10-Q

UNITED STATES

SECURITIES AND

EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2014

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from _________ to _________

Commission file number 001-32420

TRUE DRINKS HOLDINGS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Nevada	84-1575085
(State or Other Jurisdiction of Incorporation	(IRS Employer Identification No.)
or Organization)

18552 MacArthur Blvd., Suite 325

Irvine, CA 92612

(Address of Principal Executive Offices)

(949) 203-3500

(Registrant’s Telephone Number, Including Area Code)

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 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 is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

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-12 of the Exchange Act). Yes [   ]    No [X]

The number of shares of Common Stock, with $0.001 par value, outstanding on August 13, 2014 was 38,660,684.

TRUE DRINKS HOLDINGS, INC.

QUARTERLY REPORT ON FORM 10-Q

FOR THE QUARTER ENDED JUNE 30, 2014

INDEX

			Page
PART I.	FINANCIAL INFORMATION		1
	ITEM 1.	FINANCIAL STATEMENTS	1
		Condensed Consolidated Balance Sheets as of June 30, 2014 (unaudited) and December 31, 2013	1
		Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2014 and 2013 (unaudited)	2
		Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013 (unaudited)	3
		Notes to unaudited Condensed Consolidated Financial Statements	4
	ITEM 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	13
	ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	17
	ITEM 4.	Controls and Procedures	17
PART II.	OTHER INFORMATION		18
	ITEM 1.	Legal Proceedings	18
	ITEM 1A.	Risk Factors	18
	ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	18
	ITEM 3.	Defaults Upon Senior Securities	18
	ITEM 4.	Mine Safety Disclosures	18
	ITEM 5.	Other Information	18
	ITEM 6.	Exhibits	19
SIGNATURES			20

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PART I

ITEM 1. FINANCIAL STATEMENTS

TRUE DRINKS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2014			December 31, 2013
ASSETS	(Unaudited)
Current Assets:
Cash	$	362,736		$	3,136,766
Accounts receivable, net		522,531			175,068
Inventory		1,800,893			1,056,756
Prepaid expenses and other current assets		623,819			591,434
Total Current Assets		3,309,979			4,960,024
Restricted Cash		133,131			133,065
Property and Equipment, net		6,342			8,399
Patents, net		1,282,353			1,352,941
Trademarks, net		23,516			48,516
Goodwill		3,474,502			3,474,502
Total Assets	$	8,229,823		$	9,977,447
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable and accrued expenses	$	2,382,412		$	1,222,404
Convertible notes payable, net		25,000			680,000
Notes payable, net		360,000			-
Term loan		-			1,916,667
Derivative liabilities		3,936,301			1,619,021
Total Current Liabilities		6,703,713			5,438,092
Commitments and Contingencies (Note 5)
Stockholders’ Equity:
Common Stock, $0.001 par value, 120,000,000 and 40,000,000 shares authorized, 36,542,960 and 27,855,587 shares outstanding at June 30, 2014 and December 31, 2013, respectively		36,543			27,886
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,750,000 shares authorized, 1,607,870 and 1,776,923 shares outstanding at June 30, 2014 and December 31, 2013, respectively		1,608			1,777
Additional paid in capital		16,907,247			14,751,170
Accumulated deficit		(15,419,288	)		(10,241,478	)
Total Stockholders’ Equity		1,526,110			4,539,355
Total Liabilities and Stockholders’ Equity	$	8,229,823		$	9,977,447

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

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TRUE DRINKS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

		Three Months Ended June 30,						Six Months Ended June 30,
		2014			2013			2014			2013
Net Sales	$	1,161,142		$	1,303,371		$	1,811,674		$	1,714,172
Cost of Sales		966,393			1,200,936			1,495,694			1,464,886
Gross Profit		194,749			102,435			315,980			249,286
Operating Expenses
Selling and marketing		1,005,346			654,412			1,575,874			1,084,898
General and administrative		1,132,763			851,582			2,124,569			1,896,646
Total operating expenses		2,138,109			1,505,994			3,700,443			2,981,544
Operating Loss		(1,943,360	)		(1,403,559	)		(3,384,463	)		(2,732,258	)
Other Expense (Income)
Change in fair value of derivative liabilities		(383,439	)		(105,605	)		1,742,098			(105,605	)
Interest expense		14,120			152,418			51,249			380,617
NET LOSS	$	(1,574,041	)	$	(1,450,372	)	$	(5,177,810	)	$	(3,007,270	)
Dividends on Preferred Stock	$	97,775		$	-		$	230,979		$	-
Net loss attributable to common stockholders	$	(1,671,816	)	$	(1,450,372	)	$	(5,408,789	)	$	(3,007,270	)
Loss per common share, basic and diluted	$	(0.05	)	$	(0.05	)	$	(0.17	)	$	(0.11	)
Weighted average common shares outstanding, basic and diluted		34,839,764			27,400,619			31,407,485			27,105,681

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

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TRUE DRINKS HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Six Months Ended June 30,
	2014			2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(5,177,810	)	$	(3,007,270	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		4,406			10,190
Amortization		95,588			95,589
Accretion of deferred financing costs		-			32,074
Change in estimated fair value of derivative liabilities		1,742,098			(105,605	)
Amortization of debt discount		-			45,109
Fair value of common stock issued for services		69,875			247,340
Stock based compensation		258,834			594,902
Change in operating assets and liabilities:
Accounts receivable		(347,463	)		(597,603	)
Inventory		(744,137	)		247,863
Prepaid expenses and other current assets		(32,385	)		(267,902	)
Other assets		-			3,948
Accounts payable and accrued expenses		1,050,828			309,407
Other current liabilities		-			167,715
Net cash used in operating activities		(3,080,166	)		(2,224,243	)
CASH FLOWS FROM INVESTING ACTIVITIES
Change in restricted cash		(66	)		242
Purchase of property and equipment		(2,349	)		-
Net cash (used in ) provided by investing activities		(2,415	)		242
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid		(2,195	)		-
Proceeds from issuance of Series B Preferred Stock, net		1,887,413			-
Proceeds from notes payable		360,000			2,869,000
Deferred financing costs paid		-			(219,924	)
Repayments on notes payable		(20,000	)		(172,000	)
Repayments on term loan		(1,916,667	)		-
Net cash provided by financing activities		308,551			2,477,076
NET (DECREASE) INCREASE IN CASH		(2,774,030	)		253,075
CASH- beginning of period	$	3,136,766		$	4,449
CASH- end of period	$	362,736		$	257,524
SUPPLEMENTAL DISCLOSURES
Interest paid in cash	$	7,944		$	17,330
Non-cash financing and investing activities:
Conversion of Preferred Stock to Common Stock	$	7,458		$	25,304
Cashless exercise of warrants	$	41,229		$	-
Dividends declared but unpaid	$	230,979		$	-
Dividends on Preferred Stock paid in Common Stock	$	8,139		$	-
Conversion of notes payable and accrued interest to Common Stock	$	764,938		$	860,818
Warrants issued in connection with Series B Preferred Offering	$	616,411		$	299,699
Warrants issued as debt discount	$	-		$	730,758

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

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TRUE DRINKS HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

 (Unaudited)

June 30, 2014

NOTE 1 — ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Overview

True Drinks Holdings, Inc. (the "Company", "us" or "we") was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™ Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.

Our principal place of business is 18552 MacArthur Boulevard, Suite 325, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our Common Stock, par value $0.001 (“Common Stock”) is currently listed for quotation on the Over-the-Counter marketplace (“OTCQB”) under the symbol TRUU.

Developments During the Quarter

 In April, we gained significant distribution for six packs of AquaBall™, specifically at Rite Aid and Toys’R’Us.  We have commitments to expand this distribution into other large format retailers in the third quarter.

 In June, we sold 199 pallets of our new 16-pack Club Pack of AquaBall™ to 150 Sam’s Club locations.  We shipped our second order into Sam’s Club in August. We are working to further expand our presence in the club channel in the third quarter.

Basis of Presentation and Going Concern

The accompanying condensed consolidated balance sheet as of December 31, 2013, which has been derived from audited financial statements included in Form 10-K for the year ended December 31, 2013, and the accompanying interim condensed consolidated financial statements  have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to fairly present the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for the six-month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 31, 2014.

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The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As of and for the three months ended June 30, 2014, the Company incurred a net loss of $1,574,041, has negative working capital of $3,393,734, and an accumulated deficit of $15,419,288. The Company had $495,867 in cash at June 30, 2014 with $133,131 of this cash being restricted, as discussed below. The Company will require additional capital to execute its business, marketing and operating plan, and therefore sustain operations, which capital may not be available on favorable terms, if at all. The accompanying condensed consolidated financial statements do not include any adjustments that might result in the event the Company was unable to generate sufficient cash from operations, execute its business, marking or operating plan, or obtain additional working capital, if necessary.

Principles of Consolidation

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

Use of Estimates

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

Restricted Cash

The Company has $133,131 in restricted cash with a financial institution securing a letter of credit. The letter of credit matures in August 2015 and was issued as part of contractual obligations related to one of our licensing agreements with Disney Consumer Products, Inc.

Accounts Receivable

We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of management’s knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on the perceived likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance for doubtful accounts was approximately $210,000 at June 30, 2014 and December 31, 2013, respectively.

Concentrations

The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.  The Company maintains the majority of its cash balances with two financial institutions.  There are funds in excess of the federally insured amount, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.

We utilized a variety of suppliers to purchase raw materials for the AquaBall™ Naturally Flavored Water during the six-months ended June 30, 2014 and the year ended December 31, 2013.

During 2013, 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 we do not anticipate any issues with the supply of these raw materials.

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 A significant portion of our revenue comes from sales of the AquaBall™ Naturally Flavored Water with the remaining sales coming from Bazi® All Natural Energy.  For the six months ended June 30, 2014, sales of AquaBall™ accounted for 95% of our sales, compared to 84% for the corresponding period in 2013. While no assurances can be given, we anticipate that sales of AquaBall™ will continue to grow in future periods as a percentage of sales relative to sales of Bazi™.

