CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

CONSOLIDATED STATEMENT OF CHANGES IN DEFICIT

15

16

17

18

19

 

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NOTE 7 – STOCKHOLDERS' DEFICIT (CONTINUED)

As of June 30, 2014, the Company does not expect outstanding options to acquire 766,190 shares of common stock will vest due to the performance criteria outlined in the option agreement. Compensation cost is revised if subsequent information indicates that the actual number of options vested is likely to differ from previous estimates.

 

Warrants:

Summarized information about warrants outstanding and exercisable at June 30, 2014 is as follows:

 

In April 2012, the Company granted a warrant to a sales consultant and director of the Company to purchase up to 6,129,528 shares of common stock in connection with a two-year service agreement. This warrant has a three-year term and an exercise price of $0.0326 per share with 3,064,764 shares vesting each on January 1, 2013 and January 1, 2014 if the Company's sales exceeded certain thresholds in 2012 and 2013, respectively. On January 1, 2013, the board of directors concluded the sales target for 2012 was not met and warrants to purchase 3,064,764 shares of Company common stock were cancelled. Management has evaluated the performance criteria and sales thresholds for 2013 were not met and accordingly no stock-based compensation has been recognized and warrants to purchase 3,064,764 shares of Company common stock were cancelled.

In February and March 2013, the Company granted a warrant to an investor relations firm to purchase up to 150,000 shares of common stock that vested immediately. The warrants have a three-year term and an exercise price of $0.11 and $.09 per share, and $0 and $11,574 of stock based compensation related to this warrant and is recorded in general and administrative expenses during the quarter ended June 30, 2014 and 2013, respectively.

In January, 2014, the Company issued a warrant for 5,000,000 shares to former officer under a consulting arrangement. The warrants were valued $.02 per shares, and the services were valued at $100,000, accordingly.

 

NOTE 8 – INCOME TAXES

Deferred tax assets and liabilities have been determined based upon the differences between the financial statement amounts and the tax bases of assets and liabilities as measured by enacted tax rates expected to be in effect when these differences are expected to reverse. In assessing the realizability of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will not be realized. Net operating loss ("NOL") carry forwards are the most significant component of the Company's deferred tax assets; however, the ultimate realization of the deferred tax assets is dependent upon generation of future taxable income. Management considers past history, the scheduled reversal of taxable temporary differences, projected future taxable income, and tax planning strategies in making this assessment. Utilization of our NOL carry forwards would reduce our federal and state income tax liability incurred. Based on management's assessment, a 100% valuation allowance is recorded at June 30, 2014 and December 31, 2013.

 

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The provision (benefit) for income taxes is recorded at the end of each interim period based on the Company's best estimate of its effective income tax rate, expected to be applicable for the full fiscal year.  For the first quarters ended June 30, 2014 and 2013, the Company did not record any income tax benefit due to the recognition of a full valuation allowance.

 

NOTE 9 – SUBSEQUENT EVENTS

 

On July 27, 2014 Hangover Joe's Holding Corporation (the "Company") entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $27,500 (the "KBM Note").  The financing closed on August 19, 2014.

The KBM Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on April 28, 2015.  The KBM Note is convertible into common stock, at KBM's option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.  In the event the Company prepays the KBM Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 120% if prepaid 31 days following the closing through 60 days following the closing and (iii) 125% if prepaid 61 days following the closing through 90 days following the closing and (iv) 130% if prepaid 91 days following the closing through 120 days following the closing and (v) 135% if prepaid 121 days following the closing through 150 days following the closing and (vi) 140% if prepaid 151 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the KBM Note, the Company has no right of prepayment.   

 

KBM has agreed to restrict its ability to convert the KBM Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.  The total net proceeds the Company received from this Offering was $27,500, less attorney's fees.  

 

 On July 3, 2014, Hangover Joe's Holding Corporation (the "Company") entered into a Securities Purchase Agreement with LG Capital Funding, LLC ("LG") for the sale of two 8% convertible redeemable notes each in the principal amount of $52,500 (the "LG Notes") in consideration of $52,500 and the delivery by LG of a Collateralized Secured Promissory Note Back End Note payable to the Company in the principal amount of $52,500 (the "LG Back End Note").  The financing closed on July 10, 2014.

The LG Notes bear interest at the rate of 8% per annum.  All interest and principal must be repaid on July 3, 2015.  The LG Note are convertible into common stock, at LG's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  In the event the Company prepays the LG Notes in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the LG Notes, the Company has no right of prepayment.  The LG Note issued in consideration of the LG Back End Note may only be converted by LG in the event the LG Back End Note is paid in full. 

