UNITED STATES

 SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

 

 

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of The Securities Exchange Act of 1934

 

 

 

Celsius Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

2424 North Federal Highway, Suite 208    
Boca Raton, Florida   33431
(Address of Principal Executive Offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (561) 276-2239

 

Securities to be registered under Section 12(b) of the Act:

 

Title of each class

To be so registered

  Name of exchange on which each class is to
be registered
     
None   Not applicable

 

Securities to be registered under Section 12(g) of the Act:

 

Common Stock, $0.001 par value

(Title of Class)

 

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   ¨   Accelerated filer     ¨
Non-accelerated filer    ¨ (Do not check if smaller reporting company)   Smaller reporting company     x

 

 

 

 

TABLE OF CONTENTS

 

  Page
Item 1. Business 3
Item 1A. Risk Factors 8
Item 2. Financial Information 15
Item 3. Properties 17
Item 4. Security Ownership of Certain Beneficial Owners and Management 18
Item 5. Directors and Executive Officers 19
Item 6. Executive Compensation 23
Item 7. Certain Relationships and Related Transactions, and Director Independence 25
Item 8. Legal Proceedings 25
Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters 26
Item 10. Recent Sales of Unregistered Securities 27
Item 11. Description of Registrant’s Securities to be Registered 28
Item 12. Indemnification of Directors and Officers 29
Item 13. Financial Statements and Supplementary Data 30
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30
Item 15. Financial Statements and Exhibits 30

 

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When used in this Registration Statement, unless otherwise indicated, the terms “ the Company ,” “ Celsius ,” “ we ,” “us” and “ our ” refers to Celsius Holdings, Inc. and its subsidiaries.

 

NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This Registration Statement contains forward-looking statements that reflect our current views about future events. We use the words “anticipate,” “assume,” “believe,” “estimate,” “expect,” “will,” “intend,” “may,” “plan,” “project,” “should,” “could,” “seek,” “designed,” “potential,” “forecast,” “target,” “objective,” “goal,” or the negatives of such terms or other similar expressions. These statements relate to future events or our future financial performance and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These risks and other factors include described in “ Item 1A. Risk Factors ,” “ Item 2. Financial Information ” and elsewhere in this Registration Statement.

 

Item 1. Business

 

Overview

 

We are engaged in the development, marketing, sale and distribution of “ functional ” calorie-burning fitness beverages under the Celsius® brand name. According to multiple clinical studies we funded, a single serving of Celsius® burns 100 to 140 calories by increasing a consumer’s resting metabolism an average of 12% and providing sustained energy for up to a three-hour period. Our exercise focused studies show Celsius delivers additional benefits when consumed prior to exercise. The studies shows benefits such as increase in fat burn, increase in lean muscle mass and increased endurance.

 

We seek to combine nutritional science with mainstream beverages by using our proprietary thermogenic (calorie-burning) MetaPlus® formulation, while fostering the goal of healthier everyday refreshment by being as natural as possible without the artificial preservatives often found in many energy drinks and sodas. Celsius® has no artificial preservatives, aspartame or high fructose corn syrup and is very low in sodium. Celsius® uses good-for-you ingredients and supplements such as green tea (EGCG), ginger, calcium, chromium, B vitamins and vitamin C. The main Celsius line of products are 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 wide variety of marketing vehicles such as television, radio, digital, social media, sponsorships, and magazine advertising. We also undertake various promotions at the retail level such as coupons and other discounts in addition to in-store sampling.

 

We do not directly manufacture our beverages, but instead outsource the manufacturing process to established third-party co-packers. We do, however, provide our co-packers with flavors, ingredient blends, cans and other raw materials for our beverages purchased by us from various suppliers.

 

Corporate History

 

We were incorporated in Nevada on April 26, 2005 under the name “ Vector Ventures, Inc .” and originally we engaged in mineral exploration. Such business was unsuccessful. On January 26, 2007, we acquired the Celsius® beverage business of Elite FX, Inc., a Florida corporation engaged in the development of “functional” beverages since 2004 in a reverse merger, and subsequently changed our name to Celsius Holdings, Inc. In addition, on March 28, 2007, the Company established Celsius Netshipments, Inc. a Florida corporation as a wholly-owned subsidiary of the Company.

 

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 100 to 140 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.

 

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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 one 12 ounce cup of coffee from the leading coffeehouse.

 

We currently offer Celsius® in seven flavors: orange, wild berry, cola, grape, and watermelon (which are carbonated), and non-carbonated green tea raspberry/acai, and green tea/peach mango. Our beverages are sold in 12 ounce cans, and we have recently begun to market the active ingredients in powdered form in individual On-The-Go packets as well as multiple serving canisters.

 

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.

 

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 generally individuals that exercise two to five times a week and are concerned about their health.

