Attached files
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EX-4.7 - REVISED WARRANT AGREEMENT - Celsius Holdings, Inc. | fs1a2ex4vii_celsius.htm |
EX-23.1 - CONSENT OF SHERB & CO., LLP - Celsius Holdings, Inc. | fs1a2ex23i_celsius.htm |
EX-1.1 - FORM OF UNDERWRITING AGREEMENT - Celsius Holdings, Inc. | fs1a2ex1i_celsius.htm |
Registration
No. 333-163207
As
filed with the Securities and Exchange Commission on February 8 , 2010
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
DC 20549
________________________________________
AMENDMENT
NO. 2
TO
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
________________________________________
CELSIUS
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
2086
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20-2745790
|
(State
of incorporation)
|
(Primary
Standard Classification Code)
|
(IRS
Employer Identification No.)
|
140
NE 4th
Avenue, Suite C
Delray
Beach, FL 33483
(561)
276-2239
(Address,
including zip code, and telephone number, including area code, of
registrant’s principal executive offices)
|
Geary
W. Cotton, CFO
140
NE 4th
Avenue, Suite C
Delray
Beach, FL 33483
(561)
276-2239
(Name,
address, including zip code, and telephone number, including area code, of
agent for service)
|
Copies of
communications to:
David
Alan Miller, Esq.
|
|
Dale
S. Bergman, Esq.
|
Brian
Ross, Esq.
|
Arnstein
& Lehr LLP
|
Graubard
Miller
|
200
East Las Olas Boulevard
|
The
Chrysler Building
|
Suite
1700
|
405
Lexington Avenue
|
Fort
Lauderdale, Florida 33301-2299
|
New
York, NY 10174
|
Telephone:
(954) 713-7628
|
Telephone:
(212) 818-8610
|
Facsimile:
(954) 713-7738
|
Facsimile:
(888) 225-1564
|
Approximate
date of commencement of proposed sale to the public: As soon as practicable
after this Registration Statement becomes effective.
If any of
the securities being registered on this Form are to be offered on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act of 1933, check
the following box. |X|
If this
Form is filed to register additional securities for an offering pursuant to Rule
462(b) under the Securities Act of 1933, please check the following box and list
the Securities Act registration Statement number of the earlier effective
registration statement for the same offering. |_|
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the
Securities Act of 1933, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering.|_|
If this
Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration
number of the earlier effective registration statement for the same offering.
.|_|
Indicate
by check mark whether the Registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer or a smaller reporting
company. See the definitions of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act.
Large
accelerated filer o
|
Accelerated filer | o | Non-accelerated filer ¨ | Smaller reporting company x |
|
(Do not check if a smaller reporting company) |
The Registrant hereby amends this
Registration Statement on such date or dates as may be necessary to delay its
effective date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until
this Registration Statement shall become effective on such date as the
Commission, acting pursuant to said Section 8(a), may
determine.
The
information contained in this prospectus is not complete and may be changed.
These securities may not be sold until the registration statement filed with the
Securities and Exchange Commission is declared effective. This prospectus is not
an offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED FEBRUARY 8 , 2010
Preliminary
Prospectus
CELSIUS
HOLDINGS, INC.
900,000
Units
Each
Unit Consisting of
Four
Shares of Common Stock and
One
Warrant to Purchase One Share of Common Stock
We are
offering 900,000 units, each of which consists of four shares of our common
stock, par value $.001 per share, and one warrant to purchase one share of our common stock at an exercise price per
share equal to 33% of the public offering price per unit, during the three-year
period commencing on the date of this prospectus. The common stock and the
warrants are transferable separately immediately
upon issuance.
Our
common stock is traded on the over-the-counter Bulletin Board (OTC Bulletin
Board) market under the symbol “CSUH.” The last reported sales price
of our common stock on the OTC Bulletin Board on February
5, 2010 , was $4.50 per share. Upon
consummation of this offering, our common stock and warrants will be separately
listed on the Nasdaq Capital Market under the symbols “CELH” and “CELHW,”
respectively. The units will not publicly trade.
Investing
in our securities involves significant risks which are described in the section
captioned “Risk Factors” beginning on page 8 of this prospectus.
Per
Unit
|
Total
|
|||||||
Public
offering price
|
$ | $ | ||||||
Underwriting
discount (1)
|
$ | $ | ||||||
Proceeds
to us, before expenses
|
$ | $ |
________________________________
(1)
|
The
underwriting discount will be 7% of the public offering price per unit.
Does not reflect additional compensation to the underwriters in the form
of an option to purchase 18,000 units. See
“Underwriting.”
|
The
underwriters have an option to purchase up to 135,000 additional units (an
amount equal to up to 15% of the units sold in the offering) from us to cover
over-allotments within 45 days of the date of this prospectus.
Neither
the Securities and Exchange Commission nor any state securities commission has
approved or disapproved of these securities or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal
offense.
Ladenburg Thalmann & Co. Inc. | Maxim Group LLC |
Sole Bookrunning Manager |
The Date of this Prospectus
is: ____________,
2010
Celsius®
and MetaPlus® are registered trademarks of Celsius Holdings,
Inc. This prospectus also contains trademarks held by other
companies.
Claims
about our Celsius® beverage products have not been evaluated by the U.S. Food
and Drug Administration. Our products are not intended to diagnose,
treat, cure or prevent any disease.
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Our
website is at www.celsius.com. We have not incorporated by
reference into this prospectus the information on our website and you should not
consider it to be a part of this document. Our website address is
included as a textual reference only.
You should rely only on the information
contained in this prospectus. We have not authorized anyone to provide you with
information different from that contained in this prospectus. Under no
circumstances should the delivery to you of this prospectus or any sale made
pursuant to this prospectus create any implication that the information
contained in this prospectus is correct as of any time after the date of this
prospectus.
PROSPECTUS
SUMMARY
The
following summary highlights selected information contained elsewhere in this
prospectus. This summary does not contain all the information you should
consider before investing in our common stock. Before making an investment
decision, you should read the entire prospectus carefully, including the “Risk
Factors” section, the consolidated financial statements and the related notes.
As used throughout this prospectus, the terms “we,” “us,” ”our” and “our
company” refer to Celsius Holdings, Inc., and all of its subsidiaries. Unless
otherwise noted, all share and per share data in this prospectus gives effect to
the 1-for-20 reverse stock split of our common stock implemented on December 23,
2009, which converted each block of 20 shares of the common stock issued and
outstanding as of the close of business on December 23, 2009 into one share of
common stock. For more information about our reverse stock split, see
“— Reverse Stock Split” below. Unless
otherwise noted, all share and per share data is also adjusted for the
conversion of our Series B preferred stock into common stock on December 23,
2009. See “—C onversion of Series B
Preferred Stock” below.
About
Our Company
We are
engaged in the development, marketing, sale and distribution of “functional”
calorie-burning beverages under the Celsius® brand name. According to multiple
clinical studies we have had performed for us, a single serving (12 ounce can)
of Celsius® burns up to 100 calories by increasing a consumer’s metabolism an
average of 12% and providing sustained energy for up to a three-hour
period.
We seek
to combine nutritional science with mainstream beverages by using our
proprietary thermogenic (calorie-burning) MetaPlus® formulation, while fostering
the goal of healthier everyday refreshment by making our
products as natural as possible without the artificial preservatives,
colors and flavors as found in many energy drinks or sodas. Celsius® has no
artificial preservatives, aspartame or high fructose corn syrup and is very low
in sodium. Celsius® includes good-for-you ingredients and supplements such as
green tea (EGCG), ginger, calcium, chromium, B vitamins and vitamin C. Celsius
is sweetened with sucralose, a sugar-derived sweetener that is found in
Splenda®, which makes our beverages low-calorie and suitable for consumers whose
sugar intake is restricted.
We
currently offer Celsius in seven flavors, lemon-lime, ginger ale, cola, orange
and wild berry (which are carbonated) and non-carbonated green tea
raspberry-acai and green tea peach-mango. Our beverages are sold in 12 ounce
cans, although we have recently begun to market the active ingredients in
powdered form in individual On-The-Go packets.
We have
undertaken significant marketing efforts aimed at building brand awareness,
including a recently launched nationwide marketing campaign focused on
television, radio, on-line and magazine advertising. We intend to
launch an on-line campaign with viral marketing, as soon as our testing phase is
completed. We also undertake various promotions at the retail level
such as coupons and other discounts. We have recently engaged Mario
Lopez to be our national celebrity spokesperson.
In the
past, we mainly sold and distributed our products through our network of
independent direct-to-store (DSD) distributors. We now
focus to a larger extent on national and
regional retail accounts through a direct-to-retail (DTR) marketing
strategy.
Our DSD distributor network is
primarily concentrated in Florida, Atlanta, Michigan, New England, Ohio and
Texas. Through our DSD distributor network, Celsius® is now available in various major retail chains, including
Hannafords, Shaw’s, Tedeschi, Wegmans and Xtra Mart (Northeast), CVS (New
England), Sweetbay (Florida) and HEB (Texas).
Our DTR marketing strategy focuses on
sales made directly or with the assistance of brokers to national and regional
supermarkets, convenience stores, drug stores, nutrition stores, mass merchants
and club warehouses. As of the date of this prospectus, we have DTR
relationships with and are rolling out Celsius® products into Vitamin Shoppe,
GNC, Supervalu, Duane Reade, Albertsons, Rite-Aid and 7-11 stores, among
others. We made a test shipment in December 2009 to 2 85 Costco stores, and if successful, we plan to make a
full launch into all 404 of their stores in the United States and Puerto Rico in March
2010. We also have recently commenced
shipping to Walgreen’s and CVS on a national basis, covering approximately
14,000 stores in total. Other retailers who became DTR customers
during the fourth quarter of 2009 include Giant, Stop & Shop, Shoprite and
Winn Dixie. The DTR channel, which we believe affords us broader
geographic distribution and increased brand awareness, has contributed to an
increasing percentage of our sales growth and is expected to be the primary
channel for our future sales growth.
We do not
directly manufacture our beverages, but instead outsource the manufacturing
process to established third-party co-packers. We do, however, generally provide
our co-packers with flavors, ingredient blends, cans, packaging and other raw
materials for our beverages.
Our
growth strategy is to increase our share of the functional beverage market
by:
·
|
increasing
brand awareness and emphasizing our combination of nutritional science and
healthier refreshment through print, broadcast, billboard and online
marketing;:
|
·
|
expanding
sales and marketing efforts with a view to increasing the geographic
markets in which Celsius® is available, particularly through additional
penetration of the DTR sales
channel;
|
·
|
extending
our functional beverage product line to offer additional flavors of
Celsius®;
|
·
|
exploiting
our MetaPlus® thermogenic formulation to develop, market, sell and
distribute complementary products;
and
|
·
|
seeking
to expand distribution of our products internationally either directly or
through licensing agreements with third
parties.
|
We were
incorporated in Nevada on April 26, 2005. On January 26, 2007, we
acquired the Celsius® beverage business of Elite FX, Inc., a Florida corporation
engaged in the development of functional beverages since 2004, and subsequently
changed our name to Celsius Holdings, Inc.
Our
principal executive offices are located at 140 N.E. 4th
Avenue, Delray Beach, Florida 33483. Our telephone number is (561)
276-2239 and our website is www.celsius.com. The information
accessible through our website does not constitute part of this
prospectus.
Reverse
Stock Split
On
December 23, 2009, we implemented a reverse stock split in which of all the
issued and outstanding shares of our common stock as of the close of business on
such date were combined and reconstituted as a smaller number of shares of
common stock in a ratio of one share of common stock for every 20 shares of
common stock. We rounded up any fractional shares of new common stock
issuable in connection with the reverse stock split. Our authorized
shares of capital were reduced proportionately from 1,000,000,000 to 50,000,000
shares of common stock and from 50,000,000 to 2,500,000 shares of preferred
stock. Unless otherwise noted, all share and per share data in this
prospectus is adjusted to give effect to the reverse stock
split.
Conversion
of Series B Preferred Stock
Effective
on December 23, 2009, CDS Ventures of South Florida, LLC, our principal
shareholder, converted all the outstanding shares of our Series B preferred
stock (including shares issuable in payment of accrued dividends) into common
stock. Based on the conversion price of $1.00 in effect on the conversion date,
4,343,000 shares of our common stock were issued. Unless otherwise
noted, all share and per share data in this prospectus is adjusted to give
effect to the conversion of our Series B preferred stock into common
stock.
THE
OFFERING
Units
Offered
|
900,000
Units, each comprised of four shares of common stock and one
warrant
|
Common
stock:
|
Common
stock outstanding (as of February 5 ,
2010)
|
12,029,519
shares
|
Common
stock included in units
|
3,600,000
shares
|
Common
stock issuable upon exercise of warrants included in units
|
900,000
shares
|
Common
stock to be outstanding after
this offering
|
15,629,519
shares
|
Warrants: | |
Warrants
included in units
|
900,000
|
Warrant
exercise price and term
|
Each
warrant entitles the holder to purchase one share of common stock at an
exercise price equal to 33% of the public offering price per unit, during
the three year period commencing on the date of this
prospectus.
|
Use
of proceeds
|
Assuming
a public offering price of $ 17.00 per unit and
no exercise of the underwriters' over-allotment option, we will receive
net proceeds of approximately $ 13.8 million
from our sale of units in this offering, after deducting underwriting
discounts and estimated offering expenses payable by us. We intend to use
these proceeds as follows: (i) approximately $9,000,000 for 2010 marketing
efforts; (ii) approximately $500,000 for new product development; and
(iii) the remaining proceeds of approximately $ 4,300,000 for general corporate purposes, including
working capital. Any proceeds obtained upon exercise
of the over-allotment option will be used to prepay a portion of the
convertible note outstanding to CDS Ventures of South Florida, LLC. Any
proceeds from the exercise of warrants will be used for working
capital.
|
Dividend
policy
|
We
do not anticipate paying cash dividends on our common stock for the
foreseeable future.
|
Risk
factors
|
You
should read the section captioned “Risk Factors” for a discussion of
factors you should consider carefully before deciding whether to purchase
shares of our common stock.
|
Trading
|
Our
common stock is currently traded the OTC Bulletin Board under the symbol
“CSUH.” Upon completion of this offering, our common stock and warrants
will be listed on the Nasdaq Capital Market under the symbols “CELH” and
“CELHW”, respectively.
|
The
information above regarding the number of shares of common stock offered and the
number of shares of common stock to be outstanding after this offering does not
include:
•
|
1,179,201 shares of common stock issuable upon the
exercise of outstanding stock
options;
|
•
|
403,750
shares of common stock issuable upon the exercise of outstanding
warrants;
|
•
|
792,599 shares of common stock available for
issuance upon conversion of our outstanding convertible promissory
notes;
|
•
|
2,063,125
shares of common stock available for issuance upon conversion of our
issued and outstanding Series A preferred stock;
|
||
•
|
900,000
shares of common stock issuable upon the exercise of the warrants included
in the units;
|
||
•
|
72,000
shares of common stock issuable upon exercise of the underwriters' unit
purchase option, or the 18,000 shares underlying the warrants included
therein; or
|
•
|
exercise
of the underwriters' over-allotment
option.
|
SUMMARY
FINANCIAL INFORMATION
The
following summary financial information is derived from our consolidated
financial statements, together with adjusted information which reflects the
receipt of the net proceeds from this offering. This summary
financial information should be read in conjunction with our consolidated
financial statements and the related notes included elsewhere in this
prospectus.
Statements
of operations:
|
For
Year Ended
|
For
the Nine Months Ended
|
||||||||||||||
December
31,
|
September
30,
|
|||||||||||||||
2008
|
2007
|
2009 | 2008 | |||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Revenue
|
$ | 2,589,887 | $ | 1,644,780 | $ | 3,480,475 | $ | 1,968,975 | ||||||||
Total
Operating Expenses
|
5,676,695 | 4,155,197 | 6,723,130 | 4,232,572 | ||||||||||||
Net
Loss
|
$ | (5,261,600 | ) | $ | (3,725,841 | ) | $ | (5,335,829 | ) | $ | (3,942,488 | ) | ||||
Balance
sheet:
|
As
of December 31,
|
As
of September 30,
|
||||||||||||||
2008 | 2007 | 2009 | 2009 (1) | |||||||||||||
(Unaudited)
|
(Unaudited)
|
|||||||||||||||
Cash
|
$ | 1,040,633 | $ | 257,482 | $ | 647,598 | $ | 14,476,598 | ||||||||
Total
Assets
|
2,202,769 | 2,533,130 | 3,251,675 | 17,080,675 | ||||||||||||
Total
Liabilities
|
2,191,542 | 4,137,882 | 5,573,184 | 5,573,184 | ||||||||||||
Stockholders’
Equity (Deficiency)
|
$ | 11,227 | $ | (1,604,752 | ) | $ | (2,321,509 | ) | $ | 11,507,491 |
(1)
|
Gives
effect to the sale of units by us in this offering at an assumed offering
price of $ 17.00 per unit , after deducting
discounts and estimated offering expenses to be paid by
us.
|
RISK
FACTORS
An
investment in our securities involves a high degree
of risk. You should carefully consider the risks described below and the other
information in this prospectus before investing in our securities. If any of the events anticipated by
the risks described below occur, our results of operations and financial
conditions could be adversely affected which could result in a decline in the
market price of our securities , causing you to lose
all of part of your investment.
Risk
Factors Relating to Our Business
We
have a limited operating history with significant losses and expect losses to
continue for the foreseeable future.
The
Company was incorporated in the State of Nevada on April 26, 2005 under the name
“Vector Ventures Corp” and did not have any business operations until it
acquired Elite FX, Inc., a Florida corporation, by reverse merger in January
2007. It is
difficult to evaluate our business future and prospects as we are a young
company with a limited operating history. Our future operating
results will depend on many factors, both in and out of our control, including
the ability to increase and sustain demand for and acceptance of our products,
the level of our competition, and our ability to attract and maintain key
management and employees.
Elite FX,
Inc. incurred operating losses from its inception in 2004 to our acquisition in
January 2007. We have incurred losses since the acquisition and launching our
own commercial operations. We have yet to establish any history of profitable
operations. We have incurred an operating loss during the first nine months
ending September 30, 2009 of $5.2 million. As a result, at September 30, 2009,
we had an accumulated deficit of $16.7 million. Our revenues have not been
sufficient to sustain our operations. We expect that our revenues will not be
sufficient to sustain our operations for the foreseeable future. Our
profitability will require the successful commercialization of our current
Celsius®
product line and any future products we develop. No assurances can be given when
this will occur or that we will ever be profitable.
We
may require additional capital in the future, which may not be available on
favorable terms or at all.
We
believe that the net proceeds of this offering, together with anticipated
revenues from operations, will enable us to fund our operations and business
plan for the next 18 months or until we become cash flow
positive. However, there is no assurance that our assumptions as to our
company’s capital needs will be correct and that we will not need to raise
additional financing either after or prior to the end of such 18 month period
or until we become cash flow positive. We anticipate
that any such additional funds would be raised through equity or debt
financings. In addition, we may enter into one or more revolving
credit facilities or term loan facilities with one or more syndicates of
lenders. It is possible that equity or debt financing will not be available to
when we seek it. Such equity or debt financing, if available, may be
on terms that are not favorable to us. Even if we are able to raise capital
through equity or debt financings, the interest of existing
shareholders in our company may be diluted, and the securities we issue may have
rights, preferences and privileges that are senior to those of our common stock
or may otherwise materially and adversely affect the holdings or rights of our
existing shareholders. If we cannot obtain adequate capital when needed on
reasonable terms, we may not be able to fully implement our business plan, and
our business, results of operations and financial condition would be adversely
affected.
We
rely on third party co-packers to manufacture our products. If we are unable to
maintain good relationships with our co-packers and/or their ability to
manufacture our products becomes constrained or unavailable to us, our business
could suffer.
We do not
directly manufacture our products, but instead outsource such manufacturing to
established third party co-packers. These third party co-packers may
not be able to fulfill our demand as it arises, could begin to charge rates that
make using their services cost inefficient or may simply not be able to or
willing to provide their services to us on a timely basis or at all. In the
event of any disruption or delay, whether caused by a rift in our relationship
or the inability of our co-packers to manufacture our products as required, we
would need to secure the services of alternative co-packers. We may
be unable to procure alternative packing facilities at commercially reasonable
rates and/or within a reasonably short time period and any such transition could
be costly. In such case, our business, financial condition and
results of operations would be adversely affected.
9
We rely
on distributors to distribute our products in the DSD sales channel. If we are
unable to secure such distributors and/or we are unable to maintain good
relationships with our existing distributors, our business could
suffer.
We
distribute Celsius® in the DSD sales channel by entering into agreements with
direct-to-store delivery distributors having established sales, marketing and
distribution organizations. Many of our distributors are affiliated with and
manufacture and/or distribute other beverage products. In many cases, such
products compete directly with our products. The marketing efforts of
our distributors are important for our success. If Celsius® proves to be less
attractive to our distributors and/or if we fail to attract distributors, and/or
our distributors do not market and promote our products with greater focus in
preference to the products of our competitors, our business, financial condition
and results of operations could be adversely affected.
Our
customers are material to our success. If we are unable to maintain good
relationships with our existing customers, our business could
suffer.
Unilateral
decisions could be taken by our distributors, grocery chains, convenience
chains, drug stores, nutrition stores, mass merchants, club warehouses and other
customers to discontinue carrying all or any of our products that they are
carrying at any time, which could cause our business to suffer.
Increases in cost or shortages of raw
materials or increases in costs of co-packing could harm our
business.
The
principal raw materials used by us are flavors and ingredient blends as well as
aluminum cans, the prices of which are subject to fluctuations. We are uncertain
whether the prices of any of the above or any other raw materials or ingredients
we utilize will rise in the future and whether we will be able to pass any of
such increases on to our customers. We do not use hedging agreements or
alternative instruments to manage the risks associated with securing sufficient
ingredients or raw materials. In addition, some of these raw materials, such as
our distinctive sleek 12 ounce can, are available from a single or a limited
number of suppliers. As alternative sources of supply may not be available, any
interruption in the supply of such raw materials might materially harm
us.
Our
failure to accurately estimate demand for our products could adversely affect
our business and financial results.
We may
not correctly estimate demand for our products. If we materially underestimate
demand for our products and are unable to secure sufficient ingredients or raw
materials, we might not be able to satisfy demand on a short-term basis, in
which case our business, financial condition and results of operations could be
adversely affected.
We
depend upon our trademarks and proprietary rights, and any failure to protect
our intellectual property rights or any claims that we are infringing upon the
rights of others may adversely affect our competitive position.
Our
success depends, in large part, on our ability to protect our current and future
brands and products and to defend our intellectual property rights. We cannot be
sure that trademarks will be issued with respect to any future trademark
applications or that our competitors will not challenge, invalidate or
circumvent any existing or future trademarks issued to, or licensed by,
us.
Our
products are manufactured using our proprietary blends of ingredients. These
blends are created by third-party suppliers to our specifications and then
supplied to our co-packers. Although all of the third parties in our supply and
manufacture chain execute confidentiality agreements, there can be no assurance
that our trade secrets, including our proprietary ingredient blends will not
become known to competitors.
We
believe that our competitors, many of whom are more established, and have
greater financial and personnel resources than we do, may be able to replicate
or reverse engineer our processes, brands, flavors, or our products in a manner
that could circumvent our protective safeguards. Therefore, we cannot give you
any assurance that our confidential business information will remain
proprietary. Any such loss of confidentiality could diminish or
eliminate any competitive advantage provided by our proprietary
information.
We may incur material losses as a
result of product recall and product liability.
We
may be liable if the consumption of any of our products causes injury, illness
or death. We also may be required to recall some of our products if they become
contaminated or are damaged or mislabeled. A significant product liability
judgment against us, or a widespread product recall, could have a material
adverse effect on our business, financial condition and results of operations.
The amount of the insurance we carry is limited, and that insurance is subject
to certain exclusions and may or may not be adequate.
We
may not be able to develop successful new products, which could impede our
growth and cause us to sustain future losses.
Part of
our strategy is to increase our sales through the development of additional
products. We cannot assure you that we will be able to develop, market, sell and
distribute additional products that will enjoy market acceptance. The failure to
develop new products that gain market acceptance could have an adverse impact on
our growth and materially adversely affect our financial condition.
Our
lack of product diversification and inability to timely introduce new or
alternative products could cause us to cease operations.
Our
business is centered on Celsius®. The risks associated with focusing on a
limited product line are substantial. If consumers do not accept our products or
if there is a general decline in market demand for, or any significant decrease
in, the consumption of functional beverages, we are not financially or
operationally capable of introducing alternative products within a short time
frame. As a result, such lack of acceptance or market demand decline could cause
us to cease operations.
We
are dependent on our key executives and employees and the loss of any of their
services could materially adversely affect us which may have a material adverse
effect on our Company.
Our
future success will depend substantially upon the abilities of, and personal
relationships developed by a limited number of key executives and employees,
including Stephen C. Haley, our Chief Executive Officer, President and Chairman
of the Board, Geary W. Cotton, our Chief Financial Officer and Irina Lorenzi,
our Innovations Vice President. The loss of the services of Mr. Haley, Mr.
Cotton, Ms. Lorenzi or any other key employee could materially adversely affect
our business and our prospects for the future. We do not have key person
insurance on the lives of such individuals and the loss of any of their services
could materially adversely affect us.
We are dependent
on our ability to attract and retain qualified technical, sales and managerial
personnel.
Our
future success depends in part on our continuing ability to attract and retain
highly qualified technical, sales and managerial personnel. Competition for such
personnel in the beverage industry is intense and we may not be able to retain
our key managerial, sales and technical employees or attract and retain
additional highly qualified technical, sales and managerial personnel in the
future. Any inability to attract and retain the necessary technical, sales and
managerial personnel could materially adversely affect us.
The
FDA has not passed on the efficacy of our products or the accuracy of any claim
we make related to our products.
Although five independent clinical
studies have been conducted relating to the calorie-burning and related effects
of our products, the results of these studies have not been submitted to or
reviewed by the FDA. Further, the FDA has not passed on the efficacy
of any of our products nor has it reviewed or passed on any claims we make
related to our products, including the claim that our products aid consumers in
burning calories or enhancing their metabolism.
Risk
Factors Relating to Our Industry
We are subject to significant
competition in the beverage industry.
The
beverage industry is highly competitive. The principal areas of competition are
pricing, packaging, distribution channel penetration, development of new
products and flavors and marketing campaigns. Our products compete with a wide
range of drinks produced by a relatively large number of manufacturers, most of
which have substantially greater financial, marketing and distribution resources
and name recognition than we do.
Important
factors affecting our ability to compete successfully include the taste and
flavor of our products, trade and consumer promotions, rapid and effective
development of new, unique cutting edge products, attractive and different
packaging, branded product advertising and pricing. Our products compete with
all liquid refreshments and with products of much larger and substantially
better financed competitors, including the products of numerous nationally and
internationally known producers, such as The Coca Cola Company, Dr. Pepper
Snapple Group, PepsiCo, Inc., Nestle, Waters North America, Inc., Hansen Natural
Corp. and Red Bull. We also compete with companies that are smaller or primarily
local in operation. Our products also compete with private label brands such as
those carried by supermarket chains, convenience store chains, drug store
chains, mass merchants and club warehouses.
There can
be no assurance that we will compete successfully in the functional beverage
industry. The failure to do so would materially adversely affect our business,
financial condition and results of operations.
We
compete in an industry that is brand-conscious, so brand name recognition and
acceptance of our products are critical to our success and significant marketing
and advertising will be needed to achieve and sustain brand
recognition.
Our
business is substantially dependent upon awareness and market acceptance of our
products and brands by our targeted consumers. Our business depends on
acceptance by our independent distributors of our brand as one that has the
potential to provide incremental sales growth rather than reduce distributors’
existing beverage sales. The development of brand awareness and market
acceptance is likely to require significant marketing and advertising
expenditures. Even if we are able to engage in such marketing and advertising
efforts, there can be no assurance that Celsius® will achieve and maintain
satisfactory levels of acceptance by independent distributors and retail
consumers. Any failure of Celsius® brand to maintain or increase acceptance or
market penetration would likely have a material adverse affect on business,
financial condition and results of operations.
Our
sales are affected by seasonality.
As is
typical in the beverage industry, our sales are seasonal. Our highest sales
volumes generally occur in the second and third quarters, which correspond to
the warmer months of the year in our major markets. Consumer demand for our
products is also affected by weather conditions. Cool, wet spring or summer
weather could result in decreased sales of our beverages and could have an
adverse effect on our results of operations.
Our business is subject to many
regulations and noncompliance is costly.
The
production, marketing and sale of our beverage products are subject to the rules
and regulations of various federal, state and local health agencies. If a
regulatory authority finds that a current or future product or production run is
not in compliance with any of these regulations, we may be fined, or production
may be stopped, thus adversely affecting our financial conditions and
operations. Similarly, any adverse publicity associated with any noncompliance
may damage our reputation and our ability to successfully market our products.
Furthermore, the rules and regulations are subject to change from time to time
and while we closely monitor developments in this area, we have no way of
anticipating whether changes in these rules and regulations will impact our
business adversely. Additional or revised regulatory requirements, whether
labeling, environmental, tax or otherwise, could have an adverse effect on our
business, financial condition and results of operations.
Risks
Relating to our Common Stock and Warrants and the
Offering
There
are a large number of shares underlying our convertible promissory notes,
convertible preferred stock and warrants that may be available for future sale
and the sale of these shares may depress the market price of our common
stock.
As of
February 5, 2010, we had 12,029,519 shares of common
stock issued and outstanding. As of the same date, we also had convertible
promissory notes outstanding that may be converted into an estimated 792,599 shares of our common stock, 2,063,125 shares of
common stock issuable upon conversion of our issued and outstanding Series A
preferred stock and 1,582,951 shares of common stock
issuable upon the exercise of warrants and stock options. In addition, we will
issue warrants to purchase 900,000 shares of common stock in this offering.
Most, if not all of these shares may be sold into the market place currently.
The sale of these shares may adversely affect the market price of our common
stock and warrants.
Our executive officers, directors
and principal shareholders own a significant percentage of our company and will
be able to exercise significant influence over our company.
Immediately
following this offering, our executive officers and directors and principal
shareholders collectively will beneficially own approximately 49.6% of the total
voting power of our outstanding voting capital stock. These shareholders will be
able to determine the composition of our board of directors, will retain the
voting power to approve all matters requiring shareholder approval and will
continue to have significant influence over our affairs. This concentration of
ownership could have the effect of delaying or preventing a change in our
control or otherwise discouraging a potential acquirer from attempting to obtain
control of us, which in turn could have a material and adverse effect on the
market price of the common stock or prevent our shareholders from realizing a
premium over the market prices for their shares of common stock.
Our
board of directors will have broad discretion over the application of a
significant portion of the net proceeds of the offering.
Approximately
$ 4.3 million or 31% of the estimated net proceeds of
the offering has been allocated to general corporate purposes,
including working capital. Accordingly, our board of directors will
have broad discretion over the allocation of these proceeds.
We cannot guarantee the existence of
an established public trading market.
Although
our common stock and warrants will be listed on the Nasdaq Capital Market upon
completion of this offering under the symbols “CELH” and “CELHW”, respectively,
and our common stock currently trades on the OTC Bulletin Board, a regular
trading market for our securities may not be sustained in the future. The OTC
Bulletin Board is an inter-dealer, over-the-counter market that provides
significantly less liquidity than the Nasdaq Capital Market. Quotes for stocks
included on the OTC Bulletin Board are not listed in the financial sections of
newspapers as are those for the Nasdaq Capital Market. Therefore, prices for
securities traded solely on the OTC Bulletin Board may be difficult to obtain
and holders of common stock may be unable to resell their securities at or near
their original offering price or at any price. Market prices for our securities
will be influenced by a number of factors, including:
·
|
the
issuance of new equity securities pursuant to an
offering;
|
·
|
changes
in interest rates;
|
·
|
competitive
developments, including announcements by competitors of new products or
services or significant contracts, acquisitions, strategic partnerships,
joint ventures or capital commitments;
|
·
|
variations
in quarterly operating results;
|
·
|
change
in financial estimates by securities analysts;
|
·
|
the
depth and liquidity of the market for our common stock;
|
·
|
investor
perceptions of our company and the aquaculture industry generally;
and
|
·
|
general
economic and other national
conditions.
|
Because
we do not intend to pay dividends, shareholders will benefit from an investment
in shares of our common stock only if our shares appreciate in
value.
We have never declared or paid any cash
dividends on shares of our common stock. We currently intend to retain our
future cash flows, if any, to finance the operation and growth of our business
and, therefore, do not expect to pay any cash dividends in the foreseeable
future. As a result, shareholders will benefit from an investment in shares of
our common stock only if it appreciates in value. There is no guarantee that
shares of our common stock will appreciate in value or even maintain the price
at which shareholders have purchased their shares. Furthermore, our current
credit facility restricts the amount of dividends we may pay to our
shareholders.
An
investor will only be able to exercise a warrant if the issuance of common stock
upon such exercise has been registered or qualified or is deemed exempt under
the securities laws of the state of residence of the holder of the
warrants.
No warrants will be exercisable and we
will not be obligated to issue shares of common stock unless the common stock
issuable upon such exercise has been registered or qualified or deemed to be
exempt under the securities laws of the state of residence of the holder of the
warrants. Because the exemptions from qualification in certain states
for resales of warrants and for issuances of common stock by the issuer upon
exercise of a warrant may be different, a warrant may be held by a holder in a
state where an exemption is not available for issuance of common stock upon an
exercise and the holder will be precluded from exercise of the
warrant. We expect to be listed on a national securities exchange,
which would provide an exemption from registration in every state for the
issuance of common stock upon exercise of the warrant. Accordingly,
we believe holders in every state will be able to exercise their warrants as
long as our prospectus relating to the common stock issuable upon exercise of
the warrants is current. However, we cannot assure you of this
fact. As a result, the warrants may be deprived of any value and the
holders of warrants may not be able to exercise their warrants if the common
stock issuable upon such exercise is not qualified or exempt from qualification
in the jurisdictions in which the holders of the warrants reside.
An
effective registration statement may not be in place when an investor desires to
exercise warrants, thus precluding such investor from being able to exercise
his, her or its warrants at that time.
No
warrant held by an investor will be exercisable and we will not be obligated to
issue common stock unless at the time such holder seeks to exercise such
warrant, a prospectus relating to the common stock issuable upon exercise of the
warrant is current (or an exemption from registration is available) and the
common stock has been registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder of the warrants. Under
the terms of the warrant agreement, we have agreed to use our best efforts to
meet these conditions and to maintain a current prospectus relating to the
common stock issuable upon exercise of the warrants until the expiration of the
warrants. However, we cannot assure you that we will be able to do so, and if we
do not maintain a current prospectus related to the common stock issuable upon
exercise of the warrants (and an exemption from registration is not available),
holders will be unable to exercise their warrants and we will not be required to
net cash settle any such warrant exercise. If we are unable to issue the shares
of common stock upon exercise of the warrants by an investor because there is no
current prospectus relating to the common stock issuable upon exercise of the
warrant (and an exemption from registration is not available) or the common
stock has not been registered or qualified or deemed to be exempt under the
securities laws of the state of residence of the holder of the warrants, the
warrants will not expire until ten days after the date we are first able to
issue the shares of common stock. Nevertheless, because an investor
may not be able to exercise the warrants at the most advantageous time, the
warrants held by an investor may have no value, the market for such warrants may
be limited and such warrants may expire worthless.
FORWARD
-LOOKING STATEMENTS
Information
included in this prospectus contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act of 1934. This information involves known and
unknown risks, uncertainties and other factors which may cause our actual
results, performance or achievements to be materially different from the future
results, performance or achievements expressed or implied by any forward-looking
statements. Forward-looking statements, which involve assumptions and describe
our future plans, strategies and expectations, are generally identifiable by use
of the words “may”, “should”, “expect”, “anticipate”, “estimate”, “believe”,
“intend” or “project” or the negative of these words or other variations on
these words or comparable terminology.
The
forward-looking statements in this prospectus include statements regarding,
among other things, (a) our projected sales and profitability, (b) our growth
strategies, (c) anticipated trends in our industry, (d) our future financing
plans and (e) our anticipated needs for working capital. These statements may be
found under “Management’s Discussion and Analysis of Financial Condition and
Results of Operations” and “Business”, as well as in this prospectus generally.
Actual events or results may differ materially from those discussed in
forward-looking statements as a result of various factors, including, without
limitation, the risks outlined under “Risk Factors” and matters described in
this prospectus generally. In light of these risks and uncertainties, there can
be no assurance that the forward-looking statements contained in this prospectus
will in fact occur.
The risk
factors set forth in this prospectus are not exhaustive. There can be no
assurance that we have correctly identified and appropriately assessed all
factors affecting our business or that the publicly available and other
information with respect to these matters is complete and correct. Additional
risks and uncertainties not presently known to us or that we currently believe
to be immaterial also may adversely impact us. Should any risks and
uncertainties develop into actual events, these developments could have material
adverse effects on our business, financial condition and results of operations.
For these reasons, the reader is cautioned not to place undue reliance on our
forward-looking statements.
DI
LUTION
If you
invest in our units, your ownership interest will be diluted to the extent of
the difference between the offering price per share and the net tangible book
value per share of our common stock after this offering. Our net
tangible book value as of September 30, 2009 was approximately $(2,300,000), or
approximately $(.20) per share of common stock. Net tangible book value per
share represents total tangible assets less total liabilities, divided by the
number of shares of common stock outstanding. Dilution in net
tangible book value per share represents the difference between the amount per
share paid by purchasers of units in this offering and the net tangible book
value per share of common stock immediately after the closing of this offering.
For purposes of this calculation, the entire purchase price for a unit sold
pursuant to this offering is being allocated to the common stock contained in
the unit.
After
giving effect to the sale of the units in this offering at an assumed offering
price of $17.00 per unit, and after deducting the
estimated offering expenses payable by us, our pro forma net tangible book value
as of September 30, 2009 would have been approximately $ 11.5 million, or $ 0.75 per
share of common stock. This represents an immediate increase in net
tangible book value of $ 0.95 per share to existing
stockholders and an immediate dilution of $ 3.50 per
share to new investors purchasing units in this offering at the assumed public
offering price.
The
following table illustrates this dilution on a per share basis:
Assumed
public offering price per unit
|
$17.00
|
Net
tangible book value per share as of September 30, 2009
|
$(.20)
|
Increase
in net tangible book value attributable to this offering
|
$13.8
million
|
Pro
forma net tangible book value per share as of September 30, 2009 after
giving effect to this offering
|
$0.75
|
Dilution
per share to new investors in this offering
|
$3.50
|
The calculations above are based on
11,641,762 shares of common stock outstanding as of September 30, 2009 after
giving effect to the sale of the common stock in the offering. This number
excludes 3,559,288 shares of common stock subject to warrants, options,
convertible debt and preferred stock outstanding as of September 30, 2009, but
gives effect to the 1-for-20 reverse stock split and the conversion of our
Series B preferred stock into common stock.
USE
OF PROCEEDS
We
estimate that the net proceeds from our sale of units in this offering, assuming
a public offering price of $ 17.00 per unit, after
deducting underwriting discounts and estimated offering expenses payable by us,
will be approximately $ 13.8 million (approximately
$ 16.0 million if the over-allotment option we
granted to the underwriters is exercised in full).
