Celsius Holdings, Inc. - Annual Report: 2009 (Form 10-K)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
x ANNUAL REPORT UNDER
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the
fiscal year ended: December
31, 2009
oTRANSITION REPORT UNDER SECTION 13 OR
15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
CELSIUS HOLDINGS,
INC.
(Exact
name of registrant as specified in its charter)
NEVADA
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001-34611
|
20-2745790
|
||
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification No.)
|
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)
Securities
registered under Section 12(b) of the Exchange Act: Common
Stock, par value $0.001
Common Stock Purchase
Warrants
Securities
registered under Section 12(g) of the Exchange Act: None
(Former
name, former address and former fiscal year, if changed since last
report)
Check
whether the issuer has (1) filed all reports required to be files by Section 13
or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period the Company was required to file such reports), and (2) has been subject
to such filing requirements for the past 90 days. Yes x No o
Check if
there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of Company's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. o
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 Exchange Act. (Check one):
o Large accelerated
filer o Accelerated
filer o Non-accelerated
filer x Smaller reporting
company
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act): Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant's most recently completed second fiscal
quarter: $11.1 million.
Indicate
the number of shares outstanding of each of the registrant's classes of common
stock, as of the latest practicable date 15,856,009 as of March 8,
2010.
DOCUMENTS
INCORPORATED BY REFERENCE
None
1
As
used throughout this report, the terms “we,” “us,” ”our” and “our company” refer
to Celsius Holdings, Inc., and all of its subsidiaries. Unless otherwise noted,
all share and per share data in this report gives effect to 1-for-20 reverse
stock split of our common stock implemented on December 23, 2009.
General
information about our company can be found at www.celsius.com. We
make our annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K and amendment to these reports filed or furnished pursuant
to Section 13 or 15 (d) of the Securities Exchange Act of 1934 available free of
charge on our website, as soon as reasonably practicable after they are
electronically filed with the Security and Exchange Commission.
FORWARD-LOOKING
STATEMENTS
Information
included in this report contains 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. This information involves known and unknown
risks, uncertainties and other factors which may cause our actual results,
performance or achievements to be materially different from the future results,
performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words “may”, “should”, “expect”, “anticipate”, “estimate”, “believe”,
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology.
The
forward-looking statements in this report include statements regarding, among
other things, (a) our projected sales and profitability, (b) our growth
strategies, (c) anticipated trends in our industry, (d) our future financing
plans and (e) our anticipated needs for working capital. These statements may be
found under “Item 1 Business”, “Item 1A Risk Factors”, and “Item 7 Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, as
well as elsewhere in this report. Actual events or results may differ materially
from those discussed in forward-looking statements as a result of various
factors, including, without limitation, the risks outlined under “Item 1A Risk
Factors” and matters described in this report generally. In light of these risks
and uncertainties, there can be no assurance that the forward-looking statements
contained in this report will in fact occur.
PART
I
ITEM
1 DESCRIPTION OF
BUSINESS
Business
Overview — General
We are
engaged in the development, marketing, sale and distribution of “functional”
calorie-burning beverages under the Celsius® brand name. According to multiple
clinical studies we funded, a single serving (12 ounce can) of Celsius® burns up
to 100 calories by increasing a consumer’s metabolism an average of 12% and
providing sustained energy for up to a three-hour period.
We seek
to combine nutritional science with mainstream beverages by using our
proprietary thermogenic (calorie-burning) MetaPlus® formulation, while fostering
the goal of healthier everyday refreshment by being as natural as possible
without the artificial preservatives often found in many energy drinks and
sodas. Celsius® has no artificial preservatives, aspartame or high fructose corn
syrup and is very low in sodium. Celsius® uses good-for-you ingredients and
supplements such as green tea (EGCG), ginger, calcium, chromium, B vitamins and
vitamin C. Celsius is sweetened with sucralose, a sugar-derived sweetener that
is found in Splenda®, which makes our beverages low-calorie and suitable for
consumers whose sugar intake is restricted.
We have
undertaken significant marketing efforts aimed at building brand awareness,
including a recently launched nationwide marketing campaign focused on
television, radio, on-line and magazine advertising. We intend to launch an
on-line campaign with viral marketing, as soon as our testing phase is
completed. We also undertake various promotions at the retail level such as
coupons and other discounts. We have recently engaged Mario Lopez, a well-known
television personality, to be our national celebrity spokesperson.
In the
past, we mainly sold and distributed our products through our network of
independent direct-to-store (DSD) distributors. At present, we sell and
distribute to a larger extent, to national and regional retail accounts through
a direct-to-retail (DTR) marketing strategy.
2
Our DSD
distributor network is primarily concentrated in Florida, Atlanta, Michigan, New
England, Ohio and Texas. Through our DSD distributor network, Celsius® is
available in various major retail chains, including Hannafords, Shaw’s,
Tedeschi, Wegmans and Xtra Mart (Northeast), CVS (New England), Sweetbay
(Florida) and HEB (Texas).
Our DTR
marketing strategy focuses on sales made directly or with the assistance of
brokers to national and regional supermarkets, convenience stores, drug stores,
nutrition stores, mass merchants and club warehouses. As of the date of this
annual report, we have DTR relationships with and are rolling out Celsius®
products into Vitamin Shoppe, GNC, Supervalu, Duane Reade, Albertsons, Rite-Aid
and 7-11 stores, among others. We made a test shipment in December 2009 to 285
Costco stores, and if successful, we plan to make a full launch of their stores
in the United States and Puerto Rico in March 2010. We also have recently
commenced shipping to Walgreen’s and CVS on a national basis, covering
approximately 14,000 stores in total. Other retailers who became DTR customers
during the fourth quarter of 2009 include Giant, Stop & Shop, Shoprite and
Winn Dixie. The DTR channel, which we believe affords us broader geographic
distribution and increased brand awareness, has contributed to an increasing
percentage of our sales growth and is expected to be the primary channel for our
future sales growth.
We do not
directly manufacture our beverages, but instead outsource the manufacturing
process to established third-party co-packers. We do, however, provide our
co-packers with flavors, ingredient blends, cans and other raw materials for our
beverages purchased by us from various suppliers.
Corporate
History and Information
We were
incorporated in Nevada on April 26, 2005 under the name “Vector Ventures, Inc”
and originally we engaged in mineral exploration. Such business was
unsuccessful. On January 26, 2007, we acquired the Celsius® beverage
business of Elite FX, Inc., a Florida corporation engaged in the development of
functional beverages since 2004 in a reverse merger, and subsequently changed
our name to Celsius Holdings, Inc.
Our
principal executive offices are located at 140 N.E. 4th
Avenue, Delray Beach, Florida 33483. Our telephone number is (561)
276-2239 and our website is www.celsius.com. The information
accessible through our website does not constitute part of this
report.
Recent
developments
Reverse
Stock Split
On
December 23, 2009, we implemented a reverse stock split in which of all the
issued and outstanding shares of our common stock as of the close of business on
such date were combined and reconstituted as a smaller number of shares of
common stock in a ratio of one share of common stock for every 20 shares of
common stock. We rounded up any fractional shares of new common stock
issuable in connection with the reverse stock split. Our authorized
shares of capital were reduced proportionately from 1,000,000,000 to 50,000,000
shares of common stock and from 50,000,000 to 2,500,000 shares of preferred
stock. Unless otherwise noted, all share and per share data in this
report is adjusted to give effect to the reverse stock split.
Conversion
of Series B Preferred Stock
Effective
on December 23, 2009, CDS Ventures of South Florida, LLC, our principal
shareholder, converted all the outstanding shares of our Series B preferred
stock (including shares issuable in payment of accrued dividends) into common
stock. Based on the conversion price of $1.00 in effect on the conversion date,
4,343,000 shares of our common stock were issued.
Secondary
Public Offering and Listing on NASDAQ Capital Market
On
February 16, 2010, the Company sold 900,000 units resulting in aggregate gross
proceeds of $14.5 million. Each unit consists of four shares of common stock and
one warrant to purchase one share of common stock. The warrants are exercisable
at a price of $5.32 per share at any time through February 8, 2013. In addition,
the Company granted the underwriters an option to purchase up to 135,000
additional units to cover over-allotments, exercisable at any time up to 45 days
from the date of the prospectus relating to the offering. The net proceeds of
the offering after deducting underwriting discount and estimated offering
expenses were approximately $13.1 million. The net proceeds are being used for:
2010 marketing efforts, new product development and general corporate purposes,
including working capital. Upon consummation of the offering our common stock
and the warrants included in the units began to trade on the Nasdaq Capital
Market under the symbols “CELH” and “CELHW,” respectively. The units do not
trade on any exchange.
3
Additional
Debt and Preferred Stock Conversion
On March
10, 2010, we announced that CDS Ventures of South Florida, LLC, a principal
shareholder of the Company agreed to convert $4.5 million of the $6.5 million of
our convertible debt it holds to 441,176 shares of common stock, at a conversion
price of $10.20 per share. CDS Ventures of South Florida LLC also agreed to
convert all of our Series A preferred stock it holds, including accrued
dividends, into 2,103,466 shares of common stock (a conversion price of $1.60
per share).
In
addition, Lucille Santini, another principal shareholder, has agreed to convert
the $615,000 of convertible debt she holds into 176,659 shares of common stock
(a conversion price of$3.48 per share).
As a
result of the foregoing, our outstanding convertible debt has been reduced to
$2.0 million and all of our outstanding preferred shares have been converted to
common stock.
Industry
Overview
The
“functional” beverage category includes a wide variety of beverages with one or
more added ingredients to satisfy a physical or functional need, such as sports
drinks, energy drinks, and non-carbonated ready to drink teas.
Size of Market — According to
a report by Accenture Consulting, the size of the annual non-alcoholic beverage
market was estimated to have grown to more than $17.4 billion in the United
States in 2009. A growing portion of this market is the functional beverage
market, which was estimated at $9.7 billon, in 2009, according to Datamonitor.
This market is estimated to grow to $19.7 billion by 2013, a compound annual
growth rate of 15.2% over that time period.
![](https://www.sec.gov/Archives/edgar/data/0001341766/000121390010000848/celsius5.gif)
Current Market Segmentation —
The growing functional beverage market can be further segmented into several
different sub-categories, such as energy drinks, sports drinks, and
nutraceutical drinks. According to Datamonitor, as of 2008, the largest category
of functional drinks was energy drinks with approximately 62% market share and
sports drinks with an approximately 26% market share.
![](https://www.sec.gov/Archives/edgar/data/0001341766/000121390010000848/celsius6.gif)
We
believe that Celsius® is both a member of the energy drink sub-category, as well
as creating a new category of beverages, calorie-burning. It has some of the
same functional elements of an energy drink, but unlike the majority of the
sugary (high calorie) competitors in this space, Celsius® does not contain high
fructose corn syrup and burns up to 100 calories by increasing a drinker’s
metabolism an average of 12% for up to a three-hour period. We believe that
Celsius® is a superior product to currently available energy drinks due to its
low caloric content, its calorie burning capabilities and its lack of artificial
preservatives, colors and flavors.
Changing Industry Trends —
There is an increased concern among consumers, the public health community and
various government agencies of the potential health problems associated with
inactive lifestyles and obesity. There are currently several proposals in the
U.S. Congress seeking to address the issue of consumption of sugary drinks by
children and other consumers. Participants in the non-alcoholic beverage market
are responding to these concerns by bringing to market new healthier products
such as diet and light beverages, juices and juice drinks, sports drinks and
water products.
Growing Number of Adults with
Obesity— According to statistics from the U.S. Center for Disease Control
and Prevention (CDC) during the past 20 years there has been a dramatic increase
in obesity in the United States. In 2008, only one state (Colorado) had a
prevalence of obesity less than 20%. Thirty-two states had prevalence equal to
or greater than 25%; six of these states (Alabama, Mississippi, Oklahoma, South
Carolina, Tennessee, and West Virginia) had a prevalence of obesity equal to or
greater than 30%.
4
The maps
below show the change in obesity prevalence from 1985 through 2008 in the United
States.
![]() |
![]() |
Industry Trends Benefit
Celsius® — We believe that Celsius® is strategically placed to capitalize
on several macro-trends in the beverage space by filling a need that is not
currently being met by its competitors in both the functional and general
non-alcoholic beverage markets.
With a
growing number of consumers seeking functional beverages, we believe that they
are also increasingly seeking out products that are the healthiest alternative
within those product categories. Many of the leading functional beverage
products contain high doses of sugar or high fructose corn syrup, sodium,
artificial flavors, and preservatives which may counter-balance some of the
other benefits the consumer is looking for.
Celsius®
has created its portfolio of beverages to specifically address these issues.
While maintaining great taste to the consumer, a 12 ounce can of Celsius® has a
number of competitive advantages over some of the currently leading beverages
including:
§
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less
artificial preservatives than almost all other energy drinks or
sodas;
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§
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no
artificial colors or flavors;
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§
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no
aspartame;
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§
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no
high fructose corn syrup;
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§
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low
sodium content;
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§
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use
of good-for-you ingredients and supplements such as green tea (EGCG),
ginger, calcium, chromium, B vitamins and vitamin C;
and
|
§
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use
of our proprietary thermogenic (calorie-burning) MetaPlus® formulation
that allows Celsius® to burn up to 100 calories by increasing a consumer’s
metabolism an average of 12% and providing sustained energy for up to a
3-hour period.
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Our
Products
Celsius®
calorie-burning beverages were first introduced to the marketplace in
2005.
According
to multiple clinical studies we funded, a single serving (12 ounce can) of
Celsius® burns up to 100 calories by increasing a consumer’s metabolism an
average of 12% for up to a three-hour period. In addition, these studies have
indicated that drinking a single serving of Celsius® prior to exercising may
improve cardiovascular health and fitness and enhance the loss of fat and gain
of muscle from exercise.
We seek
to combine nutritional science with mainstream beverages by using our
proprietary thermogenic (calorie-burning) MetaPlus® formulation, while fostering
the goal of healthier everyday refreshment by being as natural as possible
without the artificial preservatives often found in many energy drinks or sodas.
Celsius® has no chemical preservatives, aspartame or high fructose corn syrup
and is very low in sodium. Celsius® uses good-for-you ingredients and
supplements such as green tea (EGCG), ginger, calcium, chromium, B vitamins and
vitamin C. Celsius is sweetened with sucralose, a sugar-derived sweetener that
is found in Splenda®, which makes our beverages low-calorie and suitable for
consumers whose sugar intake is restricted. Each 12 ounce can of Celsius®
contains 200 milligrams of caffeine which is comparable to two cups of
coffee.
5
We
currently offer Celsius® in seven flavors, lemon-lime, ginger ale, cola, orange
and wild berry (which are carbonated) and non-carbonated green tea
raspberry/acai and green tea/peach mango. Our beverages are sold in 12 ounce
cans, although we have recently begun to market the active ingredients in
powdered form in individual On-The-Go packets.
Celsius®
is packaged in a distinctive twelve ounce sleek can that uses vivid colors in
abstract patterns to create a strong on-shelf impact. The cans are sold as
singles or in four-packs. The graphics and clinically tested product are
important elements to building the Celsius® brand and help justify premium
pricing of $1.79 to $2.19 per can at retail.
We target
a niche in the functional beverage segment of the beverage industry consisting
of consumers seeking calorie-burning beverages to help them manage their weight
and enhance their exercise regimen. Our target consumers are on-the-go women,
age 25 to 54, who are looking for a way to burn calories and gain energy with
healthy beverages and natural alternatives to diet sodas, as well as sports
enthusiasts of both sexes, who are seeking low sodium, preservative-free
alternatives.
We
formulated Celsius® by first working with scientists to develop our MetaPlus®
thermogenic formula and then with flavor houses to create beverages that tasted
good. Our initial flavors were those in our carbonated line, which were designed
to offer alternatives to popular carbonated soft drinks, while still offering
comparable flavors. Our non-carbonated teas were introduced for fitness
enthusiasts, who typically favor non-carbonated beverages.
In 2009,
we developed our MetaPlus® formulation into a powder that can be mixed with
water. We believe that our On-The Go packets, which have recently been
introduced to the market, offer an attractive alternative to consumers who want
to take Celsius® with them to the gym or while travelling without carrying the
ready-to-drink 12 ounce cans.
We
believe that one of the core competencies of our company is our ability to
incorporate several beneficial natural components with substantiated science
into beverages while providing consumers with great taste. We intend to use our
core competencies in product formulation to introduce additional flavors and
delivery systems and to endeavor to expand our product line by exploring the
development of complementary products utilizing our MetaPlus® thermogenic
formulation.
Clinical
Studies
It is our
belief that clinical studies substantiating product claims will become more
important as more and more beverages are marketed with health claims. Celsius®
was one of the first functional beverages to be launched along with a clinical
study. Celsius® is also one of very few functional beverages that has clinical
research on the actual product itself. 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.
We have
funded six U.S. based clinical studies for Celsius®. Each was conducted by a
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 remaining studies were conducted by the Applied Biochemistry
& Molecular Physiology Laboratory of the University of Oklahoma. We funded
all of the studies and provided Celsius® beverage for the studies. However, none
of our directors, executive officers or principal stockholders is in any way
affiliated with either of the two research organizations which conducted the
studies.
The first
study was conducted in 2005 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.
6
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 ten minutes at the end of each hour
for three 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 in 2007. This blinded,
placebo-controlled study was conducted on a total of 60 men and women of normal
weight. An equal number of participants were separated into two groups to
compare one serving (a single 12 ounce can) 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 65% more calories than those
consuming the placebo beverage and burned an average of more than 100 calories
compared to the placebo. These results were statistically
significant.
The third
study, conducted by the Applied Biochemistry & Molecular Physiology
Laboratory of University of Oklahoma in 2007, extended our second study with the
same group of 60 individuals and protocol for 28 days and showed the same
statistical significance of increased calorie burn (minimal attenuation). 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, they have
statistically significant results. Additional studies on a larger number and
wider range of body compositions can be considered to further the
analysis.
Our
fourth study, conducted by the Applied Biochemistry & Molecular Physiology
Laboratory of University of Oklahoma in 2008, combined Celsius® use with
exercise. This ten-week placebo-controlled, randomized and blinded study was
conducted on a total of 37 subjects. Participants were randomly assigned into
one of two groups: Group 1 consumed one serving of Celsius® per day, and Group 2
consumed one serving of an identically flavored and labeled placebo beverage.
Both groups participated in ten weeks of combined aerobic and weight training,
following the American College of Sports Medicine guidelines of training for
previously sedentary adults. The results showed that consuming a single serving
of Celsius® prior to exercising may enhance the positive adaptations of exercise
on body composition, cardio-respiratory fitness and endurance performance.
According to the preliminary findings, subjects consuming a single serving of
Celsius® lost significantly more fat mass and gained significantly more muscle
mass than those subjects consuming the placebo — a 93.75% greater loss in fat
and 50% greater gain in muscle mass, respectively. The study also confirmed that
subjects consuming Celsius® significantly improved measures of
cardio-respiratory fitness and the ability to delay the onset of fatigue when
exercising to exhaustion.
Our fifth
study was conducted by the Applied Biochemistry & Molecular Physiology
Laboratory of University of Oklahoma in 2008. This ten-week placebo-controlled,
randomized and blinded study was conducted on a total of 27 previously sedentary
overweight and obese female subjects. Participants were randomly assigned into
groups that consumed identically tasting treatment beverages with exercise or
without exercise. All participants consumed one drink, either placebo or
Celsius, per day for 10 weeks. The exercise groups participated in ten weeks of
combined aerobic and weight training, following the American College of Sports
Medicine guidelines of training for previously sedentary adults. No changes were
made to their diet. The results showed that consuming a single serving of
Celsius® prior to exercising may improve cardiovascular health and fitness and
enhance the positive adaptations of exercise on body composition. According to
the preliminary findings, subjects consuming a single serving of Celsius® lost
significantly more fat mass and gained significantly more muscle mass when
compared to exercise alone — a 46% greater loss in fat, 27% greater gain in
muscle mass, respectively. The study also confirmed that subjects consuming
Celsius® significantly improved measures of cardio-respiratory fitness — 35%
greater endurance performance with significant improvements to lipid profiles —
total cholesterol decreases of 5 to 13% and bad LDL cholesterol 12 to 18%.
Exercise alone had no effect on blood lipid levels.
7
Our sixth
study was conducted by the Applied Biochemistry & Molecular Physiology
Laboratory of University of Oklahoma in 2008. This ten-week placebo-controlled,
randomized and blinded study was conducted on a total of 37 previously sedentary
male subjects. Participants were randomly assigned into groups that consumed
identically tasting treatment beverages with exercise or without exercise. All
participants consumed one drink, either placebo or Celsius, per day for 10
weeks. The exercise groups participated in ten weeks of combined aerobic and
weight training, following the American College of Sports Medicine guidelines of
training for previously sedentary adults. No changes were made to their diet.
The results showed that consuming a single serving of Celsius® prior to
exercising may improve cardiovascular health and fitness and enhance the
positive adaptations of exercise on body composition. Significantly greater
decreases in fat mass and percentage body fat and increases in VO2 were
observed in the subjects that consumed Celsius before exercise versus those that
consumed the placebo before exercise. Mood was not affected. Clinical markers
for hepatic, renal, cardiovascular and immune function, as determined by pre and
post blood work revealed no adverse effects.
Manufacture
and Supply of Our Products
Our
beverages are produced by established third party beverage co-packers. A
co-packer is a manufacturing plant that provides the service of filling bottles
or cans for the brand owner. We believe one benefit of using co-packers is that
we do not have to invest in the production facility and can focus our resources
on brand development, sales and marketing. It also allows us produce in multiple
locations strategically placed throughout the country. Currently our products
are produced in Memphis, Tennessee, and Cold Spring, Minnesota. We usually
produce about 34,000 cases (24 units per case) of Celsius® in a production run.
We purchase most of the ingredients and all packaging materials. The co-pack
facility assembles our products and charges us a fee by the case. We follow a
“fill as needed” manufacturing model to the best of our ability and we have no
significant backlog of orders. The shelf life of Celsius® is specified as 15 to
18 months.
Substantially
all of the raw materials used in the preparation, bottling and packaging of our
products are purchased by us or by our co-packers in accordance with our
specifications. Generally, we obtain the ingredients used in our products from
domestic suppliers and some ingredients have several reliable suppliers. The
ingredients in Celsius® include green tea (EGCG), ginger (from the root),
caffeine, B vitamins, vitamin C, taurine, guarana, chromium, calcium,
glucuronolactone, sucralose, natural flavors and natural colorings. Celsius® is
labeled with a supplements facts panel. We have no major supply contracts with
any of our suppliers. We single-source all our ingredients for purchasing
efficiency; however, we have identified a second source for our critical
ingredients and there are many suppliers of flavors, colorings and sucralose. In
case of a supply restriction or interruption from any of the flavor and coloring
suppliers, we would have to test and qualify other suppliers that may disrupt
our production schedules.
