CELH 10-Q
Celsius Holdings, Inc. (CELH)
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)
(
(Registrant’s telephone number, including area code)
__________________________________________________________________
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
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).
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 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, $0.001 par value, as of August 9, 2022 was
TABLE OF CONTENTS
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Page |
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PART I – FINANCIAL INFORMATION |
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1 |
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Consolidated Balance Sheets as of June 30, 2022 (unaudited) and December 31, 2021 |
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2 |
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3 |
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4 |
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Consolidated Statements of Cash Flows for the six months ended June 30, 2022 and 2021 (unaudited) |
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5 |
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Notes to Consolidated Financial Statements (unaudited) |
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6 |
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Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
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Unregistered Sales of Equity Securities and Use of Proceeds. |
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i
PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
Celsius Holdings, Inc.
Consolidated Balance Sheets
(In thousands, except par value)
(Unaudited)
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June 30, |
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December 31, |
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ASSETS |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable-net (note 2) |
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Note receivable-current (note 6) |
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Inventories-net (note 4) |
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Prepaid expenses and other current assets (note 5) |
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Total current assets |
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Note receivable (note 6) |
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Property and equipment-net (note 8) |
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Deferred tax asset (note 14) |
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Right of use assets-operating leases (note 7) |
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Right of use assets-finance leases (note 7) |
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Other long-term assets |
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Intangibles (note 9) |
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Goodwill (note 9) |
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Total Assets |
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$ |
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$ |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Current liabilities: |
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Accounts payable and accrued expenses (note 10) |
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$ |
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$ |
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Lease liability obligation-operating leases (note 7) |
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Lease liability obligation-finance leases (note 7) |
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Other current liabilities (note 11) |
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Total current liabilities |
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Long-term liabilities: |
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Lease liability obligation-operating leases (note 7) |
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Lease liability obligation-finance leases (note 7) |
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Deferred tax liability |
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Other long-term liabilities |
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Total Liabilities |
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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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( |
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Total Stockholders’ Equity |
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Total Liabilities 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 Income
(In thousands, except per share amounts)
(Unaudited)
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For the three months |
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For the six months |
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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 3) |
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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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Income 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 6) |
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Interest on other obligations |
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Other miscellaneous income |
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Foreign exchange gain/(loss) |
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( |
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( |
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Total other income (expense) |
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( |
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Net income 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 14) |
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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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Other comprehensive income: |
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Foreign currency translation gain/(loss) |
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( |
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( |
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Comprehensive Income |
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$ |
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$ |
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$ |
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$ |
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Income per share: |
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Basic |
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$ |
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$ |
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$ |
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$ |
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Diluted |
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$ |
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$ |
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$ |
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$ |
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Weighted average shares outstanding: |
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Basic |
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Diluted1 |
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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
(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, 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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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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— |
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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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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, 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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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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( |
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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 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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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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( |
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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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$ |
( |
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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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— |
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Issuance of common stock from capital raise |
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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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Net income |
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— |
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— |
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— |
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— |
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Balance at June 30, 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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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)
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For the six months ended |
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June 30, |
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June 30, |
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Cash flows from operating activities: |
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Net income |
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$ |
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$ |
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Adjustments to reconcile net income to net cash /provided/(used in) by operating activities: |
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Depreciation |
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Amortization |
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Bad debt expense |
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Inventory excess and obsolescence |
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Stock-based compensation expense |
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Un-realized exchange loss |
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Changes in operating assets and liabilities: |
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Accounts receivable-net |
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( |
) |
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( |
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Inventories-net |
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( |
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Prepaid expenses and other current assets |
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( |
) |
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Accounts payable and accrued expenses |
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Deferred tax-net |
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Other current liabilities |
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Change in right of use assets and lease obligation-net |
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( |
) |
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Other long-term liabilities |
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Net cash provided by/(used in) operating activities |
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( |
) |
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Cash flows from investing activities: |
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Proceeds from note receivable |
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Purchase of property and equipment |
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( |
) |
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( |
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Net cash provided by investing activities |
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Cash flows from financing activities: |
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Principal payments on finance lease obligations |
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( |
) |
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( |
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Proceeds from capital raise |
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Proceeds from exercise of stock options |
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Net cash provided by financing activities |
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Effect on exchange rate changes on cash |
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|
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( |
) |
|
Net increase in cash |
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|
||
Cash at beginning of the period |
|
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||
|
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|
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|
||
Cash at end of the period |
|
$ |
|
|
$ |
|
||
Supplemental cash flow disclosures: |
|
|
|
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|
||
Cash paid during period for: |
|
|
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|
|
||
Taxes |
|
$ |
|
|
$ |
|
||
Interest |
|
$ |
|
|
$ |
|
||
The accompanying notes are an integral part of these unaudited consolidated financial statements
5
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 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
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 footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These unaudited consolidated financial statements and the accompanying notes should be read in conjunction with the Form 10-K filed for December 31, 2021. The consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All inter-company balances and transactions have been eliminated.
Consolidation Policy — The accompanying consolidated financial statements include the accounts of Celsius Holdings, Inc. and its subsidiaries. All inter-company balances and transactions have been eliminated in consolidation.
Significant Estimates — The preparation of consolidated financial statements and accompanying disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. 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 intangible assets & goodwill, valuation of stock-based compensation, and deferred tax asset valuation allowance.
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 we have operations in several geographies, we operate as a single enterprise. Our 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. The reason our CODM focuses on consolidated results in making decisions and allocating resources is because of the significant economic interdependencies between our 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.
The Company uses single supplier relationships for its raw materials purchases and filling capacity, which potentially subjects the Company to a concentration of business risk. If a supplier had operational problems or ceased making product available to the Company, operations could be adversely affected.
Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit. At June 30, 2022, the Company had approximately $
6
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
For the six months ended June 30, 2022, the Company had one customer which accounted for revenue concentrations 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 June 30, 2022 and December 31, 2021, the Company did not have any investments with original maturities of three months or less.
