As filed with the Securities and Exchange Commission on February 7, 2014.16, 2016.
Registration No. 333-193249333-


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM S-1/AS-1
(Amendment No. 1)
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
 
TRUE DRINKS HOLDINGS, INC.
(Exact Name of Registrant as Specified in its Charter)

Nevada 2086 84-1575085
(State or Other Jurisdiction of
Incorporation or Organization)
 
(Primary Standard Industrial
Classification Code Number)
 
(I.R.S. Employer
Identification Number)

1855218662 MacArthur Blvd., Suite 325110
Irvine, CA 92612
 (949) 203-3500
(Address, including zip code and telephone number, including area code, of registrant’s principal executive offices)
 
Lance LeonardKevin Sherman
President andInterim Chief Executive Officer
1855218662 MacArthur Blvd., Suite 325110
Irvine, CA 92612
 (949) 203-3500
(Name, address, including zip code and telephone number, including area code, of agent for service)


Copy of correspondence to:

Daniel W. Rumsey, Esq.
Jessica R. Sudweeks, Esq.
Disclosure Law Group
One American Plaza
600 West Broadway, Suite 700
San Diego, CA 92101
(619) 795-1134

From time to time after the effective date of this Registration Statement.
(Approximate date of commencement of proposed sale to the public)

If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933 check the following box.  [X]

If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]
 

If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b­2 of the Exchange Act.

 Large accelerated filer[   ]Accelerated filer[   ]
 Non-accelerated filer[   ]Smaller reporting company[X]
(do not check if a smaller reporting company )company)

CALCULATION OF REGISTRATION FEE
                
Title of Each Class of Securities to be Registered(1) 
Amount to be Registered(2)
  
Proposed Maximum
Aggregate
Offering Price (3)
  
Amount of
Registration Fee (3) (4)
  
Amount to be Registered (2)
 
Proposed
Maximum
Aggregate
Offering Price (3)
 
Amount of
Registration
Fee (3)(4)
 
Common Stock, $0.001 par value per share  47,842,104(1) $13,395,789.12  $1,725.38  44,863,395  $7,537,050.36 $758.98 

 (1)
Consists of up to (i) 35,613,12020,589,333 shares of common stock issuable upon conversion of shares of Series BC Convertible Preferred Stock (“Series BC Preferred”) issued in a series of private placement transactions, first consummated on November 25, 2013August 13, 2015 (the “Private Placements”); and (ii) 12,228,9846,479,324 shares of common stock issuable upon exercise of warrants issued in connection with the Private Placements.Placements; (iii) up to 17,500,000 shares of common stock issuable upon exercise of a warrant issued to Mr. Vincent C. Smith in connection with the execution of a personal guaranty; and (iv) up to 294,737 shares of common stock issuable upon exercise of a warrant issued to Novelty Capital Group LLC, as consideration for certain advisory services related to investor relations.
 
 (2)
In the event of a stock split, stock dividend or similar transaction involving the common stock of the Registrant, in order to prevent dilution, the number of shares registered shall be automatically increased to cover additional shares in accordance with Rule 416(a) under the Securities Act of 1933, as amended (“Securities Act”).
 
 (3)
Estimated solely for the purpose of calculating the registration fee in accordance with Rule 457(c) under the Securities Act based on the average of the high and low prices of the common stock on February 5, 2014 as reported on the OTCQB.Act.
 
(4)$1,147.35 of the registration fee previously paid.
 
The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933, or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine.determine.

 


 

 
The information in this prospectus is not complete and may be changed. The Selling Stockholders may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting offers to buy these securities in any state where the offer or sale is not permitted.

PRELIMINARY PROSPECTUS
(Subject to Completion)

Dated _________ __, 2014____________, 2016

47,842,10444,863,395 Shares of Common Stock

TRUE DRINKS HOLDINGS, INC.
 
We are registering 47,842,10444,863,395 shares of our common stock, $0.001 per share, of True Drinks Holdings, Inc. (“we,” “us,” or the “Company”), by selling stockholders listed beginning on page 3242 of this prospectus (“Selling Stockholders”).  All of the shares being offered, when sold, will be sold by the Selling Stockholders.  The shares of common stock registered for resale under this registration statement include:

up to 35,613,12020,589,333 shares of common stock issuable upon conversion of shares of Series BC Convertible Preferred Stock (“Series BC Preferred”) issued in a series of private placement transactions, first consummated on November 25, 2013August 13, 2015 (the “Private Placements”); and

up to 12,228,9846,479,324 shares of common stock issuable upon exercise of warrants issued in connection with the Private Placements;Placements (the “Warrants”);
 up to 17,500,000 shares of common stock issuable upon exercise of a warrant issued to Mr. Vincent C. Smith in connection with the execution of a personal guaranty (the “Personal Guaranty Warrant”); and
 up to 294,737 shares of common stock issuable upon exercise of a warrant issued to Novelty Capital Group LLC, as consideration for certain investment relations services provided to the Company (the “Novelty Warrant”).

We will not receive any proceeds from the sale of the shares by the Selling Stockholders; however, if the warrants are exercised we will receive the exercise price of the warrants, if exercised at all. We will pay the expenses of registering the shares sold by the Selling Stockholders. See “Selling Stockholders”Selling Stockholders beginning on page 3242 of this prospectus for a list of the Selling Stockholders.

The shares of common stock are being registered to permit the Selling Stockholders to sell the shares from time to time, in amounts and at prices and on terms determined at the time of the offering. The Selling Stockholders may sell the shares of our common stock covered by this prospectus in a number of different ways, and at prevailing market prices or privately negotiated transactions. We provide more information about how the Selling Stockholders may sell the shares in the section entitled “PlanPlan of Distribution”Distribution beginning on page 3444 of this prospectus.

Our common stock is quoted on the OTCQBOTC Pink Marketplace under the symbol “TRUU.” The last reported sale price of our common stock on February 6, 201412, 2016 was $0.28$0.18 per share .share.

No underwriter or other person has been engaged to facilitate the sale of shares of common stock in this offering.

You should rely only on the information contained in this prospectus. We have not, and the Selling Stockholders have not, authorized anyone to provide you with different information. No dealer, salesperson or other person is authorized to give any information or to represent anything not contained in this prospectus. You must not rely on any unauthorized information or representations. If anyone provides you with different information, you should not rely on it. We are not, and the Selling Stockholders are not, making an offer to sell these securities in any jurisdiction where the offer or sale is not permitted. You should assume that the information contained in this prospectus is accurate only as of the date on the front cover of this prospectus. Our business, financial condition, results of operations and prospects may have changed since that date.

Investing in our common stock involves a high degree of risk. See “Risk Factors”Risk Factors beginning on page 25 of this prospectus.

Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or passed upon the adequacy or accuracy of this prospectus. Any representation to the contrary is a criminal offense.

The date of this prospectus is _____________ __, 2014.2016.

 
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TRUE DRINKS HOLDINGS, INC.
TABLE OF CONTENTS

  Page
   
 14
 24
 25
 911
 912
 1013
 1617
 1617
17
Selected Consolidated Financial Data 18
19
 1820
 2326
 2327
 2531
 2835
 2835
 3138
 3242
Relationships Between the Issuer and the Selling Security Holders 3444
Plan of Distribution 3446
Experts 3546
Legal Matters35
 3646
 3646
 37F-1

 
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FORWARD-LOOKING STATEMENTS
 
This prospectus, including the information incorporated by reference, contains forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. The use of any statements containing the words “intend,” “believe,” “estimate,” “project,” “expect,” “anticipate,” “plan,” “should” or similar expressions are intended to identify such statement. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, changes in demand for our products and services, changes in the level of operating expenses, our ability to execute our business and operating plan, changes in general economic conditions that impact government spending, regulatory issues, dependence on third party suppliers, and other risks detailed in this prospectus under the heading “Risk Factors”Risk Factors and in our periodic report filings with the Securities and Exchange Commission (the “SEC”).
 
Forward-looking statements are subject to numerous assumptions, risks and uncertainties, which change over time. Forward-looking statements speak only as of the date they are made, and we assume no duty to and do not undertake to update forward-looking statements. These forward-looking statements may not meet the safe harbor for forward-looking statements pursuant to Sections 21E or 27A of the Securities Act.Act of 1933, as amended. Actual results could differ materially from those anticipated in forward-looking statements and future results could differ materially from historical performance.

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PROSPECTUS SUMMARY

This summary highlights information contained elsewhere in this prospectus. This summary does not contain all the information you should consider before buying our common stock. You should read the following summary together with the more detailed information appearing in this prospectus, including our consolidated financial statements and related notes, and our risk factors beginning on page 2,5, before deciding whether to purchase shares of our common stock.

As used in this Annual Report,prospectus, “we”, “us”, “our”, “True Drinks”, “Company” or “our Company” refers to True Drinks Holdings, Inc. and all of its subsidiaries, unless the context requires otherwise.  We are a holding company and conduct no operating business, except through our subsidiaries. During January 2013, we changed our name from True Drinks, Inc. to True Drinks Holdings, Inc.

Overview

True Drinks Holdings, Inc. (the “Company, “us” or “we) was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), a beverage company incorporated in the state of Delaware in January 2012 that specializes in all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™AquaBall(TM) Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute the AquaBall™AquaBall(TM) nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi®Bazi(R) All Natural Energy, a liquid nutritional supplement drink, which is currently distributed online and through our existing database of customers. Bazi® represented less than 1% of our total sales during the year ended December 31, 2012, and approximately 12% of our total sales during the nine months ended September 30, 2013. Sales of Bazi® are expected to decrease as the Company focuses its resources on sales and marketing of the AquaBall™ .
 
The Company was originally incorporated in the state of Delaware in January 2012.
Our principal place of business is 1855218662 MacArthur Boulevard, Suite 325,110, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com.www.truedrinks.com. Our common stock par value $0.001 (“Common Stock”), is currently listed for quotation on the OTCQB marketplace (“OTCQBOTC Pink Marketplace”) under the symbol TRUU.

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THE OFFERING

Securities Offered by the Selling Stockholders 
47,842,10444,863,395 shares of Common Stock.
common stock
 
Common Stockstock Outstanding as of February 6, 201412, 2016 27,885,587 shares.112,049,107 shares
 
Use of Proceeds We will not receive any of the proceeds of the shares offered by the Selling Stockholders. We may receive proceeds upon exercise of the warrants, if they are exercised. The shares that will be resold under this prospectus were sold by us, or were issued upon the conversion of securities issued by us.
 
Risk Factors 
Prior to making an investment decision, you should carefully consider all of the information in this prospectus and, in particular, you should evaluate the risk factors set forth under the caption “Risk Factors”Risk Factors beginning on page 2.5.

Trading Symbol TRUU


RISK FACTORS

Risks Related to the Company
 
We have a history of operating losses and, despite consummation of recent financings, may continuewe require additional financing to experience liquidity problems.satisfy our current contractual obligations and execute our business plan.

We have not been profitable since inception. We had a net loss of $3,119,343$6,824,004 and $5,164,497$8,116,603 for the year ended December 31, 2012 and the nine months ended September 30, 2013,2015 and the year ending December 31, 2014, respectively. Additionally, sales of AquaBall(TM) Naturally Flavored Water are significantly below levels necessary to achieve positive cash flow.
Although we have recently consummated equity and debt financings resultingthat have resulted in aggregate gross proceeds of $8.0approximately $12.7 million, ,our cash position was approximately $92,032 at September 30, 2015, and we may require additional capital to execute our business used $7,427,348 and marketing plan, and continue as a going concern.  Our history of losses may impair our ability to obtain necessary financing on favorable terms or at all.  It may also impair our ability to attract investors if we attempt to raise additional capital by selling additional debt or equity securities in a private or public offering.
We may need to raise additional funds in order to fund our operations, which cannot be assured and may result in substantial additional dilution to our existing shareholders.
To date, our operating funds have been provided primarily from sales of our Common Stock, preferred stock, promissory notes and, to a lesser degree, cash flow provided by sales of our products.  We used $4,052,389 and $3,407,063$6,649,706 of cash for operations in the year ended December 31, 2012 andduring the nine months ended September 30, 2013,2015 and during the year ended December 31, 2014, respectively.  If To continue as a going concern, and to satisfy our contractual obligations under the bottling agreement we entered into with Niagara Bottling, LLC (“Niagara”) in October 2015 (the “Niagara Agreement”), we need to secure proceeds from the sale of additional debt or equity securities, whether in a private or public offering, in the near term. No assurances can be given that we will be successful in our attempts to generate proceeds to fund our operations. In the event we are unable to raise additional capital through the issuance of additional debt or equity securities, we will be unable to continue as a going concern.
We face substantial uncertainties in executing our business operations do not resultplan.
We must attain certain objectives in increased productorder to successfully execute our business plan over, including certain sales and we are otherwise unabledistribution of AquaBall(TM) Naturally Flavored Water required by the minimum volume requirements for each 12-month period under the Niagara Agreement (the “Annual Commitment”). Failure to secure short-term working capital,sustain sales sufficient to meet our Annual Commitment to Niagara will have a material adverse impact on our business, viability, financial position, results of operations and cash flowsno assurances can be given that we will be adversely affected.  successful in our efforts.
We cannot predict the terms upon whichbelieve that, in order to execute our business plan and achieve sales growth, we could raise such capital or ifmust, among other things, successfully recruit additional personnel in key positions, develop a larger distribution network, establish a broader customer base and increase awareness of our brand name. In order to implement any capital would be available at all, and what dilutionof these initiatives, we will be caused to the existing shareholders.

We may not be able to satisfy recently incurred debt obligations when due.

We recently received a $2.0 million term loan (the “Term Loan”) from Avid Bank that matures on November 29, 2015. Additionally, we are required to maintain, with Avid Bank, a balance of unrestricted cash and cash equivalents of at least $1.0 million, measured on a monthly basis.

materially increase our operating expenses, which may require additional working capital. If we are unable to successfully executesecure additional working capital, we will be unable to accomplish our objectives, and if we are unable to accomplish one or more of these objectives, our business and marketing plan, we may not achieve profitability, and may not be able to satisfy our obligations under the Term Loan when due, or otherwise satisfy the debt covenants. We may seek additional financing to satisfy our obligations, which financing may not be available on a timely basis, on terms that are acceptable or at all. Failure to meet our obligations under the Term Loan, including paying off the Term Loan when it becomes due and payable or satisfying the debt covenants, would result in a default in the Term Loan, which default would have a material adverse affect our business, results of operations and financial condition, and therefore threaten our financial viability.fail.
  
Our operations are now dependent on the business of True Drinks, and our ability to achieve positive cash flow under our new business plan is uncertain.

As a result of the merger between True Drinks, Inc. and a subsidiary of Bazi International, Inc. in October 2012 (the “Merger”), our continued operations are now dependent on the business of True Drinks.  True Drinks’ ability to achieve positive cash flow resulting from its new business plan is uncertain, as True Drinks’ only product line, the AquaBall™, was launched in June 2012.  Although True Drinks generated revenues of $1,021,908 from the sale of the AquaBall™ in 2013, there can be no guarantee that the Company will continue to grow revenue or achieve positive cash low in the future.

Our licensing agreements with Disney Consumer Products, Inc. and Marvel Characters, B.V. are critical components of the marketing of the AquaBall™AquaBall(TM) line, and there is no guarantee the licensing agreements will be renewed at the end of each agreement’s term.
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                We currently have licensing agreements with Disney Consumer Products, Inc. (the “Disney Agreement”) and Marvel Characters, B.V. (the “Marvel Agreement”) that allow us to place popular Disney and Marvel characters on labels of AquaBall™AquaBall(TM) Naturally Flavored Water. As AquaBall™ was recently launched in June 2012, theThe use of these characters, including Disney Princesses and Spider-Man, is critical to making the AquaBall™AquaBall(TM) stand out among our competitors. Although theseThese licensing agreements have varying terms, both the Disney Agreement expires in March 31, 2017 and the Marvel Agreement expireexpires in 2015.  ThereDecember 2017, and there is no guarantee we will be able to renew these agreements upon expiration, nor are we able to guarantee that we will have licensing agreements with other companies when the Disney Agreement and Marvel Agreement expire.

Certain large shareholders may have certain personal interests that may affect the Company.
As a result of securities held by Mr. Vincent C. Smith, the Vincent C. Smith, Jr. Annuity Trust 2015-1 (the “Smith Trust”), and Red Beard Holdings, LLC, an entity affiliated with Mr. Smith (“Red Beard”), Mr. Smith may be deemed the beneficial owner of, in the aggregate, approximately 48% of the Company’s outstanding voting securities. As a result, Mr. Smith, the Smith Trust and/or Red Beard has the potential ability to exert influence over both the actions of the Board of Directors and the outcome of issues requiring approval by the Company’s shareholders. This concentration of ownership may have effects such as delaying or preventing a change in control of the Company that may be favored by other shareholders or preventing transactions in which shareholders might otherwise recover a premium for their shares over current market prices.
Our limited operating history and recent change in marketing strategy makemakes it difficult to evaluate our prospects.
 
We have a limited operating history on which to evaluate our business and prospects. Our current flagship product, the AquaBall™,AquaBall(TM) Naturally Flavored Water, was formulated and introduced to the public for sale in 2012. Our other product, Bazi®,Bazi(R) All Natural Energy, has had limited market success. There can be no assurance that we will achieve significant sales as a result of us focusing our sales efforts on the AquaBall™AquaBall(TM) product, or that our new sales model with be successful.
 
We also may not be successful in addressing our other operating challenges, such as developing brand awareness and expanding our market presence through retail sales and our direct-to-consumer and online sales strategy. Our prospects for profitability must be considered in light of our evolving business model. These factors make it difficult to assess our prospects.

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We are affected by extensive laws, governmental regulations, administrative determinations, court decisions and similar other constraints, which can make compliance costly and subject us to enforcement actions by governmental agencies.

The formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising and sale of our products are affected by extensive laws, governmental regulations and policies, administrative determinations, court decisions and similar constraints at the federal, state and local levels, both within the United States and in any country where we conduct business. There can be no assurance that we, or our independent distributors, will be in compliance with all of these regulations. A failure by us or our distributors to comply with these laws and regulations could lead to governmental investigations, civil and criminal prosecutions, administrative hearings and court proceedings, civil and criminal penalties, injunctions against product sales or advertising, civil and criminal liability for the Company and/or its principals, bad publicity, and tort claims arising out of governmental or judicial findings of fact or conclusions of law adverse to the Company or its principals. In addition, the adoption of new regulations and policies or changes in the interpretations of existing regulations and policies may result in significant new compliance costs or discontinuation of product sales, and may adversely affect the marketing of our products, resulting in decreases in revenues.
 
Our ability to increase sales is dependent on growing in our existing markets as well as expanding into new markets in other countries. As we expand into foreign markets, we will become subject to different political, cultural, exchange rate, economic, legal and operational risks. We may invest significant amounts in these expansions with little success.
 
We currently are focusing our marketing efforts in the United States and, to a lesser extent, Canada. We believe that our future growth will come from both the markets that we are currently operating in and other international markets. We do not have any history of international expansion, and therefore have no assurance that any efforts will result in increased revenue. Additionally, we may need to overcome significant regulatory and legal barriers in order to sell our products, and we cannot give assurance as to whether our distribution method will be accepted. These markets may require that we reformulate our product to comply with local customs and laws. However, there is no guarantee that the reformulated product will be approved for sale by these regulatory agencies or attract local distributors.

We face substantial uncertainties in executing our business plan.
Successfully executing our business plan will require us to attain certain objectives to which no assurance can be given that we will be successful in our efforts.  We believe that, in order to execute our business plan and achieve the sales growth, we are anticipating we must, among other things, successfully recruit additional personnel in key positions, develop a larger distribution network and establish a broader customer base and increase awareness of our brand name.  In order to implement any of these initiatives, we will be required to materially increase our operating expenses, which may require additional working capital.  If we are unable to secure additional working capital, we will be unable to accomplish our objectives, and if we are unable to accomplish one or more of these objectives, our business may fail.
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We are currently dependent on a limited number of independent suppliers and manufacturers for the production of our products, which may affect our ability to deliverand we do not independently analyze our products in a timely manner.before distribution. If we are not able to ensure timely product deliveries, potential distributors and customers may not order our products, and our revenues may decrease.
 
We rely entirely on a limited number of third parties to supply and manufacture our product.product, and, beginning in early 2016, we will rely entirely on Niagara to manufacture AquaBall(TM). These third party manufacturers may be unable to satisfy our supply requirements, manufacture our products on a timely basis, fill and ship our orders promptly, provide services at competitive costs or offer reliable products and services. The failure to meet any of these critical needs would delay or reduce product shipment and adversely affect our revenues, as well as jeopardize our relationships with our independent distributors and customers. In the event any of our third party manufacturers were to become unable or unwilling to continue to provide us with products in required volumes and at suitable quality levels, we would be required to identify and obtain acceptable replacement manufacturing sources. There is no assurance that we would be able to obtain alternative manufacturing sources on a timely basis. Additionally, all our third party manufacturers source the raw materials for our products, and if we were to use alternative manufacturers we may not be able to duplicate the exact taste and consistency profile of the product from the original manufacturer. An extended interruption in the supply of our products would result in decreased product sales and our revenues would likely decline.

 
We are dependent on our third party manufacturers to supply our products in the compositions we require, and we do not independently analyze our products. Any errors in our product manufacturing could result in product recalls, significant legal exposure, and reduced revenues and the loss of distributors.

Although we require each of our manufacturers to verify the accuracy of the contents of our products, we do not have the expertise or personnel to monitor the production of products by these third parties. We rely exclusively, without independent verification, on certificates of analysis regarding product content provided by our third party suppliers and limited safety testing by them. We cannot be assured that these outside manufacturers will continue to supply products to us reliably in the compositions we require. Errors in the manufacture of our products could result in product recalls, significant legal exposure, adverse publicity, decreased revenues, and loss of distributors and endorsers.

We face significant competition from existing suppliers of products similar to ours. If we are not able to compete with these companies effectively, we may not be able to achieve profitability.
 
We face intense competition from numerous resellers, manufacturers and wholesalers of liquid nutrition drinks similar to ours, including retail, online and mail order providers. We consider the significant competing products in the U.S. market for the AquaBall™AquaBall(TM) to be Tum-E Yummies, Capri-Sun, Good to Grow, Bug Juice, and other alternatives marketed towards children, and for Bazi®Bazi(R) to be Red Bull®Bull(R), Monster®Monster(R), RockStar®RockStar(R), and 5 Hour Energy® and Steaz®Energy(R). Most of our competitors have longer operating histories, established brands in the marketplace, revenues significantly greater than ours and better access to capital than us. We expect that these competitors may use their resources to engage in various business activities that could result in reduced sales of our products. Companies with greater capital and research capabilities could re-formulate existing products or formulate new products that could gain wide marketplace acceptance, which could have a depressive effect on our future sales. In addition, aggressive advertising and promotion by our competitors may require us to compete by lowering prices because we do not have the resources to engage in marketing campaigns against these competitors, and the economic viability of our operations likely would be diminished.

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Adverse publicity associated with our products or ingredients, or those of similar companies, could adversely affect our sales and revenues.
 
Adverse publicity concerning any actual or purported failure of our Company to comply with applicable laws and regulations regarding any aspect of our business could have an adverse effect on the public perception of our Company. This, in turn, could negatively affect our ability to obtain financing, endorsers and attract distributors or retailers for the AquaBall™AquaBall(TM) and/or Bazi®Bazi(R), which would have a material adverse effect on our ability to generate sales and revenues.

Our distributors’ and customers’ perception of the safety and quality of our products or even similar products distributed by others can be significantly influenced by national media attention, publicized scientific research or findings, product liability claims and other publicity concerning our products or similar products distributed by others. Adverse publicity, whether or not accurate, that associates consumption of our products or any similar products with illness or other adverse effects, will likely diminish the public’s perception of our products. Claims that any products are ineffective, inappropriately labeled or have inaccurate instructions as to their use, could have a material adverse effect on the market demand for our products, including reducing our sales and revenues.

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The efficiency of nutritional supplement products is supported by limited conclusive clinical studies, which could result in less market acceptance of these products and lower revenues or lower growth rates in revenues.
Our nutritional supplement products are made from vitamins, minerals, amino acids, herbs, botanicals, fruits, berries and other substances for which there is a long history of human consumption.  However, there is little long-term experience with human consumption of certain product ingredients or combinations of ingredients in concentrated form.  Although we believe all of our products fall within the generally known safe limits for daily doses of each ingredient contained within them, nutrition science is imperfect.  Moreover, some people have peculiar sensitivities or reactions to nutrients commonly found in foods, and may have similar sensitivities or reactions to nutrients contained in our products.  Furthermore, nutrition science is subject to change based on new research.  New scientific evidence may disprove the efficacy of our products or prove our products to have effects not previously known.  We could be adversely affected by studies that may assert that our products are ineffective or harmful to consumers, or if adverse effects are associated with a competitor’s similar products.
 
Our products may not meet health and safety standards or could become contaminated.
 
We have adopted various quality, environmental, health and safety standards. We do not have control over all of the third parties involved in the manufacturing of our products and their compliance with government health and safety standards. Even if our products meet these standards they could otherwise become contaminated. A failure to meet these standards or contamination could occur in our operations or those of our bottlers, distributors or suppliers. This could result in expensive production interruptions, recalls and liability claims. Moreover, negative publicity could be generated from false, unfounded or nominal liability claims or limited recalls. Any of these failures or occurrences could negatively affect our business and financial performance.

The sale of our products involves product liability and related risks that could expose us to significant insurance and loss expenses.

We face an inherent risk of exposure to product liability claims if the use of our products results in, or is believed to have resulted in, illness or injury. Most of our products contain combinations of ingredients, and there is little long-term experience with the effect of these combinations. In addition, interactions of these products with other products, prescription medicines and over-the-counter drugs have not been fully explored or understood and may have unintended consequences. While our third party manufacturers perform tests in connection with the formulations of our products, these tests are not designed to evaluate the inherent safety of our products.
 
Although we maintain product liability insurance, it may not be sufficient to cover all product liability claims and such claims that may arise, could have a material adverse effect on our business. The successful assertion or settlement of an uninsured claim, a significant number of insured claims or a claim exceeding the limits of our insurance coverage would harm us by adding further costs to our business and by diverting the attention of our senior management from the operation of our business. Even if we successfully defend a liability claim, the uninsured litigation costs and adverse publicity may be harmful to our business.

Any product liability claim may increase our costs and adversely affect our revenues and operating income. Moreover, liability claims arising from a serious adverse event may increase our costs through higher insurance premiums and deductibles, and may make it more difficult to secure adequate insurance coverage in the future. In addition, our product liability insurance may fail to cover future product liability claims, which, if adversely determined, could subject us to substantial monetary damages.

The success of our business will depend upon our ability to create brand awareness.
 
The market for functional beverages and nutraceuticals is already highly competitive, with many well-known brands leading the industry. Our ability to compete effectively and generate revenue will be based upon our ability to create awareness of our products distinct from those of our competitors. It is imperative that we are able to convey to consumers the fact thatbenefits of our products are not just functional beverages but are also nutraceuticals.products. However, advertising and packaging and labeling of such products will be limited by various regulations. Our success will be dependent upon our ability to convey to consumers that our products are superior to those of our competitors.

 
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We must continue to develop and introduce new products to succeed.
 
The functional beverage and nutritional supplement industry is subject to rapid change. New products are constantly introduced to the market. Our ability to remain competitive depends on our ability to enhance existing products, continue to develop and manufacture new products in a timely and cost effective manner, to accurately predict market transitions, and to effectively market our products. Our future financial results will depend to a great extent on the successful introduction of several new products. We cannot be certain that we will be successful in selecting, developing, manufacturing and marketing new products or in enhancing existing products.
 
The success of new product introductions depends on various factors, including the following:
 
proper new product selection;
successful sales and marketing efforts;
timely delivery of new products;
availability of raw materials;
pricing of raw materials;
regulatory allowance of the products; and
customer acceptance of new products.
 
We may from time to time write off obsolete inventories resulting in higher expenses and consequently greater net losses.
 
As we sometimes produce product adorned with characters on a promotional schedule, over production of a certain character set could result in write-downs of our inventories. A change in ingredients or labeling requirements could also result in the obsolescence of certain inventory. Write-downs of this type could make it more difficult for us to achieve profitability. We did not incur a write-downincurred write-downs against inventory of $127,709 and $0 for the nine months ended September 30, 2015 and for the year ended December 31, 2012 or during the nine months ended September 30, 2013.  2014, respectively.
 
Product returns could require us to incur significant additional expenses, which would make it difficult for us to achieve profitability.
 
We have not established a reserve in our financial statements for product returns. However, we may experience product returns as we shift our focus toon the AquaBall™AquaBall(TM) line of products and expand our market presence nationwide. We will continue to analyze our returns to determine if a reserve is necessary. If our reserves prove to be inadequate, we may incur significant expenses for product returns. As we gain more operating experience, we may need to establish a reserve for product returns. 
 
If we are not able to adequately protect our intellectual property, then we may not be able to compete effectively and we may not be profitable.
 
Our existing proprietary rights may not afford remedies and protections necessary to prevent infringement, reformulation, theft, misappropriation and other improper use of our products by competitors. We own the formulations contained in our products and the patent for the AquaBall™AquaBall(TM) bottle. We consider this patent and these product formulations our critical proprietary property, which must be protected from competitors. We do not have any patents for our product formulations because we do not believe they are necessary to protect our proprietary rights. Although trade secret, trademark, copyright and patent laws generally provide such protection and we attempt to protect ourselves through contracts with manufacturers of our products, we may not be successful in enforcing our rights. In addition, enforcement of our proprietary rights may require lengthy and expensive litigation. We have attempted to protect some of the trade names and trademarks used for our products by registering them with the U.S. Patent and Trademark Office, but we must rely on common law trademark rights to protect our unregistered trademarks. Common law trademark rights do not provide the same remedies as are granted to federally registered trademarks, and the rights of a common law trademark are limited to the geographic area in which the trademark is actually used. Our inability to protect our intellectual property could have a material adverse impact on our ability to compete and could make it difficult for us to achieve a profit.
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Compliance with changing corporate governance regulations and public disclosures may result in additional risks and exposures.
 
Changing laws, regulations and standards relating to corporate governance and public disclosure, including the Sarbanes-Oxley Act of 2002 and new regulations from the SEC,Securities and Exchange Commission, have created uncertainty for public companies such as ours. These laws, regulations, and standards are subject to varying interpretations in many cases and as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. As a result, our efforts to comply with evolving laws, regulations, and standards have resulted in, and are likely to continue to result in, increased expenses and significant management time and attention.

 
Loss of key personnel could impair our ability to operate.
 
Our success depends on hiring, retaining and integrating senior management and skilled employees. We are currently dependent on certain current key employees, specifically Lance Leonard, our Chief Executive Officer, and Kevin Sherman, our Chief Marketing Officer and interim Chief Executive Officer, who are vital to our ability to grow our business and achieve profitability. As with all personal service providers, our officers can terminate their relationship with us at will. Our inability to retain these individuals may result in our reduced ability to operate our business.
 
Conversion of the preferred stock and the exercise of warrants by the Selling Stockholders will substantially dilute existing stockholders and the Company’s earnings per share. Additionally, any sale ofRisks Related to Our Common Stock by the Selling Stockholders following the conversion of the preferred stock and/or exercise of the warrants may have a materially adverse effect on the price of the Company’s Common Stock, as reported on the OTCQB.

       During the year ended December 31, 2013, the Company issued approximately: (i) 2.4 million shares of Series B Convertible Preferred Stock (“Series B Preferred”), convertible into approximately 39.7 million shares of Common Stock; and (ii) warrants to purchase approximately 13.6 million shares of Common Stock. Conversion of all or a portion of the shares of Series B Preferred and/or exercise of all or a portion of the recently issued warrants would have a substantial and material dilutive effect on the Company’s existing stockholders and on the Company’s earnings per share. In addition, the sale of Common Stock issuable upon conversion of shares of Series B Preferred and/or exercise warrants by the Selling Stockholders could have a materially adverse impact on the price of the Company’s Common Stock, as reported on the OTCQB.
 
A limited trading market currently exists for our securities, and we cannot assure you that an active market will ever develop, or if developed, will be sustained.
 
There is currently a limited trading market for our securities on the OTCQB marketplace.OTC Pink Marketplace. An active trading market for our Common Stockcommon stock may not develop. Consequently, we cannot assure you when and if an active-trading market in our shares will be established, or whether any such market will be sustained or sufficiently liquid to enable holders of shares of our Common Stockcommon stock to liquidate their investment in our company. If an active public market should develop in the future, the sale of unregistered and restricted securities by current shareholders may have a substantial impact on any such market.

If, and when, then shares of common stock underlying the shares of Series C Preferred and outstanding warrants are issued, our shareholders will experience immediate and substantial dilution in the book value of their investment.
As of February 12, 2016, we had 112,049,107 shares of common stock issued and outstanding. If, and when, holders of shares of Series C Preferred, including the Selling Stockholders, decide to convert those shares into common stock or exercise their Warrants, the number of shares of our common stock issued and outstanding could increase by as much as 118%. Conversion of all or a portion of the shares of Series C Preferred, Warrants and/or exercise of all or a portion of our other outstanding derivative securities would have a substantial and material dilutive effect on our existing stockholders and on our earnings per share. In addition, sale of the shares of common stock by certain holders of shares of Series C Preferred and Warrants could have a materially adverse impact on the trading price of our common stock.
If we issue additional shares of common stock in the future, it will result in the dilution of our existing shareholders.
Our Articles of Incorporation authorize the issuance of up to 300.0 million shares of common stock. The issuance of any such shares of common stock will result in a reduction in value of our outstanding common stock. If we do issue any such additional shares of common stock, such issuance also will cause a reduction in the proportionate ownership and voting power of all other shareholders. Further, any such issuance may result in a change of control of our corporation.
The price of our securities could be subject to wide fluctuations and your investment could decline in value.
 
The market price of the securities of a company such as ours with little name recognition in the financial community and without significant revenues can be subject to wide price swings. The market price of our securities may be subject to wide changes in response to quarterly variations in operating results, announcements of new products by us or our competitors, reports by securities analysts, volume trading, or other events or factors. In addition, the financial markets have experienced significant price and volume fluctuations for a number of reasons, including the failure of certain companies to meet market expectations. These broad market price swings, or any industry-specific market fluctuations, may adversely affect the market price of our securities.
 
Companies that have experienced volatility in the market price of their stock have been the subject of securities class action litigation. If we were to become the subject of securities class action litigation, it could result in substantial costs and a significant diversion of our management’s attention and resources.

Because our Common Stockcommon stock may be classified as “penny stock,” trading may be limited, and the share price could decline. Moreover, trading of our Common Stock,common stock, if any, may be limited because broker-dealers would be required to provide their customers with disclosure documents prior to allowing them to participate in transactions involving our Common Stock.common stock. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our Common Stock.

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common stock.
  
We have issued preferred stock with rights senior to our Common Stock,common stock, and may issue additional preferred stock in the future, in order to consummate a merger or other transaction necessary to continue as a going concern.
 
Our Articles of Incorporation authorizes the issuance of up to 5,000,0005.0 million shares of preferred stock par value $0.001 per share (the “Preferred Stock”), without shareholder approval and on terms established by our directors, of which 2,750,0002.75 million shares have been designated as Series B Preferred.Convertible Preferred Stock and 150,000 shares have been designated as Series C Convertible Preferred Stock. We may issue additional shares of Preferred Stockpreferred stock in order to consummate a financing or other transaction, in lieu of the issuance of Common Stock.common stock. The rights and preferences of any such class or series of Preferred Stockpreferred stock would be established by our board of directors in its sole discretion and may have dividend, voting, liquidation and other rights and preferences that are senior to the rights of the Common Stock.common stock.
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You should not rely on an investment in our Common Stockcommon stock for the payment of cash dividends.
 
Because of our significant operating losses and because we intend to retain future profits, if any, to expand our business, we have never paid cash dividends on our Common Stockcommon stock and do not anticipate paying any cash dividends in the foreseeable future. You should not make an investment in our Common Stockcommon stock if you require dividend income. Any return on investment in our Common Stockcommon stock would only come from an increase in the market price of our stock, which is uncertain and unpredictable.

Additional risks may exist since we became public through a “reverse merger.”
 
Because we became public by means of a “reverse merger,” we may not be able to attract the attention of major brokerage firms. Securities analysts of major brokerage firms may not provide coverage of us since there is little incentive to brokerage firms to recommend the purchase of our Common Stock.common stock. We cannot assure you that brokerage firms will want to conduct any secondary offerings on behalf of the Company in the future.

USE OF PROCEEDS
 
USE OF PROCEEDS
               We will not receive any of the proceeds of the shares offered by the Selling Stockholders. We may receive proceeds upon exercise of the Warrants, (defined below),the Personal Guaranty Warrant and/or the Novelty Warrant, if they are exercised. The shares that will be resold under this prospectus are issuable upon the conversion of certain securities issued by us during the Private Placements. The funds that may be received by us upon exercise of the Warrants,Warrant, the Personal Guaranty Warrant and the Novelty Warrant, estimated to be as much as approximately $3.6 million, if all Warrants are exercised, will be used for general working capital purposes.


SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

This prospectus includes forward-looking statements that relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to differ materially from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Words such as, but not limited to, “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan,” “targets,” “likely,” “will,” “would,” “could,” and similar expressions or phrases identify forward-looking statements. Forward-looking statements include, but are not limited to, statements about:

·our ability to implement our business strategy, including the transition from a hardware storage company to a software solutions and services provider;

·anticipated trends and challenges in our business and the markets in which we operate;

·our expected future financial performance;

·our expectations regarding our operating expenses;

·our ability to anticipate market needs or develop new or enhanced products to meet those needs;

·our ability to expand into other sectors of the storage market, beyond protection storage;

·our expectations regarding market acceptance of our products;

·our ability to compete in our industry and innovation by our competitors;

·our ability to protect our confidential information and intellectual property rights;

·our ability to successfully identify and manage any potential acquisitions;

·our ability to manage expansion into international markets;

·our ability to remediate the material weakness in our internal controls identified by our independent registered public accounting firm;

·our ability to maintain or broaden our business relationships and develop new relationships with strategic alliances, suppliers, customers, distributors or otherwise;

·our ability to recruit and retain qualified sales, technical and other key personnel;

·our ability to obtain additional financing; and

·our ability to manage growth.

All forward-looking statements involve risks, assumptions and uncertainties. The occurrence of the events described, and the achievement of the expected results, depend on many events, some or all of which are not predictable or within our control. Actual results may differ materially from expected results. See the section titled “Risk Factors” and elsewhere in this prospectus for a more complete discussion of these risks, assumptions and uncertainties and for other risks and uncertainties. These risks, assumptions and uncertainties are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other unknown or unpredictable factors also could harm our results. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this prospectus might not occur.
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Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other things contemplated by the forward-looking statements will not occur. Forward-looking statements in this prospectus are based on management’s beliefs and opinions at the time the statements are made. The forward-looking statements contained in this prospectus are expressly qualified in their entirety by this cautionary statement. The forward-looking statements included in this prospectus are made as of the date of this prospectus and we undertake no obligation to publicly update or revise any forward-looking statements to reflect new information, future events or otherwise, except as required by applicable securities laws.

Overview
 
True Drinks Holdings, Inc. (the “Company, “us” or “we) was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), a beverage company incorporated in the state of Delaware in January 2012 that specializes in all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™AquaBall(TM) Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute the AquaBall™AquaBall(TM) nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi®Bazi(R) All Natural Energy, a liquid nutritional supplement drink, which is currently distributed online and through our existing database of customers. Bazi® represented less than 1% of our total sales during the year ended December 31, 2012, and approximately 12% of our total sales during the nine months ended September 30, 2013. Sales of Bazi® are expected to decrease as the Company focuses its resources on sales and marketing of the AquaBall™.
 
The Company was originally incorporated in the state of Delaware in January 2012.
Our principal place of business is 1855218662 MacArthur Boulevard, Suite 325,110, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com.www.truedrinks.com. Our common stock par value $0.001 (“Common Stock”), is currently listed for quotation on the OTCQB marketplace (“OTCQBOTC Pink Marketplace”) under the symbol TRUU.

Our History
 
Bazi International, Inc.Intl. Prior to Merger with True Drinks, Inc.
 
Bazi International, Inc. (“Bazi Intl.”) was formed in 2001, under the name “Instanet, Inc.”  In August 2010, we changed our name to Bazi International, Inc. Until January 18, 2010, our principal channel of distribution was through a multilevel distributor network, which we terminated in January 2010 in favor of a retail and direct-to-consumer, online sales model. Bazi Intl. continued to distribute Bazi®Bazi(R) online and through our existing database of customers, but as a result of the termination of our multilevel distributor model, most of our top distributors ended their relationship with the Company during the first quarter of 2010, causing sales of Bazi®Bazi(R) to decrease throughout 2011 and into 2012. As a result, Bazi Intl. began suffering from a lack of sufficient capital necessary to adequately market Bazi®Bazi(R) and support Bazi Intl.’sthe Company’s existing retail and distribution partners.
 
True Drinks, Inc. Prior to Merger with the Bazi Intl.
 
True Drinks, Inc. (formerly GT Beverage Company, Inc.) was formed on January 19, 2012 to develop, market and sell AquaBall™AquaBall(TM) Naturally Flavored Water. In February and March of 2012, True Drinks, Inc. acquired GT Beverage Company, LLC, the predecessor entity to True Drinks, Inc.LLC. GT Beverage Company, LLC was formed in May 2008 to create and commercialize its Sportastic®Sportastic(R) brand sports drink, sold in round plastic bottles with registered trade dresses such as baseball and soccer designs. However, in January 2012, GT Beverage Company, LLC ceased its sports drink operations. In April 2012, True Drinks began packaging and selling AquaBall™AquaBall(TM) Naturally Flavored Water in its patented interlocking round plastic bottles, with depictions of characters from major entertainment companies, as permitted by licensing agreements with these companies.
 
Market OverviewTrue Drinks, Inc. Merges into Bazi Intl.
 
On June 7, 2012, True Drinks, Inc., Bazi Acquisition Sub Inc. ("Our products are characterizedMerger Sub"), a Delaware corporation and a wholly-owned subsidiary of Bazi International, Inc. (“Bazi Intl.”), and Bazi Intl. entered into an agreement and tax-free plan of merger (the “Merger Agreement”), wherein Merger Sub merged with and into the Company and True Drinks continued as functional beverages, or drink products with specific health benefits in the formulation of ingredients.  Our flagship product, AquaBall™surviving corporation (the “Merger Naturally Flavored Water, is a healthy hydration alternative to current beverages positioned towards children, and competes in the kids’ food market segment. Functional beverages are growing at an aggressive rate, largely due to consumer demand for healthier alternatives to typical carbonated soft drinks.  The shift away from carbonated soft drinks to healthier, functional drinks is reflected in the fact that sales of carbonated soft drinks have been flat since 2004, yet functional beverage sales have grown almost $20.0 billion over the same period to $30.6 billion in annual sales.  Market research firm Zenith International estimates that global per capita consumption of functional beverages increased 25% from 2010 to 2013.
The kids foods market segment is projected to grow 40% from $10.0 billion in 2010 to $14.0 billion by 2015 according to Packaged Facts, a leading publisher of market research in the food, beverage and consumer packaged good sectors.  Beverages are the second highest performing product within the kids foods market segment.  In 2010, 40% of the kids food market contained some “better-for-you” element.  Packaged Foods forecasts that the next several years will bring tremendous growth in the sales and development of food and beverage products marketed and designed for children.”). As a result we are currently positioning AquaBall™of the Merger, True Drinks became a wholly-owned subsidiary of the Company. The Merger closed on October 15, 2012. As a result of Merger, True Drinks, Inc.’s former shareholders owned approximately 95.5% of the combined post-Merger entity via shares of Series A Convertible Preferred Stock issued as part of the Merger. The Company subsequently changed its name from “Bazi International, Inc.” to “True Drinks Holdings, Inc.” The Merger was accounted for as a healthy, safe, naturally flavored water drink for kids.  public company “reverse merger,” and, as such, the consolidated financial statements reported herein reflect the operations of True Drinks, Inc. within the capital structure of Bazi Intl. Bazi Intl. was originally incorporated in the state of Nevada in January 2001.
   
