FORM 10-Q

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

o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF

THE SECURITIES EXCHANGE ACT

Commission file number: 000-52533

 

 (Exact name of the registrant as specified in its charter)

 

 

9457 S. University #349

(Address of principal executive offices)

Telephone number, including

Area code

 

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the past 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 o

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 o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o No x

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company:

Large accelerated filer o       Accelerated filer o       Non-accelerated filer o       Smaller reporting Company x

There were 166,542,006 shares of the registrant's $0.001 par value common stock outstanding as of August 14, 2014.

 

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HANGOVER JOE'S HOLDING CORPORATION

QUARTERLY REPORT ON FORM 10-Q

FOR THE PERIOD ENDED JUNE 30, 2014

 

CONTENTS

 

 

 

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HANGOVER JOE'S HOLDING CORPORATION

CONSOLIDATED BALANCE SHEETS  

		June 30,				December 31,
		2014				2013
		(unaudited)
ASSETS
CURRENT ASSETS:
Cash		$	17,674			$	2,882
Accounts receivable, net			4,085				-
Deposits			39,984				-
Total current assets			61,743				2,882
PROPERTY AND EQUIPMENT, NET			1,342				2,149
TOTAL ASSETS		$	63,085			$	5,031
LIABILITIES AND DEFICIT
CURRENT LIABILITIES
Accounts payable		$	996,308			$	972,139
Accrued expenses			640,683				528,627
Revolving credit facility			416,436				416,436
Stock subscription deposit			30,000				342,500
Mandatorily redeemable Series  B preferred stock			67,500				67,500
Notes payable - net of discounts of $138,036 in 2014 and $33,740 in 2013			352,852				130,149
Notes payable and other - related party			216,623				180,440
TOTAL LIABILITIES (ALL CURRENT)			2,720,402				2,637,791
COMMITMENTS AND CONTINGENCIES
DEFICIT
Preferred stock; $0.10 par value; authorized shares - 10,000,000
Series A; 425,000 authorized shares, none
issued and outstanding			-				-
Series C; 500,000 authorized shares, none
issued and outstanding			-				-
Series D; 200,000 authorized shares, none
issued and outstanding			-				-
Common stock; $0.001 par value; 500,000,000 authorized shares,
148,276,502 (2014) and 122,591,301 (2013) shares issued and outstanding,							-
respectively			148,277				122,592
Common stock to be issued			315,078				315,078
Additional paid-in capital			2,570,572				1,582,104
Accumulated deficit			(5,691,244	)			(4,652,534	)
Total  deficit			(2,657,317	)			(2,632,760	)
TOTAL LIABILITIES AND DEFICIT		$	63,085			$	5,031

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

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		Quarter Ended								Six Months Ended
		June 30,								June 30,
		2014				2013				2014				2013
NET SALES		$	625			$	152,131			$	1,667			$	317,975
COST OF GOODS SOLD			173				125,835				256				248,939
GROSS PROFIT			452				26,296				1,411				69,036
OPERATING EXPENSES
Selling and marketing			78,531				242,578				266,384				426,913
General and administrative			466,484				252,859				606,523				695,643
Total operating expenses			545,015				495,437				872,907				1,122,556
LOSS FROM OPERATIONS			(544,563	)			(469,141	)			(871,496	)			(1,053,520	)
OTHER EXPENSE
Interest expense			(44,440	)			(115,715	)			(167,214	)			(238,489	)
NET LOSS		$	(589,003	)		$	(584,856	)		$	(1,038,710	)		$	(1,292,009	)
BASIC AND DILUTED NET LOSS PER
COMMON SHARE		$	*			$	(0.01	)		$	(0.01	)		$	(0.01	)
Basic and diluted weighted average common
shares outstanding			120,692,891				120,942,682				121,266,222				120,942,682

* Less than ($0.01) per share

 

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

 

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		Common Stock								Common Stock				Additional Paid-in				Accumulated
		Shares				Amount				to be Issued				Capital				Deficit				Total
Balances, January 1, 2014			122,591,301			$	122,592			$	315,078			$	1,582,104			$	(4,652,534	)		$	(2,632,760	)
Common shares returned by founder			(26,013,736	)			(26,014	)			-				-				-				(26,014	)
Common shares reissued to founder			26,013,736				26,014				-				-				-				26,014
Common shares issued for stock subscription			10,275,000				10,275				-				332,225				-				342,500
Common shares issued for conversion of
note payable			6,000,000				6,000				-				41,000				-				47,000
Common shares issued for
consulting services			4,910,201				4,910				-				181,498				-				186,408
Beneficial conversion feature			-				-				-				143,245				-				143,245
Common shares issued for accrued expenses			4,500,000				4,500								190,500								195,000
Warrants issued for services															100,000								100,000
Net loss			-				-				-				-				(1,038,710	)			(1,038,710	)
Balances, June 30, 2014			148,276,502			$	148,277			$	315,078			$	2,570,572			$	(5,691,244	)		$	(2,657,317	)