Our
On-The-Go packets are packed by a facility in Texas that specializes in packing
shots, packets and sticks. Currently our sales volume of packets is
insignificant. As we grow this segment of the business, the existing facility is
capable of substantially increasing the production of our packets. Moreover, we
believe that there are other co-packers available. We use the same or similar
raw materials in the preparation of our On the Go packets as we do for our
canned beverages, with most of them purchased by us and shipped to the
co-packer.
Packaging
materials, except for our distinctive sleek 12 ounce aluminum can, are easily
available from multiple sources in the United States; however, due to
efficiencies we utilize single source vendor relationships. There is currently
only one factory in the United States that produces the 12 ounce can. In case of
an interruption at that supplier, we would be forced to change our design and
structure of the can.
We
believe that as we grow, we will be able to keep up with increased production
demands. We believe that our current co-packing arrangement has the capacity to
handle increased business we anticipate in the next 18 months. To the extent
that any significant increase in business requires us to supplement or
substitute our current co-packers, we believe that there are readily available
alternatives, so that there would not be a significant delay or interruption in
fulfilling orders and delivery of our products. In addition, we do not believe
that growth will result in any significant difficulty or delay in obtaining raw
materials, ingredients or finished product.
Marketing
The key
to our marketing strategy is building consumer brand awareness that drives trial
of our product.
As our
distribution has grown from small regional areas to more of a national footprint
with Celsius® being increasingly available at large, well-known retailers, we
have expanded our marketing efforts from local grass roots events to multiple
marketing vehicles having a national focus.
In
September 2009, we launched a nationwide marketing campaign focused on
television, radio, on-line and magazine advertising. Our new campaign features a
customized “Burn Baby Burn” song. In our television and radio advertising we
highlight the health benefits of Celsius® such as calorie-burning, healthy
energy, great taste, as well as its scientific backing. We are broadening the
target audience with mass appeal in an upbeat, positive tone. To support our
growing national distribution, our call to action includes a coupon from burnbabyburn.com.
8
We are
currently airing 15 and 30 second television commercials on national cable
stations that appeal to adults in the 25 to 54 age group, including MSNBC,
Bravo, CNBC, Lifetime, TLC, E!, HGTV and Food Network. Our radio campaign is
currently heard in over 25 top Celsius® markets, featuring on-air DJ
endorsements of Celsius® and on national satellite radio on the Oprah network.
Our national print campaign currently appears in such publications as US Weekly, First for Women, Women’s World and Women’s Health. Broadcast and
print media are the two largest segments of our advertising
efforts.
In
November 2009, we engaged Mario Lopez to be our national celebrity spokesperson.
Mr. Lopez is a well known television personality who hosts the long-running
daily syndicated entertainment program Extra. Mr. Lopez has also
appeared on Dancing with the
Stars and in a recent Broadway revival of A Chorus Line. Mr. Lopez is
also an author and fitness expert, having released his first book, Mario Lopez’s Knockout
Fitness, in May 2008. Mr. Lopez will begin appearing in our planned 2010
marketing campaign. We believe that he is the perfect fit for the demographics
of Celsius® because he is highly appealing to both men and women ages 25 to 54,
our target demographic market.
In
addition to television, radio and magazine advertising, we plan to launch a
mobile, internet and social marketing campaign as soon as we complete the
testing phase. This campaign includes our Social Networking Widget which is
cutting edge technology that interacts with customers across all social media
platforms. It is a fully functional nanosite or tool for consumers to get the
most up to date information about Celsius®, coupons and local store locations or
product information as well as member only offers. The widget can be shared
virally over the internet on social networking sites such as Twitter or Facebook
pages, embedded on a web site or viewed on a mobile phone. It adjusts to the
formatting for each type of cell phone.
We
support our retail sales by promotion and advertising at both the retailer and
consumer level. We use striking point-of-sale advertising and graphic displays
and from time to time we offer coupons and other promotional pricing. Celsius is
packaged in a distinctive sleek 12 ounce can that uses vivid colors in abstract
patterns designed to create a strong on-shelf impact. We utilize an outside
advertising agency to coordinate our promotion and advertising efforts, together
with our sales and marketing staff.
We
continue to do some of the grass roots type events that helped us build the
initial brand awareness in areas that we have strong distribution as well as
newer areas as we launch an anchor retailer or new distributor. We also continue
to participate in some of the larger trade conventions such as NACS, NACDS,
IRHSA and Club Industry.
Through
the years we have also won several awards and we continue to participate in
these contests because as we win, we gain even more exposure. Most recently we
were awarded the CSP Retailer Choice award for Best New Product for our Celsius®
Green Tea Raspberry/ACAI. This was presented at the large National Association
of Convenience Stores convention by CSP Magazine.
Internationally, we were a finalist in the Beverage Innovation Award for 2009
Best Health Initiative with our On-the-Go packets.
Distribution
Celsius®
is sold across many retail segments. We group sales to supermarkets, convenience
stores, drug stores, nutritional stores, mass merchants and club warehouses into
one retail segment. We classify health clubs, spas, and gyms as our health and
fitness segment. Vending and internet sales constitute two additional retail
segments. We are focusing our efforts on expanding distribution into each sales
segment, with emphasis on the retail and health and fitness
segments.
We
distribute our products through direct-store delivery (DSD) distributors and
direct-to-retailer (DTR) sales.
DSD
Sales
Historically,
a significant portion of our sales have been generated from sales to DSD
distributors. We initially selected this distribution channel as it allowed us
to achieve initial market penetration and start to build brand awareness, while
we refined and enhanced our product line, packaging and point-of-sale
merchandising elements. Our DSD distribution network covers many of the larger
U.S. markets including Florida, Atlanta, Michigan, New England, Ohio and
Texas.
We
continue to market to DSD distributors using a number of marketing strategies,
including direct solicitation, trade advertising and trade show exhibition.
These distributors include established distributors of other beverages such as
beer, energy drinks, soft drinks, water and ready to drink teas. Our
distributors sell our products directly to supermarkets, convenience stores,
drug stores and mass merchants for sale to the public. We maintain direct
contact with the distributors through our regional sales managers. In some cases
we are party to a contractual arrangement which grants a distributor the right
to sell Celsius® in a defined territory, in exchange for certain duties and
obligations, including commitment to a quarterly or yearly sales
minimum.
9
Through
our DSD distributor network, Celsius® is available in various major retail
chains, including Hannafords, Shaw’s, Tedeschi, Wegmans and Xtra Mart
(Northeast), CVS (New England), Sweetbay (Florida) and HEB (Texas).
DTR
Sales
Using
only a DSD sales strategy limited our growth as we did not have sufficient
distribution coverage to service larger national and regional retailers who
wanted to carry our products. Therefore, during 2009, we increased our focus on
DTR sales, marketing directly to national and regional retailers by hiring an
experienced in-house DTR sales team and by utilizing trade shows, trade
advertising, telemarketing, direct mail and direct solicitations. Our DTR sales
professionals make sales calls to and meet with the buyers of these national and
regional retailers. Our strategy is for the retailer to be serviced by direct
delivery to the retailer’s distribution warehouse or to a wholesaler that
services the whole retail chain. We also may be required to pay slotting
allowances to secure competitive shelf space. Our DTR customers into whose
stores we are rolling out our products include Vitamin Shoppe, GNC, Supervalu,
Duane Reade, Albertsons, Rite-Aid and 7-Eleven. We made a test shipment in
December 2009 to 285 Costco stores, and if successful, we plan to make a full
launch into all 404 of their stores in the United States and Puerto Rico in
March 2010. We also have recently commenced shipping to Walgreen’s and CVS on a
national basis, covering approximately 14,000 stores in total. Other retailers
who became DTR customers during the fourth quarter of 2009 include Giant, Stop
& Shop, Shoprite and Winn Dixie. On December 31, 2009, Celsius® products
were available in approximately 27,000 stores of 22 retailers as compared to
approximately 6,500 stores of 13 retailers at the end of the second quarter of
2009.
We also
use food brokers to capture retail chain customers. All food brokers are paid a
percentage commission on delivered product. One of our major food brokers is
Crossmark, who is one of the country’s three largest food brokers. The use of
large food brokers such as Crossmark, who have significant contacts with larger
national and regional retailers, as well as personnel and systems in place to
facilitate the distribution process cannot only help penetrate these customers,
but also reduce the time it takes for our products to appear on a retailer’s
shelves. In addition, the speed with which our products appear throughout an
entire chain may be affected by various factors, including regional or store
level decisions or, in the case of retailers such as 7-Eleven which have both
company-owned and franchised stores, determinations by individual franchisees.
Accordingly, Celsius® products may not appear in a given store or group of
stores of a particular DTR customer at any point in time.
The DTR
channel, with the assistance of food brokers, has contributed to an increasing
percentage of our sales growth and is expected to be the primary channel for
sales growth for the foreseeable future. We believe this channel affords us
greater and more rapid ability to penetrate nationwide and regional retailers at
lower cost, broader geographic distribution and increased brand
awareness.
Other
Sales
Consumers,
smaller retailers and food service providers are able to purchase Celsius®
directly over the Internet from our website. We have customers that choose this
method of purchase and delivery in all 48 contiguous states. We also sell
limited quantities to operators of vending machines. We are not focused on
building these channels, but they help us build brand awareness in areas that do
not have strong distributor or retailer presence.
Growth
Strategy
Our
growth strategy is to increase our share of the functional beverage market
by:
|
●
|
increasing
brand awareness and emphasizing our combination of nutritional science and
healthier refreshment in our products through print, broadcast, billboard
and online marketing;
|
|
●
|
expanding
sales and marketing efforts with a view to increasing the geographic
markets in which Celsius® is available, particularly through additional
penetration of the DTR sales
channel;
|
|
●
|
extending
our beverage product line to offer additional flavors and delivery systems
of Celsius®
|
|
●
|
exploiting
our MetaPlus® thermogenic formulation to explore the development,
marketing, sale and distribution of complementary products;
and
|
|
●
|
expanding
distribution of our products internationally either directly or through
licensing agreements with third
parties.
|
Seasonality
of Sales
As is
typical in the beverage industry, sales of our beverages are seasonal, with the
highest sales volumes generally occurring in the second and third fiscal
quarters, which correspond to the warmer months of the year in our major
markets.
10
Competition
We
believe that we are one of the few calorie-burning beverages whose effectiveness
is supported by clinical studies, which gives us a unique position in the
beverage market. However, our products do compete broadly with all categories of
consumer beverages. The beverage market is highly competitive, and includes
international, national, regional and local producers and distributors, many of
whom have greater financial, management and other resources than us. Our direct
competitors in the functional beverage market include, but are not limited to
The Coca-Cola Company, Dr. Pepper Snapple Group, PepsiCo, Inc., Nestlé, Waters
North America, Inc., Hansen Natural Corp., and Red Bull.
While we
believe that we offer a uniquely-positioned, high-quality product which will be
able to compete favorably in this marketplace, the expansion of competitors in
the beverage market, along with the expansion of our competitor’s products, may
impact our products ultimate sales to distributors and consumers.
Proprietary
Rights
We have
registered the Celsius® and MetaPlus® trademarks with the United States Patent
and Trademark Office, as well as a number of additional trademarks.
We have
and will continue to take appropriate measures, such as entering into
confidentiality agreements with our contract packers and ingredient suppliers,
to maintain the secrecy and proprietary nature of our MetaPlus® formulation and
product formulas.
We
maintain our MetaPlus® formulation and product formulas as trade secrets. We
believe that trade secrecy is a preferable method of protection for our formulas
as patenting them might require their disclosure. Other than a company that is
our outsourced production manager, no single member of the raw material supply
chain or our co-packers has access to the complete formula.
We
consider our trademarks and trade secrets to be of considerable value and
importance to our business. No successful challenges to our registered
trademarks have arisen and we have no reason to believe that any such challenges
will arise in the future.
Product
Development
Our
product development efforts are coordinated by our Vice President of
Innovations, who works closely with our flavor suppliers, co-packers and third
party consultants to explore new flavors, delivery systems and potential product
extensions.
Government
Regulation
The
production, distribution and sale of our products in the United States is
subject to the Federal Food,
Drug and Cosmetic Act, the Dietary Supplement Health and
Education Act of 1994, the Occupational Safety and Health
Act, various environmental statutes and various other federal, state and
local statutes and regulations applicable to the production, transportation,
sale, safety, advertising, labeling and ingredients of such products. California
law requires that a specific warning appear on any product that contains a
component listed by California as having been found to cause cancer or birth
defects. The law exposes all food and beverage producers to the possibility of
having to provide warnings on their products because the law recognizes no
generally applicable quantitative thresholds below which a warning is not
required. Consequently, even trace amounts of listed components can expose
affected products to the prospect of warning labels. Products containing listed
substances that occur naturally in the product or that are contributed to the
product solely by a municipal water supply are generally exempt from the warning
requirement. While none of our products are required to display warnings under
this law, we cannot predict whether an important component of any of our
products might be added to the California list in the future. We also are unable
to predict whether or to what extent a warning under this law would have an
impact on costs or sales of our products.
Measures
have been enacted in various localities and states that require that a deposit
be charged for certain non-refillable beverage containers. The precise
requirements imposed by these measures vary. Other deposit, recycling or product
stewardship proposals have been introduced in certain states and localities and
in Congress, and we anticipate that similar legislation or regulations may be
proposed in the future at the local, state and federal levels, both in the
United States and elsewhere.
Our
facilities in the United States are subject to federal, state and local
environmental laws and regulations. Compliance with these provisions has not
had, and we do not expect such compliance to have, any material adverse effect
upon our business, financial condition and results of operations.
11
ITEM
1A RISK
FACTORS
Our
business faces certain risks. The risks described below may not be the only
risks we face. Additional risks that we do not yet know of, or that we currently
think as immaterial, may also impair our business. If any of the
events anticipated by the risks described below or elsewhere in this report
occur, our results of operations and financial conditions could be adversely
affected.
Risk
Factors Relating to Our Business
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” and did not have any business operations until it
acquired Elite FX, Inc., a Florida corporation, by reverse merger in January
2007. It is difficult to evaluate our business future and prospects as we are a
young company with a limited operating history. Our future operating
results will depend on many factors, both in and out of our control, including
the ability to increase and sustain demand for and acceptance of our products,
the level of our competition, and our ability to attract and maintain key
management and employees.
Elite FX,
Inc. incurred operating losses from its inception in 2004 to our acquisition in
January 2007. We have incurred losses since the acquisition and launching our
own commercial operations. We have yet to establish any history of profitable
operations. We have incurred an operating loss during the twelve months ending
December 31, 2009 of $7.8 million. As a result, at December 31, 2009, we had an
accumulated deficit of $19.1 million. Our revenues have not been sufficient to
sustain our operations. Our profitability will require the successful
commercialization of our current Celsius®
product line and any future products we develop. No assurances can be given when
this will occur or that we will ever be profitable.
We
may require additional capital in the future, which may not be available on
favorable terms or at all.
We
believe that the net proceeds of our recently completed secondary public
offering, together with anticipated revenues from operations, will enable us to
fund our operations and business plan through at least mid 2011 or until we
become cash flow positive. However, there is no assurance that our assumptions
as to our company’s capital needs will be correct and that we will not need to
raise additional financing either after or prior to the end of such period or
until we become cash flow positive. We anticipate that any such additional funds
would be raised through equity or debt financings. In addition, we
may enter into one or more revolving credit facilities or term loan facilities
with one or more syndicates of lenders. It is possible that equity or debt
financing will not be available to when we seek it. Such equity or
debt financing, if available, may be on terms that are not favorable to us. Even
if we are able to raise capital through equity or debt financings, the interest
of existing shareholders in our company may be diluted, and the securities we
issue may have rights, preferences and privileges that are senior to those of
our common stock or may otherwise materially and adversely affect the holdings
or rights of our existing shareholders. If we cannot obtain adequate capital
when needed on reasonable terms, we may not be able to fully implement our
business plan, and our business, results of operations and financial condition
would be adversely affected.
We
rely on third party co-packers to manufacture our products. If we are unable to
maintain good relationships with our co-packers and/or their ability to
manufacture our products becomes constrained or unavailable to us, our business
could suffer.
We do not
directly manufacture our products, but instead outsource such manufacturing to
established third party co-packers. These third party co-packers may
not be able to fulfill our demand as it arises, could begin to charge rates that
make using their services cost inefficient or may simply not be able to or
willing to provide their services to us on a timely basis or at all. In the
event of any disruption or delay, whether caused by a rift in our relationship
or the inability of our co-packers to manufacture our products as required, we
would need to secure the services of alternative co-packers. We may
be unable to procure alternative packing facilities at commercially reasonable
rates and/or within a reasonably short time period and any such transition could
be costly. In such case, our business, financial condition and
results of operations would be adversely affected.
12
We
rely on distributors to distribute our products in the DSD sales channel. If we
are unable to secure such distributors and/or we are unable to maintain good
relationships with our existing distributors, our business could
suffer.
We
distribute Celsius® in the DSD sales channel by entering into agreements with
direct-to-store delivery distributors having established sales, marketing and
distribution organizations. Many of our distributors are affiliated with and
manufacture and/or distribute other beverage products. In many cases, such
products compete directly with our products. The marketing efforts of
our distributors are important for our success. If Celsius® proves to be less
attractive to our distributors and/or if we fail to attract distributors, and/or
our distributors do not market and promote our products with greater focus in
preference to the products of our competitors, our business, financial condition
and results of operations could be adversely affected.
Our
customers are material to our success. If we are unable to maintain good
relationships with our existing customers, our business could
suffer.
Unilateral
decisions could be taken by our distributors, grocery chains, convenience
chains, drug stores, nutrition stores, mass merchants, club warehouses and other
customers to discontinue carrying all or any of our products that they are
carrying at any time, which could cause our business to suffer.
Increases in cost or shortages of raw
materials or increases in costs of co-packing could harm our
business.
The
principal raw materials used by us are flavors and ingredient blends as well as
aluminum cans, the prices of which are subject to fluctuations. We are uncertain
whether the prices of any of the above or any other raw materials or ingredients
we utilize will rise in the future and whether we will be able to pass any of
such increases on to our customers. We do not use hedging agreements or
alternative instruments to manage the risks associated with securing sufficient
ingredients or raw materials. In addition, some of these raw materials, such as
our distinctive sleek 12 ounce can, are available from a single or a limited
number of suppliers. As alternative sources of supply may not be available, any
interruption in the supply of such raw materials might materially harm
us.
Our
failure to accurately estimate demand for our products could adversely affect
our business and financial results.
We may
not correctly estimate demand for our products. If we materially underestimate
demand for our products and are unable to secure sufficient ingredients or raw
materials, we might not be able to satisfy demand on a short-term basis, in
which case our business, financial condition and results of operations could be
adversely affected.
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.
Our
products are manufactured using our proprietary blends of ingredients. These
blends are created by third-party suppliers to our specifications and then
supplied to our co-packers. Although all of the third parties in our supply and
manufacture chain execute confidentiality agreements, there can be no assurance
that our trade secrets, including our proprietary ingredient blends will not
become known to competitors.
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
or reverse engineer our processes, brands, flavors, or our 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. Any such loss of confidentiality could diminish or
eliminate any competitive advantage provided by our proprietary
information.
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 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 additional
products. We cannot assure you that we will be able to develop, market, sell and
distribute additional 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.
13
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 Celsius®. 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 functional 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.
We
are dependent on our key executives and employees and the loss of any of their
services could materially adversely affect us 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 a limited number of key executives and employees,
including Stephen C. Haley, our Chief Executive Officer, President and Chairman
of the Board, Geary W. Cotton, our Chief Financial Officer and Irina Lorenzi,
our Innovations Vice President. The loss of the services of Mr. Haley, Mr.
Cotton, Ms. Lorenzi or any other key employee 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 and the loss of any of their services
could materially adversely affect us.
We are dependent
on our ability to attract and retain qualified technical, sales and managerial
personnel.
Our
future success depends in part on our continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel in the beverage industry is intense and we may not be able to retain
our key managerial, sales and technical employees or attract and retain
additional highly qualified technical, sales and managerial personnel in the
future. Any inability to attract and retain the necessary technical, sales and
managerial personnel could materially adversely affect us.
The
FDA has not passed on the efficacy of our products or the accuracy of any claim
we make related to our products.
Although
six independent clinical studies have been conducted relating to the
calorie-burning and related effects of our products, the results of these
studies have not been submitted to or reviewed by the FDA. Further,
the FDA has not passed on the efficacy of any of our products nor has it
reviewed or passed on any claims we make related to our products, including the
claim that our products aid consumers in burning calories or enhancing their
metabolism.
Risk
Factors Relating to Our Industry
We are subject to significant
competition in the beverage industry.
The
beverage industry is highly competitive. The principal areas of competition are
pricing, packaging, distribution channel penetration, development of new
products and flavors and marketing campaigns. Our products compete with a wide
range of drinks produced by a relatively large number of manufacturers, most of
which have substantially greater financial, marketing and distribution resources
and name recognition than we do.
Important
factors affecting our ability to compete successfully include the taste and
flavor of our products, trade and consumer promotions, rapid and effective
development of new, unique cutting edge products, attractive and different
packaging, branded product advertising and pricing. Our products compete with
all liquid refreshments and with products of much larger and substantially
better financed competitors, including the products of numerous nationally and
internationally known producers, such as The Coca Cola Company, Dr. Pepper
Snapple Group, PepsiCo, Inc., Nestle, Waters North America, Inc., Hansen Natural
Corp. and Red Bull. We also compete with companies that are smaller or primarily
local in operation. Our products also compete with private label brands such as
those carried by supermarket chains, convenience store chains, drug store
chains, mass merchants and club warehouses.
There can
be no assurance that we will compete successfully in the functional beverage
industry. The failure to do so would materially adversely affect our business,
financial condition and results of operations.
14
We
compete in an industry that is brand-conscious, so brand name recognition and
acceptance of our products are critical to our success and significant marketing
and advertising will be needed to achieve and sustain brand
recognition.
Our
business is substantially dependent upon awareness and market acceptance of our
products and brands by our targeted consumers. Our business depends on
acceptance by our independent distributors of our brand as one that has the
potential to provide incremental sales growth rather than reduce distributors’
existing beverage sales. The development of brand awareness and market
acceptance is likely to require significant marketing and advertising
expenditures. Even if we are able to engage in such marketing and advertising
efforts, there can be no assurance that Celsius® will achieve and maintain
satisfactory levels of acceptance by independent distributors and retail
consumers. Any failure of Celsius® brand to maintain or increase acceptance or
market penetration would likely have a material adverse affect on business,
financial condition and results of operations.