Our Products

We market and distribute products that move away from high sugar, high calorie and nutritionally deficient beverages to healthful, natural alternatives. Our mission is to bring integrity back to the beverage industry and that honesty applies to every drop in every bottle. Our goal is to create and deliver beverages for families that encourage improved health, while being clear about what our products contain (and what they don’t).

AquaBall™AquaBall(TM) Naturally Flavored Water
 
Our flagship product, AquaBallAquaBall™ (TM)Naturally Flavored Water, is a naturally flavored water beverage, enhanced with vitamins B3, B5, B6, B12 and C. AquaBallAquaBall™(TM) does not contain high fructose corn syrup, artificial flavors, or artificial colors. Unlike high sugar and high calorie beverages marketed toward children, AquaBallAquaBall™ (TM)is sweetened with stevia, an all-natural sweetener, allowing the AquaBallAquaBall™ (TM)to provide a zero-sugar, zero-calorie alternative to juice and soda for kids. The main component of the marketing vision behind the AquaBall™AquaBall(TM) brand is our licensing agreements with Disney Consumer Products, Inc. (“Disney”) and Marvel Entertainment (“Marvel”), allowing each AquaBall™AquaBall(TM) to prominently feature various Disney and Marvel characters. Both Disney and Marvel characters have an established reputation of high retail sales of licensed products, giving each AquaBall™ AquaBall(TM)the presence associated with these brands.
 
Each AquaBallAquaBall™ (TM)is packaged in our patented 12 ounce stackable, spherical PET bottle, and wrapped with colorful, eye-catching labels featuring popular Disney characters and various Marvel superheroes.  Superheroes. AquaBallAquaBall™ (TM)currently comes in fruit punch, grape, orange and fruit punchberry flavors and is sold in mass-market retailers throughout the United States. AquaBall is also sold in Canada, Australia and New Zealand. AquaBallAquaBall™ (TM)is also available for purchase online at http://www.theaquaball.comwww.aquaballdrink.com. During the year ended December 31, 2012 and the nine months ended September 30, 2013, AquaBall™2014, AquaBall(TM) sales accounted for approximately 99% and 88%95% of the Company’s total revenues, respectively.revenues.
 
Bazi®(R) 
 
      Bazi®Bazi(R) All Natural Energy, is a liquid nutritional drink packed with eight different super fruits, including the Chinese jujube and seven other superfruits, plus 12 vitamins. The proprietary formula contains the following fruits: jujube fruit, blueberry, pomegranate, goji berry, chokeberry, raspberry, acai and sea buckthorn. Additionally, Bazi®Bazi(R) contains 12 vitamins including vitamins A, C, E and B-complex. In August, 2011, BioEnergy Ribose was added to Bazi®Bazi(R) enhancing the products energy delivery system. During the year ended December 31, 2012 and the nine months ended September 30, 2013, Bazi®2014, Bazi(R) sales accounted for approximately 1% and 12%5% of the Company’s total revenues, respectively.revenues.
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Manufacturing and Distribution

Manufacturing
 
We currently use a limited number of third parties to supply and manufacture our products. We have co-packing agreements with 7-Up Bottling in Modesto, California, Precision FormulationsMountain Pure in Dallas,Palestine, Texas, and Adirondack Beverages in Scotia, New York to package up to 4.0 million AquaBall™ cases per year. Bazi® isBazi(R) has been manufactured by Arizona Packaging and Production undersince 2007.
In October 2015, our wholly owned subsidiary, True Drinks, entered into a bottling agreement with Niagara Bottling, LLC, pursuant to which Niagara will become the exclusive manufacturer of AquaBall(TM) Naturally Flavored Water for the next five years. With Niagara, True Drinks will produce an improved “clean label” formulation of AquaBall(TM), which will remain sugar and calorie free but will eliminate all preservatives from the current formula. We expect to begin delivering this preservative free formulation of AquaBall(TM) at the beginning of the second quarter of fiscal 2016.
The Niagara Agreement requires the Company to deliver to Niagara its minimum volume requirements for the upcoming 12-month period on or before February 1st of each year (the “Annual Commitment”), which Annual Commitment may not be less than 3.2 million Cases (defined in the Niagara Agreement as a pack of 24 bottles of AquaBall(TM) Naturally Flavored Water) per purchase order. Subject to the terms and conditions of a five year exclusive manufacturing agreement, which stipulates certain prices, quantities and delivery timelines.the Niagara Agreement, the Company will pay Niagara $6.35 per Case manufactured, for an annual financial liability of approximately $20.3 million per year. We expect to begin delivering Cases manufactured by Niagara in the beginning of the second quarter of fiscal 2016.

Retail Distribution
 
We utilize a direct-to-retailer distribution strategy to key national accounts for sales of AquaBallAquaBall™ (TM)Naturally Flavored Water, including distribution to RiteAid, Toys R Us, Inc., Sam’s Club, Rite-Aid, Harris Teeter Supermarkets, Polar Beverages, Value Merchandisers, and stores under the Safeway, Inc. and The Kroger Company brands nationwide.  We also distribute AquaBallAquaBall™ (TM)through regional distributors throughout the United States.  We are actively seeking additional retail and convenience accounts, and we plan to explore alternative markets for AquaBall™ in the upcoming yearStates, such as schools, sports venues, fast food restaurants, dollar storeDrink King in New York City and club store channels.  Additionally, our licensing agreement with Disney Consumer Products, Inc. and Marvel Entertainment allows us to work with Disney and Marvel’s dedicated sales teams who,Polar Beverages in turn, work with top retailers to assist us with securing shelf-space for AquaBall™ and accomplishing our long-term sales objectives.  New England.
 
We are developing a direct-store-delivery (“DSD”) distribution network for AquaBall(TM) Naturally Flavored Water through agreements with Pure Beverage Company in Indiana, D&B Grocers, Inc. in Michigan, and Griffin Beverage in Michigan, which we expect to launch in the first quarter of 2016.
Online Sales

The Company’s ecommerce platform allows current and future consumers to purchase AquaBallAquaBall™ (TM)Naturally Flavored Water and Bazi®Bazi(R) Energy Shot by visiting our newly redesigned webpages, http://www.theaquaball.comwww.aquaballdrink.com and http://www.drinkbazi.com. We drive traffic to relevant landing pages and micro sites through digital marketing campaigns and promotions, andas well as a variety of social media marketing efforts.

Sales and Marketing

The Company’sOur sales and marketing efforts are directed from our corporate offices in Irvine, California, utilizing our own staff, as well as outside resources retained to build market awareness and shelf placement of our products.products, including dedicated sales teams from Disney Consumer Products, Inc. and Marvel Entertainment. The Company manages key national accounts through our in-house national sales team.Most notably, the Company will begin distributing AquaBall™ Naturally Flavored Water to all RiteAid locations in June 2014.
 
Our sales teams work to secure national distribution with ourthese customers through multiple avenues including joint sales meetings with Disney and Marvel sales personnel dedicated to these national accounts. The Company has hired outside personnel to managesales team also manages our national broker networks. The networks focus on areas such as regional grocery chains and the convenience store channel, and the food service segment.channel.
 
As of December 31, 2013, the Company was notWe are no currently dependent upon any major customers.

Source and Availability of Raw Materials
 
We currently utilize a variety of suppliers to purchase raw materials for the AquaBallAquaBall™ (TM)Naturally Flavored Water, during the year ended December 31, 2012.
        During 2012, we reliedand rely significantly on one supplier for 100% of our purchases of certain raw materials for Bazi®Bazi(R). Bazi, Inc. entered into an exclusive manufacturinghas sourced these raw materials from this supplier since 2007 and does not anticipate any issues with the supply of these raw materials. In May 2016, all production of AquaBallTM Naturally Flavored Water will be done by Niagara Bottling under our 5-year bottling agreement with this supplier in 2007them. Per the terms of that agreement, Niagara Bottling will be procuring all raw materials, and True Drinks will purchase finished goods as they are shipped to produce the Bazi® product.customers.
 
We own the formulas for both AquaBallAquaBall™ (TM)Naturally Flavored Water and Bazi®Bazi(R) Energy Shot, and we believe that our purchasing requirements can be readily met from alternative sources, if necessary.
 
Competition

The industries in which we operate are highly competitive. Not only do weAquaBall(TM) Naturally Flavored Water competes most directly with other beverages marketed directly to children. We also compete with other manufacturers of functional beverages, but we also competeand with manufacturers of more traditional beverages, such as juice and soda marketed to children.

 
Our primary competition for AquaBall(TM) is in the $1.2 billion market for products marketed directly to children, including CapriSun(R), Tum-E Yummies, Good to Grow, Tummy Ticklers, Kool-aid and others. General competition in the beverage industry includes products owned by multinational corporations with significant financial resources, including Vitamin Water, and Tum-E Yummies, owned by Coca-Cola, and Sobe and Propel, both owned by Pepsi Co. Bazi®Bazi(R) competitors include Steaz®Steaz(R), Guayaki Yerba Mate, POM Wonderful®Wonderful(R), as well as sports and energy drinks including Gatorade®Gatorade(R), Red Bull®Bull(R), 5-Hour Energy®Energy(R), RockStar®RockStar(R), Monster®Monster(R), Powerade®Powerade(R), Accelerade®Accelerade(R) and All Sport®Sport(R). Indirect competition for the AquaBallAquaBall™(TM) and Bazi®Bazi(R) includes soft drinks and juice products, such as Sunny Delight®, CapriSun®Delight(R) and other fruit drinks. These competitors can use their resources and scale to rapidly respond to competitive pressures and changes in consumer preferences by introducing new products, reducing prices or increasing promotional activities. Many of our competitors have longer operating histories and have substantially greater financial and other resources than we do. They therefore have the advantage of established reputations, brand names, track records, back office and managerial support systems and other advantages that we cannot duplicate in the near future. Moreover, many competitors, by virtue of their longevity and capital resources, have established lines of distribution to which we do not have access, and are not likely to duplicate in the near term, if ever.
 
Intellectual Property
 
We rely on the AquaBallAquaBall™ (TM)patent, AquaBallAquaBall™ (TM)and Bazi®Bazi(R) trademarks and licensing agreements to market our products and make them standout among outour competitors.

Patents and Trademarks
 
We were granted the patent for AquaBallAquaBall™(TM)’s stackable, spherical drink container in 2009, via our predecessor entity GT Beverage Company, LLC, who we purchased on March 31, 2012. We maintain trademark protection for AquaBallAquaBall™ (TM).  We maintain trademark protection for AquaBall™ and have federal trademark registration for Bazi®Bazi(R). This trademark registration is protected for a period of ten years and then is renewable thereafter if still in use.
 
Licensing Agreements
 
We originally entered into a three-year licensing agreement with Disney Consumer Products, Inc. (“Disney”) and an 18-month licensing agreement with Marvel Characters, B.V. ("Marvel") (the(collectively, theLicensing Agreements”) in 2012. Each Licensing Agreement allows us to feature popular Disney and Marvel characters on AquaBallAquaBall™(TM) Naturally Flavored Water, allowing AquaBallAquaBall™ (TM)to stand out among other beverages marketed towards children. Under the terms and conditions of the Licensing Agreements, we work with the Disney and Marvel teams to create colorful, eye-catching labels that surround the entire spherical shape of each AquaBallAquaBall™ (TM). Once the label designs are approved, we work with Disney and Marvel to set retail calendars, rotating the placement of different AquaBallAquaBall™ (TM)designs over the course of the year.
In 2015, the Company and Disney entered into a renewed Licensing Agreement, which extended the Company’s license with Disney through March 31, 2017 (the “Disney Agreement”). The terms of the Disney Licensing Agreement stipulatesentitles Disney to receive a royalty rate of 4%5% on the salessale of AquaBallAquaBall™ (TM)Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total royalty guarantee of $231,600$450,870 over the term of the agreement which has a term ending date ofperiod from April 1, 2015 through March 31, 2015.2017. In addition, the Company is required to spendmake a ‘common marketing fund’ contribution equal to 1% of sales on advertising and promotional opportunities.due annually during the agreement. The Company is required to make common marketing fund contributions totaling $96,188spend a total of $820,000 on advertising and promotional opportunities over the lifeterm of the agreement.Disney Agreement.

The terms of the current Marvel Licensing Agreement stipulate(“Marvel Agreement”) stipulates a royalty rate of 5% on the sales of AquaBallAquaBall™ (TM) Naturally Flavored Water adorned with Marvel characters, paid quarterly. In 2013, the Company extended the Marvel Agreement through December 31, 2015. The total royalty guarantee for the period from July 1, 2015 through December 31, 2015 is $37,500.
On August 22, 2015, the Company and Marvel entered into a renewed Licensing Agreement, pursuant to which the Company secured a license from Marvel, effective January 1, 2016 until December 31, 2017, to feature certain Marvel characters on bottles of AquaBall(TM) Naturally Flavored Water. The Marvel Agreement requires the Company to pay to Marvel a 5% royalty rate on the sale of AquaBall(TM)Naturally Flavored Water adorned with Marvel characters, paid quarterly, through December 31, 2017, with a total royalty guarantee of $150,000 over the term of the agreement which has a term ending date of December 31, 2015.$200,000.
  
Government Regulations

General
       Our operations are affected by extensive laws, governmental regulations, administrative determinations, court decisionsThe production, distribution and enforcement policies.  These requirements exist at the federal, state and local levelssale in the United States including laws and regulations pertaining to: 
the formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising and sale of our products; and 
product claims and advertising, including direct claims and advertising by us, as well as claims and advertising by independent distributors, for which we may be held responsible.
      The formulation, manufacturing, packaging, labeling, holding, storage, distribution, advertising, and sale of our products isare subject to regulation by one or morevarious U.S. federal agencies,and state regulations, including the Food and Drug Administration (“FDA”), the Federal Trade Commission (“FTC”), the Consumer Product Safety Commission (“CPSC”), the Occupational Safety and Health Administration (“OSHA”), the Department of Agriculture (“USDA”) and the Environmental Protection Agency (“EPA”).  These activities are also regulated by various agencies of the states and localities in which our products are sold.  Pursuant tobut not limited to: the Federal Food, Drug and Cosmetic Act, (“FDCA”), the FDA regulates the processing, formulation, safety, manufacture, packaging, labeling, holding, sale, and distribution of foods and nutritional supplements (including vitamins, minerals, amino acids, herbs, and botanicals).  The FTC has jurisdiction to regulate the advertising of these products.  The CPSC is charged with protecting the public from risks of serious injury or death associated with the use of consumer products.  Nutritional supplements are among the over 15,000 types of consumer products under CPSC’s jurisdiction.  When consumers complain to the CPSC about alleged harm stemming from ingestion of vitamins and other nutritional supplement, CPSC may contact the entity concerned, inform it of the nature of the complaint, and invite a response.  CPSC has conducted several recalls of iron-containing dietary supplements that do not comply with the child-resistant packaging requirement.  The OSHA is charged with protecting workplace safety.  Nutritional supplement companies must maintain a safe workplace and may from time to time be subject to queries from OSHA if manufacturing methods or procedures raise a question of worker safety.  The USDA has jurisdiction over animal food and animal feed, including regulatory control over the harvesting of animal-based source materials, including animal-derived proteins, and animal-derived gelatin capsules, used in the making of dietary supplements.  The EPA regulates dietary supplement compliance with standards established under the Clean Air Act, the Clean Water Act, the Occupational Safety and Health Act, and the Pollution Prevention Act as they affect the use, maintenance, and disposal of substances used in and facilities used for the manufacture of nutritional supplements.
    The FDCA has been amended several times with respect to nutritional supplements, in particular by the Dietary Supplement Health and Education Act of 1994 (“DSHEA”), which established1994; the Occupational Safety and Health Act; various environmental statutes; and a new framework governingnumber of other federal, state and local statutes and regulations applicable to the composition,production, transportation, sale, safety, advertising, marketing, labeling and marketingingredients of nutritional supplements.  Nutritional supplements are defined as vitamins, minerals, herbs,such products.
Certain states and localities prohibit the sale of certain beverages unless a deposit or tax is charged for containers. These requirements vary by each jurisdiction. Similar legislation has been proposed in certain other botanicals, amino acidsstates and other dietary substances for human use to supplement the diet,localities, as well as concentrates, metabolites, constituents, extractsby Congress. We are unable to predict whether such legislation will be enacted or combinationswhat impact its enactment would have on our business, financial condition or results of such dietary ingredients.  Generally, under DSHEA, dietary ingredients that were on the market prior to October 15, 1994, may be used in nutritional supplements without notifying the FDA.  New dietary ingredients, consistingoperations.
All of dietary ingredients that were not marketedour facilities in the United States before October 15, 1994, are subject to a FDA pre-market new dietary ingredient notification requirement unless the ingredient has been present in the food supply as an article used for food without being chemically altered.  A new dietary ingredient notification must provide the FDA with evidence of a history of use or other evidence of safety establishing that use of the dietary ingredient will reasonably be expected to be safe.  A new dietary ingredient notification must be submitted to the FDA at least 75 days before the initial marketing of the new dietary ingredient.  There is no certainty that the FDA will accept any particular evidence of safety for any new dietary ingredient.  The FDA’s refusal to accept such evidence could prevent the marketing of such dietary ingredients. 
    The FDA issued a consumer warning in 1996, followed by proposed regulations in 1997, covering nutritional supplements that contain ephedra or its active substance, ephedrine alkaloids.  We have never produced or sold products containing ephedra.  In February 2004, the FDA issued a final regulation declaring nutritional supplements containing ephedra under the FDCA because they present an unreasonable risk of illness or injury under the conditions of use recommended or suggested in labeling, or if no conditions of use are suggested or recommended in labeling, under ordinary conditions of use.  The rule took effect on April 12, 2004, and bans the sale of nutritional supplement products containing ephedra.  Similarly, the FDA issued a consumer advisory in 2002 with respect to nutritional supplements that contain the ingredient Kava, and the FDA is currently investigating adverse effects associated with ingestion of this ingredient.  We have never produced or sold any products containing Kava.
      DSHEA permits statements of nutritional support to be included in labeling for nutritional supplements without FDA premarket approval.  These statements must be submitted to the FDA within 30 days of marketing and must bear a label disclosure that “This statement has not been evaluated by the Food and Drug Administration.  This product is not intended to diagnose, treat, cure, or prevent any disease.”  These statements may describe a benefit related to a nutrient deficiency disease, the role of a nutrient or nutritional ingredient intended to affect the structure or function in humans, the documented mechanism by which a nutrient or dietary ingredient acts to maintain such structure or function, the general well-being from consumption of a nutrient or dietary ingredient, but may not expressly or implicitly represent that a nutritional supplement will diagnose, cure, mitigate, treat or prevent a disease.  An entity that uses a statement of nutritional support in labeling must possess scientific evidence substantiating that the statement is truthful and not misleading.  If the FDA determines that a particular statement of nutritional support is an unacceptable drug claim or an unauthorized version of a disease claim for a food product, or if the FDA determines that a particular claim is not adequately supported by existing scientific data or is false or misleading, we would be prevented from using the claim.
      In addition, DSHEA provides that so-called “third-party literature,” e.g., a reprint of a peer-reviewed scientific publication linking a particular nutritional ingredient with health benefits, may be used in connection with the sale of a nutritional supplement to consumers without the literature being subject to regulation as labeling.  Such literature must not be false or misleading; the literature may not promote a particular manufacturer or brand of nutritional supplement; the literature must present a balanced view of the available scientific information on the nutritional supplement; if displayed in an establishment, the literature must be physically separate from the nutritional supplement; and the literature may not have appended to it any information by sticker or any other method.  If the literature fails to satisfy each of these requirements, we may be prevented from disseminating it with our products, and any dissemination could subject our products to regulatory action as an illegal drug.  Moreover, any written or verbal representation by us that would associate a nutrient in a product that we sell with an effect on a disease will be deemed evidence of an intent to sell the product as an unapproved new drug, a violation of the FDCA.
   On August 25, 2007 the FDA adopted the final regulations for large manufactures of a standard originally proposed in March 2003 of the current Good Manufacturing Practices guidelines (“cGMPs”) for the manufacturing, packing, holding and distributing dietary ingredients and nutritional supplements.  The new regulations require nutritional supplements to be prepared, packaged, and held in compliance with strict rules, and require quality control provisions that may mandate redundant testing of product ingredients at each separate stage of manufacture and are intended to ensure that products are accurately labeled and do not contain adulterants and contaminants.  While the rule allowed for medium and small manufacturers to have until 2009 and 2010, respectively, to comply with the cGMPs, most of our contract manufacturers did not qualify as small or medium.  As a result, many of our contract manufacturers began following the proposed cGMPs or even pharmaceutical cGMPs well before the final rule was published.  
      The FDA has broad authority to enforce the provisions of the FDCA applicable to nutritional supplements, including powers to issue a public warning letter to an entity, to publicize information about illegal products, to request a recall of illegal products from the market, and to request the Department of Justice to initiate a seizure action, an injunction action, or a criminal prosecution in the United States courts.  The regulation of nutritional supplements may increase or become more restrictive in the future.    

In 2004, legislation was introduced in both houses of Congress that imposed substantial new regulatory requirements for dietary supplements.  These bills did not pass and are no longer pending, but we believe the 2004 proposed legislation evidences a continuing effort to further regulate dietary supplements.
On April 12, 2004, the FDA adopted a new test for determining when a nutritional supplement is adulterated.  Under this test, the FDA may declare a nutritional supplement adulterated (i.e., to present an unreasonable risk of illness or injury) if it finds any benefit provided by the supplement outweighed by a risk of illness of injury.  The new risk/benefit test is ill-defined and can be interpreted to permit FDA to hold a wide range of nutritional supplements adulterated.  It is possible that FDA might hold more nutritional supplements adulterated in the future, reducing the nutritional ingredients available for use in our products.
The FTC exercises jurisdiction over the advertising of nutritional supplements.  In recent years, the FTC has instituted numerous enforcement actions against nutritional supplement companies for deceptive advertising based on those companies’ alleged failure to possess competent and reliable scientific evidence in support of claims made in advertising.
The FTC may monitor our advertising and could request all evidence in support of our advertising claims, which evidence is required to be kept by us in advance of advertising.  Discerning what constitutes “competent and reliable scientific evidence” involves, to a degree, a subjective assessment of the relative level, degree, quality, and quantity of scientific evidence and its acceptance in the scientific community as proof of the advertising statement.  It is therefore possible that we may think evidence we have as sufficient but the FTC may deem the evidence inadequate.  We believe we are in material compliance with applicable federal, state and local rules.
On December 9, 2006, President Bush signed the Dietary Supplement & Nonprescription Drug Consumer Protection Act into law.  Theenvironmental laws and regulations. Although compliance with these provisions has not had any material adverse effect on our financial or competitive position, compliance with or violation of any current or future regulations and legislation requires manufacturers of dietary supplement and over-the-counter products to notify the FDA when they receive reports of seriouscould require material expenditures or have a material adverse events.  We already have an internal adverse event reporting system that has been in place for several years.  In December 2008 the FDA submitted Guidance for implementing the regulations for comment, this guidance, when finalized, will represent the current thinking of the Food and Drug Administrationeffect on this topic, which we would intend to fully comply with.
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our financial results.
 
We believe that current and reasonably foreseeable governmental regulation will have minimal impact on our business.
 
Research and Development
 
No expenses were recorded on research and development for the nine months ended September 30, 2015 or the year ended December 31, 2014. We are working with certain third parties on the development of possible future products, but these projects are funded by the respective third parties. During 2012, we developed our AquaBall™AquaBall(TM) proprietary formula along with Wild Flavors, Inc., an independent third party contracted by the Company. We first launched distribution and sales of AquaBallAquaBall™ (TM)in June 2012.  The AquaBall™ did not require FDA or other regulatory approval.  Following the initial launch of the AquaBall™ , we2012, and continued research and development efforts to add more flavors to the AquaBallAquaBall™ (TM)line and modify the AquaBallAquaBall™ (TM)into a zero sugar, zero calorie product. We launched the zero sugar, zero calorie line in early 2013, as well as new flavors, such as strawberry lemonade and berry.

In connection with the Niagara Agreement executed in 2015, we will begin producing an improved “clean label” formulation of AquaBall(TM), which will remain sugar and calorie free but will eliminate all preservatives from the current formula. We expect to begin delivering this preservative free formulation of AquaBall(TM) at the beginning of the second quarter of fiscal 2016.
During 2006, Bazi®Bazi(R) was developed and was launched in January 2007. This product did not require FDA or other regulatory approval. During 2009, new ingredients and productions methods were researched to integrate into existing products or new products. During 2010, Bazi® was repackaged Since 2012, Baziinto 2oz shots,(R) has been and marketedis now being sold solely online in two, six12, 24, 36, 48 and twelve packs to ensure greater retail distribution.144 packs.
 
Employees
 
We had eightcurrently employ eleven full-time employees and one part-time employee as of February 6, 2014.employee.
 
Compliance with Environmental Laws
 
Our business does not require usIn California, we are required to comply with any particular environmental regulations.collect redemption values from our retail customers and to remit such redemption values to the State of California Department of Resources Recycling and Recovery based upon the number of cans and bottles of certain carbonated and non-carbonated products sold. In certain other states where our products are sold, we are also required to collect deposits from our customers and to remit such deposits to the respective jurisdictions based upon the number of cans and bottles of certain carbonated and non-carbonated products sold in such states.
Description of Property
 
Description of Property

We are headquarteredThe Company leases its corporate office in Irvine, California and lease our office on a one-year lease.  term. The current term expired on July 31, 2015. The Company signed an addendum to its lease, which extended the term through July 31, 2016. Total rent expense forrelated to the year ended December 31, 2012 andCompany's operating lease for the nine months ended September 30, 20132015 was approximately $33,000 and $35,000, respectively.$42,425. Total remaining payments on the lease through July 31, 20142016 are approximately $18,460.$37,845.
Legal Proceedings
 
Legal Proceedings

From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s financial position or results of operations.
 
On July 1, 2011, a lawsuit was filed in the United States District Court, the Southern District of Ohio, Cincinnati Division, against GT Beverage Company, LLC (“GT LLC”) by Dominion Liquid Technologies, LLC. The lawsuit alleges that GT LLC breached terms of a 2010 co-packing agreement, which governed the relationship between the parties. As of February 2013, Dominion amended its complaint to add the Company as a defendant in the case. Dominion is seeking monetary damages in an amount exceeding $800,000. GT LLC has filed its answer denying all of Dominion’s claims and intends to vigorously defend the suit. Summary motionsWe are currently under review by the Court’s magistrate, andnot involved in any litigation that we believe could have a trial will likely be set in early 2014.
Reports to Security Holdersmaterial adverse effect on our financial condition or results of operations.
 
Available Information
The Company is required to comply with the reporting requirements of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”), pursuant to Section 15(d) of the Exchange Act. The Company isAs a public company, we are required to file our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements on Schedule 14A and other reportsinformation (including any amendments) with the SECSEC. You may read and accordingly, must furnish an annual report with audited financial statements to its stockholders.  Copies of this registration statement and all subsequent filings the Company makes with the SEC may be inspected, without charge,copy such material at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 1010:00 a.m. and 3to 3:00 p.m. The publicYou may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Copies of this materialYou can also should be available throughfind the Internet by usingCompany’s SEC filings at the SEC’s EDGAR Archive, which is locatedwebsite at http://www.sec.gov.
Our Internet address is www.truedrinks.comWeInformation contained on our website is not part of this annual report on Form 10-K. Our SEC filings (including any amendments) will also makebe made available free of charge on www.truedrinks.com, as soon as reasonably practicable after we electronically file such material available on our own website, which is located at http://www.truedrinks.com.with, or furnish it to, the SEC. 

 
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MARKET PRICE OF COMMON STOCK AND OTHER STOCKHOLDER MATTERS

Market Information

Our Common Stockcommon stock is traded on the OTCQB marketplace under the name True Drinks Holdings, Inc., and quoted on the OTCQB marketplaceOTC Pink Marketplace under the symbol TRUU.

The following table sets forth high and low bidsales prices for our Common Stockcommon stock for the calendar quarters indicated as reported by the OTCQB.OTC Pink Marketplace. These prices represent quotations between dealers without adjustment for retail markup, markdown, or commission and may not represent actual transactions.
 
High Low High Low 
2013    
2015     
First Quarter $3.50* $0.02  $0.25 $0.12 
Second Quarter $2.25* $0.85* $0.20 $0.14 
Third Quarter $1.04* $0.55* $0.40 $0.14 
Fourth Quarter $0.64* $0.20* $0.22 $0.06 
          
2012     
2014     
First Quarter $0.06 $0.01  $0.53 $0.22 
Second Quarter $0.09 $0.03  $0.49 $0.28 
Third Quarter $0.09 $0.05  $0.40 $0.30 
Fourth Quarter $0.07 $0.02  $0.38 $0.13 
     
2011     
First Quarter $0.33 $0.17 
Second Quarter $0.32 $0.08 
Third Quarter $0.17 $0.07 
Fourth Quarter $0.11 $0.02 
 
*Bid price reflects the 1-for-100 reverse split of our Common Stock, which reverse split took effect on January 22, 2013.

Holders
 
At February 6, 2014,12, 2016, there were 27,885,587112,049,107 shares of our Common Stockcommon stock outstanding, and approximately 221265 shareholders of recordrecord. At February 12, 2016, there were 1,317,870 shares of our Common Stock.  At February 6, 2014, there were noSeries B Convertible Preferred Stock (“Series B Preferred”), and 63,266 shares of our Series A Convertible Preferred Stock outstanding, and 2,485,100 shares of our Series BC Preferred outstanding, held by approximately 4632 and 11 shareholders of record.record, respectively.  
Dividends
 
We did not declare any dividends on common stock for nine months ended September 30, 2015 or the year ended December 31, 2012 or the nine months ended September 30, 2013.2014. Our Board of Directors does not intend to distribute dividends in the near future. Instead, we plan to retain any earnings to finance the development and expansion of our business.The declaration, payment and amount of any future dividends will be made at the discretion of the Board of Directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the Board of Directors considers relevant. There is no assurance that future dividends will be paid, and if dividends are paid, there is no assurance with respect to the amount of any such dividend.
 
We pay dividends on our Series B Preferred stock quarterly. 
Transfer Agent

Our Transfer Agent and Registrar for our Common Stockcommon stock is Corporate Stock Transfer located in Denver, Colorado.

 
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SELECTED CONSOLIDATED FINANCIAL DATA
 
SELECTED CONSOLIDATED FINANCIAL DATA

A smallerAs a “smaller reporting company iscompany” as defined by the rules and regulations of the SEC, we are not required to provide the information required by this item.information.


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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion should be read in conjunction with our consolidated financial statements and the related notes and other financial information appearing elsewhere in this Registration Statement. Readers are also urged to carefully review and consider the various disclosures made by us which attempt to advise interested parties of the factors which affect our business, including (without limitation) the disclosures made under the captions “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Risk Factors,” and in the audited consolidated financial statements and related notes included in theour Annual Report on Form 10-K, filed with the SEC on April 5, 2013.

Overview

True Drinks Holdings, Inc. (the “Company”) is a beverage company that specializes in all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™ Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute the AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed online and through our existing database of customers. Bazi® represented less than 1% of our total sales during the year ended December 31, 2012.2, 2015.
 
Critical Accounting Polices and Estimates
 
Discussion and analysis of our financial condition and results of operations are based upon financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates; including those related to collection of receivables, inventory obsolescence, sales returns and non-monetary transactions such as stock and stock options issued for services. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
 
Revenue Recognition

In accordance with ASC Topic 605 (Staff Accounting Bulletin 104 “Revenue Recognition in Financial Statements”), revenue is recognized at the point of shipment, at which time title is passed. Net sales include sales of products, sales of marketing tools to independent distributors and freight and handling charges. With the exception of retail customers, we receive the net sales price from all of our orders in the form of cash or credit card payment prior to shipment. Retail customers with approved credit have been extended payment terms of net 30 days, with a few exceptions.

Allowance for Doubtful Accounts

We estimate losses on receivables based on known troubled accounts and historical experience of losses incurred. Based on our estimations, we recorded anThe allowance for doubtful accounts ofwas approximately $254,000$110,000 and $54,000$162,000 at September 30, 20132015 and December 31, 2012,2014, respectively.

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Inventory Valuation

Inventories are stated at the lower of cost or market on a first-in first-out basis. Inventory is periodically reviewed and obsolete inventories are written off. No inventory was written off as obsolete for the nine monthsperiod ended September 30, 20132015 or the year ended December 31, 2012.
2014. Prior to inventory becoming obsolete, inventory which is close to expiration is donated to charitable organizations.
 
Stock Based Compensation
 
The Company recognizes the cost of employee services received in exchange for awards of equity instruments based on the grant-date fair value of those awards in accordance with ASC Topic 718, which requires compensation costs related to share-based transactions, including employee stock options, to be recognized in the financial statements based on fair value, and the SEC’s Staff Accounting Bulletin No. 107 (“SAB 107”) interpreting ASC Topic 718 and the valuation of share-based payments for public companies. The Company records compensation expense on a straight-line basis. The fair value of options granted are estimated at the date of grant using a Black-Scholes option pricing model with assumptions for the risk-free interest rate, expected life, volatility, dividend yield and forfeiture rate.

Intangible Assets
 
Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Company’s products, customer first,list, and the estimated value of GT Beverage Company, LLC’s interlocking spherical bottle patent acquired on March 31, 2012.patent. The Company’s intangible assets are amortized over their estimated remaining useful remaining lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary as ofduring the quarter ended September 30, 2013 or December 31, 2012.2015.

Goodwill
 
Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually.

Derivative Instruments
A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. As a matter of policy, the Company does not invest in financial derivatives or engage in hedging transactions. However, the Company has entered into complex financing transactions that involve financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value using the binomial lattice (“Binomial Lattice”) pricing model and marked to market and reflected on our condensed consolidated statement of operations as other (income) expense at each reporting period. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security.
Results of Operations

Comparison of the Fiscal YearYears Ended December 31, 2012 to the Fiscal Year Ended December 31, 2011
The audited financial statements of GT Beverage Company, LLC as of2014 and for the years ended December 31, 2011 and 2010 were attached as Exhibit 10.7 to the Company’s Annual Report on Form 10-K for the year ended December 31, 2012, filed with the SEC on April 5 , 2013. As the predecessor entity to the Company, the results of operations for the year ended December 31, 2012 are compared in this section to the results of operations of GT Beverage Company, LLC for the year ended December 31, 2011. GT Beverage Company, LLC had no significant operations from January 1, 2012 through March 31, 2012 (date of purchase by the Company).2013
  
Net Sales

Net sales for the year ended December 31, 20122014 were $1,021,908$4,693,414 compared to $1,672,168$2,649,473 during the same period in 2011, a decrease2013, an increase of 39%77%The decreaseThis increase in net sales is attributable to ceasing the continued execution of our business plan, including sales of GT Beverage Company, LLC’s Sportastic brand sports drink and the introduction in June of 2012 of AquaBall™AquaBall(TM) Naturally Flavored Water.Water to key retail accounts during the year ended December 31, 2014, including entrance into the club channel with significant sales at Sam’s Club and distribution to 280 Wal-Mart stores.

The percentage that each product category represented of our net sales is as follows:

Product Category 
Year Ended
December 31,
2012 (1)2014
% of Sales
 
AquaBall(AquaBall™ TM(1))
  9995%
Bazi®
Bazi(R)
  15%

(1)The Company’s net sales for the year ended December 31, 2012 included sales of the Bazi® following the Merger, from October 15, 2012 to December 31, 2012.
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Gross Profit

Gross profit for the year ended December 31, 20122014 was $272,379$291,712, as compared to a loss of $54,591$521,762 for the year ended December 31, 2011.2013. Gross profit as a percentage of revenue (gross margin) during the year ended December 31, 20122014 was 27%6%. This figure was affected by the high costs of our raw materials due to the low volume of product manufactured during the year. TheAdditionally, the Company’s entrance into the club channel on a national level in November 2014 resulted in a negative gross margin for the fourth quarter. However, we expect our margins on sales in the club channel to increase in gross profit was2015 due to increased volumes and the write-off of significant obsolete inventory of Sportastic sports drink in 2011.

Sales, General and Administrative Expense

Sales, general and administrative expense was $3,273,227 for the year ended December 31, 2012 as compared to $2,039,154 for the year ended December 31, 2011.  This increase is due to professional fees related to the Merger, additional salaries, and higher than normal shipping expense as the Company was shipping product across the United States from one manufacturer during 2012 located in Modesto, CA.

Interest Expense

Interest expense for the year ended December 31, 2012 was $119,942 as compared to $14,231 for the year ended December 31, 2011.  The increase was due to the issuance of 145,000 post-split shares of Common Stock for interest related to a debt financing.

Net Loss

Our net loss for the year ended December 31, 2012 was $3,119,343 as compared to a net loss of $2,093,745 for the year ended December 31, 2011.  On a per share basis, our loss was $0.00 per share for the years ended December 31, 2012 and December 31, 2011.

Comparisonanticipated consistency of the Nine Months Ended September 30, 2013 to the Nine Months Ended September 30, 2012.club business.
 
Net Sales
Net sales for the nine months ended September 30, 2013 were $2,231,861 compared to net sales of $846,280 for the nine months ended September 30, 2012. The Company’s sales were limited in the nine months ended September 30, 2012 due to the early stage of AquaBall™'s sales cycle.
The percentage that each product category represented of our net sales is as follows:

Product Category
Nine Months Ended
September 30, 2013
(% of Sales)
AquaBall™88%
Bazi®12%

Gross Profit

Gross profit for the nine months ended September 30, 2013 was $360,218. Gross profit as a percentage of revenue (gross margin) during nine months ended September 30, 2013 was 16%. This figure was affected by the high costs of our raw materials due to the low volume of product manufactured during the year. The Company’s costs related to the production of our product is declining due to lower production expenses, and our freight charges on incoming shipments of raw materials are declining on a per-case basis.
Sales, General and Administrative Expense
 
Sales, general and administrative expense was $5,054,922expenses were $8,838,209 for the nine monthsyear ended September 30, 2013,December 31, 2014 as compared to $2,150,183$5,925,895 for the nine monthsyear ended September 30, 2012.December 31, 2013. This increase is primarily due to the Company’s launch of its new zero calorie, sugar free formula of AquaBall™ in the first three months of 2013 and increases in costs related to sales such as freight for shipping orders to customers stock-based compensation and loan origination feeslicense fees. There were also significant increases in marketing expenditure, and slight increases in payroll related to bridge financing.
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expenses such as health insurance for employees during the 2014 period.
 
Interest Expense
 
Interest expense for the nine monthsyear ended September 30, 2013December 31, 2014 was $1,064,823,$202,773 as compared to $1,794$1,824,074 for the nine monthsyear ended September 30, 2012.December 31, 2013. The increasedecrease was due to the Company’s userepayment and conversion of its 2012 convertible note financing beginning in the fourth quarter of 2012,2013, as well as the recording of shares issued and lender’s fees in connection with the issuance of the convertible notes being recorded to interest expense, and the commencement of the offering of convertible promissory notes in the aggregate principal amount of up to $3.3 millioncertain private placements in June 2013. In the first nine months of 2012, the Company was funded through equity financing, resulting in no interest expenses being recorded. ThisThe 2013 figure includes $657,307$1,332,543 in accretion of the debt discount on notes payable created by the embedded conversion feature of the notes and the warrants issued with the notes to investors. In 2014, the interest figure was related to notes payable, a large portion of which originated in the fourth quarter.

 
Net Loss
Our net loss for the year ended December 31, 2014 was $8,116,603 as compared to a net loss of $7,122,135 for the year ended December 31, 2013. On a per share basis, our loss was $0.23 and $0.26 per share for the years ended December 31, 2014 and December 31, 2013, respectively. Although we experiences an increase in net sales during the year ended December 31, 2014 as compared to the same period in 2013, the increased period over period losses are primarily the result of the decrease in gross margins on sales as AquaBall(TM) Naturally Flavored Water entered the club channel, and the increase in sales and marketing expenses during the 2014 period. As explained above, we expect our margins on sales in the club channel to increase in 2015 due to increased volumes and the anticipated consistency of the club business.
Comparison of the Three Months Ended September 30, 2015 to the Three Months Ended September 30, 2014
Net Sales
Net sales for the three months ended September 30, 2015 were $1,323,730, compared with sales of $1,064,065 for the three months ended September 30, 2014, a 24% increase. The increase in sales for the three months ended September 30, 2015 is principally attributable to increased sales at Sam’s Club, the commencement of sales to Target, and increases in sales to our growing base of direct-store-distributors. We expect sales to remain consistent until the launch of our preservative free formulation from Niagara’s bottling facilities in the beginning of the second quarter of fiscal 2016.
The percentage that each product category represented of our net sales is as follows:
Product Category
Three Months Ended
September 30, 2015
(% of Sales)
AquaBall(TM)
96%
Bazi(R)
4%
Gross Profit
Gross profit for the three months ended September 30, 2015 was $135,508, compared to gross profit of $86,741 for the three months ended September 30, 2014. Gross profit as a percentage of revenue (gross margin) during three months ended September 30, 2015 was 10%.  Gross profit as a percentage of revenue (gross margin) during three months ended September 30, 2014 was 8%. Gross profit will likely remain at current or below current levels during the transition from our current bottling facilities to Niagara.
Sales, General and Administrative Expense
Sales, general and administrative expenses were $3,332,053 for the three months ended September 30, 2015, as compared to $2,114,523 for the three months ended September 30, 2014. The 2015 total includes an increase in sales and marketing expenses in 2015, largely due to higher marketing expenditures. General and administrative expense may increase in subsequent quarters, due primarily to the cost associated with transitioning manufacturing of AquaBall(TM) to Niagara.
Change in Fair Value of Derivative Liabilities
The Company recorded a gain on the change in fair value of derivative liabilities for the three months ended September 30, 2015 of $1,079,335.
Interest Income
Interest expense for the three months ended September 30, 2015 was $15,456, as compared to interest income of $37,037 for the three months ended September 30, 2014.
Income Taxes
 
There is no income tax expense recorded for the three months ended September 30, 2015 and 2014, due to the Company's net losses. As of September 30, 2015, the Company has tax net operating loss carryforwards and a related deferred tax asset, offset by a full valuation allowance.
Net Loss
Our net loss for the three months ended September 30, 2015 was $2,132,666, as compared to a net loss of $1,666,216 for the three months ended September 30, 2014. This year-over-year increase in net loss is primarily attributable to increased sales, general and administrative expenses during the quarter, offset, in part, by higher sales and gross profit. On a per share basis, our loss was $0.02 per share for the three months ended September 30, 2015, as compared to a loss of $0.05 per share for the three months ended September 30, 2014.