 

 

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

 

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HANGOVER JOE'S HOLDING CORPORATION

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NOTE 1 – ORGANIZATION, DESCRIPTION OF BUSINESS, GOING CONCERN AND MANAGEMENT'S PLANS

 

The accompanying consolidated financial statements of Hangover Joe's Holding Corporation and its subsidiary Hangover Joe's, Inc.  (collectively referred to as, the "Company", "we", or "our") have been prepared in accordance with the instructions to quarterly reports on Form 10-Q. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations and changes in financial position at June 30, 2014, and for all periods presented, have been made. Certain information and footnote data necessary for a fair presentation of financial position and results of operations in conformity with accounting principles generally accepted in the United States of America have been condensed or omitted. It is therefore suggested that these financial statements be read in conjunction with the summary of significant accounting policies and notes to financial statements included in the Company's Annual Report on Form 10-K for the year ended December 31, 2013. The results of operations for the periods ended June 30, 2014 are not necessarily an indication of operating results for the full year.

Description of Business

The Company is in the business of selling two-ounce beverage shots, typically to retailers who place them near the cash registers in convenience stores and other retail outlets.  Historically the Company's sole product was 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 an officially licensed product of The Hangover movie series from Warner Brothers. In 2014, we added an all-natural caffeine and sugar free energy shot licensed through Larry the Cable Guy's Git-R-Done Productions marketed as the Git-R-Done Energy Shot.  The Company has sold its products primarily to convenience stores, liquor stores, and grocery stores through distribution agreements, as well as through online internet sales.

 

Going Concern and Management's plans

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company reported a net loss of approximately $589,000 for the quarter ended June 30, 2014, and a working capital deficiency and accumulated deficit of approximately $2,659,000 and $5,691,000, respectively, at June 30, 2014 ($1,039,000 for the six months ended June 30, 2014). The Company has a limited operating history and has not generated any significant sales since the end of the second quarter of 2013, and it has relied primarily on debt financing and private placements of its common stock to fund its operations. Due to a lack of liquidity, the Company has had difficulty in paying its obligations and defaulted on its revolving credit facility (Note 3), and although the Company settled this default, the Company cannot provide any assurance it will be able to raise funds through a future issuance of debt or equity to carry out its business plan and/or meet its remaining obligations under the settlement. These conditions raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets, or the amounts or classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

Management has pursued and intends to continue to pursue debt and/or equity financing arrangements with potential investors in order to obtain sufficient working capital necessary to carry out its business plan (Notes 3 and 9).  The Company has also taken steps to minimize costs, and has continued to explore various business opportunities.

 

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The Company has raised approximately $521,000 in 2014 promissory notes through August 14, 2014, that are convertible into common stock at a discount of an average of approximately 50% or more. These notes depend on the willingness of investors in the public markets to buy stock both now and in the future. Those investors ultimately look to the success of our products in the market place, including our new product (see Notes 2 and 6). We remain optimistic that we can and will develop a successful and profitable market for our product, and although initial distribution and test data are promising, we believe it is premature to offer an assessment as to how well we will perform in future periods.

 

The Company is also pursuing additional opportunities, but there can be no assurance that any existing or contemplated plans will materialize, and fulfilling any such existing or contemplated contracts will require significant marketing support and additional capital, of which there can be no assurance the Company will be able to raise funds sufficient to continue with the Company's business plan.

 

 

NOTE 2 – SIGNIFICANT ACCOUNTING POLICIES

 

Principles of Consolidation

The consolidated financial statements include the accounts of Hangover Joe's Holding Corporation and its 100%-owned subsidiary, Hangover Joe's, Inc. All intercompany accounts, transactions, and profits are eliminated in consolidation.

Use of Estimates

The preparation of financial statements in accordance with Generally Accepted Accounting Principles  require management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. Actual results could differ from those estimates.

Significant estimates are used in accounting for certain items such as the allowance for doubtful accounts, revenue recognition, and stock-based compensation. Estimates are based on historical experience, where applicable, and assumptions that management believes are reasonable under the circumstances. Due to the inherent uncertainty involved with estimates, actual results may differ.

