1.                                       BASIS OF PRESENTATION

Reference is made to the Notes to Consolidated Financial Statements, in Hansen Natural Corporation and Subsidiaries (“Hansen” or the “Company”) Annual Report on Form 10-K for the year ended December 31, 2009 (“Form 10-K”) for a summary of significant accounting policies utilized by the Company and its consolidated subsidiaries and other disclosures, which should be read in conjunction with this Quarterly Report on Form 10-Q (“Form 10-Q”).

The Company’s condensed consolidated financial statements included in this Form 10-Q have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) and Securities and Exchange Commission (“SEC”) rules and regulations applicable to interim financial reporting. They do not include all the information and footnote disclosures normally included in annual financial statements prepared in accordance with GAAP.  The information set forth in these interim condensed consolidated financial statements for the three- and six-months ended June 30, 2010 and 2009 is unaudited and reflects all adjustments, which include only normal recurring adjustments and which in the opinion of management are necessary to make the interim condensed con solidated financial statements not misleading.  Results of operations for periods covered by this report may not necessarily be indicative of results of operations for the full year.

The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.  Actual results could differ from these estimates.

The Company has reclassified $9.1 million of current deferred revenue from accrued liabilities on the consolidated balance sheet as of December 31, 2009 in order to conform to the current year presentation as a separate line item.

9.                                       COMMITMENTS AND CONTINGENCIES

The Company has purchase commitments aggregating approximately $16.7 million, which represent commitments made by the Company and its subsidiaries to various suppliers of raw materials for the manufacturing and packaging of its products.  These obligations vary in terms.

In addition to the above purchase obligations, pursuant to a can supply agreement between the Company and Rexam Beverage Can Company (“Rexam”), the Company has undertaken to purchase a minimum volume of 24-ounce re-sealable aluminum beverage cans through December 31, 2010.  The Company has satisfied its minimum purchase obligation under this agreement as of June 30, 2010.

The Company has noncancelable contractual obligations aggregating approximately $51.1 million, which are related primarily to sponsorships and other marketing activities.

In 2008, the Company entered into licensing and programming agreements with SAP America, Inc. to use its global enterprise resource planning software initiative to replace the Company’s existing legacy software in North America. The Company also entered into agreements with Axon Solutions, Inc. and Vistex Inc. for the implementation and configuration of the SAP software. As of January 2010, the Company had completed its North American transition to the SAP enterprise resource planning system. The Company intends to complete the transition for its international operations over a multi-year period. The Company estimates the remaining cost for implementation of the initiative will be approximately $0.2 million.

Litigation — In September 2006, Christopher Chavez purporting to act on behalf of himself and a class of proposed consumers filed an action in the Superior Court of the State of California, County of San Francisco, against the Company and its subsidiaries for unfair business practices, false advertising, violation of California Consumers Legal Remedies Act (“CLRA”) fraud, deceit and/or misrepresentation alleging that the Company misleadingly labels its Blue Sky beverages as manufactured and canned/bottled wholly in Santa Fe, New Mexico.  Defendants removed this Superior Court action to the United States District Court for the Northern District of California (the “District Court”) under the Class&n bsp;Action Fairness Act and filed motions for dismissal or transfer.  On June 11, 2007, the District Court granted the Company’s motion to dismiss Chavez’s complaint with prejudice.  On June 23, 2009, the United States Court of Appeals for the Ninth Circuit (“Ninth Circuit”) filed a memorandum opinion reversing the decision of the District Court and remanded the case to the District Court for further proceedings.  The Company filed a motion to dismiss the CLRA claims; the plaintiff filed a motion for a decision on a preemption issue; and the plaintiff filed a motion for class certification.  The hearing for all three motions occurred on May 27, 2010.  On June 18, 2010, the District Court entered an order certifying the class, ruled that there was no preemption by federal law, and denied the Company’s motion to dismiss.  The class that the District Court certified initially co nsists of all persons who purchased any beverage bearing the Blue Sky mark or brand in the United States at any time between May 16, 2002 and June 30, 2006.  On July 2, 2010, the Company filed a petition with the Ninth Circuit seeking permission to file an immediate appeal to reverse the decision to certify a class.  The Company believes it has meritorious defenses to all the allegations and plans a vigorous defense.  Discovery on the merits of the claims and defenses has just begun.

On August 28, 2008, the Company initiated an action against Oppenheimer Holdings Inc., Oppenheimer & Co. Inc., and Oppenheimer Asset Management Inc., in the United States District Court, Central District of California, for violations of federal securities laws and the Investment Advisers Act of 1940, as amended, arising out of the Company’s purchase of auction rate securities.  The Company stipulated to arbitration before the Financial Industry Regulatory Authority (“FINRA”), where the matter is now proceeding and is expected to be rescheduled for early 2011.  The Company has voluntarily dismissed, without prejudice, its claims against Oppenheimer Asset Management, Inc.  The FINRA panel denied Oppenheimer Holdings, Inc.’s motion to be dismissed from the proceeding.

