Celsius Holdings, Inc. - Quarter Report: 2008 March (Form 10-Q)
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
___________________________
FORM
10-Q
___________________________
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x
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QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
the quarterly period ended March 31, 2008
OR
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o
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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CELSIUS HOLDINGS,
INC.
(Exact
name of registrant as specified in its charter)
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NEVADA
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333-129847
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20-2745790
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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140
NE 4th Avenue,
Suite C
Delray
Beach, FL 33483
(Address
of principal executive offices) (Zip Code)
(561)
276-2239
(Registrant’s
telephone number, including area code)
(Former
name, former address and former fiscal year, if changed since last
report)
Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports) and (2) has been subject to such filing requirements for
the past 90 days. Yes |X| No |_|
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Securities Exchange Act of
1934.
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Large
accelerated filer
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¨
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Accelerated
filer
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¨
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Non-accelerated
filer
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¨
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Smaller
reporting company
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x
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Indicate
by check mark whether the Registrant is a shell company (as defined in Rule
12b-2 of the Securities Exchange Act of
1934). Yes ¨ No x
Number of
shares of common stock outstanding as of April 24, 2008 was
120,578,558.
CELSIUS
HOLDINGS, INC.
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Page
Number
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PART I.
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FINANCIAL
INFORMATION
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Item
1.
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Condensed Consolidated Balance Sheet at March 31,
2008 (unaudited)
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and December 31, 2007
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3
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three
months ended March 31, 2008 and 2007 (unaudited)
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4
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three
months ended March 31, 2008 and 2007 (unaudited)
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5
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6-16
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Item
2.
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17-30
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Item
3.
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31
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PART II.
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OTHER
INFORMATION
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Item
1.
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32
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Item
2.
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32
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Item
6.
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32
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33
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Item 1. - Financial Statements
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Celsius
Holdings, Inc. and Subsidiaries
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||||||||
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||||||||
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March
31
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December
311
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ASSETS
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2008
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2007
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||||||
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(unaudited)
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||||||||
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Current
assets:
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||||||||
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Cash
and cash equivalents
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$ | 148,573 | $ | 257,482 | ||||
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Accounts
receivable, net
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302,448 | 276,877 | ||||||
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Inventories,
net
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612,916 | 578,774 | ||||||
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Subscription
receivable
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400,100 | - | ||||||
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Other
current assets
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94,384 | 44,960 | ||||||
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Total current assets
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1,558,421 | 1,158,093 | ||||||
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Property,
fixtures and equipment, net
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79,437 | 64,697 | ||||||
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Note
receivable
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1,250,000 | 1,250,000 | ||||||
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Other
long-term assets
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60,340 | 60,340 | ||||||
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Total
Assets
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$ | 2,948,198 | $ | 2,533,130 | ||||
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LIABILITIES
AND STOCKHOLDERS’ DEFICIT
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||||||||
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Current
liabilities:
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||||||||
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Accounts
payable and accrued expenses
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$ | 1,111,949 | $ | 594,828 | ||||
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Loans
payable
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711,186 | 710,307 | ||||||
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Deposit
from customer
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391,329 | 400,000 | ||||||
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Short
term portion of other liabilities
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7,322 | 7,184 | ||||||
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Convertible
note payable, net of debt discount
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248,069 | 199,692 | ||||||
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Due
to related parties
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906,525 | 896,721 | ||||||
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Total
current liabilities
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3,376,380 | 2,808,732 | ||||||
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Convertible
note payable, net of debt discount
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1,326,578 | 1,314,914 | ||||||
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Other
liabilities
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12,365 | 14,236 | ||||||
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Total Liabilities
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4,715,323 | 4,137,882 | ||||||
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Stockholders’
Deficit:
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||||||||
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Preferred
stock, $0.001 par value; 50,000,000 shares
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||||||||
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authorized
and no shares issued and outstanding
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- | - | ||||||
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Common
stock, $0.001 par value: 350,000,000 shares
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authorized, 121 million and 106 million shares
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||||||||
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issued
and outstanding, respectively
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120,576 | 105,611 | ||||||
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Additional
paid-in capital
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5,414,911 | 4,410,405 | ||||||
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Accumulated
deficit
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(7,302,612 | ) | (6,120,768 | ) | ||||
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Total Stockholders’ Deficit
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(1,767,125 | ) | (1,604,752 | ) | ||||
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Total
Liabilities and Stockholders’ Deficit
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$ | 2,948,198 | $ | 2,533,130 | ||||
1 Derived
from audited financial statements.
The
accompanying notes are an integral part of these condensed consolidated
financial statements
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Celsius Holdings, Inc. and
Subsidiaries
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(unaudited)
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For
the Three Months Ended
March
31,
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2008
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2007
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Net
sales
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$ | 533,382 | $ | 241,390 | ||||
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Cost
of sales
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298,895 | 175,078 | ||||||
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Gross
profit
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234,487 | 66,312 | ||||||
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Selling
and marketing expenses
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848,216 | 344,684 | ||||||
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General
and administrative expenses
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464,905 | 309,652 | ||||||
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Termination
of contract expense
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- | 500,000 | ||||||
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Loss
from operations
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(1,078,634 | ) | (1,088,024 | ) | ||||
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Other
expense:
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Interest
expense, related party
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14,426 | 17,802 | ||||||
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Other
interest expense, net
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88,784 | 13,103 | ||||||
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Total
other expense
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103,210 | 30,905 | ||||||
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Net
loss
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$ | (1,181,844 | ) | $ | (1,118,929 | ) | ||
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Weighted
average shares outstanding -
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||||||||
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basic
and diluted
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108,256,631 | 91,869,430 | ||||||
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Loss
per share - basic and diluted
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$ | (0.01 | ) | $ | (0.01 | ) | ||
The
accompanying notes are an integral part of these condensed consolidated
financial statements
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Celsius
Holdings, Inc. and Subsidiaries
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(unaudited)
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For
the Three Months Ended March 31
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2008
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2007
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Cash
flows from operating activities:
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Net
loss
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$ | (1,181,844 | ) | $ | (1,118,929 | ) | ||
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Adjustments
to reconcile net loss to net cash
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used
in operating activities:
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Depreciation
and amortization
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4,456 | 1,683 | ||||||
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Loss
on disposal of assets
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804 | - | ||||||
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Impairment
of intangible assets
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- | 26,000 | ||||||
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Termination
of contract
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- | 500,000 | ||||||
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Issuance
of stock options
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(21,396 | ) | 6,626 | |||||
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Interest,
other expense and royalty, related parties
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9,804 | 75,518 | ||||||
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Interest
expense and debt discount amortization
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60,041 | - | ||||||
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Issuance
of shares as compensation
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120,000 | 25,000 | ||||||
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Change
in operating assets and liabilities:
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Accounts
receivable, other
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(25,571 | ) | 24,913 | |||||
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Inventories
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(34,142 | ) | (42,118 | ) | ||||
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Prepaid
expenses and other current assets
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(49,424 | ) | 24,601 | |||||
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Deposit
from customer
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(8,671 | ) | - | |||||
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Accounts
payable and accrued expenses
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518,001 | (303,344 | ) | |||||
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Net
cash used in operating activities
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(607,942 | ) | (780,050 | ) | ||||
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Cash
flows from investing activities:
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||||||||
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Purchases
of property and equipment
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(20,000 | ) | - | |||||
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Net
cash used in investing activities
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(20,000 | ) | - | |||||
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Cash
flows from financing activities:
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||||||||
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Proceeds
from sale of common stock
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399,212 | 900,000 | ||||||
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Proceeds
from recapitalization due to merger
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- | 353,117 | ||||||
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Repayment
of note to shareholders
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- | (621,715 | ) | |||||
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Proceeds
from loans payable
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146,554 | 139,283 | ||||||
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Repayment
of loans payable
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(26,733 | ) | - | |||||
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Repayment
of debt to related parties
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- | (8,973 | ) | |||||
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Net
cash provided by financing activities
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519,033 | 761,712 | ||||||
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Decrease
in cash
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(108,909 | ) | (18,338 | ) | ||||
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Cash,
beginning of period
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257,482 | 28,579 | ||||||
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Cash,
end of period
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$ | 148,573 | $ | 10,241 | ||||
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Supplemental
disclosures of cash flow information:
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Cash
paid during the year for interest
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$ | 53,369 | $ | 36,745 | ||||
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Cash
paid during the year for taxes
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$ | - | $ | - | ||||
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Non-Cash
Investing and Financing Activities:
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Issuance
of shares for subscription receivable
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$ | 400,100 | $ | - | ||||
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Issuance
of shares for note payable
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$ | 121,555 | $ | - | ||||
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Issuance
of shares for termination of contract
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$ | - | $ | 274,546 | ||||
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Issuance
of note payable for termination of contract
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$ | - | $ | 250,000 | ||||
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The
accompanying notes are an integral part of these condensed consolidated
financial statements
Celsius
Holdings, Inc. and Subsidiaries
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1.
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ORGANIZATION
AND DESCRIPTION OF BUSINESS
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Celsius
Holdings, Inc. (f/k/a Vector Ventures Corp.) (the “Company”) was incorporated
under the laws of the State of Nevada on April 26, 2005. The Company
was formed to engage in the acquisition, exploration and development of natural
resource properties. On December 26, 2006 the Company amended its Articles of
Incorporation to change its name from Vector Ventures Corp. as well as increase
the authorized shares to 350,000,000 $0.001 par value common shares and
50,000,000 $0.001 par value preferred shares.