 

License and Royalties

The Company has a license with Warner Bros. Consumer Products, Inc. ("WBCP") that allows the Company the use of the costumes, artwork, logos and other elements depicted in the 2009 movie, The Hangover. This license, as amended, expires January 31, 2016. In January 2014, the Company entered into an initial two-year license agreement with Git-R-Done Productions, Inc. (the "Larry the Cable Guy" license), which  allows the Company the rights to the use of certain artwork, logos and other elements used by the comedian known as "Larry the Cable Guy". The terms of the WBCP and Larry the Cable Guy licenses provide for royalties based on a percentage of products sold, as defined, subject to agreed-upon guaranteed minimum royalties (Note 6). Guaranteed minimum royalty payments are made periodically over the term of the license and are recorded when paid as an asset in the balance sheet. The asset is amortized to expense as revenues from related products are sold. If management determines that all or any part of the minimum guaranteed amounts appear unlikely to be recovered through future product sales, the non-recoverable portion is charged to the period in which such determination is made. For the three and six months ended June 30, 2014 minimum guaranteed amounts have been expensed.

 

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Revenue Recognition

 

The Company sells its product primarily through third-party distributors. The Company is not guaranteed any minimum level of sales or transactions. The Company also offers its products for sale through its website at www.hangoverjoes.com. All sales in the quarter and year to date of 2014 were through the website.

The Company recognizes revenue when all of the following have occurred: (1) persuasive evidence of an arrangement exists; (2) delivery to third party distributors and consumers via the Company's website has occurred; (3) the sales price is fixed or determinable; and (4) collectability is reasonably assured. Delivery is not considered to have occurred until the title and the risk of loss passes to the customer according to the terms of the contract between the Company and the customer. For sales to distributors, revenue is usually recognized at the time of delivery. The Company defers revenues on products sold to distributors for which there is a lack of credit history or if the distribution may be in a new market in which the Company has no prior experience. The Company defers revenue in these situations until cash is received. For sales through the Company's website, revenue is recognized at time of shipment.

Management evaluates the terms of its sales in consideration of the criteria outlined in Principal Agent Consideration with regards to its determination of gross versus net reporting of revenue for transactions with customers. The Company sells, through its website, Hangover Joe's Recovery Shots. In these transactions, management has determined that the Company (i) acts as principal; (ii) has the risks and rewards of ownership, including the risk of loss for collection, delivery or returns; and (iii) has latitude in establishing price with the customer. For these transactions, the Company recognizes revenue on a gross basis.

Cost of Goods Sold

Cost of goods sold consists of the costs of raw materials utilized in the production of its product, co-packing fees, and in-bound freight charges. Raw material costs account for the largest portion of the cost of goods sold. Raw materials include bottles, ingredients and packaging materials. The manufacturer is responsible for the ingredients. Costs of goods sold also include license and royalty expenses. Cost of goods sold for the three and six month periods ended June 30, 2014 consisted solely of royalty-related expense, as the inventory sold during the periods represented remaining product held for samples, which had been fully allowed for in 2013.  Deposits at June 30, 2014 primarily represent advances made to a vendor for inventory purchases.

Accounts Receivable and Concentration of Credit Risk

The Company is subject to credit risk through trade receivables. This credit risk is mitigated by the diversification of the Company's operations, as well as its customer base. The Company grants varying payment terms to its customers. Payment terms for customers can vary from due upon receipt up to net 45 days.

Three customers comprise 100% of trade accounts receivable at June 30, 2014; each of these individual customer balances represent approximately 33% of the net trade accounts receivable. The Company had fully allowed for its accounts receivable at December 31, 2013.

No single customer accounted for more than 10%  or more of the net sales for the three and six month periods ended June 30, 2014.  No single customer accounted for 10% or more of net sales for the six months ended June 30, 2013.  Four customers accounted for 59% of net sales for the three months ended June 30, 2013; these individual customer sales represent approximately 18%, 18%, 12%, and 11% of sales.

Ongoing credit evaluations of customers' financial condition are performed. Collateral is not required. The Company maintains an allowance when necessary for doubtful accounts that is the Company's best estimate of potentially uncollectible trade receivables. Provisions are made based upon a specific review of all significant outstanding invoices that are considered potentially uncollectible in whole or in part. For those invoices not specifically reviewed or considered uncollectible, general provisions are provided at different rates, based upon the age of the receivable, historical experience, and other currently available evidence. The allowance estimates are adjusted as additional information becomes known or as payments are made. As of June 30, 2014, the allowance for doubtful accounts was approximately $4,800, and at December 31, 2013, the allowance for doubtful accounts was approximately $147,000.

 

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Net Loss per Share

Basic net loss per share is computed by dividing the net loss applicable to common shareholders by the weighted-average number of shares of common stock outstanding for the period. Diluted net loss per share reflects the potential dilution that could occur if dilutive securities were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the earnings of the Company, unless the effect of such inclusion would reduce a loss or increase earnings per share. For each of the periods presented in the accompanying consolidated financial statements, the effect of the inclusion of dilutive shares would have resulted in a decrease in loss per share. Stock options, warrants, common shares underlying convertible preferred stock and convertible notes payable in the aggregate of 24,101,518 and 21,493,845 shares as of June 30, 2014 and 2013 , respectively, were not included in the calculation of diluted net loss per common share because the effect would have been anti-dilutive.

