UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

____________________________

FORM 10-K

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

For Fiscal Year Ended December 31, ~~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 # ~~00055208~~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~~2042 ~~Via~~Corte ~~Callejon~~Del #Nogal, Suite 200

~~San Clemente~~Carlsbad, CA ~~92673-4230 (Address~~ ~~of principal executive offices) (Zip Code)~~92011

~~Tel.~~ (~~808~~Address of principal executive offices) (Zip ~~212-1553~~Code)

~~(Registrant's telephone no~~Tel., ~~including area code~~(949) 682-4700

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

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

None

Securities registered pursuant to Section 12(g) of the Act:

Common Stock, $0.001 par value

(Title of class)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act: Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act: Yes ☒ No ☐

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

Table of Contents

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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant'’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K: Yes ☐ No ☒

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or aan ~~smaller~~emerging growth company. See the definition of “law accelerated filed,” “accelerated filed,” “Smaller reporting company:,” and “emerging growth company” in Rule 12b of the Exchange Act.

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

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

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

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant'’s most recently completed second fiscal quarter: the aggregate market value of the 63119,~~378~~299,~~077~~662 common shares of the registrant owned by non-affiliates on June 30, ~~2016~~2017 was $38,~~149~~112,~~890~~377 based on a closing price of $0.~~0497~~0680 per share.

Indicate the number of shares outstanding of each of the registrant'’s classes of common stock, as of the latest practicable date: ~~178~~226,~~256~~366,~~378~~621 common shares were issued and outstanding as of ~~April~~January 1218, ~~2017~~2019.

Table of Contents

KONARED CORPORATION

Table of Contents

PART I
ITEM 1.	Description of Business		1
ITEM 1A.	Risk Factors		136
ITEM 1B.	Unresolved Staff Comments		136
ITEM 2.	Properties		147
ITEM 3.	Legal Proceedings		147
ITEM 4.	Mine Safety Disclosures		147
PART II
ITEM 5.	Market for Company'’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities		158
ITEM 6.	Selected Financial Data		2412
ITEM 7.	Management'’s Discussion and Analysis of Financial Condition and Results of Operation		2512
ITEM 7A.	Quantitative and Qualitative Disclosures About Market Risk		3626
ITEM 8.	Financial Statements and Supplementary Data:		3727
		Report of Independent Registered Public Accounting Firm	3828
		Audited Balance Sheets at December 31, 2016 and December 31, 2015	39
		Audited Balance Sheets at December 31, 2017 and December 31, 2016	29
		Audited Statements of Operations for the years ended December 31, 2016 and December 31, 2015	40
		Audited Statements of Operations for the years ended December 31, 2017 and December 31, 2016	30
		Audited Statement of Stockholders' Equity for the period from December 31, 2014 through December 31, 2016	41
		Audited Statement of Stockholders’ Deficit for the period from December 31, 2015 through December 31, 2017	31
		Audited Statements of Cash Flows for the years ended December 31, 2016 and December 31, 2015	42
		Audited Statements of Cash Flows for the years ended December 31, 2017 and December 31, 2016	33
		Audited Supplementary Disclosure of Cash Flow Information for the years ended December 31, 2016 and December 31, 2015	33
		Audited Supplementary Disclosure of Cash Flow Information for the years ended December 31, 2017 and December 31, 2016	34
		Audited Non-Cash Investing and Financing Activities for the years ended December 31, 2016 and December 31, 2015	43
		Audited Non-Cash Investing and Financing Activities for the years ended December 31, 2017 and December 31, 2016	35
		Notes to Audited Financial Statements	4435
ITEM 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure		8670
ITEM 9A.	Controls and Procedures		8670
ITEM 9B.	Other Information		8771
PART III
ITEM 10.	Directors, Executive Officers and Corporate Governance		8872
ITEM 11.	Executive Compensation		9476
ITEM 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters		9778
ITEM 13.	Certain Relationships and Related Transactions, and Director Independence		~~101~~80
ITEM 14.	Principal Accounting Fees and Services		~~101~~82
PART IV
ITEM 15.	Exhibits, Financial Statements Schedules		~~102~~83
SIGNATURES			105
ITEM 16.	Form 10-K Summary		86
SIGNATURES			88

iii

Table of Contents

PART I

ITEM 1. DESCRIPTION OF BUSINESS

Corporate Overview

In this Annual Report on Form 10-K for fiscal year 2017, 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~~2042 ~~Via~~Corte ~~Callejon~~Del ~~#200~~Nogal, ~~San~~Suite ~~Clemente~~200, Carlsbad, CA ~~92673-4230.~~92011

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

~~Description~~The Company “went dark” (terminated the registration of ~~Business~~its Common Stock class under the Securities Exchange Act and suspended its Securities Exchange Act and Securities Act reporting obligations) on October 24, 2017, as a condition to the closing of a major Preferred Stock financing transaction. The provisions of the Securities Exchange Act which are applicable to “public companies” and their directors, officers and 10% stockholders no longer apply to the Company and its directors, officers and 10% stockholders. The Company is not required to file any other Form 10-K, 10-Q or 8-K after December 31, 2017, other than this final 2017 Form 10-K report.

~~Beverage~~This ~~Products~~is the Company’s Annual Report for the 2017 year. This document does not purport to provide a full report on 2018 or 2019 matters.

~~KonaRed®~~When ~~Corporation is~~ a ~~Hawaiian~~company ~~Coffee~~goes ~~Company and the pioneer of the USA Grown~~“dark,” ~~Hawaiian~~public ~~Coffee~~trading ~~Fruit.~~in ~~The~~its ~~company~~stock ~~oversees~~becomes amuch ~~vertically~~more ~~integrated~~difficult, ~~supply~~and ~~chain~~publicly ~~which~~trading ~~starts~~would ~~with~~typically ~~the~~become ~~world~~illiquid ~~renowned, highest quality Coffee~~ and ~~Coffee Fruit from Kona, Hawaii~~sporadic. The Company’s ~~produces~~stock ~~five~~is ~~award~~able ~~winning Ready~~ to ~~Drink~~be ~~('RTD')~~publicly ~~12oz~~traded ~~Cold~~only ~~Brew~~on ~~Coffee~~OTC ~~varieties,~~Markets ~~Bag~~Group’s in“Pink” ~~the~~trading ~~Box~~level, ~~Key~~the ~~Kegs,~~OTCPK ~~a complete line of whole bean and ground Kona Coffee Beans, plus its well established RTD Antioxidant Juices and Hawaiian Coffee Fruit nutritional supplements~~market. The Company ~~also~~ has anceased ~~industrial~~to ~~ingredients~~be ~~supply~~legally ~~division.~~required ~~KonaRed~~to ~~products~~provide ~~are sold throughout the U.S.~~ (and ~~can~~would beelect ~~found~~not into ~~select~~voluntarily ~~Vons,~~provide) ~~Albertsons,~~“current ~~Publix,~~public ~~Pavilions,~~information” ~~Costco,~~such ~~Ralphs,~~as ~~Fred~~would ~~Meyer,~~facilitate ~~King~~investor ~~Soopers,~~interest ~~Smiths, Kroger, Safeway, Vitamin Shoppe, Target, Whole Foods, 7-Eleven~~ and ~~many~~Rule ~~other~~144 ~~retail~~trading ~~outlets~~eligibility. ~~More~~ (Thus, ~~information~~the ~~about~~phrase ~~KonaRed~~“going ~~and its products can be found at www~~dark.~~konared.com.~~”)

1The Company reminds its Common Stock shareholders that, even after the Company “went dark” and is no longer a “public company,” they remain Company shareholders, and holders of Company equity, for their same number of shares of Company Common Stock.

~~Table~~Description of ~~Contents~~Business

~~12oz.~~Beverage ~~Award Winning RTD Cold Brew Coffees~~Products

InKonaRed® ~~February~~Corporation ~~2016~~is ~~we introduced~~ a ~~new~~Hawaiian ~~line~~Coffee ofCompany ~~Ready-to-Drink~~and ~~('RTD')~~the ~~Cold~~pioneer ~~Brew~~of ~~Coffees~~the ~~which~~USA ~~included~~Grown, ~~the~~Hawaiian ~~flavors~~Coffee ofFruit. ~~'Original',~~The ~~'Hawaiian~~company ~~Vanilla'~~oversees ~~and~~a ~~'Espresso'.~~vertically Inintegrated ~~August~~supply ~~2016,~~chain ~~consumer~~which ~~demand~~starts ~~precipitated~~with the ~~addition~~world ofrenowned, ~~'Kauai~~highest ~~Caramel'~~quality Coffee and ~~'Maui~~Coffee ~~Mocha'~~Fruit ~~flavors.~~from ~~Sales~~Kona, ofHawaii. ~~this~~The ~~product~~Company ~~have~~produces ~~expanded~~five ~~quickly~~award ~~and~~winning ~~the~~Ready-to-Drink ~~line~~(“RTD”) is12oz ~~now~~and ~~being~~32oz ~~sold~~Cold inBrew ~~leading~~Coffee ~~retailers~~varieties, ~~throughout~~Key ~~the~~Kegs, ~~US. Hawaiian~~a ~~Vanilla~~complete ~~has~~line ~~won~~of ~~the~~whole ~~BevergeWorld~~bean ~~BevStar award~~ and ~~the~~ground ~~Original~~Kona ~~Cold~~Coffee ~~Brew~~Beans, ~~won~~single ~~the~~serve ~~Gourmet~~cups, ~~Retailer~~plus ~~Editor's~~its ~~Choice~~well ~~for~~established ~~Best~~RTD ~~Coffee~~Antioxidant Juices. KonaRed ~~RTD~~products ~~Cold~~are ~~Brew~~sold ~~Coffees~~throughout ~~have~~the ~~become~~U.S. ~~one~~and ofcan ~~the~~be ~~leading~~found ~~brands~~ in ~~this~~select ~~fast~~Vons, ~~growing~~Albertsons, ~~consumer~~Publix, ~~packaged~~Pavilions, ~~goods~~Meijer, ~~sector. Cold~~Ralphs, ~~brew~~Fred ~~coffee~~Meyer, ~~continues~~King toSoopers, ~~grow~~Smiths, inSafeway, ~~popularity~~Whole asFoods, it7-Eleven ~~appeals~~and tomany ~~premium~~other ~~beverage~~retail ~~trends,~~outlets. More ~~but~~information ~~also~~about ~~health~~KonaRed and ~~wellness~~its ~~ones~~products ~~too~~can be found at www.konared.com.

~~The~~Award ~~evidence~~Winning ofRTD ~~consumer demand for~~ Cold ~~Brewed~~Brew 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 in 2016.Coffees

2In 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 throughout the US. Hawaiian Vanilla has won the BeverageWorld 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. Cold brew coffee continues to grow in popularity as it appeals to premium beverage trends, but also health and wellness ones too. The company added a line of 32oz sizes to complement the 12oz variety in June 2017.

~~Table of Contents~~1

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

●Use 16of ~~oz. KonaRed Original Antioxidant Juice (2 servings)~~Patents

3An important element of our business is the License we have been provided by VDF FutureCeuticals, Inc. (“VDF”), which provides us with the use of VDF’s coffee fruit patents and Coffeeberry® trademark license. A License Agreement has effectively formed a strategic alliance between KonaRed and VDF.

~~Table~~We developed the necessary processing and manufacturing intellectual property (“IP”) for processing and manufacturing our base ingredient - the coffee fruit (and have subsequently coordinated this with the IP provided by VDF). The License Agreement provides us with access to use of ~~Contents~~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.

~~● 10.5 oz. KonaRed Original Antioxidant Juice (1 serving)~~Trademarks

4We use several trademarks in branding our business:

~~Table of Contents~~KonaRed

~~New~~Hand ~~Product~~Crafted ~~Offerings:~~with Aloha

~~KonaRed®~~Paradise ~~Original Bag~~ in a ~~box – sold primarily at Costco.~~Bottle

~~Shelf~~Paradise ~~pictures~~in a Can

5Nature’s Best Kept Secret

~~Table~~Best ofCoffee ~~Contents~~on Earth

~~Wellness Products~~CoffeeBerry

WeThe ~~also~~first ~~produce~~three ~~wellness nutritional products which are now available at select locations~~ of ~~Vitamin Shoppe nationwide and in several major chains in Hawaii. Primary among~~ these isare our ~~antioxidant~~registered ~~KonaRed~~trademarks. ~~Hawaiian~~In ~~Superfruit~~addition, ~~Powder~~we ~~Tub~~have ~~and~~rights ~~our~~to ~~Wake-up~~the ~~Performance~~registered ~~Powder~~CoffeeBerry® ~~Packets~~trademark.

●Operations, ~~KonaRed~~Facilities ~~Hawaiian~~and ~~Superfruit~~Distribution ~~Powder~~Method for Our Products

~~100%~~Our ~~soluble~~distribution ~~coffee~~facility ~~fruit~~is ~~powder~~an ~~made~~8,500 ~~from~~square foot facility located in Carlsbad, 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 ~~from~~extraction ~~Kona~~and retail products, ~~Hawaii~~while maintaining in-house control of critical marketing, product development and warehousing/shipping functions. We are transitioning to in-house bottling.

●Supply ~~KonaRed~~and ~~Wake~~Distribution Upfor ~~Performance~~Our ~~Powder Packets~~Product

1We ~~tub~~have an agreement in place which provides a reliable and trusted source of green coffee bean and coffee fruit supply with 30two ~~packets~~separate farms in Kona, Hawaii.

6As to coffee fruit, we have an exclusive arrangement for the supply of raw coffee fruit from Greenwell Farms, Inc., a Hawaii corporation with a long established history as a major Hawaiian coffee supplier.

~~Table~~Since the fruit surrounding the coffee bean was previously discarded as a byproduct of ~~Contents~~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, both in Hawaii and other locations.

~~Coffee~~Our ~~Bean~~production ~~Products~~process is based on our company taking possession of the dried coffee fruit from the grower, shipping the dried coffee fruit to our Carlsbad 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.

~~Our~~For ~~line~~our ofcompany’s beverage production, our antioxidant beverages are processed by us sending processed coffee fruit to a 3rd party flavor house which makes the KonaRed ~~Coffee~~concentrate ~~Beans~~and ~~come~~then inships ~~varieties~~it to our company’s bottling vendors. Notably, we own the proprietary beverage formulas. Pallets of the ready-to-drink product items 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.

●The ~~100%~~process ~~Kona~~for Cold Brew Coffee ~~beans~~is similar.

~~● 10% Kona Blends~~2

●Table ~~Both~~of ~~come in Whole Bean or Ground~~Contents

7Market

~~Table~~We believe our company has established a frontrunner position in the coffee fruit and cold brew coffee 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, Target, Vitamin Shoppe and other major retailers. We have since moved into the large and lucrative market of ~~Contents~~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. We continued to expand on these markets throughout 2017.

~~Industrial~~Sales ~~Ingredient Division Launch~~Strategy

InOur ~~December~~sales ofstrategy ~~2015,~~for weour ~~executed~~Cold aBrew ~~supply~~Coffee ~~contract~~and ~~with~~Antioxidant beverages is to sell and ship directly from our ~~partner~~warehouse in Carlsbad, ~~VDF~~California. ~~Futureceuticals~~We ~~Inc~~have a direct sales team of three individuals, ~~("VDF")~~two in Hawaii and one in Southern California whose main job is to secure new customers directly in person. We ~~now~~have ~~offer~~also anretained ~~American~~manufacturers’ ~~made~~sales Urepresentatives who work to increase our overall sales efforts in specific regions such as New York, Los Angeles and Florida.~~S.A~~ ~~Hawaiian~~In ~~grown~~early ~~coffee~~2017 ~~fruit~~we ~~supply~~signed toa ~~the~~brokerage ~~world~~agreement with ~~both~~Impact ~~coffee~~Sale ~~fruit~~Group ~~powders~~to ~~and~~represent ~~liquid~~our ~~extracts~~entire line of products to ~~other~~the ~~companies~~conventional ~~B2B~~and natural sales channels in the Western United States.

~~Use~~We’ve learned the importance of ~~Patents~~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.

AnAlthough ~~important~~KonaRed ~~element~~was ofinvented ~~our~~as ~~business~~a iswellness ~~the~~product, ~~License~~ we ~~have~~believe ~~been~~consumer ~~provided~~acceptance byof ~~VDF~~our ~~which~~beverage ~~provides~~products now places us ~~with~~both within the ~~use~~coffee ofand ~~VDF's~~‘premium ~~coffee~~juice’ ~~fruit~~retail ~~patents~~categories, ~~and~~as ~~Coffeeberry®~~well ~~trademark~~as ~~license.~~on ~~The~~dairy ~~License~~shelves ~~Agreement~~with ~~has~~cold ~~effectively~~brew ~~formed~~coffees, aand ~~strategic~~the ~~alliance~~coffee ~~between~~aisle ~~KonaRed~~with ~~and~~our ~~VDF~~whole bean coffee line.

WeIn ~~developed~~summary, ~~the necessary processing and manufacturing intellectual property ("IP") for processing and manufacturing~~ our ~~base~~sales ~~ingredient~~expansion -priorities 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.are:

~~Trademarks~~(1) expansion of wholesale distribution

We(2) ~~have~~retail ~~filed~~chain ~~and received several trademarks that we use in our daily business~~success

~~KonaRed~~(3) growth of direct to retail sales

~~Nature's~~(4) ~~Best~~growth ~~Kept~~of ~~Secret~~direct to consumer sales, and

~~Paradise~~(5) indevelopment aof ~~Bottle~~raw material ingredient sales

~~Operations,~~Major ~~Facilities~~Industry ~~and Distribution Method for Our Products~~Participants

~~Our~~The ~~distribution~~expansion ~~facility~~of isleading abeverage ~~10,000~~monoliths ~~square~~within ~~foot~~new ~~facility~~products ~~located~~ in ~~San Clemente, California. We use an outsourcing business model based on utilizing third parties for~~ the ~~bulk~~beverage ofcategory ~~our~~has ~~non-core~~tightened ~~business~~pricing ~~operations,~~but ~~such~~also ascreated ~~manufacturing~~a ~~and~~vibrant ~~coffee~~mergers ~~fruit extraction~~ and ~~retail~~acquisitions ~~products,~~environment ~~while~~for ~~maintaining~~emerging ~~in-house~~brands ~~control~~like ~~of critical marketing, product development and warehousing/shipping functions~~KonaRed.

~~Supply~~Takeovers and ~~Distribution~~mergers ~~for~~are ~~Our~~a ~~Product~~hallmark of our industry. Recent beverage industry deals have included:

We• ~~have~~Coca Cola acquired Zico Coconut Water in January 2014 • Nestle acquired 100% of Chameleon Cold Brew Coffee for an ~~agreement~~undisclosed amount in ~~place~~2017 ~~which~~• ~~provides~~InBev has made a ~~reliable~~series ~~and~~of ~~trusted~~investments ~~source~~in ofSambazon ~~coffee~~(in ~~fruit~~August ~~supply.~~2012, ~~This~~December is2011, ~~structured~~and asDecember ~~5-year~~2008) ~~arrangement~~• ~~based~~InBev onhas ~~our~~also ~~commitment~~made toa ~~exclusively~~series ~~purchase~~of ~~coffee~~investments ~~fruit~~in ~~from~~Vita ~~the~~Coco ~~supplier~~in May 2012 and ~~the~~December ~~supplier~~2010 is• ~~obligated~~Bai Brands sold to ~~provide~~Dr. ~~coffee~~Pepper ~~fruit~~Snapple ~~exclusively~~for toan ~~our~~acquisition ~~company~~price of $1.7 ~~Our~~billion ~~company's~~in ~~principal~~December ~~supplier~~2016 • Peets Coffee & Tea purchased 100% of ~~raw~~Stumptown ~~coffee~~Coffee ~~fruit~~Roasters isin ~~Greenwell~~October ~~Farms,~~2015 ~~Inc.,~~for aan ~~Hawaii~~undisclosed ~~corporation~~amount ~~with~~• High Brew Coffee received a ~~long~~$4 ~~established~~Million ~~history~~investment asfrom aCAVU ~~major~~Venture ~~Hawaiian~~Partners ~~coffee~~in ~~supplier.~~April 2016

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.3

~~Our~~Table ~~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.Contents

8Market Development and Metrics

~~Table~~Our objective is to develop KonaRed into a powerhouse coffee company which supplies consumers with a variety of ~~Contents~~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.

~~For~~Presently, our ~~company's~~predominant ~~beverage~~focus ~~production,~~is our ~~antioxidant~~beverage ~~beverages~~and ~~are~~cold ~~processed~~brew ~~by us sending processed~~ coffee ~~fruit~~businesses ~~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~~are ~~the~~generating ~~proprietary~~revenues ~~beverage~~through ~~formulas. Pallets of~~ the ~~ready-to-drink~~following ~~product~~distribution 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.channels:

~~Market~~• Direct Store Distributors

We• ~~believe~~Broadline our company has established a frontrunner position in the coffee fruit 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, 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.Distributors

~~Sales~~• ~~Strategy~~Direct to Retail

~~Our~~• ~~sales~~Online 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.Retail

~~We've~~• ~~learned~~Raw ~~the~~Material ~~importance~~Ingredient 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.Sales

~~Although~~The ~~KonaRed~~specifics ~~was invented as a wellness product, we believe consumer acceptance~~ of ~~our~~each ~~beverage~~channel ~~products~~are ~~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.~~follows:

In• ~~summary~~Direct Store Distributors: The direct store distributors (“DSDs”) channel comprises wholesale distributors who maintain in-house inventories of multiple brands of beverage products, ~~our~~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 ~~expansion~~or ~~priorities~~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.)

~~(1) expansion~~• Broadline Distributors: The broadline distributors channel includes wholesalers who specialize in distribution of ~~wholesale~~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 retailer’s distribution centers and the retailers are responsible for the distribution to each retail store. • Online Retail: The KonaRed brand has gained an increasing following of Internet based customers who purchase our products directly through our website. We plan to expand this channel though on-line marketing initiatives in parallel with our brand recognition marketing campaigns. In April, 2016 we re-launched our website after a major overhaul which included addition of the Shopify platform to promote efficient online sales. • Raw Material Ingredient Sales: In December 2015, we launched our coffee fruit raw ingredient materials division and will be working to expand this revenue channel in cooperation with VDF.

~~(2) retail chain success~~4

~~(3) growth~~Table of ~~direct to retail sales~~Contents

~~(4) growth~~To ofdevelop ~~direct~~this tostrategy ~~consumer~~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. We will also be launching new products when the timing makes sense for the company and the market dynamics.

~~(5) development of raw material ingredient sales~~Competition

9The 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.

~~Table~~Important factors that affect our ability to compete successfully include taste and flavor of ~~Contents~~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.

~~Major~~Intellectual ~~Industry Participants~~Property

~~The~~KonaRed® ~~expansion~~is a registered trademark in the United States, Japan and China and we intend to seek a number of ~~leading~~trademarks ~~beverage~~for ~~monoliths~~slogans ~~within~~and ~~new~~product ~~products~~designs. We inalso hold trademark rights to the ~~beverage~~Paradise ~~category~~in ~~has~~a ~~tightened~~Bottle®”, ~~pricing~~“Nature’s ~~but~~Best ~~also~~Kept ~~created~~Secret™”, “Hand Crafted with Aloha®”, “Paradise in a ~~vibrant~~Can™”, ~~mergers~~and “Best Coffee on Earth™” tag lines; and ~~acquisitions~~rights ~~environment~~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 ~~emerging~~making ~~brands~~the ~~like~~finished ~~KonaRed~~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 patent rights 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.

~~Takeovers~~While ~~and~~there ~~mergers~~can ~~are~~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 ~~hallmark~~substantial cost to, and diversion of effort by, our ~~industry.~~Company, ~~Recent~~management ~~beverage~~believes ~~industry~~that ~~deals~~the ~~have~~protection ~~included:~~of our intellectual property rights will be a key component of our operating strategy.

●Partnership ~~Coca~~Initiative ~~Cola~~with ~~acquired~~VDF ~~Zico~~FutureCeuticals ~~Coconut Water in January 2014 ● Pepsi acquired a majority stake in O~~Inc.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 ● Bai Brands sold to Dr. Pepper Snapple for an acquisition of $1.7 billion in 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~~In ~~Development~~2014 ~~and~~KonaRed ~~Metrics~~settled a patent dispute with VDF by forming a partnership with them.

~~Our~~VDF ~~objective~~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 ~~develop~~discovery-based ~~KonaRed~~research ~~into~~that aleads ~~powerhouse~~to ~~coffee~~the ~~company~~expansion ~~which~~of ~~supplies~~human ~~consumers~~health, ~~with~~and ais ~~variety~~the trusted partner-of-choice ~~high~~for ~~quality~~companies ~~coffee~~in search of creative, ~~beverage~~ethical solutions for the health and ~~nutritional~~wellness ~~products~~needs of today’s consumer. WeIts ~~plan~~sister tocompany, ~~achieve~~Van ~~this~~Drunen ~~using~~Farms, awas ~~strategy~~founded ofover ~~expanding~~one ~~our~~hundred ~~retail~~years ~~footprint~~ago ~~through~~and ahas ~~series~~grown into one of ~~revenue~~the ~~generating~~largest ~~distribution~~dried ~~channels~~food asingredient ~~well~~manufacturers asand ~~direct~~suppliers toin ~~consumer~~the ~~sales~~world.

~~Presently, our predominant focus is our beverage and cold brew coffee businesses and we are generating revenues through the following distribution channels:~~5

●Table ~~Direct~~of ~~Store Distributors~~Contents

●VDF ~~Broadline~~is ~~Distributors~~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 KonaRed’s own proprietary research and development.

●The ~~Direct~~partnership tobrings ~~Retail~~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 ~~Online~~of ~~Retail~~Business

●The ~~Raw~~sales ~~Material~~of ~~Ingredient~~our ~~Sales~~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 products and contribute to lower sales, which could have an adverse effect on our results of operations for such periods.

~~The~~Government ~~specifics of each channel are as follows:~~Regulation

●Our ~~Direct~~products ~~Store~~are ~~Distributors:~~considered ~~The~~to ~~direct~~be ~~store~~synonymous ~~distributors~~with ~~("DSDs")~~coffee ~~channel~~for ~~comprises~~regulatory ~~wholesale~~purposes ~~distributors~~and ~~who~~are ~~maintain~~thus ~~in-house~~sold ~~inventories~~under ofthe ~~multiple~~U.S. ~~brands~~Food ~~of beverage products, such as juices, beer,~~ and ~~water,~~Drug ~~which~~Administration’s ~~they~~(“FDA”) ~~sell~~“Generally toRegarded ~~retail~~as ~~stores~~Safe” ~~and~~(“GRAS”) ~~other~~regulatory ~~wholesalers~~umbrella. ~~DSD~~Accordingly, iswe aare ~~business~~not ~~process~~required ~~that manufacturers use~~ to ~~both~~petition ~~sell~~for ~~and~~FDA ~~distribute~~approval ~~goods directly to point~~ of ~~sales~~our orcoffee ~~point~~fruit ofofferings, ~~consumption~~which ~~including~~would ~~additional~~be ~~product~~typical ~~and~~under ~~market~~standard ~~related~~dietary ~~services~~supplement ~~such as merchandising~~guidelines. InHowever, ~~order~~our toCompany ~~fulfill~~has ~~growing~~registered ~~demand~~all ~~from~~of ~~retailers,~~its ~~DSDs~~supply ~~specializing~~chain insubcontractors with the ~~beverage~~FDA ~~channels~~as ~~are~~required ~~expanding~~and ~~their~~has ~~functional~~met ~~beverage~~and ~~categories~~answered toall ~~include~~inquiries by the ~~type of products in which KonaRed specializes~~FDA. (AWe ~~'functional~~believe ~~beverage'~~we isare ~~defined~~in asfull ~~one~~compliance ~~which~~with ~~has~~all ~~certain~~FDA ~~attributes, such as Antioxidants~~regulations.)

10The 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.

~~Table of Contents~~Employees

●In ~~Broadline~~addition ~~Distributors:~~to ~~The~~Kyle ~~broadline~~Redfield, ~~distributors~~who ~~channel~~is ~~includes~~our ~~wholesalers~~Chief ~~who~~Executive ~~specialize~~Officer inand ~~distribution~~Director, ofwe ~~natural~~currently ~~food~~employ ~~products~~10 full-time toemployees ~~retail~~who ~~stores.~~all Awork ~~broadline~~in ~~distributor~~the ~~services~~United aStates. ~~wide~~Our ~~variety~~operations ofare ~~accounts~~overseen ~~with~~directly aby ~~wide~~management ~~variety~~that ofengages ~~products~~our ~~ranging~~employees ~~from~~to ~~food,~~carry ~~beverages~~on ~~and~~our ~~supplies~~business. inOur ~~the~~management ~~natural~~oversees ~~channel~~all ~~selling~~responsibilities toin ~~retailers~~the ~~like~~areas ~~Whole~~of ~~Foods~~corporate ~~Markets.~~administration, ●business ~~Direct~~development, toand ~~Retail:~~research; ~~During~~and ~~our~~as ~~growth~~needed ~~phase~~ we ~~have~~engage ~~developed~~the aservices ~~direct~~of toother ~~retail~~professionals ~~sales~~for ~~channel~~legal, toaudit ~~grocery stores such as Albertson's~~ and ~~specialty~~other ~~retail~~technical ~~stores~~services. We intend to ~~continue~~expand toour ~~service~~current ~~and~~management ~~develop this channel further. Direct~~ to ~~retailer~~retain ~~includes~~other ~~major~~skilled ~~retail~~directors, ~~chains~~officers, ~~with 500 locations or more where the KonaRed product ships direct to the retailers distribution centers~~ and ~~the~~employees ~~retailers~~with ~~are~~experience ~~responsible~~relevant ~~for the distribution~~ to ~~each~~our ~~retail~~business ~~store~~focus. ●Our ~~Online~~management’s ~~Retail:~~relationships ~~The~~will ~~KonaRed~~provide ~~brand~~the ~~has~~foundation ~~gained~~through anwhich ~~increasing~~we ~~following~~expect ofto ~~Internet~~grow ~~based customers who purchase~~ our ~~products~~business ~~directly~~in ~~through~~the ~~our website~~future. We ~~plan~~believe tothat ~~expand~~the ~~this channel though on~~skill-~~line~~set ~~marketing~~of ~~initiatives in parallel with~~ our ~~brand~~management ~~recognition~~team ~~marketing~~will ~~campaigns.~~be ~~In April, 2016 we re-launched our website after~~ a ~~major~~primary ~~overhaul~~asset ~~which~~in ~~included~~the ~~addition~~development of ~~the Shopify platform to promote efficient online sales. ● Raw Material Ingredient Sales: In December 2015, we launched~~ our ~~coffee~~brands ~~fruit raw ingredient materials division~~ and ~~will be expanding this revenue channel in cooperation with VDF~~trademarks.

ToITEM ~~develop this strategy we continually evaluate: product line sales, product line specific gross margin, individual products costs and pricing of individual product lines~~1A. ~~Growth~~RISK ~~of our retail footprint will continue to be evaluated through the growth of our client base in each specific distribution channel.~~FACTORS

~~Competition~~Not required for smaller reporting companies.

~~The~~Our ~~beverage~~actual ~~industry~~results ismay ~~extremely~~differ ~~competitive.~~materially ~~The~~from ~~principal~~the ~~areas~~results ofanticipated ~~competition~~in ~~include~~any ~~pricing,~~forward-looking ~~packaging,~~statements ~~development~~in ofthis ~~new~~Report ~~products~~due ~~and~~to ~~flavors, and marketing campaigns. Our product is competing directly with~~ a ~~wide~~variety ~~range~~ of ~~drinks~~factors, ~~produced~~including, bywithout alimitation, ~~relatively~~those ~~large~~set ~~number~~forth ofas ~~manufacturers.~~“Risk ~~Most~~Factors” ofin ~~these~~the ~~brands have enjoyed broad, well~~Post-~~established~~Effective ~~national~~Amendment ~~recognition~~to ~~for~~our ~~years,~~Form ~~through well~~S-~~funded~~1 adwhich ~~and~~became ~~other~~effective ~~marketing~~on ~~campaigns.~~May ~~In addition~~12, ~~companies~~2016 ~~manufacturing these products generally have far greater financial, marketing,~~ and ~~distribution~~in ~~resources than we do. We compete to secure distributors who will agree to market~~ our ~~product~~annual ~~over~~report ~~those~~on ofForm ~~our~~10-K ~~competitors,~~filed ~~provide~~on ~~stable~~April ~~and reliable distribution~~13, ~~and~~2017. ~~secure~~These ~~adequate~~can ~~shelf~~be ~~space~~found inalong ~~retail outlets. Our products compete~~ with all ~~liquid~~our ~~refreshments,~~filings ~~including~~with ~~numerous~~the ~~specialty~~SEC ~~beverages,~~at ~~such as: SoBe; Snapple; Arizona; Vitamin Water; Gatorade; and Powerade~~www.sec.gov.

~~Important~~There ~~factors~~may ~~that~~be ~~affect~~other ~~our~~factors ~~ability~~included toin ~~compete successfully include taste and flavor of our product, trade and consumer promotions,~~ the ~~development~~Company’s offilings ~~new,~~with ~~unique and cutting edge products, attractive and unique packaging, branded product advertising, pricing, and~~ the ~~success~~SEC ofthat ~~our~~may ~~distribution~~cause ~~network.~~actual Weresults ~~believe~~to ~~our~~differ ~~branding~~materially isfrom ~~strong~~those ~~and~~projected ~~our~~in ~~position~~any asforward-looking ~~a U~~statement.S. ~~coffee~~The ~~supplier~~Company isdisclaims ~~relatively~~any ~~unique.~~intention Weor ~~are~~obligation ~~committed~~ to ~~ethical~~update ~~production~~or ofrevise ~~our~~any ~~source~~forward-looking ~~ingredients~~statements ~~and~~whether ~~our~~as ~~use of~~ a ~~previously~~result ~~discarded by-product~~ of ~~coffee~~new ~~represents~~information, ~~our~~future ~~environmentally~~events ~~positive~~or ~~corporate~~otherwise, ~~operating~~except ~~philosophy.~~as Werequired ~~are~~by ~~also~~applicable ~~non-GMO~~law. ~~We believe these factors combine to provide us with a competitive advantage and our products are consistently well received by consumers.~~

11ITEM 1B. UNRESOLVED STAFF COMMENTS

~~Table of Contents~~None.