Accounts Receivable — Accounts receivable are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At June 30, 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 June 30, 2022 and December 31, 2021, there was an inventory allowance for excess and obsolete products of $
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 six months ended June 30, 2022 and 2021.
Long-lived Asset Geographic Data —
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
United States |
|
$ |
|
|
$ |
|
||
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||
Sweden |
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Finland |
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||
Long-lived assets related to foreign operations |
|
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|
||
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, 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 June 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. Assets with indefinite lives are tested for impairment on an annual basis as of October 1st or more frequently if the Company believes indicators of impairment exist. 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 carrying value over its fair value. At June 30, 2022, there were no indicators of impairment.
7
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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 1 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. Termination charges related to certain of the Company’s prior distributors are included in operating expenses upon termination. The Company recognized termination expenses of $
Deferred Revenue — Amounts received from certain distributors at inception of their distribution contracts are accounted for as deferred revenue. As of June 30, 2022, the Company had $
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 other current liabilities. 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 $
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 June 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.
8
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
Fair Value Measurements - ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
Level 1: |
Observable inputs such as quoted market prices in active markets for identical assets or liabilities. |
|
|
Level 2: |
Observable market-based inputs or unobservable inputs that are corroborated by market data. |
|
|
Level 3: |
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions. |
Other than those noted previously, the Company did not have any other assets or liabilities measured at fair value at June 30, 2022 and December 31, 2021.
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.
The Company’s tax returns for tax years in 2018 through 2020 remain subject to potential examination by the taxing authorities.
Earnings per Share — Basic earnings per share are calculated by dividing net income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period.
|
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For the three months |
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For the six months |
|
||||||||||
|
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2022 |
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2021 |
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2022 |
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2021 |
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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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Income per share: |
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||||
Basic |
|
$ |
|
|
$ |
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|
$ |
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$ |
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||||
Diluted |
|
$ |
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|
$ |
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|
$ |
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|
$ |
|
||||
Weighted average shares outstanding: |
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||||
Basic |
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Effect of dilutive shared based awards |
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Diluted |
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9
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock. The 2015 Plan permits the grant of options and other share based awards for up to
Cost of Sales — Cost of sales 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 June 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 June 30, 2022, the Company had an accumulated deficit of approximately $
If our sales volumes do not meet our projections, expenses exceed our expectations, 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 Func Foods acquisition in 2019. 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 expense 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
10
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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 U.S. generally accepted accounting principles. 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 has 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 our annual report for the period ending December 31, 2021.
In connection with the filing of this Quarterly Report, the Company as revised the accompanying financial statements, and the related notes to revise 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 |
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|
Consolidated Statement of Operations and Comprehensive Income |
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Three months ended June 30, 2021 (unaudited) |
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Six months ended June 30, 2021 (unaudited) |
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As Reported |
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Adjustment |
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As Restated |
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As Reported |
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Adjustment |
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As Restated |
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Revenue |
$ |
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$ |
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$ |
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$ |
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$ |
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$ |
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||||||
Gross Profit |
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General and administrative expenses1 |
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Total operating expense |
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Income (loss) from operations |
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( |
) |
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( |
) |
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Net income (loss) before income taxes |
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( |
) |
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( |
) |
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Net income (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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Net income (loss) per share |
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||||||
Basic |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
Diluted |
$ |
|
|
$ |
( |
) |
|
$ |
|
|
$ |
|
|
$ |
( |
) |
|
$ |
|
||||
1
The effects of the adjustments to the Company's previously reported unaudited 2021 quarterly consolidated balance sheet is as follows:
|
Consolidated Balance Sheet (unaudited) |
|
|||||||||
|
June 30, 2021 |
|
|||||||||
|
As Reported |
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Adjustment |
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As Restated |
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|||
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|||
Current assets |
$ |
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$ |
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$ |
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|||
Total assets |
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Current liabilities |
$ |
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$ |
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$ |
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Total liabilities |
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Additional paid-in capital |
$ |
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$ |
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$ |
|
|||
Accumulated deficit |
|
( |
) |
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|
( |
) |
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( |
) |
Total Stockholders' Equity |
$ |
|
|
$ |
|
|
$ |
|
|||
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 six months ended June 30, 2021.
11
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 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 1 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 six months ended June 30, 2022 and 2021 is as follows:
|
|
For the three months ended |
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For the six months ended |
|
||||||||||
|
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June 30, |
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June 30, |
|
June 30, |
|
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June 30, |
|
||||
|
|
2022 |
|
|
2021 |
|
2022 |
|
|
2021 |
|
||||
North America |
|
$ |
|
|
$ |
|
$ |
|
|
$ |
|
||||
Europe |
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Asia |
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Other |
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Net sales |
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$ |
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$ |
|
$ |
|
|
$ |
|
||||
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 $
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 the customer 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 $
Inventories consist of the following at:
12
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
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:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Note receivable-current |
|
$ |
|
|
$ |
|
||
Note receivable-non-current |
|
|
|
|
|
|
||
Total Note receivable |
|
$ |
|
|
$ |
|
||
Effective January 1, 2019, we restructured our China distribution efforts by entering into two separate economic agreements as it relates to the commercialization of our Celsius products (i.e., license agreement) and a repayment of investment agreement with Qifeng. Under the license agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize Celsius® brand products in China. Qifeng will pay a minimum royalty fee of approximately $
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 agreement, 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 June 30, 2022, the Note was not deemed to be impaired. Payment in-full was received by April 2022 pertaining to the amounts due on March 31, 2022.
As collateral for the Note, a stock certificate in Celsius Holdings, Inc., which amounts to
The Company’s leasing activities include an operating lease of its corporate office space from a related party (see note 12) 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 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.