Inventory

Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provisions are made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.

Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. No inventory reserves were considered necessary as of June 30, 2014 and December 31, 2013.

Inventory is comprised of the following:

	June 30, 2014 (unaudited)		December 31, 2013
Purchased materials	$	899,841	$	659,835
Finished goods		901,052		396,921
Total	$	1,800,893	$	1,056,756

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. No impairment was deemed necessary during the quarter ended June 30, 2014.

Intangible Assets

Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Company’s products, customer list, and the estimated value of GT Beverage Company, LLC’s interlocking spherical bottle patent. The Company’s intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary during the quarter ended June 30, 2014.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually, typically in the fourth quarter. No impairment indicators were noted during the quarter ended June 30, 2014.

Income Taxes

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

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Stock-Based Compensation

For the six-month periods ended June 30, 2014 and 2013, general and administrative expenses included stock based compensation expense of $258,834 and $594,902, respectively.

The Company uses a Black-Scholes option-pricing model (the “Black-Scholes Model”) to estimate the fair value of outstanding stock options and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Company’s stock price over the contractual term of the option or warrant. The expected life is based on the contractual term of the option or warrant and expected exercise and, in the case of options, post-vesting employment termination behavior. Currently, our model inputs are based on the simplified approach provided by SAB 110. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 3, “Stock Options and Warrants”).

Fair Value of Financial Instruments

The carrying amount of our cash, accounts receivable, accounts payable, and accrued expenses approximate their estimated fair values due to the short-term maturities of those financial instruments. The carrying amount of the notes payable approximates their fair value due to the short maturity of the notes and since the interest rate approximates current market interest rates for similar instruments. See Note 6 for derivative instruments.

Derivative Instruments

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

Net Loss Per Share

Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share.  Since the Company has a net loss for all periods presented, Common Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive.  At June 30, 2014 and 2013, the Company had 85,023,884 and 36,249,673 shares of Common Stock equivalents outstanding, respectively.

Research and Development

Research and development costs are expensed as incurred.

Recent Accounting Pronouncements

Except as noted below, the Company has reviewed all recently issued, but not yet effective accounting pronouncements and has concluded that there are no recently issued, but not yet effective pronouncements that may have a material impact on the Company’s future financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This accounting standard is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.

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Subsequent Events

Management has evaluated subsequent events through the date the accompanying condensed consolidated financial statements were filed with the SEC, and noted no other significant subsequent events not elsewhere disclosed herein.

NOTE 2 — SHAREHOLDERS’ EQUITY

Series B Convertible Preferred Stock

We are currently authorized to issue up to 5,000,000 shares of preferred stock, of which 2,750,000 shares are currently designated as Series B Convertible Preferred Stock.  Each share of Series B Preferred has a stated value of $4.00 per share (“Stated Value”) and accrues annual dividends equal to 5% of the Stated Value, payable by the Company in quarterly installments, in either cash or shares of Common Stock.  The Company declared a dividend totaling $97,775 and paid previously declared dividends of $8,139 during the quarter ended June 30, 2014.  The cumulative unpaid dividends on the Series B Preferred Stock are $222,840 and $2,194 at June 30, 2014 and December 31, 2013, respectively.  Each share of Series B Preferred is convertible, at the option of the holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.25 per share (the “Conversion Shares”).  The Company also has the option to require the conversion of the Series B 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; (iii) the daily trading volume of the Company's Common Stock, multiplied with the closing price as reported by the OTCBB, equals at least $250,000 for 20 consecutive trading days; and (iv) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.

Over the course of the Series B Offering, between November 2013 and February 2014, the Company offered and sold 2.0 million shares of Series B Preferred to certain accredited investors in exchange for a total of $8,000,000 in cash, less cash fees of $659,440.  The investors also received Warrants to purchase an aggregate total of 9,333,334 shares of the Company’s Common Stock for $0.30 per share. The Company also issued Warrants to purchase 1,946,721 shares of Common Stock to certain placement agents assisting with the Series B Offering.  Each Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all Warrants issued during the Series B Offering, or $1,534,007, was recorded to derivative liabilities.   

Between February 2014 and June 2014, holders of 520,980 shares of Series B Preferred converted those shares into 8,335,680 shares of Common Stock.

Other Transactions

In February 2014, holders of $789,938 in outstanding principal, lender’s fees and interest on certain convertible notes payable exchanged this total for 197,487 shares of Series B Preferred and Warrants to purchase 921,596 shares of Common Stock for $0.30 per share.

Between March 2014 and June 2014, the Company issued 220,000 shares of Common Stock in connection with two consulting agreements. The Company expensed the fair value of the Common Stock issued of $69,875 to consulting expense.

In May 2014, the Company issued 69,138 shares of Common Stock pursuant to a cashless exercise of 152,360 outstanding warrants.

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NOTE 3 — STOCK OPTIONS AND WARRANTS

Warrants

A summary of the Company’s warrant activity for the six months ended June 30, 2014 is presented below:

	Warrants Outstanding			Weighted Average Exercise Price
Outstanding, December 31, 2013		12,590,467		$	0.55
Granted		3,989,117			0.30
Exercised		-			-
Expired		-			-
Outstanding, March 31, 2014		16,579,584		$	0.49
Granted		-			-
Exercised		(152,360	)		0.25
Expired		(50,000	)		25.00
Outstanding, June 30, 2014		16,377,224		$	0.42

As of June 30, 2014, the Company had the following outstanding warrants to purchase shares of its Common Stock:

Warrants Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (Yrs.)
	62,453	$	30.00		1.56
	7,500	$	25.00		0.21
	2,885,883	$	0.25		4.07
	13,421,388	$	0.30		4.46
	16,377,224	$	0.42		4.38

Non-Qualified Stock Options

The Company granted 2,457,390 non-qualified stock options to employees during the six months ended June 30, 2014.

Stock option activity during the six months ended June 30, 2014 is summarized as follows:

	Options Outstanding			Weighted-Average Exercise Price
Options outstanding at December 31, 2013		3,993,258		$	0.70
Exercised		-			-
Granted		2,457,390			0.25
Forfeited		-			-
Expired		-			-
Options outstanding at March 31, 2014		6,450,648		$	0.53
Exercised		-			-
Granted		-			-
Forfeited		(122,868	)		1.02
Expired		-			-
Options outstanding at June 30, 2014		6,327,780		$	0.53

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 The following table summarizes information about the Company’s stock options outstanding as of June 30, 2014:

		Outstanding Options						Exercisable Options
Range of Exercise Prices		Number		Weighted Average  Remaining  Contractual Life  (Years)		Aggregate  Intrinsic  Value		Number		Aggregate  Intrinsic  Value
$	0.61		3,133,173		1.04	$	-		1,310,610	$	-
$	1.02		491,478		1.19	$	-		184,305	$	-
$	1.10		245,739		2.00	$	-		-	$	-
$	0.25		2,457,390		9.61	$	368,609		637,752	$	95,663
Totals			6,327,780		4.42	$	368,609		2,132,667	$	95,663

NOTE 4 — CONVERTIBLE NOTES

A summary of convertible notes payable as of June 30, 2014, is as follows:

	Amount
Outstanding, December 31, 2013	$	680,000
Notes issued		-
Notes repaid		(20,000	)
Notes converted to Common Stock		(635,000	)
Outstanding, March 31, 2014	$	25,000
Notes issued		-
Notes repaid		-
Notes converted to Common Stock		-
Outstanding, June 30, 2014	$	25,000

In January 2014, the Company repaid $25,750 in outstanding principal, lender’s fees and accrued interest of certain notes payable.

In February 2014, holders of bridge financing notes, totaling $789,938 in outstanding principal, lender’s fees and accrued interest, converted their notes into shares of the Company’s Series B Preferred.

Term Loan

In November 2013, the Company secured a commercial term loan in the amount of $2.0 million from Avid Bank.  The loan had a term of two years, accrued interest at 2.75% above prime, was secured by virtually all of the Company’s assets, and required an asset coverage ratio of assets to outstanding principal of 1.5. The note and all outstanding interest were paid back in full in April 2014. All amounts due under the commercial term loan with Avid Bank, totaling approximately $1.67 million, were paid in full in April 2014.

Unsecured Notes

In June 2014, the Company issued unsecured promissory notes to certain accredited investors, resulting in net proceeds to the Company of $360,000. These promissory notes have a term of one year and carry an annual interest rate of 8%. The unsecured promissory notes were issued principally to provide liquidity necessitated as a result of the termination, and payment in full, of all amounts due and payable under the Avid Bank commercial term loan.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

The Company has entered in a number of agreements with various consultants. Termination of any of these agreements could result in termination fees.

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The Company leases its corporate office in Irvine, California on a one-year term, which term was most recently renewed in July 2013. Total rent expense related to the Company's operating lease for the six months ended June 30, 2014 was $29,374. Total remaining payments on the lease through July 31, 2015 are $57,187.

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

Legal Proceedings

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

On July 1, 2011, a lawsuit was filed in the United States District Court, the Southern District of Ohio, Cincinnati Division, against GT Beverage Company, LLC (“GT LLC”) by Dominion Liquid Technologies, LLC.  The lawsuit alleged that GT LLC breached terms of a 2010 co-packing agreement, which governed the relationship between the parties.  In July 2014, the Company settled this lawsuit for $350,000. The settlement was paid for with 1,166,667 restricted shares of its Common Stock. Such amount has been accrued for at June 30, 2014.

On April 22, 2014, a lawsuit was filed in the Superior Court of California, County of Orange, against the Company by Advantage Sales and Marketing, LLC. The plaintiff initially seeks damages of $92,064.  Management currently believes the overall risk to the Company in connection with this matter is less than the amount claimed, and intends to vigorously defend itself. However, the Company is unable to estimate a possible range of loss at this time.

We are currently not involved in any litigation except noted above that we believe could have a material adverse effect on our financial condition or results of operations. Other than described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, or our common stock in which an adverse decision could have a material adverse effect.