~~Intellectual Property~~6

~~KonaRed®~~Table ~~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.Contents

~~While~~ITEM ~~there can be no assurance that registered trademarks will protect our proprietary information, we intend to assert our intellectual property rights against any infringer~~2. 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.PROPERTIES

~~Partnership~~Our ~~Initiative~~current principal office and warehouse are now located at 2042 Corte Del Nogal, Suite C, Carlsbad, California 92011. Our previous office and warehouse were located at 1101 Via Callejon #200, San Clemente, California 92673-4230. During the years ended December 31, 2017 and December 31, 2016 we shared our San Clemente warehouse premises with ~~VDF~~a ~~FutureCeuticals~~sublessee ~~Inc~~whose occupancy ended on April 7, 2017, at which time we assumed all lease payments. The current facility lease has a term of April 1, 2018 to March 31, 2023 and presently requires total lease payments of $10,466 per month.

ToFixed ~~the~~assets ~~mutual~~currently ~~satisfaction~~shown ofon ~~the~~our ~~parties,~~balance onsheet ~~January~~are ~~28,~~comprised ~~2014~~of ~~KonaRed~~furniture ~~settled~~and awarehouse ~~patent~~fixtures ~~dispute~~and ~~which~~at ~~had~~present ~~been~~the ~~pending~~Company ~~since~~has ~~2011~~no ~~with~~material ~~VDF~~property bybalances ~~forming~~which aare ~~partnership~~classified ~~with~~as ~~them~~assets under generally accepted accounting principles.

~~VDF~~ITEM ~~(www~~3.~~futureceuticals.com)~~ isLEGAL 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.PROCEEDINGS

~~VDF~~There isare ano ~~major~~material ~~biotech~~active ~~and~~or ~~ingredient~~pending ~~supplier~~legal ~~and~~proceedings ~~owner~~against ofus, ~~the~~nor ~~patent-protected~~are ~~CoffeeBerry®~~we ~~coffee~~involved ~~fruit~~as ~~technology,~~ a ~~proprietary~~plaintiff ~~set~~in ofany ~~agricultural~~material ~~and~~proceedings ~~industrial~~or ~~processes~~pending ~~and a line of unique ingredients~~litigation. ~~VDF's~~There ~~patents~~are ~~and~~no ~~processes~~proceedings ~~capture the same potent nutrition inherent~~ in ~~coffee fruit~~ which ~~had~~any ~~formed the basis~~ of ~~two~~our ~~provisional~~officers ~~patent~~and ~~applications~~directors, ~~made~~or byany ~~KonaRed~~registered ~~based~~or onbeneficial ~~the~~shareholder, ~~proprietary~~is ~~research~~an ~~and~~adverse ~~development~~party ~~which~~or ~~had~~has ~~been~~a ~~fully~~material ~~developed~~interest byadverse ~~KonaRed~~to us.

~~The~~ITEM ~~partnership~~4. ~~brings~~MINE ~~together~~SAFETY ~~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.~~DISCLOSURES

~~Seasonality~~Not ~~of Business~~applicable.

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.7

12Table of Contents

~~Table~~PART ~~of Contents~~II

~~Our~~In ~~products~~2016 ~~are~~and ~~considered~~2017 toour becommon ~~synonymous~~stock ~~with~~was ~~coffee~~quoted ~~for~~on ~~regulatory~~the ~~purposes~~OTCQB ~~and~~over-the-counter ~~are~~stock ~~thus~~market ~~sold~~(“OTCQB”) under the Usymbol: ‘KRED’.S. ~~Food~~Because ~~and~~we ~~Drug~~were ~~Administration's~~quoted ~~("FDA")~~on ~~"Generally~~the ~~Regarded~~OTCQB, asour ~~Safe"~~securities ~~("GRAS")~~could ~~regulatory~~be ~~umbrella.~~less ~~Accordingly~~liquid, wereceive ~~are~~less ~~not~~coverage ~~required~~by tosecurity ~~petition~~analysts ~~for~~and ~~FDA~~news ~~approval~~media, ofand ~~our~~generate ~~coffee~~lower ~~fruit~~prices ~~offerings,~~than ~~which~~might ~~would~~otherwise be ~~typical~~obtained ~~under~~if ~~standard~~they ~~dietary~~were ~~supplement~~listed ~~guidelines.~~on ~~However,~~a ~~our~~major ~~Company~~national ~~has~~securities ~~registered~~exchange. ~~all~~Trading ofin ~~its~~stocks ~~supply~~quoted ~~chain~~on ~~subcontractors with~~ the ~~FDA~~OTCQB asis ~~required~~often thin and ~~has~~is ~~met~~characterized ~~and~~by ~~answered~~wide ~~all~~fluctuations ~~inquiries~~in bytrading ~~the~~prices ~~FDA.~~due Weto ~~believe~~many wefactors ~~are~~that inmay ~~full~~be ~~compliance~~unrelated or have little to do with ~~all~~a ~~FDA~~company’s ~~regulations~~operations or business prospects.

~~The advertising~~Currently, ~~distribution,~~because ~~labeling,~~we ~~production,~~have ~~safety,~~“gone ~~sale~~dark,” ~~and transportation in the United States of~~ our ~~product~~common ~~are~~stock ~~subject~~is ~~to:~~quoted ~~the~~on ~~Federal Food, Drug, and Cosmetic Act;~~ the ~~Federal~~OTCPK ~~Trade Commission Act;~~ over-the-counter ~~Lanham Act; state consumer protection laws; competition laws; federal~~market, ~~state~~which ~~and~~provides ~~local~~less ~~workplace~~liquidity ~~health~~than ~~and~~the ~~safety~~OTCQB ~~laws;~~had ~~various federal, state and local environmental protection laws; and various other federal, state and local statutes and regulations~~provided. ~~It will be our policy to comply with any and all legal requirements.~~

~~Employees~~The following table sets forth the high, low and closing prices for our Common Stock per quarter as reported for the years ended December 31, 2017 and December 31, 2016. These prices represent quotations between dealers without adjustment for retail mark-up, mark-down or commission and may not necessarily represent actual transactions.

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 10 full-time and 4 part-time employees 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.

Quarter Ended:	High		Low

FY2017:
March 31, 2017	$	0.104	$	0.043
June 30, 2017	$	0.071	$	0.040
September 30, 2017	$	0.099	$	0.059
December 31, 2017	$	0.052	$	0.033

FY2016:
March 31, 2016	$	0.044	$	0.067
June 30, 2016	$	0.045	$	0.069
September 30, 2016	$	0.045	$	0.066
December 31, 2016	$	0.042	$	0.061

~~ITEM 1A. RISK FACTORS~~Shareholders

~~Not~~On ~~required~~January ~~for~~18, ~~smaller~~2019, ~~reporting~~there ~~companies~~were between 200 and 300 shareholders of record of the 226,366,621 shares outstanding of our common stock.

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 our Form S-1 which became Effective on July 6, 2015. This can be found along with all our filings with the SEC at www.sec.gov.Dividends

There ~~may~~are beno ~~other~~restrictions ~~factors~~that ~~included~~would inlimit the Company's ~~filings~~from ~~with~~paying ~~the~~dividends. ~~SEC~~We ~~that~~have ~~may~~not ~~cause~~paid ~~actual~~any ~~results~~cash toor ~~differ~~stock ~~materially~~dividends ~~from~~on ~~those~~our ~~projected~~common instock ~~any~~and ~~forward-looking~~have ~~statement.~~no ~~The~~present ~~Company~~intention ~~disclaims~~of paying any ~~intention~~dividends oron ~~obligation~~the shares of our common stock. Our current policy is to ~~update~~retain orearnings, ~~revise~~if any, ~~forward-looking~~for ~~statements~~use ~~whether~~in asour aoperations ~~result~~and in the development of ~~new~~our ~~information,~~business. Our future ~~events~~dividend orpolicy ~~otherwise,~~will ~~except~~be asdetermined ~~required~~from time to time by ~~applicable~~our ~~law~~board of directors. Our Series A Preferred Stock and Series B Preferred Stock have dividend preferences over our common stock.

~~ITEM~~Re-Purchase ~~1B. UNRESOLVED~~of ~~STAFF~~Equity ~~COMMENTS~~Securities

None.

13Recent Sales of Unregistered Securities

~~Table~~On January 23, 2017, we issued 250,000 restricted common shares at $0.0484 per share to a new director at market close price on date of ~~Contents~~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 Securities Act of 1933, as amended (the “Securities Act”) Rule 506 of Regulation D, and in issuing these shares we relied on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~ITEM 2. PROPERTIES~~8

~~Our~~Table principal office and warehouse is located at 1101 Via Callejon #200, San Clemente, California 92673-4230. During the years ended December 31, 2016 and December 31, 2015 we shared our warehouse premises with a sublessee whose occupancy ended on April 7, 2017, at which time we assumed all lease payments until we acquire a new sublessee tenant. 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 extended the lease for an additional 24 month term and committed to total lease payments of $10,466 for June 1, 2016 to May 31, 2017 and $10,793 for June 1, 2017 to May 31, 2018. The Company's portion of payments under the extended term arrangements comprise $8,066 for June 1, 2016 to April 30, 2017 and will, in the absence of a new sublessee, be $10,793 for June 1, 2017 to May 31, 2018. For the year ended December 31, 2015 our Company paid a total of $95,412 (averaging $7,951 per month) of the total lease expense of $123,957 (averaging $10,330 per month). We believe that the condition of our principal office and warehouse are satisfactory, suitable and adequate for our current needs.Contents

~~Fixed~~On ~~assets~~January ~~currently~~26, ~~shown~~2017, we issued 340,000 restricted common shares at $0.0488 per share to an Accredited Investor related party at market close price on ~~our~~date ~~balance~~of ~~sheet~~grant ~~are~~as ~~comprised~~an inducement fee extension of ~~furniture~~the ~~and~~maturity ~~warehouse~~of ~~fixtures~~a ~~and~~promissory atnote ~~present~~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 ~~Company~~Securities ~~has~~Act) noin ~~material~~offshore ~~property~~transactions ~~balances~~in which ~~are~~we ~~classified~~relied ason ~~assets~~the ~~under~~exemptions ~~generally~~from ~~accepted~~registration ~~accounting~~requirements ~~principles~~provided for in Regulation S and/or Section 4(a)(2) of the Securities Act.

~~ITEM~~On February 14, 2017, we remedially executed a private placement related to the Company’s previous Unit Offer #3 which raised $15,000 through the sale of 375,000 stock/warrant units. ~~LEGAL~~ ~~PROCEEDINGS~~Each unit was priced at $0.04 per unit and 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 and embedded value of the warrants is based on the valuations done for Unit Offer #3. These shares were issued to one non-U.S. person in offshore transactions in which we relied on the exemptions from registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act. The warrants were valued using a Black-Scholes model at a non-cash cost of $16,463. At December 31, 2017, none of these warrants had been exercised.

On ~~October~~February 1814, ~~2016~~2017, ~~the~~we ~~Company~~issued ~~entered into a Settlement Agreement with Splash Beverage Group~~340,000 ~~Inc.~~restricted ~~("SBG")~~common ~~(collectively~~shares ~~the "Parties")~~ to ~~settle~~an ~~and~~Accredited ~~discharge,~~Investor ~~with~~long noterm ~~payments~~shareholder ~~being~~at ~~made~~$0.07 ~~between~~per ~~the~~share ~~Parties,~~as ~~all~~an ~~claims~~inducement ~~between~~fee ~~the~~for ~~Parties~~a ~~regarding the Confidential Distribution Agreement ("CDA") and Sales and Marketing Services Agreement ("SMSA") which the Parties had entered on April 22~~$100,000 ~~2014~~promissory ~~and~~note ~~which~~for ~~the~~a ~~Company~~deemed ~~had~~non-cash ~~provided~~cost ~~cancelation notices to SBG~~ of ~~the SMSA on September 16, 2015 and the CDA on September~~ $23, ~~2015~~800. AThese ~~copy~~shares ofwere ~~the~~issued ~~settlement~~to ~~agreement~~one ~~was~~non-U.S. ~~included~~person in ~~our~~offshore ~~filing~~transactions ofin awhich ~~Current~~we ~~Report~~relied on ~~Form~~the ~~8-K~~exemptions onfrom ~~October~~registration ~~21,~~requirements ~~2016.~~provided ~~This~~for ~~Settlement~~in ~~Agreement~~Regulation isS ~~the~~and/or ~~final~~Section ~~resolution~~4(a)(2) of ~~all disputes and claims between~~ the ~~Parties~~Securities Act.

~~There~~During ~~are no material~~January, ~~active~~2017, orin ~~pending~~two ~~legal~~transactions ~~proceedings~~we ~~against~~issued usa total of 1,625,000 ~~nor~~common ~~are~~shares weat ~~involved~~$0.04 asper ashare ~~plaintiff~~upon inconversion ~~any~~by ~~material~~September ~~proceedings~~2015 orNote ~~pending~~Two ~~litigation~~Purchaser of the remaining $65,000 due on September 2015 Note Two. ~~There~~The ~~are~~market novalues ~~proceedings~~of inthe ~~which~~shares ~~any~~totaled $128,463 based on market close prices on dates of ~~our~~issuance. ~~officer~~The ~~and~~conversions ~~director~~resulted in a $63,463 ordifference ~~any~~between ~~registered~~the orcash ~~beneficial~~redemption ~~shareholders~~balance ~~are~~and anthe ~~adverse~~value ~~party~~of orthe ~~has~~shares redemption which was treated as a ~~material~~conversion loss and recorded as an additional non-cash interest ~~adverse~~expense. toThese usconversions fully satisfied the note and no further payments are due.

~~ITEM~~These ~~4. MINE~~shares ~~SAFETY~~were ~~DISCLOSURES~~issued to an Accredited Investor with reliance on the exemptions from registration requirements provided in Securities Act Sections 3(a)(9) and 4(a)(2).

~~Not~~During ~~applicable~~February, 2017, we issued 1,500,000 restricted common shares to two prior unit offering subscribers for exercises of 1,500,000 warrants at the exercise price of $0.055 per share for proceeds of $82,500. These subscribers are Accredited Investors, and in issuing these shares we relied on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

14On February 22, 2017, we issued 990,000 common shares at $0.04 per share upon 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 Securities Act Sections 3(a)(9) and 4(a)(2).

~~Table~~During February and March of ~~Contents~~2017, as part of a stock offering, the Company issued 2,636,363 restricted common shares at $0.055 per share at market close price on dates of grant to various parties for cash of $145,000. These shares were issued to five US persons and companies, with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~PART~~During IIthe year ended December 31, 2017 in six transactions, Lincoln Park Capital Fund, LLC (“LPC”) converted $300,000 principal and $3,060 accrued interest due on LPC Note Two at a conversion price of $0.05 per share into 6,105,843 shares valued at $405,361 based on market close prices on dates of issuance. The conversions resulted in a $99,064 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 Securities Act Sections 3(a)(9) and 4(a)(2). These conversions fully paid all amounts due on LPC Note Two and the note is extinguished.

~~ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS~~9

~~Our~~Table ~~common~~of stock is quoted on the OTCQB over-the-counter stock market ("OTCQB") under the symbol: 'KRED'. Because we are quoted on the OTCQB, our securities may be less liquid, receive less coverage by security analysts and news media, and generate lower prices than might otherwise be obtained if they were listed on a major national securities exchange. Trading in stocks quoted on the OTCQB is often thin and is characterized by wide fluctuations in trading prices due to many factors that may be unrelated or have little to do with a company's operations or business prospects. We cannot assure you that there will be a market for our common stock in the future.Contents

~~The~~On ~~following~~March ~~table~~1, ~~sets~~2017, ~~forth~~we ~~the~~issued ~~high~~1,100,000 ~~low~~restricted ~~and~~common ~~closing~~shares ~~prices~~at $0.0548 per share at market close price on date of grant for ~~our~~consultant ~~Common~~services ~~Stock~~rendered ~~per~~for ~~quarter~~a asdeemed ~~reported~~cost byof ~~NASDAQ~~$60,280.~~COM~~ ~~for~~These shares were issued to one Accredited Investor or a person qualified under the ~~years~~terms ~~ended~~of ~~December~~Rule ~~31,~~506 ~~2016~~of Regulation D, and ~~December~~in ~~31,~~issuing ~~2015.~~these ~~These~~shares ~~prices~~we ~~represent~~relied ~~quotations~~on ~~between~~the ~~dealers~~exemptions ~~without~~from ~~adjustment~~registration requirements provided for ~~retail~~in ~~mark-up,~~Rule ~~mark-down~~506 orof ~~commission~~Regulation D and/or ~~may~~Section ~~not~~4(a)(2) ~~necessarily~~of ~~represent~~the ~~actual~~Securities ~~transactions~~Act.

Quarter Ended:		High		Low
FY2016:
March 31, 2016	$	0.044	$	0.067
June 30, 2016	$	0.045	$	0.069
September 30, 2016	$	0.045	$	0.066
December 31, 2016	$	0.042	$	0.061
FY2015:
March 31, 2015	$	0.230	$	0.070
June 30, 2015	$	0.222	$	0.105
September 30, 2015	$	0.177	$	0.073
December 31, 2015	$	0.826	$	0.050

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 the issue date for deemed compensation of $803. These shares were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~Shareholders~~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 in offshore transactions in which we relied on the exemptions from registration requirements provided for in Regulation S and/or Section 4(a)(2) of the Securities Act.

On ~~April~~March 127, ~~2015~~2017, ~~there~~we issued 50,000 restricted common shares at $0.0604 per share to a professional athlete for endorsement services rendered. These shares were ~~217~~issued ~~shareholders~~at ofmarket ~~record~~close ofprice on the ~~178~~issue date for deemed compensation of $3,~~256,378~~020. These shares ~~outstanding~~were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of ~~our~~Regulation ~~common~~D ~~stock~~and/or Section 4(a)(2) of the Securities Act.

~~Dividends~~On April 3, 2017, we issued 11,000 restricted common shares at $0.0720 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 $792. These shares were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~There~~On ~~are~~April no11, ~~restrictions~~2017 ~~that~~we ~~would~~issued ~~limit~~50,000 ~~the~~restricted ~~Company~~common ~~from~~shares ~~paying~~at ~~dividends~~$0.0709 Weper ~~have~~share ~~not~~at ~~paid~~market ~~any~~close ~~cash~~price ~~or stock dividends~~ on ~~our~~date ~~common~~of ~~stock~~grant ~~and~~to ~~have~~an noemployee ~~present~~for ~~intention~~deemed compensation of ~~paying~~$3,545. ~~any~~These ~~dividends on the~~ shares ofwere ~~our~~issued ~~common~~with ~~stock.~~reliance ~~Our~~on ~~current~~the ~~policy~~exemptions isfrom toregistration ~~retain~~requirements ~~earnings,~~provided ~~if any,~~ for ~~use~~ in ~~our~~Rule ~~operations~~506 ~~and in the development~~ of ~~our~~Regulation ~~business.~~D ~~Our~~and/or ~~future~~Section ~~dividend~~4(a)(2) ~~policy~~of ~~will~~the beSecurities ~~determined from time to time by our board of directors~~Act.

~~Re-Purchase~~On ofApril ~~Equity~~27, ~~Securities~~2017, we issued 36,364 restricted common shares at $0.0550 per share to a professional athlete for endorsement services rendered. These shares were issued at market close price on issue date

~~None~~for deemed compensation of $2,000. These shares were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~Securities~~On ~~Authorized~~May 31, 2017, we issued 150,000 restricted common shares at $0.0722 per share market close price on date of grant to a Director for ~~Issuance~~deemed ~~Under~~compensation ~~Equity~~of ~~Compensation~~$10,830. ~~Plans~~These shares were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

OnDuring ~~December 12~~March, ~~2013~~April, ~~the~~May ~~Company~~and ~~adopted~~June anof ~~incentive~~2017, ~~stock~~as ~~option~~part ~~plan (the "Stock Option Plan"). The Stock Option Plan allows for the issuance~~ of upa tostock 11offering,~~000,000~~ ~~options~~the toCompany ~~acquire~~issued 115,~~000~~172,~~000~~147 restricted common shares ofat ~~the~~$0.06 ~~Company's~~per ~~common~~share ~~stock,~~at ~~with~~market aclose ~~maximum~~price ~~exercise~~on ~~period~~dates of ~~ten~~grant ~~years,~~ to bevarious ~~granted~~parties tofor ~~eligible~~cash ~~employees,~~of ~~officers~~$284, ~~directors, and consultants~~468. AsThese ofshares ~~December~~were ~~31,~~issued ~~2016,~~with ~~6,750,000~~reliance ~~options~~on ~~had been issued under~~ the ~~Stock~~exemptions ~~Option~~from ~~Plan.~~registration ~~There~~requirements ~~were~~provided nofor ~~stock~~in ~~options~~Rule ~~issued~~506 ~~during~~of ~~the~~Regulation ~~years~~D ~~ending~~and/or ~~December~~Section ~~31,~~4(a)(2) ~~2016~~of ~~and~~the ~~December~~Securities ~~31, 2015~~Act.

15On June 8, 2017, we issued 250,000 restricted common shares at $0.0692 per share market close price on date of grant to a Director for deemed compensation of $17,300. These shares were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~Table~~On July 6, 2017, we issued 25,000 restricted common shares at $0.060 per share market close price on date of ~~Contents~~grant to an employee for deemed compensation of $1,500. These shares were issued with reliance on the exemptions from registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act.

~~Additionally,~~On weJuly ~~have~~31, in2017, ~~place~~we aissued ~~Form S-8 share compensation plan totaling 5~~12,~~000~~500,000 ~~registered~~restricted common shares ~~reserved~~to ~~for~~two ~~issuance~~parties ~~which~~(collectively, ~~was~~“PCF”) ~~authorized~~as bypart ~~the~~of ~~Board~~a onprevious ~~May~~equity ~~27, 2014~~agreement. The ~~There~~shares were noissued ~~shares~~for ~~issued~~$500,000 ~~under~~received ~~this~~and ~~plan~~priced ~~during~~at $0.04/share. This was the ~~years~~second ~~ended~~payment ~~December~~received ~~31,~~under ~~2016~~the ~~and~~same ~~December~~provisions ~~31,~~of ~~2015~~the PCF Agreements. ~~500,000~~These shares were issued ~~under~~to ~~this~~two ~~plan~~Accredited ~~during~~Investors ~~the~~with ~~year~~reliance ~~ended~~on ~~December~~the ~~31,~~exemptions ~~2014~~from ~~leaving~~registration arequirements ~~balance~~provided ofin ~~4,500,000~~Securities ~~registered~~Act ~~potentially~~Section ~~issuable shares~~4(a)(2).

~~Recent Sales of Unregistered Securities~~10

OnTable ~~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.Contents

On ~~January~~July 131, ~~2016~~2017, wethe Company issued ~~600~~4,000,000 restricted common shares at $0.~~0614~~055 per share atin ~~market~~exchange ~~close~~for ~~price~~$220,000 onreceived ~~date~~(in ofthe ~~grant~~second toquarter) anas ~~employee~~part ~~for~~of ~~deemed~~a ~~compensation~~private ofplacement ~~$37~~stock offering. These shares were issued to one USnon-U.S. ~~person~~Company ~~with~~in ~~reliance~~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 ~~January~~August 830, ~~2016~~2017, wethe Company issued ~~651~~340,~~269~~000 ~~restricted common~~ shares atof ~~$0.05~~restricted ~~per~~common ~~share~~stock ~~at market close price on date of grant~~ for ~~deemed~~the ~~compensation~~extension of ~~$32,563 to~~ a ~~service~~short ~~provider~~term asloan ~~final~~maturity ~~payment for services rendered~~date. These shares were issued to one USnon-U.S. person, ~~who is an accredited investor (as that term is defined~~ in ~~Rule~~offshore ~~501~~transactions ~~of Regulation D under the Securities Act of 1933, as amended), and~~ in ~~issuing~~which ~~these shares to 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~~.

On ~~January~~September 1125, ~~2016~~2017, wethe Company issued 5340,000 ~~restricted common~~ shares atof ~~$0.064~~restricted ~~per~~common ~~share~~stock to ana ~~employee~~Director atof ~~market~~the ~~close~~Company ~~price~~for onthe ~~date~~extension of ~~grant~~a ~~for~~short ~~deemed~~term ~~compensation~~loan ofmaturity ~~$320~~date. These shares were issued to one USnon-U.S. person ~~with~~in ~~reliance~~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~~.

InOn ~~February~~September ~~2016~~29, ~~we executed a private placement unit offering which raised $171~~2017,~~000~~ ~~through~~ the ~~sale~~Company ofissued 413,~~275~~092,~~000~~242 ~~units.~~shares ~~Unit offer #1 terminated on March 29, 2016 and was priced at $0.04 per unit with each unit being comprised~~ of ~~one~~ restricted common ~~share~~stock ~~price plus one five year warrant exercisable~~ to ~~purchase~~VDF ~~one restricted common share~~ at $0.~~055~~07 per share. ~~The~~as ~~fair market value of the shares based on closing market prices on dates of sale was $227,160~~ and ~~the~~for ~~embedded~~full ~~value~~satisfaction of ~~the~~VDF ~~warrants based on a Black-Scholes option pricing model was $182,910~~Note. These shares were issued towith ~~four~~reliance 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~~the ~~506~~Securities ~~Regulation~~Act DSections 3(a)(9) and~~/or~~ ~~Section~~ 4(a)(2) ~~of the Securities Act of 1933, as amended~~.

On ~~February~~October 2317, ~~2016~~2017, wethe Company issued 5448,000 restricted common shares at $0.~~0502~~0413 per share atin ~~market~~exchange ~~close~~for ~~price~~$18,502 onto ~~date~~individuals ofand ~~grant~~directors toof anthe ~~employee~~company for deemed compensation ~~of $251~~. These shares were issued to ~~one~~various US ~~person~~persons with reliance on the exemptions from ~~the~~ registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act ~~of 1933, as amended~~.

On ~~March~~October 418, ~~2016~~2017, wethe Company issued 3250,~~500~~000 restricted common shares at $0.~~0559~~0485 per share atin ~~market~~exchange ~~close~~for ~~price~~$12,125 ~~on date of grant~~ to aPillar ~~professional~~Marketing ~~athlete~~ for ~~endorsement~~ services rendered ~~for deemed compensation of $196~~. These shares were issued to one US ~~persons~~person with reliance on the exemptions from ~~the~~ registration requirements provided for in Rule 506 of Regulation D and/or Section 4(a)(2) of the Securities Act ~~of 1933, as amended~~.

16LPC converted $250,000 principal and $6,164 accrued interest due on LPC Note One into common stock at conversion prices of $0.035, $0.0658, and $0.0355 per share, on October 24, 2017, November 3, 2017, and December 29, 2017, respectively. The note and interest were converted into a total of 8,136,400 shares valued at $290,164 based on market close prices on dates of issuance noted above. The conversions resulted in a difference between the cash redemption balance and the value of the shares redemption which was treated as a debt settlement loss of $454,105 and recorded as an additional non-cash expense. These shares were issued to Accredited Investor(s) with reliance on the exemptions from registration requirements provided in Securities Act Sections 3(a)(9) and 4(a)(2).

~~Table~~On December 29, 2017, pursuant to a Settlement Agreement and General Release with LPC, the Company issued 8,000,000 shares of ~~Contents~~restricted common stock (and provided certain cash considerations) as and for full satisfaction of all promissory notes and warrants held by LPC. This transaction is included within the transactions discussed in the preceding paragraph.

~~For~~Preferred 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.Issuances

On ~~March~~October 3124, ~~2016~~2017, wethe ~~issued~~Company ~~150,366~~entered ~~restricted~~into ~~common~~and ~~shares~~closed ata ~~$0.051~~Series ~~per~~A ~~share~~Preferred atStock ~~market~~Purchase ~~close~~Agreement ~~price~~with onKona ~~date~~Holdings ofI ~~grant~~LLC toand ~~our~~Kona ~~CEO~~Holdings ~~for~~II ~~deemed~~LLC ~~compensation~~(together, ~~totaling~~the $7“Series A Investors”); entered into and closed a Series B Preferred Stock Purchase Agreement with three accredited investors (together,~~669.~~ ~~These~~the ~~shares~~“Series ~~were~~B Investors”); issued certain warrants to ~~one~~the USSeries ~~person~~A ~~with~~Investors ~~reliance~~and onto the ~~exemptions~~Series ~~from~~B ~~the~~Investors; ~~registration~~entered ~~requirements~~into ~~provided~~a ~~for~~consulting inletter ~~Rule~~agreement ~~506~~with ~~Regulation~~The DRoberts ~~and/or~~Group, ~~Section~~LLC 4(~~a)(2)~~an affiliate of ~~the~~its ~~Securities~~chairman ~~Act~~Shaun ofRoberts); ~~1933,~~and asentered ~~amended~~into an employment letter agreement with its chief executive officer Kyle Redfield.

OnUnder ~~March~~the Series ~~31,~~A ~~2016~~Preferred weStock ~~issued~~Purchase ~~318~~Agreement,~~081~~ ~~restricted~~the ~~common~~Series ~~shares~~A atInvestors invested $~~0.051~~2,200,000 ~~per~~in ~~share~~exchange atfor ~~market~~1,554.26 ~~close~~shares ~~price~~of onnewly-issued ~~date~~Series ofA ~~grant~~Preferred toStock. ~~our~~(On ~~President~~October &12, ~~COO~~2017, ~~for~~the ~~deemed~~Company ~~compensation~~borrowed ~~totaling~~ $16250,~~222.~~000 ~~These~~from ~~shares~~Kona ~~were~~Holdings ~~issued~~I toLLC, ~~one~~which USindebtedness ~~person~~was ~~with~~automatically ~~reliance~~converted on ~~the~~October ~~exemptions~~24, ~~from~~2017 into the ~~registration~~securities ~~requirements~~contemplated ~~provided~~by ~~for~~the inSeries ~~Rule~~A ~~506~~Preferred ~~Regulation~~Stock DPurchase ~~and/or~~Agreement ~~Section~~at 4(a~~)(2)~~ value of $262,500. Accordingly, the ~~Securities~~new ~~Act~~cash received on October 24, 2017 from the Series A Investors was $1,937,500.) The price per share of ~~1933~~Series A Preferred Stock was $1,415.46, which corresponds to $0.02831 per share of Common Stock on an as-if-converted ~~amended~~basis.

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.11

OnTable ~~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.Contents

~~From~~Under ~~April~~the Series toB ~~May~~Preferred ~~2016,~~Stock wePurchase ~~executed~~Agreement, athe ~~private~~Series ~~placement~~B ~~unit~~Investors ~~offering~~invested ~~which raised~~ $~~394~~356,~~000~~949 ~~through~~in ~~the~~exchange ~~sale~~for ~~of 9,850,000 units~~252.17 ~~Unit~~shares ~~Offer~~of #2newly-issued ~~terminated~~Series onB ~~May~~Preferred ~~31, 2016 and was priced at $0~~Stock.04 ~~per~~(The ~~unit~~Series ~~with~~B ~~each~~Investors ~~unit~~paid ~~being~~this ~~comprised~~purchase ~~of one restricted common share~~ price ~~plus~~in ~~one~~the ~~five~~form ~~year~~of ~~warrant~~surrender ~~exercisable~~of toa ~~purchase one restricted common share at~~ $~~0.055~~203,968 ~~per~~indebtedness ~~share.~~owed ~~The~~to ~~fair~~Company ~~market~~director ~~value~~Gonzalo ofCamet ~~the~~(a ~~shares~~Series ~~based~~B onInvestor), ~~closing~~surrender ~~market prices on dates~~ of ~~sale~~a ~~was~~ $~~532~~102,~~443~~981 ~~and~~indebtedness ~~the~~owed ~~embedded~~to ~~value of these warrants based on~~ a ~~Black-Scholes~~second ~~option~~Series ~~pricing~~B ~~model~~Investor, ~~was~~and $~~426~~50,~~730.~~000 ~~These~~cash ~~shares~~received ~~were~~from ~~issued~~a tothird ~~nine~~Series USB ~~persons~~Investor.) The ~~who~~conversions ~~are~~resulted ~~accredited~~in ~~investors~~a ~~(as~~difference ~~that~~between ~~term~~the iscash ~~defined~~redemption inbalance ~~Rule~~and ~~501 of Regulation D under~~ the ~~Securities~~value ~~Act~~ of ~~1933,~~the asshares ~~amended)~~redemption orwhich ~~qualified~~was ~~under~~treated ~~the~~as ~~terms~~a ~~Rule~~conversion ~~506~~loss ~~Regulation~~of D$139,751 and inrecorded ~~issuing~~as ~~these~~an ~~shares~~additional wenon-cash ~~relied~~interest onexpense. ~~the~~The ~~exemptions~~price ~~from~~per ~~the~~share ~~registration~~of ~~requirements~~Series ~~provided~~B ~~for~~Preferred inStock ~~Rule~~was ~~506~~$1,415.51, ~~Regulation~~which Dcorresponds ~~and/or~~to ~~Section~~$0.02831 ~~4(a)(2)~~per share of ~~the~~Common ~~Securities~~Stock ~~Act~~on ofan ~~1933,~~ as-if-converted ~~amended~~basis.

OnITEM ~~May 20, 2016 we issued 10,000 restricted common shares at $0~~6.~~054~~ ~~per~~SELECTED ~~share~~FINANCIAL 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.DATA

OnNot ~~May~~required ~~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~~smaller ~~compensation~~reporting ~~of $270~~companies. 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.

17ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS

~~Table~~Forward ofLooking ~~Contents~~Statements

OnCertain ~~May~~information 20included herein contains forward-looking statements that involve risks and uncertainties within the meaning of Sections 27A of the Securities Act, ~~2016~~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, wesuch ~~issued~~as 68“may,~~000~~” ~~restricted~~“would,” ~~common~~“could,” ~~shares~~“anticipate,” at“estimate,” ~~$0.054~~“plans,” ~~per~~“potential,” ~~share~~“projects,” at“continuing,” ~~market~~“ongoing,” ~~close~~“expects,” ~~price~~“believe,” on“intend” ~~date~~and ofsimilar ~~grant~~expressions and variations thereof are intended to identify forward-looking statements. These statements appear in a ~~professional~~number ~~athlete~~of ~~for~~places ~~endorsement~~in ~~services~~this ~~rendered~~Form ~~for~~10-K ~~deemed~~and ~~compensation~~include all statements that are not statements of $3historical fact regarding intent,~~672.~~ ~~These~~belief ~~shares~~or ~~were~~current ~~issued~~expectations toof USthe ~~persons~~Company, our directors or our officers, with ~~reliance~~respect onto, ~~the~~among ~~exemptions~~other ~~from~~things: ~~the~~(i) ~~registration~~our ~~requirements~~liquidity ~~provided~~and ~~for~~capital inresources; ~~Rule~~(ii) ~~506~~our ~~Regulation~~financing Dopportunities and~~/or~~ ~~Section~~plans; 4(aiii) continued development of business opportunities; (2iv) 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 ~~Securities~~forward-looking ~~Act~~statements as a result of ~~1933~~various factors. The factors that might cause such differences include, asamong ~~amended~~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 “SEC”).