 

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 seven 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 & 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 shareholders 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 & Sports Nutrition www.ohioresearchgroup.com . 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. 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 this was done to make sure that 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 a 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.

 

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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 to 140 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, although 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 2009, 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 2009. 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 2009. This ten-week placebo-controlled, randomized and blinded study was conducted on a total of 37 previously sedentary male subjects. Participants were randomly assigned into groups that consumed identically tasting treatment beverages with exercise or without exercise. All participants consumed one drink, either placebo or Celsius, per day for 10 weeks. The exercise groups participated in ten weeks of combined aerobic and weight training, following the American College of Sports Medicine guidelines of training for previously sedentary adults. No changes were made to their diet. The results showed that consuming a single serving of Celsius® prior to exercising may improve cardiovascular health and fitness and enhance the positive adaptations of exercise on body composition. Significantly greater decreases in fat mass and percentage body fat and increases in VO 2 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.

 

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Our seventh study was conducted by Miami Research Institute in 2010 and demonstrated the efficacy and safety of the powders and the shots. This study allows the Company to make the same structure/function claims as the ready to drink beverages.

 

Manufacture and Supply of Our Products

 

Our beverages are produced by established third party beverage co-packers. A co-packer is a manufacturing plant that provides the service of filling bottles or cans for the brand owner. We believe one benefit of using co-packers is that we do not have to invest in the production facility and can focus our resources on brand development, sales and marketing. It also allows us produce in multiple locations strategically placed throughout the country. 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. The shelf life of Celsius® is specified as 15 to 18 months.

 

Substantially all of the raw materials used in the preparation, bottling and packaging of our products are purchased by us or by our co-packers in accordance with our specifications. Generally, we obtain the ingredients used in our products from domestic suppliers and some ingredients have several reliable suppliers. The ingredients in Celsius® include green tea (EGCG), ginger (from the root), caffeine, B vitamins, vitamin C, taurine, guarana, chromium, calcium, glucuronolactone, sucralose, natural flavors and natural colorings. Celsius® is labeled with a supplements facts panel. We have no major supply contracts with any of our suppliers. We single-source all our ingredients for purchasing efficiency; however, we have identified a second source for our critical ingredients and there are many suppliers of flavors, colorings and sucralose. In case of a supply restriction or interruption from any of the flavor and coloring suppliers, we would have to test and qualify other suppliers that may disrupt our production schedules.

 

Packaging materials, except for our distinctive sleek aluminum cans, are easily available from multiple sources in the United States; however, due to efficiencies we utilize single source vendor relationships.

 

We believe that our co-packing arrangement and supply sources are adequate for our present needs.

 

Distribution

 

Celsius® is sold across many retail segments. They include supermarkets, convenience stores, drug stores, nutritional stores, and mass merchants. We also sell to health clubs, spas, gyms, the military, e-commerce websites and a limited number of international markets.

 

We distribute our products through a hybrid of direct-store delivery (DSD) distributors and as well as sales direct to retailers (DTR).

 

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.

 

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Competition

 

We believe that we are one of the few calorie-burning fitness 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, most 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.

 

Proprietary Rights

 

We have registered the Celsius® and MetaPlus® trademarks with the United States Patent and Trademark Office, as well as a number of additional trademarks.

 

We have and will continue to take appropriate measures, such as entering into confidentiality agreements with our contract packers and ingredient suppliers, to maintain the secrecy and proprietary nature of our MetaPlus® formulation and product formulas.

 

We maintain our MetaPlus® formulation and product formulas as trade secrets. We believe that trade secrecy is a preferable method of protection for our formulas as patenting them might require their disclosure. Other than a company that is our outsourced production manager, no single member of the raw material supply chain or our co-packers has access to the complete formula.

 

We consider our trademarks and trade secrets to be of considerable value and importance to our business. No successful challenges to our registered trademarks have arisen and we have no reason to believe that any such challenges will arise in the future.

 

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.

 

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Employees

 

As of the date of this Registration Statement, the Company employs 38 persons, including its executive officers.

 

Item 1A. Risk Factors

 

Our business faces certain risks. The risks described below may not be the only risks we face. Additional risks that we do not yet know of, or that we currently think as immaterial, may also impair our business.  If any of the events anticipated by the risks described below or elsewhere in this report occur, our results of operations and financial conditions could be adversely affected.

 

Risk Factors Relating to Our Business

 

We have a history of losses and we may experience additional losses in the futures.

 

The Company has a history of losses, including net losses available to common shareholders of $1,287,209 for the three months ended March 31, 2016 and $2,570,297 and $2,160,972 for the years ended December 31, 2015 and 2014, respectively. 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 key employees. Accordingly, there can be no assurance that we can attain consistent profitability.

 

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.

 

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.

 

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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.

 

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.