Celsius
Holdings, Inc. is a holding company and carry on no operating business except
through its wholly owned subsidiaries, Celsius, Inc. and Celsius Netshipments,
Inc. Celsius, Inc. was incorporated in Nevada on January 18, 2007, and merged
with Elite FX, Inc. (“Elite”) on January 26, 2007 (the “Merger”), which was
incorporated in Florida on April 22, 2004. Celsius Netshipments, Inc. was
incorporated in Florida on March 28, 2007.
Prior to
January 26, 2007, the Company was in the exploration stage with its activities
limited to capital formation, organization, development of its business plan and
acquisition of mining claims. On January 24, 2007, the Company
entered into a merger agreement and plan of reorganization with Celsius, Inc., a
Nevada corporation and wholly-owned subsidiary of the Company (“Sub”), Elite FX,
Inc., a Florida corporation (“Elite”), and Steve Haley, the “Indemnifying
Officer” and “Securityholder Agent” of Elite, (the “Merger Agreement”). Under
the terms of the Merger Agreement Elite was merged into Sub and became a
wholly-owned subsidiary of the Company on January 26, 2007 (the
“Merger”).
Under the
terms of the Merger Agreement, the Company issued:
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·
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70,912,246
shares of its common stock to the stockholders of Elite, including
1,337,246 shares of common stock issued as compensation, as full
consideration for the shares of
Elite;
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·
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warrants
to Investa Capital Partners Inc. to purchase 3,557,812 shares of common
stock of the Company for $500,000, the warrants were exercised in February
2007;
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·
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1,391,500
shares of its common stock as partial consideration of termination of a
consulting agreement and assignment of certain trademark rights to the
name “Celsius”
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·
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options
to purchase 10,647,025 shares of common stock of the Company in
substitution for the options currently outstanding in
Elite;
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·
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1,300,000
shares of its common stock concurrent with the Merger in a private
placement to non-US resident investors for aggregate consideration of
US$650,000 which included the conversion of a $250,000 loan to the
Company.
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Celsius
Holdings, Inc’s majority stockholder, Mr. Kristian Kostovski, cancelled
7,200,000 shares of common stock of the Company held by him shortly after the
close of the Merger Agreement.
For
financial accounting purposes, the Merger was treated as a recapitalization of
Celsius Holdings, Inc with the former stockholders of Celsius Holdings, Inc
retaining approximately 24.6% of the outstanding stock.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
This
transaction has been accounted for as a reverse acquisition and accordingly the
transaction has been treated as a recapitalization of Elite, with
Elite as the accounting acquirer. The historical financial statements are a
continuation of the financial statements of the accounting acquirer, and any
difference of the capital structure of the merged entity as compared to the
accounting acquirer’s historical capital structure is due to the
recapitalization of the acquired entity.
After the
merger with Elite FX the Company changed its business to become a manufacturer
of beverages. The calorie burning beverage Celsius® is the
first brand of the Company.
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2.
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BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
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The
unaudited condensed consolidated financial statements included herein have been
prepared by us, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, (the “SEC”). Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles in the United States
(“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of the management, the interim consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the statement of the results for the
interim periods presented.
Going
Concern — The accompanying unaudited consolidated financial statements
are presented on a going concern basis. The Company has suffered losses from
operations, has a stockholders' deficit, and has a negative working capital that
raise substantial doubt about its ability to continue as a going
concern. Management is currently seeking new capital or debt financing to
provide funds needed to increase liquidity, fund growth, and implement its
business plan. However, no assurances can be given that the Company will be able
to raise any additional funds. If not successful in obtaining financing, the
Company will have to substantially diminish or cease its operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Consolidation
Policy — The accompanying consolidated financial statements include the
accounts of Celsius Holdings, Inc. and subsidiaries. All material inter-company
balances and transactions have been eliminated in consolidation.
Significant
Estimates — The preparation of condensed 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, and such
differences could affect the results of operations reported in future
periods.
Concentrations of
Risk — Substantially all of the Company’s revenue is derived from the
sale of the Celsius beverage.
The
Company uses single supplier relationships for its raw materials purchases and
bottling 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.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its cash
and cash equivalents with high-quality financial institutions. At times,
balances in the Company’s cash accounts may exceed the Federal Deposit Insurance
Corporation limit.
Cash and 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, 2008 or December 31, 2007, the Company did not have any investments
with maturities greater than three months.
Accounts
Receivable — Accounts receivable are reported at net realizable value.
The Company has established 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, 2008, there was no allowance
for doubtful accounts.
Inventories
— Inventories include only the purchase cost and are stated at the lower of cost
or market. Cost is determined using the average method. Inventories consist of
raw materials and finished products. The Company writes down inventory during
the period in which such materials and products are no longer usable or
marketable. At March 31, 2008 there was a write down of inventory of
$16,444.
Property,
Fixtures, and
Equipment — Furniture, fixtures and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation of furniture, fixtures,
and equipment is calculated using the straight-line method over the estimated
useful life of the asset generally ranging from three to seven years.
Depreciation expense recognized in the first three months of 2008 was
$4,456.
Impairment of
Long-Lived Assets — Asset impairments are recorded when the carrying
values of assets are not recoverable.
The
Company reviews long-lived assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, or at least annually. If the sum of the undiscounted
expected future cash flows is less than the carrying amount of the asset, the
Company recognizes an impairment loss. Impairment losses are measured as the
amount by which the carrying amount of assets exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value
using the expected future cash flows discounted at a rate commensurate with the
risks associated with the recovery of the asset.
The
Company recognized an impairment charge during the first quarter of 2007 of
$26,000 and no impairment in 2008.
Intangible
Assets — Intangible assets consist of the web domain name Celsius.com and
other trademarks and trade names, and are subject to annual impairment tests.
This analysis will be performed in accordance with Statement of Financial
Standards (‘‘SFAS’’) No. 142, Goodwill and Other Intangible Assets. Based
upon impairment analyses performed in accordance with SFAS No. 142 in
fiscal years 2007 and 2006, impairment was recorded of $26,000 and $0,
respectively. The impairment was recorded was for domain names and international
registration of trademarks. During the Company’s annual review of long-lived
assets in July of 2007, the Company cannot estimate a positive cash flow from
the internet business or international business and therefore impaired these
assets completely.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
Revenue
Recognition — Revenue is recognized when the products are delivered,
invoiced at a fixed price and the collectibility is reasonably assured. Any
discounts, sales incentives or similar arrangement with the customer is
estimated at time of sale and deducted from revenue.
Advertising
Costs — Advertising costs are expensed as incurred. The Company uses
mainly radio, local sampling events and printed advertising. The Company
incurred expenses of $322,000 and $92,000, during the first three months of 2008
and 2007, respectively.
Research and
Development — Research and development costs are charged to operations as
incurred and consist primarily of consulting fees, raw material usage and test
productions of soda. The Company incurred expenses of $110,000 and
$1,000, during the first three months of 2008 and 2007,
respectively.
Fair Value of
Financial Instruments — The carrying value of cash, accounts receivable,
and accounts payable approximates fair value. The carrying value of debt
approximates the estimated fair value due to floating interest rates on the
debt.
Income
Taxes — Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company’s financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than changes in the tax law or rates. A valuation allowance is recorded when it
is deemed more likely than not that a deferred tax asset will be not
realized.
Earnings per
Share —
Basic earnings per share are calculated by dividing income available to
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 the
exercise of stock options and warrants (calculated using the reverse treasury
stock method). As of March 31, 2008 there were options to purchase 10.8 million
shares outstanding, which exercise price averaged $0.06. The dilutive common
shares equivalents, including warrants, of 11.8 million shares were not
included in the computation of diluted earnings per share, because the inclusion
would be anti-dilutive.
Reclassifications —
Certain prior year amounts have been reclassified to conform to the current year
presentation.
Recent Accounting
Pronouncements
In
September 2006, the FASB issued Statement of Financial Standards No. 157, "Fair
Value Measurements" (“SFAS 157”). SFAS 157 defines fair value, establishes a
framework for measuring fair value in accordance with accounting principles
generally accepted in the United States, and expands disclosures about fair
value measurements. This statement does not require any new fair value
measurements; rather, it applies under other accounting pronouncements that
require or permit fair value measurements. The provisions of SFAS 157 are
effective for fiscal years beginning after November 15, 2007. The adoption of
SFAS 157 did not have a material impact on the Company's consolidated financial
position or results of operations.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).
SFAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The adoption of SFAS
159 did not have on the Company’s consolidated financial position and results of
operations.