OnThe ~~May~~following ~~20,~~discussion ~~2016,~~and wethe ~~issued~~information ~~8,500~~provided ~~restricted~~contain ~~common~~forward-looking ~~shares~~statements atthat $0reflect our plans, estimates and beliefs.~~054~~ ~~per~~Our ~~share~~actual atresults ~~market~~could ~~close~~differ ~~price~~materially onfrom ~~date~~those ofdiscussed ~~grant~~in tothe aforward ~~professional~~looking ~~athlete~~statements. ~~for~~Factors ~~endorsement~~that ~~services~~could ~~rendered~~cause ~~for~~or ~~deemed~~contribute ~~compensation~~to ofsuch ~~$459.~~differences ~~These~~include, ~~shares~~but ~~were~~are ~~issued~~not limited to, USthose ~~persons~~discussed ~~with~~below ~~reliance~~and onelsewhere ~~the~~in ~~exemptions~~this Report. Our actual results may differ materially from the ~~registration~~results ~~requirements~~anticipated ~~provided~~in ~~for~~any inforward-looking ~~Rule~~statements ~~506~~in ~~Regulation~~this DReport ~~and/or~~due ~~Section~~to 4(a~~)(2)~~ variety of factors, including, without limitation those set forth as “Risk Factors” in the ~~Securities~~Post-Effective ~~Act~~Amendment ofto ~~1933~~our Form S-1 which became effective on May 12, as2016 ~~amended~~and in our annual report on Form 10-K filed on April 13, 2017. These can be found along with all our filings to the SEC at www.sec.gov.

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.Overview

OnKonaRed ~~May~~Corporation 20(“KonaRed”, ~~2016~~“KonaRed Corporation”, “us”, “we”, ~~issued~~the 8“Registrant”,~~500~~ ~~restricted~~or ~~common~~the ~~shares~~“Company”) atwas $0incorporated in the State of Nevada on October 4, 2010 as TeamUpSport Inc.~~054~~ ~~per~~Prior ~~share~~to, atand ~~market~~in ~~close~~anticipation ~~price~~of, closing of an asset purchase agreement (the “Asset Agreement”) with Sandwich Isles Trading Co, Inc., on ~~date~~September of9, ~~grant~~2013 toour company effected a ~~professional~~name ~~athlete~~change ~~for~~by ~~endorsement~~merging ~~services~~with ~~for~~our ~~deemed~~wholly-owned ~~compensation~~Nevada ofsubsidiary ~~$459~~named “KonaRed Corporation” with our company as the surviving corporation under the new name “KonaRed Corporation”. ~~These~~On ~~shares~~October ~~were~~4, ~~issued~~2013 pursuant to USthe ~~persons~~terms ~~with~~of ~~reliance~~the onAsset Agreement, we acquired substantially all of the ~~exemptions~~assets, ~~from~~property and undertaking of the ~~registration~~health ~~requirements~~beverage ~~provided~~and ~~for~~food business (the “Business”) operated under the name “KonaRed” from Sandwich Isles Trading Co., Inc., which was a private company incorporated in ~~Rule~~Hawaii ~~506~~on ~~Regulation~~August D22, 2008 and~~/or~~ ~~Section~~dissolved on May 23, 2014. As a result of the October 4(, 2013 acquisition of the Business from Sandwich Isles Trading Co., Inc., we ceased to be a)( “shell company” as defined in Rule 12b-2) of the Securities Exchange Act of ~~1933,~~1934 as(the ~~amended~~“Exchange Act”).

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.12

OnTable ~~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.Contents

OnTo ~~June~~resolve 8,a ~~2016~~looming weliquidity ~~issued~~crisis ~~254~~and provide essential growth capital,~~441~~ ~~restricted~~on ~~common~~October ~~shares~~24, at2017 ~~$0.049~~the ~~per~~Company ~~share~~entered atinto ~~market~~and ~~close~~closed ~~price~~a onSeries ~~date~~A ofPreferred ~~grant~~Stock asPurchase ~~compensation~~Agreement towith ~~our~~Kona ~~President~~Holdings &I ~~COO~~LLC ~~for~~and ~~deemed~~Kona ~~compensation~~Holdings ~~totaling~~II ~~$12~~LLC (together,~~468.~~ ~~These~~the ~~shares~~“Series ~~were~~A ~~issued~~Investors”); toentered ~~one~~into USand ~~person~~closed a Series B Preferred Stock Purchase Agreement with ~~reliance~~three onaccredited investors (together, the ~~exemptions~~“Series ~~from~~B Investors”); issued certain warrants to the ~~registration~~Series ~~requirements~~A ~~provided~~Investors ~~for~~and into ~~Rule~~the ~~506~~Series ~~Regulation~~B DInvestors; ~~and/or~~entered ~~Section~~into 4(a) consulting letter agreement with The Roberts Group, LLC (2)an affiliate of ~~the~~its ~~Securities~~chairman ~~Act~~Shaun ofRoberts); ~~1933,~~and asentered ~~amended~~into an employment letter agreement with its chief executive officer Kyle Redfield.

~~For~~Under the ~~period~~Series ~~ended~~A ~~June~~Preferred ~~30,~~Stock ~~2016~~Purchase ~~we issued 164~~Agreement,~~841~~ ~~restricted~~the ~~common~~Series ~~shares~~A atInvestors invested $~~0.052483~~2,200,000 ~~per~~in ~~share~~exchange atfor ~~market~~1,554.26 ~~close~~shares ~~price~~of onnewly-issued ~~date~~Series ofA ~~grant~~Preferred toStock. ~~our~~(On ~~CEO~~October ~~for~~12, ~~deemed~~2017, ~~compensation~~the ~~totaling~~Company borrowed $8250,~~651.~~000 ~~These~~from ~~shares~~Kona ~~were~~Holdings ~~issued~~I toLLC, ~~one~~which USindebtedness ~~person~~was ~~with~~automatically ~~reliance~~converted on ~~the~~October ~~exemptions~~24, ~~from~~2017 into the ~~registration~~securities ~~requirements~~contemplated ~~provided~~by ~~for~~the inSeries ~~Rule~~A ~~506~~Preferred ~~Regulation~~Stock DPurchase ~~and/or~~Agreement ~~Section~~at 4(a~~)(2)~~ value of $262,500. Accordingly, the ~~Securities~~new ~~Act~~cash received on October 24, 2017 from the Series A Investors was $1,937,500.) The price per share of ~~1933~~Series A Preferred Stock was $1,415.46, which corresponds to $0.02831 per share of Common Stock on an as-if-converted ~~amended~~basis.

~~For~~Under the Series ~~period~~B ~~ended~~Preferred ~~June~~Stock 30Purchase Agreement, ~~2016~~the weSeries ~~issued~~B ~~348~~Investors invested $356,~~702~~949 ~~restricted~~in ~~common~~exchange for 252.17 shares atof $0newly-issued Series B Preferred Stock.~~052483~~ ~~per~~(The ~~share~~Series atB ~~market~~Investors ~~close~~paid this purchase price onin ~~date~~the form of ~~grant~~surrender toof ~~our~~a ~~President~~$203,968 &indebtedness ~~COO~~owed ~~for~~to ~~deemed~~Company ~~compensation~~director ~~totaling~~Gonzalo ~~$18~~Camet (a Series B Investor),~~301.~~ ~~These~~surrender ~~shares~~of ~~were~~a ~~issued~~$102,981 indebtedness owed to ~~one~~a USsecond ~~person~~Series ~~with~~B ~~reliance~~Investor, onand ~~the~~$50,000 ~~exemptions~~cash received from ~~the~~a ~~registration~~third ~~requirements~~Series ~~provided~~B ~~for~~Investor.) The inprice ~~Rule~~per ~~506~~share ~~Regulation~~of DSeries ~~and/or~~B ~~Section~~Preferred ~~4(a)(2)~~Stock ofwas ~~the~~$1,415.51, ~~Securities~~which ~~Act~~corresponds to $0.02831 per share of ~~1933,~~Common Stock on an as-if-converted ~~amended~~basis.

~~For~~The Company created the ~~period~~Series ~~ended~~A ~~June~~Preferred 30Stock series and the Series B Preferred Stock series by filing respective Certificates of Designation with the Nevada Secretary of State on October 24, ~~2016~~2017. The weSeries ~~issued~~A ~~507~~Preferred Stock series has 6,~~202~~500 ~~restricted~~authorized ~~common~~shares and the Series B Preferred Stock series has 810 authorized shares at(later $0increased to 2,500 authorized shares in 2018).~~052483~~ The ~~per~~Certificates ~~share~~of atDesignation ~~market~~provide ~~close~~that ~~price~~no dividends or distributions shall be declared or paid on ~~date~~the ofCommon ~~grant~~Stock tounless aand ~~company~~until ~~wholly~~the ~~owned~~Series byA ~~our~~Preferred ~~CFO~~Stock ~~for~~and ~~deemed~~the ~~compensation~~Series ~~totaling~~B Preferred Stock have received an aggregate dividends and distributions total of $261,~~619~~415.4661 ~~These~~per ~~shares~~share ~~were~~of ~~issued~~Series A Preferred Stock and per share of Series B Preferred Stock; thereafter, any dividends and distributions shall be paid pro rata to ~~one~~the ~~non-U.S.~~outstanding ~~person~~shares of Common Stock and (on an as-if-converted ~~that~~basis) ~~term~~Series isA ~~defined~~Preferred inStock ~~Regulation~~and SSeries B Preferred Stock. Shares of ~~the~~each ~~Securities~~Preferred ~~Act~~Stock series have a liquidation preference of ~~1933~~$1,415.4661 as(less ~~amended~~dividends previously received) inper ~~offshore~~share, ~~transactions~~plus infull ~~which~~participation werights. (The ~~relied~~dividend onrights ~~the~~and ~~exemptions~~liquidation ~~from~~preferences of the ~~registration~~two ~~requirements~~series ~~provided~~are ~~for~~pari inpassu ~~Regulation~~with Seach ~~and/or~~other.) Shares ~~Section~~of 4each Preferred Stock series are convertible into Common Stock at a ratio of 50,000 shares of Common Stock per share (2subject to adjustment under broad-based antidilution protection provisions). The ofSeries ~~the~~A ~~Securities~~Preferred ~~Act~~Stock ofhas ~~1933~~significant protective provisions (i.e., asveto ~~amended~~rights); the Series B Preferred Stock does not.

18Pursuant to the Certificates of Designation, the number of seats on the Company’s Board of Directors is established at nine: four seats designated as Common Director seats, four seats designated as Series A Director seats, and one seat designated as a Swing Director seat. The Series A Preferred Stock has general voting power on an as-if-converted basis and has a special right to elect the four Series A Directors. The Series B Preferred Stock has general voting power on an as-if-converted basis but has no right to vote for any set of Directors. The Common Stock has a special right to elect the four Common Directors and the Swing Director; provided, that if the Series A Investors’ “Pre-Wired Warrants #1” (defined below) were exercised for at least $2,000,000, thereafter the Series A Preferred Stock would have the special right to elect the Swing Director. (The Series A Investors’ “Pre-Wired Warrants #1” expired unexercised on December 31, 2018; accordingly, the Common Stock will retain the special right to elect the Swing Director.) By virtue of the Series A Preferred Stock’s Certificate of Designation, incumbent Directors Shaun Roberts, Kyle Redfield, Gonzalo Camet and Richard Fischler were sorted into the four Common Director seats and incumbent Directors Mark Masten, Brad Paris and James S. Tonkin were sorted into three of the four Series A Director seats. (In 2018, Michael Hartman replaced Richard Fischler on the Board of Directors.)

~~Table of Contents~~13

OnTable ~~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.Contents

OnPursuant ~~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~~Series ~~from~~A ~~the~~Preferred ~~registration~~Stock ~~requirements~~Purchase ~~provided~~Agreement, ~~for in Rule 506 Regulation D and/or Section 4(a)(2) of~~ the ~~Securities~~Series ~~Act~~A ofInvestors ~~1933,~~also ascollectively ~~amended.~~received:

On- ~~June~~Warrants ~~30,~~to ~~2016~~purchase, weat ~~issued~~an ~~1,500,000~~aggregate ~~restricted~~exercise ~~common~~price ~~shares~~of at $~~0.0497~~250,000, ~~per~~a ~~share~~number atof ~~market~~shares ~~close price on date~~ of ~~grant~~Common ~~for~~Stock ~~consultant~~equal ~~services~~to ~~rendered~~5% ~~for~~of athe ~~deemed~~number ~~cost~~ of ~~$74,550. These~~ shares ~~were~~of ~~issued~~Company toCommon ~~three~~Stock USwhich ~~persons~~(as ~~with~~of ~~reliance on~~ the ~~exemptions~~time ~~from~~ the ~~registration~~warrant ~~requirements~~is ~~provided~~exercised) ~~for~~are inthen ~~Rule~~outstanding ~~506~~(on ~~Regulation~~a Dfully ~~and/or~~diluted ~~Section 4(a~~basis)~~(2)~~. ofThese ~~the~~warrants ~~Securities~~have ~~Act~~a ofscheduled ~~1933,~~10-year ~~as amended~~term.

~~For~~- ~~the~~Warrants ~~three months ended June 30, 2016, we issued~~ to ~~LPC: (a) 45~~purchase,~~143~~ ~~restricted shares at $0.0497 per share~~ for anominal ~~deemed cost of $2~~consideration,~~244~~ ~~for~~Series ~~interest~~A ~~accrued~~Preferred onStock ~~LPC~~providing ~~Note One for~~ the ~~period~~Series ~~from~~A ~~April~~Investors 1,up ~~2016~~ to ~~June~~an ~~30,~~additional ~~2016~~12.50% ;of ~~and~~the ~~(b) 75~~Company,~~840~~ ~~restricted~~determined ~~shares~~on ~~at $0.0497 per share for~~ a ~~deemed~~sliding ~~cost~~scale ofto ~~$3,769~~the ~~for~~extent ~~interest~~that ~~accrued~~the onCompany's ~~LPC~~net ~~Note~~sales ~~Two~~in ~~for~~2018 ~~the~~are ~~period~~less ~~from~~than ~~April 1~~$7, ~~2016 to June 30~~500, ~~2016~~000. ~~These~~The ~~shares~~percentages ~~were~~would ~~issued~~be atcalculated ~~market close price~~ on ~~date~~a ofpost-exercise ~~grant~~basis toassuming ~~one~~a USpre-exercise ~~company,~~pro ~~which~~forma isshares ancount ~~accredited~~of ~~investor~~367,370,324 ~~(as~~and ~~that~~would ~~term~~take isinto ~~defined~~account, in ~~Rule 501 of Regulation D under~~ the ~~Securities Act of 1933~~numerator, asthe ~~amended)~~77,712,953 ~~and~~Common inStock ~~issuing~~equivalents ~~these~~represented ~~shares~~by tothe ~~this~~Series ~~person~~A weInvestors' ~~relied~~initial onSeries ~~the~~A ~~exemptions~~Preferred ~~from~~Stock. ~~the~~(These ~~registration~~warrants ~~requirements~~would ~~provided~~not ~~for~~be inexercisable ~~Rule~~if ~~506~~the ~~Regulation~~Company's Dnet ~~and/or~~sales ~~Section~~in ~~4(a)(2)~~2018 ofare ~~the~~more ~~Securities~~than ~~Act of 1933~~$7, ~~as amended~~500,000.)

On- ~~July~~(Based ~~13,~~on ~~2016,~~our we2018 ~~issued~~net ~~294~~sales level,~~737~~ ~~restricted~~these ~~common~~warrants ~~shares~~became atexercisable ~~$0.0475 per share at market close price on date of grant~~ for ~~consultant services rendered for a deemed cost of $14~~1,~~000~~383.79 ~~These~~ shares ~~were~~of ~~issued~~Series toA ~~one~~Preferred USStock ~~person~~and ~~with~~were ~~reliance~~exercised ~~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~~2019.)

~~From~~- ~~July~~Warrants to ~~September~~purchase ~~2016~~1, ~~we executed a private placement offering which raised $101,000 through the sale of 2,525,000 units~~347.02 ~~Unit~~shares ~~Offer #3 terminated on September 30, 2016 and was priced at $0.04 per unit with each unit being comprised~~ of ~~one~~Series ~~restricted~~A ~~common~~Preferred ~~share~~Stock ~~price~~during ~~plus one five year warrant exercisable to purchase one restricted common share at $0.055 per share. The fair market value of~~ the ~~shares~~last ~~based~~eight onmonths ~~closing market prices on dates~~ of ~~sale was $168~~2018,~~525~~ ~~and~~at ~~the~~an ~~embedded~~exercise ~~value~~price of ~~the warrants based on a Black-Scholes option pricing model was~~ $~~132~~1,~~571~~633.23 ~~These~~per ~~shares~~share ~~were issued to eight persons who are accredited investors~~ (~~as that term is defined in Rule 501 of Regulation D under~~ the ~~Securities~~“Pre-Wired ~~Act~~Warrants ~~of 1933, as amended~~#1”) 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~~(These 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~~347.~~0456~~02 onwarrants ~~date~~expired ofunexercised 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~~December ~~exemptions from the registration requirements provided for in Regulation S and/or Section 4(2) of the Securities Act of 1933~~31, ~~as amended~~2018.)

On- ~~August~~Warrants 8,to ~~2016,~~purchase ~~we issued 20~~1,~~000~~010.25 ~~restricted common~~ shares atof ~~$0.0475~~Series ~~per~~A ~~share~~Preferred ~~market~~Stock ~~close~~during ~~price~~2019, onat ~~date of grant to~~ an ~~employee~~exercise ~~for~~price ~~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~~,177.68 asper ~~amended~~share.

19- Warrants to purchase, for nominal consideration, Series A Preferred Stock maintaining the Series A Investors’ initial pro forma 21.15% of the Company, exercisable if, as, when and to the extent any Company Common Stock is ever in the future actually issued upon any Company stock options and warrants which were outstanding before October 24, 2017. The percentages would be calculated on a post-exercise basis assuming a pre-exercise pro forma shares count of 367,370,324 and would take into account, in the numerator, the 77,712,953 Common Stock equivalents represented by the Series A Investors’ initial Series A Preferred Stock.

~~Table~~- (In December 2017, 33.27 shares of ~~Contents~~Series A Preferred Stock became exercisable and were issued to the Series A Investors as a result of the issuance of shares of Common Stock to LPC as part of a settlement transaction.)

On- ~~August~~Warrants 8,to ~~2016,~~purchase weon ~~issued~~or 50after May 30,~~000~~ ~~restricted~~2018 ~~common~~(but ~~shares~~only atif ~~$0.0475~~the ~~per~~Company ~~share~~is ~~market~~not ~~close~~“dark” ~~price~~in on2018 ~~date~~or of2019 ~~grant~~due to an(a) ~~employee~~the ~~for~~Company ~~deemed~~being ~~compensation~~enjoined offrom ~~$2,375.~~“going ~~These~~dark” ~~shares~~or ~~were~~from ~~issued~~electing not to ~~one~~remain US“dark” ~~person~~or ~~with~~(b) ~~reliance~~the onSEC not allowing the ~~exemptions~~Company ~~from~~to ~~the~~amend all its open Securities Act registration ~~requirements~~statements ~~provided~~before ~~for~~December 31, 2017 in ~~Rule~~order ~~506~~to ~~Regulation~~deregister Dall ~~and/or~~remaining ~~Section~~unsold ~~4(a~~shares under such open Securities Act registration statements), for nominal consideration, a number of shares of Series A Preferred Stock representing (2on an as-if-converted basis) 5% of the ~~Securities~~number ~~Act~~of shares of ~~1933,~~Company Common Stock which (as ~~amended~~of the time the warrant is exercised) are then outstanding (on a fully diluted basis). [See below for explanation of the terms “going dark” and remaining “dark.”]

On- ~~August~~Warrants ~~15,~~to ~~2016,~~purchase weSeries ~~issued~~A 1Preferred Stock,~~333,333~~ ~~restricted common shares~~ at ~~$0.049~~an ~~per~~aggregate ~~share~~exercise atprice ~~market~~equal ~~close~~to ~~price~~the ondollar ~~date~~amount of ~~grant~~any tosettlements ~~our~~ever ~~President~~paid ~~& COO~~ for ~~deemed~~breach ~~compensation~~of ~~totaling~~contract ~~$65,333.~~claims ~~These~~arising ~~shares were issued to one US person with reliance on the exemptions~~ from the ~~registration~~Company ~~requirements~~“going ~~provided~~dark” ~~for~~or inelecting ~~Rule~~to ~~506~~remain ~~Regulation~~“dark” D and~~/or~~ ~~Section~~at ~~4(a)(2)~~an ofexercise ~~the~~price ~~Securities~~per ~~Act~~share of ~~1933~~$1, ~~as amended~~388.24.

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.14

OnTable ~~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.Contents

OnThe ~~August 30, 2016, the~~ Company ~~redeemed~~and the ~~balance~~Series ~~due~~A ofInvestors ~~$59,000~~also onentered ~~the~~into ~~September~~an ~~2015~~Investor ~~Note~~Rights ~~One~~Agreement ~~through~~dated ~~issuance~~October ~~of 1~~24,~~475,000~~ ~~shares valued at $95~~2017,~~875~~ ~~based~~pursuant onto awhich ~~market~~the ~~close~~Series ~~price~~A ofInvestors ~~$0.065~~received ~~per~~demand ~~share~~and onpiggyback ~~date~~registration ofrights ~~issuance.~~and ~~This included a loss on conversion of $36,875 based on~~ the ~~difference~~Company ~~between~~agreed ~~the~~to ~~value~~pay ofKona ~~the~~Holdings ~~shares~~I ~~issued~~LLC ata ~~market~~financial ~~close~~consulting ~~price~~fee ~~on date~~ of ~~issue and the agreed conversion price of~~ $~~0.04~~50,000 per ~~share.~~year ~~These~~beginning ~~shares~~April ~~were issued to one US company~~24, ~~which~~2018 ~~is an accredited investor~~ (asincreasing ~~that~~to ~~term~~$75,000 isper ~~defined~~year inafter ~~Rule~~the ~~501~~Company ofachieves ~~Regulation~~net Dsales ~~under the Securities Act~~ of ~~1933,~~at asleast ~~amended)~~$7,000,000 ~~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)~~ ofcalendar ~~the Securities Act of 1933, as amended~~year).

OnThe ~~September~~Company 6,and ~~2016,~~Kona weHoldings ~~issued~~I LLC 10later agreed that,~~000~~ ~~restricted~~starting ~~common~~from ~~shares~~the atquarterly ~~$0.0599~~period ~~per~~beginning ~~share~~July ~~market~~15, ~~close~~2018, ~~price~~the onfinancial ~~date~~consulting offee ~~grant~~would tonot anbe ~~employee~~paid ~~for~~in ~~deemed~~cash ~~compensation~~to ofKona ~~$599.~~Holdings ~~These~~I LLC, ~~shares~~but ~~were~~rather ~~issued~~would tobe ~~one~~paid USin ~~person~~the ~~with~~form ~~reliance~~of on$4,500 ~~the~~cash ~~exemptions~~to Kona ~~from~~Holdings ~~the~~II LLC ~~registration~~per ~~requirements~~quarterly ~~provided~~period ~~for~~plus in18 ~~Rule~~shares ~~506~~of ~~Regulation~~Series DA ~~and/or~~Preferred ~~Section~~Stock 4to Venice Brands, LLC (~~a)(2)~~for the account of ~~the~~Kona ~~Securities~~Holdings ~~Act~~II ofLLC) ~~1933,~~per asquarterly ~~amended~~period.

OnThe ~~September~~Company 8,and ~~2016~~the Series A Investors and (in their individual capacities) Company directors Shaun Roberts, weKyle ~~issued~~Redfield 25and Gonzalo Camet also entered into a Stockholders Agreement dated October 24,~~000~~ ~~restricted~~2017, ~~common~~pursuant ~~shares~~to atwhich ~~$0.06~~the ~~per~~individuals ~~share~~subjected ~~market~~their ~~close~~Company ~~price~~shares onto ~~date~~a right of ~~grant~~first refusal in favor the Series A Investors and to ana ~~employee~~drag-along ~~for~~right. In ~~deemed~~addition, ~~compensation~~the ofindividuals $1agreed to,~~500.~~ ~~These~~if ~~shares~~the Series A Investors’ Pre-Wired Warrants #1 were ~~issued~~exercised tofor ~~one~~at USleast ~~person~~$2,000,000, ~~with~~thereafter ~~reliance~~vote their Company stock, on all matters other than Director elections, as directed by the ~~exemptions~~Series ~~from~~A Investors. Also, the ~~registration~~Series ~~requirements~~A ~~provided~~Investors and the individuals agreed not to vote any of their Company stock for inany ~~Rule~~person ~~506~~as ~~Regulation~~the DSwing Director except a person who has substantial beverage industry experience and/ connections, is not affiliated with the Series A Investors, is not otherwise affiliated with the Company or ~~Section~~any 4of its officers or directors, is (aand continues to be)~~(2)~~ recommended by a majority of the ~~Securities~~current ~~Act~~Directors, is reasonably acceptable to the Series A Investors and is reasonably acceptable to a majority in interest of ~~1933~~the three individuals (provided, that if the Series A Investors’ Pre-Wired Warrants #1 were exercised for at least $2,000,000, thereafter it would be permissible for the Swing Director to be a person affiliated with the Series A Investors so long as ~~amended~~such person meets such other qualifications). The Series A Investors’ “Pre-Wired Warrants #1” expired unexercised on December 31, 2018; accordingly, the Common Stock will retain the special right to elect the Swing Director.

OnThe ~~September~~Series 9,A ~~2016,~~Investors weare ~~issued~~affiliates ~~10,000 restricted common shares at $0.0581 per share market close price on date~~ of ~~grant~~Venice 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 1933Brands, ~~as amended~~LLC.

OnPursuant ~~September~~to ~~23, 2016, a note holder provided an extension of~~ the ~~maturity~~Series ofB ~~the~~Preferred ~~note~~Stock ~~held~~Purchase inAgreement, ~~return for~~ the ~~note~~Series ~~being~~B ~~amended~~Investors toalso ~~provide~~collectively 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.received:

On- ~~September~~Warrants ~~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~~purchase ~~CEO for deemed compensation totaling $25,249~~218.55 ~~These~~ shares ~~were~~of ~~issued~~Series toB ~~one~~Preferred USStock ~~person~~during ~~with reliance on~~ the ~~exemptions~~last ~~from~~eight ~~the~~months ~~registration~~of ~~requirements~~2018, ~~provided~~at ~~for~~an inexercise ~~Rule~~price ~~506 Regulation D and/or Section 4(a)(2)~~ of ~~the Securities Act of 1933~~$1,633.26 asper ~~amended~~share.

20- (These 218.55 warrants expired unexercised on December 31, 2018.)

~~Table~~- Warrants to purchase 163.92 shares of ~~Contents~~Series B Preferred Stock during 2019, at an exercise price of $2,177.58 per share. These warrants were exercisable only if the Series B Investors' 218.55 Series B Preferred Stock warrants for 2018 were fully exercised and the Series A Investors' Pre-Wired Warrants #1 were also fully exercised.

On- ~~September~~(Because ~~27,~~the ~~2016~~“2018” wePre-Wired ~~issued~~Warrants ~~906,634~~were ~~restricted~~not ~~common~~exercised, ~~shares~~these ~~at $0~~163.~~05802~~92 ~~per~~warrants ~~share~~expired atunexercised ~~market close price~~ on ~~date~~December ~~of grant to our President & COO for deemed compensation totaling $52~~31,~~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 amended2018.)

OnIn ~~September~~connection ~~29,~~with ~~2016,~~the weSeries ~~issued~~A ~~129,244~~Preferred ~~restricted~~Stock ~~common~~Purchase ~~shares~~Agreement atclosing, ~~$0.058~~changes ~~per~~were ~~share~~made ~~market~~in ~~close~~the ~~price~~employment/titles onstatus ~~date~~ of ~~grant~~Shaun toRoberts aand ~~predecessor~~Kyle ~~investor~~Redfield. Mr. ~~for~~Roberts ~~deemed~~received ~~cost of $7,496 to revise~~ the ~~shares~~titles ~~owed~~of toChairman ~~him~~and ~~from~~Founder ~~our~~and ~~reverse~~will ~~merger~~no ~~share~~longer ~~exchange~~be ina ~~2014.~~Company ~~These~~employee, ~~shares~~but ~~were~~The ~~issued~~Roberts toGroup, ~~one~~LLC US(an ~~person~~affiliate ~~with~~of ~~reliance~~Mr. onRoberts) ~~the~~entered ~~exemptions~~into ~~from~~a ~~the~~one-year ~~registration~~consulting ~~requirements~~agreement ~~provided~~with ~~for in Rule 506 Regulation D and/or Section 4(a)(2) of~~ the ~~Securities Act of 1933, as amended~~Company. Mr. ARedfield ~~value~~received ~~for~~the ~~capital~~title ~~stock~~ of ~~$129~~Chief ~~was~~Executive ~~recorded~~Officer and ~~the~~entered ~~balance~~into ofa ~~$7,367~~new ~~for~~two-year ~~the~~employment ~~cost~~agreement ofwith the ~~shares was offset to additional paid in capital~~Company.

~~For~~Under the ~~three~~consulting ~~months~~agreement, ~~ended~~The ~~September~~Roberts 30Group, ~~2016,~~LLC wereceived ~~issued to LPC: (~~a) ~~45,629~~consulting ~~restricted~~fee ~~shares~~of at $~~0.0561~~110,000 per ~~share~~year, ~~for~~plus aan ~~deemed~~ongoing ~~cost~~5% ofcommission ~~$2,560~~on ~~for~~Company ~~interest~~sales ~~accrued~~to onConnected ~~LPC~~Coffee ~~Note~~Trading ~~One~~Co. for ~~the~~distribution ~~period from July 1, 2016~~ to ~~September 30~~China, ~~2016 ;~~ and ~~(b)~~was ~~76,660~~also ~~restricted~~eligible ~~shares~~for ata ~~$0.0561~~discretionary ~~per~~annual ~~share~~cash ~~for~~bonus against a ~~deemed~~15% ~~cost~~bonus oftarget. The $4Roberts Group,~~301~~ ~~for~~LLC ~~interest~~also ~~accrued~~received onan ~~LPC~~office ~~Note~~rent ~~Two~~allowance ~~for~~of ~~the~~$900 ~~period~~per ~~from~~month ~~July~~and 1,an ~~2016~~automobile toallowance ~~September~~of ~~30,~~$600 ~~2016~~per month. Mr. ~~These~~Roberts ~~shares~~received ~~were~~7,347,406 ~~issued~~Common atStock ~~market~~nonqualified ~~close~~stock ~~price~~options onunder ~~date~~the ofCompany’s ~~grant~~new to2017 ~~one~~Equity USIncentive ~~company~~Plan, ~~which~~at is an ~~accredited~~exercise ~~investor~~price ~~(as~~of ~~that~~$0.042 ~~term~~per isshare. In ~~defined~~addition, in ~~Rule~~lieu ~~501~~ of ~~Regulation~~$27,300 Dof ~~under~~ the ~~Securities~~cash ~~Act~~bonuses ofowed ~~1933,~~for asservices ~~amended),~~through ~~and~~September in30, ~~issuing~~2017, ~~these~~Mr. ~~shares~~Roberts toreceived ~~this~~19.29 ~~person~~Series weB ~~relied~~Preferred onStock ~~the~~nonqualified ~~exemptions~~stock ~~from~~options under the ~~registration~~Company’s ~~requirements~~new ~~provided~~2017 ~~for~~Series inB ~~Rule~~Equity ~~506~~Incentive ~~Regulation~~Plan, Dat ~~and/or~~an ~~Section~~exercise ~~4(a)(2)~~price of ~~the Securities Act of 1933~~$1,415.4661 asper ~~amended~~share.

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.15

OnTable ~~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.Contents

OnUnder ~~September~~the ~~30,~~employment ~~2016~~agreement, weMr. ~~issued~~Redfield ~~426,040~~will ~~restricted~~receive ~~common~~a ~~shares~~salary atof $~~0.0561~~210,000 per ~~share~~year, atincreasing ~~market~~to ~~close~~$250,000 ~~price~~per onyear ~~date~~effective ofOctober ~~grant~~24, to2018 a(but ~~company~~rolled ~~wholly~~back ~~owned~~effective byJanuary ~~our~~1, ~~CFO~~2019, ~~for~~because ~~deemed~~the ~~compensation~~Company ~~totaling~~achieved less than $237,~~901.~~000,000 ~~These~~in ~~shares~~net ~~were~~sales ~~issued~~in to2018), ~~one~~and ~~non-U~~was also eligible for a discretionary annual cash bonus against a 15% bonus target.S Mr. ~~person~~Redfield ~~(as~~will ~~that~~also ~~term~~receive isan ~~defined~~automobile inallowance ~~Regulation~~of S$650 ofper month. Mr. Redfield received 18,368,516 Common Stock nonqualified stock options under the ~~Securities~~Company’s ~~Act~~new of2017 ~~1933~~Equity Incentive Plan, asat ~~amended)~~an inexercise ~~offshore~~price ~~transactions~~of in$0.042 ~~which~~per weshare. In ~~relied~~addition, onin ~~the~~lieu ~~exemptions~~of ~~from~~$94,988 of the ~~registration~~cash ~~requirements~~bonuses ~~provided~~owed for inservices ~~Regulation~~through SSeptember ~~and/or~~30, ~~Section~~2017, ~~4(2)~~Mr. ofRedfield received 67.11 Series B Preferred Stock nonqualified stock options under the ~~Securities~~Company’s ~~Act~~new 2017 Series B Equity Incentive Plan, at an exercise price of ~~1933~~$1,415.4661 asper ~~amended~~share.