Comparison of the Nine Months Ended September 30, 2015 to the Nine Months Ended September 30, 2014
Net Sales
Net sales for the nine months ended September 30, 2015 were $4,172,626 compared to net sales of $2,875,739 for the nine months ended September 30, 2014. The increase in sales for the nine months ended September 30, 2015 is principally attributable to increased sales at Sam’s Club, the commencement of sales to Target, and increases in sales to our growing base of direct-store-distributors in the second quarter.
We continue to focus our efforts on expanding distribution of AquaBall(TM) Naturally Flavored Water, specifically in the club channel and to direct-store-distributors. However, we are unable to access certain key accounts due, in part, to the current formulation of AquaBall(TM). As previously stated, we expect sales to remain consistent until the launch of our preservative free formulation from Niagara’s bottling facilities in the beginning of the second quarter of fiscal 2016. Although we cannot predict the timing of any expected growth, we currently anticipate a growth in sales as early as mid-2016 from sales of AquaBall(TM) manufactured by Niagara, not only to our existing accounts, but to new accounts made accessible by the new, preservative free formula.
The percentage that each product category represented of our net sales is as follows:
Product Category
Nine Months Ended
September 30, 2015
(% of Sales)
AquaBall(TM)
97%
Bazi(R)
3%
Gross Profit
Gross profit for the nine months ended September 30, 2015 was $221,665. Gross profit as a percentage of revenue (gross margin) during nine months ended September 30, 2015 was 5%. Negative gross profit in the second quarter, due to a high mix of club packs and six pack production issues, contributed to the low gross margin for the period.
Gross profit will likely remain at current or below current levels throughout fiscal 2015 and the first quarter of 2016, during the transition from our current bottling facilities to Niagara. We anticipate an increase in gross profit as early as the second quarter of 2016 as a result of decreased manufacturing costs once Niagara becomes the sole manufacturer of AquaBall(TM).
Sales, General and Administrative Expense
Sales, general and administrative expenses were $7,572,452 for the nine months ended September 30, 2015 as compared to $5,814,966 for the nine months ended September 30, 2014. Sales and Marketing expenses increased due to higher marketing expenses and marginal sales expenses increases in hand with the increase in sales.
We expect sales, general and administrative expense to increase during the fourth quarter of 2015 and into fiscal 2016, due primarily to the cost associated with transitioning manufacturing of AquaBall(TM) to Niagara, as well as increased marketing efforts associated with promoting the preservative free formulation of AquaBall(TM).
Change in Fair Value of Derivative Liabilities
The Company recorded a gain for the change in fair value of derivative liabilities for the nine months ended September 30, 2015 of $749,943.
Interest Expense
Interest expense for the nine months ended September 30, 2015 was $223,160 as compared to $88,286 for the nine months ended September 30, 2014. Interest expense for 2015 consists of interest and fees due on promissory notes generated in late 2014 which were all either repaid or converted into shares of Series C Preferred in connection with the Note Exchange during the nine months ended September 30, 2015.  
Income Taxes
There is no income tax expense recorded for the periods ended September 30, 20132015 and 2012,2014, due to the Company's net losses. As of September 30, 2013,2015, the Company has tax net operating loss carryforwards and a related deferred tax asset, offset by a full valuation allowance.
 
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Net Loss
 
Our net loss for the nine months ended September 30, 20132015 was $5,164,497,$6,824,004 as compared to a net loss of $1,892,644$6,844,026 for the nine months ended September 30, 2012.2014. On a per share basis, our loss was $0.19$0.11 and $0.09$0.21 per share for the nine months ended September 30, 20132015 and 2012,2014, respectively.

We expect to continue to incur a net loss in subsequent periods, and plan to fund our operations using proceeds received from capital raising activities until our operations become profitable. Although we anticipate a growth in sales and gross margins as a result of the Niagara Agreement and the introduction of our new, preservative free formulation of AquaBall(TM), these increases may not occur, may take longer than anticipated, or may not be sufficient to produce net income in any subsequent quarters. 
Liquidity and Capital Resources

Our auditors have included a paragraph in their report on our consolidated financial statements included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2012,2014 included in this prospectus, indicating that there is substantial doubt as to the ability of the Company to continue as a going concern. The accompanyingcondensed consolidated financial statements included in this prospectus have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As ofFor the three and for the quarternine months ended September 30, 2013,2015, the Company incurred a net loss of $2,157,227, has$2,132,666 and $6,824,004, respectively. At September 30, 2015, the Company had negative working capital of $4,003,289,$3,239,565 and an accumulated deficit of $8,283,840. While subsequent to$25,182,085. Although, during the year ended December 31, 2014 and the nine-months ended September 30, 2013,2015, the Company has raised approximately $8,540,000 resulting$12.7 million from the sale of convertible promissory notes and shares of Series B ConvertibleC Preferred Stock (“and $800,000 from the issuance of certain senior subordinated secured promissory notes (the “Series B PreferredSecured Notes”), additional capital maywill be necessary to advance the marketability of the Company's products to the point at which the Company can sustain operations.operations, including satisfying our contractual obligations with Niagara. Management's plans are to continue to contain expenses, expand distribution and sales of its AquaBall™AquaBall(TM) Naturally Flavored Water as rapidly as economically possible, and raise capital through equity and debt offerings in the event additional capital is necessary to execute the Company’s business plan and achieve profitability from continuing operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result in the event the Company is unsuccessful in its plans.
 
The Company has financed its operations through sales of equity and, to a lesser degree, cash flow provided by sales of AquaBall™AquaBall(TM). Despite recent sales of debt securities and preferred stock as described below, funds generated from sales of shares of our Common Stockpreferred stock or other equity or debt securities, and cash flow provided by AquaBall™AquaBall(TM) sales may beare insufficient to fund our operating requirements for the next twelve months. As a result we maywill require additional capital to continue operating as a going concern. No assurances can be given that we will be successful.  In the event we are unable to obtain additional financing in the short-term, we will not be able to fund our working capital requirements, and therefore will be unable to continue as a going concern.
 
Recent Capital Raising Activity
February 2015 Series C Offering, Note Payment and Note Exchange. On February 20, 2015, the Company and certain accredited investors entered into securities purchase agreements, pursuant to which the investors purchased 43,000 shares of Series C Preferred for $100 per share over the course of three separate closings. As additional consideration, each investor received five-year warrants, exercisable for $0.15 per share.
On March 27, 2015, the Company and certain accredited investors entered into an amendment to the February 2015 securities purchase agreements pursuant to which the Company sold to one investor 27,000 additional shares of Series C Preferred for gross proceeds of $2.7 million, which the Company subsequently used to satisfy approximately $2.7 million of the Company’s $3.8 million in outstanding promissory notes (the “Note Payments”). As additional consideration for the purchase of these additional shares of Series C Preferred, the investor received warrants to purchase shares of the Company’s common stock on terms substantially similar to the warrants issued in connection with the offering of shares of Series C Preferred in February 2015.
Following the Note Payments, the Company and each of the holders of promissory notes remaining after the Note Payments entered into Exchange Agreements, wherein the holders agreed to exchange all remaining principal and accrued interest of the remaining promissory notes into shares of Series C Preferred on substantially similar terms to those offered in the offering of shares of Series C Preferred in February 2015 (the “Note Exchange”). As a result of the execution of these Exchange Agreements and the consummation of the Note Exchange, the Company issued to the Holders an aggregate total of 12,148 shares of Series C Preferred and warrants to purchase approximately 2.8 million shares of common stock for $0.15 per share.
August 2015 Series C Offering. On August 13, 2015, the Company and Red Beard Holdings, LLC (“Red Beard”) entered into a securities purchase agreement, pursuant to which Red Beard purchased 17,648 shares of Series C Preferred for $113.33 per share over the course of three separate closings. As additional consideration for participating in this offering, Red Beard received warrants to purchase a total of 3,633,411 shares of common stock, exercisable for $0.17 per share. On October 16, 2015, the Company and Red Beard amended the securities purchase agreement in order to issue an additional 8,823 shares of Series C Preferred to Red Beard for gross proceeds to the Company of approximately $1.0 million. In connection with this amendment, Red Beard also received warrants to purchase approximately 1.81 million shares of common stock.


Series B
September 2015 Note Offering. On September 9, 2015, the Company began a private offering, to certain accredited investors of: (i) Secured Notes in the aggregate principal amount of up to $2.5 million; and (ii) and warrants to purchase that number of shares equal to 15% of the principal amount of the Secured Note purchased by each investor, divided by the ten-day average closing price of the Company’s common stock. Each Secured Note accrues interest at a rate of 12% per annum, and will mature one year from the date of issuance. To date, the Company has issued an aggregate total of $855,000 Secured Notes and warrants to purchase an aggregate total of 280,265 shares of common stock.
 
November 2015 Series C Offering. On November 25, 2013,2015, the Company commencedand Red Beard entered into a private offering ofsecurities purchase agreement, pursuant to which Red Beard agreed to purchase up to 2.0 million30,000 shares of Series BC Preferred for $4.00$100 per share (“ Purchase Price”),over the course of three separate closings between November 2015 and January 2016. As additional consideration for the purchase of the shares of Series C Preferred, Red Beard received five-year warrants, (the “Warrants”), exercisable for $0.30$0.15 per share, (the "Exercise Price"), to purchase that number of shares of the Company's Common Stockcommon stock equal to 35% of the Purchase Price, divided by the Exercise Price (the “Series B Offering”). Asshares of common stock issuable upon conversion of the date hereof,shares of Series C Preferred purchased.
January 2016 Note Exchange.  On January 20, 2016, the Company and certain accredited investorsholders of Secured Notes in the principal amount of $500,000 entered into Securities PurchaseNote Exchange Agreements pursuant to purchase 2.0 millionwhich the holders agreed to convert the outstanding principal balance of their Secured Notes into an aggregate total of 4,413 shares of Series BC Preferred and Warrants to purchase approximately 9.3 million shares of Common Stock.
    Merriman Capital, Inc. (“Merriman”) acted as placement agent for the majority of the securities issued during the Series B Offering. As consideration for its services, Merriman received: (i) cash compensation totaling $523,250; (ii) five-year warrants to purchase 1,188,200up to an aggregate total of 1,029,701 shares of Common Stockcommon stock for $0.25 per share; and (iii) five-year warrants to purchase 346,560 shares of Common Stock for $0.30$0.17 per share. Candlewood Securities, Inc. (“Candlewood”) also acted as placement agent for a portion of the securities issued during the final closing of the Series B Offering, andNeither holder received as consideration for its services: (i) cash compensation totaling $53,550; (ii) five-year warrants to purchase 91,800 shares of Common Stock for $0.25 per share; and (iii) five-year warrants to purchase 26,775 shares of Common Stock for $0.30 per share (together, with the warrants issued to Merriman, the “Placement Agent Warrants”).
Term Loan and Note Conversion
      On November 29, 2013, the Company executed a Loan and Security Agreement and other ancillary documents to receive a $2.0 million term loan from Avid Bank (the "Bank") (the "Term Loan"), which Term Loan will accrue interest at a rate of prime plus 2.75% and will mature on November 29, 2015. The Company's repayment of the Term Loan is secured by a continuing security interest in substantially all of the Company's assets. Proceeds from the Term Loan, together with a portion of the proceeds from the Series B Offering were used to repay certain Notes issued during the Company's Note Offering between June 2013 and October 2013, totaling approximately $2.5 million in principal and accrued interest (the "Note Repayment").

In addition to the Note Repayment, holders of the remaining Notes issued during the Note Offering agreed to cancel Notes totaling $739,706 in principal and accrued interest, in exchange for 205,476 shares of Series B Preferred and Warrants to purchase 862,995 shares of Common Stock for $0.30 per share, on substantially the same terms offered in the Series B Offering (the "Note Conversion").
Note Offering

On June 20, 2013 the Company commenced a private offering of: (i) convertible promissory notes (the “Notes”) in the aggregate principal amount of up to $3.3 million; and (ii) and five-year warrants to purchase shares of the Company’s Common Stock at an exercise pricecommon stock in connection with their respective Secured Notes, and agreed to waive any unpaid interest accrued under the Secured Notes prior to the execution of $1.10 per share (the “Warrantsthe Note Exchange Agreement.”) to certain accredited investors (each an “Investor” and collectively, “Investors”) (the “Offering”).
Line-of-Credit Facility
The Company accepted subscription agreements from Investors resulting in the issuance of Notes in the aggregate principal amount of $2,615,000 (“Subscription Agreements”), which amount included $600,000 issued as consideration for the exchangeentered into a line-of-credit agreement with a financial institution on June 30, 2014. The terms of the outstanding principal and accrued interest of certain promissory notes previously issued byagreement allow the Company to such Investors. Asborrow up to the lesser of November 29, 2013, all Notes issued during$1.5 million or 85% of the Offering were either paid in fullsum of eligible accounts receivables. At September 30, 2015, the total outstanding on the line-of-credit approximated $167,000 and the Company had approximately $0 available to borrow. The line-of-credit bears interest at Prime rate (3.25% as of September 30, 2015) plus 4.50% per annum as well as a resultmonthly fee of 0.50% on the Note Repayment, or exchanged for shares of Series B Preferred and Warrants in connection withaverage amount outstanding on the Note Conversion.line.
 
Off-Balance Sheet Items
 
We had no off-balance sheet items as of February 6, 2014.
September 30, 2015.

 
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CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no disagreements with our independent registered public accounting firm in regards to accounting and financial disclosure.


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DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

Directors and Executive Officers
 
The following sets forth certain information regarding each of our directors and executive officers:
 
Name Age Position
Timothy LaneKevin Sherman 64  45 Chairman
Louis Imbrogno67Director
Carl Wistreich46Director
Lance Leonard47President,Interim Chief Executive Officer, Chief Marketing Officer and Director
Daniel Kerker 40  43 Chief Financial Officer, Treasurer and Secretary
Kevin ShermanRobert Van Boerum 42  39 Chief MarketingOperations Officer
Ramona Cappello  56Chairman
Scot Cohen  46Director
Neil LeVecke  48Director
 
Directors hold office until the next annual meeting of stockholders following their election unless they resign or are removed as provided in the bylaws. Our officers serve at the discretion of our Board of Directors.
 
The following is a summary of our executive officers’ and directors’ business experience.

Executive Officers
 
Lance Leonard,Kevin Sherman, Interim Chief Executive Officer, Chief Marketing Officer and Director. Mr. LeonardSherman has 22 yearsserved as the Chief Marketing Officer, managing the brand development of consumer product experience.  He began his career in 1990 with M&M/Mars working in the confection division holding a series of sales and management roles within the United States.  In 2000AquaBall(TM) Naturally Flavored Water since he joined Nestle where he managed both national account teamsthe Company in October 2012. Mr. Sherman joined the Company’s board of directors in September 2015, and division sales including leading the Costco wholesale National Account team.  He was appointed Western Zone Manager for Nestle Waters in 2006 where he had responsibility for all sales and marketing in 17 western states.  In 2009 Mr. Leonard was appointed Director of Global Customers at Nestle Waters where he helped develop their go-to-market strategies in emerging markets and was responsible for managing one billion dollars in global sales.  Mr. Leonard left Nestle to become theas interim Chief Executive Officer ofin December 2015. Prior to joining True Drinks, Mr. Sherman was the Vice President Strategy and Network Development and President of Retail for Bazi, Inc. on July 16, 2012.  He iswas instrumental in the development of Bazi’s All-Natural formula and spearheaded the concept of all-natural energy. Prior to Bazi, Mr. Sherman served as the Senior Manager of Network Development of Product Partners LLC from May 2008 to May 2009, Chief Operating Officer of Hand & Associates from January 2008 to May 2008, and as the director of development and principal of Holy Innocents School from August 2007 to December 2007. Mr. Sherman also served as the principal of Saints Peter and Paul School from January 2004 to August 2007. Mr. Sherman holds a native of CaliforniaB.A. from Gordon College, and received his Bachelor’s degreea M.A. from California State University, Fresno.Loyola Marymount University.
 
Daniel Kerker, Chief Financial Officer. OfficerMr. Kerker is a professional with over 15 years of experience in finance and accounting in both private and public entities. He spent seven years as Director of Finance at Anheuser-Busch Sales of Los Angeles, an Anheuser-Busch-owned distributor with over $200 million in annual sales, leaving in 2010. Prior to joining True Drinks, Inc., Mr. Kerker spent two years working as interim CFO for Environmental Packaging Technologies in Houston, Texas, and Regeneca, Inc. in Irvine, California. Mr. Kerker became Chief Financial Officer of True Drinks on March 1, 2012. Mr. Kerker earned a BachelorsBachelor of Science in Finance from California State University, Northridge and an MBA in Finance from UCLA’s Anderson School of Management, where he was a Harold M. Williams Fellow for graduating at the top of his class and won the J. Fred Preston Award for Achievement in Finance.

Kevin Sherman, Chief Marketing Officer. Mr. Sherman has served as the Chief Marketing Officer, managing the brand development of AquaBall™ Naturally Flavored Water since he joined the Company in October 2012. Prior to joining True Drinks, Mr. Sherman was the Vice President Strategy and Network Development and President of Retail for Bazi, Inc. He was instrumental in the development of Bazi’s All-Natural formula and spearheaded the concept of all-natural energy. Prior to Bazi, Mr. Sherman served as the Senior Manager of Network Development of Product Partners LLC from May 2008 to May 2009, chief operating officer of Hand & Associates from January 2008 to May 2008, and as the director of development and principal of Holy Innocents School from August 2007 to December 2007.  Mr. Sherman also served as the principal of Saints Peter and Paul School from January 2004 to August 2007.
 
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TableRobert Van Boerum, Chief Operations Officer. Mr. Van Boerum was appointed to serve as the Company’s Chief Operations Officer in September, 2015. Mr. Van Boerum has been an employee of Contentsthe Company since 2012, and has handled a wide range of responsibilities, including marketing, operations, and information technology. Prior to his time with the Company, Mr. Van Boerum served Chief Information Officer for Regeneca International, Inc. from 2011 to 2012, and as Vice President of Corporate Strategy for AL International (JCOF) form 2009 to 2011. Mr. Van Boerum holds a B.S. in Management Information Systems form the University of Nevada- Las Vegas, and a MBA from San Diego State University.
 
Board of Directors
Ramona Cappello, Chairman.  Ms. Cappello was appointed to the Board in July 2015 and as Chairman of the Board in November 2015. Ms. Cappello is currently the Chief Executive Officer Sun Harvest Salt, LLC, a company she founded in 2014. Prior to Sun Harvest Salt, Ms. Cappello served as Chief Executive Officer and co-founder of Corazonas Foods from 2006 until the sale of Corazonas Foods in 2014. Ms. Cappello was also a senior executive with Mauna Loa Macadamia Nut Company until its sale to Hershey Foods, and has served in various positions for other food and beverage companies including Nestle, Celestial Seasonings and Kendall-Jackson Wineries. In addition to her responsibilities with Sun Harvest Salt, Ms. Cappello has served on the University of Southern California Board of Trustees since 2014, is a member of the USC Associates and Marshall Partners, and serves on the board of Catholic Big Brothers and Big Sisters of Los Angeles. Ms. Cappello hold a bachelor’s degree in business from the University of Southern California Marshall School of Business, where she graduated a class valedictorian.
The Board of Directors believes Ms. Cappello’s experience in executive roles with consumer products companies and her experience in corporate governance will provide the Board with invaluable insight and guidance as the Company continues to expand the sales of the AquaBall(TM) Naturally Flavored Water to both existing and new retail accounts.
 
Timothy Lane, Chairman.  Scot CohenDirectorMr. LaneCohen was appointed to the Board in March 2013 and is well known for his accomplishments as chief executive officerthe Founder and Managing Partner of PepsiCo Restaurants International for AsiaV3 Capital Partners, a private investment firm focused on early-stage companies primarily in the consumer products industry, and Co-Manager of Red Fortune Fund, a private equity fund based in Hong Kong. Mr. Cohen also is the Founder of Petro River Oil LLC and Chairman of Petro River Oil Corp (OTCBB: PTRC), a publicly traded oil and gas producer with assets in Kansas and Oklahoma, and Petro Spring, a global oil and gas technology solutions provider. Prior to creating V3 Capital Partners, Mr. Cohen was the Founder and Managing Partner at Iroquois Capital Opportunity Fund, a special situations private equity investment fund, and a Co-Founder of Iroquois Capital, a hedge fund with investments in small and micro-cap private and public companies. Mr. Cohen is active in philanthropic activities with numerous charities including the Jewish Enrichment Council and is a Founder and the Middle East (KFC, Pizza Hut and Taco Bell), including directing KFC’s introduction into China where it holds the lead market position.  At PepsiCo, Mr. Lane guided the company from 250 stores generating losses to a 2,500-store network generating $2.5 billion in revenue and over $200 million in profits within six years.  He began his tenure at PepsiCo in 1981 as Director of Business Planning, quickly rising through the ranks to become president of KFC International, Asia by 1989 and chief executive officerChairman of the company’s restaurants in AsiaNational Foundation for Veteran Redeployment, a 501(c)3 non-profit organization whose mission is to help unemployed veterans prepare for and the Middle East by 1994.  Mr. Lane is also Co-Founder of The Afghanistan Reconstruction Company, LLC.  In this capacity, he established the first privately owned bank in Afghanistan in partnership with Asian Development Bank and ING.  In Afghanistan, he was also responsible for: rebuilding a significant portion of the Kabul-Kandahar road for USAID; successfully completing theenter new US Embassy complex in Kabul; and forming a successful partnership to build, own and operate the first 4-star hotelcareers in the region, Hyatt Regency Kabul.oil and gas industry. Mr. Lane served as CEO and president of Holiday Inn Worldwide, a hotel group and division of Bass PLC consisting of 2,300 hotels generating $8 billion in revenue.  He began his career as a management consultant for Touche, Ross and Company before joining Masonite Corporation, where he served as general manager of its West Coast fabricating division.  He also served as assistant to the chairman at Consolidated Packaging Company.  Mr. Lane is presently managing director for Everest Advisors, a venture capital advisory firm.  Mr. Lane receivedCohen holds a Bachelor of Science degree from Ohio University in accounting from the University of Dayton and an MBA from the University of Chicago.1991.

The Board of Directors believes Mr. Cohen’s success with multiple private investment firms, his extensive contacts within the investment community and financial expertise will assist the Company’s efforts to raise capital to fund the continued implementation of the Company’s business plan.
Neil LeVecke, Director. Mr. LeVecke is the President of LeVecke Corporation, a wholesale distributor and bottler of spirits and wine products. Representing a third generation in the family business, he has worked every position in the company since starting in 1993. Mr. LeVecke graduated from Loyola Marymount University in 1990.
The Board of Directors believes Mr. Lane’s accomplishments as Chief Executive Officer of PepsiCo Restaurants International, specificallyLeVecke’s 22 years in the growth sustained during his tenure,wholesale beverage distributing and bottling industry will provide the CompanyBoard with invaluable leadershipinsight and guidance as we implement our business planthe Company continues to expand distributionthe sales of our products.the AquaBall(TM) Naturally Flavored Water to both existing and new retail accounts.

Louis Imbrogno,Kevin Sherman, Director.  See above.
The Board of Directors believes Mr. Imbrogno was Senior Vice President of Worldwide Technical Operations for PepsiCo North America and PepsiCo Beverages International and was responsible for Pepsi-Cola’s worldwide beverage quality, concentrate operations, research and development and contract manufacturing.  In this global role, Mr. Imbrogno reported directlySherman’s long-standing service to the heads of Pepsi-Cola North AmericaCompany and PepsiCo Beverages International.  Mr. Imbrogno oversawits predecessor, Bazi, Inc., provide the companies’ worldwide concentrate manufacturing operations, which supply PepsiCo’s bottlersBoard with concentrate for making beverages.  He was also responsible for the research and development organization, which drives innovation within Pepsi’s beverage portfolio and ensures product quality from raw materialsguidance necessary to finished beverage.  In 40 years with PepsiCo, he served in a variety of field operating assignments and staff positions.  A native of New York, Mr. Imbrogno graduated from Westchester Community College and received a degree from the Wharton Executive program.

As we continue to expand manufacturingthe Company’s distribution networks, and distributionpromote brand awareness of the AquaBall™, the Board believes Mr. Imbrogno’s experience with beverage quality control during his tenure with PepsiCo Beverages International and Pepsi-Cola North America provide the Company with experience necessary to implement and maintain effective quality control procedures for our product lines.AquaBall(TM) Naturally Flavored Water.
 
Carl Wistreich, Director.   Mr. Wistreich, an entrepreneur, was previously the owner and chief executive of L&B Truck Services Inc., a truck dealership group providing truck service, sales and parts throughout New England.  Prior to purchasing the company, Mr. Wistreich was a Senior Vice President at C&S Wholesale Grocers, Inc., the largest distributor of food and related products to grocery stores in the U.S. with over $20 billion in sales.  During his career with C&S, Mr. Wistreich played key roles in the acquisition of several substantial companies and the negotiation of major supply agreements with retailers aggregating over $15 billion in revenue, including the acquisition of Fleming Companies and Grand Union.  In his various executive capacities at C&S, Mr. Wistreich oversaw the sales and customer relations functions, held P&L and oversight responsibility for divisions generating over $3 billion in revenue with over 2,000 employees, acted as general counsel, and oversaw the human resources department.  Prior to C&S, Mr. Wistreich was a corporate attorney with Skadden, Arps, Slate, Meagher & Flom, a major international law firm.  While at Skadden Arps, he represented various corporate clients in a wide variety of transactions, including merger transactions and tender offers, spin-offs, corporate refinancings/restructurings, equity and debt offerings, and SEC disclosure.  Additionally, Mr. Wistreich presently serves on the advisory board of directors of BI-LO Holding, LLC and AFN, Inc. Mr. Wistreich holds a J.D. degree from New York Law School, graduating magna cum laude, and a B.A. from Colgate University.

The Board believes Mr. Wistreich’s corporate transactional experience allow him to provide the Company with valuable guidance as we implement our business plan and build a long-term capital structure.
Lance Leonard, Chief Executive Officer and Director. See above. 

The Board believes Mr. Leonard’s extensive experience in the food and beverage industry, particularly his experience with organizational design, allow him to uniquely contribute to the Company’s short-term and long-term business plan.
There have been no events under any bankruptcy act, no criminal proceedings and no judgments or injunctions material to the evaluation of the ability and integrity of any director or nominee during the past ten years.
 
-24-

BOARD OF DIRECTORS
 
Attendance at Meetings
 
The Board held twoeight meetings, and acted threefour times by unanimous written consent during the year ended December 31, 2013.2015. Each director attended allat least 75% of Board meetings ofduring the Board in 2013.year ended December 31, 2015. We have no formal policy with respect to the attendance of Board members at annual meetings of shareholders but encourage all incumbent directors and director nominees to attend each annual meeting of shareholders.
Independent Directors
The Board believes that a majority of its members should be independent directors. The Board has determined that, other than Mr. Sherman, all of its current directors are independent directors as defined by the rules and regulations of the NASDAQ Stock Market.
The members of the Audit Committee and Compensation Committee of the Board each meet the independence standards established by the NASDAQ Stock Market and the SEC for audit committees and compensation committees. In addition, the Board has determined that Mr. Cohen satisfies the definition of an “audit committee financial expert” under SEC rules and regulations. These designations do not impose any duties, obligations or liabilities on Mr. Cohen that are greater than those generally imposed on them as members of the Audit Committee and the Board, and his designation as an audit committee financial expert does not affect the duties, obligations or liability of any other member of the Audit Committee or the Board.
 
Board Committees and Charters

The Board has adopted a standing Audit Committee, Compensation Committee and Nominating and Corporate Governance Committee. The Board appoints the members and chairpersons of these committees. The majority of the members of these committees have been determined by the Board to be independent. In addition, each member of these committees has been determined by the Board to be independent. Each committee has a written charter with respect to its governance, which includes considerationapproved by the Board. Copies of director nominees.each committee charter are available on the Company’s website at www.truedrinks.com/investor-relations/ and by clicking on the “Corporate Governance” tab.
 
Section 16(a) Beneficial Ownership Reporting CompliancesAudit Committee
Members:
Mr. Scot Cohen (Chairman)
Ms. Ramona Cappello
Mr. Neil LeVecke
Number of Meetings in 2015:
None
Functions:
This committee assists the Board in fulfilling its legal and fiduciary obligations in matters involving the Company’s accounting, auditing, financial reporting, internal control and legal compliance functions by approving the services performed by the Company’s independent accountants and reviewing their reports regarding the Company’s accounting practices and systems of internal accounting controls. This committee is responsible for the appointment, compensation, retention and oversight of the independent accountants and for ensuring that the accountants are independent of management.
Following the resignation of three of the Company's independent Board members between November 2014 and March 2015, the Board temporarily suspended the Audit Committee until there were sufficient independent directors to satisfy the independence requirements for Audit Committees as determined by the NASDAQ Stock Market Rules. During this time, the responsibilities of the Audit Committee were carried out by the full Board of Directors. The Audit Committee was reinstated in November 2015, and did not meet during the year ended December 31, 2015.
 
Compensation Committee
Members:
Ms. Ramona Cappello (Chairman)
Mr. Scot Cohen
Number of Meetings in 2015:Three
Functions:This committee determines the Company’s general compensation policies and practices. This committee also reviews and approves compensation packages for the Company’s officers and, based upon such review, recommends overall compensation packages for the officers to the Board. This committee also reviews and determines equity-based compensation for the Company’s directors, officers, employees and consultants and administers the Company’s 2013 Stock Incentive Plan.
Nominating and Corporate Governance Committee
Members:
Mr. Neil LeVecke (Chairman)
Ms. Ramona Cappello
Number of Meetings in 2015:
One
Functions:This committee is responsible for making recommendations to the Board regarding candidates for directorships and the size and composition of the Board and for overseeing the Company’s corporate governance guidelines and reporting and making recommendations to the Board concerning corporate governance matters.

-29-

        Section 16(a)Table of Contents
Board Leadership Structure
The Board currently separates the roles of Chief Executive Officer and Chairman of the Securities Exchange ActBoard in recognition of 1934,the differences between the two roles. The Chief Executive Officer is responsible for setting the strategic direction of the Company and the day-to-day leadership and performance of the Company, while the Chairman of the Board provides guidance to the Chief Executive Officer and sets the agenda for the Board meetings and presides over meetings of the Board. However, the Board believes it should be able to freely select the Chairman of the Board based on criteria that it deems to be in the best interest of the Company and its stockholders, and therefore one person may, in the future, serve as amended (the “Exchange Act”), requiresboth the Chief Executive Officer and Chairman of the Board.
Board Role in Risk Assessment
Management, in consultation with outside professionals, as applicable, identifies risks associated with the Company’s directors,operations, strategies and financial statements. Risk assessment is also performed through periodic reports received by the Audit Committee from management, counsel and the Company’s independent registered public accountants relating to risk assessment and management. Audit Committee members meet privately in executive officers and beneficial owners of more than 10%sessions with representatives of the Company’s Common Stock to file with the Securities and Exchange Commission initial reports of ownership and reports of changes in ownership of Common Stock and other equity securitiesindependent registered public accountants. The Board also provides risk oversight through its periodic reviews of the Company.  The Company believes that during the year ended December 31, 2013 , each person who was an officer, directorfinancial and beneficial owner of more than 10%operational performance of the Company’s Common Stock complied with all Section 16(a) filing requirements.Company.
  
Code of Ethics
 
We have adopted a Code of Ethics that applies to all of our directors, officers and employees, which is filed as an exhibit to this Prospectus . prospectus.

EXECUTIVE COMPENSATION
-30-

 
EXECUTIVE COMPENSATION
Summary Compensation Table
           The following table sets forth information with respectthe compensation paid to compensation earned by the Company’s Chief Executive Officerfollowing persons for our fiscal years ended December 31, 2015 and the Chief Financial Officer.  There was not any other executive officer who served in 2013 and whose annual compensation exceeded $100,000 during such year (collectively the “Named Executive Officers”):2014:

Summary Compensation Table
 
(a)our principal executive officer;
 (b)
our most highly compensated executive officers who were serving as an executive officer at the end of the fiscal year ended December 31, 2015 who had total compensation exceeding $100,000 (together, with the principal executive officer, the “Named Executive Officers”); and
(c)any additional individuals who would have been considered Named Executive Officers, but for the fact that they were not serving in such capacity at the end of our most recently completed fiscal year.
Name and
Principal
Position
Year Salary ($)  Bonus ($)  Stock Awards ($)  
Option Awards
($)(1)
  Non-Equity Incentive Plan Compensation ($)  All Other Compensation ($)  Total ($) 
                       
Lance Leonard, Chief Executive Officer, Director
2013 $250,000  $-  $-  $112,250  $-  $-  $362,250 
 2012 $114,583  $-  $-  $51,448  $-  $-  $166,031 
                              
Daniel Kerker,
Chief Financial Officer
2013 $180,000  $10,000  $-  $39,375  $-  $-  $229,375 
 2012 $135,010  $-  $-  $32,813  $-  $-  $167,823 
                              
Kevin Sherman, Chief Marketing Officer (2)
2013 $132,500  $-  $-  $42,385  $-  $-  $174,885 
 2012 $31,500  $-  $-  $9,350  $-  $-  $40,850 
                              
Name and
Principal
Position
 Year 
Salary 
($)
  
Bonus 
($)
  
Stock Awards 
($)
  
Option Awards
($) (1)
  
Non-Equity Incentive Plan Compen-sation
($)
  
All Other Compen- sation
($)
  
Total
($)
 
                        
Kevin Sherman, Interim Chief Executive Officer, Chief Marketing Officer, Director
 2015 $181,751  $53,300  $471,691  $(262,795 $-  $-  $443,947 
 2014 $156,250  $-  $-  $262,795  $-  $-  $419,045 
                               
Daniel Kerker
Chief Financial Officer
 2015 $178,680  $63,959  $471,691  $(262,794 $-  $-  $451,536 
 2014 $180,000  $-  $-  $262,794  $-  $-  $442,794 
                               
Robert Van Boerum
Chief Operations Officer
 2015 $144,970  $38,433  $353,768  $(187,893 $-  $-  $349,278 
 2014 $126,186  $-  $-  $187,893  $-  $-  $314,079 
                               
Lance Leonard (2)
 2015 $229,125  $126,523  $302,500  $(375,188) $-  $-  $282,960 
Former Chief Executive Officer and Former Director 2014 $250,000  $-  $-  $375,188  $-  $-   $625,188 
 
(1)  
The Company uses a Black-Scholes option-pricing model (the “Black-Scholes Model”) to estimate the fair value of the stock option grant. The use of a valuation model requires the company to make certain assumptions with respect to selected model inputs. Expected volatility was calculated based on the historical volatility of the company’s stock price. In the future the average expected life will be based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. Currently it is based on the simplified approach provided by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant. The following were the factors used in the Black Sholes Model to calculate the compensation expense:
 
  
For the year ended
December 31, 20132015
 
Stock price volatility  75%
Risk-free rate of return  0.650.66%
Annual dividend yield  -  
Expected life 2.5 Years30 months 
 
(2)Mr. Sherman was appointed Chief Marketing Officer ofLeonard resigned from the Company in October 2012.effective January 15, 2016.


Stock Option Grants
       In 2012, we issued the options listed below to the Named Executive Officers .  There were no stock options exercised in 2012.
  
Name
 
 
Grant
Date
 
 
All Other
Option Awards:
Number of Securities
Underlying Options
(#) (1)
  
 
Exercise or
Base Price
of Option
Awards
($/ Sh)
 
Lance Leonard -  -  $- 
Daniel Kerker  -  -  $- 
Kevin Sherman 7/1/2013  245,739   $1.10 
 
Employment Agreements

Effective July 15, 2012, the Company appointed Lance Leonard as its Chief Executive Officer and Daniel Kerker as its Chief Financial Officer.Kevin Sherman. Mr. LeonardSherman is employed as the Company’s Chief ExecutiveMarketing Officer of True Drinks, Inc., our wholly owned subsidiary.  The Company assumed the Employment Agreement that True Drinks entered into with Mr. Leonard on July 16, 2012pursuant to a two-year employment agreement, dated November 25, 2015 (the “LeonardSherman Agreement”) effective October 15, 2012.  The term.  Under the terms and conditions of the LeonardSherman Agreement, is for a period of three years, which shall extend automatically for successive one-year periods unless either party terminates the Leonard Agreement.  Mr. Leonard shall receiveSherman receives: (i) a base salary in an annual amount of $250,000 and shall be eligible to receive annual bonuses, which,$22,916.67 per month, subject to certain conditions, shalladjustments in the event the Company achieves certain monthly sales objectives (“Target Objectives”); (ii) a $3,000 per month housing allowance, subject to termination in the event the Company achieves any of the Target Objectives; (iii) a ‘retention bonus’ of $100,000, of which $50,000 was paid to Mr. Sherman in November 2015 and the remaining $50,000 will be (a) $75,000 for the first year, (b) $125,000 for the second yearpayable in November 2016; and (c) $175,000 for the third year of Mr. Leonard’s employment.  Mr. Leonard shall also be entitled to earn stock option compensation equal to a(iv) an aggregate total of 122,869,500approximately 2.3 million shares of restricted stock, subject to certain vesting conditions (“Restricted Shares”), which Restricted Shares represent approximately 3.25% of the issued and outstanding shares of the Company’s Common Stock over the termcommon stock, including shares of common stock issuable upon conversion of the agreement.Company’s outstanding shares of preferred stock (“Protected Interest”).  In the event the Company issues additional shares of common stock, preferred stock or other securities convertible or exercisable for common stock, the Sherman Agreement provides that Mr. Leonard’s employment maySherman will be terminated duringissued that number of additional Restricted Shares so that the nine month period followingtotal number of Restricted Shares beneficially owned by Mr. Sherman equals the effective dateProtected Interest.
Mr. Sherman is also eligible for an annual bonus equal to 30% of his base salary, currently payable in restricted shares of the Leonard AgreementCompany’s common stock, which bonus will be awarded at any time, in the sole discretion of the Company, andCompany’s Compensation Committee. During the year ended December 31, 2015, the Compensation Committee awarded a $53,300 bonus to Mr. Sherman for the period through December 31, 2014, which bonus was paid in 532,995 shares of common stock.
In addition to the annual bonus, in the event of a change in control transaction, as defined in the Sherman Employment Agreement, Mr. Sherman will be entitled to a bonus equal to 3.25% of the value of the transaction resulting in a change in control, minus the fair market value of all Restricted Shares issued to Mr. Sherman prior to the date of the change in control transaction.
Mr. Sherman’s employment may thereafter be terminated for “Performance Cause”, if the Company consistently fails to meet reasonable performance expectations, or for “Cause”, if Mr. LeonardSherman (a) is convicted of any fraud or embezzlement, (b) after written notice, willfully breaches or habitually neglects his duties and responsibilities, (c) commits acts of dishonesty, gross negligence or willful misconduct or (c)(d) violates any law or regulation relating to the business operations of the Company that may have a material adverse effect on the Company. If the Company terminates Mr. Leonard’sSherman’s employment for reasons other than for Cause, the Company shall pay a severance in an amount equal to one yearsix months of Mr. Leonard’sSherman’s base salary.
Prior November 2015, Mr. Sherman was employed pursuant to an employment agreement which first took effect on October 1, 2014. Mr. Sherman received a base salary of $14,583.33 per month, and ifan annual bonus as approved by the Leonard Agreement is terminated within nine months of its effective date, Mr. Leonard’s base salary for the remainder of such nine month period.Board and shall be entitled to earn stock option compensation.

Daniel Kerker. Mr. Kerker is employed as the Company’s Chief Financial Officer of True Drinks.  The Company assumed thepursuant to an Employment Agreement, that True Drinks entered into with Mr. Kerker ondated March 1, 2012 (the “Kerker Agreement”) and effective October 15, 2012. The term of the Kerker Agreement is for a period of three years, which shall extend automatically for successive one-year periods unless the Kerker Agreement is terminated by either party. Mr. Kerker shall receivereceives a base salary of $12,500 per month until the earlier of September 1, 2012 or the Company achieving $1,000,000 in monthly gross sales, in which case the base salary shall be increased (a) to $15,000 per month, or (b) if the Company achieves $2,000,000 in monthly gross sales, to $16,250 per month. Mr. Kerker shallis also eligible to receive an annual bonus as approved by the Board and shall be entitled to earn stock option compensation to acquire a total of 43,004,325430,043 shares of the Company’s Common Stockcommon stock over the term of the agreement. During the year ended December 31, 2015, the Compensation Committee awarded a $63,960 bonus to Mr. Kerker for the period through December 31, 2014, which bonus was paid in 639,594 shares of common stock.
Mr. Kerker’s employment may be terminated for “Cause”, if Mr. Kerker (a) is convicted of any fraud or embezzlement, (b) after written notice, willfully breaches or habitually neglects his duties and responsibilities, (c) commits acts of dishonesty, gross negligence or willful misconduct or (d) violates any law or regulation relating to the business operations of the Company that may have a material adverse effect on the Company. If the Company terminates Mr. Kerker’s employment for reasons other than for Cause, the Company shall pay a severance in an amount equal to six months of Mr. Kerker’s base salary.
Robert Van Boerum. Mr. Van Boerum is employed as the Company’s Chief Operations Officer pursuant to a two-year employment agreement, dated September 11, 2015 (the “Van Boerum Agreement”). Under the terms and conditions of the Van Boerum Agreement, Mr. Van Boerum receives a base salary of $14,583.33 per month. Mr. Van Boerum is also be eligible for an annual bonus equal to 30% of his salary, which bonus will be awarded at the sole discretion of the Company’s Compensation Committee, and is eligible to earn stock option compensation at the discretion of the Compensation Committee. During the year ended December 31, 2015, the Compensation Committee awarded a $38,433 bonus to Mr. Van Boerum for the period through December 31, 2014.
 
The Van Boerum Agreement may be terminated for “Cause”, if Mr. Van Boerum (a) is convicted of any fraud or embezzlement, (b) after written notice, willfully breaches or habitually neglects his duties and responsibilities, (c) commits acts of dishonesty, gross negligence or willful misconduct or (d) violates any law or regulation relating to the business operations of the Company that may have a material adverse effect on the Company. If the Company terminates Mr. Van Boerum’s employment for reasons other than for Cause, the Company shall pay a severance in an amount equal to six months of Mr. Van Boerum’s base salary.


Other than as set forth above, there are no arrangements or understandings between our executive officers and any other person pursuant to which they were appointed as officers. Neither of the Incoming Officers has a family relationship that is required to be disclosed under Item 401(d) of Regulation S-K.

Director Compensation

Pursuant to the Company’s Director Compensation Plan, non-employee directors (“Outside Directors”) shall receive (a) a $30,000 annual cash retainer, payable in equal quarterly installments in either cash or shares of common stock, (b) additional committee retainers as determined by the Board and (c) reimbursement for expenses related to Board meeting attendance and committee participation. The Chairman of the Board also receives an additional $20,000 annual retainer. Directors that are also employees of the Company do not receive additional compensation for serving on the Board.

The following table discloses certain information concerning the compensation of the Company’s non-employee directors for the year ended December 31, 2013:2015:
 
Name  
Fees earned or Paid in Cash
 ($)
   
Option
 Awards
 ($)
   
Stock
 Awards
 ($)
   
Total
 ($)
 
Timothy Lane  $50,000(1)    $-    $-    $50,000  
Carl Wistreich  30,000(2)   -    -    30,000  
Lou Imbrogno 30,000(3)  -  -  30,000 
Name  
Fees earned or
Paid in Cash
($)
  
Option
Awards
($)
  
Stock
Awards
($)
  
Total
($)
 
Ramona Cappello (1)
 $17,500  $-  $-  $17,500 
Neil LeVecke  (2)
 $27,500  $-  $-  $27,500 
Scot Cohen  $30,000  $-  $-  $30,000 
Carl Wistreich (3)
 $7,500  $-  $-  $7,500 
Lou Imbrogno (3)
 $7,500  $-  $-  $7,500 
 
(1)
Mr. Lane received cash totaling $12,500 in 2013. Additionally, Mr. Lane elected to receive shares of Series B Preferred and Warrants on terms substantially similarMs. Cappello was appointed to the Series B Offering in lieuCompany’s Board of $25,000 of earned fees. The remaining amount was unpaid as of DecemberDirectors, effective July 31, 2013.
2015.
(2)
Mr. Wistreich received cash totaling $7,500 in 2013. Additionally, Mr. Wistreich elected to convert $15,000 worth of accrued fees into Common Stock at a price of $1.10 per share in July 2013. Additionally, Mr. Wistreich elected to receive shares of Series B Preferred and Warrants on terms substantially similarLeVecke was appointed to the Series B Offering in lieuCompany’s Board of $25,000 of earned fees. The remaining amount was unpaid as of December 31, 2013.
Directors on February 18, 2015.
(3)Mr.Messrs. Wistreich and Imbrogno received cash totaling $7,500 in 2013. Additionally, Mr. Imbrogno elected to receive shareseach resigned from the Board of Series B Preferred and WarrantsDirectors on terms substantially similar to the Series B Offering in lieu of $25,000 of earned fees. The remaining amount was unpaid as of December 31, 2013.March 10, 2015.
 