  

Recent Accounting Pronouncements

 

In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts from Customers, which supersedes the revenue recognition requirements in Revenue Recognition (Topic 605), and requires entities to recognize revenue in a way that depicts the transfer of potential goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods or services. ASU 2014-09 is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016, and is to be applied retrospectively, with early adoption not permitted. The Company is currently evaluating this new standard and the potential impact this standard may have upon adoption.

We have considered other recently issued accounting pronouncements and do not believe the adoption of such pronouncements will have a material impact on our consolidated financial statements.

 

NOTE 3 – DEBT

 

Revolving Credit Facility

On January 10, 2013, the Company entered into a senior secured lending arrangement with TCA Global Credit Master Fund, LP ("TCA") for up to a maximum borrowing of $6,000,000. The credit facility provided for an initial line of credit of $425,000 based upon accounts receivable and projected sales and was to be used only as permitted under the specified use of proceeds for working capital purposes. The initial line of credit had a six month term from the date of closing with a six month renewal option. The lending arrangement is secured by all of the assets of the Company. As a partial guaranty under the TCA lending arrangement, the Company's CEO personally guaranteed certain representations made by the Company to TCA. At closing, the Company was advanced $425,000 less fees and closing costs.

In connection with the agreement above, TCA charged an investment banking fee consisting of 125,000 shares of newly authorized Series B Preferred Shares of the Company equating to an aggregate of $125,000 in the Company's capital stock. The shares are mandatorily redeemable and were scheduled to be repaid in 2013. Also in connection with the TCA agreement, the Company issued 194,954 shares of common stock to a consulting firm as consideration for a finder's fee for this transaction.

As of June 30, 2014, the Company was in default under its agreement with TCA (Note 6), but ultimately has settled the obligation including all amounts under the Series B Preferred Stock, as more fully described in Note 9.

 

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Mandatorily Redeemable Series B Preferred Stock

 

On January 10, 2013, the Board of Directors approved the authorization of 125,000 shares of Series B Preferred Stock (the "Series B Preferred Stock"). In connection with the TCA transaction, the Company issued 125,000 shares of Series B Preferred Stock to TCA. The Series B Preferred Stock ranks pari passu to the Company's common stock. The holder of outstanding shares of Series B Preferred Stock shall be entitled to notice of any shareholders' meeting and to vote as a single class with the Common Stock upon any matter submitted for approval by the holders of common stock. Each share of Series B Preferred Stock shall have one vote per share. All outstanding shares of Series B Preferred Stock will be entitled to be paid the "Liquidation Preference," which is defined and calculated as follows: $125,000 in the aggregate (not on a per share basis), payable monthly at various amounts, and due in full by virtue of the TCA default discussed above. In 2013, $57,500 was paid on the mandatorily redeemable Series B preferred stock, and the remaining balance of $67,500 is presented as a current liability in the accompanying June 30, 2014 and December 31, 2013 balance sheets. The remaining balance was settled on August 12, 2014, as more fully described in Note 9.

 

Convertible Promissory Notes

Convertible promissory notes at June 30, 2014 and December 31, 2013, consisted of the following:

		June 30, 2014				December 31, 2013
JMJ Financial [A]		$	91,888			$	138,889
JSJ Investments Inc [B]			125,000				25,000
Asher Enterprises, Inc. [C]			109,500				-
LG Capital Funding, LLC [D]			26,500				-
Adar Bays, LLC [E]			26,500				-
KBM Worldwide, Inc. [F]			61,500				-
Black Mountain Equities, Inc. [G]			50,000				-
			490,888				163,889
Less debt discounts			(138,036	)			(33,740	)
Convertible notes payable		$	352,852			$	130,149

[A]  JMJ Note

 

In June 2013, the Company closed on a 12%, 12-month convertible promissory note with JMJ Financial ("JMJ") (the "JMJ Note"). The face amount of the JMJ Note reflects a principal sum of $500,000, with total borrowings that may be available of $450,000 (which is net of a 10% original issue discount). Upon closing of the JMJ Note, the Company received $100,000 from JMJ. In September 2013, the Company received an additional $25,000 from JMJ.

JMJ has the right, at its election, to convert all or part of the outstanding and unpaid principal sum and accrued interest (and any other fees) into shares of fully paid and non-assessable shares of common stock of the Company. The conversion price is the lesser of $0.05 or 70% of the average of the three lowest closing prices in the 25 trading days previous to the conversion.

 

The Note is subject to various default provisions, and the occurrence of such an event of default will cause the outstanding principal amount under the JMJ Note, together with accrued and unpaid interest, and all other amounts payable under the JMJ Note, to become, at JMJ's election, immediately due and payable to JMJ.