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS
141R”). SFAS 141R significantly changes the accounting for business combinations
in a number of areas including the treatment of contingent consideration,
pre-acquisition contingencies, transaction costs, in-process research and
development, and restructuring costs. In addition, under SFAS 141R, changes in
an acquired entity’s deferred tax assets and uncertain tax position after the
measurement period will impact income tax expense. SFAS 141R is effective for
fiscal years beginning after December 15, 2008.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No 51 (“SFAS
160”). SFAS 160 changes the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a
component of equity. This new consolidation method significantly changes the
accounting for transactions with minority interest holders. SFAS 160 is
effective for fiscal years beginning after December 31, 2008. These
standards will change our accounting treatment for business combinations on a
prospective basis.
|
3.
|
INVENTORIES
|
Inventories
consist of the following at:
|
March
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Finished
goods
|
$ | 501,220 | $ | 407,972 | ||||
|
Raw
Materials
|
128,140 | 187,246 | ||||||
|
Less:
inventory valuation allowance
|
(16,444 | ) | (16,444 | ) | ||||
|
Inventories,
net
|
$ | 612,916 | $ | 578,774 | ||||
|
4.
|
SUBSCRIPTION
RECEIVABLE
|
On April
7, 2008, the investor paid the full subscription receivable of
$400,100.
|
5.
|
OTHER
CURRENT ASSETS
|
Other
current assets at March 31, 2008 and December 31, 2007 consist of insurance
claims, deposits on purchases, prepaid insurances and accrued
interest.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
|
6.
|
PROPERTY,
FIXTURES, AND EQUIPMENT
|
Property,
fixtures and equipment consist of the following at:
|
March
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Furniture,
fixtures and equipment
|
$ | 97,266 | $ | 78,425 | ||||
|
Less:
accumulated depreciation
|
(17,829 | ) | (13,728 | ) | ||||
|
Total
|
$ | 79,437 | $ | 64,697 | ||||
Depreciation
expense amounted to $4,456 and $1,683 during the first quarter of 2008 and
2007, respectively.
|
7.
|
OTHER
LONG-TERM ASSETS
|
Other
long-term assets at March 31, 2008 and December 31, 2007 consist of a deposit on
office lease and intangible assets.
|
8.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts
payable and accrued expenses consist of the following at:
|
March
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
|||||||
|
Accounts
payable
|
$ | 927,122 | $ | 466,047 | ||||
|
Accrued
expenses
|
184,827 | 128,781 | ||||||
|
Total
|
$ | 1,111,949 | $ | 594,828 | ||||
|
9.
|
DUE
TO RELATED PARTIES
|
|
Due
to related parties consists of the following as of:
|
March
31,
|
December
31,
|
|||||||||
|
2008
|
2007
|
||||||||||
| a. |
The
Company received advances from one of its shareholders at various
instances during 2004 and 2005, $76,000 and $424,000, respectively. The
loan, which is not documented and has no repayment date, accrues interest
with a rate varying with the prime rate. No interest has been paid to the
shareholder.
|
$ | 678,031 | $ | 669,111 | ||||||
| b. |
The
Company’s CEO loaned the Company $50,000 in February 2006. This loan is
not documented, accrues 7 percent interest, and has no repayment date. The
current liability to the CEO at March 31, 2008 and December 31, 2007, was
$57,494 and $56,610, respectively. Moreover, the Company started accruing
salary for the CEO in March of 2006 at a rate of $12,000 per month; at
March 31, 2008 and December 31, 2007, the total liability for accrued
salary to the CEO was $171,000. The Company has since June 1, 2007 paid
the full salary to the CEO.
|
228,494 | 227,610 | ||||||||
| $ | 906,525 | $ | 896,721 | ||||||||
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
|
10.
|
LOANS
PAYABLE
|
|
Loans
payable consist of the following as of:
|
March
31,
|
December
31,
|
|||||||||
|
2008
|
2007
|
||||||||||
| a. |
The
Company renewed its factoring agreement for the Company’s accounts
receivable during the first quarter of 2008. The maximum finance amount
under the agreement is $500,000. Each factoring of accounts receivable has
a fixed fee of one and a half percent of the invoice amount, a minimum fee
per month and an interest charge of prime rate plus three percent on the
outstanding balance under the credit agreement. The accounts receivable
are factored with full recourse on the Company and are in addition secured
by all of the Company’s assets.
|
$ | 232,772 | $ | 102,540 | ||||||
| b. |
The
Company renewed its financing agreement for inventory on February 28,
2008. The line of credit is for $500,000 and carries an interest charge of
1.5 percent of the outstanding balance and a monitoring fee of 0.5 percent
of the previous month’s average outstanding balance. The Company can
borrow up to 50 percent of the cost of eligible finished goods inventory.
The credit agreement is secured by all of the Company’s
assets.
|
238,414 | 222,092 | ||||||||
| c. |
On
April 2, 2007 the Company received a $250,000 loan from Brennecke Partners
LLC. In January, 2008 the Company restructured the then outstanding
balance of the note and issued 1 million shares for an equivalent value of
$121,555, and a new non-interest bearing note for $105,000. The note calls
for 7 monthly principal payments from March 1, 2008.
|
90,000 | 225,675 | ||||||||
| d. |
The
Company terminated a consulting agreement and received in assignment the
rights to the trademark “Celsius” from one of its former directors.
Payment was issued in the form of an interest-free note payable for
$250,000 and 1,391,500 shares of common stock. The note had monthly
amortization of $15,000 from March 31, 2007 and a final payment of the
remaining outstanding balance on November 30, 2007.
|
150,000 | 160,000 | ||||||||
| $ | 711,186 | $ | 710,307 | ||||||||
|
11.
|
DEPOSIT
FROM CUSTOMER
|
During
2007, the Company received $400,000 from an international customer as deposit on
future orders. The orders will necessitate special production of the packaging
materials, and certain other product development as necessary. The Company has a
specific purchase order, and is currently producing the order for delivery in
April, 2008. The current balance as of March 31, 2008 and December 31, 2007 was
$391,329 and $400,000, respectively.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
|
12.
|
CONVERTIBLE
NOTE PAYABLE
|
On
December 18, 2007 the Company issued a $250,000 convertible loan to CD Financial
LLC. The loan incurs eight percent interest per annum, and the note is due on
April 16, 2008. The note can be converted to Company common stock after February
16, 2008 at a rate equal to seventy five percent of the average of the previous
five days volume weighted average price for trading of the common stock,
nevertheless, in no case can the note be converted to more than 25 million
shares of common stock. At the time of recording the note a beneficial
conversion feature for the conversion option was recorded in the amount $57,219,
of which $6,199 was amortized in 2007, and $43,391 in 2008. Total outstanding as
of March 31, 2008 was $248,069, which is net of debt discount of $7,629. Total
outstanding as of December 31, 2007 was $199,692, which is net of debt discount
of $51,020.
|
13.
|
OTHER
LIABILITY
|
During
2006, the Company acquired a copier and a delivery van. The outstanding balance
on the aggregate loans as of March 31, 2008 and December 31, 2007 was $19,687
and 21,420, respectively, of which $7,322
and $7,184 is due during the next 12 months, respectively. The
loans carry an interest of 6.7% and 9.1% interest, respectively. The monthly
payments are $406 and $317, respectively. The assets that were purchased are
collateral for the loans.
|
14.
|
LONG
TERM DEBENTURE
|
On
December 19, 2007, the Company entered into a $6 million security purchase
agreement (the “Security Agreement”) with Golden Gate Investors, Inc (“GGI”),
a California corporation. Under the Security Agreement, the Company
issued as a first tranche a $1.5 million convertible debenture maturing on
December 19, 2011. The debenture accrues seven and 3/4 percent interest per
annum. As consideration the Company received $250,000 in cash and a
note receivable for $1,250,000. The note receivable accrues eight percent
interest per annum and is due on February 1, 2012. The note has a pre-payment
obligation of $250,000 per month when certain criteria are fulfilled. The
most significant criteria is that the Company can issue freely tradable shares
under the debenture for an equivalent value. The Company estimates that
according to Rule 144, the shares will be freely tradable on June 19, 2008. The
Company is not obligated to convert the debenture to shares, partially or in
full, unless GGI prepays its obligation under the note. The Security Agreement
contains three more identical tranches for a total agreement of $6 million. Each
new tranche can be started at any time by GGI during the debenture period which
is defined as between December 19, 2007 until the balance of the existing
debentures is $250,000 or less. Either party can, with a total penalty payment
of $45,000 for the Company, and $100,000 for GGI, cancel any or all of the three
pending tranches.