As of the date of the LG Notes, the Company is obligated on the LG Notes issued to LG in connection with the offering. The LG Notes are debt obligations arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company.

 

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On July 24, 2014, the Company entered into a Securities Purchase Agreement with Auctus Private Equity Fund LLC ("Auctus"), for the sale of an 8% convertible redeemable note in the principal amount of $61,500 (the "Auctus Note").  

The Auctus Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on April 24, 2015.  The Auctus Note is convertible into common stock, at Auctus's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  In the event the Company prepays the Auctus Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the Auctus Note, the Company has no right of prepayment.   

On July 24, 2014, the Company entered into a Securities Purchase Agreement with Eastmore Capital LLC ("Eastmore"), for the sale of an 8% convertible redeemable note in the principal amount of $61,500 (the "Eastmore Note").  

The Eastmore Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on April 24, 2015.  The Eastmore Note is convertible into common stock, at Eastmore's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  In the event the Company prepays the Eastmore Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the Eastmore Note, the Company has no right of prepayment  

On August 12, 2014, the Company entered into a $513,000 Settlement Agreements with TCA whereby GEL Properties LLC ("GEL) and Union Capital, LLC ("Union") each entered into Assignment and Assumption Agreements with TCA in the amounts of $230,000 each.  Pursuant to the settlement agreement GEL and Union are to assume the total of $460,000 in four equal monthly installments, and the Company agreed to pay TCA $53,000 sixty days after the final installments are paid by GEL and Union under the Assignment and Assumption Agreements.

On August 12, 2014, the Company entered into a Replacement Note from TCA with GEL for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "GEL Note").   The GEL Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on July 12, 2015.  The GEL Note is convertible into common stock, at Union's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  Additional replacement notes for an amount of $172,500 are to be issued pursuant to the Settlement Agreement.

 

On August 13, 2014, GEL converted $1,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 3,500,000 shares.

On August 12, 2014, the Company entered into a Replacement Note with TCA with Union for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "Union Note"). The Union Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on July 12, 2015.  The Union Note is convertible into common stock, at Union's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  Additional replacement notes for an amount of $172,500 are to be issued pursuant to the Settlement Agreement.

 

The foregoing information is a summary of each of the agreements involved in the transactions described above, is not complete, and is qualified in its entirety by reference to the full text of those agreements, each of which is attached an exhibit to this Quarterly Report on Form 10-Q.  Readers should review those agreements for a complete understanding of the terms and conditions associated with these transactions.

 

On August 13, 2014, Union converted $1,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 3,000,000 shares.

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

 

Cautionary Statement about Forward-Looking Statements

 

This Form 10-Q contains forward-looking statements regarding future events and the Company's future results that are subject to the safe harbors created under the Securities Act of 1933 (the "Securities Act") and the Securities Exchange Act of 1934 (the "Exchange Act"). These statements are based on current expectations, estimates, forecasts, and projections about the industry in which the Company operates and the beliefs and assumptions of the Company's management. Words such as "hopes," "expects," "anticipates," "targets," "goals," "projects," "intends," "plans," "believes," "seeks," "estimates," "continues," "may," variations of such words, and similar expressions are intended to identify such forward-looking statements. In addition, any statements that refer to projections of the Company's future financial performance, including projections under our licensing and distribution arrangements, the Company's anticipated growth potential in its business, and other characterizations of future events or circumstances are forward-looking statements. Readers are cautioned that these forward-looking statements are only predictions and are subject to risks, uncertainties, and assumptions that are difficult to predict, including those identified under "Risk Factors" in our Form 10-K for the year ended December 31, 2013.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.   

 

The Company is under no duty to update any of these forward-looking statements after the date of this report. You should not place undue reliance on these forward-looking statements.

Background

The term the "Company" as used herein is intended to refer to the Hangover Joe's Holding Corporation and its wholly owned subsidiary, Hangover Joe's, Inc. The Company has a limited operating history and there will be limited continuing impact regarding these operations, and the Company cannot provide any assurance it will be able to raise funds through a future issuance of equity or debt to carry out its business plan.