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The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $32,000 was recorded as a discount to the note and has been amortized over the term of the loan. The unamortized debt discount recorded at June 30, 2014 and December 31, 2013 was $-0- and $14,800, respectively. The JMJ note has an effective interest rate of approximately 34%.  During the six months ended June 30, 2014, JMJ exercised its option to convert approximately $47,000 of the obligation into 6,000,000 common shares of the Company.

 

[B] JSJ Notes

In December 2013, the Company received $25,000 from JSJ Investments Inc. ("JSJ") in exchange for a $25,000 convertible note (the "JSJ Note 1"). This note bears interest at 12% per annum and matured on May 19, 2014. On or after the maturity date, any unpaid amounts and accrued interest are convertible by the holder, at the holder's discretion, into shares of the Company's common stock. The conversion price is at 50% discount of the average of the three lowest closing prices on the previous ten days, with a maximum conversion price equal to the price if determined on the note execution date.

In March 2014, the Company entered into a second convertible note with JSJ (the "JSJ Note 2") in exchange for $50,000. This note also bears interest at 12% per annum and matures in September 2014, with conversion terms similar to the December 2013 note.

In May 2014, in consideration of $50,000 (the "Principal"), the Company issued a 12% Convertible Note (the "JSJ Note 3") to JSJ. The Note bears interest at the rate of 12% per annum and the maturity date is November 21, 2014, but JSJ may require that the Note be repaid on demand.  The JSJ Note 3 has a redemption premium of 150% of the Principal (the "Repayment Amount"), which such Repayment Amount may be paid by the Company only upon approval and acceptance of JSJ.  The Note is convertible into common stock, at JSJ's option, at a 50% discount to the average of the three lowest trades of the common stock during the 20 trading day period prior to conversion. 

The JSJ notes are subject to various default provisions, and the occurrence of such an event of default will cause the outstanding principal and interest to become immediately due and payable to JSJ.

The Company determined a beneficial conversion feature existed at the commitment date for all three notes. A beneficial conversion feature of approximately $10,000 was recorded as a discount to the first note, a beneficial conversion feature of $22,500 was recorded as a discount to the second note, and a beneficial conversion feature of $25,000 was recorded as a discount to the third note, and these related discounts are being amortized over the terms of the loans. The unamortized debt discount recorded at June 30, 2014 and December 31, 2013 was $34,914 and $12,500, respectively. The JSJ notes have effective interest rates of approximately 55%, 51% and 56%, respectively.

 

[C] Asher Notes

On January 14, 2014, the Company entered into a Securities Purchase Agreement with Asher Enterprises, Inc. ("Asher"), for the sale of an 8% convertible note in the principal amount of $58,000 (the "Asher Note 1").  The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on October 9, 2014. The Note is convertible into common stock, at Asher's option, at a 45% discount to the average of the three lowest closing bid prices of the Company's common stock during the 10 trading day period prior to conversion.

The Asher Note is subject to prepayment penalties up to a 140% multiple of the principal, interest and other amounts owing, as defined. Asher has agreed to restrict its ability to convert the 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 9.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering was $58,000, less financing costs of $3,000.

 

On April 15, 2014, the Company received a notice of default demanding immediate payment of a sum representing 150% of the outstanding principal plus default interest.

 

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On March 17, 2014, the Company entered into a second Securities Purchase Agreement with Asher, for the sale of an 8% convertible note in the principal amount of $22,500 (the "Asher Note 2"). The Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on December 9, 2014. The Note is convertible into common stock, at Asher's option, at a 45% discount to the average of the three lowest closing bid prices of the Company's common stock during the 10 trading day period prior to conversion.

The Asher Note is subject to prepayment penalties up to a 140% multiple of the principal, interest and other amounts owing, as defined. Asher has agreed to restrict its ability to convert the 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 9.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering was $22,500, less financing costs of $1,500.

The Company determined a beneficial conversion feature existed at the commitment date for both notes. A beneficial conversion feature of approximately $26,000 was recorded as a discount to the first note and a beneficial conversion feature of $10,000 was recorded as a discount to the second note and the related discounts are being amortized over the terms of the loans. The unamortized debt discount recorded at June 30, 2014 for both notes totaled approximately $12,000. The Asher notes have an effective interest rate of approximately 51%.

[D] LG Note

On March 19, 2014, the Company entered into a Securities Purchase Agreement with LG Capital Funding, LLC ("LG"), for the sale of an 8% convertible redeemable note in the principal amount of $26,500 (the "LG Note").  

 

The LG Note bears interest at the rate of 8% per annum.  All interest and principal must be repaid on March 19, 2015.  The LG Note is 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.  The LG Note is subject to prepayment penalties up to a 150% multiple of the principal, interest and other amounts owing, as defined.  After the expiration of 180 days following the date of the LG Note, the Company has no right of prepayment.   