Outstanding Equity Awards as of December 31, 20132015
 
  Option Awards
Name 
Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable(1)
 
Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
 
Equity Incentive
Plan Awards:
Number of Securities
Underlying
Unexercised
Unearned Options (#)
 
Option
Exercise
Price
($)
 
Option
Expiration
Date (1)
Lance Leonard - 307,174 921,522 $0.6104 7/14/2015
Daniel Kerker - 184,305 245,740 $0.6104 2/28/2015
Kevin Sherman - 61,435 368,609 $1.0169 8/31/2015
Tim Lane - 409,565 327,217 $0.6104 8/28/2015
Louis Imbrogno - 204,783 163,826 $0.6104 8/28/2015
Carl Wistreich - 204,783 163,826 $0.6104 8/28/2015
The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2015.

   Stock Awards 
Name  Number of shares or units of stock that have not vested (#)  
Market value of shares or units
of stock that have
not vested ($)
  
Equity
incentive plan awards: Number of unearned shares, units or other rights that have not vested (#)
  Equity incentive plan awards: Market or Payout value of unearned shares, units or other rights that have not vested ($) 
              
Kevin Sherman   2,398,275(1) $   290,191     $ 
Daniel Kerker   2,398,275(1) $   290,191     $ 
Robert Van Boerum   1,923,706(1) $   232,768     $ 
Lance Leonard   3,672,268(2) $   444,344     $ 
(1)Each option vests annuallyNon-vested shares are scheduled to vest equally in one-third increments, and the option to purchase vested shares expires three yearsfour annual installments, beginning on September 30, 2016.
(2)  Mr. Leonard resigned from the date of vesting. The expiration dates listed herein reflect the earliest of these expiration dates.Company effective January 15, 2016. Upon resignation, Mr. Leonard forfeited all non-vested restricted stock awards.

-33-

Cancellation of Stock Option Exercises and Cancellation of Stock Options
Between June and July 2015, the Company and each of the holders of all outstanding options to purchase shares of the Company’s common stock agreed to cancel and forfeit their options, such that, as of July 10, 2015, no options to purchase shares of the Company’s common stock were outstanding. There were no options exercised by the Named Executive Officers or Directors in fiscal 2015 before these cancellations.
On August 6, 2015, the Company’s board of directors authorized an issuance of an aggregate total of 19,491,375 shares of restricted common stock pursuant to the terms and conditions of the Company’s 2013 Stock Incentive Plan to certain employees, including those that agreed to cancel previously issued stock options.
Equity Compensation Plan Information

The following table includes information as of December 31, 2015 for our equity compensation plans:
Plan category Number of securities to be issued upon exercise of outstanding options, warrants and rights  Weighted-average exercise price of outstanding options, warrants and rights  Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
  (a)  (b)  (c) 
Equity compensation plans approved by security holders    $     508,625 
             
Equity compensation plans not approved by security holders         
             
Total    $      508,625 
2013 Stock Incentive Plan. The 2013 Stock Incentive Plan (the “2013 Plan”) was adopted by the Company’s Board of Directors on December 31, 2013. The 2013 Plan reserves for issuance 20.0 million shares of Common Stockcommon stock for issuance to all employees (including, without limitation, officers and directors who are also employees) of the Company or any subsidiary of the Company (each a “Subsidiary”), any non-employee director, consultants and independent contractors of the Company or any Subsidiary, and any joint venture partners (including, without limitation, officers, directors and partners thereof) of the Company or any Subsidiary. The Compensation Committee of the Board of Directors administersAwards under the 2013 Plan and may in its sole discretion, issue awardsbe made in the form of: (i) incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, once the 2013 Plan has been approved by a majority of the Company’s stockholders; (ii) stock options that do not qualify as incentive stock options, options; and/or (iii) awards of shares that are subject to certain restrictions specified in the 2013 Plan.

No issuancesOptions to purchase an aggregate total of 11,999,998 shares of common stock were madeissued under the 2013 Plan during the year ended December 31, 2013.
Stock Option Exercises and Stock Vested
There2014, which options were no options exercised by the Named Executive Officers or Directors duringsubsequently canceled on July 1, 2015. During the year ended December 31, 2015, the Company issued an aggregate total of 15,389,451 restricted stock awards pursuant to the 2013 .Plan.
 
Post-Employment Compensation, Pension Benefits, Nonqualified Deferred Compensation
 
There were no post-employment compensation, pension or nonqualified deferred compensation benefits earned by the Named Executive Officers during the year ended December 31, 2013 .2015.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

On May 11, 2012, the Company loaned Environmental Packaging Technologies, Inc. (“EPT”) the sum of $150,000 in exchange for a 50-day promissory note.  The promissory note accrues interest at ten percent (10%) per annum and included a ten percent (10%) of principal fee payable to the Company.  The Company sent EPT a notice of default on October 18, 2012 demanding payment of the original principal amount of $150,000, accrued interest of $6,575 and the ten percent fee in the amount of $15,000.  The Company’s former chairman and current investor is the chairman of EPT. The Company received payment of all outstanding principal, fees and interest in August 2013.

Our Board of Directors approved this arrangement.
 
None.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
 
As of February 6, 2014,12, 2016, we had twothree classes of voting stock outstanding: (i) Common Stock; and (ii) the Series B Preferred; and (iii) Series C Preferred. The following tables setsset forth information regarding shares of Series B Preferred, Series C Preferred and Common Stock beneficially owned as of February 6, 201412, 2016 by:
 
(i)  Each of our officers and directors;
(ii)All officer and directors as a group; and
(iii)  
Each person known by us to beneficially own five percent or more of the outstanding shares of our Series B Preferred, Series C Preferred and Common Stock. Percent ownership is calculated based on 2,485,1001,342,870 shares of Series B Preferred, and 27,885,58768,486 shares of Series C Preferred and 112,049,07 shares Common Stock outstanding at February 6, 2014 .
12, 2016.
Beneficial Ownership of Series B Preferred
 
Name and Address (1)
 
Series B Convertible
Preferred Stock(2)(3)
  % Ownership
of Class (4)
Timothy Lane  6,250  * 
Carl Wistreich  21,004  * 
Lou Imbrogno  7,500  * 
Total Officers and Directors (1)
  34,754  1.9% 
        
Wolverine Flagship Fund Trading Limited  300,000  12.1% 
Falcon Fund, Ltd.  125,000  5.0% 
First Bank & Trust as custodian of Ronald L. Chez IRA  375,000  15.1% 
V3 Capital Partners LLC  150,000  6.0% 
Iroquois Master Fund Ltd.  125,000  5.0% 
Diker Micro Cap LP Fund  125,000  5.0% 
Wolfson Equities, LLC  187,500  7.5% 
Name and Address (1)
 
Series B Convertible Preferred Stock (2)(3)
  
% Ownership of Class (4)
 
Scot Cohen (5)
  135,000   10.05%
Total Officers and Directors (1)
  135,000   10.05%
         
First Bank & Trust as custodian of Ronald L. Chez IRA
820 Church Street
Evanston Illinois, 60201
  425,000   31.65%
Wolfson Equities LLC
1 State Street Plaza, 29th Floor
New York, NY 10004
  187,500   13.96%
Joe Kolling
58 Beacon Bay
Newport Beach, CA 92660
  155,556   11.58%
V3 Capital Partners LLC
20 East 20th Street, Apt. 6
New York, NY 10003
  118,750   8.84%
 
*
Less than 1%.
 
(1)
Each of the Company’s officers was excluded from this table, as none of our officersand directors who do not hold shares of Series B Preferred.Preferred were excluded from this table. Unless otherwise indicated, the address for each stockholder is 18552 MacArthur Blvd., Suite 325, Irvine, CA 92612.
 
(2)
Subject to the limitations in the Certificate of Designation, each share of Series B Preferred is convertible into that number of shares of Common Stock equal to the Stated Value, divided by the Conversion Price, as defined in the Certificate of Designation. As of February 6, 2014,September 30, 2015, the Conversion Price was $0.25.
 
(3)
Pursuant to the Certificate of Designation, shares of Series B Preferred may not be converted or exercised, as applicable, to the extent that the holder and its affiliates would own more than 9.99% of the Company’s outstanding Common Stock after such conversion. The Certificate of Designation also entitles each share of Series B Preferred to vote, on an as converted basis, along with the Common Stock; provided, however,that the Series B Preferred may not be voted to the extent that the holder and its affiliates would control more than 9.99% of the Company’s voting power.
 
(4)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
(5)Includes 3,750 shares held directly by Mr. Cohen, 118,750 shares held by V3 Capital Partners and 12,500 shares held by the Scot Jason Cohen Foundation. Mr. Cohen is the Managing Partner of V3 Capital Partners and is an officer of the Scot Jason Cohen Foundation.
Beneficial Ownership of Series C Preferred
Name and Address (1)
 Series C Convertible Preferred Stock  
% Ownership of Class (2)
 
Red Beard Holdings, LLC
2560 East Chapman Avenue #173
Orange, CA 92869
  56,471   82.46%
Christopher Turoci
974 Sandstone Dr.
Glendora, CA 91740
  7,868   11.49%
*
Less than 1%.
(1)
Each of the Company’s directors and officers was excluded from this table, as none of our officers or directors hold shares of Series C Preferred.
(2)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
 
Beneficial Ownership of Common Stock
Name, Address and Title
(if applicable) (1)
 
Number of Shares (1)
 
% Ownership of Class (2)
 
Lance Leonard (3)
 340,359  1.2% 
President, Chief Executive Officer and Director      
       
Daniel Kerker (4)
 307,175  1.1% 
Chief Financial Officer, Treasurer and Secretary      
       
Kevin Sherman (5)
 198,348  * 
Chief Marketing Officer      
       
Timothy Lane (6)
 543,732  1.9% 
Chairman      
       
Carl Wistreich (7)
 646,621  2.3% 
Director      
       
Lou Imbrogno (8)
 393,769  1.4% 
Director      
       
Total officers and directors (9)
 2,430,004  8.1% 
       
MKM Opportunity Master Fund, Ltd 3,673,799  13.2% 
28 West 44th Street, 16th Floor      
New York, NY 10036      
       
Red Square Fund One SPC 3,751,616  13.5% 
c/o NWT Fund Adminstrators Limited      
Rue de la Pelisserie 16,      
PO Box 3501      
1211 Geneva 3, Switzerland      
       
Joseph D. Kowal 2,529,998  9.1% 
4282 Skylark St.      
Irvine, CA 92604      
       
Wolverine Flagship Fund Trading Limited (10)(11)
 6,200,000  9.9% 
175 W. Jackson Blvd., Suite 200      
Chicago, Illinois 60604      
       
Falcon Fund, Ltd. (12)
 2,583,334  8.5% 
5956 Sherry Lane, Suite 1810      
Dallas, Texas 75225      
       
First Bank & Trust as custodian of Ronald L. Chez IRA (11)(13)
 8,783,335  9.9% 
820 Church Street      
Evanston Illinois, 60201      
       
V3 Capital Partners LLC (11)(14)
 3,177,501  9.9% 
641 Lexington Ave., 26th Floor      
New York, NY 10022      
       
Iroquois Master Fund Ltd. (15)
 2,583,333  8.5% 
641 Lexington Ave., 26th Floor      
New York, NY 10022      
       
Diker Micro Cap LP Fund (16)
 2,583,333  8.5% 
730 5th Ave 15th Floor      
New York, NY 10009      
       
Lacuna Hedge Fund LLLP (17)
 1,651,805  5.6% 
1100 Spruce Street      
Bolder, CO 80302      
       
Wolfson Equities, LLC (18)
 3,875,000  13.5% 
1 State Street Plaza, 29th Floor      
New York, NY 10004      
Stock
 
* Less than 1%
Name, Address and Title (if applicable) (1)
 
Number of Shares (1)
  
% Ownership of Class (2)
 
Kevin Sherman 
Interim Chief Executive Officer, Chief Marketing Officer and Director
  2,887,942   2.58%
Daniel Kerker 
Chief Financial Officer, Treasurer and Secretary
  2,139,594   1.91%
Robert VanBoerum
Chief Operations Officer
  1,000,000   * 
Ramona Cappello
Chairman
     * 
Scot Cohen (3)
Director
  6,545,834   5.69%
Neil LeVecke
Director
     * 
Total officers and directors (4)
  12,573,369     
Vincent C. Smith (5)
2560 East Chapman Avenue #173
Orange, CA 92869
  130,378,020   66.79
Vincent C. Smith Annuity Trust 2015-1 (6)
2560 East Chapman Avenue #173
Orange, CA 92869
  60,300,000   47.23%
Red Beard Holdings, LLC (7)
2560 East Chapman Avenue #173
Orange, CA 92869
  50,097,246   30.90%
First Bank & Trust as custodian of Ronald L. Chez IRA (8)
820 Church Street
Evanston Illinois, 60201
  11,397,294   9.43%
Christopher Turoci (9)
974 Sandstone Dr.
Glendora, CA 91740
  9,524,033   7.93%
 
*Less than 1%
(1)Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. All entries exclude beneficial ownership of shares issuable pursuant to warrants, options or other derivative securities that have not vested or that are not otherwise exercisable as of the date hereof or which will not become vested or exercisable within 60 days of February 6, 2014.12, 2016.

(2)Percentages are rounded to nearest one-tenthone-hundredth of one percent. Percentages are based on 27,885,587112,049,107 shares of Common Stockcommon stock outstanding. OptionsWarrants, options or other derivative securities that are presently exercisable or exercisable within 60 days are deemed to be beneficially owned by the person holding the options for the purpose of computing the percentage ownership of that person, but are not treated as outstanding for the purpose of computing the percentage of any other person.
(3)
Comprised of 33,1853,610,000 shares held of record, and 307,17460,000 shares issuable pursuant to optionsupon conversion of 3,750 shares of Series B Preferred, 17,500 shares issuable upon exercise of warrants, 1,900,000 shares issuable upon conversion of 118,750 shares of Series B Preferred held by V3 Capital Partners, 700,000 shares issuable upon exercise of warrants held by V3 Capital Partners, 200,000 shares issuable upon conversion of 12,500 shares of Series B Preferred held by the Scot Jason Cohen Foundation and 58,334 shares issuable upon exercise of warrants held by the Scot Jason Cohen Foundation each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016.
Mr. Cohen is the Managing Partner of V3 Capital Partners and an officer of the Scot Jason Cohen Foundation.
(4)Comprised of 307,1759,637,536 shares of Common Stock held of record and an aggregate total of 2,935,834 shares issuable pursuant to optionscertain derivative securities (as described above) each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016.

(5)Comprised
Based on Company records and ownership information from Amendment No. 4 to Schedule 13D filed by Vincent C. Smith on December 14, 2015. Mr. Smith is the trustee for the Vincent C. Smith Annuity Trust 2015-1 (the “Smith Trust”) and manager of 55,000Red Beard Holdings, LLC (“Red Beard”). As such, Mr. Smith has voting and/or dispositive power and may be deemed to be the beneficial owner of the securities held by each of these entities. In addition to the securities held by the Smith Trust and Red Beard, shares held of record and 143,348by Mr. Smith include 17,500,000 shares issuable pursuant to options which areupon exercise of warrants, presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016, and 1,459,329 shares held by LB 2, LLC, an entity managed by Mr. Smith.

(6)Comprised of 5,000 shares held of record, and 409,565 shares issuable pursuant
Based on ownership information from Amendment No. 4 to options, 100,000Schedule 13D filed by Vincent C. Smith on December 14, 2015. Includes 15,633,333 shares issuable upon conversionexercise of 6,250 shares of Series B Preferred and 29,167 shares issuable pursuant to warrants, each of which warrants are presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016.
Mr. Vincent C. Smith is the trustee of the Smith Trust, and has voting and/or dispositive power over the shares.
(7)Comprised of 18,637 shares held of record, and 204,783 shares issuable pursuant
Based on ownership information from Amendment No. 4 to options, 336,064Schedule 13D filed by Vincent C. Smith on December 14, 2015. Includes 37,647,333 shares issuable upon conversion of 21,00456,471 shares of Series BC Preferred and 87,13712,449,913 shares issuable pursuant toupon exercise of warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016.
Mr. Vincent C. Smith is a manager of Red Beard Holdings, LLC, and has voting and/or dispositive power over the shares.
(8)ComprisedBased on ownership information from Amendment No. 2 to Schedule 13D filed by Individual Retirement Accounts for the benefit of 33,986 shares held of record,Ronald L. Chez, Ronald L. Chez Individually and 204,783 shares issuable pursuant to options, 120,000 shares issuable upon conversion of 7,500 shares of Series B Preferred and 35,000 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6,the Chez Family Foundation on December 8, 2014.
(9)Comprised of 145,808 shares held of record, and 1,576,828 shares issuable pursuant to options, 556,064 shares issuable upon conversion of 34,754 shares of Series B Preferred and 151,304 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.

(10)Comprised of 4,800,000 shares issuable upon conversion of 300,000 shares of Series B Preferred and 1,400,000 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.

(11)
Pursuant to the Certificate of Designation, shares Series B Preferred may not be converted or exercised, as applicable, to the extent that the holder and its affiliates would own more than 9.99% of the Company’s outstanding Common Stock after such conversion. The Certificate of Designation also entitles each share of Series B Preferred to vote, on an as converted basis, along with the Common Stock; provided, however, that the Series B Preferred may not be voted to the extent that the holder and its affiliates would control more than 9.99% of the Company’s voting power.
Although the percentage ownership for each stockholder reflects the limitations in the Certificate of Designation, the securities reported in this table show the number of shares of Common Stock that would be issuable upon full conversion of the Series B Preferred and full exercise of warrants held by each stockholder.  Therefore, the actual number of shares of Common Stock beneficially owned by each stockholder, after giving effect to the limitations in the Certificate of Designation, is less than the number of securities reported herein.

(12)
Comprised of 2,000,000 shares issuable upon conversion of 125,000 shares of Series B Preferred and 583,334 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.

(13)Comprised of Includes 6,800,000 shares issuable upon conversion of 425,000 shares of Series B Preferred and 1,983,3351,983,334 shares issuable pursuant toupon exercise of warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016.

(14)(9)Comprised of 2,460,0001,513,052 shares held of record, 5,245,333 shares issuable upon conversion of 153,7507,868 shares of Series C Preferred, 720,000 shares issuable upon conversion of 45,000 shares of Series B Preferred and 717,5012,045,648 shares issuable pursuant toupon exercise of warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.12, 2016.

(15)Comprised of 2,000,000 shares issuable upon conversion of 125,000 shares of Series B Preferred and 583,334 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.

(16)Comprised of 2,000,000 shares issuable upon conversion of 125,000 shares of Series B Preferred and 583,334 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.

(17)Comprised of 1,299,120 shares issuable upon conversion of 81,195 shares of Series B Preferred and 352,685 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.

(18)Comprised of 3,000,000 shares issuable upon conversion of 187,500 shares of Series B Preferred and 875,000 shares issuable pursuant to warrants, each of which are presently exercisable or which become exercisable within 60 days of February 6, 2014.
DESCRIPTION OF SECURITIES TO BE REGISTERED
 
On November 22, 2013,DESCRIPTION OF THE COMPANY’S CAPITAL STOCK
General
The Company’s authorized capital stock currently consists of 300.0 million shares of common stock, and 5.0 million shares of preferred stock, $0.001 par value per share (the “Preferred Stock”), of which 2.75 million shares have been designated as Series B Convertible Preferred Stock (“Series B Preferred”) and 150,000 shares have been designated as Series C Convertible Preferred Stock (“Series C Preferred”).
Common Stock
As of February 12, 2016, there were 112,049,107 shares of common stock outstanding. Holders of our common stock are entitled to one vote for each share held on all matters submitted to a vote of the Company’s stockholders. Holders of common stock are entitled to receive, ratably, any dividends that may be declared by our Board of Directors out of legally available funds, subject to any preferential dividend rights of any outstanding preferred stock. Upon the Company’s liquidation, dissolution or winding up of the Company, holders of our Common Stock are entitled to receive, ratably, the Company’s net assets available after the payment of all debts and other liabilities, and subject to the prior rights of any outstanding preferred stock. Holders of common stock have no preemptive, subscription, redemption or conversion rights. The outstanding shares of common stock are fully paid and nonassessable. The rights, preferences and privileges of holders of common stock are also subject to, and may be adversely affected by, the rights of holders of shares of any series of preferred stock which the Company may designate and issue in the future without further stockholder approval.
Preferred Stock
The Board is currently authorized, without further stockholder approval, to issue from time to time up to an aggregate of 5.0 million shares of Preferred Stock in one or more series and to fix or alter the designations, preferences, rights, qualifications, limitations or restrictions of the shares of each series, including the dividend rights, dividend rates, conversion rights, voting rights, term of redemption (including sinking fund provisions), redemption price or prices, liquidation preferences and the number of shares constituting any series or designations without further vote or action by the stockholders. The issuance of preferred stock may have the effect of delaying, deferring or preventing a change in control of management without further action by the stockholders and may adversely affect the voting and other rights of the holders of common stock. The issuance of preferred stock with voting and conversion rights may adversely affect the voting power of the holders of common stock, including the loss of voting control to others.
As of February 12, 2016, we filedhad two outstanding series of Preferred Stock, the Series B Preferred and the Series C Preferred. Below is a summary of the terms of the Series B Preferred and Series C Preferred. For a full description of the rights and preferences associated with each series of Preferred Stock, please refer to the Series B Certificate of Designation and the Series C Certificate of Designation (each defined below), each available as an exhibit to our filings with the SEC.
Series B Convertible Preferred Stock
In November 2013, the Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock (the “Series B Certificate of Designation”) was filed with the Nevada Secretary of State, designatingand subsequently amended and restated in February 2015, in order to designate 2.75 million shares of the Company'sour Preferred Stock as Series B Preferred. Each shareThe following summarizes the current rights and preferences of the Series B Preferred:  
Rank.  The Series B Preferred has a stated valueranks senior to our common stock, and on parity with the Series C Preferred.
Dividends.  Holders of $4.00the Series B Preferred are entitled to receive cumulative dividends at the rate per share (“Stated Value”), and accrues annualof 5% per annum, which dividends equal to 5% of the Stated Value,are currently payable by the Company in quarterly installments, in either cash or shares of Common Stock. Pursuantcommon stock.
Voting Rights.  Subject to certain terms and conditionsrestrictions in the Series B Certificate of Designation, but notthe holders of the Series B Preferred are entitled to vote alongside holder of common stock, on an as-converted basis, on all matters as to which the approval of the stockholders may be required.  
Liquidation.  Upon any liquidation, dissolution, or winding-up of the Company, whether voluntary or involuntary (a “Liquidation”), the holders of Series B Preferred are entitled to receive out of the Company’s assets, whether capital or surplus, an amount equal to the stated value of the Series B Preferred ($4 per share), plus any accrued and unpaid dividends thereon, before any distribution or payment shall be made to the filingholders of an amendmentany junior securities, including holders of our common stock. If the assets of the Company are insufficient to pay, in full, such amounts, then the entire assets to be distributed to the holders of the Series B Preferred shall be ratably distributed among the holders in accordance with the Nevada Secretary of State to increase the Company’s authorized Common Stock from 40.0 million to 120.0 million, eachrespective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion. Each share of Series B Preferred is convertible, at the option of the holder, into that number of shares of Common Stockcommon stock equal to the Stated Value,stated value thereof, divided by $0.25 per share (the "Series B Conversion Shares"). The Company also has the option to require the conversion of the Series B Preferred into Series B Conversion Shares in the event: (i) there are sufficient authorized shares of Common Stock reserved as Conversion Shares; (ii) the Conversion Shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or the Conversion Shares are freely tradable, without restriction, under Rule 144 of the Securities Act; (iii)event the daily trading volume of the Company's Common Stock,common stock, divided by the closing price, equals at least $250,000 for 20 consecutive trading days;days and (iv) the average closing price of the Company's Common Stockcommon stock is at least $0.62 per share for 10 consecutive trading days.
 
   On November 25, 2013,Certain Price and Share Adjustments.
a)        Stock Dividends and Stock Splits.  If the Company commenced(i) pays a private offeringstock dividend or otherwise makes a distribution or distributions payable in shares of up to 2.0 millioncommon stock on shares of common stock or any other common stock equivalents; (ii) subdivides outstanding shares of common stock into a larger number of shares; (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares; or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price shall be adjusted accordingly.
b)        Merger or Reorganization.  If the Company is involved in any reorganization, recapitalization, reclassification, consolidation or merger in which the common stock is converted into or exchanged for securities, cash or other property than each shares of Series B Preferred for $4.00 pershall be convertible into the kind and amount of securities, cash or other property that a holder of the number of shares of common stock issuable upon conversion of one share (“ of Series B Preferred prior to any such merger or reorganization would have been entitled to receive pursuant to such transaction.
Series C Convertible Preferred Stock
Purchase PriceIn February 2015, the ”),Certificate of Designation, Preferences, Rights and five-year warrantsLimitations of the Series C Convertible Preferred Stock (the “WarrantsSeries C Certificate of Designation”) was first filed with the Nevada Secretary of State, and later amended and restated in March 2015, August 2015 and amended in November 2015, in order to designate 150,000 shares of our preferred stock as Series C Preferred. The following summarizes the current rights and preferences of the Series C Preferred:  
Rank.  The Series C Preferred ranks senior to our common stock, and on parity with the Series B Preferred.
Voting Rights.  The holders of the Series C Preferred are entitled to vote alongside holder of common stock, on an as-converted basis, on all matters as to which the approval of the stockholders may be required.  
Liquidation.  Upon any Liquidation, the holders of Series C Preferred are entitled to receive out of the Company’s assets, whether capital or surplus, an amount equal to the stated value of the Series C Preferred ($100 per share), exercisable for $0.30plus any accrued and unpaid dividends thereon, before any distribution or payment shall be made to the holders of any junior securities, including the common stock. If the Company’s assets are insufficient to pay, in full, such amounts, then the entire assets to be distributed to the holders of the Series C Preferred shall be ratably distributed among the holders in accordance with the respective amounts that would be payable on such shares if all amounts payable thereon were paid in full.
Conversion. Each share of Series C Preferred is convertible, at the option of the holder, into that number of shares of common stock equal to the stated value thereof, divided by $0.15 per share (the "Series C Conversion Shares”). The Company has the option to require the conversion of the Series C Preferred into Series C Conversion Shares in the event the average closing price of the Company's common stock is at least $0.62 per share for 10 consecutive trading days.
Certain Price and Share Adjustments.
a)        Stock Dividends and Stock Splits.  If the Company (i) pays a stock dividend or otherwise makes a distribution or distributions payable in shares of common stock on shares of common stock or any other Common Stock equivalents; (ii) subdivides outstanding shares of common stock into a larger number of shares; (iii) combines (including by way of a reverse stock split) outstanding shares of common stock into a smaller number of shares; or (iv) issues, in the event of a reclassification of shares of the common stock, any shares of capital stock of the Company, then the conversion price shall be adjusted accordingly.
b)        Merger or Reorganization.  If the Company is involved in any reorganization, recapitalization, reclassification, consolidation or merger in which the common stock is converted into or exchanged for securities, cash or other property than each shares of Series C Preferred shall be convertible into the kind and amount of securities, cash or other property that a holder of the number of shares of common stock issuable upon conversion of one share of Series C Preferred prior to any such merger or reorganization would have been entitled to receive pursuant to such transaction.


DESCRIPTION OF SECURITIES TO BE REGISTERED
This prospectus relates to the registration of a total of 44,863,395 shares of common stock by the Company, on behalf of the Selling Stockholders listed on page 42 of this prospectus (the “Registrable Securities”). Below is a description of the transactions by which the Company issued the Registrable Securities to the Selling Stockholders.
August 2015Series C Offering
On August 13, 2015 (the “Initial Investment Date”), Red Beard Holdings, LLC (“Red Beard”) entered into a Securities Purchase Agreement (the “Purchase Agreement”), pursuant to which Red Beard agreed to purchase up to 17,648 shares of Series C Preferred for $113.33 per share (the “Shares”) over the course of three separate closings (the “Series C Offering”). The Company issued an aggregate total of 7,942 Shares on the Initial Investment Date, and 6,177 Shares on August 28, 2015 and the remaining 3,529 Shares on September 15, 2015.   As additional consideration for the purchase of Shares in the Series C Offering, Red Beard received five-year warrants, originally exercisable for $0.17 per share (the “Exercise PriPricece"), to purchase that number of shares of the Company's Common Stockcommon stock equal to 35% of that number of shares of common stock determined by dividing (i) the Purchase Price, dividedStated Value (as such term is defined in the Series C Amendment) of the Shares by (ii) the Exercise Price (the “Warrant SharesSeries B Offering”).  As of
In addition to the date hereof,Purchase Agreement, the Company and certain accredited investorsRed Beard entered into Securities Purchase Agreements to purchase approximately 2.0 million shares of Series B Preferred, and Warrants to purchase approximately 9.3 million shares of Common Stock.
    Merriman Capital, Inc. (“Merriman”) acted as placement agent for the majority of the securities issued during the Series B Offering. As consideration for its services, Merriman received: (i) cash compensation totaling $523,250; (ii) five-year warrants to purchase 1,188,200 shares of Common Stock for $0.25 per share; and (iii) five-year warrants to purchase 346,560 shares of Common Stock for $0.30 per share. Candlewood Securities, Inc. (“Candlewood”) also acted as placement agent for a portion of the securities issued during the final closing of the Series B Offering, and received, as consideration for its services: (i) cash compensation totaling $53,550; (ii) five-year warrants to purchase 91,800 shares of Common Stock for $0.25 per share; and (iii) five-year warrants to purchase 26,775 shares of Common Stock for $0.30 per share (together, with the warrants issued to Merriman, the “Placement Agent Warrants”).
       In connection with the Series B Offering, certain holders (the “Note Holders”) of our outstanding convertible debt agreed to cancel such debt, totaling $739,706 in principal and accrued interest, in exchange for 205,476 Shares and Warrants to purchase 862,995 shares of Common Stock for $0.30 per share (the “Note Conversion”).

This Registration Statement registers for resale shares of Common Stock issuable as Conversion Shares, issuable upon conversion of the shares of Series B Preferred, Warrant Shares issuable upon exercise of the Warrants issued to Investors and Note Holders in connection with the Series B Offering and Note Conversion and the shares of Common Stock issuable upon exercise of the Placement Agent Warrants.
 Transfer Agent
Our Transfer Agent and Registrar for our Common Stock is Corporate Stock Transfer located in Denver, Colorado.
SELLING STOCKHOLDERS

The Company, each of the Investors participating in the Series B Offering and the Note Holders participating in the Note Conversion signed a registration rights agreementRights Agreement (the “Registration Rights Agreement”), wherein wepursuant to which the Company agreed to register the Warrant Shares issuable upon exercise of the Warrants, and the Conversionshares of common stock issuable upon conversion of the Shares, under the Securities Act on a Registration Statement on Form S-1 (the “RegistrationStatement”) on or before February 13, 2016.
On October 16, 2015, the Company and Red Beard executed an amendment to the Purchase Agreement (the “Purchase Agreement Amendment”). Pursuant to the terms and conditions of the Purchase Agreement Amendment, the Company sold to Red Beard an additional 8,823 Shares for gross proceeds of approximately $1.0 million. As additional consideration for the purchase of the Shares, Red Beard received a Warrant to purchase approximately 1.81 million shares of the Company’s common stock. 
The Company, Red Beard and Vincent C. Smith also entered into an amendment to the Registration Rights Agreement (the “Registration Rights Amendment”), in order to include within the definition of “Registrable Securities”: (i) the shares of common stock issuable upon conversion of the Shares and upon exercise of the Warrant issued in connection with the Purchase Agreement Amendment, and (ii) the shares of common stock issuable upon exercise of the Personal Guaranty Warrant, as defined below.
Niagara Agreement and Personal Guaranty
            On October 9, 2015, our wholly owned subsidiary, True Drinks, Inc., a Delaware corporation (“True Drinks”), entered into a bottling agreement (the “Niagara Agreement”) with Niagara Bottling, LLC, a Delaware limited liability company (“Niagara”), pursuant to which Niagara will become the exclusive manufacturer of AquaBall(TM) Naturally Flavored Water for the next five years.
    The Niagara Agreement requires the Company to deliver to Niagara its minimum volume requirements for the upcoming 12-month period on or before February 1st of each year (the “Annual Commitment”), which Annual Commitment may not be less than 3.2 million Cases (defined in the Niagara Agreement as a pack of 24 bottles of AquaBall(TM) Naturally Flavored Water) per purchase order. Subject to the terms and conditions of the Niagara Agreement, the Company will pay to Niagara $6.35 per Case manufactured, for an annual financial liability of approximately $20.3 million per year.
    Mr. Vincent C. Smith, the Company’s largest shareholder, executed a personal guaranty of True Drinks’ obligations under the Niagara Agreement (the “Personal Guaranty”). As consideration for Mr. Smith’s execution of the Personal Guaranty, the Company issued to Mr. Smith a five-year warrant (the “Personal GuarantyWarrant”), to purchase 17.5 million shares of the Company’s common stock for $0.188 per share.
As noted above, on October 16, 2015, the Company agreed to include the shares of common stock issuable upon exercise of the Personal Guaranty Warrant within the definition of “Registrable Securities” in the Registration Rights Amendment.
Issuance of Novelty Warrant
In October 2015, the Company engaged Novelty Capital Group LLC (“Novelty”) to provide the Company with certain advisory services related to investor relations. As consideration, the Company issued to Novelty a warrant (the “Novelty Warrant”) to purchase up to 884,211 shares of common stock for $0.19 per share, subject to a monthly vesting schedule over a 12-month period, provided the Company continued to engage Novelty. The Novelty Warrant also provided Novelty with piggyback registration rights.
On February 14, 2016, the Company terminated its engagement of Novelty. As of that date, a total of 294,737 shares had vested under the Novelty Warrant.
November Series C Offering and Adjustment of Exercise Price of the Warrants and Personal Guaranty Warrant
On November 25, 2015, the Company and Red Beard entered into a securities purchase agreement, pursuant to which Red Beard agreed to purchase up to 30,000 shares of Series C Preferred for $100 per share over the course of three separate closings between November 2015 and January 2016 (the “November Purchase Agreement”). As additional consideration for the purchase of the shares of Series C Preferred, Red Beard received five-year warrants, exercisable for $0.15 per share, to purchase that number of shares of the Company's common stock equal to 35% of the shares of common stock issuable upon conversion of the shares of Series BC Preferred (collectively,purchased.
Due to certain adjustment provisions in the Warrants and the Personal Guaranty Warrant, the issuance of the warrants pursuant to the November Purchase Agreement caused a decrease in the exercise price of the Warrants issued during private placement transactions between August 2015 and October 2015 and the Personal Guaranty Warrant to $0.15 per share. However, the exercise price of the Novelty Warrant remained unchanged.
Note Exchange
On January 20, 2016, the Company and holders (the Holders”) of Secured Notes in the principal amount of $500,000 entered into Note Exchange Agreements pursuant to which the Holders agreed to convert the outstanding principal balance of their Secured Notes into an aggregate total of 4,413 shares of Series C Preferred and Warrants to purchase up to an agate total of 1,029,701 shares of common stock for $0.17 per share. Each Note Exchange Agreement provided piggyback registration rights to the Holders for the shares of common stock issuable upon conversion of the shares of Series C Preferred and upon exercise of the Warrants.
SELLING STOCKHOLDERS
Pursuant to the terms and conditions of the Registration Rights Amendment, the Note Exchange Agreement and the Novelty Warrant, the Company has agreed to register the Registrable Securities”), under the Securities Act. Accordingly, we filed a Registration Statement on Form S-1, of which this prospectus forms a part, with respect to the resale of the Registrable Securities from time to time. In addition, we agreed in the Registration Rights Agreement to use our best efforts to cause the registration statement to be declared effective under the Securities Act by March 25, 2014, and to use our best efforts to keep the registration statement effective until the Registrable Securities are sold or may be sold without registration or prospectus delivery requirements under the Securities Act, subject to certain restrictions.
 
Selling Stockholders Table

We filed a Registration Statement on Form S-1 with the SEC, of which this prospectus forms a part, with respect to the resale of the RegistrableRegisterable Securities from time to time under Rule 415 of the Securities Act. The RegistrableRegisterable Securities were registered to permit secondary public trading thereof. Subject to the restrictions described in this prospectus, the Selling Stockholders may offer the RegistrableRegisterable Securities for resale from time to time. In addition, subject to the restrictions described in this prospectus, the Selling Stockholders may sell, transfer or otherwise dispose of all or a portion of any RegistrableRegisterable Securities held in transactions exempt from the registration requirements of the Securities Act. See “PlanPlan of Distribution”Distribution below for more information.

The table below presents information as of February 6, 2014,12, 2016, regarding the Selling Stockholders and the RegistrableRegisterable Securities the Selling Stockholders (and their donees, pledgees, assignees, transferees and other successors in interest) may offer and sell from time to time under this prospectus. More specifically, the following table sets forth as to the Selling Stockholders:

the number of shares of our Common Stockcommon stock beneficially owned by each Selling Stockholders prior to the offering for resale of any of the shares of our Common Stockcommon stock being registered by the registration statement of which this prospectus is a part;

the number of shares of our Common Stockcommon stock that may be offered for resale for the Selling Stockholders’ account under this prospectus; and

the number and percent of shares of our Common Stockcommon stock to be held by the Selling Stockholders after the offering of the resale securities, assuming all of the resale shares of Common Stockcommon stock are sold by the Selling Stockholders and that the Selling Stockholders do not acquire any other shares of our Common Stockcommon stock prior to their assumed sale of all of the resale shares.

None of the Selling Stockholders has held a position as an officer or director of the company, nor has any Selling Stockholder had any material relationship of any kind with us or any of our affiliates. Except as otherwise indicated in the footnotes to the table, the Selling Stockholders possess sole voting and investment power with respect to the shares shown, and no Selling Stockholder is a broker-dealer or an affiliate of a broker-dealer.
The following table iswas prepared based on information supplied to us by the Selling Stockholders. Although we have assumed for purposesStockholder, as well as certain information known to us as of the tabledate of this prospectus. Except as indicated below, that the Selling Stockholders will sell all Registrable Securities offered by this prospectus, becauseshare amounts under the Selling Stockholders may offer from time to time all or somecolumns “Shares Beneficially Owned Before the Offering” and “Maximum Number of Shares Offered” consist of the Registrable Securities, no assurances can be given as toand the actual number of securities that will be resold byshare amounts under the Selling Stockholders or that will be held bycolumns “Shares Beneficially Owned after the Selling Stockholders after completionOffering” assume all of the resales. In addition, the Selling Stockholders may haveoffered shares are sold transferred or otherwise disposed of the Registrable Securities in transactions exempt from the registration requirements of the Securities Act since the date the Selling Stockholders provided the information regarding their securities holdings. Information covering the Selling Stockholders may change from time to time and changed information will be presented in a supplementpursuant to this prospectus if and when necessary and required.

prospectus.
Except as described above, there are currently no agreements, arrangements or understandings with respect to the resale of any of the securities covered by this prospectus.
The applicable percentages of ownership are based on an aggregate of 27,885,587 shares of our Common Stock issued and outstanding on February 6, 2014. The number of shares beneficially owned by the Selling Stockholders is determined under rules promulgated by the SEC.

 
-32--42-


  
Shares Beneficially
Owned Prior
 to Offering*
  Maximum Number of Shares Being Offered Pursuant to this Prospectus  
Shares Beneficially Owned
 After Offering*
 
Name of Selling Security Holder (1)
 Number  Percent          
Red Beard Holdings, LLC (2)
  50,097,246   32.02%  23,097,245   27,000,001   20.25%
Vincent C. Smith (3)(4)
  130,378,020   68.77%  17,500,000   89,780,775   60.26%
Christopher Turoci (5)
  9,524,033   8.33%  2,382,981   7,141,052   6.38%
Nadeem Ahmed (6)
  2,532,533   2.38%  1,588,432   944,101   ** 
Novelty Capital Group LLC (7)
  294,737   **   294,737      ** 
 
  
Shares Beneficially Owned Prior
to Offering
 
Maximum Number
of Shares Being Offered Pursuant to
this Prospectus
 
Shares Beneficially Owned
After Offering
  
Name of Selling Security Holder (1)
   Number Percent*
Wolverine Flagship Fund Trading Limited (2)(3)
    -  6,200,000   - **
Falcon Fund, Ltd. (4)
  -  2,583,334   - **
Athena S. Marks (5)
  -  1,162,501   - **
First Bank & Trust as custodian of Ronald L. Chez IRA (3)(6)
    -  8,783,335   - **
V3 Capital Partners LLC (3)(7)
  -  3,177,501   - **
Scot Jason Cohen Foundation (8)
  -  258,334   - **
American Capital Management LLC (9)
  -  775,000   - **
Iroquois Master Fund Ltd. (10)
  -  2,583,334   - **
Kensington Trust (11)
    -  258,334   - **
Merav Abbe Irrevocable Trust (12)
    -  258,334   - **
D. Jonathan Merriman Trust (13)(14)
  -  775,000   - **
Carl Frankson (15)
   15,000  206,667  15,000 **
Diker Micro Cap LP Fund (16)
    -  2,583,334   - **
Max Communications, Inc. (17)
   101,439  516,667  101,439 **
Eric Chez (18)
  -  258,334   - **
Lacuna Hedge Fund LLLP (19)
  -  1,651,805   - **
Fortis Business Holdings LLC (20)
    -  1,291,667   - **
Jonathan D. Shane (21)
   161,481  206,667  161,481 **
The Hewlett Fund, LP (22)
  -  645,834   - **
The Fred R. Gumbinner Living Trust (23)
   17,045  85,850  17,045 **
Frederick Daniel Gabel (24)
  -  280,558   - **
Joe Kolling (25)
  -  1,122,230   - **
Matt Kolling (26)
  -  280,558   - **
Paul Schneider (27)
   40,000  144,430  40,000 **
Persephone Capital Partners, LLC (28)
  -  305,724   - **
Lincoln Park Capital Fund, LLC (29)
   10,000  567,578  10,000 **
Steven Lefkowitz (30)
  -  228,804   - **
Arapaho Foundation LLC (31)
  -  389,779   - **
Empire Group Limited (32)
  -  775,000   - **
UGC 2003, Inc. (33)
  -  1,291,667   - **
MAZ Partners, LP (34)
  -  516,667   - **
London Family Trust (35)
  -  516,667   - **
GRQ Consultants, Inc. 401K (36)
  -  516,667   - **
Wolfson Equities LLC (37)
  -  3,875,000   - **
Joseph Reda (38)
  -  155,000   - **
Gellar Living Trust U/D/T dated July 26, 2002 (39)
  -  516,667   - **
Stone Harbor Retirement Fund (40)
  -  150,554   - **
Daybreak Capital (41)
  -  250,000   - **
Candlewood Securities, Inc. (42)(43)
  -  161,962   - **
Merriman Capital, Inc. (44)(45)
  -  1,534,760   - **
*
Beneficial ownership assumes the exercise of any warrant sharesall derivative securities held by the Selling Stockholder.
**
Less than 1%.
(1)
Information concerning other Selling Stockholders will be set forth in one or more prospectus supplements from time to time, if required.
 