Our
sales are affected by seasonality.
As is
typical in the beverage industry, our sales are seasonal. Our highest sales
volumes generally occur in the second and third quarters, which correspond to
the warmer months of the year in our major markets. Consumer demand for our
products is also affected by weather conditions. Cool, wet spring or summer
weather could result in decreased sales of our beverages and could have an
adverse effect on our results of operations.
Our business is subject to many
regulations and noncompliance is costly.
The
production, marketing and sale of our beverage products are subject to the rules
and regulations of various federal, state and local health agencies. If a
regulatory authority finds that a current or future product or production run is
not in compliance with any of these regulations, we may be fined, or production
may be stopped, thus adversely affecting our financial conditions and
operations. Similarly, any adverse publicity associated with any noncompliance
may damage our reputation and our ability to successfully market our products.
Furthermore, the rules and regulations are subject to change from time to time
and while we closely monitor developments in this area, we have no way of
anticipating whether changes in these rules and regulations will impact our
business adversely. Additional or revised regulatory requirements, whether
labeling, environmental, tax or otherwise, could have an adverse effect on our
business, financial condition and results of operations.
ITEM
2 DESCRIPTION OF
PROPERTY
Our
executive offices are located at 140 NE 4th Avenue, Suite C, Delray Beach, FL
33483. We are currently being provided with space at this location by an
unrelated third party, pursuant to a 12 month lease expiring in 2010 for $6,745
per month. We have a separate office for our sales and marketing personnel in a
nearby location. This office is leased from a principal shareholder for $4,260
monthly until March 2010. During 2010, we plan to consolidate our operations in
a single location.
The
Company has no warehouses or other facilities as we store our product at third
party contract warehouse facilities.
ITEM
3 LEGAL
PROCEEDINGS
We are
not presently a party to any legal or regulatory proceedings and have no
knowledge of any pending claim, proceeding or investigation against our company
that could materially affect our company’s financial condition or results of
operations. There are no proceedings in which any of our directors, officers or
affiliates, or any registered or beneficial stockholder, is an adverse party or
has a material interest adverse to our interest.
ITEM
4 RESERVED
15
PART
II
ITEM
5 MARKET
FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Market
Information
Our
common stock and warrants have been listed on the Nasdaq Capital Market under
the symbols CELH and CELHW, respectively, since we launched our secondary public
offering on February 10, 2010. Prior to that time, for the periods indicated,
the following table sets forth the high and low bids for our common stock as
reported by the OTC Bulletin Board. The prices represent inter-dealer quotations
based without retail mark-up, mark-down or commission and may not represent
actual transactions.
The
prices have been adjusted for the 1-for-20 reverse split implemented on December
23, 2009.
Quarter
Ended(1)
|
High
|
Low
|
31-Dec-09
|
$12.00
|
$2.25
|
30-Sep-09
|
$14.00
|
$4.00
|
30-Jun-09
|
$4.00
|
$2.00
|
31-Mar-09
|
$3.00
|
$0.80
|
31-Dec-08
|
$1.60
|
$0.60
|
30-Sep-08
|
$3.00
|
$1.00
|
30-Jun-08
|
$3.80
|
$1.60
|
31-Mar-08
|
$5.60
|
$2.00
|
31-Dec-07
|
$13.00
|
$2.60
|
30-Sep-07
|
$26.20
|
$9.40
|
30-Jun-07
|
$35.60
|
$12.40
|
31-Mar-07
|
$73.40
|
$24.00
|
Holders
of Record
As of
December 31, 2009, we had 33 holders of record of our common stock. The number
of record holders was determined from the records of our transfer agent and does
not include beneficial owners of common stock whose shares are held in the names
of various security brokers, dealers, and registered clearing agencies. We
believe that there are in excess of 7,000 beneficial shareholders of our common
stock.
Dividends
The
Company has never declared nor paid any cash dividends on its capital stock and
does not anticipate paying cash dividends in the foreseeable future. By
agreement, we are obligated to issue dividends in preferred stock to preferred
stock holders; however, we do not anticipate paying cash dividends to preferred
stock holders in the foreseeable future. The Company’s current policy is to
retain any earnings in order to finance the expansion of its operations. The
Company’s Board of Directors will determine future declaration and payment of
dividends, if any, in light of the then-current conditions they deem relevant
and in accordance with the Nevada Revised Statutes.
Recent
Sales of Unregistered Securities
In
October and December 2009, we issued 51,923 shares of our common stock as
partial conversion of a convertible debenture issued in December
2007.
In
November 2009, we issued 50 shares of our Series A preferred stock for a
consideration of $1.0 million in the form of cancellation of a previously issued
promissory note for $1.0 million.
In
December 2009, we issued 4,343,000 shares of common stock in conversion for 201
shares of Series B preferred stock and accrued dividends on the same
shares.
In
December 2009, we issued 11 shares of our Series A preferred stock in dividend
for the calendar year 2009.
16
The
Company believes that all of the foregoing sales qualified for exemption under
Section 4(2) of the Securities Act since the issuance of the notes and shares by
us did not involve a public offering. The offerings were not “public offerings”
as defined in Section 4(2) due to the limited number of persons involved in the
deal, size of the offering, and manner of the offering and number of shares
offered. In addition, these shareholders and note holders had and agreed to the
necessary investment intent as required by Section 4(2). Based on an analysis of
the above factors, we believe have met the requirements to qualify for exemption
under Section 4(2) of the Securities Act of 1933 for these
transactions.
17
ITEM
7 MANAGEMENT’S
DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
General
The
following is a discussion of the financial condition and results of operations
of Celsius Holdings, Inc. comparing the twelve months ended December 31, 2009 to
the twelve months ended December 31, 2008. You should read this section together
with the Company’s financial statements included in Item 8 to this Form 10-K,
including the notes to those financial statements. 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 and all percentages are
stated to the nearest one tenth of one percent.
Reverse
Stock Split
We
implemented a 1-for-20 reverse stock split on December 23, 2009. Accordingly,
unless otherwise noted, all share and per share data has been adjusted to give
effect to the reverse stock split.
Accounting
Policies and Pronouncements
Critical
Accounting Policies
The
discussion and analysis of our financial condition and results of operations is
based upon our 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 2 of the notes to
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 2
contained in Part II, Item 7 to the Consolidated Financial Statements for the
year ended December 31, 2009.
Accounts Receivable – We
evaluate the collectability 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 collectability 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, customer incentives and spoilage based on the Company’s
historical experience. Revenue recognized is reduced by any cash discounts,
returns and customer incentives related to the revenue originally recognized for
the sale of the product.
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.
18
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.
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, 2009, the estimated fair values of
trademarks exceeded the carrying value of $0.
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 its 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 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.
Newly
Issued Accounting Pronouncements
Information
regarding newly issued accounting pronouncements is contained in Part II, Item
7, Note 2 to the Consolidated Financial Statements for the year ended December
31, 2009.
Results
of Operations
Year
Ended December 31, 2009 Compared to Year Ended December 31, 2008
Revenue
Revenue
increased 126.9% for the year 2009 to $5.9 million, as compared to $2.6 million
in 2008. The increase was mainly due to increased sales directly to new
retailers such as Costco, 7-Eleven, GNC, Supervalu, RiteAid; and increases from
our existing customers such as Walgreens, Vitamin Shoppe and Polar Beverages;
offset to a lesser extent by losses of some accounts and no re-order from a
foreign distributor who had a large order in 2008.
Gross
Profit
Gross
profit was 47.8% of net revenue during the year 2009, as compared to 29.2% in
2008. The increase is mainly due to improved sales mix, improved production cost
and in 2008 we recorded a write down of inventory due to obsolescence of bottled
finished goods and packaging material of $320,000. No such write down occurred
in 2009. Without this write down our gross profit would have been 41.6% in
2008.
19
Operating
Expenses
Sales and
marketing expenses increased to $8.0 million in 2009 as compared to $3.9 million
in 2008, an increase of $4.1 million or 105.1%. This increase was mainly due to
increased cost for sales and marketing personnel, $1.0 million, Cable TV
advertising, $1.3 million and radio advertising, $1.0 million. General and
administrative expenses increased to $2.3 million in 2009 as compared to $1.7
million in 2008, an increase of $517,000. The increase was mainly due to
increased cost for issuance of stock options, warrants and shares to third
parties for services, $367,000 and increased administrative employee cost of
$331,000; offset to a lesser extent by decreased collection and factoring
expenses, $104,000.
Other
Expense
Other
expense consists of interest on outstanding loans of $322,000 in 2009 as
compared to $412,000 in 2008. The decrease of $90,000 was mainly due to as
decrease in amortization of debt discounts on convertible notes for a total of
$22,000 and decreased interest cost on a convertible debenture of $57,000. Our
interest income decreased from $70,000 in 2008 to $16,000 in 2009, a decrease of
$54,000, due to the reduction of a note receivable from Golden Gate Investors,
Inc.
Liquidity and Capital
Resources
We have
yet to establish any history of profitable operations. As a result, at December
31, 2009, we had an accumulated deficit of $19.6 million. At December 31, 2009,
we had working capital of $2.4 million. We have had operating cash flow deficits
all quarters of operations. Our revenue has not been sufficient to sustain our
operations. Our profitability will require the successful commercialization of
our current product Celsius® and
any future products we develop.
We fund
part of our working capital from a line of credit with a related party, CD
Financial, LLC. The line of credit was started in December 2008 and is for $1.0
million. The interest rate is LIBOR rate plus three percent on the outstanding
balance. The line of credit expires in December 2010 and is renewable. In
connection with the revolving line of credit we have entered into a loan and
security agreement under which we have pledged all our assets as security for
the line of credit. The outstanding balance under the line of credit as of
December 31, 2009 was $950,000. In February 2010, the line of credit was paid
off and terminated by us.
We
borrowed in 2004 and 2005 a total of $500,000 from Lucille Santini, one of our
principal stockholders with interest of a rate variable with the prime rate. In
July 2008, we restructured the agreement and decreased the interest rate to
prime rate flat, monthly payments of $5,000 until a balloon payment of
approximately $606,000 in January 2010. This debt was restructured in September,
2009, to a convertible note of $615,000 with maturity in September 2012.
Interest is set at 3% over the one-month LIBOR rate. The first interest payment
is due in September 2010 and quarterly thereafter. The note can be converted to
shares of our common stock. The outstanding balance under the note, net of debt
discount, was $450,000 as of December 31, 2009. On March 3, 2010, Ms.
Santini issued to us a notice of her election to convert the entire note balance
into 176,659 shares of common stock.
We
borrowed $50,000 from the CEO of the Company in February 2006. We also owed the
CEO $171,000 for accrued salaries from 2006 and 2007. The two debts were
restructured in to one note accruing 3% interest, monthly payments of $5,000 and
with a balloon payment of $64,000 in January 2011. The outstanding balance under
the note as of December 31, 2009 was $121,000.
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
note was paid in full during 2009.
In August
of 2008, we entered into a security purchase agreement with CDS Ventures of
South Florida, LLC, an affiliate of CD Financial, LLC pursuant to which we
received $1.5 million in cash, cancelled two convertible notes issued to CD
Financial, LLC for $500,000. In exchange, we issued to CDS, 100 shares of Series
A preferred stock, and a warrant to purchase additional 50 shares of Series A
preferred stock.
In
December of 2008, we entered into a second security purchase agreement with CDS
Ventures of South Florida, LLC, pursuant to which we received $2.0 million in
cash and issued 100 shares of Series B preferred stock, and a warrant to
purchase additional 100 shares of Series B preferred stock. In March, 2009, CDS
Ventures of South Florida exercised its warrant and purchased an additional 100
shares of Series B preferred stock. During April and May, 2009, we received the
corresponding $2 million in cash. CDS Ventures of South Florida, LLC converted
the shares of Series B preferred stock into common stock in December
2009.
In
September 2009, we entered into a $6.5 million loan agreement with CDS Ventures
of South Florida, LLC. The loan is due in September 2012. Interest is set at 300
basis points over the one-month LIBOR rate. The first interest payment is due in
September 2010 and quarterly thereafter. The note can be converted to shares of
our common stock. As of December 31, 2009 we have drawn $5.5 million of the
loan. The outstanding balance, net of debt discount, was $5.2 million as of
December 31, 2009.
20
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 199,440 million shares
to Fusion Capital. The agreement with Fusion Capital expired in October 2009,
without us selling any additional shares to Fusion Capital.
The
following table summarizes contractual obligations and borrowings as of December
31, 2009, and the timing and effect that such commitments are expected to have
on our liquidity and capital requirements in future periods (in thousands). We
expect to fund these commitments primarily with raise of debt or equity
capital.
Payments Due by Period
|
||||||||||||||||||||
Contractual
|
Total
|
Less Than
|
1
to
|
3
to
|
More Than
|
|||||||||||||||
Obligations
|
1 Year
|
3 Years
|
5 Years
|
5 Years
|
||||||||||||||||
Debt
to related party
|
$ | 1,171 | $ | 1,110 | $ | 61 | $ | — | $ | — | ||||||||||
Loans
payable
|
78 | 23 | 41 | 14 | — | |||||||||||||||
Convertible
notes
|
5,655 | 35 | 5,620 | — | — | |||||||||||||||
Purchase
obligations
|
— | — | — | — | — | |||||||||||||||
Total
|
$ | 6,904 | $ | 1,168 | $ | 5,722 | $ | 14 | $ | — |
Our
Securities 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 purchase agreement included four tranches of
$1,500,000 each. The first tranche consisted of our 7.75% convertible debenture
issued in exchange for $250,000 in cash and a promissory note for $1,250,000
issued by GGI which was to mature on February 1, 2012. The promissory note
contained a prepayment provision which required GGI to make prepayments of
interest and principal of $250,000 monthly upon satisfaction of certain
conditions. One of the conditions to prepayment was that GGI may immediately
sell all of the common stock issued upon Conversion (as defined in the
debenture) pursuant to Rule 144 of the Securities Act of 1933. We were under no
contractual obligation to ensure that GGI may immediately sell all of the Common
Stock Issued at Conversion (as defined in the debenture) pursuant to Rule 144
under the Securities Act of 1934. In the event that GGI may not immediately sell
all of the Common Stock Issued at Conversion pursuant to Rule 144, GGI would be
under no obligation to prepay the promissory note and likewise under no
obligation to exercise its conversion rights under the debenture. If GGI did not
fully convert the debenture by its maturity on December 19, 2011, the balance of
the debenture was to be offset by any balance due to us under the promissory
note. As of December 31, 2009, the balances of the promissory note and debenture
were zero and $36,000, respectively. The balance of the debenture can be
converted at any time with a conversion price as the lower of (i) $20.00, 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. We were not
required to issue the shares unless a corresponding payment had been made on the
promissory note. GGI converted $1.1 million of its convertible debenture through
December 2009 receiving 952,696 shares of common stock.
On
September 8, 2009, the Company entered into an addendum to the agreement with
GGI. The balance of the note receivable, $250,000 was netted against the balance
of the debenture. All future tranches were cancelled and terminated without
penalty to either party. The outstanding balance of the debenture as of December
31, 2009 is $36,000.
Our
Securities Purchase Agreements with CDS Ventures of South Florida,
LLC
On August
8, 2008, we entered into a securities purchase agreement with CDS Ventures of
South Florida, LLC. Pursuant to the agreement, we issued 100 shares of Series A
preferred stock, as well as a warrant to purchase an additional 50 shares of
Series A preferred stock, for a cash payment of $1.5 million and the
cancellation of two notes in aggregate amount of $500,000 issued to CD
Financial, LLC. The shares of Series A preferred stock can be converted into our
common stock at any time. The securities purchase agreement was amended on
December 12, 2008 to provide that until December 31, 2010, the conversion price
is $1.60, after which the conversion price is the greater of $1.60 or 90% of the
volume weighted average price of the common stock for the prior 10 trading days.
Pursuant to the securities purchase agreement, we also entered into a
registration rights agreement, under which we registered the shares of common
stock issuable upon conversion of the Series A preferred stock for resale under
the Securities Act of 1933. The Series A preferred stock accrues ten percent
annual cumulative dividends, payable in additional shares of Series A preferred
stock. We issued 15.1shares of Series A preferred stock in dividends during
2009, in dividends for the years 2008 and 2009. The Series A preferred stock
matures on February 1, 2013 and is only redeemable in our common
stock.
21
In
November 2009, CDS Ventures of South Florida, LLC exercised its right to
purchase an additional 50 shares of Series A Preferred Stock in exchange for
cancellation of a $1.0 million note issued to CD Financial, LLC.
On
December 12, 2008, we entered into a second securities purchase agreement with
CDS. Pursuant to this securities purchase agreement, we issued 100 shares of
Series B preferred stock, as well as a warrant to purchase an additional 100
shares of Series B preferred stock, for a cash payment of $2.0 million. The
shares of Series B preferred stock were convertible into our common stock at any
time. Until December 31, 2010, the conversion price was $1.00, after which the
conversion price was the greater of $1.00 or 90% of the volume weighted average
price of the common stock for the prior 10 trading days. We also granted CDS
Ventures of South Florida, LLC registration rights under the Securities Act of
1933 with respect to the shares of common stock issuable upon conversion of the
Series B preferred stock. The Series Preferred B stock accrued a ten percent
annual cumulative dividend, payable in additional shares of Series B preferred
stock. We issued 11 shares of Series B preferred stock in dividends during
the first quarter of 2009. The Series B preferred stock was scheduled to mature
on December 31, 2013 and was only redeemable in our common stock.
On March
31, 2009, CDS Ventures of South Florida, LLC exercised its right to purchase an
additional 100 shares of Series B preferred stock and executed a subscription
agreement for $2.0 million. The monies for the subscription were paid on April 7
and May 1, 2009.
On
December 23, 2009, CDS Ventures of South Florida, LLC converted all of the
Series B preferred stock (including shares issuable in payment of accrued
dividends) into 4,343,000 shares of common stock. We recorded a liability to CDS
Ventures of South Florida, LLC for a $100,000 fee for their agreement to convert
the Series B preferred stock into common stock on an accelerated
basis.
Certain
covenants of the Series A preferred stock restricts us from entering into
additional debt arrangements or permitting liens to be filed against our
Company’s assets, without approval from the holder of the preferred stock. There
is a mandatory redemption in cash, if we breach certain covenants of the
agreements. The holders have liquidation preference of $20,000 per preferred
stock in case of a liquidation of our company. We have the right to redeem the
Series A preferred stock early by the payment in cash of 104% of the liquidation
preference value. We may redeem the Series A preferred stock at any time on or
after July 1, 2010.
Pursuant
to the securities purchase agreements relating to our Series A preferred stock,
CDS Ventures of South Florida, LLC was given the right to designate two members
to our board of directors, which were designated in August 2008.
Our
Convertible Loan Agreement with CDS Ventures of South Florida, LLC
On
September 8, 2009, we entered into a convertible loan agreement with CDS
Ventures of South Florida, LLC. Under the loan agreement, CDS Ventures of South
Florida, LLC will lend us up to $6,500,000. The loan is due on September 8, 2012
and carries a variable interest rate equal to 300 basis points over the one (1)
month LIBOR. In January 2010, we agreed to increase the interest rate to 700
basis points over the one (1) month LIBOR. Commencing on September 8, 2010 and
continuing each three month period hereafter, we will make payments of all
accrued but unpaid interest only on the unpaid principal amount. The loan can at
any time be converted to shares of our common stock at the Conversion Price. The
“Conversion Price” was originally based on a price at $8.00 per share of a
market price calculation at the date of conversion. In order to comply with the
listing requirements for the Nasdaq Stock Market, in January 2010 the parties
amended the convertible loan agreement to set the Conversion Price at $10.20 per
share, which was the consolidated closing bid prce of the common stock on the
OTC Bulletin Board on the business day prior to the date the agreement was
entered into. As of December 31, 2009, the outstanding balance of the loan was
$5.2 million, net of unamortized debt discount of $330,000.
In
connection with the loan agreement, CDS Ventures of South Florida, LLC was
granted certain registration rights under the Securities Act of 1933 with
respect to the shares of common stock issuable upon conversion of the debt under
the loan agreement. Further, pursuant to the loan agreement, we agreed to expand
our board of directors to seven members and CDS Ventures of South Florida, LLC
was given the right to designate two additional members of our board of
directors, which were designated in November and December of 2009.
In
January 2010, the Company entered into an agreement with CDS Ventures of South
Florida, LLC to amend the $6.5 million convertible note issued in September
2009. This was done in order for the Company to comply with Nasdaq Stock
Market’s listing requirements. The interest rate on the note was increased from
300 to 700 basis points over one (1) month LIBOR. The conversion price was
modified from either $8.00 or a market price calculation to a fixed rate of
$10.20 per share.
22
Our
Refinance Agreement with Lucille Santini
On
September 8, 2009, we entered into a convertible loan agreement with Lucille
Santini, a principal shareholder. We received advances from Ms. Santini at
various times during 2004 and 2005, totaling $76,000 and $424,000, respectively.
The advances carried interest at a rate variable with the prime rate. In
September 2009, the debt was refinanced, with no amortization and the note is
due on September 8, 2012. This note carries a variable interest rate equal to
300 basis points over the one (1) month LIBOR. Commencing on September 8, 2010
and continuing each three month period hereafter, we will make payments of all
accrued but unpaid interest only. The loan can at any time be converted to
shares of our common stock at the Conversion Price. The “Conversion Price” is:
(A) from September 8, 2009 through and including December 31, 2011, equal to the
lesser of (i) $8.00 per share, or (ii)”Market Price” on the date of conversion
(as defined above); or (B) after December 31, 2011 the greater of (i) $8.00 per
share, or (ii) Market Price on the date of conversion, as appropriately adjusted
for in either case stock splits, stock dividends and similar events; provided,
however, that, the Conversion Price shall never be less than $2.00 regardless of
Market Price on the date of conversion. The maximum number of shares of common
stock to be issued based on the lowest Conversion Price possible is 307,500
shares. As of December 31, 2009, the outstanding balance of the loan was
$450,000, net of unamortized debt discount of $165,000.
In
connection with the refinance agreement, was also granted Ms. Santini certain
registration rights under the Securities Act of 1933 with respect to the shares
of common stock issuable upon conversion of the debt.
Other
Related Party Transactions
We have
accrued $171,000 for Stephen Haley’s salary from March 2006 through May 30,
2007. Mr. Haley, our CEO, also lent us $50,000 in February 2006. The two debts
were restructured in to one note accruing 3% interest, monthly payments of
$5,000 and with a balloon payment of $64,000 in January 2011. The outstanding
balance as of December 31, 2009 was $121,000.
Our
former COO lent us $50,000 in February 2008; the loan was repaid in March 2008.
He also purchased in February 2008, 39,063 shares in a private placement for a
total consideration of $75,000.