The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $12,000 was recorded as a discount to the note and has been amortized over the term of the loan. The unamortized debt discount recorded at June 30, 2014 was approximately $9,000. The LG note has an effective interest rate of approximately 53%.

 

[E] Adar Bays LLC Note

On March 24, 2014, the Company entered into a Securities Purchase Agreement with Adar Bays LLC ("Adar Bays"), for the sale of two convertible notes in the aggregate principal amount of $51,500 (with the first note for an amount of $26,500 and the second note for an amount of $25,000). The Company received proceeds of $25,000 (net of financing costs) in exchange for an 8% convertible promissory note due on March 24, 2015.  This note is convertible into common stock, at the holder's option, at any time after 180 days at a 55% discount to the lowest closing bid price of the Company's common stock during the 20 day trading period prior to conversion, as defined.

The Company determined a beneficial conversion feature existed at the commitment date. A beneficial conversion feature of approximately $12,000 was recorded as a discount to the note and is being amortized over the term of the loan. The unamortized debt discount recorded at June 30, 2014 was approximately $4,000. The LG note has an effective interest rate of approximately 53%.

[F]  KBM Worldwide, Inc. Notes

On May 14, 2014, 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 $29,000 (the "KBM Note 1"). This Note bears interest at the rate of 8% per annum. All interest and principal must be repaid on February 13, 2015. The 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 Company's common stock during the 10 trading day period prior to conversion.

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The KBM Note 1 is subject to prepayment penalties up to a 140% multiple of the principal, interest and other amounts owing, as defined. KBM has agreed to restrict its ability to convert the 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 9.99% of the then issued and outstanding shares of common stock. The total net proceeds the Company received from this Offering were $28,500, less financing costs of $500.

 

On May 29, 2014, the Company entered into a Securities Purchase Agreement with KBM for the sale of an 8% convertible note in the principal amount of $32,500 (the "KBM Note 2").  The financing closed on May 29, 2014.

The KBM Note 2 bears interest at the rate of 8% per annum.  All interest and principal must be repaid on March 2, 2015.  The KBM Note 2 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.  

 

The Company determined a beneficial conversion feature existed at the commitment date for both notes. A beneficial conversion feature of approximately $13,800 was recorded as a discount to the first note and a beneficial conversion feature of $15,500 was recorded as a discount to the second note and both are being amortized over the term of the loans. The unamortized debt discount recorded at June 30, 2014 for both notes totaled approximately $25,500. The KBM notes have an effective interest rate of approximately 54%.

[G] Black Mountain Equities, Inc. Note

On June 4, 2014, in consideration of $225,000 (the "Consideration"), the Company issued a Convertible Note (the "BLE Note") in the original principal amount of $250,000 (the "Original Principal Amount") to Black Mountain Equities, Inc. ("BLE"). As of June 30, 2014, the Company  has drawn approximately $50,000 on this note.  The Original Principal Amount carries an original issue discount of $25,000.  The BLE Note bears a one-time interest charge of 12% which was applied to the Original Principal Amount upon issuance of the BLE Note.  The maturity date is one year from each payment of Consideration.  At any time within the 90 day period immediately following the issuance of the BLE Note, the Company may prepay the remaining outstanding balance of the BLE Note upon providing BLE with 10 business days notice, provided that (i) the Company pays BLE 150% of the remaining outstanding balance of the BLE Note, (ii) such amount is paid in cash on the next day following the 10 business day notice period, and (iii) BLE may still convert the BLE Note until such prepayment amount is paid in full.  The shares issuable upon conversion of the BLE Note carry piggy-back registration rights.

The Company determined a beneficial conversion feature existed at the commitment date for both notes. A beneficial conversion feature of approximately $25,200 was recorded as a discount to the note which is being amortized over the term of the loan. The unamortized debt discount recorded at June 30, 2014 for the note totaled approximately $23,900. The note has an effective interest rate of approximately 74%.

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Subsequent to June 30, 2014 the following debt discussed above was converted into shares of the Company's common stock:

 

 

In July 2014, JSJ converted the $25,000 promissory note dated December, 2013 (including $1,000 of interest) for 4,230,652 shares.

 

In July 2014, JMJ converted $18,478 of its promissory note dated June, 2013 for 2,500,000 shares, and in August 2014, JMJ converted $16,500 of its promissory note dated June, 2013 for 1,500,000 shares.

 

In July and August 2014, Asher converted $87,500 of its promissory note (and $2,320 of interest)  for 5,629,809 shares.