Plan of Operation

The Company sells two ounce energy shots to retailers that typically place them near the counters in convenience and other stores. Our main product has been an all-natural, two-ounce beverage, formulated to help relieve the symptoms associated with alcohol induced hangovers – the Hangover Recovery Shot. The Hangover Recovery Shot is also an officially licensed product of The Hangover movie series from Warner Brothers.  The Company has registered the trademark "Hangover Joe's Get Up & Go" with the U.S. Patent and Trademark office. The assets consist of intellectual property relating to Hangover Joe's Recovery Shot, including but not limited to a license agreement dated July 19, 2011, between the LLC and Warner Bros. Consumer Products, Inc.  The license agreement permits HOJ to use the character names, costumes, artwork logos, and other elements depicted in the 2009 movie "The Hangover" during the term of the license agreement, which expired January 31, 2013.  The Company then negotiated an extension to this license agreement through January, 2016.

The Company sells its products primarily to convenience stores, liquor stores and grocery stores through distribution agreements, as well as through online internet sales. The Company began selling its products in February 2011. HOJ is actively seeking to expand the distribution of its product, the Hangover Joe's Recovery Shot, and our additional energy shot, Larry the Cable Guy's Git-R-Done energy shot, which was added to our product line during 2014.

Results of Operations

The Company's operations have been greatly curtailed for the quarter ended June 30, 2014 compared to the quarter ended June 30, 2013 due to its lawsuit with TCA, and sales have been limited to small orders from our website while we continue efforts to implement our business plan.  

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For the three months ended June 30, 2014, we experienced a consolidated net loss of $589,000 compared to a consolidated net loss of $585,000 during the comparable period last year.  Net sales and gross profits decreased $151,000 or 99% and $26,000 or 98%, respectively from the comparable period last year.  These decreases were offset by a $164,000 decrease in sales expenses from the comparable period last year.

    

Net Sales

During the three months ended June 30, 2014, the Company generated approximately $600 in net sales compared to $152,000 in net sales in the comparable period last year.  The $152,000 or 100% decrease from the comparable period last year was primarily due to inability to ship orders to new distribution partners we had generated in the last two years due to the TCA lawsuit.  The Company settled the lawsuit in August 2014 and still needs to raise capital.  The Company has targeted a list of major customers it intends to pursue or bring back, but there is no assurance we can accomplish all or part of these plans.

 

Cost of Goods Sold

Cost of goods sold, which includes product costs, packaging materials, and product royalties, decreased in the aggregate from $126,000 for the three months ended June 30, 2013 as compared to $173 for the same period this year.  As a percentage of sales, cost of sales decreased from 83% of sales for the quarter ended June 30, 2013 to 28% for the quarter ended June 30, 2014.  This decrease represented the sale of reamining inventory that had been fully allowed for as of December 31, 2013.

Gross Profit

During the three months ended June 30, 2013, the Company realized a gross profit of $27,000 or 17% of net sales, for the quarter ended June 30, 2014, gross profit of $500, which consisted of substantially all internet sales.  Cost of goods sold represented royalty related costs, as the inventory sold consisted of remaining samples which has been fully allowed for in 2013.   

Sales & Marketing Costs

Sales & marketing costs decreased $164,000 or 68% to $79,000 for the three months ended June 30, 2014 as compared to $243,000 for the comparable period last year.  This decrease was primarily due to decreased sales salaries and consulting expense, trade shows, and graphic design costs in this area, as explained by the factors discussed above.

General & Administrative Expenses

General and administrative expenses increased $214,000 or 84% to $466,000 for the three months ended June 30, 2014 as compared to $253,000 for the same period last year.  The increase was due primarily to an increase in share-based compensation used in lieu of cash to incur charges.

 

For the six months ended June 30, 2014, we experienced a consolidated net loss of $1,038,000 compared to a consolidated net loss of $1,292,000 during the comparable period last year.  Net sales and gross profits each decreased $316,000 and $68,000 or 99% and 98%, respectively, from the comparable period last year.  These decreases were exacerbated by a $250,000 increase in operating expenses from the comparable period last year.

 

Net Sales

During the six months ended June 30, 2014, the Company generated approximately $2,000 in net sales compared to $318,000 in net sales in the comparable period last year.  The $316,000 or 99% decrease in net sales from the comparable period last year was primarily due to lower sales volume from new distribution partners in the United States related to the May 20 marketing campaign began from the movie Hangover III. The Company has reviewed its sales channels, and while we did incur drops in comparison to the second half of the prior year, we believe new channels can be opened to supplement what we have and replace some of the business we no longer have, but we believe additional marketing resources will be needed to build our customer base to its full potential.