~~From~~On ~~July~~October ~~1 to September 30~~24, ~~2016~~2017, wethe ~~raised~~Company’s ~~$120,000~~Board ~~through a private placement stock offering~~ of ~~3,000,000~~Directors ~~restricted~~elected ~~common~~Gregory ~~shares~~Willsey ~~at $0.04 per share. These shares were issued~~ to ~~six~~the USBoard ~~persons~~of ~~who~~Directors ~~are~~for ~~accredited~~a ~~investors~~“Series ~~(as~~A ~~that~~Director” ~~term~~seat. He is ~~defined in Rule 501 of Regulation D under~~ the ~~Securities Act~~ Manager of ~~1933, as amended) or qualified under~~ the ~~terms~~Series ~~Rule~~A ~~506 Regulation D~~Investors, and inhis ~~issuing~~election ~~these~~was ~~shares~~a wecondition ~~relied~~to on the ~~exemptions~~closing ~~from the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2)~~ of the ~~Securities~~Series ~~Act~~A ofPreferred ~~1933,~~Stock asPurchase ~~amended~~Agreement.

On October 424, ~~2016~~2017, wethe ~~issued~~Company’s ~~150,000~~Board ~~restricted~~of ~~common~~Directors ~~shares~~adopted ata ~~$0.059~~2017 ~~per~~Equity ~~share~~Incentive atPlan ~~market~~covering ~~close~~36,737,032 ~~price~~shares ~~on date~~ of ~~grant~~Common toStock and a ~~newly~~2017 ~~appointed~~Series ~~director~~B asEquity anIncentive ~~inducement~~Plan ~~for~~covering ~~joining~~88 ~~our~~shares ~~Board~~of ~~for~~Series aB ~~deemed~~Preferred ~~cost of $8,850~~Stock. Each ~~These~~Plan ~~shares~~authorizes ~~were~~incentive ~~issued~~and tononqualified ~~one~~stock USoptions, ~~person~~restricted ~~with~~stock, ~~reliance~~restricted onstock ~~the~~units, ~~exemptions~~stock ~~from~~appreciation ~~the~~rights, ~~registration~~etc. ~~requirements~~(In ~~provided~~2018, ~~for~~the in2017 ~~Rule~~Series ~~506~~B ~~Regulation~~Equity DIncentive ~~and/or~~Plan ~~Section~~was ~~4(a)(2)~~enlarged ofto ~~the~~cover ~~Securities~~280 ~~Act~~shares of ~~1933,~~Series asB ~~amended~~Preferred Stock.)

21It was a condition to the closing of the Series A Preferred Stock Purchase Agreement that the Company “go dark” (terminate the registration of its Common Stock class under the Securities Exchange Act and suspend its Securities Exchange Act and Securities Act reporting obligations). Accordingly, on October 24, 2017 the Company filed a Form 15 with the SEC. The effect of this filing was to, 90 days thereafter (January 22, 2018) terminate the registration of the Company’s Common Stock class under the Securities Exchange Act; accordingly, after such 90th day, none of the provisions of the Securities Exchange Act which are applicable to “public companies” and their directors, officers and 10% stockholders will apply to the Company and its directors, officers and 10% stockholders. However, the Company’s obligations to file periodic and current reports (Forms 10-K, 10-Q and 8-K) with the SEC persisted until suspended as described in the next sentence. The Company’s obligations to file periodic and current reports with the SEC were not suspended for the remainder of 2017 (so, this final Form 10-K annual report must be filed), but they were suspended for 2018 and future years provided that the Company has no Securities Act registration statements effective during such years. The Company amended all its open Securities Act registration statements before December 31, 2017 in order to deregister all remaining unsold shares under such open Securities Act registration statements, thereby ensuring that the Company’s obligations to file periodic and current reports with the SEC will be suspended for 2018 and future years. Therefore the Company is not required to file any other Form 10-K, 10-Q or 8-K after December 31, 2017, other than this final 2017 Form 10-K report.

~~Table~~When ofa ~~Contents~~company goes “dark,” public trading in its stock becomes much more difficult, and publicly trading would typically become illiquid and sporadic. The Company’s stock is able to be publicly traded only on OTC Markets Group’s “Pink” trading level, the OTCPK market. The Company has ceased to be legally required to provide (and would elect not to voluntarily provide) “current public information” such as would facilitate investor interest and Rule 144 trading eligibility. (Thus, the phrase “going dark.” Although the Company has ceased to be a “public company,” references to the process described here as being a “going private” process would not be technically correct because “going private” means instead that a formerly-public company has been acquired.)

OnThe ~~October~~Company ~~28,~~believes ~~2016,~~that we“going ~~issued~~dark” ~~1,000,000~~was ~~restricted~~in ~~common~~the ~~shares~~best atinterest ~~$0.0525 per share at market close price on date~~ of ~~grant for consultant services rendered for a deemed cost of $52,500. These shares were issued to three US person with reliance on~~ the ~~exemptions~~Company ~~from the registration requirements provided for in Rule 506 Regulation D~~ and~~/or~~ ~~Section~~its ~~4(a)(2) of the Securities Act of 1933, as amended~~shareholders.

OnThe ~~November~~Company ~~23,~~reminds ~~2016,~~its weCommon ~~issued~~Stock ~~500,000~~shareholders ~~common shares at $0.04 per share for conversion by September 2015 Note Two Purchaser of $20~~that,~~000~~ ofeven ~~debt.~~after ~~These shares were issued to one US person with reliance on~~ the ~~exemptions~~Company ~~from~~“went ~~registration~~dark” ~~requirements~~and ~~provided~~is inno ~~the~~longer ~~Securities~~a ~~Act~~“public ~~of 1933~~company,” asthey ~~amended,~~remain ~~Section~~Company ~~4(1)~~shareholders, and ~~Rule~~holders ~~144. Because these shares were issued at below the closing market price~~ of ~~$0.0537~~Company ~~on date of issue~~equity, ~~the~~for ~~conversion~~their ~~resulted~~same innumber aof ~~loss~~shares of ~~$6,850~~Company ~~which~~Common ~~was recorded as additional interest expense~~Stock.

On ~~November~~September 3029, ~~2016~~2017, wethe Company issued 113,~~000~~092,~~000~~242 shares of restricted common ~~shares~~stock to VDF at $0.~~0529~~07 per share atas ~~market~~and ~~close price on date of grant~~ for ~~consultant~~full ~~services~~satisfaction ~~rendered for a deemed cost~~ of ~~$52,900.~~VDF These shares were issued to 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 amendedNote.

On December 229, ~~2016~~2017, wepursuant ~~issued 300,000 common shares at $0.0495 per share at market close price on date of grant~~ to a ~~debt~~Settlement ~~holder~~Agreement asand ~~part~~General ofRelease ~~the~~with ~~compensation~~LPC, ~~for a maturity extension on~~ the ~~note~~Company ~~held~~issued ~~for a deemed cost of $14~~8,~~850.~~000,000 ~~These~~ shares ~~were~~of ~~issued~~restricted tocommon ~~one~~stock US(and ~~person with reliance on the exemptions from registration requirements~~ provided incertain ~~Rule~~cash ~~144(d~~considerations)~~(3)(ii).~~ Atas ~~this~~and ~~time the underlining note was also amended to provide~~ for ~~conversion~~full satisfaction of ~~the~~all ~~note~~promissory tonotes ~~shares at $0.04 per share~~ and ~~this~~warrants ~~created~~held aby ~~beneficial conversion feature which was valued at a cost of $9,405, such amount which was recorded as an increase to Additional Paid in Capital~~LPC.

On December 6, 2016, LPC provided an extension of the maturity of two notes held in return for the grant of 7,000,000 six year warrants exercisable at $0.05 per share. The warrants were valued using a Black-Scholes model at a non-cash cost of $315,658, such amount which was recorded as an increase to Additional Paid in Capital.16

~~For~~Table ~~the three months ended December 31, 2016, we issued to LPC: (a) 45,629 restricted shares at $0.0451 per share for a deemed cost~~ of $2,058 for interest accrued on LPC Note One for the period from October 1, 2016 to December 31, 2016 ; and (b) 76,660 restricted shares at $0.0451 per share for a deemed cost of $3,457 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 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.Contents

~~PCF~~On ~~Holdings~~March ~~Investment:~~21, 2018, the Company entered into a Commercial Loan Agreement with Circleup Credit Advisors, LLC (“Circleup”). The credit facility allows for a loan of $250,000 to be advanced to the Company, based on a pool of eligible accounts receivable of the Company. The Company customers on which the loan is based must remit all future payments directly to Circleup until the principal, interest, and fees balance has been fully satisfied. Under the agreement, Circleup may agree to lend additional amounts, assuming the Company provides an eligible accounts receivable customer account to supply the repayments to Circleup. Interest will be charged at the rate of 5% per annum. A one time loan fixed fee equal to 1% of the principal was applied to the outstanding balance due but will not be subject to interest.

On ~~December~~March 616, ~~2016~~2018, the Company ~~entered~~issued ~~into a securities purchase agreement (the "Securities Agreement") with PCF Holdings Group~~250, ~~LLC. ("PCF") under which PCF committed to invest, or cause to be invested, $940,~~000 inrestricted ~~three~~common ~~tranches~~shares ofat ~~(i)~~ $~~300,000,~~0.032 ~~(ii)~~per ~~$500,000~~share ~~and~~at ~~(iii)~~market ~~$140,000,~~close ~~respectively~~price ~~for~~on ~~the~~date ~~purchase~~ of ~~Stock~~grant ~~Units.~~to ~~Under~~Michael ~~the Securities Agreement~~Hartman, ~~PCF~~for ~~(or its designee) will purchase from the Company up to 28.5 million stock units (each~~ a ~~"Stock~~deemed ~~Unit"~~compensation ~~and~~total ~~in the plural, the "Stock Units"), to be paid in three tranches. The series~~ of ~~warrants for each tranche each have the same three exercise prices~~$8, ~~include cashless exercise rights, and have the same three expiry terms~~000. ~~The~~These ~~first~~shares ~~tranche~~were ~~was~~issued ~~priced~~with atreliance ~~$0.024~~on ~~per Stock Unit and~~ the ~~second~~exemptions ~~and~~from ~~third~~registration ~~tranches~~requirements ~~will~~provided befor ~~priced~~in atRule ~~$0.04~~506 ~~per Stock Unit. Each Stock Unit consists~~ of ~~one~~Regulation ~~share~~D ~~of restricted common stock of the Company (each a "Share")~~ and ~~three separate warrant classes (each a "Warrant" and the shares underlying the Warrants being the "Warrant Shares"~~ /or, inSection ~~the singular a "Warrant Share") respectively have~~ 4(~~i) an exercise price of $0.055 per share for~~ a ~~term of five years, (ii~~) ~~an exercise price of $0.20 per shares for a term of three years and~~ (~~iii~~2) ~~an exercise price~~ of ~~$0.25 per share for a term of 18 months. The fair market value of~~ the ~~shares~~Securities ~~based on closing market price on date of sale~~Act.

22The Company sold and issued 626 shares of Series A Preferred Stock to Kona Holdings II LLC on April 12, 2018, at $1,038 per share for $650,000.

~~Table~~On June 19, 2018, the Company issued 241 shares of ~~Contents~~Series A Preferred Stock to Kona Holdings II LLC at $1,038 per share for $250,000 and issued 12 shares of Series A Preferred Stock to Kona Holdings I LLC in lieu of $12,500 of fees owed.

~~was~~On ~~$625,000~~June ~~and the embedded value of the warrants based on a Black-Scholes option pricing model was $1~~21,~~410,059.~~ ~~These shares were issued to three accredited investors (as that term is defined in Rule 501 of Regulation D under the Securities Act of 1933~~2018, ~~as amended) or qualified under~~ the ~~terms~~Company ~~Rule~~issued ~~506~~265 ~~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~~Series ~~Securities~~B ~~Act~~Preferred ~~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~~Alfonso ~~continued accuracy and validity of the representations and warranties of the Company to PCF~~Buesa, 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~~275,000~~; 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~~July 818, ~~2016~~2018, wethe Company issued ~~170,000~~241 ~~restricted common~~ shares atof ~~$0.048~~Series ~~per~~A ~~share~~Preferred ~~market~~Stock ~~close~~to ~~price~~Kona onHoldings ~~date~~I ofLLC ~~grant~~at to$1,038 ~~seven~~per ~~employees~~share for ~~deemed compensation of~~ $8250,~~160.~~000 ~~These~~and ~~shares~~issued ~~were~~48 ~~issued~~shares toof ~~seven~~Series USA ~~persons~~Preferred ~~with~~Stock ~~reliance~~to onKona ~~the~~Holdings ~~exemptions~~II ~~from~~LLC ~~the~~at ~~registration~~$1,038 ~~requirements~~per ~~provided~~share for ~~in Rule 506 Regulation D and/or Section 4(a)(2) of the Securities Act of 1933~~$50, ~~as amended~~000.

~~Subsequent~~On toeach ~~the~~of ~~year~~July ~~ended December 31~~15, ~~2016~~2018, weOctober ~~issued 990~~15,00 ~~common~~2018 ~~shares~~and atJanuary ~~$0.04~~15, ~~per share for conversion by December 2015 Lender of the remaining $39~~2019,~~600~~ ~~due on~~ the ~~December~~Company ~~2015~~issued ~~Note.~~18 ~~This~~shares ~~conversion~~of ~~fully~~Series ~~paid~~A ~~the~~Preferred ~~note~~Stock ~~and no further payments are due. These shares were issued~~ to ~~one~~Venice ~~accredited~~Brands, ~~investor~~LLC ~~with~~(for ~~reliance on~~ the ~~exemptions~~account ~~from registration requirements provided in the Securities Act~~ of ~~1933,~~Kona asHoldings ~~amended,~~II ~~Section 4(1~~LLC) ~~and~~for ~~Rule~~financial ~~144~~consulting fees owed.

~~Subsequent~~On toOctober ~~the year ended December 31~~8, ~~2016~~2018, wethe Company issued 4a $250,~~500,00~~000 ~~common~~Secured ~~shares~~Promissory atNote ~~$0.05~~to ~~per~~Gonzalo ~~share~~Camet for ~~conversion by LPC of~~ $~~225~~250,000. ~~principal~~The ~~due on LPC~~ Note ~~Two~~called ~~which~~for ~~decreased~~principal ~~the~~payments ~~balance due on the note from $300,000~~ to ~~$75,000.~~be ~~These~~made ~~shares~~by ~~were~~the ~~issued~~Company toin ~~one~~twelve ~~accredited~~equal ~~investor~~monthly ~~with~~installments ~~reliance~~from on the ~~exemptions~~date ~~from~~of ~~registration~~issuance ~~requirements~~and ~~provided~~for ininterest ~~the~~to ~~Securities~~accrue ~~Act~~on ofunpaid ~~1933,~~principal asat ~~amended,~~11% ~~Section~~per ~~4(1) and Rule 144~~annum.

~~Subsequent~~On ~~to the year ended~~ December 3112, ~~2016~~2018, wethe Company issued ~~1,100,000~~241 ~~restricted common~~ shares ~~at $0.0548 per share at market close price on date~~ of ~~grant~~Series ~~for~~B ~~consultant~~Preferred ~~services~~Stock ~~rendered~~(valued ~~for~~at ~~a deemed cost of~~ $601,~~280.~~038 ~~These~~per ~~shares~~share) ~~were issued~~ to ~~one~~Eva ~~accredited~~Moreno ~~investor~~Vacas, ~~(as~~at ~~that term is defined in Rule 501 of Regulation D under~~ the ~~Securities~~instruction ~~Act~~ of ~~1933,~~Gonzalo ~~as amended) or qualified under the terms Rule 506 Regulation D~~Camet, ~~and~~ in ~~issuing~~exchange ~~these~~for ~~shares we relied on~~ the ~~exemptions~~full ~~from~~balance ~~the registration requirements provided for in Rule 506 Regulation D and/or Section 4(a)(2)~~ of the ~~Securities~~Secured ~~Act~~Promissory ~~of 1933, as amended~~Note.

23On October 31, 2018, the Company sold 145 shares of Series B Preferred Stock to Wilson Lau, at a price of $1,038 per share, for $150,000.

~~Table~~On November 7, 2018, the Company entered into a Senior Secured Promissory Note with Jennifer A. Heroux in the amount of ~~Contents~~$300,000. The loan has been repaid in full.

~~Subsequent~~On ~~to the year ended~~ December 3112, ~~2016~~2018, asin ~~compensation~~accordance towith athe ~~retiring~~Company’s ~~director~~2017 weEquity ~~re-priced~~Incentive ~~750~~Plan,~~000~~ ~~options~~the heBoard ~~held~~of ~~from~~Directors angranted ~~exercise~~2,256,323 ~~price~~Common ofStock ~~$0.17~~stock ~~per~~options ~~share~~ to anCharles ~~exercise price of $0.05 per share and issued him an additional 150~~Brown,~~000~~ ~~options with~~ the ~~same~~Company’s ~~three~~Director ~~year~~of ~~remaining maturity~~Finance. The ~~exercise price of the new~~ options ~~was~~began ~~set~~vesting oneffective ~~date~~as of ~~grant~~September ~~and~~1, ~~these~~2018 ~~options~~over ~~vested~~a ~~immediately.~~period ~~The~~of ~~combined~~48 ~~Black-Scholes~~months ~~options~~and ~~pricing~~have ~~model~~an ~~cost~~exercise ofprice ~~the~~per ~~transactions~~share ~~was~~of $~~13,785~~0.023.

~~Subsequent~~On ~~to the year ended~~ December 3112, ~~2016~~2018, wein ~~remedially~~exchange ~~executed~~for athe ~~private~~$162,811 ~~placement~~and ~~related to Unit Offer #3 which raised~~ $1536,~~000~~400 ~~through the sale~~ of ~~375,000~~unpaid ~~units.~~bonuses ~~Each~~due ~~unit~~to ~~was~~Kyle ~~priced~~Redfield ~~at $0.04 per unit~~ and ~~comprised~~Shaun ofRoberts ~~one~~(the ~~restricted~~current ~~common~~and ~~share~~former ~~price~~Chief ~~plus~~Executive ~~one~~Officers ~~five~~of ~~year~~the ~~warrant~~Company), ~~exercisable~~respectively, toaccrued ~~purchase~~for ~~one~~the ~~restricted~~period ~~common~~January ~~share~~1, at2017 ~~$0.055~~through ~~per~~December ~~share.~~31, ~~The~~2017 ~~fair~~the ~~market~~Board ~~value~~ of ~~the~~Directors ~~shares~~granted ~~and~~them ~~embedded~~Series ~~value~~B ofPreferred ~~the~~Stock ~~warrants~~stock isoptions ~~included~~under in the ~~valuations~~2017 ~~done~~Series ~~for~~B ~~Unit Offer #3~~Plan. ~~These~~The ~~shares~~option ~~were~~grants ~~issued~~ to ~~one~~Kyle ~~non-U.S.~~Redfield ~~person~~and ~~(as~~Shaun ~~that~~Roberts ~~term~~were isfor ~~defined~~157 inand ~~Regulation~~35 Sshares, ~~of the Securities Act of 1933~~respectively, asat ~~amended)~~an inexercise ~~offshore~~price ~~transactions~~per inshare ~~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~~$1, ~~as amended~~038.

~~Subsequent~~On ~~to the year ended~~ December 3112, ~~2016~~2018, wethe Company issued ~~1,063,782~~145 ~~five~~shares ~~year options with an exercise price~~ of ~~$0.0559~~Series ~~set~~A onPreferred ~~date~~Stock ~~of grant~~ to ~~our~~Kona ~~CEO~~Holdings asII ~~compensation.~~LLC ~~These~~at ~~options vested immediately and had~~ a ~~Black-Scholes~~price ~~options~~of ~~pricing~~$1,038 ~~model~~per ~~cost~~share offor $59150,~~411~~000.

~~Subsequent~~On ~~to the year ended~~ December 3112, ~~2016~~2018, wethe Company issued ~~2,476,377~~219 ~~five~~and ~~year~~164 ~~options~~shares ~~with an exercise price~~ of ~~$0.0559~~Series ~~set~~B onPreferred ~~date~~Stock ~~of grant~~ to ~~our~~Spiral ~~President~~Sun &Ventures ~~COO~~II, asLP ~~compensation.~~and ~~These~~Lincoln ~~options~~Park ~~vested~~Partners, ~~immediately~~respectively, ~~and~~at ~~had~~ a ~~Black-Scholes~~price ~~options~~of ~~pricing~~$913 ~~model~~per ~~cost~~share, offor $~~138~~200,~~302~~000 and $150,000, respectively.

Subsequent to the year ended December 31, 2016, 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 $36,550. 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.17

~~Subsequent~~Table ~~to the year ended December 31, 2016, we issued 1,500,000 restricted common shares to two unit offering subscribers for exercises~~ of warrants they held at $0.055 per share for proceeds of $82,500. These subscribers 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.Contents

~~ITEM~~On ~~6. SELECTED~~December ~~FINANCIAL~~12, ~~DATA~~2018, the Company issued 80 shares of Series B Preferred Stock (vesting over 12 months) to Ro’s Beverages, LLC for consulting services.

~~Not~~On ~~required~~December ~~for~~12, ~~smaller~~2018, ~~reporting~~pursuant ~~companies~~to a Revenue Loan and Security Agreement with Decathlon Alpha III, LP (“Decathlon”), Decathlon advanced a loan to the Company in the amount of $1,000,000. Interest shall accrue on the loan from the date of issuance in accordance with rates determined by a percentage of projected revenues outlined in the payment schedule in the Revenue Loan and Security Agreement. The loan will be repaid in monthly installments on the 15th of each month following the date of issuance in amounts as outlined in the aforementioned schedule. The loan is secured by a security interest in all assets of the Company and will mature in May 2023. If desired and if certain terms are met, the Company will have the option to receive an advance of an additional $200,000 during 2019. It is noted in the agreement, that any advance should not be interpreted to cause this loan to be considered as a revolving line of credit.

On February 28, 2019, Kona Holdings I LLC and Kona Holdings II LLC exercised their respective Sales Shortfall Warrants, which had been issued on October 24, 2017, in full for an aggregate of 1,383.79 shares of Series A Preferred Stock.

~~Table~~On October 25, 2018, James S. Tonkin was elected as Chairman and President of ~~Contents~~the Company.

~~ITEM~~As ~~7. MANAGEMENT'S~~the ~~DISCUSSION~~Company ~~AND~~continues ~~ANALYSIS~~to ORaddress ~~PLAN~~new OFand ~~OPERATIONS~~different challenges, it can be expected that further management additions and changes will occur and that further financings will periodically be necessary.

~~Certain~~Critical ~~information~~Accounting 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-K 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.Policies

~~The~~Basis ~~following discussion and the information provided above in Item 1 - Description~~ of Business contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this report. 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 our Form S-1 which became Effective on July 16, 2015. This can be found along with all our filings to the SEC at www.sec.gov.presentation

~~Overview~~The financial statements of the Company have been prepared in accordance with the accounting principles generally accepted in the United States of America.

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").Inventories

~~Critical~~Inventories ~~Accounting~~are ~~Policies~~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 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. Costs of raw material and finished goods inventories include purchase and related costs incurred in bringing the products to their present location and condition.

~~Basis~~Revenue ~~of presentation~~recognition

~~The~~Sales ~~financial~~revenue ~~statements~~consists of amounts earned from customers through the ~~company~~sale ~~have~~of ~~been~~its ~~prepared~~consumer inproducts ~~accordance~~and ~~with~~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 ~~accounting~~product ~~principles~~has passed, which is generally ~~accepted~~when the products are received by the customers, and collectability is reasonably assured. Goods are sold on a final sale basis and in the ~~United~~normal ~~States~~course of ~~America~~business ~~('GAAP')~~the Company does not accept sales returns.

25Cost of goods sold

~~Table~~Cost of ~~Contents~~goods sold consists primarily of selling of finished goods and raw materials purchased from vendors as well as warehousing and distribution costs such as inbound freight charges, shipping and handling costs, purchasing and receiving costs.

~~Inventories~~Customer shipping expenses

~~Inventories~~Costs ~~are~~for ~~primarily~~products ~~raw~~shipped ~~materials~~to ~~and~~customers ~~finished goods. Inventories~~ are ~~valued~~recorded ~~at the lower of, cost~~ as ~~determined~~general 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~~administrative ~~inventories to determine if valuation allowance is required~~expenses. ~~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~~Stock ~~recognition~~Based Payments

~~Sales~~We ~~revenue~~account ~~consists~~for ofshare-based ~~amounts~~awards ~~earned~~to ~~from~~employees ~~customers~~in ~~through~~accordance ~~the~~with ~~sale~~ASC of718 ~~its~~“Stock ~~consumer~~Compensation”. ~~and~~Under ~~industrial~~this ~~products~~guidance, ~~and~~stock ~~from~~compensation ~~delivery~~expense ~~fees. Sales revenue~~ is ~~recognized~~measured ~~when~~at ~~persuasive~~the ~~evidence~~grant ofdate, anbased ~~arrangement~~on ~~exists,~~the ~~price~~fair isvalue ~~fixed~~of orthe ~~determinable~~award, ~~title~~and tois ~~and~~recognized ~~risk~~as ofan ~~loss~~expense ~~for~~over the ~~product~~estimated ~~has~~service ~~passed,~~period ~~which is~~ (generally ~~when~~ the ~~products~~vesting ~~are~~period) ~~received~~on by the ~~customers,~~straight-line ~~and~~attribute ~~collectability~~method. isShare-based ~~reasonably~~awards ~~assured.~~to ~~Customers~~non-employees ~~accept~~are ~~good~~accounted ~~FOB~~for ~~shipping~~in ~~point.~~accordance ~~Goods~~with ~~are~~ASC ~~sold~~505-50 on“Equity”, awherein ~~final~~such ~~sale~~awards ~~basis~~are ~~and~~expensed inover the ~~normal~~period ~~course~~in ofwhich ~~business~~ the ~~Company~~related ~~does~~services ~~not~~are ~~accept sales returns~~rendered.

~~Cost of goods sold~~18

~~Cost~~Table 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.Contents

~~Customer~~RESULTS ~~shipping~~OF ~~expenses~~OPERATIONS

~~Costs~~The ~~for~~following ~~products~~discussion ~~shipped~~and toanalysis ~~customers~~covers ~~are~~material ~~recorded~~changes asin ~~general~~the financial condition of our Company for the years ended December 31, 2017 and ~~administrative~~December ~~expenses~~31, 2016. A summary is as follows:

Stock Based Payments

	Year ended December 31, 2017			Year ended December 31, 2016
Total sales	$	2,873,723		$	1,059,196
Cost of goods sold		2,339,159			740,806
GROSS MARGIN		534,564			318,390
Research and development		5,786			5,320
Advertising and marketing		476,973			276,299
General and administrative		2,975,396			1,655,947
Non-cash operations fees & expenses		381,476			1,036,827
Operating expenses		3,839,631			2,974,393
Loss from operations		(3,305,067	)		(2,656,003	)
Amortized portion of License fee		40,182			7,014
Non-cash amortization expenses		(466,522	)		(465,047	)
Change in fair value of derivatives		(9,016,712	)		-
Loss on debt modification		(1,113,770	)		-
Interest expense		(64,760	)		(186,793	)
NET LOSS	$	(13,926,649	)	$	(3,300,829	)

Net loss per share	$	(0.09	)	$	(0.03	)

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.Highlights

~~Deferred~~Comparative ~~Revenue~~to 2016, for the year ended December 31, 2017:

~~Revenue~~● ~~from~~Product ~~customer~~sales ~~purchase~~increased ~~agreements~~by is recorded as unearned revenue and amortized over the term of the agreements. At December 31, 2016 and December 31, 2015, unearned revenues were $193,020 and $1,434 respectively. Unearned revenue is normally comprised of online subscriptions wherein we ship a scheduled amount of product to online retail subscribers each month. During the year ended December 31, 2016, unearned revenue also included a cash payment we received for a non-refundable signing fee of $200,000 from a strategic supplier partnership arrangement (the "FP Agreement").171%

26● Operating expenses increased by 29%, and

~~Table~~● ofNet ~~Contents~~loss increased by 322%

~~RESULTS OF OPERATIONS~~Revenue

~~The~~Sales ~~following~~were ~~discussion~~comprised of product sales and ~~analysis~~shipping, ~~covers~~related ~~material~~party ~~changes~~sales, inand delivery fees. During the ~~financial~~year ~~condition~~ended December 31, 2017 we recorded total sales of ~~our~~$2,873,723 ~~Company~~compared with total sales of $1,059,196 for the ~~years~~year ended December 31, 2016, ~~and~~representing ~~December~~an ~~31,~~increase ~~2015.~~of A171% ~~summary~~during isthe asyear ~~follows:~~ended December 31, 2017.

	Year ended December 31, 2016			Year ended December 31, 2015
Total sales	$	1,059,196		$	635,503
Cost of goods sold		740,806			443,049
GROSS MARGIN		318,390			192,454
Research and development		5,320			6,502
Advertising and marketing		276,299			435,390
General and administrative		1,655,947			1,838,970
Non-cash operations fees & expenses		1,036,827			1,251,599
Operating expenses		2,974,393			3,532,461
Loss from operations		(2,656,003	)		(3,340,007	)
Amortized portion of License fee		7,014			—
Non-cash amortization expenses		(465,047	)		(204,990	)
Interest expense		(186,793	)		(255,372	)
NET LOSS	$	(3,300,829	)	$	(3,800,369	)
Net loss per share, fully diluted	$	(0.03	)	$	(0.04	)

In 2016 we received cash payment of a non-refundable signing fee of $200,000 from a strategic supplier partnership arrangement. Because this was characterized as 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. For fiscal year 2017, the amortized portion of $40,182 for the fee is recorded as other income.

~~Highlights~~We attribute the growth in revenue during 2017 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 2017 with the addition of “Maui Mocha” and “Kauai Caramel” flavors. We expect this trend to continue as we invest more time and resources into the Cold Brew Coffee product lines, including the addition of our 32oz bottles.

~~Comparative~~The toCompany ~~last~~introduced ~~year~~Cold Brew Coffees in February, 2016 and for the ~~year~~period ended December 31, ~~2016:~~2017 this product line accounted for 84% of our sales. During the last quarter of 2017 Cold Brew Coffee sales comprised 80% of our product sales.

~~● Product sales increased by 67%~~19

●Table ~~Operating~~of ~~expenses decreased by 16%, and~~Contents

●Overall, ~~Net~~Cold ~~loss~~Brew ~~decreased~~Coffee byis ~~13%~~a booming new market sector and KonaRed has emerged early as a leader in this new category. The Cold Brewed Coffee industry earned total revenues over $65 million in 2017.

●KonaRed’s ~~$200,000~~Cold ~~non-refundable~~Brew ~~cash~~Coffees ~~fee~~won ~~received~~multiple ~~for~~industry ~~five~~and consumer awards during the year ~~license~~ended ~~agreement~~December 31, 2017 and now appear on major retail shelves throughout the United States.

~~Revenue~~Cost of Goods Sold

~~Sales~~As ~~were~~referenced ~~comprised~~in our Description of ~~product~~Business ~~sales~~above, in 2016 and ~~shipping,~~2017 ~~related~~our ~~party~~production ~~sales~~was based on an outsourcing business model which utilizes third parties for the bulk of our non-core business operations, such as coffee fruit extraction and ~~delivery~~product ~~fees~~manufacturing.~~During~~ The main component of our cost of goods sold (“COGS”) relates to costing the ~~year~~finished ~~ended~~goods ~~December~~which ~~31,~~are ~~2016~~drawn wefrom ~~recorded~~our ~~total~~inventory ~~sales~~when ofsold. ~~$1,059,196~~These ~~compared~~finished ~~with~~goods ~~total~~primarily ~~sales~~include bottles of ~~$635,503~~different types of our coffee beverages in various container and lot sizes which have been manufactured in a staged process for us by third parties. Costing is done by applying specific unit sales to unit product costs based on the ~~year~~costs ~~ended~~per ~~December~~unit ~~31,~~recorded ~~2015,~~in ~~representing~~our aninventory ~~increase~~system. ofCosts ~~67%,~~per ~~and~~unit ~~during~~in the ~~year~~inventory ~~ended~~system ~~December~~include ~~31,~~per ~~2016~~unit manufacturing charges from outsource manufacturers.

~~Additionally~~Along inwith ~~2016~~the wecurrent ~~received~~period ~~cash~~cost ~~payment~~ of ainventory ~~non-refundable~~which ~~signing~~has ~~fee~~been ofused ~~$200~~for product sales,~~000~~ ~~from~~COGS aalso ~~strategic~~includes ~~supplier~~expensing ~~partnership~~of ~~arrangement.~~adjustments ~~Because~~for ~~this~~shrinkage ~~was~~during ~~included~~production inruns aand ~~license~~inventory ~~fee~~which ~~agreement~~has tobeen ~~conform~~disposed ~~with~~of ~~generally~~because ~~accepted~~it ~~accounting~~has ~~principles~~expired itand/or isbecome ~~recorded~~obsolete, asor ~~unearned~~been ~~revenue~~subject ~~which~~to isa write-down reserve because the inventory has been deemed to be ~~amortized~~potentially ~~over~~useful, ~~the~~but ~~five~~has ~~year~~been ~~life~~slow moving for a significant period of time. During the ~~agreement.~~years ~~For~~ended ~~fiscal~~December 31, 2017 and December 31, 2016, ~~the~~these ~~amortized~~expenses ~~portion~~respectively oftotaled $797,~~014~~298 ~~for~~and ~~the~~$24,769. ~~fee is~~At ~~recorded~~December as31, ~~other~~2017 ~~income~~and December 31, 2016 we had no reserves of outdated inventory.