We
inten d to use the net proceeds from this offering
(prior to the sale of any additional units pursuant to the exercise of the
over-allotment option) generally as follows:
·
|
approximately
$9,000,000 for 2010 marketing efforts, including intensified broadcast and
print media advertising;
|
·
|
approximately
$500,000 for new product development, including testing new flavors and
delivery systems; and
|
·
|
the
remaining proceeds of approximately $ 4,300,000
for general corporate purposes, including working
capital.
|
The
underwriter s' over-allotment option, if exercised in
full, provides for the issuance of up to 135,000 additional units, for
additional net proceeds of $2.1 million . Any
proceeds obtained upon exercise of the over-allotment option will be used to
prepay a portion of the convertible note outstanding to CDS Ventures of South
Florida, LLC, and for working capital. The proceeds from the exercise of any
warrants will be used for working capital.
We will
have broad discretion over the manner in which the net proceeds of the offering
will be applied, and we may not use these proceeds in a manner desired by our
shareholders. Although we have no present intention of doing so, future events
may require us to reallocate the offering proceeds.
CAPITA
LIZATION
The
following table sets forth our capitalization (i) as of September 30, 2009, and
(ii) as adjusted as of that date to give effect to the 1-for-20 reverse stock
split implemented on December 23, 2009, the conversion of our Series B preferred
stock into common stock on December 23, 2009, and the application of the
estimated net proceeds of this offering (at an assumed public offering price of
$ 17.00 per unit). This table should be
read in conjunction with our consolidated financial statements and the related
notes, appearing elsewhere in this prospectus.
September
30,
|
September
30,
|
|||||||
2009
|
2009
|
|||||||
(Unaudited)
|
(As
adjusted)
|
|||||||
Cash
and cash equivalents
|
$ | 647,598 | $ | 16,752,798 | ||||
Equipment,
net
|
$ | 190,819 | $ | 190,819 | ||||
Due
to related parties, short term portion
|
$ | 1,580,000 | $ | 1,580,000 | ||||
Convertible
note payable, net of debt discount
|
242,539 | 242,539 | ||||||
Convertible
note payable, net of debt discount, related party
|
2,172,742 | 2,172,742 | ||||||
Note
due to related parties
|
125,349 | 125,349 | ||||||
Shareholder’s
equity:
|
||||||||
1,000,000,000
and 50,000,000 shares of common stock, par value
$.001,
|
||||||||
authorized,
actual and as adjusted; 50,000,000 and 2,500,000 shares
of
|
||||||||
preferred
stock, par value $.001, authorized, actual and as
adjusted;
|
||||||||
6,092
and 104.1 shares of preferred stock, issued and
outstanding
|
||||||||
actual
and as adjusted
|
- | - | ||||||
153
million and 15,241,762 shares of common stock, issued
and
|
||||||||
outstanding,
actual and as adjusted
|
7,631 | 15,242 | ||||||
Additional
paid-in capital
|
14,389,057 | 28,210,446 | ||||||
Retained
deficit
|
(16,718,197 | ) | (16,718,197 | ) | ||||
Total
shareholder’s equity
|
(2,321,509 | ) | 11,507,491 | |||||
Total
capitalization
|
$ | 1,799,121 | $ | 15,628,121 |
SELECTED
CONSOLIDATED FINANCIAL INFORMATION
The
selected consolidated financial information as of
and for the years ended December 31, 2008 and 2007 is derived from our audited
financial statements for the years ended December 31, 2008 and 2007 and should
be read in conjunction with the consolidated financial statements and related
notes included elsewhere in this prospectus.
The
selected consolidated financial information as
of and for the nine months ended September 30, 2009 and September 30, 2008 is
derived from our unaudited interim financial statements for the nine months
ended September 30, 2009 and September 30, 2008 and should be read in
conjunction with the consolidated financial statements and related notes,
included elsewhere in this prospectus.
Year
Ended December 31,
|
Nine
Months ended September 30,
|
|||||||||||||||
2008
|
2007
|
2009
|
2008
|
|||||||||||||
Net
sales
|
$ | 2,589,887 | $ | 1,644,780 | $ | 3,480,475 | $ | 1,968,975 | ||||||||
Cost
of sales
|
1,833,184 | 1,033,971 | 1,987,389 | 1,386,509 | ||||||||||||
Gross
profit
|
756,703 | 610,809 | 1,493,086 | 582,466 | ||||||||||||
Selling
and marketing expenses
|
3,936,552 | 2,100,687 | 5,295,383 | 2,909,993 | ||||||||||||
General
and administrative expense
|
1,740,143 | 1,554,510 | 1,427,747 | 1,322,579 | ||||||||||||
Termination
of contract expense
|
- | 500,000 | - | - | ||||||||||||
Loss
from operations
|
(4,919,992 | ) | (3,544,388 | ) | (5,230,044 | ) | (3,650,106 | ) | ||||||||
Other
expense:
|
341,608 | 181,453 | 105,785 | 292,382 | ||||||||||||
Net
loss
|
$ | (5,261,600 | ) | $ | (3,725,841 | ) | $ | (5,335,829 | ) | $ | (3,942,488 | ) | ||||
Basic
and diluted:
|
||||||||||||||||
Loss
per share
|
$ | (0.82 | ) | $ | (0.74 | ) | $ | (0.71 | ) | $ | (0.64 | ) | ||||
BUSI
NESS
Overview
We are
engaged in the development, marketing, sale and distribution of “functional”
calorie-burning beverages under the Celsius® brand name. According to multiple
clinical studies we funded, a single serving (12 ounce can) of Celsius® burns up
to 100 calories by increasing a consumer’s metabolism an average of 12% and
providing sustained energy for up to a three-hour period.
We seek to combine nutritional science
with mainstream beverages by using our proprietary thermogenic (calorie-burning)
MetaPlus® formulation, while fostering the goal of healthier everyday
refreshment by being as natural as possible without the artificial preservatives
often found in many energy drinks or sodas. Celsius® has no artificial
preservatives, aspartame or high fructose corn syrup and is very low in sodium.
Celsius® uses good-for-you ingredients and supplements such as green tea (EGCG),
ginger, calcium, chromium, B vitamins and vitamin C. Celsius is
sweetened with sucralose, a sugar-derived sweetener that is found in Splenda®,
which makes our beverages low-calorie and suitable for consumers whose sugar
intake is restricted.
We have
undertaken significant marketing efforts aimed at building brand awareness,
including a recently launched nationwide marketing campaign focused on
television, radio, on-line and magazine advertising. We intend to
launch an on-line campaign with viral marketing, as soon as our testing phase is
completed. We also undertake various promotions at the retail level
such as coupons and other discounts. We have recently engaged Mario
Lopez to be our national celebrity spokesperson.
In the past, we mainly sold and
distributed our products through our network of independent direct-to-store
(DSD) distributors. At present, we sell and distribute to a larger extent, to
national and regional retail accounts through a direct-to-retail (DTR) marketing
strategy.
Our DSD distributor network is
primarily concentrated in Florida, Atlanta, Michigan, New England, Ohio and
Texas. Through our DSD distributor network, Celsius® is available in various
major retail chains, including Hannafords, Shaw’s, Tedeschi, Wegmans and Xtra
Mart (Northeast), CVS (New England), Sweetbay (Florida) and HEB
(Texas).
Our DTR
marketing strategy focuses on sales made directly or with the assistance of
brokers to national and regional supermarkets, convenience stores, drug stores,
nutrition stores, mass merchants and club warehouses. As of the date of this
prospectus, we have DTR relationships with and are rolling out Celsius® products
into Vitamin Shoppe, GNC, Supervalu, Duane Reade, Albertsons, Rite-Aid and 7-11
stores, among others. We made a test shipment in December 2009 to
285 Costco stores, and if successful, we plan to
make a full launch into all 404 of their stores
in the United States and Puerto Rico in March
2010. We also have recently commenced
shipping to Walgreen’s and CVS on a national basis, covering approximately
14,000 stores in total. Other retailers who became DTR customers
during the fourth quarter of 2009 include Giant, Stop & Shop, Shoprite and
Winn Dixie. The DTR channel, which we believe affords us broader
geographic distribution and increased brand awareness, has contributed to an
increasing percentage of our sales growth and is expected to be the primary
channel for our future sales growth.
We do not directly manufacture our
beverages, but instead outsource the manufacturing process to established
third-party co-packers. We do, however, provide our co-packers with
flavors, ingredient blends, cans and other raw materials for our beverages
purchased by us from various suppliers.
Industry
Overview
The
“functional” beverage category includes a wide variety of beverages with one or
more added ingredients to satisfy a physical or functional need, such as sports
drinks, energy drinks, and non-carbonated ready to drink teas.
Size of
Market – According to a
report by Accenture Consulting, the size of the annual non-alcoholic beverage
market was estimated to have grown to more than $17.4 billion in the United
States in 2009. A growing portion of this market is the functional
beverage market, which was estimated at $9.7 billon, in 2009, according to
Datamonitor. This market is estimated to grow to $19.7 billion by
2013, a compound annual growth rate of 15.2% over
that time period.
Current Market
Segmentation – The growing functional beverage market can be further
segmented into several different sub-categories, such as energy drinks, sports
drinks, and nutraceutical drinks. According to Datamonitor, as of
2008, the largest category of functional drinks was energy drinks with
approximately 62% market share and sports drinks with an approximately 26%
market share.
We
believe that Celsius® is both a member of the energy drink sub-category, as well
as creating a new category of beverages, calorie-burning. It has some
of the same functional elements of an energy drink, but unlike the majority of
the sugary (high calorie) competitors in this space, Celsius® does not contain
high fructose corn syrup and burns up to 100 calories by increasing a drinker’s
metabolism an average of 12% for up to a three-hour period. We
believe that Celsius® is a superior product to currently available energy drinks
due to its low caloric content, its calorie burning capabilities and its lack of
artificial preservatives, colors and flavors.
Changing Industry
Trends – There is an increased concern among consumers, the public health
community and various government agencies of the potential health problems
associated with inactive lifestyles and obesity. There are currently
several proposals in the U.S. Congress seeking to address the issue of
consumption of sugary drinks by children and other
consumers. Participants in the non-alcoholic beverage market are
responding to these concerns by bringing to market new healthier products such
as diet and light beverages, juices and juice drinks, sports drinks and water
products.
Growing Number of
Adults with Obesity: According to statistics from the U.S. Center for
Disease Control and Prevention (CDC) during the past 20 years there has been a
dramatic increase in obesity in the United States. In 2008, only one state
(Colorado) had a prevalence of obesity less than 20%. Thirty-two states had
prevalence equal to or greater than 25%; six of these states (Alabama,
Mississippi, Oklahoma, South Carolina, Tennessee, and West Virginia) had a
prevalence of obesity equal to or greater than 30%.
The maps
below show the change in obesity prevalence from
1985 through 2008 in the United
States.
Industry Trends
Benefit Celsius® – The Company believes that it has strategically placed
itself to capitalize on several macro-trends in the beverage space by filling a
need that it not currently being met by its competitors in both the functional
and general non-alcoholic beverage markets.
With a
growing number of consumers seeking functional beverages, they are also
increasingly seeking out products that are the healthiest alternative within
those product categories. Many of the leading functional beverage
products contain high doses of sugar or high fructose corn syrup, sodium,
artificial flavors, and preservatives which may counter-balance some of the
other benefits the consumer is looking for.
Celsius®
has created its portfolio of beverages to specifically address these
issues. While maintaining great taste to the consumer, a 12 ounce can
of Celsius® has a number of competitive advantages over some of the currently
leading beverages including:
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less
artificial preservatives than almost all other energy drinks or
sodas;
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no
artificial colors or flavors;
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no
aspartame;
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no
high fructose corn syrup;
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low
sodium content;
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use
of good-for-you ingredients and supplements such as green tea (EGCG),
ginger, calcium, chromium, B vitamins and vitamin C;
and
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use
of our proprietary thermogenic (calorie-burning) MetaPlus® formulation
that allows Celsius® to burn up to 100 calories by increasing a consumer’s
metabolism an average of 12% and providing sustained energy for up to a
3-hour period.
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Our
Products
Celsius® calorie-burning beverages were
first introduced to the marketplace in 2005.
According to multiple clinical studies
we funded, a single serving (12 ounce can) of Celsius® burns up to 100 calories
by increasing a consumer’s metabolism an average of 12% for up to a three-hour
period. In addition, these studies have indicated that drinking a
single serving of Celsius® prior to exercising may improve cardiovascular health
and fitness and enhance the loss of fat and gain of muscle from
exercise.
We seek to combine nutritional science
with mainstream beverages by using our proprietary thermogenic (calorie-burning)
MetaPlus® formulation, while fostering the goal of healthier everyday
refreshment by being as natural as possible without the artificial preservatives
often found in many energy drinks or sodas. Celsius® has no chemical
preservatives, aspartame or high fructose corn syrup and is very low in sodium.
Celsius® uses good-for-you ingredients and supplements such as green tea (EGCG),
ginger, calcium, chromium, B vitamins and vitamin C. Celsius is
sweetened with sucralose, a sugar-derived sweetener that is found in Splenda®,
which makes our beverages low-calorie and suitable for consumers whose sugar
intake is restricted. Each 12 ounce can of Celsius® contains 200
milligrams of caffeine which is comparable to two cups of
coffee.
We currently offer Celsius® in seven
flavors, lemon-lime, ginger ale, cola, orange and wild berry (which are
carbonated) and non-carbonated green tea raspberry/acai and green tea/peach
mango. Our beverages are sold in 12 ounce cans, although we have recently begun
to market the active ingredients in powdered form in individual On-The-Go
packets.
Celsius® is packaged in a distinctive
twelve ounce sleek can that uses vivid colors in abstract patterns to create a
strong on-shelf impact. The cans are sold as singles or in four-packs. The
graphics and clinically tested product are important elements to building the
Celsius® brand and help justify premium pricing of $1.79 to $2.19 per can at
retail.
We target a niche in the functional
beverage segment of the beverage industry consisting of consumers seeking
calorie-burning beverages to help them manage their weight and enhance their
exercise regimen. Our target consumers are on-the-go women, age 25 to
54, who are looking for a way to burn calories and gain energy with healthy
beverages and natural alternatives to diet sodas, as well as sports enthusiasts
of both sexes, who are seeking low sodium, preservative-free
alternatives..
We formulated Celsius® by first working
with scientists to develop our MetaPlus® thermogenic formula and then with
flavor houses to create beverages that tasted good. Our initial
flavors were those in our carbonated line, which were designed to offer
alternatives to popular carbonated soft drinks, while still offering comparable
flavors. Our non-carbonated teas were introduced for fitness
enthusiasts, who typically favor non-carbonated beverages.
In 2009, we developed our MetaPlus®
formulation into a powder that can be mixed with water. We believe
that our On-The Go packets, which have recently been introduced to the market,
offer an attractive alternative to consumers who want to take Celsius® with them
to the gym or while travelling without carrying the ready-to-drink 12 ounce
cans.
We believe that one of the core
competencies of our company is our ability to incorporate several beneficial
natural components with substantiated science into beverages while providing
consumers with great taste. We intend to use our core competencies in
product formulation to introduce additional flavors and delivery systems and to
endeavor to expand our product line by exploring the development of
complementary products utilizing our MetaPlus® thermogenic
formulation.
Clinical
Studies
It is our belief that clinical studies
substantiating product claims will become more important as more and more
beverages are marketed with health claims. Celsius® was one of the first
functional beverages to be launched along with a clinical study. Celsius® is
also one of very few functional beverages that has clinical research on the
actual product itself. Some beverage companies that do mention studies backing
their claims are actually referencing independent studies conducted on one or
more of the ingredients in the product. We believe that it is important and will
become more important to have studies on the actual product.
We have
funded six U.S. based clinical studies for Celsius®. Each was conducted by a research
organization and each studied the total Celsius® formula. The first study was
conducted by the Ohio Research Group of Exercise Science and Sports Nutrition.
The remaining studies were conducted by the Applied Biochemistry & Molecular
Physiology Laboratory of the University of Oklahoma. We funded all of the
studies and provided Celsius® beverage for the studies. However, none of our
directors, executive officers or principal stockholders is in any way affiliated
with either of the two research organizations which conducted the
studies.
The first
study was conducted in 2005 by the Ohio Research Group of Exercise Science and
Sports Nutrition. The Ohio Research Group of Exercise Science & Sports
Nutrition is a multidisciplinary clinical research team dedicated to exploring
the relationship between exercise, nutrition, dietary supplements and health,
www.ohioresearchgroup.com. This placebo-controlled, double-blind cross-over
study compared the effects of Celsius® and the placebo on metabolic rate.
Twenty-two participants were randomly assigned to ingest a twelve ounce serving
of Celsius® and on a separate day a serving of twelve ounces of Diet Coke®. All
subjects completed both trials using a randomized, counterbalanced design.
Randomized means that subjects were selected for each group randomly to ensure
that the different treatments were statistically equivalent. Counterbalancing
means that individuals in one group drank the placebo on the first day and drank
Celsius® on the second day. The other group did the opposite. Counterbalancing
is a design method that is used to control “order effects.” In other words, to
make sure the order that subjects were served, does not impact the results and
analysis.
Metabolic rate (via indirect
calorimetry, measurements taken from breaths into and out of calorimeter) and
substrate oxidation (via respiratory exchange ratios) were measured at baseline
(pre-ingestion) and for ten minutes at the end of each hour for three hours
post-ingestion. The results showed an average increase of metabolism of twelve
percent over the three hour period, compared to statistically insignificant
change for the control group. Metabolic rate, or metabolism, is the rate at
which the body expends energy. This is also referred to as the “caloric burn
rate.” Indirect calorimetry calculates heat that living organisms produce from
their production of carbon dioxide. It is called “indirect” because the caloric
burn rate is calculated from a measurement of oxygen uptake. Direct calorimetry
would involve the subject being placed inside the calorimeter for the
measurement to determine the heat being produced. Respiratory Exchange Ratio is
the ratio oxygen taken in a breath compared to the carbon dioxide breathed out
in one breath or exchange. Measuring this ratio can be used for estimating which
substrate (fuel such as carbohydrate or fat) is being metabolized or ‘oxidized’
to supply the body with energy.
The second study was conducted by the
Applied Biochemistry & Molecular Physiology Laboratory of University of
Oklahoma in 2007. This blinded, placebo-controlled study was conducted on a
total of 60 men and women of normal weight. An equal number of participants were
separated into two groups to compare one serving (a single 12 ounce can) of
Celsius to a placebo of the same amount. According to the study, those subjects
consuming Celsius burned significantly more calories versus those consuming the
placebo, over a three-hour period. The study confirmed that over the three-hour
period, subjects consuming a single serving of Celsius® burned 65% more calories
than those consuming the placebo beverage and burned an average of more than 100
calories compared to the placebo. These results were statistically
significant.
The third study, conducted by the
Applied Biochemistry & Molecular Physiology Laboratory of University of
Oklahoma in 2007, extended our second study with the same group of 60
individuals and protocol for 28 days and showed the same statistical
significance of increased calorie burn (minimal attenuation). While the
University of Oklahoma study did extend for 28 days, more testing would be
needed for long term analysis of the Celsius® calorie-burning effects. Also,
these studies were on relatively small numbers of subjects, they have
statistically significant results. Additional studies on a larger number and
wider range of body compositions can be considered to further the
analysis.
Our
fourth study, conducted by the Applied Biochemistry & Molecular Physiology
Laboratory of University of Oklahoma in 2008, combined Celsius® use with
exercise. This ten-week placebo-controlled, randomized and blinded study was
conducted on a total of 37 subjects. Participants were randomly assigned into
one of two groups: Group 1 consumed one serving of Celsius® per day, and Group 2
consumed one serving of an identically flavored and labeled placebo beverage.
Both groups participated in ten weeks of combined aerobic and weight training,
following the American College of Sports Medicine guidelines of training for
previously sedentary adults. The results showed that consuming a single serving
of Celsius® prior to exercising may enhance the positive adaptations of exercise
on body composition, cardio-respiratory fitness and endurance performance.
According to the preliminary findings, subjects consuming a single serving of
Celsius® lost significantly more fat mass and gained significantly more muscle
mass than those subjects consuming the placebo — a
93.75% greater loss in fat and 50% greater gain in muscle mass, respectively.
The study also confirmed that subjects consuming Celsius® significantly improved
measures of cardio-respiratory fitness and the ability to delay the onset of
fatigue when exercising to exhaustion.
Our fifth study was conducted by the
Applied Biochemistry & Molecular Physiology Laboratory of University of
Oklahoma in 2008. This ten-week placebo-controlled, randomized and blinded study
was conducted on a total of 27 previously sedentary overweight and obese female
subjects. Participants were randomly assigned into groups that consumed
identically tasting treatment beverages with exercise or without
exercise. All participants consumed one drink, either placebo or
Celsius, per day for 10 weeks. The exercise groups participated in
ten weeks of combined aerobic and weight training, following the American
College of Sports Medicine guidelines of training for previously sedentary
adults. No changes were made to their diet. The results showed that consuming a
single serving of Celsius® prior to exercising may improve cardiovascular health
and fitness and enhance the positive adaptations of exercise on body
composition. According to the preliminary findings, subjects consuming a single
serving of Celsius® lost significantly more fat mass and gained significantly
more muscle mass when compared to exercise alone — a
46% greater loss in fat, 27% greater gain in muscle mass, respectively. The
study also confirmed that subjects consuming Celsius® significantly improved
measures of cardio-respiratory fitness — 35% greater
endurance performance with significant improvements to lipid profiles — total cholesterol decreases of 5 to 13% and bad LDL
cholesterol 12 to 18%. Exercise alone had no effect on blood lipid
levels.
Our sixth
study was conducted by the Applied Biochemistry & Molecular Physiology
Laboratory of University of Oklahoma in 2008. This ten-week placebo-controlled,
randomized and blinded study was conducted on a total of 37 previously sedentary
male subjects. Participants were randomly assigned into groups that consumed
identically tasting treatment beverages with exercise or without
exercise. All participants consumed one drink, either placebo or
Celsius, per
20
day for
10 weeks. The exercise groups participated in ten weeks of combined
aerobic and weight training, following the American College of Sports Medicine
guidelines of training for previously sedentary adults. No changes were made to
their diet. The results showed that consuming a single serving of Celsius® prior
to exercising may improve cardiovascular health and fitness and enhance the
positive adaptations of exercise on body composition. Significantly greater
decreases in fat mass and percentage body fat and increases in Vo2 were observed
in the subjects that consumed Celsius before exercise versus those that consumed
the placebo before exercise. Mood was not
affected. Clinical markers for hepatic, renal, cardiovascular and
immune function, as determined by pre and post blood work revealed no adverse
effects.
Manufacture
and Supply of Our Products
Our beverages are produced by
established third party beverage co-packers. A co-packer is a manufacturing
plant that provides the service of filling bottles or cans for the brand owner.
We believe the benefit of using co-packers is we do not have to invest in the
production facility and can focus our resources on brand development, sales and
marketing. It also allows us produce in multiple locations strategically placed
throughout the country. Currently our products are produced in Memphis,
Tennessee, and Cold Spring, Minnesota. We usually produce about 34,000 cases (24
units per case) of Celsius® in a production run. We purchase most of the
ingredients and all packaging materials. The co-pack facility assembles our
products and charges us a fee by the case. We follow a “fill as needed”
manufacturing model to the best of our ability and we have no significant
backlog of orders. The shelf life of Celsius® is specified as 15 to 18
months.
Substantially all of the raw materials
used in the preparation, bottling and packaging of our products are purchased by
us or by our co-packers in accordance with our specifications. Generally, we
obtain the ingredients used in our products from domestic suppliers and some
ingredients have several reliable suppliers. The ingredients in Celsius® include
green tea (EGCG), ginger (from the root), caffeine, B vitamins, vitamin C,
taurine, guarana, chromium, calcium, glucuronolactone, sucralose, natural
flavors and natural colorings. Celsius® is labeled with a supplements facts
panel. We have no major supply contracts with any of our suppliers. We
single-source all our ingredients for purchasing efficiency; however, we have
identified a second source for our critical ingredient and there are many
suppliers of flavors, colorings and sucralose. In case of a supply restriction
or interruption from any of the flavor and coloring suppliers, we would have to
test and qualify other suppliers that may disrupt our production
schedules.
Our
On-The-Go packets are packed by a facility in Texas that specializes in packing
shots, packets and sticks. Currently our sales volume of packets is
insignificant. As we grow this segment of the business, the existing facility is
capable of substantially increasing the production of our packets. Moreover, we
believe that there are other co-packers available. We use the same or similar
raw materials in the preparation of our On- the-Go
packets as we do for our canned beverages, with most of them purchased by us and
shipped to the co-packer.
Packaging materials, except for our
distinctive sleek 12 ounce aluminum can, are easily available from multiple
sources in the United States; however, due to efficiencies we utilize single
source vendor relationships. There is currently only one factory in the United
States that produces the 12 ounce can. In case of an interruption at that
supplier, we would be forced to change our design and structure of the
can.
We believe that as we grow, we will be
able to keep up with increased production demands. We believe that our current
co-packing arrangement has the capacity to handle increased business we
anticipate in the next 18 months. To the extent that any significant increase in
business requires us to supplement or substitute our current co-packers, we
believe that there are readily available alternatives, so that there would not
be a significant delay or interruption in fulfilling orders and delivery of our
products. In addition, we do not believe that growth will result in any
significant difficulty or delay in obtaining raw materials, ingredients or
finished product.
Marketing
The key to our marketing strategy is
building consumer brand awareness that drives trial of our
product.
As our
distribution has grown from small regional areas to more of a national footprint
with Celsius® being increasingly available at large, well-known retailers, we
have expanded our marketing efforts from local grass roots events to multiple
marketing vehicles having a national focus.
In September 2009, we launched a
nationwide marketing campaign focused on television, radio, on-line and magazine
advertising. Our new campaign features a customized “Burn Baby Burn”
song. In our television and radio advertising we highlight the health
benefits of Celsius® such as calorie-burning, healthy energy, great taste, as
well as its scientific backing. We are broadening the target audience
with mass appeal in an upbeat, positive tone. To support our growing
national distribution, our call to action includes a coupon from
burnbabyburn.com.
We are
currently airing 15 and 30 second television commercials on national cable
stations that appeal to adults in the 25 to 54 age group, including MSNBC,
Bravo, CNBC, Lifetime, TLC, E!, HGTV and Food Network. Our radio
campaign is currently heard in over 25 top Celsius® markets, featuring on-air DJ
endorsements of Celsius® and on national satellite radio on the Oprah
network. Our national print campaign currently appears in such
publications as US
Weekly, First for
Women, Women’s
World and Women’s
Health. Broadcast and print media are the two largest segments
of our advertising efforts.
In
November 2009, we engaged Mario Lopez to be our national celebrity spokesperson.
Mr. Lopez is a well known television personality who hosts the long-running
daily syndicated entertainment program Extra. Mr. Lopez has also
appeared on Dancing with the
Stars and in a recent Broadway revival of A Chorus Line. Mr. Lopez is
also an author and fitness expert, having released his first book, Mario Lopez’s Knockout
Fitness, in May 2008. Mr. Lopez will begin appearing in our planned 2010
marketing campaign. We believe that he is the perfect fit for the demographics
of Celsius® because he is highly appealing to both men and women ages 25 to 54,
our target demographic market.
In addition
to television, radio and magazine advertising, we plan to launch a mobile,
internet and social marketing campaign as soon as we complete the testing
phase. This campaign includes our Social Networking Widget which is
cutting edge technology that interacts with customers across all social media
platforms. It is a fully functional nanosite or tool for consumers to
get the most up to date information about Celsius®, coupons and local store
locations or product information as well as member only offers. The
widget can be shared virally over the internet on social networking sites such
as Twitter or Facebook pages, embedded on a web site or viewed on a mobile
phone. It adjusts to the formatting for each type of cell phone.
We
support our retail sales by promotion and advertising at both the retailer and
consumer level. We use striking point-of-sale advertising and graphic displays
and from time to time we offer coupons and other promotional pricing. Celsius is
packaged in a distinctive sleek 12 ounce can that uses vivid colors in abstract
patterns designed to create a strong on-shelf impact.
We
utilize an outside advertising agency to coordinate our promotion and
advertising efforts, together with our sales and marketing staff.
We
continue to do some of the grass roots type events that helped us build the
initial brand awareness in areas that we have strong distribution as well as
newer areas as we launch an anchor retailer or new distributor. We also continue
to participate in some of the larger trade conventions such as NACS, NACDS,
IRHSA and Club Industry.
Through
the years we have also won several awards and we continue to participate in
these contests because as we win, we gain even more exposure. Most recently we
were awarded the CSP Retailer Choice award for Best New Product for our Celsius®
Green Tea Raspberry/ACAI. This was presented at the large National Association
of Convenience Stores convention by CSP Magazine.
Internationally, we were a finalist in the Beverage Innovation Award for 2009
Best Health Initiative with our On-the-Go packets.
Distribution
Celsius® is sold across many retail
segments. We group sales to supermarkets, convenience stores, drug stores,
nutritional stores, mass merchants and club warehouses into one retail segment.
We classify health clubs, spas, and gyms as our health and fitness segment.
Vending and internet sales constitute two additional retail segments. We are
focusing our efforts on expanding distribution into each sales segment, with
emphasis on the retail and health and fitness segments.
We distribute our products through
direct-store delivery (DSD) distributors and direct-to-retailer (DTR)
sales.
DSD Sales
Historically,
a significant portion of our sales have been generated from sales to DSD
distributors. We initially selected this distribution channel as it
allowed us to achieve initial market penetration and start to build brand
awareness, while we refined and enhanced our product line, packaging and
point-of-sale merchandising elements. Our DSD distribution network
covers many of the larger U.S. markets including Florida, Atlanta, Michigan, New
England, Ohio and Texas.
We continue to market
to DSD distributors using a number of marketing strategies, including direct
solicitation, trade advertising and trade show exhibition. These distributors
include established distributors of other beverages such as beer, energy drinks,
soft drinks, water and ready to drink teas. Our distributors sell our products
directly to supermarkets, convenience stores, drug stores and mass merchants for
sale to the public. We maintain direct contact with the distributors through our
regional sales managers. In some cases we are party to a contractual arrangement
which grants a distributor the right to sell Celsius® in a defined territory, in
exchange for certain duties and obligations, including commitment to a quarterly
or yearly sales minimum.
Through our DSD distributor network,
Celsius® is available in various major retail chains, including Hannafords,
Shaw’s, Tedeschi, Wegmans and Xtra Mart (Northeast), CVS (New England), Sweetbay
(Florida) and HEB (Texas).
DTR Sales
Using
only a DSD sales strategy limited our growth as we did not have sufficient
distribution coverage to service larger national and regional retailers who
wanted to carry our products. Therefore, during 2009, we increased
our focus on DTR sales, marketing directly to national and regional retailers by
hiring an experienced in-house DTR sales team and by utilizing trade shows,
trade advertising, telemarketing, direct mail and direct solicitations. Our DTR
sales professionals make sales calls to and meet with the buyers of these
national and regional retailers. Our strategy is for the retailer to be serviced
by direct delivery to the retailer’s distribution warehouse or to a wholesaler
that services the whole retail chain. We also may be required to pay
slotting allowances to secure competitive shelf space. Our DTR customers into
whose stores we are rolling out our products include Vitamin Shoppe, GNC,
Supervalu, Duane Reade, Albertsons, Rite-Aid and 7-Eleven. We made a
test shipment in December 2009 to 285 Costco stores,
and if successful, we plan to make a full launch into all 4 04 of their stores in the United
States and Puerto Rico in March 2010. We also have recently commenced shipping to Walgreen’s and
CVS on a national basis, covering approximately 14,000 stores in
total. Other retailers who became DTR customers during the fourth
quarter of 2009 include Giant, Stop & Shop, Shoprite and Winn Dixie. On December 31, 2009, Celsius® products were
available in approximately 27,000 stores of 22 retailers as compared to
approximately 6,500 stores of 13 retailers at the end of the second quarter of
2009.
We also use food brokers to capture
retail chain customers. All food brokers are paid a percentage commission on
delivered product. One of our major food brokers is Crossmark, who is one of the
country’s three largest food brokers. The use of large food brokers such as
Crossmark, who have significant contacts with larger national and regional
retailers, as well as personnel and systems in place to facilitate the
distribution process cannot only help penetrate these customers, but also reduce
the time it takes for our products to appear on a retailer’s shelves. In
addition, the speed with which our products appear throughout an entire chain
may be affected by various factors, including regional or store level decisions
or, in the case of retailers such as 7-Eleven which have both company-owned and
franchised stores, determinations by individual franchisees. Accordingly,
Celsius® products may not appear in a given store or group of stores of a
particular DTR customer at any point in time.
The DTR
channel, with the assistance of food brokers, has contributed to an increasing
percentage of our sales growth and is expected to be the primary channel for
sales growth for the foreseeable future. We believe this channel affords us
greater and more rapid ability to penetrate nationwide and regional retailers at
lower cost, broader geographic distribution and increased brand
awareness.
Other Sales
Consumers, smaller retailers and food
service providers are able to purchase Celsius® directly over the Internet from
our website. We have customers that choose this method of purchase and delivery
in all 48 contiguous states. We also sell limited quantities to operators of
vending machines. We are not focused on building these channels, but they help
us build brand awareness in areas that do not have strong distributor or
retailer presence.
Growth
Strategy
Our growth strategy is to increase our
share of the functional beverage market by:
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increasing
brand awareness and emphasizing our combination of nutritional science and
healthier refreshment in our products through print, broadcast, billboard
and online marketing;
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expanding
sales and marketing efforts with a view to increasing the geographic
markets in which Celsius® is available, particularly through additional
penetration of the DTR sales
channel;
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extending
our beverage product line to offer additional flavors and delivery systems
of Celsius®;
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exploiting
our MetaPlus® thermogenic formulation to explore the development,
marketing sale and distribution of complementary products;
and
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seeking
to expand distribution of our products internationally either directly or
through licensing agreements with third
parties.
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Seasonality
of Sales
As is typical in the beverage industry,
sales of our beverages are seasonal, with the highest sales volumes generally
occurring in the second and third fiscal quarters, which correspond to the
warmer months of the year in our major markets.
Competition
We believe that we are one of the few
calorie-burning beverages whose effectiveness is supported by clinical studies,
which gives us a unique position in the beverage market. However, our products
do compete broadly with all categories of consumer beverages. The beverage
market is highly competitive, and includes international, national, regional and
local producers and distributors, many of whom have greater financial,
management and other resources than us. Our
direct competitors in the functional beverage market include, but are not
limited to The Coca-Cola Company, Dr. Pepper Snapple Group, PepsiCo, Inc.,
Nestlé, Waters North America, Inc., Hansen Natural Corp., and Red
Bull.
While
we believe that we offer a uniquely-positioned, high-quality product which will
be able to compete favorably in this marketplace, the expansion of competitors
in the beverage market, along with the expansion of our competitor’s products,
may adversely impact our products’ ultimate sales to
distributors and consumers.
Proprietary
Rights
We have registered the Celsius® and
MetaPlus® trademarks with the United States Patent and Trademark Office, as well
as a number of additional trademarks.
We have and will continue to take
appropriate measures, such as entering into confidentiality agreements with our
contract packers and exclusivity agreements with our ingredient suppliers, to
maintain the secrecy and proprietary nature of our MetaPlus® formulation and
product formulas.
We maintain our MetaPlus® formulation
and product formulas as trade secrets. We believe that trade secrecy is a
preferable method of protection for our formulas as patenting them might require
their disclosure. Other than a company that is our outsourced production
manager, no single member of the raw material supply chain or our co-packers has
access to the complete formula.
We consider our trademarks and trade
secrets to be of considerable value and importance to our business. No
successful challenges to our registered trademarks have arisen and we have no
reason to believe that any such challenges will arise in the
future.
Product
Development
Our
product development efforts are coordinated by our Vice President of
Innovations, who works closely with our flavor suppliers, co-packers and third
party consultants to explore new flavors, delivery systems and potential product
extensions.
Government
Regulation
The production, distribution and sale
of our products in the United States is subject to the Federal Food, Drug and Cosmetic
Act, the Dietary
Supplement Health and Education Act of 1994, the Occupational Safety and Health
Act, various environmental statutes and various other federal, state and
local statutes and regulations applicable to the production, transportation,
sale, safety, advertising, labeling and ingredients of such products. California
law requires that a specific warning appear on any product that contains a
component listed by California as having been found to cause cancer or birth
defects. The law exposes all food and beverage producers to the possibility of
having to provide warnings on their products because the law recognizes no
generally applicable quantitative thresholds below which a warning is not
required. Consequently, even trace amounts of listed components can expose
affected products to the prospect of warning labels. Products containing listed
substances that occur naturally in the product or that are contributed to the
product solely by a municipal water supply are generally exempt from the warning
requirement. While none of our products are required to display warnings under
this law, we cannot predict whether an important component of any of our
products might be added to the California list in the future. We also are unable
to predict whether or to what extent a warning under this law would have an
impact on costs or sales of our products.
Measures have been enacted in various
localities and states that require that a deposit be charged for certain
non-refillable beverage containers. The precise requirements imposed by these
measures vary. Other deposit, recycling or product stewardship proposals have
been introduced in certain states and localities and in Congress, and we
anticipate that similar legislation or regulations may be proposed in the future
at the local, state and federal levels, both in the United States and
elsewhere.
Our facilities in the United States are
subject to federal, state and local environmental laws and regulations.
Compliance with these provisions has not had, and we do not expect such
compliance to have, any material adverse effect upon our business, financial
condition and results of operations.
Employees
As of
February 5, 2010 , we employed a total of 33 employees on a full-time basis. Of our 33 employees , we employ nine
in administrative capacities and 24 persons in sales and marketing
capacities. We consider our relations with employees to be good. We
also contract with a number of persons independently, who from time to time will
work for us at events and samplings.
Properties
Our executive offices are located at
140 NE 4th Avenue, Suite C, Delray Beach, FL 33483. We are currently being
provided with space at this location by an unrelated third party, pursuant to a
12 month lease expiring in 2010 for $6,745 per month. We have a separate office
for our sales and marketing personnel in a nearby location. This office is
leased from a principal shareholder for $4,260
monthly until March 2010. During 2010, we plan to consolidate our operations in
a single location.
The Company has no warehouses or other
facilities as we store our product at third party contract warehouse
facilities.
Legal
Proceedings
We are
not presently a party to any legal or regulatory proceedings and have no
knowledge of any pending claim, proceeding or investigation against our company
that could materially affect our company’s financial condition or results of
operations.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
General
The
following is a discussion of our financial condition and results of operations
of our company comparing the fiscal years ended December 31, 2008 and 2007, and
the nine months ended September 30, 2009, and 2008. You should read this section
together with our consolidated financial statements including the related notes
set forth elsewhere in this prospectus. Dollar amounts of $1.0 million or more
are rounded to the nearest one tenth of a million; all other dollar amounts are
rounded to the nearest one thousand and all percentages are stated to the
nearest one tenth of one percent.
Recent
Developments
On
January 21, 2010, we announced that our fourth quarter 2009 revenues were $2.4
million as compared to $621,000 for fourth quarter 2008 and $1.3 million for
third quarter 2009. Our revenues for 2009 were $5.9 million as
compared to $2.6 million for 2008. In addition, management announced
that our company is expected to achieve significant revenue growth during 2010.
