21,978 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. This conversion fully paid the note and no further payments are due. These shares were issued to one Accredited Investor with reliance on the exemptions from registration requirements provided in the Securities Act of 1933, as amended, Section 4(1) and Rule 144.

During the period ended March 31, 2017 in four transactions, LPC converted $225,000 principal and $1,935 accrued interest due on LPC Note Two at a conversion price of $0.05 per share into 4,538,700 shares valued at $290,981 based on market close prices on dates of issuance. The conversions resulted in a $64,046 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. These shares were issued to one Accredited Investor with reliance on the exemptions from registration requirements provided in the Securities Act of 1933, as amended, Section 4(1) and Rule 144.

On March 1, 2017, we issued 1,100,000 restricted common shares at $0.0548 per share at market close price on date of grant for consultant services rendered for a deemed cost of $60,280. These shares were issued to one Accredited Investor (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.

On March 2, 2017, we issued 15,500 restricted common shares at $0.0518 per share to a professional athlete for endorsement services rendered. These shares were issued at market close price on issue date for deemed compensation of $803. 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 March 6, 2017, we issued 653,842 restricted common shares to a company wholly owned by our CFO at a price of $0.0559 on date of grant as compensation for a deemed cost of $36,615. 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 March 7, 2017, we issued 50,000 restricted common shares at $0.0604 per share to a professional athlete for endorsement services rendered. These shares were issued at market close price on issue date for deemed compensation of $3,020. 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.

During the period ended March 31, 2017, we raised $145,000 through a private placement stock offering which sold 2,636,363 restricted common shares at $0.055 per share. These shares were issued to five 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.

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

2016 Share Transactions

On August 11, 2016 we discontinued the 2015 Equity Line after the last shares which had been registered under the related Form S-1 were sold. Subsequently there has not been filing of, and there are no plans to file, a new registration statement to effect further sales and the 2015 Equity Line is now effectively defunct. During the year ended December 31, 2016, the Company issued 6,450,000 Sale Shares and 21,529 per sale Commitment Shares under the 2015 Equity Line for aggregate proceeds of $322,936.

On January 1, 2016 we issued 600 restricted common shares at $0.0614 per share at market close price on date of grant to an employee for deemed compensation of $37. 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 January 8, 2016, we issued 651,269 restricted common shares at $0.05 per share at market close price on date of grant for deemed compensation of $32,563 to a service provider as final payment 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 January 11, 2016 we issued 5,000 restricted common shares at $0.064 per share to an employee at market close price on date of grant for deemed compensation of $320. 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.

In February 2016, we executed a private placement unit offering which raised $171,000 through the sale of 4,275,000 units 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. The fair market value of the shares based on closing market prices on dates of sale was $227,160 and the embedded value of the warrants based on a Black-Scholes option pricing model was $182,910. 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.

On February 23, 2016 we issued 5,000 restricted common shares at $0.0502 per share at market close price on date of grant to an employee for deemed compensation of $251. 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 March 4, 2016, we issued 3,500 restricted common shares at $0.0559 per share at market close price on date of grant to a professional athlete for endorsement services rendered for deemed compensation of $196. 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.

For the three month period ended March 31, 2016, we issued to LPC: (a) 45,143 restricted common shares at $0.07 per share for a deemed cost of $3,160 for interest accrued on LPC Note One for the period from January 1, 2016 to March 31, 2016 ; and (b) 75,840 restricted common shares at $0.05 per share for a deemed cost of $3,792 for interest accrued on LPC Note Two for the period from January 1, 2016 to March 31, 2016. These shares were issued at market close price on date of grant to one US company, which 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.25

On March 31, 2016 we issued 150,366 restricted common shares at $0.054 per share at market close price on date of grant to our CEO for deemed compensation totaling $8,125. 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 March 31, 2016 we issued 318,081 restricted common shares at $0.054 per share at market close price on date of grant to our President & COO for deemed compensation totaling $17,188. 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 March 31, 2016 we issued 462,663 restricted common shares at $0.054 per share at market close price on date of grant to our CFO for 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 March 31, 2016 we issued 600 restricted common shares at $0.054 per share at market close price on date of grant to an employee for deemed compensation of $30. 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.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

~~From~~For ~~April~~the tothree ~~May~~month ~~2016,~~period weended ~~executed~~March a31, ~~private~~2016, ~~placement~~we ~~unit~~issued ~~offering~~to ~~which~~LPC: ~~raised~~(a) ~~$394~~45,~~000~~143 ~~through~~restricted ~~the~~common ~~sale~~shares ofat ~~9,850,000 units~~$0.07 ~~This~~per ~~offering~~share ~~terminated~~for ona ~~May~~deemed ~~31,~~cost ~~2016~~of ~~and was priced at~~ $~~0.04~~3,160 ~~per~~for ~~unit~~interest ~~with~~accrued ~~each~~on ~~unit~~LPC ~~being~~Note ~~comprised~~One offor ~~one~~the ~~restricted~~period ~~common~~from ~~share~~January ~~price~~1, ~~plus~~2016 ~~one~~to ~~five~~March ~~year~~31, ~~warrant~~2016 ~~exercisable~~; toand ~~purchase~~(b) ~~one~~75,840 restricted common ~~share~~shares at $0.~~055~~05 per share. ~~The~~for ~~fair~~a ~~market~~deemed ~~value~~cost of ~~the~~$3,792 ~~shares~~for ~~based~~interest accrued on ~~closing~~LPC ~~market~~Note ~~prices~~Two onfor ~~dates~~the ofperiod ~~sale~~from ~~was~~January ~~$532~~1,~~443~~ ~~and~~2016 ~~the~~to ~~embedded~~March ~~value~~31, of2016. ~~these~~These ~~warrants~~shares ~~based~~were onissued aat ~~Black-Scholes~~market ~~option~~close ~~pricing~~price ~~model~~on ~~was~~date ~~$426,730.~~of ~~These~~grant ~~shares were issued~~ to ~~nine~~one US ~~persons~~company, ~~who~~which ~~are~~is ~~accredited~~an ~~investors~~Accredited Investor (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 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 March 31, 2016 we issued 150,366 restricted common shares at $0.051 per share at market close price on date of grant to our CEO for deemed compensation totaling $7,669. 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 March 31, 2016 we issued 318,081 restricted common shares at $0.051 per share at market close price on date of grant to our President & COO for deemed compensation totaling $16,222. 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 March 31, 2016 we issued 462,663 restricted common shares at $0.051 per share at market close price on date of grant to a company wholly owned by our CFO for deemed compensation totaling $23,596. 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.

From April to May 2016, we executed a private placement unit offering which raised $394,000 through the sale of 9,850,000 units 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. The fair market value of the shares based on closing market prices on dates of sale was $532,443 and the embedded value of these warrants based on a Black-Scholes option pricing model was $426,730. These shares were issued to nine 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.

On May 20, 2016 we issued 10,000 restricted common shares at $0.054 per share at market close price on date of grant to an employee for deemed compensation of $540. 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

(Unaudited)

NOTE 11 – Equity (continued)

On May 20, 2016 we issued 5,000 restricted common shares at $0.054 per share at market close price on date of grant to an employee for deemed compensation of $270. 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 May 20, 2016, we issued 68,000 restricted common shares at $0.054 per share at market close price on date of grant to a professional athlete for endorsement services rendered for deemed compensation of $3,672. 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 May 20, 2016, we issued 8,500 restricted common shares at $0.054 per share at market close price on date of grant to a professional athlete for endorsement services rendered for deemed compensation of $459. 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 May 20, 2016, we issued 7,000 restricted common shares at $0.054 per share at market close price on date of grant to a professional athlete for endorsement services rendered for deemed compensation of $378. 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 May 20, 2016, we issued 8,500 restricted common shares at $0.054 per share at market close price on date of grant to a professional athlete for endorsement services for deemed compensation of $459. 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 June 6, 2016, we issued 5,000 restricted common shares at $0.0518 per share at market close price on date of grant to a health care professional for endorsement services for deemed compensation of $259. 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.

25On June 8, 2016 we issued 333,781 restricted common shares at $0.049 per share at market close price on date of grant as compensation to our CEO for deemed compensation totaling $16,355. 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.

~~Table~~On June 8, 2016 we issued 254,441 restricted common shares at $0.049 per share at market close price on date of ~~Contents~~grant as compensation to our President & COO for deemed compensation totaling $12,468. 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.

For the period ended June 30, 2016 we issued 164,841 restricted common shares at $0.052483 per share at market close price on date of grant to our CEO for deemed compensation totaling $8,651. 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

(Unaudited)

NOTE 11 – Equity (continued)

OnFor the period ended June 830, 2016 we issued ~~333~~348,~~781~~702 restricted common shares at $0.~~049~~052483 per share at market close price on date of grant ~~as compensation~~ to our ~~CEO~~President & COO for deemed compensation totaling $1618,~~355~~301. 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.

OnFor the period ended June 830, 2016 we issued ~~254~~507,~~441~~202 restricted common shares at $0.~~049~~052483 per share at market close price on date of grant asto ~~compensation~~a tocompany ~~our~~wholly ~~President~~owned &by ~~COO~~our CFO for deemed compensation totaling $1226,~~468~~619. These shares were issued to one USnon-U.S. person ~~with~~(as ~~reliance~~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 ~~Rule 506~~ Regulation DS and/or Section 4(~~a)(~~2) of the Securities Act of 1933, as amended.

For the period ended June 30, 2016 we issued 164,841 restricted common shares at $0.0497 per share at market close price on date of grant to our CEO for deemed compensation totaling $8,193. 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.

For the period ended June 30, 2016 we issued 348,702 restricted common shares at $0.0497 per share at market close price on date of grant to our President & COO for deemed compensation totaling $17,330. 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.

For the period ended June 30, 2016 we issued 507,202 restricted common shares at $0.0497 per share at market close price on date of grant to our CFO for deemed compensation totaling $25,208. 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 30, 2016 we issued 1,200 restricted common shares at $0.0497 per share at market close price on date of grant to an employee for deemed compensation of $60. 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, 2016, we issued 17,000 restricted common shares at $0.0497 per share at market close price on date of grant to a professional athlete for endorsement services rendered for deemed compensation of $845. 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 June 30, 2016, we issued 1,500,000 restricted common shares at $0.0497 per share at market close price on date of grant for consultant services rendered for a deemed cost of $74,550. These shares were issued to three 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.

26For the three months ended June 30, 2016, we issued to LPC: (a) 45,143 restricted shares at $0.0497 per share for a deemed cost of $2,244 for interest accrued on LPC Note One for the period from April 1, 2016 to June 30, 2016 ; and (b) 75,840 restricted shares at $0.0497 per share for a deemed cost of $3,769 for interest accrued on LPC Note Two for the period from April 1, 2016 to June 30, 2016. These shares were issued at market close price on date of grant to one US company, which 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.

~~Table~~On July 13, 2016, we issued 294,737 restricted common shares at $0.0475 per share at market close price on date of ~~Contents~~grant for consultant services rendered for a deemed cost of $14,000. 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.

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

~~For~~From ~~the~~July ~~three~~to ~~months~~September ~~ended June 30,~~ 2016, we ~~issued~~executed ~~to LPC: (~~a) ~~45,143~~private ~~restricted~~placement ~~shares~~offering atwhich raised $~~0.0497~~101,000 ~~per~~through ~~share~~the ~~for~~sale aof ~~deemed~~2,525,000 ~~cost~~units ofpriced at $~~2,244~~0.04 ~~for~~per ~~interest~~unit ~~accrued~~with oneach ~~LPC~~unit ~~Note~~being ~~One~~comprised ~~for~~of ~~the~~one ~~period~~restricted ~~from~~common ~~April~~share 1,price ~~2016~~plus toone ~~June~~five ~~30,~~year ~~2016~~warrant ;exercisable ~~and~~to ~~(b)~~purchase ~~75,840~~one restricted ~~shares~~common share at $0.~~0497~~055 per share. ~~for~~The afair ~~deemed~~market ~~cost~~value of ~~$3,769~~the ~~for~~shares ~~interest~~based ~~accrued~~ on ~~LPC~~closing ~~Note~~market ~~Two~~prices ~~for~~on ~~the~~dates ~~period~~of ~~from~~sale ~~April~~was 1$168,525 ~~2016~~and tothe ~~June~~embedded ~~30,~~value ~~2016.~~of ~~These~~the ~~shares~~warrants ~~were~~based ~~issued~~on ata ~~market~~Black-Scholes ~~close~~option ~~price~~pricing onmodel ~~date~~was of$132,571. ~~grant~~These toshares ~~one~~were USissued ~~company,~~to ~~which~~eight ispersons anwho ~~accredited~~are ~~investor~~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 ~~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 July 13, 2016, we issued 294,737 restricted common shares at $0.0475 per share at market close price on date of grant for consultant services rendered for a deemed cost of $14,000. 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.

From July to September 2016, we executed a private placement offering which raised $101,000 through the sale of 2,525,000 units. This offering terminated on September 30, 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. The fair market value of the shares based on closing market prices on dates of sale was $147,488 and the embedded value of the warrants based on a Black-Scholes option pricing model was $116,108. These shares were issued to seven 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.

On August 1, 2016, the Company received a loan of $100,000 from a director of the Company and issued 340,000 restricted common shares as an inducement fee at market close price of $0.0456 on date of issue for a deemed cost of $15,504. 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 8, 2016, we issued 20,000 restricted common shares at $0.0475 per share market close price on date of grant to an employee for deemed compensation of $950. 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 August 8, 2016, we issued 50,000 restricted common shares at $0.0475 per share market close price on date of grant to an employee for deemed compensation of $2,375. 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 August 15, 2016, we issued 1,333,333 restricted common shares at $0.049 per share at market close price on date of grant to our President & COO for deemed compensation totaling $65,333. 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.

27On August 24, 2016, we issued 42,500 restricted common shares at $0.0639 per share market close price on date of grant to an employee for deemed compensation of $2,716. 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.

~~Table~~On August 24, 2016, we issued 25,000 restricted common shares at $0.0639 per share market close price on date of ~~Contents~~grant to an employee for deemed compensation of $1,598. 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

(Unaudited)

NOTE 11 – Equity (continued)

On August 2430, 2016, wethe ~~issued~~Company 42redeemed the balance due of $59,~~500~~000 ~~restricted~~on ~~common~~the September 2015 Note One through issuance of 1,475,000 shares valued at $95,875 based on a market close price of $0.~~0639~~065 per share on date of issuance. This included a loss on conversion of $36,875 based on the difference between the value of the shares issued at market close price on date of ~~grant~~issue toand anthe ~~employee~~agreed ~~for~~conversion ~~deemed~~price ~~compensation~~ of $~~2,716~~0.04 per share. These shares were issued to one US company, which 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 ~~with~~we ~~reliance~~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 August 24, 2016, we issued 25,000 restricted common shares at $0.0639 per share market close price on date of grant to an employee for deemed compensation of $1,598. 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 August 30, 2016, the Company redeemed the balance due of $59,000 on the September 2015 Note One through issuance of 1,475,000 shares valued at $95,875 based on a market close price of $0.065 per share on date of issuance. This included a loss on conversion of $36,875 based on the difference between the value of the shares issued at market close price on date of issue and the agreed conversion price of $0.04 per share. These shares were issued to one US company, which 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 6, 2016, we issued 10,000 restricted common shares at $0.0599 per share market close price on date of grant to an employee for deemed compensation of $599. 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 8, 2016, we issued 25,000 restricted common shares at $0.06 per share market close price on date of grant to an employee for deemed compensation of $1,500. 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 9, 2016, we issued 10,000 restricted common shares at $0.0581 per share market close price on date of grant to an employee for deemed compensation of $581. 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 23, 2016, a note holder provided an extension of the maturity of the note held in return for the note being amended to provide for conversion into shares at $0.04 per share. This amendment created a beneficial conversion feature which was valued at a cost of $37,669, such amount which was recorded as an increase to Additional Paid in Capital.

