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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED
Commission file number:
(Exact name of registrant as specified in its charter)
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(State or Other Jurisdiction of |
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(I.R.S. Employer |
Incorporation or Organization) |
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Identification No.) |
(Address of Principal Executive Offices)
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(Registrant’s telephone number, including area code)
__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class |
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Trading Symbol(s) |
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Name of Each Exchange on Which Registered |
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
☒ |
Accelerated Filer |
☐ |
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Non-accelerated filer |
☐ |
Smaller reporting company |
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Emerging growth company |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐
The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of November 7, 2022 was
TABLE OF CONTENTS
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PART I – FINANCIAL INFORMATION |
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1 |
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Consolidated Balance Sheets as of September 30, 2022 (unaudited) and December 31, 2021 |
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3 |
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4 |
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5 |
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6 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Celsius Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
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September 30, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Restricted cash |
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Accounts receivable-net (note 2) |
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Note receivable-current (note 7) |
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Inventories-net (note 5) |
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Prepaid expenses and other current assets (note 6) |
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Deferred other costs-current (note 13) |
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Total current assets |
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Note receivable (note 7) |
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Property and equipment-net (note 9) |
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Deferred tax asset (note 17) |
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Right of use assets-operating leases (note 8) |
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Right of use assets-finance leases (note 8) |
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Other long-term assets |
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Deferred other costs-non-current (note 13) |
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Intangibles (note 10) |
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Goodwill (note 10) |
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Total Assets |
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$ |
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$ |
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LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses (note 11 & 13) |
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$ |
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$ |
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Accrued distributor termination fees (note 2 & 13) |
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Lease liability obligation-operating leases (note 8) |
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Lease liability obligation-finance leases (note 8) |
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Deferred revenue-current (note 2 & 13) |
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Other current liabilities (note 12) |
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Total current liabilities |
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Long-term liabilities: |
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Lease liability obligation-operating leases (note 8) |
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Lease liability obligation-finance leases (note 8) |
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Deferred tax liability (note 17) |
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Deferred revenue-non-current (note 2 & 13) |
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Total Liabilities |
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Mezzanine Equity: |
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Series A convertible preferred shares, $ |
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Stockholders’ Equity: |
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Common stock, $ |
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Additional paid-in capital |
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Accumulated other comprehensive income (loss) |
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( |
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Accumulated deficit |
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( |
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Total Stockholders’ Equity |
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Total Liabilities, Mezzanine Equity and Stockholders’ Equity |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements
1
Celsius Holdings, Inc.
Consolidated Statements of Operations and Comprehensive Loss
(In thousands, except per share amounts)
(Unaudited)
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For the three months ended September 30, |
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For the nine months ended September 30, |
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2022 |
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2021 |
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2022 |
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2021 |
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Revenue (note 4) |
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$ |
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$ |
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$ |
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$ |
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Cost of revenue (note 2) |
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Gross profit |
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Selling and marketing expenses |
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General and administrative expenses |
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Total operating expenses |
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Loss from operations |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Other income/(expense) |
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Interest income on note receivable (note 7) |
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Interest income (expense), net (note 2) |
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( |
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Foreign exchange loss |
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( |
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( |
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Total other expense |
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( |
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Net loss before income taxes |
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$ |
( |
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$ |
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$ |
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$ |
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Income tax expense (note 17) |
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Net loss |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Less: dividends on Series A convertible preferred shares (note 14) |
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$ |
( |
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$ |
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$ |
( |
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$ |
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Net loss attributed to common shareholders |
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$ |
( |
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$ |
( |
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$ |
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$ |
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Other comprehensive loss: |
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Foreign currency translation gain/(loss) |
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( |
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( |
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Comprehensive loss |
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$ |
( |
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$ |
( |
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$ |
( |
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$ |
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Loss per common share: |
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Basic and dilutive |
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$ |
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$ |
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$ |
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$ |
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Weighted average common shares outstanding: |
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Basic and dilutive |
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The accompanying notes are an integral part of these unaudited consolidated financial statements
2
Celsius Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Equity and Mezzanine Equity
(In thousands)
(Unaudited)
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Common Stock |
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Mezzanine Equity |
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Additional |
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Accumulated Other Comprehensive Income (Loss) |
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Accumulated Deficit |
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Shares |
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Amount |
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Preferred Shares |
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Amount |
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Total |
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Balance at December 31, 2021 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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Share-based payment expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cashless |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cash |
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— |
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— |
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— |
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— |
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— |
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Foreign currency fluctuations |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at March 31, 2022 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
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$ |
( |
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$ |
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Share-based payment expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cashless |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cash |
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— |
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— |
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— |
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— |
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— |
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Foreign currency fluctuations |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
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Net income |
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— |
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— |
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— |
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— |
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— |
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— |
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Balance at June 30, 2022 |
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$ |
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— |
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$ |
— |
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$ |
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$ |
( |
) |
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$ |
( |
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$ |
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Share-based payment expense |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cashless |
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— |
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— |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cash |
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— |
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— |
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— |
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— |
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Issuance of Series A convertible preferred shares - net of issuance costs |
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— |
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— |
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— |
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— |
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— |
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Dividends paid to Series A convertible preferred shares |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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— |
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( |
) |
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Foreign currency fluctuations |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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— |
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( |
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Net loss |
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— |
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— |
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— |
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— |
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— |
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— |
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( |
) |
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( |
) |
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Balance at September 30, 2022 |
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$ |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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The accompanying notes are an integral part of these unaudited consolidated financial statements
3
Celsius Holdings, Inc.
Consolidated Statements of Changes in Stockholders’ Equity
(In thousands)
(Unaudited)
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Accumulated |
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Common Stock |
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Additional |
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Other |
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Accumulated |
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Shares |
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Amount |
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Capital |
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Income (Loss) |
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Deficit |
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Total |
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Balance at December 31, 2020 |
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$ |
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$ |
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$ |
( |
) |
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$ |
( |
) |
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$ |
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Share-based payment expense |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cashless |
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— |
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— |
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— |
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— |
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— |
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Issuance of common stock pursuant to stock incentive plan - cash |
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— |
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— |
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Foreign currency fluctuations |
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— |
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— |
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— |
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( |
) |
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— |
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( |
) |
Net income |
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— |
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— |
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— |
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— |
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Balance at March 31, 2021 |
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$ |
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$ |
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$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Share-based payment expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common stock pursuant to stock incentive plan - cashless |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of common stock pursuant to stock incentive plan - cash |
|
|
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
|||
Issuance of common stock from capital raise |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Foreign currency fluctuations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
||
Balance at June 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
||||
Share-based payment expense |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||
Issuance of common stock pursuant to stock incentive plan - cashless |
|
|
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
Issuance of common stock pursuant to stock incentive plan - cash |
|
|
|
|
|
|
|
|
|
|
|
— |
|
|
|
— |
|
|
|
|
||||
Foreign currency fluctuations |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
— |
|
|
|
|
||
Net loss |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
( |
) |
|
|
( |
) |
Balance at September 30, 2021 |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
|||||
The accompanying notes are an integral part of these unaudited consolidated financial statements
4
Celsius Holdings, Inc.
Consolidated Statements of Cash Flows
(In thousands)
(Unaudited)
|
|
For the nine months ended September 30, |
|
|||||
|
|
2022 |
|
|
2021 |
|
||
Cash flows from operating activities: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Adjustments to reconcile net loss to net cash provided by /(used in) operating activities: |
|
|
|
|
|
|
||
Depreciation |
|
|
|
|
|
|
||
Amortization |
|
|
|
|
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|
||
Impairment of intangible assets |
|
|
|
|
|
|
||
Bad debt expense |
|
|
|
|
|
( |
) |
|
Amortization of deferred other costs |
|
|
|
|
|
|
||
Inventory excess and obsolescence |
|
|
|
|
|
|
||
Share-based compensation expense |
|
|
|
|
|
|
||
Gain on lease cancellations |
|
|
|
|
|
( |
) |
|
Un-realized exchange loss (gain) |
|
|
|
|
|
( |
) |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
||
Accounts receivable-net |
|
|
( |
) |
|
|
( |
) |
Inventories-net |
|
|
|
|
|
( |
) |
|
Prepaid expenses and other current assets |
|
|
|
|
|
( |
) |
|
Accounts payable and accrued expenses |
|
|
|
|
|
|
||
Accrued distributor termination fees |
|
|
|
|
|
|
||
Deferred tax-net |
|
|
|
|
|
( |
) |
|
Other assets |
|
|
|
|
|
( |
) |
|
Other current liabilities |
|
|
|
|
|
|
||
Change in right of use assets and lease obligation-net |
|
|
( |
) |
|
|
|
|
Deferred revenue |
|
|
|
|
|
|
||
Net cash provided by/(used in) operating activities |
|
|
|
|
|
( |
) |
|
|
|
|
|
|
|
|
||
Cash flows from investing activities: |
|
|
|
|
|
|
||
Proceeds from note receivable |
|
|
|
|
|
|
||
Purchase of property and equipment |
|
|
( |
) |
|
|
( |
) |
Net cash used in investing activities |
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
|
|
||
Cash flows from financing activities: |
|
|
|
|
|
|
||
Principal payments on finance lease obligations |
|
|
( |
) |
|
|
( |
) |
Proceeds from issuance of common stock |
|
|
|
|
|
|
||
Proceeds from exercise of stock options |
|
|
|
|
|
|
||
Proceeds from issuance of Series A preferred shares, net of issuance costs |
|
|
|
|
|
|
||
Dividends paid on preferred shares |
|
|
( |
) |
|
|
|
|
Net cash provided by financing activities |
|
|
|
|
|
|
||
Effect on exchange rate changes on cash |
|
|
|
|
|
( |
) |
|
Net increase in cash and restricted cash |
|
|
|
|
|
|
||
Cash and restricted cash at beginning of the period |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Cash and restricted cash at end of the period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures: |
|
|
|
|
|
|
||
Cash paid during period for: |
|
|
|
|
|
|
||
Taxes |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited consolidated financial statements
5
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
Business —Celsius Holdings, Inc. (the “Company” or “Celsius Holdings”) was incorporated under the laws of the State of Nevada on April 26, 2005. On January 24, 2007, the Company entered into a merger agreement and plan of reorganization with Elite FX, Inc., a Florida corporation. Under the terms of the Merger Agreement, Elite FX, Inc. was merged into the Company’s subsidiary, Celsius, Inc. and became a wholly-owned subsidiary of the Company on January 26, 2007. In addition, on March 28, 2007 the Company established Celsius Netshipments, Inc. a Florida corporation as a subsidiary of the Company.