The
debenture is convertible to common shares at a conversion rate of eighty percent
of the average of the three lowest volume weighted average prices for the
previous 20 trading days. The Company is not obligated to convert the amount
requested to be converted into Company common stock, if the conversion price is
less than $0.20 per share. GGI’s ownership in the company can not exceed 4.99%
of the outstanding common stock. Under certain circumstances the Company may be
forced to pre pay the debenture with a fifty percent penalty of the pre-paid
amount.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
The
Company recorded a debt discount of $186,619 with a credit to additional paid in
capital for the intrinsic value of the beneficial conversion feature of the
conversion option at the time of issuance. The debt discount is being amortized
over the term of the debenture. The Company recorded $11,664 as interest expense
amortizing the debt discount during the first quarter of 2008. The Company
considered SFAS 133 and EITF 00-19 and concluded that the conversion option
should not be bifurcated from the host contract according to SFAS 133 paragraph
11 a, and concluded that according to EITF 00-19 the conversion option is
recorded as equity and not a liability. The outstanding liability, net of debt
discount, as of March 31, 2008 and December 31, 2007 was $1,326,578 and
$1,314,914, respectively.
|
15.
|
STOCK-BASED
COMPENSATION
|
The
Company adopted an Incentive Stock Plan on January 19, 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. Until 2017, options to acquire up to 16.0
million 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 has issued approximately 10.8 million options to purchase shares at an
average price of $0.06 with a fair value of $359,000. For the three months ended
March 31, 2008, the Company recognized $21,396 of non-cash compensation income
(included in Selling, General and Administrative expense in the accompanying
Unaudited Condensed Consolidated Statement of Operations). The company had
income due to reversal of previous expense for options that never vested. As of
March 31, 2008, the Company had approximately $243,000 of unrecognized pre-tax
non-cash compensation expense which the Company expects to recognize, based on a
weighted-average period of 1.3 years. The Company used the Black-Scholes
option-pricing model and 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 2.7 million shares that have vested, and 16,671 shares
were exercised as of March 31, 2008. The following is a summary of the
assumptions used:
|
Risk-free interest rate
|
3.2%
- 4.8%
|
|
|
Expected dividend yield
|
—
|
|
|
Expected
term
|
3 –
5 years
|
|
|
Expected
annual volatility
|
73% - 82%
|
Elite
granted on January 19, 2007, prior to the merger with Celsius Holdings, Inc,
equivalent to 1,337,246 shares of common stock in the Company, to its Chief
Financial Officer as starting bonus for accepting employment with the Company.
The Company valued the grant of stock based on fair value of the shares, which
was estimated as the value of shares in the most recent transaction of the
Company’s shares. The Company recognized the expense upon issuance of the
grant.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
In
March, 2008, the Company issued a total of 750,000 shares as compensation to an
international distributor at a fair value of $120,000. The same agreement can
give the distributor additional 750,000 shares if certain sales targets are met,
or if the stock price of the Company is 45 cents or greater for a period of 5
trading days, whichever occurs first.
|
16.
|
RELATED
PARTY TRANSACTIONS
|
The
Company received advances from one of its stockholders at various instances
during 2004 and 2005, $76,000 and $424,000, respectively. The total amount
outstanding, including accrued interest, as of March 31, 2008 and December 31,
2007 was $678,031 and $669,111, respectively. The loan, which is not documented
and has no repayment date, accrues interest with a rate varying with the prime
rate. No interest has been paid to the stockholder.
The CEO
lent the Company $50,000 in February 2006. This loan is not documented, accrues
7 percent interest, has no repayment date and the outstanding amount as of March
31, 2008 and December 31, 2007 was $57,494 and $56,610, respectively. In
addition, the Company has accrued for unpaid salary due to the CEO, as of March
31, 2008 and December 31, 2007 the accrued salary was $171,000. The Company
started to pay the CEO his full salary from June 1, 2007.
The CEO
has guaranteed the Company’s obligations under the factoring agreement with
Bibby Financial Services, Inc. (“Bibby”), the outstanding balance to Bibby as of
March 31, 2008 and December 31, 2007 was $232,772 and $102,540,
respectively. The CEO has also guaranteed the financing for the Company’s
offices and a purchase of a vehicle. The CEO has not received any compensation
for the guarantees.
The COO
of the Company lent the Company $50,000 in February 2008, the loan was repaid in
March 2008. The COO also purchased in February 2008, 781,250 shares in a private
placement for a total consideration of $75,000.
The CFO
of the Company lent the Company $25,000 in February 2008, the loan was repaid in
February 2008. The CFO also purchased in February 2008, 245,098 shares in a
private placement for a total consideration of $25,000.
The VP of
Strategic Accounts and Business Development purchased in February 2008, 245,098
in a private placement for a total consideration of $25,000.
|
17.
|
STOCKHOLDERS’
DEFICIT
|
Issuance
of common stock pursuant to conversion of note
In
January 2008 the Company restructured the then outstanding balance of the note
and issued 1 million shares for an equivalent value of $121,555, and a new
non-interest bearing note for $105,000. The note calls for 7 monthly
principal payments from March 1, 2008. The outstanding balance as of March 31,
2008 was $90,000.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(Continued)
Issuance
of common stock pursuant to services performed
In March
2008, the Company issued a total of 750,000 shares as compensation to an
international distributor at a fair value of $120,000.
Issuance
of common stock pursuant to exercise of stock options
On
February 15, 2008 the Company issued 16,671 shares of unregistered common stock
in accordance to its 2006 Stock Incentive Plan to an employee exercising vested
options.
Issuance
of common stock pursuant to private placements
In
February, 2008 the Company issued a total of 3,198,529 unregistered shares of
common stock in private placements for an aggregate consideration of $298,900,
net of commissions.
In March,
2008 the Company issued a total of ten million unregistered shares of common
stock in a private placement, for an aggregate consideration of $500,100. In
addition, the investor received a warrant to purchase seven million unregistered
shares of common stock during a 3-year period, at an exercise price of $0.13 per
share. Of the total consideration $100,000 was paid in March and $400,100 was
paid on April 7, 2008.
|
18.
|
SUBSEQUENT
EVENTS
|
On April
4, 2008, the Company reached an agreement to receive additional financing of
$500,000 and to refinance the existing note of $250,000 due to CD Financial,
LLC. The agreement is documented in an eight percent convertible
note. The note can be converted into Company common stock until July
10, 2008 at a rate equal to seventy five percent of the average of the previous
five days volume weighted average price for trading of the common. If the note
is not converted by July 10, 2008, it is due in 10 quarterly payments starting
on December 10, 2008. Interest is payable on July 10, 2008 and monthly
thereafter.
On April
7, 2008, the Company received from the investor the total outstanding
subscription receivable of $400,100.
The
Company issued in April, 2008 options to purchase 2.7 million shares of common
stock to its employees and consultants.
OVERVIEW
Current
Business of our Company
We operate in United
States through our wholly-owned subsidiaries, Celsius Inc., which acquired the
operating business of Elite FX, Inc. (“Elite”) through a reverse merger on
January 26, 2007, and Celsius Netshipments, Inc. Celsius, Inc. is in
the business of developing and marketing healthier functional beverages in the
functional beverage category of the beverage industry. Celsius was
Elite’s first commercially available product. Celsius is a calorie burning soda.
Celsius is currently available in five flavors, cola, ginger ale, lemon/lime,
orange and wild berry. Celsius Netshipments, Inc., incorporated in
Florida on March 29, 2007, distributes the Celsius beverage via the internet.
Our focus is on increasing sales of our existing products.
We are
using Celsius as a means to attract and sign up direct-store-delivery (“DSD”)
distributors across the US. DSD distributors are wholesalers/distributors that
purchase product, store it in their warehouse and then using their own trucks
sell and deliver the product direct to retailers and their store shelves or
cooler doors. During this process they make sure that the product is properly
placed on the shelves, the invoicing and collection process is managed and local
personnel are trained. Most retailers prefer this method to get beverages to
their stores. There are some retailers that prefer a different method called
direct-to-retailer (“DTR”). In this scenario, the retailer is buying direct from
the brand manufacturer and the product is delivered to the retailer’s
warehousing system. The retailer is then responsible to properly stock the
product and get it to the shelves. Our strategy is to cover the country with a
network of DSD distributors. This allows us to sell to retailer chains that
prefer this method and whose store locations span across distributor boundaries.
We believe that a strong DSD network gives us a path to get to the smaller
independent retailers who are too small to have their own warehousing and
distribution systems and thus can only get their beverages from distributors.
Our strategy of building a DSD network will not prohibit us from going DTR when
a retailer request or requires it.
We have
currently signed up distributors in many of the larger markets in the US
(Chicago, Detroit, Boston, Tampa, South East Florida, Los Angeles, etc). We
expect that it will take at least until the end of 2008 before we have most of
the United States covered.
Our
experience has shown that it takes about two to three months to bring on a
distributor. From initial interest to actual purchase order and kick off or the
launch in that area, the steps include a physical meeting or two to explain the
brand, target markets and our marketing plans. As we add sales reps we are able
to do more of these activities at a time and speed up the process.
Our
principal executive offices are located at 140 NE 4th Avenue, Delray Beach, FL
33483. Our telephone number is (561) 276-2239 and our website is http://www.celsius.com. The
information contained on our web sites do not constitute part of, nor is it
incorporated by reference into this Report on Form 10-Q.
Industry
Overview
The
functional beverage market includes a wide variety of beverages with one or more
added ingredients to satisfy a physical or functional
need. This category includes the five fastest-growing segments
of the functional beverage market: herb-enhanced fruit drinks, ready-to-drink
(RTD) teas, sports drinks, energy drinks, and single-serve (SS) fresh
juice.
Our
Products
In 2005,
Elite introduced Celsius to the beverage marketplace and it is our first
product. Two clinical studies have shown that a single 12 ounce serving raises
metabolism over a 3 to 4 hour period. Quantitatively, the energy expenditure was
on average over 100 calories from a single serving.
It is our
belief that clinical studies proving product claims will become more important
as more and more beverages are marketed with functional claims. Celsius was one
of the first beverages to be launched along with a clinical study. Celsius is
also one of very few that has clinical research on the actual product. Some
beverage companies that do mention studies backing their claims are actually
referencing independent studies conducted on one or more of the ingredients in
the product. We believe that it is important and will become more important to
have studies on the actual product.