On September 27, 2016 we issued 435,180 restricted common shares at $0.05802 per share at market close price on date of grant as compensation to our CEO for deemed compensation totaling $25,249. 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 27, 2016 we issued 906,634 restricted common shares at $0.05802 per share at market close price on date of grant to our President & COO for deemed compensation totaling $52,603. 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.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

On September 29, 2016, we issued 129,244 restricted common shares at $0.058 per share market close price on date of grant to a predecessor investor for deemed cost of $7,496 to revise the shares owed to him from our reverse merger share exchange in 2014. 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. A value for capital stock of $129 was recorded and the balance of $7,367 for the cost of the shares was offset to additional paid in capital.

For the three months ended September 30, 2016, we issued to LPC: (a) 45,629 restricted shares at $0.0561 per share for a deemed cost of $2,560 for interest accrued on LPC Note One for the period from July 1, 2016 to September 30, 2016 ; and (b) 76,660 restricted shares at $0.0561 per share for a deemed cost of $4,301 for interest accrued on LPC Note Two for the period from July 1, 2016 to September 30, 2016. These shares were issued at market close price on date of grant to one US company, which 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, 2016, we issued 193,848 restricted common shares at $0.0561 per share at market close price on date of grant to our CEO for deemed compensation totaling $10,875. 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, 2016, we issued 1,382,532 restricted common shares at $0.0561 per share at market close price on date of grant to our President & COO for deemed compensation totaling $77,560. 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, 2016, we issued 426,040 restricted common shares at $0.0561 per share at market close price on date of grant to our CFO for deemed compensation totaling $23,901. 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.

From July 1 to September 30, 2016, we raised $120,000 through a private placement stock offering of 3,000,000 restricted common shares at $0.04 per share. These shares were issued to six 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.

Additional paid in capital for the period ended September 30, 2016 also included an addition of $37,669 related to the unamortized beneficial conversion feature created by the alteration of September 2015 Note Two to allow for conversion of the note into shares.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

2015 Share Transactions

On February 6, 2015 we issued 600 restricted common shares at $0.0752 per share at market close price on date of grant to an employee for deemed compensation 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 at market close price on date of grant to a professional athlete for endorsement services rendered 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 at market close price on date of grant as compensation to our CFO for 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 for professional services rendered, such issuance which was valued at $0.20 per share at market close price on date of grant for a deemed cost of $60,000. 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 at $0.1402 per share at market close price on date of grant for an aggregate deemed cost of $238,340 to a director of the Company 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 at market close price on date of grant to an employee for deemed compensation 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.

2015 Equity Line:

[On August 11, 2016 the last shares which had been registered under the Company's 2015 Equity Line were sold. Subsequently there has not been a new registration statement on Form S-1 filed which would allow for further share sales under the 2015 Purchase Agreement.]

On June 16, 2015, we entered into the 2015 Purchase Agreement and 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

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

~~based~~For on the ~~difference~~three ~~between~~months ~~Black~~ended ~~Scholes~~September ~~option~~30, ~~pricing~~2016, ~~model~~we ~~valuations~~issued onto ~~original~~LPC: ~~grant~~(a) ~~date of January 27~~45,629 ~~2014~~restricted ~~and~~shares ~~re-pricing~~at ~~date of June 15, 2015~~$0.0561 ~~This~~per ~~expense~~share ~~was~~for ~~recorded as~~ a ~~loss~~deemed oncost ~~equity modification~~ of $412,~~753,~~560 ~~with~~for aninterest ~~offset~~accrued toon ~~additional~~LPC ~~paid~~Note inOne ~~capital.~~for Atthe ~~execution~~period ~~date~~from ~~LPC~~July ~~also~~1, ~~purchased~~2016 1to September 30,~~666,667~~ ~~shares~~2016; ofand ~~our~~(b) ~~common~~76,660 ~~stock~~restricted shares at $0.150561 per share for ~~proceeds~~a deemed cost of $~~250~~4,~~000~~301 asfor aninterest ~~initial~~accrued ~~purchase~~on ~~under~~LPC ~~the~~Note ~~agreement.~~Two ~~These~~for ~~shares were issued to a U.S. person with reliance on~~ the ~~exemptions~~period from ~~the~~July ~~registration~~1, ~~requirements~~2016 ~~provided~~to ~~for~~September in30, ~~Rule~~2016. ~~506~~These ~~Regulation~~shares Dwere ~~and/or~~issued ~~Section~~at ~~4(a)(2)~~market ofclose ~~the~~price ~~Securities~~on ~~Act~~date of ~~1933,~~grant asto ~~amended.~~one InUS ~~consideration~~company, ~~for~~which ~~entering~~is ~~into~~an ~~the~~Accredited ~~2015~~Investor ~~Equity~~(as ~~Line,~~that weterm ~~issued~~is todefined ~~LPC~~in ~~2,666,667~~Rule ~~shares~~501 of ~~our~~Regulation ~~common~~D ~~stock~~under asthe aSecurities ~~commitment~~Act ~~fee~~of ~~and up to an additional 666~~1933,~~666~~ ~~shares could be issued~~ as ~~commitment~~amended), ~~fees~~and ~~pro~~in ~~rata.~~issuing ~~The~~these ~~2015~~shares ~~Equity~~to ~~Line may~~this beperson ~~terminated~~we byrelied uson atthe ~~any~~exemptions ~~time~~from ~~at our discretion without any monetary cost to us. During~~ the ~~period~~registration ~~ended~~requirements ~~December~~provided ~~31,~~for ~~2015~~in weRule ~~issued~~506 ~~8,550,000~~Regulation ~~sale~~D ~~shares~~ and/or ~~41,989~~Section ~~per~~4(a)(2) ~~sale~~of ~~commitment shares under~~ the ~~2015~~Securities ~~Equity~~Act ~~Line for aggregate cash proceeds~~ of ~~$629~~1933,~~850~~ as amended.

On ~~June~~September 30, ~~2015~~2016, ~~1,666,667~~we ~~shares~~issued of193,848 restricted common shares ~~were~~at ~~issued~~$0.0561 toper ~~investor,~~share ~~unrelated~~at tomarket ~~LPC,~~close ~~under~~price aon ~~securities~~date ~~purchase agreement dated June 30, 2015 at a price~~ of ~~$0.06~~grant ~~per~~to ~~share~~our CEO for ~~aggregate~~deemed ~~proceeds~~compensation oftotaling $~~100~~10,~~000~~875. 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 2015 Equity Line Registration Statement on Form S-1 filed on July 6, 2015,which was made Effective by the SEC on July 16, 2015.~~

On ~~July~~September 630, ~~2015~~2016, we issued 61,~~025~~382,532 restricted common shares at $0.~~1188~~0561 per share at market close price on date of grant to aour ~~professional~~President ~~athlete~~& ~~for~~COO ~~endorsement services rendered~~ for deemed compensation oftotaling $~~716~~77,560. These shares were issued to one US ~~persons~~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 ~~July~~September 930, ~~2015~~2016, we issued ~~226~~426,~~860~~040 restricted common shares at $0.~~1102~~0561 per share at market close price on date of grant asto ~~compensation~~a tocompany wholly owned by our CFO for deemed compensation oftotaling $2523,~~000~~901. 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.

OnFrom ~~August~~July 111 to September 30, ~~2015~~2016, we ~~issued~~raised 1$120,~~333,333~~000 ~~restricted~~through ~~common~~a ~~shares~~private toplacement ~~our~~stock ~~new~~offering ~~President~~of &3,000,000 ~~Chief~~restricted ~~Operating~~common ~~Officer~~shares at $0.~~107~~04 per share. atThese ~~market~~shares ~~close~~were ~~price~~issued onto ~~date~~six US persons who are Accredited Investors (as that term is defined in Rule 501 of ~~grant~~Regulation ~~for~~D ~~deemed~~under ~~compensation~~the Securities Act of ~~$142~~1933,~~667.~~ ~~These~~as ~~shares~~amended) ~~were~~or ~~issued~~qualified tounder ~~one~~the USterms ~~person~~Rule ~~with~~506 ~~reliance~~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.

On ~~September~~October 154, ~~2015~~2016, we issued 1150,000 restricted common shares at $0.~~075~~059 per share at market close price on date of grant to a newly appointed director as an ~~employee~~inducement for joining our Board for a deemed ~~compensation~~cost of $758,850. These shares were issued to one US ~~persons~~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~~October 1828, ~~2015~~2016, we issued 261,000,000 restricted common shares at $0.~~0901~~0525 per share at market close price on date of grant tofor a consultant ~~for~~ services rendered for a deemed cost of $252,~~343~~500. These shares were issued to ~~one~~three 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.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

On ~~September~~November 2423, ~~2015~~2016, we issued ~~12,~~500,000 ~~restricted~~ common shares at $0.~~0829~~04 per share ~~at market close price on date of grant to a professional athlete~~ for ~~endorsement~~conversion ~~services~~by ~~rendered~~September ~~for~~2015 aNote ~~deemed~~Two ~~cost~~Purchaser of $120,~~036~~000 of debt. These shares were issued to one USAccredited ~~person~~Investor with reliance on the exemptions from ~~the~~ registration requirements provided ~~for~~ in ~~Rule~~the ~~506~~Securities ~~Regulation~~Act Dof ~~and/or~~1933, as amended, Section 4(a1)~~(2)~~ and Rule 144. Because these shares were issued at below the closing market price of $0.0537 on date of issue, the ~~Securities~~conversion ~~Act~~resulted in a loss of ~~1933~~$6,850 which was recorded as ~~amended~~additional interest expense.

On ~~September~~November 30, ~~2015~~2016, we issued 91,000,000 restricted common shares at $0.~~078~~0529 per share at market close price on date of grant ~~to a professional athlete~~ for ~~endorsement~~consultant services rendered for a deemed cost of $~~702~~52,900. These shares were issued to ~~one~~three 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~~December 302, ~~2015~~2016, we issued 50300,000 ~~restricted~~ common shares at $0.~~078~~0495 per share at market close price on date of grant to a ~~consultant~~debt holder as part of the compensation for ~~services~~a ~~rendered~~maturity extension on the note held for a deemed cost of $314,~~900~~850. These shares were issued to one US person with reliance on the exemptions from ~~the~~ registration requirements provided ~~for~~ in Rule ~~506~~144(d)(3)(ii). ~~Regulation~~At Dthis ~~and/or~~time ~~Section~~the ~~4(a)(2)~~underlining note was also amended to provide for conversion of the ~~Securities~~note ~~Act~~to shares at $0.04 per share and this created a beneficial conversion feature which was valued at a cost of ~~1933~~$9,405, such amount which was recorded as ~~amended~~an increase to Additional Paid in Capital.

On ~~September~~December 306, ~~2015 we issued 320~~2016,~~513~~ ~~restricted~~LPC ~~common~~provided ~~shares~~an atextension ~~$0.078~~of ~~per~~the ~~share~~maturity ~~at market close price on date~~ of ~~grant~~two asnotes ~~compensation~~held toin ~~our~~return ~~CFO~~ for ~~deemed~~the ~~compensation~~grant ~~totaling~~of ~~$25~~7,000.,000 ~~These~~six ~~shares~~year ~~were~~warrants ~~issued~~exercisable toat ~~one non-U~~$0.S.05 ~~person~~per ~~(as~~share. ~~that~~The ~~term~~warrants iswere ~~defined~~valued inusing ~~Regulation~~a SBlack-Scholes ofmodel ~~the~~at ~~Securities~~a ~~Act~~non-cash cost of ~~1933~~$315,658, assuch ~~amended)~~amount ~~in offshore transactions in~~ which wewas ~~relied~~recorded onas ~~the~~an ~~exemptions~~increase ~~from~~to ~~the~~Additional ~~registration~~Paid ~~requirements provided for~~ in ~~Regulation S and/or Section 4(2) of the Securities Act of 1933, as amended~~Capital.

OnFor ~~September~~the 30three months ended December 31, ~~2015~~2016, we issued ~~502~~to LPC: (a) 45,~~283~~629 restricted ~~common~~ shares at $0.~~078~~0451 per share atfor ~~market~~a ~~close~~deemed ~~price~~cost of $2,058 for interest accrued on ~~date~~LPC ofNote ~~grant~~One asfor ~~compensation~~the period from October 1, 2016 to ~~our~~December ~~President~~31, &2016 ~~COO~~; and (b) 76,660 restricted shares at $0.0451 per share for a deemed ~~compensation~~cost of $393,~~178~~457 for interest accrued on LPC Note Two for the period from October 1, 2016 to December 31, 2016. These shares were issued at market close price on date of grant to one US company, which 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 ~~with~~we ~~reliance~~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.