WeFor ~~attribute~~ the ~~growth~~years inended ~~revenue~~December ~~during~~31, ~~2016~~2017 toand ~~the~~December ~~acquisition~~31, of2016, ~~new~~COGS ~~customers~~were ~~for~~$2,339,159 ~~KonaRed~~and ~~Cold~~$740,806, ~~Brew~~or ~~Coffees~~81% and ~~the~~70% ~~success~~ of ~~our~~sales. ~~efforts~~This corresponds to ~~build~~gross amargin ~~distribution~~percentages ~~network~~of ~~for~~19% ~~this~~and ~~new~~30%. ~~product~~We ~~line.~~project ~~Additionally,~~total aCOGS ~~sizable~~will ~~component~~increase ofin ~~Cold~~2018 ~~Brew~~and ~~Coffee~~2019 ~~sales~~and ~~growth~~gross ~~has~~margin ~~been~~will ~~from~~improve ~~repeat~~as ~~customers.~~order ~~Cold~~flow ~~Brew~~increases isand ~~now~~we ~~KonaRed's~~begin ~~major~~to ~~marketing~~benefit ~~focus~~from ~~and~~in-house ~~consumer~~bottling ~~demand~~(to ~~drove~~which ~~expansion~~we ofintend ~~our~~to ~~Cold~~transition ~~Brew~~in ~~Coffee~~the ~~line~~first ~~from~~half 3of to2019), 5less ~~products~~expensive inshipping ~~August~~costs ~~with~~and the ~~addition~~economies of ~~"Maui~~scale ~~Mocha"~~of ~~and~~larger ~~"Kauai~~production ~~Caramel" flavors~~runs.

~~The~~COGS ~~Company~~components ~~introduced~~for ~~Cold~~the ~~Brew~~years ~~Coffees~~ended inDecember ~~February~~31, 2017 and December 31, 2016 included: (i) manufacturing costs, which include both in-house and ~~for~~outsourced ~~the~~manufacturing ~~period~~costs ~~ended~~and ~~December~~inventory 31adjustments, ~~2016~~which ~~this~~totaled ~~product~~$2,108,794 ~~line~~versus ~~accounted~~$692,920, ~~for~~respectively; ~~59%~~(ii) ofinventory ~~our~~delivery ~~sales.~~which ~~During~~totaled ~~the~~$174,420 ~~last~~versus ~~quarter~~$33,816, ofrespectively; ~~2016~~(iii) ~~Cold~~term ~~Brew~~discounts ~~Coffee~~which ~~sales~~totaled ~~comprised~~$39,646 ~~69%~~versus of$7,781; ~~our~~and ~~product~~(iv) ~~sales~~packaging which totaled $15,179 versus $6,289, respectively.

27Operating Expenses

~~Table~~Our ofoperating ~~Contents~~expenses are classified into three categories:

~~Overall,~~- ~~Cold~~Research ~~Brew Coffee is a booming new market sector~~ and KonaRed has emerged early as a leader in this new category. The Cold Brewed Coffee industry earned total revenues of approximately $65 million in 2016. Its growth is expected to mark one of the top food and beverage trends of the last few years and this growth trend continues.development

~~KonaRed's~~- ~~Cold~~Advertising ~~Brew Coffees have won multiple industry~~ and ~~consumer awards during the year ended December 31, 2016 and now appear on major retail shelves throughout the Western US, Florida and New York.~~marketing

~~Cost~~- ofGeneral ~~Goods~~and ~~Sold~~administrative expenses

AsResearch referenced in our Description of Business above, our production is based on an outsourcing business model which utilizes third parties for the bulk of our non-core business operations, such as coffee fruit extraction and product manufacturing. The main component of our cost of goods sold ('COGS') relates to costing the finished goods which are drawn from our inventory when sold. These finished goods primarily include bottles of different types of our coffee beverages in various container and lot sizes which have been manufactured in a staged process for us by third parties and delivered to our warehouse, or to inventory logistics service providers, for distribution. Costing is done by applying specific unit sales to unit product costs based on the costs per unit recorded in our inventory system. Costs per unit in the inventory system include per unit manufacturing charges from outsource manufacturers.Development

~~Along~~Research ~~with~~and ~~the~~development ~~current~~costs ~~period~~were ~~cost of inventory which has been used for product sales~~$5,786 ~~COGS also include expensing of adjustments for shrinkage during production runs~~ and ~~inventory which has been disposed of because it has expired and/or become obsolete~~$5, ~~or been subject to a write-down reserve because the inventory has been deemed to be potentially useful~~320, ~~but~~respectively ~~has been slow moving~~ for ~~a significant period of time. During the~~ years ended December 31, ~~2016~~2017 and December 31, ~~2015~~2016, ~~these~~respectively, ~~expenses~~for ~~respectively~~a ~~totaled~~comparative ~~$24,769~~increase ~~and~~of ~~$26,760~~9%. AtWe ~~December~~project ~~31,~~R&D ~~2016~~costs ~~and~~will ~~December~~increase ~~31,~~(but ~~2015~~remain werelatively ~~had~~modest) noduring ~~reserves~~the ofupcoming ~~outdated~~fiscal ~~inventory~~year.

~~For~~Advertising ~~the years ended December 31, 2016~~ and December 31, 2015, COGS were $740,806 and $443,049, or 70% and 70% of sales. This corresponds to gross margin percentages of 30% and 30%. We project total COGS will increase during fiscal 2017 and gross margin will improve as order flow increases and we begin to benefit from less expensive shipping costs and the economies of scale of larger production runs.Marketing

~~COGS~~Advertising ~~components~~and marketing costs were $476,973 for the ~~years~~year ended December 31, ~~2016~~2017, ~~and~~compared with $276,299 for the year ended December 31, ~~2015~~2016, ~~include:~~representing ~~(i)~~an ~~manufacturing~~increase ~~costs~~of 73%, ~~which~~primarily ~~include~~due ~~both~~to ~~in-house~~a ~~and~~significant ~~outsourced~~expansion ~~manufacturing~~of ~~costs~~an advertising program. Components of advertising and ~~inventory~~marketing ~~adjustments~~cost during the years ended December 31, ~~which~~2017 ~~totaled~~versus December 31, 2016 were as follows: (i) costs for free samples and product demonstrations was $~~692~~29,~~920~~353 versus $~~394~~133,~~688~~334, ~~respectively~~representing a decrease of 78%; (ii) ~~inventory~~advertising ~~delivery~~costs ~~which~~were ~~totaled~~ $33272,~~816~~461 versus $279,~~845~~945, ~~respectively,~~representing ~~term~~an ~~discounts~~increase ~~which~~of ~~totaled~~2640%; (iii) website expenses were $730,~~781~~274 versus $610,~~148~~998, representing an increase of 175%; and (ivv) ~~packaging~~tradeshows, ~~which~~sponsorships, public relations initiatives, and other marketing expenses totaled $6144,~~289~~885 versus $14122,~~368~~022, ~~respectively~~representing an increase of 19%. We project advertising and marketing costs will increase in 2018 and 2019.

~~Operating Expenses~~20

~~Our~~Table ~~operating~~of ~~expenses are classified into three categories:~~Contents

-General ~~Research~~ and ~~development~~Administrative

General and administrative (“G&A”) costs were $3,356,872 for the year ended December 31, 2017 compared to and $2,692,774 for the year ended December 31, 2016, representing an increase of 23%. G&A costs include cash and non-cash ~~Advertising~~expenses. Non-cash expenses include stock based compensation expenses, stock issued for services, patent license fees, and ~~marketing~~depreciation expenses. G&A costs were more heavily weighted toward non-cash expenses in 2016; for the years ended December 31, 2017 and December 31, 2016, G&A cash expenses comprised $2,975,396 and $1,655,947; and non-cash expenses comprised $381,476 and $1,036,827.

-Year ~~General~~over year G&A cash expenses increased by 80% and ~~administrative~~G&A non-cash expenses decreased by 67%. We project G&A expenses will increase in 2018 and 2019.

~~Research~~Major items within expenses paid in cash for years ended December 31, 2017 and ~~Development~~December 31, 2016 included: (i) payroll of $1,410,420 versus $952,427, representing an increase of 48%, which is attributable to an increased staff count; (ii) customer shipping expenses of $281,255 versus $124,760, representing an increase of 125%, which is attributable to increased sales volume; and (iii) professional and consultant fees of $337,239 versus $109,142, representing an increase of 209%, which is attributable to the resolution of legal issues pertaining to fiscal 2015.

~~Research~~Major items within non-cash expenses for years ended December 31, 2017 and ~~development~~December ~~costs~~31, ~~were~~2016 included: (i) stock issued for compensation of $5216,~~320~~843 ~~and~~versus $6405,~~502~~373, ~~respectively~~representing a decrease of 47%, which is attributable to less offerings to executive staff of shares in lieu of cash for ~~years~~a ~~ended~~portion ~~December~~of 31their remuneration; (ii) stock issued for services of $145,287 ~~2016~~versus ~~and~~$254,009, ~~December~~representing 31a decrease of 43%, ~~2015~~which is attributable to the decreased use of consultants; and (iii) patent license fees of $15,320 ~~respectively~~versus $375,000, ~~for~~representing a ~~comparative~~ decrease of 1896%., Wewhich ~~project~~is ~~R&D~~attributable ~~costs~~to ~~will~~the ~~increase~~scheduled ~~during~~decreases in the ~~upcoming~~VDF ~~fiscal~~License ~~year~~Agreement.

28Other Income (Expense)

~~Table~~During the years ended December 31, 2017 and December 31, 2016, other income (expense) respectively totaled $(10,621,582) versus $(644,826). The largest items within Other income (expense) for the years ended December 31, 2017 and December 31, 2016 were (i) non-cash income (expense) for the fair market value of ~~Contents~~a derivative liability of $(9,016,712) in 2017 versus $7,463 in 2016; (ii) a non-cash expense of $(1,113,770) in 2017 and $nil in 2016 related to the debt modification that took place during 2017; and (iii) amortization expense for discounts on notes payable of $(466,522) in 2017, versus $(472,510) in 2016. The most significant derivative liability to which the 2017 item related was a result of the various warrants issued to the purchasers of Series A Preferred Stock and Series B Preferred Stock as part of the October 24, 2017 financing transaction.

~~Advertising~~Net ~~and Marketing~~Loss

~~Advertising~~Our ~~and~~net ~~marketing~~losses ~~costs were $276,299~~ for the ~~year ended December 31, 2016, compared with $435,390 for the year ended December 31, 2015, representing a decrease of 37%. Components of advertising and marketing cost during the~~ years ended December 31, ~~2016~~2017 versus December 31, ~~2015~~2016 were ~~as follows: (i) costs for free samples and product demonstrations was~~ $~~133~~13,~~334 versus $96~~926,~~310~~649, ~~representing~~or an$0.09 ~~increase~~per ~~of 38%; (ii) advertising costs were $9~~share,~~945~~ versus $~~175~~3,~~432~~300, ~~representing an decrease of 94%; (iii) website expenses were $10~~829,~~998~~ ~~versus~~or $~~27,580,~~0.03 ~~representing~~per ashare. ~~decrease~~In ofboth ~~60%;~~years ~~and~~we ~~(v)~~excluded ~~tradeshows,~~contingently ~~sponsorships,~~issuable ~~public~~shares ~~relations~~from ~~initiatives,~~the ~~and~~calculation ~~other~~of ~~marketing~~net ~~expenses~~loss ~~totaled~~per ~~$122~~share,~~022~~ ~~versus~~because ~~$136,068,~~the ~~representing~~contingently aissuable ~~decrease~~shares ofwould ~~10%.~~have Webeen ~~project advertising and marketing costs will increase during our upcoming fiscal year~~anti-dilutive.

~~General~~Liquidity and ~~Administrative~~Capital Resources

~~General~~Our ~~and~~financial ~~administrative~~position ~~('G&A')~~as ~~costs~~at ~~were $2,692,774 for the year ended~~ December 31, ~~2016~~2017 ~~compared to~~ and ~~$3,090,569 for the year ended~~ December 31, 2015, representing a decrease of 13%. G&A costs include cash and non-cash expenses. Non-cash expenses include stock based compensation expenses, stock issued for services, patent license fees, and depreciation expenses. For the years ended December 31, 2016 ~~and~~was ~~December~~as 31, 2015, G&A cash expenses comprised $1,655,947 and $1,838,972, or 56% and 52% of operating expenses; and non-cash expenses comprised $1,036,827 and $1,251,599 or 35% and 35% respectively of total operating expenses.follows:

Year over year G&A cash expenses decreased by 10% and G&A non-cash expenses decreased by 17%. We project G&A expenses will increase moderately during the coming fiscal year.

Net Working Capital
	As of December 31, 2017			As of December 31, 2016

Current Assets	$	1,960,654		$	458,741
Current Liabilities		9,881,636			657,607
Net Working Capital (Deficit)	$	(7,920,982	)	$	(198,866	)

Major items within expenses paid in cash for years ended December 31, 2016 and December 31, 2015 included: (i) payroll of $952,427 versus $796,290, representing an increase of 20%, which is attributable to an increased staff count; (ii) customer shipping expenses of $124,760 versus $98,020, representing an increase of 27%, which is attributable to increased sales volume; (iii) professional and consultant fees of $109,942 versus $261,180, representing a decrease of 58%, which is attributable to the resolution of legal issues pertaining to fiscal 2015; and (iii) total rent expenses of $126,043 versus $116,089, representing an increase of 9%, which is attributable to scheduled payment increases in our warehouse lease.21

~~Major~~Table ~~items within non-cash expenses for years ended December 31, 2016 and December 31, 2015 included: (i) stock issued for compensation~~ of $405,373 versus $350,883, representing an increase of 16%, which is attributable to executive staff accepting shares in lieu of cash for a portion of their remuneration to conserve cash; (ii) stock issued for services of $254,009 versus $598,272, representing an decrease of 58%, which is attributable to the decreased use of consultants; and (iii) patent license fees of $375,000 versus $300,000, representing a decrease of 25%, which is attributable to the scheduled increases in the VDF License Agreement.Contents

~~Other~~However, ~~Income~~net of derivative liabilities, our net working capital was $1,095,730 at December 31, 2017 as compared to a net working capital deficit of $(~~Expense~~187,217) at December 31, 2016.

~~During~~At ~~the years ended~~ December 31, ~~2016~~2017 ~~and~~we ~~December~~had ~~31,~~cash ~~2015,~~on ~~other~~hand ~~income~~of ~~(expense) respectively totaled~~ $~~(644~~1,~~826) versus $(460~~305,~~362). Other income (expense) for years ended December 31~~839, ~~2016~~accounts ~~and~~receivable ~~December 31, 2015 included: (i) license fee revenue~~ of $7230,~~014 versus $nil~~940; ~~(ii) cash interest paid of $(1,025)~~ and ~~non-cash~~inventory ~~interest amortization~~ of $~~(185~~423,~~768),~~875. ~~for~~This ~~total~~compares ~~interest~~with ~~expense of $(186,793) in 2016, versus~~ cash ~~interest~~on ~~paid~~hand of $~~(181~~68,~~611) and non-cash interest amortization of $(73~~546,~~761)~~ inaccounts ~~2015;~~receivable ~~(iii) amortization expense for discounts on notes payable~~ of $~~(472~~120,~~510) in 2016~~565, ~~versus~~accounts ~~$(128,200)~~receivable ~~in 2015; and (iv) non~~-~~cash~~ ~~income~~related ~~(expense)~~party ~~for the fair market value~~ of ~~a derivative liability of~~ $71,~~463 in 2016 versus $(35,037) in 2015~~800; and ainventory ~~non-cash expense~~ of $~~nil in 2016 and $(41~~267,~~753)~~830 inat ~~2015~~December related to the re-set of the exercise price of warrants issued in 2015. Other than interest expenses for currently outstanding debt and further non-cash derivative related gains or losses which may arise during the coming year31, ~~we cannot project other income (expense) items in the near term~~2016.

Our liquidity position as we approached the end of 2017 was becoming unsustainable. To resolve the situation, we entered into the September 29, 2017 VDF transactions, the October 24, 2017 Series A Preferred Stock/Series B Preferred Stock transactions and the December 29, 2017 LPC transaction, to raise cash and reduce indebtedness.

~~Table~~We ofraised ~~Contents~~additional equity and debt capital in 2018, and expect to seek further financing in 2019 as well.

~~Net~~In ~~Loss~~both 2017 and 2016, we needed to and did raise capital to offset operating losses, as is typical for emerging growth companies. Our cash flows for the years ended December 31, 2017 and December 31, 2016 were as follows:

Our net losses for the years ended December 31, 2016 versus December 31, 2015 were $3,300,829 , or $0.03 per share, versus $3,800,369, or $0.04 per share.

Cash Flows
	Year ended December 31, 2017			Year ended December 31, 2016

Net cash (used) in operating activities	$	(2,806,179	)	$	(1,747,459	)
Net cash (used) in investing activities		(7,061	)		—
Net cash provided by financing activities		4,050,533			1,667,236
Increase (decrease) in cash during the period		1,237,293			(80,223	)
Cash, beginning of period		68,546			148,769
Cash, end of period	$	1,305,839		$	68,546

~~Liquidity~~Comparative figures for Net cash (used) in Operating Activities comprised net losses of $13,926,649 for the year ended December 31, 2017 versus $3,800,369 for the year ended December 31, 2016. Major items included respective comparative non-cash add-backs of: (i) ) Change in market value of derivative liabilities of $9,016,712 in 2017 versus a change of ($7,574) in 2016; (ii) Black-Scholes options grant expense amortizations of $136,648 versus $nil; (iii) Black-Scholes warrant issuance expense amortizations of $466,522 versus $565,528; (iv) stock issued for compensation and ~~Capital~~services ~~Resources~~of $251,804 versus $676,948; (v) an increase in accounts receivable of $108,575 in 2017 versus an increase in accounts receivable of $71,138 in 2016; (vi) increases in inventory of $156,045 in 2017 versus a decrease of $171,328 in 2016; (vii) an increase of $607,851 in accounts payable and accrued liabilities in 2017 versus a decrease in accounts payable and accrued liabilities of $76,062 in 2016; and (viii) a decrease in unearned income of $40,034 in 2017 versus an increase of $191,587 in 2016. The most significant derivative liability to which the 2017 change item related was a result of the various warrants issued to the purchasers of Series A Preferred Stock and Series B Preferred Stock as part of the October 24, 2017 financing transaction.

~~Our~~Comparative ~~financial~~figures ~~position~~for asNet atcash ~~December~~(used) 31in Investing Activities was $7,061 in 2017 versus $- for 2016. ~~and~~This ~~December~~included ~~31,~~purchases ~~2015~~of ~~was~~fixed asassets ~~follows:~~during the year ended December 31, 2017.

Comparative figures for Net ~~Working~~cash ~~Capital~~provided by Financing Activities was $4,050,533 in 2017 versus $1,667,236 for 2016. Major items are discussed below.

	As of December 31, 2016			As of December 31, 2015
Current Assets	$	458,741		$	645,107
Current Liabilities		657,607			463,063
Net Working Capital (Deficit)	$	(198,866	)	$	182,044

AtTable ~~December 31, 2016 we had cash on hand~~ of $68,546, accounts receivable of $120,565, accounts receivable - related party of $1,800; and inventory of $267,830. This compares with cash on hand of $148,769, accounts receivable of $33,227, accounts receivable - related party of $18,000; inventory of $439,158, and prepaid expenses of $5,953 at December 31, 2015.Contents

~~Our~~Cash ~~net~~Raised ~~working capital decreased to a balance of $(198,866) at December 31, 2016~~ from aEquity balance of $182,044 at December 31, 2015. When adjusted for $192,986 unearned revenue related to the unamortized portion of our license fee income, the working capital decrease is $(5,880) At present, we project we will need to raise additional capital during the coming twelve months to fund our strategic plans.Sales

~~Our~~During ~~cash~~the ~~flows~~year ended December 31, 2017 we raised a total of $3,990,568 through sales of equity. This was comprised of: (a) $431,468 raised from private placement sales of 7,844,874 restricted common shares at $0.055 per share; (b) $15,000 through a private placement remedial Unit Offer #3 sale of 375,000 units priced at $0.04 per unit which included one restricted common share and one five year warrant exercisable at $0.055 per share; (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; and (d) $220,000 raised from the ~~years~~sale ~~ended~~of ~~December~~4,000,000 31restricted common shares at $0.055 per share; (e) $500,000 ~~2016~~from issuance of 12,500,000 restricted common shares at $0.04 per share to a prior unit offering subscribers for exercises of 12,500,000 for warrants held; (f) $2,250,000 raised from sales of 1,554 Series A Preferred shares and ~~December~~35 31Series B Preferred shares (in addition to issuances of other Series A Preferred shares and Series B Preferred shares in exchange for outstanding debt); and (g) $491,600 ~~2015~~for ~~were~~warrants exercised for common shares. Although in the past it has been necessary for us to raise cash in numerous offerings in order to maintain ourselves, this practice resulted in a drain on management’s bandwidth and often required us to accept unduly dilutive provisions. We expect that in the foreseeable future we will not be engaging in a similarly numerous set of financings, and that as ~~follows:~~our business improves we will be in a better position to obtain further financing (when and if needed) on favorable terms.

~~Cash~~During ~~Flows~~the year ended December 31, 2016 we raised: (a) $666,000 through private placement sales of 16,650,000 units, with each unit priced at $0.04 and including one restricted common share and one five year warrant exercisable at $0.055; (b) $120,000 through the private placement sale of 3,000,000 restricted common shares priced at $0.04 per share; (c) $322,936 from issuance of 6,471,529 shares under the 2015 Equity Line; and (d) $300,000 from investment from a strategic partner.

	Year ended December 31, 2016			Year ended December 31, 2015
Net cash (used) by operating activities	$	(1,747,459	)	$	(2,009,549	)
Net cash provided/(used) in investing activities		—			—
Net cash provided by financing activities		1,667,236			2,118,331
Increase (decrease) in cash during the period		(80,223	)		108,782
Cash, beginning of period		148,769			39,987
Cash, end of period	$	68,546		$	148,769

Cash Raised from Debt – 2017

~~Comparative~~During ~~figures for Net cash (used) by Operating Activities comprised net losses of $3,300,829 for~~ the year ended December 31, ~~2016 versus $3~~2017,~~800,369~~ ~~for~~ the ~~year~~Company ~~ended~~raised ~~December 31, 2015. Major items included respective comparative non-cash add-backs of: (i) Black-Scholes options grant expense amortizations of~~ $~~nil versus $220~~300,~~960;~~000 ~~(ii)~~from ~~Black-Scholes warrant~~ issuance ~~expense amortizations~~ of ~~$565,528~~short ~~versus~~term $197,905; (iii) stock issued for compensation of $405,377 versus $350,883; (iv) stock issued for services of $271,571 versus $598,272; (iv) an increase in accounts receivable of $71,138 in 2016 versus a decrease in accounts receivable of $220,993 in 2015; (v) decreases in inventory of $171,328 in 2016 versus $69,180 in 2015; (vi) a decrease of $76,062 in accounts payable and ~~accrued~~long ~~liabilities~~term innon-convertible ~~2016~~promissory ~~versus an increase in accounts payable and accrued liabilities of $19,402 in 2015; and (vii) an increase in unearned income of $191,587 in 2016 versus a decrease of $2,009 in 2015~~notes.

30Details of all debt transactions during 2017 are as follows:

~~Table~~Debt ~~of Contents~~Conversions

~~Cash~~During ~~Raised~~the ~~from~~year ~~Equity~~ended ~~Sales~~December 31, 2017, $1,552,816 of debt was converted into shares of Common Stock and $306,949 of debt was converted into shares of Series B Preferred Stock.

~~During~~These ~~the year ended December 31, 2016 we raised~~included: (a) $666,000 through private placement sales of 16,650,000 units, with each unit priced at $0.04 and including one restricted common share and one five year warrant exercisable at $0.055; (b) $120,000 through the private placement sale of 3,000,000 restricted common shares priced at $0.04 per share; (c) $322,936 from issuance of 6,471,529 shares under the 2015 Equity Line; and (d) $300,000 from investment from a strategic partner. During the year ended December 31, 2015, the Company raised $350,000 cash from private placement sales of restricted common shares and $629,850 through equity line sales sales of 8,550,000 shares.

~~Equity~~(a) ~~Line~~two ~~sales~~transactions ~~termination~~in which we issued at total of 1,625,000 common shares at $0.04 per share for conversion by the 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 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 satisfied the note and no further payments are due;

On(b) ~~August~~issuance 11of 990,000 ~~2016~~common ~~the~~shares ~~last~~at ~~shares~~$0.04 ~~which~~per ~~had~~share ~~been~~for ~~registered~~conversion ~~under~~by the December 2015 ~~Equity~~Lender ~~Line~~of ~~were~~the ~~sold~~remaining ~~and~~$39,600 ~~subsequently~~due ~~there~~on ~~has~~the ~~not~~December ~~been~~2015 ~~filed,~~Note. ~~and~~The ~~there~~value ~~are~~of nothe ~~plans~~shares towas ~~file~~$61,578 based on a ~~new~~market ~~registration~~close ~~statement~~price ~~which~~on ~~would~~date ~~facilitate~~of ~~further~~issuance. ~~equity~~The ~~line~~conversion ~~share~~resulted ~~sales~~in a $21,978 difference between the cash redemption balance and the ~~2015~~value ~~Equity~~of ~~Line~~the isshares ~~now~~redemption ~~effectively~~which ~~defunct~~was treated as a conversion loss and recorded as an additional non-cash interest expense. This conversion fully satisfied the note and no further payments are due;

No(c) ~~Variable~~five ~~Rate~~transactions ~~Convertible~~in ~~Securities~~which LPC converted a total of $300,000 principal and $3,060 accrued interest due on LPC Note Two at a conversion price of $0.05 per share into 6,105,843 shares valued at $405,361 based on market close prices on dates of issuance. The conversions resulted in a $99,064 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 satisfied all amounts due on LPC Note Two and the note is extinguished; and

~~The Company has no securities outstanding which have conversion prices which vary based on the trading price of the Company's common shares.~~23

~~Cash~~Table ~~Raised~~of ~~from Debt~~Contents

~~During~~(d) ~~the~~issuance ~~year~~of ~~ended December 31~~13, ~~2016~~092,242 ~~the~~common ~~Company~~shares ~~raised~~at $~~100,000~~0.07 ~~from~~per ashare ~~short~~for ~~term~~conversion ~~non-convertible~~on ~~related~~September ~~party promissory note and rolled over $375~~29,00 2017 of ~~license fees to~~ the VDF Note~~. During the year ended December 31~~, ~~2015,~~which ~~the~~had ~~Company~~an ~~raised:~~outstanding ~~(a)~~balance ~~net proceeds from short term debt~~ of $~~325~~1,~~000~~088,265. ~~which~~The ~~was~~value ~~comprised~~ of ~~three~~the ~~short~~shares ~~term~~was ~~promissory notes which provided net proceeds of~~ $90561,~~000,~~657 ~~$135,000~~based ~~and~~on ~~$100,000~~a ~~respectively;~~market ~~(b)~~close ~~net~~price ~~proceeds~~on date of ~~$Nil~~issuance. ~~from~~The ~~short~~conversion ~~term~~resulted ~~related~~in ~~party~~a ~~non-convertible debt, which was comprised of an advance of~~ $~~500~~335,~~000~~409 ~~from~~difference abetween ~~director of~~ the ~~Company~~cash ~~and~~redemption abalance ~~repayment to him of $500,000;~~ and ~~(c)~~the ~~net~~value ~~proceeds~~ of ~~$813,481~~the ~~from~~shares ~~convertible~~redemption ~~notes payable~~ which was ~~comprised~~treated ~~of:~~as ~~(i)~~a ~~net~~conversion ~~proceeds~~loss ~~of $Nil from one lender who advanced net $400,000~~ and ~~received~~recorded ~~repayment~~as ofloss ~~that~~on ~~$400,000,~~debt ~~(ii)~~modification ~~two~~non-cash ~~fixed~~expense. ~~exercise~~This ~~price~~conversion ~~convertible~~fully ~~notes~~satisfied ~~from~~ the ~~same~~note ~~lender which provided net proceeds of $225,000~~ and ~~$270,000~~no ~~respectively,~~further ~~and~~payments ~~(iii)~~are ~~rolled over $318,481 of license fees and accrued interest to the VDF Note~~due.

~~Details~~(e) LPC converted $250,000 principal and $6,164 accrued interest due on LPC Note One at conversion prices of ~~all~~$0.035, ~~debt~~$0.0658, ~~transactions~~and ~~during~~$0.0355 ~~2016~~per share, on October 24, 2017, November 3, 2017, and ~~2015~~December ~~are~~29, 2017, respectively. The note and interest were converted into a total of 8,136,400 shares of common stock valued at $290,164 based on market close prices on dates of issuance noted above. The conversions resulted in a difference between the cash redemption balance and the value of the shares redemption which was treated as ~~follows:~~a conversion loss and recorded as an additional non-cash interest expense. These conversions fully paid all amounts due on LPC Note One and the note is extinguished.

~~September~~On ~~2015~~December ~~Notes:~~29, 2017, pursuant to a Settlement Agreement and General Release with LPC, the Company issued 8,000,000 shares of restricted common stock (and paid $140,035 and committed to pay an additional $140,035 over the first half of 2018) as and for full satisfaction of all promissory notes and warrants held by LPC. This transaction is included within the transactions discussed in the preceding paragraph.

~~On September 30, 2015, subject to securities purchase agreements we issued two subordinated promissory notes~~ (~~"September~~f) ~~2015~~under ~~Note~~the Series ~~One"~~B ~~and~~Preferred ~~"September~~Stock ~~2015~~Purchase ~~Note Two"~~Agreement, ~~collectively,~~ the ~~"September~~Series ~~2015~~B ~~Notes")~~Investors toinvested ~~two~~$356,949 ~~lenders~~in ~~(the~~exchange ~~"September~~for ~~2015 Lenders")~~252.17 ~~The~~shares ~~September 2015 Notes provided for customary events~~ of ~~default~~newly-issued ~~such~~Series asB ~~failing~~Preferred ~~to timely make payments and the occurrence of certain fundamental defaults, as described in the September 2015 Notes~~Stock. (The ~~September~~Series ~~2015~~B ~~Notes~~Investors ~~were~~paid ~~not~~this ~~secured~~purchase ~~and~~price ~~are~~in ~~subordinated to senior notes issued by~~ the ~~Company.~~form ~~September~~of ~~2015~~surrender ~~Note One had a face value~~ of ~~$100,000 and September 2015 Note Two had~~ a ~~face value of~~ $~~150~~203,~~000.~~968 ~~The~~indebtedness ~~interest~~owed ~~rate~~to onCompany ~~each~~director ~~note~~Gonzalo ~~was~~Camet 8%(a ~~per~~Series ~~annum~~B ~~and this amount fully accrued upon issuance and added $8~~Investor),~~000~~ tosurrender ~~September~~of ~~2015~~a ~~Note One and~~ $12102,~~000~~981 toindebtedness ~~September~~owed ~~2015 Note Two~~ to ~~bring~~a ~~the~~second ~~total~~Series ~~balances~~B ~~due on each note to $108~~Investor,~~000~~ and $~~162~~50,000, ~~respectively.~~cash ~~The~~received ~~September~~from ~~2015 Notes each included~~ a ~~10%~~third ~~original~~Series ~~issuance~~B ~~discount ("OID"~~Investor.) The ~~which~~conversions resulted in ~~total~~a ~~net~~difference ~~proceeds~~between to the ~~Company~~cash ofredemption ~~$225,000. As~~balance anand ~~inducement for~~ the ~~loans,~~value Onof ~~September 30,2015~~ the ~~September~~shares ~~2015~~redemption ~~Lenders~~which ~~received~~was ~~five‑year~~treated ~~warrants,~~as ~~with~~a ~~cashless~~conversion ~~exercise~~loss ~~rights,~~and torecorded ~~purchase restricted~~as ~~shares~~an ofadditional ~~our~~non-cash ~~common~~interest ~~stock~~expense. atThe ~~an exercise~~ price ~~of $0.08~~ per share. ~~September~~of ~~2015~~Series ~~Note~~B ~~One~~Preferred ~~Lender~~Stock ~~received~~was $1,~~250~~415.51,~~000~~ ~~warrants~~ which ~~was~~corresponds ~~valued~~to ~~using a Black-Scholes model at~~ $~~67,115;~~0.02831 ~~and~~per ~~September~~share ~~2015~~of ~~Note~~Common ~~Two~~Stock ~~Lender~~on ~~received~~an ~~1,875,000 warrants which were valued using a Black~~as-~~Scholes model at non~~if-~~cash~~converted ~~cost of $100,673~~basis.

AtCash ~~December~~Raised ~~31,~~from ~~2015,~~Debt ~~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.2016

During the year ended December 31, 2016, the Company raised $100,000 from a short term non-convertible related party promissory note and rolled over $375,000 of license fees to the VDF Note.