We are projecting revenues of approximately $25.0 million
in 2010 and believe we will obtain cash flow breakeven by the end of
2010. The foregoing revenues and cash flow projections assume
continued ramp up of sales of our products with existing distributors in
accordance with current trends. These projections also assume that we
will be able to introduce sales, and thereafter ramp up sales, with additional
distributors with which we have already entered into agreements or with which we
believe we will enter into agreements in the first half of 2010. If
we are unable to continue to grow sales with our existing distributors or are
not successful in introducing our products into new distributor locations, we
are unlikely to meet the foregoing projections. Based on the
foregoing projections, we believe that the net proceeds of this offering will
enable us to meet our working capital requirements until we become cash flow
positive. There can be no assurance that we will be able to grow
sales with existing customers or introduce sales to new customers and if we are
unsuccessful in either case, we will need to raise additional capital in order
to maintain operations. Further, there can be no assurance that other
risks related to our business, including those described under the section of
this prospectus entitled “Risk Factors,” will not hamper our ability to meet
projections or affect our need to raise additional capital.
Reverse
Stock Split
We
implemented a 1-for-20 reverse stock split on December 23, 2009. Accordingly,
unless otherwise noted, all share and per share data has been adjusted to give
effect to the reverse stock split.
Critical
Accounting Policies and Estimates
The
discussion and analysis of our financial condition and results of operations is
based upon our consolidated financial statements appearing elsewhere in this
prospectus, which have been prepared in accordance with Generally Accepted
Accounting Principles (GAAP). The preparation of these financial statements
requires us to make estimates and judgments that affect the reported amounts of
assets, liabilities, revenues and expenses, and related disclosure of contingent
assets and liabilities. On an on-going basis, we evaluate our estimates
including, among others, those affecting revenues, the allowance for doubtful
accounts, the salability of inventory and the useful lives of tangible and
intangible assets. We base our estimates on historical experience and on various
other assumptions that we believe to be reasonable under the circumstances, the
results of which form our basis for making judgments about the carrying values
of assets and liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different assumptions or
conditions, or if management made different judgments or utilized different
estimates. Many of our estimates or judgments are based on anticipated future
events or performance, and as such are forward-looking in nature, and are
subject to many risks and uncertainties, including those discussed below and
elsewhere in this prospectus. We do not undertake any obligation to update or
revise this discussion to reflect any future events or
circumstances.
Although
our significant accounting policies are described in Note 2 of the notes to our
consolidated financial statements appearing elsewhere in this prospectus, the
following discussion is intended to describe those accounting policies and
estimates most critical to the preparation of our consolidated financial
statements.
Accounts Receivable – We
evaluate the collectability of our trade accounts receivable based on a number
of factors. In circumstances where we become aware of a specific customer’s
inability to meet its financial obligations, a specific reserve for bad debts is
estimated and recorded, which reduces the recognized receivable to the estimated
amount we believe will ultimately be collected. In addition to specific customer
identification of potential bad debts, bad debt charges are recorded based on
our recent past loss history and an overall assessment of past due trade
accounts receivable outstanding.
Revenue Recognition – Our
products are sold to distributors, wholesalers and retailers for cash or on
credit terms. Our credit terms, which are established in accordance with local
and industry practices, typically require payment within 30 days of delivery. We
recognize revenue when persuasive evidence of an arrangement exists, delivery
has occurred, the sales price is fixed or determinable and collectability is
reasonably assured. Any
discounts, sales incentives or similar arrangement with the customer is
estimated at time of sale and deducted from revenue. All sales to distributors
and retailers are final sales and we have a “no return” policy; however, in
limited instances, due to credit issues or distributor changes, we may take back
product. We believe that adequate provision has been made for cash discounts,
returns and spoilage based on our company’s historical experience.
Inventory – We hold raw
materials and finished goods inventories, which are manufactured and procured
based on our sales forecasts. We value inventory at the lower of cost or market
and include adjustments for estimated obsolescence, principally on a first
in-first out basis. These valuations are subject to customer acceptance and
demand for the particular products, and our estimates of future realizable
values are based on these forecasted demands. We regularly review inventory
detail to determine whether a write-down is necessary. We consider various
factors in making this determination, including recent sales history and
predicted trends, industry market conditions and general economic conditions.
Differences could result in the amount and timing of write-downs for any period
if we make different judgments or use different estimates.
Stock-Based Compensation –We
use the Black-Scholes-Merton option pricing formula to estimate the fair value
of stock options at the date of grant. The Black-Scholes-Merton option pricing
formula was developed for use in estimating the fair value of traded options
that have no vesting restrictions and are fully transferable. Our employee stock
options, however, have characteristics significantly different from those of
traded options. For example, employee stock options are generally
26
subject
to vesting restrictions and are generally not transferable. In addition, option
valuation models require the input of highly subjective assumptions, including
the expected stock price volatility, the expected life of an option and the
number of awards ultimately expected to vest. Changes in subjective input
assumptions can materially affect the fair value estimates of an option.
Furthermore, the estimated fair value of an option does not necessarily
represent the value that will ultimately be realized by an employee. We use
historical data of comparable companies to estimate the expected price
volatility, the expected option life and the expected forfeiture rate. The
risk-free rate is based on the U.S. Treasury yield curve in effect at the time
of grant for the estimated life of the option. If actual results are not
consistent with the Company’s assumptions and judgments used in estimating the
key assumptions, we may be required to increase or decrease compensation expense
or income tax expense, which could be material to its results of
operations.
Recent
Accounting Pronouncements
In
December 2007, the FASB issued guidance in the Business Combinations Topic of
the Codification. This guidance requires the acquiring entity in a business
combination to record all assets acquired and liabilities assumed at their
respective acquisition-date fair values including contingent consideration. In
addition, this guidance changes the recognition of assets acquired and
liabilities assumed arising from preacquisition contingencies and requires the
expensing of acquisition-related costs as incurred. The guidance applies
prospectively to business combinations for which the acquisition date is on or
after January 1, 2009. We adopted this guidance effective January 1, 2009. Any
impact would be on future acquisitions.
In April
2008, the FASB issued guidance in the Intangibles-Goodwill and Other Topic of
the Codification on the determination of the useful life of an intangible asset.
This guidance amends the factors that should be considered in developing renewal
or extension assumptions used to determine the useful life of a recognized
intangible asset. This statement is effective for financial statements issued
for fiscal years beginning after December 15, 2008, and interim periods within
those fiscal years. We adopted this guidance effective January 1, 2009. There is
no impact on our financial statements as of September 30, 2009.
In April
2009, the FASB issued guidance in the Fair Value Measurements and Disclosures
Topic of the Codification on determining fair value when the volume and level of
activity for an asset or liability have significantly decreased and identifying
transactions that are not orderly. The guidance emphasizes that even if there
has been a significant decrease in the volume and level of activity, the
objective of a fair value measurement remains the same. Fair value is the price
that would be received to sell an asset or paid to transfer a liability in an
orderly transaction (that is, not a forced liquidation or distressed sale)
between market participants. The guidance provides a number of factors to
consider when evaluating whether there has been a significant decrease in the
volume and level of activity for an asset or liability in relation to normal
market activity. In addition, when transactions or quoted prices are not
considered orderly, adjustments to those prices based on the weight of available
information may be needed to determine the appropriate fair value. The guidance
is effective for interim or annual reporting periods ending after June 15, 2009,
and shall be applied prospectively. We adopted this guidance effective for the
quarter ending June 30, 2009. There is no impact of the adoption on our
financial statements as of September 30, 2009.
In April
2009, FASB issued guidance in the Financial Instruments Topic of the
Codification on interim disclosures about fair value of financial instruments.
The guidance requires disclosures about the fair value of financial instruments
for both interim reporting periods, as well as annual reporting periods. The
guidance is effective for all interim and annual reporting periods ending after
June 15, 2009 and shall be applied prospectively. The adoption of this guidance
had no impact on our financial statements as of September 30, 2009, other than
the additional disclosure.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05 amends the Fair Value
Measurements and Disclosures Topic of the FASB Accounting Standards Codification
by providing additional guidance clarifying the measurement of liabilities at
fair value. ASU 2009-05 is effective for us for the reporting period ending
December 31, 2009. We do not expect the adoption of ASU 2009-05 to have an
impact on our financial statements.
All new
accounting pronouncements issued but not yet effective have been deemed to not
be applicable; hence the adoption of these new standards is not expected to have
a material impact on our results of operations, cash flows or financial
position.
Results
of Operations
Nine
Months Ended September 30, 2009 Compared to Nine Months Ended September 30,
2008
Revenue
Sales for
the nine months ended September 30, 2009 and 2008 were $3.5 million and $2.0
million, respectively. The increase of 76.8% was due to increased sales both in
DSD and DTR. The largest increase in the first nine months of 2009 comes from
two DSD distributors that had almost no sales in the same period in 2008. We
also sold to new retail chains (in the DTR channel) and had strong increase in
sales from some of our existing customers. Last year we had one large
international order, and this year for the nine month period our total
international orders diminished by $311,000 as compared to the same period last
year.
Gross
profit
Gross
profit was 42.9% in nine months ended September 30, 2009 as compared to 29.6%
for the same period in 2008. The increase in gross profit was mainly due to
write-off of bottle inventory as described earlier and lower margins on our
export sales during the nine month period in 2008.
Operating
Expenses
Sales and
marketing expenses have increased substantially from one year to the next, $5.3
million for the first nine months of 2009 as compared to $2.9 million for the
same nine-month period in 2008, or an increase of $2.4 million. This was mainly
due to increased radio, television and print advertising by $1.3 million, sales
and marketing employee cost by $760,000, offset to a lesser extent by reduced
local events and local marketing of $89,000. The general and administrative
expenses increased from $1.3 million for the nine-month period in 2008 to $1.4
for the same period in 2009, an increase of $105,000. This was mainly due to
increased option expense by $87,000 and increased employee cost of $212,000,
offset to a lesser extent by reduction of allowance for bad debts of $71,000 and
reduced research and development expense of $198,000.
Other
expense
The net
interest expense decreased from $292,000 for the first nine months of 2008 to
$106,000, during the same period in 2009, or a decrease of $187,000. This
decrease was mainly due to reduction of amortization of debt discount of
$157,000, incurred when issuing convertible notes, and reduction of interest
paid to third parties, offset to a lesser extent by reduced interest income on
note receivable of $49,000.
Year
Ended December 31, 2008 Compared to Year Ended December 31,
2007
Revenue
Revenue
increased 57.5% for the year 2008 to $2.6 million, as compared to $1.6 million
in 2007. The increase was mainly due to increased number of retailers selling
our product, such as Walgreens, CVS, Meijers; new large distributors such as
Farner-Bocken, Polar Beverages and RSI; increases from our existing DTR
customers such as Vitamin Shoppe and Krogers; and to a large export order in the
second quarter of the year, offset to a lesser extent by losses of some
accounts.
Gross
Profit
Gross
profit was 29.2% of net revenue during the year 2008, as compared to 37.1% in
2007. The decrease is mainly due to the decision to discontinue sales of Celsius
in glass bottles and solely concentrate on cans. We recorded a write down of
inventory due to obsolescence of bottled finished goods and packaging material
of $320,000 in 2008. No such write down occurred in 2007. Without this write
down our gross profit would have been 41.6% in 2008.
Operating
Expenses
Sales and
marketing expenses increased to $3.9 million in 2008 as compared to $2.1 million
in 2007, an increase of $1.8 million or 87.4 percent. This increase was mainly
due to increased cost for personnel, $372,000; new local distribution
organization in South Florida, $225,000; increased cost of sampling events and
other local promotion, $882,000; license rights to the song “Burn Baby Burn” and
radio advertising increase, $344,000. We have shifted our focus on sales and
marketing expenditure. General and administrative expenses increased to $1.7
million in 2008 as compared to $1.6 million in 2007, an increase of $186,000.
The increase was mainly due to increased cost for issuance of shares to third
parties for services, $86,000; increased product development expenses, $48,000;
increased collection and factoring expenses, $74,000; offset to a lesser extent
by decreased investor relations expenses, $63,000; and decreased insurance
expenses, $59,000.
We
recognized an expense for termination of a consulting agreement in the first
quarter of 2007 of $500,000. Coinciding with the acquisition by reverse merger
of Elite FX, Inc., we issued 1,400,000 shares of common stock, valued at
$250,000, and an interest-free note for $250,000, as consideration for
termination of a consulting agreement.
Other
Expense
Other
expense consists of interest on outstanding loans of $412,000 in 2008 as
compared to $189,000 in 2007. The increase of $223,000 was mainly due to
amortization of debt discounts on convertible notes for a total of $211,000,
increased interest cost on a convertible debenture of $93,000, offset to a
lesser extent by decreased loan balances and renegotiation of interest rates.
Our interest income increased from $8,000 in 2007 to $70,000 in 2008, an
increase of $62,000, due to a note receivable from Golden Gate Investors,
Inc.
Liquidity
and Capital Resources
We have
yet to establish any history of profitable operations. As a result, at September
30, 2009, we had an accumulated deficit of $16.7 million. At September 30, 2009,
we had working capital of $70,000. The independent auditor’s report for the year
ended December 31, 2008, includes an explanatory paragraph to their audit
opinion stating that our recurring losses from operations and working capital
deficiency raise substantial doubt about our ability to continue as a going
concern. We have had operating cash flow deficits all quarters of operations.
Our revenue has not been sufficient to sustain our operations. Our profitability
will require the successful commercialization of our current product
Celsius® and
any future products we develop. No assurances can be given when this will occur
or that we will ever be profitable.
We fund
part of our working capital from a line of credit with a related party, CD
Financial, LLC. The line of credit was started in December 2008 and is for $1.0
million. The interest rate is LIBOR rate plus three percent on the outstanding
balance. The line expires in December 2010 and is renewable. In connection with
the revolving line of credit we have entered into a loan and security agreement
under which we have pledged all our assets as security for the line of credit.
The outstanding balance under the line of credit as of September 30, 2009 was
$550,000.
We
borrowed in 2004 and 2005 a total of $500,000 from Lucille Santini, one of our
principal stockholders with interest of a rate variable with the prime rate. In
July 2008, we restructured the agreement and decreased the interest rate to
prime rate flat, monthly payments of $5,000 until a balloon payment of
approximately $606,000 in January 2010. This debt was restructured in September 2009 to a convertible note of $615,000 with
maturity in September 2012. Interest is set at 3% over the one-month LIBOR rate.
The first interest payment is due in September 2010 and quarterly thereafter.
The note can be converted to shares of our common stock. The outstanding balance
under the note, net of debt discount, was $431,000 as of September 30,
2009.
We
borrowed $50,000 from the CEO of the Company in February 2006. We also owed the
CEO $171,000 for accrued salaries from 2006 and 2007. The two debts were
restructured in to one note accruing 3% interest, monthly payments of $5,000 and
with a balloon payment of $64,000 in January 2011. The outstanding balance under
the note as of September 30, 2009 was $155,000.
We
terminated a consulting agreement with a company controlled by one of our former
directors. As partial consideration we issued a note payable for $250,000. The
outstanding balance under the note as of September 30, 2009 was
$15,000.
We issued
in December 2007 a convertible note for $1.5 million and received $250,000 in
cash and a note receivable for $1.3 million.
In August
of 2008, we entered into a security purchase agreement with CDS Ventures of
South Florida, LLC, an affiliate of CD Financial, LLC pursuant to which we
received $1.5 million in cash, cancelled two convertible notes issued to CD
Financial, LLC for $500,000. In exchange, we issued to CDS, 100 shares of Series
A preferred stock, and a warrant to purchase additional 50 shares of Series A
preferred stock.
In
December of 2008, we entered into a second security purchase agreement with CDS
Ventures of South Florida, LLC, pursuant to which we received $2.0 million in
cash and issued 100 shares of Series B preferred stock, and a warrant to
purchase additional 100 shares of Series B preferred stock. In March, 2009, CDS
Ventures of South Florida exercised its warrant and purchased an additional 100
shares of Series B preferred stock. During April and May, 2009, we received the
corresponding $2 million in cash. CDS Ventures of South
Florida, LLC converted the shares of Series B preferred stock into common stock
in December 2009.
In
September 2009, we entered into a $6.5 million loan agreement with CDS Ventures
of South Florida, LLC. The loan can be disbursed at $2.0 million per month for
the months of September, October and November and $500,000 in December. The loan
is due in September 2012. Interest is set at 3% over the one-month LIBOR rate.
The first interest payment is due in September 2010 and quarterly thereafter.
The note can be converted to shares of our common stock. The outstanding
balance, net of debt discount, was $1,741,000 as of September 30, 2009. The loan was amended in 2010 whereby the lowest conversion price
was set to $10.20 and the interest rate to 7% over the one-month LIBOR
rate.
We
entered into a stock purchase agreement with Fusion Capital in June 2007. During
2007, we received $1.4 million in proceeds from sales of 199,440 shares to
Fusion Capital. The agreement with Fusion Capital expired in October 2009,
without us selling any additional shares to Fusion Capital.
We
believe that the net proceeds of this offering, combined with anticipated
revenues from operations, will enable us to fund our operations and
implementation of our business plan over the next 18 months. However, there is
no assurance that our assumptions as to our company’s capital needs will be
correct and that we will not require additional financing. Moreover, there can
be no assurance that we will be able to secure any such additional financing on
favorable terms or otherwise. The absence of additional financing, when needed,
could cause us to curtail operations and delay implementation of parts of our
business plan and might materially adversely affect us and our
prospects.
The
following table summarizes contractual obligations and borrowings as of December
31, 2008, and the timing and effect that such commitments are expected to have
on our liquidity and capital requirements in future periods (in thousands). We
expect to fund these commitments primarily with raise of debt or equity
capital.
Payments Due by Period
|
||||||||||||||||||||
Contractual
Obligations
|
Total
|
Less Than
1 Year
|
1
to
3 Years
|
3
to
5 Years
|
More Than
5 Years
|
|||||||||||||||
Debt
to related party
|
$ | 820 | $ | 120 | $ | 700 | $ | — | $ | — | ||||||||||
Loans
payable
|
196 | 121 | 58 | 17 | — | |||||||||||||||
Convertible
debenture
|
563 | 563 | — | — | — | |||||||||||||||
Purchase
obligations
|
— | — | — | — | — | |||||||||||||||
Total
|
$ | 1,579 | $ | 804 | $ | 758 | $ | 17 | $ | — |
Our
Securities Purchase Agreement with Golden Gate Investors, Inc.
On
December 19, 2007, we entered into a securities purchase agreement with Golden
Gate Investors, Inc (GGI). The purchase agreement included four tranches of
$1,500,000 each. The first tranche consisted of our 7.75% convertible debenture
issued in exchange for $250,000 in cash and a promissory note for $1,250,000
issued by GGI which was to mature on February 1, 2012. The promissory note
contained a prepayment provision which required GGI to make prepayments of
interest and principal of $250,000 monthly upon satisfaction of certain
conditions. One of the conditions to prepayment was that GGI may immediately
sell all of the common stock issued upon Conversion (as defined in the
debenture) pursuant to Rule 144 of the Securities Act of 1933. We were under no
contractual obligation to ensure that GGI may immediately sell all of the Common
Stock Issued at Conversion (as defined in the debenture) pursuant to Rule 144
under the Securities Act of 1934. In the event that GGI may not immediately sell
all of the Common Stock Issued at Conversion pursuant to Rule 144, GGI would be
under no obligation to prepay the promissory note and likewise under no
obligation to exercise its conversion rights under the debenture. If GGI did not
fully convert the debenture by its maturity on December 19, 2011, the balance of
the debenture was to be offset by any balance due to us under the promissory
note. As of September 30, 2009, the balances of the promissory note and
debenture were $ 0 and $346,000 , respectively. The
balance of the debenture can be converted at any time with a conversion price as
the lower of (i) $20.00, or (ii) 80% of the average of the three lowest daily
volume weighted average price during the 20 trading days prior to GGI’s election
to convert. We were not required to issue the shares unless a corresponding
payment had been made on the promissory note. GGI converted $ 1.1 million of its convertible debenture through January 2010 receiving 952,696 shares of common
stock.
GGI did
not make its note payment due on October 21, 2008. On September 8,
2009, the Company entered into an addendum to the agreement with GGI. The
balance of the note receivable, $250,000 was netted against the balance of the
debenture. The outstanding balance of the debenture as of September 30, 2009 is
$346,000. All future tranches were cancelled and terminated without penalty to
either party.
As of the
date of this prospectus, we owe GGI a total of $36,000, which at current
conversion price can be converted into 10,638
shares of our common stock.
Our
Securities Purchase Agreements with CDS Ventures of South Florida,
LLC
On August
8, 2008, we entered into a securities purchase agreement with CDS Ventures of
South Florida, LLC. Pursuant to the agreement, we issued 100 shares of Series A
preferred stock, as well as a warrant to purchase an additional 50 shares of
Series A preferred stock, for a cash payment of $1.5 million and the
cancellation of two notes in aggregate amount of $500,000 issued to CD
Financial, LLC. The shares of Series A preferred stock can be converted into our
common stock at any time. The securities purchase agreement was amended on
December 12, 2008 to provide that until December 31, 2010, the conversion price
is $1.60, after which the conversion price is the greater of $1.60 or 90% of the
volume weighted average price of the common stock for the prior 10 trading days.
Pursuant to the securities purchase agreement, we also entered into a
registration rights agreement, under which we registered the shares of common
stock issuable upon conversion of the Series A preferred stock for resale under
the Securities Act of 1933. The Series A preferred stock accrues ten percent
annual cumulative dividends, payable in additional shares of Series A preferred
stock. We issued 15.1 shares of Series A preferred stock in dividends during
2009, as dividends for the years 2008 and 2009. The
Series A preferred stock matures on February 1, 2013 and is only redeemable in
our common stock.
In
November 2009, CDS Ventures of South Florida, LLC exercised its right to
purchase an additional 50 shares of Series A Preferred Stock in exchange for
cancellation of a $1.0 million note issued to CD Financial, LLC.
On
December 12, 2008, we entered into a second securities purchase agreement with
CDS. Pursuant to this securities purchase agreement, we issued 100 shares of Series B preferred stock, as well as a
warrant to purchase an additional 100 shares of Series B preferred stock, for a
cash payment of $2.0 million. The shares of Series B preferred stock were
convertible into our common stock at any time. Until December 31, 2010, the
conversion price was $1.00, after which the conversion price was the greater of
$1.00 or 90% of the volume weighted average price of the common stock for the
prior 10 trading days. We also granted CDS Ventures of South Florida, LLC
registration rights under the Securities Act of 1933 with respect to the shares
of common stock issuable upon conversion of the Series B preferred
stock. The Series Preferred B stock accrued a ten percent annual
cumulative dividend, payable in additional shares of
Series B preferred stock. We issued 1 share of Series B preferred stock in
dividends during the first quarter of 2009. The Series B preferred stock was
scheduled to mature on December 31, 2013 and was only redeemable in our common
stock.
On March
31, 2009, CDS Ventures of South Florida, LLC exercised its right to purchase an
additional 100 shares of Series B preferred stock and executed a subscription
agreement for $2.0 million. The monies for the subscription were paid on April 7
and May 1, 2009.
On
December 23, 2009, CDS Ventures of South Florida, LLC converted all of the
Series B preferred stock (including shares issuable in payment of accrued
dividends) into 4,343,000 shares of common stock. We recorded a
liability to CDS Ventures of South Florida, LLC for a $100,000 fee for their
agreement to convert the Series B preferred stock into common stock on an
expedited basis.
Certain covenants of the Series A preferred stock restrict us
from entering into additional debt arrangements or permitting liens to be
filed against our Company’s assets, without approval from the holder of the
preferred stock. There is a mandatory redemption in cash, if we breach certain
covenants of the agreements. The holders have liquidation preference of $20,000
per preferred stock in case of a liquidation of our company. We have the right
to redeem the Series A preferred stock early by the payment in cash of 104% of
the liquidation preference value. We may redeem the Series A preferred stock at
any time on or after July 1, 2010.
Pursuant
to the securities purchase agreement relating to our Series A preferred stock,
CDS Ventures of South Florida, LLC was given the right to designate two members
to our board of directors. The directors were designated in
August 2008.
Our
Convertible Loan Agreement with CDS Ventures of South Florida, LLC
On
September 8, 2009, we entered into a convertible loan agreement with CDS
Ventures of South Florida, LLC. Under the loan agreement, CDS
Ventures of South Florida, LLC will lend us up to $6,500,000, with disbursements
of the $2,000,000 during each of September, October and November 2009 and
$500,000 in December 2009, provided that no disbursement shall be made in an
amount less than $500,000. Any amounts not requested for disbursement in one
calendar month can be carried over to a subsequent month and disbursed in
addition to the maximum of such subsequent month. The loan is due on
September 8, 2012 and carries a variable interest rate equal to 300 basis points
over the one (1) month LIBOR. In January 2010, we agreed to increase the
interest rate to 700 basis points over the one (1) month LIBOR. Commencing on
September 8, 2010 and continuing each three month period thereafter, we will
make payments of all accrued but unpaid interest only on the unpaid principal
amount. The loan can at any time be converted to shares of our common stock at
the Conversion Price. The “Conversion Price” was originally based on a price at
$8.00 per share or a market price calculation at the date of conversion. In
order to comply with the listing requirements for the Nasdaq Stock Market, in
January 2010 the parties amended the convertible loan agreement to set the
Conversion Price at $10.20 per share, which was the consolidated closing bid
price of the common stock on the OTC Bulletin Board on the business day prior to
the date the agreement was entered into. As of September 30, 2009, the
outstanding balance of the loan was $1.7 million, net of unamortized debt
discount of $259,000.
In
connection with the loan agreement, CDS Ventures of South Florida, LLC was
granted certain registration rights under the Securities Act of 1933 with
respect to the shares of common stock issuable upon conversion of the debt under
the loan agreement. Further, pursuant to the loan agreement, we
agreed to expand our board of directors to seven members and CDS Ventures of
South Florida, LLC was given the right to designate two additional members of
our board of directors, which were designated in November
and December of 2009.
Our
Refinance Agreement with Lucille Santini
On
September 8, 2009, we entered into a convertible loan agreement with Lucille
Santini, a principal shareholder. We received advances from Ms.
Santini at various times during 2004 and 2005, totaling $76,000 and $424,000,
respectively. The advances carried interest at a rate variable with the prime
rate. In July, 2008, the debt was refinanced, with interest at prime
rate flat and monthly amortization of $5,000. A balloon payment of approximately
$606,000 was due in January 2010. In July, 2009, the debt was refinanced again,
with interest at prime rate flat and monthly amortization of $11,500. A balloon
payment of approximately $451,600 was due in January 2011. This note together
with a cash payment of $3,699 was exchanged for a new note due on September 8,
2012. This note carries a variable interest rate equal to 300 basis points over
the one (1) month LIBOR. Commencing on September 8, 2010 and continuing each
three month period hereafter, we will make payments of all accrued but unpaid
interest only. The loan can at any time be converted to shares of our common
stock at the Conversion Price. The “Conversion Price” is: (A) from September 8,
2009 through and including December 31, 2011, equal to the lesser of (i) $8.00
per share, or (ii)”Market Price” on the date of conversion ( defined as the average of the ten daily volume weighted average
prices for the ten trading days immediately preceding the date on which a
conversion notice is received by us ); or (B) after December 31, 2011 the
greater of (i) $8.00 per share, or (ii) Market Price on the date of
conversion, as appropriately adjusted for in either case stock splits, stock
dividends and similar events; provided, however, that, the Conversion Price
shall never be less than $2.00 regardless of Market Price on the date of
conversion. The maximum number of shares of common stock to be issued based on
the lowest Conversion Price possible is 307,500 shares. As of September 30,
2009, the outstanding balance of the loan was $431,000, net of unamortized debt
discount of $181,000.
In
connection with the refinance agreement, was also granted Ms. Santini certain
registration rights under the Securities Act of 1933 with respect to the shares
of common stock issuable upon conversion of the debt.
Other
Related Party Transactions
We have
accrued $171,000 for Stephen Haley’s salary from March 2006 through May 30,
2007. Mr. Haley, our CEO, also lent us $50,000 in February 2006. The two debts
were restructured in to one note accruing 3% interest, monthly payments of
$5,000 and with a balloon payment of $64,000 in January 2011. The outstanding
balance as of December 31, 2009 was $121,000.
Our
former COO lent us $50,000 in February 2008; the loan was repaid in March 2008.
He also purchased in February 2008, 39,063 shares in a private placement for a
total consideration of $75,000.
Jan
Norelid, our former CFO, lent the Company
$25,000 in February 2008, the loan was repaid in February 2008. He also
purchased in February 2008, 12,255 shares in a private placement for a total
consideration of $25,000.
Janice
Haley, our Vice President of Strategic Accounts and Business Development,
purchased in February 2008, 12,255 shares in a private placement for a total
consideration of $25,000.
We rented
in September, 2009, an office from a company affiliated with CD Financial LLC
for $4,260 monthly until February 2010, and thereafter on a month-to-month
basis. The rental fee was commensurate with other properties available in the
market.
MANAGEMENT
Executive
Officers and Directors
Our
executive officers and directors, their ages and positions, are as
follows:
Name
|
Age
|
Position
|
||
Stephen
C. Haley
|
52
|
Chief
Executive Officer, President and Chairman of the Board of
Directors
|
||
Geary
W. Cotton
|
57
|
Chief
Financial Officer and director
|
||
Jeffrey
Perlman
|
45
|
Chief
Operating Officer
|
||
Janice
Haley
|
48
|
Vice
President of Strategic Accounts and Business
Development
|
||
James
Cast
|
61
|
Director
|
||
William
H. Milmoe
|
61
|
Director
|
||
Thomas
E. Lynch
|
62
|
Director
|
||
Richard J. Swanson | 55 | Director | ||
Christian
A. Nast
|
78 | Director |
Stephen C. Haley is our Chief
Executive Officer, President and Chairman of the board of directors, and has
served in these capacities since January 2007, when we acquired Elite FX, Inc.
Mr. Haley co-founded Elite FX, Inc., in April 2004 and served as its CEO from
its inception until our acquisition of that company. From 2001 to
March 2004, Mr. Haley, together with his wife, Janice Haley, invested in
multiple beverage distribution and manufacturing companies. From 1999 to 2001,
he held positions as COO and Chief Business Strategist for MAPICS, a publicly
held, international software company with over 500 employees and $145 million in
revenue. From 1997 to 1999, he was CEO of Pivotpoint, a Boston-based Enterprise
Requirements Planning (ERP) software firm, backed by a venture capital group
which included Goldman Sachs, TA Associates and Greyloc. He holds a BSBA in
Marketing from the University of Florida.
Geary W. Cotton has been a
director of our company since September 2008 and assumed the position of Chief
Financial Officer in January 2010. Mr. Cotton is director of a privately held
insurance industry company, XN Financial. From 1986 to 2000, Mr. Cotton was
Chief Financial Officer of Rexall Sundown, a publicly-held manufacturer of
vitamins and supplements. Mr. Cotton was a director and audit committee chairman
of QEP Co. Inc. from 2002 to May 2006. Mr. Cotton is a retired certified public
accountant with over 30 years of broad business experience in both public
accounting and private industry. Mr. Cotton is a graduate of University of
Florida.
Jeffrey Perlman is our Chief
Operating Officer. Mr. Perlman joined our company in such capacity in
January 2009. From 2002 to December 2008 Mr. Perlman was President of Community
Ventures Inc., a consulting firm offering business development, public
relations, government relations, strategic planning, publishing and economic
development services. Mr. Perlman is the former mayor of the City of Delray
Beach. Mr. Perlman is also a member of the board of directors of the Business
Development Board of Palm Beach County, the Greater Delray Beach Chamber of
Commerce and several other non-profit organizations. Mr. Perlman holds a BA in
Political Science from the State University of New York, College at
Oswego.
Janice Haley is our Vice
President of Strategic Accounts and Business Development and has served in such
capacity since our acquisition of Elite FX, Inc. in January 2007. Ms.
Haley joined Elite FX, Inc., in June 2006 as Vice President of Marketing. From
2001 to June 2006, Ms. Haley, together with her husband Stephen C. Haley, was an
investor in beverage distribution and manufacturing companies. Ms. Haley has
over 20 years management expertise including the software technology industry in
enterprise applications and manufacturing industries specializing in business
strategy, sales and marketing. From 1999 to 2001 she was Director of Corporate
Communications of MAPICS. From 1997 to 1999 she worked as Vice President of
Marketing of Pivotpoint. Ms. Haley holds a BSBA in Marketing from University of
Florida.
James Cast has been a director
of our company in January 2007. Mr. Cast is a certified public
accountant and is the owner of an Accounting firm in Ft. Lauderdale, Florida,
which specializes in tax and business consulting. Prior to forming his firm in
1994, Mr. Cast was senior tax Partner-in-Charge of KPMG Peat Marwick’s South
Florida tax practice. During his 22 years at KPMG Peat Marwick he also served
the South Florida coordinator for all mergers, acquisitions, and business
valuations. He is a member of AICPA and FICPA. He currently is a member of the
board of directors of the Covenant House of Florida. He has a BA from Austin
College and a MBA from the Wharton School at the University of
Pennsylvania.
William Milmoe has been a
director of our company since August 2008. Since January 2006, Mr. Milmoe has
served as President and Chief Financial Officer of CDS International Holdings,
Inc., a private investment firm. From 1997 to January 2006, he was
CDS International Holdings, Inc.’s Chief Financial Officer and
Treasurer. Mr. Milmoe is a certified public accountant with over 40
years of broad business experience in both public accounting and private
industry. His financial career has included positions with
PricewaterhouseCoopers, General Cinema Corporation, an independent bottler of
Pepsi Cola products and movie exhibitor. Mr. Milmoe is member of both
the Florida and the American Institute of Certified Public
Accountants.
Thomas Lynch became a director
of our company in November 2009. Mr. Lynch has been President of the Plastridge
Insurance Agency, a local independent agency, since 1975. He has been
a director of 1st
United Bank since 2004 and on the Board of Governors for Citizens Property &
Casualty Insurance since February 2009. He is also on the board of
many charitable organizations and has served as an elected official for many
government entities over the past twenty years. Mr. Lynch is a graduate of
Loyola University in Chicago. He received his CPCU degree in 1978 from the
American Institute for Property & Liability Underwriters.
Richard Swanson has been a
director of our company since December 2009. Mr. Swanson has been a principal of
the Swanson Group, a consumer products sales and marketing firm since 1998. Mr.
Swanson is serving his second term as a member of the National Association of
Chain Drug Stores Retail Advisory Board and currently functioning on its
steering committee. Mr. Swanson has been a senior executive within the consumer
products industry for 31 years and held positions with Procter & Gamble and
Confab Corporation prior to forming his own sales and marketing firm in 1998.
Mr. Swanson is a graduate of the University of Illinois.
Christian A. Nast has been a
director of our company since January 2010. Mr. Nast was CEO of
Rexall Sundown, a publicly-held manufacturer of vitamins and supplements, from
1997 until his retirement in 2000. From 1995 to 1997, he was Rexall
Sudown's President and COO. Mr. Nast was executive vice president for
Colgate North America from 1989 until 1995. Mr. Nast was a director of QEP Co.
Inc. from 1998 to July 2006 and of The Tilton School from 2002 until May of
2007. Nast earned a BA in Economics from Bates College and an MBA from New York
University. He retired from the United States Marine Corps as a
Major.
Janice
Haley is Stephen C. Haley’s spouse. There are no other family
relationships among our executive officers and directors.
Pursuant
to the securities purchase agreement relating to the
Series A preferred stock, CDS Ventures of South Florida, LLC was granted the
right to designate two members of our five member board of
directors. Messrs. Milmoe and Cotton are currently the designees of
CDS Ventures of South Florida, LLC on our board of directors pursuant to this
agreement. In connection with the loan agreement entered into with CDS Ventures
of South Florida, LLC in September 2009, we agreed to expand our board of
directors to seven persons and CDS Ventures of South Florida, LLC was granted
the right to designate two additional directors or a majority of our board of
directors. Messrs. Lynch and Swanson are its two additional
designees.
Compensation
of Directors
Our
bylaws provide that, unless otherwise restricted by our certificate of
incorporation, our board of directors has the authority to fix the compensation
of directors. The directors may be paid their expenses, if any,
related to attendance at each meeting of the board of directors and may be paid
a fixed sum for attendance at each meeting of the board of directors or a stated
salary as our director. Our bylaws further provide that no such
payment will preclude any director from serving our company in any other
capacity and receiving compensation therefore. Further, members of
special or standing committees may be given compensation for attending committee
meetings.
Effective
January 18, 2007, non-employee directors received cash fees of $4,000 per
year.
Effective
January 1, 2010, the annual cash fee for outside directors is
$12,000. In addition, members of the audit committee receive an
additional annual cash fee of $2,000 and the chairman of the audit committee
receives $2,000 for serving in such capacity. Members of the
compensation and nominating and corporate governance committees receive an
additional cash fee of $1,000.
In
addition to the foregoing, each new member of the board of directors will
receive stock options under our Amended 2006 Stock Incentive Plan to purchase
10,000 shares of our common stock upon joining the board of directors and each
director will receive stock options to purchase 2,500 shares of our common stock
upon the completion of each year of service. The exercise price of
the stock options will be the fair market value of our common stock as of the
date of grant.
Terms
of Directors and Executive Officers
All of
our directors serve until the next annual meeting of shareholders and until
their successors are elected by shareholders and qualified, or until their
earlier death, retirement, resignation or removal. Currently, our
board of directors consists of seven persons, four of whom will be designated by
CDS Ventures of South Florida, LLC. Our bylaws authorized the board
of directors to designate from among its members one or more committees and
alternate members thereof, as they deem desirable, each consisting of one or
more of the directors, with such powers and authority (to the extent permitted
by law and these bylaws) as may be provided in such
resolution. Executive officers serve at the pleasure of the board of
directors.
Board
Committees and Independence
In
November 2009, our board of directors established three committees, an audit
committee, a compensation committee and a nominating and corporate governance
committee. The audit committee currently consists of Messrs. Cast, Nast and Lynch, the compensation committee currently
consists of Messrs. Cast, Nast and Milmoe and the
nominating and corporate governance committee currently consists of Messrs.
Milmoe, Nast and Cast. Our board of
directors has determined that each of Messrs. Cast, Nast, Lynch and Milmoe is “independent” within the meaning
of the applicable rules and regulations of the Securities and Exchange
Commission and the listing standards of the Nasdaq Stock Market.
In
addition, we believe each of Messrs. Cast, Nast,
Milmoe and Lynch qualifies an “audit committee financial expert” as the term is
defined by the applicable rules and regulations of the Securities and Exchange
Commission and the Nasdaq Stock Market listing standards, based on their
respective business professional experience in the financial and accounting
fields. At the time of the listing of our common stock on the Nasdaq
Stock Market, we will be required to certify to the
Nasdaq Stock Market, that our audit committee has, and will continue to have, at
least one member who has past employment experience in finance or accounting,
requisite professional certification in accounting, or other comparable
experience or background that results in the individual’s financial
sophistication.