On February 7, 2018, the Company established Celsius Asia Holdings Limited, a Hong Kong corporation, as a wholly-owned subsidiary of the Company. On February 7, 2018 Celsius China Holdings Limited, a Hong Kong corporation, became a wholly-owned subsidiary of Celsius Asia Holdings Limited and on May 9, 2018, Celsius Asia Holdings Limited established Celsius (Beijing) Beverage Limited, a China corporation, as a wholly-owned subsidiary of Celsius Asia Holdings Limited.
On
On August 1, 2022 (“Effective Date”), the Company and PepsiCo Inc. ("Pepsi"), entered into multiple agreements, including a Securities Purchase Agreement (“SPA”), Lock-Up Agreements, Registration Rights Agreement, a distribution agreement (“Distribution Agreement”), and a Channel Transition Agreement ("Transition Agreement"). The Securities Purchase Agreement, Lock-Up Agreements and Registration Rights Agreement pertain to the Company’s issuance of
In connection with the Distribution Agreement and Transition Agreement, the Company terminated agreements with existing suppliers to transition territory rights to Pepsi. The Company recognized total termination expenses in sales and marketing of $
The Company is engaged in the development, marketing, sale and distribution of “functional” calorie-burning functional energy drinks and liquid supplements under the Celsius® brand name.
Basis of Presentation and Principles of Consolidation – The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and notes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. The results for three and nine months ended September 30, 2022 are not necessarily indicative of the results expected for any future period or the full year. These unaudited consolidated financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “2021 Form 10-K”). These unaudited consolidated financial statements and the accompanying notes should be read in conjunction with the 2021 Form 10-K. The consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated.
Significant Estimates — The preparation of consolidated financial statements and accompanying disclosures in conformity with US GAAP 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. Although these estimates are based on management's best knowledge of current events and actions that the Company may undertake in the future, actual results may differ from those estimates. Significant estimates include the allowance for doubtful accounts, allowance for inventory obsolescence, promotional allowance, the useful lives of property and equipment, impairment of goodwill and intangibles, valuation of stock-based compensation, deferred tax asset valuation allowance, preferred share valuation, termination expense, and sales returns. Additionally, the business and economic uncertainty resulting from the novel coronavirus (COVID-19) pandemic has made such estimates and assumptions more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.
Segment Reporting — Operating segments are defined as components of an enterprise that engage in business activities, have discrete financial information, and whose operating results are regularly reviewed by the chief operating decision maker ("CODM") to make decisions about allocating resources and to assess performance. Even though the Company has operations in several geographies, it operates as a single enterprise. The Company's operations and strategies are centrally designed and executed given that our geographical components are very similar. Our CODM, the CEO, reviews operating results primarily from a consolidated perspective, and makes decisions and allocates resources based on that review.
6
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
The reason the Company's CODM focuses on consolidated results in making decisions and allocating resources is because of the significant economic interdependencies between the Company's geographical operations and the Company’s U.S. entity.
Concentrations of Risk — Substantially all of the Company’s revenue derives from the sale of Celsius® functional energy drinks and liquid supplements.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash, accounts receivable and notes receivable. The Company places its cash with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit. At September 30, 2022, the Company had approximately $
For the nine months ended September 30, 2022, the Company had two customers which accounted for revenue concentrations of more than 10 percent. Costco accounted for approximately
Cash Equivalents — The Company considers all highly liquid instruments with original maturities of three months or less when purchased to be cash equivalents. At September 30, 2022 and December 31, 2021, the Company did not have any investments with original maturities of three months or less.
Restricted Cash — As disclosed in note 4. Revenues, the Company received upfront payments from Pepsi in August 2022. Funds received from Pepsi are contractually restricted and can only be used to satisfy termination payments due to former suppliers or have to be repaid to Pepsi. These upfront payments received from Pepsi cannot be used for general operating activities of the Company and have been classified as restricted based on the terms of the Transition Agreement.
Accounts Receivable — Accounts receivable are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At September 30, 2022 and December 31, 2021, there was an allowance for doubtful accounts of approximately $
Inventories — Inventories include only the purchase cost and are stated at the lower of cost and net realizable value. Cost is determined using the FIFO method. Inventories consist of raw materials and finished products. The Company establishes an inventory allowance to reduce the value of the inventory during the period in which such materials and products are no longer usable or marketable. Specifically, the Company reviews inventory utilization during the past twelve months and also customer orders for subsequent months. If there has been no utilization during the last 12 months and there are no orders in-place in future months which will require the use of an inventory item, then the inventory item will be included as part of the allowance during the period being evaluated. Inventory allowance pertains to excess and obsolete products and certain quality control costs. Management will then specifically evaluate whether these items may be utilized within a reasonable time frame (e.g., 3 to 6 months). At September 30, 2022 and December 31, 2021, there was an inventory allowance for excess and obsolete products of approximately $
Property and Equipment — Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful 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 long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is determined regarding a long-lived asset if its carrying amount is not recoverable and exceeds its fair value. The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected to result from use of the asset over its remaining useful life and final disposition. The Company did not record any impairment charges during the nine months ended September 30, 2022 and 2021.
7
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
Long-lived Asset Geographic Data —
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
United States |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Sweden |
|
|
|
|
|
|
||
Finland |
|
|
|
|
|
|
||
Norway |
|
|
|
|
|
— |
|
|
Long-lived assets related to foreign operations |
|
|
|
|
|
|
||
Total long-lived assets-net |
|
$ |
|
|
$ |
|
||
Goodwill — The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead, goodwill is tested for impairment on an annual basis as of October 1st, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors such as macro-economic conditions, industry and market conditions, and cost factors as well as other relevant events, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company determines that the fair value is less than the carrying value, the Company will recognize an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. At September 30, 2022, there were
Intangible assets — Intangible assets are comprised of customer relationships and brands acquired in a business combination. The Company amortizes intangible assets with a definitive life over their respective useful lives. The addition of the Pepsi distribution network has shifted the Company's focus to the US market and as a consequence it was determined that impairment indicators for the Func Foods Brands indefinite intangible asset were present. The Company no longer anticipates focusing on the expansion of Func Food branded products and the Company plans to focus on Celsius branded products. As a result of the strategic shift, which the Company considered a triggering event, the company quantitatively tested the Func Foods Brand Name for impairment utilizing the relief from royalty method to determine fair value. As a result of the quantitative assessment, the Company recorded an impairment charge of $
Revenue Recognition — The Company recognizes revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.” The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control or title is transferred based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and allowances. Such provisions are calculated using historical averages and adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service, in which case the expense is classified as selling or marketing expense. Provisions for customer volume rebates are based on achieving a certain level of purchases and other performance criteria that are established on a situation basis. These rebates are estimated based on the expected amount to be provided to the customers and are recognized as a reduction of revenue. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Additionally, for any agreements which are one year or less, the practical expedient under ASC 340-40-25-4 is applied to expense contract acquisition costs when incurred if the amortization period of the contract asset would have otherwise been recognized in one year or less. Sales taxes and other similar taxes are excluded from revenue. Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.
The Company receives payments from certain distributors in new territories as reimbursement for contract termination costs paid to the prior distributors in those territories. Amounts received pursuant to these new and/or amended distribution agreements entered into with certain distributors relating to the costs associated with terminating the Company’s prior distributors, are accounted for as deferred revenue and recognized ratably over the anticipated life of the respective distribution agreements.
Deferred Revenue — Amounts received from certain distributors at inception of their distribution contracts are accounted for as deferred revenue. As of September 30, 2022, the Company had approximately $
Accrued distributor termination fees — The termination fee provided by Pepsi as an upfront payment, has been recorded in deferred revenue and is being amortized according to the twenty-year agreement term. Termination charges related to certain of the Company’s prior distributors are included in selling and marketing expenses upon termination. The Company recognized termination expenses of approximately $
8
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
accrued distributor termination fees related to the Pepsi agreement as well as payment due back to Pepsi in the amount of $
Customer Advances — From time to time the Company requires deposits in advance of delivery of products and/or production runs. Such amounts are initially recorded as customer advances liability within deferred revenue. The Company recognizes such revenue as it is earned in accordance with revenue recognition policies. The Company had
Advertising Costs — Advertising costs are expensed as incurred. The Company uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising. The Company incurred marketing and advertising expenses of approximately $
Research and Development — Research and development costs are charged to general and administrative expenses as incurred and consist primarily of consulting fees, raw material usage and test productions of beverages. The Company incurred expenses of approximately $
Foreign Currency Gain/Losses — Foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. The foreign subsidiaries perform re-measurements of their assets and liabilities denominated in non-functional currencies on a periodic basis and the gain or losses from these adjustments are included in the Statement of Operations as foreign exchange gains or losses. For three months ended September 30, 2022 exchange losses have amounted to approximately $
Chinese-Yuan
Norwegian-Krone
Swedish-Krona
Finland-Euro
Fair Value of Financial Instruments — The carrying value of cash, accounts receivable, accounts payable, other current liabilities and accrued expenses approximate fair value due to their relative short-term maturity and market interest rates.
Income Taxes — The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provisions of the ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.
Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than
The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.
9
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
The Company’s tax returns for tax years in 2018 through 2020 remain subject to potential examination by the taxing authorities.
Earnings per Share —The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share ("EPS") for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method. The two-class method is an allocation of earnings (distributed and undistributed) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings for the reporting period are allocated between common shareholders and other security holders based on their respective participation rights in undistributed earnings.