 

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Cost of Goods Sold

Cost of goods sold, which includes product costs, packaging materials, and product royalties, decreased in the aggregate from $249,000 for the six months ended June 30, 2013 as compared to $256 for the same period this year.  As a percentage of sales, cost of sales decreased from 78% of sales for the six months ended June 30, 2013 to 15% for the six months ended June 30, 2014.  This decrease was primarily due to the sale of remaining inventory that had been previously allowed for at December 31, 2013.

Gross Profit

During the six months ended June 30, 2014, the Company realized a gross profit of $1,400 or 85% of net sales compared to $69,000 or 22% of net sales during the same period last year.  Although  average sales prices in 2014 were substantially the same when compared to the six months ended June 30, 2013, lower product costs (described in cost of sales above) resulted in the overall decrease in gross profit in percentage terms during the six months ended June 30, 2014.

 

Sales & Marketing Costs

Sales & marketing costs decreased $161,000 or 38% for the six months ended June 30, 2014 when the total was $266,000 as compared to $427,000 for the six months ended June 30, 2013.  This decrease was due to decreases in advertising and sales consulting expenses.

General & Administrative Expenses

General and administrative expenses decreased $89,000 or 13% to $606,000 for the six months ended June 30, 2014 as compared to $695,000 for the same period last year. This decrease is due reductions in salaries and other expenses temporarily no longer needed due to the lack of sales.

Material Changes in Financial Condition; Liquidity and Capital Resources

The Company's consolidated financial statements for the three months ended June 30, 2014, have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business.  The Report of our Independent Registered Public Accounting Firm on the Company's consolidated financial statement as of and for the year ended December 31, 2013, and the three months ended June 30, 2014 includes a "going concern" explanatory paragraph which means that the auditors stated that conditions exist that raise doubt about the Company's ability to continue as a going concern.

 

During the six months ended June 30, 2014, we used proceeds from borrowings of approximately $370,000 to fund our operations whereas during the comparable period in 2013, when we used borrowings from our credit facility, net of repayment of other obligations, of $311,000 to fund our operations.   Cash as of June 30, 2014 was $18,000 as compared to $3,000 at December 31, 2013.

Cash flows used in operating activities for the six months ended June 30, 2014 was $385,000 as compared to $511,000 for the comparable period last year. This reduction in cash used in operations was primarily due to the financial issues discussed above.

Cash flows provided by investing activities were zero for both the six months ended June 30, 2013 and the six months ended June 30, 2014.

Cash flows provided by financing activities for the six months ended June 30, 2014 was $400,000 compared to cash provided of $596,000 for the comparable period last year. This was due to the above referenced net borrowings under the credit facility in 2013 discussed above, offset by amounts paid off on other inventory credit arrangement.

 

 

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As of June 30, 2014, we had cash on hand of $18,000 and a working capital deficit of $2,659,000 as compared to cash on hand of $3,000 and working capital deficit of $2,634,000 as of December 31, 2013.

 

The Company has generated minimal revenue through the sale of its products, and the Company's cash flow has not been sufficient to cover its operating expenses and the Company has had to rely upon proceeds from borrowings and from the sale of common stock through private placements to fund its operations.  During the six months ended June 30, 2014, the Company received gross proceeds of $370,000 under its various borrowings.   We anticipate that we will need to rely on sales of our securities in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will be able to complete any additional sales of our equity securities or that we will be able arrange for other financing to fund our planned business activities. If we are unable to fund future operations by way of financing, including public or private offerings of equity or debt securities, our business, financial condition and operating activities will be adversely impacted. 

On July 2, 2014, JSJ Investments Inc. converted their entire $25,000 (including $1,000 of interest) promissory note dated December, 2013 for 4,230,652 shares. On July 9, 2014, JMJ Financial converted $18,478 of their promissory note dated June, 2013 for 2,500,000 shares. On August 12, 2014, JMJ Financial converted $16,500 of their promissory note dated June, 2013 for 1,500,000 shares. On July 16, 2014, Asher Enterprises Inc. converted $20,000 of their promissory note dated January, 2014 for 854,701 shares. On July 25, 2014, Asher Enterprises Inc. converted $20,000 of their promissory note dated January, 2014 for 793,651 shares. On July 28, 2014, Asher Enterprises Inc. converted $15,000 of their promissory note dated January, 2014 for 881,057 shares. On August 1, 2014, Asher Enterprises Inc. converted $15,000 of their promissory note dated January, 2014 for 1,282,051 shares. On August 6, 2014, Asher Enterprises Inc. converted $17,500 (and $2,320 of interest) of their promissory note dated January, 2014 for 1,818,349 shares. On August 13, 2014, GEL Properties LLC converted $1,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 3,500,000 shares. On August 13, 2014, Union Capital LLC converted $1,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 3,000,000 shares.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, net sales or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our shareholders.