OnPCF ~~October~~Holdings 20, 2015, we issued 348,472 restricted common shares at an agreed price of $0.0699 per share at market close price on date of grant 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.Investment:

On ~~October~~December 216, ~~2015~~2016, wethe ~~issued~~Company ~~1,381,025~~entered ~~restricted~~into ~~common~~a ~~shares~~securities ~~at $0~~purchase agreement (the "Securities Agreement") with PCF Holdings Group, LLC.~~07241~~ ~~per~~("PCF") ~~share~~under atwhich ~~market~~PCF ~~close~~committed ~~price~~to oninvest, ~~date~~or ofcause ~~grant~~to ~~for~~be ~~aggregate~~invested, ~~deemed~~$940,000 ~~compensation~~in three tranches of (i) $~~100~~300,000, to(ii) a$500,000 ~~service~~and ~~provider~~(iii) $140,000, respectively for ~~services~~the ~~rendered~~purchase of Stock Units. ~~These~~Under ~~shares~~the ~~were~~Securities ~~issued~~Agreement, toPCF ~~one~~(or USits ~~person,~~designee) ~~who~~will ispurchase anfrom ~~accredited~~the ~~investor~~Company up to 28.5 million stock units (aseach ~~that~~a ~~term~~"Stock isUnit" ~~defined~~and in ~~Rule~~the ~~501~~plural, the "Stock Units"), to be paid in three tranches. The series of ~~Regulation~~warrants Dfor ~~under~~each tranche each have the ~~Securities~~same ~~Act~~three ofexercise ~~1933~~prices, asinclude ~~amended)~~cashless exercise rights, and inhave ~~issuing~~the ~~these~~same ~~shares~~three toexpiry ~~this~~terms. ~~person~~The wefirst ~~relied~~tranche onwas priced at $0.024 per Stock Unit and the ~~exemptions~~second ~~from~~and third tranches are priced at $0.04 per Stock Unit. Each Stock Unit consists of one share of restricted common stock of the ~~registration~~Company ~~requirements~~(each ~~provided~~a ~~for~~"Share") inand ~~Rule~~three ~~506~~separate ~~Regulation~~warrant Dclasses (each a "Warrant" and/ the shares underlying the Warrants being the "Warrant Shares" or, ~~Section~~in 4(the singular a "Warrant Share") respectively have (2i) an exercise price of ~~the~~$0.055 ~~Securities~~per ~~Act~~share for a term of ~~1933~~five years, as(ii) ~~amended~~an exercise price of $0.20 per shares for a term of three years and (iii) an exercise price of $0.25 per share for a term of 18 months. The fair market value of the shares based on closing market price on date of sale was $625,000 and

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

Onthe ~~October~~embedded ~~27,~~value ~~2015,~~of wethe ~~issued~~warrants ~~2,000,000~~based ~~restricted common shares at $0.068 per share at market close price~~ on ~~date~~a ofBlack-Scholes ~~grant~~option ~~for~~pricing ~~aggregate~~model ~~deemed~~was ~~compensation of~~ $~~136~~1,~~000 to a service provider for services rendered~~410,059. These shares were issued to ~~one~~three USAccredited ~~person,~~Investors ~~who is an accredited investor~~ (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 ~~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. For the second and third tranches, each Stock Unit shall be priced at $0.04 per Stock Unit and shall consist of one Share and three separate warrant classes (each a "Warrant" and the shares underlying the Warrants being the "Warrant Shares", or in the singular a "Warrant Share") that shall respectively have (i) an exercise price of $0.055 per share for a term of five years, (ii) an exercise price of $0.20 per share for a term of three years and (iii) an exercise price of $0.25 per share for a term of 18 months. At the initial Tranche Closing, PCF purchased 12,500,000 Stock Units for a purchase price of $300,000 in cash (the "Initial Tranche"). Subject to the continued accuracy and validity of the representations and warranties of the Company to PCF, the satisfaction by the Company of all its covenants set forth in the Securities Agreement and other considerations, then not later than 120 days from the Initial Tranche Closing (the "Second Tranche Closing"), Purchaser shall purchase 12,500,000 Stock Units (the "Second Tranche) for a purchase price of $500,000; and then not later than 120 days from the Second Tranche Closing (the "Third Tranche Closing"), Purchaser shall purchase 3,500,000 Stock Units (the "Third Tranche) for a purchase price of $140,000. The Securities Agreement includes a Beneficial Ownership Limitation and at no time may PCF exercise warrants or purchase shares if such exercises or purchases would result in PFC and its affiliates owning an aggregate of shares of our common stock in excess of 17.5% of the then outstanding shares of our common stock. PCF and its affiliates may sell or transfer Units, Shares or Warrants that exceed, or might cause PCF to exceed, the Beneficial Ownership Limitation in order for PCF to comply with the Beneficial Ownership Limitation. PCF may at any time request one registration under the Securities Act of 1933, as amended, of all or part of its Shares (including any Warrant Shares issuable upon exercise of any Warrants) (a "Demand Registration"), however the Company will not be obligated to effect any Demand Registration within nine months from the Initial Tranche Closing, or when Purchaser has the ability to freely sell the securities proposed to be registered under Rule 144, without being subject to any volume or manner of sale restrictions thereunder.

On December 38, ~~2015~~2016, we issued ~~500~~170,000 restricted common shares ~~valued~~at $0.048 per share market close price on date of grant atto ~~$0.0601~~seven employees for ~~aggregate~~ deemed ~~proceeds~~compensation of $308,~~050 to a lender as a fee for a loan to the Company~~160. These shares were issued to ~~one~~seven US ~~person,~~persons ~~who~~with isreliance ~~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.

For the three month period ended December 31, 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 valued at market close price on date of grant 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 at market close price on date of grant as compensation to our CFO for deemed compensation of $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 at market close price on date of grant as compensation to our President & COO for deemed compensation of $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.

Warrants:

2016 Warrant Transactions

During the nine month period ended September 30, 2016, we raised $565,000 through private placement unit offerings priced at $0.04 per unit which included the issuance of 16,650,000 five year warrants each exercisable to purchase one restricted common share at $0.055 per share. The aggregate fair market value of the shares on dates of issuance was $907,091 and the aggregate embedded value of these warrants based on a Black-Scholes option pricing model was $725,748. None of these warrants have yet been exercised.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

~~2015 Warrant Transactions~~Warrants:

On2017 ~~June~~Warrant 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.Transactions

On February ~~August 18~~14, ~~2015~~2017, aswe anremedially ~~inducement~~executed ~~for~~a ~~execution~~private ofplacement ~~LPC~~related ~~Note~~to ~~One~~Unit Offer #3 which raised $15,000 through the ~~Company~~sale ~~granted~~of ~~LPC~~375,000 ~~six~~units. ~~year~~Each ~~warrants~~unit ~~(the~~was ~~"August~~priced ~~18,~~at ~~2015~~$0.04 ~~Warrants")~~per tounit ~~purchase 3,750,000~~and ~~shares~~comprised of one restricted common ~~stock~~share atprice anplus ~~exercise~~one ~~price~~five ofyear warrant exercisable to purchase one restricted common share at $0.10055 per share. ~~Because~~The ~~these~~fair ~~warrants~~market ~~are~~value ~~related~~of tothe ~~issuance~~shares ofand ~~debt,~~embedded ~~the~~ value of the ~~warrant~~warrants ~~was~~is ~~required~~based toon bethe ~~recorded~~valuations asdone afor ~~discount~~Unit toOffer ~~LPC~~#3. ~~Note~~These ~~One~~shares ~~with~~were anissued ~~offset~~ to ~~additional~~one ~~paid in capital~~non-U.S. ~~The~~person ~~original~~(as ~~costing~~that ofterm ~~the~~is ~~warrants~~defined ~~using~~in aRegulation ~~Black-Scholes~~S ~~option~~of ~~pricing~~the ~~model~~Securities ~~was~~Act ~~$277~~of 1933,~~014,~~ ~~but~~as ~~this~~amended) ~~amount~~in ~~was~~offshore ~~reduced~~transactions toin awhich ~~discount~~we ofrelied ~~$117,857 based~~ on the ~~net~~exemptions ~~amount~~from of the ~~face~~registration ~~value~~requirements ofprovided ~~the~~for ~~LPC~~in ~~Note~~Regulation ~~One~~S ofand/or ~~$250,000,~~Section ~~less~~4(2) ~~the OID~~ of ~~$25,000, less~~ the ~~BCF~~Securities Act of ~~$107~~1933,~~143~~ as amended. ~~These~~The warrants ~~include~~were avalued ~~cashless~~using ~~exercise~~a ~~right~~Black-Scholes ~~and~~model ~~have~~at ~~the~~a ~~same~~non-cash ~~ownership~~cost ~~limitation~~of ~~included~~$16,463. inAt ~~LPC~~March ~~Note~~31, ~~One.~~2017, ~~None~~none of these warrants ~~have~~had ~~yet~~ been exercised.

OnDuring ~~September 30~~February, ~~2015~~2017, aswe anissued ~~inducement for execution of the September 2015 Notes~~1,500,000 ~~the~~restricted ~~Company~~common ~~granted~~shares ~~the~~to ~~September~~two ~~2015~~prior ~~Lenders~~unit ~~five‑year~~offering ~~warrants~~subscribers ~~(the~~for ~~"September~~exercises ~~30, 2015 Warrants") to purchase an aggregate~~ of 31,~~125~~500,000 ~~shares~~warrants ofthey ~~our~~held ~~common stock~~ at anthe exercise price of $0.08055 per share for proceeds of $82,500. These ~~warrants~~subscribers ~~include~~are ~~cashless~~Accredited ~~exercise~~Investors ~~rights~~(as ~~and~~that ~~none~~term ~~have~~is ~~yet~~defined ~~been~~in ~~exercised.~~Rule ~~Because~~501 ~~these~~of ~~warrants~~Regulation ~~were~~D ~~related~~under tothe ~~issuance~~Securities Act of ~~debt~~1933, ~~the~~as ~~value~~amended) ofor ~~the~~qualified ~~warrants~~under ~~based~~the onterms aRule ~~Black-Scholes~~506 ~~option~~Regulation ~~pricing~~D, ~~model~~and ~~was~~in ~~required~~issuing tothese beshares ~~recorded~~we asrelied aon ~~discount~~the ofexemptions ~~$167,788~~from to the ~~September~~registration ~~2015~~requirements ~~Notes~~provided ~~with~~for anin ~~offset~~Rule to506 ~~additional~~Regulation ~~paid~~D inand/or ~~capital.~~Section ~~None~~4(a)(2) of ~~these~~the ~~warrants~~Securities ~~have~~Act ~~yet~~of ~~been~~1933, ~~exercised~~as amended.

On2016 ~~November~~Warrant 23, 2015, as an inducement for execution of LPC Note Two, 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 Two 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 Two of $300,000, less the OID of $30,000, less the BCF of $102,600. These warrants include a cashless exercise right and has the same ownership limitation included in LPC Note Two. None of these warrants have yet been exercised.Transactions

During the year ended December 31, 2016, we raised $681,000 through three private placement unit offerings priced at $0.04 per unit which included the issuance of 17,025,000 five year warrants each exercisable to purchase one restricted common share at $0.055 per share. The aggregate embedded value of these warrants based on a Black-Scholes option pricing model was $742,211. At December 31, 2016, none of these warrants had been exercised.

On December 6, 2016, in relation to its first investment tranche we issued PCF a series of three warrants which include cashless exercise rights. These included: Warrant 1 with an exercise price of $0.055 per share and a term of five years, Warrant 2 with an exercise price of $0.20 per shares and a term of three years, and Warrant 3 with an exercise price of $0.25 per share and a term of 18 months. The aggregate embedded value of the warrants based on a Black-Scholes option pricing model was $1,410,059. At December 31, 2016, none of these warrants had been exercised.

On December 16, 2016, LPC extended the maturities of each of its two notes from December 31, 2016 to December 31, 2017 in return for issuance by the Company of 7,000,000 six year warrants, with cashless exercise rights, to purchase 7,000,000 restricted shares of our common stock at an exercise price of $0.05 per share. The warrants were valued using a Black-Scholes model at a non-cash cost of $315,658, of which $143,481 was ascribed as an increase to the discount of LPC Note One and $172,177 was ascribed as an increase to the discount of LPC Note Two. At December 31, 2016, none of these warrants had been exercised.

Table of Contents

KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

The fair valuations for warrants 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
Warrant issuances	Risk free rate*	Dividend yield	Volatility period	Volatility rate	Estimated life	Exercise Price	Grant Date Stock price
Unit Offer Warrants	1.16% to 1.22%	0.0%	2.0 years	108% to 108%	5.0 years	$0.055	$0.0561 to $0.0639
December 16, 2016	2.24%	0.0%	2.0 years	106%	6.0 years	$0.050	$0.0451
Unit Offer Warrants	1.22% to 1.38%	0.0%	2.0 years	113% to 114%	5.0 years	$0.055	$0.0489 to $0.060
December 6, 2016 #1	1.83%	0.0%	2.0 years	106%	5.0 years	$0.055	$0.05
Unit Offer Warrants	1.11% to 1.33%	0.0%	2.0 years	115% to 116%	5.0 years	$0.055	$0.0504 to $0.0559
December 6, 2016 #2	1.40%	0.0%	2.0 years	106%	3.0 years	$0.020	$0.05
November 23, 2015 Warrants	0.85%	0.0%	2.0 years	89%	6.0 years	$0.17	$0.17
December 6, 2016 #3	0.96%	0.0%	2.0 years	106%	1.5 years	$0.025	$0.05
September 30, 2015 Warrants	1.37%	0.0%	2.0 years	89%	5.0 years	$0.08	$0.08
Unit Offer #3	1.16% to 1.22%	0.0%	2.0 years	108% to 108%	5.0 years	$0.055	$0.0561 to $0.0639
August 18, 2015 Warrants	1.78%	0.0%	2.0 years	89%	6.0 years	$0.10	$0.10
Unit Offer #2	1.22% to 1.38%	0.0%	2.0 years	113% to 114%	5.0 years	$0.055	$0.0489 to $0.060
January 27, 2014 Warrants (re-priced)	1.56%	0.0%	2.0 years	91%	4.65 years	$0.15	$0.14
Unit Offer #1	1.11% to 1.33%	0.0%	2.0 years	115% to 116%	5.0 years	$0.055	$0.0504 to $0.0559
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 ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017 and the year ended December 31, ~~2015~~2016:

	Number of Warrants		Weighted- Average Exercise Price	Weighted- Average Remaining Term (in years)*		Intrinsic Value**
Outstanding at December 31, 2014	5,784,848	$	0.63	2.70	$	Nil
Outstanding at December 31, 2015	17,659,848	$	0.090	4.14	$	Nil
August 18, 2015 - Granted for loan fee	3,750,000		0.10	5.14		Nil
March 29, 2016 - Unit Offer #1	4,275,000		0.055	3.87		Nil
September 30, 2015 - Granted for loan fee	3,125,000		0.08	4.25		Nil
May 31, 2016 - Unit Offer #2	9,850,000		0.055	4.12		Nil
November 23, 2015 - Granted for loan fee	5,000,000		0.07	5.40		Nil
September 30, 2016 - Unit Offer #3	2,525,000		0.055	4.45		Nil
Outstanding at December 31, 2015	17,659,848	$	0.24	4.26	$	Nil
December 6, 2016 - PCF warrant #1	12,500,000		0.055	4.68		Nil
March 29, 2016 - Issued for Unit Offer	4,275,000		0.055	4.43		0.001
December 6, 2016 - PCF warrant #2	12,500,000		0.20	2.68		Nil
May 31, 2016 - Issued for Unit Offer	9,850,000		0.055	4.67		0.001
December 6, 2016 - PCF warrant #3	12,500,000		0.25	1.18		Nil
September 30, 2016 - Issued for Unit Offer	2,525,000		0.055	4.67		0.001
December 16, 2016 - Note maturity extension	7,000,000		0.050	5.71		Nil
Outstanding at September 30, 2016	34,309,848	$	0.150	4.30	$	Nil
Outstanding at December 31, 2016	78,809,848	$	0.150	3.77	$	Nil
February 14, 2017 - Unit Offer #3 (remedial)	375,000		0.055	4.45		Nil
February, 2017 - Unit warrants exercises	(1,500,000)		0.055	-		-
Outstanding at March 31, 2017	77,684,848	$	0.150	3.52	$	Nil

* (remaining term as of ~~September~~March 3031, ~~2016~~2017)

**(intrinsic value based on the closing share price of $0.~~0561~~0693 on ~~September~~March 3031, ~~2016~~2017)

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 11 – Equity (continued)

Options:

AOn ~~summary~~January of20, ~~changes~~2017, inas ~~outstanding~~compensation ~~stock~~to a retiring director we re-priced 750,000 options ~~for~~he ~~the~~held ~~nine~~from ~~month~~an ~~period~~exercise ~~ended~~price ~~September~~of ~~30,~~$0.17 ~~2016~~per share to an exercise price of $0.05 per share and issued him an additional 150,000 options with the same three year ~~ended~~remaining ~~December~~maturity. ~~31,~~The ~~2015~~exercise isprice asof ~~follows:~~the new options was set on date of grant and these options vested immediately. The combined Black-Scholes options pricing model cost of the transactions was $14,528.