13
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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 June 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:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Merchandising equipment - coolers |
|
$ |
|
|
$ |
|
||
Office Equipment |
|
|
|
|
|
|
||
Vehicles |
|
|
|
|
|
|
||
Less: accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total |
|
$ |
|
|
$ |
|
||
Depreciation expense amounted to approximately $
At June 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
14
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Definite-lived intangible assets |
|
|
|
|
|
|
||
Customer relationships |
|
$ |
|
|
$ |
|
||
Less: accumulated amortization |
|
|
( |
) |
|
|
( |
) |
Definite-lived intangible assets, net |
|
$ |
|
|
$ |
|
||
|
|
|
|
|
|
|
||
Indefinite-lived intangible assets |
|
|
|
|
|
|
||
Brands |
|
$ |
|
|
$ |
|
||
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 June 30, 2022: |
|
|
|
|
2022 |
|
$ |
|
|
2023 |
|
|
|
|
2024 |
|
|
|
|
2025 |
|
|
|
|
2026 |
|
|
|
|
Thereafter |
|
|
|
|
Total |
|
$ |
|
|
Accounts payable and accrued expenses consist of the following at:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Accounts payable |
|
$ |
|
|
$ |
|
||
Promotional allowances |
|
|
|
|
|
|
||
Freight |
|
|
|
|
|
|
||
Accrued expenses |
|
|
|
|
|
|
||
Unbilled purchases |
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
Other current liabilities consist of the following at:
|
|
June 30, |
|
|
December 31, |
|
||
|
|
2022 |
|
|
2021 |
|
||
Short-term |
|
|
|
|
|
|
||
Deferred revenue, short-term |
|
$ |
|
|
$ |
|
||
VAT payable |
|
|
|
|
|
|
||
State Beverage Container Deposit |
|
|
|
|
|
|
||
Total short-term |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Long-term |
|
|
|
|
|
|
||
Deferred revenue, long-term |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Total |
|
$ |
|
|
$ |
|
||
15
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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 $
Issuance of common stock pursuant to exercise of stock options and other awards
During the six months ended June 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
The Underwriting Agreement contains customary representations and warranties of the parties, and indemnification and contribution provisions under which the Company and the Selling Stockholders have agreed to indemnify the Underwriters against certain liabilities, including liabilities under the Securities Act of 1933, as amended (the "Securities Act”). Pursuant to the Underwriting Agreement, the Company has agreed, subject to certain exceptions, not to sell or transfer any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock for 90 days after June 9, 2021 without first obtaining the written consent of the Representatives.
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 six months ended June 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 associates with income tax matters are included in the provision for income taxes in the consolidated statements of operations.
The Company adopted an Incentive Stock Plan on January 18, 2007. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the
16
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
Company, by providing them opportunities to acquire the Company’s common stock. While the plan terminated
The Company adopted the 2015 Stock Incentive Plan on April 30, 2015. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to
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 six months ended June 30, 2022 and 2021, the Company recognized an expense of approximately $
Stock Options
Under the 2015 Stock Incentive Plan, the Company has issued options to purchase approximately
A summary of the status of the Company’s outstanding stock options as of June 30, 2022 and changes during the periods ending on that date is as follows:
|
|
|
|
|
Weighted Average |
|
|
|
|
|
Weighted |
|
||||||||
|
|
Shares |
|
|
Exercise |
|
|
Grant Date Fair |
|
|
Aggregate |
|
|
Average |
|
|||||
|
|
(000’s) |
|
|
Price |
|
|
Value |
|
|
Value (000’s) |
|
|
Term (Yrs) |
|
|||||
Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||
At December 31, 2021 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|||||
Granted |
|
|
|
|
$ |
|
|
$ |
|
|
|
|
|
|
|
|||||
Exercised |
|
|
( |
) |
|
$ |
|
|
$ |
|
|
$ |
|
|
|
|
||||
Forfeiture and cancelled |
|
|
( |
) |
|
$ |
|
|
|
|
|
|
|
|
|
|
||||
At June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|||||
Exercisable at June 30, 2022 |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
|||||
The following table summarizes information about employee stock options outstanding at June 30, 2022:
|
|
Outstanding Options |
|
|
Vested Options |
|
||||||||||||||||||
|
|
Number |
|
|
|
|
|
|
|
|
Number |
|
|
|
|
|
|
|
||||||
|
|
Outstanding |
|
|
Weighted |
|
|
Weighted |
|
|
Exercisable |
|
|
Weighted |
|
|
Weighted |
|
||||||
Range of |
|
at |
|
|
Averaged |
|
|
Averaged |
|
|
at |
|
|
Averaged |
|
|
Averaged |
|
||||||
Exercise |
|
June 30, |
|
|
Remaining |
|
|
Exercise |
|
|
June 30, |
|
|
Exercise |
|
|
Remaining |
|
||||||
Price |
|
2022 (000’s) |
|
|
Life |
|
|
Price |
|
|
2022 (000’s) |
|
|
Price |
|
|
Life |
|
||||||
$0.20 - $0.53 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||||
$0.65 - $1.80 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||||
$1.83 - $2.84 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||||
$3.20 - $6.20 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||||
$7.20-$60.00 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||||
Outstanding options |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
|
|
|
||||||
As of June 30, 2022, the Company had approximately $
Restricted Stock Awards
17
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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.
|
|
For the six months ended |
|
|||||||||||||
|
|
June 30, |
|
|
June 30, |
|
||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
||||
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
||||
|
|
|
|
|
Grant Date |
|
|
|
|
|
Grant Date |
|
||||
|
|
Shares (000's) |
|
|
Fair Value |
|
|
Shares (000's) |
|
|
Fair Value |
|
||||
Unvested at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Transfers to restricted stock units |
|
|
|
|
|
|
|
|
( |
) |
|
|
|
|||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeiture and cancelled |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Unvested at end of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
There were
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.
|
|
For the six months ended |
|
|||||||||||||
|
|
June 30, |
June 30, |
|
||||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
||||
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
||||
|
|
|
|
|
Grant Date |
|
|
|
|
|
Grant Date |
|
||||
|
|
Shares (000's) |
|
|
Fair Value |
|
|
Shares (000's) |
|
|
Fair Value |
|
||||
Unvested at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Transfers from restricted stock awards |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
( |
) |
|
|
|
|
|
|
|
|
|
|||
Forfeited and cancelled |
|
|
( |
) |
|
|
|
|
|
( |
) |
|
|
|
||
Unvested at end of period |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The total fair value of shares vested during the six months ended June 30, 2022 was $
Stock-based Awards Issued to Non-employee Consultants
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. 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. 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.
