Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
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.
|
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, 2016 and notes
thereto and other pertinent information contained in our Form 10K as filed with the Securities and Exchange Commission on March
30, 2017 (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 three months ended March 31, 2017 and 2016 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)
March 31, 2017
|
2.
|
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 March 31, 2017 the Company had approximately $20.7 million in excess of the Federal Deposit Insurance Corporation limit
but has incurred no losses with respect to these accounts.
For the three months ended March 31, 2017 and 2016,
the Company had the following 10 percent or greater concentrations of revenue with its customers:
|
|
2017
|
|
|
2016
|
|
A*
|
|
|
18.1
|
%
|
|
|
27.2
|
%
|
B
|
|
|
11.0
|
%
|
|
|
11.5
|
%
|
C
|
|
|
11.0
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%
|
|
|
7.8
|
%
|
D
|
|
|
10.6
|
%
|
|
|
9.2
|
%
|
All other
|
|
|
49.3
|
%
|
|
|
44.3
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
At March 31, 2017 and December 31, 2016, the Company
had the following 10 percent or greater concentrations of accounts receivable with its customers:
|
|
2017
|
|
|
2016
|
|
A*
|
|
|
35.3
|
%
|
|
|
53.8
|
%
|
B
|
|
|
12.5
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%
|
|
|
11.5
|
%
|
C
|
|
|
11.2
|
%
|
|
|
2.2
|
%
|
D
|
|
|
11.0
|
%
|
|
|
7.7
|
%
|
All other
|
|
|
30.0
|
%
|
|
|
34.7
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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 March 31, 2017
and December 31, 2016, the Company did not have any investments with maturities of three months or less.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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 March 31, 2017 and December 31, 2016, there was an allowance for doubtful
accounts of $36,800 and $72,300, respectively.
Inventories
— Inventories include only
the purchase cost and are stated at the lower of cost and realizable value. Cost is determined using the FIFO method. Inventories
consist of raw materials and finished products. The Company outsources its manufacturing process and 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 March 31, 2017 and December 31, 2016, the Company recorded a reserve of $343,000 and $201,000, 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 $926,000 and $857,400 during the three months ending March 31, 2017 and
2016, 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 $70,700 and $11,900 during the three months
ending March 31, 2017 and 2016, respectively.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
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.
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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|
|
|
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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.
|
The Company did not have any assets or liabilities
measured at fair value at March 31, 2017 and December 31, 2016.
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)
March 31, 2017
|
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 calendar year
December 31
st
tax year. The Company’s tax returns for tax years ended December 31, 2016, 2015, and 2014 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 March 31, 2017 there were options outstanding to purchase 6.5 million shares, which exercise price averaged $1.53, 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 as of March 31, 2017. The effects of dilutive instruments have not been presented for the three months ended March 31, 2017
and 2016, as the effects would be anti-dilutive.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
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. Pursuant to ASC Topic 505-50, for share based payments to consultants and other third-parties, compensation expensed is
determined at the “measurement date.” The expense is recognized over the service period of the award. Until the measurement
date is reached, the total amount of compensation expense remains uncertain. The Company initially records compensation expense
based on the fair value of the award at the reporting date.
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 three
months ended March 31, 2017 and 2016 was $635,200 and $408,500, respectively.
Recent Accounting Pronouncements
The Company adopts all applicable, new accounting
pronouncements as of the specified effective dates.
Management has considered all recent accounting pronouncements
issued since the last audit of our consolidated financial statements. The Company’s management believes that these recent
pronouncements will not have a material effect on the Company’s consolidated financial statements.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
2.
|
BASIS OF PRESENTATION
AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Liquidity
— These financial statements
have been prepared assuming the Company will be able to continue as a going concern. At March 31, 2017, the Company had an accumulated
deficit of $55,325,877 which includes a net loss available to common stockholders of $1,971,545 for the three months ended March
31, 2017. While these factors alone may raise doubt as to the Company’s ability to continue as a going concern, the Company’s
sale of an aggregate of $10 million in capital through the sale of an aggregate of 3,333,329 shares of our common stock at a purchase
price of $3.00 per share in a private offering to 13 accredited investors between January 1, 2017 and March 14, 2017 is deemed
sufficient to alleviate substantial doubt regarding the Company’s ability to continue as a going concern for a period of
twelve months from the issuance date of this report.