Jan
Norelid, our former CFO, lent the Company $25,000 in February 2008, the loan was
repaid in February 2008. He also purchased in February 2008, 12,255 shares in a
private placement for a total consideration of $25,000.
Janice
Haley, our Vice President, purchased in February 2008, 12,255 shares in a
private placement for a total consideration of $25,000.
We rented
in September, 2009, an office from a company affiliated with CD Financial LLC
for $4,260 per month until February 2010, and thereafter on a month-to-month
basis. The rental fee was commensurate with other properties available in the
market.
Secondary
Public Offering
On
February 16, 2010, the Company sold 900,000 units resulting in aggregate gross
proceeds of $14.5 million. Each unit consists of four shares of common stock and
one warrant to purchase one share of common stock. The warrants are exercisable
at a price of $5.32 per share at any time through February 8, 2013. In addition,
the Company has granted the underwriters an option to purchase up to 135,000
additional units to cover over-allotments, exercisable at any time up to 45 days
from the closing of the offering. The net proceeds of the offering after
deducting the underwriting discount and estimated offering expenses were
approximately $13.1 million.
Additional
Debt and Preferred Stock Conversion
On March
10, 2010, we announced that CDS Ventures of South Florida, LLC, a principal
shareholder of the Company agreed to convert $4.5 million of the $6.5 million of
our convertible debt it holds to 441,176 shares of common stock, at a conversion
price of $10.20 per share. CDS Ventures of South Florida LLC also agreed to
convert all of our Series A preferred stock it holds, including accrued
dividends, into 2,103,466 shares of common stock (a conversion price of $1.60
per share).
In
addition, Lucille Santini, another principal shareholder, has agreed to convert
the $615,000 of convertible debt she holds into 176,659 shares of common stock
(a conversion price of$3.48 per share).
As a
result of the foregoing, our outstanding convertible debt has been reduced to
$2.0 million and all of our outstanding preferred shares have been converted to
common stock
23
ITEM
8. CONSOLIDATED
FINANCIAL STATEMENTS
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
Audited Financial Statements December 31, 2009 | Page |
Report of Independent Registered Public Accounting Firm | 25 |
Consolidated Balance Sheets as of December 31, 2009 and 2008 | 26 |
Consolidated Statements of Operations for the years ended December 31, 2009 and 2008 | 27 |
Consolidated Statements of Changes in Stockholders' (Deficit) Equity for the years ended December 31, 2009 and 2008 | 28 |
Consolidated
Statements of Cash Flows for the years ended December
31, 2009 and 2008
|
29 |
Notes to Consolidated Financial Statements | 30 - 42 |
24
![]() |
1900
NW Corporate Blvd., Suite 210 East
Boca
Raton, Florida 33431
Tel.
561-886-4200
Fax.
561-886-3330
e-mail:info@sherbcpa.com
|
SHERB & CO., LLP |
Offices in New
York and Florida
|
Certified
Public Accountants
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Celsius
Holdings, Inc.
We have
audited the accompanying consolidated balance sheets of Celsius Holdings,
Inc. and Subsidiaries as of December 31, 2009 and 2008, respectively, and the
related consolidated statements of operations, changes in stockholders'
(deficit) equity and cash flows for the years ended December 31, 2009 and 2008,
respectively. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required to
have, nor were we engaged to perform, an audit of its internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over financial
reporting. Accordingly we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statements presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company and its
subsidiaries as of December 31, 2009 and 2008, respectively, and the results of
their operations and cash flows for the years ended December 31, 2009, and 2008,
respectively, in conformity with accounting principles generally accepted in the
United States of America.
|
/s/
Sherb & Co., LLP
Certified
Public Accountants
|
Boca
Raton, Florida
March 5,
2010
25
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
BALANCE SHEETS
|
||||||||
December
31,
|
December
31,
|
|||||||
|
2009
|
2008
|
||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 606,737 | $ | 1,040,633 | ||||
Accounts
receivable, net
|
2,124,788 | 192,779 | ||||||
Inventories,
net
|
1,650,337 | 505,009 | ||||||
Other
current assets
|
893,202 | 12,155 | ||||||
Total
current assets
|
5,275,064 | 1,750,576 | ||||||
|
||||||||
Property,
fixtures and equipment, net
|
179,832 | 183,353 | ||||||
Note
receivable
|
- | 250,000 | ||||||
Other
long-term assets
|
18,840 | 18,840 | ||||||
Total
Assets
|
$ | 5,473,736 | $ | 2,202,769 | ||||
|
||||||||
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,722,031 | $ | 612,044 | ||||
Loans
payable
|
- | 95,000 | ||||||
Short
term portion of other liabilities
|
23,074 | 26,493 | ||||||
Due
to related parties, short-term portion
|
1,110,000 | 120,000 | ||||||
Total
current liabilities
|
2,855,105 | 853,537 | ||||||
|
||||||||
Convertible
note payable, net of debt discount
|
34,519 | 562,570 | ||||||
Convertible
note payable, net of debt discount, related party
|
5,620,052 | - | ||||||
Due
to related parties, long-term portion
|
61,034 | 700,413 | ||||||
Other
liabilities
|
55,183 | 75,022 | ||||||
Total
Liabilities
|
8,625,893 | 2,191,542 | ||||||
|
||||||||
Stockholders’
(Deficit) Equity:
|
||||||||
Preferred
stock, $0.001 par value; 2,500,000 shares authorized,
|
||||||||
165
shares and 200 shares issued and outstanding, respectively
|
- | - | ||||||
Common
stock, $0.001 par value: 50,000,000 shares
|
||||||||
authorized,
12.0 million and 7.4 million shares
|
||||||||
issued
and outstanding, respectively
|
12,030 | 7,439 | ||||||
Additional
paid-in capital
|
15,977,210 | 11,386,156 | ||||||
Accumulated
deficit
|
(19,141,397 | ) | (11,382,368 | ) | ||||
Total
Stockholders’ (Deficit) Equity
|
(3,152,157 | ) | 11,227 | |||||
Total
Liabilities and Stockholders’ (Deficit) Equity
|
$ | 5,473,736 | $ | 2,202,769 |
See
Notes to Consolidated Financial Statements
26
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF OPERATIONS
|
||||||||
For
the years ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Net
revenue
|
$ | 5,867,895 | $ | 2,589,887 | ||||
Cost
of revenue
|
3,063,142 | 1,833,184 | ||||||
Gross
profit
|
2,804,753 | 756,703 | ||||||
Operating
expenses:
|
||||||||
Selling
and marketing expenses
|
8,001,697 | 3,936,552 | ||||||
General
and administrative expenses
|
2,256,800 | 1,740,143 | ||||||
Total
operating expenses
|
10,258,497 | 5,676,695 | ||||||
Operating
loss
|
(7,453,744 | ) | (4,919,992 | ) | ||||
Other
income (expenses):
|
||||||||
Interest
income
|
16,337 | 70,441 | ||||||
Interest
expense, related party
|
(84,536 | ) | (773 | ) | ||||
Interest
expense, other
|
(237,086 | ) | (411,276 | ) | ||||
Total
other expenses
|
(305,285 | ) | (341,608 | ) | ||||
Net
loss
|
$ | (7,759,029 | ) | $ | (5,261,600 | ) | ||
Basic
and diluted -
|
||||||||
Loss
per share
|
$ | (1.02 | ) | $ | (0.82 | ) | ||
Weighted
average shares outstanding
|
7,627,383 | 6,435,182 |
See
Notes to Consolidated Financial Statements
27
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||||||||||||||||||||||
CONSOLIDATED
STATEMENTS OF CHANGES IN STOCKHOLDERS’ (DEFICIT) EQUITY
|
||||||||||||||||||||||||||||
FOR
THE YEARS ENDED DECEMBER 31, 2009 AND 2008
|
||||||||||||||||||||||||||||
Additional
|
||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
Accumulated
|
Total
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
|||||||||||||||||||||||
Balance
at December 31, 2007
|
- | $ | - | 5,280,518 | $ | 5,281 | $ | 4,510,735 | $ | (6,120,768 | ) | $ | (1,604,752 | ) | ||||||||||||||
Issuance
of preferred stock for cash
|
175 | - | 3,500,000 | 3,500,000 | ||||||||||||||||||||||||
Issuance
of stock in exchange of note
|
25 | - | 1,451,533 | 1,451 | 2,078,112 | 2,079,563 | ||||||||||||||||||||||
Issuance
of common stock for cash
|
660,760 | 661 | 798,651 | 799,312 | ||||||||||||||||||||||||
Shares
issued as compensation
|
46,657 | 46 | 131,404 | 131,450 | ||||||||||||||||||||||||
Beneficial
conversion feature of debt instrument
|
170,460 | 170,460 | ||||||||||||||||||||||||||
Stock
option expense
|
196,794 | 196,794 | ||||||||||||||||||||||||||
Net
loss
|
(5,261,600 | ) | (5,261,600 | ) | ||||||||||||||||||||||||
Balance
at December 31, 2008
|
200 | - | 7,439,468 | 7,439 | 11,386,156 | (11,382,368 | ) | 11,227 | ||||||||||||||||||||
Effects
of rounding of reverse split
|
876 | 1 | (1 | ) | - | |||||||||||||||||||||||
Conversion
of preferred to common stock
|
(217 | ) | - | 4,343,000 | 4,343 | (4,343 | ) | - | ||||||||||||||||||||
Issuance
of preferred stock as dividend
|
32 | - | - | - | ||||||||||||||||||||||||
Issuance
of preferred stock for cash
|
100 | - | 2,000,000 | 2,000,000 | ||||||||||||||||||||||||
Issuance
of stock in exchange of note
|
50 | - | 110,362 | 111 | 1,374,889 | 1,375,000 | ||||||||||||||||||||||
Issuance
of common stock for cash
|
121,012 | 121 | 78,604 | 78,725 | ||||||||||||||||||||||||
Shares
issued as compensation
|
14,801 | 15 | 36,110 | 36,125 | ||||||||||||||||||||||||
Beneficial
conversion feature of debt instrument
|
547,000 | 547,000 | ||||||||||||||||||||||||||
Fee
for acceleration of conversion of preference shares
|
(100,000 | ) | (100,000 | ) | ||||||||||||||||||||||||
Stock
option expense
|
658,795 | 658,795 | ||||||||||||||||||||||||||
Net
loss
|
(7,759,029 | ) | (7,759,029 | ) | ||||||||||||||||||||||||
Balance
at December 31, 2009
|
165 | $ | - | 12,029,519 | $ | 12,030 | $ | 15,977,210 | $ | (19,141,397 | ) | $ | (3,152,157 | ) |
The
Statement of Stockholders (deficit) equity has been restated for the 20 for one
reverse stock split effectuated on December 23, 2009. The corresponding numbers
of preferred shares, preferred stock amount, common shares, common stock amount
and additional paid-in capital have all been retroactively adjusted for the
reverse stock split.
See
Notes to Consolidated Financial Statements
28
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
|
||||||||
CONSOLIDATED
STATEMENTS OF CASH FLOWS
|
||||||||
For
the Years Ended December 31,
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (7,759,029 | ) | $ | (5,261,600 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
|
55,103 | 31,605 | ||||||
Loss
on disposal of assets
|
(1,172 | ) | 804 | |||||
Adjustment
to allowance for doubtful accounts
|
21,195 | 53,101 | ||||||
Adjustment
to reserve for inventory obsolescence
|
(163,497 | ) | 190,601 | |||||
Impairment
of intangible assets
|
- | 41,500 | ||||||
Issuance
of stock options and warrant
|
658,795 | 196,794 | ||||||
Amortization
of debt discount
|
189,001 | 211,245 | ||||||
Issuance
of shares as compensation
|
36,125 | 131,450 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(1,953,204 | ) | 30,997 | |||||
Inventories
|
(981,831 | ) | (116,836 | ) | ||||
Prepaid
expenses and other assets
|
(881,047 | ) | 32,805 | |||||
Accounts
payable and accrued expenses
|
1,140,627 | 17,382 | ||||||
Deposit
from customer
|
- | (400,000 | ) | |||||
Net
cash used in operating activities
|
(9,638,934 | ) | (4,840,152 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Proceeds
from sale of equipment
|
6,835 | - | ||||||
Purchases
of property, fixtures and equipment
|
(57,245 | ) | (151,065 | ) | ||||
Net
cash used in investing activities
|
(50,410 | ) | (151,065 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of common stock
|
78,725 | 799,312 | ||||||
Proceeds
from sale of preferred stock
|
2,000,000 | 3,500,000 | ||||||
Proceeds
from issuance of convertible notes
|
5,500,000 | 990,900 | ||||||
Proceeds
from note receivable, related party
|
1,950,000 | 1,000,000 | ||||||
Proceeds
from loans payable
|
- | 743,552 | ||||||
Repayment
of loans payable
|
(158,258 | ) | (1,183,087 | ) | ||||
Repayment
of note to related parties
|
(115,019 | ) | (76,309 | ) | ||||
Net
cash provided by financing activities
|
9,255,448 | 5,774,368 | ||||||
(Decrease)
Increase in cash
|
(433,896 | ) | 783,151 | |||||
Cash,
beginning of year
|
1,040,633 | 257,482 | ||||||
Cash,
end of year
|
$ | 606,737 | $ | 1,040,633 | ||||
Supplemental disclosures of
cash flow information:
|
||||||||
Cash
paid during the year for interest
|
$ | 116,284 | $ | 190,826 | ||||
Cash
paid during the year for taxes
|
$ | - | $ | - | ||||
Non-Cash
financing and investing activities
|
||||||||
Issuance
of shares for note payable
|
$ | 1,375,000 | $ | 2,079,563 | ||||
Debt
discount for beneficial conversion feature
|
$ | 547,000 | $ | 170,460 |
See
Notes to Consolidated Financial Statements
29
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
|
ORGANIZATION
AND DESCRIPTION OF BUSINESS
|
Business —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
17,500,000, $0.001 par value common shares and 2,500,000, $0.001 par value
preferred shares.
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:
·
|
3,545,612
shares of its common stock to the stockholders of Elite, including 66,862
shares of common stock issued as compensation, as full consideration for
the shares of Elite;
|
·
|
warrants
to Investa Capital Partners Inc. to purchase 177,891 shares of common
stock of the Company for $500,000. The warrants were exercised in February
2007;
|
·
|
69,575
shares of its common stock as partial consideration for termination of a
consulting agreement and assignment of certain trademark rights to the
name “Celsius”
|
·
|
options
to purchase 532,351 shares of common stock of the Company in substitution
for the options currently outstanding in
Elite;
|
·
|
65,000
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.
|
Celsius
Holdings, Inc’s majority stockholder, Mr. Kristian Kostovski, cancelled 360,000
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 the Celsius Holdings,
Inc retaining approximately 24.6% of the outstanding stock. This
transaction has been accounted for as a reverse acquisition and accordingly the
transaction has been treated as a recapitalization of Elite FX, Inc., with
Elite FX, Inc. 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.
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
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 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.
Concentrations of Risk —
Substantially all of the Company’s revenue derives from the sale of the Celsius
beverage. The Company uses single supplier relationships for its raw materials
purchases and filling capacity, which potentially subjects the Company to a
concentration of business risk. If these suppliers had operational problems or
ceased making product available to the Company, operations could be adversely
affected.
30
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO 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 December 31, 2009, 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
establishes an allowance for doubtful accounts based upon factors pertaining to
the credit risk of specific customers, historical trends, and other information.
Delinquent accounts are written-off when it is determined that the amounts are
uncollectible. At December 31, 2009 and December 31, 2008, there was an
allowance for doubtful accounts of $74,296 and $53,101,
respectively.
Inventories — Inventories
include only the purchase cost and are stated at the lower of cost or market.
Cost is determined using the FIFO method. Inventories consist of raw materials
and finished products. The Company writes down inventory during the period in
which such materials and products are no longer usable or marketable. At
December 31, 2009 and December 31, 2008, there was a reserve for obsolescence of
$43,548 and $207,045 respectively.
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.
Impairment of Long-Lived
Assets — In accordance with ASC Topic 360, “Property, Plant, and
Equipment” the Company reviews the carrying value of intangibles and other
long-lived assets for impairment at least annually or whenever events or changes
in circumstances indicate that the carrying amount of an asset may not be
recoverable. Recoverability of long-lived assets is measured by comparison of
its carrying amount tot eh undiscounted cash flows that the asset or asset group
is expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the property, if any, exceeds it fair value.
Revenue Recognition — Revenue
is recognized when the products are delivered, invoiced at a fixed price and the
collectability is reasonably assured. Any discounts, sales incentives or similar
arrangements with the customer are 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 advertising
expense of $4.2 million and $1.6 million, during the fiscal years 2009 and 2008,
respectively.
Research and Development —
Research and development costs are charged to operations as incurred and
consists primarily of consulting fees, raw material usage and test productions
of beverages. The Company incurred expenses of $115,000 and $261,000, during the
fiscal years 2009 and 2008, respectively.
Fair Value of Financial
Instruments — The carrying value of cash and cash equivalents, 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 conversion of
preferred shares, exercise of stock options and warrants (calculated using the
reverse treasury stock method). As of December 31, 2009 there were options
outstanding to purchase 1.0 million shares, which exercise price averaged $4.44.
The dilutive common shares equivalents, including convertible notes, preferred
stock and warrants, of 2.8 million shares were not included in the computation
of diluted earnings per share, because the inclusion would be
anti-dilutive.
31
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Dilutive common shares equivalent table | Shares | USD | Dilutive shares | |||||||||
Series A preferred stock | 165.1 | 2,063,125 | ||||||||||
Convertible debt: | $ | 36,000 | 9,915 | |||||||||
Warrants (in the money) | 350,000 | |||||||||||
Stock options (in the money) | 640,688 | 528,050 | ||||||||||
Total dilutive common shares | 2,819,967 |
If all
dilutive instruments were exercised using the reverse treasury stock method,
then the total number of shares outstanding would be 14.9 million
shares.
Reclassifications — Certain prior year
amounts have been reclassified to conform to the current year presentation. Such
reclassifications had no effect on the reported net loss.
Share-Based Payments
—Effective January 1, 2006, the Company has fully adopted the provisions
of ASC Topic 718 “Compensation — Stock Compensation” and related
interpretations. As such, compensation cost is measured on the date of grant as
the fair value of the share-based payments. Such compensation amounts, if any,
are amortized over the respective vesting periods of the option
grant.
Recent Accounting
Pronouncements
In
December 2008, the FASB issued guidance in the Business Combinations Topic of
the Codification. This guidance requires the acquiring entity in a business
combination to record all assets acquired and liabilities assumed at their
respective acquisition-date fair values including contingent consideration. In
addition, this guidance changes the recognition of assets acquired and
liabilities assumed arising from pre-acquisition contingencies and requires the
expensing of acquisition-related costs as incurred. The guidance applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009. We adopted this guidance effective January 1, 2009. Any
impact would be on future acquisitions.
In April
2009, the FASB issued guidance in the Intangibles-Goodwill and Other Topic of
the Codification on the determination of the useful life of an intangible asset.
This guidance amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2009, and interim periods within
those fiscal years. We do not expect the adoption of this guidance will have any
effect on our financial statements.
In April
2009, the FASB issued guidance in the Fair Value Measurements and Disclosures
Topic of the Codification on determining fair value when the volume and level of
activity for an asset or liability have significantly decreased and identifying
transactions that are not orderly. The guidance emphasizes that even if there
has been a significant decrease in the volume and level of activity, the
objective of a fair value measurement remains the same. Fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants. The guidance provides a number of factors to
consider when evaluating whether there has been a significant decrease in the
volume and level of activity for an asset or liability in relation to normal
market activity. In addition, when transactions or quoted prices are not
considered orderly, adjustments to those prices based on the weight of available
information may be needed to determine the appropriate fair value. The guidance
is effective for interim or annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. We adopted this guidance effective for the
quarter ending June 30, 2009. There is no impact of the adoption on our
financial statements as of December 31, 2009.
In April
2009, FASB issued guidance in the Financial Instruments Topic of the
Codification on interim disclosures about fair value of financial instruments.
The guidance requires disclosures about the fair value of financial instruments
for both interim reporting periods, as well as annual reporting periods. The
guidance is effective for all interim and annual reporting periods ending after
June 15, 2009 and shall be applied prospectively. The adoption of this guidance
had no impact on our financial statements as of December 31, 2009, other than
the additional disclosure.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05 amends the Fair Value
Measurements and Disclosures Topic of the FASB Accounting Standards Codification
by providing additional guidance clarifying the measurement of liabilities at
fair value. ASU 2009-05 is effective for us for the reporting period ending
December 31, 2009. The adoption of this guidance had no impact on our financial
statements as of December 31, 2009, other than the additional
disclosure.
32
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In March
2009 and May 2009, respectively, the FASB issued the statements of financial
accounting standards, none of which is anticipated to have a material impact on
the Company’s results of operations or financial position.
All other
new accounting pronouncements issued but not yet effective have been deemed to
not be applicable; hence the adoption of these new standards is not expected to
have a material impact on our results of operations, cash flows or financial
position.
3.
|
INVENTORIES
|
Inventories
consist of the following at:
December 31, 2009 | December 31, 2008 | |||||||
Finished
goods
|
$ | 1,178,488 | $ | 581,970 | ||||
Raw
Materials
|
515,397 | 130,084 | ||||||
Less:
inventory valuation allowance
|
(43,548 | ) | (207,045 | ) | ||||
Inventories,
net
|
$ | 1,650,337 | $ | 505,009 |
4.
|
OTHER
CURRENT ASSETS
|
Other
current assets at December 31, 2009 and December 31, 2008 consist mainly of
prepaid product demonstrations, prepaid TV advertising, prepaid professional
fees, capitalized offering expenses, deposits on purchases.
5.
|
PROPERTY,
FIXTURES, AND EQUIPMENT
|
Property,
fixtures and equipment consist of the following at:
December
31, 2009
|
December 31, 2008 | |||||||
Furniture,
fixtures and equipment
|
$ | 277,582 | $ | 228,332 | ||||
Less:
accumulated depreciation
|
(97,750 | ) | (44,979 | ) | ||||
Total
|
$ | 179,832 | $ | 183,353 |
Depreciation
expense amounted to $55,103 and $31,605 during the fiscal years 2009 and 2008,
respectively
6.
|
OTHER
LONG-TERM ASSETS
|
Other
long-term assets consist of the following at:
December 31, 2009 | December 31, 2008 | |||||||
Long
term deposit on office lease
|
$ | 18,840 | $ | 18,840 | ||||
Intangible
assets
|
41,500 | 41,500 | ||||||
Less:
Impairment of intangible assets
|
(41,500 | ) | (41,500 | ) | ||||
Total
|
$ | 18,840 | $ | 18,840 |
7.
|
NOTE
RECEIVABLE
|
Note
receivable from Golden Gate Investors, Inc. (“GGI”) was as of December 31, 2009
and December 31, 2008, $0 and $250,000, respectively. The note was due on
February 1, 2012. In September, 2009, the note balance of $250,000 was offset
against the outstanding debenture the company has with the same company. The
note accrued 8% interest per annum. Also see Note 12 — Convertible note payable,
other.