NOTE 6 – FAIR VALUE MEASUREMENTS

The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value. FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

  -             Level 1: Observable inputs such as quoted prices in active markets;

  -             Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

  -             Level 3: Unobservable inputs in which there is little or no market data, which require the    reporting entity to develop its own assumptions.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.

The Company assesses its recurring fair value measurements as defined by FASB ASC 810. Liabilities measured at estimated fair value on a recurring basis include derivative liabilities. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial liabilities among the levels occur at the beginning of the reporting period. There were no transfers between Level 1, Level 2 and/or Level 3 during the quarter ended June 30, 2014. The Company had no Level 1 or 2 fair value measurements at June 30, 2014 or December 31, 2013.

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The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a recurring basis included in the Company’s financial statements as of June 30, 2014:

			Level 1		Level 2		Level 3
	Total carrying value		Quoted market prices in active markets		Internal Models with significant observable market parameters		Internal models with significant unobservable market parameters
Derivative liabilities	$	3,936,301	$	–	$	–	$	3,936,301

The following table presents the changes in recurring fair value measurements included in net loss for the quarter ended June 30, 2014:

	Recurring Fair Value Measurements
	Changes in Fair Value Included in Net Loss For the Quarter Ended June 30, 2014
	Revenues		Expenses		Total
Derivative liabilities	$	383,439	$	–	$	383,439

The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the quarter ended June 30, 2014:

	March 31, 2014		Recorded New Derivative Liabilities		Write off of Derivative Liabilities		Change in Estimated Fair Value Recognized in Results of Operations		June 30, 2014
Derivative liabilities	$	4,360,969	$	-	$	(41,229)	$	(383,439)	$	3,936,301

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Forward-Looking Statements

This Quarterly Report on Form 10-Q contains “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. 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 under “Risk Factors” in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2013.

The following discussion of the financial condition and results of operations should be read in conjunction with the condensed consolidated financial statements included elsewhere within this Quarterly Report. Fluctuations in annual and quarterly results may occur as a result of factors affecting demand for our products such as the timing of new product introductions by us and by our competitors and our customers’ political and budgetary constraints. Due to such fluctuations, historical results and percentage relationships are not necessarily indicative of the operating results for any future period.

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 vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute the AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed online and through our existing database of customers.

Our principal place of business is 18552 MacArthur Boulevard, Suite 325, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our Common Stock, par value $0.001 (“Common Stock”) is currently listed for quotation on the Over-the-Counter marketplace (“OTCQB”) under the symbol TRUU.

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 there have been no changes to our critical accounting policies subsequent to the filing of our annual report on Form 10-K for the year ended December 31, 2013.

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Comparison of the Three Months Ended June 30, 2014 to the Three Months Ended June 30, 2013.

Net Sales

Net sales for the three months ended June 30, 2014 were $1,161,142, compared with sales of $1,303,371 for the three months ended June 30, 2013.  Sales for the three months ended June 30, 2013 included cerain non-recurring large promotion-related shipments to Winn-Dixie and Walgreens. Sales for the three months ended June 30, 2014 grew 78% from the three months ended March 31, 2014. This quarter-over-quarter increase was principally due to the introduction of six packs of AquaBall Naturally Flavored Water to accounts such as Rite Aid and Toys’R’Us, along with the introduction of our club pack at Sam’s Club.

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

Product Category	Three Months Ended June 30, 2014 (% of Sales)
AquaBall™		95	%
Bazi®		5	%

 While no assurances can be given, management currently anticipated that net sales will increase in subsequent periods as a result of existing distribution agreements, and anticipated sales to key accounts established during the quarter ended June 30, 2014.

Gross Profit

Gross profit for the three months ended June 30, 2014 was $194,749, compared to $102,435 for the three months ended June 30, 2013. Gross profit as a percentage of revenue (gross margin) during three months ended June 30, 2014 was 17%.  Gross margin increased from 2013 due to several one-time charges that occurred in the 2013 period. Gross margins were held low in the three months ended June 30, 2014 by low initial margins on our new club pack which we sold to Sam’s Club. Gross margin on this item will increase as volume grows and will result in increased overall margins.

Sales, General and Administrative Expense

Sales, general and administrative expenses were $2,138,109 for the three months ended June 30, 2014, as compared to $1,505,994 for the three months ended June 30, 2013. This increase was due to increases in freight, legal fees associated with pending litigation, and accruing the expense related to the settlement of the lawsuit with Dominion Liquid Technologies, which increases are offset by lower stock based compensation expense.

Change in Fair Value of Derivative Liabilities

The Company recorded a gain for the change in fair value of derivative liabilities for the three months ended June 30, 2014 of $383,439.

Interest Expense

 Interest expense for the three months ended June 30, 2014 was $14,120, as compared to $152,418 for the three months ended June 30, 2013. Interest expense decreased in the current quarter principally due to the payment of all amounts due under certain convertible promissory notes, and the conversion of all amounts due under the the remaining convertible promissory notes into Series B Preferred, and the payoff of all amounts due under the commercial line of credit with Avid Bank.

Income Taxes

There is no income tax expense recorded for the three months ended June 30, 2014 and 2013, due to the Company's net losses. As of June 30, 2014, the Company has tax net operating loss carryforwards and a related deferred tax asset, offset by a full valuation allowance.

Net Loss

Our net loss for the three months ended June 30, 2014 was $1,574,041, as compared to a net loss of $1,450,372 for the three months ended June 30, 2013. On a per share basis, our loss was $0.05 per share for the three months ended June 30, 2014 and 2013.

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Comparison of the Six Months Ended June 30, 2014 to the Six Months Ended June 30, 2013.

Net Sales

 Net sales for the six months ended June 30, 2014 were $1,811,674 compared to net sales of $1,714,172 for the six months ended June 30, 2013. Net sales during the six month period increased principally as a result of increased sales of AquaBall™ during the six-month period ended June 30, 2014, compared to the comparable period in 2013, offset by certain non-recurring promotion-related shipments to Winn-Dixie and Walgreens.

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

Product Category	Six Months Ended June 30, 2014 (% of Sales)
AquaBall™		90	%
Bazi®		10	%

Gross Profit

Gross profit for the six months ended June 30, 2014 was $315,980.  Gross profit as a percentage of revenue (gross margin) during six months ended June 30, 2014 was 17%.  

 Sales, General and Administrative Expense

Sales, general and administrative expenses were $3,700,443 for the six months ended June 30, 2014 as compared to $2,981,544 for the six months ended June 30, 2013.  This increase was principally due to increased slotting fees, marketing expenditures, and accruing the expense related to the settlement of the lawsuit with Dominion Liquid Technologies, which increases are offset by lower stock based compensation expense.

Interest Expense

Interest expense for the six months ended June 30, 2014 was $51,249 as compared to $380,617 for the six months ended June 30, 2013. Interest expense decreased in the current quarter principally due to the payment of all amounts due under certain convertible promissory notes, and the conversion of all amounts due under the the remaining convertible promissory notes into Series B Preferred, during the six months ended June 30, 2014, and the payoff of all amounts due under the commercial line of credit with Avid Bank.  

Income Taxes

There is no income tax expense recorded for the periods ended June 30, 2014 and 2013, due to the Company's net losses. As of June 30, 2014, the Company has tax net operating loss carryforwards and a related deferred tax asset, offset by a full valuation allowance.

Net Loss

Our net loss for the six months ended June 30, 2014 was $5,177,810 as compared to a net loss of $3,007,270 for the six months ended June 30, 2013.  On a per share basis, our loss was $0.17 and $0.11 per share for the six months ended June 30, 2014 and 2013, respectively.

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Liquidity and Capital Resources

 The Company had negative working capital of $3,393,734 and $1,969,081 at June 30, 2014 and March 30, 2014, respectively, and $495,867 and $3,061,287 in cash at June 30, 2014 and March 30, 2014, respectively. The substantial decrease in working capital and cash is principally due to the payoff of all amounts due under the commerical line of credit with Avid Bank, totaling $1.67 million, and, to a lesser extent, to fund operating losses.

 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, 2013, indicating that there is substantial doubt as to the ability of the Company to continue as a going concern. The accompanying condensed consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As of and for the quarter ended June 30, 2014, the Company incurred a net loss of $1,574,041, has negative working capital of $3,393,734 and an accumulated deficit of $15,419,288. While subsequent to December 31, 2013, the Company raised approximately $1,890,000 resulting from the sale of shares of its Series B Convertible Preferred Stock ("Series B Preferred"), 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, if necessary, raise capital through equity and debt offerings in the event additional capital is necessary to execute the Company’s business, marketing and operating plan, and achieve profitability from continuing operations. The accompanying condensed consolidated financial statements do not include any adjustments that might result in the event the Company is unsuccessful in its plans.

The Company has financed its operations through sales of equity and, to a lesser degree, cash flow provided by sales of AquaBall™. Despite recent sales of debt securities as described below, funds generated from sales of our Common Stock, shares of Series B Preferred 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.

Series B Offering

On November 25, 2013, the Company commenced a private offering of up to 2.0 million shares of Series B Preferred for $4.00 per share (“Purchase Price”), and five-year warrants (“Warrants”), exercisable for $0.30 per share (the "Exercise Price"), to purchase that number of shares of the Company's Common Stock equal to 35% of the Purchase Price, divided by the Exercise Price. The Company completed the Series B Offering in February 2014, and, over the course of the offering, offered and sold approximately 2.0 million shares of Series B Preferred and Warrants to purchase approximately 9.3 million shares of Common Stock to certain accredited investors.

 Term Loan and Note Conversion

                  On November 29, 2013, the Company executed a Loan and Security Agreement and other ancillary documents for a $2.0 million term loan from Avid Bank (the "Bank") (the "Term Loan"), which Term Loan accrues interest at a rate of prime plus 2.75% and matures on November 29, 2015. The Company's repayment of the Term Loan is secured by a continuing security interest in substantially all of the Company's assets. Proceeds from the Term Loan, together with a portion of the proceeds from the Series B Offering were used to repay certain Notes (defined below) issued during the Note Offering (defined below), totaling approximately $2.5 million in principal and accrued interest (the "Note Repayment"). In April 2014, the note and all outstanding interest were repaid.