	Number of Options		Weighted-Average Exercise Price	Weighted-Average Remaining Contractual Term (in years)*		Intrinsic Value**
Outstanding at December 31, 2014	7,000,000	$	0.19	3.11	$	-
(no option issuances were made in 2015)	-		-	-		-
Outstanding at December 31, 2015	7,000,000	$	0.19	3.11	$	-
(no option issuances have been made in 2016)	-		-	-		-
Outstanding at September 30, 2016	7,000,000	$	0.19	3.11	$	-

On March 6, 2017, we issued 1,063,782 five year options with an exercise price of $0.0559 set on date of grant to our CEO as compensation. These options vested immediately and had a Black-Scholes options pricing model cost of $35,861.

* (remainingOn ~~term~~March as6, of2017, ~~September~~we 30issued 2,476,377 ~~2016)~~five year options with an exercise price of $0.0559 set on date of grant to our President & COO as compensation. These options vested immediately and had a Black-Scholes options pricing model cost of $83,481.

**(intrinsicThe ~~value~~fair ~~based~~valuations onfor ~~the~~outstanding ~~closing~~options ~~share~~were ~~price~~done on date of ~~$0.0561~~grant onusing ~~September~~a ~~30,~~Black ~~2016)~~Scholes option pricing model with the following assumptions:

The following table summarizes information about the options outstanding at September 30, 2016:

Option	Risk free rate*	Dividend yield	Volatility period	Volatility rate	Estimated life	Exercise Price	Grant Date Stock price

March 6, 2017 Options	2.02%	0.0%	2 years	96%	5 years	$0.0559	$0.0559
January 20, 2017 Options	1.47%	0.0%	2 years	104%	2.9 years	$0.05	$0.05
December 19, 2014 Options	0.85%	0.0%	2.5 years	205%	2.5 years	$0.17	$0.17

	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	0.15	250,000	$0.70	$nil	0.15
$0.17	6,750,000	$0.17	$nil	3.33	6,750,000	$0.17	$nil	3.33
Totals	7,000,000	$0.19	$nil	3.11	7,000,000	$0.19	$nil	3.11

*(based on US Treasury Constant Maturities matching estimated life)

* (remainingA ~~term~~summary as of ~~September~~changes 30in outstanding stock options for the period ended March 31, 2017 and the year ended December 31, 2016) is as follows:

**(intrinsic value based on the closing share price of $0.0561 on September 30, 2016)

	Number of Options		Weighted- Average Exercise Price	Weighted- Average Remaining Contractual Term (in years)*		Intrinsic Value**

Outstanding at December 31, 2015	7,000,000	$	0.19	2.72	$	Nil
Expiry of options	(250,000)		0.70	-		-
Outstanding at December 31, 2016	6,750,000	$	0.17	2.72	$	Nil
January 20, 2017 grant	150,000		0.05	2.72		0.0193
March 6, 2017 grants	3,540,159		0.0559	4.93		0.0134
Outstanding at March 31, 2017	10,440,159	$	0.12	3.47	$	Nil

~~The~~* (remaining ~~expensing~~term ~~and~~as ~~amortization~~ of ~~all~~March ~~options~~31, ~~grants have been credited to Additional Paid-In Capital.~~2017)

~~NOTE~~**(intrinsic 12value –based ~~Commitments~~on ~~and~~the ~~Contingencies~~closing share price of $0.0693 on March 31, 2017)

Litigation

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, we know of no threatened or pending lawsuits, claims or other similar contingencies.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 1211 – ~~Commitments~~Equity ~~and Contingencies~~ (continued)

~~VDF~~The ~~Agreements~~following table summarizes information about the options outstanding at March 31, 2017:

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:

	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)*

$0.17	6,750,000	$0.17	$nil	2.72	6,750,000	$0.17	$nil	2.72
$0.05	900,000	$0.05	$17,370	2.72	900,000	$0.04	$17,370	2.72
$0.0559	3,540,159	$0.0559	$47,438	4.93	3,540,159	$0.0559	$47,438	4.93
Totals	10,440,159	$0.12	$64,808	3.47	10,440,159	$0.12	$64,808	3.47

1.* ~~Settlement~~(remaining ~~Agreement~~term as of March 31, 2016)

~~Under~~**(intrinsic ~~the~~value ~~Settlement~~based ~~Agreement~~on the ~~parties~~closing ~~mutually~~share ~~filed~~price ~~voluntary~~of ~~dismissals with respect to the foregoing claim and petition for cancelation~~$0.051 ~~The~~on ~~parties~~March ~~released each other from liability arising or accruing prior to January 28~~31, 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.2016)

~~2. License~~The ~~Agreement~~expensing and amortization of all options grants have been credited to Additional Paid-In Capital.

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.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 – Commitments and Contingencies ~~(continued)~~

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:Litigation

Three Month Period Ended	Due Date	Amount
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

~~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 totaling $300,000, plus accrued interest of $18,481 to the VDF Note and during the nine month period ended September 30, 2016, we rolled over three AMPs totaling $275,000 to the VDF Note.Agreements

3On January 28, 2014 we entered into a coffee fruit patent license, Coffeeberry® trademark license and raw materials supply agreement with VDF FutureCeuticals, Inc. ("VDF"). ~~Note~~This arrangement was 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. A summary of each agreement is as follows:

~~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 - Convertible Notes Payable, the conversion price of the VDF Note is presently $0.2606 per share.

4The License Agreement comprises a coffee fruit patent license, Coffeeberry® trademark license and raw materials supply agreement. ~~Pledge~~ The key elements include: (a) Patents and ~~Security~~Trademark License: In exchange for 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; and (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. We may rollover AMPs to the VDF senior convertible note (the "VDF Note").

~~Under~~The ~~the~~amount ~~Pledge~~ and ~~Security~~schedule ~~Agreement,~~for ~~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~~remaining ~~and~~AMPs ~~complete~~is ~~payment~~as ~~and performance of obligations existing under any of the agreements.~~follows:

Three Month Period Ended	Due Date	Amount
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

VDF Note

The VDF Note, as amended, is a senior convertible note with a maturity date of December 31, 2018. Payment requirements are accelerated pursuant to an event of default, or 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. By maturity, we must pay VDF all principal plus accrued interest and we have the right, subject to certain limitations, to prepay principal at any time and from time to time. No indebtedness 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, principal outstanding on the VDF Note may be converted into restricted common shares of the Company. The conversion price of the VDF Note is presently $0.2157 per share.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 12 – Commitments and Contingencies (continued)

~~5. Warrant~~Pledge and Security Agreement

WeUnder ~~issued VDF a warrant (~~the ~~"VDF~~Pledge ~~Warrant")~~and ~~entitling~~Security ~~VDF~~Agreement, ~~from~~as ~~any~~amended, ~~time~~we ~~after~~pledged ~~the~~collaterally ~~occurrence~~assigned ofand agranted ~~Warrant~~to ~~Exercise~~VDF ~~Event~~a ~~until~~security ~~the~~interest ~~fifteenth~~in ~~anniversary~~all of ~~the~~our ~~issuance of the VDF Warrant~~right, totitle ~~purchase~~and ~~from our Company~~interest, ~~shares~~whether ofnow ~~our~~owned ~~common~~or ~~stock~~hereafter ~~representing~~acquired, ~~ten~~in ~~percent~~and ~~(10%)~~to of our ~~fully~~Company's ~~diluted~~property ~~outstanding~~to ~~shares~~secure ofthe ~~common~~prompt ~~stock~~and atcomplete apayment ~~purchase~~and ~~price~~performance of ~~$0.001~~obligations ~~per~~existing ~~share.~~under ~~A Warrant Exercise Event comes into being if~~ any of the ~~following events occur:~~agreements.

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.

The VDF Warrant does not yet exist. The VDF Warrant would entitle 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, restricted common shares representing ten percent (10%) of fully diluted outstanding shares at a purchase price of $0.001 per share. A Warrant Exercise Event comes into being if we: (i) report $25,000,000 or more of gross sales in any fiscal year; (ii) have a class of securities listed for trading on the New York Stock Exchange, the American Stock Exchange or NASDAQ; (iii) maintain an aggregate market capitalization of at least $125,000,000 for twenty (20) consecutive trading days; or (iv) undergo a change of control as defined in the VDF Warrant. No circumstances have yet occurred which ~~classify~~qualify as a Warrant Exercise Event and therefore there is no right in place for VDF to exercise the VDF Warrant.

6. Registration Rights Agreement

Under the Registration Rights Agreement ~~we granted~~ VDF, or an assignee, have demand registration rights and incidental registration rights with respect to: (i) ~~any~~common shares ~~of our common stock~~ issued upon conversion of the VDF Note; (ii) ~~any~~common 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~~At present VDF holds no ownership interest in the Company and therefore the terms of the Investor Rights Agreement ~~VDF~~have ~~has~~not come into effect. The Investor Rights Agreement provides VDF 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.

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KONARED CORPORATION

NOTES TO FINANCIAL STATEMENTS

(Unaudited)

NOTE 13 – Subsequent Events

Subsequent to the period ended ~~September~~March 3031, ~~2016~~2017, onLPC ~~October~~converted 4,the ~~2016~~remaining we$75,000 ~~issued~~principal ~~150~~and $1,~~000~~125 ~~restricted~~accrued ~~common~~interest ~~shares~~due toon aLPC ~~newly~~Note ~~appointed~~Two ~~director~~at asa ~~signing~~conversion ~~compensation~~price of $0.05 ~~This~~per ~~issuance~~share ~~was~~into ~~made~~1,522,500 shares valued at $111,143 based on market close price on date of $0issuance.~~056~~ onThe ~~date~~conversion resulted in a $35,018 difference between the cash redemption balance and the value of ~~issue~~the ~~for~~shares redemption which was treated as a ~~deemed~~conversion ~~payment~~loss ofand recorded as an additional non-cash interest expense. Concurrent with the conversion, the $841,~~400~~838 warrant discount was recorded as an amortization expense and the remaining $1,224 OID was recorded as interest expense. These shares were issued to one USAccredited ~~person~~Investor with reliance on the exemptions from ~~the~~ registration requirements provided ~~for~~ in ~~Rule~~the ~~506~~Securities ~~Regulation~~Act Dof ~~and/or~~1933, as amended, Section 4(a1)~~(2)~~ ofand ~~the~~Rule ~~Securities~~144. ~~Act~~This ofconversion ~~1933,~~fully aspaid ~~amended~~all amounts due on LPC Note Two and the note is extinguished.

Subsequent to the period ended ~~September~~March 3031, ~~2016~~2017, onLPC ~~October~~exercised ~~18,~~on ~~2016, the Company entered into~~ a ~~Settlement~~cashless ~~Agreement~~basis ~~with Splash Beverage Group~~5, ~~Inc. ("SBG") (collectively the "Parties") to settle and discharge~~000,000 ~~with~~warrants noit ~~payments~~held ~~being~~into ~~made between the Parties~~1, ~~all claims between the Parties regarding the Confidential Distribution Agreement ("CDA") and Sales and Marketing Services Agreement ("SMSA") which the Parties had entered on April 22~~264,674 ~~2014~~common ~~and~~shares. These ~~which~~warrant ~~the Company~~ had ~~provided~~been ~~cancelation~~issued ~~notices~~with toLPC ~~SBG~~Note ofTwo ~~the SMSA on September 16, 2015~~ and ~~the~~this ~~CDA~~effected onfull ~~September~~exercise ~~23, 2015. A copy~~ of ~~the~~that ~~settlement agreement was included in our filing of a Current Report on Form 8-K on October 21, 2016~~warrant. ~~This Settlement Agreement is the final resolution of all disputes and claims between the Parties.~~

Subsequent to the period ended ~~September~~March 3031, ~~2016~~2017, onpursuant ~~October~~to 28a letter agreement, ~~2016~~LPC weexercised 1,136,364 warrants which it had been issued on January 27, 2014 into 1,~~000~~136,~~000~~364 restricted common shares for ~~consultant~~the ~~services~~exercise ~~rendered~~price of $0.15 ~~This~~per share ~~issuance~~to ~~was~~provide ~~priced~~the atCompany ~~market~~with ~~close~~aggregate ~~price~~proceeds of $0170,455.~~0525~~ onAt ~~date~~this ofsame ~~issue~~time, ~~for~~the aCompany ~~deemed~~issued ~~payment~~to ~~totaling~~LPC 5,000,000 six year warrants with an exercise price of $~~52,500~~0.05. ~~These~~The ~~shares~~warrants were ~~issued~~valued tousing ~~three~~a USBlack-Scholes ~~persons~~model ~~with~~at ~~reliance~~a onnon-cash ~~the~~cost ~~exemptions~~of ~~from~~$342,480. ~~the~~At ~~registration~~current ~~requirements~~date, ~~provided~~none ~~for~~of inthese ~~Rule~~warrants ~~506~~had ~~Regulation~~been Dexercised. ~~and/or~~Copies ~~Section 4(a)(2)~~ of the ~~Securities~~letter ~~Act~~agreement ofand ~~1933,~~warrant are attached to this Report as ~~amended~~exhibit 10.1.

Subsequent to the period ended September 30, 2016, on November 7, 2016 the balance of $73,500 owed on September 2015 Note Two was purchased by September 2015 Lender One from September 2015 Lender Two and revised terms were provided to the Company. In return for an addition of $11,500 to the principal and addition of the right to convert the September 2015 Note balance into common shares of the Company at a fixed price of $0.04 per share, the redemption terms were amended to be one payment of $40,000 on May 7, 2017 and one payment of $45,000 on August 7, 2017 and the Company has the right to prepay the November 2016 Note in whole, or in part, at any time without penalty upon five days notice.

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.

