10-K 1 truu10k_dec312016.htm FORM 10-K SEC Connect
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
 
FORM 10-K
 
[X]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the fiscal year ended December 31, 2016
 
or
 
[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
Commission file No. 001-32420
 
TRUE DRINKS HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
 
 Nevada
 
84-1575085
(State of incorporation)
 
(I.R.S. Employer Identification Number)
 
18662 MacArthur Blvd, Suite 110
Irvine, CA 92612
(Address of principal executive offices)
 
(949) 203-3500
(Issuer’s telephone number)
 
 Securities registered pursuant to Section 12(b) of the Act:
 
Title of Each Class
 
Name of Each Exchange on Which Registered
Common Stock ($0.001 par value)
 
Over the Counter
 
Securities registered under Section 12(g) of the Exchange Act: None
 
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [   ]  No [X]
 
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [   ]  No [X]
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X]  No [   ]
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [   ]
 
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [   ]
 
 
 
 
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 12b-2 of the Exchange Act.
 
Large accelerated filer  [   ]
 
Accelerated filer  [   ]
 
Non-accelerated filer  [   ]
 
Smaller reporting company  [X]
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [   ]  No [X]
 
The aggregate market value of common stock held by non-affiliates as of the last business day of the registrant’s most recently completed second fiscal quarter, June 30, 2016, was approximately $11.6 million based on a closing market price of $0.17 per share.
 
There were 199,693,811 shares of the registrant’s common stock outstanding as of March 31, 2017.
 
 

 
 
 
TRUE DRINKS HOLDINGS, INC.
ANNUAL REPORT ON FORM 10-K
YEAR ENDED DECEMBER 31, 2016
 
TABLE OF CONTENTS
 
 
 
 
 
 
Page
 
 
 1
 7
 13
 13
 14
 14
 
 
 
 
 
 14
 15
 15
 19
 19
 19
 20
 21
 
 
 
 
 
 21
 25
 30
 34
 34
 
 
 
 
 
 35
 
 
 
 
 38
 
 
 
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
This report contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 and is subject to the safe harbor created by those sections. We intend to identify forward-looking statements in this report by using words such as “believes,” “intends,” “expects,” “may,” “will,” “should,” “plan,” “projected,” “contemplates,” “anticipates,” “estimates,” “predicts,” “potential,” “continue,” or similar terminology. These statements are based on our beliefs as well as assumptions we made using information currently available to us. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. Because these statements reflect our current views concerning future events, these statements involve risks, uncertainties, and assumptions. Actual future results may differ significantly from the results discussed in the forward-looking statements. These risks include changes in demand for our products, changes in the level of operating expenses, our ability to expand our network of customers, changes in general economic conditions that impact consumer behavior and spending, product supply, the availability, amount, and cost of capital to us and our use of such capital, and other risks discussed in this report.  Additional risks that may affect our performance are discussed below under “Risk Factors Associated with Our Business.”
 
PART I
 
ITEM 1. DESCRIPTION OF BUSINESS
 
As used in this Annual Report, “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.
 
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™ Naturally Flavored Water, a zero-sugar, zero-calorie, preservative-free, vitamin-enhanced, naturally flavored water drink. We distribute AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores, convenience stores and through online retailers. 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.
 
Our principal place of business is 18662 MacArthur Boulevard, Suite 110, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our common stock, par value $0.001 per share (“Common Stock”), is currently listed for quotation on the OTC Pink Marketplace under the symbol “TRUU.”
 
Recent Developments
 
January Note Exchange
 
On January 20, 2016, the Company and certain holders of senior subordinated secured promissory notes (“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 Convertible Preferred Stock (“Series C Preferred”) and five-year warrants to purchase up to an agate total of 1,029,701 shares of Common Stock for $0.17 per share.
 
 
Amendment to Series C Preferred Certificate of Designation
 
On April 13, 2016, in connection with the April Series C Offering (defined below), the Company filed the Third Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock (the “Series C Amendment”), with the Nevada Secretary of State in order to: (i) prohibit, except in certain circumstances, any holder of shares of the Company’s Series C Preferred from voting more than 50% of the total voting power of the outstanding shares of capital stock of the Company; (ii) increase the number of shares of preferred stock designated as Series C Preferred from 150,000 to 200,000, and (iii) permit the issuance of shares of Series C Preferred and certain warrants to purchase shares of the Company’s Common Stock.
 
Completion of April Series C Offering
 
On April 13, 2016, the Company and one of the Company’s current shareholders, Red Beard Holdings, LLC (“Red Beard”), entered into a Securities Purchase Agreement, which agreement was amended on July 13, 2016 (the “April Purchase Agreement”), wherein Red Beard, together with any other signatories to the April Purchase Agreement (collectively, the “Purchasers”), agreed to purchase up to 50,000 shares of Series C Preferred for $100 per share over the course of three separate closings (the “April Series C Offering”).
 
The Company issued an aggregate total of 25,000 shares of Series C Preferred on April 13, 2016, 10,000 shares of Series C Preferred on July 15, 2016 and, between August 31, 2016 and September 13, 2016, the Company issued an aggregate total of 25,000 shares of Series C Preferred. As additional consideration for participating in the April Series C Offering, the Purchasers received five-year warrants to purchase up to an aggregate total of approximately 33.3 million shares of the Company’s Common Stock for $0.15 per share.
 
Creation of Series D Convertible Preferred Stock
 
On January 24, 2017, the Company filed the Certificate of Designation, Preferences, Rights and Limitations of the Series D Convertible Preferred Stock (the “Certificate of Designation”) with the Nevada Secretary of State, designating 50,000 shares of the Company's preferred stock, par value $0.001 per share, as Series D Convertible Preferred Stock (the “Series D Preferred”).
 
Each share of Series D Preferred has a stated value of $100 per share, and, following the expiration of the 20 day calendar day period set forth in Rule 14c-2(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), commencing upon the distribution of an Information Statement on Schedule 14C to the Company's stockholders, each share of Series D Preferred is convertible, at the option of each respective holder, into that number of shares of the Company’s Common Stock equal to the stated value, divided by $0.15 per share (the “Conversion Shares”). The Certificate of Designation also gives the Company the option to require the conversion of the Series D 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 D Offering
 
On February 8, 2017 (the “Initial Investment Date”), the Company and certain accredited investors (the “Series D Investors”) entered into a Securities Purchase Agreement (the “Series D Purchase Agreement”), wherein the Company may offer and sell to Series D Investors up to 50,000 shares of Series D Preferred for $100 per share (the “Series D Offering”). As additional consideration, Series D Investors will also receive five-year warrants (the “Series D Warrants”), to purchase up to 200% of the Conversion Shares issuable upon conversion of shares of Series D Preferred purchased under the Series D Offering for $0.15 per share. In accordance with the terms and conditions of the Series D Purchase Agreement, all Series D Warrants issued in connection with the Series D Offering will be exchanged for shares of Common Stock pursuant to the Warrant Exchange Program, as further described below.
 
 
On the Initial Investment Date, the Company issued to Series D Investors an aggregate total of 31,750 shares of Series D Preferred, as well as Series D Warrants to purchase up to an aggregate total of 42,333,341 shares of Common Stock. Between the Initial Investment Date and the date of this Annual Report, the Company has issued an additional 5,000 shares of Series D Preferred and Series D Warrants to purchase up to an aggregate total of 6,666,669 shares of Common Stock. The issuance of the shares of Series D Preferred to date has resulted in gross proceeds to the Company of approximately $3.7 million.
 
Warrant Exchange
 
Beginning on February 8, 2017, the Company and certain holders of outstanding Common Stock purchase warrants (the “Outstanding Warrants”), entered into Warrant Exchange Agreements (each, an “Exchange Agreement”), pursuant to which each holder agreed to cancel their respective Outstanding Warrants in exchange for one-half of a share of Common Stock for every share of Common Stock otherwise issuable upon exercise of Outstanding Warrants (the “Warrant Exchange Program”). The Company expects to issue up to 71.7 million shares of Common Stock in exchange for the cancellation of 143.4 million Outstanding Warrants, including the Warrants issued in connection with the Series D Offering, over the course of the Warrant Exchange Program.
 
To date the Company has issued 73,106,453 shares of Common Stock, in exchange for the cancellation of 146,212,905 Outstanding Warrants.
 
Our Products
 
We market and distribute products that offer a healthful, natural alternative to high sugar, high calorie and nutritionally deficient beverages. 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™ Naturally Flavored Water
 
Our flagship product is AquaBall™ Naturally Flavored Water, a zero-sugar, zero-calorie, preservative-free, vitamin-enhanced, naturally flavored water drink. AquaBall™ does not contain high fructose corn syrup, artificial flavors, or artificial colors. Unlike high sugar and high calorie beverages marketed toward children, AquaBall™ is sweetened with stevia, an all-natural sweetener, allowing AquaBall™ to provide a zero-sugar, zero-calorie alternative to juice and soda for kids. The main component of the marketing vision behind the AquaBall™ brand is our licensing agreements with Disney Consumer Products, Inc. and Marvel Entertainment, allowing each AquaBall™ bottle 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™ the presence associated with these brands.
 
AquaBall™ is packaged in 10-ounce bottles, and is wrapped with colorful, eye-catching labels featuring popular Disney characters and various Marvel Superheroes. AquaBall™ currently comes in fruit punch, grape, strawberry lemonade and berry frost flavors and is sold primarily in grocery and convenience stores throughout the United States. During the year ended December 31, 2016, AquaBall™ sales accounted for approximately 92% of the Company’s total revenues.
 
