Notes
to Consolidated Financial Statements (unaudited)
June
30, 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 two subsidiaries of
the Company. On February 7, 2017, the Company established Celsius Asia Holdings Limited and Celsius China Holdings Limited two
Hong Kong corporations as a wholly-owned subsidiary of the Company and on May 9, 2017, the Company established Celsius (Beijing)
Beverage Limited a China 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.
|
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 unaudited 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 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 unaudited 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 six months ended June 30, 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)
June
30, 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 June 30, 2017 the Company had approximately $19.7 million in excess
of the Federal Deposit Insurance Corporation limit but has incurred no losses with respect to these accounts.
For
the six months ended June 30, 2017 and 2016, the Company had the following 10 percent or greater concentrations of revenue with
its customers:
|
|
2017
|
|
|
2016
|
|
A*
|
|
|
27.4
|
%
|
|
|
31.4
|
%
|
B
|
|
|
9.0
|
%
|
|
|
12.3
|
%
|
All other
|
|
|
63.6
|
%
|
|
|
56.3
|
%
|
Total
|
|
|
100.0
|
%
|
|
|
100.0
|
%
|
At
June 30, 2017 and December 31, 2016, the Company had the following 10 percent or greater concentrations of accounts receivable
with its customers:
|
|
2017
|
|
|
2016
|
|
A*
|
|
|
36.4
|
%
|
|
|
53.8
|
%
|
B
|
|
|
14.1
|
%
|
|
|
7.7
|
%
|
C
|
|
|
10.0
|
%
|
|
|
11.5
|
%
|
All
other
|
|
|
39.5
|
%
|
|
|
27.0
|
%
|
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 June 30, 2017 and December 31, 2016, 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 June 30, 2017 and December 31, 2016, there
was an allowance for doubtful accounts of $39,400 and $72,300, respectively.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Consolidated Financial Statements (unaudited)
June
30, 2017
|
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 June 30, 2017 and December 31, 2016, the Company recorded a reserve of $63,443
and $208,805, 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 $1.9 million and $2.8 million
during the six months ending June 30, 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 $121,700
and $45,800 during the six months ending June 30, 2017 and 2016, 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)
June
30, 2017
|
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:
|
Level
1:
|
Observable inputs
such as quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
Level 2:
|
Observable market-based
inputs or unobservable inputs that are corroborated by market data.
|
|
|
|
|
Level 3:
|
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 June 30, 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)
June
30, 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 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 June 30, 2017 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 been presented for the three months
ended June 30, 2017 but have not been presented for the three months ended June 30, 2016 and six months ended June 30, 2017 and
2016, as the effects would be anti-dilutive.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 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.
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 six months ended June 30, 2017 and 2016 was $1,507,000 and $958,000, respectively.
Recent Accounting Pronouncements
The Company adopts all applicable,
new accounting pronouncements as of the specified effective dates.
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. The Company
has adopted ASU 2015-03 and ASU 2015-15 as of December 31, 2016; 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).
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 2017
2.
|
BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
|
Recent Accounting Pronouncements (continued)
In May 2014, the FASB issued
ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)” which supersedes previous revenue recognition
guidance. ASU No. 2014-09 requires that a company recognize revenue at an amount that reflects the consideration to which the company
expects to be entitled in exchange for transferring goods or services to a customer. In applying the new guidance, a company will
(i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the contract’s performance obligations; and (v) recognize revenue when (or
as) the entity satisfies a performance obligation. ASU No. 2014-09 was to be effective for reporting periods beginning after December
15, 2016. However, on July 9, 2015, the FASB voted to approve a one-year deferral of the effective date. This new guidance is effective
for the Company beginning January 1, 2018 and can be adopted using either a full retrospective or modified approach. The Company
is currently evaluating the impact of ASU No. 2014-09 on its financial position, results of operations and liquidity.
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.
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.