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ITEM 2. MANAGEMENTS' DISCUSSION AND ANALYSIS OR PLAN OF OPERATION

FORWARD LOOKING STATEMENTS

Certain information included herein contains forward-looking statements that involve risks and uncertainties within the meaning of Sections 27A of the Securities Act, as amended; Section 21E of the Securities Exchange Act of 1934. These sections provide that the safe harbor for forward looking statements does not apply to statements made in initial public offerings. The words, such as "may," "would," "could," "anticipate," "estimate," "plans," "potential," "projects," "continuing," "ongoing," "expects," "believe," "intend" and similar expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a number of places in this Form 10-Q and include all statements that are not statements of historical fact regarding intent, belief or current expectations of the Company, our directors or our officers, with respect to, among other things: (i) our liquidity and capital resources; (ii) our financing opportunities and plans; (iii) continued development of business opportunities; (iv) market and other trends affecting our future financial condition; (v) our growth and operating strategy. Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors. The factors that might cause such differences include, among others, the following: (i) we have incurred significant losses since our inception; (ii) any material inability to successfully develop our business plans; (iii) any adverse effect or limitations caused by government regulations; (iv) any adverse effect on our ability to obtain acceptable financing; (v) competitive factors; and (vi) other risks including those identified in our other filings with the Securities and Exchange Commission.

The following discussion and the information provided contain 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. Our actual results may differ materially from the results anticipated in any forward-looking statements in this Report due to a variety of factors, including, without limitation those set forth as "Risk Factors" in the Post-Effective Amendment to our Form S-1 which became Effective on May 12, 2016. This can be found along with all our filings to the SEC at www.sec.gov.

Corporate Overview

In this Annual Report on Form 10-K the terms "KonaRed", "we", "us", "our", the "Registrant", and the "Company" mean KonaRed Corporation. Unless otherwise stated, "$" refers to United States dollars. Our fiscal year end is December 31st. We were incorporated in the State of Nevada on October 4, 2010 and our predecessor operating business was incorporated in the State of Hawaii on August 22, 2008. Our head office and distribution center is located at 1101 Via Callejon #200, San Clemente, CA 92673-4230. ~~The Company's common stock is publicly traded on the OTCQB over-the-counter market ('OTCQB') under the trading symbol: KRED.~~

The Company's common stock is publicly traded on the OTCQB over-the-counter market ('OTCQB') under the trading symbol: KRED.

Description of Business

Beverage Products

KonaRed® Corporation is a Hawaiian Coffee Company and the pioneer of the USA Grown, Hawaiian Coffee Fruit. The company oversees a vertically integrated supply chain which starts with the world renowned, highest quality Coffee and Coffee Fruit from Kona, Hawaii. The Company produces five award winning Ready to Drink ('RTD') 12oz Cold Brew Coffee varieties, Bag in the Box, Key Kegs, a complete line of whole bean and ground Kona Coffee Beans, plus its well established RTD Antioxidant Juices and Hawaiian Coffee Fruit nutritional supplements. The Company also has an industrial ingredients supply division. KonaRed products are sold throughout the U.S. and can be found in select Vons, Albertsons, Publix, Pavilions, Costco, Ralphs, Fred Meyer, King Soopers, Smiths, Kroger, Safeway, Vitamin Shoppe, Target, Whole Foods, 7-Eleven and many other retail outlets. More information about KonaRed and its products can be found at www.konared.com.

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12oz. Award Winning RTD Cold Brew Coffees

In February 2016 we introduced a new line of Ready-to-Drink ('RTD') Cold Brew Coffees which included the flavors of 'Original', 'Hawaiian Vanilla' and 'Espresso'. In August 2016, consumer demand precipitated the addition of 'Kauai Caramel' and 'Maui Mocha' flavors. Sales of this product have expanded quickly and the line is now being sold in leading retailers ~~along~~throughout the ~~West Coast and Hawaii, as well as online~~US. Hawaiian Vanilla has won the BevergeWorld BevStar award and the Original Cold Brew won the Gourmet Retailer Editor's Choice for Best Coffee. KonaRed RTD Cold Brew Coffees have become one of the leading brands in this fast growing consumer packaged goods sector ~~in 2016~~. Cold brew coffee continues to grow in popularity as it appeals to premium beverage trends, but also health and wellness ones too.

The evidence of consumer demand for Cold Brewed Coffee is in the numbers. According to SPINS data for the 52 weeks ending October 4th 2015, Cold Brewed Coffee sales reached $15.3million in Multi-Outlet and $7.3million in the Natural Channel. With dollar and unit sales in both channels exceeding 100% growth versus the prior year and the top three brands commanding over 85% share of the segment, it's evident that 2015 was just the beginning. The category is estimated to have grown to $65million during 2016.

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KonaRed's anti-oxidant beverage products consist of the following proprietary formulations:

●

16 oz. KonaRed Original Antioxidant Juice (2 servings)

~~Table~~● of10.5 ~~Contents~~oz. KonaRed Original Antioxidant Juice (1 serving)

● 10.5 oz. KonaRed Original Hawaiian Coffeeberry Antioxidant Juice (1 serving)

~~Table~~New ofProduct ~~Contents~~Offerings:

●KonaRed® ~~10.5~~Original ~~oz.~~Bag ~~Hawaiian~~in ~~Coffeeberry~~a ~~Organic~~box ~~Green~~– ~~Tea~~sold (1primarily ~~serving)~~at Costco.

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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

Our line of KonaRed Coffee Beans come in ~~three~~ varieties.

●

100% Kona Coffee beans

●

10% Kona Blends

●

Both come in Whole Bean or Ground

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Coffee Bean Products

● 100% Kona Coffee beans with Hawaiian Coffeeberry

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Coffee Bean Products

● 10% Kona Blend Coffee Beans

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Industrial Ingredient Division Launch

In December of 2015, we executed a supply contract with ~~our partner,~~ VDF Futureceuticals Inc, ("VDF"),. weWe now offer an American made U.S.A Hawaiian grown coffee fruit supply to the world with both coffee fruit powders and liquid extracts to other companies B2B. ~~We expect this division to be a major revenue generator over the next few years and we will benefit due to the comparatively higher gross margin earned on raw material sales.~~

Use of Patents

AAn ~~key~~important element of our business is the License we have been provided by VDF which provides us with the use of VDF's coffee fruit patents and Coffeeberry® trademark license. ~~The~~We ~~License~~developed ~~Agreement~~the ~~has~~necessary ~~effectively~~processing ~~formed~~and amanufacturing ~~strategic~~intellectual ~~alliance~~property ~~between~~("IP") ~~KonaRed~~for processing and ~~VDF~~manufacturing ~~and~~our ~~eliminated~~base ~~competition~~ingredient - the coffee fruit (and ~~patent~~have ~~defense~~subsequently ~~costs~~merged ~~between~~this with the ~~parties~~IP ~~for~~provided ~~rights~~by VDF). The License Agreement provides us with access to ~~valuable~~use ~~proprietary~~of ~~coffee~~VDF's ~~fruit~~patents, ~~research~~as existing and/or ~~development~~modified ~~("R&D")~~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.

We developed the necessary processing and manufacturing intellectual property ("IP") for processing and manufacturing our base ingredient - the coffee fruit (and have subsequently merged this with the IP provided by VDF). 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

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 and retail products, while maintaining in-house control of critical marketing, product development and warehousing/shipping functions.

Supply and Distribution for Our Product

We have an agreement in place which provides a reliable and trusted source of coffee fruit supply. This is structured ~~as 5-year arrangement~~ 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 this supplier, we are confident that we would be able to secure raw material from other suppliers.

50Our 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. For our company's beverage production, our antioxidant beverages are processed by us sending processed coffee fruit 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.

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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.

For our company's beverage production, our antioxidant beverages are processed by us sending processed coffee fruit 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~~and cold brew categories, boasting numerous retail entrees and continued expansion. We first established our products in the upstart coffee fruit sector on our home turf in Hawaii and then have expanded across the USA by winning placements at Kroger, Publix, Target, Vitamin Shoppe and other major retailers. We have since moved into the large and lucrative market of coffee and have expanded beyond just coffee fruit. Over 50% of Americans over the age of 18 drink coffee daily and it is a huge marketplace. We have positioned ourselves as one of the leading RTD Cold Brew Coffee product lines on the market since our February 2016 launch.

Sales Strategy

Our sales strategy for our Cold Brew Coffee and Antioxidant beverages 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 in specific regions such as New York, Los Angeles and Florida.

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 as we grow.

Although KonaRed was invented as a wellness product, we believe consumer acceptance of our beverage products now places us both within the coffee and 'premium juice' retail categories, as well as on dairy shelves with cold brew coffees, and the coffee aisle with our whole bean coffee line.

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

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Major Industry Participants

The expansion of leading beverage monoliths within new products in the 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~~ ● Bai Brands issold into ~~discussion with~~ Dr. Pepper Snapple for an acquisition of $1.47 billion in ~~October~~December 2016 ● Peets Coffee & Tea purchased 100% of Stumptown Coffee Roasters in October 2015 for an un-disclosed amount ● High Brew Coffee received $4 Million investment from CAVU Venture Partners in April 2016

Market Development and Metrics

Our objective is to develop KonaRed into a powerhouse coffee company which supplies consumers with a variety of high quality coffee, beverage and nutritional products. We plan to achieve this using a strategy of expanding our retail footprint through a series of revenue generating distribution channels as well as direct to consumer sales.

Presently, our predominant focus is our beverage and cold brew coffee businesses and we are generating revenues through the following distribution channels:

● Direct Store Distributors ~~● Broadline Distributors ● Direct to Retail ● Online Retail ● Raw Material Ingredient Sales~~

●

Broadline Distributors

●

Direct to Retail

●

Online Retail

●

Raw Material Ingredient Sales

The specifics of each channel are as follows:

● 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~~. (A 'functional beverage' is defined as one which has certain attributes, such as Antioxidants.)~~

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~~Table~~● Broadline Distributors: The broadline distributors channel includes wholesalers who specialize in distribution of ~~Contents~~natural food products to retail stores. 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. 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 retailers 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. Our website uses the Shopify platform which is an efficient method for processing and marketing online sales. ● Raw Material Ingredient Sales: Our coffee fruit raw ingredient materials division is projected to expand based on growing industry demand for wholesale coffee fruit materials.

● Broadline Distributors: The broadline distributors channel includes wholesalers who specialize in distribution of natural food products to retail stores. 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. 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 retailers 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 December 2015, 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. We compete to secure distributors who will agree to market our product over those of our competitors, provide stable and reliable distribution, and secure adequate shelf space in retail outlets. Our products compete with all liquid refreshments, including numerous specialty beverages, such as: SoBe; Snapple; Arizona; Vitamin Water; Gatorade; and Powerade.

Important factors that 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 believe our branding is strong and our position as a U.S. coffee supplier is relatively unique. We are committed to ethical production of our source ingredients and our use of a previously discarded by-product of coffee represents our environmentally positive corporate operating philosophy. We are also non-GMO. We believe these factors combine to provide us with a competitive advantage and our products are consistently well received by consumers.

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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^®" and "Nature's Best Kept Secret^®" tag lines; 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.

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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, director, and Board Chair; Kyle Redfield, who is our President and Chief Operating Officer, director; and John Dawe, who is our Chief Financial Officer, Secretary & Treasurer, we currently employ 710 full-time and 4 part-time employees ~~whom~~who 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.

Description of Property

Our principal office and warehouse is located at 1101 Via Callejon #200, San Clemente, California 92673-4230. ~~The~~During ~~Company~~the ~~shares~~period aended ~~lease~~March ~~for~~31, ~~this~~2017 ~~facility~~and ~~with~~the ~~Malie,~~year ~~Inc.~~ended December 31, ~~("Malie")~~2016 we shared our warehouse premises with a ~~company~~sublessee ~~owned~~whose byoccupancy ~~our~~ended ~~CEO~~on ~~and~~April ~~his~~7, ~~spouse~~2017, ~~who~~at iswhich ~~the~~time ~~CEO~~we ofassumed ~~Malie~~all lease payments. We also utilize offices provided by our CEO and CFO. The current distribution facility lease has a term of June 1, 2016 to May 31, 2018 and presently requires ~~total~~ lease payments of $10,466 per month~~, of which the Company's portion is $8,066 per month~~. On February 25, 2016, the ~~Company~~lease ~~and~~was ~~Malie~~ extended ~~the lease~~ for an additional 24 month term ~~and~~based ~~committed~~on ~~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 $8,066 for June 1, 2016 to May 31, 2017 and $8,318 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). 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.

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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 ('GAAP').

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 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 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 and industrial 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.

Customer shipping expenses

Costs for products shipped to customers are recorded as general and administrative expenses.

Stock Based Payments

56Deferred Revenue

~~Table~~Revenue from customer purchase agreements is recorded as unearned revenue and amortized over the term of ~~Contents~~the agreements. At March 31, 2017 and December 31, 2016, unearned revenues were $182,986 and $193,020, respectively. Historically, unearned revenue comprised of amortization of online subscriptions wherein we ship a scheduled amount of product to online retail subscribers each month and during the year ended December 31, 2016, unearned revenue was increased based on a cash payment we received for a non-refundable signing fee of $200,000 from a strategic supplier license (the "FP Agreement"). The FP license fee will be amortized over the term of the license, which translates to addition of $10,000 per year to our Other Income.

RESULTS OF OPERATIONS

The following discussion and analysis covers material changes in the financial condition of our Company for the periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016. A summary is as follows:

	Three Months ended September 30, 2016			Three Months ended September 30, 2015			Nine Months ended September 30, 2016			Nine Months ended September 30, 2015
	Three Months ended March 31, 2017			Three Months ended March 31, 2016
Total Sales	$	~~404~~590,~~089~~065		$	~~174~~149,~~418~~488		$	~~789,014~~		$	~~587,705~~
Cost of goods sold		~~311~~397,~~064~~228			~~131~~117,~~419~~591			~~636,401~~			~~472,954~~
Gross Margin		93192,~~025~~837			4231,~~999~~897			~~152,613~~			~~114,751~~
Research and development		-518			-755			~~4,685~~			~~4,610~~
Advertising and marketing		~~105~~41,~~721~~593			70105,~~500~~449			~~263,394~~			~~269,047~~
General and administrative		~~822~~847,~~780~~506			~~804~~564,~~230~~486			~~1,973,793~~			~~2,098,375~~
Operating expenses		~~928~~889,~~501~~617			~~874~~670,~~730~~690			~~2,241,872~~			~~2,372,032~~
Loss from operations		(~~835~~696,~~476~~780	)		(~~831~~638,~~731~~793	)		~~(2,089,259~~	)		~~(2,257,281~~	)
Interest expense		(73,755	)		(38,100	)		(147,287	)		(212,343	)
Amortized portion of License fee		10,000			—
Other Income (expense)		(147,865	)		1,866			(433,040	)		(77,343	)
Amortization expenses - notes discounts		(243,517	)		(142,833	)
Net Loss	$	(1,057,096	)	$	(867,965	)	$	(2,669,586	)	$	(2,546,967	)
Interest expense		(180,315	)		(36,396	)
Net loss per share, fully diluted	$	(0.01	)	$	(0.01	)	$	(0.02	)	$	(0.03	)
Net Loss	$	(1,110,612	)	$	(818,022	)
Net loss per share, fully diluted	$	(0.01	)	$	(0.01	)

~~Revenue~~Sales

Total sales are comprised of product sales and shipping and delivery fees. During the period ended March 31, 2017 we recorded total sales of $590,065 compared with total sales of $149,488 for the period ended March 31, 2016, representing an increase of 295%. Comparative product sales tofor athe ~~related~~periods ~~party~~ended March 31, 2017 and March 31, 2016 were $585,218 versus $145,791, respectively, representing an increase of 301%; and comparative shipping and delivery fees were $4,847 and $3,697, respectively.