Two
different research organizations have statistically proven the Celsius calorie
burning capability in two clinical studies. This product line, which
is referred to as our “core brand”, competes in the “functional beverage”
segment of the beverage marketplace with distinctive flavors and
packaging. A functional beverage is a beverage containing one or more
added ingredients intended to satisfy a physical or functional need, which often
carries a unique and sophisticated imagery and a premium price tag. This segment
includes herb-enhanced fruit drinks, ready-to-drink (RTD) teas, sports drinks,
energy drinks, and single-serve (SS) fresh juice. By raising metabolism for the
extended period of three to four hours, Celsius provides a negative calorie
effect (burn more than you consume) as well as energy.
We
currently offer five flavors: cola, ginger ale, lemon/lime, orange and wild
berry. We have developed and own the formula for this product including the
flavoring. The formulation and flavors for these products are produced under
contract by concentrate suppliers.
Celsius
is currently packaged in distinctive (12 fl oz) glass bottles with full-body
shrink-wrapped labels that are in vivid colors in abstract patterns and cover
the entire bottle to create a strong on-shelf impact. In April 2007,
we introduced Celsius in twelve ounce cans. The cans are sold in single units or
in packages of four. The graphics and clinically tested product are important
elements to Celsius and help justify the premium pricing of $1.99 per
bottle/can.
Clinical
Studies
We have
funded two U.S. based clinical studies for Celsius. Each conducted by research
organizations and each studied the total Celsius formula. The first study was
conducted by the Ohio Research Group of Exercise Science and Sports Nutrition.
The second study was conducted by the Applied Biochemistry & Molecular
Physiology Laboratory of the University of Oklahoma. We entered into a contract
with the University of Oklahoma to pay for part of the cost of the clinical
study. In addition, we provided Celsius beverage for the studies and paid for
the placebo beverage used in the studies. None of our officers or directors are
in any way affiliated with either of the two research
organizations.
The first
study was conducted by the Ohio Research Group of Exercise Science and Sports
Nutrition. The Ohio Research Group of Exercise Science & Sports Nutrition is
a multidisciplinary clinical research team dedicated to exploring the
relationship between exercise, nutrition, dietary supplements and health, www.ohioresearchgroup.com.
This placebo-controlled, double-blind cross-over study compared the effects of
Celsius and the placebo on metabolic rate. Twenty-two participants were randomly
assigned to ingest a twelve ounce serving of Celsius and on a separate day a
serving of twelve ounces of Diet Coke®. All
subjects completed both trials using a randomized, counterbalanced design.
Randomized means that subjects were selected for each group randomly to ensure
that the different treatments were statistically equivalent. Counterbalancing
means that individuals in one group drank the placebo on the first day and drank
Celsius on the second day. The other group did the opposite. Counterbalancing is
a design method that is used to control ‘order effects’. In other words, to make
sure the order that subjects were served does not impact the results and
analysis.
Metabolic
rate (via indirect calorimetry, measurements taken from breaths into and out of
calorimeter) and substrate oxidation (via respiratory exchange ratios) were
measured at baseline (pre-ingestion) and for 10 minutes at the end of each hour
for 3 hours post-ingestion. The results showed an average increase of metabolism
of twelve percent over the three hour period, compared to statistically
insignificant change for the control group. Metabolic
rate, or metabolism, is the rate at which the body expends energy. This is also
referred to as the “caloric burn rate”. Indirect calorimetry calculates heat
that living organisms produce from their production of carbon dioxide. It is
called “indirect” because the caloric burn rate is calculated from a measurement
of oxygen uptake. Direct calorimetry would involve the subject being placed
inside the calorimeter for the measurement to determine the heat being produced.
Respiratory Exchange Ratio is the ratio oxygen taken in a breath compared to the
carbon dioxide breathed out in one breath or exchange. Measuring this ratio can
be used for estimating which substrate (fuel such as carbohydrate or fat) is
being metabolized or ‘oxidized’ to supply the body with energy.
The
second study was conducted by the Applied Biochemistry & Molecular
Physiology Laboratory of University of Oklahoma. This blinded,
placebo-controlled study was conducted on a total of sixty men and women of
normal weight. An equal number of participants were separated into two groups to
compare one serving (12oz) of Celsius to a placebo of the same amount. According
to the study, those subjects consuming Celsius burned significantly more
calories versus those consuming the placebo, over a three hour period. The study
confirmed that over the three hour period, subjects consuming a single serving
of Celsius burned sixty-five percent more calories than those consuming the
placebo beverage and burned an average of more than one hundred calories
compared to placebo. These results were statistically significant. While the
University of Oklahoma study did extend for 28 days, more testing would be
needed for long term analysis of the Celsius calorie burning effects. Also,
these studies were on relatively small numbers of subjects, (20 and 60
respectively) and additional studies on a larger number and wider range of body
compositions can be considered to further the analysis.
The
following discussion should be read in conjunction with the accompanying
unaudited condensed consolidated financial statements, as well as the financial
statements and related notes included in our December 31, 2007 Form 10-KSB.
Dollar amounts of $1.0 million or more are rounded to the nearest one tenth of a
million; all other dollar amounts are rounded to the nearest one thousand
dollars and all percentages are stated to the nearest one tenth of one
percent.
Forward-Looking
Statements
The
Private Securities Litigation Reform Act of 1995 (the “Reform Act”) provides a
safe harbor for forward-looking statements made by us or on our behalf. We and
our representatives may, from time to time, make written or verbal
forward-looking statements, including statements contained in our filings with
the Securities and Exchange Commission (“SEC”) and in our reports to
stockholders. Generally, the inclusion of the words “believe,” “expect,”
“intend,” “estimate,” “anticipate,” “will,” and similar expressions identify
statements that constitute “forward-looking statements” within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the
Securities Exchange Act of 1934 (the “Exchange Act”) and that are intended to
come within the safe harbor protection provided by those sections. All
statements addressing operating performance, events, or developments that we
expect or anticipate will occur in the future, including statements relating to
sales growth, earnings or earnings per share growth, and market share, as well
as statements expressing optimism or pessimism about future operating results,
are forward-looking statements within the meaning of the Reform
Act.
The
forward-looking statements are and will be based upon our management’s
then-current views and assumptions regarding future events and operating
performance, and are applicable only as of the dates of such statements. We
undertake no obligation to update or revise any forward-looking statements,
whether as a result of new information, future events, or
otherwise.
By their
nature, all forward-looking statements involve risks and uncertainties. Actual
results, including our revenues from our electronic security services and
construction and materials operations, expenses, gross margins, cash flows,
financial condition, and net income, as well as factors such as our competitive
position, inventory levels, backlog, the demand for our products and services,
customer base and the liquidity and needs of customers, may differ materially
from those contemplated by the forward-looking statements or those currently
being experienced by our Company for a number of reasons and the
following:
We
have a limited operating history with significant losses and expect losses to
continue for the foreseeable future
The
Company was incorporated in the State of Nevada on April 26, 2005 under the name
“Vector Ventures Corp.” The Company changed its name to “Celsius Holdings, Inc.”
on December 26, 2006. We are a holding company and carry on no operating
business except through our direct wholly-owned subsidiaries, Celsius, Inc. and
Celsius Netshipments, Inc. Celsius, Inc. was incorporated in Nevada on January
18, 2007, and merged with Elite on January 26, 2007, which was incorporated in
Florida on April 22, 2004. Celsius Netshipments, Inc. was incorporated in
Florida on March 29, 2007.
It is
difficult to evaluate our business future and prospects as we are a young
company with a limited operating history. At this stage of our business
operations, even with our good faith efforts, potential investors have a high
probability of losing their investment. Our future operating results will depend
on many factors, including the ability to generate sustained and increased
demand and acceptance of our products, the level of our competition, and our
ability to attract and maintain key management and employees.
We have
yet to establish any history of profitable operations. We have
incurred annual operating losses of $3.7 million, $1.5 million and $853,000,
respectively, during the past three fiscal years of
operation.
We have
incurred an operating loss during the first three months ending March 31, 2008
of $1.2 million. As a result, at March 31, 2008 we had an accumulated deficit of
$7.3 million. Our revenues have not been sufficient to sustain our
operations. We expect that our revenues will not be sufficient to
sustain our operations for the foreseeable future. Our profitability
will require the successful commercialization of our current product
Celsius® and any
future products we develop. No assurances can be given when this will
occur or that we will ever be profitable.
We
will require additional financing to sustain our operations and without it we
may not be able to continue operations
At March
31, 2008, we had a working capital deficit of $1.8 million. The independent
auditor’s report for the year ended December 31, 2007, includes an explanatory
paragraph to their audit opinion stating that our recurring losses from
operations and working capital deficiency raise substantial doubt about our
ability to continue as a going concern. We have an operating cash
flow deficit of $608,000 for the three months period ending March 31, 2008 and
an operating cash flow deficit of $2.6 million and $1.2 million, for the twelve
month periods ended December 31, 2007 and 2006, respectively. We do
not currently have sufficient financial resources to fund our operations or
those of our subsidiaries. Therefore, we need additional funds to
continue these operations.
We only
have the right to receive funds from the sale of Common Stock to Fusion Capital
under the Purchase Agreement by and between the Company and Fusion Capital if
our stock price equals or exceeds $0.45.
