Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
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1.
|
ORGANIZATION AND DESCRIPTION
OF BUSINESS
|
Business
—Celsius Holdings, Inc. (the
“Company” or “Celsius Holdings”) was incorporated under the laws of the State of Nevada on April 26, 2005.
On January 24, 2007, the Company entered into a merger agreement and plan of reorganization with Elite FX, Inc., a Florida corporation.
Under the terms of the Merger Agreement, Elite FX, Inc. was merged into the Company’s subsidiary, Celsius, Inc. and became
a wholly-owned subsidiary of the Company on January 26, 2007. In addition, on March 28, 2007 the Company established Celsius Netshipments,
Inc. a Florida corporation as a wholly-owned subsidiary of the Company.
Since the merger, the Company is engaged in the development,
marketing, sale and distribution of “functional” calorie-burning fitness beverages under the Celsius® brand name.
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2.
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|
Basis of Presentation and Principles of Consolidation
–
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted
accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions
to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information
and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary
for a fair presentation have been included and such adjustments are of a normal recurring nature. These consolidated financial
statements should be read in conjunction with the consolidated financial statements for the year ended December 31, 2015 and notes
thereto and other pertinent information contained in our General Form for Registration of Securities of Form 10 as filed with the
Securities and Exchange Commission (the “Commission”). The consolidated financial statements of the Company include
the Company and its wholly owned subsidiaries. All material inter-company balances and transactions have been eliminated.
Significant Estimates
— The preparation
of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses
and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those
estimates. Significant estimates include the allowance for doubtful accounts, reserves for inventory obsolescence, the useful lives
and values of property and equipment, valuation of stock based compensation, and deferred tax asset valuation allowance.
Segment Reporting
—Although the Company
has a number of operating divisions, separate segment data has not been presented, as they meet the criteria for aggregation as
permitted by ASC Topic 280, Segment Reporting, (formerly Statement of Financial Accounting Standards (SFAS) No. 131,
Disclosures
About Segments of an Enterprise and Related Information
.) Our chief operating decision-maker is considered to be our Chief
Executive Officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating
decisions and assessing financial performance. The financial information reviewed by the CEO is identical to the information presented
in the accompanying consolidated statement of operations. Therefore, the Company has determined that it operates in a single operating
segment. For the nine months ended September 30, 2016 and 2015 all material assets and revenues of the Company were in the United
States except as disclosed in “Concentration of Risk” below.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
2.
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BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Concentrations of Risk
— Substantially
all of the Company’s revenue derives from the sale of Celsius
®
beverages.
The Company uses single supplier relationships for
its raw materials purchases and filling capacity, which potentially subjects the Company to a concentration of business risk. If
these suppliers had operational problems or ceased making product available to the Company, operations could be adversely affected.
Financial instruments that potentially subject the
Company to concentrations of credit risk consist primarily of cash and accounts receivable. The Company places its cash with high-quality
financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation
limit. At September 30, 2016 the Company had approximately $7.5 million in excess of the Federal Deposit Insurance Corporation
limit but has incurred no losses with respect to these accounts.
For the nine months ended September 30, 2016 and
2015, the Company had the following 10 percent or greater concentrations of revenue with its customers:
|
|
2016
|
|
|
2015
|
|
A*
|
|
|
35.0
|
%
|
|
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50.5
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%
|
B
|
|
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11.1
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%
|
|
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0.1
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%
|
All other
|
|
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53.9
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%
|
|
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49.4
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%
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Total
|
|
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100.0
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%
|
|
|
100.0
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%
|
At September 30, 2016 and December 31, 2015, the
Company had the following 10 percent or greater concentrations of accounts receivable with its customers:
|
|
2016
|
|
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2015
|
|
A*
|
|
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54.4
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%
|
|
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50.0
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%
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B
|
|
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8.1
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%
|
|
|
11.8
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%
|
All other
|
|
|
37.5
|
%
|
|
|
38.2
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%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
*Revenues and receivables from customer A are derived
from a distributor located in Sweden.
Cash Equivalents
— The Company considers
all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. At September 30, 2016
and December 31, 2015, the Company did not have any investments with maturities of three months or less.