Basic earnings per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of basic common stock outstanding. The Company’s Series A Convertible Preferred Stock is classified as a participating security in accordance with ASC 260. Net income allocated to the holders of Series A Convertible Preferred Stock will be calculated based on the shareholders’ proportionate share of weighted average shares of common stock outstanding on an if-converted basis. See note 3. Earnings Per Share for more information.
Share-Based Payments — The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the grants. On April 30, 2015, the Company adopted the 2015 Stock Incentive Plan (the "2015 Plan"). This 2015 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. The 2015 Plan permits the grant of options and other share based awards for up to
Cost of Revenue — Cost of Revenue consists of the cost of concentrates and or liquid bases, the costs of raw materials utilized in the manufacture of products, co-packing fees, repacking fees, in-bound & out-bound freight charges, as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products, inventory allowance for excess and obsolete products, and certain quality control costs. Raw materials account for the largest portion of the cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.
Operating Expenses — Operating expenses include selling expenses such as warehousing expenses after manufacture, as well as expenses for advertising, samplings and in-store demonstrations costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), depreciation and other general and administrative costs.
Shipping and Handling Costs — Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for three months ended September 30, 2022 and 2021 was approximately $
Recent Accounting Pronouncements
The Company adopts all applicable, new accounting pronouncements as of the specified effective dates.
Liquidity — These financial statements have been prepared assuming the Company will be able to continue as a going concern. At September 30, 2022, the Company had an accumulated deficit of approximately $
10
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
If our sales volumes do not meet our projections, expenses exceed our expectations, or our plans change, we may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, we may be required to adjust our business plan, by reducing marketing, lower our working capital requirements and reduce other expenses or seek additional financing. Furthermore, our business and results of operations may be adversely affected by changes in the global macro-economic environment related to the pandemic and public health crises related to the COVID-19 outbreak.
Correction of Immaterial Errors — During the third quarter of 2021, the Company performed immaterial corrections to the previously reported consolidated financial statements related to the acquisition of Func Food Group Ovi ("Func Food") in 2019. As of September 30, 2021, goodwill increased by $
Correction of previously issued financial statements — Subsequent to filing the Company’s Quarterly Reports on Form 10-Q for the periods ended June 30, 2021 and September 30, 2021, the Company determined that the calculation of share based compensation related to grants of stock options and restricted stock units (“RSUs”) issued to former employees and retired directors was materially understated during the three-and six-month periods ended June 30, 2021 and three-and nine-month periods ended September 30, 2021 (the “Affected Periods”), based on the application of US GAAP. During the Affected Periods, the stock options and RSUs were modified and the expense should have been calculated and recognized using the fair market value of the awards as of the date of modification and recognized over the remaining service period.
In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the misstatements and based on an analysis of quantitative and qualitative factors determined that the impact of the misstatement to its interim reporting periods ending June 30, 2021, and September 30, 2021, was material. Accordingly, the Company restated its interim consolidated financial statements for the three- and six-months ended June 30, 2021, and three-and nine-months ended September 30, 2021, respectively, and included that restated financial information within its annual report for the period ending December 31, 2021.
In connection with the filing of this Quarterly Report, the Company has revised the accompanying financial statements, and the related notes to reflect the correction of those misstatements that impacted such periods.
The effects of the adjustments to the Company's previously reported unaudited 2021 quarterly consolidated statements of operations and comprehensive income (loss) on a standalone quarter basis are as follows:
|
Consolidated Statement of Operations and Comprehensive Income |
|
|
Consolidated Statement of Operations and Comprehensive Income |
|
||||||||||||||||||
|
For the three months ended September 30, 2021 (unaudited) |
|
|
For the nine months ended September 30, 2021 (unaudited) |
|
||||||||||||||||||
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
||||||
|
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|
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|
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|
||||||
Revenue |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
Gross Profit |
|
|
|
|
|
|
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|
||||||
|
|
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|
||||||
General and administrative expenses1 |
|
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|
|
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|
||||||
Total operating expense |
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|
||||||
|
|
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|
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|
||||||
Income (loss) from operations |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
||
Net income (loss) before income taxes |
|
|
|
|
( |
) |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) |
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Net income (loss) per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||||||
Basic |
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
|
|
$ |
( |
) |
|
$ |
( |
) |
||
Diluted |
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||||
1
The effects of the adjustments to the Company's previously reported unaudited 2021 quarterly consolidated balance sheet are as follows:
11
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
|
Consolidated Balance Sheet (unaudited) |
|
|||||||||
|
September 30, 2021 |
|
|||||||||
|
As Reported |
|
|
Adjustment |
|
|
As Restated |
|
|||
|
|
|
|
|
|
|
|
|
|||
Current assets |
$ |
|
|
$ |
|
|
$ |
|
|||
Total assets |
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Current liabilities |
$ |
|
|
$ |
|
|
$ |
|
|||
Total liabilities |
|
|
|
|
|
|
|
|
|||
|
|
|
|
|
|
|
|
|
|||
Additional paid-in capital |
$ |
|
|
$ |
|
|
$ |
|
|||
Accumulated deficit |
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Total Stockholders' Equity Impact |
$ |
|
|
$ |
|
|
$ |
|
|||
These corrections had no effect on the Company's previously reported net cash flows from operating activities, investing activities or financing activities for the three and nine months ended September 30, 2021.
3. EARNINGS PER SHARE
The Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method. The two-class method is an allocation of earnings (distributed and undistributed) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings for the reporting period are allocated between common shareholders and other security holders based on their respective participation rights in undistributed earnings.
Basic earnings per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of basic common stock outstanding. The Company’s Series A Convertible Preferred Stock is classified as a participating security in accordance with ASC 260. Net income allocated to the holders of Series A Convertible Preferred Stock was calculated based on the shareholders’ proportionate share of weighted average shares of common stock outstanding on an if-converted basis. The Series A Convertible Preferred Stock do not participate in losses, thus no such losses have been allocated to the Series A Convertible Preferred Stock in the periods presented below.
For purposes of determining diluted earnings per common share, basic earnings per common share was further adjusted to include the effect of potential dilutive common shares outstanding, including unvested restricted stock and performance-based stock units, using the more dilutive of either the two-class method or the treasury stock method, and Series A Convertible Preferred Stock using the if-converted method. Stock options and warrants that were out-of-the-money were not included in the denominator for the calculation of diluted EPS.
|
|
Three months ended September 30, |
|
|
For the nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
Net loss attributed to common shareholders |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Less: dividends paid to Series A convertible preferred shareholders |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Net loss attributed to common shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Net loss per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and dilutive |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
|
$ |
( |
) |
Weighted average common shares outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Basic and dilutive |
|
|
|
|
|
|
|
|
|
|
|
|
||||
For the three and nine months ended September 30, 2022,
12
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
The Company recognizes revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.” The Company recognizes revenue when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred, based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and allowances. Such provisions are calculated using historical averages and adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service, in which case the expense is classified as selling or marketing expense. Provisions for customer volume rebates are based on achieving a certain level of purchases and other performance criteria that are established on a situation basis. These rebates are estimated based on the expected amount to be provided to the customers and are recognized as a reduction of revenue. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Additionally, for any agreements which are one year or less, the practical expedient under ASC 340-40-25-4 is applied to expense contract acquisition costs when incurred if the amortization period of the contract asset would have otherwise been recognized in one year or less.
Information about the Company’s net sales by geographical location for the three and nine months ended September 30, 2022 and 2021 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
For the three months ended September 30, |
|
|
For the nine months ended September 30, |
|
||||||||||
|
|
2022 |
|
|
2021 |
|
|
2022 |
|
|
2021 |
|
||||
North America |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Asia |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Other |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Net sales |
|
$ |
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
All of the Company’s North America revenue is derived from the United States, which is the Company’s country of domicile. Total foreign revenues are approximately $
Agreements with PepsiCo, Inc.
The Company executed multiple agreements with Pepsi ("Purchaser") on August 1, 2022, including a Distribution Agreement relating to the sale and distribution of certain of the Company’s beverage products in existing channels and distribution methods in the United States, excluding certain existing customer accounts, sales channels, Puerto Rico and the US Virgin Islands (the “Territory”). Under the Distribution Agreement, the Company has granted Pepsi the right to sell and distribute its existing beverage products in existing channels and distribution methods and future beverage products that are added from time to time as licensed products under the Distribution Agreement in defined territories. The Distribution Agreement represents a master service agreement and can be cancelled by either party without cause in the nineteenth year of the term (i.e., 2041), the twenty-ninth year of the term (i.e., 2051) and each ten (10) year period thereafter (i.e., 2061, 2071, etc.) by providing twelve (12) months’ written notice on August 1st of each such year to the other party. Except for a termination by the Company “with cause” or a termination by Pepsi “without cause”, the Company is required to pay the Purchaser certain compensation upon a termination as specified in the Distribution Agreement.
The Company agreed to provide Pepsi a right of first offer in the event the Company intends to (i) manufacture, distribute or sell products in certain additional countries as specified in the Distribution Agreement or (ii) distribute or sell products in any future channels and distribution methods during the term of the Agreement. Additionally, pursuant to the Distribution Agreement, the Company and the Purchaser agreed to use commercially reasonable efforts to negotiate and execute with Pepsi a distribution agreement reasonably consistent with the Distribution Agreement for the sale and distribution of the Products in Canada, and Pepsi agreed to meet and confer in good faith with the Company regarding the terms and conditions upon which the Purchaser may be willing to sell or distribute the Products, either directly or through local sub-distributors in certain other additional countries. The Distribution Agreement includes other customary provisions, including non-competition covenants in favor of the Company, representations and warranties, indemnification provisions, insurance provisions and confidentiality provisions.
On August 1, 2022, the Company and Pepsi also executed a Transition Agreement, providing for the Company’s transition of certain existing distribution rights in the Territory to Pepsi. Under the terms of the Transition Agreement, Pepsi would pay the Company up to $
13
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
refunded back to Pepsi. In August 2022, the Company received an initial $
Accounting for the agreements executed with PepsiCo, Inc.