 

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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 Gerry David, our Chief Executive Officer and John Fieldly, our Chief Financial Officer. The loss of the services of Mr. David, Mr. Fieldly or any other key employee could materially adversely affect our business and our prospects for the future. We do not have key person insurance on the lives of such individuals and the loss of any of their services could materially adversely affect us.

 

We are dependent on our ability to attract and retain qualified technical, sales and managerial personnel .

 

Our future success depends in part on our continuing ability to attract and retain highly qualified technical, sales and managerial personnel. Competition for such personnel in the beverage industry is intense and we may not be able to retain our key managerial, sales and technical employees or attract and retain additional highly qualified technical, sales and managerial personnel in the future. Any inability to attract and retain the necessary technical, sales and managerial personnel could materially adversely affect us.

 

The FDA has not passed on the efficacy of our products or the accuracy of any claim we make related to our products.

 

Although six independent clinical studies have been conducted relating to the calorie-burning and related effects of our products, the results of these studies have not been submitted to or reviewed by the FDA.  Further, the FDA has not passed on the efficacy of any of our products nor has it reviewed or passed on any claims we make related to our products, including the claim that our products aid consumers in burning calories or enhancing their metabolism.

 

Risk Factors Relating to Our Industry

 

We are subject to significant competition in the beverage industry .

 

The beverage industry is highly competitive. The principal areas of competition are pricing, packaging, distribution channel penetration, development of new products and flavors and marketing campaigns. Our products compete with a wide range of drinks produced by a relatively large number of manufacturers, most of which have substantially greater financial, marketing and distribution resources and name recognition than we do.

 

Important factors affecting our ability to compete successfully include the taste and flavor of our products, trade and consumer promotions, rapid and effective development of new, unique cutting edge products, attractive and different packaging, branded product advertising and pricing. Our products compete with all liquid refreshments and with products of much larger and substantially better financed competitors, including the products of numerous nationally and internationally known producers, such as The Coca Cola Company, Dr. Pepper Snapple Group, PepsiCo, Inc., Nestle, Waters North America, Inc., Hansen Natural Corp. and Red Bull. We also compete with companies that are smaller or primarily local in operation. Our products also compete with private label brands such as those carried by supermarket chains, convenience store chains, drug store chains, mass merchants and club warehouses.

 

There can be no assurance that we will compete successfully in the functional beverage industry. The failure to do so would materially adversely affect our business, financial condition and results of operations.

 

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 could 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. 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 effect on business, financial condition and results of operations.

 

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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 business, financial condition and results of 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.

 

Risk Factors Relating to our Status as a Fully Reporting Public Company

 

Upon effectiveness of this registration statement, we will become subject to the periodic reporting requirements of the Securities Exchange Act of 1934 (the “Exchange Act”) that will require us to incur audit fees and legal fees in connection with the preparation of such reports. These additional costs could reduce or eliminate our ability to earn a profit.

 

Following effectiveness of this registration statement, we will be required to file periodic reports with the Securities and Exchange Commission (the “ SEC ”) pursuant to the Exchange Act and the rules and regulations promulgated thereunder. In order to comply with these requirements, our independent registered public accounting firm will have to review our financial statements on a quarterly basis and audit our financial statements on an annual basis. Moreover, our legal counsel will have to review and assist in the preparation of such reports. The costs charged by these professionals for such services cannot be accurately predicted at this time because factors such as the number and type of transactions that we engage in and the complexity of our reports cannot be determined at this time and will have a major effect on the amount of time to be spent by our auditors and attorneys. However, the incurrence of such costs will obviously be an expense to our operations and thus have a negative effect on our ability to meet our overhead requirements and earn a profit. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock, if a market ever develops, could drop significantly.

 

Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public .

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Rule 13a-15(f) under the Exchange Act, internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officers and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

 

•           pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;

 

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•           provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and/or directors of the Company; and

 

•           provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements.

 

We will be required to include a report of management on the effectiveness of our internal control over financial reporting in certain of our periodic filings. We expect to incur additional expenses and diversion of management’s time as a result of performing the system and process evaluation, testing and remediation required in order to comply with the management certification requirements.

 

We do not have a sufficient number of employees to segregate responsibilities and may be unable to afford increasing our staff or engaging outside consultants or professionals to overcome our lack of employees. During the course of our testing, we may identify other deficiencies that we may not be able to timely remediate. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to help prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our common stock could drop significantly.

 

The Jumpstart Our Business Startups Act of 2012 (the “Jobs Act”) has reduced the information that the Company will be is required to disclose.

 

Under the Jobs Act, the information that the Company will be required to disclose following effectiveness of this registration statement has been reduced in a number of ways.