Liquidity
— These
financial statements have been prepared assuming the Company will be able to continue as a going concern. At June 30, 2017, the
Company had an accumulated deficit of $54,946,000 which includes a net loss available to common stockholders of approximately $1,592,000
for the six months ended June 30, 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 approximately $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:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Finished goods
|
|
$
|
2,509,640
|
|
|
$
|
2,142,032
|
|
Raw Materials
|
|
|
811,263
|
|
|
|
270,142
|
|
Less: Inventory Reserve
|
|
|
(63,442
|
)
|
|
|
(200,804
|
)
|
Inventories, net
|
|
$
|
3,257,461
|
|
|
$
|
2,211,370
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 2017
4.
|
PREPAID EXPENSES AND OTHER CURRENT ASSETS
|
Prepaid expenses and other current
assets total approximately $1,964,000 and $937,000, at June 30, 2017 and December 31, 2016, respectively, and consist mainly of
prepaid consulting agreement with D3M Licensing Group, advertising, prepaid insurance, prepaid slotting fees, and deposits on purchases.
5.
|
PROPERTY AND EQUIPMENT
|
Property and equipment consist
of the following at:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Furniture and equipment
|
|
$
|
303,972
|
|
|
$
|
291,626
|
|
Less: accumulated depreciation
|
|
|
(266,767
|
)
|
|
|
(258,093
|
)
|
Total
|
|
$
|
37,205
|
|
|
$
|
33,533
|
|
Depreciation expense amounted
to $8,674 and $7,368 during the six months ended June 30, 2017 and 2016, respectively
6.
|
ACCOUNTS PAYABLE AND ACCRUED EXPENSES
|
Accounts payable and accrued
expenses consist of the following at:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
2,260,185
|
|
|
$
|
858,131
|
|
Accrued expenses
|
|
|
968,754
|
|
|
|
896,076
|
|
Total
|
|
$
|
3,228,939
|
|
|
$
|
1,754,207
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 2017
7.
|
DEFERRED REVENUE AND OTHER CURRENT LIABILITIES
|
Deferred revenue and other current
liabilities consist of the following at:
|
|
June 30,
|
|
|
December 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Customer deposits
|
|
$
|
122,971
|
|
|
$
|
201,652
|
|
State bottle bill liability
|
|
|
8,350
|
|
|
|
12,960
|
|
Total
|
|
$
|
131,321
|
|
|
$
|
214,612
|
|
8.
|
LINE OF CREDIT NOTE PAYABLE - RELATED PARTIES
|
Line of credit note payable
- related parties consists of the following as of:
|
|
June 30,
|
|
|
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 and is due quarterly. 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)
June 30, 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 June 30, 2017, $383,491 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 “
Amendmen
t”) 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 June 30, 2017, $50,556 of dividends has been accrued regarding these shares.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 2017
10.
|
RELATED PARTY TRANSACTIONS
|
The Company’s office is
rented from a company affiliated with CD Financial, the line of credit note payable lender, 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 June 30, 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 six months ending
June 30, 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 the line of credit not payable debt valued at $3.00
per share.
Issuance of common stock
pursuant to exercise of stock options
During the six months ended
June 30, 2017, the Company issued an aggregate of 1,579,532 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 $998,700 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)
June 30, 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, 2017,
the permitted number of available option grants increased by 799,996.
Cumulatively since inception,
the Company has issued options to purchase common shares. For the six months ended June 30, 2017 and 2016, the Company recognized
an expense of $994,296 and $495,108, 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 June 30,
2017, the Company had approximately $4,481,817 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 3.5 million shares that have vested as of June 30, 2017.