Recent Accounting Pronouncements

 

Critical Accounting Policies

There have been no changes to the Company's critical accounting policies in the three months ended June 30, 2014, from those contained in the Company's 2013 Annual Report on Form 10-K.

 

Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

As a smaller reporting Company, we are not required to include disclosure under this item.

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Item 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

 

As required by Rule 13a-15 under the Securities Exchange Act of 1934 (the "1934 Act"), as of June 30, 2014, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial officer). Based upon and as of the date of that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that because of material weaknesses in our internal control over financial reporting, as described in the Company's Annual Report on Form10-k for the year ended December 31, 2013, that our disclosure controls and procedures were not effective as of June 30, 2014.Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the 1934 Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed under the 1934 Act is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

 

Internal Control Over Financial Reporting

There were not any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) promulgated by the SEC under the 1934 Act) during the three months ended June 30, 2014, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 1.  LEGAL PROCEEDINGS

 

From time to time the Company may be involved in various litigation matters, which arise in the ordinary course of business.  Except as previously disclosed, there is no litigation that management believes will have a material impact in the financial position of the Company.

 

Item 1A. RISK FACTORS

There have been no material changes to the risk factors set forth in the Company's Annual Report on Form 10-K for the year ended December 31, 2014.

 

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

 

On August 11, 2014 Hangover Joe's Holding Corporation (the "Company") entered into a Securities Purchase Agreement with KBM Worldwide, Inc. ("KBM"), for the sale of an 8% convertible note in the principal amount of $27,500 (the "KBM Note").  The financing closed on August 12, 2014.

The KBM Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on April 12, 2015.  The KBM Note is convertible into common stock, at KBM's option, at a 45% discount to the average of the three lowest closing bid prices of the common stock during the 10 trading day period prior to conversion.  In the event the Company prepays the KBM Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 115% if prepaid during the period commencing on the closing date through 30 days thereafter, (ii) 120% if prepaid 31 days following the closing through 60 days following the closing and (iii) 125% if prepaid 61 days following the closing through 90 days following the closing and (iv) 130% if prepaid 91 days following the closing through 120 days following the closing and (v) 135% if prepaid 121 days following the closing through 150 days following the closing and (vi) 140% if prepaid 151 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the KBM Note, the Company has no right of prepayment.   

KBM has agreed to restrict its ability to convert the KBM Note and receive shares of common stock such that the number of shares of common stock held by them in the aggregate and their affiliates after such conversion or exercise does not exceed 4.99% of the then issued and outstanding shares of common stock.  The total net proceeds the Company received from this Offering was $32,500, less attorney's fees.  

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In January, 2014, Daimiel Global Resources, Inc., ("Daimiel") cancelled 26,013,736 of its common shares. The company agreed to reissue these shares and 4,500,000 common shares Daimiel had cancelled in a previous transaction in early 2013 upon an increase in authorized common shares and granted Daimiel voting rights accordingly. In June, 2014, the Company reissued 26,013,736 shares and 4,410,201 shares to Daimiel under this arrangement.

Matthew A. Veal

In June 2013, the Company issued Matthew A. Veal, its CEO, 1,500,000 shares to settle his initial amounts due under his employment contract and portions of additional unpaid salary due him from 2013.

 In June 2013, the Company issued Shawn Adamson 1,500,000 shares to settle portions of unpaid salary due him from 2014.

 In June 2013, the Company issued Bricktown Beverage 1,500,000 shares to settle portions under a consulting arrangement due from 2013.

 

On July 24, 2014, the Company entered into a Securities Purchase Agreement with Auctus Private Equity Fund LLC ("Auctus"), for the sale of an 8% convertible redeemable note in the principal amount of $61,500 (the "Auctus Note").  The financing closed on March 24, 2014.

The Auctus Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on April 24, 2015.  The Auctus Note is convertible into common stock, at Auctus's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  In the event the Company prepays the Auctus Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the Auctus Note, the Company has no right of prepayment.   