In May 2009, Avraham Wellman, purporting to act on behalf of himself and a class of consumers in Canada, filed a putative class action in the Ontario Superior Court of Justice, in the City of Toronto, Ontario, Canada, against the Company and its former Canadian distributor, Pepsi-Cola Canada Ltd., as defendants.  The plaintiff alleges that the defendants misleadingly packaged and labeled Monster Energy® products in Canada by not including sufficiently specific statements with respect to contra-indications and/or adverse reactions associated with the consumption of the energy drink products.  The plaintiff’s claims against the defendants are for negligence, unjust enrichment, and making misleading/false representations in violation of the Competition Act (Canada), the Food and Drugs Act (Canada) and the Consumer Pr otection Act, 2002 (Ontario).  The plaintiff claims general damages on behalf of the putative class in the amount of CDN$20 million, together with punitive damages of CDN$5 million, plus legal costs and interest. The plaintiff’s certification motion materials have not yet been filed.  In accordance with class action practices in Ontario, the Company will not file an answer to the complaint until after the determination of the certification motion.  The Company believes that the plaintiff’s complaint is without merit and plans a vigorous defense.

In addition to the above matters, the Company is subject to litigation from time to time in the normal course of business, including claims from terminated distributors.  Although it is not possible to predict the outcome of such litigation, based on the facts known to the Company and after consultation with counsel, management believes that such litigation in the aggregate will likely not have a material adverse effect on the Company’s financial position or results of operations.

Securities Litigation — On September 11, 2008, a federal securities class action complaint styled Cunha v. Hansen Natural Corp., et al. was filed in the United States District Court for the Central District of California (the “District Court”). On September 17, 2008, a second federal securities class action complaint styled Brown v. Hansen Natural Corp., et al. was also filed in the District Court.

On July 14, 2009, the Court entered an order consolidating the actions and appointing lead counsel and the Structural Ironworkers Local Union #1 Pension Fund as lead plaintiff. On August 28, 2009, lead plaintiff filed a Consolidated Complaint for Violations of Federal Securities Laws (the “Consolidated Class Action Complaint”). The Consolidated Class Action Complaint purports to be brought on behalf of a class of purchasers of the Company’s stock during the period November 9, 2006 through November 8, 2007 (the “Class Period”).  It names as defendants the Company, Rodney C. Sacks, Hilton H. Schlosberg, and Thomas J. Kelly. Plaintiff principally alleges that, during the Class Period, the defendants made false and misleading statements r elating to the Company’s distribution coordination agreements with Anheuser-Busch, Inc. (“AB”) and its sales of “Allied” energy drink lines, and engaged in sales of shares in the Company on the basis of material non-public information.  Plaintiff also alleges that the Company’s financial statements for the second quarter of 2007 did not include certain promotional expenses.  The Consolidated Class Action Complaint alleges violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and Rule 10b-5 promulgated thereunder, and seeks an unspecified amount of damages.