Audit
Committee
The audit
committee assists our board of directors in its oversight of the company’s
accounting and financial reporting processes and the audits of the company’s
financial statements, including (i) the quality and integrity of the company’s
financial statements, (ii) the company’s compliance with legal and regulatory
requirements, (iii) the independent auditors’ qualifications and independence
and (iv) the performance of our company’s internal audit functions and
independent auditors, as well as other matters which may come before it as
directed by the board of directors. Further, the audit committee, to
the extent it deems necessary or appropriate, among its several other
responsibilities, shall:
·
|
be
responsible for the appointment, compensation, retention, termination and
oversight of the work of any independent auditor engaged for the purpose
of preparing or issuing an audit report or performing other audit, review
or attest services for our company;
|
·
|
discuss
the annual audited financial statements and the quarterly unaudited
financial statements with management and the independent auditor prior to
their filing with the Securities and Exchange Commission in our Annual
Report on Form 10-K and Quarterly Reports on Form
10-Q;
|
·
|
review
with the company’s financial management on a period basis (a) issues
regarding accounting principles and financial statement presentations,
including any significant changes in our company’s selection or
application of accounting principles, and (b) the effect of any regulatory
and accounting initiatives, as well as off-balance sheet structures, on
the financial statements of our
company;
|
·
|
monitor
our company’s policies for compliance with federal, state, local and
foreign laws and regulations and our company’s policies on corporate
conduct;
|
·
|
maintain
open, continuing and direct communication between the board of directors,
the audit committee and our independent auditors;
and
|
·
|
monitor
our compliance with legal and regulatory requirements and shall have the
authority to initiate any special investigations of conflicts of interest,
and compliance with federal, state and local laws and regulations,
including the Foreign Corrupt Practices Act, as may be
warranted.
|
Mr. Cast
is the chairman of our audit committee.
Compensation
Committee
The
compensation committee aids our board of directors in meeting its
responsibilities relating to the compensation of our company’s executive
officers and to administer all incentive compensation plans and equity-based
plans of the company, including the plans under which company securities may be
acquired by directors, executive officers, employees and
consultants. Further, the compensation committee, to the extent it
deems necessary or appropriate, among its several other responsibilities,
shall:
·
|
review
periodically our company’s philosophy regarding executive compensation to
(i) ensure the attraction and retention of corporate officers; (ii) ensure
the motivation of corporate officers to achieve our company’s business
objectives, and (iii) align the interests of key management with the
long-term interests of our company’s
shareholders;
|
·
|
review
and approve corporate goals and objectives relating to Chief Executive
Officer compensation and other executive officers of our
company;
|
·
|
make
recommendations to the board of directors regarding compensation for
non-employee directors, and review periodically non-employee director
compensation in relation to other comparable companies and in light of
such factors as the compensation committee may deem appropriate;
and
|
·
|
review
periodically reports from management regarding funding our company’s
pension, retirement, long-term disability and other management welfare and
benefit plans.
|
Mr. Milmoe
is the chairman of our compensation committee.
Nominating
and Corporate Governance Committee
The
nominating and corporate governance committee recommends to the board of
directors individuals qualified to serve as directors and on committees of the
board of directors to advise the board of directors with respect to the board of
directors composition, procedures and committees to develop and recommend to the
board of directors a set of corporate governance principles applicable to our
company; and to oversee the evaluation of the board of directors and our
company’s management.
Further,
the nominating and corporate governance committee, to the extent it deems
necessary or appropriate, among its several other responsibilities
shall:
·
|
recommend
to the board of directors and for approval by a majority of independent
directors for election by shareholders or appointment by the board of
directors as the case may be, pursuant to our bylaws and consistent with
the board of director’s evidence for selecting new
directors;
|
·
|
review
the suitability for continued service as a director of each member of the
board of directors when his or her term expires or when he or she has a
significant change in status;
|
·
|
review
annually the composition of the board of directors and to review
periodically the size of the board of
directors;
|
·
|
make
recommendations on the frequency and structure of board of directors
meetings or any other aspect of procedures of the board of
directors;
|
·
|
make
recommendations regarding the chairmanship and composition of standing
committees and monitor their
functions;
|
·
|
review
annually committee assignments and
chairmanships;
|
·
|
recommend
the establishment of special committees as may be necessary or desirable
from time to time; and
|
·
|
develop
and review periodically corporate governance procedures and consider any
other corporate governance issue.
|
Mr.
Milmoe is the chairman of our nominating and corporate governance
committee.
Code
of Ethics
We have
adopted a code of ethics that applies to all of our executive officers,
directors and employees. The code of ethics codifies the business and ethical
principles that govern all aspects of our business. This document
will be made available in print, free of charge, to any shareholder requesting a
copy in writing from our Secretary at our executive offices in Delray Beach,
Florida. A copy of our code of ethics is available on our website at
www.celsius.com.
EXECUTIVE
C
OMPENSATION
Summary
Executive Compensation Table
The
following table sets forth certain information concerning the compensation paid
to our Chief Executive Officer, Chief Financial Officer and our two other most
highly compensated executive officers who earned at least $100,000 during the
periods described below. No other executive officer had compensation
of $100,000 or more for the periods described below.
Name
& Principal Position
|
Year
|
Salary
|
Bonus
|
Stock
Awards
|
Option
Awards
|
Non-
Equity
Incentive
Plan
Compensation
|
Non-
Qualified
Deferred
Compensation
Earnings
|
All
Other
(1) Compen-sation
|
Total
Compen-sation
|
||||||||||||||||||||||||
Stephen
C. Haley,
|
2009
|
$
|
159,877
|
$
|
-
|
$
|
-
|
$
|
245,377
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
405,254
|
||||||||||||||||
President,
CEO and
|
2008
|
$
|
141,231
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
141,231
|
||||||||||||||||
Chairman
of the Board
|
2007
|
$
|
93,877
|
$
|
-
|
$
|
-
|
$
|
24,769
|
$
|
-
|
$
|
-
|
$
|
51,000
|
$
|
169,646
|
||||||||||||||||
Jan
A. Norelid,
|
2009
|
$
|
159,877
|
$
|
-
|
$
|
-
|
$
|
245,377
|
$
|
-
|
$
|
-
|
$
|
7,478
|
$
|
405,254
|
||||||||||||||||
CFO
(2)
|
2008
|
$
|
141,092
|
$
|
-
|
$
|
-
|
$
|
62,120
|
$
|
-
|
$
|
-
|
$
|
7,200
|
$
|
210,412
|
||||||||||||||||
2007
|
$
|
135,831
|
$
|
-
|
$
|
25,000
|
$
|
20,271
|
$
|
-
|
$
|
-
|
$
|
4,985
|
$
|
186,087
|
|||||||||||||||||
Jeffrey
Perlman,
|
2009
|
$
|
141,231
|
$
|
-
|
$
|
-
|
$
|
518,428
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
659,656
|
||||||||||||||||
COO
|
2008
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||||||||||||||||
2007
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
|||||||||||||||||
-
|
|||||||||||||||||||||||||||||||||
Janice
H. Haley,
|
2009
|
$
|
123,615
|
$
|
-
|
$
|
-
|
$
|
122,688
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
246,303
|
||||||||||||||||
Vice
President
|
2008
|
$
|
98,077
|
$
|
-
|
$
|
-
|
$
|
17,256
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
115,333
|
||||||||||||||||
2007
|
$
|
103,846
|
$
|
-
|
$
|
-
|
$
|
33,025
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
136,871
|
(1)
|
From
March 2006 through part of May 2007 the Company accrued Mr. Haley’s salary
and $120,000 have still not paid it, the accrued amounts are shown under
All Other Compensation as $51,000 for 2007.
Mr. Norelid received $7,478, $7,200 and
$4,985 in health insurance reimbursement, for 2009, 2008 and 2007,
respectively.
|
(2)
|
Mr.
Norelid stepped down as an executive officer and director or our company
in January 2010.
|
Director
Compensation
The
following table sets forth with respect to the named director, compensation
information inclusive of equity awards and payments made in the year ended
December 31, 2009:
Fees
earned or paid in cash
|
Stock
Awards
|
Option
Awards
|
Non-Equity
Incentive Plan Compen
sation
|
Non-Qualified
Deferred Compen-sation Earnings
|
All
Other Compen-sation
|
Total
Compen-sation
|
||||||||||||||||||||||
James
R. Cast (1) (2)
|
$ | 4,000 | $ | - | $ | 23,096 | $ | - | $ | - | $ | - | $ | 27,096 | ||||||||||||||
William
H Milmoe (1)(3)
|
$ | 4,000 | $ | - | $ | 92,384 | $ | - | $ | - | $ | - | $ | 96,384 | ||||||||||||||
Geary
W. Cotton (1)(3)
|
$ | 4,000 | $ | - | $ | 92,384 | $ | - | $ | - | $ | - | $ | 96,384 | ||||||||||||||
Thomas
E. Lynch (4)
|
$ | - | $ | - | $ | 61,100 | $ | - | $ | - | $ | - | $ | 61,100 | ||||||||||||||
Richard
J. Swanson (5)
|
$ | - | $ | - | $ | 42,364 | $ | - | $ | - | $ | - | $ | 42,364 |
(1)
|
Cash
compensation to non-employee directors through December 31, 2009 was set
at $4,000 annually. The fee of $4,000 for the year of service ended in
January 2009 was paid to the directors in
2010.
|
(2)
|
Represents
options to purchase 2,500 shares of common stock issued to Mr.
Cast in August 2009 at an exercise price equal to $10.80 per
share.
|
(3)
|
Represents
options to purchase 10,000 shares of common stock issued to Mr. Milmoe and
Mr. Cotton in August 2009 at an exercise price equal to $10.80 per
share
|
(4)
|
Represents
options to purchase 10,000 shares of common stock issued to Mr.
Lynch in November 2009 at an exercise price equal to $7.20 per
share
|
(5)
|
Represents
options to purchase 10,000 shares of common stock issued to Mr.
Swanson in December 2009 at an exercise price equal to $5.06
per share
|
Employment
Agreements
We are
party to an employment agreement with Stephen C. Haley, our
Chief Executive Officer and Chairman of the Board , which expires on
December 31, 2011. The
agreement with Mr. Haley provides for a base annual salary of $165,000 and a
discretionary annual bonus. Mr. Haley is entitled to severance benefits if his
employment is terminated upon his death or by us other than for cause. These
severance benefits include (a) a lump sum payment in the event of his death
equal to his annual base salary plus the annualized amount of incentive
compensation paid Mr. Haley most recently multiplied by the term remaining in
his employment agreement and (b) a lump sum payment in the event of a
termination other than for cause equal to his annual base salary plus the
annualized amount of incentive compensation paid Mr. Haley most recently
multiplied by the greater of the term remaining in his employment agreement or
one year, and a continuation of all other benefits through for the greater of
the term remaining in his employment agreement or one year. If Mr.
Haley terminates his employment for reasons other than our breach of the
agreement or if we terminate the agreement for cause, Mr. Haley will not be
entitled to severance benefits.
We are
also party to employment agreement with Janice Haley, our Vice President,
provides for a base annual salary of $120,000 and an annual discretionary bonus.
This agreement expires December 31, 2010. If Ms. Haley’s employment agreement is
terminated other than for cause she is entitled to severance benefits equal to
one twelfth of the sum of her then current annual base salary plus the
annualized amount of incentive compensation paid to her within the last year
before the date of termination, multiplied by the greater of (i) the number of
full and partial months remaining in the term of the agreement or (ii) three
months.
If after
a change of control, excluding control by CD Financial, LLC and/or its
affiliates, either Mr. Harley or Ms.
Haley terminates their respective employment agreement, then a
severance benefit is due to the employee. The severance benefits consist of a
lump sum payment equal to his or her annual base salary plus the annualized
amount of incentive compensation multiplied by two years, in the case of Mr. Haley , and the greater of six months or the remaining
employment agreement term in the case of Ms. Haley.
On
January 5, 2009 we entered into an employment
agreement with Jeffrey Perlman, our Chief Operating Officer. It provides for a
base annual salary of $144,000, and an annual discretionary bonus. If Mr.
Perlman’s employment agreement is terminated other than for cause, he is
entitled to severance in an amount equal to his then current annual base salary
plus the annualized amount of incentive compensation paid to him within the last
year before the termination date, multiplied by the number of full and partial
years remaining in the term of the agreement.
Bonus
plans have not yet been established by the board of directors or the
compensation committee, but may contain items such as goals to achieve certain
revenue, to reduce cost of production, to achieve certain gross margin, to
achieve financing and similar criteria.
These
employment agreements may be terminated by us for cause, which includes the
executive committing an act or an omission resulting in a willful and material
breach of or failure or refusal to perform his or her duties, committing fraud,
embezzlement, misappropriation of funds or breach of trust in connection with
his or her services, conviction of any crime which
involves dishonesty or breach of trust, or acts of gross negligence in the
performance of his or her duties (provided that we give the executive notice of
the basis for the termination and an opportunity for 15 days to cease committing
the alleged conduct) or violation of the confidentiality or non-competition
requirements of the employment agreement.
Under the
terms of each of the employment agreements, during
the term of employment and during the severance period, but in no event not less
than one year, after termination of employment, none of Messrs. Haley
or Norelid or Ms. Haley may own, manage or work for, directly or work for,
a competitive business in any geographic region in which we
conduct business. A competitive business is the manufacturing, export,
sale or distribution of calorie-burning beverages and
supplements. The post-employment noncompete period for
an employee can be extended by an additional year if we pay the employee an
amount equal to 30% of his or her last annual base salary and
bonuses.
The
compensation package for Geary W. Cotton, who became our Chief Financial Officer
in January 2010, will consist of a base salary of $120,000 and a grant under our
Amended 2006 Stock Incentive Plan of options to
purchase 150,000 shares of common stock at an exercise price of $4.25 per share,
vesting over a three-year period. It is anticipated that we will
enter into an employment agreement with Mr. Cotton setting forth these terms, as
well as severance, change in control and non-competition provisions comparable
to those contained in the employment agreements with Mr. Haley.
In
January 2010, Jan Norelid, who had served as our Chief Financial Officer and a
director since January 2007, stepped down from those positions. Mr.
Norelid will remain with the Company for a period of between three and six
months to assist Geary W. Cotton, who became our Chief Financial Officer in
January 2010. Mr. Norelid will be owed approximately $340,000 in
severance pursuant to the terms of his employment.
Outstanding
Equity Awards at Fiscal Year-End
The
following table sets forth information with respect to stock awards and grants
of options to purchase our common stock outstanding to the named executive
officers at December 31, 2009.
Name
|
Option awards | Stock awards | |||||||||||||||||||||||||||||||
Number
of securities under-lying unexer-cised options
#
Exercisable
|
Number
of securities under-lying unexer-cised options
#
Unexercisable
|
Equity
incentive
plan
awards:
Number of securities under-lying unexer-cised unearned
options
(#)
|
Option
exercise
price
($)
|
Option
expiration
date
|
Number of
shares or units of stock that have not
vested
(#)
|
Market value of shares of units of stock that have not
vested
($)
|
Equity
incentive
plan
awards: Number of unearned shares, units or other rights that
have
not
vested (#)
|
Equity
incentive
plan awards: Market or payout
value
of unearned shares, units or other rights that have
not
vested
($)
|
|||||||||||||||||||||||||
Stephen
C. Haley, CEO
|
- | - | 25,000 | $ | 10.80 |
8/7/2019
|
- | - | - | - | |||||||||||||||||||||||
Jan
A. Norelid, CFO(2)
|
- | - | 25,000 | $ | 10.80 |
8/7/2019
|
- | - | - | - | |||||||||||||||||||||||
Jeffrey
Perlman, COO (3)
|
- | - | 100,000 |
various
|
various
|
- | - | - | - | ||||||||||||||||||||||||
Janice
H. Haley, VP
|
- | - | 12,500 | $ | 10.80 |
8/7/2019
|
- | - | - | - |
(1)
|
Adjusted
to give effect to our 1-for-20 reverse stock split implemented in December 2009 . All grants are under
our Amended 2006 Stock Incentive
Plan.
|
(2)
|
Mr.
Norelid stepped down as an executive officer and director of our company
in January 2010.
|
(3)
|
Mr.
Perlman was granted 50,000 options with an exercise price of $0.86 in
January 2009 and 50,000 options with an exercise price of $10.80 in August
2009, both of which expire 10 years after
issuance.
|
I n January 2010, options to purchase 150,000 shares of our common
stock were granted to Geary W. Cotton, upon his assuming the position of Chief
Financial Officer of our company, and options to purchase 15,000 shares of our
common stock were granted to Jan Norelid as part of his separation
agreement. The exercise price of such options is $4.25 per
share.
Amended
2006 Incentive Stock Plan
In
January 2007, we adopted our 2006 Incentive Stock Plan, which was amended in
July 2009 The Amended 2006 Incentive Stock Plan provides for equity incentives
to be granted to our employees, officers or directors or to key advisers or
consultants. Equity incentives may be in the form of stock options with an
exercise price not less than the fair market value of the underlying shares as
determined pursuant to the Amended 2006 Incentive Stock Plan, stock appreciation
rights, restricted stock awards, stock bonus awards, other stock-based awards,
or any combination of the foregoing. The Amended 2006 Incentive Stock Plan is
administered by the compensation committee of the board of directors. In the
absence of such committee, the board of directors administers the plan.
2,500,000 shares of common stock are reserved for issuance pursuant to the
exercise of awards under the Amended 2006 Incentive Stock Plan.
PRINCIPAL
SHA
REHOLDERS
The
following table sets forth information with respect to the beneficial ownership
of our common stock as of February 5, 2010 and as adjusted
for this offering for :
|
·
|
each
of our executive officers and directors;
|
|
·
|
all
of our executive officers and directors as a group; and
|
|
·
|
Any
other beneficial owner of more than five percent (5%) of our outstanding
common stock.
|
Name
and Address of Beneficial Owner(1)
|
Shares
Beneficially Owned (2)(3) Number
|
Percentage
of Voting Power (2)(3)
|
||||||||||
Before
Offering
|
After
Offering
|
|||||||||||
Carl
DeSantis (4)
|
7,607,581 | 51.6 | % | 41.5 | % | |||||||
William
H. Milmoe (5)
|
7,605,581 | 51.6 | % | 41.5 | % | |||||||
CD
Financial, LLC (6)
|
7,602,581 | 51.6 | % | 41.5 | % | |||||||
CDS
Ventures of South Florida, LLC (7)
|
7,043,380 | 47.8 | % | 38.4 | % | |||||||
Stephen
C. Haley (8)
|
1,437,541 | 11.8 | % | 9.1 | % | |||||||
Lucille
Santini (9)
|
1,051,953 | 8.6 | % | 6.7 | % | |||||||
Joseph
& Gionis LLC
|
850,000 | 6.9 | % | 5.3 | % | |||||||
Janice
Haley (10)
|
158,480 | 1.3 | % | 1.0 | % | |||||||
Jeffrey
Perlman (11)
|
16,667 | 0.1 | % | 0.1 | % | |||||||
James
Cast (12)
|
18,998 | 0.2 | % | 0.1 | % | |||||||
Geary
Cotton (13)
|
2,500 | 0.0 | % | 0.0 | % | |||||||
Thomas
Lynch
|
- | - | % | - | % | |||||||
Richard
Swanson
|
- | - | % | - | % | |||||||
All
executive officers and directors as a
|
9,239,767 | 61.5 | % | 49.6 | % | |||||||
group
(8 persons) (14)
|
________________
(1)
|
Unless
otherwise noted in the table above, the address of each beneficial owner
listed on the table is c/o Celsius Holdings, Inc., 140 NE 4th Avenue,
Suite C, Delray Beach, FL 33483.
|
(2)
|
Based
on 12,029,519 shares of common stock
outstanding as of February 5, 2010, and 15,659,519
shares outstanding after this offering , together with shares of
common stock issuable upon exercise or conversion of warrants, stock
options and convertible securities, which are presently exercisable or
convertible or which become exercisable or convertible within 60 days of
the date of this prospectus, for each shareholder. Beneficial ownership is
determined in accordance with the rules of the Securities and Exchange
Commission and generally includes voting or investment power with respect
to securities. Shares of common stock are deemed to be beneficially owned
by the person holding such securities for the purpose of computing the
percentage of ownership of such person, but are not treated as outstanding
for the purpose of computing the percentage ownership of any other
person.
|
(3)
|
Shares
of our Series A preferred stock vote on an “as converted” basis together
with our common stock on all matters presented for a shareholder vote,
except as required by Nevada law. As of the date of this prospectus,
2,063,125 shares of our common stock are issuable upon conversion of our
outstanding shares of Series A preferred stock.
|
(4)
|
Includes
(a) 4,343,000 shares of common stock held or recorded by CDS Ventures of
South Florida, LLC, which shares were issued upon conversion of our Series
B preferred stock; (b) 5,000 shares of common stock held at record by Mr.
DeSantis, (c) 559,201 shares of common stock held of record by CD
Financial, LLC, (d) 2,063,125 shares of common stock issuable upon
conversion of shares of Series A preferred stock held of record by CDS
Ventures of South Florida, LLC, and (e) 637,255 shares of common stock
issuable upon conversion of a $6.5 million convertible promissory note
held of record by CDS Ventures of South Florida, LLC. Voting power of
shares of common stock beneficially owned by CD Financial, LLC and CDS
Ventures of South Florida, LLC is shared by Carl DeSantis and William H.
Milmoe. Mr. Milmoe does not have dispositive power with respect to such
shares.
|
(5)
|
Includes
(a) 500 shares of common stock held of record by Mr. Milmoe, (b) 2,500
shares of common stock issuable upon exercise of stock options, (c) the
559,201 shares of common stock held of record by CD Financial, LLC and (d)
the 7,043,380 shares of common stock beneficially owned by CDS Ventures of
South Florida, LLC as more fully described in footnote (4) above. Mr.
Milmoe and Carl De Santis share voting power with respect to shares of
common stock beneficially owned by CDS Financial, LLC and CDS Ventures of
South Florida, LLC. Mr. Milmoe does not have dispositive power with
respect to such shares.
|
(6)
|
Includes
(a) 559,201 shares of common stock held of record by CD Financial, LLC and
(b) 7,043,380 shares of common stock beneficially owned by CDS Ventures of
South Florida, LLC, as more fully described in footnote (4)
above.
|
(7)
|
Includes
7,043,380 shares of common stock beneficially owned by CDS Ventures
of South Florida, LLC as described in footnote (4)
above.
|
(8)
|
Includes
(a) 1,337,247 shares of common stock held of record by Mr. Haley and (b)
100,294 shares of common stock issuable upon exercise of stock options
held by Mr. Haley. Excludes all shares of common stock owned of record and
beneficially by Janice Haley, Mr. Haley’s spouse, in which shares he
disclaims beneficial ownership.
|
(9)
|
Includes
(a) 907,247 shares of common stock held of record by Ms. Santini and (b)
121,542 shares of common stock issuable to Ms. Santini upon conversion of
a convertible promissory note.
|
(10)
|
Includes
(a) 12,255 shares of common stock held of record by Ms. Haley and (b)
146,225 shares of common stock issuable upon exercise of stock options
held by Ms. Haley. Does not include shares of common stock owned of record
or beneficially by Stephen C. Haley, her spouse, in which shares Ms. Haley
disclaims beneficial ownership.
|
(11)
|
Includes
16,667 shares of common stock issuable upon exercise of stock options held
by Mr. Perlman.
|
(12)
|
Includes
18,998 shares of common stock issuable upon exercise of stock options held
by Mr. Cast.
|
(13)
|
Includes
2,500 shares of common stock issuable upon exercise of stock options held
by Mr. Cotton.
|
(14)
|
Includes
shares of common stock owned of record and beneficially as described in
footnotes (5), (8) and (10) through
(13).
|
Lock
Up Agreements
Our
executive officers, directors, Carl DeSantis, CDS Ventures of South Florida, LLC
and CD Financial, LLC, have agreed that they will not directly or indirectly
sell, offer, contract to sell, make a short sale, pledge or otherwise publicly
dispose of any shares of our common stock (or any of our securities exercisable
for or convertible into common stock) owned by them, for a period of 180 days
after the date of this prospectus, without the prior consent of Ladenburg
Thalmann & Co. Inc.
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
On
September 8, 2009, we entered into a convertible loan agreement with Lucille
Santini, a principal shareholder. We received advances from Ms. Santini at
various times during 2004 and 2005, totaling $76,000 and $424,000, respectively.
The advances carried interest at a rate variable with the prime rate. In July,
2008, the debt was refinanced, with interest at prime rate flat and monthly
amortization of $5,000. A balloon payment of approximately $606,000 was due in
January 2010. In July, 2009, the debt was refinanced again, with interest at
prime rate flat and monthly amortization of $11,500. A balloon payment of
approximately $451,600 was due in January 2011. This note together with a cash
payment of $3,699 was exchanged for a new note due on September 8, 2012. This
note carries a variable interest rate equal to 300 basis points over the one (1)
month LIBOR. Commencing on September 8, 2010 and continuing each three month
period hereafter, we will make payments of all accrued but unpaid interest only.
The loan can at any time be converted to shares of our common stock at the
Conversion Price. The “Conversion Price” is: (A) from September 8, 2009 through
and including December 31, 2011, equal to the lesser of (i) $8.00 per share, or
(ii)”Market Price” on the date of conversion (as defined above); or (B) after
December 31, 2011 the greater of (i) $8.00 per share, or (ii) Market Price on
the date of conversion, as appropriately adjusted for in either case stock
splits, stock dividends and similar events; provided, however, that, the
Conversion Price shall never be less than $2.00 regardless of Market Price on
the date of conversion. The maximum number of shares of common stock to be
issued based on the lowest Conversion Price possible is 307,500 shares. As of
September 30, 2009, the outstanding balance of the loan was $431,000, net of
unamortized debt discount of $181,000.
In
connection with the refinance agreement, Ms. Santini was also granted certain
registration rights under the Securities Act of 1933 with respect to the shares
of common stock issuable upon conversion of the debt.
We have
accrued $171,000 in salary for Mr. Haley, our CEO,
from March 2006 through May 30, 2007. Mr. Haley also lent us $50,000 in February
2006. The two debts were restructured in July 2008 into one note accruing 3%
interest, no collateral, monthly payments of $5,000 and with a balloon payment
of $64,000 in January 2011. The outstanding balance as of September 30, 2009 was
$155,000.
Mr. Haley
guaranteed the Company’s obligations under a factoring agreement with Bibby
Financial Services, Inc, which subsequently was cancelled in November 2008. Mr.
Haley has also guaranteed the financing of vehicles on our behalf, and
previously guaranteed the office lease for the Company. Mr. Haley was not
compensated for issuing the guarantees.
On August
8, 2008, we entered into a securities purchase agreement with CDS Ventures of
South Florida, LLC. Pursuant to the agreement, we issued 100 shares of Series A
preferred stock, as well as a warrant to purchase an additional 50 shares of Series A preferred stock, for a cash payment
of $1.5 million and the cancellation of two notes in aggregate amount of
$500,000 issued to CD. The shares of Series A preferred stock are convertible
into our common stock at any time. The securities purchase agreement was amended
on December 12, 2008 to provide that until December 31, 2010, the conversion
price is $1.60, after which the conversion price is the greater of $1.60 or 90%
of the volume weighted average price of the common stock for the prior 10
trading days. Pursuant to the securities purchase agreement, we also entered
into a registration rights agreement, pursuant to which we registered the common
stock issuable upon conversion of the Series A preferred stock for resale under
the Securities Act of 1933. The Series A preferred stock accrues ten percent
annual cumulative dividends, payable in additional shares of Series A preferred
stock. We issued 15.1 shares of Series A preferred stock in dividends during
2009, as dividends for the years 2008 and 2009. The
Series A preferred stock matures on February 1, 2013 and is only redeemable in
our common stock.
In
November 2009, CDS Ventures of South Florida, LLC exercised its right to
purchase an additional 50 shares of Series A preferred stock in exchange for
cancellation of a $1.1 million note issued to CD Financial, LLC.
On
December 12, 2008, we entered into a second securities purchase agreement with
CDS. Pursuant to this securities purchase agreement, we issued 100 shares of
Series B preferred stock, as well as a warrant to purchase an additional 100
shares of Series B preferred stock, for a cash payment of $2.0 million. The
shares of Series B preferred stock were convertible into our common stock at any
time. Until December 31, 2010, the conversion price was $1.00, after which the
conversion price was the greater of $1.00 or 90% of the volume weighted average
price of the common stock for the prior 10 trading days. We also granted CDS
Ventures of South Florida, LLC certain registration rights under the Securities
Act of 1933 with respect to the shares of common stock issuable upon conversion
of the Series B preferred stock. The Series Preferred B stock accrued a ten
percent annual cumulative dividend, payable in additional shares of Series B
preferred stock. We issued 1 share of Series B preferred stock in dividends
during the first quarter of 2009. The Series B preferred stock was scheduled to
mature on December 31, 2013 and was only redeemable in our common
stock.
On March
31, 2009, CDS Ventures of South Florida, LLC exercised its right to purchase
additional 100 shares of Series B preferred stock and executed a subscription
agreement for $2.0 million. The monies for the subscription were paid on April 7
and May 1, 2009.
On
December 23, 2009, CDS Ventures of South Florida, LLC converted all of the
shares of Series B preferred stock (including shares issuable in payment of
accrued dividends) into 4,343,000 shares of common
stock. We recorded a liability to CDS Ventures of South
Florida, LLC, for a $100,000 fee for their agreement to convert the Series
B preferred stock into common stock on an expedited basis.
Certain
covenants of the Series A preferred stock restrict
us from entering into additional debt arrangements or permitting liens to be
filed against our Company’s assets, without approval from the holder of the
preferred stock. There is a mandatory redemption in cash, if we breach certain
covenants of the agreements. The holders have liquidation preference of $20,000
per share in case of a liquidation of our company. We have the right to redeem
the preferred shares early by the payment in cash of 104% of the liquidation
preference value. We may redeem the Series A preferred stock at any time on or
July 1, 2010.
On
September 8, 2009, we entered into a convertible loan agreement with CDS
Ventures of South Florida, LLC. Under the loan agreement, CDS
Ventures of South Florida, LLC will lend us up to $6,500,000, with disbursements
of the $2,000,000 during each of September, October and November 2009 and
$500,000 in December 2009, provided that no disbursement shall be made in an
amount less than $500,000. Any amounts not requested for disbursement in one
calendar month can be carried over to a subsequent month and disbursed in
addition to the maximum of such subsequent month. The loan is due on September
8, 2012 and carries a variable interest rate equal to 300 basis points over the
one (1) month LIBOR. In January 2010, we agreed to increase the interest rate to
700 basis points over the one (1) month LIBOR. Commencing on September 8, 2010
and continuing each three month period thereafter, we will make payments of all
accrued but unpaid interest only on unpaid principal balance. The loan is
convertible at any time into shares of our common stock at the Conversion Price.
The “Conversion Price” was originally based on a price of $8.00 per share or a
market price calculation at the date of conversion. In order to
comply with the listing requirements for the Nasdaq Stock Market, LLC, in
January 2010, the parties amended the convertible loan agreement to increase the
Conversion Price at $10.20 per share, which was the consolidated closing bid
price of the common stock on the OTC Bulletin Board on the business day prior to
the date the agreement was entered into. As of September 30, 2009, the
outstanding balance of the loan was $1.7 million, net of unamortized debt
discount of $259,000.
In
connection with the loan agreement, CDS Ventures of South Florida, LLC was
granted certain registration rights under the Securities Act of 1933 with
respect to the agreement with CDS Ventures of South Florida, LLC pursuant to
which we filed a registration statement with the Securities and Exchange
Commission in October shares of common stock issuable upon conversion of the
debt under the loan agreement.
Under its
various securities purchase and loan agreements with us, CDS Ventures of South
Florida, LLC has the right to designate four out of seven members of our board
of directors, which have all been nominated..
We fund
part of our working capital from a line of credit with CD Financial, LLC. The
line of credit was entered into in December 2008 and is for $1.0 million. The
interest rate is LIBOR rate plus three percent on the outstanding balance. The
line expires in December 2010 and is renewable. In connection with the revolving
line of credit we have entered into a loan and security agreement under which we
have pledged all our assets as security for the line of credit. The outstanding
balance under the line of credit as of September 30, 2009 was
$550,000.
We have
entered into a six month lease agreement expiring in March 2010 for office space
with CDR Plaza, Ltd. a company controlled by Carl DeSantis. The monthly rate is
$4,000 for a 3,000 square foot space, which we believe to be comparable to
market rates.
Related
party transactions are contracted on terms comparable to the terms of similar
transactions with unaffiliated parties. As part of our code of ethics, any
related party transaction must be approved in advance. If the interested party
is an officer or director of the Company, approval must be obtained from of a
majority of the Audit Committee of the Board or the Board itself, provided that
only those that do not have a relationship or an interest in the transaction are
eligible to cast a vote. In each such case, the full scope of the conflict of
interest must be disclosed to senior management and the Audit
Committee
Conflicts
Relating to Executive Officers and Directors
To date, we do not believe that there
are any conflicts of interest involving our executive officers or
directors.
With
respect to transactions involving real or apparent conflicts of interest, we
have adopted policies and procedures which require that: (i) the fact of
the relationship or interest giving rise to the potential conflict be disclosed
or known to the directors who authorize or approve the transaction prior to such
authorization or approval, (ii) the transaction be approved by a majority
of our disinterested outside directors, and (iii) the transaction be fair
and reasonable to us at the time it is authorized or approved by our
directors.
DESCRIPTION OF SECURITIES
Capital
Stock
Our
authorized capital stock consists of 50,000,000 shares of common stock, par
value $0.001 per share and 2,500,000 shares of preferred stock, par value $0.001
per share.
Common
Stock
All
shares of our common stock that are presently issued
and outstanding are fully paid and non-assessable. Holders of our common stock
are entitled to one vote for each share on all matters submitted to a
shareholder vote. Holders of common stock do
not have cumulative voting rights. Therefore, holders of a
majority of the shares of common stock, voting together with holders of our
Series A preferred stock as a single class, can elect all of the directors.
Holders of our capital stock representing a majority of the voting power of our
capital stock entitled to vote, represented in person or by proxy, are necessary
to constitute a quorum at any meeting of our shareholders. A vote by the holders
of a majority of our outstanding capital stock entitled to vote is required to effectuate certain fundamental corporate
changes such as liquidation, merger or an amendment to our Articles of
Incorporation.
Holders
of common stock are entitled to share in all dividends that our board of
directors, in its discretion, declares from legally available funds, subject to
preferences granted to shares of preferred stock, including the Series A
preferred stock. In the event of liquidation, dissolution or winding up, each
outstanding share entitles its holder to participate pro rata in all assets that
remain after payment of liabilities and after providing for each class of stock,
if any, having preference over the common stock, including the Series A
preferred stock. Holders of our common stock have no pre-emptive rights, no
conversion rights and there are no redemption provisions applicable to our
common stock.
Preferred
Stock
Our board
of directors has the authority, without further action by the shareholders, to
issue such shares of preferred stock in one or more series and to fix the
rights, preferences and the number of shares constituting any series or the
designation of such series. While our Articles and bylaws do not contain any
provisions that may delay, defer or prevent a change in control, the issuance of
preferred stock may have the effect of delaying or preventing a change in
control or make removal of our management more difficult. Additionally, the
issuance of preferred stock may have the effect of decreasing the market price
of the common stock and may adversely affect the voting and other rights of the
holders of common stock.
Series A preferred stock
Of the
2,500,000 shares of preferred stock we are authorized to issue, 154 shares have
been designated as Series A preferred stock and were issued and outstanding as
of September 30, 2009.
The
Series A preferred stock is convertible into common stock at any time at the
option of the holder at a conversion price of $1.60 through December 31, 2009,
after which the conversion price is the greater of $1.60 or 90% of the volume
weighted average price of the common stock for the 10 trading days prior to the
date of conversion. The conversion price is subject to adjustment in the event
of stock dividends, stock splits and similar events. The Series A preferred
stock accrues cumulative annual dividends at the rate of 10% per annum, payable
in additional shares of Series A preferred stock and provides for a liquidation
preference of $20,000 per share. The Series A preferred stock may be redeemed by
us at any time on or after July 1, 2010 at a redemption price equal to 104% of
the liquidation preference and is mandatorily redeemable if certain covenants of
the Series A preferred stock are breached, at a redemption price equal to the
liquidation preference.
The
holders of the Series A preferred stock vote on an “as converted” basis,
together with holders of common stock as a single
class on all matters presented to shareholders for a vote, except as required by
law. In addition, certain covenants of the Series A preferred stock require
consent of the holders of a majority of the outstanding shares of Series A
preferred stock to us entering certain arrangements, including incurring
additional debt or permitting the filing of additional liens.
Series B preferred stock
Of the
2,500,000 shares of preferred stock we are authorized to issue, 201 shares were
designated as Series B preferred stock and were issued and outstanding as of
December 23, 2009, at which time the shares of Series B preferred stock
(including shares issuable in payment of accrued dividends) were converted into
4,343,000 shares of common stock.
Warrants
Included in the Units
Number of Warrants; Warrant
Agent
After consummation of the offering,
900,000 warrants to purchase an aggregate of 900,000 shares of common stock will
be outstanding, assuming no exercise of the over-allotment
option. Each warrant entitles the holder to purchase one share of
common stock at an exercise price per share equal to 33% of the public offering
price per unit, during the three-year period commencing on the date of this
prospectus. The warrants are being issued pursuant to a Warrant
Agreement entered into between us and Interwest Transfer Company, Inc., as
warrant agent. The warrants will be issued separately from the common
stock included in the units offered hereby and will
be transferable separately immediately thereafter. The
warrants may be in certificated form or represented by one or more book-entry
certificates.
Exercise and Duration of
Warrants
Warrants may be exercised by
delivering, not later than 5:00 P.M., New York time, on any business day during
the exercise period to the warrant agent the certificate representing the
warrant or, in the case of book-entry warrants, the warrants being exercised
free on the records of the Depositary Trust Company (DTC) to an account of the
warrant agent at DTC along with a completed election to purchase and the payment
of the exercise price for each warrant to be exercised by certified or official
bank check or by bank wire transfer in immediately available funds.
If we are unable to issue the shares of
common stock upon exercise of the warrants because the registration statement
covering the shares is subject to a stop order or has had its effectiveness
suspended or withdrawn or if we are otherwise unable to issue the shares, and no
exemption from registration is available by virtue of a cashless exercise as
described below or otherwise, the warrants will not be
exercisable. In such event, the warrants will not expire until five
days after the date we are first able to issue the shares of common
stock. In no event may the warrants be net cash settled.
Cashless Exercise
If a registration statement, or an
exemption from registration, is not available for the resale of the shares
underlying the warrants, the warrants may also be exercised on a cashless basis
pursuant to which the holder will receive a net number of shares of common stock
determined according to the following formula:
Net number of shares = (A x B) – (A x
C)
B
where:
A = the total number of shares with
respect to which the warrant is then being exercised;
B = the
arithmetic average of the closing sale prices of the shares of common stock for
the five consecutive trading days ending on the date immediately preceding the
date of exercise; and
C = the exercise price then in
effect.
Delivery of Shares Upon
Exercise
Shares of common stock issuable upon
exercise of the warrants will be issued to the holder no later than 5:00 P.M.,
New York time, on the third business day after the proper exercise of the
warrants. In lieu of delivering physical certificates representing
shares of common stock issuable upon the exercise of warrants, if our transfer
agent is participating in DTC’s Fast Automated Securities Transfer program, we
will use our reasonable best efforts to cause the transfer agent to
electronically transmit the shares by crediting the account of the registered
holder’s prime broker with DTC or of a participant through DTC’s Deposit
Withdrawal Agent Commission system.