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Unsecured Notes

In June 2014, the Company issued unsecured promissory notes to certain accredited investors, resulting in net proceeds to the Company of $360,000. These promissory notes have a term of one year and carry an annual interest rate of 8%.

Off-Balance Sheet Items

We had no off-balance sheet items as of June 30, 2014.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

A smaller reporting company is not required to provide the information required by this item.

ITEM 4. 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 (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 Quarterly Report on Form 10-Q. 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)   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.

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PART II

ITEM 1. LEGAL PROCEEDINGS

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

On July 1, 2011, a lawsuit was filed in the United States District Court, the Southern District of Ohio, Cincinnati Division, against GT Beverage Company, LLC (“GT LLC”) by Dominion Liquid Technologies, LLC.  The lawsuit alleged that GT LLC breached terms of a 2010 co-packing agreement, which governed the relationship between the parties.  In July 2014, the Company settled this lawsuit for $350,000. The settlement was paid for with 1,166,667 restricted shares of its Common Stock. Such amount has been accrued for at June 30, 2014.

On April 22, 2014, a lawsuit was filed in the Superior Court of California, County of Orange, against the Company by Advantage Sales and Marketing, LLC. The plaintiff initially seeks damages of $92,064. Management currently believes the overall risk to the Company in connection with this matter is less than the amount claimed, and intends to vigorously defend itself. However, the Company is unable to estimate a possible range of loss at this time.

We are currently not involved in any litigation except noted above that we believe could have a material adverse effect on our financial condition or results of operations. Other than described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, or our common stock in which an adverse decision could have a material adverse effect.

ITEM 1A. RISK FACTORS

We have identified the following risk factors in addition to the risks factors previously disclosed in Part I, Item 1A, "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2014:

We have a history of operating losses and, despite consummation of recent financings, our working capital has decreased substantially.  Our decrease in working capital may present liquidity problems.

We have not been profitable since inception.  We had a net loss of approximately $1.57 million and $5.18 million for the three- and six-month period ended June 30, 2014, respectively, and had negative working capital of approximately $3.4 million at June 30, 2014.  Although we have recently consummated equity and debt financings resulting in gross proceeds of approximately $12.4 million, we have used a substantial portion of the gross proceeds to fund operating losses and pay down certain indebtedness, resulting in approximately $495,867 in cash at June 30, 2014, of which approximately $133,131 is restricted.  As a result, we will require additional capital to execute our business and marketing plan, and continue as a going concern.  Our history of losses may impair our ability to obtain necessary financing on favorable terms or at all.  It may also impair our ability to attract investors if we attempt to raise additional capital by selling additional debt or equity securities in a private or public offering.

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

 Between March 2014 and June 2014, the Company issued 220,000 shares of Common Stock in connection with two consulting agreements, with a value of approximately $69,875.  The   The unregistered shares of Common Stock were offered and sold in transactions exempt from registration under the Securities Act of 1933, as amended, in reliance on Section 4(2) thereof and/or Rule 506 of Regulation D thereunder.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None.

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ITEM 6. EXHIBITS

(a)	EXHIBITS
31.1	Certification of the Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a)
31.2	Certification of the Principal Financial and Accounting Officer pursuant to Rule 13a-14(a) and 15d-14(a)
32.1	Certification by the Principal Executive Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification by the Principal Financial and Accounting Officer pursuant to 18 U.S.C. 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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

-19-

SIGNATURES

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

Date:  August 13, 2014	TRUE DRINKS HOLDINGS, INC.
	By:  /s/ Lance Leonard
	Lance Leonard President, Chief Executive Officer, and Director (Principal Executive Officer)
Date: August 13, 2014	By:  /s/ Daniel Kerker
	Daniel Kerker Chief Financial Officer (Principal Financial and Accounting Officer)

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, Lance Leonard, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of True Drinks Holdings, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles

c.  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:       August 13, 2014

/s/ Lance Leonard

Lance Leonard

President, Chief Executive Officer, and Director

(Principal Executive Officer)

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Dan Kerker, certify that:

1.  I have reviewed this quarterly report on Form 10-Q of True Drinks Holdings, Inc.;

2.  Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report.

3.  Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.  The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a.  Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b.  Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles

c.  Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d.  Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.  The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a.  All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b.  Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date:       August 13, 2014

/s/ Dan Kerker

Dan Kerker

Chief Financial Officer

(Principal Financial and Accounting Officer)

EX-32.1

Exhibit 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER PURSUANT TO 18 U.S.C.  SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of True Drinks Holdings, Inc.  (the “Company”) on Form 10-Q for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Lance Leonard, Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Lance Leonard
	Lance Leonard
	President, Chief Executive Officer, and Director (Principal Executive Officer)
August 13, 2014

EX-32.2

Exhibit 32.2

CERTIFICATION OF PRINCIPAL ACCOUNTING OFFICER PURSUANT TO 18 U.S.C.  SECTION 1350, AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of True Drinks Holdings, Inc.  (the “Company”) on Form 10-Q for the quarter ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Dan Kerker, Principal Accounting Officer of the Company, certify, pursuant to 18 U.S.C.  Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:

(1)  The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)  The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

	/s/ Dan Kerker
	Dan Kerker
	Chief Financial Officer (Principal Financial and Accounting Officer)
August 13, 2014

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CONVERTIBLE NOTES (Details) (USD $)	3 Months Ended
	Jun. 30, 2014	Mar. 31, 2014
Convertible Notes Details
Outstanding, December 31, 2012	$ 25,000	$ 680,000
Notes issued
Notes repaid		(20,000)
Notes converted to Common Stock		(635,000)
Outstanding, December 31, 2013	$ 25,000	$ 25,000

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CONVERTIBLE NOTES

6 Months Ended

Jun. 30, 2014

Convertible Notes

CONVERTIBLE NOTES

A summary of convertible notes payable as of June 30, 2014, is as follows:

	Amount
Outstanding, December 31, 2013	$	680,000
Notes issued		-
Notes repaid		(20,000	)
Notes converted to Common Stock		(635,000	)
Outstanding, March 31, 2014	$	25,000
Notes issued		-
Notes repaid		-
Notes converted to Common Stock		-
Outstanding, June 30, 2014	$	25,000

In January 2014, the Company repaid $25,750 in outstanding principal, lender’s fees and accrued interest of certain notes payable.

In February 2014, holders of bridge financing notes, totaling $789,938 in outstanding principal, lender’s fees and accrued interest, converted their notes into shares of the Company’s Series B Preferred.

Term Loan

In November 2013, the Company secured a commercial term loan in the amount of $2.0 million from Avid Bank.  The loan had a term of two years, accrued interest at 2.75% above prime, was secured by virtually all of the Company’s assets, and required an asset coverage ratio of assets to outstanding principal of 1.5. The note and all outstanding interest were paid back in full in April 2014. All amounts due under the commercial term loan with Avid Bank, totaling approximately $1.67 million, were paid in full in April 2014.

Unsecured Notes

In June 2014, the Company issued unsecured promissory notes to certain accredited investors, resulting in net proceeds to the Company of $360,000. These promissory notes have a term of one year and carry an annual interest rate of 8%. The unsecured promissory notes were issued principally to provide liquidity necessitated as a result of the termination, and payment in full, of all amounts due and payable under the Avid Bank commercial term loan.

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FAIR VALUE MEASUREMENTS (Details 1) (USD $)	3 Months Ended
	Jun. 30, 2014
Change in Estimated Fair Value Recognized in Results of Operations	$ 383,439
Revenue [Member]
Change in Estimated Fair Value Recognized in Results of Operations	383,439
Expenses [Member]
Change in Estimated Fair Value Recognized in Results of Operations

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FAIR VALUE MEASUREMENTS (Details) (USD $)	Jun. 30, 2014	Mar. 31, 2014
Derivative liabilities	$ 3,936,301	$ 4,360,969
Fair Value, Inputs, Level 1 [Member]
Derivative liabilities
Fair Value, Inputs, Level 2 [Member]
Derivative liabilities
Fair Value, Inputs, Level 3 [Member]
Derivative liabilities	$ 3,936,301

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FAIR VALUE MEASUREMENTS (Details 2) (USD $)	3 Months Ended
	Jun. 30, 2014
Level 3 Financial Liabilities
Derivative liabilities, beginning balance	$ 4,360,969
Recorded new derivative liabilities
Write off of Derivative Liabilities	(41,229)
Change in Estimated Fair Value Recognized in Results of Operations	(383,439)
Derivative liabilities	$ 3,936,301

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STOCK OPTIONS AND WARRANTS

6 Months Ended

Jun. 30, 2014

Stock Options And Warrants

STOCK OPTIONS AND WARRANTS

Warrants

A summary of the Company’s warrant activity for the six months ended June 30, 2014 is presented below:

	Warrants Outstanding			Weighted Average Exercise Price
Outstanding, December 31, 2013		12,590,467		$	0.55
Granted		3,989,117			0.30
Exercised		-			-
Expired		-			-
Outstanding, March 31, 2014		16,579,584		$	0.49
Granted		-			-
Exercised		(152,360	)		0.25
Expired		(50,000	)		25.00
Outstanding, June 30, 2014		16,377,224		$	0.42

As of June 30, 2014, the Company had the following outstanding warrants to purchase shares of its Common Stock:

Warrants Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (Yrs.)
	62,453	$	30.00		1.56
	7,500	$	25.00		0.21
	2,885,883	$	0.25		4.07
	13,421,388	$	0.30		4.46
	16,377,224	$	0.42		4.38

Non-Qualified Stock Options

The Company granted 2,457,390 non-qualified stock options to employees during the six months ended June 30, 2014.