We have
the right to receive funds from Golden Gate Investors, LLC, from June 2008 up to
$250,000 monthly, for six months, as long as the Common Stock that we exchange
for the outstanding debenture is freely tradable according to Rule 144 and as
long as no new rules prohibits the tradability of the Common Stock issued to
Golden Gate Investors, LLC.
The
sale of our Common Stock to Fusion Capital, Golden Gate Investors, LLC and CD
Financial, LLC may cause dilution and the sale of the shares of Common Stock
acquired by Fusion Capital, Golden Gate Investors, LLC and CD Financial, LLC
could cause the price of our Common Stock to decline.
In
connection with entering into a common stock purchase agreement (the “Purchase
Agreement”) with Fusion Capital Fund II, LLC (“Fusion Capital”), we authorized
the sale to Fusion Capital of up to 13,193,305 shares of our Common
Stock. The number of shares ultimately offered for sale by Fusion
Capital is dependent upon the number of shares purchased by Fusion Capital under
the Purchase Agreement. The purchase price for the Common Stock to be sold to
Fusion Capital pursuant to the Purchase Agreement will fluctuate based on the
price of our Common Stock. All 13,193,305 shares registered will be freely
tradable. It is anticipated that these shares will be sold over a
period of up to twenty-five months until November 16, 2009. Depending
upon market liquidity at the time, a sale of shares under this offering at any
given time could cause the trading price of our Common Stock to
decline. Fusion Capital may ultimately purchase all, some or none of
the 10,000,000 shares of Common Stock not yet issued but registered in this
offering. After it has acquired such shares, it may sell all, some or
none of such shares. Therefore, sales to Fusion Capital by us under
the Purchase Agreement may result in substantial dilution to the interests of
other holders of our Common Stock. The sale of a substantial number of shares of
our Common Stock under this offering, or anticipation of such sales, could make
it more difficult for us to sell equity or equity-related securities in the
future at a time and at a price that we might otherwise wish to effect
sales. However, we have the right to control the timing and amount of
any sales of our shares to Fusion Capital and the Purchase Agreement may be
terminated by us at any time at our discretion without any cost to
us.
In
connection with issuing a convertible debenture to Golden Gate Investors, LLC,
we are not obligated to convert the debenture, if the price of our shares is
below $0.20. However, in order to receive further financing we would at recent
share price issue to Golden Gate Investors, LLC approximately 2 million shares
monthly, from June 2008 through November 2008.
In
connection with issuing a convertible note to CD Financial, LLC. After the
quarter end we received additional financing from CD Financial, LLC and the
total note outstanding is $750,000. This note can be converted into
approximately 8 to 9 million shares at recent share price
We
have not achieved profitability on an annual basis and expect to continue to
incur net losses in future quarters, which could force us to discontinue
operations.
We
recorded a net loss of $1.5 million and $3.7 million for the years ended
December 31, 2006, and 2007, respectively, and a loss of $1.2 million for the
three months ended March 31, 2008. We had an accumulated deficit of $7.3 million
as of March 31, 2008. We could incur net losses for the foreseeable future as we
expand our business. We will need to generate additional revenue from the sales
of our products or take steps to reduce operating costs to achieve and maintain
profitability. Even if we are able to increase revenue, we may experience price
competition that will lower our gross margins and our profitability. If we do
achieve profitability, we cannot be certain that we can sustain or increase
profitability on a quarterly or annual basis and we could be forced to
discontinue our operations.
We depend upon our trademarks and
proprietary rights, and any failure to protect our intellectual property rights
or any claims that we are infringing upon the rights of others may adversely
affect our competitive position.
Our
success depends, in large part, on our ability to protect our current and future
brands and products and to defend our intellectual property rights. We cannot be
sure that trademarks will be issued with respect to any future trademark
applications or that our competitors will not challenge, invalidate or
circumvent any existing or future trademarks issued to, or licensed by, us. We
believe that our competitors, many of whom are more established, and have
greater financial and personnel resources than we do, may be able to replicate
our processes, brands, flavors, or unique market segment products in a manner
that could circumvent our protective safeguards. Therefore, we cannot give you
any assurance that our confidential business information will remain
proprietary.
We rely predominately on wholesale
distributors for the success of our business, the loss or poor performance of
which may materially and adversely affect our business.
We sell
our products principally to wholesalers for resale to retail outlets including
grocery stores, convenience stores, nutritional and drug stores. The replacement
or poor performance of the Company's major wholesalers and or the Company's
inability to collect accounts receivable from the Company's major wholesalers
could materially and adversely affect the Company's results of operations and
financial condition. Distribution channels for beverage products have been
characterized in recent years by rapid change, including consolidations of
certain wholesalers. In addition, wholesalers and retailers of the Company's
products offer products which compete directly with the Company's products for
retail shelf space and consumer purchases. Accordingly, there is a risk that
these wholesalers or retailers may give higher priority to products of the
Company's competitors. In the future, the Company's wholesalers and retailers
may not continue to purchase the Company's products or provide the Company's
products with adequate levels of promotional support.
We may incur material losses as a
result of product recall and product liability.
We
may be liable if the consumption of any of our products causes injury, illness
or death. We also may be required to recall some of our products if they become
contaminated or are damaged or mislabeled. A significant product liability
judgment against us, or a widespread product recall, could have a material
adverse effect on our business, financial condition and results of operations.
The government may adopt regulations that could increase our costs or our
liabilities. The amount of the insurance we carry is limited, and that insurance
is subject to certain exclusions and may or may not be adequate.
We
may not be able to develop successful new products, which could impede our
growth and cause us to sustain future losses
Part of
our strategy is to increase our sales through the development of new products.
We cannot assure you that we will be able to develop, market, and distribute
future products that will enjoy market acceptance. The failure to develop new
products that gain market acceptance could have an adverse impact on our growth
and materially adversely affect our financial condition.
Our lack of product diversification
and inability to timely introduce new or alternative products could cause us to
cease operations.
Our
business is centered on healthier functional beverages. The risks associated
with focusing on a limited product line are substantial. If consumers do not
accept our products or if there is a general decline in market demand for, or
any significant decrease in, the consumption of nutritional beverages, we are
not financially or operationally capable of introducing alternative products
within a short time frame. As a result, such lack of acceptance or market demand
decline could cause us to cease operations.
Our directors and executive officers
beneficially own a substantial amount of our Common Stock, and therefore other
stockholders will not be able to direct our Company.
The
majority of our shares and the voting control of the Company is held by a
relatively small group of stockholders, who are also our directors and executive
officers. Accordingly, these persons, as a group, will be able to exert
significant influence over the direction of our affairs and business, including
any determination with respect to our acquisition or disposition of assets,
future issuances of Common Stock or other securities, and the election or
removal of directors. Such a concentration of ownership may also have the effect
of delaying, deferring, or preventing a change in control of the Company or
cause the market price of our stock to decline. Notwithstanding the exercise of
the fiduciary duties of these directors and executive officers and any duties
that such other stockholder may have to us or our other stockholders in general,
these persons may have interests different than yours.
We are dependent on our key
executives, the loss of which may have a material adverse effect on our
Company.
Our
future success will depend substantially upon the abilities of, and personal
relationships developed by, Stephen C. Haley, our Chief Executive Officer,
Chairman of the Board and majority stockholder, Richard McGee our Chief
Operating Officer and Jan Norelid our Chief Financial Officer. The loss of
Messrs. Haley, McGee and Norelid’s services could materially adversely affect
our business and our prospects for the future. We do not have key person
insurance on the lives of such individuals. Our future success also depends on
our continuing ability to attract and retain highly qualified technical and
managerial personnel. Competition for such personnel in the functional beverage
industry is intense and we may not be able to retain our key managerial and
technical employees or that it will be able to attract and retain additional
highly qualified technical and managerial personnel in the future. The inability
to attract and retain the necessary technical and managerial personnel could
have a material and adverse affect upon our business, results of operations and
financial condition
Our Common Stock is deemed a
low-priced "Penny" stock, therefore an investment in our Common Stock should be
considered high risk and subject to marketability
restrictions.
Since our
Common Stock is a penny stock, as defined in Rule 3a51-1 under the Exchange Act,
it will be more difficult for investors to liquidate their investment. Until the
trading price of the Common Stock rises above $5.00 per share, if ever, trading
in our Common Stock is subject to the penny stock rules of the Exchange Act
specified in rules 15g-1 through 15g-10. Those rules require broker-dealers,
before effecting transactions in any penny stock, to:
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Deliver
to the customer, and obtain a written receipt for, a disclosure
document;
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Disclose
certain price information about the
stock;
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Disclose
the amount of compensation received by the broker-dealer or any associated
person of the broker-dealer;
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Send
monthly statements to customers with market and price information about
the penny stock; and,
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In
some circumstances, approve the purchaser's account under certain
standards and deliver written statements to the customer with information
specified in the rules
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Consequently,
the penny stock rules may restrict the ability or willingness of broker-dealers
to sell our Common Stock and may affect the ability of holders to sell their
Common Stock in the secondary market and the price at which such holders can
sell any such securities. These additional procedures could also limit our
ability to raise additional capital in the future.