18
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
|
|
For the six months ended |
|
|||||||||||||
|
|
June 30, |
June 30, |
|
||||||||||||
|
|
|
|
|
Weighted |
|
|
|
|
|
Weighted |
|
||||
|
|
|
|
|
Average |
|
|
|
|
|
Average |
|
||||
|
|
|
|
|
Grant Date |
|
|
|
|
|
Grant Date |
|
||||
|
|
Shares (000's) |
|
|
Fair Value |
|
|
Shares (000's) |
|
|
Fair Value |
|
||||
Unvested at beginning of period |
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Granted |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Vested |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Forfeited and cancelled |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Unvested at end of period |
|
|
|
|
$ |
|
|
$ |
|
|
$ |
|
||||
The total fair value of awards vested during the six months ended June 30, 2022 was $
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 six months ended June 30, 2022. Modifications during the three and six month period ended June 30, 2021 resulted in additional stock based compensation expense of $
In November of 2020, McGovern Capital, Inc. and Kevin McGovern (collectively “McGovern”) filed a claim in arbitration related to its Representative Agreement with Celsius Holdings, Inc. 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 (3%) of “Net Revenues” received by the Company from sales of the Company’s products in the People’s Republic of China for a period of four years from Initial Commercial Sale (which was September 1, 2017). “Net Revenues” are defined in the Representative Agreement as “the Company’s revenues net of actual discounts applied, credits and returns.” Effective January 1, 2019, the Company restructured its China operations from a distribution arrangement with Qifeng Food Technology (Beijing) Co. Ltd. (“Qifeng”), to a license and royalty arrangement and a loan, pursuant to which Qifeng will market and distribute the Company’s products in China, and Celsius will receive an annual royalty payment. The Company intended to pay McGovern its percentage of the annual royalty payment, but McGovern had objected claiming that McGovern is entitled to be paid commissions on the entire royalty payment and the amount of the loan to Qifeng. During the quarter, a confidential settlement agreement was signed for an amount included in our Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2022 that is not material to the financial results of the Company .
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. However, the Company also has a motion for summary adjudication pending and that motion would be dispositive of plaintiff’s claims if granted. No fact discovery has been conducted on the merits and this matter is still in its initial stages. The Company intends to contest the claims vigorously on the merits. Since merits discovery is still in its initial stages, we are unable to predict the outcome at this time.
On January 8, 2021, we 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, we 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. We have cooperated and will continue to cooperate with the SEC staff in its investigation and requests. At this time, however, we 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 Celsius’ 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 Plaintiff and as a result, Class members have suffered significant losses and damages. On June 6, 2022 Judge Middlebrooks appointed a lead class plaintiff and the Company filed its Motion to Dismiss
19
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
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. Celsius has not 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.
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.
Securities Purchase Agreement
On August 1, 2022, the Company entered into a securities purchase agreement (the "Purchase Agreement”) with PepsiCo, Inc., a North Carolina corporation (the "Purchaser”), pursuant to which the Company agreed to sell to the Purchaser, in a private placement exempt from registration under the Securities Act of 1933, as amended (the "Securities Act”), and Rule 506 of Regulation D promulgated thereunder,
Pursuant to the Purchase Agreement, the Purchaser, together with its affiliates, will have certain rights and be subject to various restrictions with respect to its equity ownership in the Company, including the right to increase its ownership to up to a specified percentage of the Company’s outstanding shares, with restrictions on new purchases above a specified percentage for so long as the Purchaser owns any shares of Series A Preferred Stock or Common Stock (subject to certain exceptions). Additionally, the Company has agreed to permit the Purchaser to designate one nominee (the "Purchaser Designee”) to the board of directors of the Company (the "Board”) for so long as the Purchaser (together with its affiliates) beneficially owns at least
Pursuant to the Purchase Agreement and in connection with the Closing, the Company adopted or entered into, as applicable: (i) the Certificate of Designation of Series A Convertible Preferred Stock, as filed with the Secretary of State of the State of Nevada, setting forth the rights, preferences, privileges and restrictions applicable to the Series A Preferred Stock (the "Series A Certificate”); (ii) a registration rights agreement between the Company and the Purchaser (the "Registration Rights Agreement”); (iii) a lock-up agreement between the Company and each of the Company’s directors (other than Mr. Lee), chief executive officer and chief financial officer (the "Lock-Up Agreements”); (iv) a distribution agreement (the "Distribution Agreement”) between the Company and the Purchaser; and (v) a channel transition agreement between the Company and the Purchaser (the "Channel Transition Agreement”).
Series A Preferred Stock
The Series A Certificate authorizes 1,466,666 shares of Series A Preferred Stock, all of which were issued and sold to Purchaser under the Purchase Agreement and are convertible at the rate of
Upon any voluntary or involuntary liquidation, dissolution or winding up of the affairs of the Company (but excluding any change of control), each holder of Series A Preferred Stock will be entitled to receive an amount per share of Series A Preferred Stock equal to the Liquidation Preference, as defined in the Series A Certificate. Holders of shares of Series A Preferred Stock will be entitled to cumulative dividends, which will be payable quarterly in arrears either in cash, in-kind, or a combination thereof. Dividends will accrue on each share of Series A Preferred Stock at the rate of
The shares of Series A Preferred Stock are convertible into shares of Common Stock at the then-applicable conversion ratio automatically or at the option of the Company at certain times and subject to the terms and conditions set forth in the Series A Certificate. Each share of Series A
20
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
Preferred Stock shall automatically convert into shares of Common Stock at any date from and after the sixth anniversary date on which a) the triggering condition is satisfied in accordance with the distribution agreement and the 10-day volume weighted average price ("VWAP") immediately prior to such date exceeds the conversion price of such share as of such date and b) any date from and after the occurrence of a corporation termination event, if the 10-day VWAP immediately preceding such date exceeds the conversion price of such share as of such date and c) any date from and after the occurrence of an investor termination event, if the 10-day VWAP immediately preceding such date exceeds the conversion price of such share as of such date. Conversion at the option of the company can occur at any time from and after the seventh anniversary date, provided that the 10-day VWAP immediately prior to the date the company delivers a mandatory conversion notice to the holders of the preferred shares exceeds the conversion price, the company may elect to convert all, but not less than all, of the outstanding shares of Series A Preferred Stock into shares of Common Stock. In the case of a Mandatory Conversion, each share of Series A Preferred Stock then outstanding shall be converted into the number of shares of Common Stock equal to the conversion ratio of such share in effect as of the mandatory conversion date.