Stock option activity during the six months ended June 30, 2014 is summarized as follows:

	Options Outstanding			Weighted-Average Exercise Price
Options outstanding at December 31, 2013		3,993,258		$	0.70
Exercised		-			-
Granted		2,457,390			0.25
Forfeited		-			-
Expired		-			-
Options outstanding at March 31, 2014		6,450,648		$	0.53
Exercised		-			-
Granted		-			-
Forfeited		(122,868	)		1.02
Expired		-			-
Options outstanding at June 30, 2014		6,327,780		$	0.53

 The following table summarizes information about the Company’s stock options outstanding as of June 30, 2014:

		Outstanding Options						Exercisable Options
Range of Exercise Prices		Number		Weighted Average  Remaining  Contractual Life  (Years)		Aggregate  Intrinsic  Value		Number		Aggregate  Intrinsic  Value
$	0.61		3,133,173		1.04	$	-		1,310,610	$	-
$	1.02		491,478		1.19	$	-		184,305	$	-
$	1.10		245,739		2.00	$	-		-	$	-
$	0.25		2,457,390		9.61	$	368,609		637,752	$	95,663
Totals			6,327,780		4.42	$	368,609		2,132,667	$	95,663

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CONSOLIDATED BALANCE SHEET (USD $)	Jun. 30, 2014	Dec. 31, 2013
ASSETS
Cash	$ 362,736	$ 3,136,766
Accounts receivable, net	522,531	175,068
Inventory	1,800,893	1,056,756
Prepaid expenses and other current assets	623,819	591,434
Total current assets	3,309,979	4,960,024
Restricted Cash	133,131	133,065
Property and equipment, net	6,342	8,399
Patents, net	1,282,353	1,352,941
Trademarks, net	23,516	48,516
Goodwill	3,474,502	3,474,502
Total assets	8,229,823	9,977,447
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable and accrued expenses	2,382,412	1,222,404
Convertible notes payable, net	360,000
Notes payable, net	360,000
Term loan		1,916,667
Derivative liabilities	3,936,301	1,619,021
Total current liabilities	6,703,713	5,438,092
Stockholders' Equity
Common Stock, $0.001 par value, 120,000,000 and 40,000,000 shares authorized, 36,542,960 and 27,855,587 shares outstanding at June 30, 2014 and December 31, 2013, respectively	36,543	27,886
Preferred Stock – Series B (liquidation preference of $4 per share), $0.001 par value, 2,750,000 shares authorized, 1,607,870 and 1,776,923 shares outstanding at June 30, 2014 and December 31, 2013, respectively	1,608	1,777
Additional paid in capital	16,907,247	14,751,170
Accumulated deficit	(15,419,288)	(10,241,478)
Total Stockholders' Equity	1,526,110	4,539,355
Total liabilities and Stockholders' Equity	$ 8,229,823	$ 9,977,447

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

6 Months Ended

Jun. 30, 2014

Organization And Summary Of Significant Accounting Policies

ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization and Business

Overview

True Drinks Holdings, Inc. (the "Company", "us" or "we") was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™ Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.

Our principal place of business is 18552 MacArthur Boulevard, Suite 325, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our Common Stock, par value $0.001 (“Common Stock”) is currently listed for quotation on the Over-the-Counter marketplace (“OTCQB”) under the symbol TRUU.

Developments During the Quarter

 In April, we gained significant distribution for six packs of AquaBall™, specifically at Rite Aid and Toys’R’Us.  We have commitments to expand this distribution into other large format retailers in the third quarter.

 In June, we sold 199 pallets of our new 16-pack Club Pack of AquaBall™ to 150 Sam’s Club locations.  We shipped our second order into Sam’s Club in August. We are working to further expand our presence in the club channel in the third quarter.

Basis of Presentation and Going Concern

The accompanying condensed consolidated balance sheet as of December 31, 2013, which has been derived from audited financial statements included in Form 10-K for the year ended December 31, 2013, and the accompanying interim condensed consolidated financial statements  have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to fairly present the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for the six-month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 31, 2014.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As of and for the three months ended June 30, 2014, the Company incurred a net loss of $1,574,041, has negative working capital of $3,393,734, and an accumulated deficit of $15,419,288. The Company had $495,867 in cash at June 30, 2014 with $133,131 of this cash being restricted, as discussed below. The Company will require additional capital to execute its business, marketing and operating plan, and therefore sustain operations, which capital may not be available on favorable terms, if at all. The accompanying condensed consolidated financial statements do not include any adjustments that might result in the event the Company was unable to generate sufficient cash from operations, execute its business, marking or operating plan, or obtain additional working capital, if necessary.

Principles of Consolidation

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

Use of Estimates

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

Restricted Cash

The Company has $133,131 in restricted cash with a financial institution securing a letter of credit. The letter of credit matures in August 2015 and was issued as part of contractual obligations related to one of our licensing agreements with Disney Consumer Products, Inc.

Accounts Receivable

We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of management’s knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on the perceived likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance for doubtful accounts was approximately $210,000 at June 30, 2014 and December 31, 2013, respectively.

Concentrations

The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.  The Company maintains the majority of its cash balances with two financial institutions.  There are funds in excess of the federally insured amount, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.

We utilized a variety of suppliers to purchase raw materials for the AquaBall™ Naturally Flavored Water during the six-months ended June 30, 2014 and the year ended December 31, 2013.

During 2013, 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 we do not anticipate any issues with the supply of these raw materials.

 A significant portion of our revenue comes from sales of the AquaBall™ Naturally Flavored Water with the remaining sales coming from Bazi® All Natural Energy.  For the six months ended June 30, 2014, sales of AquaBall™ accounted for 95% of our sales, compared to 84% for the corresponding period in 2013. While no assurances can be given, we anticipate that sales of AquaBall™ will continue to grow in future periods as a percentage of sales relative to sales of Bazi™.

Inventory

Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provisions are made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.

Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. No inventory reserves were considered necessary as of June 30, 2014 and December 31, 2013.

Inventory is comprised of the following:

	June 30, 2014 (unaudited)		December 31, 2013
Purchased materials	$	899,841	$	659,835
Finished goods		901,052		396,921
Total	$	1,800,893	$	1,056,756

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. No impairment was deemed necessary during the quarter ended June 30, 2014.

Intangible Assets

Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Company’s products, customer list, and the estimated value of GT Beverage Company, LLC’s interlocking spherical bottle patent. The Company’s intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary during the quarter ended June 30, 2014.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually, typically in the fourth quarter. No impairment indicators were noted during the quarter ended June 30, 2014.

Income Taxes

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

Stock-Based Compensation

For the six-month periods ended June 30, 2014 and 2013, general and administrative expenses included stock based compensation expense of $258,834 and $594,902, respectively.

The Company uses a Black-Scholes option-pricing model (the “Black-Scholes Model”) to estimate the fair value of outstanding stock options and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Company’s stock price over the contractual term of the option or warrant. The expected life is based on the contractual term of the option or warrant and expected exercise and, in the case of options, post-vesting employment termination behavior. Currently, our model inputs are based on the simplified approach provided by SAB 110. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 3, “Stock Options and Warrants”).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of our cash, accounts receivable, accounts payable, and accrued expenses approximate their estimated fair values due to the short-term maturities of those financial instruments. The carrying amount of the notes payable approximates their fair value due to the short maturity of the notes and since the interest rate approximates current market interest rates for similar instruments. See Note 6 for derivative instruments.

Derivative Instruments

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

Net Loss Per Share

Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share.  Since the Company has a net loss for all periods presented, Common Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive.  At June 30, 2014 and 2013, the Company had 85,023,884 and 36,249,673 shares of Common Stock equivalents outstanding, respectively.

Research and Development

Research and development costs are expensed as incurred.

Recent Accounting Pronouncements

Except as noted below, the Company has reviewed all recently issued, but not yet effective accounting pronouncements and has concluded that there are no recently issued, but not yet effective pronouncements that may have a material impact on the Company’s future financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This accounting standard is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.

Subsequent Events

Management has evaluated subsequent events through the date the accompanying condensed consolidated financial statements were filed with the SEC, and noted no other significant subsequent events not elsewhere disclosed herein.

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STOCK OPTIONS AND WARRANTS (Details 3) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2014
Options Outstanding
Outstanding	6,450,780	3,993,258	3,993,258
Exercised
Granted		2,457,390	2,457,390
Forfeited	(122,868)
Expired
Outstanding	6,327,780	6,450,780	6,327,780
Weighted average exercise price
Outstanding Weighted Average Exercise Prices	$ 0.53	$ 0.70	$ 0.70
Exercised		$ 0
Granted		$ 0.25
Forfeited	$ 1.02
Expired
Outstanding Weighted Average Exercise Prices	$ 0.53	$ 0.53	$ 0.53

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STOCK OPTIONS AND WARRANTS (Details Narrative)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2014
Stock Options And Warrants Details Narrative
Non-qualified stock options		2,457,390	2,457,390

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SHAREHOLDERS' EQUITY

6 Months Ended

Jun. 30, 2014

Shareholders Equity

SHAREHOLDERS' EQUITY

Series B Convertible Preferred Stock

We are currently authorized to issue up to 5,000,000 shares of preferred stock, of which 2,750,000 shares are currently designated as Series B Convertible Preferred Stock.  Each share of Series B Preferred has a stated value of $4.00 per share (“Stated Value”) and accrues annual dividends equal to 5% of the Stated Value, payable by the Company in quarterly installments, in either cash or shares of Common Stock.  The Company declared a dividend totaling $97,775 and paid previously declared dividends of $8,139 during the quarter ended June 30, 2014.  The cumulative unpaid dividends on the Series B Preferred Stock are $222,840 and $2,194 at June 30, 2014 and December 31, 2013, respectively.  Each share of Series B Preferred is convertible, at the option of the holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.25 per share (the “Conversion Shares”).  The Company also has the option to require the conversion of the Series B 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; (iii) the daily trading volume of the Company's Common Stock, multiplied with the closing price as reported by the OTCBB, equals at least $250,000 for 20 consecutive trading days; and (iv) the average closing price of the Company's Common Stock is at least $0.62 per share for 10 consecutive trading days.