The
foregoing list is not exhaustive. There can be no assurance that we have
correctly identified and appropriately assessed all factors affecting our
business or that the publicly available and other information with respect to
these matters is complete and correct. Additional risks and uncertainties not
presently known to us or that we currently believe to be immaterial also may
adversely impact us. Should any risks and uncertainties develop into actual
events, these developments could have material adverse effects on our business,
financial condition and results of operations. For these reasons, the reader is
cautioned not to place undue reliance on our forward-looking
statements.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations is
based upon our unaudited consolidated financial statements, which have been
prepared in accordance with Generally Accepted Accounting Principles (GAAP). The
preparation of these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets, liabilities, revenues and
expenses, and related disclosure of contingent assets and liabilities. On an
on-going basis, we evaluate our estimates including, among others, those
affecting revenues, the allowance for doubtful accounts, the salability of
inventory and the useful lives of tangible and intangible assets. We base our
estimates on historical experience and on various other assumptions that we
believe to be reasonable under the circumstances, the results of which form our
basis for making judgments about the carrying values of assets and liabilities
that are not readily apparent from other sources. Actual results may differ from
these estimates under different assumptions or conditions, or if management made
different judgments or utilized different estimates. Many of our estimates or
judgments are based on anticipated future events or performance, and as such are
forward-looking in nature, and are subject to many risks and uncertainties,
including those discussed below and elsewhere in this report. We do not
undertake any obligation to update or revise this discussion to reflect any
future events or circumstances.
Although
our significant accounting policies are described in Note 1 of the notes to our
unaudited consolidated financial statement, the following discussion is intended
to describe those accounting policies and estimates most critical to the
preparation of our consolidated financial statements. For a detailed discussion
on the application of these and our other accounting policies, see Note 1
contained in Part II, Item 7 to the Consolidated Financial Statements for the
year ended December 31, 2007, included in Form 10-KSB.
Accounts Receivable – We
evaluate the collectibility of its trade accounts receivable based on a number
of factors. In circumstances where we become aware of a specific customer’s
inability to meet its financial obligations, a specific reserve for bad debts is
estimated and recorded, which reduces the recognized receivable to the estimated
amount we believe will ultimately be collected. In addition to specific
customer identification of potential bad debts, bad debt charges are recorded
based on our recent past loss history and an overall assessment of past due
trade accounts receivable outstanding.
Revenue Recognition – Our
products are sold to distributors, wholesalers and retailers for cash or on
credit terms. Our credit terms, which are established in accordance with local
and industry practices, typically require payment within 30 days of delivery. We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the sales price is fixed or determinable and collectibility is
reasonably assured.
All sales to distributors and retailers are final sales and we have a “no
return” policy; however, in limited instances, due to credit issues or
distributor changes, we may take back product. We believe that adequate
provision has been made for cash discounts, returns and spoilage based on the
Company’s historical experience.
Inventory – We hold raw
materials and finished goods inventories, which are manufactured and procured
based on our sales forecasts. We value inventory at the lower of cost and
estimated net realizable value and include adjustments for estimated
obsolescence, principally on a first in-first out basis. These valuations are
subject to customer acceptance and demand for the particular products, and our
estimates of future realizable values are based on these forecasted demands.
We
regularly review inventory detail to determine whether a write-down is
necessary. We consider various factors in making this determination, including
recent sales history and predicted trends, industry market conditions and
general economic conditions. Differences could result in the amount and timing
of write-downs for any period if we make different judgments or use different
estimates.
Intangibles – Intangibles are
comprised primarily of trademarks that represent our exclusive ownership of the
Celsius®
trademark in connection with the manufacture, sale and distribution of
supplements and beverages. The Company also owns, or is in process of
registering, some other trademarks in the United States, as well as in a number
of countries around the world.
In
accordance with SFAS No. 142, we evaluate our trademarks annually for impairment
or earlier if there is an indication of impairment. If there is an
indication of impairment of identified intangible assets not subject to
amortization, management compares the estimated fair value with the carrying
amount of the asset. An impairment loss is recognized to write down the
intangible asset to its fair value if it is less than the carrying amount.
The fair value is calculated using the income approach. However,
preparation of estimated expected future cash flows is inherently subjective and
is based on management’s best estimate of assumptions concerning expected future
conditions. Based on management’s impairment analysis performed for the
year ended December 31, 2007, the estimated fair values of trademarks exceeded
the carrying value.
In
estimating future revenues, we use internal budgets. Internal budgets are
developed based on recent revenue data and future marketing plans for existing
product lines and planned timing of future introductions of new products and
their impact on our future cash flows.
Stock-Based Compensation –We
use the Black-Scholes-Merton option pricing formula to estimate the fair value
of stock options at the date of grant. The Black-Scholes-Merton option pricing
formula was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. The Company’s
employee stock options, however, have characteristics significantly different
from those of traded options. For example, employee stock options are generally
subject to vesting restrictions and are generally not transferable. In addition,
option valuation models require the input of highly subjective assumptions,
including the expected stock price volatility, the expected life of an option
and the number of awards ultimately expected to vest. Changes in subjective
input assumptions can materially affect the fair value estimates of an option.
Furthermore, the estimated fair value of an option does not necessarily
represent the value that will ultimately be realized by an employee. The Company
uses historical data of comparable companies to estimate the expected price
volatility, the expected option life and the expected forfeiture rate. The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time
of grant for the estimated life of the option. If actual results are not
consistent with the Company’s assumptions and judgments used in estimating the
key assumptions, the Company may be required to increase or decrease
compensation expense or income tax expense, which could be material to its
results of operations.
RESULTS
OF OPERATIONS
THREE
MONTHS ENDED MARCH 31, 2008 COMPARED TO THREE MONTHS ENDED MARCH 31,
2007
Revenue
Sales for
the three months ended March 31, 2008 and 2007 were $533,000 and $241,000,
respectively. The increase of 121.7 percent was mainly due to increased sales
both to new distributors and for re-orders from established distributors. We
sold $164,000 to new distributors servicing Walgreens in Florida, Ohio, Michigan
and Georgia, where we have received regional authorizations.
Gross
profit
Gross
Profit was 44.0 percent in the first quarter 2008 as compared to 27.2 percent
for the same period in 2007. The increase in gross profit was mainly due to a
product mix change from bottles to a majority of cans being shipped, and to
improved production efficiencies.
Operating
Expenses
Sales and
marketing expenses has increased substantially from one year to the next,
$848,000 in 2008 as compared to $345,000 for the same three month period in
2007, or an increase of $503,000. Employee cost increased by $191,000, local
advertising and sampling by $109,000, other marketing expense by $108,000 and
sales and marketing travel expense by $62,000. The general and administrative
expenses increased from $310,000 for the first three months of 2007 to $465,000
for the same period in 2008, an increase of $155,000. This was mainly due to
cost for issuance of shares to an international distributor, $120,000, costs for
a clinical study of $110,000 partially offset by reduction of cost of options,
$28,000, and insurance, $59,000.
We
recognized an expense for termination of a consulting agreement in the first
quarter of 2007 of $500,000. Coinciding with the reverse merger, the Company
issued 1.4 million shares, valued at $250,000 and an interest-free note for
$250,000 as consideration for termination of a consulting agreement and
assignment of the Celsius trademarks.
Other
expense
The
interest expense increased $43,000 to $74,000, during the quarter due to
increased liabilities, as compared to the same quarter in 2007. This increase
was partially offset by interest income of $26,000 in the first quarter of 2008.
We also incurred expense for amortization of debt discount of $55,000 in 2008.
Neither interest income nor amortization of debt discount existed in
2007.
LIQUIDITY
AND CAPITAL RESOURCES
We have
yet to establish any history of profitable operations. We have incurred annual
operating losses of $3.7 million, $1.5 million and $853,000, respectively,
during the past three years of operation, 2007, 2006 and 2005, respectively, and
a loss during the first quarter of 2008 of $1.2 million. As a result, at March
31, 2008, we had an accumulated deficit of $7.3 million. At March 31, 2008, we
had a working capital deficit of $1.8 million. The independent auditor’s report
for the year ended December 31, 2007, includes an explanatory paragraph to their
audit opinion stating that our recurring losses from operations and working
capital deficiency raise substantial doubt about our ability to continue as a
going concern. We have an operating cash flow deficit of $2.6, $1.2 million and
$813,000, for last three years, respectively. Our revenue has not been
sufficient to sustain our operations. We expect that our revenue will not be
sufficient to sustain our operations for the foreseeable future. Our
profitability will require the successful commercialization of our current
product Celsius® and any
future products we develop. No assurances can be given when this will occur or
that we will ever be profitable.
On April
7, 2008, we received the total outstanding subscription receivable of $400,100
from the investor.
We fund
part of our working capital from two lines of credit. One line of credit with a
factoring company was renewed in January 2008 and is for $500,000. The line of
credit lets us borrow 80% of eligible receivables. The factoring flat fee is
1.5% of the invoice amount; in addition we incur an interest charge of prime
rate plus three percent on the average outstanding balance. The outstanding
balance as of March 31, 2008 was $233,000.
We
renewed a second line of credit on February 28, 2008 for inventory financing.