Bazi®
 
Bazi® 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® contains 12 vitamins including vitamins A, C, E and B-complex. In August, 2011, BioEnergy Ribose was added to Bazi® enhancing the products energy delivery system. During the year ended December 31, 2016, Bazi® sales accounted for approximately 8% of the Company’s total revenues.
 
 
 
Manufacturing and Distribution
 
Manufacturing
 
Beginning in May 2016, all production of AquaBall™ moved to Niagara Bottling, LLC (“Niagara”), pursuant to the terms and conditions of a bottling agreement executed by the Company and Niagara in October 2015 (the “Niagara Agreement”). Niagara handles all aspects of production, including the procurement of all raw materials necessary to produce AquaBall™. In accordance with the terms of the Niagara Agreement, Niagara provides us with finished goods and bills us for product as it is shipped to customers. In addition to Niagara, we work a limited number of partners to repack bottles of AquaBall™ into six-packs and our 15-pack club packages.
 
Prior to May 2016, we utilized the service of certain third parties to supply and manufacture our products. We had co-packing agreements with 7-Up Bottling in Modesto, California, Mountain Pure in Palestine, Texas, and Adirondack Beverages in Scotia, New York to package up to 4.0 million cases of AquaBall™ Naturally Flavored Water per year.
 
Bazi® has been, and continues to be manufactured by Arizona Packaging and Production since 2007.
 
Retail Distribution
 
After experiencing an increase in same store sales in those locations serviced by regional distributors, we began shifting our retail distribution strategy towards a nationwide network of regional distributors for each of our grocery, drug and convenience accounts in November 2015. Throughout 2016 and the first quarter of 2017, we signed with distributor partners in 44 states. We will continue to ship directly to certain customers for which direct to warehouse delivery is required.
 
Online Sales
 
Our e-commerce platform allows current and future consumers to purchase AquaBall™ Naturally Flavored Water and Bazi® Energy Shot through Amazon.com and http://www.drinkbazi.com, respectively. We drive traffic to relevant landing pages and micro sites through digital marketing campaigns and promotions, as well as a variety of social media marketing efforts.
 
Sales and Marketing
 
Our 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, 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. Our sales teams work to secure national distribution with these customers through multiple avenues including joint sales meetings with Disney and Marvel sales personnel.
 
As noted above, in November 2015, we began building a nationwide network of direct store distributors to handle the distribution of AquaBall™ in the grocery, drug and convenience channels. With the exception of accounts requiring direct to warehouse delivery, accounts are serviced by our distribution network. Our sales team will continue to secure distribution with both national and regional accounts, while our distributor partners add to our distribution with independent grocery and convenience stores in their respective territories.
 
Source and Availability of Raw Materials
 
Beginning in May 2016, Niagara began handling all aspects of production of AquaBall™, including the procurement of all raw materials. Prior to May 2016, we utilized a variety of suppliers to purchase raw materials for the AquaBall™.
 
During 2016, we relied significantly on one supplier for 100% of our purchases of certain raw materials for Bazi®. Bazi, Inc. has sourced these raw materials from this supplier since 2007 and does not anticipate any issues with the supply of these raw materials.
 
 
 
We own the formulas for both AquaBall™ Naturally Flavored Water and Bazi® 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. AquaBall™ Naturally Flavored Water competes most directly with other beverages marketed directly to children. We also compete with other manufacturers of functional beverages, and with manufacturers of more traditional beverages, such as juice and soda.
 
Our primary competition for AquaBall™ is in the estimated $2.0 billion market for products marketed directly to children, including CapriSun®, Honest Kids, 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, owned by Coca-Cola, and Sobe and Propel, both owned by Pepsi Co. Bazi® competitors include Steaz®, Guayaki Yerba Mate, POM Wonderful®, as well as sports and energy drinks including Gatorade®, Red Bull®, 5-Hour Energy®, RockStar®, Monster®, Powerade®, Accelerade® and All Sport®. Indirect competition for the AquaBall™ and Bazi® includes soft drinks and juice products, such as Sunny Delight® 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 AquaBall™ patent, AquaBall™ and Bazi® trademarks and licensing agreements to market our products and make them stand out among our competitors.
 
Patents and Trademarks
 
We were granted the patent for AquaBall™’s stackable, spherical drink container in 2009, via GT Beverage Company, LLC, who we purchased on March 31, 2012. In 2016, we stopped using this bottle and, instead, switched to a bottle specifically designed for us by Niagara Bottling. In 2016, we took an impairment charge on the value of the spherical drink container patent.
 
We maintain trademark protection for AquaBall™ and have federal trademark registration for Bazi®. This trademark registration is protected for a period of ten years and then is renewable thereafter if still in use.
 
Licensing Agreements
 
We first entered into licensing agreements with Disney Consumer Products, Inc. and an 18-month licensing agreement with Marvel Characters, B.V. (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 entitle Disney to receive a royalty rate of 5% on sales 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 Disney Agreement. During the year ended December 31, 2016, the Company paid a total of $129,597 to Disney pursuant to the Disney Agreement.
 
On August 22, 2015, the Company and Marvel entered into a renewed Licensing Agreement to extend the Company's license to feature certain Marvel characters on bottles of AquaBall™ Naturally Flavored Water through December 31, 2017. The Marvel Agreement requires the Company to pay to Marvel a 5% royalty rate on sales of AquaBall™ Naturally Flavored Water adorned with Marvel characters, paid quarterly, through December 31, 2017, with a total guarantee of $200,000. The total royalty paid to Marvel during the year ended December 31, 2016 was $100,000.
 
Government Regulations
 
The production, distribution and sale in the United States of our products are subject to various U.S. federal and state regulations, including but not limited to: the Federal Food, Drug and Cosmetic Act, including as amended by the Dietary Supplement Health and Education Act of 1994; the Occupational Safety and Health Act; various environmental statutes; and a number of other federal, state and local statutes and regulations applicable to the production, transportation, sale, safety, advertising, marketing, labeling and ingredients of 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 states and localities, as well as by Congress. We are unable to predict whether such legislation will be enacted or what impact its enactment would have on our business, financial condition or results of operations.
 
All of our facilities in the United States are subject to federal, state and local environmental 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 could require material expenditures or have a material adverse effect on 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 year ended December 31, 2016. We are working with certain third parties on the development of possible future products, but these projects are funded by the respective third parties. Upon execution of the Niagara Agreement in October 2015, we completed the development of an improved “clean label” formulation of AquaBall™, which remains sugar and calorie free but eliminated all preservatives, and is produced using a hot-fill process. We completed the transition of AquaBall™ to the new, preservative-free formulation and begin distribution from Niagara facilities in June 2016.
 
During 2006, Bazi® 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. Since 2012, Bazi® has been and is now being sold solely online in 12, 24, 36, 48 and 144 packs.
 
Employees
 
We had 13 full-time employees and one part-time employee as of December 31, 2016.
 
 
 
Compliance with Environmental Laws
 
In California, we are required to 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.
 
Available Information
 
As 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 information (including any amendments) with the Securities and Exchange Commission (the “SEC”). You may read and 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 10:00 a.m. to 3:00 p.m. You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. You can also find the Company’s SEC filings at the SEC’s website at http://www.sec.gov.
 
Our Internet address is www.truedrinks.com. Information contained on our website is not part of this annual report on Form 10-K. Our SEC filings (including any amendments) will be made available free of charge on www.truedrinks.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
 
ITEM 1A. RISK FACTORS
 
We are subject to various risks that could have a negative effect on the Company and its financial condition. These risks could cause actual operating results to differ from those expressed in certain “forward looking statements’ contained in this Annual Report on Form 10-K as well as in other communications.
 
Risks Related to the Company
 
We have a history of operating losses and, despite consummation of recent financings, we require additional financing to satisfy our current contractual obligations and execute our business plan.
 
We have not been profitable since inception. We had a net loss of $5,445,563 and $11,990,563 during the years ending December 31, 2016 and 2015, respectively. Additionally, sales of AquaBall™ Naturally Flavored Water are significantly below levels necessary to achieve positive cash flow.
 
Although we have recently consummated equity and debt financings that have resulted in aggregate gross proceeds of approximately $6 million for the year ended December 31, 2016, our cash position was approximately $224,876 at December 31, 2016, and we used $5,665,992 of cash for operations during the year ended December 31, 2016. To continue as a going concern, and to satisfy our contractual obligations under 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 plan.
 
We must attain certain objectives in order to successfully execute our business plan over, including certain sales and distribution of AquaBall™ Naturally Flavored Water required by the minimum volume requirements for each 12-month period under the Niagara Agreement. Failure to sustain sales sufficient to meet our Annual Commitment to Niagara will have a material adverse impact on our business, and no assurances can be given that we will be successful in our efforts.
 
 
 
We believe that, in order to execute our business plan and achieve sales growth, we must, 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 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.
 
Our licensing agreements with Disney Consumer Products, Inc. and Marvel Characters, B.V. are critical components of the marketing of the AquaBall™ line, and there is no guarantee the licensing agreements will be renewed at the end of each agreement’s term.
 
We currently have licensing agreements with Disney Consumer Products, Inc. and Marvel Characters, B.V. that allow us to place popular Disney and Marvel characters on labels of AquaBall™ Naturally Flavored Water. The use of these characters, including Disney Princesses and Spider-Man, is critical to making AquaBall™ stand out among our competitors. These licensing agreements have varying terms, the Disney Agreement expires on March 31, 2017 and the Marvel Agreement expires on December 31, 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, an entity affiliated with Mr. Smith, 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 makes it difficult to evaluate our prospects.
 
We have a limited operating history on which to evaluate our business and prospects. Our current flagship product, AquaBall™ Naturally Flavored Water, was formulated and introduced to the public for sale in 2012. Our other product, Bazi® 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™ 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.
 