The Company evaluated the SPA, Transition Agreement, Distribution Agreement, and other agreements executed with Pepsi on August 1, 2022, as one combined contract since the agreements were executed on the same day, with the same counterparty, in contemplation of one another and contractual terms are defined and referenced across the agreements. These agreements will be referred to as the “Pepsi Arrangement” herein. Management concluded the Pepsi Arrangement was partially in the scope of ASC 606, Revenue from Contracts with Customers (“ASC 606”) and partially in the scope of ASC 505, Equity (“ASC 505") and ASC 480, Distinguishing liabilities from equity. The Company first applied the measurement and classification criteria in ASC 505 and ASC 480 with respect to the Company’s issuance of
After application of the measurement and classification principles in ASC 505, and ASC 480, Distinguishing liabilities from equity, the Company accounted for the residual revenue elements of the Pepsi Arrangement under ASC 606. The revenue elements of the Pepsi Arrangement consisted of (i) a $
The $
The $
For product sales under the Distribution Agreement, the Company will recognize revenues when control of the underlying goods are transferred to Pepsi based on the contractual terms of noncancellable purchase orders issued by Pepsi. The Company’s customary revenue recognition policy as explained above is applied with respect to rebates.
License Agreement
In January 2019, the Company entered into a license and repayment of investment agreement with Qifeng Food Technology (Beijing) Co., Ltd (“Qifeng”). Under the agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize Celsius branded products in China.
Under the agreement, the Company grants Qifeng exclusive license rights and provides ongoing support in product development, brand promotion and technical expertise. The ongoing support is integral to the exclusive license rights and, as such, both of these represent a combined, single performance obligation. The transaction price consists of the guaranteed minimums and the variable royalty fees, all of which are allocated to the single performance obligation.
The Company recognizes revenue from the agreement over time because Qifeng simultaneously receives and consumes the benefits from the services. The Company uses the passage of time to measure progress towards satisfying its performance obligation because of its ongoing efforts in providing the exclusive license rights including providing continuous access, updates and support. Total revenue recognized under the agreement was approximately $
14
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
Inventories consist of the following at:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Finished goods |
|
$ |
|
|
$ |
|
||
Raw Materials |
|
|
|
|
|
|
||
Less: Inventory allowance for excess and obsolete products |
|
|
( |
) |
|
|
( |
) |
Inventories |
|
$ |
|
|
$ |
|
||
Prepaid expenses and other current assets total approximately $
Note receivable consists of the following at:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Note receivable-current |
|
$ |
|
|
$ |
|
||
Note receivable-non-current |
|
|
|
|
|
|
||
Total Note receivable |
|
$ |
|
|
$ |
|
||
Effective January 1, 2019, the Company restructured its China distribution efforts by entering into two separate economic agreements as it relates to the commercialization of its Celsius products (i.e., the license and repayment of investment agreement with Qifeng, as described above). See Note 4 for information regarding the license agreement with Qifeng. Under a separate economic agreement, Qifeng will repay the marketing investments made by Celsius into the China market through 2018, over the same five-year period as the license agreement. The repayment, which was formalized via a note receivable from Qifeng (the "Note"), will need to be serviced even if the licensing agreement is cancelled or terminated. The Note is denominated in Chinese-Yuan.
The Company assesses the note receivable for impairment at each reporting period, by evaluating whether it is probable that the Company will be unable to collect all the contractual principal and interest payments as scheduled in the Note, based on historical experience of Qifeng’s ability to pay, the current economic environment and other factors. If the Note is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows under the Note, discounted at the Note’s effective interest rate. At September 30, 2022, the Note was not deemed to be impaired. Payment in-full was received in April 2022 pertaining to the amounts due on March 31, 2022.
As evidence of solvency for the Note, a stock certificate in Celsius Holding's Inc. which amounts to
The Company’s leasing activities include an operating lease of its corporate office space from a related party (see note 13) and other operating and finance leases of vehicles and office space for the Company’s European operations.
At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic
15
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.
Leases are classified as either finance leases or operating leases based on criteria in ASC Topic 842, “Leases”. The Company’s operating leases are generally comprised of real estate and vehicles, and the Company’s finance leases are generally comprised of vehicles.
At lease commencement, the Company records a lease liability equal to the present value of the remaining lease payments, discounted using the rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. A corresponding right-of-use asset (“ROU asset”) is recorded, measured based on the initial measurement of the lease liability. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.
Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the shorter of the useful life of the asset or the lease term, and interest expense is calculated using the effective interest rate method.
The future annual minimum lease payments required under the Company’s operating and finance lease liabilities as of September 30, 2022 are as follows:
|
|
Operating |
|
|
Finance |
|
|
|
|
|||
Future minimum lease payments |
|
Leases |
|
|
Leases |
|
|
Total |
|
|||
2022 |
|
$ |
|
|
$ |
|
|
$ |
|
|||
2023 |
|
|
|
|
|
|
|
|
|
|||
2024 |
|
|
|
|
|
|
|
|
|
|||
2025 |
|
|
|
|
|
|
|
|
|
|||
2026 |
|
|
|
|
|
|
|
|
|
|||
Total future minimum lease payments |
|
|
|
|
|
|
|
|
|
|||
Less: Amount representing interest |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Present value of lease liabilities |
|
|
|
|
|
|
|
|
|
|||
Less: current portion |
|
|
( |
) |
|
|
( |
) |
|
|
( |
) |
Long-term portion |
|
$ |
|
|
$ |
|
|
$ |
|
|||
Property and equipment consist of the following at:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Merchandising equipment - coolers |
|
$ |
|
|
$ |
|
||
Office Equipment |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
Depreciation expense amounted to approximately $
At September 30, 2022 and December 31, 2021, goodwill consists of approximately $
Intangible assets consist of acquired customer relationships and brands from the Func Food acquisition. The gross carrying amount and accumulated amortization of intangible assets as of
16
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Definite-lived intangible assets |
|
|
|
|
|
|
||
Customer relationships |
|
$ |
|
|
$ |
|
||
Less: accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Definite-lived intangible assets, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Indefinite-lived intangible assets |
|
|
|
|
|
|
||
Brands |
|
$ |
|
|
$ |
|
||
Less: impairment |
|
|
( |
) |
|
|
— |
|
Indefinite-lived intangible assets, net |
|
$ |
|
|
$ |
|
||
Total Intangibles |
|
$ |
|
|
$ |
|
||
Customer relationships are amortized over an estimated useful life of
Other fluctuations in the amounts of goodwill and intangible assets are due to currency translation adjustments.
The following is the future estimated annualized amortization expense related to customer relationships:
As of September 30, 2022: |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Accounts payable and accrued expenses consist of the following at:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Due to Pepsi |
|
|
|
|
|
|
||
Promotional allowances |
|
|
|
|
|
|
||
Freight |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Unbilled purchases |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Other current liabilities consist of the following at:
|
|
September 30, |
|
|
December 31, |
|
||
|
|
|
|
|
|
|
||
Short-term |
|
|
|
|
|
|
||
VAT payable |
|
$ |
|
|
$ |
|
||
State Beverage Container Deposit |
|
|
|
|
|
|
||
Other |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
17
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
Transactions with PepsiCo Inc.
As further described in Note 14 Mezzanine Equity, on August 1, 2022, the Company issued
Based on Pepsi’s contractual representation rights for a seat on the Company’s Board of Directors, the Company has concluded that Pepsi represents a related party to the Company. As of September 30, 2022, the following transactions were recognized in the Company’s financial statements:
See Notes 1. Organization and Description of Business, 2. Basis of Presentation Significant Accounting Policies, 11. Accounts Payable and Accrued Expenses, and 14. Mezzanine Equity for more information.
Related Party Leases
The Company’s office is rented from a company affiliated with CD Financial, LLC which is controlled by one of our major shareholders. The current lease expires on December 2024 with monthly base rent of approximately $
Series A Convertible Preferred Stock
As of September 30, 2022, Company has designated and authorized
Mezzanine Classification
The Series A Convertible Preferred Stock is redeemable in the event of a change in control as defined in the Series A Certificate. S99-3A(2) of the SEC's Accounting Series Release No. 268 ("ASR 268") requires preferred securities that are redeemable for cash or other assets to be classified outside of permanent equity if they are redeemable (i) at a fixed or determinable price on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence of an event that is not solely within the control of the issuer. Preferred securities that are mandatorily redeemable are required to be classified by the issuer as liabilities whereas under ASR 268 guidance an issuer should classify a preferred security whose
18
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
redemption is contingent on an event not entirely in control of the issuer as mezzanine equity. The Series A is not mandatorily redeemable, however, a change in control is not solely in control of the Company, accordingly, the Company determined that mezzanine treatment is appropriate for the Series A and has presented it as such in our consolidated balance sheet and consolidated statement of changes in stockholders' equity as of and for the period ending September 30, 2022. The Series A is not considered mandatorily redeemable.
Pursuant to the Purchase Agreement, Pepsi, together with its affiliates, has certain rights and is also subject to various restrict percentage of the Company’s outstanding common shares on an as-converted basis through purchases of the Company’s Common Stock in the open market and the accumulation of PIK dividends. Additionally, pursuant to the Purchase Agreement, Pepsi has the right to designate one nominee for election to Company’s board of directors, for so long as Pepsi (together with its affiliates) beneficially owns at least
Liquidation Preference
The Series A ranks, with respect to distribution rights and rights on liquidation, winding-up and dissolution, (i) senior and in priority of payment to the Company’s Common Stock, (ii) on parity with any class or series of capital stock of the Company expressly designated as ranking on parity with the Series A, and (iii) junior to any class or series of capital stock of the Company expressly designated as ranking senior to the Series A. The aggregate liquidation preference of the Series A is $
Voting
The Series A confers no voting rights, except as otherwise required by applicable law, and with respect to matters that adversely change the powers, preferences, privileges, rights or restrictions given to the Series A or provided for its benefit, or would result in securities that would be senior to or pari passu with the Series A. As described above, Pepsi does have a contractual right to representation on the Company’s Board of Directors, subject to certain share holdings thresholds.