33
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED
FINANCIAL STATEMENTS (continued)
8.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts
payable and accrued expenses consist of the following at:
December
31, 2009
|
December
31, 2008
|
|||||||
Accounts
payable
|
$ | 1,112,424 | $ | 411,185 | ||||
Accrued
expenses
|
609,607 | 200,859 | ||||||
Total
|
$ | 1,722,031 | $ | 612,044 |
9.
|
DUE
TO RELATED PARTIES
|
Due to
related parties consists of the following as of:
December
31, 2009
|
December
31, 2008
|
|||||||
The Company received advances from one of its shareholders at various instances during 2004 and 2005, $76,000 and $424,000, respectively. In September, 2009, the debt was refinanced to a convertible note |
$
|
- |
$
|
643,916 | ||||
|
||||||||
In December 2008, the Company entered into a $1 million revolving line of credit with CD Financial, LLC (“CD”) and it carries interest of Libor plus three percentage points. The Company has pledged all of its assets as security for the line of credit. The line expires in December 2010. | 950,000 | - | ||||||
In December 2009, the Company entered into an agreement to accelerate the conversion of its Series B preferred shares to common stock. The Company recognized a liability to be paid without interest in December 2010. | 100,000 | - | ||||||
The Company’s CEO loaned the Company $50,000 in February 2006. Moreover, the Company accrued salary for the CEO from March of 2006 through May 2008 for a total of $171,000. In August 2009, the total debt was refinanced, has no collateral and accrues interest at 3%; monthly payments of $5,000 are due with a balloon payment of $64,000 in January 2011. | 121,034 | 176,497 | ||||||
$
|
1,171,034 |
$
|
820,413 | |||||
Less: Short-term portion | $ | (1,110,000) | $ | (120,000) | ||||
Long-term portion | $ | 61,034 | $ | 700,413 | ||||
Convertible note
payable
December
31, 2009
|
December
31, 2008
|
|||||||
Convertible note payable, related party see Note 13 |
$
|
5,170,419
|
$
|
- | ||||
Convertible note payable, related party see Note 13 |
449,633
|
- | ||||||
Convertible note payable, long term |
$
|
5,620,052
|
$
|
- |
Also, see
Note 13 — Convertible Note payable, related parties, and Note 15 — Related party
transactions.
10.
|
LOANS
PAYABLE
|
Loans
payable consist of the following as of:
December
31, 2009
|
December
31, 2008
|
|||||||
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 69,575 shares of common stock. |
|
- |
$
|
95,000
|
||||
-
|
95,000
|
34
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
11.
|
OTHER
LIABILITY
|
During
2006 and 2008, the Company acquired a copier and 8 delivery vans, all of them
financed. The outstanding balance on the aggregate loans as of December 31, 2009
and 2008 was $78,257 and $101,515, respectively, of which $23,074 and $26,493,
is due during the next 12 months, respectively. The loans carry interest ranging
from 5.4% to 9.1%. The total monthly principal payment is $2,099. The assets
that were purchased are collateral for the loans.
12.
|
CONVERTIBLE
NOTE PAYABLE, OTHER
|
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 accrued 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 accrued eight percent interest per annum and was
due on February 1, 2012. The note had a pre-payment obligation of $250,000 per
month when certain criteria were fulfilled. The Company was not obligated to
convert the debenture to shares, partially or in full, unless GGI prepaid the
respective portion of its obligation under the note. The Security Agreement
contained three more identical tranches for a total agreement of $6
million.
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 into Company common stock if the conversion price is less than $4.00
per share. GGI’s ownership in the company could not exceed 4.99% of the
outstanding common stock. Under certain circumstances the Company could have
been forced to pre-pay the debenture with a fifty percent penalty of the
pre-paid amount.
On
September 8, 2009, the Company entered into an addendum to the agreement with
GGI. Pursuant to the addendum, the balance of the Company’s note receivable,
$250,000, was netted against the balance of the debenture issued to GGI and all
future tranches were cancelled and terminated without penalty to either
party.
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 $136,949 and $46,656 as
interest expense amortizing the debt discount during 2009 and 2008,
respectively. The Company considered ASC 815 Derivatives and Hedging and
concluded that the conversion option should not be bifurcated from the host. We
also concluded that the conversion option is recorded as equity and not a
liability.
From June
2008 to December 2009, the Company converted $1,149,000 of the debenture to
approximately 1.0 million shares of Common Stock and the Company paid $65,000 of
the debenture in cash.
The
outstanding liability, net of debt discount, as of December 31, 2009 and
December 31, 2008 was $34,519 and $562,570, respectively.
13.
|
CONVERTIBLE
NOTE PAYABLE, RELATED PARTIES
|
The
Company entered into a loan agreement for up to $6.5 million in September 2009
and issued a convertible note to one of its shareholders. The Company had drawn
$5.5 million as of December 31, 2009. The note carries interest of one month
LIBOR plus 3%, payable the first time on the anniversary of the agreement,
thereafter quarterly. The loan matures on September 9, 2012. The outstanding
balance can be immediately converted into the Company’s common stock at a
conversion price. The conversion price was originally based on a price
of $8.00 per share, or a market price calculation at the date of
conversion. In order to comply with the listing requirements for the Nasdaq
Stock Market, in January 2010, the parties emended the convertible loan
agreement to set the conversion price to $10.20, which was the consolidated
closing bid price of the common stock on the OTC Bulletin Board on the business
day prior to the date the loan agreement was entered into. At the same time the
interest rate was increased to one month LIBOR plus 7%. The Company recorded a
debt discount totaling $362,500 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 each draw on the loan. The debt discount is being
amortized over the remaining term of the debenture. The Company recorded $32,919
as interest expense amortizing the debt discount during 2009. The Company
considered requirements by the Derivatives and Hedging Topic of the ASC and
other guidance and concluded that the conversion option should not be bifurcated
from the host contract and the conversion option is recorded as equity and not a
liability. The net outstanding balance as of December 31, 2009 was $5,170,419,
after deducting unamortized debt discount of $329,581.
35
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
Company entered into a refinance agreement for $615,000 in September, 2009 and
issued a convertible note to one of its shareholders. The Company restructured
an already existing note issued to the shareholder. The outstanding balance can
be immediately converted in the Company common stock at a conversion price from
September 8, 2009 through and including December 31, 2011, equal to the lesser
of (i) $8.00 per share, or (ii) the average of the ten daily VWAPs for the 10
Trading Days immediately preceding the date on which a conversion notice is
received (defined in the note as the “Market Price”); or (B) after December 31,
2011 the greater of (i) $8.00 per share, or (ii) the Market Price; provided
that, the conversion price shall never be less than $2.00 (two dollars)
regardless of the Market Price on the conversion date. The Company recorded a
debt discount totaling $184,500 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 $19,133 as interest expense
amortizing the debt discount during 2009. The Company considered requirements by
the Derivatives and Hedging Topic of the ASC and other guidance and concluded
that the conversion option should not be bifurcated from the host contract and
the conversion option is recorded as equity and not a liability. The net
outstanding balance as of December 31, 2009 was $449,633, after deducting
unamortized debt discount of $165,367.
14.
|
PREFERRED
STOCK
|
On August
8, 2008, the Company entered into a securities purchase agreement (“SPA1”) with
CDS Ventures of South Florida, LLC (“CDS”), an affiliate of CD Financial, LLC
(“CD”). Pursuant to SPA1, the Company issued 100 Series A preferred shares
(“Preferred A Shares”), as well as a warrant to purchase an additional 50
Preferred A Shares, for a cash payment of $1.5 million and the cancellation of
two notes in aggregate amount of $500,000 issued to CD. The Preferred A Shares
can be converted into Company common stock at any time. SPA1 was amended on
December 12, 2008 to provide that until December 31, 2010 the conversion price
is $1.60, after which the conversion price is the greater of $1.60 or 90% of the
volume weighted average price of the Common Stock for the prior 10 trading days.
Pursuant to SPA1, the Company also entered into a registration rights agreement,
pursuant to which the Company filed a registration statement for the common
stock issuable upon conversion of Preferred A Shares. The registration statement
filed in connection with the Preferred A Shares was declared effective on May
14, 2009. The Preferred A Shares accrue a ten percent annual cumulative
dividend, payable in additional Preferred A Shares. In March and December of
2009, the Company issued 15.05 Preferred A Shares in dividends for the years
2008 and 2009. The Preferred A Shares mature on February 1, 2013 and are
redeemable only in Company Common Stock.
On
December 12, 2008, the Company entered into a second securities purchase
agreement (“SPA2”) with CDS. Pursuant to SPA2 the Company issued 100 Series B
preferred shares (“Preferred B Shares”), as well as a warrant to purchase
additional 100 Preferred B Shares, for a cash payment of $2.0 million. The
Preferred B Shares can be converted into Company common stock at any time. Until
December 31, 2010, the conversion price is $1.00, after which the conversion
price is the greater of $1.00 or 90% of the volume weighted average price of the
common stock for the prior 10 trading days. Pursuant to SPA2, the Company also
entered into a registration rights agreement, pursuant to which the Company
filed on October 9, 2009, a registration statement for the common stock issuable
upon conversion of Preferred B Shares. The registration statement was
subsequently withdrawn. The Company is obligated to file a new registration
statement upon notice from CDS. The Preferred B Shares accrue a ten percent
annual cumulative dividend, payable in additional Preferred B Shares. In
March 2009, the Company issued 0.55 Preferred B Shares in
dividends.
On March
31, 2009, CDS exercised its right to purchase additional 100 Preferred B Shares
and executed a subscription agreement for $2.0 million. The monies for the
subscription were paid on April 7 and May 1, 2009. In December 2009, CDS entered
into an agreement with the Company whereby they converted all the Preferred B
Shares, including accrued dividends for 2009 of 17.1 Preferred B Shares, to
4,343,000 shares of Common Stock. As compensation for the accelerated
conversion, the Company will pay CDS $100,000 in December 2010, recorded as
reduction of additional paid in capital.
36
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Certain
covenants of Series A preferred shares restrict the Company from entering into
additional debt arrangements or permitting liens to be filed against the
Company’s assets, without approval from the holder of the preferred shares.
There is a mandatory redemption in cash, if the Company breaches certain
covenants of the agreements. The holders have liquidation preference in case of
company liquidation. The Company has the right to redeem the preferred shares
early by the payment in cash of 104% of the liquidation preference value. The
Company may redeem Series A at any time on or after July 1, 2010.
The
following table sets forth the conversion of Preferred Stock into common
stock:
Convertible
Stock
|
Number
shares
|
Value/share
|
Convertible
into number of common Stock
|
|||||||||
Preferred
A
|
165.1 | $ | 20,000.00 | 2,063,125 |
The
number of shares converted into is based on the current conversion
price.
15.
|
RELATED
PARTY TRANSACTIONS
|
The CEO
has guaranteed the financing for the Company’s offices and purchases of
vehicles. 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, 39,063 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, 12,255 shares in a
private placement for a total consideration of $25,000.
The Vice
President of Strategic Accounts and Business Development purchased in February
2008, 12,255 shares in a private placement for a total consideration of
$25,000.
The
Company rented in October, 2009, an office from a company affiliated with CD
Financial LLC, for $4,260 monthly until March 2010, and thereafter on a
month-to-month basis. The rental fee was commensurate with other properties
available in the market.
Also, see
Note 9 — Due to related parties.
16.
|
STOCKHOLDERS’
DEFICIT
|
Issuance
of common stock pursuant to conversion of note
In
January 2008, the Company restructured the then outstanding balance of a note
and issued 50,000 unregistered 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 beginning March 1, 2008. The Company paid off the outstanding
balance as of December 31, 2008.
In June
2008, the Company issued 559,201 unregistered shares as conversion of notes for
$750,000 that were originally issued in December 2007 and April
2008.
During
2008, the Company issued 842,332 as a partial conversion of a debenture for
$774,000 originally issued in December 2007. The Company issued 110,363 shares
as a partial conversion of the same debenture for $375,000 during
2009.
Issuance
of common stock pursuant to services performed
In March
2008, the Company issued a total of 37,500 unregistered shares as compensation
to an international distributor at a fair value of $120,000.
In
September through December, 2008, the Company issued a total of 9,157
unregistered shares as compensation to a consultant and a distributor at a fair
value of $11,450.
During
2009, the Company issued a total of 14,801 unregistered shares as compensation
to a consultant and a distributor at a fair value of $36,125.
37
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Issuance
of common stock pursuant to exercise of warrant and stock options
On
February 15, 2008, the Company issued 834 shares of unregistered common stock in
accordance to its 2006 Stock Incentive Plan to an employee exercising vested
options for a consideration of $312.
During
2009, the Company issued 121,012 shares of common stock in accordance to its
2006 Stock Incentive Plan to employees exercising vested options for an
aggregate consideration of $78,725.
Issuance
of common stock pursuant to private placements
In
February 2008 the Company issued a total of 159,926 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 500,000 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 350,000 unregistered shares of
common stock during a 3-year period, at an exercise price of $2.60 per share. Of
the total consideration, $100,000 was paid in March and $400,100 was paid on
April 7, 2008.
Issuance
of preferred stock pursuant to conversion of note
In
November 2009, the Company issued 50 unregistered Preferred A Shares for the
cancellation of a note in the amount of $1,000,000.
Issuance
of preferred stock pursuant to private placement
In August
2008, the Company issued 100 unregistered Preferred A Shares, as well as a
warrant to purchase additional 50 Preferred A Shares, for a cash payment of $1.5
million and the cancellation of two notes in aggregate amount of
$500,000.
In
December 2008, the Company issued 100 unregistered Preferred B Shares, as well
as a warrant to purchase additional 100 Preferred B Shares, for a cash payment
of $2.0 million.
On March
31, 2009, CDS exercised its right to purchase additional 100 Preferred B Shares
and executed a subscription agreement for $2 million payment. CDS made payments
of $1 million each on April 7 and May 1, 2009.
Also, see
Note 14 — Preferred Stock.
17.
|
INCOME
TAXES
|
For the
years ended December 31, 2009 and 2008, the Company’s net tax provision was
zero.
The
difference between the effective income tax rate and the United States federal
income tax rate is summarized as follows:
2009 | 2008 | |||||||
Statutory
federal rate
|
(34.0 | %) | (34.0 | %) | ||||
State
income tax
|
(3.6 | %) | (3.6 | %) | ||||
Effect
of permanent differences
|
4.2 | % | 3.0 | % | ||||
Change
in valuation allowance
|
33.4 | % | 34.6 | % | ||||
0.0 | % | 0.0 | % |
The
deferred tax asset consisted of the following at December 31:
2009 |
2008
|
|||||||
Net
operating losses
|
$ | 6,474,000 | $ | 3,803,000 | ||||
Other
deferred tax assets
|
82,000 | 206,000 | ||||||
Valuation
allowance
|
(6,556,000 | ) | (4,009,000 | ) | ||||
Total
|
$ | 0 | $ | 0 |
38
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In
assessing the ability to realize a portion of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities and projected
future taxable income in making the assessment. The valuation allowance for
deferred tax assets as of December 31, 2009 and December 31, 2008 was
$6.6 million and $4.0 million, respectively. The increase in valuation allowance
was $2.5 million and $1.8 million in 2009 and 2008, respectively. The increase
in valuation allowance was primarily attributable to the increase in net
operating losses. The Company has recorded a valuation allowance at December 31,
2009 of $6.6 million or 100% of the assets.
Net
operating loss carry forwards expire:
2024
|
$ | 95,699 | ||
2025
|
787,446 | |||
2026
|
1,392,190 | |||
2027
|
3,303,187 | |||
2028
|
4,528,859 | |||
2029
|
7,095,757 | |||
Total
|
$ | 17,203,138 |
The
Company’s net operating loss carry forwards may be limited due to ownership
changes pursuant to Internal Revenue Code section 382.
In July
2006, the FASB issued ASC 740. This Interpretation prescribes a consistent
recognition threshold and measurement standard, as well as clear criteria for
subsequently recognizing, derecognizing and measuring tax positions for
financial statement purposes. The Interpretation also requires expanded
disclosure with respect to uncertainties as they relate to income tax
accounting. ASC 740 is effective for fiscal years beginning after December 15,
2006. Management has evaluated all of its tax positions and determined that ASC
740 did not have a material impact on the Company’s financial position or
results of operations during its year ended December 31, 2009
18.
|
STOCK-BASED
COMPENSATION
|
The
Company adopted an Incentive Stock Plan on January 18, 2007. This plan is
intended to provide incentives which will attract and retain highly competent
persons at all levels as employees of the Company, as well as independent
contractors providing consulting or advisory services to the Company, by
providing them opportunities to acquire the Company's common stock or to receive
monetary payments based on the value of such shares pursuant to Awards issued.
While the plan terminates 10 years after the adoption date, issued options have
their own schedule of termination. Until 2017, options to acquire up to 2.5
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 1.1 million options to purchase shares at an
average price of $4.02 with a fair value of $2.5 million. For the year ended
December 31, 2009 and December 31, 2008, the Company recognized $429,562 and
$196,794, respectively, of non-cash compensation expense (included in General
and Administrative expense in the accompanying Consolidated Statement of
Operations). As of December 31, 2009 and December 31, 2008, the Company had
approximately $1.7 million and $192,000, respectively, of unrecognized pre-tax
non-cash compensation expense which the Company expects to recognize, based on a
weighted-average period of 1.4 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 approximately 421,172 shares that have vested, and
121,845 shares were exercised as of December 31, 2009. The following is a
summary of the assumptions used:
Risk-free interest rate
|
1.3%
- 4.9%
|
|
Expected dividend yield
|
—
|
|
Expected
term
|
3 –
5 years
|
|
Expected
annual volatility
|
73%
- 90%
|
The
Company uses the Black-Scholes option-pricing model to estimate the fair value
of its stock option awards and warrant issuances. The calculation of the fair
value of the awards using the Black - Scholes option-pricing model is affected
by the Company’s stock price on the date of grant as well as assumptions
regarding the following:
39
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)
·
|
Estimated
volatility is a measure of the amount by which the Company’s stock price
is expected to fluctuate each year during the expected life of the award.
The Company’s estimated volatility is an average of the historical
volatility of peer entities whose stock prices were publicly available.
The Company’s calculation of estimated volatility is based on historical
stock prices of these peer entities over a period equal to the expected
life of the awards, which ranges from 3 to 4 years. The Company uses the
historical volatility of peer entities due to the lack of sufficient
historical data of its stock price in the market in which its shares trade
which can be expected to repeat itself in the future. This is due to among
other things that in the past the Company’s stock has traded on the OTC
Bulletin Board and will now trade on the NASDAQ National
Market;
|
·
|
The
expected term represents the period of time that awards granted are
expected to be outstanding .With the passage of time, actual behavioral
patterns surrounding the expected term will replace the current
methodology;
|
·
|
The
expected dividend yield is 0, based on the Company’s policy not
to issue cash dividends; and
|
·
|
The
risk-free interest rate is based on the yield curve of a zero-coupon U.S.
Treasury bond on the date the stock option award is granted with a
maturity equal to the expected term of the stock option
award.
|
In March,
2008, the Company issued a total of 37,500 shares as compensation to an
international distributor at a fair value of $120,000.
During
2009 and 2008, the Company issued a total of 14,801 and 9,157, respectively,
shares as compensation to a consultant and a distributor at a fair value of
$36,125 and $11,450, respectively. The consultant will receive additional shares
with fair value of $2,000 monthly as long as the consultancy agreement
continues.
The
following table summarizes information about options for purchase of shares;
granted, exercised and forfeited during the two-year period ending
December 31, 2009:
|
Weighted
Average
|
Weighted
Average
|
||||||||||||||
Options
|
Shares (in
thousands) |
Exercise Price |
Fair Value |
Remaining
Contractual Term (in years) |
||||||||||||
at
December 31, 2007
|
583 | $ | 1.88 | $ | 1.09 | 6.7 | ||||||||||
Granted
|
149 | 2.15 | 1.31 | |||||||||||||
Exercised
|
(1 | ) | 0.37 | 0.22 | ||||||||||||
Forfeiture
|
(59 | ) | 9.05 | 5.25 | ||||||||||||
At
December 31, 2008
|
672 | $ | 1.32 | $ | 0.78 | 5.9 | ||||||||||
Granted
|
477 | 7.87 | 4.23 | |||||||||||||
Exercised
|
(121 | ) | 0.65 | 0.40 | ||||||||||||
Forfeiture
|
(31 | ) | 5.20 | 2.85 | ||||||||||||
At
December 31, 2009
|
997 | $ | 4.44 | $ | 2.41 | 6.4 | ||||||||||
Exercisable
at December 31, 2009
|
299 | $ | 1.77 | $ | 1.16 | 3.3 | ||||||||||
Available
for future grant
|
1,375 |
The
following table summarizes information about options outstanding at
December 31, 2009:
Range of
Exercise
Price
|
Number
Outstanding
at
December 31,
2009
(000s)
|
Weighted
Average
Remaining
Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable
at
December 31,
2009
(000s)
|
Weighted
Average
Exercise
Price
|
Weighted
Average
Remaining
Life
in
Years
|
||||||||||||||||||||
$0.37 - $1.20 | 457 | 4.4 | $ | 0.45 | 199 | $ | 0.40 | 2.5 | ||||||||||||||||||
$1.80 - $2.80 | 176 | 6.3 | $ | 2.28 | 83 | $ | 2.21 | 4.1 | ||||||||||||||||||
$3.20 - $9.40 | 63 | 8.1 | $ | 7.11 | 1 | $ | 4.60 | 7.9 | ||||||||||||||||||
$10.80 - $10.80 | 285 | 9.2 | $ | 10.80 | - | - | - | |||||||||||||||||||
$12.00 - $22.00 | 16 | 7.5 | $ | 18.03 | 11 | $ | 18.03 | 7.5 | ||||||||||||||||||
Outstanding
options
|
997 | 6.4 | $ | 4.44 | 293 | $ | 1.58 | 3.2 |
40
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table summarizes information about non-vested options outstanding at
December 31, 2009:
Total
Non-vested options
|
Number
of
|
Weighted
Average Grant
|
||||||
|
shares (000s)
|
Date Fair Value
|
||||||
At
December 31, 2007
|
577 | $ | 1.10 | |||||
Granted
|
149 | 1.31 | ||||||
Vested
|
(259 | ) | 0.99 | |||||
Forfeited
|
(49 | ) | 5.42 | |||||
At
December 31, 2008
|
418 | 0.74 | ||||||
Granted
|
477 | 4.23 | ||||||
Vested
|
(169 | ) | 1.06 | |||||
Forfeited
|
(28 | ) | 2.02 | |||||
At
December 31, 2009
|
698 | $ | 3.00 |
19.
|
STOCK
OPTIONS AND WARRANTS
|
An
investment banking firm received, as placement agent for the Fusion Capital
financing, a warrant to purchase 3,750 shares at a price of $26.20 per share. If
unexercised, the warrant expires on June 22, 2012.