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 are currently dependent on a single manufacturer for the production of AquaBall™, and we do not independently analyze our products 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. In addition, any errors in our product manufacturing could result in product recalls, significant legal exposure, and reduced revenues and the loss of distributors.
 
We rely entirely on Niagara to manufacture our flagship product, AquaBall™ Naturally Flavored Water. In the event Niagara is 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, our revenues and relationships with our independent distributors and customers would be adversely impacted. In the event Niagara becomes 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, Niagara sources the raw materials for AquaBall™, 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 Niagara. An extended interruption in the supply of our products would result in decreased product sales and our revenues would likely decline.
 
Although we require Niagara to verify the accuracy of the contents of our products, we do not have the expertise or personnel to directly monitor the production of products. We rely exclusively, without independent verification, on certificates of analysis regarding product content provided by Niagara and limited safety testing by them. We cannot be assured that Niagara 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, from both retail and online providers. We consider the significant competing products in the U.S. market for the AquaBall™ to be Capri-Sun, Good to Grow, Bug Juice, and other alternatives marketed towards children, and for Bazi® to be Red Bull®, Monster®, RockStar®, and 5 Hour Energy®. 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.
 
 
 
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™ and/or Bazi®, 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.
 
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 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 benefits of our 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.
 
 
 
-10-
 
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 incurred write-downs against inventory of $576,559 and $385,232 for the years ended December 31, 2016 and December 31, 2015, 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 focus on the AquaBall™ 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 we consider 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.
 
 
 
-11-
 
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, 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 Kevin Sherman, our Chief Executive Officer and Chief Marketing 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.
 
Risks Related to Our Common Stock
 
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 OTC Pink Marketplace. An active trading market for our Common 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 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 our outstanding derivative securities are issued, our shareholders will experience immediate and substantial dilution in the book value of their investment.
 
We currently have 199,693,811 shares of Common Stock issued and outstanding. If, and when, holders of our outstanding derivative securities, which securities include Series B Convertible Preferred Stock (“Series B Preferred”), Series C Preferred, Series D Preferred and any warrants that remain outstanding after the completion of the Warrant Exchange Program, decide to exercise or convert those securities into Common Stock, the number of shares of our Common Stock issued and outstanding could increase by as much as 60%. Conversion of all or a portion of our outstanding derivative securities would have a substantial and material dilutive effect on our existing stockholders and on our earnings per share.
 
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.
 
 
 
-12-
 
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 Stock may be classified as “penny stock,” trading may be limited, and the share price could decline. Moreover, trading of our 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. These disclosure requirements are burdensome to broker-dealers and may discourage them from allowing their customers to participate in transactions involving our Common Stock.
 
We have issued preferred stock with rights senior to our 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 5.0 million shares of preferred stock, par value $0.001 per share, without shareholder approval and on terms established by our directors, of which 2.75 million shares have been designated as Series B Preferred, 200,000 shares have been designated as Series C Preferred and 50,000 shares have been designated as Series D Preferred. We may issue additional shares of preferred stock in order to consummate a financing or other transaction, in lieu of the issuance of Common Stock. The rights and preferences of any such class or series of preferred 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.
 
You should not rely on an investment in our Common 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 Stock and do not anticipate paying any cash dividends in the foreseeable future. You should not make an investment in our Common Stock if you require dividend income. Any return on investment in our Common Stock would only come from an increase in the market price of our stock, which is uncertain and unpredictable.
 
ITEM 1B. UNRESOLVED STAFF COMMENTS
 
None.
 
ITEM 2. PROPERTIES
 
Facilities
 
The Company leases its corporate office in Irvine, California on a one-year term. The Company moved into a new office in January 2016. In January 2017, the Company extended its lease from an expiration date of December 31, 2016 to September 30, 2017. Total rent expense related to the Company's operating lease for the year ended December 31, 2016 was $57,179. Total remaining payments on the lease through September 30, 2017 are $28,458.
 
 
 
-13-
 
Insurance
 
We maintain commercial general liability, including product liability coverage, and property insurance. Our policy provides for a general liability limit of $2.0 million per occurrence, and $10 million annual aggregate umbrella coverage.
 
ITEM 3. 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.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
None.
 
PART II
 
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
 
 
Our Common Stock is traded on the OTC Pink Marketplace under the symbol “TRUU.”
 
The following table sets forth high and low sales prices for our Common Stock for the calendar quarters indicated as reported by the 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
 
2016
 
 
 
 
 
 
First Quarter ended March 31, 2016
 $0.19 
 $0.11 
Second Quarter ended June 30, 2016
 $0.20 
 $0.11 
Third Quarter ended September 30, 2016
 $0.19 
 $0.08 
Fourth Quarter ended December 31, 2016
 $0.13 
 $0.08 
 
    
    
2015
    
    
First Quarter ended March 31, 2015
 $0.25 
 $0.12 
Second Quarter ended June 30, 2015
 $0.20 
 $0.14 
Third Quarter ended September 30, 2015
 $0.40 
 $0.14 
Fourth Quarter ended December 31, 2015
 $0.22 
 $0.06 
 
Holders
 
At March 31, 2017, there were 199,693,811 shares of our Common Stock outstanding, and approximately 220 shareholders of record. At March 31, 2017, there were 1,292,870 shares of our Series B Preferred, 106,704 shares of our Series C Preferred and 35,250 shares of our Series D Preferred outstanding held by 29, five and 20 shareholders of record, respectively. 
  
 
 
-14-
 
Dividends
 
We did not declare any dividends on Common Stock for the years ended December 31, 2016 and 2015. 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 Stock is Corporate Stock Transfer located in Denver, Colorado.
 
ITEM 6. SELECTED FINANCIAL DATA
 
As a “smaller reporting company” as defined by the rules and regulations of the SEC, we are not required to provide this information.
 
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
You should read the following discussion and analysis in conjunction with our financial statements, including the notes thereto contained in this Annual Report. This discussion contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results may differ materially from those anticipated in these forward-looking statements as a result of a variety of certain factors, including those set forth under “Risk Factors Associated with Our Business” and elsewhere in this Annual Report.
 
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.
 
 
 
-15-
 
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 an allowance for doubtful accounts of approximately $118,000 as of December 31, 2016.
 
Inventory
 
The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.
 
Inventories are stated at the lower of cost (based on the first-in, first-out method) or market (net realizable value). Cost includes shipping and handling fees and costs, which are subsequently expensed to cost of sales. The Company provides for estimated losses from obsolete or slow-moving inventories, and writes down the cost of inventory at the time such determinations are made. Reserves are estimated based on inventory on hand, historical sales activity, industry trends, the retail environment, and the expected net realizable value.
 
The Company maintained inventory reserves of $110,000 and $0 as of December 31, 2016 and December 31, 2015, respectively. This inventory reserve is related to our remaining finished goods inventory of AquaBall prior to the production of our new formulation of AquaBall produced by Niagara. The prior formulation AquaBall is still being sold, but only to select accounts at a reduced price.
 
Inventory is comprised of the following:
 
 
 
December 31,
  2016
 
 
December 31,
2015
 
Purchased materials
 $89,358 
 $689,703 
Finished goods
  339,554 
  869,016 
Allowance for obsolescence reserve
  (110,000)
  - 
Total
 $318,912 
 $1,558,719 
 

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, and the estimated value of our interlocking spherical bottle patent acquired on March 31, 2012. The Company’s intangible assets are amortized over their estimated useful remaining lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. As AquaBall™ is now packaged in a new bottle designed by Niagara Bottling, we have evaluated our options with our interlocking spherical bottle patent. As of December 2016, we have recorded an impairment to the bottle patent of $679,411. We have adjusted the carrying value of this patent to $250,000.
 
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 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.
 
 
 
-16-
 
Results of Operations – Fiscal Years Ended December 31, 2016 and 2015
 
Net Sales
 
Net sales for the year ended December 31, 2016 was $2,575,448 compared to $6,121,097 during the same period in 2015, a decrease of 58%. The year over year decrease in net sales is a result of the transition from the old formulation of AquaBall™ to the new formulation manufactured by Niagara. We anticipate net sales will increase during the year ended December 31, 2017, when compared to the year ended December 31, 2016, as we expand distribution of our new, preservative-free formulation of AquaBall™.
 
In addition to launching the new, preservative-free formulation of AquaBall™, we revamped our sales staff during the year ended December 31, 2016. We hired Jeff Culbertson as our Executive Vice President of Sales in April, two additional national account managers to focus on sales activity in the eastern and western regions of the United States, respectively, and regional sales managers to oversee the progress of our growing direct-store-distribution (“DSD”) network. We expect our sales efforts to focus on expanding distribution with national accounts in the grocery, convenience, drug and mass retail markets, as well as continuing to build out our DSD network throughout fiscal 2017. As of March 2017, we have secured distributor partners in 44 states, and we are working actively in filling in the remaining territories. Our sales team is also, and will continue to be focused on securing distribution during the next account resets for national grocery and convenience store accounts over the next several months. We anticipate sales of our new preservative-free AquaBall™ to continue to increase as we gain chain authorizations and sign distributors to service those accounts.
 