Over the course of the Series B Offering, between November 2013 and February 2014, the Company offered and sold 2.0 million shares of Series B Preferred to certain accredited investors in exchange for a total of $8,000,000 in cash, less cash fees of $659,440.  The investors also received Warrants to purchase an aggregate total of 9,333,334 shares of the Company’s Common Stock for $0.30 per share. The Company also issued Warrants to purchase 1,946,721 shares of Common Stock to certain placement agents assisting with the Series B Offering.  Each Warrant contains a price-protection feature that adjusts the exercise price in the event of certain dilutive issuances of securities. Such price-protection feature is determined to be a derivative liability and, as such, the value of all Warrants issued during the Series B Offering, or $1,534,007, was recorded to derivative liabilities.   

Between February 2014 and June 2014, holders of 520,980 shares of Series B Preferred converted those shares into 8,335,680 shares of Common Stock.

Other Transactions

In February 2014, holders of $789,938 in outstanding principal, lender’s fees and interest on certain convertible notes payable exchanged this total for 197,487 shares of Series B Preferred and Warrants to purchase 921,596 shares of Common Stock for $0.30 per share.

Between March 2014 and June 2014, the Company issued 220,000 shares of Common Stock in connection with two consulting agreements. The Company expensed the fair value of the Common Stock issued of $69,875 to consulting expense.

In May 2014, the Company issued 69,138 shares of Common Stock pursuant to a cashless exercise of 152,360 outstanding warrants.

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CONSOLIDATED BALANCE SHEET (Parenthetical) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Statement of Financial Position [Abstract]
Preferred stock - Series B liquidation preference	$ 4
Preferred stock - Series B, par value	$ 0.001	$ 0.001
Preferred stock - Series B, shares authorized	2,750,000	2,750,000
Preferred stock - Series B, shares outstanding	1,607,870	1,776,923
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	120,000,000	40,000,000
Common stock, shares outstanding	36,542,960	27,855,587

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $)	Jun. 30, 2014	Dec. 31, 2013
Inventory
Purchased materials	$ 899,841	$ 659,835
Finished goods	901,052	396,921
Total	$ 1,800,893	$ 1,056,756

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Document and Entity Information	6 Months Ended
	Jun. 30, 2014	Aug. 13, 2014
Document And Entity Information
Entity Registrant Name	True Drinks Holdings, Inc.
Entity Central Index Key	0001134765
Document Type	10-Q
Document Period End Date	Jun. 30, 2014
Amendment Flag	false
Current Fiscal Year End Date	--12-31
Is Entity a Well-known Seasoned Issuer?	No
Is Entity a Voluntary Filer?	No
Is Entity's Reporting Status Current?	Yes
Entity Filer Category	Smaller Reporting Company
Entity Common Stock, Shares Outstanding		38,660,684
Document Fiscal Period Focus	Q2
Document Fiscal Year Focus	2014

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Common stock, par value	$ 0.001		$ 0.001		$ 0.001
Net loss	$ 1,574,041	$ 1,450,372	$ 5,177,810	$ 3,007,270
Negative working capital	3,393,734		3,393,734
Accumulated deficit	15,419,288		15,419,288		10,241,478
Share-based compensation expense			258,834	594,902
Shares of common stock equivalents outstanding	85,023,884	36,249,673	85,023,884	36,249,673
Cash	495,867		495,867
Restricted cash	$ 133,131		$ 133,131		$ 133,065
Accounts receivable allowance for doubtful accounts			210000	210000
Vendor concentration			95.00%	84.00%
Series B Preferred Stock [Member]
Warrant term			5 years
Preferred, value per share	$ 4.00		$ 4.00

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CONSOLIDATED STATEMENTS OF OPERATIONS (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013	Jun. 30, 2014	Jun. 30, 2013
Income Statement [Abstract]
Net sales	$ 1,161,143	$ 1,303,371	$ 1,811,674	$ 1,714,172
Cost of Sales	966,393	1,200,936	1,495,694	1,464,886
Gross Profit	194,749	102,435	315,980	249,286
Operating expenses
Selling and marketing	1,005,346	654,412	1,575,874	1,084,898
General and administrative	1,132,763	851,582	2,124,569	1,896,646
Total operating expenses	2,138,109	1,505,994	3,700,443	2,981,544
Operating Loss	(1,943,360)	(1,403,559)	(3,384,463)	(2,732,258)
Other Expense (Income)
Change in fair value of derivative liabilities	(383,439)	(105,605)	1,742,098	(105,605)
Interest expense	14,120	152,418	51,249	380,617
Net loss	(1,574,041)	(1,450,372)	(5,177,810)	(3,007,270)
Dividends on Preferred Stock	97,775		230,979
Net loss attributable to common stockholders	$ (1,671,816)	$ (1,450,372)	$ (5,408,789)	$ (3,007,270)
Loss per common share, basic and diluted	$ (0.05)	$ (0.05)	$ (0.17)	$ (0.11)
Weighted average common shares outstanding, basic and diluted	34,839,764	27,400,619	31,407,485	27,105,681

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies)

6 Months Ended

Jun. 30, 2014

Organization And Summary Of Significant Accounting Policies Policies

Organization and Business

Overview

True Drinks Holdings, Inc. (the "Company", "us" or "we") was incorporated in the state of Nevada in January 2001 and is the holding company for True Drinks, Inc. (“True Drinks”), formed on January 19, 2012 in Delaware to create and commercialize all-natural, vitamin-enhanced drinks. Our primary business is the development, marketing, sale and distribution of our flagship product, AquaBall™ Naturally Flavored Water, a vitamin-enhanced, naturally flavored water drink packaged in our patented stacking spherical bottles. We distribute AquaBall™ nationally through select retail channels, such as grocery stores, mass merchandisers, drug stores and online. We also market and distribute Bazi® All Natural Energy, a liquid nutritional supplement drink, which is currently distributed through select retail channels, online, and through our existing database of customers.

Our principal place of business is 18552 MacArthur Boulevard, Suite 325, Irvine, California, 92612. Our telephone number is (949) 203-2500. Our corporate website address is http://www.truedrinks.com. Our Common Stock, par value $0.001 (“Common Stock”) is currently listed for quotation on the Over-the-Counter marketplace (“OTCQB”) under the symbol TRUU.

Developments During the Quarter

In April, we gained significant distribution for six packs of AquaBall™, specifically at Rite Aid and Toys’R’Us.  We have commitments to expand this distribution into other large format retailers in the third quarter.

 In June, we sold 199 pallets of our new 16-pack Club Pack of AquaBall™ to 150 Sam’s Club locations.  We shipped our second order into Sam’s Club in August. We are working to further expand our presence in the club channel in the third quarter.

Basis of Presentation and Going Concern

The accompanying condensed consolidated balance sheet as of December 31, 2013, which has been derived from audited financial statements included in Form 10-K for the year ended December 31, 2013, and the accompanying interim condensed consolidated financial statements  have been prepared by management pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial reporting. These interim condensed consolidated financial statements are unaudited and, in the opinion of management, include all adjustments (consisting only of normal recurring adjustments and accruals) necessary to fairly present the Company’s financial condition, results of operations and cash flows as of and for the periods presented in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Operating results for the six-month period ended June 30, 2014 are not necessarily indicative of the results that may be expected for the year ending December 31, 2014, or for any other interim period during such year. Certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been omitted in accordance with the rules and regulations of the SEC, although the Company believes that the disclosures made are adequate to make the information not misleading. The accompanying condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto contained in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2013 filed with the SEC on March 31, 2014.

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates continuation of the Company as a going concern. As of and for the three months ended June 30, 2014, the Company incurred a net loss of $1,574,041, has negative working capital of $3,393,734, and an accumulated deficit of $15,419,288. The Company had $495,867 in cash at June 30, 2014 with $133,131 of this cash being restricted, as discussed below. The Company will require additional capital to execute its business, marketing and operating plan, and therefore sustain operations, which capital may not be available on favorable terms, if at all. The accompanying condensed consolidated financial statements do not include any adjustments that might result in the event the Company was unable to generate sufficient cash from operations, execute its business, marking or operating plan, or obtain additional working capital, if necessary.

Principles of Consolidation

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

Use of Estimates

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

Restricted Cash

The Company has $133,131 in restricted cash with a financial institution securing a letter of credit. The letter of credit matures in August 2015 and was issued as part of contractual obligations related to one of our licensing agreements with Disney Consumer Products, Inc.

Accounts Receivable

We maintain an allowance for doubtful accounts, which is analyzed on a periodic basis to ensure that it is adequate to the best of management’s knowledge. Management develops an estimate of the allowance for doubtful accounts receivable based on the perceived likelihood of ultimate payment. Although the Company expects to collect amounts due, actual collections may differ from these estimated amounts. The allowance for doubtful accounts was approximately $210,000 at June 30, 2014 and December 31, 2013, respectively.

Concentrations

The Company has no significant off-balance sheet concentrations of credit risk such as foreign exchange contracts, options contracts or other foreign hedging arrangements.  The Company maintains the majority of its cash balances with two financial institutions.  There are funds in excess of the federally insured amount, or that are subject to credit risk, and the Company believes that the financial institutions are financially sound and the risk of loss is minimal.

We utilized a variety of suppliers to purchase raw materials for the AquaBall™ Naturally Flavored Water during the six-months ended June 30, 2014 and the year ended December 31, 2013.

During 2013, 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 we do not anticipate any issues with the supply of these raw materials.

 A significant portion of our revenue comes from sales of the AquaBall™ Naturally Flavored Water with the remaining sales coming from Bazi® All Natural Energy.  For the six months ended June 30, 2014, sales of AquaBall™ accounted for 95% of our sales, compared to 84% for the corresponding period in 2013. While no assurances can be given, we anticipate that sales of AquaBall™ will continue to grow in future periods as a percentage of sales relative to sales of Bazi™.