(2)
Includes 4,800,000See table titled “Security Ownership of Certain Beneficial Owners and Management” on p. 35 of this prospectus for information regarding securities held by Red Beard Holdings, LLC (“Red Beard”) prior to this offering.
Shares offered pursuant to this prospectus consist of 17,647,333 shares of common stock issuable upon conversion of 26,471 shares of Series C Preferred and 5,449,912 shares issuable upon exercise of Warrants issued to Red Beard pursuant to the Purchase Agreement and Purchase Agreement Amendment. Vincent C Smith, Manager of Red Beard, has voting and dispositive power over these shares.
(3)
See table titled “Security Ownership of Certain Beneficial Owners and Management” on p. 35 of this prospectus for information regarding securities held by Mr. Smith held prior to this offering.
Shares offered pursuant to this prospectus consist of 17,500,000 shares of Common Stock issuable upon exercise of the Personal Guaranty Warrant.
(4)
Due to Mr. Smith’s role as Manager of Red Beard, shares beneficially owned prior to, and after this offering include shares held by Red Beard.
(5)
See table titled “Security Ownership of Certain Beneficial Owners and Management” on p. 35 of this prospectus for information regarding securities held by Mr. Turoci held prior to this offering.
Shares offered pursuant to this prospectus include 1,765,333 shares of Common Stock issuable upon conversion of 300,0002,648 shares of Series BC Preferred and 1,400,000617,648 shares issuable upon exercise of Warrants. Wolverine Asset Management, LLC (‘WAM”) isWarrants issued to Mr. Turoci in connection with the investment manager of Wolverine Flagship Fund Trading Limited (the “Fund”) and has voting and investment power over these securities. The sole member and manager of WAM is Wolverine Holdings, L.P. (“Wolverine Holdings”). Robert R. Bellick and Christopher L. Gust may be deemed to control Wolverine Trading Partners, Inc. (“WTP”), the general partner of Wolverine Holdings. Each of Mr. Bellick, Mr. Gust, WTP, Wolverine Holdings and WAM disclaims beneficial ownership of the shares held by the Fund.Note Exchange.
 
(3)(6)
Pursuant to the Certificate of Designation, shares Series B Preferred may not be converted or exercised, as applicable, to the extent that the holder and its affiliates would own more than 9.99% of the Company’s outstanding Common Stock after such conversion. The Certificate of Designation also entitles each share of Series B Preferred to vote, on an as converted basis, along with the Common Stock; provided, however,that the Series B Preferred may not be voted to the extent that the holder and its affiliates would control more than 9.99% of the Company’s voting power.
Although the percentage ownership for each stockholder reflects the limitations in the Certificate of Designation, the securities reported in this table show the number of shares of Common Stock that would be issuable upon full conversion of the Series B Preferred and full exercise of warrants held by each stockholder.  Therefore, the actual number of shares of Common StockShares beneficially owned by each stockholder, after giving effectprior to the limitations in the Certificate of Designation, is less than the number of securities reported herein.
(4)
Includes 2,000,000this offering include 699,334 shares of Common Stock issuable upon conversion of 125,0001,049 shares of Series B Preferred and 583,334244,767 shares issuable upon exercise of Warrants. Houston Hall of Falcon Fund, Ltd. has voting and/or dispositive power over these shares.certain warrants issued to Mr. Ahmed.
 
(5)
Includes 900,000Shares offered pursuant to this prospectus include 1,176,667 shares of Common Stock issuable upon conversion of 56,2501,765 shares of Series BC Preferred and 262,501411,765 shares issuable upon exercise of Warrants.Warrants issued to Mr. Ahmed in connection with the Note Exchange.
 
(6)(7)
Includes 6,800,000Shares offered pursuant to this prospectus consist of 294,737 shares of Common Stock issuable upon conversion of 425,000 shares of Series B Preferred and 1,983,335 sharescommon stock issuable upon exercise of Warrants. Ronald L. Chez, trusteethe Novelty Warrant.
Jonathon Skeels, Managing Member of the Ronald L. Chez IRA,Novelty, has voting and/orand dispositive power over these shares.
(7)
Includes 2,460,000 shares of Common Stock issuable upon conversion of 153,750 shares of Series B Preferred and 717,501 shares issuable upon exercise of Warrants. Scot Cohen of V3 Capital Partners LLC has voting and/or dispositive power over these shares.
(8)
Includes 200,000 shares of Common Stock issuable upon conversion of 12,500 shares of Series B Preferred and 58,334 shares issuable upon exercise of Warrants. Scot Cohen of the Scot Jason Cohen Foundation has voting and/or dispositive power over these shares.
(9)
Includes 600,000 shares of Common Stock issuable upon conversion of 37,500 shares of Series B Preferred and 175,000 shares issuable upon exercise of Warrants.
(10)
Includes 2,000,000 shares of Common Stock issuable upon conversion of 125,000 shares of Series B Preferred and 583,334 shares issuable upon exercise of Warrants.
(11)
Includes 200,000 shares of Common Stock issuable upon conversion of 12,500 shares of Series B Preferred and 58,334 shares issuable upon exercise of Warrants. Leo Abbe, trustee of the Kensington Trust, has voting and/or dispositive power over these shares.
(12)
Includes 200,000 shares of Common Stock issuable upon conversion of 12,500 shares of Series B Preferred and 58,334 shares issuable upon exercise of Warrants. Leo Abbe, trustee of the Merav Abbe Irrevocable Trust, has voting and/or dispositive power over these shares.
(13)
Includes 600,000 shares of Common Stock issuable upon conversion of 37,500 shares of Series B Preferred and 175,000 shares issuable upon exercise of Warrants. D. Jonathan Merriman, trustee of the D. Jonathan Merriman Trust, has voting and/or dispositive power over these shares.
(14)
Mr. Merriman has advised the Company that he is affiliated with a broker-dealer, Merriman Capital, Inc., and that the securities were received solely as an investment and not with a view to or for resale or distribution.
(15)
Shares owned prior to the Offering consist of 15,000 shares of Common Stock. Shares registered herein include 160,000 shares of Common Stock issuable upon conversion of 10,000 shares of Series B Preferred and 46,667 shares issuable upon exercise of Warrants.
(16)
Includes 2,000,000 shares of Common Stock issuable upon conversion of 125,000 shares of Series B Preferred and 583,334 shares issuable upon exercise of Warrants. Mark Diker of Diker Micro Cap LP Fund has voting and/or dispositive power over these shares.
(17)
Shares owned prior to the Offering consist of 101,439 shares of Common Stock. Shares registered herein include 400,000 shares of Common Stock issuable upon conversion of 25,000 shares of Series B Preferred and 116,667 shares issuable upon exercise of Warrants. Richard Molinsky of Max Communications, Inc., has voting and/or dispositive power over these shares.
(18)
Includes 200,000 shares of Common Stock issuable upon conversion of 12,500 shares of Series B Preferred and 58,334 shares issuable upon exercise of Warrants.
(19)
Includes 1,299,120 shares of Common Stock issuable upon conversion of 81,195 shares of Series B Preferred and 352,685 shares issuable upon exercise of Warrants.
(20)
Includes 1,000,000 shares of Common Stock issuable upon conversion of 62,500 shares of Series B Preferred and 291,667 shares issuable upon exercise of Warrants. Sarah Rosenfeld of Fortis Business Holdings LLC, has voting and/or dispositive power over these shares.
(21)
Shares owned prior to the offering consist of 161,481 shares of Common Stock. Shares registered herein include 160,000 shares of Common Stock issuable upon conversion of 10,000 shares of Series B Preferred and 46,667 shares issuable upon exercise of Warrants.
(22)
Includes 500,000 shares of Common Stock issuable upon conversion of 31,250 shares of Series B Preferred and 145,384 shares issuable upon exercise of Warrants.
(23)
Shares owned prior to the Offering consist of warrants to purchase 17,045 shares of the Company’s Common Stock. Shares registered herein include 68,000 shares of Common Stock issuable upon conversion of 4,250 shares of Series B Preferred and 17,850 shares issuable upon exercise of Warrants. Fred Gumbinner, trustee of the Fred R. Gumbinner Living Trust, has voting and/or dispositive power over these shares.
(24)
Includes 222,224 shares of Common Stock issuable upon conversion of 13,889 shares of Series B Preferred and 58,334 shares issuable upon exercise of Warrants.
(25)
Includes 888,896 shares of Common Stock issuable upon conversion of 55,556 shares of Series B Preferred and 233,334 shares issuable upon exercise of Warrants.
(26)
Includes 222,224 shares of Common Stock issuable upon conversion of 13,889 shares of Series B Preferred and 58,334 shares issuable upon exercise of Warrants.
(27)
Shares owned prior to the offering consist of 40,000 shares of Common Stock. Shares registered herein include 114,400 shares of Common Stock issuable upon conversion of 7,150 shares of Series B Preferred and 30,030 shares issuable upon exercise of Warrants.
(28)
Includes 242,160 shares of Common Stock issuable upon conversion of 15,135 shares of Series B Preferred and 63,564 shares issuable upon exercise of Warrants. Jay Lifton, Chief Executive Officer and Managing Partner of Persephone Capital Partners, LLC, has voting and/or dispositive power over these shares.
(29)
Shares owned prior to the Offering consist of warrants to purchase 78,182 shares of the Company’s Common Stock. Shares registered herein include 449,568 shares of Common Stock issuable upon conversion of 28,098 shares of Series B Preferred and 118,010 shares issuable upon exercise of Warrants. Joshua Scheinfeld and Jonathan Cope, the Managing Members of Lincoln Park Capital, LLC, are deemed to be beneficial owners of all of the shares of Common Stock owned by Lincoln Park Capital Fund. Messrs. Scheinfeld and Cope have shared voting and investment power over the shares being offered. Lincoln Park Capital is not a licensed broker dealer or an affiliate of a licensed broker dealer.
(30)
Includes 181,232 shares of Common Stock issuable upon conversion of 11,327 shares of Series B Preferred and 47,572 shares issuable upon exercise of Warrants.
(31)Includes 308,736 shares of Common Stock issuable upon conversion of 19,296 shares of Series B Preferred and 81,043 shares issuable upon exercise of Warrants.
(32)
Includes 600,000 shares of Common Stock issuable upon conversion of 37,500 shares of Series B Preferred and 175,000 shares issuable upon exercise of Warrants.
(33)
Includes 1,000,000 shares of Common Stock issuable upon conversion of 62,500 shares of Series B Preferred and 291,667 shares issuable upon exercise of Warrants. Neo Wei Ming, Director of UGC 2003, Inc., has voting and/or dispositive power over these shares.
(34)
Includes 400,000 shares of Common Stock issuable upon conversion of 25,000 shares of Series B Preferred and 116,667 shares issuable upon exercise of Warrants. Walter Schenker, Principle of MAZ Partners, LP, has voting and/or dispositive power over these shares.
(35)
Includes 400,000 shares of Common Stock issuable upon conversion of 25,000 shares of Series B Preferred and 116,667 shares issuable upon exercise of Warrants. Robert S. London, Trustee of the London Family Trust, has voting and/or dispositive power over these shares.
(36)
Includes 400,000 shares of Common Stock issuable upon conversion of 25,000 shares of Series B Preferred and 116,667 shares issuable upon exercise of Warrants. Barry Honig, Trustee of GRQ Consultants, Inc. 401K, has voting and/or dispositive power over these shares.
(37)
Includes 3,000,000 shares of Common Stock issuable upon conversion of 187,500 shares of Series B Preferred and 875,000 shares issuable upon exercise of Warrants. Aaron Wolfson, Managing Member of Wolfson Equities, LLC, has voting and/or dispositive power over these shares.
(38)
Includes 120,000 shares of Common Stock issuable upon conversion of 7,500 shares of Series B Preferred and 35,000 shares issuable upon exercise of Warrants.
(39)
Includes 400,000 shares of Common Stock issuable upon conversion of 25,000 shares of Series B Preferred and 116,667 shares issuable upon exercise of Warrants. Marshall S. Geller, Co-Trustee of the Geller Living Trust U/D/T dated July 26, 2002, has voting and/or dispositive power over these shares.
(40)
Includes 116,560 shares of Common Stock issuable upon conversion of 7,285 shares of Series B Preferred and 33,994 shares issuable upon exercise of Warrants.
(41)
All 250,000 shares issuable upon exercise of Warrants.
(42)
All 161,962 shares issuable upon exercise of Warrants. Glenn C. Pollack, Manager of Candlewood Securities, Inc., has voting and/or dispositive power over these shares.
(43)
Warrants received as part of the sales commission paid to Candlewood Securities for its services as placement agent for select investors in the Series B Offering.
(44)
All 1,534,760 shares issuable upon exercise of Warrants. D. Jonathan Merriman of Merriman Capital, Inc., has voting and/or dispositive power over these shares.
(45)
Warrants received as part of the sales commission paid to Merriman Capital, Inc. for its services as placement agent for select investors in the Series B Offering.

 
-33--43-


RELATIONSHIPS BETWEEN THE ISSUER AND THE SELLING SECURITY HOLDERSPLAN OF DISTRIBUTION
 
None of the Selling Stockholders has at any time during the past three years acted as one of our employees, officers or directors or had a material relationship with us.

PLAN OF DISTRIBUTION

Each Selling Stockholder and any of their pledgees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stockcommon stock covered hereby on the OTCQBOTC Pink Marketplace or any other stock exchange, market or trading facility on which the shares are traded or in private transactions. These sales may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling shares:

·on any national securities exchange, market or quotation service on which our Common Stockcommon stock may be listed or quoted at the time of sale;

·in transactions other than on these exchanges or systems or in the over-the-counter market;

·in ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
 
·in block trades in which the broker-dealer will attempt to sell the securities as agent, but may position and resell a portion of the block as principal to facilitate the transaction;

·in purchases by a broker-dealer as principal and resale by the broker-dealer for its account;

·in an exchange distribution in accordance with the rules of the applicable exchange;
 
·in privately negotiated transactions;
 
·in put or call option transactions;

·in transactions involving short sales through broker-dealers;

·in transactions wherein the Selling Stockholder sells securities short themselves and delivers the securities to close out short positions;

·through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;

·in transactions that may involve crosses or block transactions;

·in transactions where broker-dealers may agree with the Selling Stockholders to sell a specified number of securities at a stipulated price per security;

·a combination of any such methods of sale; or

·in any other method permitted by applicable law.

The Selling Stockholders may also sell shares under Rule 144 under the Securities Act, if available, rather than under this prospectus.
 
Broker-dealers engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this prospectus, in the case of an agency transaction not in excess of a customary brokerage commission in compliance with Rule 2440 of the Financial Industry Regulatory Authority, Inc.; and in the case of a principal transaction a markup or markdown in compliance with IM-2440 of the Financial Industry Regulatory Authority, Inc.
 
-34-

In connection with the sale of the Common Stockcommon stock or interests therein, the Selling Stockholders may enter into hedging transactions with broker-dealers or other financial institutions, which may in turn engage in short sales of the Common Stockcommon stock in the course of hedging the positions they assume. The Selling Stockholders may also sell shares of the Common Stockcommon stock short and deliver these securities to close out their short positions, or loan or pledge the Common Stockcommon stock to broker-dealers that in turn may sell these securities. The Selling Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one or more derivative securities which require the delivery to such broker-dealer or other financial institution of shares offered by this prospectus, which shares such broker-dealer or other financial institution may resell pursuant to this prospectus (as supplemented or amended to reflect such transaction).

The Selling Stockholders and any broker-dealers or agents that are involved in selling the shares may be deemed to be “underwriters” within the meaning of the Securities Act of 1933, as amended, in connection with such sales. In such event, any commissions received by such broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement or understanding, directly or indirectly, with any person to distribute their shares of Common Stock.common stock.

The Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the shares. The Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities under the Securities Act.

Because Selling Stockholders may be deemed to be “underwriters” within the meaning of the Securities Act, they will be subject to the prospectus delivery requirements of the Securities Act, including Rule 172 thereunder. The Selling Stockholders have advised us that there is no underwriter or coordinating broker acting in connection with the proposed sale of the resale shares by the Selling Stockholders.

We agreed to keep this prospectus effective until the earlier of (i) the date on which the shares may be resold by the Selling Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act, or any other rule of similar effect (assuming that the shares were at no time held by any affiliate of ours, and all warrants are exercised by “cashless exercise” as provided in each of the warrants) or (ii) all of the shares have been sold pursuant to this prospectus or Rule 144 under the Securities Act, or any other rule of similar effect. The resale shares will be sold only through registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale shares of Common Stockcommon stock covered hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the registration or qualification requirement is available and is complied with.

Under applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale shares may not simultaneously engage in market making activities with respect to the Common Stockcommon stock for the applicable restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable provisions of the Exchange Act, and the rules and regulations thereunder, including Regulation M, which may limit the timing of purchases and sales of shares of the Common Stockcommon stock by the Selling Stockholders or any other person. We will make copies of this prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).


EXPERTS
 
The consolidated financial statements as of December 31, 2012,2014, and for the year then ended included in this prospectus and elsewhere in the registration statement have been audited by Squar, Milner, Peterson, Miranda & Williamson, LLP, an independent registered public accounting firm, as indicated in their report with respect thereto, and iswhich report will be included herein in reliance upon the authority of said firm as experts in auditing and accounting in giving said reports.
 
LEGAL MATTERS
 
The validity of our Common Stockcommon stock offered hereby will be passed upon for us by Disclosure Law Group, San Diego, California.
 
-35-

INTERESTS OF NAMED EXPERTS AND COUNSEL
 
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the Common Stockcommon stock was employed for such purpose on a contingency basis, or had, or is to receive, in connection with this offering, a substantial interest, direct or indirect, in us or any of our subsidiaries, nor was any such person connected with us as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.

WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form S-1 with the SEC. This prospectus, which forms a part of that registration statement, does not contain all of the information included in the registration statement and the exhibits and schedules thereto as permitted by the rules and regulations of the SEC. For further information with respect to us and the shares of our Common Stockcommon stock offered hereby, please refer to the registration statement, including its exhibits and schedules. Statements contained in this prospectus as to the contents of any contract or other document referred to herein are not necessarily complete and, where the contract or other document is an exhibit to the registration statement, each such statement is qualified in all respects by the provisions of such exhibit, to which reference is hereby made. You may review a copy of the registration statement at the SEC’s public reference room at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. The registration statement can also be reviewed by accessing the SEC’s website at http://www.sec.gov. We are subject to the information and reporting requirements of the Securities Exchange Act of 1934 and, in accordance therewith, file periodic reports, proxy statements or information statements, and other information with the SEC. These reports can also be reviewed by accessing the SEC’s website.

You should rely only on the information provided in this prospectus, any prospectus supplement or as part of the registration statement filed on Form S-1 of which this prospective is a part, as such registration statement is amended and in effect with the SEC. We have not authorized anyone else to provide you with different information. We are not making an offer of these securities in any state where the offer is not permitted. You should not assume that the information in this prospectus, any prospectus supplement or any document incorporated by reference is accurate as of any date other than the date of those documents.

 
-36--46-


INDEX Index toTO CONSOLIDATED FINANCIAL STATEMENTS Consolidated Financial Statements

Index to Financial Statements
 
Page
Report of Independent Registered Public Accounting FirmF-1*
Consolidated Balance Sheet as ofSheets at December 31, 20122014 and 2013F-2F-1
Consolidated Statements of OperationOperations for the years ended December 31, 20122014 and 2013F-3F-2
Consolidated Statements of Changes in Shareholders’Stockholders' Equity (Deficit) for the yearyears ended December 31, 20122014 and 2013F-4F-3
Consolidated Statements of Cash Flows for the Year Endingyears ended December 31, 20122014 and 2013F-5
Notes to Consolidated Financial StatementsF-6F-4
  
Notes to the Consolidated Financial Statements
F-5
Condensed Consolidated Balance Sheets as of September 30, 20132015 (unaudited) and December 31, 20122014F-19F-21
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 20132015 and 20122014 (unaudited)F-20F-22
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 20132015 and 20122014 (unaudited)F-21F-23
Notes to unaudited Condensed Consolidated Financial StatementsF-22F-24
 
-37-

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

*To the Board of Directors and Shareholders
True Drinks, Inc. (formerly known as Bazi International, Inc.)
Irvine, California
We have audited the accompanying consolidated balance sheet of True Drinks, Inc. as of December 31, 2012 and the related consolidated statements of operations, stockholders' equity, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with 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 consolidated financial statements are free of material misstatement. The Company was not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates madebe filled by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of True Drinks, Inc. as of December 31, 2012 and the consolidated results of its operations and its cash flows for the year ended December 31, 2012 in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1, the accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As of and for the year ended December 31, 2012, the Company incurred a loss from operations of approximately $3.1 million, has negative working capital of approximately $827,000, and an accumulated deficit of approximately $3.1 million.  A significant amount of additional capital will be necessary to advance the marketability of the Company's products to the point at which the Company can sustain operations. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans regarding these matters are also described in Note 1. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Squar, Milner, Peterson, Miranda & Williamson, LLP
April 5, 2013
Newport Beach, Californiaamendment.
 
 
-47-

 
TRUE DRINKS, INC.
CONSOLIDATED BALANCE SHEETSHEETS
As of December 31, 20122014 and 2013
 
  2014  2013 
ASSETS      
Current Assets:
      
Cash
 
$
668,326
  
$
3,136,766
 
Accounts receivable, net
  
343,709
   
175,068
 
Inventory
  
1,363,443
   
1,056,756
 
Prepaid expenses and other current assets
  
628,675
   
591,434
 
Total Current Assets
  
3,004,153
   
4,960,024
 
         
Restricted Cash
  
133,198
   
133,065
 
Property and Equipment, net
  
4,587
   
8,399
 
Patents, net
  
1,211,765
   
1,352,941
 
Trademarks, net
  
6,849
   
48,516
 
Goodwill
  
3,474,502
   
3,474,502
 
Total Assets
 
$
7,835,054
  
$
9,977,447
 
         
LIABILITIES AND STOCKHOLDERS’ EQUITY
        
         
Current Liabilities:
        
Accounts payable and accrued expenses
 
$
1,922,285
  
$
1,222,404
 
Debt
  
4,263,002
   
2,596,667
 
Derivative liabilities
  
1,569,522
   
1,619,021
 
Total Current Liabilities
  
7,754,809
   
5,438,092
 
         
Commitments and Contingencies (Note 7)
        
         
Stockholders’ Equity:
        
Common Stock, $0.001 par value, 120,000,000 and 40,000,000 shares authorized, 48,622,675 and 27,885,587 shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively
  
48,623
   
27,886
 
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,750,000 shares authorized, 1,490,995 and 1,776,923  shares issued and outstanding at December 31, 2014 and December 31, 2013, respectively
  
1,491
   
1,777
 
Additional paid in capital
  
18,388,212
   
14,751,170
 
Accumulated deficit
  
(18,358,081
)
  
(10,241,478
)
         
Total Stockholders’ Equity
  
80,245
   
4,539,355
 
         
Total Liabilities and Stockholders’ Equity
 
$
7,835,054
  
$
9,977,447
 
ASSETS 
    
Current Assets   
Cash $4,449 
Accounts receivable, net  130,909 
Inventory  832,874 
Prepaid expenses and other current assets  268,716 
Total current assets  1,236,948 
     
Restricted Cash  81,270 
Property and Equipment, net  25,399 
Patents, net  1,494,118 
Trademarks, net  98,516 
Goodwill  3,474,502 
Other Assets  3,948 
     
Total assets $6,414,701 
     
LIABILITIES AND STOCKHOLDERS' EQUITY 
     
Liabilities    
Accounts payable and accrued expenses $1,292,147 
Convertible notes payable  772,000 
Total liabilities  2,064,147 
     
Commitments and Contingencies (Note 8)
    
     
Stockholders' Equity    
Common Stock  1,337 
Preferred Stock (liquidation preference of $10 per share)  1,545 
Additional Paid in Capital  7,467,015 
Accumulated Deficit  (3,119,343)
     
Total stockholders' equity  4,350,554 
     
Total Liabilities and Stockholders' Equity $6,414,701 
 
The accompanying notes are an integral part of these financial statements.

 
F-1


TRUE DRINKS, INC.
CONSOLIDATED STATEMENTSTATEMENTS OF OPERATIONS
For the YearYears Ended December 31, 20122014 and 2013
 
  2014   2013 
Net Sales $1,021,908  
$
4,693,414
  
$
2,649,473
 
          
Cost of Sales  749,529   
4,401,702
   
2,127,711
 
          
Gross Profit  272,379  
291,712
  
521,762
 
          
Operating Expenses          
Selling and marketing  692,242  
4,388,108
  
2,224,801
 
General and administrative  2,580,985   
4,450,101
   
3,701,094
 
Total operating expenses  3,273,227   
8,838,209
   
5,925,895
 
          
Operating Loss  (3,000,848) 
(8,546,497
)
 
(5,404,133
)
          
Other Income (Expense)    
Other Expense
      
Change in fair value of derivative liabilities
 
621,159
  
1,361,597
 
Interest expense- accretion of debt discount
 
-
  
   (864,921
)
Interest expense  (119,942) 
(202,773
)
 
(1,824,074
)
Other income  1,447 
Other income (expense)
  
11,508
   
(390,604
)
  (118,495)  
429,894
   
(1,718,002
)
          
Net Loss $(3,119,343) 
$
(8,116,603
)
 
$
(7,122,135
)
          
Dividends on Preferred Stock
 
$
434,096
  
$
        -
 
      
Net loss attributable to common stockholders
 
$
(8,550,699
 
$
(7,122,135
)
      
Net loss per common share          
Basic and diluted net loss per share $(0.14)
Basic and diluted
 
$
(0.23
)
 
$
(0.26
)
          
Weighted average common shares          
outstanding, basic and diluted (1)
  22,757,712 
outstanding, basic and diluted
  
36,429,303
   
27,489,422
 
 
The accompanying notes are an integral part of these financial statements.
(1)   The weighted average common shares outstanding number was calculated based on as-converted to common stock figures for the preferred stock that was granted to shareholders of True Drinks, Inc. upon the merger with Bazi Intl. on October 15, 2012. The 100 for 1 reverse stock split executed on January 18, 2013 was retrospectively reflected in weighted average common shares outstanding.

 
F-2


TRUE DRINKS, INC.
CONSOLIDATED STATEMENT OF
SHAREHOLDERS’STOCKHOLDERS’ EQUITY
For the YearYears Ended December 31, 20122014 and 2013

  Common Stock  Preferred Stock  
Additional
Paid-In
  
Retained
Earnings
  
Total
Stockholders'
 
  Shares  Amount  Shares  Amount  Capital  (Accumulated Deficit)  Equity 
Balance at inception -
January 19, 2012
  -  $-   -  $-  $-  $-  $- 
Issuance of common stock to founders  854,500   855   -   -   -   -   855 
Issuance of common stock for services  30,000   30   -   -   167,520   -   167,550 
Issuance of common stock for cash  367,375   367   -   -   3,374,615   -   3,374,982 
Issuance of common stock for GT Beverage Company, LLC  292,690   293   -   -   2,926,607   -   2,926,900 
Balance at October 15, 2012  1,544,565   1,545   -   -   6,468,742   -   6,470,287 
Effect of Reverse Merger and reverse stock split  1,192,335   1,192   -   -   726,613   -   727,805 
Conversion of common stock to preferred stock related to reverse merger  (1,544,565)  (1,545)  1,544,565   1,545   -   -   - 
Issuance of common stock related to debt financing  145,000   145   -   -   108,605   -   108,750 
Stock-based compensation  -   -   -   -   163,055   -   163,055 
Net Loss  -   -   -   -   -   (3,119,343)  (3,119,343)
Balance –
December 31, 2012
  1,337,335  $1,337   1,544,565  $1,545  $7,467,015  $(3,119,343) $4,350,554 
  Common Stock  Preferred Stock  
Additional
Paid-In
Capital
  
Retained
Earnings
(Accumulated Deficit)
  
Total
Stockholders'
Equity
 
  Shares  Amount  Shares  Amount       
Balance –
December 31, 2012
  
1,337,335
  
$
1,337
   
1,544,565
  
$
1,545
  
$
7,467,015
  
$
(3,119,343
)
 
$
4,350,554
 
Conversion of Preferred Stock to Common Stock
  
25,304,017
   
25,304
   
(1,544,565
)
  
(1,545
)
  
(23,759
)
  
-
   
-
 
Issuance of Common Stock related to debt financing
  
268,800
   
269
   
-
   
-
   
208,821
   
-
   
209,090
 
Issuance of Common Stock for debt conversions
  
860,821
   
861
   
-
   
-
   
859,957
   
-
   
860,818
 
Issuance of Preferred Stock for debt conversions, net of warrants issued
  
-
   
-
   
264,423
   
264
   
823,396
   
-
   
823,660
 
Elimination of derivative liability from conversion of debt to preferred stock
  
-
   
-
   
-
   
-
   
 64,970
   
-
   
 64,970
 
Issuance of Common Stock for services
  
114,614
   
115
   
-
   
-
   
122,135
   
-
   
122,250
 
Issuance of Preferred Stock for  services
  
-
   
-
   
17,500
   
18
   
69,982
   
-
   
70,000
 
Issuance of Preferred Stock for cash, net of warrants issued
  
-
   
-
   
1,495,000
   
1,495
   
4,364,488
   
-
   
4,365,983
 
Stock-based compensation
  
-
   
-
   
-
   
-
   
794,165
   
-
   
794,165
 
Net Loss
  
-
   
-
   
-
   
-
   
-
   
(7,122,135
)
  
(7,122,135
)
Balance –
December 31, 2013
  
27,885,587
  
$
27,886
   
1,776,923
  
$
1,777
  
$
14,751,170
  
$
(10,241,478
)
 
$
4,539,355
 
Conversion of Preferred Stock to Common Stock
  
16,021,632
   
16,022
   
(1,001,352
)
  
(1,001
)
  
(15,021
)
  
-
   
-
 
Issuance of Preferred Stock for debt conversions, net of warrants issued
  
-
   
-
   
204,732
   
205
   
619,154
   
-
   
619,359
 
Issuance of Common Stock for services
  
1,751,270
   
1,751
   
5,692
   
5
   
542,775
   
-
   
544,531
 
Issuance of Preferred Stock for cash, net of warrants issued
  
-
   
-
   
505,000
   
505
   
1,440,064
   
-
   
1,440,569
 
Issuance of Common Stock for settlement of debt
  
2,004,002
   
2,004
   
-
   
-
   
599,647
   
-
   
601,651
 
Cashless exercise of warrants
  
78,427
   
78
   
-
   
-
   
(78
)  
-
     
Stock-based compensation
  
-
   
-
   
-
   
-
   
497,271
   
-
   
497,271
 
Dividends declared on Preferred Stock
  
-
   
-
   
-
   
-
   
(434,096
)
  
-
   
(434,096
)
Reclassification of Derivative liability   -    -    -    -    44,751    -    44,751 
Issuance of Common Stock for dividends on Preferred Stock
  
881,757
   
882
   
-
   
-
   
342,575
   
-
   
343,457
 
Net Loss
  
-
   
-
   
-
   
-
   
-
   
(8,116,603
)
  
(8,116,603
)
Balance –
December 31, 2014
  
48,622,675
  
$
48,623
   
1,490,995
  
$
1,491
  
$
18,388,212
  
$
(18,358,081
)
 
$
80,245
 
 
The accompanying notes are an integral part of these financial statements.

 
F-3


TRUE DRINKS, INC.
CONSOLIDATED STATEMENTSTATEMENTS OF CASH FLOWS
For the YearYears Ended December 31, 20122014 and 2013
 
   2014  2013 
CASH FLOWS FROM OPERATING ACTIVITIES       
Net loss
 
$
(8,116,603
)
 
$
(7,122,135
)
Adjustments to reconcile net loss to net cash used in operating activities
        
Depreciation
  
6,161
   
18,298
 
Amortization
  
182,843
   
191,177
 
Accretion of deferred financing costs
  
-
   
864,921
 
Provision for bad debt expense
  
  (48,473
  
150,000
 
Change in estimated fair value of derivative
  
(621,159
)
  
(1,361,597
)
Amortization of debt discount
  
-
   
1,332,543
 
Fair value of stock issued for services
  
544,531
   
401,341
 
Stock based compensation
  
497,271
   
794,165
 
Changes in operating assets and liabilities:
        
Accounts receivable
  
(120,168
)
  
(194,159
)
Inventory
  
(306,687
)
  
(223,882
)
Prepaid expenses and other current assets
  
(37,241
)
  
(322,718
)
Other assets
  
-
   
3,948
 
Accounts payable and accrued expenses
  
1,369,819
   
76,210
 
Net cash used in operating activities
  
(6,649,706
)
  
(5,391,888
)
         
CASH FLOWS FROM INVESTING ACTIVITIES:
        
Change in restricted cash
  
(133
)
  
(51,795
)
Purchase of property and equipment
  
(2,349
)
  
(1,298
)
Net cash used in investing activities
  
(2,482
)
  
(53,093
)
         
CASH FLOWS FROM FINANCING ACTIVITIES
        
Proceeds from issuance of Series B Preferred Stock, net
  
1,857,413
   
5,483,144
 
Proceeds from debt
  
4,263,002
   
6,549,000
 
Deferred financing costs paid
  
-
   
(420,813
)
Repayments on debt
  
(1,936,667
)
  (3,034,033
)
Net cash provided by financing activities
  
4,183,748
 
  
8,577,298
 
         
NET (DECREASE) INCREASE IN CASH
  
(2,468,440
)
  
3,132,317
 
         
CASH – beginning of year
  
3,136,766
   
4,449
 
         
CASH – end of year
 
$
668,326
  
$
3,136,766
 
         
CASH FLOWS FROM OPERATING ACTIVITIES   
Net loss $(3,119,343)
Adjustments to reconcile net loss to net cash used in operating activities    
Depreciation  8,668 
Amortization  114,215 
Provision for bad debt expense  54,396 
                Stock issued to founders  855 
Fair value of stock issued for services  276,300 
Stock based compensation  163,055 
Changes in operating assets and liabilities:    
Accounts receivable  (185,305)
Inventory  (785,874)
Prepaid expenses and other current assets  (268,716)
Other assets  (3,948)
Accounts payable and accrued expenses  (306,692)
Net cash used in operating activities  (4,052,389)
     
CASH FLOWS FROM INVESTING ACTIVITIES:    
Change in restricted cash  (81,270)
Purchase of property and equipment  (7,671)
        Purchase of trademarks  (6,849)
Net cash used in investing activities  (95,790)
     
CASH FLOWS FROM FINANCING ACTIVITIES    
Proceeds from issuance of common stock  3,374,982 
Proceeds from notes payable  772,000 
Net cash provided by financing activities  4,146,982 
     
CASH OF ACQUIRED COMPANY  5,646 
     
NET INCREASE IN CASH  4,449 
     
CASH – beginning of year
  - 
     
CASH – end of year
 $4,449 
 
SUPPLEMENTAL DISCLOSURES        
Interest paid in cash
 
$
7,944
  
$
211,247
 
Non-cash financing and investing activities:
        
Conversion of preferred stock to common stock
 
$
15,021
  
$
25,304
 
Conversion of notes payable and accrued interest to common stock
 
$
818,926
  
$
1,836,253
 
Dividends paid in common stock
 
$
343,457
  
$
-
 
Dividends declared
 
$
434,096  
$
-
 
Reclassification of derivative liability
 
$
44,751
  
$
-
 
Warrants issued in connection with Series B Offering
 
$
616,411
  
$
1,268,937
 
Warrants issued as deferred financing costs
 
$
-
  
$
444,108
 
Warrants issued as debt discount
 
$
-
  
$
1,332,543
 
Elimination of derivative liability from conversion of debt to preferred stock
 
$
-
  
$
64,970
 
Issuance of common stock for settlement of debt $ 601,651  $ - 
Cashless exercise of warrants $ 78  $ - 
The accompanying notes are an integral part of these financial statements.

TRUE DRINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Business

Overview

True Drinks Holdings, Inc. (the "Company", "us", "True Drinks" or "we") was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™ Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBallAquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores, club stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.
 
       The period from January 19, 2012 through December 31, 2012 is referred to as the year ended December 31, 2012 throughout these consolidated financial statements and notes thereto.
       On June 7, 2012, True Drinks, Inc., Bazi Acquisition Sub Inc. ("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary of Bazi International, Inc., and Bazi International, Inc. entered into an agreement and tax-free plan of merger (the “Merger Agreement”), wherein Merger Sub merged with and into the Company and True Drinks continued as the surviving corporation (the "Merger").  As a result of the Merger, True Drinks became a wholly-owned subsidiary of the Company.  The Merger closed on October 15, 2012 (the “Closing Date”).  As a result of Merger, True Drinks, Inc.’s former shareholders owned approximately 95.5% of the combined post-Merger entity via voting convertible preferred stock issued as part of the merger, on an as-converted basis (See Recent Developments below).  The Company subsequently changed its name from “Bazi International, Inc.” to “True Drinks, Inc.”  The Merger was accounted for as a public company “reverse merger,” and, as such, the consolidated financial statements reported herein reflect the operations of True Drinks, Inc. within the capital structure of Bazi International, Inc.
True Drinks, Inc. was formerly named GT Beverage Company, Inc., which was formed in January 2012 and acquired GT Beverage Company, LLC on March 31, 2012 in a business combination primarily to acquire the spherical bottle patent held by GT Beverage Company, LLC.  Subsequently as discussed above, GT Beverage Company, Inc. entered into a public company reverse merger with Bazi International, Inc. accounted for as a business combination, since Bazi International, Inc. was not a public shell as defined by rules of the Securities and Exchange Commission.  GT Beverage Company, Inc. took over the capital structure of Bazi International, Inc. and was renamed True Drinks, Inc.

GT Beverage Company, LLC is considered the predecessor entity to GT Beverage Company, Inc. under rules of the Securities and Exchange Commission, and accordingly, audited financial statements of GT Beverage Company, LLC as of and for the years ended December 31, 2011 and 2010 are included in Exhibit 10.6.  GT Beverage Company, LLC had no operations from January 1, 2012 to March 31, 2012.
       Bazi International, Inc. was originally incorporated in the state of Nevada in January 2001.  True Drinks, Inc. (“True Drinks”), previously GT Beverage Company, Inc., is incorporated in the state of Delaware.

Our principal place of business is 18552 MacArthur Boulevard, Suite 325, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our common stock,Common Stock, par value $0.001 (“Common Stock”) is currently listed for quotation on the Over-the-Counter Bulletin Boardmarketplace (“OTCBBOTCQB”) under the symbol TRUU.
 
Reverse Stock Split
        On January 18, 2013, we amended our Articles of Incorporation to affect a 100 to 1 reverse split of our common stock.  Accordingly, our authorized common stock decreased from 4,000,000,000 to 40,000,000 shares and our issued and outstanding common stock decreased from 133,733,469 to 1,337,335 shares.  As a result of the reverse stock split, all previously reported share amounts, including options in the accompanying consolidated financial statements and related notes have been retrospectively restated back to October 15, 2012 (date of public company reverse merger) to reflect the reverse split.
Recent Developments
 
Amendment to Series B Preferred Certificate of Designation. On February 18, 2015, the Closing DateCompany filed the First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Merger, Lance Leonard was appointed as our Chief Executive Officer, Daniel Kerker as our Chief Financial Officer and Kevin Sherman, former PresidentSeries B Convertible Preferred Stock (the “Series B Amendment”) with the Nevada Secretary of State in order to: (i) eliminate certain provisions pertaining to the adjustment of the Company, as our Vice President of Marketing.  We also appointed Timothy Lane, Carl Wistreich, Lou Imbrogno and Lance Leonard to fill the vacancies on our Board of Directors created as a resultconversion price of the resignationSeries B Convertible Preferred Stock (“Series B Preferred”) and (ii) eliminate the protective provision preventing the Company from issuing securities senior to or pari passu in rank to the Series B Preferred without first receiving approval from holders of 66% of the former directorsissued and outstanding shares of Bazi International, Inc.Series B Preferred. The Series B Amendment was approved by the written consent of stockholders holding approximately 79% of the issued and outstanding shares of Series B Preferred.

 
Creation of the Series A Preferred. C Convertible Preferred StockUpon closing the Merger,. On February 18, 2015, the Company filed athe Certificate of Designation, Preferences, Rights and Limitations of the Series AC Convertible Preferred Stock (“with the Nevada Secretary of State, designating 50,000 shares of the Company's preferred stock, par value $0.001 per share, as Series C Convertible Preferred Stock (the “Series AC Preferred”). Each share of Series C Preferred has a stated value of $100 per share (the “Stated ValueCertificate of Designation”), creating 1,544,565and is convertible, at the option of each respective holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.15 per share (the “Conversion Shares”). The Company also has the option to require conversion of the Series C Preferred into Conversion Shares in the event: (i) there are sufficient authorized shares of Common Stock reserved as Conversion Shares; (ii) the Conversion Shares are registered under the Securities Act of 1933, or the Conversion Shares are freely tradable, without restriction, under Rule 144 of the Securities Act; and (iii) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.
Series C Offering. On February 20, 2015 (the “Initial Investment Date”), the Company and certain accredited investors (the “Investors”) entered into a Securities Purchase Agreement (the “PurchaseAgreement”) wherein the Investors agreed to purchase up to 43,000 shares of Series AC Preferred Stock. On the Closing Date, former True Drinks shareholders exchanged all outstanding capital stock of True Drinks for a total of 1,544,565 $100 per share in three separate closings (the “Series A Preferred Stock, which shares represent on an as-converted basis approximately 95.5% of the total common stock outstanding. As explained below, the Series A Preferred automatically converted into a total of 25,303,991 post-split shares of common stock on January 18, 2013.C Offering
Financings.  In November and December, 2012, the”). The Company issued an aggregate principal amounttotal of $725,00018,000 shares of Series C Preferred on the Initial Investment Date, 15,000 shares on April 1, 2015 and anticipates issuing the remaining 10,000 shares on or before June 30, 2015. The Purchase Agreement also provides for the appointment of one member, designated by the Investors, to the Company’s Board of Directors. As additional consideration for participating in unsecured convertiblethe Series C Offering, each Investor will receive five-year warrants (the “Warrants”), exercisable for $0.15 per share, to purchase that number of shares of the Company's Common Stock equal to 35% of the Conversion Shares issuable upon conversion of each Investor’s Shares (the “Warrant Shares”). In addition to the Purchase Agreement, the Company and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a Registration Statement on Form S-1 with the Securities and Exchange Commission on or before July 1, 2015 in order to register the Warrant Shares issuable upon exercise of the Warrants, and the Conversion Shares issuable upon conversion of the Shares, under the Securities Act.
Amendment to Series C Certificate of Designation. On March 26, 2015, the Company filed the First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations (the “Series C Amendment”) with the Nevada Secretary of State in order to increase the number of shares of the Company’s preferred stock designated as Series C Preferred from 50,000 to 90,000 and to permit the transactions contemplated by the Note Payments and the Note Exchange, as described below.
Note Payments and Note Exchange. Following the filing of the Series C Amendment, on March 27, 2015, the Company and the Investors entered into an amendment to the Purchase Agreement (the “Purchase Agreement Amendment”) wherein the Company sold to one of the Investors an additional 27,000 shares of Series C Preferred (the “Additional Shares”), for gross proceeds of $2.7 million, which the Company subsequently used to satisfy approximately $2.7 million of the Company’s $3.8 million in outstanding secured promissory notes (the “Notes”) to certain purchasers (the “PurchasersNote Payments”). The Notes had a termAs additional consideration for the purchase of 120 daysthe Additional Shares, the Investor received additional Warrants to purchase Warrant Shares equal to 35% the Conversion Shares issuable upon conversion of the Additional Shares.
Following the Note Payments, the Company and bore interest at a rateeach of 9% per annum.  At maturity, the holders (the “Holders”) of the Notes haveremaining after the rightNote Payments entered into Note Exchange Agreements (the “Exchange Agreements”), wherein the Holders agreed to convertexchange all remaining principal and accrued interest due thereunderof any such Notes into Common Stock at a conversion price equal to $1.00 per share.  In addition, each Purchaser received 5,000 post-split shares of Common Stock per $25,000Series C Preferred on substantially similar terms to those offered in the Series C Offering (the “Note Exchange”). As a result of principal amount held for athe execution of the Exchange Agreements and the consummation of the Note Exchange, the Company issued to the Holders an aggregate total of 145,000 post-split12,148 shares of Common Stock.  The Company is currently in discussions regarding the extensionSeries C Preferred and Warrants to purchase approximately 2.8 million Warrant Shares.