In addition, the shares of Series A Preferred Stock are redeemable at the option of the Company or the holders of a majority of the outstanding shares of Series A Preferred Stock at certain times and subject to the terms and conditions set forth in the Series A Certificate. At any time from and after the earlier of a) the seventh anniversary date, if the 10-day VWAP does not exceed the conversion price on the date immediately prior to the date the company delivers a corporation optional redemption notice to the holders and b) the occurrence of a corporation termination event, if the 10-day VWAP does not exceed the conversion price on the date immediately prior to the date the company delivers a corporation optional redemption notice to the holders, the company shall have the right upon written notice to the holders to redeem all (and not less than all) of the then-outstanding shares of Series A Preferred Stock. On each of the seventh anniversary date, the tenth anniversary date and the thirteenth anniversary date, the majority holders shall have the right upon no less than six months prior written notice to the company, to require the company to redeem in cash all (an not less than all) of the then-outstanding shares of Series A Preferred Stock.
In the event of a transaction resulting in a change of control, the company (or its successor) shall redeem all (and not less than all) of the then-issued and outstanding shares of Series A Preferred Stock. Upon such redemption, the company will pay or deliver, as applicable, to each holder in respect of each share of Series A Preferred Stock held by such holder, an amount equal to the greater of a) cash in the 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 Preferred Stock 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 a change of control as a holder of shares of common stock.
The conversion ratio for each share of Series A Preferred Stock shall mean the quotient of a) the sum of (x) the stated value of such share of Series A Preferred Stock as of the applicable conversion date, plus (y) without duplication of all accrued and unpaid dividends previously added to the stated value of such shares of Series A Preferred Stock, all accrued and unpaid dividends per share of Series A Preferred Stock through the applicable conversion date; divided by b) the conversion price as of the conversion date. The conversion price shall mean $75.00, as adjusted in accordance with the terms and conditions of the agreement.
The Series A Preferred Stock confers no voting rights on holders, 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 Preferred Stock or provided for its benefit, or would result in securities that would be senior to or pari passu with the Series A Preferred Stock.
Registration Rights Agreement
In connection with the Purchase Agreement, the Company entered into the Registration Rights Agreement with the Purchaser relating to the registered resale of the Common Stock issuable upon exercise of the Series A Preferred Stock (the "Registrable Securities”) pursuant to a registration statement to be filed with the Securities and Exchange Commission. The Company agreed to use commercially reasonable efforts to file a registration statement on Form S-3 or such other form under the Securities Act then available to the Company with respect to the resale of the Registrable Securities, and to use commercially reasonable efforts to cause such registration statement to be declared effective under the Securities Act as soon as practicable thereafter. In certain circumstances, the holders party to the Registration Rights Agreement will have piggyback registration rights and rights to request an underwritten offering as described in the Registration Rights Agreement. The resale registration rights under the Purchase Agreement are only transferrable to affiliates of the Purchaser, subject to the terms and conditions set forth in the Registration Rights Agreement.
Lock-Up Agreements
21
Celsius Holdings, Inc.
Notes to Consolidated Financial Statements (unaudited)
June 30, 2022
(Tabular dollars in thousands, except per share amounts)
As a condition to the transaction, the Company’s chief executive officer, chief financial officer, and all of the directors of the Company (other than Mr. Lee) entered into Lock-Up Agreements pursuant to which they agreed not to sell, pledge, hypothecate or otherwise transfer their shares for a period of 12 months commencing on the date of the Closing, subject to certain exceptions.
Distribution Agreement
Simultaneously with the execution and delivery of the Purchase Agreement, the Company entered into the Distribution Agreement with the Purchaser 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 Puerto Rico and the US Virgin Islands (the "Territory”).
Under the Distribution Agreement, the Company has granted the Purchaser 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 (the "Products”) in the Territory. The Distribution Agreement does not have a specified term. Instead, it may be terminated in accordance with the terms of the Distribution Agreement by either party "with cause” (including by the Purchaser if the Company undergoes a change of control involving a competitor), by the Company, if the Company undergoes a change of control, and 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” and the Purchaser 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 the Purchaser 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 the Purchaser a distribution agreement reasonably consistent with the Distribution Agreement for the sale and distribution of the Products in Canada, and the Purchaser 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 a local sub-distributor 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.
Channel Transition Agreement
In connection with the Distribution Agreement, the Company entered into the Channel Transition Agreement with the Purchaser relating to the Company’s transition of certain existing distribution rights in the Territory to the Purchaser.
22
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.
Business Overview
Celsius Holdings 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 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.
Corporate Information
We were incorporated in the State of Nevada in April 2005. Our principal executive offices are located at 2424 North Federal Highway, Suite 208, Boca Raton, Florida 33431, and our telephone number is (561) 276-2239. Our website is www.celsiusholdingsinc.com. Information contained on, or that can be accessed through, our website is not incorporated by reference into this Quarterly Report on Form 10-Q.
Celsius® and MetaPlus® are registered trademarks of the Company in the United States. This Quarterly Report on Form 10-Q also contains other registered and unregistered trademarks of the Company.