~~Table~~Details of ~~Contents~~all debt transactions during 2016 are as follows:

~~At December 31, 2016, the balance on~~ September 2015 Note One was $nil. 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 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. 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. The September 2015 Note One is now fully repaid and there are no further payments due.Notes:

At December 31, ~~2015~~2016, the balance on September 2015 Note ~~Two~~One was $~~75,403~~nil. ~~This~~During ~~included~~the year ended December 31, 2016, the ~~face~~Company ~~value~~timely met a series of scheduled cash payments on September 2015 Note One totaling $~~150~~49,000 ~~plus~~and ~~accrued~~on ~~interest~~August 30, 2016 redeemed the balance of $1259,000 ~~and~~due ~~was~~through ~~net~~issuance of an1,475,000 ~~unamortized~~shares ~~warrant~~valued ~~discount~~at ~~totaling~~ $7595,~~367~~875 ~~and~~based anon ~~unamortized~~a ~~OID~~market ~~discount~~close price of $~~11,230~~0.065 ~~During~~per ~~the~~share ~~year~~on ~~ended~~date ~~December~~of 31issuance. The $36,875 ~~2015~~difference between the cash redemption balance and the value of the shares redemption was recorded as non-cash interest expense. At time of redemption on August 30, 2016 the remaining $2550,~~306~~245 of the warrant discount on September 2015 Note One was recorded as an amortization expense and the remaining $37,~~770~~486 ~~of the~~ 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, 2016, the balance on September 2015 Note Two was $40,411. This included the remaining face value and accrued interest totaling $65,000, net of an unamortized warrant and beneficial conversion feature ("BCF") discounts of $16,527 and an unamortized OID discount of $8,062. During the year ended December 31, 2016, the Company timely met 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 original 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 September 23, 2016 the Company's closing share price was $0.0605 and this created a BCF which was valued at $37,669. On November 7, 2016, prior to scheduled redemption date, the $73,500 balance due on September 2015 Note Two was purchased by the September 2015 Note One Lender (hereinafter referred to as "September 2015 Note Two Purchaser") from the original lender. Also on November 7, 2016, in return for the addition of $11,500 to the OID for September 2015 Note Two, September 2015 Note Two Purchaser extended the maturity of September 2015 Note Two to August 7, 2017 based on the Company meeting a payment schedule of $40,000 on May 7, 2017 and $45,000 on August 7, 2017. The addition of the $11,500 addition to the OID increased the principal due on September 2015 Note Two to $85,000. On November 23, 2016, $20,000 of September 2015 Note Two was converted by September 2015 Note Two Purchaser into 500,000 shares of the Company which reduced the principal due on the note to $65,000. During the year ended December 31, 2016, a total of $96,509 of the warrant and BCF discounts were recorded as an amortization expense and $14,668 amortization of the OID was recorded as interest expense.24

~~December~~Table ~~2015~~of ~~Note:~~Contents

OnAt December 331, 2016, the balance on September 2015 Note Two was $40,411. ~~subject~~This toincluded athe ~~securities~~remaining ~~purchase~~face ~~agreement~~value weand ~~issued~~accrued ainterest ~~subordinated~~totaling ~~promissory~~$65,000, ~~note~~net ~~(the~~of ~~"December~~an ~~2015~~unamortized ~~Note")~~warrant toand ~~one~~beneficial ~~lender~~conversion feature (~~the~~“BCF”) ~~"December~~discounts ~~2015~~of ~~Lender")~~$16,527 inand ~~the~~an ~~aggregate~~unamortized ~~amount~~OID discount of $~~110~~8,~~000~~062. (During the ~~"Original~~year ~~Principal").~~ended ~~The~~ December 31, 2016, the Company timely met a series of scheduled cash payments on September 2015 Note ~~bears~~One ~~interest~~totaling at$88,500 8%and, ~~per~~prior ~~annum~~to ~~and~~scheduled ~~this~~redemption ~~amount~~date, ~~fully~~on ~~accrued~~September ~~upon~~23, ~~execution~~2016 the original lender extended the maturity date of the ~~loan~~note ~~and~~to ~~added~~November $814,~~800~~ 2016 in exchange for the right to convert the balance ~~due~~of at$73,500 ~~issuance~~into ~~date.~~common ~~The~~shares ~~principal~~of ~~and~~the ~~interest~~Company ~~was~~at ~~due~~a ~~and~~price ~~payable~~of in$0.04 ~~full~~per onshare. ~~December~~On 3September 23, 2016 ~~("Maturity~~the ~~Date")~~Company's closing share price was $0.0605 and ~~had~~this created a ~~re-payment~~BCF ~~schedule~~ which ~~requires~~was ~~payments~~valued ofat $3937,~~600~~669. ~~respectively~~On onNovember ~~sixth~~7, ~~ninth~~2016, ~~and~~prior ~~twelfth~~to ~~month~~scheduled ~~anniversary~~redemption ~~dates~~date, ofthe ~~issuance.~~$73,500 ~~The~~balance ~~December~~due on September 2015 ~~Notes~~Note ~~included~~Two anwas ~~aggregate~~purchased ~~$10,000~~by ~~original~~the ~~issuance~~September ~~discount~~2015 Note One Lender (~~"OID"~~hereinafter referred to as “September 2015 Note Two Purchaser”) ~~which~~from ~~resulted~~the original lender. Also on November 7, 2016, in ~~net~~return ~~proceeds~~for the addition of $~~100~~11,~~000.~~500 ~~The~~to ~~December~~the OID for September 2015 Note ~~provides~~Two, ~~for~~September ~~customary~~2015 ~~events~~Note Two Purchaser extended the maturity of ~~default~~September ~~such~~2015 asNote ~~failing~~Two to ~~timely~~August ~~make~~7, ~~payments~~2017 ~~and~~based on the ~~occurrence~~Company meeting a payment schedule of ~~certain~~$40,000 ~~fundamental~~on ~~defaults~~May 7, as2017 ~~described~~and in$45,000 ~~the~~on ~~December~~August ~~2015~~7, ~~Note~~2017. The ~~Note~~addition isof ~~not~~the ~~secured~~$11,500 ~~and~~addition isto ~~subordinated~~the OID increased the principal due on September 2015 Note Two to ~~senior~~$85,000. ~~notes~~On ~~issued~~November by23, ~~the~~2016, ~~Company~~$20,000 ~~and~~of ~~ranks~~September ~~equally~~2015 ~~with~~Note ~~other~~Two ~~debt~~was ~~issued~~converted by ~~the~~September ~~Company.~~2015 AsNote anTwo ~~inducement~~Purchaser ~~for~~into ~~the loan~~500,000 shares of the Company ~~issued~~which reduced the ~~December~~principal ~~2015~~due ~~Lender~~on ~~500~~the note to $65,000. ~~restricted~~During ~~common~~the ~~shares~~year ~~valued~~ended atDecember 31, 2016, a ~~non-cash~~total ~~cost~~of $96,509 of the warrant and BCF discounts were recorded as an amortization expense and $3014,~~050~~668 amortization of the OID was recorded as interest expense.

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. During the year ended December 31, 2015, $764 amortization of the OID was recorded as interest expense.~~:

~~Table~~December 2, 2016 the lender extended the maturity date of ~~Contents~~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. During the year ended December 31, 2016, a total of $3,065 of the BCF discount was recorded as an amortization expense and $8,056 amortization of the OID was recorded as interest expense.

AtLPC ~~December 31, 2016, the balance on the December 2015~~ Note ~~was~~One: $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. During the year ended December 31, 2016, a total of $3,065 of the BCF discount was recorded as an amortization expense and $8,056 amortization of the OID was recorded as interest expense.

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.

OnAt August 18, 2015, we issued a Senior Convertible Note ("LPC Note One") to a third party ("LPC") in the amount of $250,000. LPC Note One was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016 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~~recorded ~~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~~on ~~interest and interest payable from the date of prepayment to the Maturity Date.~~ LPC Note One ~~provides~~was 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~~68, ~~subject to adjustments for stock splits, stock dividends, stock combinations or other similar transactions as provided in LPC Note One~~086. AtThis noincluded ~~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~~remaining ~~outstanding~~face ~~shares~~value of ~~our common stock~~250, ~~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 3,750,~~000 ~~six year warrants~~, ~~which~~net ~~includes a cashless exercise provision, to purchase 3,750,000 restricted shares~~ of ~~our common stock at~~ an ~~exercise~~unamortized price of $0.10 per share which was valued using a Black-Scholes model at a non-cash cost of $277,014. At August 18, 2015, LPC Note One also included a 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~~discounts ~~the~~totaling ~~face value of the note less OID, the warrant discount for LPC Note One was capped at~~ $~~117~~177,~~857,~~505 ~~resulting~~and inan aunamortized ~~total~~OID discount of $~~225~~4,~~000~~409. On ~~December~~During ~~16, 2016, prior to~~ the ~~scheduled~~year ~~redemption~~ended ~~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~~$130,~~000,000~~348 ~~six year warrants, with cashless exercise rights, to purchase 7,000,000 restricted shares~~ of ~~our~~the ~~common~~BCF ~~stock~~and atwarrant andiscounts ~~exercise price of $0.05 per share. The warrants~~ were ~~valued~~recorded ~~using~~as aan ~~Black-Scholes~~amortization ~~model~~expense, ~~at a non-cash cost of~~ $~~315~~13,~~658,~~854 of ~~which~~the ~~$143,481~~OID was ~~ascribed~~recorded as aninterest ~~increase~~expense, toand ~~the~~accrued ~~discount~~interest of ~~LPC Note One and~~ $~~172~~12,~~177~~708 was ~~ascribed~~paid asvia anissuances ~~increase to the discount~~ of ~~LPC~~181,544 ~~Note~~restricted ~~Two~~common shares.

~~At December 31, 2015, the recorded balance on~~ LPC Note ~~One~~Two: was $67,365. This included the remaining face value of $250,000, net of unamortized warrant and BCF discounts totaling $164,372 and an unamortized OID discount of $18,263. During the year ended December 31, 2015, $60,628 of the discount was recorded as an amortization expense, $6,737 of the OID was recorded as interest expense, and accrued interest of $4,688 was paid through issuance of 90,286 restricted common shares.

33On 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.

~~Table of Contents~~25

AtTable ~~December 31, 2016, the recorded balance on LPC Note One was $68,086, This included the remaining face value~~ of 250,000, net of an unamortized warrant and BCF discounts totaling $177,505 and an unamortized OID discount of $4,409. During the year ended December 31, 2016, $130,348 of the BCF and warrant discounts were recorded as an amortization expense, $13,854 of the OID was recorded as interest expense, and accrued interest of $12,708 was paid via issuances of 181,544 restricted common shares.Contents

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.

OnDuring ~~November 23, 2015, we issued a Senior Convertible Note ("LPC Note Two") to LPC in~~ the ~~amount~~year ofended $300,000. LPC Note Two was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016. LPC 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~~ ~~OID which resulted in net proceeds of~~ $~~270~~130,~~000.~~348 ~~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~~BCF ~~outstanding balance, accrued interest~~ and ~~interest~~warrant ~~payable~~discounts ~~from~~were ~~the~~recorded ~~date of prepayment to the Maturity Date. LPC Note Two provides for customary events of default such~~ as ~~failing~~an toamortization ~~timely make payments and the occurrence of certain fundamental defaults~~expense, as described in LPC Note Two. LPC Note Two is not secured and is subordinated to the VDF Note, ranks equally with LPC Note One, and ranks above other debt issued by the Company. The principal amount of LPC Note Two and all accrued interest is convertible at the option of LPC into shares of our common stock at any time at a fixed Conversion Price of $~~0.05 per share~~13,854 ~~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~~OID ~~outstanding~~was ~~shares~~recorded ~~of our common stock, provided such percentage may increase to 9.99% upon not less than 61 days prior written notice. On November 23, 2015,~~ as aninterest ~~inducement for the loan the Company granted LPC 5~~expense,~~000,000~~ ~~six~~and ~~year~~accrued ~~warrants,~~interest ~~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~~15,~~098.~~250 ~~At November 23, 2015, LPC Note Two also included a BCF of $102,600 because the exercise price of LPC Note Two~~ was ~~set~~paid ~~below~~via ~~the~~issuances ~~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~~305, ~~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.shares

AtRP ~~December 31, 2015, the recorded balance on LPC~~ Note Two was $28,218. This included the remaining face value of $300,000, net of an unamortized warrant and BCF discounts totaling $244,604 and an unamortized OID of $27,178. During the year ended December 31, 2015, $25,396 of the BCF and warrant discounts were recorded as an amortization expense, $2,822 of the OID was recorded as interest expense, and accrued interest of $7,561 was paid via issuance of 151,680 restricted common shares.:

AtOn ~~December~~July 31, 2016, the ~~recorded~~Company ~~balance~~issued ona ~~LPC~~$100,000 ~~Note~~note ~~Two~~(the ~~was~~“RP ~~$69,000.~~Note”) ~~This~~to ~~included~~a director of the ~~remaining~~Company ~~face~~for ~~value~~a ofloan. ~~$300,000,~~The ~~net~~RP ofNote anhas ~~unamortized~~a ~~discount~~maturity date of ~~$224~~January 27,~~438~~ 2017 and anis ~~unamortized~~classified ~~OID~~as ofshort ~~$6,562~~term related party debt. ~~During~~The ~~the~~RP ~~year~~Note ~~ended~~bears ~~December~~interest ~~31,~~at ~~2016,~~8% ~~$130,348~~per ofannum ~~the~~due ~~BCF~~at maturity and ~~warrant~~may ~~discounts~~be ~~were~~prepaid ~~recorded~~in aswhole, anor ~~amortization~~in ~~expense~~part, ~~$13~~at any time before each maturity date without prepayment penalty. 340,~~854~~000 restricted common shares of the ~~OID~~Company ~~was~~were ~~recorded~~issued to the lender as ~~interest~~a ~~expense,~~fee ~~and~~valued ~~accrued~~at ~~interest~~a non-cash cost of $15,~~250~~504. At December 31, 2016, the balance due on the RP Note was ~~paid~~$103,353 ~~via~~including ~~issuances~~$3,353 of ~~305,000~~accrued ~~restricted~~interest ~~common~~for ~~shares~~the year ended December 31, 2016.

34VDF Note:

~~Table~~On January 4, 2017, VDF and the Company executed an addendum to the VDF Note and the PSA in which VDF agreed it will: (i) remove its lien on the Company’s inventory and accounts receivable in the event that the Company executes any line of ~~Contents~~credit, inventory purchase order financing, or accounts receivable factoring agreements with third party lender(s); and (ii) promptly execute any inter-creditor agreement(s) provided to VDF by such third party lender(s) which affirm VDF’s permission for the creation of liens by the third party lender(s) which rank in priority above VDF’s existing lien

~~Interim~~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, we rolled-over License fee payments totaling $375,000 and recorded accrued interest of $42,188 for a total addition to the VDF Note of $332,812.

OnEquity ~~June~~Line 5,sales 2015, the Company issued a $500,000 note (the "Interim Note") to a corporation affiliated with a director of the Company. This Note was classified as related party debt and had a maturity date of December 5, 2015. The Interim Note required two payments of $250,000 on the three and six month anniversaries of issuance, allowed for re-payment at any time without penalty, and accrued interest at 12% per annum. 1,700,000 restricted common shares of the Company were issued to the lender as an inducement fee at a non-cash cost. As security for the Interim Note, the Company's Chief Executive Officer pledged 3,333,333 shares of the Company (the "Pledge"), which he owned, as security for the Interim Note (the "Pledge Shares"). If the Company had defaulted on the Interim Note, the portion of the Pledge Shares equivalent to the amount due would have been released to re-pay the loan. The Company made early re-payments of $50,000 on June 23, 2015 and $211,556 on August 19, 2015 as full settlement of the first installment of Interim Note, including $11,556 of accrued interest then due; and on November 24, 2015 made early repayment of the second installment totaling $253,534, including $3,534 of accrued interest then due; and on that date the Pledge was dissolved. At December 31, 2015, the balance due on the Interim Note was $nil and the Interim Note was fully repaid.termination

RPOn ~~Note:~~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 now effectively defunct.

OnNo ~~July~~Variable ~~31,~~Rate ~~2016,~~Convertible 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 a non-cash cost of $15,504. 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.Securities

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

On June 5, 2015, the Company repaid and extinguished an Unsecured Subordinate Debenture which it issued on January 20, 2015 to a third party lender. This note had a face value of $440,000, included $40,000 OID, and provided proceeds of $400,000. The note initially had a recorded balance of $207,074, net of a discount of $232,926 created by an embedded derivative liability which resulted from the note having a conversion price adjustment provision. At redemption on June 5, 2015, the lender was paid a prepayment premium of $68,929, calculated as 15% of face value principal of $400,000, plus accrued interest and OID of $59,529, for a total redemption payment of $528,458. Because there was a derivative liability recorded for this note, the derivative component of the note was markedOff-~~to-market~~Balance atSheet time of redemption and the resulting net loss of $41,182 was recorded at redemption as an amortization expense. $5,788 OID was amortized to interest expense over the life of the note and the repayment of the remaining $34,212 OID was recorded as an interest expense at time of redemption. Repayment of the Unsecured Subordinate Debenture effected a termination of the Convertible Debt Purchase Agreement. This variable rate convertible debenture is now repaid in full and extinguished.Arrangements

~~VDF~~We ~~Note:~~had no significant off-balance sheet arrangements at December 31, 2016 or December 31, 2015 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.

OnMaterial ~~January~~Events 28, 2014, we entered into a patent settlement with VDF FutureCeuticals, Inc. ("VDF") at which time a senior convertible note (the "VDF Note") was issued to VDF, whereby we promised to pay VDF a principal amount equal to the sum of aggregate accrued and unpaid patent license fee payments plus accrued interest. 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 and we have the right, subject to certain limitations, to prepay principal at any time and from time to time. At any time VDF has the option to convert any principal outstanding on the VDF Note into shares of our common stock at a Conversion Price determined by the terms of the VDF Note, which is subject to adjustment based on our issuance of stock and other securities. During the year ended December 31, 2016, the Conversion Price of the Senior Convertible Note was adjusted from $0.3823 per share to $0.2157 per share per the terms of the Senior Convertible Note. The VDF Note provides that we may, at our option, roll-over to the VDF Note quarterly License fee payments and accrued interest and is secured through the Pledge and Security Agreement ("PSA") and is senior to any other debt issued by the Company unless prior written consent of VDF is obtained to amend the ranking.Uncertainties

35Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable early stage companies in rapidly evolving markets. There can be no assurance that we will successfully address such risks, expenses and difficulties.

~~Table~~ITEM of7A. ~~Contents~~QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

OnWe ~~January~~have 4,not ~~2017,~~entered ~~VDF~~into ~~and~~derivative ~~the~~contracts ~~Company~~either ~~executed an addendum~~ to ~~the~~hedge ~~VDF~~existing ~~Note~~risk and the PSA in which VDF agreed it will: (i) remove its lien on the Company's inventory and accounts receivable in the event that the Company executes any line of credit, inventory purchase order financing, or accounts receivable factoring agreements with third party lender(s); and (ii) promptly execute any inter-creditor agreement(s) provided to VDF by such third party lender(s) which affirm VDF's permission for ~~the~~speculative ~~creation of liens by the third party lender(s) which rank in priority above VDF's existing lien~~purposes. ~~A copy of this agreement is attached to this Report as Exhibit 10.53.~~

At December 31, 2015, the VDF Note had an outstanding balance $453,298. This included the principal due of $469,272, net of a discount of $15,974 resulting from the embedded derivative. 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 $318,481.26

AtTable ~~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, we rolled-over License fee payments totaling $375,000 and recorded accrued interest of $42,188 for a total addition to the VDF Note of $332,812.Contents

~~Off-Balance~~ITEM ~~Sheet~~8. ~~Arrangements~~FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

WeINDEX had no significant off-balance sheet arrangements at December 31, 2016 or December 31, 2015 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.TO

~~Material~~FINANCIAL ~~Events and Uncertainties~~STATEMENTS

Our operating results are difficult to forecast. Our prospects should be evaluated in light of the risks, expenses and difficulties commonly encountered by comparable early stage companies in rapidly evolving markets. There can be no assurance that we will successfully address such risks, expenses and difficulties.

	Page

Report of Independent Registered Public Accounting Firm	28

Audited Financial Statements for the years ended December 31, 2017 and December 31, 2016:

Balance Sheets	29

Statements of Operations	30

Statement of Stockholders’ Deficit	31 - 32

Statements of Cash Flows	33

Supplementary Disclosure of Cash Flow Information	34

Non Cash Investing and Financing Activities	34

Notes to Financial Statements	35

~~ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK~~27

WeTable ~~have~~of ~~not entered into derivative contracts either to hedge existing risk or for speculative purposes.~~Contents

36REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

~~Table~~To the Board of ~~Contents~~Directors

~~ITEM~~KonaRed ~~8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA~~Corporation

~~INDEX~~Opinion TOon the Financial Statements

~~FINANCIAL~~We ~~STATEMENTS~~have audited the accompanying balance sheets of KonaRed Corporation (the Company) as of December 31, 2017 and 2016, and the related statements of operations, stockholders’ equity (deficit), and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes and schedules (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017, in conformity with accounting principles generally accepted in the United States of America.

	Page
Report of Independent Registered Public Accounting Firm	38
Audited Financial Statements for the years ended December 31, 2016 and December 31, 2015:
Balance Sheets	39
Statements of Operations	40
Statement of Stockholders' Equity/(Deficit)	41
Statements of Cash Flows	42
Supplementary Disclosure of Cash Flow Information	43
Non Cash Investing and Financing Activities	44
Notes to Financial Statements	45

Basis for Opinion

37These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the SEC and the PCAOB.

~~Table~~We conducted our audits in accordance with the standards of ~~Contents~~the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

~~REPORT~~Our OFaudits ~~INDEPENDENT~~included ~~REGISTERED~~performing ~~PUBLIC~~procedures ~~ACCOUNTING~~to ~~FIRM~~assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

ToThe accompanying financial statements have been prepared assuming that the ~~Board~~Company ofwill ~~Directors~~ continue ~~KonaRed~~as ~~Corporation~~a going concern. As discussed in Note 3 to the financial statements, the Company has suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

We/s/ ~~have~~M&K ~~audited the accompanying balance sheets of KonaRed Corporation as of December 31~~CPAS, 2016 and 2015 and the related statement of income, stockholders' equity, and cash flows for each of the years in the two-year period ended December 31, 2016. KonaRed Corporation's management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.PLLC

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, ~~nor~~served ~~were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting~~ as ~~a basis for designing audit procedures that are appropriate in~~ the ~~circumstances, but not for the purpose of expressing an opinion on the effectiveness of the~~ Company'’s ~~internal~~auditor ~~control~~since ~~over financial reporting~~2014. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

~~In our opinion~~Houston, the financial statements referred to above present fairly, in all material respects, the financial position of KonaRed Corporation as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2016, in conformity with accounting principles generally accepted in the United States of America.TX

~~The~~March ~~accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements~~6, the Company has suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 3. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.2019

~~/s/ M&K CPAS, PLLC~~28

~~www.mkacpas.com~~Table of Contents

~~Houston,~~KONARED ~~Texas~~CORPORATION

~~April~~BALANCE ~~12, 2017~~SHEETS

	December 31, 2017			December 31, 2016
ASSETS
CURRENT ASSETS
Cash	$	1,305,839		$	68,546
Accounts receivable		230,940			120,565
Accounts receivable - related party		—			1,800
Inventory		423,875			267,830
TOTAL CURRENT ASSETS		1,960,654			458,741

OTHER ASSETS
Fixed assets (net of accumulated depreciation)		12,066			7,803
TOTAL OTHER ASSETS		12,066			7,803
TOTAL ASSETS	$	1,972,720		$	466,544

LIABILITIES AND STOCKHOLDERS’ DEFICIT
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	571,903		$	140,007
Short term convertible notes, net of discounts		140,035			209,578
Short term debt - related party		—			103,353
Unearned revenue		152,986			193,020
Derivative liability		9,016,712			11,649
TOTAL CURRENT LIABILITIES		9,881,636			657,607

LONG-TERM LIABILITIES
Long term convertible notes payable, net of discounts		—			869,674
TOTAL LONG-TERM LIABILITIES		—			869,674
TOTAL LIABILITIES		9,881,636			1,527,281

COMMITMENTS AND CONTINGENCIES		—			—

STOCKHOLDERS’ DEFICIT
Series A Preferred shares, 6,500 shares with par value $0.001 authorized; 1,554.26 shares issued and outstanding at December 31, 2017; no shares issued and outstanding at December 31, 2016.		2			—
Series B Preferred shares, 810 shares with par value $0.001 authorized; 252.17 shares issued and outstanding at December 31, 2017; no shares issued and outstanding at December 31, 2016.		—			—
Common shares, 877,500,000 shares with par value $0.001 authorized; 226,116,621 and 162,932,882 shares issued and outstanding at December 31, 2017 and December 31, 2016, respectively		226,160			162,975
Additional paid in capital		29,173,788			22,158,506
Accumulated deficit		(37,308,866	)		(23,382,218	)
TOTAL STOCKHOLDERS’ DEFICIT		(7,908,916	)		(1,060,737	)

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT	$	1,972,720		$	466,544

~~Table~~The accompanying notes to financial statements are an integral part of ~~Contents~~these financial statements.

~~KONARED CORPORATION~~29

~~BALANCE~~Table ~~SHEETS~~of Contents

	December 31, 2016			December 31, 2015
ASSETS
CURRENT ASSETS
Cash	$	68,546		$	148,769
Accounts receivable		120,565			33,227
Accounts receivable - related party		1,800			18,000
Inventory		267,830			439,158
Prepaid expenses		—			5,953
TOTAL CURRENT ASSETS		458,741			645,107
OTHER ASSETS
Fixed assets (net of accumulated depreciation)		7,803			10,247
TOTAL OTHER ASSETS		7,803			10,247
TOTAL ASSETS	$	466,544		$	655,354
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES
Accounts payable and accrued liabilities	$	140,007		$	211,429
Accounts payable - related party		—			3,156
Short term convertible notes, net of discounts		209,578			—
Short term debt, net of discounts		—			235,237
Short term debt - related party		103,353			—
Unearned revenue		193,020			1,434
Derivative liability		11,649			11,807
TOTAL CURRENT LIABILITIES		657,607			463,063
LONG-TERM LIABILITIES
Long term convertible notes payable, net of discounts		869,674			548,881
TOTAL LONG-TERM LIABILITIES		869,674			548,881
TOTAL LIABILITIES		1,527,281			1,011,944
COMMITMENTS AND CONTINGENCIES		—			—
STOCKHOLDERS' EQUITY (DEFICIT)
Preferred shares, 10,000 shares with par value $0.001authorized; no shares issued and outstanding at December 31, 2016 and December 31, 2015.		—			—
Common shares, 877,500,000 shares with par value $0.001 authorized; 162,932,882 and 108,769,514 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively		162,975			108,787
Additional paid in capital		22,158,506			19,616,012
Accumulated deficit		(23,382,218	)		(20,081,389	)
TOTAL STOCKHOLDERS' EQUITY (DEFICIT)		(1,060,737	)		(356,590	)
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)	$	466,544		$	655,354

KONARED CORPORATION

~~The~~STATEMENTS ~~accompanying~~OF ~~notes to financial statements are an integral part of these financial statements~~OPERATIONS

	Year ended December 31, 2017			Year ended December 31, 2016
REVENUE:
Product sales	$	2,861,823		$	1,038,482
Product sales - related party		—			1,800
Shipping and delivery		11,900			18,914
Total sales		2,873,723			1,059,196

Cost of goods sold		2,339,159			740,806
GROSS MARGIN		534,564			318,390

OPERATING EXPENSES:
Research and development		5,786			5,320
Advertising and marketing		476,973			276,299
General and administrative expenses		3,356,872			2,692,774
Total operating expenses		3,839,631			2,974,393

Loss from operations		(3,305,067	)		(2,656,003	)

OTHER INCOME (EXPENSE):
License fee		40,182			7,014
Interest expense		(64,760	)		(186,793	)
Amortization expense - notes discounts		(466,522	)		(472,510	)
Change in fair market value of derivative liabilities		(9,016,712	)		7,463
Loss on debt modification		(1,113,770	)		—
Total other income (expense)		(10,621,582	)		(644,826	)
Net loss	$	(13,926,649	)	$	(3,300,829	)

Basic loss per common share	$	(0.09	)	$	(0.03	)
Basic weighted average shares outstanding		161,083,564			131,480,362
Diluted weighted average shares outstanding		177,910,583			131,480,362

~~Table~~The accompanying notes to financial statements are an integral part of ~~Contents~~these financial statements.

~~KONARED CORPORATION~~30

~~STATEMENTS~~Table OFof ~~OPERATIONS~~Contents

	Year ended December 31, 2016			Year ended December 31, 2015
REVENUE:
Product sales	$	1,038,482		$	571,824
Product sales - related party		1,800			39,600
Shipping and delivery		18,914			24,079
Total sales		1,059,196			635,503
Cost of goods sold		740,806			443,049
GROSS MARGIN		318,390			192,454
OPERATING EXPENSES:
Research and development		5,320			6,502
Advertising and marketing		276,299			435,390
General and administrative expenses		2,692,774			3,090,569
Total operating expenses		2,974,393			3,532,461
Loss from operations		(2,656,003	)		(3,340,007	)
OTHER INCOME (EXPENSE):
License fee		7,014			—
Interest expense		(186,793	)		(255,372	)
Amortization expense - notes discounts		(472,510	)		(128,200	)
Change in fair market value of derivative liabilities		7,463			(35,037	)
Loss on equity modification		—			(41,753	)
Total other income (expense)		(644,826	)		(460,362	)
Loss before income taxes	$	(3,300,829	)	$	(3,800,369	)
Provision for income taxes		—			—
Net loss	$	(3,300,829	)	$	(3,800,369	)
Basic and diluted loss per common share	$	(0.03	)	$	(0.04	)
Basic and diluted weighted average shares outstanding		131,480,362			91,278,322

KONARED CORPORATION

~~The~~STATEMENTS ~~accompanying~~OF ~~notes~~CHANGES toIN ~~financial statements are an integral part of these financial statements~~STOCKHOLDERS’ DEFICIT

	Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Additional Paid In Capital			Accumulated Deficit			Total
Ending balance – December 31, 2015		—		—		108,769,515	$	108,787	$	19,616,012		$	(20,081,389	)	$	(356,590	)
Common shares issued for cash		—		—		32,150,000		32,150		1,053,850			—			1,086,000
Common shares issued under equity line		—		—		6,450,000		6,450		316,486			—			322,936
Common shares issued for services		—		—		5,482,750		5,484		266,087			—			271,571
Common shares issued for equity line underwriting fees		—		—		21,529		43		(43	)		—			—
Common shares issued as compensation		—		—		7,597,544		7,598		397,779			—			405,377
Common shares issued for convertible notes redemptions		—		—		1,975,000		1,975		120,750			—			122,725
Common shares issued for interest payments		—		—		486,544		488		24,853			—			25,341
Additional paid-in capital related to warrant issuances		—		—		—		—		315,658			—			315,658
Additional paid-in capital related to convertible notes beneficial conversion features		—		—		—		—		47,074			—			47,074
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	)

~~Table~~The accompanying notes to financial statements are an integral part of ~~Contents~~these financial statements.

~~KONARED CORPORATION~~31

~~STATEMENTS~~Table OFof ~~CHANGES IN STOCKHOLDERS' EQUITY (DEFICIT)~~Contents

					Additional
	Common Stock				Paid In			Accumulated
	Shares		Amount		Capital			Deficit			Total
Ending balance – December 31, 2014		83,496,531	$	83,497	$	16,705,636		$	(16,281,020	)	$	508,113
Common shares issued for cash		3,333,334		3,333		346,667			—			350,000
Common shares issued under equity line		8,550,000		8,550		621,300			—			629,850
Common shares issued for services		6,344,022		6,345		591,926			—			598,271
Common shares issued for equity line underwriting fees		2,708,656		2,724		(2,724	)		—			—
Common shares issued as compensation		4,238,341		4,238		346,645			—			350,883
Common shares issued for interest payments		98,631		100		6,171			—			6,271
Additional paid-in capital related to option grants		—		—		220,960			—			220,960
Additional paid-in capital related to warrant issuances		—		—		453,046			—			453,046
Additional paid-in capital related to convertible notes beneficial conversion features		—		—		209,743			—			209,743
Additional paid-in capital related to convertible notes redemption		—		—		74,889			—			74,889
Additional paid-in capital related to equity modification		—		—		41,753			—			41,753
Net loss – year ended December 31, 2015		—		—		—			(3,800,369	)		(3,800,369	)
Ending balance – December 31, 2015		108,769,515	$	108,787	$	19,616,012		$	(20,081,389	)	$	(356,590	)
Common shares issued for cash		32,150,000		32,150		1,053,850			—			1,086,000
Common shares issued under equity line		6,450,000		6,450		316,486			—			322,936
Common shares issued for services		5,482,750		5,484		266,087			—			271,571
Common shares issued for equity line underwriting fees		21,529		43		(43	)		—			—
Common shares issued as compensation		7,597,544		7,598		397,779			—			405,377
Common shares issued for convertible notes redemptions		1,975,000		1,975		120,750			—			122,725
Common shares issued for interest payments		486,544		488		24,853			—			25,341
Additional paid-in capital related to warrant issuances		—		—		315,658			—			315,658
Additional paid-in capital related to convertible notes beneficial conversion features		—		—		47,074			—			47,074
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	)

KONARED CORPORATION

~~The~~STATEMENTS ~~accompanying~~OF ~~notes~~CHANGES toIN ~~financial statements are an integral part of these financial statements~~STOCKHOLDERS’ DEFICIT

41(continued)

Table of Contents

	Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Additional Paid In Capital		Accumulated Deficit			Total
Ending balance – December 31, 2016		—		—		162,932,882	$	162,975	$	22,158,506	$	(23,382,218	)	$	(1,060,737	)
Common shares issued for cash		—		—		26,219,874		26,221		1,222,747		—			1,248,968
Common shares issued for services		—		—		3,186,500		3,187		173,694		—			176,881
Common shares issued for convertible notes conversions		—		—		29,768,442		29,769		1,762,853		—			1,792,621
Common shares issued for exercise of warrants		—		—		2,401,038		2,401		489,199		—			491,600
Series A preferred shares issued for cash		1,554		2		—		—		2,199,998		—			2,200,000
Series B preferred shares issued for cash		35		—		—		—		50,000		—			50,000
Series B preferred shares issued for debt conversion		217		—		—		—		446,700		—			446,700
Series B preferred shares issued for accrued compensation conversion		—		—		—		—		115,317		—			115,317
Additional paid-in capital related to option issuances		—		—		—		—		136,648		—			136,648
Loss on debt modification		—		—		—		—		335,409		—			335,409
Net loss – year ended December 31, 2017		—		—		—		—		—		(13,926,649	)		(13,926,649	)
Ending Balance – December 31, 2017		1,806		2		226,116,621	$	226,160	$	29,173,788	$	(37,308,866	)	$	(7,908,916	)

~~KONARED~~The ~~CORPORATION~~accompanying notes to financial statements are an integral part of these financial statements.