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 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:
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
Expected volatility
|
|
|
137% - 140%
|
|
|
|
159%
|
|
Expected term
|
|
|
4 Years
|
|
|
|
4 Years
|
|
Risk-free interest rate
|
|
|
1.36% - 1.89%
|
|
|
|
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 June 30, 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
|
|
|
Term (Yrs)
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016
|
|
|
5,636
|
|
|
$
|
1.04
|
|
|
$
|
7,317,000
|
|
|
|
5.06
|
|
Granted
|
|
|
1,097
|
|
|
$
|
3.90
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(1,491
|
)
|
|
$
|
0.69
|
|
|
|
|
|
|
|
|
|
Forfeiture and cancelled
|
|
|
(22
|
)
|
|
$
|
0.96
|
|
|
|
|
|
|
|
|
|
At June 30, 2017
|
|
|
5,220
|
|
|
$
|
1.72
|
|
|
$
|
9,444,762
|
|
|
|
5.26
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at June 30, 2017
|
|
|
3,466
|
|
|
$
|
1.17
|
|
|
|
|
|
|
|
|
|
Celsius Holdings, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
(unaudited)
June 30, 2017
12.
|
STOCK-BASED COMPENSATION (CONTINUED)
|
The following table summarizes information
about employee stock options outstanding at June 30, 2017:
|
|
Outstanding Options
|
|
|
Vested Options
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
Number
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Weighted
|
|
|
Weighted
|
|
|
Exercisable
|
|
|
Weighted
|
|
|
Weighted
|
|
Range of
|
|
At
|
|
|
Averaged
|
|
|
Averaged
|
|
|
at
|
|
|
Averaged
|
|
|
Averaged
|
|
Exercise
|
|
June 30,
|
|
|
Remaining
|
|
|
Exercise
|
|
|
June 30,
|
|
|
Exercise
|
|
|
Remaining
|
|
Price
|
|
2017 (000’s)
|
|
|
Life
|
|
|
Price
|
|
|
2017 (000’s)
|
|
|
Price
|
|
|
Life
|
|
$0.20 - $0.53
|
|
|
1,347
|
|
|
|
4.45
|
|
|
$
|
0.27
|
|
|
|
1,346,989
|
|
|
$
|
0.27
|
|
|
|
4.46
|
|
$0.65 - $1.80
|
|
|
1,159
|
|
|
|
3.35
|
|
|
$
|
0.87
|
|
|
|
1,055,319
|
|
|
$
|
0.85
|
|
|
|
3.35
|
|
$1.83 - $2.84
|
|
|
1,636
|
|
|
|
5.16
|
|
|
$
|
2.07
|
|
|
|
917,545
|
|
|
$
|
2.09
|
|
|
|
5.16
|
|
$3.20 - $6.20
|
|
|
1,070
|
|
|
|
7.07
|
|
|
$
|
3.90
|
|
|
|
138,931
|
|
|
|
3.79
|
|
|
|
7.07
|
|
$7.20 - $22.00
|
|
|
8
|
|
|
|
2.13
|
|
|
$
|
10.36
|
|
|
|
8,000
|
|
|
$
|
10.36
|
|
|
|
2.13
|
|
Outstanding options
|
|
|
5,220
|
|
|
|
4.96
|
|
|
$
|
1.72
|
|
|
|
3,466
|
|
|
$
|
1.17
|
|
|
|
4.96
|
|
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 six months ended
June 30, 2017
and 2016 is presented in
the following table:
|
|
|
For the Six Months ended
|
|
|
|
|
June 30, 2017
|
|
|
June 30, 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
|
|
|
|
16,667
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Unvested at end of period
|
|
|
|
83,333
|
|
|
$
|
3.64
|
|
|
|
—
|
|
|
|
—
|
|
Unrecognized compensation expense related
to outstanding restricted stock awards to employees and directors as of
June 30, 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)
June 30, 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 June 30, 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 June 30, 2017 are as follows:
Future Minimum Lease Payments
Year ending December 31,
|
|
|
|
|
2017
|
|
|
$
|
52,854
|
|
2018
|
|
|
$
|
113,461
|
|
2019
|
|
|
$
|
116,720
|
|
2020
|
|
|
|
120,078
|
|
Total
|
|
|
$
|
403,113
|
|
We have evaluated events and
transactions that occurred subsequent to June 30, 2017 through August 9, 2017, the date these consolidated financial statements
were issued, for potential recognition or disclosure in the accompanying consolidated financial statements.