Certain Adjustments
The exercise price and number of shares
of common stock issuable on exercise of the warrants is subject to adjustment in
the event of any stock split, reverse stock split, stock dividend,
recapitalization, reorganization or similar transaction. However, the
warrants will not be adjusted for issuances of shares of common stock at a price
below their respective exercise prices. In the event of a fundamental
transaction involving our consolidation or merger with or into another entity
where we are not the surviving entity, the sale or all or substantially all of
our properties or assets or the reorganization, recapitalization or
reclassification of our common stock, it is a condition to such fundamental
transaction that any successor to us whose common stock is traded on an eligible
market assume or remain bound by the warrants to deliver in exchange for the
warrants a written instrument substantially similar to the warrants entitling
the holder to acquire the successor’s capital stock at an exercise price that
reflects the terms of the transaction. In the event that the
successor does not have common stock traded on an eligible market, a holder of
warrants will be entitled to receive an instrument substantially similar to the
warrants exercisable for the consideration that would have been issuable in the
fundamental transaction had the warrants been exercised immediately prior
thereto.
Limitations on Exercise
The number of shares of common stock
that may be acquired by the registered holder upon any exercise of warrants
shall be limited to the extent necessary to insure that, following such
exercise, the total number of shares of common stock then beneficially owned by
such holder and its affiliates any other persons whose beneficial ownership of
common stock would be aggregated with the holder’s for purposes of Section 13(d)
of the Securities Exchange Act of 1934, does not exceed 9.999% of the total
number of issued and outstanding shares of common stock (including for such
purpose the shares of common stock issuable upon such exercise). This
restriction may not be waived.
No Rights as Shareholders
Warrant holders do not have the rights
or privileges of holders of common stock, including voting rights, until they
exercise their warrants and receive shares of common stock. After the
issuance of shares of common stock upon exercise of the warrants, each holder
will be entitled to one vote for each share held of record on all matters to be
voted on by shareholders.
Amendments
The warrants provide that the terms of
the warrants may be amended without the consent of any holder to cure any
ambiguity, to cure, correct or supplement any defective provision, or to add or
change any other provisions that do not adversely affect the interest of the
warrant holders. All other changes require the written consent of the
underwriter and the holders of a majority of the then outstanding
warrants.
Fractional Shares
No fractional shares will be issued
upon exercise of the warrants. If a holder exercises warrants and
would be entitled to receive a fractional interest of a share, we will round up
or down the number of common stock to be issued to the warrant holder to the
nearest whole number of shares.
Transfer Taxes
We will not pay any stamp or other tax
or governmental charge required to be paid in connection with any transfer
involved in the issue of shares of common stock issuable upon the exercise of
warrants. In the event of any such transfer, we will not issue or
deliver any shares until such tax or other charge shall have been paid or it has
been established to our satisfaction that no such tax or other charge is
due.
You should review a copy of the warrant
agreement, which will be filed as an exhibit to this registration statement, for
a complete description of the terms and conditions of the warrants.
Other
Warrants
In
connection with an investor’s purchase of 50,000 shares of common stock in March
2008, a warrant to purchase 35,000 shares at an exercise price of $2.60 per
share was issued to the investor. This warrant expires in March,
2011.
An
investment banker received as compensation a warrant to purchase 3,750 shares of
our common stock with an exercise price of $26.20 per share. This warrant
expires in July 2012.
We
entered into an agreement with Mario Lopez for services pursuant to which we
granted a company affiliated with Mr. Lopez a warrant to purchase 50,000 of our
common stock at the exercise price of $9.00 per share. This warrant expires in
November 2012.
We have
entered in to a letter of intent with a food broker pursuant to which at the
time of consummation of a definitive agreement with the food broker, we will
issue the food broker a three-year warrant to purchase 50,000 shares of our
common stock at an exercise price equal to the current market
price.
Convertible
Promissory Notes and Debentures
In
September 2009, we issued two convertible promissory notes, one to CDS Ventures
of South Florida, LLC to evidence advances under a loan agreement of up to
$6,500,000 and one to Lucille Santini, a principal shareholder, in the principal
amount of $615,000. The unpaid principal amount due under these notes is
convertible at the option of the holder at any time prior to maturity. The
conversion price under the Santini note is (i)
through December 31, 2001, the lesser of (a) $8.00 per share or (b) “Market
Price” on the date of conversion or (ii) after December 31, 2001, the greater of
(a) $8.00 per share or (b) “Market Price” on the date of conversion, but shall
in no event be less than $2.00 per share. The conversion
price under the CDS Ventures of South Florida, LLC note is $10.20 . The
conversion price for both notes is subject to adjustment in the event of stock
splits, stock dividends or similar events. The maximum number of shares issuable
upon conversion of the promissory notes is 637,255
shares under the note issued to CDS Ventures of South Florida, LLC and 307,500
shares under the note issued to Lucille Santini.
In
December 2007, we issued a convertible debenture of $1.5 million to Golden Gate
Investors, Inc. GGI can convert the debenture at any time with the conversion
price as the lower of (i) $20.00, or (ii) 80% of the average of the three lowest
daily volume weighted average price during the 20 trading days prior to GGI’s
election to convert. As of the date of this prospectus we owe GGI a total of
$36,000, which at current conversion price can be converted into 10,638 shares of our common stock
Dividends
We have
never declared or paid any cash dividends on shares of our common stock. We
currently intend to retain earnings, if any, to fund the development and growth
of our business and do not anticipate paying cash dividends in the foreseeable
future. Our payment of any future dividends will be at the discretion of our
board of directors. In addition, payment of cash dividends on shares of our
common stock may be restricted under the terms of preferred stock which we may
issue after taking into account various factors, including our financial
condition, operating results, cash needs and growth plans.
The
Series A preferred stock accrues dividends on the stated share value at an
annual rate of ten percent. Dividends on the Series A preferred stock are
payable annually on the last business day of each fiscal year in additional
shares of Series A preferred stock.
MARKET
FOR COMMON EQUITY AND RELATED SHAREHOLDER
MATTERS
Our
common stock is quoted on the OTC Bulletin Board under the symbol “CSUH”. There
is currently no public trading market for our warrants. Our common stock and
warrants will be listed on the Nasdaq Capital Market under the symbols “CELH”
and “CELHW” upon consummation of the offering.
For the
periods indicated, the following table sets forth the high and low bids for our
common stock as reported by the OTC Bulletin Board. The prices
represent inter-dealer quotations based without retail mark-up, mark-down or
commission and may not represent actual transactions. The prices have
been adjusted for the 1-for-20 reverse stock split
implemented on December 23, 2009.
Quarter
Ended
|
High
|
Low
|
Through
February 5, 2010
|
$5.45 | $4.00 |
31-Dec-09
|
$12.00
|
$2.25
|
30-Sep-09
|
$14.00
|
$4.00
|
30-Jun-09
|
$4.00
|
$2.00
|
31-Mar-09
|
$3.00
|
$0.80
|
31-Dec-08
|
$1.60
|
$0.60
|
30-Sep-08
|
$3.00
|
$1.00
|
30-Jun-08
|
$3.80
|
$1.60
|
31-Mar-08
|
$5.60
|
$2.00
|
31-Dec-07
|
$13.00
|
$2.60
|
30-Sep-07
|
$26.20
|
$9.40
|
30-Jun-07
|
$35.60
|
$12.40
|
31-Mar-07
|
$73.40
|
$24.00
|
Holders
of Record
As of
February 1, 2010, we had 35 holders of record of our
common stock. The number of record holders was determined from the records of
our transfer agent and does not include beneficial owners of common stock whose
shares are held in the names of various security brokers, dealers, and
registered clearing agencies.
When our common stock is traded on the Nasdaq Capital Market upon consumption of this
offering, we will be required to maintain a minimum number of at
least 300 public shareholders after the commencement
of trading in order to maintain such listing.
Transfer
Agent and Warrant Agent
The
transfer agent for our common stock and warrant agent for our warrants is
Interwest Transfer Company, Inc., 1981 East Murray Holladay Road, Suite 100,
Salt Lake City, Utah 84117.
UNDE
RWRITING
In
accordance with the terms and conditions contained in the underwriting
agreement, we have agreed to sell to each of the underwriters named below, and
each of the underwriters, for which Ladenburg Thalmann & Co. Inc. is acting
as the representative, has, severally, and not jointly, agreed to purchase from
us on a firm commitment basis the units offered in
this offering set forth opposite their respective names
below:
Underwriters
|
Number of Units
|
|||
Ladenburg
Thalmann & Co. Inc.
|
||||
Maxim
Group LLC
|
||||
|
||||
Total
|
900,000 |
A copy of
the underwriting agreement will be filed as an exhibit to the registration
statement of which this prospectus forms a part.
We have
been advised by the representative of the underwriters that the underwriters
propose to offer the units directly to the public at
the public offering price set forth on the cover page of this prospectus. Any units sold by the underwriters to securities dealers
will be sold at the public offering price less a selling concession not in
excess of $_____ per unit. The underwriters may allow, and these selected
dealers may re-allow, a concession of not more than $____ per unit to other brokers and dealers.
The
underwriting agreement provides that the underwriters’ obligations to purchase
the units are subject to conditions contained in the
underwriting agreement. The underwriters are obligated to purchase and pay for
all of the units offered by this prospectus other
than those covered by the over-allotment option, if any of these securities are
purchased.
No action
has been taken by us or the underwriters that would permit a public offering of
the units included in this offering in any
jurisdiction where action for that purpose is required. None of our securities
included in this offering may be offered or sold, directly or indirectly, nor
may this prospectus or any other offering material or advertisements in
connection with the offer and sales of any of our common stock be distributed or
published in any jurisdiction, except under circumstances that will result in
compliance with the applicable rules and regulations of that jurisdiction.
Persons who receive this prospectus are advised to inform themselves about and
to observe any restrictions relating to this offering of the units and the distribution of this prospectus. This
prospectus is neither an offer to sell nor a solicitation of any offer to buy
any of the units included in this offering in any
jurisdiction where that would not be permitted or legal.
The
underwriters have advised us that they do not intend to confirm sales to any
accounts over which they exercise discretionary authority.
Underwriting
discount and expenses
The
following table summarizes the underwriting discount to be paid to the
underwriters by us.
Total,
without
over-allotment
|
Total,
with
over-allotment
|
|||||||
Underwriting
discount to be paid to the underwriters by us for the units
(7%
of gross proceeds)
|
$ | $ |
We have
also agreed to pay all out of pocket expenses incurred by the underwriters in
connection with the underwriting, including reasonable attorneys fees and
expenses of the underwriters’ counsel retained for this purpose by the
underwriters, of which $50,000 has been paid by us as of the date of this
prospectus. The maximum out of pocket the expenses
of the underwriters to be paid by us in offering is $ 135,000, or $160,000 if the underwriters’
over-allotment option is exercised in full. In no event will the amount of such
reimbursement exceed 1.5% of the gross proceeds of the offering.
We have
agreed to sell to the representative, for an aggregate of $100, an option to
purchase up to 18,000 units, which units are identical to the units being
offered in this prospectus . This purchase option is
exercisable at any time, in whole or in part, during the three- year period commencing on the date of consummation
of this offering at an exercise price equal to the public offering price per unit in this offering. Under FINRA Rule
5110(g)(1), the purchase option being issued to the representative (and the
shares of common stock and warrants issuable upon exercise of the purchase
option) shall not be sold during the offering, or sold, transferred, assigned,
pledged, or hypothecated, or be the subject of any hedging, short sale,
derivative, put, or call transaction that would result in the effective economic
disposition of the securities by any person for a period of 180 days immediately
following the date of commencement of sales in the offering, except certain
limited transfers, such as transfers to any underwriter and selected dealer
participating in this offering and any of their bona fide officers or partners
(but not directors). Although the purchase option and its underlying
securities have been registered under the registration statement of which this
prospectus forms a part, the option holders will be granted demand and “piggy
back” rights with respect to the registration under the Securities Act of 1933
with respect to the securities directly and indirectly issuable upon exercise of
the purchase option. The exercise prices and number of securities
issuable upon exercise of the purchase option may be adjusted in certain
circumstances including in the event of a stock dividend, or our
recapitalization, reorganization, merger or consolidation. However,
the purchase option will not be adjusted for issuances of common stock at prices
below the option’s exercise price.
Over-allotment
option
We have
granted to the underwriters an option, exercisable not later than 45 days after
the date of this prospectus, to purchase up to 135,000 units at the public
offering price, less the underwriting discount, set forth on the cover page of
this prospectus. The representative may exercise the option solely to cover
over-allotments, if any, made in connection with this offering. If any
additional units are purchased pursuant to the over-allotment option, the
underwriters will offer these additional units on the same terms as those on
which the other shares are being offered hereby.
Determination
of offering price
The
public offering price of the units and the exercise price and other terms of the
warrants were negotiated between us and the representative of the underwriters,
based on the trading prior to the offering, among other things. Other factors
considered in determining the public offering price of the units and the
exercise price and other terms of the warrants include the history and prospects
of the company, the stage of development of our business, our business plans for
the future and the extent to which they have been implemented, an assessment of
our management, general conditions of the securities markets at the time of the
offering and such other factors as were deemed relevant.
Stabilization,
short positions and penalty bids
The
underwriters may engage in over-allotment, syndicate covering transactions,
stabilizing transactions and penalty bids or purchases for the purpose of
pegging, fixing or maintaining the price of our common stock:
|
•
|
Over-allotment
involves sales by the underwriters of shares and/or
warrants in excess of the number of shares and warrants the
underwriters are obligated to purchase, which creates a syndicate short
position. The short position may be either a covered short position or a
naked short position. In a covered short position, the number of shares
and/or warrants over-allotted by an underwriter is not greater than the
number of shares and/or warrants that it may purchase in the
over-allotment option. In a naked short position, the number of shares
and/or warrants involved is greater than the number of shares and/or
warrants in the over-allotment option. An underwriter may close out any
short position by exercising its over-allotment option, in whole or in
part, or purchasing shares and/or warrants in the open
market.
|
|
•
|
Syndicate
covering transactions involve purchases of securities in the open market
after the distribution has been completed in order to cover syndicate
short positions. In determining the source of securities needed to close
out the short position, the representative will consider, among other
things, the price of the securities available for purchase in the open
market as compared to the price at which it may purchase the securities
through the over-allotment option. If the underwriters sell more
securities than could be covered by the over-allotment option, a naked
short position, the position can only be closed out by buying securities
in the open market. A naked short position is more likely to be created if
the representative is concerned that there could be downward pressure on
the price of the securities in the open market after pricing that could
adversely affect investors who purchase in the
offering.
|
|
•
|
Stabilizing
transactions permit bids to purchase the underlying security so long as
the stabilizing bids do not exceed a specific
maximum.
|
|
•
|
Penalty
bids permit the representative to reclaim a selling concession from a
syndicate member when the securities originally sold by the syndicate
member are purchased in a stabilizing or syndicate covering transaction to
cover syndicate short positions.
|
These
syndicate covering transactions, stabilizing transactions and penalty bids may
have the effect of raising or maintaining the market prices of our securities or
preventing or retarding a decline in the market prices of our securities. As a
result, the price of our common stock and warrants may be higher than the price
that might otherwise exist in the open market. These transactions may be
effected on the OTC Bulletin Board, on the Nasdaq Capital Market, in the
over-the-counter market or on any trading market and, if commenced, may be
discontinued at any time.
Neither
we nor the underwriters make any representation or prediction as to the
direction or magnitude of any effect that the transactions described above may
have on the prices of our securities. In addition, neither we nor the
underwriters make any representation that the underwriters will engage in these
stabilizing transactions or that any transactions, once commenced, will not be
discontinued without notice.
Indemnification
We have
agreed to indemnify the underwriters against certain liabilities, including
liabilities under the Securities Act of 1933, or to contribute to payments the
underwriters may be required to make with respect to any of these
liabilities.
ORGANIZATION
WITHIN LAST FIVE YEARS
We were
incorporated under the laws of the State of Nevada on April 26, 2005 under the
name “Vector Ventures Group”, to engage in the acquisition, exploration and
development of natural resource properties. On December 26, 2006, we amended our
Articles of Incorporation to change our name
from Vector Ventures Corp. as well as increase our authorized
capitalization.
Prior to
January 26, 2007, our activities were limited to capital formation,
organization, development of our business plan and acquisition of mining claims.
On January 24, 2007, we entered into a merger agreement and plan of
reorganization with Celsius, Inc., our wholly-owned subsidiary, Elite FX, Inc.,
and Stephen C. Haley, Elite’s principal shareholder. Under the terms of the
merger agreement, Elite FX, Inc. was merged into Celsius, Inc. and became our
wholly-owned subsidiary on January 26, 2007.
In
connection with the merger agreement, we issued 3,478,750 shares of our common
stock to the shareholders of Elite, excluding 66,862
shares of common stock issued as compensation, in exchange for the shares of
Elite FX, Inc. We also issued:
·
|
warrants
to Investa Capital Partners Inc. to purchase 177,891 shares of our common
stock for $500,000, which were exercised in February
2007;
|
·
|
69,575
shares of our common stock as partial consideration of termination of a
consulting agreement and assignment of certain trademark rights to the
name “Celsius”;
|
·
|
options
to purchase 532,351 shares of our common stock of the Company in exchange
for options which were then outstanding in Elite FX, Inc.;
and
|
·
|
65,000
shares of our common stock in a concurrent
private placement to non-US resident investors for aggregate
consideration of $650,000 which included the conversion of a $250,000 note
to us.
|
Our then
majority shareholder, Kristian Kostovski, cancelled 360,000 shares of our common
stock held by him shortly after the merger. The merger also resulted in a change
in the composition of our board of directors and executive
officers.
After the
merger, we began our present business of developing, marketing, selling and
distributing functional beverages, with Celsius® as our first
product.
The
validity of the common stock offered by this prospectus will be passed upon for
us by Arnstein & Lehr LLP, Fort Lauderdale, Florida. Certain legal matters
will be passed on for the underwriters by Graubard Miller, New York, New
York.
EXPERTS
The
consolidated financial statements for the years ended December 31, 2008 and
2007, consisting of our balance sheets as of December 31, 2008 and 2007,
statements of operations, statements of changes in stockholders’ deficit and
statements of cash flows for the years ended December 31, 2008 and 2007,
included in this Prospectus and the registration statement have been audited by
Sherb & Co., LLP, independent registered public accounting firm, to the
extent and for the periods set forth in their
report (which describes an uncertainty as to going
concern) appearing elsewhere herein and in the registration statement, and
are included in reliance upon such report given upon the authority of said firm
as experts in auditing and accounting.
DISCLOSURE
OF COMMISSION POSITION OF INDEMNIFICATION FOR SECURITIES
ACT LIABILITIES
Our
directors and officers are indemnified as provided by the Nevada Statutes and
our articles of incorporation. We have been advised that in the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933 is against public policy as expressed in the
Securities Act of 1933, and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities is asserted by one of our
directors, officers, or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our legal counsel the matter
has been settled by controlling precedent, submit the question whether such
indemnification is against public policy to a court of appropriate jurisdiction.
We will then be governed by the court's decision.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE
On March
8, 2007, we terminated Chang G. Park, CPA, as our independent registered public
accounting firm, we had no disagreement with Chang
G. Park, CPA . The decision to dismiss Chang G.
Park, CPA was unanimously determined and approved by our board of
directors.
The audit
reports of Chang G. Park, CPA on the consolidated
financial statements of the Company as of and for the years ended September 30,
2006 and 2005 did not contain any adverse opinion or disclaimer of opinion, nor
were such reports qualified or modified as to uncertainty, audit scope or
accounting principle. During the fiscal years ended September 30, 2006 and 2005
and the subsequent interim period through March 8, 2007, there were no
disagreements with Chang G. Park, CPA on any matter
of accounting principles or practices, financial statement disclosure, or
auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of Chang G. Park, CPA , would have
caused him to make reference thereto in his reports on the financial statements for such
years.
In
connection with the audits of the two fiscal years ended September 30, 2005 and
2006 and the subsequent interim period through March 8, 2007, there were no
“reportable events” (as defined in Item 304(a)(1)(v) of Regulation
S-K).
On March
8, 2007, upon authorization and approval of our board of directors, we engaged
Sherb & Co. as our company’s independent registered public accounting
firm.
During
our fiscal years ended September 30, 2005 and 2006 and the subsequent interim
period through March 8, 2007, neither we nor anyone acting on our behalf
consulted with Sherb and Co. regarding either (i) the application of accounting
principles to a specific transaction, either completed or proposed, or the type
of audit opinion that might be rendered on our financial statements or (ii) any
matter that was either the subject of a disagreement (as such term is defined in
Item 304(a)(1)(iv) of Regulation S-K), or a reportable event (as such term is
described in Item 304(a)(1)(v) of Regulation S-K).
We have
filed a Registration Statement on Form S-1 under the Securities Act of 1933 with
the Securities and Exchange Commission with respect to the shares of our common
stock offered through this prospectus. This prospectus is filed as a part of
that registration statement and does not contain all of the information
contained in the registration statement and exhibits. We refer you to our
registration statement and each exhibit attached to it for a more complete
description of matters involving us, and the statements we have made in this
Prospectus are qualified in their entirety by reference to these additional
materials. You may inspect the registration statement and exhibits and schedules
filed with the Securities and Exchange Commission at the Commission’s principal
office in Washington, D.C. Copies of all or any part of the registration
statement may be obtained from the Public Reference Section of the Commission,
Room 1580, 100 F Street NE, Washington DC 20549. Please call the Commission at
1-800-SEC-0330 for further information on the operation of the public reference
rooms. The Commission also maintains a web site at http://www.sec.gov
that contains reports, proxy statements and information regarding registrants
that file electronically with the SEC. In addition, we
file electronic versions of our annual, quarterly and current reports on
the Commission’s Electronic Data Gathering Analysis and Retrieval, or EDGAR
System.
CELSIUS
HOLDINGS, INC.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
Index
to Financial Statements
Financial
statements September 30, 2009
|
Page Number |
Condensed
Consolidated Balance Sheets at September 30, 2009
(unaudited)
|
|
and December 31,
2008
|
F-2
|
Condensed
Consolidated Statements of Operations for three months
|
|
and nine months
ended September 30, 2009 and 2008
(unaudited)
|
F-3
|
Condensed
Consolidated Statements of Cash Flows for
|
|
nine months
ended September 30, 2009 and 2008
(unaudited)
|
F-4
|
Notes
to Condensed Consolidated Financial Statements
|
|
for nine
months ended September 30, 2009
(unaudited)
|
F-5
- F-21
|
Financial
statements December 31, 2008
|
|
Report
of Independent Registered Public Accounting
Firm
|
F-22
|
Consolidated
Balance Sheet as of December 31, 2008 and
|
|
December 31,
2007
|
F-23
|
Consolidated
Statements of Operations for the years ended
|
|
December 31, 2008 and
2007
|
F-24
|
Consolidated
Statements of Changes in Stockholders' Deficit
|
|
for the years ended December 31,
2008 and
2007
|
F-25
|
Consolidated
Statements of Cash Flows for the years ended
|
|
December 31, 2008 and
2007
|
F-26
|
Notes
to Consolidated Financial Statements
|
|
for the year ended December 31,
2008
|
F-27
- F-44
|
Celsius
Holdings, Inc. and Subsidiaries
|
||||||||
Condensed
Consolidated Balance Sheets
|
||||||||
September
30
|
December
311
|
|||||||
|
2009
|
2008
|
||||||
(unaudited)
|
||||||||
ASSETS
|
||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 647,598 | $ | 1,040,633 | ||||
Accounts
receivable, net
|
627,450 | 192,779 | ||||||
Inventories,
net
|
1,526,880 | 505,009 | ||||||
Other
current assets
|
240,088 | 12,155 | ||||||
Total
current assets
|
3,042,016 | 1,750,576 | ||||||
|
||||||||
Property,
fixtures and equipment, net
|
190,819 | 183,353 | ||||||
Note
receivable
|
- | 250,000 | ||||||
Other
long-term assets
|
18,840 | 18,840 | ||||||
Total
Assets
|
$ | 3,251,675 | $ | 2,202,769 | ||||
|
||||||||
LIABILITIES
AND STOCKHOLDERS’ (DEFICIT) EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 1,354,993 | $ | 612,044 | ||||
Loans
payable
|
15,000 | 95,000 | ||||||
Short
term portion of other liabilities
|
22,413 | 26,493 | ||||||
Due
to related parties, short-term portion
|
1,580,000 | 120,000 | ||||||
Total
current liabilities
|
2,972,406 | 853,537 | ||||||
|
||||||||
Convertible
note payable, net of debt discount
|
242,539 | 562,570 | ||||||
Convertible
note payable, net of debt
|
||||||||
discount,
related parties
|
2,172,742 | - | ||||||
Due
to related parties, long-term
|
125,349 | 700,413 | ||||||
Other
liabilities
|
60,148 | 75,022 | ||||||
Total
Liabilities
|
5,573,184 | 2,191,542 | ||||||
|
||||||||
Stockholders’
(Deficit) Equity:
|
||||||||
Preferred
stock, $0.001 par value; 50,000,000 shares
|
||||||||
authorized,
6,092 shares and 4,000 shares issued and outstanding,
respectively
|
6 | 4 | ||||||
Common
stock, $0.001 par value: 1,000,000,000 shares
|
||||||||
authorized,
153 million and 149 million shares issued and outstanding,
respectively
|
152,615 | 148,789 | ||||||
Additional
paid-in capital
|
14,244,067 | 11,244,802 | ||||||
Accumulated
deficit
|
(16,718,197 | ) | (11,382,368 | ) | ||||
Total
Stockholders’ (Deficit) Equity
|
(2,321,509 | ) | 11,227 | |||||
Total
Liabilities and Stockholders’ (Deficit) Equity
|
$ | 3,251,675 | $ | 2,202,769 |
1 Derived from
audited financial statements.
The
accompanying notes are an integral part of these unaudited condensed
consolidated financial statements
Celsius Holdings, Inc. and
Subsidiaries
|
||||||||||||||||
Condensed
Consolidated Statements of Operations
|
||||||||||||||||
(unaudited)
|
||||||||||||||||
For
the Three Months
Ended
September 30,
|
For
the Nine months
Ended
September 30,
|
|||||||||||||||
2009
|
2008
|
2009
|
2008
|
|||||||||||||
Net
revenue
|
$ | 1,343,002 | $ | 435,484 | $ | 3,480,475 | $ | 1,968,975 | ||||||||
Cost
of revenue
|
766,553 | 456,293 | 1,987,389 | 1,386,509 | ||||||||||||
Gross
profit
|
576,449 | (20,809 | ) | 1,493,086 | 582,466 | |||||||||||
Selling
and marketing expenses
|
2,620,103 | 1,356,642 | 5,295,383 | 2,909,993 | ||||||||||||
General
and administrative expenses
|
624,007 | 434,182 | 1,427,747 | 1,322,579 | ||||||||||||
Loss
from operations
|
(2,667,661 | ) | (1,811,633 | ) | (5,230,044 | ) | (3,650,106 | ) | ||||||||
Other
expense:
|
||||||||||||||||
Interest
expense, related party
|
31,383 | 5,085 | 44,864 | 6,923 | ||||||||||||
Other
interest expense, net
|
18,861 | 27,507 | 60,921 | 285,459 | ||||||||||||
Total
other expense
|
50,244 | 32,592 | 105,785 | 292,382 | ||||||||||||
Net
loss
|
$ | (2,717,905 | ) | $ | (1,844,225 | ) | $ | (5,335,829 | ) | $ | (3,942,488 | ) | ||||
Basic
and diluted:
|
||||||||||||||||
Weighted
average shares outstanding
|
150,842,575 | 136,388,430 | 149,774,074 | 122,626,170 | ||||||||||||
Loss
per share
|
$ | (0.02 | ) | $ | (0.01 | ) | $ | (0.04 | ) | $ | (0.03 | ) |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
Celsius
Holdings, Inc. and Subsidiaries
|
||||||||
Condensed
Consolidated Statements of Cash Flows
|
||||||||
(unaudited)
|
||||||||
For
the Nine months Ended September 30
|
||||||||
2009
|
2008
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (5,335,829 | ) | $ | (3,942,488 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
|
40,035 | 20,000 | ||||||
Loss
on disposal of assets
|
- | 804 | ||||||
Adjustment
to allowance for doubtful accounts
|
(31,800 | ) | 41,721 | |||||
Adjustment
to reserve for inventory obsolescence
|
(158,297 | ) | 140,456 | |||||
Issuance
of stock options
|
346,826 | 165,140 | ||||||
Amortization
of debt discount
|
42,523 | 199,581 | ||||||
Issuance
of shares as compensation
|
30,125 | 125,450 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
(402,871 | ) | (2,864 | ) | ||||
Inventories
|
(863,574 | ) | (303,474 | ) | ||||
Prepaid
expenses and other current assets
|
(227,933 | ) | 3,993 | |||||
Deposit
from customer
|
- | (400,000 | ) | |||||
Accounts
payable and accrued expenses
|
742,949 | 133,231 | ||||||
Net
cash used in operating activities
|
(5,817,846 | ) | (3,818,450 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchases
of property, fixtures and equipment
|
(47,501 | ) | (135,165 | ) | ||||
Net
cash used in investing activities
|
(47,501 | ) | (135,165 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of common stock
|
||||||||
and
exercise of stock options
|
74,142 | 799,312 | ||||||
Proceeds
from sale of preferred stock
|
2,000,000 | 1,500,000 | ||||||
Proceeds
from convertible notes
|
2,000,000 | 990,900 | ||||||
Proceeds
from note payable, related party
|
1,550,000 | 1,000,000 | ||||||
Proceeds
from loans payable
|
- | 80,162 | ||||||
Repayment
of loans payable
|
(98,954 | ) | (325,870 | ) | ||||
Repayment
of debt to related parties
|
(52,876 | ) | (54,004 | ) | ||||
Net
cash provided by financing activities
|
5,472,312 | 3,990,500 | ||||||
Decrease
in cash
|
(393,035 | ) | 36,885 | |||||
Cash,
beginning of period
|
1,040,633 | 257,482 | ||||||
Cash,
end of period
|
$ | 647,598 | $ | 294,367 | ||||
Supplemental disclosures of
cash flow information:
|
||||||||
Cash
paid during the year for interest
|
$ | 79,600 | $ | 154,846 | ||||
Cash
paid during the year for taxes
|
$ | - | $ | - | ||||
Non-Cash Investing and
Financing Activities:
|
||||||||
Issuance
of shares for note payable
|
$ | 105,000 | $ | 1,696,555 |
The accompanying notes are an integral part of
these unaudited condensed consolidated financial statements
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
1.
|
ORGANIZATION
AND DESCRIPTION OF BUSINESS
|
Celsius
Holdings, Inc. (f/k/a Vector Ventures Corp.) (the “Company”) was incorporated
under the laws of the State of Nevada on April 26, 2005. The Company was formed
to engage in the acquisition, exploration and development of natural resource
properties. On December 26, 2006 the Company amended its Articles of
Incorporation to change its name from Vector Ventures Corp. as well as increase
the authorized shares to 350 million, $0.001 par value common shares and 50
million, $0.001 par value preferred shares.
Celsius
Holdings, Inc. operates in United States through its wholly-owned subsidiaries,
Celsius Inc., which acquired the operating business of Elite FX, Inc. (“Elite”)
through a reverse merger on January 26, 2007, and Celsius Netshipments, Inc.
Celsius, Inc. was incorporated in Nevada on January 18, 2007, and merged with
Elite FX, Inc. (“Elite”) on January 26, 2007 (the “Merger”), which was
incorporated in Florida on April 22, 2004. Celsius, Inc. is in the business of
developing and marketing healthier beverages in the functional beverage category
of the beverage industry. Celsius was Elite’s first commercially available
product. Celsius is a beverage that burns calories. Celsius is currently
available in five sparkling flavors: cola, ginger ale, lemon/lime, orange and
wild berry, and two non-carbonated green teas: peach/mango and raspberry/acai.
Celsius is also available in its On-the-go packets. Celsius Netshipments, Inc.,
incorporated in Florida on March 29, 2007, distributes the Celsius beverage via
the internet.
Prior to
January 26, 2007, the Company was in the exploration stage with its activities
limited to capital formation, organization, development of its business plan and
acquisition of mining claims. On January 24, 2007, the Company entered into a
merger agreement and plan of reorganization with Celsius, Inc., a Nevada
corporation and wholly-owned subsidiary of the Company (“Sub”), Elite FX, Inc.,
a Florida corporation (“Elite”), and Steve Haley, the “Indemnifying Officer” and
“Securityholder Agent” of Elite, (the “Merger Agreement”). Under the terms of
the Merger Agreement Elite was merged into Sub and became a wholly-owned
subsidiary of the Company on January 26, 2007 (the “Merger”).
Under the
terms of the Merger Agreement, the Company issued
·
|
70,912,246
shares of its common stock to the stockholders of Elite, including
1,337,246 shares of common stock issued as compensation, as full
consideration for the shares of
Elite;
|
·
|
warrants
to Investa Capital Partners Inc. to purchase 3,557,812 shares of common
stock of the Company for $500,000, the warrants were exercised in February
2007;
|
·
|
1,391,500
shares of its common stock as partial consideration of termination of a
consulting agreement and assignment of certain trademark rights to the
name “Celsius”;
|
·
|
options
to purchase 10,647,025 shares of common stock of the Company in
substitution for the options currently outstanding in
Elite;
|
·
|
1,300,000
shares of its common stock concurrent with the Merger in a private
placement to non-US resident investors for aggregate consideration of
US$650,000 which included the conversion of a $250,000 loan to the
Company.
|
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Celsius
Holdings, Inc’s majority stockholder, Mr. Kristian Kostovski, cancelled
7,200,000 shares of common stock of the Company held by him shortly after the
close of the Merger Agreement.
For
financial accounting purposes, the Merger was treated as a recapitalization of
Celsius Holdings, Inc with the former stockholders of Celsius Holdings, Inc
retaining approximately 24.6% of the outstanding stock. This
transaction has been accounted for as a reverse acquisition and accordingly the
transaction has been treated as a recapitalization of Elite, with
Elite as the accounting acquirer. The historical financial statements are a
continuation of the financial statements of the accounting acquirer, and any
difference of the capital structure of the merged entity as compared to the
accounting acquirer’s historical capital structure is due to the
recapitalization of the acquired entity.
After the
merger with Elite FX the Company changed its business to become a manufacturer
of beverages. The calorie burning beverage Celsius® is
the first brand of the Company.
2.
|
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
|
The
unaudited condensed consolidated financial statements included herein have been
prepared by us, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission, (the “SEC”). Certain information and
footnote disclosures normally included in annual financial statements prepared
in accordance with generally accepted accounting principles in the United States
(“GAAP”) have been condensed or omitted pursuant to such rules and regulations.
In the opinion of management, the interim consolidated financial statements
reflect all adjustments (consisting only of normal recurring adjustments)
necessary for a fair presentation of the statement of the results for the
interim periods presented.
In
June 2009, the Financial Accounting Standards Board (“FASB”) issued
Accounting Standards Codification (“ASC”) 105, FASB Accounting Standards
Codification (“ASC 105”). The statement confirmed that the FASB Accounting
Standards Codification (the “Codification”) is the single official source of
authoritative GAAP (other than guidance issued by the SEC), superseding existing
FASB, American Institute of Certified Public Accountants, Emerging Issues Task
Force, and related literature. The Codification does not change GAAP. Instead,
it introduces a new structure that is organized in an easily accessible,
user-friendly online research.
Going
Concern — The accompanying unaudited consolidated financial statements
are presented on a going concern basis. The Company has suffered losses from
operations that raise substantial doubt about its ability to continue as a going
concern. Management is currently seeking new capital or debt financing to
provide funds needed to increase liquidity, fund growth, and implement its
business plan. However, no assurances can be given that the Company will be able
to raise any additional funds. If not successful in obtaining financing, the
Company will have to substantially diminish or cease its operations. The
financial statements do not include any adjustments that might result from the
outcome of this uncertainty.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Consolidation
Policy — The accompanying consolidated financial statements include the
accounts of Celsius Holdings, Inc. and subsidiaries. All material inter-company
balances and transactions have been eliminated in consolidation.
Significant
Estimates — The preparation of condensed consolidated financial
statements in conformity with accounting principles generally accepted in the
United States of America requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenue and expenses
and disclosure of contingent assets and liabilities at the date of the financial
statements. Actual results could differ from those estimates, and such
differences could affect the results of operations reported in future
periods.
Concentrations of
Risk — Substantially all of the Company’s revenue is derived from the
sale of the Celsius beverage.
The
Company uses single supplier relationships for its raw materials purchases,
which potentially subjects the Company to a concentration of business risk. If
these suppliers had operational problems or ceased making product available to
the Company, operations could be adversely affected.
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its cash
and cash equivalents with high-quality financial institutions. At times,
balances in the Company’s cash accounts may exceed the Federal Deposit Insurance
Corporation limit.
Cash and Cash
Equivalents — The Company considers all highly liquid instruments with
maturities of three months or less when purchased to be cash equivalents. At
September 30, 2009 and December 31, 2008, the Company did not have any
investments with maturities greater than three months.
Accounts
Receivable — Accounts receivable are reported at net realizable value.
The Company has established an allowance for doubtful accounts based upon
factors pertaining to the credit risk of specific customers, historical trends,
and other information. Delinquent accounts are written-off when it is determined
that the amounts are uncollectable. At September 30, 2009 and December 31, 2008,
there was an allowance for doubtful accounts of $21,301 and $53,101,
respectively. During the nine months ended September 30, 2009, the Company
recognized a reduction to allowance for doubtful accounts of
$31,800.
Inventories
— Inventories include only the purchase cost and are stated at the lower of cost
or market. Cost is determined using the FIFO method. Inventories consist of raw
materials and finished products. The Company writes down inventory during the
period in which such materials and products are no longer usable or marketable.
At September 30, 2009 and December 31, 2008, there was an allowance for
obsolescence of $48,748 and $207,045, respectively. During the nine months ended
September 30, 2009, the Company wrote down inventory by $158,297.
Property,
Fixtures, and Equipment — Furniture, fixtures and equipment are stated at
cost less accumulated depreciation and amortization. Depreciation of furniture,
fixtures, and equipment is calculated using the straight-line method over the
estimated useful life of the asset generally ranging from three to seven years.
Depreciation expense recognized in the first nine months of 2009 was
$40,035.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Impairment of
Long-Lived Assets — Asset impairments are recorded when the carrying
values of assets are not recoverable.
The
Company reviews long-lived assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable, or at least annually. If the sum of the undiscounted
expected future cash flows is less than the carrying amount of the asset, the
Company recognizes an impairment loss. Impairment losses are measured as the
amount by which the carrying amount of assets exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value
using the expected future cash flows discounted at a rate commensurate with the
risks associated with the recovery of the asset.
The
Company did not recognize an impairment charge during the first nine months of
2009 or 2008, respectively.
Intangible
Assets — Intangible assets consist of the web domain name Celsius.com and
other trademarks and trade names, and are subject to annual impairment tests.
Based upon impairment analyses performed in fiscal years 2009 and 2008,
impairment was recorded of nil and $41,500, respectively. The impairment
recorded was for expenses for trademarks.