The percentage that each product category represented of our net sales is as follows:
Product Category
 
Year Ended
December 31, 2016
(% of Sales)
 
AquaBall™
  92%
Bazi®
  8%
    
Gross Profit (Loss) and Gross Margin
 
Gross profit for the year ended December 31, 2016 was $321,863 as compared to a gross loss of $160,990 for the year ended December 31, 2015. Gross profit as a percentage of revenue (gross margin) during the year ended December 31, 2016 was 12%. This low percentage is due primarily to discounts given on product as we transitioned out of our prior, cold-fill formulation of AquaBall™ to our new preservative-free, hot-fill formulation of AquaBall™ manufactured by Niagara in the first half of 2016. Although gross margins were relatively low during the first two quarters of fiscal 2016, gross margins increased significantly in the third and fourth quarters to 35% and 33% of revenue for the three months ended September 30, 2016 and December 31, 2016, respectively. This increase in gross profit is a great improvement for our Company, and is a direct result of our relationship with Niagara Bottling who provides finished goods to the Company and bills the Company for the product as it is shipped to customers, allowing our costs to become more consistent.
 
We expect margins to continue to improve during the year ended December 31, 2017 as we work to reduce inefficiencies in the manufacturing process with Niagara and increase distribution of our new preservative-free AquaBall™ in the grocery, convenience, drug and mass channels. In the past, we had a greater focus on the club channel, which had a severely negative affect on our margins. Although we have also improved our margins in the club channel, we expect a lower percentage of our overall sales to come from this channel moving forward.
 
Sales, General and Administrative Expense
 
Selling, general and marketing expenses were $8,607,958, or 334% of net sales, for the year ended December 31, 2016, as compared to $10,548,884, or 172% of net sales for the year ended December 31, 2015. This year over year decrease of $1,940,926 is primarily the result of reduced staffing levels and other employment related costs implemented in the first half of fiscal 2016 due, in part, to our relationship with Niagara which acts as an extension of our operations department by providing the Company with finished goods and only billing for those goods when shipped to customers. This structure has caused, and will continue to cause, our warehouse and fulfillment costs to decrease, as our agreement with Niagara allows us to store up to 4,000 pallets of product at their facility at no cost. Our total selling expenses decreased in hand with our reduced level of sales in 2016, as well. Additionally, our freight expenses as a percentage of sales decreased substantially as our new bottle now allows us to ship 69% more bottles per truck, and we are shipping larger orders as we are utilizing distributors rather than shipping directly to customers. This has far more than offset an increase in the average distance of our shipments, as we now ship from one production facility in Dallas, rather than three different facilities. We anticipate focusing our marketing expenses on promoting our brand at our retail locations to drive both trial and brand awareness in 2017.
 
 
 
-17-
 
Interest Expense
 
Interest expense for the year ended December 31, 2016 was $39,789 as compared to $257,389 for the year ended December 31, 2015. Interest expense for the 2016 period consists of interest and fees due on promissory notes issued in the third quarter of 2015.
 
Other Expense
 
Other expense for the year ended December 31, 2016 was $685,849, as compared to other expense of $2,285,629 for the year ended December 31, 2015. The 2016 total included an impairment charge of $679,411 on our spherical bottle patent while the 2015 total included a $2,285,792 charge for warrants issued in connection with a personal guaranty supporting our Bottling Agreement with Niagara Bottling.
 
Net Loss
 
Our net loss for the year ended December 31, 2016 was $5,445,563 as compared to a net loss of $11,990,563 for the year ended December 31, 2015. On a per share basis, our loss, after dividends on outstanding shares of Series B Preferred, was $0.05 and $0.16 per share for the years ended December 31, 2016 and December 31, 2015, 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, 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, 2016, indicating that there is substantial doubt as to the ability of the Company to continue as a going concern. The accompanying 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. For the year ended December 31, 2016, the Company incurred a net loss of $5,445,563. At December 31, 2016, the Company had negative working capital of $6,162,213 and an accumulated deficit of $35,794,206. The Company had negative cash flow from operations of $5,667,413 and $10,433,069 during the year ended December 31, 2016 and 2015, respectively. Although the Company raised approximately $6 million from the sale of shares of Series C Preferred during the year ended December 31, 2016, additional capital will be necessary to advance the marketability of the Company's products to the point at which the Company can sustain operations. Management's plans are to continue to contain expenses, expand distribution and sales of its AquaBall™ Naturally Flavored Water as rapidly as economically possible, and raise capital through equity and debt offerings to execute the Company’s business plan and achieve profitability from continuing operations. The accompanying 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™. Despite recent sales of preferred stock as described below, funds generated from sales of shares of our preferred stock or other equity or debt securities, and cash flow provided by AquaBall™ sales may be insufficient to fund our operating requirements for the next twelve months. As a result, we may require additional capital to continue operating as a going concern. No assurances can be given that we will be successful.
 
 
 
-18-
 
Recent Capital Raising Activity
 
January 2016 Note Exchange. On January 20, 2016, the Company and 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 1,029,413 shares of Common Stock for $0.17 per share. Neither holder received warrants to purchase shares of the Company’s Common 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 the Note Exchange Agreement.
 
April 2016 Series C Offering. On April 13, 2016, the Company and Red Beard entered into a securities purchase agreement, pursuant to which Red Beard agreed to purchase an aggregate total of 50,000 shares of Series C Preferred for $100 per share over the course of two closings. The Company issued 25,000 shares of Series C Preferred to Red Beard on April 13, 2016. As additional consideration, investors will receive five-year warrants to purchase up to an aggregate total of approximately 33.3 million shares of Common Stock for $0.15 per share. On April 13, 2016, the Company issued to Red Beard warrants to purchase approximately 16.7 million shares of Common Stock.
 
On July 13, 2016, the securities purchase agreement was amended to modify the closing schedule for the remaining 25,000 shares of Series C Preferred to be purchased. As amended, 10,000 shares of Series C Preferred were purchased on July 15, 2016, and the remaining 25,000 shares were purchased between August 31, 2016 and September 13, 2016.
 
Series D Offering and Warrant Exchange. On February 8, 2017, the Company and Series D Investors entered into the Series D Purchase Agreement, wherein the Company may offer and sell to Series D Investors up to 50,000 shares of Series D Preferred for $100 per share. As additional consideration, Series D Investors will also receive Series D Warrants to purchase up to 200% of the Conversion Shares issuable upon conversion of shares of Series D Preferred purchased under the Series D Offering for $0.15 per share. To date, the Company has issued an additional 5,000 shares of Series D Preferred and Series D Warrants to purchase up to an aggregate total of 6,666,669 shares of Common Stock. The issuance of the shares of Series D Preferred to date has resulted in gross proceeds to the Company of approximately $3.7 million.
 
Beginning on February 8, 2017, the Company and certain holders of Outstanding Warrants entered into Exchange Agreements, pursuant to which each holder agreed to cancel their respective Outstanding Warrants in exchange for one-half of a share of Common Stock for every share of Common Stock otherwise issuable upon exercise of Outstanding Warrants. To date the Company has issued 73,106,466 shares of Common Stock, in exchange for the cancellation of 146,212,905 Outstanding Warrants, and expects to issue up to 74 million shares of Common Stock in exchange for the cancellation of 148 million Outstanding Warrants, including the Warrants issued in connection with the Series D Offering, over the course of the Warrant Exchange Program.
 
Off-Balance Sheet Items
 
We had no off-balance sheet items as of December 31, 2016.
 
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
A smaller reporting company is not required to provide the information required by this item.
 
ITEM 8. FINANCIAL STATEMENTS
 
The audited consolidated financial statements of True Drinks Holdings, Inc., including the notes thereto, together with the report thereon of Squar Milner LLP, independent registered public accounting firm, are included in this annual report on Form 10-K as a separate section beginning on page F-1.
  
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
 
None.
 
 
 
-19-
 
ITEM 9A. CONTROLS AND PROCEDURES
 
(a)
Evaluation of disclosure controls and procedures.
 
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Securities Exchange Act of 1934, as amended, which we refer to as the Exchange Act) that are designed to ensure that information required to be disclosed in our periodic reports filed under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that this information is accumulated and communicated to our management, including our principal executive and financial officers, to allow timely decisions regarding required disclosure.
 
Our management, with the participation and supervision of our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
 
Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective based on our material weakness in the form of lack of segregation of duties, which stems from our early stage status and limited capital resources to hire additional financial and administrative staff.
 
(b)
Management's Annual Report on Internal Control over Financial Reporting.
 
Section 404(a) of the Sarbanes-Oxley Act of 2002 requires that management document and test the Company's internal control over financial reporting and include in this Annual Report on Form 10-K a report on management's assessment of the effectiveness of our internal control over financial reporting.
 
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based upon the framework in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our internal control over financial reporting was not effective based on the material weakness indicated below:
 
We lack segregation of duties, which stems from our early stage status and limited capital resources to hire additional financial and administrative staff.
 
Our plan to remediate this material weakness, subject to monetary constraints, is to hire additional personnel and/or utilize outside consultants to provide an acceptable level of segregation of duties.
 
This Annual Report on Form 10-K does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financing reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to a provision in the Dodd-Frank Financial Reform Act that exempts public companies with market capitalization not exceeding $75 million from having to comply with that provision of the Sarbanes-Oxley Act.
 
(c)
Changes in internal controls over financial reporting.
 
The Company’s Chief Executive Officer and Chief Financial Officer have determined that there have been no changes, in the Company’s internal control over financial reporting during the period covered by this report identified in connection with the evaluation described in the above paragraph that have materially affected, or are reasonably likely to materially affect, Company’s internal control over financial reporting.
 
 
 
-20-
 
ITEM 9B. OTHER INFORMATION
 
None.
 