~~STATEMENTS OF CASH FLOWS~~32

	Year Ended December 31, 2016			Year Ended December 31, 2015
OPERATING ACTIVITIES:
Net loss	$	(3,300,829	)	$	(3,800,369	)
Adjustments to reconcile net loss to net cash used in operating activities:
Bad debt expense		—			6,020
Depreciation expense		2,444			2,444
Stock issued for compensation		405,377			350,883
Stock issued for services		271,571			598,272
Loss on debt conversions		43,725			—
Option grants expense		—			220,960
Change in fair market value of derivative liabilities		(7,574	)		35,037
Amortization of notes payable discounts		565,528			197,905
Loss on equity modification		—			41,753
Change in operating assets and liabilities:
Accounts receivable		(71,138	)		220,993
Inventory		171,328			69,180
Prepaid expenses		5,953			10,047
Other current assets		—			652
Accounts payable and accrued liabilities		(76,062	)		19,402
Accrued interest		50,631			19,281
Unearned revenue		191,587			(2,009	)
NET CASH USED IN OPERATING ACTIVITIES		(1,747,460	)		(2,009,549	)
INVESTING ACTIVITIES:
Purchase of fixed assets		—			—
NET CASH USED IN INVESTING ACTIVITIES		—			—
FINANCING ACTIVITIES:
Proceeds from short term debt		—			325,000
Proceeds from short term debt - related party		100,000			500,000
Repayment of short term debt - related party		—			(500,000	)
Repayments of short term convertible notes payable		(216,700	)		—
Proceeds from long term convertible notes payable		375,000			1,213,481
Repayment of long term convertible notes payable		—			(400,000	)
Proceeds from issuance of common stock for cash		1,408,936			979,850
NET CASH PROVIDED BY FINANCING ACTIVITIES		1,667,236			2,118,331
NET INCREASE (DECREASE) IN CASH		(80,223	)		108,782
CASH, Beginning of Period		148,769			39,987
CASH, End of Period	$	68,546		$	148,769

Table of Contents

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

42STATEMENTS OF CASH FLOWS

Table of Contents

	Year Ended December 31, 2017			Year Ended December 31, 2016
OPERATING ACTIVITIES:
Net loss	$	(13,926,649	)	$	(3,300,829	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation expense		2,798			2,444
Stock issued for compensation and services		251,804			676,948
Patent fee		200,000			—
Loss on debt modifications, conversions, and settlement		742,789			43,725
Change in fair market value of derivative liabilities		9,016,712			(7,574	)
Amortization of notes payable discounts		466,522			565,528
Options grant expense		136,648			—
Change in operating assets and liabilities:
Accounts receivable		(108,575	)		(71,138	)
Inventory		(156,045	)		171,328
Prepaid expenses		—			5,953
Accounts payable and accrued liabilities		607,851			(76,062	)
Accrued interest		—			50,631
Unearned revenue		(40,034	)		191,587
NET CASH USED IN OPERATING ACTIVITIES		(2,806,179	)		(1,747,459	)

INVESTING ACTIVITIES:
Purchase of fixed assets		(7,061	)		—
NET CASH USED IN INVESTING ACTIVITIES		(7,061	)		—

FINANCING ACTIVITIES:
Proceeds from short term debt - related party		200,000			100,000
Proceeds from short term debt		100,000			—
Repayments of short term convertible notes payable		(240,035	)		(216,700	)
Proceeds from long term convertible notes payable		—			375,000
Proceeds from issuance of preferred stock for cash		2,250,000			—
Warrants exercised for cash		491,600			—
Proceeds from issuance of common stock for cash		1,248,968			1,408,936
NET CASH PROVIDED BY FINANCING ACTIVITIES		4,050,533			1,667,236

NET INCREASE (DECREASE) IN CASH		1,237,293			(80,223	)

CASH, Beginning of Period		68,546			148,769

CASH, End of Period	$	1,305,839		$	68,546

~~KONARED~~The ~~CORPORATION~~accompanying notes to financial statements are an integral part of these financial statements.

~~SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION~~33

	Year Ended December 31, 2016		Year Ended December 31, 2015
Cash paid during the year for:
Interest	$	1,025	$	128,458
Taxes	$	—	$	—

Table of Contents

~~NON~~KONARED ~~CASH INVESTING AND FINANCING ACTIVITIES~~CORPORATION

	Year Ended December 31, 2016		Year Ended December 31, 2015
Debt discounts due to derivative	$	7,416	$	241,710
Discounts due to warrants	$	315,658	$	453,046
Interest paid by stock issuances	$	25,341	$	6,271
Shares issued as commitment fees - offering costs	$	43	$	2,724
Debt discounts from beneficial conversion features	$	47,074	$	209,743
Settlement of derivative liability	$	—	$	274,108
Debt converted to common stock	$	79,000	$	—

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

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

Year Ended

December 31, 2017

Year Ended

December 31, 2016

Cash paid during the year for:

Interest

—

1,025

43NON CASH INVESTING AND FINANCING ACTIVITIES

Table of Contents

	Year Ended December 31, 2017		Year Ended December 31, 2016
Debt discounts due to derivative	$	—	$	7,416
Discounts due to warrants	$	—	$	315,658
Interest paid by stock issuances	$	—	$	25,341
Shares issued as commitment fees - offering costs	$	—	$	43
Debt discounts from beneficial conversion features	$	—	$	47,074
Settlement of derivative liability	$	11,649	$	—
Debt and accrued interest converted to common stock	$	1,552,816	$	79,000
Debt and accrued interest converted to Series B Preferred Stock	$	306,949	$	—
Settlement of debt with debt	$	30,070	$	—
Series B Preferred Stock options granted to satisfy accrued compensation	$	115,317	$	—

~~KONARED~~The ~~CORPORATION~~accompanying notes to financial statements are an integral part of these financial statements.

~~NOTES TO FINANCIAL STATEMENTS~~34

~~NOTE~~Table ~~1 – Nature~~ of ~~Organization~~Contents

~~KonaRed~~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").CORPORATION

~~NOTE~~NOTES 2TO –FINANCIAL ~~Basis of Presentation and Summary of Significant Accounting Policies~~STATEMENTS

~~Basis~~NOTE of1 ~~Presentation~~– ~~and~~Nature ~~Fiscal~~of ~~Year~~Organization

~~These~~KonaRed ~~financial~~Corporation ~~statements~~(“KonaRed”, ~~have~~“KonaRed ~~been~~Corporation”, ~~presented~~“us”, by“we”, the “Registrant”, or the “Company”) was incorporated in ~~accordance~~the ~~with~~State ~~accounting~~of ~~principles~~Nevada ~~generally~~on ~~accepted~~October 4, 2010 as TeamUpSport Inc. Prior to, and in anticipation of, closing of an asset purchase agreement (the ~~United~~“Asset ~~States~~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 ~~are~~undertaking ~~expressed~~of the health beverage and food business (the “Business”) operated under the name “KonaRed” from Sandwich Isles Trading Co., Inc., which was a private company incorporated in UHawaii on August 22, 2008 and dissolved on May 23, 2014.S As a result of October 4, 2013 acquisition of the Business from Sandwich Isles Trading Co., ~~dollars~~Inc. ~~The~~we ~~Company's~~ceased ~~fiscal~~to ~~year~~be a “shell company” as defined in Rule 12b-~~end~~2 isof ~~December~~the ~~31st~~Securities Exchange Act of 1934 (the “Exchange Act”).

~~Use~~NOTE 2 – Basis of ~~Estimates~~Presentation and Summary of Significant Accounting Policies

~~The~~Basis ~~preparation~~ of ~~these~~Presentation ~~financial statements in accordance with United States generally accepted accounting principles requires management to make estimates~~ and ~~assumptions~~Fiscal 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.Year

~~Financial~~These ~~Instruments~~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.

~~The~~Use ~~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.Estimates

~~Cash~~The preparation of these financial statements in accordance with United States generally accepted accounting principles requires management to make estimates and ~~Cash~~assumptions ~~Equivalents~~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.

~~The~~Financial 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 years ended December 31, 2016 and December 31, 2015.Instruments

44The 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.

~~Table~~Cash ofand ~~Contents~~Cash Equivalents

~~KONARED~~The ~~CORPORATION~~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 years ended December 31, 2017 and December 31, 2016.

~~NOTES~~Deferred ~~TO FINANCIAL STATEMENTS~~Revenue

~~NOTE~~Revenue 2from –customer ~~Basis~~purchase agreements is recorded as unearned revenue and amortized over the term of ~~Presentation~~the agreements. At December 31, 2017 and ~~Summary~~December 31, 2016, unearned revenues were $152,986 and $193,020 respectively. Unearned revenue is normally comprised of ~~Significant~~online ~~Accounting~~subscriptions ~~Policies~~wherein we ship a scheduled amount of product to online retail subscribers each month. During the year ended December 31, 2016, unearned revenue also included a cash payment we received for a non-refundable signing fee of $200,000 from a strategic supplier partnership arrangement (~~continued~~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. For fiscal 2017 and 2016, the amortized portion was $40,000 and $7,014, respectively. The fee is recorded as other income.

~~Deferred Revenue~~35

~~Revenue~~Table ~~from customer purchase agreements is recorded as unearned revenue and amortized over the term~~ of the agreements. At December 31, 2016 and December 31, 2015, unearned revenues were $193,020 and $1,434 respectively. Unearned revenue is normally comprised of online subscriptions wherein we ship a scheduled amount of product to online retail subscribers each month. During the year ended December 31, 2016, unearned revenue also included a cash payment we received for a non-refundable signing fee of $200,000 from a strategic supplier partnership arrangement (the "FP Agreement"). Contents

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

Trade accounts receivable are periodically evaluated for collectability based on past credit history with customers and their current financial condition. Bad debts expense or write offs of receivables are determined on the basis of loss experience, known and inherent risks in the receivable portfolio and current economic conditions. During the years ended December 31, 2016 and December 31, 2015, the Company wrote off accounts receivable totaling $6,149 and $6,020, respectively, and during the year ended December 31, 2016 collected $12,238 which had been written off as bad debt in a prior period . There were no allowances for doubtful accounts recorded for the years ended December 31, 2016 and December 31, 2015.

Total for the Year Ended	Amount
2016	$	7,014
2017	$	40,000
2018	$	40,000
2019	$	40,000
2020	$	40,000
2021	$	32,877
TOTAL	$	200,000

~~Inventories~~Accounts Receivable

~~Inventories~~Trade ~~are~~accounts ~~composed~~receivable ofare ~~raw~~periodically ~~materials~~evaluated ~~and~~for ~~finished~~collectability ~~goods.~~based ~~Our~~on ~~raw~~past ~~materials~~credit ~~inventory~~history iswith ~~comprised~~customers ~~of dried coffee fruit~~ and ~~other~~their ~~input~~current ~~components,~~financial ~~such as labels, caps, and packaging materials~~condition. Bad ~~Our~~debts ~~finished~~expense ~~goods~~or ~~inventory~~write ~~process~~offs ~~begins when we take possession~~ of ~~dried~~receivables ~~coffee~~are ~~fruit~~determined ~~from~~on ~~coffee growers in Hawaii. We then ship~~ the ~~raw~~basis ~~material~~of toloss ~~our~~experience, ~~California~~known ~~warehouse for storage~~ and ~~then~~inherent ~~send~~risks ~~required~~in ~~quantities to subcontractors for value-added processing; or we ship~~ the ~~raw~~receivable ~~materials~~portfolio ~~directly~~and ~~from~~current ~~Hawaii~~economic ~~to the processors~~conditions. ~~For~~During ~~our~~the ~~beverage~~years ~~products~~ended ~~which~~December ~~include coffee fruit~~31, ~~value-added~~2017 ~~processing~~and ~~then~~December ~~occurs~~31, ~~whereby~~2016, the ~~dried~~Company ~~coffee~~wrote ~~fruit~~off isaccounts ~~converted~~receivable tototaling ~~liquid~~$- ~~extract~~and ~~through~~$6,149, ~~water~~respectively, ~~based~~and ~~extraction.~~during ~~The extracts are then shipped from~~ the ~~raw~~year ~~materials~~ended ~~processors~~December to31, ~~our~~2016 ~~California~~collected ~~warehouse~~$12,238 orwhich ~~directly~~had tobeen ~~our~~written ~~bottling~~off ~~contractors.~~as ~~The~~bad ~~bottling~~debt ~~contractors~~in ~~then add our proprietary extract to other ingredients to produce our finished goods. Our cold brew coffee is manufactured using~~ a ~~comparable~~prior ~~process~~period. ~~Finished~~There ~~goods~~were ~~are~~no ~~shipped~~allowances ~~back~~for todoubtful ~~either~~accounts ~~our~~recorded ~~Company's~~for ~~warehouse~~the oryears ~~third~~ended ~~party~~December ~~transit~~31, ~~agents~~2017 and ~~subsequently~~December ~~disseminated to either distributors or shipped directly to retailers. The process for production of our nutritional wellness products follows a similar manufacturing chain~~31, ~~but does not involve a bottling process~~2016.

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 3rd party manufacturing are factored into the costs of our inventories.

45Inventories 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.

~~Table~~Inventories are valued at the lower of ~~Contents~~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 3rd party manufacturing are factored into the costs of our inventories.

~~KONARED~~Revenue ~~CORPORATION~~Recognition

~~NOTES~~Sales TOrevenue ~~FINANCIAL~~consists ~~STATEMENTS~~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.

~~NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)~~36

~~Revenue~~Table ~~Recognition~~of Contents

~~Sales~~Cost ~~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 (“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 3rd party manufacturers.

~~Cost~~Customer ~~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 3rd party manufacturers.~~expenses

~~Customer~~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 year ended December 31, 2015 shown in these financial statements were adjusted to reflect the change in accounting policy during fiscal 2016. During the years ended December 31, 2017 and December 31, 2016, customer shipping expenses totaled $281,255 and $124,760, respectively.

InIncome 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 year ended December 31, 2015 shown in these financial statements were adjusted to reflect the change in accounting policy during fiscal 2016. During the years ended December 31, 2016 and December 31, 2015, customer shipping expenses totaled $124,760 and $98,020, respectively.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.

InThe ~~accordance~~Company ~~with~~also ~~ASC~~follows ~~740~~the -guidance ~~Income~~related ~~Taxes,~~to ~~the~~accounting ~~provision~~ for income ~~taxes~~tax isuncertainties. ~~computed~~In ~~using~~accounting ~~the~~for ~~asset~~uncertainty ~~and~~in ~~liability~~income ~~method.~~taxes, ~~Under~~ the ~~asset~~Company ~~and~~recognizes ~~liability~~the ~~method,~~financial ~~deferred~~statement ~~income~~benefit ~~tax~~of ~~assets~~a ~~and~~tax ~~liabilities~~position ~~are~~only ~~determined~~after ~~based~~determining onthat the ~~differences~~relevant ~~between~~tax ~~the~~authority ~~financial~~would ~~reporting~~more ~~and~~likely ~~tax~~than ~~bases~~not ofsustain ~~assets~~the ~~and~~position ~~liabilities~~following ~~and~~an ~~are~~audit. ~~measured~~For ~~using~~tax positions meeting the ~~currently~~more ~~enacted~~likely ~~tax~~than ~~rates~~not ~~and~~threshold, ~~laws.~~the Aamount ~~valuation~~recognized ~~allowance~~in isthese ~~provided~~financial ~~for~~statements is the ~~amount~~benefit ofthat ~~deferred~~has ~~tax~~a ~~assets~~greater ~~that,~~than ~~based~~50% onlikelihood ~~available~~of ~~evidence,~~being ~~are~~realized ~~not~~upon ~~expected~~ultimate tosettlement bewith ~~realized~~the relevant tax authority.

~~The~~No ~~Company~~liability ~~also follows the guidance related to accounting~~ for ~~income~~unrecognized tax ~~uncertainties.~~benefits Inwas ~~accounting~~recorded ~~for~~as ~~uncertainty~~of inDecember ~~income taxes~~31, ~~the~~2017 ~~Company~~and ~~recognizes~~December 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 threshold31, ~~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~~2016.

NoStock ~~liability~~Based ~~for unrecognized tax benefits was recorded as of December 31, 2016 and December 31, 2015.~~ Payments

46We 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.

~~Table~~Derivative offinancial ~~Contents~~instruments

~~KONARED~~In ~~CORPORATION~~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.

~~NOTES~~As TOof ~~FINANCIAL~~December ~~STATEMENTS~~31, 2016, the Company had outstanding a senior convertible note (the “VDF Note”) with a balance of $869,674, net of a discount of $16,786. The Company determined the VDF Note had an embedded derivative valued at $11,649 at December 31, 2016 due to Sr. Note One having a provision which required adjustments to the conversion price to compensate for dilutive stock issuance events unrelated to the VDF Note. During the period ended December 31, 2016, $417,188 of principal was added to the VDF Note. This was comprised of $375,000 of patent license fees which were rolled over to the VDF Note and accrued interest for the year ended December 31, 2016 of $42,188. On September 29, 2017, the Company and VDF signed an amendment to the Senior Convertible Note. Per the amendment, the companies agreed that the total new outstanding balance was $916,457, and that VDF immediately converted all of the debt into equity of common shares at a conversion price of $0.07 per share, resulting in 13,092,242 common shares being issued to VDF. The loss on conversion of $335,409 has been recognized in the Statements of Operations as a Loss of Debt Modification in Other Income (Expense).

~~NOTE 2 – Basis of Presentation and Summary of Significant Accounting Policies (continued)~~37

~~Stock~~Table ~~Based~~of ~~Payments~~Contents

WeThe ~~account~~net ~~for~~amount ~~share-based~~of ~~awards~~the toChange ~~employees~~ in ~~accordance~~Fair ~~with~~Value ~~ASC~~of ~~718~~Derivatives ~~"Stock~~for ~~Compensation".~~the ~~Under~~period ~~this~~ended ~~guidance~~December 31, ~~stock~~2016 ~~compensation~~was ~~expense~~a isgain ~~measured~~of ~~at the grant date~~$7,463 ~~based~~which onincluded the ~~fair~~net ~~value~~amount of ~~the~~mark-to-market ~~award,~~value ~~and~~changes isin ~~recognized as an expense over~~ the ~~estimated~~embedded ~~service~~derivatives ~~period~~liabilities ~~(generally~~of the ~~vesting~~VDF ~~period)~~Note onof ~~the~~$7,463 ~~straight-line attribute method. Share-based awards to non-employees are accounted~~ for inthe ~~accordance~~year ~~with~~ended ~~ASC~~December ~~505-50 "Equity"~~31, ~~wherein~~2016. ~~such~~The ~~awards~~VDF ~~are~~Note ~~expensed~~has ~~over~~a ~~the~~zero ~~period~~balance inas ~~which~~of ~~the~~December ~~related~~31, ~~services are rendered~~2017.

~~Derivative~~As ~~financial~~discussed ~~instruments~~in Note 9, on October 24, 2017 in connection with the issuance of the Series A Preferred shares, the shareholders also received warrants to purchased Series A Preferred shares and Common Stock shares. The Series A warrants and tainted Common Stock warrants contain a value of $9,016,712.

InThere 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~~no ~~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~~any ~~fair~~other ~~value~~notes ~~reported~~issued inby the ~~statements of operations~~Company.

AsResearch of December 31, 2016, the Company had outstanding a senior convertible note (the "VDF Note") with a balance of $869,674, net of a discount of $16,786. The Company determined the VDF Note had an embedded derivative valued at $11,649 at December 31, 2016 due to Sr. Note One having a provision which required adjustments to the conversion price to compensate for dilutive stock issuance events unrelated to the VDF Note. As of December 31, 2015, the VDF Note had a balance of $453,298, net of a discount of $15,974 and the embedded derivative liability was valued at $11,807. During the period ended December 31, 2016, $417,188 of principal was added to the VDF Note. This was comprised of $375,000 of patent license fees which were rolled over to the VDF Note and accrued interest for the year ended December 31, 2016 of $42,188.Development

~~The~~Costs ~~net~~incurred ~~amount~~in ofdeveloping the ~~Change~~ability into ~~Fair~~create ~~Value~~and ofmanufacture ~~Derivatives~~products for ~~the~~sale ~~period~~are ~~ended~~included ~~December~~in ~~31,~~research ~~2016~~and ~~was~~development. Once a ~~gain~~product ofis ~~$7,463~~commercially ~~which~~feasible ~~included~~and ~~the~~starts ~~net~~to ~~amount~~sell ~~of mark-~~to~~-market~~ ~~value~~third ~~changes~~party incustomers, the ~~embedded~~classification ~~derivatives~~of ~~liabilities~~such ofcosts ~~the~~as ~~VDF~~development ~~Note~~costs stops and such costs are recorded as costs of $7production,~~463~~ ~~for~~which ~~the~~are ~~year~~included ~~ended~~in ~~December~~cost ~~31,~~of ~~2016~~goods sold. Research and development costs are expensed when incurred.

~~There~~Basic ~~are~~and noDiluted ~~embedded~~Net ~~derivatives~~Loss inper ~~any other notes issued by the Company.~~Share

~~Research~~The Company computes loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and ~~Development~~diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock warrants and options, using the treasury stock method; and convertible preferred stock and convertible debt using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. The Company currently has options, warrants and convertible debt outstanding, and no convertible preferred stock has been issued. Common stock equivalents pertaining to the options, warrants and convertible debt were not included in the computation of diluted net loss per common share in these financial statements because the effect would have been anti-dilutive due to the net losses for the years ended December 31, 2017 and December 31, 2016.

~~Costs~~Concentration 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~~Credit ~~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.~~Risk

47Financial 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.

~~Table~~Related ~~of Contents~~parties

~~KONARED~~A ~~CORPORATION~~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.

~~NOTES~~Fair TOValue ~~FINANCIAL STATEMENTS~~Measurements

~~NOTE~~As 2defined –in ~~Basis~~ASC of820 ~~Presentation~~“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 ~~Summary~~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 ~~Significant~~those ~~Accounting~~inputs. ~~Policies~~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 (~~continued~~level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement).

~~Basic and Diluted Net Loss per Share~~38

~~The~~Table ~~Company computes loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation~~ of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock warrants and options, using the treasury stock method; and convertible preferred stock and convertible debt using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. The Company currently has options, warrants and convertible debt outstanding, and no convertible preferred stock has been issued. Common stock equivalents pertaining to the options, warrants and convertible debt were not included in the computation of diluted net loss per common share in these financial statements because the effect would have been anti-dilutive due to the net losses for the years ended December 31, 2016 and December 31, 2015.Contents

~~Concentration~~The three levels of ~~Credit~~the ~~Risk~~fair value hierarchy defined by ASC 820 are as follows:

~~Financial~~Level ~~instruments~~1 ~~which~~– ~~potentially~~Quoted ~~subject~~prices ~~the~~are ~~Company~~available toin ~~concentrations~~active ofmarkets ~~credit~~for ~~risk~~identical ~~consist~~assets ofor ~~cash~~liabilities ~~and~~as ~~trade~~of ~~receivables.~~the ~~The~~reporting ~~Company~~date. ~~places~~Active ~~its~~markets ~~cash~~are ~~with~~those ~~high~~in ~~credit~~which ~~quality~~transactions ~~financial~~for ~~institutions.~~the Atasset ~~times~~or ~~such~~liability ~~cash~~occur ~~may be~~ in ~~excess~~sufficient offrequency ~~the~~and ~~FDIC~~volume ~~limit.~~to ~~With~~provide ~~respect~~pricing toinformation ~~trade~~on ~~receivables,~~an ~~the~~ongoing ~~Company~~basis. ~~routinely~~Level ~~assesses~~1 ~~the~~primarily ~~financial~~consists ~~strength~~ of ~~its~~financial ~~customers~~instruments ~~and,~~such as aexchange-traded ~~consequence~~derivatives, ~~believes~~marketable ~~that~~securities ~~the~~and ~~receivable~~listed ~~credit risk exposure is limited~~equities.

~~Related~~Level ~~parties~~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.

ALevel ~~party~~3 is– ~~considered~~Pricing toinputs ~~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~~significant ~~owners~~inputs 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~~are ofgenerally ~~the~~less ~~transacting~~observable ~~parties might be prevented~~ from ~~fully~~objective ~~pursuing its own separate interests~~sources. AThese ~~party~~inputs ~~which~~may ~~can~~be ~~significantly~~used ~~influence~~with ~~the~~internally ~~management~~developed ormethodologies ~~operating~~that ~~policies~~result ~~of the transacting parties or if it has an ownership interest~~ in ~~one~~management’s ofbest ~~the~~estimate ~~transacting parties and can significantly influence the other to an extent that one or more~~ of ~~the~~fair ~~transacting parties might be prevented from fully pursuing its own separate interests is also a related party~~value.

~~Fair~~The ~~Value~~Company’s ~~Measurements~~Level 1 assets and liabilities consist of cash, accounts receivable, accounts receivable - related party, inventories net, of any inventory allowance, prepaid expenses, other current assets, accounts payable and accrued liabilities, accounts payable - related party, short term debt, net of discounts, and unearned revenue. Pursuant to ASC 820, the fair value of these assets and liabilities is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. Level 2 assets and liabilities consist of a derivative liability arising from a convertible note payable. Pursuant to ASC 820, the fair value of this liability is determined based on Level 2 inputs, which consisted of a valuation by an accredited third party expert. We do not currently have any assets or liabilities which are classified under the criterion of Level 3.

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).

Level components:	As of December 31, 2017		As of December 31, 2016
Cash	$	1,305,839	$	68,546
Accounts receivable		230,940		120,565
Accounts receivable - related party		-		1,800
Inventories		423,875		267,830
Accounts payable and accrued liabilities		571,903		140,007
Short term convertible notes, net of discounts		140,035		209,578
Short term debt - related party		-		103,353
Long term convertible note, net of discount		-		869,674
Unearned revenue		152,986		193,020
Level 1 total	$	2,825,578	$	1,974,373
Derivative liability	$	9,016,712	$	11,649
Level 2 total	$	9,016,712	$	11,649
(nil)		-		-
Level 3 total	$Nil		$Nil

~~The~~It ~~three~~is ~~levels~~management’s ofopinion that the ~~fair~~Company ~~value~~is ~~hierarchy~~not ~~defined~~exposed byto ~~ASC~~significant ~~820~~interest, ~~are~~currency asor ~~follows:~~credit risks arising from the financial instruments which it holds.

48Advertising

~~Table~~Costs for advertising are expensed when incurred. Advertising costs totaled $272,461 and $9,945 for the years ended December 31, 2017 and December 31, 2016, respectively. The Company also incurs marketing expenses for product promotion and investor relations which are combined with advertising to form the advertising and marketing line item in our statement of ~~Contents~~operations. Excluding advertising, these other promotional costs totaled $204,512 and $266,354 for the years ended December 31, 2017 and December 31, 2016, respectively.

~~KONARED CORPORATION~~39

~~NOTES~~Table TOof ~~FINANCIAL STATEMENTS~~Contents

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

~~Level~~Fixed 1assets ~~– Quoted prices~~ are ~~available~~recorded inat ~~active markets for identical assets or liabilities as of the reporting date~~cost. Depreciation ~~Active~~is ~~markets~~calculated ~~are~~on ~~those~~a instraight ~~which~~line ~~transactions~~method ~~for~~over the ~~asset~~estimated oruseful ~~liability~~lives ~~occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists~~ of ~~financial~~the ~~instruments~~various ~~such~~assets as ~~exchange-traded derivatives, marketable securities and listed equities.~~follows:

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.

ASSET	Depreciation Term
Furniture and equipment	5 - 7 years
Warehouse fixtures	10 years

~~Level~~During 3the –years ~~Pricing~~ended ~~inputs~~December ~~include~~31, ~~significant~~2017 ~~inputs~~and ~~that~~December ~~are~~31, ~~generally~~2016: ~~less~~(a) ~~observable~~depreciation ~~from~~for ~~objective~~furniture ~~sources~~and equipment of $2,450 and $2,096 was respectively recorded; and (b) depreciation for warehouse fixtures of $348 and $348 was respectively recorded. ~~These~~Accumulated ~~inputs~~depreciation ~~may~~for beall ~~used~~fixed ~~with~~assets ~~internally~~totaled ~~developed~~$9,669 ~~methodologies~~at ~~that~~December ~~result~~31, in2017. ~~management's~~Maintenance ~~best~~and ~~estimate~~repairs ofare ~~fair~~expensed ~~value~~as incurred while renewals and betterments are capitalized.

~~The~~Recent ~~Company's~~Accounting Level 1 assets and liabilities consist of cash, accounts receivable, accounts receivable - related party, inventories net, of any inventory allowance, prepaid expenses, other current assets, accounts payable and accrued liabilities, accounts payable - related party, short term debt, net of discounts, and unearned revenue. Pursuant to ASC 820, the fair value of these assets and liabilities is determined based on Level 1 inputs, which consist of quoted prices in active markets for identical assets. Level 2 assets and liabilities consist of a derivative liability arising from a convertible note payable. Pursuant to ASC 820, the fair value of this liability is determined based on Level 2 inputs, which consisted of a valuation by an accredited third party expert. We do not currently have any assets or liabilities which are classified under the criterion of Level 3.Pronouncements

Level components:	As of December 31, 2016	As of December 31, 2015
Cash	$68,546	$148,769
Accounts receivable	120,565	33,227
Accounts receivable - related party	1,800	18,000
Inventories	267,830	439,158
Prepaid expenses	-	5,953
Acc/payable and accrued liabilities	140,007	211,429
Accounts payable - related party	-	3,156
Short term convertible notes, net of discounts	209,578	-
Short term debt, net of discounts	-	235,237
Short term debt - related party	103,353	-
Long term convertible note, net of discount	869,674	548,881
Unearned revenue	193,020	1,434
Level 1 total	$1,974,373	$1,645,244
Derivative liability	$11,649	$11,807
Level 2 total	$11,649	$11,807
(nil)	-	-
Level 3 total	$Nil	$Nil

In April 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-15 “Statement of Cash Flows” (Topic 230) - Classification of Certain Cash Receipts and Cash Payments because stakeholders had indicated that there is diversity in practice in how certain cash receipts 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 present a statement of cash flows 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 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. In the absence of specific guidance, an entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis of the nature of the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing, investing, or operating activities. In situations in which cash receipts and payments have aspects of more than one class of cash flows and cannot be separated by source or use, the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item.

49The amendments in this Update are effective for public business entities for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. For all other entities, the amendments are effective for fiscal years beginning after December 15, 2018, and interim periods within fiscal years beginning after December 15, 2019. Early adoption is permitted, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. An entity that elects early adoption must adopt all of the amendments in the same period. This ASU conforms with the Company’s current protocols and the Company expects to adopt this ASU once it becomes effective. The Company does not expect the adoption of the ASU to have a significant impact on our consolidated financial statements.

~~Table~~In April 2016, FASB issued ASU No. 2016-10 “Revenue from Contracts with Customers” (Topic 606). This follows the May 28, 2014, FASB and the International Accounting Standards Board (IASB) issuance of ~~Contents~~a 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 transfer goods or services (that are an output of the entity’s ordinary activities) in exchange for consideration. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised 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 affect the guidance in Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606), which is not yet effective. The effective date and transition requirements for the amendments in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective 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. The Company does not expect the adoption of the standard to have a significant impact on our financial statements.

~~KONARED CORPORATION~~40

~~NOTES~~Table TOof ~~FINANCIAL STATEMENTS~~Contents

~~NOTE~~Management 2does –not ~~Basis~~anticipate that the adoption of ~~Presentation~~these ~~and~~standards ~~Summary~~will ofhave ~~Significant~~a ~~Accounting~~material ~~Policies~~impact ~~(continued)~~on the financial statements.

ItThe isCompany ~~management's~~has ~~opinion~~implemented all new accounting pronouncements that ~~the~~are ~~Company~~in iseffect and that may impact its financial statements and does not ~~exposed~~believe tothat ~~significant~~there ~~interest,~~are ~~currency~~any orother ~~credit~~new ~~risks~~pronouncements ~~arising~~that ~~from~~have ~~the~~been issued that might have a material impact on its financial ~~instruments~~position ~~which~~or itresults ~~holds~~of operations.

~~Advertising~~NOTE 3 – Going Concern

~~Costs~~The ~~for~~accompanying ~~advertising~~financial ~~are~~statements ~~expensed~~have ~~when~~been ~~incurred.~~prepared ~~Advertising~~on ~~costs~~a ~~totaled~~going $9concern basis,~~945~~ which contemplates the realization of assets and ~~$175,432~~satisfaction ~~for~~of liabilities in the ~~years~~normal ~~ended~~course of business. Since inception, the Company has incurred losses totaling $37,308,866 as of December 31, ~~2016~~2017 and ~~December~~has 31incurred a net loss for the current year of $13,926,649. ~~2015~~These factors, ~~respectively.~~among ~~The~~others, raise substantial doubt about the Company’s ~~also~~ability ~~incurs~~to ~~marketing~~continue ~~expenses~~as a going concern for ~~product~~a ~~promotion~~reasonable period of time. As needed, the Company will pursue additional equity and/or ~~investor~~debt ~~relations~~financing ~~which~~while ~~are~~managing ~~combined~~cash ~~with~~flows ~~advertising~~from operations in an effort to ~~form~~provide ~~the~~funds ~~advertising~~to meet its obligations on a timely basis and ~~marketing~~to ~~line~~support ~~item~~future inbusiness ~~our~~development. ~~statement~~The financial statements do not contain any adjustments to reflect the possible future effects on the classification of ~~operations~~assets or the amounts and classification of liabilities that may result should the Company be unable to continue as a going concern. ~~Excluding~~To ~~advertising,~~address these ~~other~~issues, ~~promotional~~during ~~costs~~the ~~totaled~~year ended December 31, 2017, the Company raised $~~266~~1,~~354~~248,968 ~~and~~from private placement equity offerings, $~~259~~491,~~958~~600 ~~for~~from ~~the~~exercise ~~years~~of ~~ended~~warrants, ~~December~~and 31benefited from conversion of $1,552,816 ~~2016~~of debt into common shares of equity and ~~December~~$306,949 31of debt into Series B Preferred Stock. In addition, ~~2015~~on October 24, ~~respectively~~2017, the Company was able to raise over $2 million through preferred shares issuances. The Company anticipates that it will continue to raise funds through private placement equity sales in the near future.

~~Fixed~~NOTE ~~Assets~~4 – Inventory

~~Fixed~~Inventory ~~assets~~includes ~~are~~raw ~~recorded~~materials atand ~~cost~~finished goods. ~~Depreciation~~ isFinished ~~calculated~~goods oncontain adirect ~~straight~~materials ~~line~~and ~~method~~other ~~over~~manufacturing ~~the~~costs ~~estimated~~charged ~~useful~~directly ~~lives~~by ofthird ~~the~~party ~~various~~manufacturing ~~assets~~vendors. asInventory ~~follows~~consists of the following:

ASSET	Depreciation Term
		December 31, 2017		December 31, 2016
Furniture and equipment	5 - 7 years
Raw materials		$	158,871	$	105,035
Warehouse fixtures	10 years
Finished goods			265,004		162,795
Inventory allowance			—		—
Total		$	423,875	$	267,830

During the years ended December 31, ~~2016~~2017 and December 31, ~~2015:~~2016, ~~(a)~~the ~~depreciation~~Company ~~for~~respectively ~~furniture~~wrote ~~and~~down ~~equipment~~inventory ofby $297,~~096~~298 and $224,~~096~~769 ~~was~~to ~~respectively~~account ~~recorded;~~for expired inventory which had been written-off and ~~(b)~~disposed ~~depreciation~~of, and for ~~warehouse~~minor ~~fixtures~~manufacturing process shrinkages. There were no reserved inventory balances as of ~~$348~~December 31, 2017 and ~~$348~~December ~~was~~31, 2016 and the Company respectively ~~recorded.~~recognized ~~Accumulated~~$nil ~~depreciation~~and $nil recovery in inventory allowance for ~~all~~the ~~fixed~~years ~~assets~~ended ~~totaled~~December $631,~~871~~ at2017 and December 31, 2016. ~~Maintenance~~At ~~and~~December ~~repairs~~31, ~~are~~2017 ~~expensed~~all asinventory ~~incurred~~was ~~while~~valued ~~renewals~~at ~~and~~full ~~betterments are capitalized~~cost.