Inventories consist of the following at:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
2,309,998
|
|
|
$
|
2,142,032
|
|
Raw Materials
|
|
|
610,384
|
|
|
|
270,143
|
|
Less: Inventory Reserve
|
|
|
(342,762
|
)
|
|
|
(200,805
|
)
|
Inventories, net
|
|
$
|
2,577,620
|
|
|
$
|
2,211,370
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
4.
|
PREPAID EXPENSES AND OTHER
CURRENT ASSETS
|
Prepaid expenses and other current assets total $1.8
million and $937,000, at March 31, 2017 and December 31, 2016, respectively, and consist mainly of a prepaid consulting agreement
with D3M Licensing Group, prepaid advertising, prepaid insurance, prepaid slotting fees, deposits on purchases, and customer deposits.
|
5.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist of the following at:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
297,958
|
|
|
$
|
291,626
|
|
Less: accumulated depreciation
|
|
|
(262,327
|
)
|
|
|
(258,093
|
)
|
Total
|
|
$
|
35,631
|
|
|
$
|
33,533
|
|
Depreciation expense amounted to $4,233 and $3,394
during the three months ended March 31, 2017 and 2016, respectively
|
6.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued expenses consist of
the following at:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,493,010
|
|
|
$
|
858,131
|
|
Accrued expenses
|
|
|
1,086,910
|
|
|
|
896,073
|
|
Total
|
|
$
|
3,579,920
|
|
|
$
|
1,754,207
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
7.
|
DEFERRED REVENUE AND OTHER
CURRENT LIABILITIES
|
Deferred revenue and other current liabilities consist
of the following at:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
391,128
|
|
|
$
|
201,652
|
|
State bottle bill liability
|
|
|
3,460
|
|
|
|
12,960
|
|
Total
|
|
$
|
394,588
|
|
|
$
|
214,612
|
|
|
8.
|
LINE OF CREDIT NOTE PAYABLE
- RELATED PARTIES
|
Line of credit note payable - related parties consists
of the following as of:
|
|
March 31,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
Note Payable – line of credit
|
|
|
|
|
|
|
|
|
In July 2010, the Company entered into a line of credit note payable with a related party principle shareholder 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. In January 2017, the Company issued 333,333 of common stock at $3.00 per share the offering price in exchange for the cancellation of $1,000,000 of this line.
|
|
|
|
|
|
|
|
|
Long-term portion
|
|
$
|
3,500,000
|
|
|
$
|
4,500,000
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
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 March 31, 2017, $342,800 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, 2021 due date of our line of credit with CD Financial or such earlier date
as the line of credit is satisfied (the “
Maturity 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 Maturity 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 Holder shall have the right, at its election, to require the Company to redeem all or any portion of the shares held by the holder in exchange for cash or common stock upon the occurrence of certain events which management believes are under the control of the Company. As of March 31, 2017, none of the contingent events have occurred and in accordance with ASC-480-10-25 “Distinguishing Liabilities from Equity” and Regulation S-X-Rule 5-02-27, the Company has classified these shares as permanent equity. 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 March 31, 2017, $50,000 of dividends has been accrued regarding these shares.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
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. As of March 31, 2017 and since inception, the Company has paid All Def Digital $390,395, for
services relating to the strategic marketing and advisory services agreement. For the three months ending March 31, 2017 no services
were performed by All Def Digital.
Other related party transactions are discussed in notes
8 and 9.
Issuance of common stock pursuant to services performed
In January 2017, the Company issued 47,126 shares of
“restricted” stock to each William H. Milmoe and Thomas E. Lynch in consideration for services previously rendered
to Celsius at a fair value of $164,000, or $3.48 per share representing the closing stock price on that date.
Issuance of common stock pursuant to private placement
Between January 1, 2017 and March 2017, the Company issued
a total of 3,333,329 shares of common stock at $3.00 per share for net proceeds of approximately $10 million to 12 accredited investors.
In January 2017, the Company issued 333,333 unregistered
common shares upon the conversion of $1,000,000 of debt from CD Financial valued at $3.00 per share.
Issuance of common stock pursuant to exercise of stock
options
During the three months ended March 31, 2017, the Company
issued an aggregate of 144,543 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 $25,000 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)
March 31, 2017
|
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
, 2017, the permitted number
of available option grants increased by 799,996.
Cumulatively since inception, the Company has issued
options to purchase approximately 6.5 million shares at an average price of $1.53 with a fair value of approximately $1.1 million.