~~During~~We ~~the~~are ~~three~~now ~~and~~benefiting ~~nine~~from ~~month~~our ~~periods~~efforts ~~ended~~during ~~September~~2016 ~~30,~~to ~~2016~~build wea ~~recorded~~distribution ~~total~~network ~~sales~~for ofour ~~$404,089~~new ~~and~~Cold ~~$789,014~~Brew ~~respectively~~Coffee ~~compared~~product ~~with~~line. ~~total~~We ~~sales~~attribute ofthe ~~$174,418~~growth ~~and~~in ~~$587~~revenue during the period ended March 31,~~705~~ ~~respectively~~2017 to continuing acquisition of new customers for ~~the~~KonaRed ~~three~~Cold Brew Coffees and ~~nine~~orders ~~month~~from ~~periods~~repeat ~~ended~~customers. ~~September~~Cold ~~30,~~Brew ~~2015,~~is ~~representing~~now ~~increases~~KonaRed's ofmajor ~~132%~~marketing focus and 34accounted for 80% ~~respectively~~of our sales during the period ended March 31, 2017.

~~For~~Overall, ~~the~~Cold ~~three~~Brew ~~and~~Coffee ~~nine~~is ~~month~~a ~~periods~~booming ~~ended~~new ~~September~~market ~~30,~~sector ~~2016~~ and ~~September~~KonaRed ~~30,~~has ~~2015:~~emerged ~~comparative~~early ~~product~~as ~~sales~~a ~~were~~leader ~~$397,899~~in ~~and~~this ~~$772,083~~new ~~respectively~~category. ~~versus~~The ~~$168,148~~Cold ~~and~~Brewed ~~$572,358~~Coffee ~~respectively;~~industry ~~product~~earned ~~sales~~total torevenues aof ~~related~~approximately ~~party~~$65 ~~were~~million ~~$1,800~~in ~~and~~2016. ~~$nil~~Its ~~respectively~~growth ~~versus~~is ~~$1,800~~expected ~~and~~to ~~$nil~~mark ~~respectively;~~one ~~and~~of ~~comparative~~the ~~shipping~~top food and ~~delivery~~beverage ~~fees~~trends ~~were~~of ~~$4,390~~the ~~and~~last ~~$15,131~~few ~~versus~~years ~~$6,270~~ and ~~$15,347~~this ~~respectively~~growth trend continues.

~~The Company~~KonaRed's ~~new line of~~ Cold Brew Coffees ~~was~~have ~~introduced~~won inmultiple ~~February,~~industry ~~2016~~ and ~~for~~consumer ~~the~~awards ~~period~~and ~~ended~~now ~~September~~appear ~~30,~~on ~~2016~~major ~~accounted~~retail ~~for~~shelves ~~76%~~throughout ~~of sales during~~ the ~~three~~Western ~~month period and 54% during the nine month period. During fiscal 2016~~US, ~~Cold~~Florida ~~Brew sales increased from $22,000 in quarter one to $99,000 in quarter two~~ and toNew ~~$307,000 in Quarter three, representing quarterly growth from quarter one to quarter two of 350% and 210% for quarter two to quarter three~~York.

We attribute the growth in current period revenue to the acquisition of new customers for KonaRed Cold Brew Coffees and the success of our efforts to build a distribution network for this new product line. Additionally, a sizable component of Cold Brew Coffee sales growth has been from repeat customers. Cold Brew is now KonaRed's major marketing focus and consumer demand drove expansion of our Cold Brew Coffee line from 3 to 5 products in August with the addition of "Maui Mocha" and "Kauai Caramel" flavors.55

Overall, Cold brewed coffee is a booming new market sector and KonaRed has emerged early as a leader in this new category. Cold brewed coffee is expected to go down as one of the top food and beverage trends in 2016, and into 2017. KonaRed's Cold Brew Coffees have won multiple industry and consumer awards during the period ended September 3, 3016 and now appear on major retail shelves throughout the Western US and New York.

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Cost of Goods Sold

For the three ~~and nine~~ month periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016, Cost of Goods Sold ('COGS') were $~~311~~397,~~064~~228 ~~and $636,401 respectively~~ compared to $~~131~~117,~~419 and $472~~591,~~954~~ respectively., ~~This~~which ~~corresponds~~represent to67% ~~gross margins~~ of ~~$93,025~~sales orcompared ~~23%,~~with ~~and $152,613 respectively, or 19~~79%, ~~versus~~of ~~$42~~sales,~~999,~~ ~~or 24%, and $114,751, or 19%,~~ respectively.

~~The~~Gross ~~primary~~Margin ~~COGS~~was ~~dollar~~33% ~~and~~versus ~~percentage~~21% ~~components~~ for the ~~nine month~~ periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, 2015 were: manufacturing costs, which include both in-house and outsourced manufacturing costs, totaling $497,062 (78%) versus $349,912 (74%) respectively; supplier inventory delivery fees of $29,816 (5%) and $8,751 (2%) respectively; customer shipping costs of $86,462 (14%) and $81,003 (17%) respectively; and packaging, term discounts, and inventory adjustment costs totaling $23,041 (3%) and $33,288 (7%) respectively2016. ~~Relatively higher manufacturing costs in the current period include start-up costs for our new product line and are expected to improve in future periods.~~

~~For~~We attribute the ~~three~~57% ~~and~~improvement ~~nine~~in ~~month~~our ~~periods~~gross ~~ended~~margin ~~September~~to ~~30,~~the ~~2016~~relatively ~~gross~~higher ~~margins~~margin ~~earned~~produced on ~~the new line of~~ Cold Brew ~~Coffees~~Coffee ~~were 39% and 40% respectively~~sales.

COGS components for the three month periods ended March 31, 2017 and March 31, 2016 were: manufacturing costs, which include both in-house and outsourced manufacturing costs, totaling $374,349 versus $107,234 respectively; inventory delivery costs of $17,342 versus $5,220, respectively; and packaging, inventory write-offs, term discounts, and other costs of $5,537 versus $5,137, 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 minimal for both periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016. We project R&D costs will remain near current levels during the balance of fiscal 2016.

Advertising and Marketing

Advertising and marketing costs were $~~105~~41,~~721~~593 and $~~263~~105,~~394~~449, respectively for the three ~~and~~periods ~~nine~~ended ~~month~~March ~~periods~~31, ~~ended~~2017 ~~September~~and 30March 31, 2016, ~~versus~~representing ~~$70,500~~a decrease of 61%. This decrease was attributable to our planned reduction of advertising and ~~$269,047~~marketing ~~for~~expenditures ~~the~~to ~~three~~conserve capital during our sales distribution re-alignment process. Primary components of advertising and ~~nine~~marketing expenses for the three month periods ended ~~September~~March 3031, ~~2015~~2017 and March 31, ~~representing~~2016 ~~decreases~~were: (i) advertising and graphic art costs of ~~34%~~$9,684 versus $10,221, respectively; (ii) cost of free samples and ~~24%~~demos was $17,265 versus $66,103, respectively.; ~~These~~and ~~decreases~~(iii) ~~were~~other ~~primarily~~marketing ~~attributable~~expenses, tosponsorships ~~both~~and ~~our~~public ~~planned~~relations ~~reduction~~initiatives oftotaled $14,644 and $29,125, respectively. We project advertising and marketing ~~expenditures~~costs towill ~~conserve~~increase ~~capital~~ during ~~our~~the ~~sales~~balance ~~distribution~~of ~~re-alignment~~fiscal ~~process~~2017.

Advertising and marketing expenses for the nine month periods ended September 30, 2016 and September 30, 2015 were comprised of: (i) net advertising, website and graphic art costs and related costs of $63,221 versus $149,744 respectively; (ii) cost of free samples and demos was $120,840 versus $59,953 respectively; (iii) investor relations $49,644 versus $27,302; and (iii) other marketing expenses, sponsorships and public relations initiatives which totaled $29,689 versus $32,048 respectively. We project advertising and marketing costs will remain at current levels during the balance of fiscal 2016.

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General and Administrative

General and administrative ('G&A') costs were $~~822~~847,~~780~~506 ~~and~~for the three month period ended March 31, 2017 compared to $1564,~~973,793~~486 for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, 2016, ~~compared~~representing toan increase of 50%. Major components of G&A for the three month periods were: (i) payroll of $~~804~~244,~~230~~263 ~~and~~versus $2231,~~098~~616,~~375~~ ~~for~~respectively, ~~the~~representing ~~three~~an increase of 5%; (ii) non-cash stock and ~~nine~~options ~~month~~issuance ~~periods~~costs ~~ended~~for ~~September~~compensation 30and services of $287,080 ~~2015~~versus $63,321, respectively, representing an increase of 2353%; (iii) professional and consultant fees of $5,145 versus $55,295, respectively, representing a decrease of 691%; and (iv) VDF License fees of $100,000 versus $75,000, respectively, representing an increase of 33%. We project general and administrative expenses will grow moderately during the balance of fiscal 2017.

Components of G&A for the nine month periods ended September 30, 2016 and September 30, 2015 included: (i) payroll of $702,510 versus $546,566 respectively; (ii) non-cash expenses for stock issued for compensation and services of $539,688 versus $564,996 respectively; (iii) professional and consultant fees of $132,916 versus $234,650 respectively; (iv) VDF License fees of $275,000 versus $175,000 respectively, both of which were rolled over to the VDF Senior Note; and (v) other G&A items totaling $323,679 versus $577,163. We project general and administrative expenses will decrease moderately during the balance of fiscal 2016.56

Interest Expense

Interest expense, including amortizations of original issuance discounts related to debt issuances ~~totaled~~and ~~$73~~amortization of derivatives created by issuance of convertible securities,~~755~~ ~~and~~totaled $~~147~~180,~~287~~315 ~~respectively~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2016~~2017 versus $3836,~~100~~396 ~~and $212,343 respectively~~ for the three ~~and nine~~ month ~~periods~~period ended ~~September~~March 3031, ~~2015~~2016. We project that interest expenses will decrease ~~moderately~~ during the balance of fiscal ~~2016~~2017.

Other Income (Expense)

During the three ~~and nine~~ month periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016, we recorded license fee revenue amortization of $10,000 versus $nil, respectively; and non-cash charges for changes in fair market value of derivative liabilities which arose from our issuance of convertible debt instruments, and non-cash amortizations of discounts on notes payable, ~~and~~which anrespectively ~~equity~~totaled ~~modification cost for the re-pricing of warrants. These were classified as other expense items and included expenses of~~ $~~147~~243,~~865~~517 ~~and $433,040 respectively for the three and nine month periods ended September 30, 2016~~ versus ~~a gain of~~ $1142,~~866 and an expense of $77,343 for the three and nine month periods ended September 30, 2015~~833. ~~We project these expenses will decrease moderately during the balance of fiscal 2016.~~

Net Loss

Our net losses for the three ~~and~~periods ~~nine~~ended ~~month~~March ~~periods~~31, ~~ended~~2017 ~~September~~and 30March 31, 2016 were $1,~~057~~110,~~096~~612, or $0.01 per share, ~~and~~versus $2818,~~669,586,~~022 or ~~0.02 per share, respectively. Our net losses for the three and nine month periods ended September 30, 2015 were~~ $~~867,965, or $~~0.01 per share~~, and $2,546,967, or 0~~.~~03 per share, respectively~~

Liquidity and Capital Resources

Our financial position at ~~September~~March 3031, ~~2016~~2017 and December 31, ~~2015~~2016 was as follows:

Net Working Capital

	As of September 30, 2016			As of December 31, 2015
	As of March 31, 2017			As of December 31, 2016
Current Assets	$	~~680~~828,~~739~~850		$	~~645~~458,~~107~~741
Current Liabilities		1,~~156~~011,~~948~~815			~~463~~657,~~063~~607
Net Working Capital (Deficit)	$	(~~476~~182,~~209~~965	)	$	~~182~~(198,~~044~~866	)

59As of March 31, 2017 we had cash on hand of $148,072, accounts receivable totaling $309,960, inventory of $370,818, compared with cash of $68,546, accounts receivable plus accounts receivable - related party totaling $122,365, and inventory of $267,830 as of December 31, 2016. Our net working capital improved to a negative balance of $182,965 at March 31, 2017, from a negative balance of $198,866 at December 31, 2016. At present, we estimate we will need to raise capital during the coming twelve months to fund our strategic plans.

~~Table~~Subsequent to the period ended March 31, 2017, our liabilities and cash positions improved due the elimination of ~~Contents~~$75,000 principal owed on note which was converted to shares, and through receipt of warrant exercise which provided us with $170,455 cash.

As of September 30, 2016 we had cash on hand of $118,117, accounts receivable totaling $215,462, and inventory of $347,160. This compares with cash of $148,769, accounts receivable totaling $51,227, inventory of $439,158, and prepaid expenses of $5,953 as of December 31, 2015. Our net working capital decreased to a balance of $(476,209) at September 30, 2016, from a balance of $182,044 at December 31, 2015 largely due to $435,774 of convertible notes payable being moved from long term liabilities to short term liabilities due to the notes coming within six months of maturity. At present, we estimate we will need to raise capital during the coming twelve months to fund our strategic plans.57

Cash Flows

	Nine months ended September 30, 2016			Nine months ended September 30, 2015
	Three months ended March 31, 2017			Three months ended March 31, 2016
Net cash (used) by operating activities	$	(1362,~~297,888~~974	)	$	(1481,~~372,500~~741	)
Net cash provided/(used) in investing activities		-			-
Net cash provided by financing activities		1442,~~267,236~~500			1437,~~630,120~~011
Increase (decrease) in cash during the period		~~(30~~79,~~652~~526	)		~~257~~(44,~~620~~730	)
Cash, beginning of period		~~148~~68,~~769~~546			39148,~~987~~769
Cash, end of period	$	~~118~~148,~~117~~072		$	~~297~~104,~~607~~039

Key elements comprising the comparative figures for Net cash (used) by Operating Activities for the ~~nine~~three month periods ended ~~September~~March 3031, ~~2016~~2017 and ~~September~~March 3031, ~~2015~~2016 include: (i) net losses of $21,~~669~~110,~~586~~612 and $2818,~~546~~022,~~967~~ respectively; (ii) non-cash expenses for stock issued for services and compensation of $~~540~~153,~~101~~209 and $~~564~~83,~~996~~710, respectively; (iii) net non-cash amortization ofoption grant and notes payable ~~discounts~~discount ofamortizations totaling $~~540~~377,~~439~~387 ~~versus~~and $68164,~~467~~655, respectively; (iv) ~~cash~~an ofincrease ~~$295,022~~in ~~and~~inventory of $73102,~~803~~988 ~~provided~~versus ~~by accounts payable and accrued liabilities; (v)~~ an ~~investment~~decrease ofin ~~$164,235~~inventory ~~and cash provided~~ of $~~149~~109,~~798 in accounts receivable~~319; and (viv) ~~cash~~increases of $91352,~~998~~653 and $307,~~593~~633, respectively ~~from~~in ~~the~~accounts ~~use~~payable ofand ~~inventory~~accrued liabilities.