Revenue
Recognition — Revenue is recognized when the products are delivered,
invoiced at a fixed price and the collectability is reasonably assured. Any
discounts, sales incentives or similar arrangement with the customer is
estimated at time of sale and deducted from revenue.
Advertising
Costs — Advertising costs are expensed as incurred. The Company uses
mainly radio, local sampling events and printed advertising. The Company
incurred expenses of $2.2 million and $1.2 million, during the first nine months
of 2009 and 2008, respectively.
Research and
Development — Research and development costs are charged to operations as
incurred and consist primarily of consulting fees, raw material usage and test
productions of new products. The Company incurred expenses of $46,000 and
$245,000, during the first nine months of 2009 and 2008,
respectively.
Fair Value of
Financial Instruments — The carrying value of cash, accounts receivable,
and accounts payable approximates fair value. The carrying value of debt
approximates the estimated fair value due to floating interest rates on the
debt.
Income
Taxes — Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company’s financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than changes in the tax law or rates. A valuation allowance is recorded when it
is deemed more likely than not that a deferred tax asset will be not
realized.
Earnings per
Share — Basic earnings per share are calculated by dividing income
available to stockholders by the weighted-average number of common shares
outstanding during each period. Diluted earnings per share are computed using
the weighted average number of common and dilutive common share equivalents
outstanding during the period. Dilutive common share equivalents consist of
shares issuable upon the exercise of stock options, convertible notes and
warrants (calculated using the reverse treasury stock method). As of September
30, 2009 there were options outstanding to purchase 19.3 million shares, which
exercise price averaged $0.22. The dilutive common shares equivalents, including
convertible notes, preferred stock and warrants, of 140.6 million shares were
not included in the computation of diluted earnings per share, because the
inclusion would be anti-dilutive.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Dilutive common shares
equivalent table
|
shares
|
USD
|
Dilutive
shares
|
|||||||||
Series
A preferred stock
|
2,081 | 26,012,500 | ||||||||||
Series
B preferred stock
|
4,011 | 80,220,000 | ||||||||||
Convertible
debt
|
||||||||||||
CDS
Ventures of South Florida, LLC
|
$ | 2,000,000 | 5,000,000 | |||||||||
Lucille
Santini
|
$ | 615,000 | 1,537,500 | |||||||||
Golden
Gate Investors, Inc.
|
$ | 346,000 | 1,153,718 | |||||||||
Warrants
(in the money)
|
19,500,000 | 15,487,395 | ||||||||||
Stock options (in the
money)
|
13,072,085 | 11,180,221 | ||||||||||
Total
dilutive common shares
|
140,591,334 | |||||||||||
If all
dilutive instruments were exercised using the reverse treasury stock method,
then the total number of shares outstanding would be 293.2 million
shares.
Reclassifications —
Certain amounts have been reclassified to conform to the current period
presentation, such reclassifications had no effect on the reported net
loss.
Recent Accounting
Pronouncements
In
September 2006, the FASB issued guidance in the Fair Value Measurements and
Disclosures Topic of the Codification. This guidance defines fair value,
establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosures about fair value measurements. In
February 2008, the FASB deferred the effective date of this guidance for one
year for all nonfinancial assets and nonfinancial liabilities, except for those
items that are recognized or disclosed at fair value in the financial statements
on a recurring basis (at least annually). The Company adopted the
guidance effective January 1, 2008 for all financial assets and
liabilities. As of January 1, 2009, the Company adopted the guidance
for all non-financial assets and all non-financial liabilities. There
is no impact on the Company’s financial statements as of September 30,
2009.
In
December 2007, the FASB issued guidance in the Business Combinations Topic of
the Codification. This guidance requires the acquiring entity in a
business combination to record all assets acquired and liabilities assumed at
their respective acquisition-date fair values including contingent
consideration. In addition, this guidance changes the recognition of
assets acquired and liabilities assumed arising from pre-acquisition
contingencies and requires the expensing of acquisition-related costs as
incurred. The guidance applies prospectively to business combinations
for which the acquisition date is on or after January 1, 2009. The
Company adopted this guidance effective January 1, 2009. Any impact
would be on future acquisitions.
In
December 2007, the FASB issued guidance in the Consolidation Topic of the
Codification on the accounting for non-controlling interests in consolidated
financial statements. This guidance clarifies the classification of
non-controlling interests in consolidated statements of financial position and
the accounting for and reporting of transactions between the reporting entity
and holders of such non-controlling interests. This guidance is
effective as of the
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
beginning
of an entity’s first fiscal year that begins on or after December 15, 2008 and
is required to be adopted prospectively, except for the reclassification of
non-controlling interests to equity and the recasting of net income (loss)
attributable to both the controlling and non-controlling interests, which are
required to be adopted retrospectively. The Company adopted this
guidance effective January 1, 2009. There is no impact on the
Company’s financial statements as of September 30, 2009.
In April
2008, the FASB issued guidance in the Intangibles-Goodwill and Other Topic of
the Codification on the determination of the useful life of an intangible
asset. This guidance amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset. This statement is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company adopted
this guidance effective January 1, 2009. There is no impact on the
Company’s financial statements as of September 30, 2009.
In June
2008, FASB issued guidance in the Earnings Per Share Topic of the Codification
on determining whether instruments granted in share-based payment transactions
are participating securities. The guidance clarified that all
unvested share-based payment awards that contain non-forfeitable rights to
dividends are participating securities and provides guidance on how to compute
basic EPS under the two-class method. The guidance is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company adopted
this guidance effective January 1, 2009 and it had no impact on its financial
statements.
In April
2009, the FASB issued guidance in the Fair Value Measurements and Disclosures
Topic of the Codification on determining fair value when the volume and level of
activity for an asset or liability have significantly decreased and identifying
transactions that are not orderly. The guidance emphasizes that even
if there has been a significant decrease in the volume and level of activity,
the objective of a fair value measurement remains the same. Fair
value is the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction (that is, not a forced liquidation or
distressed sale) between market participants. The guidance provides a
number of factors to consider when evaluating whether there has been a
significant decrease in the volume and level of activity for an asset or
liability in relation to normal market activity. In addition, when
transactions or quoted prices are not considered orderly, adjustments to those
prices based on the weight of available information may be needed to determine
the appropriate fair value. The guidance is effective for interim or
annual reporting periods ending after June 15, 2009, and shall be applied
prospectively. The Company adopted this guidance effective for the
quarter ending June 30, 2009. There is no impact of the adoption on
the Company’s financial statements as of September 30, 2009.
In April
2009, FASB issued guidance in the Financial Instruments Topic of the
Codification on interim disclosures about fair value of financial
instruments. The guidance requires disclosures about the fair value
of financial instruments for both interim reporting periods, as well as annual
reporting periods. The guidance is effective for all interim and
annual reporting periods ending after June 15, 2009 and shall be applied
prospectively. The adoption of this guidance had no impact on our
financial statements as of September 30, 2009, other than the additional
disclosure.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
The FASB
issued guidance in the Subsequent Events Topic of the Codification in May
2009. The guidance is intended to establish general standards of
accounting for, and disclosure of, events that occur after the balance sheet
date but before financial statements are issued. It requires the
disclosure of the date through which an entity has evaluated subsequent events
and the basis for that date. The guidance is effective for interim or annual
financial periods ending after June 15, 2009 and is required to be adopted
prospectively. The Company adopted this guidance effective for the
quarter ending June 30, 2009. The adoption of this guidance had no
impact on its financial statements as of September 30, 2009, other than the
additional disclosure.
In June
2009, the FASB issued guidance which will amend the Consolidation Topic of the
Codification. The guidance addresses the effects of eliminating the
qualifying special-purpose entity (QSPE) concept and responds to concerns over
the transparency of enterprises’ involvement with variable interest entities
(VIEs). The guidance is effective beginning on January 1,
2010. The Company does not expect the adoption of this guidance to
have an impact on its financial statements.
In August
2009, the FASB issued Accounting Standards Update No. 2009-05, “Measuring
Liabilities at Fair Value” (ASU 2009-05). ASU 2009-05 amends the Fair
Value Measurements and Disclosures Topic of the FASB Accounting Standards
Codification by providing additional guidance clarifying the measurement of
liabilities at fair value. ASU 2009-05 is effective for us for the
reporting period ending December 31, 2009. The Company does not
expect the adoption of ASU 2009-05 to have an impact on its financial
statements.
3.
|
INVENTORIES
|
Inventories
consist of the following at:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Finished
goods
|
$ | 1,466,381 | $ | 581,970 | ||||
Raw
Materials
|
109,247 | 130,084 | ||||||
Less:
inventory valuation allowance
|
(48,748 | ) | (207,045 | ) | ||||
Inventories,
net
|
$ | 1,526,880 | $ | 505,009 |
4.
|
OTHER
CURRENT ASSETS
|
Other
current assets at September 30, 2009 and December 31, 2008 consist of prepaid
slotting fees, deposits on purchases, prepaid insurance, other accounts
receivable and accrued interest receivable.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
5.
|
PROPERTY,
FIXTURES, AND EQUIPMENT
|
Property,
fixtures and equipment consist of the following at:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Furniture,
fixtures and equipment
|
$ | 275,883 | $ | 228,332 | ||||
Less:
accumulated depreciation
|
(85,064 | ) | (44,979 | ) | ||||
Total
|
$ | 190,819 | $ | 183,353 |
Depreciation
expense amounted to $40,035 and $20,000 during the first nine months of 2009 and
2008, respectively
6.
|
OTHER
LONG-TERM ASSETS
|
Other
long-term assets consist of the following at:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Long
term deposit on office lease
|
$ | 18,840 | $ | 18,840 | ||||
Intangible
assets
|
41,500 | 41,500 | ||||||
Less:
Impairment of intangible assets
|
(41,500 | ) | (41,500 | ) | ||||
Total
|
$ | 18,840 | $ | 18,840 |
7.
|
NOTE
RECEIVABLE
|
Note
receivable from Golden Gate Investors, Inc. (“GGI”) was as of September 30, 2009
and December 31, 2008, nil and $250,000, respectively. On September 8, 2009, the
Company and GGI agreed to amend the underlying securities purchase agreement by
which the note receivable was netted against the convertible debenture. The
Company has an outstanding debenture to the same company in the amount of
$346,000. Also see Note 12 - Long term
debenture.
8.
|
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
|
Accounts
payable and accrued expenses consist of the following at:
September
30,
|
December
31,
|
|||||||
2009
|
2008
|
|||||||
Accounts
payable
|
$ | 708,754 | $ | 411,185 | ||||
Accrued
expenses
|
551,835 | 200,859 | ||||||
Accrued
expenses
|
94,404 | - | ||||||
Total
|
$ | 1,354,993 | $ | 612,044 |
9.
|
DUE
TO RELATED PARTIES
|
Due to
related parties consists of the following:
Notes payable
|
September
30,
|
December
31,
|
||||||
2009
|
2008
|
|||||||
The
Company entered into a loan and security agreement in December 2008 with
CD Financial, LLC, pledging all our assets as security. The line of credit
is for $1.0 million, with interest at LIBOR plus 3 percentage points. The
line expires in December 2009 and is renewable.
|
$ | 550,000 | $ | - |
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Notes payable (continued)
|
September
30,
|
December
31,
|
||||||
2009
|
2008
|
|||||||
The
Company received advances from one of its shareholders at various
instances during 2004 and 2005, $76,000 and $424,000, respectively. The
note was refinanced in September 2009 for a convertible note, see below
and Note 13.
|
$ | - | $ | 643,916 |
The
Company issued a note to CDS Ventures of Florida, LLC in August 2009. The
note was refinanced in September 2009 and carries with interest at six
percent per annum. The note is due on February 28, 2010.
|
1,000,000 | - | ||||||
The
Company’s CEO loaned the Company $50,000 in February 2006. Moreover, the
Company accrued salary for the CEO from March of 2006 through May 2007 for
a total of $171,000. In August 2008, the total debt was refinanced, has no
collateral and accrues interest at 3%; monthly payments of $5,000 are due
with a balloon payment of $64,000 in January 2011.
|
155,349 | 176,497 | ||||||
$ | 1,735,349 | $ | 820,413 | |||||
Less:
Short-term portion
|
$ | (1,580,000 | ) | $ | (120,000 | ) | ||
Long-term
portion
|
$ | 155,349 | $ | 700,413 | ||||
Convertible note payable
|
September
30,
|
December
31,
|
||||||
2009 | 2008 | |||||||
Convertible
note payable, related party see Note 13
|
1,741,296 | - | ||||||
Convertible note payable, related
party see Note 13
|
431,446 | - | ||||||
Convertible
note payable, long
term
|
$ | 2,172,742 | $ | - |
Also, see
Note 13 – Convertible Note payable, related parties, and Note 14 – Related party
transactions.
10.
|
LOANS
PAYABLE
|
Loans
payable consist of the following as of:
|
September
30,
|
December
31,
|
||||||
2009
|
2008
|
|||||||
The
Company terminated a consulting agreement and received in assignment the
rights to the trademark “Celsius” from one of its former directors.
Payment was issued in the form of an interest-free note payable for
$250,000 and 1,391,500 shares of common stock. The note called for monthly
amortization of $15,000 beginning March 30, 2007 with final payment of the
remaining outstanding balance on November 30, 2007. The Company has not
fulfilled its obligation and is paying the debt off at a slower
pace.
|
$ | 15,000 | $ | 95,000 |
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
11.
|
OTHER
LIABILITIES
|
During
2006 and 2008, the Company acquired a copier and 8 delivery vans, all of them
financed. The outstanding balance on the aggregate loans as of September 30,
2009 and December 31, 2008 was $82,561 and $101,515, respectively, of which
$22,413 and $26,493, is due during the next 12 months, respectively. The loans
carry interest ranging from 5.4% to 9.1%. The total monthly principal payment is
$2,099. The assets that were purchased are collateral for the
loans.
12.
|
CONVERTIBLE
NOTE PAYABLE, OTHER
|
On
December 19, 2007, we entered into a securities purchase agreement with Golden
Gate Investors, Inc (“GGI”). The agreement included four tranches of $1,500,000
each. The first tranche consisted of a 7.75% convertible debenture (the
“Debenture”) issued by the Company, in exchange for $250,000 in cash and a
promissory note for $1,250,000 issued by GGI which was to mature on February 1,
2012. The promissory note contained a prepayment provision which required GGI to
make prepayments of interest and principal of $250,000 monthly upon satisfaction
of certain conditions. One of the conditions to prepayment was that GGI may
immediately sell all of the Common Stock Issued at Conversion (as defined in the
Debenture) pursuant to Rule 144 of the Securities Act of 1933. The Company was
under no contractual obligation to ensure that GGI may immediately sell all of
the Common Stock Issued at Conversion pursuant to Rule 144. In the event that
GGI could not immediately sell all of the Common Stock Issued at Conversion
pursuant to Rule 144, GGI would be under no obligation to prepay the promissory
note and likewise under no obligation to exercise its conversion rights under
the Debenture. If GGI did not fully convert the Debenture by its maturity on
December 19, 2011, the balance of the Debenture was to be offset by any balance
due to the Company under the promissory note. The balance of the Debenture can
be converted at any time with a conversion price as the lower of (i) $1.00, or
(ii) 80% of the average of the three lowest daily volume weighted average price
during the 20 trading days prior to GGI’s election to convert. The Company was
not obligated to convert the amount requested to be converted into Company
common stock, if the conversion price was less than $0.20 per share. GGI’s
ownership in the company could not exceed 4.99% of the outstanding common stock.
Under certain circumstances the Company could have been forced to pre-pay the
debenture with a fifty percent penalty of the pre-paid amount.
GGI did
not make its note payment due on October 21, 2008. On September 8,
2009, the Company entered into an addendum to the agreement with GGI. The
balance of the note receivable, $250,000 was netted against the balance of the
Debenture. The outstanding balance of the debenture as of September 20, 2009 was
$346,000. All future tranches were cancelled and terminated without penalty to
either party.
The
Company recorded a debt discount of $186,619 with a credit to additional paid in
capital for the intrinsic value of the beneficial conversion feature of the
conversion option at the time of issuance. The debt discount is being amortized
over the term of the debenture. The Company recorded $34,969 as interest expense
amortizing the debt discount during the first nine months of 2009 and 2008,
respectively. The Company considered requirements by the Derivatives and Hedging
Topic of the FASB Accounting Standards Codification (“ASC”) and other guidance
and concluded that the conversion option should not be bifurcated from the host
contract and the conversion option is recorded as equity and not a
liability.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
During
2008, the Company received $1,000,000 in payment on the note receivable. From
June 2008 to June 2009, the Company converted $879,000 of the debenture to
approximately 18.0 million shares of Common Stock and the Company paid $25,000
of the debenture in cash. The outstanding liability, net of debt discount, as of
September 30, 2009 and December 31, 2008 was $242,538 and $562,570,
respectively. Subsequent to the end of the period, GGI has converted additional
$210,000 of the debenture for 700,233 shares of Common Stock.
13.
|
CONVERTIBLE
NOTE PAYABLE, RELATED PARTIES
|
The
Company entered into a loan agreement for up to $6.5 million in September, 2009
and issued a convertible note to one of its shareholders. The Company had drawn
$2.0 million as of September 20, 2009. The note carries interest of one month
LIBOR plus 3%, payable the first time on the anniversary of the agreement,
thereafter quarterly. The loan matures on September 9, 2012. The outstanding
balance can be immediately converted into the Company’s common stock at a
conversion price from September 8, 2009 through and including December 31, 2011,
equal to the lesser of (i) $0.40 per share, or (ii) the average of the ten daily
VWAPs for the 10 Trading Days immediately preceding the date on which a
conversion notice is received (defined in the note as the “Market Price”); or
(B) after December 31, 2011 the greater of (i) $0.40 per share, or
(ii) the Market Price; provided that, the conversion price shall never be less
than $0.10 (ten cents) regardless of the Market Price on the conversion date.
The Company recorded a debt discount totaling $262,500 with a credit to
additional paid in capital for the intrinsic value of the beneficial conversion
feature of the conversion option at the time of each draw on the loan. The debt
discount is being amortized over the remaining term of the debenture. The
Company recorded $3,796 as interest expense amortizing the debt discount in
September 2009. The Company considered requirements by the Derivatives and
Hedging Topic of the ASC and other guidance and concluded that the conversion
option should not be bifurcated from the host contract and the conversion option
is recorded as equity and not a liability.
The
Company entered into a refinance agreement for $615,000 in September, 2009 and
issued a convertible note to one of its shareholders. The Company restructured
an already existing note issued to the shareholder. The outstanding balance can
be immediately converted in the Company common stock at a conversion price from
September 8, 2009 through and including December 31, 2011, equal to the lesser
of (i) $0.40 per share, or (ii) the average of the ten daily VWAPs for the 10
Trading Days immediately preceding the date on which a conversion notice is
received (defined in the note as the “Market Price”); or (B) after December 31,
2011 the greater of (i) $0.40 per share, or (ii) the Market Price;
provided that, the conversion price shall never be less than $0.10 (ten cents)
regardless of the Market Price on the conversion date. The Company recorded a
debt discount totaling $184,500 with a credit to additional paid in capital for
the intrinsic value of the beneficial conversion feature of the conversion
option at the time of issuance. The debt discount is being amortized over the
term of the debenture. The Company recorded $3,758 as interest expense
amortizing the debt discount in September 2009. The Company considered
requirements by the Derivatives and Hedging Topic of the ASC and other guidance
and concluded that the conversion option should not be bifurcated from the host
contract and the conversion option is recorded as equity and not a
liability.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
14.
|
PREFERRED
STOCK
|
On August
8, 2008, the Company entered into a securities purchase agreement (“SPA1”) with
CDS Ventures of South Florida, LLC (“CDS”), an affiliate of CD Financial, LLC
(“CD”). Pursuant to SPA1, the Company issued 2,000 Series A preferred shares
(“Preferred A Shares”), as well as a warrant to purchase an additional 1,000
Preferred A Shares, for a cash payment of $1.5 million and the cancellation of
two notes in aggregate amount of $500,000 issued to CD. The Preferred A Shares
can be converted into Company common stock at any time. SPA1 was amended on
December 12, 2008 to provide that until December 31, 2010 the conversion price
is $0.08, after which the conversion price is the greater of $0.08 or 90% of the
volume weighted average price of the Common Stock for the prior 10 trading days.
Pursuant to SPA1, the Company also entered into a registration rights agreement,
pursuant to which the Company filed a registration statement for the common
stock issuable upon conversion of Preferred A Shares. The registration statement
filed in connection with the Preferred A Shares was declared effective on May
14, 2009. The Preferred A Shares accrue a ten percent annual cumulative
dividend, payable in additional Preferred A Shares. In March 2009, the Company
issued 81 Preferred A Shares in dividends. The Preferred A Shares mature on
February 1, 2013 and are redeemable only in Company Common Stock.
On
December 12, 2008, the Company entered into a second securities purchase
agreement (“SPA2”) with CDS. Pursuant to SPA2 the Company issued 2,000 Series B
preferred shares (“Preferred B Shares”), as well as a warrant to purchase
additional 2,000 Preferred B Shares, for a cash payment of $2.0 million. The
Preferred B Shares can be converted into Company common stock at any time. Until
December 31, 2010, the conversion price is $0.05, after which the conversion
price is the greater of $0.05 or 90% of the volume weighted average price of the
common stock for the prior 10 trading days. Pursuant to SPA2, the Company also
entered into a registration rights agreement, pursuant to which the Company
filed on October 9, 2009, a registration statement for the common stock issuable
upon conversion of Preferred B Shares. The Preferred B Shares accrue a ten
percent annual cumulative dividend, payable in additional Preferred B
Shares. In March 2009, the Company issued 11 Preferred B Shares in
dividends. The Preferred B Shares mature on December 31, 2013 and are redeemable
only in Company Common Stock.
On March
31, 2009, CDS exercised its right to purchase additional 2,000 Preferred B
Shares and executed a subscription agreement for $2.0 million. The monies for
the subscription were paid on April 7 and May 1, 2009.
Certain
covenants of both Series A and B preferred shares restrict the Company from
entering into additional debt arrangements or permitting liens to be filed
against the Company’s assets, without approval from the holder of the preferred
shares. There is a mandatory redemption in cash, if the Company breaches certain
covenants of the agreements. The holders have liquidation preference in case of
company liquidation. The Company has the right to redeem the preferred shares
early by the payment in cash of 104% of the liquidation preference value. The
Company may redeem Series A at any time on or after July 1, 2010 and Series B at
any time on or after January 1, 2011.
The
following table sets forth the conversion of Preferred Stock into common
stocks:
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Convertible
Stock
|
Number
shares
|
Value/share
|
Convertible
into number of common Stock
|
|||||||||
Preferred
A
|
2,081 | $ | 1,000.00 | 26,012,500 | ||||||||
Preferred
B
|
4,011 | $ | 1,000.00 | 80,220,000 | ||||||||
Total
|
106,232,500 |
The
number of shares converted into is based on the current conversion
price.
15.
|
RELATED
PARTY TRANSACTIONS
|
The CEO
has guaranteed the Company’s obligations under the factoring agreement with
Bibby Financial Services, Inc. The agreement was terminated in December 2008 and
no balance is outstanding. The CEO has also guaranteed the financing for the
Company’s offices and purchases of vehicles. The CEO has not received any
compensation for the guarantees.
The
Company entered into a 6-month lease starting October 1, 2009, for office
premises with CDR Atlantic Plaza, Ltd (“CDR”), a company controlled by Carl
DeSantis, an affiliate to the company. The total lease payments in the agreement
total $24,000.
Also, see
Note 9 – Due to related parties, 13 – Preferred Stock and 14 – Convertible note
payable, related parties.
16.
|
STOCKHOLDERS’
DEFICIT
|
Issuance
of common stock pursuant to conversion of note
In
January 2008, the Company restructured the then outstanding balance of a note
and issued 1 million unregistered shares for an equivalent value of $121,555,
and a new non-interest bearing note for $105,000. The note calls for 7 monthly
principal payments beginning March 1, 2008. The Company paid off the outstanding
balance as of December 31, 2008.
In June
2008, the Company issued 11,184,016 unregistered shares as conversion of notes
for $750,000 that were originally issued in December 2007 and April
2008.
In June
through September, 2008, the Company issued 9,107,042 as a partial conversion of
a debenture for $575,000 originally issued in December 2007. In October through
December, 2008, the Company issued 7,739,603 shares as a partial conversion of
the same debenture for $199,000. The Company issued 1,168,817 shares as a
partial conversion of the same debenture for $105,000 in May 2009.
Issuance
of common stock pursuant to services performed
In March
2008, the Company issued a total of 750,000 unregistered shares as compensation
to an international distributor at a fair value of $120,000.
In
September through December, 2008, the Company issued a total of 183,135
unregistered shares as compensation to a consultant and a distributor at a fair
value of $11,450.
During
the nine months ended September 30, 2009, the Company issued a total of 278,506
unregistered shares as compensation to a consultant and a distributor at a fair
value of $30,125.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Issuance
of common stock pursuant to exercise of warrant and stock options
On
February 15, 2008, the Company issued 16,671 shares of unregistered common stock
in accordance to its 2006 Stock Incentive Plan to an employee exercising vested
options.
On
January 13, 2009, the Company issued 16,671 shares of common stock in accordance
to its 2006 Stock Incentive Plan to an employee exercising vested
options.
In August
and September, 2009, the Company issued 2,361,894 shares of common stock in
accordance to its 2006 Stock Incentive Plan to four employees exercising vested
options.
Issuance
of common stock pursuant to private placements
In
February 2008 the Company issued a total of 3,198,529 unregistered shares of
common stock in private placements for an aggregate consideration of $298,900,
net of commissions.
In March
2008 the Company issued a total of ten million unregistered shares of common
stock in a private placement, for an aggregate consideration of $500,100. In
addition, the investor received a warrant to purchase seven million unregistered
shares of common stock during a 3-year period, at an exercise price of $0.13 per
share. Of the total consideration, $100,000 was paid in March and $400,100 was
paid on April 7, 2008.
Issuance
of preferred stock pursuant to private placement
In August
2008, the Company issued 2,000 unregistered Preferred A Shares, as well as a
warrant to purchase additional 1,000 Preferred A Shares, for a cash payment of
$1.5 million and the cancellation of two notes in aggregate amount of
$500,000.
In
December 2008, the Company issued 2,000 unregistered Preferred B Shares, as well
as a warrant to purchase additional 2,000 Preferred B Shares, for a cash payment
of $2.0 million.
On March
31, 2009, CDS exercised its right to purchase additional 2,000 Preferred B
Shares and executed a subscription agreement for $2 million payment. CDS made
payments of $1 million each on April 7 and May 1, 2009.
Also, see
Note 13 – Preferred Stock.
17.
|
STOCK-BASED
COMPENSATION
|
The
Company adopted an Incentive Stock Plan on January 18, 2007. This plan is
intended to provide incentives which will attract and retain highly competent
persons at all levels as employees of the Company, as well as independent
contractors providing consulting or advisory services to the Company, by
providing them opportunities to acquire the Company's common stock or to receive
monetary payments based on the value of such shares pursuant to Awards issued.
While the plan terminates 10 years after the adoption date, issued options have
their own schedule of termination. Until 2017, options to acquire up to 16.0
million shares of common stock may be granted at no less than fair market value
on the date of grant. Upon exercise, shares of new common stock are issued by
the Company.
At
September 30, 2009, the Company has issued approximately 15.9 million options to
purchase shares at an average price of $0.07 with a fair value of $725,000. For
the nine months ended September 30, 2009 and 2008, respectively, the Company
recognized $346,826 and $165,140 of non-cash compensation expense, respectively,
(included in General and Administrative expenses in the accompanying
Consolidated Statement of
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Operations).
As of September 30, 2009 and December 31, 2008, the Company had approximately
$2.8 million and $192,000, respectively, of unrecognized pre-tax non-cash
compensation expense which the Company expects to recognize, based on a
weighted-average period of 1.5 and 0.9 years, respectively. The Company used the
Black-Scholes option-pricing model and straight-line amortization of
compensation expense over the two to three year requisite service or vesting
period of the grant. There are options to purchase approximately 5.8 million
shares that have vested, and 2.4 million shares were exercised as of September
30, 2009. The following is a summary of the assumptions used:
Risk-free interest rate
|
1.6%
- 4.9%
|
|
Expected dividend yield
|
—
|
|
Expected
term
|
3 –
5 years
|
|
Expected
annual volatility
|
73% - 167%
|
In March,
2008, the Company issued a total of 750,000 unregistered shares as compensation
to an international distributor at a fair value of $120,000.
In
September through December, 2008, the Company issued a total of 183,135
unregistered shares as compensation to a consultant and a distributor at a fair
value of $11,450. During the nine months ended September 30, 2009, the Company
issued a total of 278,506 unregistered shares as compensation to a consultant
and a distributor at a fair value of $30,125.The consultant will receive
additional shares with fair value of $2,000 monthly as long as the consultancy
agreement continues.
18.
|
WARRANTS
|
An
investment banking firm received, as placement agent for financing received from
Fusion Capital Fund II, LLC (“Fusion Capital”), a warrant to purchase 75,000
shares at a price of $1.31 per share. If unexercised, the warrant expires on
June 22, 2012.
In March,
2008 the Company issued a total of 10,000,000 unregistered shares of common
stock in a private placement, for an aggregate consideration of $500,100. In
addition, the investor received a warrant to purchase seven million unregistered
shares of common stock at an exercise price of $0.13 per share. If unexercised,
the warrant expires on March 28, 2011.
On August
8, 2008, the Company entered into a securities purchase agreement with CDS, as
further described in Note 13 – Preferred Stock. In connection with the security
purchase, CDS received a warrant to purchase an additional 1,000 Preferred A
Shares, at a price of $1,000 per share. If unexercised, the warrant expires on
July 10, 2010. The Preferred A Shares can be converted into our common stock at
any time. Until the December 31, 2010, the conversion price is $0.08, after
which the conversion price is the greater of $0.08 or 90% of the volume weighted
average price of the common stock for the prior 10 trading days. The Preferred A
Shares accrue ten percent annual cumulative dividend, payable in additional
Preferred A Shares.
On
December 12, 2008, the Company entered into a second securities purchase
agreement with CDS, as further described in Note 13 – Preferred Stock. In
connection with the security purchase, CDS received a warrant to purchase an
additional 2,000 Preferred B Shares, at a price of $1,000 per share, which was
exercised in full on March 31, 2009. The Preferred B Shares can be converted
into our common stock at any time. Until December 31, 2010, the conversion price
is $0.05, after which the conversion price is the greater of $0.05 or 90% of the
volume weighted average price of the common stock for the prior 10 trading days.
The Preferred B Shares accrue a ten percent annual cumulative dividend, payable
in additional Preferred B Shares. On March 31, 2009, CDS exercised its warrant.
See also Note 13 – Preferred Stock.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
Period
Ended September 30, 2009
|
Year
Ended December 31, 2008
|
|||||||||||||||
Thousands
of
|
Weighted
Average
|
Thousands
of
|
Weighted
Average
|
|||||||||||||
Warrants
|
Exercise
Price
|
Warrants
|
Exercise
Price
|
|||||||||||||
Balance
at the beginning of period
|
59,575 | $ | 0.07 | 75 | $ | 1.31 | ||||||||||
Granted
|
— | — | 59,500 | $ | 0.07 | |||||||||||
Exercised
|
(40,000 | ) | $ | 0.05 | — | — | ||||||||||
Expired
|
— | — | — | — | ||||||||||||
Balance
at the end of period
|
19,575 | $ | 0.10 | 59,575 | $ | 0.07 | ||||||||||
Warrants
exercisable at end of period
|
19,575 | $ | 0.10 | 59,575 | $ | 0.07 | ||||||||||
Weighted
average fair value of the
|
||||||||||||||||
warrants
granted during the year
|
— | $ | 0.03 |
The
weighted average remaining contractual life and weighted average exercise price
of warrants outstanding and exercisable at September 30, 2009, for selected
exercise price ranges, is as follows:
Range of
Exercise
Price
|
|
Number
Outstanding at
September
30,
2009
(000s)
|
|
Weighted
Average
Remaining Life
|
|
Weighted
Average
Exercise
Price
|
$0.08
|
|
12,500
|
|
1.0
|
$0.08
|
|
$0.13
|
|
7,000
|
|
1.7
|
$0.13
|
|
$1.31
|
|
75
|
|
3.0
|
$1.31
|
|
|
19,575
|
|
1.5
|
$0.10
|
19.
|
COMMITMENTS
AND CONTINGENCIES
|
The
Company has entered into distribution agreements with liquidated damages in case
the Company cancels the distribution agreements without cause. Cause has been
defined in various ways. In one such distribution agreement, the liquidated
damages are payable in common stock rather than cash. If such agreement is
terminated without cause, the potential liability is to have to issue shares to
the distributor at a purchase price of $0.06. The quantity of shares depends on
this distributor’s purchases from the Company as compared to the Company’s total
revenue. It is managements’ belief that no liability for liquidated damages
exists as of today’s date.
20.
|
BUSINESS
AND CREDIT CONCENTRATION
|
Substantially
all of the Company’s revenue is derived from the sale of the Celsius
beverage.
Celsius
Holdings, Inc. and Subsidiaries
Notes
to Unaudited Condensed Consolidated Financial Statements
(continued)
The
Company uses single supplier relationships for its raw materials purchases,
which potentially subjects the Company to a concentration of business risk. If
these suppliers had operational problems or ceased making product available to
the Company, operations could be adversely affected. No vendor accounted for
more than 10% of total payments in 2009.
From
April to June, 2008, the Company sold in one order to one international customer
15.9% of the Company’s total revenue for the year 2008. There is no assurance
that this customer will order again. There were three customers in the nine
months ended September 30, 2009, that each accounts for more than 10% of the
Company’s net revenue for the period.
21.
|
SUBSEQUENT
EVENTS
|
After
quarter end GGI converted additional $210,000 of the convertible debenture to
700,233 shares of Common Stock.
1900
NW Corporate Blvd., Suite 210 East
Boca
Raton, Florida 33431
Tel.
561-886-4200
Fax.
561-886-3330
e-mail:info@sherbcpa.com
|
|
SHERB & CO., LLP |
Offices in New
York and Florida
|
Certified
Public Accountants
REPORT OF
INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors
Celsius
Holdings, Inc.
We have
audited the accompanying consolidated balance sheets of Celsius Holdings,
Inc. and Subsidiaries as of December 31, 2008 and 2007, respectively, and the
related consolidated statements of operations, changes in stockholders' equity
(deficit) and cash flows for the years ended December 31, 2008 and 2007,
respectively. These consolidated financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on
these financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The Company is not required
to have, nor were we engaged to perform, an audit of its internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company's internal control over
financial reporting. Accordingly we express no such opinion. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statements presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the financial position of the Company and subsidiaries
as of December 31, 2008 and 2007, respectively, and the results of their
operations and cash flows for the years ended December 31, 2008, and 2007,
respectively, in conformity with accounting principles generally accepted in the
United States of America.