 
In December 2012, the Company issued $47,000 in unsecured promissory notes to certain purchasers. The notes had a term of 30 days and paid a lender’s fee of 10% of principal. The notes were repaid in January, 2013.

On January 14, 2013, we completed a private placement, wherein we issued an aggregate principal amount of $575,000 in unsecured convertible promissory notes (the “January Notes”) to certain purchasers.  The January Notes had a term of 120 days and bore interest at a rate of 9% per annum.  At maturity, the holders of the January Notes have the right to convert all principal and accrued interest due thereunder into Common Stock at a conversion price equal to $1.00 per share.  In addition, each purchaser received 5,000 post-split shares of Common Stock per $25,000 of principal amount held.

In February and March 2013, we completed a private placement, wherein we issued an aggregate principal amount of $125,000 in unsecured convertible promissory notes (the “March Notes”) to certain purchasers.  The March Notes mature 120 days from the date of issuance, and bear interest at a rate of 9% per annum.  Pursuant to the terms of the March Notes, the March Notes are convertible into shares of Common Stock at a conversion price equal to $1.00 per share, and each purchaser received 5,000 post-split shares of Common Stock per $25,000 of principal purchased.
Amendment to our Articles of Incorporation and Reverse Stock Split.  On January 18, 2013, we filed an amendment to our Articles of Incorporation (the “Amendment”) to (i) to change our name to True Drinks Holdings, Inc., and (ii) increase the total number of authorized shares of Common Stock from 200,000,000 to 4,000,000,000 shares. Upon the filing of the Amendment, the shares of Series A Preferred issued to former True Drinks shareholders automatically converted into approximately 25,303,991 post-split shares of Common Stock.
The loss per common share and all other per-share disclosures in the accompanying financial statements of the Company and the related notes are based on the appropriate number of post-split common shares as adjusted for the aforementioned reverse stock split.
The name change and reverse split became effective with the Over−the−Counter Bulletin Board at the opening of trading on January 22, 2013 under the symbol “BAZID”.  The “D” was placed on our ticker symbol for 20 business days.  After trading for 20 business days under “BAZID”, on February 20, 2013, our ticker symbol changed from “BAZID” to “TRUU” to better reflect our new name.  

Option Agreement.  On January 14, 2013, we entered into an Option Agreement (the “Option Agreement”) with Ashworth Holding, LLC, a Utah limited liability company (“Ashworth”), pursuant to which we granted Ashworth the option to purchase up to 86,086 shares of Common Stock for a price of $0.549 per share.  This option will expire on April 30, 2013 or upon Ashworth’s full exercise of the option.

Basis of Presentation and Going Concern

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As of and forFor the year ended December 31, 2012,2014, the Company incurred a net loss of approximately $3.1 million,$8,116,603. At December 31, 2014, the Company has negative working capital of approximately $827,000,$4,750,656 and an accumulated deficit of approximately $3.1 million.$18,358,081. A significant amount of additional capital will be necessary to advance the marketability of the Company's products to the point at which the Company can sustain operations. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are to continue to raise capital through equity and debt offerings, and to expand sales as rapidly as economically viable. The accompanying consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 
Principles of Consolidation
 
The accompanying financial statements include the accounts of the Company and its wholly owned subsidiaries True Drinks, Inc., Bazi, Inc. and GT Beverage Company, LLC. All inter-company accounts and transactions have been eliminated in the preparation of these consolidated financial statements.

Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include, among others, provision for losses on accounts receivable, allowances for obsolete and slow moving inventory, stock compensation, deferred tax asset valuation allowances, derivative liabilities, and the realization of long-lived and intangible assets, including goodwill. Actual results could differ from those estimates.

Revenue Recognition
 
In accordance with Staff Accounting Bulletin ("SAB") No. 104 “Revenue Recognition in Financial Statements”, revenue is recognized at the point of shipment, at which time title is passed. Net sales include sales of products, slotting fees, discounts and freight and handling charges. With approved credit, we provide wholesale customers payment terms of up to net 30 days. Amounts received for unshipped merchandise are recorded as customer deposits and are included in accrued expenses.

Cash and Cash Equivalents
 
The Company considers all highly liquid investments with original maturities of three months or less, to be cash equivalents. The Company maintains cash with high credit quality financial institutions. At certain times, such amounts may exceed Federal Deposit Insurance Corporation (“FDIC”) insurance limits. The Company has not experienced any losses on these amounts. At December 31, 2012,2014 and 2013, the Company had no cash equivalents.
 
Restricted Cash
 
     The Company has $81,270had $133,198 and $133,065 in restricted cash with a financial institution securing a letter of credit.credit at December 31, 2014 and 2013, respectively. The letter of credit matures in August 2015 and was issued as part of contractual obligations related to one of our licensing agreements with Disney Consumer Products, Inc.

Accounts Receivable
 
     We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of management’s knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on its own judgment as to the likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance was $54,000approximately $162,000 and $210,000 at December 31, 2012.2014 and December 31, 2013, respectively.

 
Concentrations
 
The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with two financial institutions. There are no funds in excess of the federally insured amount, of $250,000 through December 31, 2012, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.
 
We utilized a variety of suppliers to purchase raw materials for the AquaBall™ Naturally Flavored Water during the year ended December 31, 2014.
During 2012, the Company2014, we relied significantly on one supplier for 100% of itsour purchases of AquaBall™ Naturally Flavored Watercertain raw materials for Bazi®. Bazi, Inc. has sourced these raw materials from this supplier since 2007 and Bazi® held for sale.  In 2013,does not anticipate any issues with the Company has begun productionsupply of AquaBall with a second supplier.  The Company owns the formula for both the AquaBall™ and Bazi®, and management believes that its purchasing requirements can be readily met from alternative sources.these raw materials.
 
A significant portion of our revenue comes from sales of the AquaBall™ Naturally Flavored Water. Following the consummation of the Merger in October 2012, sales of Bazi® accounted for 1% of our total revenue.  Before the Merger, the Company’s revenues consisted of sales of AquaBall.  For the year ended December 31, 2012,2014 and 2013, sales of AquaBallAquaBall™ accounted for 99%95% and 90% of the Company’s total revenue.revenue, respectively.
 
Fair Value Matters

The Company does not have any assets or liabilities carried at fair value on a recurring or non-recurring basis.
basis, except for derivative liabilities.
 
The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and notes payable. Management believes that the carrying amount of these financial instruments approximates their fair values, due to their relatively short-term nature.
 
Inventory
 
Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provision is made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.

 
Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. No inventory reserves were considered necessary as of December 31, 2012.
2014 or 2013.

Inventory is comprised of the following:
 
December 31,
2012
  
December 31,
2014
 
December 31,
2013
 
Purchased materials
 
$
473,383
 
$
796,609
 
$
659,835
 
Finished goods
  
359,491
  
566,834
  
396,921
 
 
$
832,874
 
$
1,363,443
 
$
1,056,756
 
 
Property and Equipment
 
Property and equipment are stated at cost. The Company provides for depreciation of property and equipment using the straight-line method based on estimated useful lives of between three and ten years. Property and equipment is not significant to the consolidated financial statements as of or for the yearyears ended December 31, 2012.2014 and 2013.
 
Long-Lived Assets
 
The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. An impairment was not deemed necessary in 2012.2014 or 2013.

Intangible Assets
 
Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Company’s products, customer list, and the estimated value of GT Beverage Company, LLC’s interlocking spherical bottle patent acquired on March 31, 2012. The Company’s intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary as of December 31, 2012.2014 or December 31, 2013.

Goodwill
 
Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually.

Income Taxes
 
The Company accounts for income taxes in accordance with FASB Accounting Standards Codification 740 (“ASC Topic 740”), formerly Statement of Financial Accounting Standards No. 109, “Accounting for Income Taxes” (“SFAS 109”). Under the asset and liability method of ASC Topic 740, deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled.


       The Company adopted the provisions of ASC 740 that provide detailed guidance for the financial statement recognition, measurement and disclosure of uncertain tax positions recognized in the financial statements.  Tax positions must meet a “more-likely-than-not” recognition threshold at the effective date to be recognized.  Upon the adoption of ASC 740, the Company had no unrecognized tax positions.  For the year ended December 31, 2012, the Company recognized no adjustments for uncertain tax positions.

Stock-Based Compensation
 
Total stock-based compensation expense, for all of the Company’s stock-based awards recognized for the year ended December 31, 2012,2014 and 2013 was $163,055.$497,271 and $794,165, respectively.
 
The Company uses a Black-Scholes option-pricing model (the “Black-Scholes Model”) to estimate the fair value of the stock option and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Company’s stock price over the contractual term of the option. The expected life is based on the contractual term of the option and expected employee exercise and post-vesting employment termination behavior. Currently it is based on the simplified approach provided by SAB 107. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 4)3 below).
Shares, warrants and options issued to non-employees for services are accounted for at fair value, based on the fair value of instrument issued or the fair value of the services received, whichever is more readily determinable.
Derivative Instruments
A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. As a matter of policy, the Company does not invest in financial derivatives or engage in hedging transactions. However, the Company has entered into complex financing transactions that involve financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value using the binomial lattice- (“Binomial Lattice”) pricing model and marked to market and reflected on our consolidated statement of operations as other (income) expense at each reporting period. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security.
 
Net Loss Per Share
 
Earnings per share require presentation of both basic earnings per common share and diluted earnings per common share. Since the Company has a net loss for all periods presented, common stockCommon Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive. At December 31, 2012,2014 and 2013, the Company had 4,755,183101,200,639 and 72,900,080 shares of common stockCommon Stock equivalents outstanding.outstanding, respectively.

Research and Development

Research and development costs are expensed as incurred.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This accounting standard is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. The Company has reviewed all recently issued, but not yet effectiveis currently evaluating the impact this accounting pronouncements and has concluded that there are no recently issued, but not yet effective pronouncements that maystandard will have a material impact on the Company’s futureCompany's financial statements.position, results of operations or cash flows.

NOTE 2 – BUSINESS ACQUISITIONS

During the year ended December 31, 2012, the Company completed two business combinations accounted for under the acquisition (purchase) method pursuant to ASC 805.

GT Beverage Company, LLC

On March 31, 2012, the Company completed the acquisition of  GT Beverage Company, LLC (“GT Beverage”), a Nevada limited liability company, by issuing 292,690 shares of common stock in exchange for all of the oustanding membership interests of GT Beverage.  The primary purpose of the acquisition was to take advantage of GT Beverages’ patented spherical bottle for use in the Company's product AquaBall™ Naturally Flavored Water.  These 292,690 shares of common stock were exchanged for 292,690 shares of the Company Series A Preferred Stock upon the merger with Bazi International, Inc.  GT Beverage had no sales or significant operations from January 1, 2012 through March 31, 2012, and, accordingly, as a predecessor entity, GT Beverage has not provided audited financial statements for the three-months ended March 31, 2012.  Audited financial statements of GT Beverage as of and for the years ended December 31, 2011 and 2010 are contained in Exhibit 10.6.

The acquisition date fair value was $2,926,900 for the purchase of  GT Beverage’s outstanding member interests.  The $2,926,900 consisted of 292,690 shares of the Company’s common stock with an estimated fair value of $2,926,900.  The acquisition of GT Beverage has been accounted for using the acquisition method.  Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date.  The fair values of identifiable intangible assets were based on valuations using the income approach and estimates provided by management.  The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.  The allocation of the purchase price is based upon a valuation of certain assets acquired and liabilities assumed.  The purchase price allocation was as follows:

  Amount 
Property and equipment $26,396 
Patent for spherical bottle (useful life of 11.3 years)  1,600,000 
Goodwill  2,414,642 
    Total assets acquired
  4,041,038 
Accounts payable, accrued expenses and other current liabilities  (1,114,138)
    Total liabilities assumed
  (1,114,138)
Total allocation of purchase price consideration $2,926,900 
SHAREHOLDERS’ EQUITY
 
       The useful life of the intangible asset was based upon the patterns in which the economic benefits related to the patent are expected to be realized, and the patent will be amortized on a basis reflecting those economic patterns.
       The Company incurred $107,000 of legal costs related to this transaction, which has been recorded as general and administrative expense during the year ended December 31, 2012.
       As noted above, there were no significant operations of GT Beverage from January 1, 2012 through March 31, 2012 and, accordingly, the pro forma financial information required by ASC 805 is not applicable.


Bazi International, Inc.

On October 15, 2012, the Company completed the acquisition of 100% of Bazi International, Inc. (“Bazi Intl.”), by exchanging shares of Company common stock for Bazi Intl. shares of voting convertible preferred stock.  Bazi Intl.’s results of operations are reflected in the Company’s consolidated statements of operations from the acquisition date of October 15, 2012 through December 31, 2012.
The Company is considered the accounting acquiror due to its majority ownership, control of the board of directors, and officer positions held post acquisition.  Accordingly, the acquisition has been accounted for as a public company reverse merger.  Bazi Intl. was not a public company shell, as defined by the SEC, therefore the acquisition (purchase) method of accounting under ASC 805 has been used and the Company's capital structure has been restated to reflect the capital structure of Bazi Intl at the acquisition date.

The acquisition date estimated fair value was $727,805, consisting of 1,192,335 shares of the Company’s common stock with an estimated fair value of $727,805.  The acquisition of Bazi Intl. has been accounted for using the acquisition method.  Assets acquired and liabilities assumed were recorded at their estimated fair values as of the acquisition date.  The fair values of identifiable intangible assets were based on valuations using the income approach and estimates provided by management.  The excess of the purchase price over the tangible assets, identifiable intangible assets and assumed liabilities was recorded as goodwill.  The allocation of the purchase price is based upon a valuation of certain assets acquired and liabilities assumed.  The purchase price allocation was as follows:

  Amount 
Cash $5,646 
Inventory  47,000 
Customer List (useful life of 2 years)  100,000 
Goodwill  1,059,860 
    Total assets acquired
  1,212,506 
Accounts payable, accrued expenses and other current liabilities  (484,701)
    Total liabilities assumed
  (484,701)
Total allocation of purchase price consideration $727,805 

The useful life of the intangible asset (customer list) was based upon the patterns in which the economic benefits related to the customer list are expected to be realized, and the customer list will be amortized on a basis reflecting those economic patterns.

The Company incurred $138,000 of legal costs related to this transaction, which has been recorded as general and administrative expense during the year ended December 31, 2012.

The unaudited pro forma information presented in the following table summarizes the Company’s consolidated results of operations for the year ended December 31, 2012, as if the acquisition of Bazi Intl. had occurred on January 1, 2012.  The pro forma financial information is presented for comparative purposes only and is not necessarily indicative of the results of operations that actually would have been achieved if the acquisition had taken place at the beginning of 2012, nor is it intended to be a projection of future results.

Pro Forma (Unaudited)
Year Ended December 31, 2012
Revenues $1,488,515 
Net loss $(5,001,653)
Basic net loss per share $(0.22)
NOTE 3 — SHAREHOLDERS’ EQUITY

As of December 31, 2012, the authorized capital stock of the Company consisted of 40,000,000 shares of Common Stock (par value $0.001) and 5,000,000 shares of Series A Preferred Stock (par value $0.001).  The holders of Common Stock are entitled to receive, when and as declared by the Board of Directors, dividends payable either in cash, in property or in shares of common stockCommon Stock of the Company. Dividends have no cumulative rights and dividends will not accumulate if the Board of Directors does not declare such dividends.
The holders of Series A Preferred Stock arewere entitled to receive, when and as declared by the Board of Directors, dividends payable either in cash, in property or in shares of the common stockCommon Stock of the Company, in an amount equal to the aggregate amount of the dividend to which such shares of Series A Preferred Stock would have been entitled had such share been converted into shares of Common Stock. The holders of Series A Preferred Stock will votevoted together with holders of Common Stock on an as-converted basis. On January 18, 2013, upon the filing of the Amendment to the Articles of Incorporation, the Company converted 1,544,565 shares of Series A Preferred issued to former True Drinks shareholders into 25,304,017 shares of the Company’s Common Stock. In February 2015, the Company filed a Certificate of Elimination with the State of Nevada to eliminate the Series A Preferred Stock.

Each share of Series B Preferred Stock ishad a stated value of $4.00 per share (“Stated Value”) and accrued annual dividends equal to 5% of the Stated Value, payable by the Company in quarterly installments, in either cash or shares of Common Stock. Each share of Series B Preferred was convertible, at the option of the holder, into 1638.28that number of shares of Common Stock equal to the Stated Value, divided by $0.25 per share (the “Conversion Shares”). The Company also has the option to require the conversion of the Company. AsSeries B Preferred into Conversion Shares in the event: (i) there were sufficient authorized shares of Common Stock reserved as Conversion Shares; (ii) the Conversion Shares were registered under the Securities Act of 1933, as amended (the “Securities Act”), or the Conversion Shares were freely tradable, without restriction, under Rule 144 of the merger date of October 15, 2012,Securities Act; (iii) the holders of Preferred Stock held approximately 95.5%daily trading volume of the total outstandingCompany's Common Stock, multiplied with the closing price, equaled at least $250,000 for 20 consecutive trading days; and (iv) the average closing price of the Company's Common Stock was at least $0.62 per share for 10 consecutive trading days.
Between January and September 2013, the Company issued 268,800 shares of its Common Stock as on as-converted basis.  Throughoffering costs relating to bridge loans made to the Company. Such loans have short-term maturities of approximately four months. The Company expensed the fair value of the Common Stock issued of $209,090 to interest expense during the year ended December 31, 2012, no dividends have been declared or paid by the Company.2013.
 
In January 2012,March 2013, the Company formedissued 38,250 shares of its Common Stock in connection with two consulting agreements. The Company expensed the fair value of the Common Stock issued of $38,250 to consulting expense during the year ended December 31, 2013.
Between April and May 2013, the Company issued foundersa total of 860,821 shares of its Common Stock to certain individualsholders of $860,818 in outstanding convertible notes payable, lenders fees and entities totaling 854,500 shares.  As ofaccrued interest upon receiving conversion notices on the merger with Bazi Intl. on October 15, 2012, these shares were converted into 854,500 shares of the Company’s Series A Preferred shares.underlying notes.

In FebruaryBetween July and March 2012,August 2013, the Company issued 163,00076,364 shares of its Common Stock in connection with two consulting agreements. The Company expensed the fair value of the Common Stock issued of $84,000 to consulting expense during the year ended December 31, 2013.
In November 2013, the Company issued 1,495,000 shares of its Series B Preferred to certain accredited investors pursuant to subscription agreements in exchange for a total of $1,625,000.  As$5,980,000 in cash, less cash fees of the merger with Bazi Intl. on October 15, 2012, these shares were exchanged for 163,000$496,854. The investors also received Warrants to purchase 6,976,667 shares of the Company’s Series A Preferred shares.Common Stock for $0.30 per share. The Company also issued 1,235,867 warrants to Merriman Capital, Inc. in connection with the investment. The total value of all such Warrants, $1,117,163, was recorded against Additional Paid In Capital.

On April 1, 2012,In November 2013, the Company completed the acquisition of the ownership interest in GT Beverage Company, LLC in exchange for 292,690issued 264,423 shares of its Common Stock.  AsSeries B Preferred to holders of $975,434 in outstanding convertible notes payable, lenders fees and accrued interest upon receiving conversion notices on the merger with Bazi Intl. on October 15, 2012, these shares were exchanged for 292,690underlying notes. In addition, investors received Warrants to purchase 1,138,070 shares of the Company’s Series A Preferred shares.Common Stock for $0.30 per share. The total value of these Warrants, $151,774, was recorded against Additional Paid In Capital. In addition, $64,970 of liability associated with a derivative on certain of the notes was recorded to Additional Paid In Capital.

Between April and June 2012,In December 2013, the Company issued 186,87517,500 shares of its Series B Preferred to certain directors on its Board of Directors in exchange for $70,000 in outstanding board fees. In addition, the directors also received Warrants to purchase 81,667 shares of the Company’s Common Stock for $0.30 per share.
Between January and February 2014, the Company issued 505,000 shares of its Series B Preferred to certain accredited investors pursuant to subscription agreements in exchange for a total net proceeds of $1,574,982 in cash.  As of the merger with Bazi Intl. on October 15, 2012, these shares were exchanged for 186,875$1,857,413. The investors also received Warrants to purchase 2,356,667 shares of the Company’s Common Stock for $0.30 per share. The Company also issued 667,467 warrants to its capital advisors in connection with the investment. Each Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all Warrants issued totaling $416,844, was recorded to derivative liabilities.   
During 2014, holders of $818,926 in outstanding principal, lender’s fees and interest on certain convertible notes payable exchanged this total for 204,732 shares of Series AB Preferred shares.and Warrants to purchase 921,596 shares of Common Stock for $0.30 per share. Each Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all Warrants issued totaling $199,567, was recorded to derivative liabilities.   

    During 2014, holders of 1,001,352 shares of the Series B Preferred Stock converted those shares into 16,021,632 shares of Common Stock.
In June 2012,May and July 2014, the Company issued 15,00069,138 and 9,289 shares of itsCommon Stock, respectively, pursuant to a cashless exercise of a total of 179,633 outstanding warrants.
        During 2014, holders of $818,926 in outstanding principal, lender’s fees and interest on certain convertible notes payable exchanged this total for 204,732 shares of Series B Preferred and Warrants to purchase 921,596 shares of Common Stock for services provided to$0.30 per share. The total value of all such Warrants, $199,567, was recorded against Additional Paid In Capital.
        During 2014, the Company valued at $150,000 based onissued 1,751,270 shares of Common Stock and 5,692 shares of Preferred Stock in connection with various consulting agreements. The Company expensed the fair value of the Company’s stock.  AsCommon Stock issued of the merger with Bazi Intl. on October 15, 2012, these shares were exchanged for 15,000 shares of the Company’s Series A Preferred shares.$544,531 to consulting expense.

In July 2012,        During 2014, the Company issued 17,5002,004,002 shares of Common Stock in consideration for the settlement of lawsuits and related legal payments.
Between January and December 2014, the Company declared 434,096 in dividends on its Series B Preferred shares. The Company issued a total of 849,202 shares of Common Stock to certain accredited investors pursuant to subscription agreements in exchange for a totalpay $342,575 of $175,000 in cash.these dividends. As of the merger with Bazi Intl. on October 15, 2012, theseDecember 31, 2014, there remained $91,521 in cumulative unpaid dividends. These dividends were paid by issuing 449,720 shares were exchanged for 17,500 shares of the Company’s Series A Preferred shares.in January 2015.

In October 2012 (pre-merger), the Company issued 15,000 shares of its Common Stock for services provided to the Company valued at $15,000 based on the fair value of the Company’s stock.  As of the merger with Bazi Intl. on October 15, 2012, these shares were exchanged for 15,000 shares of the Company’s Series A Preferred shares.

On October 15, 2012, the Company issued 1,192,335 shares of its Common Stock to the holders of 100% of the outstanding shares of Bazi International, Inc. pursuant to the Merger with Bazi Intl.

 
Between October and December 2012 (post-merger), the Company issued 145,000 shares of its Common Stock to certain accredited investors in connection with bridge loans made to the Company.  Such loans have short-term maturities of approximately 4 months.  The Company expensed the fair value of the common stock issued of approximately $108,000 to interest expense immediately.  (See Note 7).

NOTE 4 —3 – STOCK OPTIONS AND WARRANTS
 
        As of the completion of the merger with Bazi International, Inc. on October 15, 2012, the Company assumed warrants and two stock option plans, including the current grants under those plans and the plans themselves. The two plans are the 2003 Stock Incentive Plan and the 2006 Distributor Option Plan. The Company will not grant new options under either of these plans. In 2012, the Company also issued certain Non-Qualified Options to board members, executives and other employees. A summary of these plans is presented below.
Warrants
 
A summary of the Company’s warrant activity for the yearyears ended December 31, 20122014 and 2013 is presented below:

 
Warrants
Outstanding
  
Weighted
Average
Exercise Price
 
Warrants
Outstanding
 
Weighted
Average
Exercise Price
Outstanding, January 19, 2012
  -     
Outstanding Warrants Assumed with Merger on October 15, 2012  145,185  $52.00 
Outstanding, December 31, 2012
 
132,340
 
$
43.00
 
Granted
 
12,470,514
 
0.30
 
Exercised
  -   -  
-
 
-
 
Expired
  (12,845)  154.00   
(12,387
)
  
3.20
 
Outstanding, December 31, 2012
  132,340  $43.00 
Outstanding, December 31, 2013
 
12,590,467
 
$
0.55
 
Granted
 
4,022,936
 
0.30
 
Exercised
 
(179,633
)
 
0.25
 
Expired
  
(58,500
)
  
25.09
 
Outstanding, December 31, 2014
 16,375,270 
$
0.40
 
 
As of December 31, 2012,2014, the Company had the following outstanding warrants to purchase its common stock:Common Stock:
 
Warrants Outstanding  
Weighted Average
Exercise Price Per Share
  
Weighted Average
Remaining Life (Yrs)
 
 118,950  $28.00   2.31 
 1,000  $30.00   2.92 
 3,200  $150.00   0.13 
 9,190  $200.00   0.13 
 132,340  $42.53   2.11 
F-13

Warrants Outstanding  
Weighted Average
Exercise Price Per Share
  
Weighted Average
Remaining Life (Yrs.)
 
 
61,453
  
$
30.00
   
1.06
 
 
2,858,610
  
$
0.25
   
3.57
 
 
13,455,207
  
$
0.30
   
3.96
 
 
16,375,270
  
$
0.40
   
3.88
 
 
Non-Qualified Stock Options
 
In 2012,2014, the Company issuedgranted 8,859,131 stock options pursuant to certain employment agreements, board resolutions and option agreements with employees.certain employees and directors. The grant date fair valuesvalue of the options granted during the year ended December 31, 20122014 was between $0.274$0.10 and $0.457$0.29 per share for a total of $1,195,575$1,304,296 to be expensed over the vesting periods of the options. SuchIn October, the Company reset certain options to certain employees and directors, adjusting the term of the options from 3 years to 7 years and adjusting the exercise price of the options from a range of $0.61 and $1.10 to an exercise price of $0.38. The difference between the options original fair value and their new fair values was $174,540 and will be expensed over the remaining vesting periods of the options. The fair values of the options were estimated using the Black-Scholes stock option pricing model and the following weighted average assumptions.

  20122014 
Expected life
 
2.5 years
 
Estimated volatility
 75.0%
75.0
%
Risk-free interest rate
 0.30% – 0.43%
0.66
%
Dividends
 None
-
 

The weighted average estimated fair value per share of the stock options at grant date was $0.309$0.147 during the year ended December 31, 2012.2014. The expected life of options granted is based on the “simplified method” described in ASC 718-10 due to changes in the vesting terms and the contractual life of current option grants. Assumed volatility is based on historical trading prices of the historical volatility of companies within the similar industry.Company’s Common Stock. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods corresponding to the expected term of the options.

 
Stock option activity during the yearyears ended December 31, 20122014 and 2013 is summarized as follows:

 
Number of
Shares
  
Weighted-Average
Exercise Price
  
Number of
Shares
 
Weighted-Average
Exercise Price
 
Options outstanding at January 19, 2012    $ 
Options outstanding at December 31, 2012
 
3,870,387
 
$
0.69
 
Exercised       
-
 
-
 
Granted  3,870,387   0.69  
245,739
 
1.10
 
Forfeited       
(122,868
)
 
1.02
 
Expired        
-
  
-
 
Options outstanding at December 31, 2012  3,870,387  $0.69 
Options outstanding at December 31, 2013
 
3,993,258
 
$
0.70
 
Exercised
 
-
 
-
 
Granted
 
8,859,131
 
0.34
 
Forfeited
 
(472,796
)
 
0.52
 
Expired
  
-
  
-
 
Options outstanding at December 31, 2014
  
12,379,593
 
$
0.37
 

The following table summarizes information about the Company’s stock options outstanding as of December 31, 2012:

   Outstanding Options       
      Weighted Average     Exercisable Options 
      Remaining  Aggregate     Aggregate 
Range of     Contractual Life  Intrinsic     Intrinsic 
Exercise Prices  Number  (Years)  Value  Number  Value 
$0.01   3,133,172   2.54  $4,355,109   982,950  $1,366,309 
$1.017   737,217   2.69  $724,684   -  $- 
Totals   3,870,389   2.57  $5,079,793   982,950  $1,366,309 
 
Bazi Intl. Stock Incentive Plans
    As a result of the Merger with Bazi Intl., the Company assumed two stock option plans of Bazi Intl. known as the 2003 Stock Incentive Plan and the 2006 Distributor Stock Incentive Plan.  Both plans are no longer issuing any stock options.  Information concerning each plan is summarized below:
2003 Stock Incentive Plan
    The 2003 Stock Incentive Plan has a total of 20,806 options to purchase Company common stock outstanding at December 31, 2012, with exercise prices ranging from $15.00 per share to $50.00 per share.  The weighted average contractual life of these options is less than two years.
2006 Distributor Stock Incentive Plan
    The 2006 Distributor Stock Incentive Plan has a total of 6,650 options to purchase Company common stock outstanding at December 31, 2012, with exercise prices ranging from $15.00 per share to $118.00 per share.  The weighted average contractual life of these options is approximately two years.
   Outstanding Options       
      Weighted Average     Exercisable Options 
      Remaining  Aggregate     Aggregate 
Range of     Contractual Life  Intrinsic     Intrinsic 
Exercise Prices  Number  (Years)  Value  Number  Value 
$
0.61
   
256,725
   
0.53
  
$
-
   
-
  
$
-
 
$
1.02
   
122,870
   
0.72
   
-
   
122,870
  
$
-
 
$
0.25
   
2,348,173
   
9.10
   
-
   
637,752
  
$
-
 
$
0.38
   
9,651,825
   
6.63
   
-
   
2,219,814
  
$
-
 
Totals
   
12,379,593
   
6.91
  
$
-
   
2,980,436
  
$
-
 
 
NOTE 5 —4 – INTANGIBLE ASSETS
 
The Company has incurred costs to trademark eight of its current products and marketing nomenclatures. During the year,2014, the Company purchased a patent in relation to the purchase of GT Beverage, Company, LLC and also assumed the trademarks of Bazi International, Inc.Intl. Patents and trademarks are being amortized over the lesser of their remaining life or 15 years.
 
Intangible assets are: 

  
December 31,
2012
 
Patents and trademarks
 
$
1,706,849
 
Accumulated amortization
  
(114,216
)
     
  
$
1,592,633
 
Amortization expense for the year ended December 31, 2012, was $114,216.  For these assets, amortization expense over the next five years is expected to be as follows:

  Patent and trademark amortization 
2013 $193,328 
2014  168,042 
2015  145,172 
2016  141,177 
2017  141,177 
2018 and thereafter   803,737 
  $1,592,633 
 
December 31,
2014
  
December 31,
2013
 
Patents and trademarks
$
1,706,849
  
$
1,706,849
 
Accumulated amortization
 
(488,235
)
  
(305,392
)
        
 
$
1,218,614
  
$
1,401,457
 
 
 
Amortization expense for the year ended December 31, 2014 and 2013 was $182,843 and $191,177, respectively. For these assets, amortization expense over the next five years and thereafter is expected to be as follows:
  Patent and Trademark Amortization 
2015
 
$
145,172
 
2016
  
141,177
 
2017
  
141,177
 
2018
  
141,177
 
2019
  
141,177
 
2020 and thereafter
  
508,734
 
  
$
1,218,614
 
NOTE 6 —5 – INCOME TAXES
 
The Company does not have significant income tax expense or benefit for the year ended December 31, 2012.2014 or 2013. Tax net operating loss carryforwards have resulted in a net deferred tax asset with a 100% valuation allowance applied against such asset at December 31, 2012.2014 and 2013. Such tax net operating loss carryforwards (“NOL”) approximated $3.1$18.3 million at December 31, 2012.2014. Some or all of such NOL may be limited by Section 382 of the Internal Revenue Code.

The income tax effect of temporary differences between financial and tax reporting and net operating loss carryforwards gives rise to a deferred tax asset at December 31, 20122014 and 2013 as follows:

 2012  2014 2013 
Deferred tax asset –NOL’s $1,160,000 
$
6,800,000
 
$
3,800,000
 
Less valuation allowance $(1,160,000) 
(6,800,000
)
  
(3,800,000
)
Net deferred tax asset $- 
$
-
 
$
-
 

At December 31, 20122014, approximately $3,000,000$18.3 million of net operating loss carryforwards for federal and state income tax purposes were available to offset future taxable income through the year 2032,2033, of which these net operating losses will begin to expire in the year 2032. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become realizable. Management considers the scheduled reversal of deferred tax liabilities, projected future taxable income, and tax planning strategies in making this assessment. Based upon the history of the Company and projections for future taxable income over the periods in which the deferred tax assets are realizable, management believes it is not more likely than not that the Company will realize the benefits of these deductible differences and therefore a full valuation allowance against the deferred tax assets has been established.

As a result of the Merger with Bazi International, Inc.Intl. on October 15, 2012, the Company may have access to utilize a portion of the net operating loss carryforwards of Bazi International, Inc.Intl., which, in total, were approximately $25. 0$25 million at the time of the Merger. The Company is uncertain as of the timing of this filing as to the portion of the Bazi net operating loss carryforwards that may be limited by Section 382 of the Internal Revenue Code.
 
The Tax Reform Act of 1986 contains provisions that limit the utilization of net operating loss and tax credit carryforwards if there has been a change of ownership as described in Section 382 of the Internal Revenue Code. Such an analysis has not been performed by the Company to determine the impact of these provisions on the Company’s net operating losses, though management believes the impact would be minimal, if any. A limitation under these provisions would reduce the amount of losses available to offset future taxable income of the Company.

 
In June 2006, the Financial Accounting Standards Board (“FASB”) issued ASC Topic 740 (formerly Interpretation No. 48, “Accounting for Uncertainties in Income Taxes, an interpretation of SFAS No. 109, Accounting for Income Taxes”. ASC 740 prescribes a recognition threshold and measurement attribute for the recognition and measurement of tax positions taken or expected to be taken on income tax returns. ASC Topic 740 also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, and accounting for interest and penalties associated with tax positions.
 
Based on management’s assessment of ASC Topic 740, management concluded that the Company does not have any uncertain tax positions as of December 31, 2012.2014. There have been no income tax related interest or penalties assessed or recorded and if interest and penalties were to be assessed, the Company would charge interest and penalties to income tax expense. It is not anticipated that unrecognized tax benefits would significantly increase or decrease within 12 months of the reporting date. The Company and its subsidiaries file income tax returns in the U.S. and various state jurisdictions and there are open statutes of limitations for taxing authorities to audit the Company’s tax returns from 2008 through the current period.year.
NOTE 6 – DEBT
A summary of convertible notes payable as of December 31, 2014 is as follows:
  Amount 
Outstanding, December 31, 2013
 
$
2,596,667
 
Borrowing
  
4,263,002
 
Repayments
  
(1,936,667
)
Conversions to common stock
  
(660,000
)
Outstanding, December 31, 2014
 
$
4,263,002
 
In January 2014, the Company repaid $25,750 in outstanding principal, lender’s fees and accrued interest in connection with certain notes payable.
During 2014, holders of certain bridge financing notes, totaling $818,926 in outstanding principal, lender’s fees and accrued interest, converted their notes into 204,732 shares of the Company’s Series B Preferred.
In November 2013, the Company secured a commercial term loan in the amount of $2.0 million from Avid Bank.  The loan had a term of two years, accrued interest at 2.75% above prime, was secured by substantially all of the Company’s assets, and required an asset coverage ratio of assets to outstanding principal of 1.5. The outstanding balance of the term loan was $1,916,667 at December 31, 2013 and the loan was paid in full in April 2014.
In June 2014, the Company issued unsecured promissory notes to certain accredited investors, resulting in net proceeds to the Company of $360,000. These promissory notes have a term of one year and carry an annual interest rate of 8%. The unsecured promissory notes were issued principally to provide liquidity necessitated as a result of the termination, and payment in full, of all amounts due and payable under the Avid Bank commercial term loan.
In November 2014, the Company issued an unsecured promissory note in the amount of $50,000 to an accredited investor. The note had a maturity date in December 2014. The note paid no interest but paid a lender’s fee of 10% of the principal amount. The note was repaid in January 2015.
 
NOTE 7 — CONVERTIBLE NOTESLine-of-Credit Facility
 
The Company entered into a line-of-credit agreement with a financial institution in June 30, 2014. Borrowings under this agreement approximated $233,000 as of December 31, 2014. The terms of the agreement allow the Company to borrow up to the lesser of $1.5 million or 85% of the sum of eligible accounts receivables. At December 31, 2014, the eligible receivables borrowing base approximated $233,000. The line-of-credit bears interest at Prime rate (3.25% as of December 31, 2014) plus 4.50% per annum as well as a monthly fee of 0.50% on the average amount outstanding on the line.
Secured Notes
Between OctoberSeptember and December 2012,2014, the Company consummatedissued Secured Notes in the saleaggregate principal amount of senior secured convertible notes (“Bridge Notes”)$3,420,000 to a limited number ofcertain accredited investors. The purchase priceSecured Notes accrue interest at a rate of 12% per annum and are secured by an interest in all inventory, books and records pertaining to the inventory, and all proceeds with respect sale or other disposition of the Bridgeinventory. The Secured Notes consistedmature one year from the date of $725,000issuance. In the event the Secured Notes are paid in a form other than cash, the Company is obligated to pay to the Holder of net proceeds.  The Bridgethe Secured Notes carried a term of 120 days, accrued interest at 9% per annum, earned a lender’slender's fee ofequal to 10%, which wasamount shall be added to the principal ofamount due and owing the note, earnedHolder.
In September 2014, the Company issued a common stock award of 5,000 shares of Common Stock per $25,000 unit purchased, andSecured Note in the principal interest and lender’s fee was convertible, at the optionamount of the holder, into shares$200,000 to Scot Cohen, a member of the Company’s Common StockBoard of Directors. The Secured Note accrued interest at a pricerate of $0.01 per share. Certain notes have matured through12% and was secured by an interest in all inventory, books and records pertaining to the date of this report, have not been repaidinventory, and are now considered past due.  The remaining notes mature at various dates through April 30, 2013.  The Company is currently in discussion regarding the extensionall proceeds with respect sale or other disposition of the maturity datesinventory. The Secured Note originally matured in September 2014, was in default as of the notes.December 31, 2014 and was paid in full in February 2015.
 
InSubsequent to December 2012,31, 2014, all outstanding Secured Notes were either repaid or exchanged for shares of Series C Preferred and Warrants, pursuant to the Company issued promissory notes to certain investors. The purchase price of the notes consisted of $47,000 in net proceeds. The promissory notes carried a term of 30 daysNote Payments and earned a lender’s fee of 10%. The promissory notes were repaid in January 2013.Note Exchange described under Note 1 above and Note 10 below.
 
NOTE 8 —7 – COMMITMENTS AND CONTINGENCIES
 
The Company has entered in a number of consulting agreements with various consultants. Termination of any of these agreements could result in termination fees.
 
The Company leases its office in Irvine, California on a one-year lease. Total rentwhich expires July 31, 2015. Rent expense related to operating leases for the yearyears ended December 31, 20122014 and 2013 was approximately $33,000.$52,000 and $46,000, respectively. Total remaining payments on the lease through July 31, 20132015 are approximately $19,000. $31,000.

The Company maintains employment agreements with certain key management. The agreements provide for minimum base salaries, eligibility for stock options, performance bonuses and severance payments.

Legal Proceedings
 
From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s financial position or results of operations.

As of December 31, 2012, the Company was involved in the following significant legal proceedings:
 
On July 1, 2011, a lawsuit was filed in the United States District Court, the Southern District of Ohio, Cincinnati Division, against GT Beverage Company, LLC (“GT LLC”) by Dominion Liquid Technologies, LLC. The lawsuit allegesalleged that GT LLC breached terms of a Co-Packing Agreement from 2010 co-packing agreement, which governed the relationship between the parties. As of February 2013, Dominion amended its complaint to addIn July 2014, the Company as a defendant in the case.settled this lawsuit for $350,000. The Company has not yet filed responsive pleadings.  Dominion is seeking monetary damages in an amount exceeding $800,000.  GT LLC has filed its answer denying allsettlement was fully accrued for, and was paid for with 1,166,667 restricted shares of Dominion’s claims and expects to vigorously defend the suit.  Discovery is ongoing, and the case is currently set for trial in November 2013.Common Stock.

On December 13, 2011, a lawsuit was filed in the 116th District Court of Dallas County, Texas against GT LLC by Quality Logistics Systems, Inc. (“QLS”).   The lawsuit alleges that GT LLC is liable for approximately $68,000 in transportation and logistical fees.  On May 18, 2012, a judgment was entered in favor of QLS for $68,542.48, along with $4,145 of costs and fees.  GT LLC has not satisfied this judgment to date.
NOTE 9 — RELATED PARTY TRANSACTIONS
On May 11, 2012, the Company loaned Environmental Packaging Technologies, Inc. (“EPT”) the sum of $150,000 in exchange for a 50-day promissory note.  The promissory note accrues interest at ten percent (10%) per annum and included a ten percent (10%) of principal fee payable to the Company.  The Company sent EPT a notice of default on October 18, 2012 demanding payment of the original principal amount of $150,000, accrued interest of $6,575 and the ten percent fee in the amount of $15,000.  True Drinks’ former chairman and current investor is the chairman for EPT.

Our Board of Directors approved each of these arrangements.
On April 22, 2014, a lawsuit was filed in the Superior Court of California, County of Orange, against the Company by Advantage Sales and Marketing, LLC. The plaintiff initially claimed damages of $92,064 for outstanding invoices. The lawsuit was settled for $69,000 in January 2015, and was fully accrued at December 31, 2014.

During 2014, the Company issued 837,335 restricted shares of Common Stock to settle a total of $251,651 in outstanding liabilities related to various legal expenses.
We are currently not involved in any litigation unless noted above that we believe could have a material adverse effect on our financial condition or results of operations. Other than described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, or our Common Stock in which an adverse decision could have a material adverse effect.
 
NOTE 108 – FAIR VALUE MEASUREMENTS
The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value. FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
 -             Level 1: Observable inputs such as quoted prices in active markets;
 -             Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
 -             Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.
The Company assesses its recurring fair value measurements as defined by FASB ASC 810. Liabilities measured at estimated fair value on a recurring basis include derivative liabilities. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial liabilities among the levels occur at the beginning of the reporting period. There were no transfers between Level 1, Level 2 and/or Level 3 during the year ended December 31, 2014. The Company had no Level 1 or 2 fair value measurements during 2013.
The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a recurring basis included in the Company’s financial statements as of December 31, 2014:
     Level 1  Level 2  Level 3 
  Total carrying value  Quoted market prices in active markets  Internal Models with significant observable market parameters  Internal models with significant unobservable market parameters 
Derivative liabilities
 
$
1,569,522
  
$
-
  
$
-
  
$
1,569,522
 
The following table presents the changes in recurring fair value measurements included in net loss for the year ended December 31, 2014:
  Recurring Fair Value Measurements 
  
Changes in Fair Value
Included in Net Loss
For the Year Ended
December 31, 2014
 
  Revenues  Expenses  Total 
Derivative liabilities
 
$
621,159
  
$
-
  
$
621,159
 
The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the year ended December 31, 2014:
  December 31, 2013  
 
 
Recorded new Derivative Liabilities
  Reclassification of Derivative Liabilities  Change in Estimated Fair Value Recognized in Results of Operations  December 31, 2014 
Derivative liabilities
 
$
1,619,021
  
$
616,411
  
$
(44,751)
  
$
(621,159)
  
$
1,569,522
 
NOTE 9 – LICENSING AGREEMENTS
 
We entered into a three-year licensing agreement with Disney Consumer Products, Inc. (“Disney”) and an 18-month licensing agreement with Marvel Characters, B.V. ("Marvel") (the “Licensing Agreements”) in 2012. Each Licensing Agreement allows us to feature popular Disney and Marvel characters on AquaBall™ Naturally Flavored Water, allowing AquaBall™ to stand out among other beverages marketed towards children. Under the terms and conditions of the Licensing Agreements, we work with the Disney and Marvel teams to create colorful, eye-catching labels that surround the entire spherical shape of each AquaBall™. Once the label designs are approved, we work with Disney and Marvel to set retail calendars, rotating the placement of different AquaBall™ designs over the course of the year.
The terms of the Disney Licensing Agreement (“Disney Agreement”) stipulates a royalty rate of 4% on the sales of AquaBallAquaBall™ Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total royalty guarantee of $231,600 over the term of the agreementDisney Agreement which has a term ending date of March 31, 2015. In addition, the Company is required to spend 1% of sales on advertising and promotional opportunities. The Company is requiredcompany and Disney are in discussions to make common marketing fund contributions totaling $96,188 over the life of theextend this agreement.