Inventory

Inventory is stated at the lower of cost or market on a FIFO (first-in first-out) basis. Provisions are made to reduce excess or obsolete inventory to the estimated net realizable value. The Company purchases for resale a vitamin-enhanced flavored water beverage and a liquid dietary supplement.

Management reviews the carrying value of inventory in relation to its sales history and industry trends to determine an estimated net realizable value. Changes in economic conditions or customer demand could result in obsolete or slow moving inventory that cannot be sold or must be sold at reduced prices and could result in an inventory reserve. No inventory reserves were considered necessary as of June 30, 2014 and December 31, 2013.

Inventory is comprised of the following:

	June 30, 2014 (unaudited)		December 31, 2013
Purchased materials	$	899,841	$	659,835
Finished goods		901,052		396,921
Total	$	1,800,893	$	1,056,756

Long-Lived Assets

The Company reviews its long-lived assets for impairment whenever changes in circumstances indicate that the carrying amount of an asset may not be recoverable. For purposes of evaluating the recoverability of long-lived assets, the recoverability test is performed using undiscounted net cash flows estimated to be generated by the asset. No impairment was deemed necessary during the quarter ended June 30, 2014.

Intangible assets

Intangible assets consists of the direct costs incurred for application fees and legal expenses associated with trademarks on the Company’s products, customer list, and the estimated value of GT Beverage Company, LLC’s interlocking spherical bottle patent. The Company’s intangible assets are amortized over their estimated remaining useful lives. The Company evaluates the useful lives of its intangible assets annually and adjusts the lives according to the expected useful life. No impairment was deemed necessary during the quarter ended June 30, 2014.

Goodwill

Goodwill represents the future economic benefits arising from other assets acquired that are individually identified and separately recognized. Goodwill and intangible assets acquired in a purchase business combination and determined to have an indefinite useful life are not amortized, but are tested for impairment at least annually, typically in the fourth quarter. No impairment indicators were noted during the quarter ended June 30, 2014.

Income Taxes

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

Stock-Based Compensation

For the six-month periods ended June 30, 2014 and 2013, general and administrative expenses included stock based compensation expense of $258,834 and $594,902, respectively.

The Company uses a Black-Scholes option-pricing model (the “Black-Scholes Model”) to estimate the fair value of outstanding stock options and warrants. The use of a valuation model requires the Company to make certain assumptions with respect to selected model inputs. Expected volatility is calculated based on the historical volatility of the Company’s stock price over the contractual term of the option or warrant. The expected life is based on the contractual term of the option or warrant and expected exercise and, in the case of options, post-vesting employment termination behavior. Currently, our model inputs are based on the simplified approach provided by SAB 110. The risk-free interest rate is based on U.S. Treasury zero-coupon issues with a remaining term equal to the expected life assumed at the date of the grant (see Note 3, “Stock Options and Warrants”).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The carrying amount of our cash, accounts receivable, accounts payable, and accrued expenses approximate their estimated fair values due to the short-term maturities of those financial instruments. The carrying amount of the notes payable approximates their fair value due to the short maturity of the notes and since the interest rate approximates current market interest rates for similar instruments. See Note 6 for derivative instruments.

Derivative Instruments

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

Net Loss Per Share

Earnings per share requires presentation of both basic earnings per common share and diluted earnings per common share.  Since the Company has a net loss for all periods presented, Common Stock equivalents are not included in the weighted average calculation since their effect would be anti-dilutive.  At June 30, 2014 and 2013, the Company had 85,023,884 and 36,249,673 shares of Common Stock equivalents outstanding, respectively.

Research and Development

Research and development costs are expensed as incurred.

Recent Accounting Pronouncements

Except as noted below, the Company has reviewed all recently issued, but not yet effective accounting pronouncements and has concluded that there are no recently issued, but not yet effective pronouncements that may have a material impact on the Company’s future financial statements.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers: Topic 606. This ASU outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance. This accounting standard is effective for annual reporting periods beginning after December 15, 2016, including interim reporting periods within that reporting period. Early adoption is not permitted. The Company is currently evaluating the impact this accounting standard will have on the Company's financial position, results of operations or cash flows.

Subsequent Events

Management has evaluated subsequent events through the date the accompanying condensed consolidated financial statements were filed with the SEC, and noted no other significant subsequent events not elsewhere disclosed herein.

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FAIR VALUE MEASUREMENTS

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

FAIR VALUE MEASUREMENTS

The application of fair value measurements may be on a recurring or nonrecurring basis depending on the accounting principles applicable to the specific asset or liability or whether management has elected to carry the item at its estimated fair value. FASB ASC 820-10-35 specifies a hierarchy of valuation techniques based on whether the inputs to those techniques are observable or unobservable. Observable inputs reflect market data obtained from independent sources, while unobservable inputs reflect the Company’s market assumptions. These two types of inputs create the following fair value hierarchy:

-             Level 1: Observable inputs such as quoted prices in active markets;

-             Level 2: Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and

-             Level 3: Unobservable inputs in which there is little or no market data, which require the    reporting entity to develop its own assumptions.

This hierarchy requires the Company to use observable market data, when available, and to minimize the use of unobservable inputs when estimating fair value.

The Company assesses its recurring fair value measurements as defined by FASB ASC 810. Liabilities measured at estimated fair value on a recurring basis include derivative liabilities. Transfers between fair value classifications occur when there are changes in pricing observability levels. Transfers of financial liabilities among the levels occur at the beginning of the reporting period. There were no transfers between Level 1, Level 2 and/or Level 3 during the quarter ended June 30, 2014. The Company had no Level 1 or 2 fair value measurements at June 30, 2014 or December 31, 2013.

The following table presents the estimated fair value of financial liabilities measured at estimated fair value on a recurring basis included in the Company’s financial statements as of June 30, 2014:

			Level 1		Level 2		Level 3
	Total carrying value		Quoted market prices in active markets		Internal Models with significant observable market parameters		Internal models with significant unobservable market parameters
Derivative liabilities	$	3,936,301	$	–	$	–	$	3,936,301

The following table presents the changes in recurring fair value measurements included in net loss for the quarter ended June 30, 2014:

	Recurring Fair Value Measurements
	Changes in Fair Value Included in Net Loss For the Quarter Ended June 30, 2014
	Revenues		Expenses		Total
Derivative liabilities	$	383,439	$	–	$	383,439

The table below sets forth a summary of changes in the fair value of our Level 3 financial liabilities for the quarter ended June 30, 2014:

	March 31, 2014		Recorded New Derivative Liabilities		Write off of Derivative Liabilities		Change in Estimated Fair Value Recognized in Results of Operations		June 30, 2014
Derivative liabilities	$	4,360,969	$	-	$	(41,229)	$	(383,439)	$	3,936,301

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STOCK OPTIONS AND WARRANTS (Details 4) (USD $)	6 Months Ended
	Jun. 30, 2014
Number of options	6,327,780
Weighted Average Remaining Contractual Life	P4Y7M11D
Aggregate Intrinsic Value	$ 368,609
Number of options exercisable	2,132,667
Aggregate Intrinsic Value	95,663
Range of exercise price 0.61 [Member]
Number of options	3,133,173
Weighted Average Remaining Contractual Life	P1Y3M15D
Aggregate Intrinsic Value
Number of options exercisable	1,310,610
Aggregate Intrinsic Value
Range of exercise price 1.02 [Member]
Number of options	491,478
Weighted Average Remaining Contractual Life	P1Y5M13D
Aggregate Intrinsic Value
Number of options exercisable	184,305
Aggregate Intrinsic Value
Range of exercise price 1.10 [Member]
Number of options	245,739
Weighted Average Remaining Contractual Life	P2Y3M0D
Aggregate Intrinsic Value
Number of options exercisable
Aggregate Intrinsic Value
Range of exercise price 0.25 [Member]
Number of options	2,457,390
Weighted Average Remaining Contractual Life	P9Y10M12D
Aggregate Intrinsic Value	368,609
Number of options exercisable	637,752
Aggregate Intrinsic Value	$ 95,663

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SHAREHOLDERS' EQUITY (Details Narrative) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2014	Jun. 30, 2013	Dec. 31, 2013
Preferred shares authorized	5,000,000		5,000,000
Preferred stock - Series B, shares authorized	2,750,000		2,750,000		2,750,000
Debt converted to shares		$ 635,000
Convertible notes repaid			1,916,667
Equity Transaction 2 [Member]
Shares issued			2,000,000
Proceeds from issuance of shares			8,000,000
Cash fees of subscription agreement			659,440
Warrants issued			9,333,334
Warrant exercise price			$ 0.30
Equity Transaction 3 [Member]
Warrants issued			1,946,721
Warrant fair value			1,534,007
Equity Transaction 4 [Member]
Convertible notes repaid			25,750
EquityTransaction 5 [Member]
Shares converted			520,980
Shares issued on conversion of preferred			83,356,800
Equity Transaction 6 [Member]
Conversion share rate			$ 0.30
Shares issued			197,487
Equity Transaction 7 [Member]
Shares issued			220,000
Fair value expensed to consulting expense			39,875
Equity Transaction 8 [Member]
Shares issued			69,138
Warrants exercised			152,360
Series B Preferred Stock [Member]
Preferred stock - Series B, shares authorized	2,750,000		2,750,000
Preferred, value per share	$ 4.00		$ 4.00
Preferred dividend			497,775
Payment of previously declared dividends			$ 8,139
Prefererd stock dividend rate			5.00%
Preferred conversion terms			Each share of Series B Preferred is convertible, at the option of the holder, into that number of shares of Common Stock equal to the Stated Value, divided by $0.25 per share (the “Conversion Shares”).