~~Unit~~Cash ~~and~~Raised ~~Stock~~from ~~Offers~~Equity Sales

During the ~~nine month~~ period ended ~~September~~March 3031, ~~2016~~2017 we raised at total of $~~666~~242,~~000~~500 through ~~the~~sales of equity. This was comprised of: (a) $145,000 raised from private placement ~~sale~~sales of 162,~~650~~636,~~000~~363 ~~units~~restricted common shares at $0.055 ~~Each~~per ~~unit~~share; ~~was~~(b) $15,000 through a private placement remedial Unit Offer #3 sale of 375,000 units priced at $0.04 ~~and~~per unit which included one restricted common share and one five year warrant exercisable at $0.055 per share; and (c) $82,500 from issuance of 1,500,000 restricted common shares at $0.055 per share to two prior unit offering subscribers for exercises of 1,500,000 warrants they held.

~~During~~Equity ~~the~~Line ~~three month period ended September 30, 2016 we raised $120,000 through the private placement sale of 3,000,000 restricted common shares priced at $0.04 per share.~~termination

On August 11, 2016 the last shares which had been registered under the 2015 Equity Line were sold and subsequently there has not been filed, and there are no plans to file, a new registration statement which would facilitate further equity line share sales and the 2015 Equity Line is extinguished.

During the year ended December 31, 2015, we raised $629,850 through equity line sales of 8,550,000 shares and during the nine month period ended September 30, 2016, the Company issued 6,450,000 Sale Shares and 21,529 per sale Commitment Shares under the 2015 Equity Line for aggregate proceeds of $322,936.

On August 11, 2016 the last shares which had been registered under the Company's 2015 Equity Line were sold and subsequently there has not been a new registration statement on Form S-1 filed which would allow for further share sales under the 2015 Purchase Agreement.

No Variable Rate Convertible Securities

The Company has no securities outstanding which have conversion prices which vary based on the trading price of the Company's common shares.

60Cash Raised from Debt

~~Table~~During the period ended March 31, 2017, the Company raised $100,000 from issuance of ~~Contents~~a short term non-convertible promissory note and rolled over $100,000 of a license fee to the VDF Note.

~~Short-term Debt~~58

~~September~~Debt ~~2015 Notes:~~Conversions

OnDuring ~~September~~the ~~30,~~period ~~2015~~ended weMarch ~~issued two subordinated promissory notes ("September 2015 Note One" and "September 2015 Note Two"~~31, ~~collectively~~2017, ~~the "September 2015 Notes") to two lenders (the "September 2015 Lenders"). September 2015 Note One had a beginning amount owing~~ $~~108~~327,~~000~~664 ~~and~~of ~~September~~debt ~~2015~~was ~~Note~~converted ~~Two~~by ~~had~~holders ainto ~~beginning amount owing of $162,000~~equity.

AtThese ~~December~~included: ~~31,~~(a) ~~2015~~two transactions in which we issued at total of 1,625,000 ~~the~~common ~~balance~~shares onat $0.04 per share for conversion by September 2015 Note ~~One~~Two ~~was~~Purchaser of the remaining $5065,~~269.~~000 ~~This~~due ~~included~~on ~~the~~September ~~face~~2015 ~~value~~Note Two. The market values of the shares totaled $~~100~~128,~~000~~463 ~~plus~~based ~~accrued~~on ~~interest~~a market close prices on dates of issuance. The conversions resulted in a $863,~~000~~463 difference between the cash redemption balance and ~~was~~the ~~net~~value of anthe ~~unamortized~~shares ~~warrant~~redemption ~~discount~~which ~~totaling~~was ~~$50,245~~treated as a conversion loss and anrecorded ~~unamortized~~as ~~OID~~an ~~discount~~additional ofnon-cash ~~$7,486~~interest expense. ~~During~~These conversions fully paid the ~~nine~~note ~~month~~and ~~period~~no ~~ended~~further ~~September~~payments ~~30,~~are ~~2016~~due; (b) issuance of 990,000 ~~the~~common ~~Company~~shares ~~timely~~at ~~made~~$0.04 aper ~~series~~share for conversion by December 2015 Lender of ~~scheduled~~the ~~cash~~remaining ~~payments~~$39,600 due on ~~September~~the December 2015 Note. ~~One~~The ~~totaling~~value of the shares was $4961,~~000,~~578 ~~and~~based on ~~August~~a 30market close price on date of issuance. The conversion resulted in a $21,978 ~~2016~~difference ~~redeemed~~between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. This conversion fully paid the note and no further payments are due; and (c) four transactions in which LPC converted at total of $59225,000 principal and $1,935 accrued interest due ~~through~~on ~~issuance~~LPC Note Two at a conversion price of 1$0.05 per share into 4,~~475~~538,~~000~~700 shares valued at $95290,~~875~~981 based on a market close ~~price~~prices on dates of $0issuance.~~065~~ ~~per~~The ~~share~~conversions onresulted ~~date~~in a $64,046 difference between the cash redemption balance and the value of ~~issuance~~the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense.

Additionally, subsequent to the period ended March 31, 2017, LPC converted the remaining $75,000 principal and $1,125 accrued interest due on LPC Note Two at a conversion price of $0.05 per share into 1,522,500 shares valued at $111,143 based on market close price on date of issuance. The conversion resulted in a $3635,~~875~~018 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. Concurrent ~~During~~with the ~~nine month period ended September 30~~conversion, ~~2016,~~ the ~~remaining~~ $5041,~~245~~838 ~~of the~~ warrant discount ~~on September 2015 Note One~~ was recorded as an amortization expense and the remaining $71,~~486~~224 OID was recorded as interest expense. ~~The~~This ~~September~~conversion ~~2015~~fully ~~Note~~paid ~~One~~all isamounts ~~now~~due ~~fully~~on ~~repaid~~LPC ~~and~~Note ~~there~~Two ~~are~~and nothe ~~further~~note ~~payments~~is ~~due~~extinguished.

At December 31, 2015, the balance on September 2015 Note Two was $75,403. This included the face value of $150,000 plus accrued interest of $12,000 and was net of an unamortized warrant discount totaling $75,367 and an unamortized OID discount of $11,230. During the nine month period ended September 30, 2016, the Company timely made a series of scheduled cash payments on September 2015 Note One totaling $88,500, and prior to scheduled redemption date, on September 23, 2016 the lender extended the maturity date of the note to November 14, 2016 in exchange for the right to convert the balance of $73,500 into common shares of the Company at a price of $0.04 per share. On date of issuance, the Company's closing share price was $0.0605 and this created a beneficial conversion feature which was factored into the Black-Scholes model valuation of $41,011 for the conversion right, of which $6,380 was recorded as an amortization expense during the period ended September 3, 2016. During the nine month period ended September 3, 2016, the $72,872 of the warrant discount on September 2015 Note Two was recorded as an amortization expense and $10,858 of the OID was recorded as interest expense. At September 30, 2016, the balance on September 2015 Note Two was $35,686. This included the remaining face value and accrued interest totaling $73,500 and was net of an unamortized original warrant discount of $2,770, an unamortized conversion right discount of $34,632 and an unamortized OID discount of $412.

December 2015 Note:

On December 30, 2015 we issued a subordinated promissory note (the "December 2015 Note") to one lender (the "December 2015 Lender"). The December 2015 Note had a beginning balance of $118,000.

At December 31, 2015, the balance on the December 2015 Note including accrued interest was $109,565, net of an unamortized OID of $9,235. At September 30, 2016, the balance on the December 2015 Note including accrued interest was $37,851, net of unamortized OID of $1,749. During the nine month period ended September 30, 2016, the Company timely made two scheduled cash payments totaling $79,200, and during this period $7,486 of the OID was recorded as interest expense.

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Short Term Debt - Related Party:

On July 31, 2016 (the "Issuance Date"), the Company issued a $100,000 note (the "RP Note") to a director of the Company for a loan. The RP Note has a maturity date of January 27, 2017 and is classified as short term related party debt. The RP Note bears interest at 8% per annum due at maturity and may be prepaid in whole, or in part, at any time before each maturity date without prepayment penalty. At September 30, 2016, the balance due on the RP Note was $101,337 including $1,337 of accrued interest for the period ended September 30, 2016.

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. 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 nine month period ended September 30, 2016, $123,053 of the discount was recorded as an amortization expense, $13,673 of the OID was recorded as interest expense, and accrued interest of $9,514 was paid via issuances of 135,915 restricted common shares. At September 30, 2016, the recorded balance on LPC Note One was $204,092, net of an unamortized discount of $41,317 and an unamortized OID of $4,591.

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. 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 nine month period ended September 30, 2016, $183,119 of the discount was recorded as an amortization expense, $20,346 of the OID was recorded as interest expense, and accrued interest of $9,514 was paid via issuances of 228,340 restricted common shares. At September 30, 2016, the recorded balance on LPC Note Two was $231,323, net of an unamortized discount of $61,485 and an unamortized OID of $6,832.

Long-term Debt

VDF Note:

On January 28, 2014, we issued a senior convertible note (the "VDF Note") to VDF, whereby we promised to pay VDF principal due plus the aggregate amount of accrued and unpaid license fee payments and accrued interest. During the year ended December 31, 2015, we rolled-over License fee payments totaling $300,000 plus accrued interest for the year of $18,481 for a total addition to the VDF Note of $318,481. 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. During the nine month period ended September 30, 2016, we rolled-over License fee payments totaling $275,000 and recorded accrued interest of $29,056 on the note. At September 30, 2016, the VDF Note had an outstanding balance $755,975, net of a discount of $17,353 resulting from the embedded derivative. At issue date in 2014, the Conversion Price of the Senior Convertible Note was $0.65 per share and since that time has been adjusted to account for issuance of shares and warrants. At September 30, 2016 the VDF conversion price was $0.2606 per share.

Derivative Liabilities

Also as shown in the table below, prior to conversion into shares, in 2015 the Company repaid in cash a variable rate convertible note which had been issued in 2015. The Company no longer has any variable rate convertible debt outstanding and at September 30, 2016 the anti-dilution clause of the VDF Senior Convertible Note was the only liability of the Company which created a derivative liability.

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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 year ended December 31, 2015 and the period ended September 30, 2016:

Description		Total
Fair Value of derivative liabilities at December 31, 2014	$	9,168
Increase due to issuance of convertible debentures		241,710
Reduction due to redemption of convertible debentures		(274,108)
Change in Fair Value		35,037
Fair Value of derivative liabilities at December 31, 2015	$	11,807
Increase due to issuance of convertible debenture - VDF license fee rollover		1,997
Change in Fair Value		(570)
Fair Value of derivative liabilities at March 31, 2016	$	13,234
Increase due to issuance of convertible debenture - VDF license fee rollover		2,353
Change in Fair Value		(1,061)
Fair Value of derivative liabilities at June 30, 2016	$	14,526
Increase due to issuance of convertible debenture - VDF license fee rollover		1,705
Change in Fair Value		(4,408)
Fair Value of derivative liabilities at September 30, 2016	$	11,823

The lattice methodology was used to value the derivative liabilities related to the convertible notes, with the following assumptions.

Assumptions:	September 30, 2016	December 31, 2015
Dividend yield	0.00%	0.00%
Risk-free rate for term	0.88%	1.31%
Volatility	92%	133%
Maturity dates	2.25 years	3 years
Stock Price	$0.05615	$0.055

Off-Balance Sheet Arrangements

We had no significant off-balance sheet arrangements at ~~September~~March 3031, ~~2016~~2017 or December 31, ~~2015~~2016 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.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

EXCHANGE RATE FLUCTUATION RISK Our reporting currency is United States Dollars. Our transactions are primarily conducted in US$ but may also include transactions in other currencies. Foreign currency rate fluctuations may have a material impact on the Company's financial reporting. These fluctuations may have positive or negative impacts on the results of operations of the Company.

Our reporting currency is United States Dollars. Our transactions are primarily conducted in US$ but may also include transactions in other currencies. Foreign currency rate fluctuations may have a material impact on the Company's financial reporting. These fluctuations may have positive or negative impacts on the results of operations of the Company.

We have not entered into derivative contracts either to hedge existing risk or for speculative purposes.

ITEM 4. CONTROLS AND PROCEDURES

A. Disclosure Controls and Procedures.

As required by Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended, (the "Exchange Act") our management conducted an evaluation (under the supervision and with the participation of our President and Chief Executive Officer, Shaun Roberts, and our Chief Financial Officer, John Dawe) as of the end of the period covered by this Quarterly Report on Form 10-Q, of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. Based on that evaluation, Mr. Roberts and Mr. Dawe each concluded that our disclosure controls and procedures are not effective to provide reasonable assurance that information required to be disclosed in the reports that we file or submit under the Exchange Act, (i) is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and (ii) is accumulated and communicated to our management, including Mr. Roberts and Mr. Dawe, as appropriate to allow timely decisions regarding required disclosure.

B. Management's Report on Internal Control Over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rules 13a-15(f) and 15d-15(f). Our internal control system is designed to provide reasonable assurance to our management and Board of Directors regarding the reliability of financial reporting and the preparation and fair presentation of financial statements for external purposes in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Management has assessed the effectiveness of our internal control over financial reporting as of ~~September~~December 3031, 2016. Management's assessment was based on criteria set forth in Internal Control - Integrated Framework (~~1992~~2013), issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based upon this assessment, management concluded that, as of ~~September~~March 3031, ~~2016~~2017, our internal control over financial reporting was not effective, based upon those criteria, as a result of the identification of the material weaknesses described below.

A material weakness is a deficiency or combination of deficiencies in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis.

Specifically, management identified the following control weaknesses: (i) the Company has not implemented measures that would prevent one individual from overriding the internal control system. The Company does not believe that this control weakness has resulted in deficient financial reporting because the Chief Financial Officer is aware of his responsibilities under the SEC's reporting requirements and personally certifies the financial reports; and (ii) The Company utilizes accounting software that does not prevent erroneous or unauthorized changes to previous reporting periods and/or can be adjusted so as not to provide an adequate audit trail of entries made in the accounting software.

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Accordingly, while the Company has identified certain material weaknesses in its system of internal control over financial reporting, it believes that it has taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Management has determined that current resources would be appropriately applied elsewhere and when resources permit, they will alleviate material weaknesses through various steps.

C. Changes in Internal Control Over Financial Reporting.

There have been no changes in our internal control over financial reporting identified in connection with the evaluation required by Rule 13a-15(d) of the Exchange Act that occurred during the quarter ended ~~September~~March 3031, ~~2016~~2017 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

~~Litigation~~Various lawsuits, claims and other contingencies arise in the ordinary course of the Company's business activities. There 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.