PART III
 
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
 
Directors and Executive Officers
 
The following sets forth certain information regarding each of our directors and executive officers:
 
Name
 
Age
 
Position
Kevin Sherman
 
46
 
Chief Executive Officer, Chief Marketing Officer and Director
Daniel Kerker
 
44
 
Chief Financial Officer, Treasurer and Secretary
Robert Van Boerum
 
40
 
Chief Operations Officer
Ramona Cappello
 
57
 
Chair
Scot Cohen
 
47
 
Director
Neil LeVecke
 
49
 
Director
James J. Greco
 
59
 
Director
 
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
 
Kevin Sherman, Chief Executive Officer, Chief Marketing Officer and Director. 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. Mr. Sherman joined the Company’s board of directors in September 2015, and was appointed as Chief Executive Officer in December 2015. 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. Mr. Sherman holds a B.A. from Gordon College, and a M.A. from Loyola Marymount University.
 
Daniel Kerker, Chief Financial Officer. Mr. 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 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 Bachelor 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.
 
 
 
-21-
 
Robert 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 the 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) from 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, Chair. Ms. Cappello was appointed to the Board in July 2015 and as Chair 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 2012, departing in 2013 at the end of her contract. 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. Additionally, she currently serves on the Board of Directors for Nielsen Massey Vanillas, Inc. Ms. Cappello holds 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™ Naturally Flavored Water to both existing and new retail accounts.
 
Scot CohenDirector. Mr. Cohen was appointed to the Board in March 2013 and is the Founder and Managing Partner of V3 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 Chairman of the National Foundation for Veteran Redeployment, a 501(c)3 non-profit organization whose mission is to help unemployed veterans prepare for and enter new careers in the oil and gas industry. Mr. Cohen holds a Bachelor of Science degree from Ohio University in 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. LeVecke’s 22 years in the wholesale beverage distributing and bottling industry will provide the Board with invaluable insight and guidance as the Company continues to expand the sales of the AquaBall™ Naturally Flavored Water to both existing and new retail accounts.
 
 
 
-22-
 
James J. Greco, Director. Mr. Greco is President and Chief Executive Officer of Pilgrim Holdings, LLC, a position he has held since October 2001. Mr. Greco previously served as Chief Operating Officer of Newk's Franchise Company, LLC from July 2014 until October 2016, as well as President from January 2016 until October 2016. Prior to his time with Newks Franchise Company, Mr. Greco served as the Chief Executive Officer and President of Sbarro LLC from January 2012 until October 2013, and as the Chief Executive Officer of Bruegger's Enterprises, Inc. from August 2003 to December 2011. Mr. Greco currently serves as a director of the Palm Beach County Food Bank, as well as an operating advisor for Lincoln Road Global Management. Mr. Greco is a member of the Connecticut and Florida bars. He earned a B.A. in Economics from Georgetown University and a J.D. from the University of Miami, School of Law. He has also completed International Studies at City University, London, England.
 
The Board of Directors believes Mr. Greco’s extensive experience in the food industry will assist the Company as it seeks to expand the distribution of AquaBall™ and eliminate inefficiencies in Niagara’s production process.
 
Kevin Sherman, Director.  See above.
 
The Board of Directors believes Mr. Sherman’s long-standing service to the Company and its predecessor, Bazi, Inc., provide the Board with the guidance necessary to continue to expand the Company’s distribution networks, and promote brand awareness of AquaBall™ Naturally Flavored Water.
 
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.
 
Board of Directors
 
Attendance at Meetings
 
The Board held four meetings, and did not act by unanimous written consent during the year ended December 31, 2016. Each director attended at least 75% of Board meetings during the year ended December 31, 2016. 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 and Mr. Cohen, all of its current directors are independent directors as defined by the rules and regulations of the NASDAQ Stock Market.
 
The Board has determined that Mr. Cohen satisfies the definition of an “audit committee financial expert” under SEC rules and regulations. This designation does 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 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 approved by the Board. Copies of each committee charter are available on the Company’s website at www.truedrinks.com/investor-relations/ and by clicking on the “Corporate Governance” tab.
 
 
 
-23-
 
Audit Committee
 
Members:
Mr. Scot Cohen (Chair)
Ms. Ramona Cappello
Mr. Neil LeVecke
 
Number of Meetings in 2016:
 
One
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.
 
Compensation Committee
 
 
Members:
Ms. Ramona Cappello (Chair)
Mr. Scot Cohen
 
Number of Meetings in 2016:
Two
 
 
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 (Chair)
Ms. Ramona Cappello
 
Number of Meetings in 2016:
 
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.
 
Board Leadership Structure
 
The Board currently separates the roles of Chief Executive Officer and Chair of the Board in recognition of 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 Chair 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 Chair 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 both the Chief Executive Officer and Chair of the Board.
 
 
 
-24-
 
Board Role in Risk Assessment
 
Management, in consultation with outside professionals, as applicable, identifies risks associated with the Company’s 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 sessions with representatives of the Company’s independent registered public accountants. The Board also provides risk oversight through its periodic reviews of the financial and operational performance of the Company.
 
Code of Ethics
 
We have adopted a Code of Ethics that applies to all of our directors, officers and employees, a copy of which was attached as an exhibit to our Annual Report on Form 10-K, filed with the SEC on March 31, 2011.
 
Section 16(a) Beneficial Ownership Reporting Compliances
 
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) requires our officers, directors, and persons who beneficially own more than ten percent of our Common Stock to file reports of ownership and changes in ownership with the SEC. Officers, directors, and greater-than-ten-percent shareholders are also required by the SEC to furnish us with copies of all Section 16(a) forms that they file.
 
Based solely upon a review of these forms that were furnished to us, we believe that all reports required to be filed by these individuals and persons under Section 16(a) were filed during the year ended December 31, 2016 and that such filings were timely.
 
ITEM 11. EXECUTIVE COMPENSATION
 
Summary Compensation Table
 
The following table sets forth the compensation paid to the following persons for our fiscal years ended December 31, 2016 and 2015:
 
(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, 2016 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.
 
 
 
-25-
 
 
 Name and
Principal Position
 Year
 
 Salary
($)

   Bonus
($)
 
 
 Stock Awards
($)

 
 Option Awards
($) (1)
 
 
 Non-Equity Incentive Plan Compensation ($)
 
 
 All Other Compensation ($)
 
 
 Total ($)
 
   
 
    
    
    
    
    
    
    
Kevin Sherman, 
2016
 $229,167 
 $50,000 
 $- 
 $- 
 $- 
 $- 
 $279,167 
Chief Executive Officer, Chief Marketing Officer, Director
2015
 $181,751 
 $53,300 
 $471,691 
 $(262,795)
 $- 
 $- 
 $443,947 
 
    
    
    
    
    
    
    
Daniel Kerker
2016
 $185,000 
 $5,000 
 $- 
 $- 
 $- 
 $- 
 $190,000 
Chief Financial Officer
2015
 $178,680 
 $63,959 
 $471,691 
 $(262,794)
 $- 
 $- 
 $451,536 
 
    
    
    
    
    
    
    
Robert Van Boerum
2016
 $175,000 
 $5,000 
 $- 
 $- 
 $- 
 $- 
 $180,000 
Chief Operations Officer
2015
 $144,970 
 $38,433 
 $353,768 
 $(187,893)
 $- 
 $- 
 $349,278 
 
(1)  
During the year ended December 31, 2015, all Named Executive Officers exchanged their option awards for restricted Common Stock awards, valued at the closing price of the Company's Common Stock at the time of grant.
 
Employment Agreements
 
Kevin Sherman. Mr. Sherman is employed as the Company’s Chief Marketing Officer pursuant to a two-year employment agreement, dated November 25, 2015 (the “Sherman Agreement”).  Under the terms and conditions of the Sherman Agreement, Mr. Sherman receives: (i) a base salary of $22,917 per month, subject to certain adjustments 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 was paid in March, 2016; and (iv) an aggregate total of approximately 2.3 million shares of restricted stock, subject to certain vesting conditions (“Restricted Shares”), which Restricted Shares represented approximately 3.25% of the issued and outstanding shares of the Company’s Common Stock, including shares of Common Stock issuable upon conversion of the Company’s outstanding shares of preferred stock.
 
During the second half of 2016, Mr. Sherman deferred a portion of his monthly salary equivalent to a total of $100,000 annually. The deferment began at the end of July, 2016 and is still in effect as of March, 2016.
 
Mr. Sherman is also eligible for an annual bonus equal to 30% of his base salary, currently payable in restricted shares of the Company’s Common Stock, which bonus will be awarded at the sole discretion of the Company’s Compensation Committee. During the year ended December 31, 2016, the Compensation Committee did not award a bonus to Mr. Sherman for the period through December 31, 2015.
 
 
 
-26-
 
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 be terminated for “Cause”, if Mr. Sherman (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. Sherman’s employment for reasons other than for Cause, the Company shall pay a severance in an amount equal to six months of Mr. Sherman’s base salary.
 
Daniel Kerker. Mr. Kerker is employed as the Company’s Chief Financial Officer pursuant to an Employment Agreement, dated 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 receives 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 is 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 430,043 shares of the Company’s Common Stock over the term of the agreement. During the year ended December 31, 2016, the Compensation Committee did not award a bonus to Mr. Kerker for the period through December 31, 2015.
 
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, 2016, the Compensation Committee did not award a bonus to Mr. Van Boerum for the period through December 31, 2015.
 
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 Named Executive Officers and any other person pursuant to which they were appointed as officers. None of our Named Executive Officers has a family relationship that is required to be disclosed under Item 401(d) of Regulation S-K.
 
 
 
-27-
 
Director Compensation
 
Pursuant to the Company’s Director Compensation Plan, non-employee directors (“Outside Directors”) shall receive (a) a $30,000 annual 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. Directors that are also employees of the Company do not receive additional compensation for serving on the Board.
 