In March,
2008 the Company issued a total of 500,000 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 350,000 unregistered shares of
common stock at an exercise price of $2.60 per share. If unexercised, the
warrant expires on March 28, 2011.
Year
Ended
December
31, 2009
|
Year
Ended
December
31, 2008
|
|||||||||||||||
Warrants
|
Weighted
Average
|
Warrants
|
Weighted
Average
|
|||||||||||||
in (‘000s)
|
Exercise Price
|
in (‘000s)
|
Exercise Price
|
|||||||||||||
Balance
at the beginning of year
|
2,979 | $ | 1.35 | 4 | $ | 26.20 | ||||||||||
Granted
|
50 | 9.00 | 2,975 | 1.31 | ||||||||||||
Exercised
|
(2,625 | ) | 1.14 | — | — | |||||||||||
Expired
|
— | — | — | — | ||||||||||||
Balance
at the end of year
|
404 | $ | 3.61 | 2,979 | $ | 1.35 | ||||||||||
Warrants
exercisable at end of year
|
404 | $ | 3.61 | 2,979 | $ | 1.35 | ||||||||||
Weighted
average fair value of the
|
||||||||||||||||
warrants
granted during the year
|
$ | 7.63 | $ | 1.36 |
The
weighted average remaining contractual life and weighted average exercise price
of warrants outstanding and exercisable at December 31, 2009, for selected
exercise prices, is as follows:
Exercise
Price
|
Number
Outstanding at
December 31,
2009
(000s)
|
Weighted
Average
Remaining Life
|
Weighted
Average
Exercise
Price
|
|
|||||||||||
$ | 2.60 | 350 | 1.3 | $ | 2.60 | ||||||||||
$ | 9.00 | 50 | 2.8 | $ | 9.00 | ||||||||||
$ | 26.20 | 4 | 2.6 | $ | 26.20 | ||||||||||
404 | 1.4 | $ | 3.61 |
41
CELSIUS
HOLDINGS, INC AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
20.
|
OPERATING
LEASES
|
The
Company renewed its office lease effective October 2009. The monthly rent
amounts to $6,717 per month and the lease terminates in September 2010. The
Company also entered into a lease of a second office in September 2009, for 6
months, the monthly lease payment is $4,260. Future annual minimum payments
required under operating lease obligations at December 31, 2009 are as
follows:
Future
Minimum Lease
Payments
2010
|
$ | 68,973 | ||
2011
and thereafter
|
0 | |||
Total
|
$ | 68,973 |
21.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company has entered into distribution agreements with liquidated damages in case
the Company cancels the distribution agreements without cause. Cause has been
defined in various ways. It is the management belief that no such agreement has
created any liability as of today’s date.
There is
one agreement that also has liquidated damages, but instead of a monetary
damage, the potential liability is to have to issue shares to the distributor at
a purchase price of $1.20. The quantity of shares depends on this distributor’s
purchases from the Company as compared to the Company’s total
revenue.
22.
|
BUSINESS
AND CREDIT CONCENTRATION
|
Substantially
all of the Company’s revenue derives from the sale of the Celsius
beverage.
The
Company uses single supplier relationships for its raw materials purchases and
filling capacity, which potentially subjects the Company to a concentration of
business risk. If these suppliers had operational problems or ceased making
product available to the Company, operations could be adversely affected. No
vendor accounted for more than 10% of total payments.
During
2009, the Company recorded revenue to two customers during the year a total of
29.4% of the Company’s total revenue for the year. Both customers are continuing
customers and we have recognized revenue from both of them in 2010.
23.
|
SUBSEQUENT
EVENTS
|
In
January 2010, the Company entered into an agreement with CDS Ventures of South
Florida, LLC to amend the $6.5 million convertible note issued in September
2009. This was done in order for the Company to comply with Nasdaq Stock
Market’s listing requirements. The interest rate on the note was increased from
300 to 700 basis points over one (1) month LIBOR. The conversion price was
modified from either $8.00 or a market price calculation to a fixed rate of
$10.20 per share. On March 10, 2010, CDS gave notice to convert $4.5 million of
the convertible note to 441,176 shares of common stock, and they also gave
notice of their election to convert all of their Series A Preferred Stock,
including accrued dividends to 2,103,446 shares of common stock (a conversion
price of $1.60 per share.)
On
February 16, 2010, the Company sold 900,000 units resulting in aggregate gross
proceeds of $14.5 million. Each unit consists of four shares of common stock and
one warrant to purchase one share of common stock. The warrants are exercisable
at a price of $5.32 per share at any time through February 8, 2013. In addition,
the Company has granted the underwriters an option to purchase up to 135,000
additional units to cover over-allotments, exercisable at any time up to 45 days
from the closing of the offering. The net proceeds of the offering after
deducting underwriting discount and estimated offering expenses were
approximately $13.1 million.
Lucille
Santini issued a conversion notice on March 3, 2010, for the convertible note to
be converted to 176,659 shares of common stock (a conversion price of $3.48 per
share.)
We have
evaluated events and transactions that occurred subsequent to December 31, 2009
through March 10, 2010, the date the financial statements were issued, for
potential recognition or disclosure in the accompanying financial
statements. Other than the disclosures shown, we did not identify any
events or transactions that should be recognized or disclosed in the
accompanying financial statements.
42
ITEM
9
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
|
None
ITEM
9A DISCLOSURE CONTROLS AND
PROCEDURES
Disclosure
Controls and Procedures
Under the
supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an
evaluation of the effectiveness of the design and operation of our disclosure
controls and procedures, as defined in Rules 13a-15(e) under the Securities
Exchange Act of 1934, as amended, as of the end of the period covered by this
report (the “Evaluation Date”). Based on this evaluation, our principal
executive officer and principal financial officer concluded as of the Evaluation
Date that our disclosure controls and procedures were effective such that the
information relating to Celsius Holdings, Inc., including our consolidated
subsidiaries, required to be disclosed in our Securities and Exchange Commission
(“SEC”) reports (i) is recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms and (ii) is accumulated and
communicated to the Company’s management, including our principal executive
officer and principal financial officer, as appropriate, to allow timely
decisions regarding required disclosure.
Our
management, including our Chief Executive Officer and Chief Financial Officer,
does not expect that our disclosure controls and procedures or our internal
controls will prevent all error and all 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 benefits of controls must be considered relative to their costs. Due to
the inherent limitations in all control systems, no evaluation of controls can
provide absolute assurance that all control issues and instances of fraud, if
any, within the Company have been detected.
Management’s
Report on Internal Control over Financial Reporting
Our
management is responsible for establishing and maintaining adequate internal
control over financial reporting (as defined in Rule 13a-15(f) under the
Securities Exchange Act, as amended). Our management assessed the effectiveness
of our internal control over financial reporting as of December 31, 2009. In
making this assessment, our management used the criteria set forth by the
Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal Control-Integrated
Framework. Our management has concluded that, as of December 31, 2009,
our internal control over financial reporting is effective based on these
criteria.
Changes
in Internal Control over Financial Reporting
Our
management has also evaluated our internal controls over financial reporting,
and there have been no significant changes in our internal controls or in other
factors that could significantly affect those controls subsequent to the date of
their last evaluation.
ITEM
9B OTHER INFORMATION
43
PART
III
DIRECTORS,
EXECUTIVE OFFICERS, PROMOTERS, CONTROL PERSONS AND CORPORATE GOVERNANCE;
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE
ACT
|
The name,
age and positions of our directors and executive officers are set forth
below:
Name
|
Age
|
Position
|
||
Stephen
C. Haley
|
52
|
Chief
Executive Officer, President and Chairman of the Board of
Directors
|
||
Geary
W Cotton
|
57
|
Chief
Financial Officer and Director
|
||
Jeffrey
L. Perlman
|
45
|
Chief
Operating Officer
|
||
Janice
H. Haley
|
48
|
Vice
President of Strategic Accounts and Business
Development
|
||
James
R. Cast
|
61
|
Director
|
||
William
H. Milmoe
|
61
|
Director
|
||
Thomas
E. Lynch
|
62
|
Director
|
||
Christina
A. Nast
|
78
|
Director
|
||
Richard
J. Swanson
|
55
|
Director
|
Set
forth below is a brief description of the background and business experience of
each of our directors and executive officers:
Stephen C.
Haley is our Chief Executive Officer, President and Chairman of the board
of directors, and has served in these capacities since January 2007, when we
acquired Elite FX, Inc. Mr. Haley co-founded Elite FX, Inc., in April 2004 and
served as its CEO from its inception until our acquisition of that company. From
2001 to March 2004, Mr. Haley, together with his wife, Janice Haley, invested in
multiple beverage distribution and manufacturing companies. From 1999 to 2001,
he held positions as COO and Chief Business Strategist for MAPICS, a publicly
held, international software company with over 500 employees and $145 million in
revenue. From 1997 to 1999, he was CEO of Pivotpoint, a Boston-based Enterprise
Requirements Planning (ERP) software firm, backed by a venture capital group
which included Goldman Sachs, TA Associates and Greyloc. He holds a BSBA in
Marketing from the University of Florida. The particular experience,
qualifications, attributes or skills that led the board to conclude that Mr.
Haley should serve as a director included his knowledge of the company, his
previous experience as owner of a beverage distributor, as well as his
experience as Chairman of a startup software company and COO of a publicly
traded company as more fully detailed above.
Geary W. Cotton
has been a director of our company since September 2008 and assumed the
position of Chief Financial Officer in January 2010. Mr. Cotton is director of a
privately held insurance industry company, XN Financial. From 1986 to 2000, Mr.
Cotton was Chief Financial Officer of Rexall Sundown, a publicly-held
manufacturer of vitamins and supplements. Mr. Cotton was a director and audit
committee chairman of QEP Co. Inc. from 2002 to May 2006. Mr. Cotton is a
retired certified public accountant with over 30 years of broad business
experience in both public accounting and private industry. Mr. Cotton is a
graduate of University of Florida. The particular
experience, qualifications, attributes or skills that led the board to conclude
that Mr. Cotton should serve as a director included his qualification as a
certified public accountant and his experience as the CFO of a publicly traded
nutritional supplement company.
Jeffrey L.
Perlman is our Chief Operating Officer. Mr. Perlman joined our company in
such capacity in January 2009. From 2002 to December 2008 Mr. Perlman was
President of Community Ventures Inc., a consulting firm offering business
development, public relations, government relations, strategic planning,
publishing and economic development services. Mr. Perlman is the former mayor of
the City of Delray Beach. Mr. Perlman is also a member of the board of directors
of the Business Development Board of Palm Beach County, the Greater Delray Beach
Chamber of Commerce and several other non-profit organizations. Mr. Perlman
holds a BA in Political Science from the State University of New York, College
at Oswego.
44
Janice H.
Haley is our
Vice President of Strategic Accounts and Business Development and has served in
such capacity since our acquisition of Elite FX, Inc. in January 2007. Ms. Haley
joined Elite FX, Inc., in June 2006 as Vice President of Marketing. From 2001 to
June 2006, Ms. Haley, together with her husband Stephen C. Haley, was an
investor in beverage distribution and manufacturing companies. Ms. Haley has
over 20 years management expertise including the software technology industry in
enterprise applications and manufacturing industries specializing in business
strategy, sales and marketing. From 1999 to 2001 she was Director of Corporate
Communications of MAPICS. From 1997 to 1999 she worked as Vice President of
Marketing of Pivotpoint. Ms. Haley holds a BSBA in Marketing from University of
Florida.
James R.
Cast has been a director of our company in January 2007. Mr. Cast is a
certified public accountant and is the owner of an Accounting firm in Ft.
Lauderdale, Florida, which specializes in tax and business consulting. Prior to
forming his firm in 1994, Mr. Cast was senior tax Partner-in-Charge of KPMG Peat
Marwick’s South Florida tax practice. During his 22 years at KPMG Peat Marwick
he also served the South Florida coordinator for all mergers, acquisitions, and
business valuations. He is a member of AICPA and FICPA. He currently is a member
of the board of directors of the Covenant House of Florida. He has a BA from
Austin College and a MBA from the Wharton School at the University of
Pennsylvania. . The particular experience, qualifications,
attributes or skills that led the board to conclude that Mr. Cast should serve
as a director included his qualification as a certified public accountant and
his 22 years of experience with KPMG.
William H.
Milmoe has been a director of our company since August 2008. Since
January 2006, Mr. Milmoe has served as President and Chief Financial Officer of
CDS International Holdings, Inc., a private investment firm. From 1997 to
January 2006, he was CDS International Holdings, Inc.’s Chief Financial Officer
and Treasurer. Mr. Milmoe is a certified public accountant with over 40 years of
broad business experience in both public accounting and private industry. His
financial career has included positions with PricewaterhouseCoopers, General
Cinema Corporation, an independent bottler of Pepsi Cola products and movie
exhibitor. Mr. Milmoe is member of both the Florida and the American Institute
of Certified Public Accountants. The particular experience,
qualifications, attributes or skills that led the board to conclude that Mr.
Milmoe should serve as a director included his qualification as a certified
public accountant and his 40 years of relevant business and financial
experience.
Thomas
Lynch became a director of our company in November 2009. Mr. Lynch has
been President of the Plastridge Insurance Agency, a local independent agency,
since 1975. He has been a director of 1st
United Bank since 2004 and on the Board of Governors for Citizens Property &
Casualty Insurance since February 2009. He is also on the board of many
charitable organizations and has served as an elected official for many
government entities over the past twenty years. Mr. Lynch is a graduate of
Loyola University in Chicago. He received his CPCU degree in 1978 from the
American Institute for Property & Liability Underwriters. The particular
experience, qualifications, attributes or skills that led the board to conclude
that Mr. Lynch should serve as a director included his diverse experience
as a board member of several different companies and over 30 years of
business experience.
Christian
A. Nast has been a director of our company since January 2010. Mr. Nast
was CEO of Rexall Sundown,
a publicly-held manufacturer of vitamins and supplements, from 1997 until his
retirement in 2000. From 1995
to 1997, Mr. Nast was Rexall Sundown’s President and COO. Mr. Nast was executive
vice president for
Colgate North America from 1989 until 1995. Mr. Nast was a director of QEP Co.
Inc. from 1998 to July 2006
and of The Tilton School from 2002 until May of 2007. Nast earned a BA in
Economics from Bates
College and an MBA from New York University. He retired from the United States
Marine Corps as a Major. The
particular experience, qualifications, attributes or skills that led the board
to conclude that Mr. Nast should serve as a director included his prior
experience as the CEO and COO of a publicly traded nutritional
products company and vice president of a consumer products company as well as
the skill gained as Major in the United States Marine Corp
Richard
Swanson has been a director of our company since December 2009. Mr.
Swanson has been a principal of the Swanson Group, a consumer products sales and
marketing firm since 1998. Mr. Swanson is serving his second term as a member of
the National Association of Chain Drug Stores Retail Advisory Board and
currently functioning on its steering committee. Mr. Swanson has been a senior
executive within the consumer products industry for 31 years and held positions
with Procter & Gamble and Confab Corporation prior to forming his own sales
and marketing firm in 1998. Mr. Swanson is a graduate of the University of
Illinois. The particular experience, qualifications, attributes or skills that
led the board to conclude that Mr. Swanson should serve as a director included
his 31 years of experience as a senior executive in the consumer products
industry as well as his experience as a member of the National Association of
Chain Drug Stores Retail Advisory Board.
45
Janice
Haley is Stephen C. Haley’s spouse. There are no other family relationships
among our executive officers and directors.
Pursuant
to the securities purchase agreement relating to the Series A preferred stock,
CDS Ventures of South Florida, LLC was granted the right to designate two
members of our five member board of directors. Messrs. Milmoe and Cotton are
currently the designees of CDS Ventures of South Florida, LLC on our board of
directors pursuant to this agreement. In connection with the loan agreement
entered into with CDS Ventures of South Florida, LLC in September 2009, we
agreed to expand our board of directors to seven persons and CDS Ventures of
South Florida, LLC was granted the right to designate two additional directors
or a majority of our board of directors. Messrs. Lynch and Swanson are its two
additional designees.
Compensation
of Directors
Our
bylaws provide that, unless otherwise restricted by our certificate of
incorporation, our board of directors has the authority to fix the compensation
of directors. The directors may be paid their expenses, if any,
related to attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as our director. Our bylaws further provide that no such
payment will preclude any director from serving our company in any other
capacity and receiving compensation therefore. Further, members of
special or standing committees may be given compensation for attending committee
meetings.
Effective
January 18, 2007, non-employee directors received cash fees of $4,000 per year.
Effective January 1, 2010, the annual cash fee for outside directors is
$12,000. In addition, members of the audit committee receive an
additional annual cash fee of $2,000 and the chairman of the audit committee
receives $2,000 for serving in such capacity. Members of the
compensation and nominating and corporate governance committees receive an
additional cash fee of $1,000.
In
addition to the foregoing, each new member of the board of directors will
receive stock options under our Amended 2006 Stock Incentive Plan to purchase
10,000 shares of our common stock upon joining the board of directors and each
director will receive stock options to purchase 2,500 shares of our common stock
upon the completion of each year of service. The exercise price of
the stock options will be the fair market value of our common stock as of the
date of grant.
Terms
of Directors and Executive Officers
All of
our directors serve until the next annual meeting of shareholders and until
their successors are elected by shareholders and qualified, or until their
earlier death, retirement, resignation or removal. Currently, our
board of directors consists of seven persons, four of whom have been designated
by CDS Ventures of South Florida, LLC. Our bylaws authorized the
board of directors to designate from among its members one or more committees
and alternate members thereof, as they deem desirable, each consisting of one or
more of the directors, with such powers and authority (to the extent permitted
by law and these bylaws) as may be provided in such
resolution. Executive officers serve at the pleasure of the board of
directors.
Board
Committees and Independence
In
November 2009, our board of directors established three committees, an audit
committee, a compensation committee and a nominating and corporate governance
committee. The audit committee currently consists of Messrs. Cast, Nast and
Lynch, the compensation committee currently consists of Messrs. Cast, Nast and
Milmoe and the nominating and corporate governance committee currently consists
of Messrs. Milmoe, Nast and Cast. Our board of directors has
determined that each of Messrs. Cast, Nast, Lynch and Milmoe is “independent”
within the meaning of the applicable rules and regulations of the Securities and
Exchange Commission and the listing standards of the Nasdaq Stock
Market.
In
addition, we believe each of Messrs. Cast, Nast, Milmoe and Lynch qualifies an
“audit committee financial expert” as the term is defined by the applicable
rules and regulations of the Securities and Exchange Commission and the Nasdaq
Stock Market listing standards, based on their respective business professional
experience in the financial and accounting fields.
Audit
Committee
The audit
committee assists our board of directors in its oversight of the company’s
accounting and financial reporting processes and the audits of our company’s
financial statements, including (i) the quality and integrity of our company’s
financial statements, (ii) our company’s compliance with legal and regulatory
requirements, (iii) the independent auditors’ qualifications and independence
and (iv) the performance of our company’s internal audit functions and
independent auditors, as well as other matters which may come before it as
directed by the board of directors. Further, the audit committee, to
the extent it deems necessary or appropriate, among its several other
responsibilities, shall:
46
·
|
be
responsible for the appointment, compensation, retention, termination and
oversight of the work of any independent auditor engaged for the purpose
of preparing or issuing an audit report or performing other audit, review
or attest services for our company;
|
·
|
discuss
the annual audited financial statements and the quarterly unaudited
financial statements with management and the independent auditor prior to
their filing with the Securities and Exchange Commission in our Annual
Report on Form 10-K and Quarterly Reports on Form
10-Q;
|
·
|
review
with our company’s financial management on a period basis (a) issues
regarding accounting principles and financial statement presentations,
including any significant changes in our company’s selection or
application of accounting principles, and (b) the effect of any regulatory
and accounting initiatives, as well as off-balance sheet structures, on
the financial statements of our
company;
|
·
|
monitor
our company’s policies for compliance with federal, state, local and
foreign laws and regulations and our company’s policies on corporate
conduct;
|
·
|
maintain
open, continuing and direct communication between the board of directors,
the audit committee and our independent auditors;
and
|
·
|
monitor
our compliance with legal and regulatory requirements and shall have the
authority to initiate any special investigations of conflicts of interest,
and compliance with federal, state and local laws and regulations,
including the Foreign Corrupt Practices Act, as may be
warranted.
|
Mr. Cast
is the chairman of our audit committee.
Compensation
Committee
The
compensation committee aids our board of directors in meeting its
responsibilities relating to the compensation of our company’s executive
officers and to administer all incentive compensation plans and equity-based
plans of the company, including the plans under which company securities may be
acquired by directors, executive officers, employees and
consultants. Further, the compensation committee, to the extent it
deems necessary or appropriate, among its several other responsibilities,
shall:
·
|
review
periodically our company’s philosophy regarding executive compensation to
(i) ensure the attraction and retention of corporate officers; (ii) ensure
the motivation of corporate officers to achieve our company’s business
objectives, and (iii) align the interests of key management with the
long-term interests of our company’s
shareholders;
|
·
|
review
and approve corporate goals and objectives relating to Chief Executive
Officer compensation and other executive officers of our
company;
|
·
|
make
recommendations to the board of directors regarding compensation for
non-employee directors, and review periodically non-employee director
compensation in relation to other comparable companies and in light of
such factors as the compensation committee may deem appropriate;
and
|
·
|
review
periodically reports from management regarding funding our company’s
pension, retirement, long-term disability and other management welfare and
benefit plans.
|
Mr.
Milmoe is the chairman of our compensation committee.
Compensation
Consultants
Neither
the compensation committee nor company management has engaged outside
compensation consultants.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee recommends to the board of
directors individuals qualified to serve as directors and on committees of the
board of directors to advise the board of directors with respect to the board of
directors composition, procedures and committees to develop and recommend to the
board of directors a set of corporate governance principles applicable to our
company; and to oversee the evaluation of the board of directors and our
company’s management. The nominating committee does not have a policy to
consider diversity in nominating directors.