Accounts Receivable
— Accounts receivable
are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining
to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it
is determined that the amounts are uncollectible. At September 30, 2016 and December 31, 2015, there was an allowance for doubtful
accounts of $79,332 and $3,500, respectively.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Inventories
— Inventories include only
the purchase cost and are stated at the lower of cost or market. Cost is determined using the FIFO method. Inventories consist
of raw materials and finished products. The Company outsources its manufacturing process as a result has no work in process inventories.
The Company reserves against inventory during the period in which such materials and products are no longer usable or marketable.
At September 30, 2016 and December 31, 2015, the Company recorded a reserve of $165,539 and $329,075, respectively. The changes
in reserve are included in cost of revenue. Free Samples are also recorded as cost of revenue.
Property and Equipment
— Property and
equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated
using the straight-line method over the estimated useful lives of the assets generally ranging from three to seven years.
Impairment of Long-Lived Assets
— In
accordance with ASC Topic 360, “Property, Plant, and Equipment” the Company reviews the carrying value of long-lived
assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted
cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment
to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.
Revenue Recognition
— Revenue is derived
from the sale of beverages. Revenue is recognized when persuasive evidence of an agreement exists, the products are delivered,
sales price is fixed or determinable, and collectability is reasonably assured. Any discounts, slotting fees, sales incentives
or similar arrangements with the customer are estimated at time of sale and deducted from revenue.
Deferred Revenue
— From time to time
the Company requires prepayments for deposits in advance of delivery of products and/or production runs. Such amounts are initially
recorded as deferred revenue. The Company recognizes such revenue as it is earned in accordance with revenue recognition policies.
Advertising Costs
— Advertising costs
are expensed as incurred. The Company uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising.
The Company incurred advertising expense of approximately $3.4 million and $1.9 million during the nine months ending September
30, 2016 and 2015, respectively.
Research and Development
— Research
and development costs are charged to general and administrative expense as incurred and consist primarily of consulting fees, raw
material usage and test productions of beverages. The Company incurred these expenses of $66,700 and $57,200 during the six months
ending September 30, 2016 and 2015, respectively.
Fair Value of Financial Instruments
—
The carrying values of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable approximate
fair value due to their relative short-term maturity and market interest rates.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Fair Value Measurements
- ASC 820 defines
fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between
market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use
of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
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Level 1:
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Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
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Level 2:
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Observable market-based inputs or unobservable inputs that are corroborated by market data.
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Level 3:
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Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
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The Company did not have any assets or liabilities
measured at fair value at September 30, 2016 and December 31, 2015.
Income Taxes —
The Company accounts
for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other
things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition
of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts
and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which
management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provisions
of the ASC 740 -10,
Accounting for Uncertain Income Tax Positions.
When tax returns are filed, it is highly certain that
some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about
the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance
of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all
available evidence, management believes it is more likely than not that the position will be sustained upon examination, including
the resolution of appeals or litigation processes, if any.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Income Taxes (continued) —
Tax positions
taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold
are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the
applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as
described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any
associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax
positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain
tax benefits.
The Company has adopted ASC 740-10-25
Definition
of Settlement,
which provides guidance on how an entity should determine whether a tax position is effectively settled for
the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon
the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively
settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than
not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.
The Company files its tax returns on a fiscal year
September 30
th
tax year. The Company’s tax returns for tax years ended September 30, 2015, 2014, and 2013 remain
subject to potential examination by the taxing authorities.