On November 16, 2009, the defendants filed their motion to dismiss the Consolidated Class Action Complaint pursuant to Federal Rules of Civil Procedure 12(b)(6) and 9(b), as well as the Private Securities Litigation Reform Act.  On July 12, 2010, following a hearing, the District Court granted the Defendants’ motion to dismiss the Consolidated Class Action Complaint, with leave to amend, on the grounds, among others, that it failed to specify which statements Plaintiff claimed were false or misleading, failed adequately to allege that certain statements were actionable or false or misleading, and failed adequately to demonstrate that Defendants acted with scienter.  Under the Court’s order, lead plaintiff has until August 27, 2010 to file an amended complaint. lt;/font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"ifont style="FONT-SIZE: 10pt; FONT-STYLE: italic; FONT-FAMILY: Times New Roman" size="2"Derivative Litigation/font/ifont style="FONT-SIZE: 10pt" size="2" #151; On Octobernbsp;15, 2008, a derivative complaint was filed in the United States District Court for the Central District of California (the #147;District Court#148;), styled iMerckel v. Sacks, et al/i.nbsp; On Novembernbsp;17, 2008, a second derivative complaint styled iDislevy v. Sacks, et al./i was also filed in the District Court.nbsp; The derivative suits were each brought, purportedly on behalf of the Company, by a shareholder of the Company who made no prior demand on the Company#146;s Board of Directors./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Junenbsp;29, 2009, the Court entered an order consolidating the iMerckel/i and iDislevy/i actions.nbsp; On Julynbsp;13, 2009, the Court entered an order re-styling the consolidated actions as iIn re Hansen Derivative Shareholder Litigation/i, appointing Raymond Merckel as lead plaintiff and appointing lead counsel, and establishing a schedule for the filing of a consolidated amended complaint and for defendants#146; response to such complaint./font/p p style="MARGIN: 0in 0in 0pt; TEXT-ALIGN: justify"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Octobernbsp;13, 2009, a purported Consolidated Shareholder Derivative Complaint (the #147;Consolidated Derivative Complaint#148;) was filed.nbsp; The Consolidated Derivative Complaint named as defendants certain current and former officers, directors, and employees of the Company, including Rodney C. Sacks, Hilton H. Schlosberg, Harold C. Taber,nbsp;Jr., Benjamin M. Polk, Norman C. Epstein, Mark S. Vidergauz, Sydney Selati, Thomas J. Kelly, Mark J. Hall, and Kirk S. Blower, as well as Hilrod Holdings, L.P.nbsp; The Company was named as a nominal defendant. The factual allegations of the Consolidated Derivative Complaint were similar to those set forth in the Consolidated Classnbsp;Action Complaint described above.nbsp; The Consolidated Derivative Complaint alleged that, from Novembernbsp;2006 to the present, th e defendants caused the Company to issue false and misleading statements concerning its business prospects and failed to properly disclose problems related to its non-Monster energy drinks, the prospects for the Anheuser-Busch distribution relationship, and alleged #147;inventory loading#148; that affected the Company#146;s results for the second quarter of 2007.nbsp; The Consolidated Derivative Complaint further alleged that while the Company#146;s shares were purportedly artificially inflated because of those improper statements, certain of the defendants sold Company stock while in possession of material non-public information.nbsp; The Consolidated Derivative Complaint asserted various causes of action, including breach of fiduciary duty, aiding and abetting breach of fiduciary duty, violation of Cal. Corp. Code #167;#167; 25402 and 25403 for insider selling, and unjust enrichment.nbsp; The suit sought an unspecified amount of damages to be paid to the Company and adoption of corporate governance reforms, among other things./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Januarynbsp;8, 2010, the Company filed its motion to dismiss the Consolidated Derivative Complaint pursuant to Federal Rulesnbsp;of Civil Procedure 12(b)(6)nbsp;and 23.1.nbsp; Plaintiff#146;s counsel filed an opposition to the motion on Februarynbsp;22, 2010, in which it stated that lead plaintiff Raymond Merckel was no longer communicating with counsel and that it had located another shareholder of the Company, Anastasia Brueckheimer, who was willing to act as lead plaintiff.nbsp; On Marchnbsp;2, 2010, Plaintiff#146;s counsel filed a motion to amend the Consolidated Derivative Complaint pursuant to Rulenbsp;15(a)(2)nbsp;for the purpose of replacing Mr.nbsp;Merckel as lead plaintiff./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"On Julynbsp;12, 2010, the District Court held a hearing on the Company#146;s motion to dismiss and on Plaintiff counsel#146;s motion to amend the Consolidated Derivative Complaint.nbsp; In conjunction with the hearing, the District Court issued a tentative ruling that did not grant the motion to amend and instead indicated that the proposed substitute lead plaintiff, Ms.nbsp;Brueckheimer, should have sought to intervene in the action pursuant to Rulenbsp;24.nbsp; The Court#146;s tentative ruling further stated that (assuming that Ms.nbsp;Brueckheimer were allowed to substitute as lead plaintiff) the Company#146;s motion to dismiss the Consolidated Derivative Complaint would be granted, with leave to amend, on the ground that the allegations of demand futility were insufficient to excuse the failure to make a pre-suit demand on the Company#146;s Board of Directors.nbsp; Following the hearing, the District Court allowed Ms.nbsp;Brueckheimer to file a motion for leave to intervene, and Ms.nbsp;Brueckheimer subsequently filed a motion to intervene on Julynbsp;16, 2010.nbsp; On Augustnbsp;5, 2010, the parties filed a stipulation and proposed order with the District Court pursuant to which Ms.nbsp;Brueckheimer would be permitted to intervene in the Derivative Litigation as lead plaintiff and to file a Verified Complaint in Intervention (the #147;Complaint in Intervention#148;) similar in all material respects to the Consolidated Derivative Complaint.nbsp; Assuming the District Court enters the proposed order, the Complaint in Intervention shall be deemed to have been dismissed with leave to amend for the reasons set forth in the Court#146;s Julynbsp;12, 2010 ruling, and Ms.nbsp;Brueckheimer will have until Septembernbsp;7, 2010 to file a Verifi ed Amended Consolidated Shareholder Derivative Complaint./font/p p style="MARGIN: 0in 0in 0pt"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"nbsp;/font/p p style="MARGIN: 0in 0in 0pt; TEXT-INDENT: 0.5in; TEXT-ALIGN: justify"font style="FONT-SIZE: 10pt; FONT-FAMILY: Times New Roman" size="2"Although the ultimate outcome of these matters cannot be determined with certainty, the Company believes that the allegations in the Consolidated Classnbsp;Action Complaint and the Consolidated Derivative Complaint are without merit. The Company intends to vigorously defend against these lawsuits./font/p/td/tr/table