Results of Operations
Three months ended June 30, 2022 compared to three months ended June 30, 2021
Revenue
For the three months ended June 30, 2022, revenue was approximately $154.0 million, an increase of $88.9 million or 137% from $65.1 million for the three months ended June 30, 2021. Approximately 103% of this growth was as a result of increased revenues from North America, where second quarter 2022 revenues were $145.4 million, an increase of $91.8 million or 171% from the 2021 quarter. The balance of the revenues for the 2022 quarter were mainly attributable to European revenues of $7.3 million, which decreased by $3.5 million from the prior year quarter primarily due to foreign exchange rates and timing. Asian revenues (which include royalty revenues from our China licensee) contributed an additional approximately $0.9 million, an increase of 43% from approximately $0.6 million for the prior year quarter, which include increases in royalties payable under our licensing agreement. Other international markets generated approximately $0.4 million in revenues during the 2022 quarter, an increase of $0.4 million or 634% from $0.1 million for the prior year quarter.
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, the continued expansion of our Direct Store Delivery (“DSD”) network resulted in significant growth in distributor revenues when compared to the prior year quarter.
23
The following table sets forth the amount of revenues by category and changes therein for the three months ended June 30, 2022 and 2021 (dollars in thousands):
|
|
Three months ended |
|
|||||||||
Revenue Source |
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Total Revenue |
|
$ |
154,020 |
|
|
$ |
65,073 |
|
|
|
136.7 |
% |
|
|
|
|
|
|
|
|
|
|
|||
North American Revenue |
|
$ |
145,409 |
|
|
$ |
53,601 |
|
|
|
171.3 |
% |
|
|
|
|
|
|
|
|
|
|
|||
European Revenue |
|
$ |
7,280 |
|
|
$ |
10,792 |
|
|
|
(32.5 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Asian Revenue |
|
$ |
883 |
|
|
$ |
619 |
|
|
|
42.6 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
$ |
448 |
|
|
$ |
61 |
|
|
|
634.4 |
% |
Gross profit
For the three months ended June 30, 2022, gross profit increased by approximately $31.1 million or 110% to $59.3 million, from $28.2 million for the three months ended June 30, 2021. Gross profit margins reflected a decrease to 38.5% for the three months ended June 30, 2022 from 43.4% for the 2021 quarter. The increase in gross profit dollars is related to increases in volume, while the decrease in gross profit margins is mainly related to higher raw material costs (particularly aluminum cans), ocean freight costs, transportation costs and repackaging costs.
We estimate that the increase in gross profit dollars of approximately $31.1 million from the 2021 quarter to the 2022 quarter, included $40.7 million related to volume increases, as well as an unfavorable cost impact of approximately $7.5 million and unfavorable currency impact of $2.1 million.
Sales and marketing expenses
Sales and marketing expenses for the three months ended June 30, 2022 were approximately $32.5 million, an increase of approximately $16.9 million or 109% from approximately $15.5 million for the three months ended June 30, 2021. This increase was primarily attributable to higher marketing investment activities, which resulted in an increase of $8.4 million when compared to the prior year quarter. Additionally, employee costs increased by approximately $2.8 million from the year ago quarter as we continue to invest in this area in order to have the proper infrastructure to support our growth. Lastly, storage and distribution expenses as well as broker costs accounted for the remainder of the increase in this area in the amount of $5.8 million from the 2021 quarter to the 2022 quarter.
General and administrative expenses
General and administrative expenses for the three months ended June 30, 2022 were approximately $14.4 million, an increase of $2.1 million or 17%, from $12.3 million for the three months ended June 30, 2021. Employee costs for the three months ended June 30, 2022 reflect an increase of $1.0 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. Administrative expenses amounted to $6.8 million or an increase of $4.1 million when compared to the prior year quarter. Depreciation and amortization increased by approximately $0.2 million when compared to the prior year quarter. These increases were offset by a $3.0 million decrease in stock-based compensation expense, which amounted to $4.2 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. Lastly, all other administrative expenses which were mainly composed of research, development and quality control testing, decreased by approximately $0.2 million from to the second quarter of 2021.
Other income/(expense)
Total net other expense for the three months ended June 30, 2022 is mainly related to foreign currency exchange which is offset by interest and non-operating income.
Net Income
Net income for the three months ended June 30, 2022 was $9.2 million or $0.12 per share based on a weighted average of 75,451,165 shares outstanding and dilutive earnings per share of $0.12 based on a fully-dilutive weighted average of 78,371,705 shares outstanding, which includes the dilutive impact share-based awards of 2,920,540 shares. In comparison, for the three months ended June 30, 2021, the Company had net income of approximately $0.8 million or $0.01 per share, based on a weighted average of 73,158,836 shares outstanding and a dilutive earnings per share of $0.01 based on a fully-dilutive weighted average of 77,238,389 shares outstanding.
Six months ended June 30, 2022 compared to six months ended June 30, 2021
Revenue
24
For the six months ended June 30, 2022, revenue was approximately $287.4 million, an increase of $172.3 million or 150% from $115.1 million for the six months ended June 30, 2021. Approximately 102% of this growth was as a result of increased revenues from North America, where first six months of 2022 revenues were $268.9 million, an increase of $176.3 million or 190% from the 2021 first six months. The balance of the revenues for the six months ended June 30, 2022 were mainly attributable to European revenues of $15.8 million, which decreased by $5.4 million from the prior year six months primarily due to foreign exchange rates and timing. Asian revenues (which include royalty revenues from our China licensee) contributed an additional approximately $1.8 million, an increase of 60% from approximately $1.2 million for the prior year, which include increases in royalties payable under our licensing agreement. Other international markets generated approximately $0.9 million in revenues during the six months ended June 30, 2022, an increase of $0.7 million or 377.2% from $0.2 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, the continued expansion of our Direct Store Delivery (“DSD”) network resulted in significant growth in distributor revenues when compared to the prior year quarter.