47
Further,
the nominating and corporate governance committee, to the extent it deems
necessary or appropriate, among its several other responsibilities
shall:
·
|
recommend
to the board of directors and for approval by a majority of independent
directors for election by shareholders or appointment by the board of
directors as the case may be, pursuant to our bylaws and consistent with
the board of director’s evidence for selecting new
directors;
|
·
|
review
the suitability for continued service as a director of each member of the
board of directors when his or her term expires or when he or she has a
significant change in status;
|
·
|
review
annually the composition of the board of directors and to review
periodically the size of the board of
directors;
|
·
|
make
recommendations on the frequency and structure of board of directors
meetings or any other aspect of procedures of the board of
directors;
|
·
|
make
recommendations regarding the chairmanship and composition of standing
committees and monitor their
functions;
|
·
|
review
annually committee assignments and
chairmanships;
|
·
|
recommend
the establishment of special committees as may be necessary or desirable
from time to time; and
|
·
|
develop
and review periodically corporate governance procedures and consider any
other corporate governance issue.
|
Mr.
Milmoe is the chairman of our nominating and corporate governance
committee.
Governance
Structure
The
Company has chosen to combine the principal executive officer and board chairman
positions. Given the relatively small size of the Company, combining the
principal executive officer and board chairman positions is the most efficient
board leadership structure. Further, five of the Company’s seven board members
are independent. Due to the significant majority of independent
directors the Company believes that combining the principal executive officer
and board chairman positions is the most appropriate board leadership structure
for the Company.
No lead
independent director has been designated to chair meetings of the independent
directors.
Board
of Directors Role in Risk Oversight
The
Company’s audit committee has periodic meetings with management and the
Company’s independent auditors to perform risk oversight with respect to the
Company’s internal control processes. The Company’s audit committee
is comprised of a majority independent directors and chaired by an independent
director. The Company believes that the board’s role in risk
oversight does not materially affect the leadership structure of the
Company.
Code
of Ethics
We have
adopted a code of ethics that applies to all of our executive officers,
directors and employees. The code of ethics codifies the business and ethical
principles that govern all aspects of our business. This document
will be made available in print, free of charge, to any shareholder requesting a
copy in writing from our Secretary at our executive offices in Delray Beach,
Florida. A copy of our code of ethics is available on our website at
www.celsius.com.
Section
16(a) Beneficial Ownership Reporting Compliance
Section
16(a) of the Exchange Act requires our directors, executive officers and persons
who own more than 10% of a registered class of our equity securities to file
reports of ownership of, and transactions in, our equity securities with the
SEC. Such directors, executive officers and 10% shareholders also are required
to furnish us with copies of all Section 16(a) reports they file.
Based on
a review of the copies of such reports and the written representations of such
reporting persons, we believe that all Section 16(a) filing requirements
applicable to our directors, executive officers and 10% shareholders were
complied with during 2009, with the exception of the following:
48
·
|
Late
filing of Form 3 on behalf of Thomas E. Lynch
.
|
·
|
Late
filing of Form 4 in two instances on behalf each of Carl DeSantis and
William Milmoe.
|
·
|
Failure
to file a Form 4 by Lucille Santini upon entry into the September 8, 2009
convertible loan agreement with our
Company.
|
We
believe that each of the foregoing was inadvertent.
ITEM
11.
|
EXECUTIVE
COMPENSATION
|
The
following table sets forth certain information concerning the compensation paid
to our Chief Executive Officer, Chief Financial Officer and our two other most
highly compensated executive officers who earned at least $100,000 during the
periods described below. No other executive officer had compensation
of $100,000 or more for the periods described below.
Name
& Principal Position
|
Year
|
Salary
|
Stock
Awards
|
Option
Awards(3)
|
All
Other (1) Compensation
|
Total
(4)
Compensation
|
||||||||||||||||
Stephen
C. Haley,
|
2009
|
$
|
159,877
|
$
|
-
|
$
|
145,007
|
$
|
-
|
$
|
304,884
|
|||||||||||
President,
CEO and
|
2008
|
$
|
141,231
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
141,231
|
|||||||||||
Chairman
of the Board
|
2007
|
$
|
93,877
|
$
|
-
|
$
|
24,769
|
$
|
51,000
|
$
|
169,646
|
|||||||||||
Jan
A. Norelid,
|
2009
|
$
|
159,877
|
$
|
-
|
$
|
145,007
|
$
|
7,478
|
$
|
312,361
|
|||||||||||
CFO
(2)
|
2008
|
$
|
141,092
|
$
|
-
|
$
|
62,120
|
$
|
7,200
|
$
|
210,412
|
|||||||||||
2007
|
$
|
135,831
|
$
|
25,000
|
$
|
20,271
|
$
|
4,985
|
$
|
186,087
|
||||||||||||
Jeffrey
Perlman,
|
2009
|
$
|
141,231
|
$
|
-
|
$
|
317,703
|
$
|
-
|
$
|
458,934
|
|||||||||||
COO
|
2008
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||
2007
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||
Janice
H. Haley,
|
2009
|
$
|
123,615
|
$
|
-
|
$
|
72,503
|
$
|
-
|
$
|
196,118
|
|||||||||||
Vice
President
|
2008
|
$
|
98,077
|
$
|
-
|
$
|
17,256
|
$
|
-
|
$
|
115,333
|
|||||||||||
2007
|
$
|
103,846
|
$
|
-
|
$
|
33,025
|
$
|
-
|
$
|
136,871
|
(1)
|
From
March 2006 through part of May 2007 the Company accrued Mr. Haley’s salary
and $120,000 have still not paid it, the accrued amounts are shown under
All Other Compensation as $51,000 for 2007.
Mr. Norelid received $7,478, $7,200 and $4,985 in health
insurance reimbursement, for 2009, 2008 and 2007,
respectively.
|
(2)
|
Mr.
Norelid stepped down as an executive officer and director or our company
in January 2010.
|
(3)
|
All
option awards represent the full grant date fair value of the awards
issued during the years presented.
|
(4)
|
There
were no bonus, no non-equity incentive plan compensation and no
non-qualified deferred compensation earnings during any of 2007, 2008 and
2009.
|
49
Director
Compensation
The
following table sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year ended
December 31, 2009:
Fees
earned or
paid
in cash
|
Option
Awards
(6)
|
All
Other
Compensation
|
Total
(7)
Compensation
|
|||||||||||||
James
R. Cast (1) (2)
|
$ | 4,000 | $ | 13,533 | $ | - | $ | 13,533 | ||||||||
William
H Milmoe (1)(3)
|
$ | 4,000 | $ | 54,132 | $ | - | $ | 58,132 | ||||||||
Geary
W. Cotton (1)(3)
|
$ | 4,000 | $ | 54,132 | $ | - | $ | 58,132 | ||||||||
Thomas
E. Lynch (4)
|
$ | - | $ | 36,934 | $ | - | $ | 36,934 | ||||||||
Richard
J. Swanson (5)
|
$ | - | $ | 25,750 | $ | - | $ | 25,750 |
(1)
|
Cash
compensation to non-employee directors through December 31, 2009 was set
at $4,000 annually. The fee of $4,000 for the year of service ended in
January 2009 was paid to the directors in
2010.
|
(2)
|
Represents
options to purchase 2,500 shares of common stock issued to Mr. Cast in
August 2009 at an exercise price equal to $10.80 per
share.
|
(3)
|
Represents
options to purchase 10,000 shares of common stock issued to Mr. Milmoe and
Mr. Cotton in August 2009 at an exercise price equal to $10.80 per
share
|
(4)
|
Represents
options to purchase 10,000 shares of common stock issued to Mr.
Lynch in November 2009 at an exercise price equal to $7.20 per
share
|
(5)
|
Represents
options to purchase 10,000 shares of common stock issued to Mr.
Swanson in December 2009 at an exercise price equal to $5.06
per share
|
(6)
|
All
option awards represent the full grant date fair value of the awards
issued during the year
|
(7)
|
There
were no stock awards, no non-equity incentive plan compensation and no
non-qualified deferred compensation earnings during
2009.
|
Employment
Agreements
We are
party to an employment agreement with Stephen C. Haley, our Chief Executive
Officer and Chairman of the Board, which expires on December 31, 2011. The
agreement with Mr. Haley provides for a base annual salary of $165,000 and a
discretionary annual bonus. Mr. Haley is entitled to severance benefits if his
employment is terminated upon his death or by us other than for cause. These
severance benefits include (a) a lump sum payment in the event of his death
equal to his annual base salary plus the annualized amount of incentive
compensation paid Mr. Haley most recently multiplied by the term remaining in
his employment agreement and (b) a lump sum payment in the event of a
termination other than for cause equal to his annual base salary plus the
annualized amount of incentive compensation paid Mr. Haley most recently
multiplied by the greater of the term remaining in his employment agreement or
one year, and a continuation of all other benefits through for the greater of
the term remaining in his employment agreement or one year. If Mr. Haley
terminates his employment for reasons other than our breach of the agreement or
if we terminate the agreement for cause, Mr. Haley will not be entitled to
severance benefits.
We are
also party to employment agreement with Janice Haley, our Vice President, which
provides for a base annual salary of $120,000 and an annual discretionary bonus.
This agreement expires December 31, 2010. If Ms. Haley’s employment agreement is
terminated other than for cause she is entitled to severance benefits equal to
one twelfth of the sum of her then current annual base salary plus the
annualized amount of incentive compensation paid to her within the last year
before the date of termination, multiplied by the greater of (i) the number of
full and partial months remaining in the term of the agreement or (ii) three
months.
If after
a change of control, excluding control by CD Financial, LLC and/or its
affiliates, either Mr. Haley or Ms. Haley terminates his or her respective
employment agreement, then a severance benefit is due to the employee. The
severance benefits consist of a lump sum payment equal to his or her annual base
salary plus the annualized amount of incentive compensation multiplied by two
years, in the case of Mr. Haley, and the greater of six months or the remaining
employment agreement term in the case of Ms. Haley.
On
January 5, 2009 we entered into an employment agreement with Jeffrey Perlman,
our Chief Operating Officer. It provides for a base annual salary of $144,000,
and an annual discretionary bonus. If Mr. Perlman’s employment
agreement is terminated other than for cause, he is entitled to severance in an
amount equal to his then current annual base salary plus the annualized amount
of incentive compensation paid to him within the last year before the
termination date, multiplied by the number of full and partial years remaining
in the term of the agreement.
50
Bonus
plans have not yet been established by the board of directors or the
compensation committee, but may contain items such as goals to achieve certain
revenue, to reduce cost of production, to achieve certain gross margin, to
achieve financing and similar criteria.
These
employment agreements may be terminated by us for cause, which includes the
executive committing an act or an omission resulting in a willful and material
breach of or failure or refusal to perform his or her duties, committing fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his or her services, conviction of any crime which involves dishonesty or breach
of trust, or acts of gross negligence in the performance of his or her duties
(provided that we give the executive notice of the basis for the termination and
an opportunity for 15 days to cease committing the alleged conduct) or violation
of the confidentiality or non-competition requirements of the employment
agreement.
Under the
terms of each of the employment agreements, during the term of employment and
during the severance period, but in no event not less than one year, after
termination of employment, neither Mr. Haley nor Ms. Haley may own, manage or
work for, directly or work for, a competitive business in any geographic region
in which we conduct business. A competitive business is the manufacturing
export, sale or distribution of calorie-burning beverages and supplements. The
post-employment noncompete period for an employee can be extended by an
additional year if we pay the employee an amount equal to 30% of his or her last
annual base salary and bonuses.
The
compensation package for Geary W. Cotton, who became our Chief Financial Officer
in January 2010, will consist of a base salary of $120,000 and a grant under our
Amended 2006 Stock Incentive Plan of options to purchase 150,000 shares of
common stock at an exercise price of $4.25 per share, vesting over a three-year
period. We have entered into an employment agreement with Mr. Cotton
setting forth these terms, as well as severance, change in control and
non-competition provisions comparable to those contained in the employment
agreements with Mr. Haley.
In
January 2010, Jan Norelid, who had served as our Chief Financial Officer and a
director since January 2007, stepped down from those positions. Mr.
Norelid will remain with the Company for a period of between three and six
months to assist Geary W. Cotton, who became our Chief Financial Officer in
January 2010. Mr. Norelid will be owed approximately $340,000 in
severance pursuant to the terms of his employment.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information with respect to stock awards and grants
of options to purchase our common stock outstanding to the named executive
officers at December 31, 2009.
Option
awards:
|
Number
of securities
underlying
unexercised
Options
(#)
|
Equity
incentive
plan
awards:
Number
of securities underlying unexercised
|
Option
exercise price
|
Option
expiration
|
||||||
Name
|
Exercisable
|
Unexercisable
|
unearned
options (#)
|
($)
|
date
|
|||||
Stephen
C. Haley, CEO
|
-
|
-
|
25,000
|
$
|
10.80
|
8/7/2019
|
||||
Jan
A. Norelid, CFO
|
-
|
-
|
25,000
|
$
|
10.80
|
8/7/2019
|
||||
Jeffrey
Perlman, COO (3)
|
-
|
-
|
100,000
|
various
|
various
|
|||||
Janice
H. Haley, VP
|
-
|
-
|
12,500
|
$
|
10.80
|
8/7/2019
|
(1)
|
Adjusted
to give effect to our 1-for-20 reverse stock split implemented in December
2009. All grants are under our Amended 2006 Stock Incentive
Plan.
|
(2)
|
Mr.
Norelid stepped down as an executive officer and director of our company
in January 2010.
|
(3)
|
Mr.
Perlman was granted 50,000 options with an exercise price of $0.86 in
January 2009 and 50,000 options with an exercise price of $10.80 in August
2009, both of which expire 10 years after
issuance.
|
(4)
|
There
were no stock awards in 2009.
|
In
January 2010, options to purchase 150,000 shares of our common stock were
granted to Geary W. Cotton, upon his assuming the position of Chief Financial
Officer of our company, and options to purchase 15,000 shares of our common
stock were granted to Jan Norelid as part of his separation
agreement. The exercise price of such options is $4.25 per
share.
51
Amended 2006 Incentive Stock
Plan
In
January 2007, we adopted our 2006 Incentive Stock Plan, which was amended in
July 2009. The Amended 2006 Incentive Stock Plan provides for equity incentives
to be granted to our employees, officers or directors or to key advisers or
consultants. Equity incentives may be in the form of stock options with an
exercise price not less than the fair market value of the underlying shares as
determined pursuant to the Amended 2006 Incentive Stock Plan, stock appreciation
rights, restricted stock awards, stock bonus awards, other stock-based awards,
or any combination of the foregoing. The Amended 2006 Incentive Stock Plan is
administered by the compensation committee of the board of directors. In the
absence of such committee, the board of directors administers the plan.
2,500,000 shares of common stock are reserved for issuance pursuant to the
exercise of awards under the Amended 2006 Incentive Stock Plan.
ITEM
12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
|
Principal
shareholders
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of March 5, 2010 for:
·
|
each
of our executive officers and directors;
|
·
|
all
of our executive officers and directors as a group;
and
|
·
|
any
other beneficial owner of more than five percent (5%) of our outstanding
common stock.
|
Beneficial
Ownership
|
||||||||
Shares
Beneficially
Owned
(2)(3) Number
|
||||||||
Name
and Address of Beneficial Owner(1)
|
Percentage
|
|||||||
Carl
DeSantis (4)
|
7,607,581 | 41.0 | % | |||||
William
H. Milmoe (5)
|
7,605,581 | 41.0 | % | |||||
CD
Financial, LLC (6)
|
7,602,581 | 41.0 | % | |||||
CDS
Ventures of South Florida, LLC (7)
|
7,043,380 | 38.0 | % | |||||
Stephen
C. Haley (8)
|
1,437,541 | 9.0 | % | |||||
Lucille
Santini (9)
|
1,083,906 | 6.8 | % | |||||
Joseph
& Gionis LLC
|
850,000 | 5.2 | % | |||||
Pentwater
Capital Management, LP (10)
|
800,000 | 5.0 | % | |||||
Janice
Haley (11)
|
158,480 | 1.0 | % | |||||
Jeffrey
Perlman (12)
|
16,667 | 0.1 | % | |||||
James
Cast (13)
|
20,789 | 0.0 | % | |||||
Geary
Cotton (14)
|
2,500 | 0.0 | % | |||||
Thomas
Lynch
|
- | - | % | |||||
Richard
Swanson
|
- | - | % | |||||
All
executive officers and directors as a
|
9,241,558 | 49.0 | % | |||||
group
(8 persons) (15)
|
________________
(1)
|
Unless
otherwise noted in footnotes to this table, the address of each beneficial
owner listed on the table is c/o Celsius Holdings, Inc., 140 NE 4th
Avenue, Suite C, Delray Beach, FL 33483.
|
52
(2)
|
Based
on 15,856,059 shares of common stock outstanding as of March 8, 2010,
together with shares of common stock issuable upon exercise or conversion
of warrants, stock options and convertible securities, which are presently
exercisable or convertible or which become exercisable or convertible
within 60 days of the date of this report, for each shareholder.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of common stock are
deemed to be beneficially owned by the person holding such securities for
the purpose of computing the percentage of ownership of such person, but
are not treated as outstanding for the purpose of computing the percentage
ownership of any other person.
|
(3)
|
Shares
of our Series A preferred stock vote on an “as converted” basis together
with our common stock on all matters presented for a shareholder vote,
except as required by Nevada law. As of the date of this report, 2,063,125
shares of our common stock are issuable upon conversion of our outstanding
shares of Series A preferred stock.
|
(4)
|
Includes
(a) 4,343,000 shares of common stock held or recorded by CDS Ventures of
South Florida, LLC, which shares were issued upon conversion of our Series
B preferred stock; (b) 5,000 shares of common stock held at record by Mr.
DeSantis, (c) 559,201 shares of common stock held of record by CD
Financial, LLC, (d) 2,063,125 shares of common stock issuable upon
conversion of shares of Series A preferred stock held of record by CDS
Ventures of South Florida, LLC, and (e) 637,255 shares of common stock
issuable upon conversion of a $6.5 million convertible promissory note
held of record by CDS Ventures of South Florida, LLC. Voting power of
shares of common stock beneficially owned by CD Financial, LLC and CDS
Ventures of South Florida, LLC is shared by Carl DeSantis and William H.
Milmoe. Mr. Milmoe does not have dispositive power with respect to such
shares.
|
(5)
|
Includes
(a) 500 shares of common stock held of record by Mr. Milmoe, (b) 2,500
shares of common stock issuable upon exercise of stock options, (c) the
559,201 shares of common stock held of record by CD Financial, LLC and (d)
the 7,043,380 shares of common stock beneficially owned by CDS Ventures of
South Florida, LLC as more fully described in footnote (4) above. Mr.
Milmoe and Carl De Santis share voting power with respect to shares of
common stock beneficially owned by CDS Financial, LLC and CDS Ventures of
South Florida, LLC. Mr. Milmoe does not have dispositive power with
respect to such shares.
|
(6)
|
Includes
(a) 559,201 shares of common stock held of record by CD Financial, LLC and
(b) 7,043,380 shares of common stock beneficially owned by CDS Ventures of
South Florida, LLC, as more fully described in footnote (4)
above.
|
(7)
|
Includes
7,043,380 shares of common stock beneficially owned by CDS Ventures of
South Florida, LLC as described in footnote (4) above.
|
(8)
|
Includes
(a) 1,337,247 shares of common stock held of record by Mr. Haley and (b)
100,294 shares of common stock issuable upon exercise of stock options
held by Mr. Haley. Excludes all shares of common stock owned of record and
beneficially by Janice Haley, Mr. Haley’s spouse, in which shares he
disclaims beneficial ownership.
|
(9)
|
Includes
(a) 1,083,906 shares of common stock held of record by Ms.
Santini.
|
(10)
|
Pursuant
to a Schedule 13g filed with the SEC on February 18, 2010. The address of
the shareholder is 227 West Monroe, Suite 4000, Chicago, IL
60606.
|
(11)
|
Includes
(a) 12,255 shares of common stock held of record by Ms. Haley and (b)
146,225 shares of common stock issuable upon exercise of stock options
held by Ms. Haley. Does not include shares of common stock owned of record
or beneficially by Stephen C. Haley, her spouse, in which shares Ms. Haley
disclaims beneficial ownership.
|
(12)
|
Includes
16,667 shares of common stock issuable upon exercise of stock options held
by Mr. Perlman.
|
(13)
|
Includes
(a) 3,210 shares of common stock held of record by Mr. Cast and (b) 17,579
shares of common stock issuable upon exercise of stock options held by Mr.
Cast.
|
(14)
|
Includes
2,500 shares of common stock issuable upon exercise of stock options held
by Mr. Cotton.
|
(15)
|
Includes
shares of common stock owned of record and beneficially as described in
footnotes (5), (8) and (10) through
(13).
|
53
Lock Up Agreements
Our
executive officers, directors, Carl DeSantis, CDS Ventures of South Florida, LLC
and CD Financial, LLC, have agreed that they will not directly or indirectly
sell, offer, contract to sell, make a short sale, pledge or otherwise publicly
dispose of any shares of our common stock (or any of our securities exercisable
for or convertible into common stock) owned by them, until August 15, 2010,
without the prior consent of Ladenburg Thalmann & Co. Inc.
Securities
Authorized for Issuance under Equity Compensation Plans
The
following table sets forth, as of December 31, 2009, certain information
related to our compensation plans under which shares of our common stock are
authorized for issuance:
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
(a)
|
Weighted-average
exercise price of outstanding options, warrants and rights
(b)
|
Number
of securities remaining available for
future
issuance under equity compensation plans
(excluding
securities
reflected
in column (a))
(c)
|
||||
Equity
compensation plans approved by security holders
|
997,451
|
$
|
4.44
|
1,375,952
|
|||
Equity
compensation plans not approved by security holders
|
—
|
—
|
—
|
||||
Total
|
997,451
|
$
|
4.44
|
1,375,952
|
Material
Features of Plan Approved by Shareholders
On
January 18, 2007, we adopted our 2006 Incentive Stock Plan, and amended on July
16,2009. The 2006 Incentive Stock Plan provides for equity incentives to be
granted to our employees, officers or directors or to key advisers or
consultants. Equity incentives may be in the form of stock options with an
exercise price not less than the fair market value of the underlying shares as
determined pursuant to the 2006 Incentive Stock Plan, stock appreciation rights,
restricted stock awards, stock bonus awards, other stock-based awards, or any
combination of the foregoing. The 2006 Incentive Stock Plan is administered by
the Compensation Committee of the Board of Directors
Material
Features of Individual Arrangements Not Approved by Shareholders
As of
December 31, 2009, we do not have any individual equity compensation
arrangements outside of our Amended 2006 Incentive Stock Plan.