The line of credit is also for $500,000 and lets us borrow up to 50% of our cost
of eligible finished goods. The line of credit carries an interest charge of
1.5% per month of the outstanding balance and a monitoring fee of 0.5% of the
previous month’s average outstanding balance. The outstanding balance as of
March 31, 2008 was $238,000.
In April
2007, the Company received $250,000 in bridge financing from Brennecke Partners
LLC. The note was restructured in January 2008. The remaining balance of the
original note was exchanged for one million shares of the Company’s common stock
valued at $121,555 and a new note for $105,000. The new note had 7 monthly
principal payments of $15,000 starting March 1, 2008. The note does not carry
interest. The outstanding balance on the note as of March 31, 2008 was
$90,000.
We
borrowed in 2004 and 2005 a total of $500,000 from one of our stockholders with
interest of a rate variable with the prime rate. There is no repayment date or
any plan in place to repay the loan. The outstanding balance as of March 31,
2008 was $678,000.
We
borrowed $50,000 from the CEO of the Company in February 2006. The loan carries
interest of seven percent. There is no repayment date or any plan in place to
repay the loan. The outstanding balance as of March 31, 2008 was $57,000. As of
March 31, 2008, we also owe the CEO $171,000 for accrued salaries from 2006 and
2007.
We
terminated a consulting agreement with a company controlled by one of our former
directors. As partial consideration we issued a note payable for $250,000. The
outstanding balance as of March 31, 2008 was $150,000.
We issued
in December 2007 a convertible note for $1.5 million and received $250,000 in
cash and a note receivable for $1.3 million; see further discussion below on our
purchase agreement with Golden Gate Investors.
We issued
in December 2007, a convertible note to CD Financial for $250,000. The note
carries 8 percent interest and was due on April 16, 2008. The note was
refinanced in April see further section of Subsequent Events.
We
received during 2007 a total of $400,000 as deposits against future orders from
an international customer. We received a purchase order from the customer, and
plan to ship products in April to offset the deposit. The current balance as of
March 31, 2008 was $391,000.
We
entered into a Stock Purchase Agreement with Fusion Capital in June 2007. During
2007, we received $1.4 million in proceeds from sales of shares to Fusion
Capital. We can sell shares for a consideration of up to $14.6 million to Fusion
Capital until October 2009, when and if the selling price of the shares to
Fusion Capital exceeds $0.45.
We will
require additional financing to sustain our operations. Management estimates
that we need to raise an additional $5.0 million in order to implement our
business plan over the next 12 months. We are able to implement an alternative
business plan with less financing, which is more in line to funds received and
financing that we have already negotiated to receive. We do not currently have
sufficient financial resources to fund our operations or those of our
subsidiaries. Therefore, we need additional funds to continue these operations.
No assurances can be given that the Company will be able to raise sufficient
financing.
OUR
PURCHASE AGREEMENT WITH GOLDEN GATE INVESTORS, INC.
On
December 19, 2007, we entered into a securities purchase agreement with Golden
Gate Investors, Inc (“GGI”). The agreement includes four tranches of $1,500,000
each. Each tranche consists of a 7.75% convertible debenture (the
“Debenture”) issued by the Company, in exchange for $250,000 in cash and a
promissory note for $1,250,000 issued by GGI which matures on February 1, 2012.
The promissory note contains a prepayment provision which requires GGI to make
prepayments of interest and principal of $250,000 monthly upon satisfaction of
certain conditions. One of the conditions to prepayment is that Company’s shares
issued pursuant to the conversion rights under Debenture must be freely tradable
under Rule 144 of the Securities Act of 1933. The Debenture can be converted at
any time with a conversion price as the lower of (i) $1.00, or (ii) 80% of the
average of the three lowest daily volume weighted average price during the 20
trading days prior to GGI’s election to convert. The Company is not required to
issue the shares unless a corresponding payment has been made on the promissory
note.
Tranches
2, 3 and 4 can be consummated at the election of GGI at any time beginning upon
the execution of the Debenture, or successive debenture, until the balance due
under the Debenture, or each successive debenture, decreases below $250,000.
Tranches 2, 3 and 4 of the agreement with Golden Gate Investors, Inc. may be
rescinded and not effectuated by either party, subject to payment of a
penalty.
The
foregoing description is qualified in their entirety by reference to the full
text of the promissory note, purchase agreement, and Debenture, a copy of each
of which was filed as Exhibit 10.2, 10.3, and 10.4, respectively to our Current
Report on Form 8-K/A as filed with the SEC on January 9, 2008 and each of which
is incorporated herein in its entirety by reference.
RELATED
PARTY TRANSACTIONS
We
received advances from one of our stockholders at various instances during 2004
and 2005, $76,000 and $424,000, respectively. The total amount outstanding,
including accrued interest, as of March 31, 2008 was $678,000. The loan has no
repayment date, accrues interest with a rate varying with the prime rate. No
interest has been paid to the stockholder.
We have
accrued the CEO’s salary from March 2006 through May 30, 2007. The
total accrued salary as of March 31, 2008 was $171,000. Since June 1, 2007 we
have paid his salary in full.
The CEO
also lent the Company $50,000 in February 2006. This loan accrues seven percent
interest, has no repayment date and the outstanding amount as of March 31, 2008
was $57,000.
The CEO
has guaranteed the Company’s obligations under the factoring agreement with
Bibby Financial Services, Inc. (“Bibby”). The outstanding balance to Bibby as of
March 31, 2008 was $233,000. The CEO has also guaranteed the financing of a
vehicle on behalf of the Company, and was previously guaranteeing the office
lease for the Company. The CEO was not compensated for issuing the
guarantees.
The COO
of the Company lent the Company $50,000 in February 2008, the loan was repaid in
March 2008. The COO also purchased in February 2008, 781,250 shares in a private
placement for a total consideration of $75,000.
The CFO
of the Company lent the Company $25,000 in February 2008, the loan was repaid in
February 2008. The CFO also purchased in February 2008, 245,098 shares in a
private placement for a total consideration of $25,000.
The VP of
Strategic Accounts and Business Development purchased in February 2008, 245,098
shares in a private placement for a total consideration of $25,000.
Related
party transactions are contracted on terms comparable to the terms of similar
transactions with unaffiliated parties.
Item
3. Controls and Procedures
Evaluation
of disclosure controls and procedures
Our Chief
Executive Officer and Chief Financial Officer (collectively the “Certifying
Officers”) maintain a system of disclosure controls and procedures that is
designed to provide reasonable assurance that information, which is required to
be disclosed, is accumulated and communicated to management timely. The
Certifying Officers have concluded that the disclosure controls and procedures
are effective at the “reasonable assurance” level. Under the supervision and
with the participation of management, as of the end of the period covered by
this report, the Certifying Officers evaluated the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) and 15d-15(e) under the Exchange Act). Furthermore, the Certifying
Officers concluded that our disclosure controls and procedures in place are
designed to ensure that information required to be disclosed by us, including
our consolidated subsidiaries, in reports that we file or submit under the
Exchange Act is (i) recorded, processed, summarized and reported on a timely
basis in accordance with applicable Commission rules and regulations; and (ii)
accumulated and communicated to our management, including our Certifying
Officers and other persons that perform similar functions, if any, to allow us
to make timely decisions regarding required disclosure in our periodic
filings.
Changes
in internal controls
We have
made no changes to our internal controls during the first quarter of 2008 that
have materially affected, or are reasonable likely to materially affect our
internal control over financial reporting. Our management does not expect that
our disclosure or internal controls will prevent all errors or fraud. A control
system, no matter how well conceived and operated, can provide only reasonable,
not absolute, assurance that the objectives of the control system are met.
Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefit of controls must be considered relative to
their costs. Because of the inherent limitations in a cost-effective control
system, misstatements due to error or fraud may occur and may not be
detected.
PART
II — OTHER INFORMATION
Item 1. Legal
Proceedings.
There are no material legal proceedings
pending against us.
On
January 22, 2008 the Company issued 1,000,000 unregistered shares of common
stock and note for $105,000 in exchange for a note and accrued interest of an
aggregate value of $225,155 to Brennecke Partners, LLC.
On
February 15, 2008 the Company issued 16,671 unregistered shares of common stock
in accordance to its 2006 Stock Incentive Plan to an employee exercising vested
options.
In
February, 2008 the Company issued a total of 3,198,529 unregistered shares of
common stock in private placements for an aggregate consideration of $298,900,
net of commissions.
In March,
2008 the Company issued a total of 750,000 unregistered shares of common stock
as compensation to an international distributor with an aggregate consideration
of $120,000.
In March,
2008 the Company issued a total of 10,000,000 unregistered shares of common
stock in a private placement, for an aggregate consideration of $500,100. In
addition, the investor received a warrant to purchase seven million unregistered
common stock during a 3-year period, at an exercise price of $0.13 per share. Of
the total consideration, $100,000 was paid in March 2008 and the remaining
$400,100 was paid on April 7, 2008.
No
commission or discounts were given in the transactions above, except for one of
the private placements and no underwriter was engaged.
Not
applicable.
Not
applicable.
Item 5. Other
Information.
Not
applicable.
Item
6.Exhibits
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
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CELSIUS
HOLDINGS, INC.
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||
|
April
29, 2008
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BY:
|
/s/ Jan
Norelid
|
|
Jan
Norelid, Chief Financial Officer and Chief Accounting Officer
|
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