The following table discloses certain information on concerning the compensation of the Company’s non-employee directors for the year ended December 31, 2016:
 
Name (1)
 
Fees earned or
Paid in Cash
($)
 
 
Option
Awards
($)
 
 
Stock
Awards
($)
 
 
Total
($)
 
Ramona Cappello (2)
 $100,000 
 $- 
 $- 
 $100,000 
Neil LeVecke
 $30,000 
 $- 
 $- 
 $30,000 
Scot Cohen
 $30,000 
 $- 
 $- 
 $30,000 
 
(1)
 
 
Mr. Greco is not listed in this table, as he was appointed to the Board on February 6, 2017 and, as such, did not receive any compensation from the Company during the year ended December 31, 2016.
(2)
During the year ended December 31, 2016, Ramona Cappello earned $50,000 as Chair of the Board of Directors. She also earned $50,000 in additional fees as the result of a $5,000 per month consulting agreement.
 
Outstanding Equity Awards as of December 31, 2016
 
The following table sets forth all equity awards held by our Named Executive Officers at December 31, 2016.
 
 
 
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
  799,423 
(1)
 $79,942 
  - 
 $- 
Daniel Kerker
  1,798,706 
(2)
 $179,870 
  - 
 $- 
Robert Van Boerum
  1,442,779 
(2)
 $144,278 
  - 
 $- 
 
(1)
 
(2)
Non-vested shares are scheduled to vest on September 30, 2017.
 
Non-vested shares are scheduled to vest evenly over three years beginning on September 30, 2017.
 
 
 
-28-
 
Equity Compensation Plan Information
 
The following table includes information as of December 31, 2016 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
  15,872,229 
 $0.15 
  757,771 
 
    
    
    
Equity compensation plans not approved by security holders
  - 
  - 
  - 
 
    
    
    
Total
  15,872,229 
 $0.15 
  757,771 
 
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 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. Awards under the 2013 Plan may be 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; and/or (iii) awards of shares that are subject to certain restrictions specified in the 2013 Plan.
 
During the year ended December 31, 2016, the Company issued an aggregate total of 2,000,000 restricted stock awards pursuant to the 2013 Plan. The Company also issued an aggregate total of 3,100,000 stock option 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, 2016.
 
 
 
-29-
 
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERS MATTERS
 
As of March 30, 2017, we had four classes of voting stock outstanding: (i) Common Stock; (ii) Series B Preferred; (iii) Series C Preferred; and (iv) Series D Preferred. The following tables set forth information regarding shares of Series B Preferred, Series C Preferred, Series D Preferred and Common Stock beneficially owned as of March 30, 2017:
 
 
(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, Series D Preferred and Common Stock.
 
Percent ownership is calculated based on 1,292,870 shares of Series B Preferred, 106,704 shares of Series C Preferred, 35,250 shares of Series D Preferred and 199,693,811 shares Common Stock outstanding at March 30, 2017.
 
Beneficial Ownership of Series B Preferred
Name and Address (1)
 
Series B Convertible Preferred Stock
 
 
% Ownership of Class (2)
 
Scot Cohen (3)
  135,000 
  10.44%
Total Officers and Directors (1)
  135,000 
  10.44%
 
    
    
First Bank & Trust as custodian of Ronald L. Chez IRA
820 Church Street
Evanston Illinois, 60201
  425,000 
  32.87%
Wolfson Equities LLC
1 State Street Plaza, 29th Floor
New York, NY 10004
  187,500 
  9.18%
Joe Kolling
58 Beacon Bay
Newport Beach, CA 92660
  155,556 
  14.50%
V3 Capital Partners LLC
20 East 20th Street, Apt. 6
New York, NY 10003
  118,750 
  12.03%
  
(1)
Each of the Company’s officers and directors who do not hold shares of Series B Preferred were excluded from this table. Unless otherwise indicated, the address for each stockholder is 18662 MacArthur Blvd., Suite 110, Irvine, CA 92612.
 
(2)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
 
(3)
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.
 
 
-30-
 
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
  102,871 
  96.41%
 
(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 Series D Preferred
 
Name and Address (1)
 
Series D Convertible Preferred Stock
 
 
% Ownership of Class (2)
 
Scot Cohen 
  4,000 
  11.35%
Total Officers and Directors (1)
  4,000 
  11.35%
 
    
    
Red Beard Holdings, LLC
2560 East Chapman Avenue #173
Orange, CA 92869
  10,000 
  28.37%
Baker Court, LLC
P.O. Box 6923
Incline Village, NV 89450
  3,000 
  8.51%
First Bank & Trust as custodian of Ronald L. Chez IRA
820 Church Street
Evanston Illinois, 60201
  2,000 
  5.67%
 
(1)
Each of the Company’s officers and directors who do not hold shares of Series D Preferred were excluded from this table. Unless otherwise indicated, the address for each stockholder is 18662 MacArthur Blvd., Suite 110, Irvine, CA 92612.
 
(2)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
 
 
-31-
 
Beneficial Ownership of Common Stock
 
Name, Address and Title (if applicable) (1)
 
Shares of Common Stock (2)
 
 
Shares Issuable Upon Conversion of Preferred Stock (3)
 
 
Shares Issuable upon Exercise of Vested Stock Options
 
 
Total Number of Shares Beneficially Owned
 
 
% Ownership of Class (4)(5)
 
Kevin Sherman 
Chief Executive Officer and Director
  4,431,270 
   
   
  4,431,270 
  2.22%
Daniel Kerker 
Chief Financial Officer, Treasurer and Secretary
  4,537,869 
   
   
  4,537,869 
  2.27%
Robert Van Boerum
Chief Operations Officer
  1,000,000 
   
   
  2,923,706 
  1.46%
Ramona Cappello
Chairman
   
   
  166,667 
  166,667 
  * 
Scot Cohen (6)
Director
  7,482,448 
  4,826,667 
   
  12,309,115 
  6.02%
Neil LeVecke
Director
   
   
  333,334 
  333,334 
  * 
James Greco (7)
Director
  333,334 
  333,334 
  - 
  666,668 
  * 
Total officers and directors 
  19,708,627 
  5,160,001 
  500,001 
  25,368,629 
  12.35%
Vincent C. Smith (8)
2560 East Chapman Avenue #173
Orange, CA 92869
  89,591,623 
  75,247,334 
   
  164,838,957 
  59.95%
Vincent C. Smith Annuity Trust 2015-1 (9)
2560 East Chapman Avenue #173
Orange, CA 92869
  44,666,667 
   
   
  44,666,667 
  22.37%
Red Beard Holdings, LLC (10)
2560 East Chapman Avenue #173
Orange, CA 92869
  28,358,289 
  75,247,334 
   
  103,605,623 
  37.68%
First Bank & Trust as custodian of Ronald L. Chez IRA (11)
820 Church Street
Evanston Illinois, 60201
  3,092,382 
  8,133,334 
   
  11,225,716 
  5.40%
 
*
Less than 1%
 
(1)
Unless otherwise indicated, the address for each stockholder is 18662 MacArthur Blvd., Suite 110, Irvine, CA 92612.
 
(2)
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities.
 
(3)
Includes shares of Common Stock issuable upon conversion of shares of Series B Preferred, Series C Preferred and/or Series D Preferred within 60 days of March 30, 2017.
 
(4)
Percentages are rounded to nearest one-hundredth of one percent. Percentages are based on 199,693,811 shares of Common Stock outstanding. 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.
 
 
-32-
 
(5)
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.
 
Pursuant to Section 5 of the Third Amended and Restated Certificate of Designations, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock (the “Series C Certificate of Designation”), no holder of Series C Preferred may exercise the voting rights otherwise attributable to the Series C Preferred if such holder, together with any “affiliate” of such Holder (as such term is defined in Rule 144 under the Securities Act of 1933, as amended) or any person or entity deemed to be part of a “group” with such holder (as such term is used in Section 13(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”))) would control in excess of 50% of the total voting power of the outstanding shares of capital stock of the Company at the time of such vote (the “Voting Limitation”); providedhowever, that any holder of shares of Series C Preferred may waive the Voting Limitation upon 60 days written notice to the Company.
 
Ownership percentages in this table were calculated in accordance with Section 13(d) of the Exchange Act, and do not reflect any adjustments due to the Voting Limitation.
 
(6)
Includes securities held by V3 Capital Partners and the Scot Jason Cohen Foundation. Mr. Cohen is the Managing Partner of V3 Capital Partners and an officer of the Scot Jason Cohen Foundation, and has dispositive and/or voting power over these shares.
  
(7)
Includes securities held by Pilgrim Holdings, LLC. Mr. Greco is the President and Chief Executive Officer of Pilgrim Holdings, LLC, and has dispositive and/or voting power over these shares.
 
(8)
Based on Company records and ownership information from Amendment No. 5 to Schedule 13D filed by Vincent C. Smith on April 25, 2016. Mr. Smith is the trustee for the Vincent C. Smith Annuity Trust 2015-1 (the “Smith Trust”) and manager of Red Beard Holdings, LLC (“Red Beard”). As such, Mr. Smith has dispositive power, and, subject to certain limitations in the Series C Certificate of Designation, voting power over, and may be deemed to be the beneficial owner of the securities held by each of these entities.
 
(9)
Based on Company records and ownership information from Amendment No. 5 to Schedule 13D filed by Vincent C. Smith on April 25, 2016. Mr. Vincent C. Smith is the trustee of the Smith Trust, and has dispositive and/or voting power over the shares.
 
(10)
Based on ownership information from Amendment No. 5 to Schedule 13D filed by Vincent C. Smith on April 25, 2016. Mr. Vincent C. Smith is a manager of Red Beard Holdings, LLC, and has dispositive power, and, subject to certain limitations in the Series C Certificate of Designation (as described in Note 5 above), voting power over the shares.
 