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CONVERTIBLE NOTES (Tables)

6 Months Ended

Jun. 30, 2014

Convertible Notes Tables

Convertible notes payable

	Amount
Outstanding, December 31, 2013	$	680,000
Notes issued		-
Notes repaid		(20,000	)
Notes converted to Common Stock		(635,000	)
Outstanding, March 31, 2014	$	25,000
Notes issued		-
Notes repaid		-
Notes converted to Common Stock		-
Outstanding, June 30, 2014	$	25,000

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ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables)

6 Months Ended

Jun. 30, 2014

Organization And Summary Of Significant Accounting Policies Tables

Inventory

	June 30, 2014 (unaudited)		December 31, 2013
Purchased materials	$	899,841	$	659,835
Finished goods		901,052		396,921
Total	$	1,800,893	$	1,056,756

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STOCK OPTIONS AND WARRANTS (Tables)

6 Months Ended

Jun. 30, 2014

Stock Options And Warrants Tables

Summary warrant activity

	Warrants Outstanding		Weighted Average Exercise Price
Outstanding, December 31, 2013		12,590,467	$	0.55
Granted		3,989,117		0.30
Exercised		-		-
Expired		-		-
Outstanding, March 31, 2014		16,579,584	$	0.49
Granted		-		-
Exercised		(152,360)		0.25
Expired		(50,000)		25.00
Outstanding, June 30, 2014		16,377,224	$	0.42

Outstanding warrants to purchase its common stock

Warrants Outstanding		Weighted Average Exercise Price Per Share		Weighted Average Remaining Life (Yrs.)
	62,453	$	30.00		1.56
	7,500	$	25.00		0.21
	2,885,883	$	0.25		4.07
	13,421,388	$	0.30		4.46
	16,377,224	$	0.42		4.38

Stock option activity

	Options Outstanding		Weighted-Average Exercise Price
Options outstanding at December 31, 2013		3,993,258	$	0.70
Exercised		-		-
Granted		2,457,390		0.25
Forfeited		-		-
Expired		-		-
Options outstanding at March 31, 2014		6,450,648	$	0.53
Exercised		-		-
Granted		-		-
Forfeited		(122,868)		1.02
Expired		-		-
Options outstanding at June 30, 2014		6,327,780	$	0.53

Stock Option Outstanding

		Outstanding Options						Exercisable Options
Range of Exercise Prices		Number		Weighted Average  Remaining  Contractual Life  (Years)		Aggregate  Intrinsic  Value		Number		Aggregate  Intrinsic  Value
$	0.61		3,133,173		1.04	$	-		1,310,610	$	-
$	1.02		491,478		1.19	$	-		184,305	$	-
$	1.10		245,739		2.00	$	-		-	$	-
$	0.25		2,457,390		9.61	$	368,609		637,752	$	95,663
Totals			6,327,780		4.42	$	368,609		2,132,667	$	95,663

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FAIR VALUE MEASUREMENTS (Tables)

6 Months Ended

Jun. 30, 2014

Fair Value Disclosures [Abstract]

Fair value of financial liabilities on a recurring basis

			Level 1		Level 2		Level 3
	Total carrying value		Quoted market prices in active markets		Internal Models with significant observable market parameters		Internal models with significant unobservable market parameters
Derivative liabilities	$	3,936,301	$	–	$	–	$	3,936,301

Changes in recurring fair value measurements included in net loss

	Recurring Fair Value Measurements
	Changes in Fair Value Included in Net Loss For the Quarter Ended June 30, 2014
	Revenues		Expenses		Total
Derivative liabilities	$	383,439	$	–	$	383,439

Summary of changes in the fair value of our Level 3 financial liabilities

	March 31, 2014		Recorded New Derivative Liabilities		Write off of Derivative Liabilities		Change in Estimated Fair Value Recognized in Results of Operations		June 30, 2014
Derivative liabilities	$	4,360,969	$	-	$	(41,229)	$	(383,439)	$	3,936,301

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STOCK OPTIONS AND WARRANTS (Details 1) (USD $)			6 Months Ended					6 Months Ended
	Mar. 31, 2014	Dec. 31, 2013	Jun. 30, 2014 Warrant [Member]	Jun. 30, 2014 Warrant 2 [Member]	Jun. 30, 2014 Warrant 3 [Member]	Jun. 30, 2014 Warrant 4 [Member]	Jun. 30, 2014 Total Warrants [Member]	Jun. 30, 2014 Total Warrants [Member]
Warrants outstanding			62,453	77,500	2,885,883	13,421,388	16,377,224
Outstanding Weighted Average Exercise Prices	$ 0.49	$ 0.55	$ 30.00	$ 25.00	$ 0.25	$ 0.30	$ 0.42
Weighted average remaining life (Yrs)			1 year 9 months 24 days	0 years 3 months 4 days	4 years 3 months 22 days	4 years 8 months 17 days		4 years 7 months 11 days

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CONVERTIBLE NOTES (Details Narrative) (USD $)	6 Months Ended
	Jun. 30, 2014
Notes repaid	$ 25,750
May Notes Conversion [Member]
Series B remaining notes, converted into Series B shares	789,938
Notes Payable, Other Payables [Member]
Term of debt	1 year
Unsecured notes issued	360,000
Unsecured notes interest rate	8.00%
Avid Bank [Member]
Line of credit	$ 2,000,000
Term of debt	2 years
LOC interest rate above prime	27.50%
LOC Asset Coverage Ratio requirement	1.5

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CONSOLIDATED STATEMENT OF CASH FLOWS (USD $)	6 Months Ended
	Jun. 30, 2014	Jun. 30, 2013
Cash flows from operating activities:
Net loss	$ (5,177,810)	$ (3,007,270)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation	4,406	10,190
Amortization	95,588	95,589
Accretion of deferred financing costs		32,074
Amortization of debt discount	1,742,098	(105,605)
Change in estimated fair value of derivative liabilities		45,109
Fair value of common stock issued for services	69,875	247,340
Stock based compensation	258,834	594,902
Accounts receivable	(347,463)	(597,603)
Inventory	(744,137)	247,863
Prepaid expenses and other current assets	(32,385)	(267,902)
Other assets		3,948
Accounts payable and accrued expenses	1,050,828	309,407
Other current liabilities		167,715
Net cash used in operating activities	(3,080,166)	(2,224,243)
Cash flows from investing activities:
Change in restricted cash	(66)	(242)
Purchase of property and equipment	(2,349)
Net cash used in investing activities	(2,415)	242
Cash flow from financing activities:
Dividends paid	(2,195)
Proceeds from issuance of Series B Preferred Stock, net	1,887,413
Proceeds from notes payable	360,000	2,869,000
Deferred financing costs paid		(219,924)
Repayments on notes payable	(20,000)	(172,000)
Repayments on term loan	(1,916,667)
Net cash provided by financing activities	308,551	2,477,076
NET INCREASE (DECREASE) IN CASH	(2,774,030)	253,075
CASH - beginning of period	3,136,766	4,449
CASH - end of period	362,736	257,524
SUPPLEMENTAL DISCLOSURES
Interest paid in cash	7,944	17,330
Non-cash transactions:
Conversion of Preferred Stock to Common Stock	7,458	25,304
Cashless exercise of warrants	41,229
Dividends declared but unpaid	230,979
Dividends on Preferred Stock paid in Common Stock	8,139
Conversion of notes payable and accrued interest to Common Stock	764,938	860,818
Warrants issued in connection with Series B Offering	616,411	299,699
Warrants issued as debt discount		$ 730,758

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COMMITMENTS AND CONTINGENCIES

6 Months Ended

Jun. 30, 2014

Commitments And Contingencies

COMMITMENTS AND CONTINGENCIES

The Company has entered in a number of agreements with various consultants. Termination of any of these agreements could result in termination fees.

The Company leases its corporate office in Irvine, California on a one-year term, which term was most recently renewed in July 2013. Total rent expense related to the Company's operating lease for the six months ended June 30, 2014 was $29,374. Total remaining payments on the lease through July 31, 2015 are $57,187.

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

Legal Proceedings

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

On July 1, 2011, a lawsuit was filed in the United States District Court, the Southern District of Ohio, Cincinnati Division, against GT Beverage Company, LLC (“GT LLC”) by Dominion Liquid Technologies, LLC.  The lawsuit alleged that GT LLC breached terms of a 2010 co-packing agreement, which governed the relationship between the parties.  In July 2014, the Company settled this lawsuit for $350,000. The settlement was paid for with 1,166,667 restricted shares of its Common Stock. Such amount has been accrued for at June 30, 2014.

On April 22, 2014, a lawsuit was filed in the Superior Court of California, County of Orange, against the Company by Advantage Sales and Marketing, LLC. The plaintiff initially seeks damages of $92,064.  Management currently believes the overall risk to the Company in connection with this matter is less than the amount claimed, and intends to vigorously defend itself. However, the Company is unable to estimate a possible range of loss at this time.

We are currently not involved in any litigation except noted above that we believe could have a material adverse effect on our financial condition or results of operations. Other than described above, there is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of the Company or any of our subsidiaries, threatened against or affecting the Company, or our common stock in which an adverse decision could have a material adverse effect.

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COMMITMENTS AND CONTINGENCIES (Details Narrative) (USD $)	1 Months Ended	6 Months Ended
	Aug. 08, 2014	Jun. 30, 2014
Commitments And Contingencies Details Narrative
Total rent expense related to operating leases		$ 29,374
Remaining lease payments		57,187
Litigation settlement shares paid, amount	$ 350,000
Litigation settlement shares paid, shares	1,166,667

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STOCK OPTIONS AND WARRANTS (Details) (USD $)	3 Months Ended		6 Months Ended
	Jun. 30, 2014	Mar. 31, 2014	Jun. 30, 2014 Warrant [Member]
Warrant Outstanding
Outstanding, beginning of period	16,579,584	12,590,467	16,579,584
Granted		3,989,117
Exercised			(152,360)
Expired			(50,000)
Outstanding, end of period		16,579,584	16,377,224
Weighted average exercise price
Outstanding Weighted Average Exercise Prices, beginning of period	$ 0.49	$ 0.55	$ 0.49
Granted		$ 0.30
Exercised		$ 0	$ 0.25
Expired			$ 25.00
Outstanding Weighted Average Exercise Prices, end of period		$ 0.49	$ 0.42