Dividends
The Series A entitles the holder to cumulative dividends, which are payable quarterly in arrears either in cash, in-kind, or a combination thereof, at the Company’s election (“Regular Dividends”). Regular Dividends accrue on each share Series A at the rate of
Redemption
Pursuant to certain conditions set forth in the Series A Certificate, Series A may be redeemed at a price per share of Series A equal to the sum of (i) the stated value of such share of Series A as of the applicable Redemption Date, plus (ii) without duplication, all accrued and unpaid dividends previously added to the stated value of such share of Series A, all accrued and unpaid dividends per share of Series A through such Redemption Date (the “Redemption Price”).
Company’s Optional Redemption
At any time from and after the earlier of (i) August 1, 2029, if the ten-day volume weighted average price of the Company’s Common Stock ( the “Ten-Day VWAP”) does not exceed the conversion price on the date immediately prior to the date the Company delivers a redemption notice to the holders, and (ii) the cancellation of the Distribution Agreement by the Company, if the Ten-Day VWAP does not exceed the Conversion Price on the date immediately prior to the date the Company delivers a redemption notice to the holders, the Company shall have the right to redeem all (and not less than all) of the then-outstanding shares of Series A, at the Redemption Price. In the event of a Company optional redemption, the Company shall effect such redemption by paying the entire Redemption Price on or before the date that is thirty days after the delivery of the Company’s redemption notice and by redeeming all the shares of Series A on such date.
Change in Control Redemption
In the event of (i) a sale or transfer, directly or indirectly, of all or substantially all of the assets of the Company in any transaction or series of related transactions (other than sales in the ordinary course of business); or (ii) any merger, consolidation or reorganization of the Company with or into any other entity or entities as a result of which the holders of the Company’s outstanding capital stock (on a fully-diluted basis) immediately prior to the merger, consolidation or reorganization no longer represent at least a majority of the voting power of the surviving or resulting Company or other entity; or (iii) any sale or series of sales, directly or indirectly, beneficially or of record, of shares of the Company’s capital stock by the holders thereof which results in any Person or group of Affiliated Persons owning capital stock holding more than
19
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
of Series A. Upon such redemption, the Company will pay or deliver, as applicable, to each holder in respect of each share of Series A held by such holder, an amount equal to the greater of (A) cash in an amount equal to the Redemption Price and (B) the amount of cash and/or other assets (including securities) such holder would have received had each share of Series A held by such holder as of the close of business on the business day immediately prior to the effective date of such transaction resulting in a Change of Control, converted into a number of shares of Common Stock equal to the then-applicable Conversion Ratio and participated in such transaction resulting in such Change of Control as a holder of shares of Common Stock (such greater amount, the “Change of Control Redemption Price”). If, in connection with a transaction resulting in a Change of Control, the Company or its successor shall not have sufficient funds legally available under the Nevada law governing distributions to stockholders to redeem all outstanding shares of Series A, then the Company shall (A) redeem, pro rata among the holders, a number of shares of Series A equal to the number of shares of Series A that can be redeemed with the maximum amount legally available for the redemption of such shares of Series A under the Nevada law governing distributions to stockholders, and (B) redeem all remaining shares of Series A not redeemed because of the foregoing limitations at the applicable Change of Control Redemption Price as soon as practicable after the Company (or its successor) is able to make such redemption out of assets legally available for the purchase of such share of Series A. The inability of the Company (or its successor) to make a redemption payment for any reason shall not relieve the Company (or its successor) from its obligation to effect any required redemption when, as and if permitted by applicable law.
Holder Right to Request Redemption
On each of August 1, 2029, August 1, 2032, and the August 1, 2035, the majority holders shall have the right, upon no less than six months prior written notice to the Company, to request that the Company redeem all (and not less than all) of the then-outstanding shares of Series A, at the Redemption Price.
In the event of a holder optional redemption, the Redemption Price shall be payable, and the shares of Series A redeemed by the Company, in three equal installments, commencing on August 1, 2029, August 1, 2032, or August 1, 2035, as applicable, and in each case on the fifteenth- and thirtieth-month anniversary thereafter (each a "Redemption Date”). On each Redemption Date for a holder optional redemption, the Company shall redeem, on a pro rata basis in accordance with the number of shares of Series A owned by each holder, that number of outstanding shares of Series A determined by dividing (i) the total number of shares of Series A outstanding immediately prior to such Redemption Date by (ii) the number of remaining Redemption Dates (including the Redemption Date to which such calculation applies). If, on any Redemption Date, Nevada law governing distributions to stockholders or the terms of any indebtedness of the Company to banks and other financial institutions engaged in the business of lending money prevent the Company from redeeming all share of Series A to be redeemed, the Company shall ratably redeem the maximum number of shares that it may redeem consistent with such law, and shall redeem the remaining shares as soon as it may lawfully do so under such law.
If any shares of Series A scheduled for redemption on a Redemption Date are not redeemed for any reason on such Redemption Date, (x) from such Redemption Date until the fifteen-month anniversary of such Redemption Date, the dividend rate with respect to such unredeemed share of Series A shall automatically increase to
Conversion
The shares of Series A may be converted into shares of the Company’s Common Stock pursuant to the Series A Certificate either at the option of the Company or subject to an automatic conversion as discussed below. The Series A was issued with a conversion price of $
The calculations of earnings per share for all periods presented herein during which the Series A was outstanding do not treat conversion of the Series A as if it had occurred, as the effect of conversion would be anti-dilutive.
Company Optional Conversion
At any time from and after August 1, 2029, provided the Ten-Day VWAP immediately prior to the date the Company delivers a conversion notice to the holders of Series A exceeds the Conversion Price, the Company may elect to convert all, but not less than all, of the outstanding shares of Series A into shares of the Company’s Common Stock.
20
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
Automatic Conversion
The Series A will convert automatically into shares of the Company’s Common Stock upon the occurrence of any of the following, each, an “Automatic Conversion Event”:
Other Accounting Matters
FASB ASC 815 generally requires an analysis of embedded terms and features that have characteristics of derivatives to be evaluated for bifurcation and separate accounting in instances where their economic risks and characteristics are not clearly and closely related to the risks of the host contract. However, in order to perform this analysis, the Company was first required to evaluate the economic risks and characteristics of each series of the Series A in its entirety as being either akin to equity or akin to debt, using the “whole instrument” approach. The Company’s evaluation concluded that the Series A was more akin to an equity-like contract largely due to the fact the financial instrument is not mandatorily redeemable for cash, participates in common dividends, and has a redemption feature that is out-of-the money at issuance by approximately $
Issuance of common stock pursuant to exercise of stock options and other awards
During the nine months ended September 30, 2022, the Company issued an aggregate of
June 2021 Public Offering
On June 9, 2021, the Company and certain selling stockholders (the "Selling Stockholders”) entered into an underwriting agreement (the "Underwriting Agreement”) with UBS Securities LLC and Jefferies LLC, as representatives (the "Representatives”) of the several underwriters (the "Underwriters”), relating to the sale of
21
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: |
Observable inputs such as quoted market prices in active markets for identical assets or liabilities. |
|
|
Level 2: |
Observable market-based inputs or unobservable inputs that are corroborated by market data. |
|
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Level 3: |
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |
The Company engaged a third-party valuation expert to assist in determining the fair value of the
The Company used the relief from royalty method model to determine the fair value of the Brand Name on September 30, 2022. The fundamental concept underlying this method is that in lieu of ownership, the acquirer can obtain comparable rights to use the subject asset via a license from a hypothetical third-party owner. The Relief from Royalty method utilized multiple input variables to determine the value of the Brand Name including forecasted sales, discount rate, and royalty rates. The selected royalty rate was based on comparable brands. The debt discount rate was based an expected debt and equity rate of return as of September 30, 2022.
The following is a tabular presentation of the non-recurring fair value measurement along with the level within the fair value hierarchy:
|
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For the nine months ended September 30, 2022 |
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Level 1 |
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Level 2 |
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Level 3 |
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Mezzanine equity: |
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|||
Series A convertible preferred shares |
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$ |
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$ |
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$ |
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|||
Indefinite-lived intangible assets: |
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Brands |
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Total |
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$ |
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|
$ |
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|
$ |
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|||
Other than those noted previously, the Company did not have any other assets or liabilities measured at fair value at September 30, 2022 and December 31, 2021.
In general, the Company uses an estimated annual effective tax rate, which is based on expected annual income and statutory tax rates in the various jurisdictions in which the Company operates, to determine its quarterly provision for income taxes. Certain significant or unusual items are separately recognized in the quarter in which they occur and can be a source of variability on the effective tax rates from quarter to quarter. The Company’s effective tax rate may change from period-to-period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation and state and local income taxes.
The effective income tax rate for the nine months ended September 30, 2022 was (
The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. The Company recognizes those tax positions that meet the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. Interest and penalties associated with income tax matters are included in the provision for income taxes in the consolidated statements of operations.
22
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
The Company adopted the 2006 Incentive Stock Plan on January 18, 2007. This plan was intended to provide incentives to 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. While the plan terminated
The Company adopted the 2015 Plan on April 30, 2015. The 2015 Plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to awards issued. The 2015 Plan permits the grant of options and shares for up to
The Company determines the fair value of restricted stock-based awards based on the market price on the date of grant. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances and recognizes forfeitures as they occur.