Earnings per Share
— Basic earnings
per share are calculated by dividing net income (loss) available to common stockholders by the weighted-average number of common
shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and
dilutive common share equivalents outstanding during the period. Dilutive common share equivalents consist of shares issuable upon
conversion of convertible debt, exercise of stock options and warrants (calculated using the reverse treasury stock method). As
of September 30, 2016 there were options outstanding to purchase 5.6 million shares, which exercise price averaged $1.00, Series
C Preferred Stock warrants outstanding to convert to 4.6 million common shares at $0.52 price per share and Series D Preferred
Stock warrants outstanding to convert to 4.7 million common shares at $0.86 price per share. There were no other dilutive common
shares equivalents, including convertible notes and warrants, as no common share equivalents had an exercise price below the ending
closing price of the year. The effects of dilutive instruments have not been presented for the three and nine months ended September
30, 2016 and 2015, as the effects would be anti-dilutive.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Share-Based Payments
—The Company has
fully adopted the provisions of ASC Topic 718
Compensation
—
Stock Compensation
and related interpretations
for employee and non-employee stock based compensation. As such, compensation cost is measured on the date of grant at the fair
value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the
grants.
Shipping and Handling Costs
— Shipping
and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for nine
months ended September 30, 2016 and 2015 was $1,478,000 and $844,000, respectively.
Recent Accounting Pronouncements
The Company adopts all applicable, new accounting
pronouncements as of the specified effective dates.
In September 2015, the Financial Accounting Standards
Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16,
Simplifying the Accounting
for Measurement-Period Adjustments
(“ASU 2015-16”). ASU 2015-16 simplifies the accounting for adjustments made
to provisional amounts recognized in a business combination by requiring the acquirer to (i) recognize adjustments to provisional
amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined,
(ii) record, in the same period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any,
as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date,
and (iii) present separately or disclose the portion of the amount recorded in current-period earnings by line item that would
have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition
date. ASU 2015-16 is effective for fiscal years, and interim periods within, beginning after December 15, 2015. Early adoption
is permitted. The Company is evaluating the impact of the adoption of ASU 2015-16 on January 1, 2016 to its consolidated financial
position or results of operations.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Recent Accounting Pronouncements (continued)
In August 2015, the FASB issued
ASU No. 2015-15,
Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements
(Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting)
(“ASU 2015-15”). ASU
2015-15 allows debt issuance costs related to line-of-credit agreements to be presented in the balance sheet as an asset. ASU 2015-03
and ASU 2015-15 are effective for fiscal years, and interim periods within, beginning after December 15, 2015. Early adoption is
permitted. The Company has adopted ASU 2015-03 and ASU 2015-15 as of December 31, 2015; the adoption is not expected to have a
material impact on its consolidated financial position or results of operations.
In April 2015, the FASB issued ASU No. 2015-03,
Simplifying
the Presentation of Debt Issuance Costs
(“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance
costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability (consistent with debt discounts).
All
new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations,
cash flows or financial position.
Liquidity
— These financial statements
have been prepared assuming the Company will be able to continue as a going concern. At September 30, 2016, the Company had an
accumulated deficit of $52,844,900 which includes a net loss available to common stockholders of $2,924,337 for the nine months
ended September 30, 2016. While these factors alone may raise doubt as to the Company’s ability to continue as a going concern,
the proceeds remaining from the Company’s sale of common stock to an investor group on April 20, 2015 for a total of $11.5
million (see note 11) is deemed sufficient to alleviate substantial doubt regarding the Company’s ability to continue as
a going concern.
Inventories consist of the following at:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
2,011,775
|
|
|
$
|
2,309,288
|
|
Raw Materials
|
|
|
260,093
|
|
|
|
342,691
|
|
Less: Inventory Reserve
|
|
|
(165,539
|
)
|
|
|
(329,075
|
)
|
Inventories, net
|
|
$
|
2,106,329
|
|
|
$
|
2,322,904
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
4.
|
PREPAID EXPENSES AND OTHER
CURRENT ASSETS
|
Prepaid expenses and other current assets total $937,534
and $666,267, at September 30, 2016 and December 31, 2015, respectively, and consist mainly of prepaid consulting agreement with
D3M Licensing Group, advertising, prepaid insurance, prepaid slotting fees, deposits on purchases, and customer deposits.
|
5.