On October 18, 2016, the Company entered into a Settlement Agreement with Splash Beverage Group, Inc. ("SBG") (collectively the "Parties") to settle and discharge, with no payments being made between the Parties, all claims between the Parties regarding the Confidential Distribution Agreement ("CDA") and Sales and Marketing Services Agreement ("SMSA") which the Parties had entered on April 22, 2014 and which the Company had provided cancelation notices to SBG of the SMSA on September 16, 2015 and the CDA on September 23, 2015. A copy of the settlement agreement was included in our filing of a Current Report on Form 8-K on October 21, 2016. This Settlement Agreement is the final resolution of all disputes and claims between the Parties.

Various lawsuits, claims and other contingencies arise in the ordinary course of the Company's business activities. Other than the aforementioned matter, there 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.

ITEM 1A. RISK FACTORS

Not required for smaller reporting companies.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

~~Unless~~On ~~otherwise~~January ~~specified~~23, ~~funds~~2017, ~~raised~~we byissued 250,000 restricted common shares at $0.0484 per share to a new director at market close price on date of grant as an inducement fee for joining our Board for a deemed non-cash cost of $12,100. These shares were issued to one Accredited Investor (as that term is defined in Rule 501 of Regulation D under the ~~Company~~Securities ~~are~~Act ~~used~~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 ~~working~~in ~~capital~~Rule ~~purposes~~506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933, as amended.

On January 126, ~~2016~~2017, we issued ~~600~~340,000 restricted common shares at $0.~~0614~~0488 per share to an Accredited Investor related party at market close price on date of grant toas an ~~employee~~inducement fee extension of the maturity of a promissory note for a deemed ~~compensation~~non-cash cost of $3716,592. These shares were issued to one USnon-U.S. person ~~with~~(as ~~reliance~~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 ~~Rule 506~~ Regulation DS and/or Section 4(~~a)(~~2) of the Securities Act of 1933, as amended.

On February ~~January 8~~14, ~~2016~~2017, we ~~issued~~remedially ~~651~~executed a private placement related to Unit Offer #3 which raised $15,~~269~~000 ~~restricted~~through ~~common~~the ~~shares~~sale of 375,000 units. Each unit was priced at $0.0504 per unit and comprised of one restricted common share price plus one five year warrant exercisable to purchase one restricted common share at ~~market~~$0.055 ~~close~~per ~~price~~share. onThe ~~date~~fair market value of ~~grant~~the ~~for~~shares ~~deemed~~and ~~compensation~~embedded value of ~~$32,563~~the towarrants ais ~~service~~based ~~provider~~on asthe ~~final~~valuations ~~payment~~done for ~~services~~Unit ~~rendered~~Offer #3. These shares were issued to one USnon-U.S. person, ~~who is an accredited investor~~ (as that term is defined in ~~Rule~~Regulation ~~501~~S of ~~Regulation D under~~ the Securities Act of 1933, as amended), ~~and~~ in ~~issuing~~offshore ~~these~~transactions ~~shares~~in towhich ~~this person~~ we relied on the exemptions from the registration requirements provided for in ~~Rule 506~~ Regulation DS and/or Section 4(~~a)(~~2) of the Securities Act of 1933, as amended. The warrants were valued using a Black-Scholes model at a non-cash cost of $16,463. At March 31, 2017, none of these warrants had been exercised.

On ~~January~~February 1114, ~~2016~~2017, we issued 5340,000 restricted common shares to an Accredited Investor long term shareholder at $0.~~064~~07 per share ~~to an employee~~ at market close price on date of grant as an inducement fee for a $100,000 promissory note for a deemed ~~compensation~~non-cash cost of $~~320~~23,800. These shares were issued to one USnon-U.S. person ~~with~~(as ~~reliance~~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 ~~Rule 506~~ Regulation DS and/or Section 4(~~a)(~~2) of the Securities Act of 1933, as amended.

66During January, 2017, in two transactions we issued at total of 1,625,000 common shares at $0.04 per share for conversion by September 2015 Note Two Purchaser of the remaining $65,000 due on September 2015 Note Two. The market values of the shares totaled $128,463 based on a market close prices on dates of issuance. The conversions resulted in a $63,463 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. These conversions fully paid the note and no further payments are due. These shares were issued to an Accredited Investor with reliance on the exemptions from registration requirements provided in the Securities Act of 1933, as amended, Section 4(1) and Rule 144.

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InDuring February, ~~2016~~2017, we ~~executed~~issued a1,500,000 ~~private~~restricted ~~placement~~common ~~unit~~shares ~~offering~~to ~~which~~two ~~raised~~prior ~~$171,000~~unit ~~through~~offering ~~the~~subscribers ~~sale~~for exercises of 41,~~275~~500,000 ~~units.~~warrants ~~This~~they ~~offering~~held ~~terminated on March 29, 2016 and was priced~~ at ~~$0.04~~the ~~per~~exercise ~~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. ~~The~~for ~~fair~~proceeds ~~market value~~ of ~~the shares based on closing market prices on dates of sale was~~ $~~227~~82,~~160 and the embedded value of the warrants based on a Black-Scholes option pricing model was $182,910~~500. These ~~shares~~subscribers ~~were issued to four US persons who~~ are ~~accredited~~Accredited ~~investors~~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.

On February 2322, ~~2016~~2017, we issued 5990,000 ~~restricted~~ common shares at $0.~~0502~~04 per share atfor conversion by December 2015 Lender of the remaining $39,600 due on the December 2015 Note. The value of the shares was $61,578 based on a market close price on date of ~~grant~~issuance. toThe anconversion ~~employee~~resulted ~~for~~in ~~deemed~~a ~~compensation~~$21,978 difference between the cash redemption balance and the value of ~~$251~~the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. This conversion fully paid the note and no further payments are due. These shares were issued to one USAccredited ~~person~~Investor 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, Section 4(1) and Rule 144.

OnDuring the period ended March 431, ~~2016~~2017 in four transactions, weLPC ~~issued~~converted 3$225,~~500~~000 ~~restricted~~principal ~~common~~and ~~shares~~$1,935 accrued interest due on LPC Note Two at a conversion price of $0.~~0559~~05 per share into 4,538,700 shares valued at $290,981 based on market close ~~price~~prices on ~~date~~dates of ~~grant~~issuance. toThe conversions resulted in a ~~professional~~$64,046 ~~athlete~~difference ~~for~~between ~~endorsement~~the ~~services~~cash ~~rendered~~redemption ~~for~~balance ~~deemed~~and ~~compensation~~the value of ~~$196~~the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. These shares were issued to USone ~~persons~~Accredited Investor 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, Section 4(1) and Rule 144.

~~For~~On ~~the three month period ended~~ March 311, ~~2016~~2017, we issued ~~to LPC: (a) 45~~1,~~143~~100,000 restricted common shares at $0.070548 per share ~~for~~at amarket ~~deemed~~close ~~cost~~price ~~of $3,160 for interest accrued~~ on ~~LPC~~date ~~Note~~of ~~One~~grant for ~~the~~consultant ~~period~~services ~~from~~rendered ~~January 1, 2016 to March 31, 2016 ; and (b) 75,840 restricted common shares at $0.05 per share~~ for a deemed cost of $360,~~792 for interest accrued on LPC Note Two for the period from January 1, 2016 to March 31, 2016~~280. These shares were issued ~~at market close price on date of grant~~ to one USAccredited ~~company,~~Investor ~~which is an accredited investor~~ (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 ~~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 March 312, ~~2016~~2017, we issued ~~150~~15,~~366~~500 restricted common shares at $0.~~054~~0518 per share to a professional athlete for endorsement services rendered. These shares were issued at market close price on issue date ~~of grant to our CEO~~ for deemed compensation ~~totaling~~of $~~8,125~~803. These shares were issued to ~~one~~ US ~~person~~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 March 316, ~~2016~~2017, we issued ~~318~~653,~~081~~842 restricted common shares atto ~~$0.054~~a ~~per~~company ~~share~~wholly atowned ~~market~~by ~~close~~our CFO at a price of $0.0559 on date of grant toas ~~our~~compensation ~~President & COO~~ for a deemed ~~compensation~~cost ~~totaling~~of $1736,~~188~~615. These shares were issued to one USnon-U.S. person ~~with~~(as ~~reliance~~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 ~~Rule 506~~ Regulation DS and/or Section 4(~~a)(~~2) of the Securities Act of 1933, as amended.

On March 317, ~~2016~~2017, we issued ~~462~~50,~~663~~000 restricted common shares at $0.~~054~~0604 per share ~~at market close price on date of grant~~ to ~~our~~a ~~CFO~~professional athlete for ~~deemed~~endorsement ~~compensation~~services ~~totaling $25,000~~rendered. These shares were issued toat ~~one~~market ~~non-U.S.~~close ~~person~~price ~~(as~~on ~~that~~issue ~~term~~date isfor ~~defined~~deemed incompensation ~~Regulation S~~ of ~~the Securities Act of 1933~~$3,020. asThese ~~amended)~~shares inwere ~~offshore~~issued ~~transactions~~to inUS ~~which~~persons wewith ~~relied~~reliance on the exemptions from the registration requirements provided for in Rule 506 Regulation SD and/or Section 4(a)(2) of the Securities Act of 1933, as amended.

OnDuring the period ended March 31, ~~2016~~2017, we ~~issued~~raised ~~600~~$145,000 through a private placement stock offering which sold 2,636,363 restricted common shares at $0.~~054~~055 per share. atThese ~~market~~shares ~~close~~were ~~price~~issued onto ~~date~~five ofAccredited ~~grant~~Investors to(as anthat ~~employee~~term ~~for~~is ~~deemed~~defined ~~compensation~~in Rule 501 of ~~$30.~~Regulation ~~These~~D ~~shares~~under ~~were~~the ~~issued~~Securities toAct ~~one~~of US1933, ~~person~~as ~~with~~amended) ~~reliance~~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.

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~~Table~~Subsequent to the period ended March 31, 2017, LPC converted the remaining $75,000 principal and $1,125 accrued interest due on LPC Note Two at a conversion price of ~~Contents~~$0.05 per share into 1,522,500 shares valued at $111,143 based on market close price on date of issuance. The conversion resulted in a $35,018 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and recorded as an additional non-cash interest expense. Concurrent with the conversion, the $41,838 warrant discount was recorded as an amortization expense and the remaining $1,224 OID was recorded as interest expense. These shares were issued to one Accredited Investor with reliance on the exemptions from registration requirements provided in the Securities Act of 1933, as amended, Section 4(1) and Rule 144. This conversion fully paid all amounts due on LPC Note Two and the note is extinguished.

~~From~~Subsequent ~~April~~ to ~~May 2016, we executed a private placement unit offering which raised $394,000 through~~ the ~~sale~~period ofended ~~9,850,000~~March ~~units. This offering terminated on May~~ 31, 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. The fair market value of the shares based on closing market prices on dates of sale was $5322017,~~443~~ ~~and~~LPC ~~the~~exercised ~~embedded value of these warrants based~~ on a ~~Black-Scholes~~cashless ~~option~~basis ~~pricing model was $426~~5,~~730. These shares were issued to nine US persons who are accredited investors (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933~~000,000 aswarrants ~~amended)~~it orheld ~~qualified~~into ~~under the terms Rule 506 Regulation D~~1,264,674 ~~and~~common ~~in issuing these~~ shares. These wewarrant ~~relied~~had onbeen ~~the~~issued ~~exemptions~~with ~~from~~LPC ~~the~~Note ~~registration~~Two ~~requirements provided for in Rule 506 Regulation D~~ and~~/or~~ ~~Section~~this ~~4(a)(2)~~effected offull ~~the~~exercise ~~Securities Act~~ of ~~1933,~~that ~~as amended~~warrant.

OnSubsequent ~~May~~to 20the period ended March 31, ~~2016~~2017, wepursuant to a letter agreement, LPC exercised 1,136,364 warrants which it had been issued 10on January 27,~~000~~ 2014 into 1,136,364 restricted common shares atfor the exercise price of $0.~~054~~15 per share atto ~~market~~provide ~~close~~the ~~price~~Company onwith ~~date~~aggregate proceeds of ~~grant~~$170,455. At this same time, the Company issued to anLPC ~~employee~~5,000,000 ~~for~~six ~~deemed~~year ~~compensation~~warrants with an exercise price of $~~540~~0.05. ~~These~~The ~~shares~~warrants were ~~issued~~valued tousing ~~one~~a USBlack-Scholes ~~person~~model ~~with~~at ~~reliance~~a onnon-cash ~~the~~cost ~~exemptions~~of ~~from~~$349,939. ~~the~~At ~~registration~~current ~~requirements~~date, ~~provided~~none ~~for~~of inthese ~~Rule~~warrants ~~506~~had ~~Regulation~~been Dexercised. ~~and/or~~Copies ~~Section 4(a)(2)~~ of the ~~Securities~~letter ~~Act~~agreement ofand ~~1933,~~warrant are attached to this Report as ~~amended~~exhibit 10.1.

On June 6, 2016, we issued 5,000 restricted common shares at $0.0518 per share at market close price on date of grant to a professional for endorsement services for deemed compensation of $259. 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 June 8, 2016 we issued 333,781 restricted common shares at $0.049 per share at market close price on date of grant as compensation to our CEO for deemed compensation totaling $16,355. 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.

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On June 8, 2016 we issued 254,441 restricted common shares at $0.049 per share at market close price on date of grant as compensation to our President & COO for deemed compensation totaling $12,468. 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.

For the three months ended June 30, 2016, we issued to LPC: (a) 45,143 restricted shares at $0.0497 per share for a deemed cost of $2,244 for interest accrued on LPC Note One for the period from April 1, 2016 to June 30, 2016 ; and (b) 75,840 restricted shares at $0.0497 per share for a deemed cost of $3,769 for interest accrued on LPC Note Two for the period from April 1, 2016 to June 30, 2016. These shares were issued at market close price on date of grant to one US company, which 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 July 13, 2016, we issued 294,737 restricted common shares at $0.0475 per share at market close price on date of grant for consultant services rendered for a deemed cost of $13,587. 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.

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On August 24, 2016, we issued 42,500 restricted common shares at $0.0639 per share market close price on date of grant to an employee for deemed compensation of $2,716. 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.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

No. Exhibit Description

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 Septem4ber 9, 2013	(attached as an exhibit to our current report on Form 8-K, filed on September 13, 2013)
(10)	Material Contracts
10.1	Letter Agreement and Form of Warrant, dated as of May 9, 2017 by and between KonaRed Corporation and Lincoln Park Capital Fund, LLC	Filed herewith
(31)	Certifications
31.1	Certificate of President and Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
31.2	Certificate of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002	Filed herewith
32.1	Certificate of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002	Filed herewith
(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

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

KONARED CORPORATION

/s/ Shaun Roberts	Dated:	~~November~~May 1715, ~~2016~~2017
Shaun Roberts
Chief Executive Officer
/s/ John Dawe	Dated:	~~November~~May 1715, ~~2016~~2017
John Dawe
Chief Financial Officer,
Secretary & Treasurer

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