The following table sets forth the amount of revenues by category and changes therein for the six months ended June 30, 2022 and 2021 (dollars in thousands):
|
|
Six months ended |
|
|||||||||
Revenue Source |
|
2022 |
|
|
2021 |
|
|
Change |
|
|||
Total Revenue |
|
$ |
287,408 |
|
|
$ |
115,108 |
|
|
|
149.7 |
% |
|
|
|
|
|
|
|
|
|
|
|||
North American Revenue |
|
$ |
268,882 |
|
|
$ |
92,604 |
|
|
|
190.4 |
% |
|
|
|
|
|
|
|
|
|
|
|||
European Revenue |
|
$ |
15,775 |
|
|
$ |
21,160 |
|
|
|
(25.4 |
)% |
|
|
|
|
|
|
|
|
|
|
|||
Asian Revenue |
|
$ |
1,849 |
|
|
$ |
1,155 |
|
|
|
60.1 |
% |
|
|
|
|
|
|
|
|
|
|
|||
Other |
|
$ |
902 |
|
|
$ |
189 |
|
|
|
377.2 |
% |
Gross profit
For the six months ended June 30, 2022, gross profit increased by approximately $64.4 million or 132% to $113.2 million, from $48.8 million for the six months ended June 30, 2021. Gross profit margins reflected a decrease to 39.4% for the six months ended June 30, 2022 from 42.4% for the six months ended June 30, 2021. The increase in gross profit dollars is related to increases in volume, while the decrease in gross profit margins is mainly related to higher raw material costs (particularly aluminum cans), ocean freight costs, transportation costs and repackaging costs.
We estimate that the increase in gross profit dollars of approximately $64.4 million from the six months ended June 30, 2021, included $75.4 million related to volume increases, as well as an unfavorable cost impact of approximately $8.7 million and unfavorable currency impact of $2.3 million.
Sales and marketing expenses
Sales and marketing expenses for the six months ended June 30, 2022 were approximately $64.1 million, an increase of approximately $36.6 million or 133% from approximately $27.5 million for the six months ended June 30, 2021. This increase was primarily attributable to higher marketing investment activities, which resulted in an increase of $17.5 million when compared to the prior year. Additionally, employee costs increased by approximately $4.1 million from the prior year as we continue to invest in this area in order to have the proper infrastructure to support our growth. Lastly, storage and distribution expenses as well as broker costs accounted for the remainder of the increase in this area in the amount of $14.9 million from the six months ended June 30, 2021.
General and administrative expenses
General and administrative expenses for the six months ended June 30, 2022 were approximately $26.6 million, an increase of $6.5 million or 32%, from $20.1 million for the six months ended June 30, 2021. This increase was primarily attributable to employee costs for the six months ended June 30, 2022 which reflect an increase of $2.2 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. Administrative expenses amounted to $11.4 million, an increase of $6.6 million, when compared to the prior year quarter. Depreciation and amortization increased by approximately $0.3 million when compared to the prior year quarter. These increases were offset by a decrease in stock-based compensation expense which amounted to $8.5 million for the six months ended June 30, 2022, compared to $10.8 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. Lastly, all other administrative expenses which were mainly composed of research, development and quality control testing, decreased by approximately $0.3 million from to the first six months of 2021.
Other income/(expense)
25
Total net other expense for the six months ended June 30, 2022 is mainly related to foreign currency exchange which is offset by interest and non-operating income.
Net Income
Net income for the six months ended June 30, 2022 was $15.8 million or $0.21 per share based on a weighted average of 75,472,158 shares outstanding and dilutive earnings per share of $0.20 based on a fully-dilutive weighted average of 78,396,950 shares outstanding, which includes the dilutive impact share-based awards of 2,924,792 shares. In comparison, for the six months ended June 30, 2021, the Company had net income of approximately $1.4 million or $0.02 per share, based on a weighted average of 73,655,125 shares outstanding and a dilutive earnings per share of $0.02 based on a fully-dilutive weighted average of 77,658,318 shares outstanding.
Liquidity and Capital Resources
As of June 30, 2022, and December 31, 2021, we had cash of approximately $60.0 million and $16.3 million, respectively, and working capital of approximately $197.9 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 on June 14, 2021 and a private placement of 1,437,909 shares at a price of $15.30 completed on August 25, 2020.
Our current operating plan for the next twelve (12) months reflects sufficient financial resources, notwithstanding the potential effects of the COVID-19 pandemic.
Cash flows used in operating activities
Cash flows provided by operating activities totaled approximately $42.3 million for the six months ended June 30, 2022, which compares to $30.3 million net cash used in operating activities for the six months ended June 30, 2021. The approximately $72.6 million increase in cash generation was driven by an increase in net income and improvements in working capital. Working capital improvements were driven primarily by the stabilization of our inventory as we have established optimal levels to service the demand of our product as well as timing of accounts payable, offset in part by increases of accounts receivable driven by the significant growth in our business.
Cash flows used in investing activities
Cash flows provided by investing activities totaled approximately $0.1 million for the six months ended June 30, 2022, which compares to cash provided by investing activities of $0.7 million for the six months ended June 30, 2021. The decrease in the cash used in investing activities when compared to the 2021 period was primarily due to an increase of capital expenditures to $2.5 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 $1.2 million for the six months ended June 30, 2022, which compares to cash provided by financing activities of $70.2 million for the six months ended June 30, 2021. Cash provided by financing activities is mainly related to the net proceeds of $1.3 million from stock exercises. Net proceeds were received from a public offering in June 2021 for approximately $67.8 million.
Off Balance Sheet Arrangements
As of June 30, 2022 and December 31, 2021, we had no off-balance sheet arrangements.
Item 3. Quantitative Disclosures About Market Risks.
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)
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under the Exchange Act, as of June 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 have determined that 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 June 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 June 30, 2022.
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 June 30, 2022, the identified material weaknesses were not fully remedied.
Changes in Internal Controls Over Financial Reporting
During the six months ended June 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 June 30, 2022. We will not be able to conclude that the material weaknesses have been eliminated until the completion of the December 31, 2022 annual report on form 10-K.
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PART II - OTHER INFORMATION
Item 1. Legal Proceedings.
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 Celsius’ 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 Plaintiff and as a result, Class members have 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. Celsius has not 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 other matters previously reported in our periodic reports filed under the Securities Exchange Act of 1934, as amended, 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.