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PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following at:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
292,030
|
|
|
$
|
264,495
|
|
Less: accumulated depreciation
|
|
|
(255,522
|
)
|
|
|
(243,176
|
)
|
Total
|
|
$
|
36,508
|
|
|
$
|
21,319
|
|
Depreciation expense amounted to $12,346 and $26,521
during the nine months ended September 30, 2016 and 2015, respectively
|
6.
|
ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
|
Accounts payable and accrued expenses consist of
the following at:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
1,054,091
|
|
|
$
|
1,207,353
|
|
Accrued expenses
|
|
|
656,413
|
|
|
|
598,578
|
|
Total
|
|
$
|
1,710,504
|
|
|
$
|
1,805,931
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
7.
|
DEFERRED REVENUE AND OTHER
CURRENT LIABILITIES
|
Deferred revenue and other current liabilities consist
of the following at:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
526,365
|
|
|
$
|
13,063
|
|
State bottle bill liability
|
|
|
10,171
|
|
|
|
11,994
|
|
Total
|
|
$
|
536,536
|
|
|
$
|
25,057
|
|
|
8.
|
LINE OF CREDIT NOTE PAYABLE
- RELATED PARTIES
|
Line of credit note payable - related parties consists
of the following as of:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Note Payable – line of credit
|
|
|
|
|
|
|
|
|
In July 2010, the Company entered into a line of credit note payable with a related party which carries interest of five percent per annum. The Company can borrow up to $4,500,000. The Company has pledged all of its assets as security for the line of credit. The notes mature in January 2020, at which time the principal amount is due. During April 2015, the Company issued $4,000,000 of convertible series D preferred series in exchange for cancellation of $4,000,000 of this line.
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
4,500,000
|
|
|
$
|
4,500,000
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
9.
|
PREFERRED STOCK –
RELATED PARTY
|
On August 26, 2013, the Company
entered into a securities purchase agreement (the “2013 Purchase Agreement”) with CDS Ventures of South Florida, LLC
(“CDS”) and CD Financial, LLC (“CD”). CDS and CD are limited liability companies which are affiliates of
Carl DeSantis, the Company’s principal shareholder. The Company issued 2,200 shares of its Series C Preferred Stock (the
“Preferred C Shares”) in exchange for the conversion of a $550,000 short term loan from CDS and the conversion of $1,650,000
in indebtedness under the Company’s line of credit with CD (the “CD Line of Credit”). The Preferred C Shares
are convertible into our common stock at the option of the holder thereof at a conversion price of $0.52 per share at any time
until December 31, 2018, at which time they will automatically convert into shares of our common stock determined by dividing the
liquidation preference of $1,000 per Preferred C Share by the conversion price then in effect. The conversion price is subject
to adjustment in the event of stock dividends, stock splits and similar events. The Preferred C Shares accrue cumulative annual
dividends at the rate of 6% per annum, payable by the issuance of additional Preferred C Shares. The holder of Preferred C Shares
votes on an “as converted” basis, together with holders of common stock as a single class on all matters presented
to shareholders for a vote, except as required by law. In April 2015, the Company issued 180 Preferred C Shares valued at $180,000
in settlement of $180,000 in accrued preferred C dividends. As of September 30, 2016, $263,777 of dividends has been accrued. The
Preferred C Shares mature on December 31, 2018 and are redeemable only in exchange for shares of Company common stock.
On April 16, 2015, the Company
entered into an amendment to its existing Loan and Security Agreement (the “Amendment”) with CD an affiliate of CDS
Ventures and Mr. DeSantis. Pursuant to the Amendment, the outstanding principal amount of the CD Line of Credit was reduced by
$4.0 million, which amount was converted into 4,000 shares of a newly-designated Series D Preferred Stock (the “Preferred
D Shares”). This related party was given a conversion price of $0.86 per common share, whereas other investors purchased
common shares at $0.89 in the private placement, as discussed in note 12. The difference of $0.03 per share, which resulted in
$139,535, was recorded as a dividend in accordance with ASC 470-20-35, subsequent measurement for debt with conversion and other
options. The Preferred D Shares are convertible into our common stock at the option of the holder thereof at a conversion price
of $0.86 per share until the earlier of the January 2, 2020 due date of our line of credit with CD Financial or such earlier date
as the line of credit is satisfied (the “
Mandatory Redemption Date
”). The conversion price is subject to adjustment
in the event of stock dividends, stock splits and similar events. The Preferred D Shares accrue cumulative annual cash dividends
at the rate of 5% per annum, payable quarterly in cash and have a liquidation preference of $1,000 per share. On the Mandatory
Redemption Date, the Preferred D Shares automatically convert into shares of our common stock in a number determined by dividing
the $1,000 per Preferred D Share liquidation preference plus any accrued but unpaid dividends, by the conversion price then in
effect. The Preferred D Shares may also be redeemed by us at any time on or after December 31, 2016, at a redemption price equal
to 104% of the liquidation preference. The holder of the Preferred D Shares votes on an “as converted” basis, together
with holders of common stock as a single class on all matters presented to shareholders for a vote, except as required by law.