For the three months ended March 31, 2017 and 2016, the Company recognized an expense of $444,164 and $228,358, 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 March 31, 2017, the Company had approximately $5,031,949 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
4.5 million shares that have vested, of which 398,725 shares were exercised as of March 31, 2017.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
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:
|
|
Three months ended March 31,
|
|
|
2017
|
|
2016
|
Expected volatility
|
|
137% - 140%
|
|
309%
|
Expected term
|
|
4 Years
|
|
4 Years
|
Risk-free interest rate
|
|
1.33%
|
|
0.89%
|
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 March 31, 2017 and changes during the period ending on that date is as follows:
|
|
|
|
|
Weighted
Average
|
|
|
Aggregate
|
|
|
Average
|
|
|
|
|
|
|
Exercise
|
|
|
Intrinsic
|
|
|
Remaining
|
|
|
|
Shares (000’s)
|
|
|
Price
|
|
|
Value (000’s)
|
|
|
Term (Yrs)
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
5,637
|
|
|
$
|
1.04
|
|
|
$
|
7,317
|
|
|
|
5.06
|
|
Granted
|
|
|
1,047
|
|
|
$
|
3.91
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(214
|
)
|
|
$
|
0.35
|
|
|
|
|
|
|
|
|
|
Forfeiture and cancelled
|
|
|
(23
|
)
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
At March 31, 2017
|
|
|
6,447
|
|
|
$
|
1.53
|
|
|
$
|
12,868
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2017
|
|
|
4,459
|
|
|
$
|
0.91
|
|
|
|
|
|
|
|
|
|
The following table summarizes information about employee stock
options outstanding at March 31, 2017:
|
|
Outstanding Options
|
|
|
Vested Options
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Exercisable
|
|
|
Weighted
|
|
|
Weighted
|
|
Range of
|
|
at
|
|
|
Averaged
|
|
|
Averaged
|
|
|
at
|
|
|
Averaged
|
|
|
Averaged
|
|
Exercise
|
|
March 31,
|
|
|
Remaining
|
|
|
Exercise
|
|
|
March 31,
|
|
|
Exercise
|
|
|
Remaining
|
|
Price
|
|
2017 (000's)
|
|
|
Life
|
|
|
Price
|
|
|
2017 (000's)
|
|
|
Price
|
|
|
Life
|
|
$0.20 - $0.53
|
|
|
2,152
|
|
|
|
4.93
|
|
|
$
|
0.26
|
|
|
|
2,152
|
|
|
$
|
0.26
|
|
|
|
4.93
|
|
$0.65 - $1.80
|
|
|
1,369
|
|
|
|
3.96
|
|
|
$
|
0.88
|
|
|
|
1,226
|
|
|
$
|
0.86
|
|
|
|
3.75
|
|
$1.83 - $2.84
|
|
|
1,848
|
|
|
|
5.42
|
|
|
$
|
2.08
|
|
|
|
1,022
|
|
|
$
|
2.11
|
|
|
|
4.93
|
|
$3.20 - $6.20
|
|
|
1,070
|
|
|
|
7.32
|
|
|
$
|
3.90
|
|
|
|
52
|
|
|
|
3.60
|
|
|
|
3.92
|
|
$7.20 - $22.00
|
|
|
8
|
|
|
|
2.38
|
|
|
$
|
10.36
|
|
|
|
8
|
|
|
$
|
10.36
|
|
|
|
2.38
|
|
Outstanding options
|
|
|
6,447
|
|
|
|
5.26
|
|
|
$
|
1.53
|
|
|
|
4,460
|
|
|
$
|
0.91
|
|
|
|
4.59
|
|
Restricted Stock Awards
Restricted stock awards are awards of common stock that are subject
to restrictions on transfer and to a risk of forfeiture if the holder leaves the Company before the restrictions lapse. The holder
of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise
the rights of a shareholder of the Company, including the right to vote the shares. The value of stock awards that vest over time
was established by the market price on the date of its grant. A summary of the Company’s restricted stock activity for the
three months ended
March 31, 2017
and 2016 is presented in the following
table:
|
|
For the Three Months ended
|
|
|
|
March 31, 2017
|
|
|
March 31, 2016
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
Grant Date
|
|
|
|
|
|
Grant Date
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
Shares
|
|
|
Fair Value
|
|
Unvested at beginning of period
|
|
|
—
|
|
|
$
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Granted
|
|
|
100,000
|
|
|
|
3.64
|
|
|
|
—
|
|
|
|
—
|
|
Vested
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unvested at end of period
|
|
|
100,000
|
|
|
$
|
6.64
|
|
|
|
—
|
|
|
|
—
|
|
Unrecognized compensation expense related to
outstanding restricted stock awards to employees and directors as of
March 31, 2017
was
$353,799 and is expected to be recognized over a weighted average period of 2.92 years.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
March 31, 2017
|
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 March 31, 2017.
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 March 31, 2017 are as follows:
Future Minimum Lease Payments
Year ending December 31,
|
|
|
|
2018
|
|
$
|
79,281
|
|
2019
|
|
$
|
113,461
|
|
2020
|
|
$
|
116,720
|
|
2021
|
|
$
|
120,078
|
|
Total
|
|
$
|
429,540
|
|
Between April 1, 2017 and April 17, 2017, the
Company issued an aggregate of 196,666 shares of its common stock pursuant to the exercise of stock options granted under the
Company’s 2006 Stock Incentive Plan. The Company recorded $116,833 for options exercised.