Item 1.A. Risk Factors
See “Item 1.A. Risk Factors.” in our Annual Report on Form 10-K for the year ended December 31, 2021, as filed with the SEC.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
On June 2, 2022, the Company’s Board of Directors (the “Board”) amended and restated the Company’s bylaws to clarify and establish certain corporate procedures and make certain other enhancements and technical changes. The changes effected by the amendment and restatement of the Company’s bylaws (as so amended and restated, the “Amended and Restated Bylaws”) include, without limitation, the following:
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The Amended and Restated Bylaws are effective June 2, 2022. The foregoing description of the Amended and Restated Bylaws is qualified in its entirety by the full text of the Amended and Restated Bylaws, a copy of which is filed as Exhibit 3.1 hereto and is incorporated by reference herein.
STOCKHOLDER PROPOSALS AND NOMINATIONS
The Company’s definitive proxy statement for the 2022annual meeting of stockholders of the Company, which was filed with the SEC on April 21, 2022, contained typographical errors in the section entitled “General Information About The Annual Meeting—When are stockholder proposals due for next year’s annual meeting?” concerning the deadline, under Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for stockholders to submit proposals to be considered for inclusion in the proxy materials for the Company’s 2023 annual meeting. The corrected deadline for submitting Rule 14a-8 shareholder proposals is December 23, 2022, as set forth below.
In addition, the deadline for stockholder to submit director nominations and proposals of business (other than pursuant other than shareholder proposals in accordance with Rule 14a-8) for action at the 2023 Annual Meeting is also set forth below.
Shareholder Proposals under Rule 14a-8
Pursuant to the various rules promulgated by the U.S. Securities and Exchange Commission, stockholders interested in submitting a proposal to be considered for inclusion in our proxy materials and for presentation at the 2023 Annual Meeting may do so by following the procedures set forth in Rule 14a-8 under the Exchange Act. In general, to be eligible for inclusion in our proxy materials, Rule 14a-8 shareholder proposals must be received by the Company’s Corporate Secretary at the Company’s principal executive officers (located at Celsius Holdings, Inc., 2424 N Federal Highway, Suite 208, Boca Raton, Florida 33431) no later than December 23, 2022.
Stockholder Nominations for Director Candidates and Proposals
Any stockholder of record of the Company who desires to nominate one or more director candidates at the 2023 Annual Meeting or submit a proposal of business (other than shareholder proposals in accordance with Rule 14a-8) for action at the 2023 Annual Meeting, must deliver written notice of an intent to make such director nomination and/or make such proposal of business to the Company’s Corporate Secretary at c/o Corporate Secretary, Celsius Holdings, Inc., 2424 N Federal Highway, Suite 208, Boca Raton, Florida 33431 no earlier than the close of business on February 2, 2023, and no later than the close of business on March 4, 2023. However, if the date of the 2023 Annual Meeting is more than 30 days before or more than 70 days after the anniversary of the date of the prior year’s annual meeting, then such notice must be delivered to the Company’s Secretary at c/o Corporate Secretary, Celsius Holdings, Inc., 2424 N Federal Highway, Suite 208, Boca Raton, Florida 33431 no later than the earlier of (x) the close of business of the 10th day following the day the public announcement of the date of the 2023 Annual Meeting is first made by the Company and (y) the close of business on the date which is 90 days prior to the date of the 2023 Annual Meeting. Any such notice must also comply with the timing, disclosure, procedural and other requirements as set forth in the Amended and Restated Bylaws.
In addition to satisfying the requirements under the Amended and Restated Bylaws described in the immediately preceding paragraph, to comply with the universal proxy rules under the Exchange Act, any stockholder who intends to solicit proxies in support of director nominees other than the Board’s nominees must provide notice that sets forth the information required by Rule 14a-19 under the Exchange Act [no later than April 3, 2023. However, if the date of the 2023 Annual Meeting is more than 30 days before or after the anniversary of the date of the prior year’s annual meeting, then such notice must be delivered by the later of (x) the 10th day following the day the public announcement of the date of the 2023 Annual Meeting is first made by the Company and (y) the date which is 60 days prior to the date of the 2023 Annual Meeting.
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Item 6. Exhibits.
Exhibit No. |
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Description of Exhibit |
3.1 |
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Articles of Incorporation of Celsius Holdings, Inc., as amended.* |
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3.2 |
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10.1 |
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10.2 |
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10.3 |
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10.4 |
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Distribution Agreement, dated August 1, 2022, between PepsiCo, Inc. and Celsius Holdings, Inc.*# |
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10.5 |
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10.6 |
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31.1 |
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31.2 |
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32.1 |
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32.2 |
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101.INS |
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Inline XBRL Instance Document |
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101.SCH |
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Inline XBRL Taxonomy Extension Schema Document |
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101.CAL |
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Inline XBRL Taxonomy Extension Calculation Linkbase Document |
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101.DEF |
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Inline XBRL Taxonomy Extension Definition Linkbase Document |
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101.LAB |
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Inline XBRL Taxonomy Extension Label Linkbase Document |
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101.PRE |
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Inline XBRL Taxonomy Extension Presentation Linkbase Document |
* |
Filed herewith |
** |
Furnished herewith |
# |
Portions of this exhibit, marked by brackets and asterisks, have been omitted pursuant to Item 601(b)(10) of Regulation S-K under the Securities Act of 1933, as amended, because they are both (i) not material and (ii) would likely cause competitive harm to the registrant if publicly disclosed. The registrant undertakes to promptly provide an unredacted copy of the exhibit on a supplemental basis, if requested by the Commission or its staff |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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CELSIUS HOLDINGS, INC. |
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Dated: August 9, 2022 |
By: |
/s/ John Fieldly |
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John Fieldly, Chief Executive Officer (Principal Executive Officer) |
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Dated: August 9, 2022 |
By: |
/s/ Jarrod Langhans |
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Jarrod Langhans, (Principal Financial and Accounting Officer) |
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