~~Recent~~NOTE ~~Accounting~~5 ~~Pronouncements~~– Fixed Assets

InFixed ~~April~~assets ~~2016,~~at ~~the~~December ~~Financial~~31, ~~Accounting~~2017 ~~Standards~~and ~~Board~~December ~~("FASB")~~31, ~~issued Accounting Standards Update ('ASU') No.~~ 2016~~-15~~ 'respectively ~~Statement~~comprised: ~~of Cash Flows~~ (~~Topic 230~~a) -furniture ~~Classification of Certain Cash Receipts~~ and ~~Cash~~equipment ~~Payments~~totaling ~~because~~$10,154 ~~stakeholders had indicated that there is diversity in practice in how certain cash receipts~~ and ~~cash payments are presented and classified in the statement of cash flows under Topic 230~~$5,543, ~~Statement~~net of ~~Cash~~accumulated ~~Flows,~~depreciation ~~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~~$8,109 ~~including both business entities~~ and ~~not-for-profit entities that are required to present a statement of cash flows under Topic 230. Among the eight issues~~$5, 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 activities659; and (iib) ~~Separately~~warehouse ~~Identifiable~~fixtures ~~Cash~~totaling ~~Flows and Application of the Predominance Principle~~$1,912 ~~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$2,260, annet ~~entity should determine each separately identifiable source or use within the cash receipts and cash payments on the basis~~ of ~~the~~accumulated ~~nature~~depreciation of ~~the underlying cash flows. An entity should then classify each separately identifiable source or use within the cash receipts and payments on the basis of their nature in financing~~$1,560 ~~investing, or operating activities. In situations in which cash receipts~~ and ~~payments have aspects of more than one class of cash flows and cannot be separated by source or use~~$1, ~~the appropriate classification should depend on the activity that is likely to be the predominant source or use of cash flows for the item~~212.

5041

Table of Contents

~~KONARED~~NOTE ~~CORPORATION~~6 – Debt

~~NOTES~~September TO2015 ~~FINANCIAL STATEMENTS~~Notes:

~~NOTE~~On 2September –30, ~~Basis~~2015, subject to securities purchase agreements 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 provided for customary events of ~~Presentation~~default such as failing to timely make payments and ~~Summary~~the occurrence of ~~Significant~~certain ~~Accounting~~fundamental ~~Policies~~defaults, as described in the September 2015 Notes. The September 2015 Notes were not secured and are 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 (~~continued~~“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 were valued using a Black-Scholes model at $67,115; and September 2015 Note Two Lender received 1,875,000 warrants which were valued using a Black-Scholes model at non-cash cost of $100,673.

~~The~~At ~~amendments~~December in31, ~~this~~2016, ~~Update~~the ~~are~~balance ~~effective~~on ~~for~~September ~~public~~2015 ~~business~~Note ~~entities~~One ~~for~~was ~~fiscal~~$nil. ~~years~~During ~~beginning~~the ~~after~~year ended December 1531, ~~2017~~2016, ~~and~~the ~~interim~~Company ~~periods~~timely ~~within~~met ~~those~~a ~~fiscal~~series ~~years.~~of ~~For~~scheduled ~~all~~cash ~~other~~payments ~~entities,~~on ~~the~~September ~~amendments~~2015 ~~are~~Note ~~effective~~One ~~for~~totaling ~~fiscal~~$49,000 ~~years~~and ~~beginning~~on ~~after~~August ~~December 15~~30, ~~2018,~~2016 ~~and~~redeemed ~~interim~~the ~~periods~~balance ~~within~~of ~~fiscal~~$59,000 ~~years~~due ~~beginning~~through ~~after~~issuance ~~December~~of 151,475,000 ~~2019.~~shares ~~Early~~valued ~~adoption~~at ~~is permitted~~$95,875 ~~including~~based ~~adoption~~on ina anmarket ~~interim~~close ~~period.~~price Ifof an$0.065 ~~entity~~per ~~early~~share ~~adopts~~on ~~the~~date ~~amendments~~of inissuance. anThe ~~interim period~~$36,875 ~~any~~difference ~~adjustments~~between ~~should~~the becash ~~reflected~~redemption asbalance ofand the ~~beginning~~value of the ~~fiscal~~shares ~~year~~redemption ~~that~~was ~~includes~~treated ~~that~~as ~~interim~~a ~~period.~~conversion Anloss ~~entity~~and ~~that~~recorded ~~elects~~as ~~early~~an ~~adoption~~additional ~~must~~non-cash ~~adopt~~interest ~~all~~expense. ofAt ~~the~~time ~~amendments~~of inredemption ~~the~~on ~~same~~August ~~period.~~30, ~~This~~2016 ~~ASU conforms with~~ the ~~Company's~~remaining ~~current~~$50,245 ~~protocols~~of ~~and~~ the ~~Company~~warrant ~~expects~~discount toon ~~adopt~~September ~~this~~2015 ~~ASU~~Note ~~once~~One itwas ~~becomes~~recorded ~~effective.~~as ~~The~~an ~~Company~~amortization ~~does~~expense ~~not~~and ~~expect~~ the ~~adoption~~remaining of$7,486 ~~the~~OID ~~ASU~~was torecorded ~~have~~as ainterest ~~significant impact on our consolidated financial statements~~expense.

InDuring ~~April~~the ~~2016,~~year ~~FASB~~ended ~~issued~~December ~~ASU No. 2016-10 'Revenue from Contracts with Customers (Topic 606). This follows the May 28~~31, ~~2014~~2017, ~~FASB and~~ the ~~International~~holder ~~Accounting Standards Board (IASB) issuance~~ of aSeptember ~~converged~~2015 ~~standard~~Note onTwo ~~recognition~~converted ~~of revenue from contracts with customers. The amendments in this Update affect entities with transactions included within~~ the ~~scope~~remaining ofbalance ~~Topic 606. The scope~~ of ~~that~~$65,000 ~~Topic~~due ~~includes~~on ~~entities~~the ~~that~~note ~~enter~~ into ~~contracts~~1,625,000 ~~with~~shares ~~customers~~valued toat ~~transfer~~$128,463 ~~goods~~based oron ~~services~~a ~~(that~~market ~~are~~close anprices ~~output~~on dates of ~~the entity's ordinary activities) in exchange for consideration~~issuance. The ~~core~~conversions ~~principle~~resulted ~~of the guidance~~ in ~~Topic~~a ~~606~~$63,463 isdifference ~~that~~between anthe ~~entity~~cash ~~should~~redemption ~~recognize~~balance ~~revenue~~and ~~to depict~~ the ~~transfer~~value of ~~promised goods or services to customers in an amount that reflects~~ the ~~consideration~~shares toredemption which ~~the~~was ~~entity~~treated ~~expects~~as toa beconversion ~~entitled~~loss inand ~~exchange~~recorded ~~for~~as ~~those~~an ~~goods~~additional ~~or services. The amendments in this Update affect the guidance in Accounting Standards Update 2014~~non-~~09,~~cash ~~Revenue~~interest ~~from~~expense. ~~Contracts~~Concurrent with ~~Customers~~the ~~(Topic 606)~~conversions, ~~which is not yet effective. The effective date and transition requirements for~~ the ~~amendments~~remaining ~~in this Update are the same as the effective date and transition requirements in Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update 2015-14~~$16,527 ~~Revenue from Contracts with Customers (Topic 606): Deferral~~ of the ~~Effective~~warrant ~~Date,~~discount ~~defers~~on ~~the~~September ~~effective~~2015 ~~date~~Note ofTwo ~~Update~~was ~~2014-09~~recorded byas ~~one~~an ~~year.~~amortization ~~The~~expense ~~Company will evaluate this standard~~ and ~~may implement adoption of once~~ the ~~standard~~remaining ~~becomes~~$8,062 ~~effective.~~OID ~~The~~was ~~Company~~recorded ~~does~~as ~~not~~interest ~~expect the adoption of the standard to have a significant impact on our financial statements~~expense.

~~The~~At ~~Company~~December ~~has~~31, ~~implemented~~2016, ~~all~~the ~~new~~balance ~~accounting~~on ~~pronouncements~~September ~~that~~2015 ~~are~~Note inTwo ~~effect~~was $40,411. This included the remaining face value and ~~that~~accrued ~~may~~interest ~~impact~~totaling ~~its~~$65,000, ~~financial~~net ~~statements~~of an unamortized warrant and ~~does~~beneficial ~~not~~conversion ~~believe~~feature ~~that~~(“BCF”) ~~there~~discounts ~~are~~of ~~any~~$16,527 ~~other~~and ~~new~~an ~~pronouncements~~unamortized ~~that~~OID ~~have~~discount ~~been~~of ~~issued~~$8,062. ~~that~~During ~~might~~the ~~have~~year ended December 31, 2016, the Company timely met a ~~material~~series ~~impact~~of scheduled cash payments on ~~its~~September ~~financial~~2015 ~~position~~Note orOne ~~results~~totaling $88,500 and, prior to scheduled redemption date, on September 23, 2016 the original lender extended the maturity date of ~~operations~~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 September 23, 2016 the Company’s closing share price was $0.0605 and this created a BCF which was valued at $37,669. On November 7, 2016, prior to scheduled redemption date, the $73,500 balance due on September 2015 Note Two was purchased by the September 2015 Note One Lender (hereinafter referred to as “September 2015 Note Two Purchaser”) from the original lender. Also on November 7, 2016, in return for the addition of $11,500 to the OID for September 2015 Note Two, the September 2015 Note Two Purchaser extended the maturity of September 2015 Note Two to August 7, 2017 based on the Company meeting a payment schedule of $40,000 on May 7, 2017 and $45,000 on August 7, 2017. The $11,500 addition to the OID increased the principal due on September 2015 Note Two to $85,000.

51Because the market price of the shares was higher than the conversion price on conversion date, the transaction resulted in a conversion loss of $6,850 which was the difference between the cash redemption balance and the value of the shares issued for redemption and was recorded as an additional non-cash interest expense. During the year ended December 31, 2016, a total of $96,509 of the warrant and BCF discounts were recorded as an amortization expense and $14,668 amortization of the OID was recorded as interest expense. September 2015 Note Two was fully satisfied by conversion into common stock in January 2017. At September 30, 2017, the balances on the September 2015 Notes were $nil.

~~Table of Contents~~42

~~KONARED~~Table ~~CORPORATION~~of Contents

~~NOTES~~December TO2015 ~~FINANCIAL STATEMENTS~~Note:

~~NOTE~~On December 3, –2015, ~~Going~~subject ~~Concern~~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 was due and payable in full on December 3, 2016 (“Maturity Date”) and had a re-payment schedule which requires 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 such as failing to timely make payments and the occurrence of certain fundamental defaults, as described in the December 2015 Note. 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 a non-cash cost of $30,050.

~~The~~At ~~accompanying~~December ~~financial~~31, ~~statements~~2017, ~~have~~the ~~been~~balance ~~prepared~~ on athe ~~going~~December ~~concern~~2015 ~~basis,~~Note ~~which~~was ~~contemplates~~$nil. ~~the~~At ~~realization~~December of31, ~~assets~~2016, ~~and~~the ~~satisfaction~~balance ofon ~~liabilities in~~ the ~~normal~~December ~~course~~2015 ofNote ~~business~~was $32,081. ~~Since~~This ~~inception,~~included the ~~Company~~remaining ~~has~~face ~~incurred~~value ~~losses~~and accrued interest totaling $2339,~~189~~600,~~232~~ asnet of ~~December~~an ~~31,~~unamortized ~~2016~~BCF ~~and~~discount ~~has~~of a$6,340 ~~incurred~~and aan ~~net~~unamortized ~~loss~~OID ~~for~~discount ~~the current year~~ of $31,~~107,843~~179. ~~These~~During ~~factors, among others, raise substantial doubt about~~ the ~~Company's~~year ~~ability~~ended toDecember ~~continue~~31, ~~as a going concern for a reasonable period of time. As needed~~2016, the Company ~~will~~timely ~~pursue~~met ~~additional~~two ~~equity~~scheduled ~~and/or debt financing while managing~~ cash ~~flows~~payments ~~from~~totaling ~~operations~~$79,200 inand, anprior ~~effort~~ to ~~provide~~scheduled ~~funds~~redemption todate, ~~meet~~on ~~its~~December ~~obligations~~2, on2016 athe ~~timely~~lender ~~basis~~extended ~~and~~the tomaturity ~~support~~date ~~future~~of ~~business~~the ~~development.~~note ~~The~~to ~~financial~~March ~~statements~~7, do2016 ~~not~~in ~~contain~~exchange ~~any~~for ~~adjustments~~300,000 toshares ~~reflect~~of the ~~possible~~Company ~~future~~and ~~effects on~~ the ~~classification~~right ofto ~~assets~~convert or the ~~amounts~~balance ~~and classification~~ of ~~liabilities~~$39,600 ~~that~~into ~~may~~common ~~result~~shares ~~should~~of the Company beat ~~unable~~a toprice ~~continue~~of as$0.04 aper ~~going concern~~share. ToOn ~~address these issues, during the year ended~~ December 312, 2016, the Company's ~~received~~closing ashare ~~loan~~price ofwas $~~100,000~~0.05 ~~from~~which created a ~~director~~BCF ~~and~~valued ~~raised~~at $19,~~086,000~~405 ~~through several private placement equity offerings~~ and ~~$322,936~~a ~~through~~non-cash ~~share~~cost ~~sales~~for ~~under its 2015 Purchase Agreement Equity Line. On August 11, 2016~~ the ~~last~~ shares ~~which~~issuance ~~had~~of ~~been~~$15,000. ~~registered~~During ~~under~~ the ~~2015~~year ~~Equity~~ended ~~Line~~December ~~were sold and subsequently there has not been~~31, ~~nor are there plans for~~2016, a ~~new~~total ~~registration~~of ~~statement~~$3,065 ~~Form~~of ~~S-1 filing which would allow for further share sales under~~ the ~~2015~~BCF ~~Purchase~~discount ~~Agreement.~~was Werecorded ~~anticipate~~as wean ~~will~~amortization ~~continue~~expense toand ~~raise~~$8,056 ~~funds~~amortization ~~through~~of ~~private~~the ~~placement~~OID ~~equity~~was ~~sales~~recorded inas ~~the~~interest ~~near future~~expense.

~~NOTE~~At 4December –31, ~~Inventory~~2017, the balance on the December 2015 Note was $nil. In the fourth quarter of 2017, the December 2015 Note was converted into a stock issuance. The conversion resulted in a difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss of $19,800 and has been recognized in the Statements of Operations as a Loss on Debt Modification, conversions, and settlement in Other Income (Expense).

~~Inventory~~LPC ~~includes~~Note ~~raw materials and finished goods. Finished goods contain direct materials and other manufacturing costs charged directly by third party manufacturing vendors. Inventory consists of~~One:

	December 31, 2016		December 31, 2015
Raw materials	$	105,035	$	100,702
Finished goods		162,795		338,456
Inventory allowance		—		—
Total	$	267,830	$	439,158

On August 18, 2015, we issued a Senior Convertible Note (“LPC Note One”) to Lincoln Park Capital Fund, LLC (“LPC”) in the amount of $250,000. LPC Note One was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016 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 were 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 3,750,000 six year 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 August 18, 2015, LPC Note One also included a 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 the years ended December 31, 2016 and December 31, 2015, the Company respectively wrote down inventory by $24,769 and $26,760 to account for expired inventory which had been writen-off and disposed of, and for minor manufacturing process shrinkages. There were no reserved inventory balances as of December 31, 2016 and December 31, 2015 and the Company respectively recognized $nil and $nil recovery in inventory allowance for the years ended December 31, 2016 and December 31, 2015. At December 31, 2016 all inventory was valued at full cost.43

~~NOTE~~Table 5of ~~– Prepaid Expenses and Other Current Assets~~Contents

~~Prepaid~~At ~~expenses at~~ December 31, 2016, ~~were~~the recorded balance on LPC Note One was $~~nil~~68,086. This included the remaining face value of 250,000, net of an unamortized warrant and atBCF discounts totaling $177,505 and an unamortized OID discount of $4,409. During the year ended December 31, ~~2015~~2016, ~~comprised~~$130,348 aof ~~prepayment~~the BCF and warrant discounts were recorded as an amortization expense, $13,854 of the OID was recorded as interest expense, and accrued interest of $512,~~953~~708 ~~for~~was apaid ~~manufacturing~~via ~~run~~issuances of 181,544 restricted common shares.

~~NOTE~~At December 31, 2017, the recorded balance on LPC Note One was $140,035. During the year ended December 31, 2017 $177,505 of the BCF and warrant discounts were recorded as amortization expenses, and $4,409 of the OID amortization was recorded as interest expenses. In the fourth quarter of 2017, in three transactions, LPC settled $250,000 principal and $6,164 –accrued ~~Fixed~~interest ~~Assets~~due on LPC Note One as discussed in Note 9. The settlement resulted in a $454,105 difference between the cash redemption balance and the value of the shares redemption which was treated as a modification loss and has been recognized in the Statements of Operations as a Loss on Debt Modification, conversions, and settlement in Other Income (Expense).

~~Fixed~~LPC ~~assets~~Note ~~at December 31, 2016 and December 31, 2015 respectively comprised~~Two: (a) furniture and equipment totaling $5,543 and $7,639, net of accumulated depreciation of $5,659 and $3,563; and (b) warehouse fixtures totaling $2,260 and $2,608, net of accumulated depreciation of $1,212 and $864.

52On November 23, 2015, we issued a Senior Convertible Note (“LPC Note Two”) to LPC in the amount of $300,000. LPC Note Two was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016. LPC 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 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 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. On November 23, 2015, as an inducement for the loan the

~~Table~~Company granted LPC 5,000,000 six year warrants, which includes a cashless exercise provision, to purchase 5,000,000 shares of ~~Contents~~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 November 23, 2015, LPC Note Two also included a 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.

~~KONARED~~During ~~CORPORATION~~the year ended December 31, 2017, LPC converted $300,000 principal and $3,060 accrued interest due on LPC Note Two into 6,105,843 shares valued at $405,361 based on market close prices on dates of issuance. The conversions resulted in a $98,963 difference between the cash redemption balance and the value of the shares redemption which was treated as a conversion loss and has been recognized in the Statements of Operations as a Loss on Debt Modification, conversions, and settlement in Other Income (Expense). Concurrent with the conversions, $210,745 of the warrant discount was recorded as an amortization expense and $6,162 OID was recorded as interest expense. For the year ended December 31, 2017, excluding the conversion amortization adjustments, $13,693 of the remaining warrant discount was recorded as amortization expense and $400 of the remaining OID was recorded as interest expense.

~~NOTES~~At TODecember ~~FINANCIAL~~31, ~~STATEMENTS~~2017, the recorded balance on LPC Note Two was $nil. 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.

~~NOTE 7 – Amortization of License Fee~~44

~~During~~Table ~~the year ended December 31, 2016, unearned revenue also 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.Contents

~~Revenue~~Short ~~amortizations~~Term ~~under~~Debt ~~the~~- FPRelated ~~License agreement have been, and will be, recorded as income based on the following schedule~~Party:

Total for the Year Ended	Amount
2016	$7,014
2017	$40,000
2018	$40,000
2019	$40,000
2020	$40,000
2021	$32,877
TOTAL	$200,000

RP Note:

~~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 ~~Short~~annum ~~Term~~due ~~Debt~~at maturity and may be prepaid in whole, ~~Short~~or ~~Term~~in ~~Debt~~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 ~~Related~~cost ~~Party~~of &$15,504 ~~Short~~valued ~~Term~~at ~~Convertible~~market ~~Notes~~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 $16,592 at market close price on date of issue. On September 25, 2017, the lender further extended the maturity of the RP Note to December 31, 2017 in return for 340,000 restricted common shares valued at $14,620 at market close price on date of issue. On July 18, 2017, the Company issued a $100,000 note (the “RP Note Two) to such director of the Company for a loan. The RP Note Two had an original maturity date of December 31, 2017, and is classified as short term related party debt. The RP Note Two bears interest at 8% per annum due at maturity and may be prepaid in whole, or in part, at any time before the maturity date without prepayment penalty. As an inducement for the loan, the Company repriced the RP Noteholder’s warrants from $0.17 to $0.055. At December 31, 2017, the balance due on the RP Note was $0, in accordance with the debt modification.

~~September~~SFC ~~2015 Notes~~Note:

On ~~September~~February 3014, ~~2015~~2017, ~~subject~~the toCompany ~~securities purchase agreements we~~ issued ~~two~~a ~~subordinated promissory notes ("September 2015 Note One" and "September 2015 Note Two"~~$100,000 ~~collectively,~~note ~~the "September 2015 Notes") to two lenders~~ (the ~~"September~~“SFC ~~2015 Lenders"~~Note”). ~~The September 2015 Notes provided for customary events of default such as failing~~ to ~~timely~~a ~~make~~long ~~payments~~term ~~and~~shareholder ~~the occurrence~~ of ~~certain fundamental defaults, as described in~~ the ~~September~~Company ~~2015~~for ~~Notes~~a loan. The ~~September~~SFC ~~2015 Notes were not secured and are subordinated to senior notes issued by the Company. September 2015~~ Note ~~One~~has ~~had~~maturity adate ~~face value~~ of ~~$100~~August 14,~~000~~ 2017 and ~~September~~bears ~~2015 Note Two had a face value of $150,000. The~~ interest ~~rate~~at ~~on each note was~~ 8% per annum ~~and~~due ~~this~~at ~~amount~~maturity ~~fully~~and ~~accrued~~may ~~upon~~be ~~issuance~~prepaid ~~and~~in ~~added $8~~whole,~~000~~ toor ~~September~~in ~~2015~~part, ~~Note~~at ~~One~~any ~~and~~time ~~$12,000~~before toeach ~~September~~maturity ~~2015~~date ~~Note~~without ~~Two~~prepayment topenalty. ~~bring~~As ~~the~~an ~~total~~inducement ~~balances~~for ~~due~~the onloan, ~~each~~the ~~note~~Company toissued ~~$108~~340,000 ~~and~~restricted ~~$162,000,~~common ~~respectively.~~shares ~~The~~to ~~September~~the ~~2015~~lender ~~Notes~~at ~~each included~~ a ~~10%~~non-cash ~~original~~cost ~~issuance~~of ~~discount~~$23,800 ~~("OID")~~valued ~~which~~at ~~resulted~~market inclose ~~total~~price ~~net~~on ~~proceeds~~date ~~to the Company~~ of ~~$225,000~~issue. As anAt ~~inducement~~December ~~for the loans~~31, ~~On September 30~~2017,~~2015~~ the ~~September~~balance ~~2015~~due ~~Lenders~~on ~~received~~the ~~five‑year~~SFC ~~warrants,~~Note ~~with~~was ~~cashless exercise rights, to purchase restricted shares of our common stock at an exercise price of~~ $0~~.08~~ ~~per~~in ~~share.~~accordance ~~September~~with ~~2015~~the ~~Note~~debt ~~One~~conversion ~~Lender~~into ~~received~~Preferred ~~1,250,000~~Series ~~warrants~~B ~~which~~shares ~~was~~resulting ~~valued~~in ~~using~~ a ~~Black-Scholes~~loss ~~model~~of at $67139,~~115;~~751 and ~~September~~has ~~2015~~been ~~Note~~recognized ~~Two~~in ~~Lender~~the ~~received~~Statements ~~1,875,000~~of ~~warrants~~Operations ~~which~~as ~~were~~a ~~valued~~Loss ~~using~~on aDebt ~~Black-Scholes~~Modification, ~~model~~conversions, atand ~~non-cash~~settlement ~~cost~~in ofOther ~~$100,673~~Income (Expense).

AtConvertible ~~December~~Long ~~31,~~Term ~~2015,~~Notes 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.Payable:

53VDF Note:

~~Table~~On January 28, 2014, we entered into a patent settlement with VDF FutureCeuticals, Inc. (“VDF”) at which time a senior convertible note (the “VDF Note”) was issued to VDF, whereby we promised to pay VDF a principal amount equal to the sum of ~~Contents~~aggregate accrued and unpaid patent license fee payments plus accrued interest. 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 and we have the right, subject to certain limitations, to prepay principal at any time and from time to time. At any time VDF has the option to convert any principal outstanding on the VDF Note into shares of our common stock at a Conversion Price determined by the terms of the VDF Note, which is subject to adjustment based on our issuance of stock and other securities. During the year ended December 31, 2016, the Conversion Price of the Senior Convertible Note was adjusted from $0.3823 per share to $0.2157 per share per the terms of the Senior Convertible Note. The VDF Note provides that we may, at our option, roll-over to the VDF Note quarterly License fee payments and accrued interest and is secured through the Pledge and Security Agreement (“PSA”) and is senior to any other debt issued by the Company unless prior written consent of VDF is obtained to amend the ranking.

~~KONARED~~At ~~CORPORATION~~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, we rolled-over License fee payments totaling $375,000 and recorded accrued interest of $42,188 for a total addition to the VDF Note of $417,188.

~~NOTES~~On TOJanuary ~~FINANCIAL~~4, ~~STATEMENTS~~2017, VDF and the Company executed an addendum to the VDF Note and the PSA in which VDF agreed it will: (i) remove its lien on the Company’s inventory and accounts receivable in the event that the Company executes any line of credit, inventory purchase order financing, or accounts receivable factoring agreements with third party lender(s); and (ii) promptly execute any inter-creditor agreement(s) provided to VDF by such third party lender(s) which affirm VDF’s permission for the creation of liens by the third party lender(s) which rank in priority above VDF’s existing lien. A copy of this agreement is attached to this Report as Exhibit 10.54.

~~NOTE 8 – Short Term Debt, Short Term Debt - Related Party & Short Term Convertible Notes (continued)~~45

AtTable ~~December 31, 2016, the balance on September 2015 Note One was $nil. 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 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 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. The September 2015 Note One is now fully repaid and there are no further payments due.Contents

AtOn ~~December~~September 3129, ~~2015~~2017, the ~~balance~~Company onand ~~September~~VDF ~~2015~~signed ~~Note~~an ~~Two~~amendment ~~was~~to ~~$75,403~~the Senior Convertible Note. ~~This~~Per ~~included~~the amendment the ~~face~~companies ~~value~~agreed ofthat ~~$150,000~~the ~~plus~~total ~~accrued~~new ~~interest~~outstanding ofbalance was $12916,~~000~~457, and ~~was~~that ~~net~~VDF ofwould animmediately ~~unamortized~~convert ~~warrant~~all ~~discount~~of ~~totaling~~the ~~$75~~debt into 13,~~367~~092,242 ~~and~~common anshares ~~unamortized~~at ~~OID~~a ~~discount~~conversion price of $~~11,230~~.07/share, ~~During~~resulting ~~the~~in ~~year~~13,092,242 ~~ended~~common ~~December~~shares ~~31,~~being ~~2015,~~issued to VDF. The modification loss of $25335,~~306~~409 ofhas ~~the~~been ~~warrant~~recognized ~~discount~~in ~~was~~the ~~recorded~~Statements of Operations as ana ~~amortization~~Loss ~~expense~~on Debt Modification, conversions, and $3settlement in Other Income (Expense). At December 31,~~770~~ of2017, the ~~OID~~VDF ~~was~~Note ~~recorded~~had asan ~~interest~~outstanding ~~expense~~balance of $0.

AtNOTE December 31, 2016, the balance on September 2015 Note Two was $40,411. This included the remaining face value and accrued interest totaling $65,000, net of an unamortized warrant and beneficial conversion feature ("BCF") discounts of $16,527 and an unamortized OID discount of $8,062. During the year ended December 31, 2016, the Company timely met 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 original 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 September 23, 2016 the Company's closing share price was $0.0605 and this created a BCF which was valued at $37,669. On November 7, ~~2016,~~– prior to scheduled redemption date, the $73,500 balance due on September 2015 Note Two was purchased by the September 2015 Note One Lender (hereinafter referred to as "September 2015 Note Two Purchaser") from the original lender. Also on November 7, 2016, in return for the addition of $11,500 to the OID for September 2015 Note Two, September 2015 Note Two Purchaser extended the maturity of September 2015 Note Two to August 7, 2017 based on the Company meeting a payment schedule of $40,000 on May 7, 2017 and $45,000 on August 7, 2017. The addition of the $11,500 addition to the OID increased the principal due on September 2015 Note Two to $85,000. On November 23, 2016, $20,000 of September 2015 Note Two was converted by September 2015 Note Two Purchaser into 500,000 shares of the Company which reduced the principal due on the note to $65,000. Because the market price of the shares was higher than the conversion price on conversion date, the transaction resulted in a conversion loss of $6,850 which was the difference between the cash redemption balance and the value of the shares issued for redemption and was recorded as an additional non-cash interest expense. During the year ended December 31, 2016, a total of $96,509 of the warrant and BCF discounts were recorded as an amortization expense and $14,668 amortization of the OID was recorded as interest expense.Derivatives

~~December~~In ~~2015~~connection ~~Note:~~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.

On December 3, 2015, 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~~Company ~~2015~~no ~~Note~~longer ~~bears~~has ~~interest~~any atvariable 8%rate ~~per~~convertible ~~annum~~debt ~~and~~outstanding ~~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 331, ~~2016 ("Maturity Date") and had a re-payment schedule which requires payments of $39,600 respectively on sixth, ninth and twelfth month anniversary dates of issuance~~2017. 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 such as failing to timely make payments and the occurrence of certain fundamental defaults, as described in the December 2015 Note. 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 a non-cash cost of $30,050.

54On September 29, 2017, the derivative balance of $11,649 related to VDF Note was settled per Note amendment and subsequent conversion of VDF Note to equity. Per amendment, the Note was fully satisfied and canceled upon issuance of 13,092,242 common shares at $0.07 per share.

~~Table~~As discussed in Note 9, on October 24, 2017 in connection with the issuance of ~~Contents~~the Series A Preferred shares, the shareholders also received warrants to purchased Series A Preferred shares and Common Stock shares. The value of the Series A warrants and tainted Common Stock warrants are included in the table below.

~~KONARED~~The ~~CORPORATION~~following table summarizes the derivative activity for the year ended December 31, 2016 and during the year ended December 31, 2017:

NOTES TO FINANCIAL STATEMENTS

Description	Total
Fair Value of derivative liabilities at December 31, 2015	$	11,806
Increase due to issuance of convertible debenture - VDF license fee rollover		7,416
Change in Fair Value		(7,573	)
Fair Value of derivative liabilities at December 31, 2016	$	11,649
Tainted common stock warrants		2,000,471
Series A and B warrants		9,302,701
Change in Fair Value		(2,286,460	)
Derivative settlement		(11,649	)
Fair Value of derivative liabilities at December 31, 2017	$	9,016,712

~~NOTE 8~~Due –to ~~Short~~the ~~Term~~indeterminate ~~Debt~~nature of the number of common shares issuable upon exercise and/or conversion of these warrants into common shares of the Company, ~~Short~~the ~~Term~~Warrants ~~Debt~~need -to ~~Related~~be ~~Party~~accounted &for ~~Short~~as ~~Term~~derivative ~~Convertible~~instruments. ~~Notes~~These ~~(continued)~~warrants taint the equity environment. Existing warrants were evaluated to determine if they are scoped out of derivative treatment. Since the Company had a number of existing warrants and options previously outstanding, based on the warrants issued in the October 24, 2017 financing, these warrants and options must be valued as derivative instruments because the equity environment is tainted, as of the quarterly period end date of December 31, 2017.

AtFor the year ended December 31, ~~2015~~2017, the ~~balance~~change onin the ~~December~~fair ~~2015~~market ~~Note~~value ~~including~~of ~~accrued~~the ~~interest~~derivative ~~was~~liability of $~~109~~9,~~565~~016,712 ~~net~~was ofrecorded anas ~~unamortized~~Other ~~OID of $9,235~~Expense. ~~During~~For the year ended December 31, ~~2015,~~2016 ~~$764~~the ~~amortization~~change in the fair market value of the ~~OID~~derivative liability of $(7,463) was recorded as ~~interest~~Other ~~expense~~Income.

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. During the year ended December 31, 2016, a total of $3,065 of the BCF discount was recorded as an amortization expense and $8,056 amortization of the OID was recorded as interest expense.46

~~LPC~~Table ~~Note~~of ~~One:~~Contents

On August 18, 2015, we issued a Senior Convertible Note ("LPC Note One") to a third party ("LPC") in the amount of $250,000. LPC Note One was issued pursuant to the terms of a Securities Purchase Agreement and bears interest at the rate of 5% per annum (or 18% upon the occurrence of an event of default). Principal and interest is due and payable in full on December 31, 2016 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 3,750,000 six year 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 August 18, 2015, LPC Note One also included a BCF of $107,143 because the exercise price of LPC Note One~~ was ~~set~~used ~~below~~to ~~the~~value ~~market price of our stock when~~ the ~~note~~warrants ~~was executed. Since the combined warrant discount~~ and ~~BCF exceeded~~ the ~~face~~lattice ~~value~~methodology ~~of the note less OID, the warrant discount for LPC Note One~~ was ~~capped~~used ~~at $117,857, resulting in a total discount of $225,000. On December 16, 2016, prior~~ to ~~the~~value ~~scheduled redemption dates, LPC extended~~ the ~~maturities~~derivative ofliabilities ~~each~~related ~~of its two notes from December 31, 2016~~ to ~~December 31, 2017 in return for issuance by~~ the ~~Company~~convertible ~~of 7~~notes,~~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~~following ~~of LPC Note One and $172,177 was ascribed as an increase to the discount of LPC Note Two~~assumptions.

Assumptions:	December 31, 2017			December 31, 2016
Dividend yield		0.00	%		0.00	%
Risk-free rate for term		1.27-2.40	%		0.85	%
Volatility		72.6-102.2	%		78	%
Maturity dates	2 years			2 years
Stock Price	$	0.0355		$	0.0499

~~Table~~NOTE of8 ~~Contents~~– Related Party Transactions

~~KONARED~~

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