For the nine months ended September 30, 2022 and 2021, the Company recognized an expense of approximately $
Stock Options
Under the 2015 Plan, the Company has issued stock options to purchase approximately $
A summary of the status of the Company’s outstanding stock options as of September 30, 2022 and changes during the periods ending on that date is as follows:
|
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Weighted Average |
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Weighted |
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Shares |
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Exercise |
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Grant Date Fair |
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Aggregate |
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Average |
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(000’s) |
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Price |
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Value |
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Value (000’s) |
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Term (Yrs) |
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Options |
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At December 31,2021 |
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$ |
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$ |
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Granted |
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|
|
|
|
|
|
|
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— |
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||||
Exercised |
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( |
) |
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$ |
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|
$ |
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$ |
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Forfeiture and cancelled |
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( |
) |
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$ |
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|
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— |
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At September 30,2022 |
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$ |
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$ |
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Exercisable September 30,2022 |
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$ |
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$ |
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The following table summarizes information about employee stock options outstanding at September 30, 2022:
23
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
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Outstanding Options |
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Vested Options |
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Number |
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Number |
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Outstanding |
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Weighted |
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Weighted |
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Exercisable |
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Weighted |
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Weighted |
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Range of |
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at |
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Averaged |
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Averaged |
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at |
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Averaged |
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Averaged |
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Exercise |
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September 30, |
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Remaining |
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Exercise |
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September 30, |
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Remaining |
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Exercise |
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Price |
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Life |
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Price |
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Life |
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Price |
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$0.34 - $1.05 |
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$ |
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$ |
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$1.97 - $2.955 |
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$ |
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$ |
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$3.23 - $4.845 |
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$ |
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$ |
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$5.59 - $8.385 |
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$ |
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$ |
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$14.53 - $21.795 |
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$ |
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$ |
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$21.80 - $32.70 |
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$ |
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$ |
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$42.64 - $63.96 |
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$ |
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$ |
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||||||
Outstanding options |
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$ |
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$ |
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As of September 30, 2022, the Company had approximately $
Restricted Stock Awards
Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the holder leaves the Company before the restrictions lapse. The holders of a restricted stock award are generally entitled after the release to transact and obtain the same rights as rights of a shareholder of the Company, including the right to vote the shares. The holders of unvested restricted stock awards do not have the same rights as shareholders including but not limited to any dividends which may be declared by the Company, and do not have the right to vote. The value of restricted stock awards that vest over time is established by the market price on the date of its grant.
A summary of the Company’s restricted stock award activity for the nine months ended September 30, 2022 and 2021 is presented in the following table:
|
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For the nine months ended September 30, |
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2022 |
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2021 |
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Weighted |
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Weighted |
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Average |
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Average |
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Grant Date |
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Grant Date |
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Shares (000's) |
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Fair Value |
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Shares (000's) |
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Fair Value |
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Unvested at beginning of period |
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$ |
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$ |
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Transfers to restricted stock units |
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( |
) |
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$ |
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Granted |
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Vested |
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( |
) |
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$ |
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Forfeiture and cancelled |
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( |
) |
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$ |
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( |
) |
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$ |
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||
Unvested at end of period |
|
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$ |
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$ |
|
||||
There were no shares vested during the nine months ended September 30, 2022. There are
Restricted Stock Units
Restricted stock units are awards that give the holder the right to receive one share of common stock for each restricted stock unit upon meeting service-based vesting conditions (typically annual vesting in three equal annual installments, with a requirement that the holder remains in the continuous employment of the Company). The holders of unvested units do not have the same rights as stockholders including but not limited to any dividends which may be declared by the Company, and do not have the right to vote.
24
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
|
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For the nine months ended September 30, |
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2022 |
2021 |
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Weighted |
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Weighted |
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||||
|
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Average |
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Average |
|
||||
|
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Grant Date |
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Grant Date |
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||||
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Shares (000's) |
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Fair Value |
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Shares (000's) |
|
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Fair Value |
|
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Unvested at beginning of period |
|
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$ |
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$ |
|
||||
Transfers from restricted stock awards |
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$ |
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Granted |
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$ |
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Vested |
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( |
) |
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( |
) |
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Forfeited and cancelled |
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( |
) |
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( |
) |
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$ |
|
||
Unvested at end of period |
|
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$ |
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$ |
|
||||
The total fair value of shares vested during the nine months ended September 30, 2022 was approximately $
Performance-based Stock Awards
The Company issues stock-based awards to third-party consultants for providing marketing, sales, and general business development services related to Celsius products. The stock-based awards are in the form of restricted stock units with performance vesting conditions (“performance stock units” or “PSUs”). The holders of unvested PSUs do not have the same rights as stockholders including but not limited to any dividends which may be declared by the Company, and do not have the right to vote. Some of the PSU performance vesting conditions are linked to the consultants obtaining specified incremental earnings for the Company in a given year over the performance vesting period, typically five years and some of the awards are linked to employees of the Company and have specific performance-based metrics to be met in year one and year two of the issuance. The fair value of PSUs is based on the market price of the underlying stock on the grant date. The Company recognizes compensation cost for performance stock awards issued to non-employees in the same manner and periods as though cash had been paid for services received.
In the third quarter of 2022, the Human Resources and Compensation Committee of the Board of Directors approved the issuance of “Performance-based RSUs” to certain employees which represented restricted share units with performance-based vesting. The aggregate grant date fair value of $
A summary of the Company’s PSU activity for the nine months ended September 30, 2022 and 2021 is presented in the following table:
|
|
For the nine months ended September 30, |
|
|||||||||||||
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2022 |
2021 |
|
||||||||||||
|
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Weighted |
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Weighted |
|
||||
|
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Average |
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Average |
|
||||
|
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|
Grant Date |
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|
Grant Date |
|
||||
|
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Shares (000's) |
|
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Fair Value |
|
|
Shares (000's) |
|
|
Fair Value |
|
||||
Unvested at beginning of period |
|
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|
$ |
|
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|
$ |
|
||||
Granted |
|
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|
$ |
|
|
|
|
|
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|
||||
Vested |
|
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( |
) |
|
$ |
|
|
|
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|
|||
Forfeited and cancelled |
|
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|
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|
|
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|
|
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|
||||
Unvested at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
The total fair value of awards vested during the nine months ended September 30, 2022 was approximately $
Modifications
There were certain Board of Directors members and employees whose service was terminated during 2021. In connection with their terminations, the vesting conditions of the previously granted awards were modified to accelerate the vesting of specified un-vested awards pursuant to board resolutions or severance agreements. Pursuant ASC 718, these were Type III modifications requiring re-valuation of un-vested awards to modification date fair value with recognition of compensation expense over the remaining service period. There have been no modifications in the three and nine months ended September 30, 2022. Modifications during the three-and nine-month period ended September 30, 2021 resulted
25
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
in additional stock-based compensation expense of $
Legal
In November of 2020, McGovern Capital, Inc. and Kevin McGovern (collectively “McGovern”) filed a claim in arbitration related to its Representative Agreement with the Company as amended by the first amendment dated August 6, 2016. Pursuant to the Representative Agreement, McGovern is entitled to receive a fee of three percent (
In March of 2019, Daniel Prescod filed a putative class action lawsuit against the Company in the Superior Court for the State of California, County of Los Angeles, filed on March 19, 2019, (the “Prescod Litigation”). Daniel Prescod asserts that the Company’s use of citric acid in its products while simultaneously claiming “no preservatives” violates California Consumer Legal Remedies Act, California Business and Professions Code Section 17200, et seq., and California Business and Professions Code Section 17500, et seq., because citric acid acts as a preservative. The Company does not use citric acid as a preservative in its products, but rather as a flavoring, and therefore it believes that its “no preservatives” claim is fair and not deceptive. A motion to certify the case as a class action was filed and on August 2, 2021, that motion was granted. No fact discovery was conducted on the merits. On October 12, 2022, the Company and Mr. Prescod notified the courts that an agreement in principle to settle had been reached to resolve the case for an aggregate amount of $
On January 8, 2021, the Company received a letter from the SEC Division of Enforcement seeking the production of documents in connection with a non-public fact-finding inquiry by the SEC to determine whether violations of the federal securities laws have occurred. Subsequent to January 8, 2021, the Company received subpoenas for production of documents in connection with the matter. The investigation and requests from the SEC do not represent that the SEC has concluded that the Company or anyone else has violated the federal securities laws. The Company has cooperated and will continue to cooperate with the SEC staff in its investigation and requests. At this time, however, the Company cannot predict the length, scope, or results of the investigation or the impact, if any, of the investigation on our results of operations.
On March 16, 2022, Christian McCallion filed a putative class action lawsuit against the Company in the United States District Court for the Southern District of Florida. Plaintiff McCallion asserts that because of the Company's delay in filing its Annual Report on Form 10-K for the year ended December 31, 2021, there was a decline in the market value of the Company’s securities and as a result, class members suffered significant losses and damages. On June 6, 2022 Judge Middlebrooks appointed a lead class plaintiff and the Company filed its Motion to Dismiss on August 5, 2022. As the Company has previously disclosed in its periodic reports filed with the SEC, prior to filing an application for an automatic fifteen (15) day extension of the original filing date, the Company experienced staffing limitations, unanticipated delays and identified material errors in previous filings. The Company does not believe it has committed any federal securities violations or made false and/or misleading statements and/or material omissions as alleged in the complaint. The Company intends to contest the claims vigorously on the merits.
In addition to the foregoing, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.
Commitments
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. If management makes the decision to terminate an agreement without cause, an estimate of expected damages is accrued, and an expense is recorded within operating expenses during the period in which termination was initiated.
As of September 30, 2022, we have contingent commitment to third parties of $
Additionally, our business and results of operations may be adversely affected by the business and economic uncertainty resulting from the pandemic and public health crises related to the COVID-19 outbreak, which is affecting the macro-economic environment.
26
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
September 30, 2022
(Tabular dollars in thousands, except per share amounts)
The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date the consolidated financial statements are issued. Except for the matters discussed in note 19, there were no other subsequent events that would have required adjustment or disclosure in the consolidated financial statements.
27
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
When used in this report, unless otherwise indicated, the terms “the Company,” “Celsius,” “we,” “us” and “our” refer to Celsius Holdings, Inc. and its subsidiaries.
Note Regarding Forward Looking Statements
This report contains forward-looking statements that reflect our current views about future events. We use the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “will,” “intend,” “may,” “plan,” “project,” “should,” “could,” “seek,” “designed,” “potential,” “forecast,” “target,” “objective,” “goal,” or the negatives of such terms or other similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.