The terms of the Marvel Licensing Agreement stipulate(“Marvel Agreement”) stipulates a royalty rate of 5% on the sales of AquaBallAquaBall™ Naturally Flavored Water adorned with Marvel characters, paid quarterly, with aquarterly. The Company recently extended the Marvel Agreement through the end of 2015. The total royalty guarantee of $150,000 overfor the term of the agreement which has a term ending date ofperiod from January 1, 2014 through December 31, 2013.2015 is $150,000.
 
NOTE 11 —10 – SUBSEQUENT EVENTS
 
       Management has    The Company evaluated subsequent events through the date the accompanying consolidated financial statements were issued. Subsequent to December 31, 2014, the following events occurred:
    Amendment to Series B Preferred Certificate of Designation
    On February 18, 2015, the Company filed the First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock (the “Series B Amendment”) with the SecuritiesNevada Secretary of State in order to: (i) eliminate certain provisions pertaining to the adjustment of the conversion price of the Series B Convertible Preferred Stock (“Series B Preferred”) and Exchange Commission,(ii) eliminate the protective provision preventing the Company from issuing securities senior to or pari passu in rank to the Series B Preferred without first receiving approval from holders of 66% of the issued and noted no other significant subsequent events not elsewhere disclosed in these notes to consolidated financial statements.outstanding shares of Series B Preferred. The Series B Amendment was approved by the written consent of stockholders holding approximately 79% of the issued and outstanding shares of Series B Preferred.
 
    Creation of Series C Convertible Preferred Stock
    On February 18, 2015, the Company filed the Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock with the Nevada Secretary of State, designating 50,000 shares of the Company's preferred stock, par value $0.001 per share, as Series C Convertible Preferred Stock (the “Series C Preferred”). Each share of Series C Preferred has a stated value of $100 per share (the “Stated Value”), and is convertible, at the option of each respective holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.15 per share (the “Conversion Shares”). The Company also has the option to require conversion of the Series C Preferred into Conversion Shares in the event: (i) there are sufficient authorized shares of Common Stock reserved as Conversion Shares; (ii) the Conversion Shares are registered under the Securities Act of 1933, as amended (the “Securities Act”), or the Conversion Shares are freely tradable, without restriction, under Rule 144 of the Securities Act; and (iii) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.
    Series C Offering
    On February 20, 2015 (the “Initial Investment Date”), the Company and certain accredited investors (the “Investors”) entered into a Securities Purchase Agreement (the “PurchaseAgreement”) wherein the Investors agreed to purchase up to 43,000 shares of Series C Preferred for $100 per share in three separate closings (the “Series C Offering”). The Company issued an aggregate total of 18,000 shares of Series C Preferred on the Initial Investment Date, 15,000 shares on April 1, 2015 and anticipates issuing the remaining 10,000 shares on or before June 30, 2015. The Purchase Agreement also provides for the appointment of one member, designated by the Investors, to the Company’s Board of Directors. As additional consideration for participating in the Series C Offering, each Investor will receive five-year warrants (the “Warrants”), exercisable for $0.15 per share, to purchase that number of shares of the Company's Common Stock equal to 35% of the Conversion Shares issuable upon conversion of each Investor’s Shares (the “Warrant Shares”).
    In addition to the Purchase Agreement, the Company and the Investors entered into a Registration Rights Agreement (the “Registration Rights Agreement”), pursuant to which the Company agreed to file a Registration Statement on Form S-1 with the Securities and Exchange Commission on or before July 1, 2015 in order to register the Warrant Shares issuable upon exercise of the Warrants, and the Conversion Shares issuable upon conversion of the Shares, under the Securities Act.
    Amendment to Series C Certificate of Designation. As described under Note 1 above, on March 26, 2015, the Company filed the Series C Amendment with the Nevada Secretary of State in order to increase the number of shares of the Company’s preferred stock designated as Series C Preferred from 50,000 to 90,000 and to permit the transactions contemplated by the Note Payments and the Note Exchange, as described below.
Note Payments and Note Exchange. Following the filing of the Series C Amendment, on March 27, 2015, the Company and the Series C Offering Investors entered into an amendment to the Amendment Purchase Agreement wherein the Company sold 27,000 Additional Shares to one of the Investors for gross proceeds of $2.7 million, which the Company subsequently used to satisfy approximately $2.7 million of the Company’s $3.8 million outstanding Notes. As additional consideration for the purchase of the Additional Shares, the Investor received additional Warrants to purchase Warrant Shares equal to 35% the Conversion Shares issuable upon conversion of the Additional Shares.
Following the Note Payments, the Company and each of the Holders of the Notes remaining after the Note Payments entered into Exchange Agreements wherein the Holders agreed to exchange all remaining principal and accrued interest of any such Notes into shares of Series C Preferred on substantially similar terms to those offered in the Series C Offering. As a result of the execution of the Exchange Agreements and the consummation of the Note Exchange, the Company issued to the Holders an aggregate total of 12,148 shares of Series C Preferred and Warrants to purchase approximately 2.8 million Warrant Shares.

TRUE DRINKS, HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
 
September 30,
2013
 
December 31,
2012
 
 (Unaudited)    
September 30,
2015
 
December 31,
2014
 
ASSETS      
(Unaudited)
   
Current Assets:
          
Cash
 
$
26,622
 
$
4,449
  $92,032 $668,326 
Accounts receivable, net
 
273,974
 
130,909
  500,448 343,709 
Inventory
 
872,555
 
832,874
  2,267,340 1,363,443 
Deferred financing costs
 
321,940
 
-
 
Prepaid expenses and other current assets
  
605,213
  
268,716
   241,907  628,675 
Total Current Assets
 
2,100,304
 
1,236,948
  3,101,727 3,004,153 
          
Restricted Cash
 
133,031
 
81,270
  209,308 133,198 
Property and Equipment, net
 
19,255
 
25,399
  2,118 4,587 
Patents, net
 
1,388,235
 
1,494,118
  1,105,882 1,211,765 
Trademarks, net
 
61,016
 
98,516
  - 6,849 
Goodwill
 
3,474,502
 
3,474,502
   3,474,502  3,474,502 
Other Assets
  
-
  
3,948
 
Total Assets
 
$
7,176,343
 
$
6,414,701
  $7,893,537 $7,835,054 
          
LIABILITIES AND STOCKHOLDERS’ EQUITY
          
          
Liabilities:
     
Current Liabilities:
     
Accounts payable and accrued expenses
 
$
1,774,275
 
$
1,292,147
  $1,695,963 $1,922,285 
Convertible notes payable, net
 
3,343,067
 
772,000
 
Debt 967,008 4,263,002 
Derivative liabilities
  
986,252
  
-
   3,678,321  1,569,522 
Total Liabilities
 
6,103,594
 
2,064,147
 
Total Current Liabilities 6,341,292 7,754,809 
          
Commitments and Contingencies (Note 5)
          
          
Stockholders’ Equity:
          
Common Stock, $0.001 par value, 40,000,000 shares authorized, 27,885,587 and 1,337,335 shares outstanding at September 30, 2013 and December 31, 2012, respectively
 
27,886
 
1,337
 
Preferred Stock (liquidation preference of $10 per share), $0.001 par value, 5,000,000 shares authorized, 0 and 1,544,565 shares outstanding at September 30, 2013 and December 31, 2012, respectively
 
-
 
1,545
 
Common Stock, $0.001 par value, 200,000,000 and 120,000,000 shares authorized, 106,352,235 and 48,622,675 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively 106,352 48,623 
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,750,000 shares authorized, 1,342,870 and 1,490,995 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively 1,343 1,491 
Preferred Stock – Series C (liquidation preference $100 per share), $0.001 par value, 115,000 and 50,000 shares authorized, 25,250 and 0 shares issued and outstanding at September 30, 2015 and December 31, 2014, respectively 25 - 
Additional paid in capital
 
9,328,703
 
7,467,015
  26,626,610 18,388,212 
Accumulated deficit
  
(8,283,840
)
  
(3,119,343
)
  (25,182,085)  (18,358,081)
     
Total Stockholders’ Equity
  
1,072,749
  
4,350,554
   1,552,245  80,245 
          
Total Liabilities and Stockholders’ Equity
 
$
7,176,343
 
$
6,414,701
  $7,893,537 $7,835,054 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 
TRUE DRINKS, HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
  
Three Months Ended
 September 30,
  
Nine Months Ended
September 30,
 
  2013   2012  2013  2012 
                
Net Sales
$
517,689
  
$
724,054
  
$
2,231,861
  
$
846,280
 
                
Cost of Sales
 
406,757
   
407,045
   
1,871,643
   
563,472
 
                
Gross Profit
 
110,932
   
317,009
   
360,218
   
282,808
 
                
Operating Expenses:
               
Selling and marketing
 
752,151
   
303,147
   
1,837,049
   
434,319
 
General and administrative
 
1,321,227
   
592,706
   
3,217,873
   
1,715,864
 
Total operating expenses
 
2,073,378
   
 895,853
   
5,054,922
   
2,150,183
 
                
Operating Loss
 
(1,962,446
)
  
(578,844
)
  
(4,694,704
)
  
(1,867,375
)
                
Other Expense
               
Change in fair value of derivative liability
 
(489,425)
   
-
   
(595,030)
 
  
-
 
Interest expense
 
 684,206
   
1,381
 
  
1,064,823
 
  
1,794
 
Other expense 
 
-
   
-
 
  
-
 
  
23,475
 
                
Net Loss
$
(2,157,227
)
 
$
(580,225
)
 
$
(5,164,497
)
 
$
(1,892,644
)
                
Basic and diluted net loss per share
$
(0.08
)
 
$
(0.02
)
 
$
(0.19
)
 
$
(0.09
)
                
Weighted average shares of Common Stock outstanding, basic and diluted (1)
 
27,844,438
   
25,031,160
   
27,355,426
   
21,453,816
 
   
Three Months Ended
September 30,
   
Nine Months Ended
September 30,
 
   2015   2014   2015   2014 
                 
Net Sales $1,323,730  $1,064,065  $4,172,626  $2,875,739 
                 
Cost of Sales  1,188,222   977,324   3,950,961   2,473,018 
                 
Gross Profit  135,508   86,741   221,665   402,721 
                 
Operating Expenses                
Selling and marketing  2,325,567   1,085,405   4,269,670   2,661,279 
General and administrative  1,006,486   1,029,118   3,302,782   3,153,687 
Total operating expenses  3,332,053   2,114,523   7,572,452   5,814,966 
                 
Operating Loss  (3,196,545)  (2,027,782)  (7,350,787)  (5,412,245)
                 
Other Income (Expense)                
Change in fair value of derivative liabilities  1,079,335   398,603   749,943   (1,343,495
Interest income (expense)  (15,456)  (37,037  (223,160)  (88,286
   1,063,879   369,319   526,783   (1,431,781)
                 
NET LOSS $(2,132,666) $(1,666,216) $(6,824,004) $(6,844,026)
                 
Declared dividends on Preferred Stock $68,636  $148,181  $203,397  $148,181 
                 
Net loss attributable to common stockholders $(2,201,302) $(1,814,397) $(7,027,401) $(6,992,207)
                 
Loss per common share, basic and diluted $(0.02) $(0.05) $(0.11) $(0.21)
                 
Weighted average common shares outstanding, basic and diluted  88,086,922   38,920,319   64,289,691   33,939,850 
 
The accompanying notes are an integral part of these condensed consolidated financial statements.

(1)The weighted average shares of Common Stock outstanding was calculated based on as-converted to Common Stock figures for the preferred stock that was granted to shareholders of True Drinks, Inc. upon the merger with Bazi International, Inc. on October 15, 2012. The 100-for-1 reverse stock split executed on January 18, 2013 was retrospectively reflected in weighted average number of shares of Common Stock outstanding.

TRUE DRINKS HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
  
Nine Months Ended
September 30,
 
  2013  2012 
CASH FLOWS FROM OPERATING ACTIVITIES      
Net loss
 
$
(5,164,497
)
 
$
(1,892,644
)
Adjustments to reconcile net loss to net cash used in operating activities
        
Depreciation
  
7,443
   
7,013
 
Amortization
  
143,383
   
70,588
 
Accretion of deferred financing costs
  
450,806
   
-
 
Provision for bad debt expense
  
150,000
   
-
 
Change in estimated fair value of derivative
  
(595,030
)
  
-
 
Amortization of debt discount
  
657,307
   
-
 
Stock issued to founders
  
-
   
855
 
Fair value of stock issued for services
  
331,341
   
150,010
 
Stock based compensation
  
694,533
   
64,592
 
Change in operating assets and liabilities:
        
   Accounts receivable
  
(293,065
)
  
(369,301
)
   Inventory
  
(39,681
)
  
(634,704
)
   Prepaid expenses and other current assets
  
(336,497
)
  
(73,644
)
   Other assets
  
 3,948
   
(957,283
)
   Accounts payable and accrued expenses
  
582,946
   
496,295
 
   Other current liabilities
  
-
 
  
241
 
Net cash used in operating activities
  
(3,407,063
)
  
(3,137,982
)
         
CASH FLOWS FROM INVESTING ACTIVITIES
        
 Change in restricted cash
  
(51,761
)
  
(81,000
)
  Purchase of property and equipment
  
 (1,299
)
  
(6,050
)
Net cash used in investing activities
  
(53,060
)
  
(87,050
)
         
CASH FLOWS FROM FINANCING ACTIVITIES
        
   Proceeds from issuance of Common Stock
  
-
   
3,375,032
 
   Proceeds from notes payable
  
4,009,000
   
-
 
   Deferred financing costs paid
  
(354,704
)
  
-
 
   Repayments on notes payable  (172,000)  - 
   Proceeds from issuance of notes receivable
  
-
 
  
(150,000
)
Net cash provided by financing activities
  
3,482,296
   
3,225,032
 
         
 NET INCREASE IN CASH
  
22,173
   
-
 
         
CASH- beginning of period
  
 4,449
   
-
 
         
 CASH- end of period
 
$
26,622
  
$
-
 
         
SUPPLEMENTAL DISCLOSURES
        
Interest paid in cash
 
$
58,758
  
$
-
 
Non-cash financing and investing activities:
        
Conversion of preferred stock to common stock
 
$
25,304
  
$
-
 
Conversion of notes payable and accrued interest to common stock
 
$
860,818
  
$
-
 
Warrants issued as deferred financing costs
 
$
418,042
  
$
-
 
Warrants issued as debt discount
 
$
1,163,240
  
$
-
 
 
  
Nine Months Ended
September 30,
 
  2015  2014 
CASH FLOWS FROM OPERATING ACTIVITIES      
    Net loss $(6,824,004) $(6,844,026)
Adjustments to reconcile net loss to net cash used in operating activities        
    Depreciation  2,469   5,283 
    Amortization  112,732   143,383 
    Provision for bad debt expense  (51,769)     
    Change in estimated fair value of derivative  (749,943)  1,343,495 
    Fair value of common stock issued for services  470,062   171,464 
    Stock based compensation  453,491   368,172 
Change in operating assets and liabilities:        
    Accounts receivable  (104,970)  (202,693)
    Restricted cash  (76,110)  (66)
    Inventory  (903,897)  (766,866)
    Prepaid expenses and other current assets  386,768   6,996 
    Accounts payable and accrued expenses  (142,177)  1,317,696 
Net cash used in operating activities  (7,427,348)  (4,457,162)
         
CASH FLOWS FROM INVESTING ACTIVITIES        
    Purchase of property and equipment  -   (2,349)
Net cash used in investing activities  -   (2,349)
         
CASH FLOWS FROM FINANCING ACTIVITIES        
    Dividends paid  -   (2,194)
    Proceeds from issuance of Series B Preferred Stock, net  -   1,887,413 
    Proceeds from issuance of Series C Preferred Stock  9,000,048   - 
    Borrowings on debt  1,035,792   1,432,136 
    Repayments on debt  (3,184,786)  (1,936,667)
Net cash provided by financing activities  6,851,054   1,380,688 
         
NET DECREASE IN CASH  (576,294)  (3,078,823)
         
CASH- beginning of period
 $668,326  $3,136,766 
         
CASH- end of period
 $92,032  $57,943 
         
SUPPLEMENTAL DISCLOSURES        
    Interest paid in cash $137,556  $7,944 
    Non-cash financing and investing activities:        
    Conversion of preferred stock to common stock $54,034  $8,621 
    Cashless exercise of warrants $-  $44,751 
    Dividends paid in common stock $203,397  $247,255 
    Dividends declared but unpaid $68,636  $148,181 
    Conversion of notes payable and accrued interest to Common Stock $-  $764,938 
    Conversion of notes payable and accrued interest to Series C preferred stock $1,214,206  $- 
    Common stock issued for accrued expenses $-  $487,650 
    Warrants issued in connection with Series B Preferred Offering $-  $616,411 
    Warrants issued in connection with Series C Preferred Offering $2,858,742  $- 
The accompanying notes are an integral part of these condensed consolidated financial statements.
 
TRUE DRINKS HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
September 30, 20132015
 
NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Organization and Business

Overview

True Drinks Holdings, Inc. (the "Company", "us", "” or “we”) was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks" or "we") was, formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™ Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.
 
On June 7, 2012, True Drinks, Inc., Bazi Acquisition Sub Inc. ("Merger Sub"), a Delaware corporation and a wholly-owned subsidiary of Bazi International, Inc., and Bazi International, Inc. entered into an agreement and tax-free plan of merger (the “Merger Agreement”), wherein Merger Sub merged with and into the Company and True Drinks continued as the surviving corporation (the "Merger"). As a result of the Merger, True Drinks became a wholly-owned subsidiary of the Company. The Merger closed on October 15, 2012 (the “Closing Date”). As a result of Merger, True Drinks, Inc.’s former shareholders owned approximately 95.5% of the combined post-Merger entity via voting convertible preferred stock issued as part of the merger, on an as-converted basis (See Recent Developments below). The Company subsequently changed its name from “Bazi International, Inc.” to “True Drinks Holdings, Inc.”  The Merger was accounted for as a public company “reverse merger,” and, as such, the consolidated financial statements reported herein reflect the operations of True Drinks, Inc. within the capital structure of Bazi International, Inc.
True Drinks, Inc. was formerly named GT Beverage Company, Inc., which was formed in January 2012 and acquired GT Beverage Company, LLC on March 31, 2012 in a business combination primarily to acquire the spherical bottle patent held by GT Beverage Company, LLC. Subsequently as discussed above, GT Beverage Company, Inc. entered into a public company reverse merger with Bazi International, Inc. accounted for as a business combination, since Bazi International, Inc. was not a public shell as defined by rules of the Securities and Exchange Commission (“SEC”). GT Beverage Company, Inc. took over the capital structure of Bazi International, Inc. and was renamed True Drinks, Inc.

Bazi International, Inc. was originally incorporated in the state of Nevada in January 2001. True Drinks, Inc. (“True Drinks”), is incorporated in the state of Delaware.

Our principal place of business is 18552 MacArthur Boulevard, Suite 325, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com.www.truedrinks.com. Our Common Stock,common stock, par value $0.001 (“Common Stock”) is currently listed for quotation on the Over-the-Counter Bulletin BoardOTCQB marketplace (“OTCBBOTCQB”) under the symbol TRUU.
 
Recent Developments During
Bottling Agreement with Niagara Bottling
 On October 9, 2015, our wholly owned subsidiary, True Drinks, entered into a bottling agreement (the “Niagara Agreement”) with Niagara Bottling, LLC, a Delaware limited liability company (“Niagara”), pursuant to which Niagara will become the Quarterexclusive manufacturer of AquaBall™ Naturally Flavored Water for the next five years. With Niagara, True Drinks will produce an improved “clean label” formulation of AquaBall™, which will remain sugar and calorie free but will eliminate all preservatives from the current formula. We expect to begin delivering this preservative free formulation of AquaBall™ at the beginning of the second quarter of fiscal 2016.

License    The Niagara Agreement

In August 2013, requires the Company signedto deliver to Niagara its minimum volume requirements for the upcoming 12-month period on or before February 1st of each year (the “Annual Commitment”), which Annual Commitment may not be less than 3.2 million Cases (defined in the Niagara Agreement as a pack of 24 bottles of AquaBall™ Naturally Flavored Water) per purchase order. Subject to the terms and conditions of the Niagara Agreement, the Company will pay Niagara $6.35 per Case manufactured, for an extensionannual financial liability of approximately $20.3 million per year. We expect to begin delivering Cases manufactured by Niagara in the beginning of the second quarter of fiscal 2016.
    Mr. Vincent C. Smith, the Company’s largest shareholder, executed a personal guaranty of True Drinks’ obligations under the Niagara Agreement (the “Personal Guaranty”). In order to offset any financial obligation Mr. Smith may incur as a result of the Personal Guaranty, the Company issued to Red Beard Holdings, LLC, an entity affiliated with Mr. Smith (“Red Beard”), a senior secured promissory note (the “Note”) pursuant to which the Company will borrow any amounts paid to Niagara by Mr. Smith as a result of the Personal Guaranty. Any amounts borrowed under the Note will be secured by a continuing security interest in substantially all of the Company’s assets, will accrue interest at 2.0%, plus the Maximum Rate (as such term is defined in the Note) and, subject to certain terms and conditions of the Note, will be due and payable within 10 years.
    As consideration for Mr. Smith’s execution of the Personal Guaranty, the Company issued to Mr. Smith a five-year warrant (the “Personal GuarantyWarrant”), to purchase 17.5 million shares of the Company’s common stock, par value $0.001 per share (“Common Stock”), for $0.188 per share.
Increase of Authorized Common Stock.
On June 10, 2015, the Company filed a Certificate of Amendment to its licensing agreementArticles of Incorporation to increase the total authorized shares of the Company's Common Stock from 120.0 million shares to 200.0 million shares.
Amendment to Series C Certificate of Designation
On August 12, 2015, the Company filed the Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations (the “Series C Amendment”) with the Nevada Secretary of State in order to increase the number of shares of the Company’s preferred stock designated as Series C Convertible Preferred Stock from 90,000 to 115,000 and to permit the transactions contemplated by the Series C Offering, as further described below.
Series C Offering
On August 13, 2015, the Company and Red Beard entered into a Securities Purchase Agreement (the “Purchase Agreement”), wherein Red Beard purchased 17,648 shares of the Company’s Series C Convertible Preferred Stock (“Series C Preferred”) for $113.33 per share over the course of three separate closings between August 13, 2015 and September 15, 2015 (the “Series C Offering”). The Company received aggregate gross proceeds of approximately $2.0 million from the issuance of shares of Series C Preferred under the Purchase Agreement.
   Pursuant to the terms and conditions of the Purchase Agreement, Red Beard also received five-year warrants (the “Series C Warrants”), exercisable for $0.17 per share (the “Exercise Price”), to purchase a total of 3,633,411 shares of Common Stock, an amount equal to 35% of (i) the Stated Value (as such term is defined in the Series C Amendment) of the shares of Series C preferred issued to Red Beard, divided by (ii) the Exercise Price.
   In addition to the Purchase Agreement, the Company and Red Beard entered into a Registration Rights Agreement, pursuant to which the Company agreed to file a registration statement on Form S-1, on or before February 13, 2015, to register the shares of Common Stock underlying the shares of Series C Preferred and Series C Warrants issued to Red Beard in connection with the Purchase Agreement.
Amendment to Purchase Agreement
On October 16, 2015, the Company and Red Beard executed an amendment to the Purchase Agreement (the “Amendment”), pursuant to which the Company sold to Red Beard an additional 8,823 shares of Series C Preferred for gross proceeds of approximately $1.0 million. As additional consideration for the purchase of the shares of Series C Preferred under the Amendment, Red Beard received an additional Series C Warrant to purchase approximately 1.81 million shares of the Company’s Common Stock for $0.17 per share.
The Company and Red Beard also entered into an amendment to the Registration Rights Agreement, first entered into on August 13, 2015, in order to include within the definition of “Registrable Securities”: (i) shares of Common Stock underlying the shares of Series C Preferred and Series C Warrants issued to Red Beard in connection with the Amendment, and (ii) the shares of Common Stock issuable upon exercise of the Personal Guaranty Warrant.
Extension of Marvel Licensing Agreement
On August 22, 2015, the Company and Marvel Characters B.V. (“Marvel”) entered into a renewed Licensing Agreement, pursuant to extendwhich the expiration dateCompany secured a license from Marvel, effective January 1, 2016 until December 31, 2013 to December 31, 20152017, to feature certain Marvel characters on bottles of AquaBall™ Naturally Flavored Water (the “Marvel Agreement”). The Marvel Agreement allows True Drinksrequires the Company to usepay to Marvel a range of different Marvel characters 5% royalty rate on AquaBall™ packaging in exchange for a royalty payment, paid quarterly, equal to 5% of the proceeds from the sale of AquaBalls™AquaBall™ Naturally Flavored Water adorned with Marvel characters, in the United States and Canada. The Marvel Agreement haspaid quarterly, through December 31, 2017, with a total royalty guarantee of $150,000$200,000.
Extension of Disney Licensing Agreement
On September 1, 2015, the Company and Disney Consumer Products, Inc. (“Disney”) entered into a renewed Licensing Agreement, pursuant to which the Company secured a license from Disney, effective April 1, 2015 until March 31, 2017, to feature certain Disney characters on bottles of AquaBall™ Naturally Flavored Water (the “Disney Agreement”). The Disney Agreement requires the Company to pay to Disney a 5% royalty rate on the sale of AquaBall™ Naturally Flavored Water adorned with Disney characters, paid quarterly, through March 31, 2017, with a total guarantee of $450,870. In addition, the Company is required to make an annual ‘common marketing fund’ contribution equal to 1% of its sales, and must spend a total of $820,000 on advertising and promotional opportunities over the term of the agreement.Disney Agreement.
Note Financing
 
Note Offering

On June 20, 2013September 9, 2015, the Company commencedbegan a private offering, to certain accredited investors (the “Note Investors”), of: (i) convertiblesenior subordinated secured promissory notes (the “Secured Notes”) in the aggregate principal amount of up to $3.3$2.5 million; and (ii) and five-year warrants to purchase that number of shares equal to 15% of the principal amount of the Secured Note purchased by each Note Investor (“Note Warrants”), divided by the ten-day average closing price of the Company’s Common Stock at an exercise price of $1.10 per share (the “Warrants”) to certain accredited investors (each an “Investor” and collectively, “Investors”) (the “OfferingNote Financing”). Through September 30, 2013,Each Secured Note issued accrues interest at a rate of 12% per annum, and matures one year from the Company accepted subscription agreements from Investors resulting in the issuancedate of Notes in the aggregate principal amount of $2,615,000 (“Subscription Agreements”), which amount included $600,000 issued as consideration for the exchange of the outstanding principal and accrued interest of certain promissory notes previously issued by the Company to such Investors.issuance. As of November 14, 2013,13, 2015, the Company accepted additional subscription agreements for $511,000, bringing thehas issued an aggregate total raised under the Offering,of $755,000 Secured Notes and Note Warrants to date, to $3,126,000.purchase an aggregate total of 280,265 shares of Common Stock.
 
Basis of Presentation and Going Concern
 
The accompanying condensed consolidated balance sheet as of December 31, 2012,2014, which has been derived from audited financial statements included in the Company’s Form 10-K for the year ended December 31, 2014, and the accompanying interim condensed consolidated financial statements as of September 30, 2013, for the thee- and nine-month periods ended September 30, 2013 and 2012, have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to fairly present fairly the Company’s financial condition, results of operations and cash flows of True Drinks Holdings, Inc. as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America ("(“GAAP"). Operating results for the three-three-month and nine-month periodperiods ended September 30, 20132015 are not necessarily indicative of the results that may be expected for the year ending December 31, 2013,2015, or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 20122014 filed with the SEC on April 5, 2013.2, 2015.
 
The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As of and for the ninethree months ended September 30, 2013,2015, the Company incurred a net loss of $5,164,497,$2,132,666, has negative working capital of $4,003,289,$3,239,565, and an accumulated deficit of $8,283,840. A significant amount$25,182,085. The Company had $301,340 in cash at September 30, 2015 with $209,308 of this cash being restricted, as discussed below. The Company will require additional capital, willnot only to satisfy its contractual obligations under the Niagara Agreement, but also to execute its business plan, marketing and operating plan, and therefore sustain operations, which capital may not be necessary to advance the marketability of the Company's products to the pointavailable on favorable terms, if at which the Company can sustain operations. These conditions, among others, raise substantial doubt about the Company's ability to continue as a going concern. Management's plans are to continue to raise capital through equity and debt offerings, and to expand sales as rapidly as economically viable.all. The accompanying condensed consolidated financial statements do not include any adjustments that might result in the event the Company was unable to generate sufficient cash from the outcomeoperations, execute its business, marking or operating plan, or obtain additional working capital, if necessary.
 
Principles of Consolidation
 
The accompanying condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries True Drinks, Inc., Bazi, Inc. and GT Beverage Company, LLC. All inter-company accounts and transactions have been eliminated in the preparation of these condensed consolidated financial statements.

Use of Estimates
 
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates made by management include, among others, derivative liabilities, provision for losses on accounts receivable, allowances for obsolete and slow moving inventory, stock compensation, deferred tax asset valuation allowances, and the realization of long-lived and intangible assets, including goodwill. Actual results could differ from those estimates.

 
Restricted Cash
 
TheAt September 30, 2015, the Company has $133,031had $209,308 in restricted cash with a financial institution securing a letter of credit. The letter of credit matures in August 20152017 and was issued as part of the contractual obligations related to onethe Disney Agreement, as described above in Note 1, under the heading “Recent Developments.” The Company made an initial deposit of our licensing agreements$209,000 during the quarter ended September 30, 2015 to secure the new letter of credit in connection with the Disney Consumer Products, Inc.Agreement.

Accounts Receivable
 
We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of management’s knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on the perceived likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance for doubtful accounts was approximately $254,000$110,000 and $54,000$162,000 at September 30, 20132015 and December 31, 2012,2014, respectively.
 
Concentrations

The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements. The Company maintains the majority of its cash balances with two financial institutions.  There are no funds in excess of the federally insured amount, through September 30, 2013, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.
We utilized a variety of suppliers to purchase raw materials for the AquaBall™ Naturally Flavored Water during the three-months ended September 30, 2015 and 2014.
 
During 2012, the Company2014 and into 2015, we relied significantly on one supplier for 100% of itsour purchases of AquaBall™ Naturally Flavored Watercertain raw materials for Bazi®. Bazi, Inc. has sourced these raw materials from this supplier since 2007 and Bazi® products. Inwe do not anticipate any issues with the quarter ended September 30, 2013, the Company began productionsupply of AquaBall™ with two other suppliers. The Company owns the formula for both the AquaBall™ and Bazi®, and management believes that its purchasing requirements can be readily met from alternative sources.these raw materials.
 
A significant portion of our revenue comes from sales of the AquaBall™ Naturally Flavored Water. For the quarterthree months ended September 30, 2013,2015 and 2014, sales of AquaBall™ accounted for 100%96% and 95% of the Company’s total revenue. The Company is currently improving the manufacturing processesrevenue, respectively.

 
Inventory
 
Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provisions are made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.
 
Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. No inventory reserves were considered necessary as of September 30, 2013.2015 and December 31, 2014.
 
Inventory is comprised of the following:

  
September 30, 2013
(unaudited)
  
December 31,
2012
 
Purchased materials
 
$
607,309
  
$
473,383
 
Finished goods
  
265,246
   
359,491
 
Total
 
$
872,555
  
$
832,874
 
  
September 30,
2015
(unaudited)
  
December 31,
2014
 
Purchased materials $1,254,490  $796,609 
Finished goods  1,012,850   566,834 
Total $2,267,340  $1,363,443 
 
Long-Lived Assets
 
The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. No impairment was deemed necessary during the quarter ended September 30, 2013.
 
Intangible Assets
 
Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Company’s products, customer list, and the estimated value of GT Beverage Company, LLC’s interlocking spherical bottle patent. The Company’s intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary during the quarter ended September 30, 2013.2015.

Goodwill
 
Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually, typically in the fourth quarter. No impairment indicators were notedcharges have been recorded for goodwill during the quarterthree or nine-month period ended September 30, 2013.2015.

Income Taxes
 
For the quarters ended September 30, 20132015 and 2012,2014, the Company incurred tax net operating losses, and accordingly, had no income tax provision. At September 30, 2013,2015, the Company had tax net operating loss carryforwards and a related deferred tax asset, which had a full valuation allowance.      

Stock-Based Compensation
 
For the nine-month periods ended September 30, 20132015 and 2012,2014, general and administrative expenses included stock based compensation expense of $694,533$453,491 and $64,592,$368,172, respectively.
 
The Company uses a Black-Scholes option-pricing model (the “Black-Scholes Model”) to estimate the fair value of theoutstanding stock optionoptions and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Company’s stock price over the contractual term of the option.option or warrant. The expected life is based on the contractual term of the option or warrant and expected employee exercise and, in the case of options, post-vesting employment termination behavior. Currently, it isour model inputs are based on the simplified approach provided by Staff Accounting Bulletin (“SAB”) 110. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 3, "Stock Options and Warrants").
Derivative Instruments

We evaluate free-standing derivative instruments (or embedded derivatives) to properly classify such instruments within equity or liabilities in our consolidated financial statements.

The classification of a derivative instrument is reassessed at each reporting date. If the classification changes as a result of events during a reporting period, the instrument is reclassified as of the date of the event that caused the reclassification. There is no limit on the number of times a contract may be reclassified.

Instruments classified as derivative liabilities are remeasured each reporting period (or upon classification) and the change in fair value is recorded on our consolidated statement of operations in other (income) expense.

Net Loss Per Share
Loss per common share was computed using the weighted average number of shares of Common Stock outstanding during the period. A total of 10,117,224 shares of Common Stock were not included in this calculation, including 2,541,500 shares underlying convertible notes payable, 3,582,466 shares underlying Common Stock purchase warrants and 3,993,258 shares underlying Common Stock options for a total of 10,117,224 shares as inclusion of these shares would be anti-dilutive.

Weighted average shares of Common Stock outstanding retrospectively reflect the 100 to 1 reverse split in January 2013, as if such split occurred on January 19, 2012 (inception). Also reflected from inception is the conversion of shares of Common Stock outstanding at a 1,638 to 1 conversion ratio, reflecting the conversion of shares of Common Stock to shares of Preferred Stock in October 2012 and then conversion to shares of Common Stock in January 2013.

 
Fair Value of Financial Instruments
The Company does not have any assets or liabilities carried at fair value on a recurring or non-recurring basis, except for derivative liabilities.
The Company’s financial instruments consist of cash, accounts receivable, accounts payable and accrued expenses, and debt. Management believes that the carrying amount of these financial instruments approximates their fair values, due to their relatively short-term nature. 
Derivative Instruments
A derivative is an instrument whose value is “derived” from an underlying instrument or index such as a future, forward, swap, option contract, or other financial instrument with similar characteristics, including certain derivative instruments embedded in other contracts (“embedded derivatives”) and for hedging activities. As a matter of policy, the Company does not invest in financial derivatives or engage in hedging transactions. However, the Company has entered into complex financing transactions that involve financial instruments containing certain features that have resulted in the instruments being deemed derivatives or containing embedded derivatives. The Company may engage in other similar complex debt transactions in the future, but not with the intention to enter into derivative instruments. Derivatives and embedded derivatives, if applicable, are measured at fair value using the binomial lattice (“Binomial Lattice”) pricing model and marked to market and reflected on our condensed consolidated statement of operations as other (income) expense at each reporting period. However, such new and/or complex instruments may have immature or limited markets. As a result, the pricing models used for valuation of derivatives often incorporate significant estimates and assumptions, which may impact the level of precision in the financial statements. Furthermore, depending on the terms of a derivative or embedded derivative, the valuation of derivatives may be removed from the financial statements upon conversion of the underlying instrument into some other security.
Net Loss Per Share
Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share.  Since the Company has a net loss for all periods presented, Common Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive. At September 30, 2015 and 2014, the Company had 80,684,324 and 59,637,892 shares of Common Stock equivalents outstanding, respectively.
Research and Development
Research and development costs are expensed as incurred.
Recent Accounting Pronouncements
 
The
Except as noted below, the Company has reviewed all recently issued, but not yet effective accounting pronouncements and has concluded that there are no recently issued, but not yet effective pronouncements that may have a material impact on the Company’s future financial statements.

NOTE 2 — SHAREHOLDERS’ EQUITY
On January 18, 2013, uponIn May 2014, the filing of the AmendmentFASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to the Articles of Incorporation, the Company converted 1,544,565 shares of Series A Preferred issued to former True Drinks shareholders into 25,304,017 post-split shares of the Company’s Common Stock.

Between Januaryuse in accounting for revenue arising from contracts with customers and September 2013, the Company issued 268,800 shares of its Common Stock to certain accredited investors in connection with bridge loans made to the Company. Such loans have short-term maturities of approximately four months.supersedes most current revenue recognition guidance. This accounting standard is effective for annual reporting periods beginning after December 15, 2017, including interim reporting periods within that reporting period. Early adoption is permitted for annual reporting periods beginning after December 15, 2016. The Company expensedis currently evaluating the fair value of the Common Stock issued of $209,090 to interest expense immediately.
In March 2013, the Company issued 38,250 shares of its Common Stock in connection with two consulting agreements. The Company expensed the fair value of the Common Stock issued of $38,250 to consulting expense.

Between April and May 2013, the Company issued a total of 860,818 shares of its Common Stock to holders of $860,818 in outstanding convertible notes payable, lenders fees and accrued interest upon receiving conversion noticesimpact this accounting standard will have on the underlying notes.
Company's financial position, results of operations or cash flows.
Between July and August 2013, the Company issued 76,364 shares of its Common Stock in connection with two consulting agreements. The Company expensed the fair value of the Common Stock issued of $84,000 to consulting expense.

NOTE 3 — STOCK OPTIONS AND WARRANTS

Warrants

During the nine months ended September 30, 2013, the Company issued warrants to purchase an aggregate total of 1,919,321 shares of the Company’s Common Stock to certain accredited investors participating in the Offering that commenced on June 20, 2013. The Company issued 683,106 Warrants to a financial institution in connection with the Offering. Each warrant is exercisable over the course of a five-year term to $1.10 per share.
During the nine months ended September 30, 2013, the Company extended the expiration date on 860,086 warrants from April 30, 2013 to November 29, 2013. Costs related to the modification of the warrants are immaterial.
A summary of the Company’s warrant activity for the nine months ended September 30, 2013 is presented below:

  
Warrants
Outstanding
  
Weighted
Average
Exercise Price
Outstanding, December 31, 2012
  
132,340
  
$
  42.53
 
Granted
  
3,462,513
   
0.549
 
Exercised
  
-
   
-
 
Expired
  
(12,387)
   
187.09
 
Outstanding, September 30, 2013
  
3,582,466
  
$
1.86
 

As of September 30, 2013, the Company had the following outstanding warrants to purchase its Common Stock:
Warrants Outstanding  
Weighted Average
Exercise Price Per Share
  
Weighted Average
Remaining Life (Yrs)
 
 
118,953
  
$
27.58
   
1.56
 
 
1,000
  
$
30.00
   
2.17
 
 
860,086
  
$
0.55
   
0.16
 
 
2,602,427
  
$
1.10
   
4.77
 
 
3,582,466
  
$
1.86
   
3.56
 
Non-Qualified Stock Options
The Company granted 245,739 non-qualified stock options to employees during the nine months ended September 30, 2013.
Stock option activity during the nine months ended September 30, 2013 is summarized as follows:

  Options Outstanding  
Weighted-Average
Exercise Price
 
Options outstanding at December 31, 2012
  
3,870,389
  
$
0.69
 
Exercised
  
-
   
-
 
Granted
  
245,739
   
1.10
 
Forfeited
  
(122,870)
   
1.02
 
Expired
  
-
   
-
 
Options outstanding at September 30, 2013
  
3,993,258
  
$
0.70
 

 The following table summarizes information about the Company’s stock options outstanding as of September 30, 2013:

   Outstanding Options       
      Weighted Average     Exercisable Options 
      Remaining  Aggregate     Aggregate 
Range of     Contractual Life  Intrinsic     Intrinsic 
Exercise Prices  Number  (Years)  Value  Number  Value 
$
0.61
   
3,133,173
   
1.79
  
$
-
   
1,310,610
  
$
-
 
$
1.02
   
614,346
   
1.63
  
$
-
   
184,305
   
-
 
$
1.10
   
245,739
   
2.75
  
$
-
   
-
  
$
-
 
Totals
   
3,993,258
   
1.88
  
$
-
   
1,494,915
  
$
-
 
NOTE 4 — CONVERTIBLE NOTES
Note Offering
 On June 20, 2013 the Company commenced a private offering of: (i) convertible promissory notes (the “Notes”) in the aggregate principal amount of up to $3.3 million; and (ii) and five-year warrants to purchase shares of the Company’s Common Stock at an exercise price of $1.10 per share (the “Warrants”) to certain accredited investors (each an “Investor” and collectively, “Investors”) (the “Offering”). Through September 30, 2013, the Company accepted subscription agreements from Investors resulting in the issuance of Notes in the aggregate principal amount of $2,615,000 (“Subscription Agreements”), which amount included $600,000 issued as consideration for the exchange of the outstanding principal and accrued interest of certain promissory notes previously issued by the Company to certain Investors. As of November 14, 2013, the Company has accepted additional subscription agreements for $511,000, bringing the total raised under the Offering, to date, to $3,126,000.
 Each Note currently accrues interest at a rate of 12% per annum, and matures on November 29, 2013 (the “Maturity Date”); provided, however, under the terms of the Notes, the Company may elect to extend the Maturity Date to February 28, 2014 and begin accruing interest at a rate of 14% as of the date of such extension (the “First Extension Option”), and again to May 31, 2014 and begin accruing interest at a rate of 15% per annum as of the date of such extension (the “Second Extension Option”). Each Note is convertible, at the option of the holder thereof into that number of shares of the Company’s Common Stock, $0.001 par value (“Common Stock”), equal to the outstanding principal balance of the Note, plus accrued but unpaid interest, divided by $2.00. The notes contain "anti-dilution" protection, such that if the Company conducts a qualifying equity transaction, the conversion price of the notes will be the lower of $2.00 or 90% of the price of the qualifying equity transaction. Under ASC 815, management determined that the embedded conversion feature is a derivative liability and recorded a debt discount of $259,285 based on the estimated fair value of the derivative liability. Such amount was determined by a third-party valuation firm using a Monte Carlo simulation and is being amortized into interest expense over the term of the note. Each Note is also accompanied by Warrants to purchase a number of shares of the Company’s Common Stock equal to 75% of the aggregate principal amount of the Notes divided by the lower of $1.10 or the price of a qualifying equity transaction. Under ASC 815, management determined that the warrant’s price-protection feature is also a derivative liability and recorded a debt discount of $­­­­­­903,955 based on the estimated fair value of the derivative liability. This amount is being amortized into interest expense over the term of the note.
 Significant assumptions used in such valuations included:

Expected life
5 years
Estimated volatility
75.0%
Risk-free interest rate
0.07% - 0.10%
Expected dividends
None
A summary of convertible notes payable, net as of September 30, 2013, is as follows:
  Amount 
Outstanding, December 31, 2012
 
$
772,000
 
Notes issued
  
4,009,000
 
Notes repaid
  
(172,000
)
Notes converted to common stock
  
(760,000
)
Debt discount recorded
  
(1,163,240
)
Debt discount amortized
  
657,307
 
Outstanding, September 30, 2013
 
$
3,343,067
 
 
Bridge Financing
NOTE 2 — SHAREHOLDERS’ EQUITY

Between October and December 2012, the Company consummated the sale
The holders of senior secured convertible notes (“Bridge Notes”) to a limited number of accredited investors, resulting in net proceeds to the Company of $725,000.  As additional consideration for the purchase of the Bridge Notes, each investor received 5,000 shares of the Company’s Common Stock per $25,000are entitled to receive, when and as declared by the Board of principal amount purchased. Each Bridge Note has a term of 120 days, and accrues interest at 9% per annum. A fee of 10% was added to each Bridge Note, as a lender’s fee. The principal, interest and lender’s fee are convertible, at the option of the holder, into shares of the Company’s Common Stock at a price of $1.00 per share. The Company has repaid $125,000Directors, dividends payable either in principal, $12,500cash, in fees, and $4,830property or in interest to certain holders of the Bridge Notes. In April and May 2013, Bridge Notes in the aggregate principal amount, plus accrued interest, of $376,222 were converted into 376,225 shares of the Company’s Common Stock. The maturities onDividends have no cumulative rights and dividends will not accumulate if the outstanding Bridge Notes have been extended through November 29, 2013.Board of Directors does not declare such dividends.