54
ITEM
13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
|
On September 8, 2009, we entered into
a convertible loan agreement with Lucille Santini, a principal shareholder. We
received advances from Ms. Santini at various times during 2004 and 2005,
totaling $76,000 and $424,000, respectively. The advances carried interest at a
rate variable with the prime rate. In July, 2008, the debt was refinanced, with
interest at prime rate flat and monthly amortization of $5,000. A balloon
payment of approximately $606,000 was due in January 2010. In July, 2009, the
debt was refinanced again, with interest at prime rate flat and monthly
amortization of $11,500. A balloon payment of approximately $451,600 was due in
January 2011. This note together with a cash payment of $3,699 was exchanged for
a new note due on September 8, 2012. This note carries a variable interest rate
equal to 300 basis points over the one (1) month LIBOR. Commencing on September
8, 2010 and continuing each three month period hereafter, we will make payments
of all accrued but unpaid interest only. The loan can at any time be converted
to shares of our common stock at the Conversion Price. The “Conversion Price”
is: (A) from September 8, 2009 through and including December 31, 2011, equal to
the lesser of (i) $8.00 per share, or (ii)”Market Price” on the date of
conversion (as defined above); or (B) after December 31, 2011 the greater of (i)
$8.00 per share, or (ii) Market Price on the date of conversion, as
appropriately adjusted for in either case stock splits, stock dividends and
similar events; provided, however, that, the Conversion Price shall never be
less than $2.00 regardless of Market Price on the date of conversion. The
maximum number of shares of common stock to be issued based on the lowest
Conversion Price possible is 307,500 shares. As of December 31, 2009, the
outstanding balance of the loan was $$450,000, net of unamortized debt discount
of $165,000. On March 3, 2010, Ms. Santini issued to us a notice of her election
to convert the entire note balance into 176,659 shares of common
stock.
In
connection with the July 2009 refinance agreement, Ms. Santini was also granted
certain registration rights under the Securities Act of 1933 with respect to the
shares of common stock issuable upon conversion of the debt.
We have
accrued $171,000 in salary for Mr. Haley, our CEO, from March 2006 through May
30, 2007. Mr. Haley also lent us $50,000 in February 2006. The two debts were
restructured in July 2008 into one note accruing 3% interest, no collateral,
monthly payments of $5,000 and with a balloon payment of $64,000 in January
2011. The outstanding balance as of December 31, 2009 was $121,000.
Mr. Haley
guaranteed the Company’s obligations under a factoring agreement with Bibby
Financial Services, Inc, which subsequently was cancelled in November 2008. Mr.
Haley has also guaranteed the financing of vehicles on our behalf, and
previously guaranteed the office lease for the Company. Mr. Haley was not
compensated for issuing the guarantees.
On August
8, 2008, we entered into a securities purchase agreement with CDS Ventures of
South Florida, LLC. Pursuant to the agreement, we issued 100 shares of Series A
preferred stock, as well as a warrant to purchase an additional 50 shares of
Series A preferred stock, for a cash payment of $1.5 million and the
cancellation of two notes in aggregate amount of $500,000 issued to CD. The
shares of Series A preferred stock are convertible into our common stock at any
time. The securities purchase agreement was amended on December 12, 2008 to
provide that until December 31, 2010, the conversion price is $1.60, after which
the conversion price is the greater of $1.60 or 90% of the volume weighted
average price of the common stock for the prior 10 trading days. Pursuant to the
securities purchase agreement, we also entered into a registration rights
agreement, pursuant to which we registered the common stock issuable upon
conversion of the Series A preferred stock for resale under the Securities Act
of 1933. The Series A preferred stock accrues ten percent annual cumulative
dividends, payable in additional shares of Series A preferred stock. We issued
15.1 shares of Series A preferred stock in dividends during 2009, as dividends
for the years 2008 and 2009. The Series A preferred stock matures on February 1,
2013 and is only redeemable in our common stock.
In
November 2009, CDS Ventures of South Florida, LLC exercised its right to
purchase an additional 50 shares of Series A preferred stock in exchange for
cancellation of a $1.1 million note issued to CD Financial, LLC.
On
December 12, 2008, we entered into a second securities purchase agreement with
CDS. Pursuant to this securities purchase agreement, we issued 100 shares of
Series B preferred stock, as well as a warrant to purchase an additional 100
shares of Series B preferred stock, for a cash payment of $2.0 million. The
shares of Series B preferred stock were convertible into our common stock at any
time. Until December 31, 2010, the conversion price was $1.00, after which the
conversion price was the greater of $1.00 or 90% of the volume weighted average
price of the common stock for the prior 10 trading days. We also granted CDS
Ventures of South Florida, LLC certain registration rights under the Securities
Act of 1933 with respect to the shares of common stock issuable upon conversion
of the Series B preferred stock. The Series Preferred B stock accrued a ten
percent annual cumulative dividend, payable in additional shares of Series B
preferred stock. We issued 1 share of Series B preferred stock in dividends
during the first quarter of 2009. The Series B preferred stock was scheduled to
mature on December 31, 2013 and was only redeemable in our common
stock.
55
On March
31, 2009, CDS Ventures of South Florida, LLC exercised its right to purchase
additional 100 shares of Series B preferred stock and executed a subscription
agreement for $2.0 million. The monies for the subscription were paid on April 7
and May 1, 2009.
On
December 23, 2009, CDS Ventures of South Florida, LLC converted all of the
shares of Series B preferred stock (including shares issuable in payment of
accrued dividends) into 4,343,000 shares of common stock. We recorded
a liability to CDS Ventures of South Florida, LLC, for a $100,000 fee for their
agreement to convert the Series B preferred stock into common stock on an
expedited basis.
Certain
covenants of the Series A preferred stock restrict us from entering into
additional debt arrangements or permitting liens to be filed against our
Company’s assets, without approval from the holder of the preferred stock. There
is a mandatory redemption in cash, if we breach certain covenants of the
agreements. The holders have liquidation preference of $20,000 per share in case
of a liquidation of our company. We have the right to redeem the preferred
shares early by the payment in cash of 104% of the liquidation preference value.
We may redeem the Series A preferred stock at any time on or July 1,
2010.
On
September 8, 2009, we entered into a convertible loan agreement with CDS
Ventures of South Florida, LLC. Under the loan agreement, CDS
Ventures of South Florida, LLC will lend us up to $6,500,000, with disbursements
of the $2,000,000 during each of September, October and November 2009 and
$500,000 in December 2009, provided that no disbursement shall be made in an
amount less than $500,000. Any amounts not requested for disbursement in one
calendar month can be carried over to a subsequent month and disbursed in
addition to the maximum of such subsequent month. The loan is due on September
8, 2012 and carries a variable interest rate equal to 300 basis points over the
one (1) month LIBOR. In January 2010, we agreed to increase the interest rate to
700 basis points over the one (1) month LIBOR. Commencing on September 8, 2010
and continuing each three month period thereafter, we will make payments of all
accrued but unpaid interest only on unpaid principal balance. The loan is
convertible at any time into shares of our common stock at the Conversion Price.
The “Conversion Price” was originally based on a price of $8.00 per share or a
market price calculation at the date of conversion. In order to
comply with the listing requirements for the Nasdaq Stock Market, LLC, in
January 2010, the parties amended the convertible loan agreement to increase the
Conversion Price at $10.20 per share, which was the consolidated closing bid
price of the common stock on the OTC Bulletin Board on the business day prior to
the date the agreement was entered into. As of December 31, 2009, the
outstanding balance of the loan was $5.2 million, net of unamortized debt
discount of $330,000.
In
connection with the loan agreement, CDS Ventures of South Florida, LLC was
granted certain registration rights under the Securities Act of 1933 with
respect to the agreement with CDS Ventures of South Florida, LLC pursuant to
which we filed a registration statement with the Securities and Exchange
Commission in October of 2009 for shares of common stock issuable upon
conversion of the debt under the loan agreement. This registration
statement was subsequently withdrawn on November 17, 2009.
Under its
various securities purchase and loan agreements with us, CDS Ventures of South
Florida, LLC has the right to designate four out of seven members of our board
of directors, which have all been nominated..
We have
funded part of our working capital from a line of credit with CD Financial, LLC.
The line of credit was entered into in December 2008 and is for $1.0 million.
The interest rate is LIBOR rate plus three percent on the outstanding balance.
The line expires in December 2010 and is renewable. In connection with the
revolving line of credit we have entered into a loan and security agreement
under which we have pledged all our assets as security for the line of credit.
The outstanding balance under the line of credit as of December 31, 2009 was
$950,000. Subsequent to year-end, in February 2010, we terminated the line of
credit and paid off the entire balance.
We have
entered into a six month lease agreement expiring in March 2010 for office space
with CDR Plaza, Ltd. a company controlled by Carl DeSantis. The monthly rate is
$4,260 for a 3,000 square foot space, which we believe to be comparable to
market rates. See “Item 1. Business” and “Item 7 Management’s Discussion
and Analysis or Plan of Operation” with respect to the March 2010 conversion of
(i) $4.5 million and $615,000 in convertible debt held by CDS Ventures of South
Florida, LLC and Lucille Santini, respectively, into common stock and (ii) the
Series A preferred stock held by CDS Ventures of South Florida, LLC, into common
stock.
Related
party transactions are contracted on terms comparable to the terms of similar
transactions with unaffiliated parties. As part of our code of ethics, any
related party transaction must be approved in advance. If the interested party
is an officer or director of the Company, approval must be obtained from of a
majority of the Audit Committee of the Board or the Board itself, provided that
only those that do not have a relationship or an interest in the transaction are
eligible to cast a vote. In each such case, the full scope of the conflict of
interest must be disclosed to senior management and the Audit
Committee
56
Conflicts Relating to Executive
Officers and Directors
To date,
we do not believe that there are any conflicts of interest involving our
executive officers or directors.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of
the relationship or interest giving rise to the potential conflict be disclosed
or known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority
of our disinterested outside directors, and (iii) the transaction be fair
and reasonable to us at the time it is authorized or approved by our
directors.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
Audit
Fees
The
aggregate fees billed by the independent accountants or accrued for the fiscal
years ended December 31, 2009 and 2008 for professional services for the audit
of the Company's annual financial statements and the reviews included in the
Company's Form 10-Q and services that are normally provided by the
accountants in connection with statutory and regulatory filings or engagements
for those fiscal years were $72,500 and $50,500, respectively.
Audit-Related
Fees
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of the Company's financial statements and are
not reported under Item 9 (e)(1) of Schedule 14A was $0.
Tax
Fees
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountants for tax compliance, tax advice,
and tax planning was $2,500 and $0 during the years ended December 31, 2009 and
2008, respectively.
All
Other Fees
During
the last two fiscal years there were no other fees charged by the principal
accountants other than those disclosed in (1) and (2) above.
Audit
Committee
The audit
committee assists our board of directors in its oversight of the company’s
accounting and financial reporting processes and the audits of the company’s
financial statements, including (i) the quality and integrity of the company’s
financial statements, (ii) the company’s compliance with legal and regulatory
requirements, (iii) the independent auditors’ qualifications and independence
and (iv) the performance of our company’s internal audit functions and
independent auditors, as well as other matters which may come before it as
directed by the board of directors. Further, the audit committee, to the extent
it deems necessary or appropriate, among its several other responsibilities,
shall:
·
|
be
responsible for the appointment, compensation, retention, termination and
oversight of the work of any independent auditor engaged for the purpose
of preparing or issuing an audit report or performing other audit, review
or attest services for our company;
|
·
|
discuss
the annual audited financial statements and the quarterly unaudited
financial statements with management and the independent auditor prior to
their filing with the Securities and Exchange Commission in our Annual
Report on Form 10-K and Quarterly Reports on Form
10-Q;
|
·
|
review
with the company’s financial management on a period basis (a) issues
regarding accounting principles and financial statement presentations,
including any significant changes in our company’s selection or
application of accounting principles, and (b) the effect of any regulatory
and accounting initiatives, as well as off-balance sheet structures, on
the financial statements of our
company;
|
·
|
monitor
our company’s policies for compliance with federal, state, local and
foreign laws and regulations and our company’s policies on corporate
conduct;
|
·
|
maintain
open, continuing and direct communication between the board of directors,
the audit committee and our independent auditors;
and
|
·
|
monitor
our compliance with legal and regulatory requirements and shall have the
authority to initiate any special investigations of conflicts of interest,
and compliance with federal, state and local laws and regulations,
including the Foreign Corrupt Practices Act, as may be
warranted.
|
57
Mr. Cast
is the chairman of our audit committee.
Based on
our audit committee’s review of the matters noted above and its discussions with
our independent auditors and our management, our audit committee approved that
the audited financial statements be included in our annual report on Form 10-K
for the year ended December 31, 2009.
Policy
for Pre-Approval of Audit and Non-Audit Services
Our board
of directors’ policy is to pre-approve all audit services and all non-audit
services that our independent auditor is permitted to perform for us under
applicable federal securities regulations. As permitted by the applicable
regulations, our board of directors’ policy utilizes a combination of specific
pre-approval on a case-by-case basis of individual engagements of the
independent auditor and general pre-approval of certain categories of
engagements up to predetermined dollar thresholds that are reviewed annually by
our board of directors. Specific pre-approval is mandatory for the annual
financial statement audit engagement, among others.
ITEM
15.
|
EXHIBITS
|
The
exhibits listed in the accompanying Exhibit Index are filed as part of this
Annual Report on Form 10-K.
(a)
Exhibits
Exhibit
No.
|
Description
|
Location
|
||
2.1
|
Agreement
and Plan of Reorganization dated January 26, 2007
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as
filed with the SEC on February 2, 2007
|
||
2.2
|
Articles
of Merger
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as
filed with the SEC on February 2, 2007
|
||
3.1
|
Articles
of Incorporation
|
Incorporated
by reference to Exhibit 3.1 to the Company’s Registration Statement on
Form SB-2 as filed with the SEC on November 21, 2005
|
||
3.2
|
Bylaws
|
Incorporated
by reference to Exhibit B to the Company’s Information on Form DEF-14C as
filed with the SEC on December 5, 2006
|
||
3.3
|
Articles
of Amendment
|
Incorporated
by reference to Exhibit A to the Company’s Information on Form DEF-14C as
filed with the SEC on December 5, 2006
|
||
3.4
|
Certificate
of Change
|
Incorporated
by reference to Exhibit 3.4 to the Company’s Amended filing of Form S-1 as
filed with the SEC on January 22, 2010
|
||
4.1
|
Warrant
Agreement with Joseph & Gionis LLC
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on April 7, 2008
|
||
4.2
|
Amended
Stock Option Plan Adopted
|
Incorporated
by reference to Exhibit 4.5 to the Company’s Proxy Statement filed as
Appendix A on DEF 14A filed with the SEC on May 20, 2009
|
||
4.3
|
Certificate
of Amendment to Certificate of designation
|
Incorporated
by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2008
|
||
4.4
|
Certificate
of designation
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2008
|
58
4.5
|
Form
of Underwriter’s unit purchase option
|
Incorporated
by reference to Exhibit 4.5 to the Company’s Amended filing of Form S-1 as
filed with the SEC on January 22, 2010
|
||
4.7
|
Warrant
Agreement with attached form of warrant
|
Incorporated
by reference to Exhibit 4.5 to the Company’s Amended filing of Form S-1 as
filed with the SEC on February 8, 2010
|
||
10.1
|
Stock
Grant Agreement with Gregory Horn
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 2, 2007
|
||
10.2
|
Promissory
Note to Special Nutrition Group, Inc.
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 2, 2007
|
||
10.3
|
Revised
and Restated Employment Agreement with Stephen Haley
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2009
|
||
10.4
|
Revised
and Restated Employment Agreement with Jan Norelid
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2009
|
||
10.5
|
Employment
Agreement with Richard McGee, as amended
|
Incorporated
by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
as filed with the SEC on July 16, 2007
|
||
10.6
|
Revised
and Restated Employment Agreement with Janice Haley
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2009
|
||
10.7
|
Stock
Grant Agreement Addendum 1 with Jan Norelid
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-QSB as filed with the SEC on May 15, 2007
|
||
10.8
|
Common
Stock Purchase Agreement with Fusion Capital Fund II, LLC
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on June 25, 2007
|
||
10.9
|
Registration
Rights Agreement with Fusion Capital Fund II, LLC
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on June 25, 2007
|
||
10.10
|
Promissory
note issued to CD Financial, LLC dated December 18, 2007 , as
amended
|
Incorporated
by reference to Exhibit 10.12 to the Company’s filing of Form 10-KSB as
filed with the SEC on March 3, 2008
|
||
10.11
|
Secured
promissory note issued by Golden Gate Investors, Inc. dated December 19,
2007
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K/A as
filed with the SEC on January 9, 2008
|
||
10.12
|
Secured
purchase agreement between Celsius Holdings, Inc. and Golden Gate
Investors, Inc. dated December 19, 2007
|
Incorporated
by reference to Exhibit 10.3 to the Company’s filing of Form 8-K/A as
filed with the SEC on January 9, 2008
|
||
10.13
|
7
¾% Convertible Debenture issued by Celsius Holdings, Inc. dated December
19, 2007
|
Incorporated
by reference to Exhibit 10.4 to the Company’s filing of Form 8-K/A as
filed with the SEC on January 9, 2008
|
||
10.14
|
Securities
purchase agreement between Celsius Holdings, Inc. and CDS Ventures of
South Florida, LLC. dated August 8, 2008
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on August 12, 2008
|
59
10.15
|
Registration
rights agreement between Celsius Holdings, Inc. and CDS Ventures of South
Florida, LLC. dated August 8, 2008
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on August 12, 2008
|
||
10.16
|
Loan
and Security Agreement between Celsius, Inc and CD Financial,
LLC.
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on December 10, 2008
|
||
10.17
|
Securities
purchase agreement between Celsius Holdings, Inc. and CDS Ventures of
South Florida, LLC. dated December 12, 2008
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on December 17, 2008
|
||
10.18
|
Registration
rights agreement between Celsius Holdings, Inc. and CDS Ventures of South
Florida, LLC. dated December 12, 2008
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on December 17, 2008
|
||
10.19
|
Employment
Agreement with Jeffrey Perlman
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on January 7, 2009
|
||
10.20
|
Unsecured
note issued to CD Financial, LLC dated August 12, 2009, refinanced and
replaced by 10.25
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on August 13, 2009
|
||
10.21
|
Convertible
note issued to CDS Ventures of South Florida, LLC dated September 8,
2009
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on September 10, 2009
|
||
10.22
|
Loan
and Security Agreement between Celsius Holdings, Inc and CD Financial, LLC
dated September 8, 2009.
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on September 10, 2009
|
||
10.23
|
Registration
rights agreement between Celsius Holdings, Inc. and CDS Ventures of South
Florida, LLC. dated September 8, 2009
|
Incorporated
by reference to Exhibit 10.3 to the Company’s filing of Form 8-K as filed
with the SEC on September 10, 2009
|
||
10.24
|
Unsecured
note issued to CD Financial, LLC dated September 29, 2009
|
Incorporated
by reference to Exhibit 10.24 to the Company’s Original filing of Form S-1
as filed with the SEC on October 12, 2009
|
||
10.25
|
Convertible
note issued to Lucille Santini
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on November 12, 2009
|
||
10.26
|
Refinance
Agreement between Celsius Holdings, Inc. and Lucille
Santini
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on November 12, 2009
|
||
10.27
|
Addendum
to Securities Purchase Agreement between Celsius Holdings, Inc. and Golden
Gate Investors, Inc.
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on November 12, 2009
|
||
10.28
|
Amendment
to Registration Rights agreement with CDS Ventures of South Florida,
LLC
|
Incorporated
by reference to Exhibit 10.28 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
60
10.29
|
Audit
Committee Charter
|
Incorporated
by reference to Exhibit 10.29 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
||
10.30
|
Compensation
Committee Charter
|
Incorporated
by reference to Exhibit 10.30 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
||
10.31
|
Nominating
and Corporate Governance Committee Charter
|
Incorporated
by reference to Exhibit 10.31 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
||
14.1
|
Code
of Ethical Conduct
|
Incorporated
by reference to Exhibit 14.1 to the Company’s Original filing of Form SB-2
as filed with the SEC on July 20, 2007
|
||
21.1
|
Subsidiaries
of Registrant
|
Incorporated
by reference to Exhibit 22.1 to the Company’s Form 10-K as filed with the
SEC on March 9, 2009
|
||
23.1
|
Consent
of Sherb & Co., LLP
|
Filed
herewith
|
||
99.1
|
Results
from Clinical Studies
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Original filing of Form SB-2
as filed with the SEC on July 20, 2007
|
||
99.2
|
Abstract
from Clinical Study released in June 2008
|
Incorporated
by reference to Exhibit 99.2 to the Company’s Original filing of Form S-1
as filed with the SEC on August 29, 2008
|
61
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.
Date: March
10, 2010
|
CELSIUS
HOLDINGS, INC.
|
|
By:
|
/s/Stephen C. Haley | |
Name:
|
Stephen C. Haley | |
Titles:
|
Principal
Executive Officer, Chief Executive Officer
and
President
|
|
By:
|
/s/ Geary W. Cotton | |
Name:
|
Geary W. Cotton | |
Titles:
|
Principal
Financial and Accounting Officer,
Chief
Financial Officer, Secretary and
Treasurer
|
In
accordance with Exchange Act, this report has been signed below by the following
persons on behalf of the registrant and in the capacities and on the dates
indicated.
Signatures
|
Title(s)
|
Date
|
|
/s/
Stephen C. Haley
|
Chairman
of the Board, Principal Executive Officer,
|
March
10, 2010
|
|
Stephen
C. Haley
|
Chief
Executive Officer and President
|
||
/s/
Geary W. Cotton
|
Director,
Principal Financial and Accounting
|
March
10, 2010
|
|
Geary
W. Cotton
|
Officer,
Chief Financial Officer, Secretary and Treasurer
|
||
/s/
James Cast
|
Director
|
March
10, 2010
|
|
James
Cast
|
|||
/s/
William H. Milmoe
|
Director
|
March
10, 2010
|
|
William
H. Milmoe
|
|||
/s/
Thomas E. Lynch
|
Director
|
March
10, 2010
|
|
Thomas
E. Lynch
|
|||
/s/
Christian A Nast
|
Director
|
March
10, 2010
|
|
Christian
A. Nast
|
|||
/s/
Richard J Swanson
|
Director
|
March
10, 2010
|
|
Richard
J Swanson
|
62
EXHIBIT
INDEX
ExhibitNo.
|
Title
|
|
23.1
|
Consent
of Sherb & Co., LLP
|
|
31.1
|
Section
302 Certification of Chief Executive Officer
|
|
31.2
|
Section
302 Certification of Chief Financial Officer
|
|
32.1
|
Section
906 Certification of Chief Executive Officer
|
|
32.2
|
Section
906 Certification of Chief Financial
Officer
|