Our forward-looking statements may include, but are not limited to, statements about:
These forward-looking statements are subject to a number of risks, uncertainties and assumptions, including but not limited to: our ability to successfully make and integrate acquisitions; the impact on our operations of public health crises, including of the current coronavirus outbreak; and the performance, reliability and availability of our ecommerce platform and underlying network infrastructure.
Business Overview
Celsius is a fast-growing company in the functional energy drink and liquid supplement categories in the United States and internationally. We engage in the development, processing, marketing, sale, and distribution of functional drinks and liquid supplements to a broad range of consumers. We believe that we provide differentiated products that offer clinically proven and innovative formulas meant to change the lives of our consumers for the better. We also believe that our brand is attractive to a broad range of customers including fitness enthusiasts.
Our core offerings include pre- and post-workout functional energy drinks, as well as protein bars. Our flagship functional energy drink and liquid supplement brands are backed by science, being clinically proven to deliver health benefits by six self-funded studies published in various journals
28
including the Journal of the International Society of Sports Nutrition, the Journal of the American College of Nutrition, and the Journal of Strength and Conditioning Research. These studies have concluded that a single serving of Celsius burns 100-140 calories (by increasing a consumer’s resting metabolism an average of 12%, while providing sustained energy for up to three hours).
Our flagship asset, Celsius, is a fitness supplement drink which accelerates metabolism and burns calories and body fat while providing energy. This product line comes in two versions, a ready-to-drink supplement format and an on-the-go powder form. We also offer a Celsius Heat and a Branch Chain Amino Acids line, catered to both pre- and post-workout consumer needs. Our products are currently offered in major retail channels in the US including conventional grocery, natural, convenience, fitness, mass market, vitamin specialty and e-commerce.
An integral part of our value proposition is our focus on the functional energy drink and liquid supplement category, ensuring our products have clear and proven benefits. This is why we invest in research and development from the start and utilize our proprietary MetaPlus formulation in our portfolio, a blend of ginger root, guarana seed extract, chromium, vitamins, and green tea extract.
Results of Operations
Three months ended September 30, 2022 compared to three months ended September 30, 2021
Revenue
For the three months ended September 30, 2022, revenue was approximately $188.2 million, an increase of $93.3 million or 98% from $94.9 million for the three months ended September 30, 2021. Approximately 102% of this growth was as a result of increased revenues from North America, where third quarter 2022 revenues were $179.5 million, an increase of $95.1 million or 112% from the same period in 2021. The balance of the revenues for the three months ended September 30, 2022 quarter were mainly attributable to European revenues of $7.5 million, which decreased by $2.0 million from the same period in 2021 due to foreign exchange rates and timing of new product launches and continuing supply chain challenges. Asian revenues (which include royalty revenues from our China licensee) contributed an additional approximately $1.0 million, an increase of 37% from approximately $0.7 million for the same period in 2021, which include increases in royalties payable under our licensing agreement. Other international markets generated approximately $0.2 million in revenues during the three months ended September 30, 2022 , an increase of 3% from $0.2 million for the same period in 2021.
The total increase in revenue was largely attributable to increases in sales volume, as opposed to increases in product pricing. The primary factors behind the increase in North American sales volume were related to continued strong triple-digit growth in traditional distribution channels, combined with an increase in and optimization of our products’ presence in world class retailers (e.g., additional SKUs). Additionally, revenues increased as a result of building inventories at Pepsi warehouses and distribution centers in anticipation of the transition to the Pepsi distribution network resulting in delivery of approximately five million raw cases. These revenues were offset by the prior distribution network which reduced their inventory balances at both their distribution centers and within their network as a majority of the prior distribution system was terminated as of September 30, 2022.
The following table sets forth the amount of revenues by category and changes therein for the three months ended September 30, 2022 and 2021 (dollars in thousands):
|
|
For the three months ended September 30, |
|
|||||||||
Revenue Source |
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Total Revenue |
|
$ |
188,233 |
|
|
$ |
94,909 |
|
|
|
98.3 |
% |
|
|
|
|
|
|
|
|
|
|
|||
North American Revenue |
|
$ |
179,541 |
|
|
$ |
84,490 |
|
|
|
112.5 |
% |
|
|
|
|
|
|
|
|
|
|
|||
European Revenue |
|
$ |
7,546 |
|
|
$ |
9,536 |
|
|
|
(20.9 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Asian Revenue |
|
$ |
964 |
|
|
$ |
706 |
|
|
|
36.5 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
$ |
182 |
|
|
$ |
177 |
|
|
|
2.8 |
% |
Gross profit
For the three months ended September 30, 2022, gross profit increased by approximately $41.0 million or 109% to $78.7 million, from approximately $37.7 million for the three months ended September 30, 2021. Gross profit margins reflected an increase to 41.8% for the three months ended September 30, 2022 from 39.7% for the same period in 2021 reflecting a 210 basis point improvement. Efficiencies in outbound freight, which were partially offset by volatility in fuel prices, generated 130 basis points of improvement, while average case costs drove improvements in raw material costs.
Sales and marketing expenses
Sales and marketing expenses for the three months ended September 30, 2022 were approximately $198.8 million, an increase of approximately $176.1 million or 779% from approximately $22.6 million for the three months ended September 30, 2021. This increase was primarily attributable to expense for termination fees paid to prior distributors, which resulted in an increase of $155.4 million when compared to the prior year quarter. Additionally, employee costs increased by approximately $1.1 million from the year ago quarter as we continue to invest in this area in order to have the proper
29
infrastructure to support our growth. Marketing costs also increased by approximately $14.6 million as we expanded our footprint in stores across the United States. Lastly, storage and distribution expenses as well as broker costs accounted for the remainder of the increase in this area in the amount of $4.4 million from the 2021 quarter to the 2022 quarter.
General and administrative expenses
General and administrative expenses for the three months ended September 30, 2022 were approximately $27.5 million, an increase of $4.2 million or 18%, from $23.3 million for the three months ended September 30, 2021. Employee costs for the three months ended September 30, 2022 reflect an increase of $0.9 million as investments in this area are also required to properly support our higher business volume and the commercial and operational areas of the business, as well as travel expenses are now being incurred. Depreciation, amortization and impairment expenses increased by approximately $2.4 million when compared to the prior year quarter. These increases were offset by a $11.7 million decrease in stock-based compensation expense, which amounted to $6.3 million in the current quarter, when compared to the prior year quarter. Management deems it very important to motivate employees by providing them ownership in the business in order to promote over performance which translates into the continued success of our business based on key performance attributes. Administration expenses also increased by $12.3 million primarily due to a litigation settlement in the amount of $7.8 million as well as increased costs associated with third party service providers including audit fees, internal control and Sox compliance, and other litigation. Lastly, all other administrative expenses which were mainly composed of research, development and quality control testing, increased by approximately $0.3 million from to the second quarter of 2021.
Other income/(expense)
Total net other expense for the three months ended September 30, 2022 is mainly related to foreign currency exchange which is offset by interest and non-operating income.
Net Loss
Net loss attributable to common shareholders for the three months ended September 30, 2022 was $186.5 million or $2.46 per share based on a weighted average of approximately 75,796,000 shares outstanding. The dilutive impact share-based awards of 10,185,781 shares, were excluded from the calculations due to the net loss position of the Company. In comparison, for the three months ended September 30, 2021, the Company had a net loss of approximately $9.4 million or $0.13 per share, based on a weighted average of 74,609,000 shares outstanding.
Nine months ended September 30, 2022 compared to nine months ended September 30, 2021
Revenue
For the nine months ended September 30, 2022, revenue was approximately $475.6 million, an increase of $265.6 million or 126% from $210.0 million for the nine months ended September 30, 2021. Approximately 102% of this growth was as a result of increased revenues from North America, where the first nine months of 2022 revenues were $448.1 million, an increase of $271.0 million or 153% from the 2021 first nine months. The balance of the revenues for the nine months ended September 30, 2022 were mainly attributable to European revenues of $23.5 million, which decreased by $7.2 million from the prior year nine months primarily due to foreign exchange rates and timing of new product launches and continuing supply chain challenges. Asian revenues (which include royalty revenues from our China licensee) contributed an additional approximately $2.9 million, an increase of 54% from approximately $1.9 million for the prior year, which include increases in royalties payable under our licensing agreement. Other international markets generated approximately $1.1 million in revenues during the nine months ended September 30, 2022, an increase of $0.7 million or 200.3% from $0.4 million for the prior year.
The total increase in revenue was largely attributable to increases in sales volume, as opposed to increases in product pricing. The primary factors behind the increase in North American sales volume were related to continued strong triple-digit growth in traditional distribution channels, combined with an increase in and optimization of our products’ presence in world class retailers (e.g., additional SKUs). Additionally, revenues increased as a result of building inventories at Pepsi warehouses and distribution centers in anticipation of the transition to the Pepsi distribution network resulting in delivery of approximately five million raw cases. These revenues were offset by the prior distribution network which reduced their inventory balances at both their distribution centers and within their network as a majority of the prior distribution system was terminated as of September 30, 2022.
The following table sets forth the amount of revenues by category and changes therein for the nine months ended September 30, 2022 and 2021 (dollars in thousands):
|
|
For the nine months ended September 30, |
|
|||||||||
Revenue Source |
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Total Revenue |
|
$ |
475,640 |
|
|
$ |
210,017 |
|
|
|
126.5 |
% |
|
|
|
|
|
|
|
|
|
|
|||
North American Revenue |
|
$ |
448,141 |
|
|
$ |
177,094 |
|
|
|
153.1 |
% |
|
|
|
|
|
|
|
|
|
|
|||
European Revenue |
|
$ |
23,540 |
|
|
$ |
30,695 |
|
|
|
(23.3 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Asian Revenue |
|
$ |
2,857 |
|
|
$ |
1,861 |
|
|
|
53.5 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
$ |
1,102 |
|
|
$ |
367 |
|
|
|
200.3 |
% |
30
Gross profit
For the nine months ended September 30, 2022, gross profit increased by approximately $105.3 million or 122% to $191.9 million, from $86.5 million for the nine months ended September 30, 2021. Gross profit margins reflected a decrease to 40.3% for the nine months ended September 30, 2022 from 41.2% for the nine months ended September 30, 2021, reflecting a 90 basis point reduction. Efficiencies in outbound freight, which were partially offset by volatility in fuel prices, generated 310 basis points of improved margin, which was more than offset by higher raw material costs including aluminum cans, ocean freight costs and packing costs.