The
accompanying consolidated financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note 2 to the
consolidated financial statements, the Company has suffered losses from
operations, and has an accumulated deficit and net cash used in operations of
$4,840,152 for the year ended December 31, 2008. This raises substantial doubt
about its ability to continue as a going concern. Management's plans in regards
to these matters are described in Note 2 to the consolidated financial
statements. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ Sherb & Co., LLP
Certified
Public Accountants
Boca
Raton, Florida
February
23, 2009
Celsius
Holdings, Inc. and Subsidiaries
|
||||||||
Consolidated
Balance Sheets
|
||||||||
December
31,
|
December
31,
|
|||||||
|
2008
|
2007
|
||||||
ASSETS | ||||||||
Current
assets:
|
||||||||
Cash
and cash equivalents
|
$ | 1,040,633 | $ | 257,482 | ||||
Accounts
receivable, net
|
192,779 | 276,877 | ||||||
Inventories,
net
|
505,009 | 578,774 | ||||||
Other
current assets
|
12,155 | 44,960 | ||||||
Total
current assets
|
1,750,576 | 1,158,093 | ||||||
|
||||||||
Property,
fixtures and equipment, net
|
183,353 | 64,697 | ||||||
Note
receivable
|
250,000 | 1,250,000 | ||||||
Other
long-term assets
|
18,840 | 60,340 | ||||||
Total
Assets
|
$ | 2,202,769 | $ | 2,533,130 | ||||
|
||||||||
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
||||||||
Current
liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
$ | 612,044 | $ | 594,828 | ||||
Loans
payable
|
95,000 | 710,307 | ||||||
Deposit
from customer
|
- | 400,000 | ||||||
Short
term portion of other liabilities
|
26,493 | 7,184 | ||||||
Convertible
note payable, net of debt discount
|
- | 199,692 | ||||||
Due
to related parties, short-term portion
|
120,000 | 896,721 | ||||||
Total
current liabilities
|
853,537 | 2,808,732 | ||||||
|
||||||||
Convertible
note payable, net of debt discount
|
562,570 | 1,314,914 | ||||||
Due
to related parties, long-term portion
|
700,413 | - | ||||||
Other
liabilities
|
75,022 | 14,236 | ||||||
Total
Liabilities
|
2,191,542 | 4,137,882 | ||||||
|
||||||||
Stockholders’
Equity (Deficit):
|
||||||||
Preferred
stock, $0.001 par value; 50,000,000 shares
authorized,
|
||||||||
4,000
shares and 0 shares issued and outstanding,
respectively
|
4,000,000 | - | ||||||
Common
stock, $0.001 par value: 350,000,000 shares
|
||||||||
authorized,
149 million and 106 million shares
|
||||||||
issued
and outstanding, respectively
|
148,789 | 105,611 | ||||||
Additional
paid-in capital
|
7,244,806 | 4,410,405 | ||||||
Accumulated
deficit
|
(11,382,368 | ) | (6,120,768 | ) | ||||
Total
Stockholders’ Equity (Deficit)
|
11,227 | (1,604,752 | ) | |||||
Total
Liabilities and Stockholders’ Equity (Deficit)
|
$ | 2,202,769 | $ | 2,533,130 |
Celsius
Holdings, Inc. and Subsidiaries
|
||||||||
Consolidated
Statements of Operations
|
||||||||
For
the years ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Revenue
|
$ | 2,589,887 | $ | 1,644,780 | ||||
Cost
of revenue
|
1,833,184 | 1,033,971 | ||||||
Gross
profit
|
756,703 | 610,809 | ||||||
Operating
expenses:
|
||||||||
Selling
and marketing expenses
|
3,936,552 | 2,100,687 | ||||||
General
and administrative expenses
|
1,740,143 | 1,554,510 | ||||||
Termination
of contract expense
|
- | 500,000 | ||||||
Total
operating expenses
|
5,676,695 | 4,155,197 | ||||||
Operating
loss
|
(4,919,992 | ) | (3,544,388 | ) | ||||
Other
expenses:
|
||||||||
Interest
income
|
70,441 | 7,837 | ||||||
Interest
expense, related party
|
(773 | ) | (75,647 | ) | ||||
Interest
expense, other, net
|
(411,276 | ) | (113,643 | ) | ||||
Total
other expenses
|
(341,608 | ) | (181,453 | ) | ||||
Net
loss
|
$ | (5,261,600 | ) | $ | (3,725,841 | ) | ||
Loss
per share, basic and diluted
|
$ | (0.04 | ) | $ | (0.04 | ) | ||
Weighted
average shares outstanding -
|
||||||||
basic
and diluted
|
128,703,645 | 100,688,634 |
Celsius
Holdings, Inc. and Subsidiaries
|
||||||||||||||||||||||||||||
Consolidated
Statements of Changes in Stockholders’ Equity
(Deficit)
|
||||||||||||||||||||||||||||
for
the Years Ended December 31, 2008 and 2007
|
||||||||||||||||||||||||||||
Additional
|
||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Paid-In
|
Accumulated
|
Total
|
||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Deficit
|
|||||||||||||||||||||||
Balance
at December 31, 2006
|
- | $ | - | 69,575,000 | $ | 69,575 | $ | 705,425 | $ | (2,394,927 | ) | $ | (1,619,927 | ) | ||||||||||||||
Effect
of recapitalization due to merger
|
24,000,000 | 24,000 | 329,117 | 353,117 | ||||||||||||||||||||||||
Issuance
of common stock in exchange of note
|
500,000 | 500 | 249,500 | 250,000 | ||||||||||||||||||||||||
Issuance
of common stock for cash
|
5,013,800 | 5,014 | 1,777,720 | 1,782,734 | ||||||||||||||||||||||||
Exercise
of warrants
|
3,557,812 | 3,558 | 496,442 | 500,000 | ||||||||||||||||||||||||
Shares
issued as compensation for services
|
1,572,246 | 1,572 | 196,928 | 198,500 | ||||||||||||||||||||||||
Shares
issued for termination of contract
|
1,391,500 | 1,392 | 273,154 | 274,546 | ||||||||||||||||||||||||
Beneficial
conversion feature of debt instrument
|
243,838 | 243,838 | ||||||||||||||||||||||||||
Stock
option expense
|
138,281 | 138,281 | ||||||||||||||||||||||||||
Net
loss
|
(3,725,841 | ) | (3,725,841 | ) | ||||||||||||||||||||||||
Balance
at December 31, 2007
|
- | - | 105,610,358 | 105,611 | 4,410,405 | (6,120,768 | ) | (1,604,752 | ) | |||||||||||||||||||
Issuance
of preferred stock for cash
|
3,500 | 3,500,000 | 3,500,000 | |||||||||||||||||||||||||
Issuance
of stock in exchange of note
|
500 | 500,000 | 29,030,661 | 29,030 | 1,550,533 | 2,079,563 | ||||||||||||||||||||||
Issuance
of common stock for cash
|
13,198,529 | 13,198 | 785,802 | 799,000 | ||||||||||||||||||||||||
Exercise
of stock options
|
16,671 | 17 | 295 | 312 | ||||||||||||||||||||||||
Shares
issued as compensation
|
933,135 | 933 | 130,517 | 131,450 | ||||||||||||||||||||||||
Beneficial
conversion feature of debt instrument
|
170,460 | 170,460 | ||||||||||||||||||||||||||
Stock
option expense
|
196,794 | 196,794 | ||||||||||||||||||||||||||
Net
loss
|
(5,261,600 | ) | (5,261,600 | ) | ||||||||||||||||||||||||
Balance
at December 31, 2008
|
4,000 | $ | 4,000,000 | 148,789,354 | $ | 148,789 | $ | 7,244,806 | $ | (11,382,368 | ) | $ | 11,227 | |||||||||||||||
Celsius
Holdings, Inc. and Subsidiaries
|
||||||||
Consolidated
Statements of Cash Flows
|
||||||||
For
the Years Ended December 31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (5,261,600 | ) | $ | (3,725,841 | ) | ||
Adjustments
to reconcile net loss to net cash
|
||||||||
used
in operating activities:
|
||||||||
Depreciation
|
31,605 | 11,658 | ||||||
Loss
on disposal of assets
|
804 | - | ||||||
Adjustment
to allowance for doubtful accounts
|
53,101 | - | ||||||
Adjustment
to reserve for inventory obsolescence
|
190,601 | 16,444 | ||||||
Impairment
of intangible assets
|
41,500 | 26,000 | ||||||
Termination
of contract
|
- | 500,000 | ||||||
Issuance
of stock options
|
196,794 | 138,281 | ||||||
Amortization
of debt discount
|
211,245 | 7,732 | ||||||
Issuance
of shares as compensation
|
131,450 | 198,500 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
receivable
|
30,997 | (148,558 | ) | |||||
Inventories
|
(116,836 | ) | (30,119 | ) | ||||
Prepaid
expenses and other assets
|
32,805 | (8,906 | ) | |||||
Accounts
payable and accrued expenses
|
17,382 | 64,123 | ||||||
Deposit
from customer
|
(400,000 | ) | 400,000 | |||||
Net
cash used in operating activities
|
(4,840,152 | ) | (2,550,686 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Purchases
of intangible assets
|
- | (41,500 | ) | |||||
Purchases
of property, fixtures and equipment
|
(151,065 | ) | (46,164 | ) | ||||
Net
cash used in investing activities
|
(151,065 | ) | (87,664 | ) | ||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from sale of common stock
|
799,312 | 1,782,734 | ||||||
Proceeds
from sale of preferred stock
|
3,500,000 | - | ||||||
Proceeds
from issuance of convertible notes
|
990,900 | 500,000 | ||||||
Proceeds
from exercise of warrants
|
- | 500,000 | ||||||
Proceeds
from recapitalization due to merger
|
- | 353,117 | ||||||
Repayment
of note to stockholders
|
- | ( 621,715 | ) | |||||
Proceeds
from note receivable
|
1,000,000 | - | ||||||
Proceeds
from loans payable
|
743,552 | 483,891 | ||||||
Repayment
of loans payable
|
(1,183,087 | ) | (24,325 | ) | ||||
Repayment
of note to related parties
|
(76,309 | ) | (106,449 | ) | ||||
Net
cash provided by financing activities
|
5,774,368 | 2,867,253 | ||||||
Increase
in cash
|
783,151 | 228,903 | ||||||
Cash,
beginning of year
|
257,482 | 28,579 | ||||||
Cash,
end of year
|
$ | 1,040,633 | $ | 257,482 | ||||
Supplemental disclosures of
cash flow information:
|
||||||||
Cash
paid during the year for interest
|
$ | 190,826 | $ | 107,364 | ||||
Cash
paid during the year for taxes
|
$ | - | $ | - |
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
1.
ORGANIZATION
AND DESCRIPTION OF BUSINESS
Business
—Celsius Holdings, Inc. (f/k/a Vector Ventures Corp., the “Company”) was
incorporated under the laws of the State of Nevada on April 26,
2005. The Company was formed to engage in the acquisition,
exploration and development of natural resource properties. On December 26, 2006
the Company amended its Articles of Incorporation to change its name from Vector
Ventures Corp. as well as increase the authorized shares to 350,000,000, $0.001
par value common shares and 50,000,000, $0.001 par value preferred
shares.
Prior to
January 26, 2007, the Company was in the exploration stage with its activities
limited to capital formation, organization, development of its business plan and
acquisition of mining claims. On January 24, 2007, the Company
entered into a merger agreement and plan of reorganization with Celsius, Inc., a
Nevada corporation and wholly-owned subsidiary of the Company (“Sub”), Elite FX,
Inc., a Florida corporation (“Elite”), and Steve Haley, the “Indemnifying
Officer” and “Securityholder Agent” of Elite, (the “Merger Agreement”). Under
the terms of the Merger Agreement Elite was merged into Sub and became a
wholly-owned subsidiary of the Company on January 26, 2007 (the
“Merger”).
Under the
terms of the Merger Agreement, the Company issued:
·
|
70,912,246
shares of its common stock to the stockholders of Elite, including
1,337,246 shares of common stock issued as compensation, as full
consideration for the shares of
Elite;
|
·
|
warrants
to Investa Capital Partners Inc. to purchase 3,557,812 shares of common
stock of the Company for $500,000. The warrants were exercised in February
2007;
|
·
|
1,391,500
shares of its common stock as partial consideration for termination of a
consulting agreement and assignment of certain trademark rights to the
name “Celsius”;
|
·
|
options
to purchase 10,647,025 shares of common stock of the Company in
substitution for the options currently outstanding in
Elite;
|
·
|
1,300,000
shares of its common stock concurrent with the Merger in a private
placement to non-US resident investors for aggregate consideration of
US$650,000 which included the conversion of a $250,000 loan to the
Company.
|
Celsius
Holdings, Inc’s majority stockholder, Mr. Kristian Kostovski, cancelled
7,200,000 shares of common stock of the Company held by him shortly after the
close of the Merger Agreement.
For
financial accounting purposes, the Merger was treated as a recapitalization of
Celsius Holdings, Inc with the former stockholders of the Celsius Holdings,
Inc retaining approximately 24.6% of the outstanding stock. This
transaction has been accounted for as a reverse acquisition and accordingly the
transaction has been treated as a recapitalization of Elite FX, Inc., with
Elite FX, Inc. as the accounting acquirer. The historical financial
statements are a continuation of the financial statements of the accounting
acquirer, and any difference of the capital structure of the merged entity as
compared to the accounting acquirer’s historical capital structure is due to the
recapitalization of the acquired entity.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
2.
BASIS
OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going
Concern — The accompanying consolidated financial statements are
presented on a going concern basis. The Company has suffered losses from
operations and has an accumulated deficit and net cash used in operations of
$4,840,152 for the year ended December 31, 2008. This raises substantial doubt
about its ability to continue as a going concern. Management is currently
seeking new capital or debt financing to provide funds needed to increase
liquidity, fund growth, and implement its business plan. However, no assurances
can be given that the Company will be able to raise any additional funds. If not
successful in obtaining financing, the Company will have to substantially
diminish or cease its operations. The financial statements do not include any
adjustments that might result from the outcome of this uncertainty.
Consolidation
Policy — The accompanying consolidated financial statements include the
accounts of Celsius Holdings, Inc. and subsidiaries. All material inter-company
balances and transactions have been eliminated in consolidation.
Significant
Estimates — The preparation of consolidated financial statements in
conformity with accounting principles generally accepted in the United States of
America requires management to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue and expenses and disclosure of
contingent assets and liabilities at the date of the financial statements.
Actual results could differ from those estimates.
Concentrations of
Risk — Substantially all of the Company’s revenue derives from the sale
of the Celsius beverage.
The
Company uses single supplier relationships for its raw materials purchases and
filling capacity, which potentially subjects the Company to a concentration of
business risk. If these suppliers had operational problems or ceased making
product available to the Company, operations could be adversely
affected.
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash and cash equivalents. The Company places its cash
and cash equivalents with high-quality financial institutions. At times,
balances in the Company’s cash accounts may exceed the Federal Deposit Insurance
Corporation limit.
Cash and Cash
Equivalents — The Company considers all highly liquid instruments with
maturities of three months or less when purchased to be cash equivalents. At
December 31, 2008, the Company did not have any investments with maturities
greater than three months.
Accounts
Receivable — Accounts receivable are reported at net realizable value.
The Company establishes an allowance for doubtful accounts based upon factors
pertaining to the credit risk of specific customers, historical trends, and
other information. Delinquent accounts are written-off when it is determined
that the amounts are uncollectible. At December 31, 2008 and December 31 2007,
there was an allowance for doubtful accounts of $53,101 and $0,
respectively.
Inventories
— Inventories include only the purchase cost and are stated at the lower of cost
or market. Cost is determined using the FIFO method. Inventories consist of raw
materials and finished products. The Company writes down inventory during the
period in which such materials and products are no longer usable or marketable.
At December 31, 2008 and December 31, 2007, there was a reserve for
obsolescence of $207,045 and $16,444, respectively.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Property,
Fixtures, and
Equipment — Furniture, fixtures and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation of furniture, fixtures,
and equipment is calculated using the straight-line method over the estimated
useful life of the asset generally ranging from three to seven
years.
Impairment of
Long-Lived Assets — Asset impairments are recorded when the carrying
values of assets are not recoverable.
The
Company reviews long-lived assets to be held and used for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable or at least annually. If the sum of the undiscounted
expected future cash flows is less than the carrying amount of the asset, the
Company recognizes an impairment loss. Impairment losses are measured as the
amount by which the carrying amount of assets exceeds the fair value of the
asset. When fair values are not available, the Company estimates fair value
using the expected future cash flows discounted at a rate commensurate with the
risks associated with the recovery of the asset.
Intangible
Assets — Intangible assets consist of the web domain name Celsius.com and
other trademarks and trade names, and are subject to annual impairment tests.
This analysis will be performed in accordance with Statement of Financial
Standards (‘‘SFAS’’) No. 142, Goodwill and Other Intangible Assets. Based
upon impairment analyses performed in accordance with SFAS No. 142 in
fiscal years 2008 and 2007, impairment was recorded of $41,500 and $26,000,
respectively. The impairment recorded was for expenses for trademarks, domain
names and international registration of trademarks.
Revenue
Recognition — Revenue is recognized when the products are delivered,
invoiced at a fixed price and the collectability is reasonably assured. Any
discounts, sales incentives or similar arrangements with the customer are
estimated at time of sale and deducted from revenue.
Advertising
Costs — Advertising costs are expensed as incurred. The Company uses
mainly radio, local sampling events and printed advertising. The Company
incurred advertising expense of $1.6 million and $535,000, during the fiscal
years 2008 and 2007, respectively.
Research and
Development — Research and development costs are charged to operations as
incurred and consists primarily of consulting fees, raw material usage and test
productions of beverages. The Company incurred expenses of
$261,000 and $214,000, during the fiscal years 2008 and 2007,
respectively.
Fair Value of
Financial Instruments — The carrying value of cash and cash equivalents,
accounts receivable, and accounts payable approximates fair value. The carrying
value of debt approximates the estimated fair value due to floating interest
rates on the debt.
Income
Taxes — Income taxes are accounted for using an asset and liability
approach that requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been recognized in
the Company’s financial statements or tax returns. In estimating future tax
consequences, the Company generally considers all expected future events other
than changes in the tax law or rates. A valuation allowance is recorded when it
is deemed more likely than not that a deferred tax asset will be not
realized.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Earnings per
Share —
Basic earnings per share are calculated by dividing income available to
stockholders by the weighted-average number of common shares outstanding during
each period. Diluted earnings per share are computed using the weighted average
number of common and dilutive common share equivalents outstanding during the
period. Dilutive common share equivalents consist of shares issuable upon
conversion of preferred shares, exercise of stock options and warrants
(calculated using the reverse treasury stock method). Common share equivalents
outstanding were 86,130,991 and 8,534,864, as of December 31, 2008 and
2007, respectively.
Reclassifications —
Certain prior year amounts have been reclassified to conform to the current year
presentation. Such reclassifications had no effect on the reported net
loss.
Share-Based
Payments — In December 2004, the FASB issued SFAS No.
123(R) "Share-Based Payment," (“SFAS 123(R)”), which replaces SFAS No. 123
and supersedes APB Opinion No. 25. Under SFAS 123(R), companies are required to
measure the compensation costs of share-based compensation arrangements based on
the grant-date fair value and recognize the costs in the financial
statements over the period during which employees are required to provide
services. Share-based compensation arrangements include stock options,
restricted share plans, performance-based awards, share appreciation rights and
employee share purchase plans. In March 2005, the SEC issued Staff Accounting
Bulletin No.107 "SAB 107'. SAB 107 expresses views of the staff regarding the
interaction between SFAS 123(R) and certain SEC rules and regulations and
provides the staffs views regarding the valuation of share-based payment
arrangements for public companies. Effective January 1, 2006, the Company
has fully adopted the provisions of SFAS 123(R) and related interpretations as
provided by SAB 107. As such, compensation cost is measured on the date of grant
as the fair value of the share-based payments. Such compensation amounts, if
any, are amortized over the respective vesting periods of the option
grant.
Recent Accounting
Pronouncements
In
September 2006, the FASB issued Statement of Financial Standards
No. 157, "Fair Value Measurements" (“SFAS 157”). SFAS
157 defines fair value, establishes a framework for measuring fair
value in
accordance with accounting principles generally accepted
in the United States, and expands disclosures about fair
value measurements. This statement does not require any
new fair value measurements; rather, it applies under other
accounting pronouncements that require or permit fair value
measurements. The provisions of SFAS 157 are effective for fiscal years
beginning after November 15, 2007. The adoption of SFAS 157 did not
have a material impact on the Company's consolidated financial
position or results of operations.
In
February 2007, FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities” (“SFAS 159”).
SFAS 159 permits entities to choose to measure many financial instruments
and certain other items at fair value and establishes presentation and
disclosure requirements designed to facilitate comparisons between entities that
choose different measurement attributes for similar types of assets and
liabilities. SFAS 159 is effective for financial statements issued for
fiscal years beginning after November 15, 2007. The adoption of SFAS
159 did not have on the Company’s consolidated financial position and results of
operations.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (“SFAS
141R”). SFAS 141R significantly changes the accounting for business combinations
in a number of areas including the treatment of contingent consideration,
pre-acquisition contingencies, transaction costs, in-process research and
development, and restructuring costs. In addition, under SFAS 141R, changes in
an acquired entity’s deferred tax assets and uncertain tax positions after the
measurement period will impact income tax expense. SFAS 141R is effective for
fiscal years beginning after December 15, 2008. The Company does not
anticipate that the adoption of SFAS 141R will have a material impact on its
results of operations or financial condition.
In
December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in
Consolidated Financial Statements, an amendment of ARB No 51 (“SFAS
160”). SFAS 160 changes the accounting and reporting for minority interests,
which will be recharacterized as noncontrolling interests and classified as a
component of equity. This new consolidation method significantly changes the
accounting for transactions with minority interest holders. SFAS 160 is
effective for fiscal years beginning after December 31, 2008. These
standards will change our accounting treatment for business combinations on a
prospective basis.
In April
2008, the FASB issued FSP FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” This guidance is intended to improve the consistency
between the useful life of a recognized intangible asset under
SFAS No. 142, “Goodwill and Other Intangible Assets”, and the period
of expected cash flows used to measure the fair value of the asset under
SFAS No. 141R when the underlying arrangement includes renewal or
extension of terms that would require substantial costs or result in a material
modification to the asset upon renewal or extension. Companies estimating the
useful life of a recognized intangible asset must now consider their historical
experience in renewing or extending similar arrangements or, in the absence of
historical experience, must consider assumptions that market participants would
use about renewal or extension as adjusted for SFAS No. 142’s
entity-specific factors. This standard is effective for fiscal years beginning
after December 15, 2008, and is applicable to the Company’s fiscal year
beginning January 1, 2008. The Company does not anticipate that the adoption of
this FSP will have a material impact on its results of operations or financial
condition.
In March
2008 and May 2008, respectively, the FASB issued the following statements of
financial accounting standards, none of which is anticipated to have a material
impact on the Company’s results of operations or financial
position:
·
|
SFAS No. 161,
“Disclosures about
Derivative Instruments and Hedging Activities — an amendment of FASB
Statement
No. 133;”
|
·
|
SFAS No. 162,
“The Hierarchy of
Generally Accepted Accounting Principles;”
and
|
·
|
SFAS
No. 163, “Accounting for Financial
Guarantee Insurance Contracts-an interpretation of FASB Statement No.
60.”
|
3.
INVENTORIES
Inventories
consist of the following at:
December
31,
|
December 31, | |||||||
2008
|
2007 | |||||||
Finished
goods
|
$ | 581,970 | $ | 407,972 | ||||
Raw
Materials
|
130,084 | 187,246 | ||||||
Less:
inventory valuation allowance
|
(207,045 | ) | (16,444 | ) | ||||
Inventories,
net
|
$ | 505,009 | $ | 578,774 | ||||
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
4.
OTHER
CURRENT ASSETS
Other
current assets at December 31, 2008 and December 31, 2007 consist of deposits on
purchases, prepaid insurance, other accounts receivable and accrued interest
receivable.
5.
PROPERTY,
FIXTURES, AND EQUIPMENT
Property,
fixtures and equipment consist of the following at:
December
31,
2008
|
December
31,
2007
|
|||||||
Furniture,
fixtures and equipment
|
$ | 228,332 | $ | 78,425 | ||||
Less:
accumulated depreciation
|
(44,979 | ) | (13,728 | ) | ||||
Total
|
$ | 183,353 | $ | 64,697 |
Depreciation
expense amounted to $31,605 and $11,658 during the fiscal years 2008 and
2007, respectively.
6.
OTHER
LONG-TERM ASSETS
Other
long-term assets consist of the following at:
December
31,
2008
|
December
31,
2007
|
|||||||
Long
term deposit on office lease
|
$ | 18,840 | $ | 18,840 | ||||
Intangible
assets
|
41,500 | 41,500 | ||||||
Less:
Impairment of intangible assets
|
(41,500 | ) | - | |||||
Total
|
$ | 18,840 | $ | 60,340 | ||||
7.
NOTE
RECEIVABLE
Note
receivable from Golden Gate Investors, Inc. (“GGI”) was as of December 31, 2008
and December 31, 2007, $250,000 and $1,250,000, respectively. The note is due on
February 1, 2012, under certain circumstances GGI is obligated to monthly prepay
$250,000 on the note. During 2008, GGI made four monthly prepayments. As of
December 31, 2008 GGI is not obligated to prepay the note. The prerequisites to
obligate GGI to prepay the note are outside of the Company’s control and may
exist at a future date. The note accrues 8% interest per annum. The
Company has an outstanding debenture to the same company in the amount of
$701,000. Also see Note 14 - Long term
debenture
8.
ACCOUNTS
PAYABLE AND ACCRUED EXPENSES
Accounts
payable and accrued expenses consist of the following at:
December
31,
2008
|
December
31,
2007
|
|||||||
Accounts
payable
|
$ | 411,185 | $ | 466,047 | ||||
Accrued
expenses
|
200,859 | 128,781 | ||||||
Total
|
$ | 612,044 | $ | 594,828 |
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
9.
DUE
TO RELATED PARTIES
Due to
related parties consists of the following as of:
December
31,
|
December
31,
|
|||||||
2008
|
2007
|
|||||||
The
Company received advances from one of its shareholders at various
instances during 2004 and 2005, $76,000 and $424,000, respectively. In
July, 2008, the debt was refinanced, has no collateral and accrues
interest at the prime rate. Monthly amortization of $5,000 is due and a
balloon payment of approximately $606,000 is due in January
2010.
|
$ | 643,916 | $ | 669,111 | ||||
The
Company’s CEO loaned the Company $50,000 in February 2006. Moreover, the
Company accrued salary for the CEO from March of 2006 through May 2007 for
a total of $171,000. In August 2008, the total debt was refinanced, has no
collateral and accrues interest at 3%; monthly payments of $5,000 are due
with a balloon payment of $64,000 in January 2011.
|
176,497 | 227,610 | ||||||
$ | 820,413 | $ | 896,721 | |||||
Less:
Short-term portion
|
$ | (120,000 | ) | $ | (896,721 | ) | ||
Long-term
portion
|
$ | 700,413 | $ | - |
Also, see
Note 16 – Related party transactions.
10. LOANS
PAYABLE
Loans
payable consist of the following as of:
December
31,
|
December
31,
|
||||||||||
2008
|
2007
|
||||||||||
a. |
The
Company renewed its financing agreement for inventory on February 28,
2008. The line of credit was for $500,000 and carried an interest charge
of 1.5 percent of the outstanding balance and a monitoring fee of 0.5
percent of the previous month’s average outstanding balance. The line of
credit had as collateral all of the Company’s assets. The Company
terminated the credit agreement and paid balance owed in December
2008.
|
$ | - | $ | 222,092 | ||||||
b. |
The
Company renewed its factoring agreement for the Company’s accounts
receivable during the first quarter of 2008. The maximum finance amount
under the agreement was $500,000. Each factoring of accounts receivable
has a fixed fee of one and a half percent of the invoice amount, a minimum
fee per month and an interest charge of prime rate plus three percent on
the outstanding balance under the credit agreement. The line of credit had
as collateral all of the Company’s assets. The Company terminated the
factoring agreement and paid balance owed in November
2008.
|
- | 102,540 |
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
December
31,
|
December
31,
|
||||||||||
2008
|
2007
|
||||||||||
c.
|
In
April 2, 2007 the Company received a $250,000 loan from Brennecke Partners
LLC. In January, 2008 the Company restructured the then outstanding
balance of the note and issued 1 million shares for an equivalent value of
$121,555, and a new non-interest bearing note for $105,000. The Company
paid the balance owed in December, 2008.
|
- | 225,675 | ||||||||
d.
|
The
Company terminated a consulting agreement and received in assignment the
rights to the trademark “Celsius” from one of its former directors.
Payment was issued in the form of an interest-free note payable for
$250,000 and 1,391,500 shares of common stock. The note called for monthly
amortization of $15,000 beginning March 30, 2007 with final payment of the
remaining outstanding balance on November 30, 2007.
|
95,000 | 160,000 | ||||||||
$ | 95,000 | $ | 710,307 |
11. DEPOSIT
FROM CUSTOMER
During
2007, the Company received $400,000 from an international customer as deposit on
future orders. The deposit was used in its entirety to pay for product shipped
in April and June of 2008. The current balance as of December 31, 2008 and
December 31, 2007 was $0 and $400,000, respectively.
12. CONVERTIBLE
AND OTHER NOTE PAYABLE
On
December 18, 2007 the Company issued a $250,000 convertible note to CD Financial
LLC (“CD”). The loan incurs eight percent interest per annum, and the note was
due on April 16, 2008. The note can be converted to Company common stock after
February 16, 2008 at a rate equal to seventy five percent of the average of the
previous five days volume weighted average price for trading of the common
stock, nevertheless, in no case can the note be converted to more than 25
million shares of common stock. At the time of recording the note a beneficial
conversion feature for the conversion option was recorded in the amount $57,219,
of which $6,199 was amortized in 2007, and $51,020 in 2008. Total outstanding as
of December 31, 2007 was $199,692, which is net of debt discount of $51,020. On
April 4, 2008 the Company received an additional $500,000 from CD on the same
terms as the first note, also extending the due date of the first note. At the
time of recording the second note a beneficial conversion feature for the
conversion option was recorded as a debt discount in the amount $154,835. On
June 10, 2008, the total amount of $750,000 was converted to 11,184,016 shares
of Common Stock. The Company amortized $106,948 of the debt discount as interest
expense; the remaining balance of the debt discount at time of conversion
reduced the amount credited to equity.
On June
5, 2008, the Company issued a third convertible note for $250,000 to CD. On July
15, 2008 the Company issued a fourth convertible note for $250,000 to
CD. The notes carry 8 percent interest. At the time of recording the
first note a beneficial conversion feature for the conversion option was
recorded in the amount $15,625, of which $6,621 was amortized in June of 2008.
On August 8, 2008, the convertible notes in the aggregate amount of $500,000
were cancelled and exchanged as partial consideration for preferred stock issued
to CDS Ventures of South Florida, LLC, an affiliate of CD.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In
December 2008, the Company entered into a $1 million revolving line of credit
with CD and it carries interest of Libor plus three percentage points. In
connection with this line of credit, the Company entered into a loan and
security agreement under which it has pledged all of its assets as security for
the line of credit. At December 31, 2008, there was no outstanding balance for
the line of credit.
In
November and December 2008, the Company received loans from CD in the amount of
$450,000 and $200,000, respectively. These loans incurred 10 percent interest
per annum and were paid off in December 2008.
13. OTHER
LIABILITY
During
2006 and 2008, the Company acquired a copier and 8 delivery vans, all of them
financed. The outstanding balance on the aggregate loans as of December 31, 2008
and December 31, 2007 was $101,515 and $21,420, respectively, of which $26,493
and $7,184, is due during the next 12 months, respectively. The loans carry
interest ranging from 5.4% to 9.1%. The total monthly principal payment is
$2,099. The assets that were purchased are collateral for the
loans.
14. LONG
TERM DEBENTURE
On
December 19, 2007, the Company entered into a $6 million security purchase
agreement (the “Security Agreement”) with Golden Gate Investors, Inc (“GGI”),
a California corporation. Under the Security Agreement, the Company
issued as a first tranche a $1.5 million convertible debenture maturing on
December 19, 2011. The debenture accrues seven and 3/4 percent interest per
annum. As consideration the Company received $250,000 in cash and a
note receivable for $1,250,000. The note receivable accrues eight percent
interest per annum and is due on February 1, 2012. The note has a pre-payment
obligation of $250,000 per month when certain criteria are fulfilled. The
Company is not obligated to convert the debenture to shares, partially or in
full, unless GGI prepays the respective portion of its obligation under the
note. The Security Agreement contains three more identical tranches for a total
agreement of $6 million. Each new tranche can be started at any time by GGI
during the debenture period which is defined as between December 19, 2007 until
the balance of the existing debentures is $250,000 or less. Either party can,
with a penalty payment of $45,000 for the Company, and $100,000 for GGI, cancel
any or all of the three pending tranches.
The
debenture is convertible to common shares at a conversion rate of eighty percent
of the average of the three lowest volume weighted average prices for the
previous 20 trading days. The Company is not obligated to convert the amount
requested to be converted into Company common stock, if the conversion price is
less than $0.20 per share. GGI’s ownership in the company cannot exceed 4.99% of
the outstanding common stock. Under certain circumstances the Company may be
forced to pre-pay the debenture with a fifty percent penalty of the pre-paid
amount.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
Company recorded a debt discount of $186,619 with a credit to additional paid in
capital for the intrinsic value of the beneficial conversion feature of the
conversion option at the time of issuance. The debt discount is being amortized
over the term of the debenture. The Company recorded $46,656 and $1,533 as
interest expense amortizing the debt discount during 2008 and 2007,
respectively. The Company considered SFAS 133 and EITF 00-19 and concluded that
the conversion option should not be bifurcated from the host contract according
to SFAS 133 paragraph 11 a, and concluded that according to EITF 00-19 the
conversion option is recorded as equity and not a liability.
During
2008, the Company received $1,000,000 in payment on the note receivable. In June
to December, 2008, the Company converted $774,000 of the debenture to
approximately 16.9 million shares of Common Stock and the Company paid $25,000
of the debenture in cash.
The
outstanding liability, net of debt discount, as of December 31, 2008 and
December 31, 2007 was $562,570 and $1,314,914, respectively.
15. PREFERRED
STOCK
On August
8, 2008, the Company entered into a securities purchase agreement (“SPA1”) with
CDS Ventures of South Florida, LLC (“CDS”), an affiliate of CD Financial, LLC
(“CD”). Pursuant to the SPA, the Company issued 2,000 Series A preferred shares
(“Preferred A Shares”), as well as a warrant to purchase an additional 1,000
Preferred A Shares, for a cash payment of $1.5 million and the cancellation of
two notes in aggregate amount of $500,000 issued to CD. The Preferred A Shares
can be converted into Company common stock at any time; until December 31, 2010,
(as amended on December 12, 2008), the conversion price is $0.08, after which
the conversion price is the greater of $0.08 or 90% of the volume weighted
average price of the Common Stock for the prior 10 trading days. Pursuant to the
SPA1, the Company entered into a registration rights agreement under which the
company agreed to file a registration statement for the common stock issuable
upon conversion of Preferred Shares. The Preferred A Shares accrue a ten percent
annual cumulative dividend, payable in additional Preferred A Shares. The
Preferred A Shares mature on February 1, 2013 and is redeemable only in Company
Common Stock.
On
December 12, 2008, the Company entered into a securities purchase agreement
(“SPA2”) with CDS. Pursuant to the SPA2 the Company issued 2,000 Series B
preferred shares (“Preferred B Shares”), as well as a warrant to purchase
additional 2,000 Preferred B Shares, for a cash payment of $2.0 million. The
Preferred B Shares can be converted into Company common stock at any time, until
December 31, 2010, the conversion price is $0.05, after which the conversion
price is the greater of $0.05 or 90% of the volume weighted average price of the
common stock for the prior 10 trading days. Pursuant to the SPA2, the Company
entered into a registration rights agreement under which the company agreed to
file a registration statement for the common stock issuable upon conversion of
Preferred B Shares. The Preferred B Shares accrue a ten percent annual
cumulative dividend, payable in additional Preferred B Shares. The
Preferred B Shares mature on December 31, 2013 and is redeemable only in Company
Common Stock.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Certain
covenants of both Series A and B preferred shares restrict the Company to enter
into additional debt or to permit liens to be filed against the Company’s
assets, without approval from the holder of the preferred shares. There is a
mandatory redemption in cash, if the Company breaches certain covenants of the
agreements. The holders have liquidation preference in case of company
liquidation. The Company has the right to redeem the preferred shares early in
cash at 104% of the liquidation preference value for Series A, any date after
July 1, 2010 and for Series B, any date after January 1, 2011.
16. RELATED
PARTY TRANSACTIONS
The CEO
has guaranteed the Company’s obligations under the factoring agreement with
Bibby Financial Services, Inc. (“Bibby”), the outstanding balance to Bibby as of
December 31, 2008 and December 31, 2007 was $0 and $102,540, respectively.
The CEO has also guaranteed the financing for the Company’s offices and
purchases of vehicles. The CEO has not received any compensation for the
guarantees.
The COO
of the Company lent the Company $50,000 in February 2008, the loan was repaid in
March 2008. The COO also purchased in February 2008, 781,250 shares in a private
placement for a total consideration of $75,000.
The CFO
of the Company lent the Company $25,000 in February 2008, the loan was repaid in
February 2008. The CFO also purchased in February 2008, 245,098 shares in a
private placement for a total consideration of $25,000.
The Vice
President of Strategic Accounts and Business Development purchased in February
2008, 245,098 shares in a private placement for a total consideration of
$25,000.
Also, see
Note 9 – Due to related parties.
17. STOCKHOLDERS’
DEFICIT
Issuance
of common stock pursuant to conversion of note
During
2007, the Company issued 500,000 shares as conversion of a note for $250,000, or
an average price of $0.50 per share.
In
January 2008, the Company restructured the then outstanding balance of a note
and issued 1 million unregistered shares for an equivalent value of $121,555,
and a new non-interest bearing note for $105,000. The note calls for 7 monthly
principal payments beginning March 1, 2008. The Company paid off the outstanding
balance as of December 31, 2008.
In June
2008, the Company issued 11,184,016 unregistered shares as conversion of notes
for $750,000 that were originally issued in December 2007 and April
2008.
In June
through September, 2008, the Company issued 9,107,042 as a partial conversion of
a debenture for $575,000 originally issued in December 2007. In October through
December, 2008, the Company issued 7,739,603 shares as a partial conversion of
the same debenture for $199,000.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Issuance
of common stock pursuant to services performed and termination of
contract
During
2007 the Company issued 1,572,246 shares as compensation to employees,
consultants and service providers. The total consideration recorded was $198,500
or an average of $0.13 per share.
In
January, 2007, the Company issued 1,391,500 shares to a director as part of the
consideration for termination of a consulting contract. The total consideration
recorded was $274,546, or an average of $0.20 per share.
In March
2008, the Company issued a total of 750,000 unregistered shares as compensation
to an international distributor at a fair value of $120,000.
In
September through December, 2008, the Company issued a total of 183,135
unregistered shares as compensation to a consultant and a distributor at a fair
value of $11,450.
Issuance
of common stock pursuant to exercise of warrant and stock options
In
February 2007, an investor exercised its warrant to purchase 3,557,812 shares
for a total consideration of $500,000, or an average of $0.14 per
share.
On
February 15, 2008 the Company issued 16,671 shares of unregistered common stock
in accordance to its 2006 Stock Incentive Plan to an employee exercising vested
options.
Issuance
of common stock pursuant to private placements
On June
22, 2007, the Company entered into a $16 million common stock purchase agreement
(the “Purchase Agreement”) with Fusion Capital Fund II, LLC (“Fusion”), an
Illinois limited liability company. Under the Purchase Agreement, the Company
received $500,000 from Fusion Capital on the signing of the agreement and
received additional $500,000 on July 20, 2007 when a registration statement
related to the transaction was filed with the SEC. Concurrently with entering
into the Purchase Agreement, the Company entered into a registration rights
agreement (the “Registration Agreement”) with Fusion. Under the Registration
Agreement, we filed a registration statement with the SEC covering the shares
that have been issued or may be issued to Fusion under the common stock purchase
agreement. The SEC declared effective the registration statement on October 12,
2007 and the Company has the right over a 25-month period to sell our shares of
common stock to Fusion from time to time in amounts between $100,000 and $1
million, depending on certain conditions as set forth in the agreement, up to an
additional $15 million.
In
consideration for entering into the $16 million Purchase Agreement, which
provides for up to $15 million of future funding as well as the $1 million of
funding prior to the registration statement being declared effective by the SEC,
we agreed to issue to Fusion 3,168,305 shares of our common stock. The purchase
price of the shares related to the $15 million of future funding will be based
on the prevailing market prices of the Company’s shares at the time of sales
without any fixed discount, and the Company will control the timing and amount
of any sales of shares to Fusion. Fusion shall not have the right or the
obligation to purchase any shares of our common stock on any business day that
the price of our common stock is below $0.45. The Purchase Agreement may be
terminated by us at any time at our discretion without any cost to us. The
Company has sold to Fusion 795,495 shares for a total consideration of $400,000,
before expenses related to the share issuances.
During
2007, the Company issued 5,013,800 shares to investors for a total consideration
of approximately $1,783,000.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
In
February 2008 the Company issued a total of 3,198,529 unregistered shares of
common stock in private placements for an aggregate consideration of $298,900,
net of commissions.
In March
2008 the Company issued a total of ten million unregistered shares of common
stock in a private placement, for an aggregate consideration of $500,100. In
addition, the investor received a warrant to purchase seven million unregistered
shares of common stock during a 3-year period, at an exercise price of $0.13 per
share. Of the total consideration, $100,000 was paid in March and $400,100 was
paid on April 7, 2008.
Issuance
of preferred stock pursuant to private placement
In August
2008, the Company issued 2,000 unregistered Preferred A Shares, as well as a
warrant to purchase additional 1,000 Preferred A Shares, for a cash payment of
$1.5 million and the cancellation of two notes in aggregate amount of
$500,000.
In
December 2008, the Company issued 2,000 unregistered Preferred B Shares, as well
as a warrant to purchase additional 2,000 Preferred B Shares, for a cash payment
of $2.0 million.
Also, see
Note - 15 Preferred stock.
18. INCOME
TAXES
For the
years ended December 31, 2008 and 2007, the Company’s net tax provision was
zero.
The
difference between the effective income tax rate and the United States federal
income tax rate is summarized as follows:
2008
|
2007
|
|||||||
Statutory
federal rate
|
(34.0 | %) | (34.0 | %) | ||||
State
income tax
|
(3.6 | %) | (3.6 | %) | ||||
Effect
of permanent differences
|
3.0 | % | 1.6 | % | ||||
Change
in valuation allowance
|
34.6 | % | 36.0 | % | ||||
0.0 | % | 0.0 | % |
The
deferred tax asset consisted of the following at December 31:
2008
|
2007
|
|||||||
Net
operating losses
|
$ | 3,803,000 | $ | 2,156,000 | ||||
Other
deferred tax assets
|
206,000 | 79,000 | ||||||
Valuation
allowance
|
(4,009,000 | ) | ( 2,235,000 | ) | ||||
Total
|
$ | 0 | $ | 0 | ||||
In
assessing the ability to realize a portion of deferred tax assets, management
considers whether it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The ultimate realization of deferred
tax assets is dependent upon the generation of future taxable income during the
periods in which those temporary differences become deductible. Management
considers the scheduled reversal of deferred tax liabilities and projected
future taxable income in making the assessment. The valuation allowance for
deferred tax assets as of December 31, 2008 and December 31, 2007 was
$4.0 million and $2.2 million, respectively. The increase in valuation allowance
was $1.8 million and $1.3 million in 2008 and 2007, respectively. The increase
in valuation allowance was primarily attributable to the increase in net
operating losses. The Company has recorded a valuation allowance at December 31,
2008 of $4.0 million or 100% of the assets.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Net
operating loss carry forwards expire:
2024
|
$ | 95,699 | ||
2025
|
787,446 | |||
2026
|
1,392,190 | |||
2027
|
3,303,187 | |||
2028
|
4,528,859 | |||
Total
|
$ | 10,107,381 | ||
The
Company’s net operating loss carry forwards may be limited due to ownership
changes pursuant to Internal Revenue Code section 382.