As of September 30, 2016, $51,111 of dividends has been accrued regarding these shares.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
10.
|
RELATED PARTY TRANSACTIONS
|
The Company’s office is rented from a company
affiliated with CD which is controlled by Carl DeSantis, a principal shareholder (see note 13). Currently, the lease expires on
October 2020 with monthly rent of $8,809. The rental fee is commensurate with other properties available in the market.
In April 2015, the Company entered into a strategic
marketing and advisory services agreement with All Def Digital. Tim Leissner, a director and shareholder of the Company is also
a director and shareholder in All Def Digital. For the nine months ending as of September 30, 2016, the Company has paid All Def
Digital $152,438, for services relating to the strategic marketing and advisory services agreement.
Other related party transactions are discussed in
notes 8 and 9.
Issuance of common stock pursuant to services
performed
In April 2016, the Company issued a total 250,000
“restricted” shares of its common stock as compensation pursuant to celebrity endorsement agreements at a fair value
of $560,000, or $2.24 per share representing the closing stock price on that date.
Issuance of common stock pursuant to conversion
of note
In April 2015, the Company issued 5,000,000 unregistered
common shares upon conversion of $1,500,000 of convertible notes, at contractual terms.
Issuance of common stock pursuant to private placement
In April 2015, the Company issued a total of 12,921,348
shares of common stock at $0.89 per share for gross proceeds of $11.5 million (see note 2). Expenses incurred of $111,841 were
charged to additional paid in capital and the Company received net proceeds of $11,388,084.
Issuance of preferred stock pursuant to private
placement
Refer to note 9 for discussion on preferred stock
issuances.
Issuance of common stock pursuant to exercise
of stock options
During the nine months ended September 30, 2016,
the Company issued an aggregate of 36,071 shares of its common stock pursuant to the exercise of stock options granted under the
Company’s 2006 Stock Incentive Plan. The Company received aggregate proceeds of $5,300 for options exercised for cash, with
the balance of the options having been exercised on a “cashless” basis.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
12.
|
STOCK-BASED COMPENSATION
|
The Company adopted an Incentive Stock Plan on January
18, 2007. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees
of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them
opportunities to acquire the Company's common stock or to receive monetary payments based on the value of such shares pursuant
to Awards issued. While the plan terminates 10 years after the adoption date, issued options have their own schedule of termination.
During 2013 the majority of the shareholders approved to increase the total available shares in the plan from 2.5 million to 3.5
million shares of common stock. During May 2014, the majority of the shareholders approved to increase the total available shares
in the plan from 3.5 million to 4.25 million shares of common stock, during February 2015, the majority of the shareholders approved
to increase the total available shares in the plan from 4.25 million to 4.6 million shares of common stock and during April 2015,
the majority of the shareholders approved to increase the total available shares in the plan from 4.6 million to 5.1 million shares
of common stock. Until 2017, options to acquire shares of common stock may be granted at no less than fair market value on the
date of grant. Upon exercise, shares of new common stock are issued by the Company.
The Company adopted the 2015 Stock Incentive Plan
on April 30, 2015. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels
as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing
them opportunities to acquire the Company's common stock or to receive monetary payments based on the value of such shares pursuant
to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,147,000 shares. In addition, there is a provision
for an annual increase of 15% of the issued shares under the plan to the shares included under the plan, with the shares to be
added on the first day of each calendar year, beginning on January 1, 2016. On January 1
st
, 2016, the permitted number
of available option grants increased by 147,000.