On July 24, 2014, the Company entered into a Securities Purchase Agreement with Eastmore Capital LLC ("Eastmore"), for the sale of an 8% convertible redeemable note in the principal amount of $61,500 (the "Eastmore Note").  The financing closed on August 12, 2014.

The Eastmore Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on April 24, 2015.  The Eastmore Note is convertible into common stock, at Eastmore's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  In the event the Company prepays the Eastmore Note in full, the Company is required to pay off all principal, interest and any other amounts owing multiplied by (i) 125% if prepaid during the period commencing on the closing date through 60 days thereafter, (ii) 140% if prepaid 61 days following the closing through 120 days following the closing and (iii) 150% if prepaid 121 days following the closing through 180 days following the closing.  After the expiration of 180 days following the date of the Eastmore Note, the Company has no right of prepayment  

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The notes above are all debt obligation arising other than in the ordinary course of business, which constitute direct financial obligations of the Company.

As of the date hereof, the Company is obligated on the above notes in connection with the offerings. The notes are a debt obligation arising other than in the ordinary course of business, which constitutes a direct financial obligation of the Company.

On August 12, 2014, the Company entered into a Securities Purchase Agreement with GEL Properties LLC ("GEL"), for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "GEL Note").  The financing closed on August 12, 2014.

The GEL Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on July 12, 2015.  The GEL Note is convertible into common stock, at Union's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  

On August 12, 2014, the Company entered into a Securities Purchase Agreement with Union Capital LLC ("Union"), for the sale of an 8% convertible redeemable note in the principal amount of $57,500 (the "Union Note").  The financing closed on August 12, 2014.

The Union Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on July 12, 2015.  The Union Note is convertible into common stock, at Union's option, at a 45% discount to the average of the three lowest closing prices of the common stock during the 20 trading day period prior to conversion.  

JSJ Conversions

 

On July 2, 2014, JSJ Investments Inc. converted their entire $25,000 (including $1,000 of interest) promissory note dated December, 2013 for 4,230,652 shares.

 

On July 9, 2014, JMJ Financial converted $18,478 of their promissory note dated June, 2013 for 2,500,000 shares.

On August 12, 2014, JMJ Financial converted $16,500 of their promissory note dated June, 2013 for 1,500,000 shares.

 

On July 16, 2014, Asher Enterprises Inc. converted $20,000 of their promissory note dated January, 2014 for 854,701 shares.

On July 25, 2014, Asher Enterprises Inc. converted $20,000 of their promissory note dated January, 2014 for 793,651 shares.

On July 28, 2014, Asher Enterprises Inc. converted $15,000 of their promissory note dated January, 2014 for 881,057 shares.

On August 1, 2014, Asher Enterprises Inc. converted $15,000 of their promissory note dated January, 2014 for 1,282,051 shares.

On August 6, 2014, Asher Enterprises Inc. converted $17,500 (and $2,320 of interest) of their promissory note dated January, 2014 for 1,818,349 shares.

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On August 13, 2014, GEL Properties LLC converted $1,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 3,500,000 shares.

On August 13, 2014, Union Capital LLC converted $1,000 (on a tentative basis, to be redetermined according to the agreed-upon discount when the shares are actually sold) for 3,000,000 shares.

The  Company  claims an  exemption  from the  registration  requirements  of the Securities  Act of 1933,  as amended  (the "Act") for the private  placement  of these  securities  pursuant  to  Section  4(2) of the Act  and/or  Regulation  D promulgated  there under since,  among other  things,  the  transactions  did not involve a public  offering,  Each of the investors are accredited  investor, had access to information about the Company  and their  investment,   took the  securities  for investment and not resale, and the Company took appropriate measures to restrict the transfer of the securities.

 

Item 3.  DEFAULTS UPON SENIOR SECURITIES

 

Not applicable.

 

Item 3.  MINE SAFETY DISCLOSURES

 

Not applicable. 

 

Item 5. OTHER INFORMATION

On July 16, 2014, the Company released information relating to the cost of production.  The Company stated that it can produce its products for approximately $0.40 per bottle and expects to be able to reduce cost to approximately $0.30 or less contingent upon increased volume.

 

 

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Item 6. EXHIBITS

 

 

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	HANGOVER JOE'S HOLDING CORPORATION
Date:  August 19, 2014	By:	/s/ Matthew Veal
		Chief Executive Officer (Principal Executive, Financial and Accounting Officer)

 

 

 

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