In December 2012,On January 18, 2013, upon the filing of an Amendment to the Company's Articles of Incorporation, the Company converted 1,544,565 shares of Series A Preferred Stock issued promissory notes to certain investors, resulting in net proceeds  to the Company of $47,000. These promissory notes have a term of 30 days, and included a lender’s fee of 10%. These promissory notes were repaid in full in January 2013.

In January 2013, we completed a private placement, wherein we issued an aggregate principal amount of $660,000 in unsecured convertible promissory notes (the “January Notes”) to certain purchasers. As additional consideration for the purchase of the January Notes, each purchaser received 5,000 post-splitformer True Drinks shareholders into 25,304,017 shares of the Company’s Common Stock. In February 2015, the Company filed a Certificate of Elimination with the State of Nevada to eliminate the Series A Preferred Stock.
During the three months ended September 30, 2015, the Company declared $68,636 in dividends on outstanding shares of its Series B Preferred Convertible Stock (“Series B Preferred”). The Company issued a total of 346,839 shares of Common Stock to pay $67,890 of cumulative unpaid dividends. As of September 30, 2015, there remained $203,397 in cumulative unpaid dividends on the Series B Preferred.
On February 20, 2015, the Company and certain accredited investors entered into securities purchase agreements to purchase up to 43,000 shares of Series C Preferred for $100 per $25,000share over the course of principal amount purchased.three separate closings. The January Notes haveCompany issued an aggregate total of 18,000 shares of Series C Preferred on February 20, 2015, 15,000 shares on April 1, 2015 and 10,000 shares on May 29, 2015. As additional consideration for participating in this offering, the purchasers were issued five-year warrants to purchase an aggregate total of 10,033,334 shares of Common Stock, exercisable at $0.15 per share. Each warrant contains a termprice-protection feature that adjusts the exercise price in the event of 120 dayscertain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, accrue interest atas such, the value of all such warrants issued, totaling $1,149,809, was recorded to derivative liabilities.
On March 27, 2015, the Company sold to an accredited investor 27,000 shares of Series C Preferred, for gross proceeds of $2.7 million. As additional consideration for this purchase, the investor was issued a ratetotal of 9% per annum. At maturity,6,300,000 five-year warrants to purchase shares of Common Stock, on terms substantially similar to those issued in connection with the February 2015 Series C Preferred offering. Each warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the warrants being classified as a derivative liability and, as such, the value of all warrants issued in connection with this issuance, totaling $841,651, was recorded to derivative liabilities.
On March 27, 2015, holders of the January Notes have the rightoutstanding notes totaling $1,147,000 and accrued interest totaling $67,207 agreed to convertexchange all remaining principal and accrued but unpaid interest into shares of Series C Preferred on substantially similar terms to those offered in the February 2015 offering of Series C Preferred (the “Note Exchange”). As a result of the execution of certain Exchange Agreements and the consummation of Note Exchange, the Company issued an aggregate total of 12,148 shares of Series C Preferred and five-year warrants to purchase an aggregate total of 2,834,536 shares of Common Stock at a conversion price equal to $1.00for $0.15 per share. In May 2013,Each warrant issued in connection with the maturity dateNote Exchange contains a price-protection feature that adjusts the exercise price in the event of certain Januarydilutive issuances of securities. Such price-protection feature results in the warrants being classified as a derivative liability and, as such, the value of all warrants issued in connection with the Note Exchange, totaling $378,681, was recorded to derivative liabilities.
As more fully described in Note 1 above, under the heading “Recent Developments”, on August 13, 2015, the Company and Red Beard entered into the Purchase Agreement, pursuant to which Red Beard purchased an aggregate total of 17,648 shares of Series C Preferred for $113.33 per share between August 13, 2015 and September 15, 2015. As additional consideration for participating in this offering, Red Beard received Series C Warrants to purchase a total of 3,633,411 shares of Common Stock, exercisable for $0.17 per share. Each Series C Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature results in the Series C Warrants being classified as a derivative liability and, as such, the value of all such warrants issued, totaling $488,601, was recorded to derivative liabilities.
As more fully described in Note 1 above, under the heading “Recent Developments”, on September 9, 2015, the Company began a private offering, to certain accredited investors of: (i) Senior Notes in the aggregate principal amount of $500,000 was extendedup to November 29, 2013,$2.5 million; and the remaining balance(ii) and Note Warrants to purchase that number of shares of Common Stock equal to 15% of the January Notes, totaling $180,568principal amount of principal and accrued interest, were converted into 180,568 sharesthe Secured Note purchased, divided by the ten-day average closing price of the Company’s Common Stock.

In February and March 2013, we completed a private placement, wherein we issued unsecured convertible promissory notes in the aggregate principal amount of $389,000 (the “March Notes”) to certain purchasers. As additional consideration for the purchase of the March Notes, each purchaser received 5,000 shares of the Company’s Common Stock per $25,000 of principal amount purchased. The March Notes mature on November 29, 2013 and accrue interest at a rate of 9% per annum. Pursuant to the terms of the March Notes, each note is convertible into shares of the Company’s Common Stock at a conversion price equal to $1.00 per share. In May 2013, March Notes in the aggregate principal amount, plus accrued interest, of $234,543 were converted into 234,543 shares of the Company’s Common Stock.

In April 2013, we completed a private placement, wherein we issued unsecured convertible promissory notes in the aggregate principal amount of $195,000 (the “April Notes”) to certain purchasers. As additional consideration for the purchase of the April Notes, each purchaser received 5,000 shares of the Company’s Common Stock per $25,000 of principal amount purchased. The April Notes mature on November 29, 2013 and accrue interest at a rate of 9% per annum. Pursuant to the terms of the April Notes, the April Notes are convertible into shares of the Company’s Common Stock at a conversion price equal to $1.00 per share. In May 2013, April Notes totaling $69,484 of principal and accrued interest were converted into 69,485 shares of the Company’s Common Stock.
In May 2013, we completed a private placement, wherein we issued unsecured promissory notes in the aggregate principal amount of $600,000 (the “May Notes”) and unsecured convertible promissory notes in the aggregate principal amount of $150,000 (the “Convertible May Notes”) to certain purchasers. As additional consideration for the purchase of the Convertible May Notes, each purchaser received 5,000 shares of the Company’s Common Stock per $25,000 of principal amount purchased.

The May Notes matured on August 6, 2013 and accrued Each Secured Note accrues interest at a rate of 12% per annum. Inannum, and matures one year from the date of issuance. As of September 30, 2015, the Company had issued an aggregate total of 236,843 Note Warrants in connection with and as further consideration for the purchaseissuance of the May Notes,Secured Notes.
During the quarter ended September 30, 2015, the Company issued a total of 600,000 5-year warrants to purchase40,000 shares of the Company’s Common Stock at a price of $1.10 per share toin connection with certain consulting agreements. The Company expensed the purchasers. The Convertible May Notes mature on November 29, 2013 and accrue interest at a rate of 9% per annum. Each Convertible May Note is convertible into sharesfair value of the Company’s Common Stock at a conversion price equalissued of $8,000 to $1.00 per share. In June 2013, the May Notes were converted into the Notes from the Offering initiated in June, 2013.consulting expense.
 
 
NOTE 3 — STOCK OPTIONS AND WARRANTS
Warrants
A summary of the Company’s warrant activity for the nine months ended September 30, 2015 is presented below:
  
Warrants
Outstanding
  
Weighted Average
Exercise Price
Outstanding, December 31, 2014  16,375,270  $0.40 
Granted  13,334,536   0.15 
Exercised  -   - 
Expired  -   - 
Outstanding, March 31, 2015  29,709,806  $0.21 
Granted  8,428,248   0.20 
Exercised  -   - 
Expired  -   - 
Outstanding, June 30, 2015  38,138,054  $0.21 
Granted  3,870,254   0.17 
Exercised  -   - 
Expired  -   - 
Outstanding, September 30, 2015  42,008,308  $0.21 
As of September 30, 2015, the Company had the following outstanding warrants to purchase shares of its Common Stock:
Warrants Outstanding  
Weighted Average
Exercise Price Per Share
  
Weighted Average
Remaining Life (Yrs.)
 
 61,453  $30.00   0.31 
 35,481,687  $0.15   3.87 
 1,120,479  $0.25   1.99 
 1,474,435  $0.38   1.78 
 3,633,411  $0.17   4.90 
 236,843  $0.19   4.94 
 42,008,308  $0.21   3.84 
Non-Qualified Stock Options
No options were granted during the three-months or nine months ended September 30, 2015. During the three months ended September 30, 2015, the Company and holders of the certain options to purchase shares of the Company’s Common Stock agreed to cancel and forfeit their options.
Stock option activity during the nine months ended September 30, 2015 is summarized as follows:
  Options Outstanding  
Weighted Average
Exercise Price
 
Options outstanding at December 31, 2014  12,379,593  $0.37 
Exercised  -   - 
Granted  -   - 
Forfeited  -   - 
Expired  -   - 
Options outstanding at March 31, 2015  12,379,593  $0.37 
Exercised  -   - 
Granted  -   - 
Forfeited  (2,593,912  0.32 
Expired  -   - 
Options outstanding at June 30, 2015  9,785,681   0.38 
Exercised  -   - 
Granted  -   - 
Forfeited  (9,785,681  0.38 
Expired  -   - 
Options outstanding at September 30, 2015  -   - 
Options Outstanding at September 30, 2015
Cancellation of Stock Options and Issuance of Restricted Stock. Between June and July 2015, the Company and each of the holders of all outstanding options to purchase shares of the Company’s Common Stock agreed to cancel and forfeit their options, such that, as of July 10, 2015, no options to purchase shares of the Company’s Common Stock were outstanding.
On August 6, 2015, the Company’s board of directors authorized an issuance of an aggregate total of 19,491,375 shares of restricted Common Stock pursuant to the terms and conditions of the Company’s 2013 Stock Incentive Plan to certain employees, including those that agreed to cancel previously issued stock options. Such shares were issued subsequent to September 30, 2015 (see Note 8 below).
NOTE 4 — DEBT
A summary of debt as of September 30, 2015, is as follows:
  Amount 
Outstanding, December 31, 2014 $4,263,002 
Borrowings  - 
Repayments  (2,986,118)
Conversions to Series C Preferred Stock  (1,147,000)
Outstanding, March 31, 2015 $129,884 
Borrowings  235,792 
Repayments  - 
Outstanding, June 30, 2015 $365,676 
Borrowings  800,000 
Repayments  (198,668)
Outstanding, September 30, 2015 $967,008 
As described under Note 2, “Shareholder’s Equity” above, in March 2015, the Company paid off approximately $2.7 million of the Company’s $3.8 million in outstanding promissory notes. Following the these payments, the Company and each of the holders of the remaining notes entered into Exchange Agreements, wherein the holders agreed to exchange all remaining principal and accrued interest of any such notes into shares of Series C Preferred on substantially similar terms to those offered in connection with the issuance of shares of Series C Preferred and warrants consummated in February 2015.
As described under Note 2, “Shareholder’s Equity” above, in September 2015, the Company began a private offering, to certain accredited investors of: (i) Secured Notes in the aggregate principal amount of up to $2.5 million; and (ii) and Note Warrants to purchase that number of shares equal to 15% of the principal amount of the Secured Note purchased by each investor, divided by the ten-day average closing price of the Company’s Common Stock. Each Secured Note accrues interest at a rate of 12% per annum, and will mature one year from the date of issuance. As of September 30, 2015, the Company had issued Secured Notes in the aggregate principal amount of $700,000 and Note Warrants to purchase an aggregate total of 236,843 shares of Common Stock.
In September 2015, the Company issued promissory notes to certain related parties in the aggregate principal amount of $100,000. The notes expired on October 31, 2015, however, the Company and the related parties are currently negotiating an extension of the expiration date. Upon repayment, the Company will pay a lender's fee to the related parties equal to 10% of the principal amount.
Line-of-Credit Facility
The Company entered into a line-of-credit agreement with a financial institution on June 30, 2014. The terms of the agreement allow the Company to borrow up to the lesser of $1.5 million or 85% of the sum of eligible accounts receivables. At September 30, 2015, the total outstanding on the line-of-credit approximated $167,000 and the Company did not have any availability to borrow. The line-of-credit bears interest at Prime rate 3.25% as of September 30, 2015 plus 4.50% per annum, as well as a monthly fee of 0.50% on the average amount outstanding on the line, and is secured by the accounts receivables that are funded against.

NOTE 5 — COMMITMENTS AND CONTINGENCIES
 
The Company has entered in a number of agreements with various consultants. Termination of any of these agreements could result in termination fees.

The Company leases its corporate office in Irvine, California on a one-year term. The current term expired on July 31, 2015. The Company signed an addendum to its lease, which extended the term was renewed inthrough July 2013.31, 2016. Total rent expense related to the Company's operating lease for the nine months ended September 30, 20132015 was $34,787.$42,425. Total remaining payments on the lease through July 31, 20142016 are $33,228.$37,845.

The Company maintains employment agreements with certain key members of management. The agreements provide for minimum base salaries, eligibility for stock options, performance bonuses and severance payments.

The Company has entered in a number of agreements with various consultants. Termination of any of these agreements could result in termination fees.
Legal Proceedings
 
From time to time, claims are made against the Company in the ordinary course of business, which could result in litigation. Claims and associated litigation are subject to inherent uncertainties and unfavorable outcomes could occur. In the opinion of management, the resolution of these matters, if any, will not have a material adverse impact on the Company’s financial position or results of operations.
 
We are currently not involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations.
NOTE 6 – FAIR VALUE MEASUREMENTS
The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value. FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:
On July -           Level 1: Observable inputs such as quoted prices in active markets;
 -           Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and
 -           Level 3: Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.
This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.
The Company assesses its recurring fair value measurements as defined by FASB ASC 810. Liabilities measured at estimated fair value on a recurring basis include derivative liabilities. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial liabilities among the levels occur at the beginning of the reporting period. There were no transfers between Level 1, 2011,Level 2 and/or Level 3 during the nine months ended September 30, 2015. The Company had no Level 1 or 2 fair value measurements at September 30, 2015 or December 31, 2014.
The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a lawsuit was filedrecurring basis included in the United States District Court, the Southern District of Ohio, Cincinnati Division, against GT Beverage Company, LLC (“GT LLC”) by Dominion Liquid Technologies, LLC. The lawsuit alleges that GT LLC breached terms of a 2010 co-packing agreement, which governed the relationship between the parties. As of February 2013, Dominion amended its complaint to add the CompanyCompany’s financial statements as a defendant in the case. Dominion is seeking monetary damages in an amount exceeding $800,000. GT LLC has filed its answer denying all of Dominion’s claims and expects to vigorously defend the suit. Summary motions are currently under review by the Court’s magistrate, and a trial will likely be set in early 2014.
NOTE 6 — RELATED PARTY TRANSACTIONS
On May 11, 2012, the Company loaned Environmental Packaging Technologies, Inc. (“EPT”) the sum of $150,000 in exchange for a 50-day promissory note. The promissory note accrued interest at 10% per annum and includes a fee equal to 10% of principal balance of the note, payable to the Company. True Drinks’ former chairman and current investor is the chairman for EPT. In July and August 2013, the Company was repaid all principal, interest and fees in connection with the promissory note from EPT. dates indicated:

NOTE 7 — SUBSEQUENT EVENTS
 
Management has evaluated subsequent events through the date the accompanying condensed consolidated financial statements were filed with the SEC, and noted no other significant subsequent events not elsewhere disclosed in these notes to consolidated financial statements.
     Level 1  Level 2  Level 3 
  Total carrying value  Quoted market prices in active markets  Internal Models with significant observable market parameters  Internal models with significant unobservable market parameters 
Derivative liabilities – September 30, 2015 $3,678,321  $-  $-  $3,678,321 
Derivative liabilities – December 31, 2014 $1,569,522  $-  $-  $1,569,522 
 
The following table presents the changes in recurring fair value measurements included in net loss for the nine months ended September 30, 2015 and 2014:
  Recurring Fair Value Measurements 
  Changes in Fair Value Included in Net Loss 
  Other Income  Other Expense  Total 
Derivative liabilities – September 30, 2015 $749,943  $-  $749,943 
Derivative liabilities – September 30, 2014 $-  $1,343,495  $1,343,495 
The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the nine months ended September 30, 2015:
  December 31, 2014  
 
 
Recorded New Derivative Liabilities
  Reclassification of Derivative Liabilities to Additional Paid in Capital  Change in Estimated Fair Value Recognized in Results of Operations  September 30, 2015 
Derivative liabilities $1,569,522  $2,858,742  $-  $(749,943 $3,678,321 
The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the nine months ended September 30, 2014:
  December 31, 2013  
 
 
Recorded New Derivative Liabilities
  Reclassification of Derivative Liabilities to Additional Paid in Capital  Change in Estimated Fair Value Recognized in Results of Operations  September 30, 2014 
Derivative liabilities $1,619,021  $616,411  $(44,751) $1,343,495  $3,534,176 
NOTE 7 – LICENSING AGREEMENTS
We originally entered into a three-year licensing agreement with Disney Consumer Products, Inc. (“Disney”) and an 18-month licensing agreement with Marvel Characters, B.V. (“Marvel”) (collectively, the “Licensing Agreements”) in 2012. Each Licensing Agreement allows us to feature popular Disney and Marvel characters on AquaBall™ Naturally Flavored Water, allowing AquaBall™ to stand out among other beverages marketed towards children. Under the terms and conditions of the Licensing Agreements, we work with the Disney and Marvel teams to create colorful, eye-catching labels that surround the entire spherical shape of each AquaBall™. Once the label designs are approved, we work with Disney and Marvel to set retail calendars, rotating the placement of different AquaBall™ designs over the course of the year.
In 2015, the Company and Disney entered into a renewed Licensing Agreement, which extended the Company’s license with Disney through March 31, 2017 (the “Disney Agreement”). The terms of the Disney Agreement entitles Disney to receive a royalty rate of 5% on the sale of AquaBall™ Naturally Flavored Water adorned with Disney characters, paid quarterly, with a total guarantee of $450,870 over the period from April 1, 2015 through March 31, 2017. In addition, the Company is required to make a ‘common marketing fund’ contribution equal to 1% of sales due annually during the agreement. The Company is required to spend a total of $820,000 on advertising and promotional opportunities over the term of the Amended Disney Agreement.
The terms of the current Marvel Licensing Agreement (“Marvel Agreement”) stipulates a royalty rate of 5% on the sales of AquaBall™ Naturally Flavored Water adorned with Marvel characters, paid quarterly. In 2013, the Company extended the Marvel Agreement through December 31, 2015. The total royalty guarantee for the period from July 1, 2015 through December 31, 2015 is $37,500.
On August 22, 2015, the Company and Marvel entered into a renewed Licensing Agreement, pursuant to which the Company secured a license from Marvel, effective January 1, 2016 until December 31, 2017, to feature certain Marvel characters on bottles of AquaBall™ Naturally Flavored Water. The Marvel Agreement requires the Company to pay to Marvel a 5% royalty rate on the sale of AquaBall™ Naturally Flavored Water adorned with Marvel characters, paid quarterly, through December 31, 2017, with a total guarantee of $200,000.
NOTE 8 – SUBSEQUENT EVENTS
Issuance of Restricted Stock Awards
On October 8, 2015, the Company issued of an aggregate total of 17,352,985 shares of restricted Common Stock pursuant to the terms and conditions of the Company’s 2013 Stock Incentive Plan to certain employees. 7,250,000 of the shares vested on the grant date, while the remaining 10,102,985 shares vest evenly over the next four years. Of the 7,250,000 shares that vested on the grant date, employees elected to defer the disbursement of 6,500,000 of these shares. The remaining 750,000 shares have been issued. Of the 17,352,985 shares granted, 14,494,249 shares were granted to the Company’s officers while the remaining shares were granted to employees.
Bottling Agreement with Niagara Bottling
As described in Note 1 above, under the heading “Recent Developments”, on October 9, 2015, True Drinks entered into the Niagara Agreement with Niagara Bottling, LLC, pursuant to which Niagara will become the exclusive manufacturer of AquaBall™ Naturally Flavored Water for the next five years.
The Niagara Agreement requires the Company to deliver to Niagara its minimum volume requirements for the upcoming 12-month period on or before February 1st of each year, which Annual Commitment may not be less than 3.2 million Cases (defined in the Niagara Agreement as a pack of 24 bottles of AquaBall™ Naturally Flavored Water) per purchase order. Subject to the terms and conditions of the Niagara Agreement, the Company will pay Niagara $6.35 per Case manufactured, for an annual financial liability of approximately $20.3 million per year.
Mr. Vincent C. Smith, the Company’s largest shareholder, executed a Personal Guaranty of True Drinks’ obligations under the Niagara Agreement. In order to offset any financial obligation Mr. Smith may incur as a result of the Personal Guaranty, the Company issued to Red Beard a senior secured promissory Note pursuant to which the Company will borrow any amounts paid to Niagara by Mr. Smith as a result of the Personal Guaranty. Any amounts borrowed under the Note will be secured by a continuing security interest in substantially all of the Company’s assets, will accrue interest at 2.0%, plus the Maximum Rate (as such term is defined in the Note) and, subject to certain terms and conditions of the Note, will be due and payable within 10 years.
As consideration for Mr. Smith’s execution of the Personal Guaranty, the Company issued to Mr. Smith the Personal Guaranty Warrant to purchase 17.5 million shares of the Company’s Common Stock for $0.188 per share.

Amendment to Securities Purchase Agreement
As described in Note 1 above, under the heading “Recent Developments”, on October 16, 2015, the Company and Red Beard executed the Amendment to the August 2015 Purchase Agreement, pursuant to which the Company sold to Red Beard an additional 8,823 shares of Series C Preferred for gross proceeds of approximately $1.0 million. As additional consideration for the purchase of the shares of Series C Preferred under the Amendment, Red Beard received additional Series C Warrant to purchase approximately 1.81 million shares of the Company’s Common Stock for $0.17 per share.
The Company and Red Beard also entered into an amendment to the Registration Rights Agreement, first entered into on August 13, 2015, in order to include within the definition of “Registrable Securities”: (i) shares of Common Stock underlying the shares of Series C Preferred and Series C Warrants issued to Red Beard in connection with the Amendment, and (ii) the shares of Common Stock issuable upon exercise of the Personal Guaranty Warrant.
 
 
47,842,10444,863,395 Shares of Common Stock


 
 
 
TRUE DRINKS HOLDINGS, INC.
 
 
Prospectus  
 
 
 


Prospectus


Until ______ __, 2014, allAll dealers that buy, sell or trade the common stock identified herein may be required to deliver a prospectus, regardless of whether they are participating in this offering. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
 

 
INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.  Other Expenses of Issuance and Distribution

The following table presents the costs and expenses in connection with the issuance and distribution of the securities to be registered, other than underwriting discounts and commissions, payable by us in connection with the sale of common stock being registered. Except as otherwise noted, we will pay all of these amounts. All amounts are estimates except the Securities and Exchange Commission (“SEC”) registration fee.
 
SEC registration fee $1,200  $759 
Accounting fees and expenses $29,000  $5,000 
Legal fees and expenses $30,000  $15,000 
Miscellaneous fees and expenses $6,000  $1,500 
Total $66,200  $22,259 

Item 14.  Indemnification of Directors and Officers

Our Articles of Incorporation, as amended and restated, provide to the fullest extent permitted by the Nevada Revised Statutes, that our directors or officers shall not be personally liable to us or our shareholders for damages for breach of such director’s or officer’s fiduciary duty. The effect of this provision of our Articles of Incorporation is to eliminate our rights and our shareholders lights (through shareholders’ derivative suits on behalf of our company) to recover damages against a director or officer for breach of the fiduciary duty of care as a director or officer (including breaches resulting from negligent or grossly negligent behavior), except under certain situations defined by statute. We believe that the indemnification provisions in our Articles of Incorporation are necessary to attract and retain qualified persons as directors and officers.
 
Our Bylaws also provide that the Board of Directors may also authorize us to indemnify our employees or agents, and to advance the reasonable expenses of such persons, to the same extent, following the same determinations, and upon the same conditions as are required for the indemnification of, and advancement of, expenses to our directors and officers. As of the date of this Registration Statement, the Board of Directors has not extended indemnification rights to persons other than directors and officers.

Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC, such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

Item 15.  Recent Sales of Unregistered Securities
 
      Since December 2010,In addition to the issuances disclosed in the accompanying prospectus, we have issued the following securities since January 2013 that were not registered under the Securities Act of 1933. Each of the securities were offered and sold in transactions exempt from registration under the Securities Act, in reliance on Section 4(2) thereof and Rule 506 of Regulation D thereunder and/or Section 3(a)(9) of the Securities Act. Each of the investors represented that it was an "accredited investor" as defined in Regulation D under the Securities Act.
 
Series B Offering
 
On November 25, 2013, the Company commenced a private offering of up to 2.0 million shares of Series B Preferred for $4.00 per share (“Purchase Price”), and five-year warrants (the “Series BWarrants”), exercisable for $0.30 per share (the "Exercise Price"), to purchase that number of shares of the Company's Common Stockcommon stock equal to 35% of the Purchase Price, divided by the Exercise Price (the “Series B Offering”). As of the date hereof, the Company and certain accredited investors entered into Securities Purchase Agreements to purchase approximately 2.0 million shares of Series B Preferred, and Series B Warrants to purchase approximately 9.3 million shares of Common Stock.common stock.

 
Merriman Capital, Inc. (“Merriman”) acted as placement agent for the majority of the securities issued during the Series B Offering. As consideration for its services, Merriman received: (i) cash compensation totaling $523,250; (ii) five-year warrants to purchase 1,188,200 shares of Common Stockcommon stock for $0.25 per share; and (iii) five-year warrants to purchase 346,560 shares of Common Stockcommon stock for $0.30 per share. Candlewood Securities, Inc. (“Candlewood”) also acted as placement agent for a portion of the securities issued during the final closing of the Series B Offering, and received, as consideration for its services: (i) cash compensation totaling $53,550; (ii) five-year warrants to purchase 91,800 shares of Common Stockcommon stock for $0.25 per share; and (iii) five-year warrants to purchase 26,775 shares of Common Stockcommon stock for $0.30 per share (together, with the warrants issued to Merriman, the “Placement Agent Warrants”).

In connection with the Series B Offering, certain holders (the “Note Holders”) of our outstanding convertible debt agreed to cancel such debt, totaling $739,706 in principal and accrued interest, in exchange for 205,476 Shares and Warrants to purchase 862,995 shares of Common Stockcommon stock for $0.30 per share (the “Note Conversion”).
Term Loan
 
On November 29, 2013, the Company executed a Loan and Security Agreement, and other ancillary documents to receive a $2.0 million term loan from Avid Bank (the "Bank") (the "Term Loan"), which Term Loan will accrue interest at a rate of prime plus 2.75% and will mature on November 29, 2015. As additional consideration for the issuance of the Term Loan, the Company issued to the Bank a five-year warrant to purchase 200,000 shares of Common Stockcommon stock for $0.30 per share.

Note Offering

On June 20, 2013 the Company commenced a private offering of: (i) convertible promissory notes (the “Notes”) in the aggregate principal amount of up to $3.3 million; and (ii) and five-year warrants to purchase shares of the Company’s Common Stockcommon stock at an exercise price of $1.10 per share (the “Warrants”) to certain accredited investors (the “Note Offering”). During the year ended December 31, 2013, the Company issued Notes in the aggregate principal amount of $3,126,000, which amount included $600,000 issued as consideration for the exchange of the outstanding principal and accrued interest of certain promissory notes previously issued by the Company.
 
Series A Preferred

In connection with the merger of True Drinks, Inc. with and into Bazi Acquisition Sub, Inc. on October 15, 2012 (the “Merger”), the Company filed a Certificate of Designation, Preferences, Rights and Limitations of Series A Convertible Preferred Stock to designate 1,544,565 shares of the Company’s Preferred Stock as Series A Convertible Preferred (“Series A Preferred”), which shares were then issued to former True Drinks, Inc. shareholders in exchange for all outstanding capital stock of True Drinks, Inc. On January 18, 2013, upon the filing of an amendment to the Company’s Articles of Incorporation to increase the Company’s authorized capital stock, all outstanding shares of Series A Preferred automatically converted into approximately 25.3 million shares of Common Stock.

Note Offering

Between October and May 2013, the Company sold senior secured convertible notes (“Bridge Notes”) to a limited number of accredited investors in the aggregate principal amount of $2,119,000.  The Bridge Notes carried an original term of 120 days, accrued interest at 9% per annum, earned a lender’s fee of 10% which was added to the principal of the note, earned a Common Stockcommon stock award of 5,000 shares of Common Stockcommon stock per $25,000 unit purchased, and the principal, interest and lender’s fee was convertible, at the option of the holder, into shares of the Company’s Common Stockcommon stock at a price of $0.01 per share. Certain of the notes Bridge Notes were extended to November 29, 2013.

Option Agreement
 
On January 14, 2013, we entered into an Option Agreement with Ashworth Holdings, LLC, a Utah limited liability company (“Ashworth”), pursuant to which Ashworth had the option to purchase up to 860,087 shares of Common Stockcommon stock for a price of $0.549 per share until April 30, 2013. The expiration date for the options was subsequently extended to November 29, 2013, at which time the options expired unexercised.

Unit Offering
      In January 2011, the Company sold, to certain accredited investors, an aggregate total of approximately 4.52 million Units, each Unit consisting of one share of Common Stock and a warrant to purchase a share of Common Stock for $0.30 per share. The Company received aggregate gross proceeds of approximately  $679,000 from the sale of the Units, which proceeds were used for general working capital purposes, and to finance certain sales and marketing initiatives of the Company.

Termination of Banking Agreement

On March 14, 2011, the Company terminated an exclusive investment banking agreement with John Thomas Financial ("JTF"), dated December 23, 2009, releasing the Company from any further obligation to JTF under the investment banking agreement. In consideration for the termination of the investment banking agreement, and any liability thereunder, the Company issued JTF 500,000 shares of Common Stock.

Item 16.  Exhibits and Financial Statement Schedules

(a) Exhibits.  The exhibits are incorporated by reference to the Exhibit Index attached hereto and a part hereof by reference.

(b) Financial Statements.  See page F-1 for an index of the financial statements included in the Registration Statement.

Item 17. Undertakings

(a)  The undersigned registrant hereby undertakes:

(1)  To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(i)  To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;

(ii)  To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than 20% change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement.

(iii)  To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;

(2)  That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

(3)  To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.

 
(4)  That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser, each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.

(b)  Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

 
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Irvine, State of California, on February 7, 2014.
16, 2016.

 
  TRUE DRINKS HOLDINGS, INC. 
  
By:
/s/ Lance LeonardKevin Sherman
     Lance LeonardKevin Sherman
 Interim Chief Executive Officer, Chief   Marketing Officer and Director
 
 

POWERS OF ATTORNEY
Each person whose signature appears below appoints Kevin Sherman and Daniel Kerker, and each of them, any of whom may act without the joinder of the other, as his true and lawful attorneys-in-fact and agents, with full power of substitution and re-substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this Registration Statement and any Registration Statement (including any amendment thereto) for this offering that is to be effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933, as amended, and to file the same, with all exhibits thereto, and all other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or would do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them of their or his substitute and substitutes, may lawfully do or cause to be done by virtue hereof.
 
Pursuant to the requirements of the Securities Act of 1933, as amended, this Registration Statementregistration statement has been signed by the following persons in the capacities and on the dates indicated.
 
Signature Title Date
/s/ Lance LeonardKevin Sherman
Lance Leonard
Kevin Sherman
 
Interim Chief Executive Officer, Chief Marketing Officer and Director
February 7, 2014
/s/ Daniel Kerker
Daniel Kerker
(Principal Executive Officer)
 
Chief Financial Officer and Secretary
February 7, 2014
*16, 2016
Timothy Lane
ChairmanFebruary 7, 2014
*
Carl Wistreich
DirectorFebruary 7, 2014
*
Lou Imbrogno
DirectorFebruary 7, 2014
     
*  By: /s/ Lance Leonard/s/ Daniel Kerker
Attorney-in-factDaniel Kerker
Chief Financial Officer and Secretary (Principal Accounting Officer)February 16, 2016
    
/s/ Ramona Cappello
Ramona Cappello
ChairmanFebruary 16, 2016
/s/ Scot Cohen
Scot Cohen
DirectorFebruary 16, 2016
/s/ Neil LeVecke
Neil LeVecke
DirectorFebruary 16, 2016

 
INDEX TO EXHIBITS

Exhibit No Description
2.1 Agreement and Plan of Merger among Bazi International, Inc., Bazi Acquisition Sub, Inc., GT Beverage Company, Inc. and MKM Capital Advisors, LLC dated as of June 7, 2012, incorporated by reference tofrom Exhibit 2.1 to the Current Report on Form 8-K filed on June 21, 2012.
3.1 Articles of Incorporation, incorporated by reference tofrom Exhibit 3.01 to Form SB-2 filed on February 27, 2001.
3.1.1 CertificateCertification of Amendment to the Articles of Incorporation incorporated by reference to Exhibit 3.1.1 offiled with Form 10-QSB filed on November 14, 2003.
3.2 Amended and Restated By-laws incorporated by reference to Exhibit 3.2 fromfiled with Form 10-KSB filed on March 3, 2005.2005, as Exhibit 3.2, and incorporated herein by reference.
3.3 Amendment to the Amended and Restated Bylaws of Bazi International, Inc., incorporated by reference tofrom Exhibit 3.1 to the Current Report on Form 8-K filed on October 17, 20122012.
3.3 Amended and Restated Articles of Incorporation incorporated by reference tofiled with Form 8-K on August 2, 2010 as Exhibit 3.1, from the Current Report on Form 8-K, filed August 2, 2010.and incorporated herein by reference.
3.4 Certification of Amendment to the Article of Incorporation incorporated by reference towith Form 8-K on May 20, 2011 as Exhibit 3.1, from the Current Report on Form 8-K, filed May 20, 2011.and incorporated herein by reference.
3.5 Certificate of Amendment to the Articles of Incorporation, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed January 22, 20132013.
3.6Certificate of Amendment to the Articles of Incorporation of True Drinks Holdings, Inc., dated February 6, 2014, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed February 6, 2014.
3.7Certificate of Amendment to the Articles of Incorporation of True Drinks Holdings, Inc., dated June 10, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed June 25, 2015.
3.8Amended and Restated By-laws filed with Form 10-Q on August 13, 2015, as Exhibit 3.2, and incorporated herein by reference.
 3.9Certificate of Amendment to the Articles of Incorporation of True Drinks Holding, Inc. dated December 30, 2015, incorporated Exhibit 3.1 to the Current Report on Form 8-K, file January 7, 2016.
4.1 Certificate of Designation, Preferences, Rights and Limitations of Series A Convertible Preferred Stock of Bazi International, Inc., incorporated by reference from Exhibit 4.2 to the Current Report on Form 8-K filed on October 17, 20122012.
4.2Certificate of Withdrawal of the Series A Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.3 to the Current Report on Form 8-K filed on February 23, 2015.
4.3 Certificate of Designation, Preferences, Rights, and Limitations of Series B Convertible Preferred Stock of True Drinks Holdings, Inc., incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K, filed November 26, 2013.
10.14.4 VitaCube SystemsFirst Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc.  2003 Stock Incentive Plan, dated February 18, 2015, incorporated by reference from Exhibit 3.2 to Exhibit 10.1the Current Report on Form 8-K filed with Form 10-QSB, filed November 14, 2003on February 23, 2015.
10.1.14.5 FormCertificate of IncentiveDesignation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock Option Agreement under the 2003 Stock Incentive Plan,of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.1 to Exhibit 10.1.1 fromthe Current Report on Form 10-KSB,8-K filed on March 3, 2005.February 23, 2015.
10.1.24.6 FormFirst Amended and Restated Certificate of NonqualifiedDesignation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock Option Agreement under the 2003 Stock Incentive Plan,of True Drinks Holdings, Inc., dated March 26, 2015, incorporated by reference tofrom Exhibit 10.1.2 from Form 10-KSB, filed on March 3, 2005.
10.2Agreement Concerning the Exchange of Securities by and between the Company and VitaCube Systems, Inc. and the Security Holders of VitaCube Systems, Inc., incorporated by reference4.1 to Exhibit 2 filed with the Current Report on Form 8-K filed Julyon April 1, 20032015
10.34.7Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated August 12, 2015, incorporated herein by reference from Exhibit 3.1 to the Current Report on Form 8-K filed August 18, 2015
4.8Amendment No. 1 to the Second Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated November 24, 2015, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed December 1, 2015
5.1Opinion of Disclosure Law Group (filed herewith).
10.1 Employment agreement with Lance Leonard, incorporated by reference to Exhibit 10.3 filed with the Annual Report on Form 10-K, filed April 5, 2013.
10.410.2 Employment agreement with Dan Kerker, incorporated by reference to Exhibit 10.4 filed with the Annual Report on Form 10-K, filed April 5, 2013.
10.510.3 Financial statements of GT Beverage Company, LLC for the years ended December 31, 2011 and 2010,Employment agreement with Kevin Sherman, incorporated by reference tofrom Exhibit 10.610.3 filed with the Annual Report on Form 10-K, filed April 5, 2013.March 31, 2014.
10.6Placement Agent Agreement, by and between the Company and Axiom Capital Management, Inc., dated May 24, 2013, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed July 3, 2013.
10.7Form of Secured Convertible Promissory Note, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed July 3, 2013.
10.8Form of Warrant, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed July 3, 2013.
10.9Form of Subscription Agreement, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed July 3, 2013.
10.10Form of Amendment to Subscription Agreement, incorporated by reference from Exhibit 10.8 to the Current Report on Form 8-K, filed July 3, 2013.
10.11Security Agreement, by and between the Company and investors in the Note Offering, dated June 20, 2013, incorporated by reference from Exhibit 10.5 to the Current Report on Form 8-K, filed July 3, 2013.
10.12Collateral Agent Agreement, by and between the Company and Union Bank, N.A., dated June 20, 2013, incorporated by reference from Exhibit 10.6 to the Current Report on Form 8-K, filed July 3, 2013.
10.13Escrow Agreement, by and between the Company, Axiom Capital Management, Inc. and Union Bank, N.A., dated June 20, 2013, incorporated by reference from Exhibit 10.7 to the Current Report on Form 8-K, filed July 3, 2013.
10.14Amendment to Escrow Agreement by and between the Company, Axiom Capital Management, Inc. and Union Bank, N.A., dated June 20, 2013, incorporated by reference from Exhibit 10.9 to the Current Report on Form 8-K, filed July 3, 2013.
10.15 Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed November 26, 2013.
10.16Form of Warrant, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed November 26, 2013.
10.17Form of Registration Rights Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed November 26, 2013.
10.1810.5 Loan and Security Agreement, by and between the Company and Avidbank, dated November 29, 2013, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed December 5, 2013.
10.62013 Stock Incentive Plan, incorporated by reference from Exhibit 10.17 to the Annual Report on Form 10-K, filed March 31, 2014.
10.7Secured Promissory Note issued on September 12, 2014 by True Drinks Holdings, Inc. to Scot Cohen, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed October 2, 2014.
10.8Form of Secured Promissory Note, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed October 2, 2014.
10.9Form of Securities Purchase Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed February 23, 2015.
10.10Form of Amendment No. 1 to Securities Purchase Agreement, dated March 27, 2015, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K filed on April 1, 2015
10.11Form of Common Stock Purchase Warrant, dated February 20, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed February 23, 2015.
10.12Form of Registration Rights Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed February 23, 2015.
10.13Form of Indemnification Agreement, dated February 20, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed February 23, 2015.
10.14Form of Note Exchange Agreement, dated March 27, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K filed on April 1, 2015
10.15Form of Securities Purchase Agreement, dated August 13, 2015 incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed August 18, 2015
10.16Form of Common Stock Purchase Warrant, dated August 13, 2015 incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed August 18, 2015
10.17Form of Registration Rights Agreement, dated August 13, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed August 18, 2015
10.18Form of Senior Subordinated Secured Promissory Note, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed September 11, 2015
10.19 Form of Warrant, issuedincorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed September 11, 2015
10.20Employment Agreement, by and between the Company and Robert Van Boerum, dated September 9, 2015, incorporated by reference from Exhibit 10.3 to Avidbankthe Current Report on November 29, 2013,Form 8-K, filed September 11, 2015
10.21Senior Secured Promissory Note, dated October 9, 2015, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed October 27, 2015
10.22Personal Guaranty Warrant, dated October 9, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed October 27, 2015
10.23Amendment No.1 to Securities Purchase Agreement, dated October 16, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed October 27, 2015
10.24Amendment No. 1 to Registration Rights Agreement, dated October 16, 2015, incorporated by reference from Exhibit 10.5 to the Current Report on Form 8-K, filed October 27, 2015
10.25Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed December 5, 2013.1, 2015
10.26Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed December 1, 2015
10.27Form of Registration Rights Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed December 1, 2015
10.28Employment Agreement, by and between True Drinks Holdings, Inc. and Kevin Sherman, dated November 25, 2015, incorporated by reference from Exhibit 10.4 to the Current Report on Form 8-K, filed December 1, 2015
14.1 Code of Ethics filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
14.2 Board Charter filed with Form 10-K on March 31, 2011 and incorporated herein by reference.
21.1 
Subsidiaries of True Drinks Holdings, Inc., incorporated by reference from Exhibit 21.1 filed withto the Annual Report on Form 10-K, filed April 5, 2013
2, 2015
23.1 Consent of Disclosure Law Group, filed herewith.Group*
23.2 Consent of Squar, Milner, Peterson, Miranda & Williamson, LLP, filed herewith.*
24.1 
Power of Attorney incorporated by reference(included in signature page to Exhibit 24.1 filed with the Registration Statement on Form S-1, filed January 9, 2014.
registration statement)
101.INSXBRL Instance Document*
101.SCHXBRL Taxonomy Extension Schema*
101.CALXBRL Taxonomy Extension Calculation Linkbase*
101.DEFXBRL Taxonomy Extension Definition Linkbase*
101.LABXBRL Taxonomy Extension Label Linkbase*
101.PREXBRL Taxonomy Extension Presentation Linkbase*
* To be filed by amendment