(11)
Based on ownership information from Amendment No. 2 to Schedule 13D filed by Individual Retirement Accounts for the benefit of Ronald L. Chez, Ronald L. Chez Individually and the Chez Family Foundation on December 8, 2014.
 
 
-33-
 
ITEM 13. CERTAIN RELATIONSHIPS, RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
 
None.
 
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
 
Set forth below are fees billed or expected to be billed to the Company by its independent registered public accounting firm Squar Milner LLP ("Squar Milner") for the years ended December 31, 2016 and 2015 for the professional services performed for the Company.
 
Audit Fees
 
The following table presents fees for professional services billed by Squar Milner for the fiscal years ended December 31, 2016 and 2015.
 
 
 
For the years ended
December 31,
 
 
 
2016
 
 
2015
 
Audit fees
 $68,265 
 $61,900 
Tax fees
  - 
  - 
All other fees (consent fees)
  - 
  16,300 
Total
 $68,625 
 $78,200 
  
 
 
-34-
 
PART IV
 
ITEM 15. 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 from Exhibit 2.1 to the Current Report on Form 8-K filed on June 21, 2012.
3.1
 
Articles of Incorporation, incorporated by reference from Exhibit 3.01 to Form SB-2 filed on February 27, 2001.
3.1.1
 
Certification of Amendment to the Articles of Incorporation incorporated by reference to Exhibit 3.1.1 filed with Form 10-QSB filed November 14, 2003.
3.2
 
Amended and Restated By-laws filed with Form 10-KSB on March 3, 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 from Exhibit 3.1 to the Current Report on Form 8-K filed on October 17, 2012.
3.3
 
Amended and Restated Articles of Incorporation filed with Form 8-K on August 2, 2010 as Exhibit 3.1, and incorporated herein by reference.
3.4
 
Certification of Amendment to the Article of Incorporation with Form 8-K on May 20, 2011 as Exhibit 3.1, 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, 2013.
3.6
 
Certificate 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.
3.7
 
Certificate 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.
3.8
 
Amended and Restated By-laws filed with Form 10-Q on August 13, 2015, as Exhibit 3.2, and incorporated herein by reference.
 3.9
 
Certificate 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, 2012.
4.2
 
Certificate 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.
4.4
 
First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series B Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.2 to the Current Report on Form 8-K filed on February 23, 2015.
4.5
 
Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated February 18, 2015, incorporated by reference from Exhibit 3.1 to the Current Report on Form 8-K filed on February 23, 2015.
4.6
 
First Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated March 26, 2015, incorporated by reference from Exhibit 4.1 to the Current Report on Form 8-K filed on April 1, 2015
4.7
 
Second 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
4.8
 
Amendment 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
 
 
-35-
 
 
4.8
 
Third Amended and Restated Certificate of Designation, Preferences, Rights and Limitations of the Series C Convertible Preferred Stock of True Drinks Holdings, Inc., dated April 12, 2016, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed April 19, 2016.
4.9 
 
Certificate of Designation, Preferences, Rights and Limitations of the Series D Convertible Preferred Stock of True Drinks Holdings, Inc., dated January 24, 2017, incorporated herein by reference from Exhibit 4.1 to the Current Report on Form 8-K filed February 15, 2017
10.1
 
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.
10.2
 
Employment agreement with Kevin Sherman, incorporated by reference from Exhibit 10.3 filed with the Annual Report on Form 10-K, filed March 31, 2014.
10.3
 
Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed November 26, 2013.
10.4
 
2013 Stock Incentive Plan, incorporated by reference from Exhibit 10.17 to the Annual Report on Form 10-K, filed March 31, 2014.
10.5
 
Form 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.
10.6
 
Form 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
10.7
 
Form 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.
10.8
 
Form 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.
10.9
 
Form 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.
10.10
 
Form 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
10.11
 
Form 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
10.12
 
Form 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
10.13
 
Form 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
10.14
 
Form 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
10.15
 
Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed September 11, 2015
10.16
 
Employment Agreement, by and between the Company and Robert Van Boerum, dated September 9, 2015, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed September 11, 2015
10.17
 
Senior 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
10.18
 
Personal 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
10.19
 
Amendment 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
10.20
 
Amendment 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
10.21
 
Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed December 1, 2015
10.22
 
Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed December 1, 2015
10.23
 
Form of Registration Rights Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed December 1, 2015
 
 
-36-
 
 
10.24
 
Employment 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
10.25
 
Form of Note Exchange Agreement, filed herewith.
10.26
 
Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed April 19, 2016.
10.27
 
Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed April 19, 2016.
10.28
 
Form of Amendment No. 1 to the Registration Rights Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed April 19, 2016.
10.29
 
Form of Amendment No.1 to Securities Purchase Agreement, dated July 14, 2016, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed July 20, 2016.
10.30
 
Form of Securities Purchase Agreement, incorporated by reference from Exhibit 10.1 to the Current Report on Form 8-K, filed February 15, 2017.
10.31
 
Form of Warrant, incorporated by reference from Exhibit 10.2 to the Current Report on Form 8-K, filed February 15, 2017.
10.32
 
Form of Warrant Exchange Agreement, incorporated by reference from Exhibit 10.3 to the Current Report on Form 8-K, filed February 15, 2017.
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 to the Annual Report on Form 10-K, filed April 2, 2015
31.1
 
Certification of CEO as Required by Rule 13a-14(a)/15d-14, filed herewith.
31.2
 
Certification of CFO as Required by Rule 13a-14(a)/15d-14, filed herewith.
32.1
 
Certification of CEO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
32.2
 
Certification of CFO as Required by Rule 13a-14(a) and Rule 15d-14(b) (17 CFR 240.15d-14(b)) and Section 1350 of Chapter 63 of Title 18 of the United States Code, filed herewith.
 
 
 
101.INS
 
XBRL Instance Document
101.SCH
 
XBRL Taxonomy Extension Schema
101.CAL
 
XBRL Taxonomy Extension Calculation Linkbase
101.DEF
 
XBRL Taxonomy Extension Definition Linkbase
101.LAB
 
XBRL Taxonomy Extension Label Linkbase
101.PRE
 
XBRL Taxonomy Extension Presentation Linkbase
 
 
 
-37-
 
SIGNATURES
 
In accordance with Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, there unto duly authorized.
 
Registrant
 
Date: March 31, 2017
 
True Drinks Holdings, Inc.
 
/s/ Kevin Sherman
 
 
Kevin Sherman
 
 
Chief Executive Officer (Principal Executive Officer), Chief Marketing Officer, Director
 
Date: March 31, 2017
 
/s/ Daniel Kerker
 
 
Daniel Kerker
 
 
Chief Financial Officer (Principal Financial Officer)
 
In accordance with the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Company and in the capacities and on the dates indicated.
 
Date: March 31, 2017
 
/s/ Kevin Sherman
 
 
Kevin Sherman
 
 
Chief Executive Officer, Chief Marketing Officer, Director
 
Date: March 31, 2017
 
/s/ Ramona Cappello
 
 
Ramona Cappello
 
 
Chair
 
 
 
Date: March 31, 2017
 
/s/ Scot Cohen
 
 
Scot Cohen
 
 
Director
 
 
 
Date: March 31, 2017
 
/s/ Neil LeVecke
 
 
Neil LeVecke
 
 
Director
 
 
 
-38-
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
 
 
To the Board of Directors and Shareholders
True Drinks Holdings, Inc.
Irvine, CA
 
We have audited the accompanying consolidated balance sheets of True Drinks Holdings, Inc. (the “Company”) as of December 31, 2016 and 2015, and the related consolidated statements of operations, stockholders' equity (deficit) and cash flows for the years then ended. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.
 
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
 
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of True Drinks Holdings, Inc. as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles. 
 
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, 2016, the Company incurred a net loss of $5,445,562, has negative working capital of $6,162,213, and an accumulated deficit of $35,794,206. 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 LLP
 
March 31, 2017
Newport Beach, California
 
 
TRUE DRINKS HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
December 31, 2016 and 2015
 
 
 
2016
 
 
2015
 
ASSETS
 
 
 
 
 
 
Current Assets:
 
 
 
 
 
 
Cash and cash equivalents
 $15,306 
 $376,840 
Accounts receivable, net
  536,817 
  1,843,415 
Inventory, net
  318,912 
  1,558,719 
Prepaid expenses and other current assets
  127,258 
  75,923 
Total Current Assets
  998,293 
  3,854,897 
 
    
    
Restricted Cash
  209,570 
  209,360 
Property and Equipment, net
  11,064 
  4,530 
Patents, net
  250,000 
  1,070,588 
Goodwill
  3,474,502 
  3,474,502 
Total Assets
 $4,943,429 
 $8,613,877 
 
    
    
LIABILITIES AND STOCKHOLDERS’ DEFICIT
    
    
 
    
    
Current Liabilities:
    
    
Accounts payable and accrued expenses
 $1,258,252 
 $1,623,046 
Debt
  109,682 
  1,336,819 
Derivative liabilities
  5,792,572 
  6,199,021 
Total Current Liabilities
  7,160,506 
  9,158,886 
 
    
    
Commitments and Contingencies (Note 7)
    
    
 
    
    
Stockholders’ Deficit:
    