In July
2006, the FASB issued Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes – an Interpretation of FASB Statement No. 109” ((“FIN48”). This
Interpretation prescribes a consistent recognition threshold and measurement
standard, as well as clear criteria for subsequently recognizing, derecognizing
and measuring tax positions for financial statement purposes. The Interpretation
also requires expanded disclosure with respect to uncertainties as they relate
to income tax accounting. Fin 48 is effective for fiscal years beginning after
December 15, 2006. Management has evaluated all of its tax positions and
determined that FIN 48 did not have a material impact on the Company’s financial
position or results of operations during its year ended December 31,
2008.
19. STOCK-BASED
COMPENSATION
The
Company adopted an Incentive Stock Plan on January 18, 2007. This plan is
intended to provide incentives which will attract and retain highly competent
persons at all levels as employees of the Company, as well as independent
contractors providing consulting or advisory services to the Company, by
providing them opportunities to acquire the Company's common stock or to receive
monetary payments based on the value of such shares pursuant to Awards issued.
While the plan terminates 10 years after the adoption date, issued options have
their own schedule of termination. Until 2017, options to acquire up to 16.0
million shares of common stock may be granted at no less than fair market value
on the date of grant. Upon exercise, shares of new common stock are issued by
the Company.
The
Company has issued approximately 13.4 million options to purchase shares at an
average price of $0.07 with a fair value of $527,000. For the year ended
December 31, 2008 and December 31, 2007, the Company recognized $196,794 and
$138,000, respectively, of non-cash compensation expense (included in General
and Administrative expense in the accompanying Consolidated Statement of
Operations). As of December 31, 2008 and December 31, 2007, the Company had
approximately $192,000 and $488,000, respectively, of unrecognized pre-tax
non-cash compensation expense which the Company expects to recognize, based on a
weighted-average period of 0.9 years. The Company used the Black-Scholes
option-pricing model and straight-line amortization of compensation expense over
the two to three year requisite service or vesting period of the grant. There
are options to purchase approximately 5.1 million shares that have vested, and
16,671 shares were exercised as of December 31, 2008. The following is a summary
of the assumptions used:
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
Risk-free interest rate
|
1.7%
- 4.9%
|
|
Expected dividend yield
|
—
|
|
Expected
term
|
3 –
5 years
|
|
Expected
annual volatility
|
73% - 82%
|
Elite FX
granted on January 19, 2007, prior to the merger with Celsius Holdings, Inc,
equivalent to 1,337,246 shares of common stock in the Company, to its Chief
Financial Officer as starting bonus for accepting employment with the Company.
The Company valued the grant of stock based on fair value of the shares, which
was estimated as the value of shares in the most recent transaction of the
Company’s shares. The Company recognized the expense upon issuance of the
grant.
In
March, 2008, the Company issued a total of 750,000 shares as compensation to an
international distributor at a fair value of $120,000. The same agreement can
give the distributor 750,000 additional shares if certain sales targets are met,
or if the stock price of the Company is 45 cents or greater for a period of 5
trading days, whichever occurs first.
During
2008 the Company issued a total of 183,135 shares as compensation to a
consultant and a distributor at a fair value of $11,450. The consultant will
receive additional shares with fair value of $2,000 monthly as long as the
consultancy agreement continues. The distributor can receive additional shares
depending on its purchases until end of March 2009.
The
following table summarizes information about options for purchase of shares;
granted, exercised and forfeited during the two-year period ending
December 31, 2008:
Shares
|
Weighted
Average
|
Weighted
Average
Remaining
Contractual
|
||||||||||||||
(in
|
Exercise
|
Fair
|
Term
|
|||||||||||||
Options
|
thousands)
|
Price
|
Value
|
(in years)
|
||||||||||||
at
December 31, 2006
|
— | $ | — | $ | — | |||||||||||
Granted
|
11,872 | 0.09 | 0.05 | |||||||||||||
Exercised
|
— | — | — | |||||||||||||
Forfeiture
|
(201 | ) | 0.02 | 0.01 | ||||||||||||
At
December 31, 2007
|
11,671 | $ | 0.02 | $ | 0.05 | 6.7 | ||||||||||
Granted
|
2,970 | 0.11 | 0.07 | |||||||||||||
Exercised
|
(17 | ) | 0.02 | 0.01 | ||||||||||||
Forfeiture
|
(1,177 | ) | 0.45 | 0.26 | ||||||||||||
At
December 31, 2008
|
13,447 | $ | 0.07 | $ | 0.04 | 5.9 | ||||||||||
Exercisable
at December 31, 2008
|
5,088 | $ | 0.07 | $ | 0.04 | 5.1 | ||||||||||
Available
for future grant
|
2,475 |
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
The
following table summarizes information about options outstanding at
December 31, 2008:
Range of Exercise
Price
|
Number
Outstanding at
December 31,
2008
(000s)
|
Weighted
Average
Remaining Life
|
Weighted
Average
Exercise
Price
|
Number
Exercisable at
December 31,
2008
(000s)
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Life
in
Years
|
||||
$ | 0.02 |
10,162
|
5.4
|
$ |
0.02
|
3,488
|
|
$
|
0.02
|
|
5.4
|
|
$ | 0.08 - $0.11 |
2,835
|
5.9
|
$ |
0.11
|
1,450
|
|
$
|
0.11
|
|
4.3
|
|
$ | 0.23 - $0.60 |
50
|
8.8
|
$ |
0.42
|
17
|
|
$
|
0.42
|
|
8.8
|
|
$ | 0.84 - $1.10 |
400
|
8.5
|
$ |
0.91
|
133
|
|
$
|
0.91
|
|
8.5
|
|
13,447
|
5.6
|
$ |
0.07
|
5,088
|
|
$
|
0.07
|
|
5.1
|
The
following table summarizes information about non-vested options outstanding at
December 31, 2008:
|
Number
of
|
Weighted
average Grant
|
||||||
Total
Non-vested options
|
shares
(000s)
|
Date Fair Value
|
||||||
At
December 31, 2006
|
- | - | ||||||
Granted
|
11,872 | $ | 0.05 | |||||
Vested
|
(134 | ) | 0.01 | |||||
Forfeited
|
(201 | ) | 0.01 | |||||
At
December 31, 2007
|
11,537 | $ | 0.06 | |||||
Granted
|
2,970 | $ | 0.07 | |||||
Vested
|
(5,171 | ) | 0.05 | |||||
Forfeited
|
(977 | ) | 0.27 | |||||
At
December 31, 2008
|
8,359 | $ | 0.04 |
20. STOCK
OPTIONS AND WARRANTS
Under the
terms of the Merger Agreement with Vector Ventures, Corp., see further Note 1 to
the Consolidated Financial Statements, the Company issued warrants to Investa
Capital Partners Inc. representing 3,557,812 shares of Common Stock of the
Company, which were exercised on February 9, 2007 for an aggregate consideration
of $500,000 in cash.
An
investment banking firm received, as placement agent for the Fusion Capital
financing, a warrant to purchase 75,000 shares at a price of $1.31 per share. If
unexercised, the warrant expires on June 22, 2012.
In March,
2008 the Company issued a total of 10,000,000 unregistered shares of common
stock in a private placement, for an aggregate consideration of $500,100. In
addition, the investor received a warrant to purchase seven million unregistered
shares of common stock at an exercise price of $0.13 per share. If unexercised,
the warrant expires on March 28, 2011.
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
On August
8, 2008, the Company entered into a securities purchase agreement with CDS, as
further described in Note 15 to the Consolidated Financial Statements. In
connection with the security purchase, CDS received a warrant to purchase an
additional 1,000 Preferred A Shares, at a price of $1,000 per share. If
unexercised, the warrant expires on July 10, 2010. The Preferred A Shares can be
converted into our common stock at any time; until the December 31, 2010, (as
amended on December 12, 2008), the conversion price is $0.08, after which the
conversion price is the greater of $0.08 or 90% of the volume weighted average
price of the common stock for the prior 10 trading days. The Preferred A Shares
accrue ten percent annual cumulative dividend, payable in additional Preferred A
Shares.
On
December 12, 2008, the Company entered into another securities purchase
agreement with CDS, as further described in Note 15 to the Consolidated
Financial Statements. In connection with the security purchase, CDS received a
warrant to purchase an additional 2,000 Preferred B Shares, at a price of $1,000
per share. If unexercised, the warrant expires on December 31,
2009. The Preferred B Shares can be converted into our common stock
at any time. Until December 31, 2010, the conversion price is $0.05,
after which the conversion price is the greater of $0.05 or 90% of the volume
weighted average price of the common stock for the prior 10 trading days. The
Preferred B Shares accrue a ten percent annual cumulative dividend, payable in
additional Preferred B Shares.
Year
Ended December 31, 2008
|
Year
Ended December 31, 2007
|
|||||||||||||||
Thousands
of
|
Weighted
Average
|
Thousands
of
|
Weighted
Average
|
|||||||||||||
Warrants
|
Exercise Price
|
Warrants
|
Exercise Price
|
|||||||||||||
Balance
at the beginning of year
|
75 | $ | 1.31 | — | $ | — | ||||||||||
Granted
|
59,500 | $ | 0.07 | 3,633 | $ | 0.16 | ||||||||||
Exercised
|
— | — | 3,558 | $ | 0.14 | |||||||||||
Expired
|
— | — | — | — | ||||||||||||
Balance
at the end of year
|
59,575 | $ | 0.07 | 75 | $ | 1.31 | ||||||||||
Warrants
exercisable at end of year
|
59,575 | $ | 0.07 | 75 | $ | 1.31 | ||||||||||
Weighted
average fair value of the
warrants
granted during the year
|
$ | 0.03 | $ | 1.85 |
The
weighted average remaining contractual life and weighted average exercise price
of warrants outstanding and exercisable at December 31, 2008, for selected
exercise price ranges, is as follows:
Range of Exercise
Price
|
|
Number
Outstanding at
December 31,
2008
(000s)
|
|
Weighted
Average
Remaining Life
|
Weighted
Average
Exercise
Price
|
|
|
$0.05
|
|
40,000
|
|
1.0
|
$0.05
|
|
|
$0.08
|
|
12,500
|
|
1.5
|
$0.08
|
|
|
$0.13
|
|
7,000
|
|
2.2
|
$0.13
|
|
|
$1.31
|
|
75
|
|
3.6
|
$1.31
|
|
|
|
59,575
|
|
1.3
|
$0.07
|
CELSIUS
HOLDINGS, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS (continued)
21. OPERATING
LEASES
The
Company entered into a new office lease effective October 2008. The monthly rent
amounts to $6,717 per month and the lease terminates in September 2009. Future
annual minimum payments required under operating lease obligations at December
31, 2008 are as follows:
Future Minimum Lease Payments | ||||
2009
|
$
|
60,453 | ||
2010
and thereafter
|
0 | |||
Total
|
$
|
60,453 |
22. COMMITMENTS
AND CONTINGENCIES
The
Company has entered into distribution agreements with liquidated damages in case
the Company cancels the distribution agreements without cause. Cause has been
defined in various ways. It is the management belief that no such agreement has
created any liability as of today’s date.
There is
one agreement that also has liquidated damages, but instead of a monetary
damage, the potential liability is to have to issue shares to the distributor at
a purchase price of $0.06. The quantity of shares depends on this distributor’s
purchases from the Company as compared to the Company’s total
revenue.
23. BUSINESS
AND CREDIT CONCENTRATION
Substantially
all of the Company’s revenue derives from the sale of the Celsius
beverage.
The
Company uses single supplier relationships for its raw materials purchases and
filling capacity, which potentially subjects the Company to a concentration of
business risk. If these suppliers had operational problems or ceased making
product available to the Company, operations could be adversely affected. No
vendor accounted for more than 10% of total payments.
During
2008, the Company sold in one order to one international customer 15.9% of the
Company’s total revenue for the year. There is no assurance that this customer
will order again.
24. NON-CASH
INVESTING AND FINANCING ACTIVITIES
For
the years ended December 31,
|
2008
|
2007
|
||||||
Issuance
of shares for note payable
|
$ | 2,079,563 | $ | 250,000 | ||||
Debt
discount for beneficial conversion feature
|
$ | 170,460 | $ | 243,838 | ||||
Issuance
of debenture for note receivable
|
$ | - | $ | 1,250,000 | ||||
Issuance
of shares for termination of contract
|
$ | - | $ | 274,546 | ||||
Issuance
of notes payable for termination of contract
|
$ | - | $ | 250,000 |
We
have not authorized any dealer, salesperson or other person to provide any
information or make any representations about Celsius Holdings, Inc.
except the information or representations contained in this prospectus.
You should not rely on any additional information or representations if
made.
|
PROSPECTUS
____________________
900,000
Units
Each
Unit Consisting of
Four
Shares of Common Stock and
One
Warrant to Purchase One
Share
of Common Stock
CELSIUS
HOLDINGS, INC.
February___, 2010
Ladenburg
Thalmann & Co. Inc.
Maxim
Group LLC
|
|
This
prospectus does not constitute an offer to sell, or a solicitation of an
offer to buy any securities:
|
||
·
|
except
the securities offered by this prospectus;
|
|
·
|
in
any jurisdiction in which the offer or solicitation is not
authorized;
|
|
·
|
in
any jurisdiction where the dealer or other salesperson is not
qualified to make the offer or solicitation;
|
|
·
|
to
any person to whom it is unlawful to make the offer or solicitation;
or
|
|
·
|
to
any person who is not a United States resident or who is outside the
jurisdiction of the United States.
|
|
The
delivery of this prospectus or any accompanying sale does not imply
that:
|
||
·
|
there
have been no changes in the affairs of Celsius Holdings, Inc. after the
date of this prospectus; or
|
|
·
|
the
information contained in this prospectus is correct after the date of this
prospectus.
|
|
Until
_______ ___, 2010 (25 days after the date of this prospectus), all dealers
effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a
prospectus. This is in addition to the obligation of dealers to deliver a
prospectus when acting as
underwriters.
|
INFORMATION
NOT REQUIRED IN THE PROSPECTUS
ITEM
13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
SEC
registration fee
|
$ | 1,693.00 | ||
Printing
Expenses
|
15,000.00 | |||
Accounting
fees and expenses
|
50,000.00 | |||
Legal
fees and expense
|
240,000.00 | |||
Miscellaneous
|
93,307.00 | |||
Total
|
$ | 400,000.00 |
All
amounts except for the SEC registration fee are estimates. We are paying all
expenses of the offering listed above.
ITEM
14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The
Nevada Revised Statutes and our bylaws provide for the indemnification of our
directors, officers, employees and other persons against claims and liability by
reason of serving as a director, officer or employee.
Indemnification
Under Nevada Law
Nevada
law generally permits us to indemnify our directors, officers, employees and
agents. Pursuant to the provisions of Nevada Revised Statutes 78.7502, a
corporation may indemnify its directors, officers, employees and agents as
follows:
(a) A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action, except an action by or in the right of the
corporation, by reason of the fact that he is or was a director, officer,
employee or agent of the corporation, or is or was serving at the request of the
corporation, against expenses, actually and reasonably incurred by him in
connection with the action, suit or proceeding if he: (a) is not liable for
breach of his fiduciary duties as a director or officer pursuant to Nevada
Revised Statutes 78.138; or (b) acted in good faith and in a manner which he
reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful.
(b) A
corporation may indemnify any person who was or is a party or is threatened to
be made a party to any action by or in the right of the corporation to procure a
judgment in its favor, by reason of the fact that he is or was a director,
officer, employee or agent of the corporation, or is or was serving at the
request of the corporation against expenses actually and reasonably incurred by
him in connection with the defense or settlement of the action or suit if he:
(a) is not liable for breach of his fiduciary duties pursuant to Nevada Revised
Statutes 78.138; or (b) acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the corporation.
Indemnification may not be made for any claim, issue or matter as to which such
a person has been adjudged by a court of competent jurisdiction, after
exhaustion of all appeals therefrom, to be liable to the corporation or for
amounts paid in settlement to the corporation, unless and only to the extent
that the court in which the action or suit was brought or other court of
competent jurisdiction determines upon application that in view of all the
circumstances of the case, the person is fairly and reasonably entitled to
indemnity for such expenses as the court deems proper.
(c) To
the extent that a director, officer, employee or agent of a corporation has been
successful on the merits or otherwise in defense of any action, suit or
proceeding, or in defense of any claim, issue or matter therein, the corporation
shall indemnify him against expenses, including attorneys’ fees, actually and
reasonably incurred by him in connection with the defense.
Articles
of Incorporation and Other Arrangements of the Registrant
Our
articles of incorporation provide for the indemnification of every person that
is or was a director or officer of the Company or is or was serving at the
request of the Company as a director or officer of another corporation, or as
its representative in a partnership, joint venture, trust or other enterprise.
The articles of incorporation provide that such right of indemnification shall
be a contract right which may be enforced in any manner desired by such
person.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to our directors, officers and controlling persons pursuant to the
provisions described above, or otherwise, we have been advised that in the
opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Securities Act of 1933 and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than our payment of expenses incurred or paid by our
director, officer or controlling person in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, we will, unless in the
opinion of our counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of whether such
indemnification by it is against public policy as expressed in the Securities
Act and will be governed by the final adjudication of such issue.
ITEM
15. RECENT SALES OF UNREGISTERED SECURITIES
On
January 24, 2007, we entered into a merger agreement and plan of reorganization
with Celsius, Inc., Elite FX, Inc. and Stephen C. Haley, the “Indemnifying
Officer” and “Securityholder Agent” of Elite FX, Inc. pursuant to which Elite
FX, Inc. was merged into Celsius, Inc. upon execution of the merger agreement
and thereupon became our wholly-owned subsidiary.
Under the
terms of the merger agreement, we issued:
·
|
3,478,750
shares of our common stock to the shareholders of Elite FX, Inc. as full
consideration for the shares of Elite FX,
Inc.;
|
·
|
69,575
shares of our commons stock and a promissory note in the amount of
$250,000.00 to Specialty Nutrition Group, Inc. as consideration for
termination of a consulting agreement and assignment of certain trademark
rights to the name “Celsius.”
|
These
shares of our common stock and the note qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance shares by us did not
involve a public offering. The offerings were not “public offerings” as defined
in Section 4(2) due to the insubstantial number of persons involved in the deal,
size of the offering, and manner of the offering and number of shares offered.
We did not undertake an offering in which we sold a high number of shares or
notes to a high number of investors. In addition, these securityholders agreed
to the necessary investment intent as required by Section 4(2). Based on an
analysis of the above factors, we have met the requirements to qualify for
exemption under Section 4(2) of the Securities Act of 1933 for these
transactions.
In
addition, under the terms of the merger agreement, we issued:
·
|
warrants
to Investa Capital Partners Inc. representing 177,891 shares of our common
stock which were exercised by on February 9, 2007 for an aggregate
consideration of $500,000 in cash.
|
·
|
65,000
shares of our common stock in a concurrent private placement to non-US
resident investors for aggregate consideration of US$650,000 which
included the conversion of a $250,000 loan to
us.
|
On May
15, and June 2, 2007, we issued 1,500 and 2,500 shares of our common stock,
respectively to RedChip Companies as consideration for investor relations
services. The shares were valued at $70,500 based on the then current market
price.
On June
15, 2007, we issued 1,250 shares of our common stock to Fusion Capital, LLC as
non-allocable expense reimbursement to cover such items as travel expenses and
other expenses in connection with their due diligence of a finance transaction
with us.
On June
22 and July 16, 2007, we issued a total of 158,415 shares of our common stock
for a total consideration of $1.0 million as part of the securities purchase
agreement with Fusion Capital, LLC.
In
September and October, 2007we issued a total of 12,500 shares of our commons
stock for a total consideration of $100,000 as part of a private
placement.
On
October 1, 2007, we issued 1,500 shares of our common stock as consideration for
a trademark agreement. The shares were valued at $16,500 based on the then
current market price.
On
October 25, 2007, we issued 5,000 shares of our common stock as consideration
for a licensing agreement. The shares were valued at $53,000 based on the then
current market price.
On
January 22, 2008, we 50,000 shares of our common stock and a note for $105,000
to Brennecke Partners, LLC in exchange for the note issued on April 7, 2007 and
accrued interest having an aggregate value of $225,155.
On
February 15, 2008, we issued 834 shares of our common stock in pursuant to our
2006 Stock Incentive Plan to an employee exercising vested options.
In
February 2008, we issued a total of 159,926 shares of our common stock in
private placements for an aggregate consideration of $298,900, net of
commissions.
In March
2008, we issued a total of 37,500 shares of our common stock as compensation to
an international distributor for an aggregate consideration of
$120,000.
In March 2008, we issued a
total of 500,000 shares of our common stock in a private placement, for an
aggregate consideration of $500,100. In addition, the investor received a
three-year warrant to purchase 350,000 additional shares of our common stock at
an exercise price of $2.60 per share.
In June 2008, we issued
559,201 unregistered shares of our common stock upon conversion of $750,000 in
convertible notes that were originally issued in December 2007 and April
2008.
In August 2008, we issued
100 shares of our Series A preferred stock for a consideration of $2.0 million,
of which $500,000 was paid through cancellation of two previously issued notes
of $250,000 each and a cash payment of $1.5 million.
In June
through December 2008, we issued 842,332 shares of our common stock as partial
conversion of a convertible debenture issued in December 2007.
In
September through December 2008, we issued 7,907 shares of our common stock to a
consultant with a fair value of $10,000 for services.
In
September 2008, we issued 1,250 shares of our common stock with a fair value of
$1,450 to a distributor.
In
December 2008, we issued 100 shares of our Series B preferred stock for a
consideration of $2.0 million.
In
January through December 2009, we issued 11,051 shares of our common stock to a
consultant with a fair value of $26,000 for services.
In March
2009, we issued 3,750 shares of our common stock with a fair value of $10,125 to
a distributor.
In April
and May, 2009, we issued 100 shares of our Series B preferred stock for a
consideration of $2.0 million in aggregate.
In May
2009, we issued 58,441 shares of our common stock as partial conversion of a
convertible debenture issued in December 2007.
In
October and December 2009, we issued 51,923 shares of our common stock as
partial conversion of a convertible debenture issued in December
2007.
In
November 2009, we issued 50 shares of our Series A preferred stock for a
consideration of $1.0 million in the form of cancellation of a previously issued
promissory note for $1.0 million.
In
December 2009, we issued 4,343,000 shares of common stock in conversion for
4,011 shares of Series B preferred stock and accrued dividends on the same
shares.
In
December 2009, we issued 11 shares of our Series A preferred stock in dividend
for the calendar year 2009.
We
believe that all of the foregoing sales qualified for exemption under Section
4(2) of the Securities Act of 1933 since the issuance of the securities by us
did not involve a public offering. The offerings were not “public offerings” as
defined in Section 4(2) due to the insubstantial number of persons involved in
the deal, size of the offering, and manner of the offering and number of shares
offered. We did not undertake any offering in which
we sold a high number of securities to a high number of investors. In addition,
these securityholders had and agreed to the necessary investment intent as
required by Section 4(2). Based on an analysis of the above factors, we have met
the requirements to qualify for exemption under Section 4(2) of and Regulation S
promulgated under the Securities Act of 1933 for these
transactions.
We did
not employ an underwriter in connection with the issuance of the securities
described above. We believe that the issuance of the foregoing securities was
exempt from registration under the Securities Act of 1933.
All of
the per share numbers in this Item 14 have been adjusted to give effect to the
1-for 20 reverse stock split implemented in December 2009.
ITEM
16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a)
Exhibits.
The
exhibits filed with this registration statement or incorporated herein by
reference are set forth on the “Exhibit Index” set forth elsewhere
herein.
(b)
Financial Statement Schedules.
Schedules
filed with this registration statement are set forth on the “Index to
Consolidated Financial Statements” set forth elsewhere herein.
ITEM
17. UNDERTAKINGS
The
undersigned registrant hereby undertakes:
1. To
file, during any period in which offers or sales are being made, a
post-effective amendment to this Registration Statement:
(a) To
include any Prospectus required by Section 10(a)(3) of the Securities Act of
1933, as amended (the “Securities Act”);
(b) To
reflect in the Prospectus any facts or events arising after the effective date
of this Registration Statement, or most recent post-effective amendment, which,
individually or in the aggregate, represent a fundamental change in the
information set forth in this Registration Statement; and notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospects filed with the SEC
pursuant to Rule 424(b) under the Securities Act if, in the aggregate, the
changes in the volume and price represent no more than a 20% change in the
maximum aggregate offering price set forth in the “Calculation of Registration
Fee” table in the effective registration statement; and
(c) To
include any material information with respect to the plan of distribution not
previously disclosed in this Registration Statement or any material change to
such information in the registration statement.
2. That,
for the purpose of determining any liability under the Securities Act , each
such post-effective amendment shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
3. To
remove from registration by means of a post-effective amendment any of the
securities being registered hereby which remain unsold at the termination of the
offering.
4. For
determining liability of the undersigned small business issuer under the
Securities Act to any purchaser in the initial distribution of the securities,
the undersigned small business issuer undertakes that in a primary offering of
securities of the undersigned small business issuer pursuant to this
Registration Statement, regardless of the underwriting method used to sell the
securities to the purchaser, if the securities are offered or sold to such
purchaser by means of any of the following communications, the undersigned small
business issuer will be a seller to the purchaser and will be considered to
offer or sell such securities to such purchaser:
(a) Any
preliminary Prospectus or Prospectus of the undersigned small business issuer
relating to the offering required to be filed pursuant to Rule 424 of the
Securities Act;
(b) Any
free writing Prospectus relating to the offering prepared by or on behalf of the
undersigned small business issuer or used or referred to by the undersigned
small business issuer;
(c) The
portion of any other free writing Prospectus relating to the offering containing
material information about the undersigned small business issuer or its
securities provided by or on behalf of the undersigned small business issuer;
and
(d) Any
other communication that is an offer in the offering made by the undersigned
small business issuer to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to our directors, officers and controlling persons pursuant to the
provisions above, or otherwise, we have been advised that in the opinion of the
SEC such indemnification is against public policy as expressed in the Securities
Act, and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities, other than the payment by us of
expenses incurred or paid by one of our directors, officers, or controlling
persons in the successful defense of any action, suit or proceeding, is asserted
by one of our directors, officers, or controlling persons in connection with the
securities being registered, we will, unless in the opinion of our counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question of whether such indemnification is against
public policy as expressed in the Securities Act, and we will be governed by the
final adjudication of such issue.
Each
prospectus filed pursuant to Rule 424(b) as part of a registration statement
relating to an offering, other than registration statements relying on Rule 430B
of the Securities Act or other than prospectuses filed in reliance on Rule 430A
of the Securities Act, shall be deemed to be part of and included in the
registration statement as of the date it is first used after effectiveness.
Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document
incorporated or deemed incorporated by reference into the registration statement
or prospectus that is part of the registration statement will, as to a purchaser
with a time of contract of sale prior to such first use, supersede or modify any
statement that was made in the registration statement or prospectus that was
part of the registration statement or made in any such document immediately
prior to such date of first use.
5. For
the purpose determining
any liability under the Securities Act of 1933, the information omitted from the
form of prospectus filed as part of this registration statement in reliance upon
Rule 430A and contained in a form of prospectus filed by the registrant pursuant
to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed
to be part of this registration statement as of the time it was declared
effective.
6. For
the purpose of determining any liability under the Securities Act of 1933, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
SIGNATURES
In
accordance with the requirements of the Securities Act, the registrant certifies
that it has reasonable grounds to believe that it meets all of the requirements
for filing on Form S-1 and authorized Amendment No.
2 to this Registration Statement on Form S-1 to be signed on our behalf
by the undersigned, on February 8,
2010.
Date: February 8, 2010
|
CELSIUS
HOLDINGS, INC.
|
By: /s/Stephen C.
Haley
|
|
Name:
Stephen C. Haley
|
|
Titles:Principal
Executive Officer, Chief Executive Officer and
President
|
|
By: /s/Geary
W.
Cotton
|
|
Name: Geary
W. Cotton
|
|
Titles:Principal
Financial and Accounting Officer, Chief Financial Officer, Secretary and
Treasurer
|
|
POWER
OF ATTORNEY
ALL MEN BY THESE PRESENT, that
each person whose signature appears below constitutes and appoints Stephen C.
Haley, true and lawful attorney-in-fact and agent, with full power of
substitution and re-substitution, for him and in his name, place and stead, in
any and all capacities, to sign any and all pre- or post-effective amendments to
this Registration Statement, and to file the same with all exhibits thereto, and
other documents in connection therewith, with the U.S. Securities and Exchange
Commission, granting unto said attorneys-in-fact and agents, and each of them,
full power and authority to do and perform each and every act and thing
requisite or necessary to be done in and about the premises, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorneys-in-fact and agents, or any one of them, or
their or his substitutes, may lawfully do or cause to be done by virtue hereof.
In accordance with the requirements of the Securities Act of 1933, as amended,
this Registration Statement was signed by the following persons in the
capacities and on the dates stated.
In
accordance with the Securities Act, this Registration Statement has been signed
below by the following persons on their own behalf in the capacities and on the
dates stated.
Signatures
|
Title(s)
|
Date
|
||
/s/
Stephen C. Haley
|
Chairman
of the Board, Principal Executive Officer,
|
February
8, 2010
|
||
Stephen
C. Haley
|
Chief
Executive Officer and President
|
|||
/s/
Geary W. Cotton
|
Director,
Principal Financial and Accounting Officer,
|
February
8, 2010
|
||
Geary
W. Cotton
|
Chief
Financial Officer, Secretary and Treasurer
|
|||
/s/
James Cast
|
Director
|
February
8, 2010
|
||
James
Cast
|
||||
/s/
William H. Milmoe
|
Director
|
February
8, 2010
|
||
William
H. Milmoe
|
||||
/s/
Thomas E. Lynch
|
Director
|
February
8, 2010
|
||
Thomas
E. Lynch
|
||||
/s/
Richard J Swanson
|
Director
|
February
8, 2010
|
||
Richard
J. Swanson
|
||||
/ s/ Christian A. Nast | Director | February 8, 2010 | ||
Christian A. Nast |
INDEX
TO EXHIBITS
Exhibit
No.
|
Description
|
Location
|
|
1
|
Form
of Underwriting Agreement
|
Filed
herewith
|
|
2.1
|
Agreement
and Plan of Reorganization dated January 26, 2007
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as
filed with the SEC on February 2, 2007
|
|
2.2
|
Articles
of Merger
|
Incorporated
by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K as
filed with the SEC on February 2, 2007
|
|
3.1
|
Articles
of Incorporation
|
Incorporated
by reference to Exhibit 3.1 to the Company’s Registration Statement on
Form SB-2 as filed with the SEC on November 21, 2005
|
|
3.2
|
Bylaws
|
Incorporated
by reference to Exhibit B to the Company’s Information on Form DEF-14C as
filed with the SEC on December 5, 2006
|
|
3.3
|
Articles
of Amendment
|
Incorporated
by reference to Exhibit A to the Company’s Information on Form DEF-14C as
filed with the SEC on December 5, 2006
|
|
3.4
|
Certificate
of Change
|
Incorporated
by reference to Exhibit 3.4 to the Company’s Amended filing of Form S-1 as
filed with the SEC on January 22, 2010
|
|
4.1
|
Warrant
Agreement with Joseph & Gionis LLC
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on April 7, 2008
|
|
4.2
|
Amended
Stock Option Plan Adopted
|
Incorporated
by reference to Exhibit 4.5 to the Company’s Proxy Statement filed as
Appendix A on DEF 14A filed with the SEC on May 20,
2009
|
|
4.3
|
Certificate
of Amendment to Certificate of designation
|
Incorporated
by reference to Exhibit 10.4 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2008
|
|
4.4
|
Certificate
of designation
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2008
|
|
4.5
|
Form
of Underwriter’s unit purchase option
|
Incorporated
by reference to Exhibit 4.5 to the Company’s Amended filing of Form S-1 as
filed with the SEC on January 22, 2010
|
|
4.6
|
Specimen
common stock certificate
|
Incorporated
by reference to Exhibit 4.6 to the Company’s Amended filing of Form S-1 as
filed with the SEC on January 22, 2010
|
|
4.7
|
Revised Warrant Agreement with attached form of
warrant
|
Filed
herewith
|
|
5.1
|
Opinion
of counsel
|
Incorporated
by reference to Exhibit 5.1 to the Company’s Amended filing of Form
S-1 as filed with the SEC on January 22,
2010
|
|
10.1
|
Stock
Grant Agreement with Gregory Horn
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 2, 2007
|
|
10.2
|
Promissory
Note to Special Nutrition Group, Inc.
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on February 2, 2007
|
|
10.3
|
Revised
and Restated Employment Agreement with Stephen Haley
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2009
|
|
10.4
|
Revised
and Restated Employment Agreement with Jan Norelid
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2009
|
|
10.5
|
Employment
Agreement with Richard McGee, as amended
|
Incorporated
by reference to Exhibit 10.5 to the Company’s Current Report on Form 8-K
as filed with the SEC on July 16, 2007
|
10.6
|
Revised
and Restated Employment Agreement with Janice Haley
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on December 17, 2009
|
|
10.7
|
Stock
Grant Agreement Addendum 1 with Jan Norelid
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Quarterly Report on Form
10-QSB as filed with the SEC on May 15, 2007
|
|
10.8
|
Common
Stock Purchase Agreement with Fusion Capital Fund II, LLC
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on June 25, 2007
|
|
10.9
|
Registration
Rights Agreement with Fusion Capital Fund II, LLC
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on June 25, 2007
|
|
10.10
|
Promissory
note issued to CD Financial, LLC dated December 18, 2007 , as
amended
|
Incorporated
by reference to Exhibit 10.12 to the Company’s filing of Form 10-KSB as
filed with the SEC on March 3, 2008
|
|
10.11
|
Secured
promissory note issued by Golden Gate Investors, Inc. dated December 19,
2007
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K/A as
filed with the SEC on January 9, 2008
|
|
10.12
|
Secured
purchase agreement between Celsius Holdings, Inc. and Golden Gate
Investors, Inc. dated December 19, 2007
|
Incorporated
by reference to Exhibit 10.3 to the Company’s filing of Form 8-K/A as
filed with the SEC on January 9, 2008
|
|
10.13
|
7
¾% Convertible Debenture issued by Celsius Holdings, Inc. dated December
19, 2007
|
Incorporated
by reference to Exhibit 10.4 to the Company’s filing of Form 8-K/A as
filed with the SEC on January 9, 2008
|
|
10.14
|
Securities
purchase agreement between Celsius Holdings, Inc. and CDS Ventures of
South Florida, LLC. dated August 8, 2008
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on August 12, 2008
|
|
10.15
|
Registration
rights agreement between Celsius Holdings, Inc. and CDS Ventures of South
Florida, LLC. dated August 8, 2008
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on August 12, 2008
|
|
10.16
|
Loan
and Security Agreement between Celsius, Inc and CD Financial,
LLC.
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on December 10, 2008
|
|
10.17
|
Securities
purchase agreement between Celsius Holdings, Inc. and CDS Ventures of
South Florida, LLC. dated December 12, 2008
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on December 17, 2008
|
|
10.18
|
Registration
rights agreement between Celsius Holdings, Inc. and CDS Ventures of South
Florida, LLC. dated December 12, 2008
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on December 17, 2008
|
|
10.19
|
Employment
Agreement with Jeffrey Perlman
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on January 7, 2009
|
|
10.20
|
Unsecured
note issued to CD Financial, LLC dated August 12, 2009, refinanced and
replaced by 10.25
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on August 13, 2009
|
|
10.21
|
Convertible
note issued to CDS Ventures of South Florida, LLC dated September 8,
2009
|
Incorporated
by reference to Exhibit 10.1 to the Company’s filing of Form 8-K as filed
with the SEC on September 10, 2009
|
10.22
|
Loan
and Security Agreement between Celsius Holdings, Inc and CD Financial, LLC
dated September 8, 2009.
|
Incorporated
by reference to Exhibit 10.2 to the Company’s filing of Form 8-K as filed
with the SEC on September 10, 2009
|
|
10.23
|
Registration
rights agreement between Celsius Holdings, Inc. and CDS Ventures of South
Florida, LLC. dated September 8, 2009
|
Incorporated
by reference to Exhibit 10.3 to the Company’s filing of Form 8-K as filed
with the SEC on September 10, 2009
|
|
10.24
|
Unsecured
note issued to CD Financial, LLC dated September 29, 2009
|
Incorporated
by reference to Exhibit 10.24 to the Company’s Original filing of Form S-1
as filed with the SEC on October 12, 2009
|
|
10.25
|
Convertible
note issued to Lucille Santini
|
Incorporated
by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K
as filed with the SEC on November 12, 2009
|
|
10.26
|
Refinance
Agreement between Celsius Holdings, Inc. and Lucille
Santini
|
Incorporated
by reference to Exhibit 10.2 to the Company’s Current Report on Form 8-K
as filed with the SEC on November 12, 2009
|
|
10.27
|
Addendum
to Securities Purchase Agreement between Celsius Holdings, Inc. and Golden
Gate Investors, Inc.
|
Incorporated
by reference to Exhibit 10.3 to the Company’s Current Report on Form 8-K
as filed with the SEC on November 12, 2009
|
|
10.28
|
Amendment
to Registration Rights agreement with CDS Ventures of South Florida,
LLC
|
Incorporated
by reference to Exhibit 10.28 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
|
10.29
|
Audit
Committee Charter
|
Incorporated
by reference to Exhibit 10.29 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
|
10.30
|
Compensation
Committee Charter
|
Incorporated
by reference to Exhibit 10.30 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
|
10.31
|
Nominating
and Corporate Governance Committee Charter
|
Incorporated
by reference to Exhibit 10.31 to the Company’s Original filing of Form S-1
as filed with the SEC on November 19, 2009
|
|
14.1
|
Code
of Ethical Conduct
|
Incorporated
by reference to Exhibit 14.1 to the Company’s Original filing of Form SB-2
as filed with the SEC on July 20, 2007
|
|
23.1
|
Consent
of Sherb & Co.
|
Filed
herewith
|
|
23.2
|
Consent
of Counsel
|
Included
in Exhibit 5.1
|
|
24.1
|
Power
of Attorney
|
Included
on the signature page to this registration statement.
|
|
99.1
|
Results
from Clinical Studies
|
Incorporated
by reference to Exhibit 99.1 to the Company’s Original filing of Form SB-2
as filed with the SEC on July 20, 2007
|
|
99.2
|
Abstract
from Clinical Study released in June 2008
|
Incorporated
by reference to Exhibit 99.2 to the Company’s Original filing of Form S-1
as filed with the SEC on August 29,
2008
|