 

NOTE 4 – ACCRUED EXPENSES

Accrued expenses as of June 30, 2014 and December 31, 2013 consist of the following:

		June 30,				December 31,
		2014				2013
Accrued expenses		$	17,074			$	58,941
Deferred salaries			337,057				208,714
Accrued consulting costs – to be paid for in common stock			30,566				165,166
Minimum guaranteed royalty obligation			150,405				75,000
Accrued interest			105,581				20,806
		$	640,683			$	528,627

Options		Shares Under Option				Weighted Average Exercise Price				Weighted Average Remaining Contractual Life				Aggregate Intrinsic Value
Outstanding at January 1, 2014			2,266,190			$	0.06			$	1.88			$	-0-
Granted			-				-
Exercised			-				-
Forfeited / Cancelled			-				-
Outstanding at June 30, 2014			2,266,190			$	0.06			$	1.88				-0-
Vested or expected to vest at June 30, 2014			1,500,000				0.08				2.45				-0-
Exercisable at June 30, 2014			1,500,000			$	0.08			$	2.45				-0-

		Number of Options				Weighted Average Grant Date Fair Value
Non-vested options at January 1, 2014			766,190			$	0.03
Granted			-				-
Vested			-				-
Forfeited/cancelled			-				-
Non-vested options at June 30, 2014			766,190				0.03

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EXHIBIT 31.1

Certifications:

I, Matthew Veal, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Hangover Joe's Holding Corporation;

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 officers 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 we 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 changes in the company's internal control over financial reporting that occurred during the period covered by the annual report that has materially affected, or is reasonably likely to materially affect, the company's internal control over financial reporting.

5. The registrant's other certifying officers 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 registrant's board of directors (or persons performing the equivalent function):

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 controls over financial reporting.

 

EXHIBIT 32.1

Certification of Principal Executive and Financial Officer

CERTIFICATION PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C. SECTION 1350)

In connection with the Quarterly Report of Hangover Joe's Holding Corporation (the "Company") on Form 10-Q for the period ended June 30, 2014 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), the undersigned certifies pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:

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

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

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of July 25, 2014, by and between HANGOVER JOE'S HOLDING CORPORATION, a Colorado corporation, with headquarters located at 9457 S. University #349, Highlands Ranch, CO 80126 (the "Company"), and AUCTUS PRIVATE EQUITY FUND, LLC, a Massachusetts limited liability company, with its address at 101 Arch Street, 20th Floor, Boston, MA 02110 (the "Buyer").

WHEREAS:

NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:

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"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected.  The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any.  In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

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k.    Trading Activities.  Neither the Buyer nor its affiliates has an open short position (or other hedging or similar transactions) in the common stock of the Company and the Buyer agree that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.

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9.	GOVERNING LAW; MISCELLANEOUS.

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If to the Company, to:

Hangover Joe's Holding Corporation

9457 S. University #349

Highlands Ranch, CO 80126

Attn: Matthew Veal

Email: mveal2006@gmail.com

With a copy by fax only to (which copy shall not constitute notice):

Fleming PLLC

49 Front St,

Rockville Centre, NY 11570

Attn: Stephen M. Fleming

Facsimile: (516) 977-1209

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If to the Buyer:

Auctus Private Equity Fund, LLC

101 Arch Street, 20th Floor

Boston, MA 02110

Attn: Lou Posner

Facsimile: (617) 532-6420

With a copy by fax only to (which copy shall not constitute notice):

Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

Attn: Joseph M. Lucosky, Esq.

Facsimile: (732) 395-4401

Each party shall provide notice to the other party of any change in address.

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[signature page follows]

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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

HANGOVER JOE'S HOLDING CORPORATION

By: /s/ Matthew Veal

Name: Matthew Veal

Title: Interim Chief Executive Officer

AUCTUS PRIVATE EQUITY FUND, LLC

Name: Lou Posner

Title:  Managing Director

AGGREGATE SUBSCRIPTION AMOUNT:

 

Aggregate Principal Amount of Note:	US$61,250
Aggregate Purchase Price:	US$61,250

                                                                                                                                           

                                                                                                                                          

 

NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.

Purchase Price: US$61,250

FOR VALUE RECEIVED, HANGOVER JOE'S HOLDING CORPORATION, a Colorado corporation (hereinafter called the "Borrower"), hereby promises to pay to the order of AUCTUS PRIVATE EQUITY FUND, LLC, a Massachusetts limited liability company, or registered assigns (the "Holder") the sum of US$61,250 together with any interest as set forth herein, on April 25, 2015 (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the "Interest Rate") per annum from the date hereof (the "Issue Date") until the same becomes due and payable, whether at maturity or upon acceleration or by prepayment or otherwise.  This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein with the written consent of the Holder which may be withheld for any reason or for no reason. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid ("Default Interest").  Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed.  All payments due hereunder (to the extent not converted into common stock, $0.001 par value per share (the "Common Stock") in accordance with the terms hereof) shall be made in lawful money of the United States of America.  All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note.  Whenever any amount expressed to be due by the terms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid in full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date.  As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed.  Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the "Purchase Agreement").