Sales and marketing expenses
Sales and marketing expenses for the nine months ended September 30, 2022 were approximately $262.8 million, an increase of approximately $212.7 million or 424% from approximately $50.1 million for the nine months ended September 30, 2021. This increase was partially attributable to higher marketing investment activities, which resulted in an increase of $31.2 million when compared to the prior year. Additionally, employee costs increased by approximately $5.9 million from the prior year as we continue to invest in this area in order to have the proper infrastructure to support our growth. Costs related to expense for termination fees to prior distributors, resulted in an increase of $156.2 million when compared to the prior year. Lastly, storage and distribution expenses as well as broker costs accounted for the remainder of the increase in this area in the amount of $19.4 million from the nine months ended September 30, 2021.
General and administrative expenses
General and administrative expenses for the nine months ended September 30, 2022 were approximately $54.1 million, an increase of $10.8 million or 25%, from $43.4 million for the nine months ended September 30, 2021. This increase was primarily attributable to employee costs for the nine months ended September 30, 2022 which reflect an increase of $3.1 million, as investments in this area are also required to properly support our higher business volume and the commercial and operational areas of the business, as well as travel expenses are now being incurred. Depreciation, amortization, and impairment expenses increased by approximately $2.7 million when compared to the prior year quarter. These increases were offset by a $13.6 million decrease in stock-based compensation expense which amounted to $14.8 million for the nine months ended September 30, 2022, compared to $28.7 million in the prior year quarter. Management deems it very important to motivate employees by providing them ownership in the business in order to promote over performance which translates into the continued success of our business based on key performance attributes. Administrative expense also increased by $18.9 million primarily due to a litigation settlement in the amount of $7.8 million as well as increased costs associated with third party service providers including audit fees, internal control and Sox compliance and other litigation. Lastly, all other administrative expenses which were mainly composed of research, development and quality control testing, decreased by approximately $0.3 million during the nine months ended September 30, 2021.
Other income/(expense)
Total net other expense for the nine months ended September 30, 2022 is mainly related to foreign currency exchange which is offset by interest and non-operating income.
Net Loss
Net loss attributable to common shareholders for the nine months ended September 30, 2022 was $170.7 million or $2.26 per share based on a weighted average of approximately 75,625,000 shares outstanding. The dilutive impact share-based awards of 10,229,657 shares, were excluded from the calculation due to the net loss position of the Company. In comparison, for the nine months ended September 30, 2021, the Company had net loss of approximately $8 million or $0.11 per share, based on a weighted average of approximately 73,759,000 shares outstanding.
Liquidity and Capital Resources
As of September 30, 2022, and December 31, 2021, we had cash of approximately $727 million (including restricted cash of $135 million) and $16.3 million, respectively, and working capital of approximately $755.7 million and $169.2 million, respectively.
In addition to cash flow from operations, our primary sources of working capital have been private placements and public offerings of our securities, including an underwritten public offering of 1,133,953 shares at an offering price of $62.50 per share completed in June 2021 and a private placement of 1,466,666 Series A convertible shares as part of our agreement with Pepsi at a price of $375 per share, completed in August of 2022.
Our current operating plan for the next twelve (12) months reflects sufficient financial resources.
Cash flows provided by operating activities
Cash flows provided by operating activities totaled approximately $171.0 million for the nine months ended September 30, 2022, which compares to $52.1 million net cash used in operating activities for the nine months ended September 30, 2021. The approximately $223.0 million increase in cash generation was driven by the timing of cash receipts and payments associated with the Pepsi transition as well as continued growth in the operations of the Company.
Cash flows used in investing activities
31
Cash flows used in investing activities totaled approximately $0.9 million for the nine months ended September 30, 2022, which compares to cash used in investing activities of $0.5 million for the nine months ended September 30, 2021. The increase in the cash used in investing activities when compared to the 2021 period was primarily due to an increase of capital expenditures to $3.5 million offset by payment on our note receivable, as we received payment on our note receivable of approximately $2.6 million in April 2022.
Cash flows provided by financing activities
Cash flows provided by financing activities totaled approximately $540.5 million for the nine months ended September 30, 2022, which compares to cash provided by financing activities of $70.9 million for the nine months ended September 30, 2021. Cash provided by financing activities is mainly related to the net proceeds of $542 million from issuances of Series A convertible preferred shares related to Pepsi, net of issuance costs. Net proceeds were received from a public offering in June 2021 for approximately $67.8 million.
Off Balance Sheet Arrangements
As of September 30, 2022 and December 31, 2021, we had no off-balance sheet arrangements.
Critical Accounting Policies and Estimates
Our consolidated financial statements are prepared in accordance with US GAAP, which requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions. There have been no material changes to our critical accounting policies or estimates from the information provided in “Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Part II, Item 8 – Financial Statements and Supplementary Data – Note 2”, included in our Annual Report on Form 10-K for the fiscal year ended December 31, 2021.
Item 3. Quantitative Disclosures About Market Risk.
In the normal course of business our financial position is routinely subject to a variety of risks. The principal market risks (i.e., the risk of loss arising from adverse changes in market rates and prices) to which we are exposed are fluctuations in commodity and other input prices affecting the costs of our raw materials (including, but not limited to, increases in the costs of the price of aluminum cans, sucralose and other sweeteners, as well as other raw materials contained within our products). We generally do not use hedging agreements or alternative instruments to manage the risks associated with securing sufficient ingredients or raw materials. We are also subject to market risks with respect to the cost of commodities and other inputs because our ability to recover increased costs through higher pricing is limited by the competitive environment in which we operate.
We do not use derivative financial instruments to protect ourselves from fluctuations in interest rates and generally do not hedge against fluctuations in commodity prices.
Item 4. Controls and Procedures
Management’s Report on Disclosure Controls and Procedures
Our Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial and accounting officer), conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2022, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the SEC, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
Our Chief Executive Officer and our Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our Chief Executive Officer and our Chief Financial Officer are evaluating whether our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the 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. Because of 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. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
We identified material weaknesses as of December 31, 2021 in our internal controls over financial reporting, which were not fully remedied as of September 30, 2022. A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. As a result of these material weaknesses, we concluded that internal controls over the following areas were not effective as of December 31, 2021 and were not fully remedied as of September 30, 2022.
32
To address the issues associated with our material weaknesses as described above, management is re-assessing the design of controls and modifying processes designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses, including but not limited to, (a) enhancing monitoring and oversight controls in the application of U.S. GAAP guidance pertaining to modifications of share-based payments, (b) hiring additional accounting and IT personnel with appropriate technical skillsets, (c) improving consistency in change management supported by standard operating procedures to govern the authorization, testing and approval of changes to information technology systems supporting all of the Company’s internal control processes, (d) enhancing design and implementation of our control environment, including the expansion of formal accounting and IT policies and procedures and financial reporting controls, and (e) implementing appropriate timely review and oversight responsibilities within the accounting and financial reporting functions. However, as of September 30, 2022, the identified material weaknesses were not fully remedied.
Changes in Internal Controls Over Financial Reporting
During the nine months ended September 30, 2022, we have been implementing and will aggressively continue to implement changes that are both organizational and process-focused to improve the control environment. We anticipate the actions to be taken, and resulting process improvements, to generally strengthen our internal controls over financial reporting, information technology general controls as well as our controls around share-based payments, and over time, will address the material weaknesses noted as of December 31, 2021. These remedial measures were considered changes to our internal control environment which had a material effect on internal control over financial reporting. However, because certain of the remedial actions have only recently been undertaken and others will occur over the next several months, we have concluded that our controls and procedures in the areas listed above were not effective as of September 30, 2022. We will not be able to conclude whether the material weaknesses have been eliminated until the completion of the December 31, 2022 annual report on Form 10-K.
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
The information required by this Item is incorporated herein by reference to note 19 to the consolidated financial statements, Commitments and Contingencies, in Part I, Item 1, of this Quarterly Report on Form 10-Q.
Item 1.A. Risk Factors
We face a variety of risks that are inherent in our business and our industry, including operational, legal, regulatory and product risks. Such risks could cause our actual results to differ materially from our forward-looking statements, expectations and historical trends. Information about our most recent risk factors is disclosed in Part I, Item 1A “Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2021. At September 30, 2022, there have been no material changes to the information.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
Not Applicable.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
33
Item 5. Other Information.
Not applicable.
34
Item 6. Exhibits.
3.1 |
|
Articles of Incorporation of Celsius Holdings, Inc., as amended (incorporated by reference to Exhibit 3.1 to the Company’s Form 10-Q filed on August 9, 2022). |
|
|
|
3.2 |
|
Amended and Restated Bylaws of Celsius Holdings, Inc. (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q filed on August 9, 2022). |
|
|
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31.1 |
|
|
|
|
|
31.2 |
|
|
|
|
|
32.1 |
|
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32.2 |
|
|
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|
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101.INS |
|
Inline XBRL Instance Document |
|
|
|
101.SCH |
|
Inline XBRL Taxonomy Extension Schema Document |
|
|
|
101.CAL |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
101.DEF |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
|
|
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101.LAB |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
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|
101.PRE |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
|
|
|
104 |
|
The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline iXBRL and contained in Exhibit 101 |
* |
Filed herewith |
** |
Furnished herewith |
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.
|
CELSIUS HOLDINGS, INC. |
|
|
|
|
Dated: November 9, 2022 |
By: |
/s/ John Fieldly |
|
|
John Fieldly, Chief Executive Officer (Principal Executive Officer) |
|
|
|
Dated: November 9, 2022 |
By: |
/s/ Jarrod Langhans |
|
|
Jarrod Langhans, (Principal Financial and Accounting Officer) |
35