    
Common Stock, $0.001 par value, 300,000,000 and 120,000,000 shares authorized, 119,402,009 and 111,434,284 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
  119,402 
  111,434 
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,750,000 shares authorized, 1,292,870 and 1,317,870 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
  1,293 
  1,318 
Preferred Stock – Series C (liquidation preference $100 per share), $0.001 par value, 200,000 and 150,000 shares authorized, 109,352 and 48,853 shares issued and outstanding at December 31, 2016 and December 31, 2015, respectively
  109 
  49 
Additional paid in capital
  33,456,325 
  29,690,834 
Accumulated deficit
  (35,794,206)
  (30,348,644)
 
    
    
Total Stockholders’ Deficit
  (2,217,077)
  (545,009)
 
    
    
Total Liabilities and Stockholders’ Deficit
 $4,943,429 
 $8,613,877 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
TRUE DRINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
For the Years Ended December 31, 2016 and 2015
 
 
 
2016
 
 
2015
 
Net Sales
 $2,575,448 
 $6,121,097 
 
    
    
Cost of Sales
  2,253,585 
  6,282,087 
 
    
    
Gross Profit (Loss)
  321,863 
  (160,990)
 
    
    
Operating Expenses
    
    
Selling and marketing
  3,782,941 
  5,073,211 
General and administrative
  4,825,017 
  5,475,673 
Total operating expenses
  8,607,958 
  10,548,884 
 
    
    
Operating Loss
  (8,286,095)
  (10,709,874)
 
    
    
Other Income (Expense)
    
    
Change in fair value of derivative liabilities
  3,566,170 
  1,262,329 
Interest expense
  (39,789)
  (257,389)
Other expense
  (685,848)
  (2,285,629)
 
  2,840,533 
  (1,280,689)
 
    
    
Net Loss
 $(5,445,562)
 $(11,990,563)
 
    
    
Dividends on Preferred Stock
 $263,588 
 $271,838 
 
    
    
Net loss attributable to common stockholders
 $(5,709,150)
 $(12,262,401)
 
    
    
Net loss per common share
    
    
        Basic and diluted
 $(0.05)
 $(0.16)
 
    
    
Weighted average common shares
    
    
        outstanding, basic and diluted
  115,292,366 
  75,346,961 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
TRUE DRINKS HOLDINGS, INC.
CONSOLIDATED STATEMENT OF
STOCKHOLDERS’ EQUITY (DEFICIT)
For the Years Ended December 31, 2016 and 2015
 
 
 Common Stock
 
 
Preferred Stock Series B
 
 
Preferred Stock Series C
 
 Additional Paid-In
 
 Accumulated 
 Total Stockholders' Equity
 
 
 Shares 
 Amount 
 
Shares
 
 
Amount
 
 
Shares
 
 
Amount
 
 
Capital
 
 
Deficit
 
 
(Deficit)
 
Balance –
December 31, 2014
  48,622,675 
 $48,623 
  1,490,995 
 $1,491 
  - 
 $- 
 $18,388,212 
 $(18,358,081)
 $80,245 
Conversion of Preferred Stock to Common Stock
  55,947,335 
  55,947 
  (173,125)
  (173)
  (79,766)
  (79
  (55,695)
  - 
  - 
Issuance of Preferred Stock Series C for debt conversions, net of warrants issued
  - 
  - 
  - 
  - 
  12,148 
  12 
  835,514 
  - 
  835,526 
Issuance of Common Stock for services
  2,413,811 
  2,414 
  - 
  - 
  - 
  - 
  485,412 
  - 
  487,826 
Issuance of Preferred Stock Series C for cash, net of warrants issued
  - 
  - 
  - 
  - 
  116,471 
  116 
  8,750,478 
  - 
  8,750,594 
Stock-based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  1,055,448 
  - 
  1,055,448 
Dividends declared on Preferred Stock
  - 
  - 
  - 
  - 
  - 
  - 
  (271,838)
  - 
  (271,838)
Issuance of Common Stock for Employee Bonuses
  2,187,818 
  2,188 
  - 
  - 
  - 
  - 
  216,594 
  - 
  218,782 
Issuance of Common Stock for dividends on Preferred Stock
  1,512,645 
  1,512 
  - 
  - 
  - 
  - 
  287,459 
  - 
  288,971 
Issuance of Restricted Common Stock to Employees
  750,000 
  750 
  - 
  - 
  - 
  - 
  (750)
  - 
  - 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (11,990,563)
  (11,990,563)
Balance – December 31, 2015
  111,434,284 
 $111,434 
  1,317,870 
  1,318 
  48,853 
 $49 
 $29,690,834 
 $(30,348,644)
 $(545,009)
Conversion of Preferred Stock to Common Stock
  3,009,335 
  3,009 
  (25,000)
  (25)
  (3,914)
  (4
  (2,980)
  - 
  - 
Issuance of Preferred Stock Series C for debt conversions, net of warrants issued
  - 
  - 
  - 
  - 
  4,413 
  4 
  407,228 
  - 
  407,232 
Issuance of Common Stock for services
  200,000 
  200 
  - 
  - 
  - 
  - 
  17,800 
    
  18,000 
Issuance of Preferred Stock Series C for cash, net of warrants issued
  - 
  - 
  - 
  - 
  60,000 
  60 
  2,932,987 
  - 
  2,933,047 
Stock-based compensation
  - 
  - 
  - 
  - 
  - 
  - 
  370,695 
  - 
  370,695 
Dividends declared on Preferred Stock
  - 
  - 
  - 
  - 
  - 
  - 
  (265,009)
  - 
  (265,009)
Issuance of Common Stock for cash exercise of warrants
  300,000 
  300 
  - 
  - 
  - 
  - 
  44,700 
  - 
  45,000 
Issuance of Common Stock for dividends on Preferred Stock
  1,838,390 
  1,839 
  - 
  - 
  - 
    
  262,690 
  - 
  264,529 
Issuance of Restricted Common Stock to Employees
  2,620,000 
  2,620 
    
    
  - 
  - 
  (2,620)
  - 
  - 
Net Loss
  - 
  - 
  - 
  - 
  - 
  - 
  - 
  (5,445,562)
  (5,445,562)
Balance – December 31, 2016
  119,402,009 
 $119,402 
  1,292,870 
 $1,293 
  109,352 
 $109 
 $33,456,325 
 $(35,794,206)
 $(2,217,077)
 
 
 
TRUE DRINKS HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Years Ended December 31, 2016 and 2015
 
 
 
2016
 
 
2015
 
CASH FLOWS FROM OPERATING ACTIVITIES
 
 
 
 
 
 
Net loss
 $(5,445,562)
 $(11,990,563)
Adjustments to reconcile net loss to net cash used in operating activities
    
    
Depreciation
  5,241 
  3,087 
Amortization
  141,177 
  148,026 
Impairment of patent
  679,411 
  - 
Provision for bad debt expense
  8,029 
  (51,769)
Change in estimated fair value of derivative liabilities
  (3,566,170)
  (1,262,329)
Fair value of warrants issued for guaranty
  -
 
  2,263,783 
Fair value of stock issued for services
  18,000 
  487,826 
Fair value of stock issued for bonuses
  - 
  218,782 
Stock based compensation
  370,695 
  1,055,448 
Changes in operating assets and liabilities:
    
    
Accounts receivable, net
  1,298,569 
  (1,447,937)
Inventory
  1,239,807 
  (195,276)
Prepaid expenses and other current assets
  (51,335)
  552,752 
Accounts payable and accrued expenses
  (365,274)
  (214,899)
Net cash used in operating activities
  (5,667,412)
  (10,433,069)
 
    
    
CASH FLOWS FROM INVESTING ACTIVITIES:
    
    
Change in restricted cash
  (210)
  (76,162)
Purchase of property and equipment
  (11,775)
  (3,030)
Net cash used in investing activities
  (11,985)
  (79,192)
 
    
    
CASH FLOWS FROM FINANCING ACTIVITIES
    
    
Proceeds from warrants exercised for cash
  45,000 
  - 
Proceeds from issuance of Series C Preferred Stock, net
  6,000,000 
  11,999,958 
Net repayments on line-of –credit facility
  (377,137)
    
Proceeds from notes payable
  - 
  1,103,817 
Repayments on notes payable
  (350,000)
  (2,883,000)
Net cash provided by financing activities
  5,317,863 
  10,220,775 
 
    
    
NET DECREASE IN CASH
  (361,534)
  (291,486)
 
    
    
CASH AND CASH EQUIVALENTS – beginning of year
  376,840 
  668,326 
 
    
    
CASH AND CASH EQUIVALENTS – end of year
 $15,306 
 $376,840 
 
SUPPLEMENTAL DISCLOSURES
 
 
 
 
 
 
Cash paid for interest
 $41,758 
 $179,056 
Non-cash financing and investing activities:
    
    
Conversion of preferred stock to common stock
 $2,980 
 $55,695 
Conversion of notes payable and accrued interest to Series C preferred stock
 $500,000 
 $1,214,207 
Dividends paid in common stock
 $264,529 
 $288,971 
Dividends declared but unpaid
 $265,099 
 $271,838 
Warrants issued in connection with Series C offering
 $3,066,953 
 $3,249,364 
Warrants issued in connection with debt conversions
 $92,768
 
 $378,681 
Issuance of restricted stock
 $2,620 
 $-
 
 
The accompanying notes are an integral part of these consolidated financial statements.
 
 
 
TRUE DRINKS HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 
NOTE 1 – ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
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™ Naturally Flavored Water, a zero-sugar, zero-calorie, preservative-free, vitamin-enhanced, naturally flavored water drink. 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 online and through our existing database of customers.
 
Our principal place of business is 18662 MacArthur Boulevard, Suite 110, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our common stock, par value $0.001 per share (“Common Stock”), is currently listed for quotation on the OTC Pink Marketplace under the symbol “TRUU".