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This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the holder thereof.

The following terms shall apply to this Note:

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If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.

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"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be reasonably accepted by the Borrower so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Borrower does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

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The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon the exercise of such Options is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable).  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.

Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share.  For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities.  No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.

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Any notice of prepayment hereunder (an "Optional Prepayment Notice") shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice.  On the date fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of the applicable prepayment amount to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date.  If the Borrower delivers an Optional Prepayment Notice and fails to pay the applicable prepayment amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.

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If any of the following events of default (each, an "Event of Default") shall occur:

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Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein).  UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED IN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER, IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon acceleration), 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, 3.15, 3.16. 3.17 and/or 3.18 exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence of an Event of Default specified the remaining sections of Article III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum") or (ii) at the option of the Holder, the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice, all of which hereby are expressly waived, together with all costs, including, without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity. 

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If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice, to immediately issue, in lieu of the Default Amount, the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.

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If to the Borrower, to:

9457 S. University #349

Highlands Ranch, CO 80126

Attention:  Matthew Veal

Email: mveal2006@gmail.com

With a copy by fax only to (which copy shall not constitute notice):

Fleming PLLC

49 Front St,

Rockville Centre, NY 11570

Attn: Stephen M. Fleming

Facsimile: (516) 977-1209

If to the Holder:

Auctus Private Equity Fund, LLC

101 Arch Street, 20th Floor

Boston, MA 02110

Attn: Lou Posner

Facsimile: (617) 532-6420

With a copy by fax only to (which copy shall not constitute notice):

Lucosky Brookman LLP

101 Wood Avenue South, 5th Floor

Woodbridge, NJ 08830

Attn: Joseph M. Lucosky, Esq.

Facsimile: (732) 395-4401

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[signature page follows]

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IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer as of the date first above written.

HANGOVER JOE'S HOLDING CORPORATION

By: /s/ Matthew Veal

Name: Matthew Veal

Title: Interim Chief Executive Officer

          and Chief Financial Officer

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EXHIBIT A

NOTICE OF CONVERSION

The undersigned hereby elects to convert $_________________principal amount of the Note (defined below) together with $________________ of accrued and unpaid interest thereto, totaling $________   into that number of shares of Common Stock to be issued pursuant to the conversion of the Note ("Common Stock") as set forth below, of Hangover Joe's Holding Corporation, a Colorado corporation (the "Borrower") according to the conditions of the convertible note of the Borrower dated as of July 25, 2014 (the "Note"), as of the date written below.  No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.

Box Checked as to applicable instructions:

[HOLDER]

By:_____________________________

Date:        [DATE]

SECURITIES PURCHASE AGREEMENT

This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of August 12, 2014, by and between HANGOVER JOE'S HOLDING CORPORATION, a Colorado corporation, with headquarters located at 9457 S. University  #349, Highlands Ranch, CO 80126 (the "Company"), and KBM WORLDWIDE, INC., a New York corporation, with its address at 80 Cuttermill, Suite 410, Great Neck, NY 11021 (the "Buyer").

WHEREAS:

NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:

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"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS.  THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT.  NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."

The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected.  The Buyer agrees to sell all Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.

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8.	Governing Law; Miscellaneous.

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If to the Company, to:

HANGOVER JOE'S HOLDING CORPORATION

9457 S. University  #349

Highlands Ranch, CO 80126

Attn: MATTHEW VEAL, Chief Financial Officer

facsimile: [enter fax number]

With a copy by fax only to (which copy shall not constitute notice):

[enter name of law firm]

Attn: [attorney name]

[enter address line 1]

[enter city, state, zip]

facsimile: [enter fax number]

                   If to the Buyer:

KBM WORLDWIDE, INC.

80 Cuttermill Road., Suite 207

Great Neck, NY. 11021

Attn: Seth Kramer, President

email: info@kwbmlaw.com

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With a copy by fax only to (which copy shall not constitute notice):

Naidich Wurman Birnbaum & Maday LLP

Att: Judah A. Eisner, Esq.

Attn: Bernard S. Feldman, Esq.

facsimile: 516-466-3555

email: dyork@kwbmlaw.com

Each party shall provide notice to the other party of any change in address.

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IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.

HANGOVER JOE'S HOLDING CORPORATION

By: /s/MATTHEW VEAL

MATTHEW VEAL

Chief Financial Officer

KBM WORLDWIDE, INC.

By: /s/Seth Kramer

Name: Seth Kramer

Title:   President

80 Cuttermill Road., Suite 207

Great Neck, NY. 11021

AGGREGATE SUBSCRIPTION AMOUNT:

Exhibit 4.23