Cumulatively since inception, the Company has issued
options to purchase approximately 5.6 million shares at an average price of $1.00 with a fair value of approximately $1.1 million.
For the nine months ended September 30, 2016 and 2015, the Company recognized an expense of $801,398 and $1,157,959, respectively,
of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of
Operations) determined by application of a Black Scholes option pricing model with the following inputs: exercise price, dividend
yields, risk-free interest rate, and expected annual volatility. As of September 30, 2016, the Company had approximately $2,583,593
of unrecognized pre-tax non-cash compensation expense related to non-vested option-based compensation arrangements under the Plan.
The Company expects to recognize this expense based on a weighted-average period of 3 years. The Company uses straight-line amortization
of compensation expense over the two to three year requisite service or vesting period of the grant. There are options to purchase
approximately 4.4 million shares that have vested, of which 307,000 shares were exercised as of September 30, 2016.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
12.
|
STOCK-BASED COMPENSATION
(CONTINUED)
|
The Company uses the Black-Scholes option-pricing
model to estimate the fair value of its stock option awards and warrant issuances. The calculation of the fair value of the awards
using the Black - Scholes option-pricing model is affected by the Company’s stock price on the date of grant as well as assumptions
regarding the following:
|
|
Nine
months ended September 30,
|
|
|
|
2016
|
|
|
2015
|
|
Expected volatility
|
|
|
368%
- 390
%
|
|
|
|
306%
|
|
Expected term
|
|
|
4
Years
|
|
|
|
4
Years
|
|
Risk-free interest rate
|
|
|
1.36%
- 1.61
%
|
|
|
|
0.91%
- 1.69%
|
|
Forfeiture Rate
|
|
|
0.00
%
|
|
|
|
0.00
%
|
|
Expected dividend yield
|
|
|
0.00
%
|
|
|
|
0.00
%
|
|
The expected volatility was determined with reference
to the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee
termination within the valuation model. The expected term of options granted represents the period of time that options granted
are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the
U.S. Treasury rate in effect at the time of grant.
A summary of the status of the Company’s outstanding
stock options as of September 30, 2016 and changes during the period ending on that date is as follows:
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Remaining
|
|
|
|
Shares
|
|
|
Price
|
|
|
Value
|
|
|
Term (Yrs)
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
4,634,166
|
|
|
$
|
0.81
|
|
|
$
|
5,286,107
|
|
|
|
5.49
|
|
Granted
|
|
|
1,317,500
|
|
|
$
|
2.01
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(40,000
|
)
|
|
$
|
0.42
|
|
|
|
|
|
|
|
|
|
Forfeiture and cancelled
|
|
|
(140,801
|
)
|
|
$
|
1.47
|
|
|
|
|
|
|
|
|
|
At September 30, 2016
|
|
|
5,770,865
|
|
|
$
|
1.07
|
|
|
$
|
5,933,912
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
4,388,296
|
|
|
$
|
0.82
|
|
|
|
|
|
|
|
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
September 30, 2016
|
13.
|
COMMITMENTS AND CONTINGENCIES
|
The Company has entered into distribution agreements
with liquidated damages in case the Company cancels the distribution agreements without cause. Cause has been defined in various
ways. It is management’s belief that no such agreement has created any liability as of September 30, 2016.
The Company entered into an office lease with a related
party (see note 10) effective October 2015. The monthly rent amounts to $8,809 per month and the lease terminates in October 2020.
Future annual minimum payments required under operating lease obligations at September 30, 2016 are as follows:
Future Minimum Lease Payments
Year ending December 31,
|
|
|
|
2016
|
|
$
|
27,629
|
|
2017
|
|
$
|
113,461
|
|
2018
|
|
$
|
116,720
|
|
2019
|
|
$
|
120,078
|
|
2020
|
|
$
|
102,455
|
|
Total
|
|
$
|
480,343
|
|
We have evaluated events and transactions that occurred
subsequent to September 30, 2016 through November 10, 2016, the date these financial statements were issued, for potential recognition
or disclosure in the accompanying financial statements.