 

As a company that had gross revenues of less than $1 billion during the Company’s last fiscal year, the Company is an “ emerging growth company ,” as defined in the Jobs Act (an “ EGC ”). The Company will retain that status until the earliest of (a) the last day of the fiscal year which the Company has total annual gross revenues of $1,000,000,000 (as indexed for inflation in the manner set forth in the Jobs Act) or more; (b) the last day of the fiscal year of following the fifth anniversary of the date of the first sale of the common stock pursuant to an effective registration statement under the Securities Act of 1933 (the “ Securities Act ”); (c) the date on which the Company has, during the previous three year period, issued more than $1,000,000,000 in non-convertible debt; or (d) the date on which the Company is deemed to be a “ large accelerated filer ,” as defined in Rule 12b-2 under the Exchange Act or any successor thereto. As an EGC, the Company is relieved from the following:

 

•           The Company is excluded from Section 404(b) of Sarbanes-Oxley Act (“ Sarbanes-Oxley ”), which otherwise would have required the Company’s auditors to attest to and report on the Company’s internal control over financial reporting. The JOBS Act also amended Section 103(a)(3) of Sarbanes-Oxley to provide that (i) any new rules that may be adopted by the PCAOB requiring mandatory audit firm rotation or changes to the auditor’s report to include auditor discussion and analysis (each of which is currently under consideration by the PCAOB) shall not apply to an audit of an EGC; and (ii) any other future rules adopted by the PCAOB will not apply to the Company’s audits unless the SEC determines otherwise.

 

•           The Jobs Act amended Section 7(a) of the Securities Act to provide that the Company need not present more than two years of audited financial statements in an initial public offering registration statement and in any other registration statement, need not present selected financial data pursuant to Item 301 of Regulation S-K for any period prior to the earliest audited period presented in connection with such initial public offering. In addition, the Company is not required to comply with any new or revised financial accounting standard until such date as a private company (i.e., a company that is not an “ issuer ” as defined by Section 2(a) of Sarbanes-Oxley) is required to comply with such new or revised accounting standard. Corresponding changes have been made to the Exchange Act, which relates to periodic reporting requirements, which would be applicable if the Company were required to comply with them.

 

•           As long as the Company is an EGC, the Company may comply with Item 402 of Regulation S-K, which requires extensive quantitative and qualitative disclosure regarding executive compensation, by disclosing the more limited information required of a “smaller reporting company.”

 

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•           In the event that the Company registers the common stock under the Exchange Act as it intends to do, the Jobs Act will also exempt the Company from the following additional compensation-related disclosure provisions that were imposed on U.S. public companies pursuant to the Dodd-Frank Act: (i) the advisory vote on executive compensation required by Section 14A(a) of the Exchange Act; (ii) the requirements of Section 14A(b) of the Exchange Act relating to shareholder advisory votes on “ golden parachute ” compensation; (iii) the requirements of Section 14(i) of the Exchange Act as to disclosure relating to the relationship between executive compensation and our financial performance; and (iv) the requirement of Section 953(b)(1)of the Dodd-Frank Act, which requires disclosure as to the relationship between the compensation of the Company’s chief executive officer and median employee pay.

 

Risk Factors Related to our Common Stock

 

We cannot guarantee the continued existence of an active established public trading market for our common stock.

 

Our common stock currently is listed for trading on the OTCQX tier of the over-the-counter market operated by OTC Markets Group, Inc. Trading in stock quoted on the OTCQX is often thin and characterized by wide fluctuations in trading prices, due to many factors that may have little to do with our operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to operating performance. Accordingly, OTCQX may provide less liquidity for holders of our common stock than a national securities exchange such as the Nasdaq Stock Market. Although we intend to list our common stock for trading on the Nasdaq Stock Market concurrent with or as soon as practicable after the effectiveness of this registration statement, there is no assurance that we can successfully do so or that in any event, we can maintain an active established trading market for our common stock.

 

Market prices for our common stock may also be influenced by a number of other factors, including:

 

the issuance of new equity securities pursuant to a public or private 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 Celsius and the functional beverage industry generally; and

 

general economic and other national conditions.

 

Our common stock is currently deemed to be a “penny stock” and is restricted by the SEC’s penny stock regulations and FINRA’s sales practice requirements, which may limit a shareholder’s ability to buy and sell our common stock .

 

Our common stock is a “ penny stock .” The SEC has adopted Rule 15g-9 which generally defines “ penny stock ” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our common stock is covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “ accredited investors .” The term “ accredited investor ” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

 

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In addition to the “ penny stock ” rules promulgated by the SEC, the Financial Industry Regulatory Authority (“ FINRA ”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA’s requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

 

The market for penny stocks has experienced numerous frauds and abuses that could adversely impact investors in our common stock.

 

Company management believes that the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:

 

control of the market for the security by one or a few broker-dealers that are often related to a promoter or issuer;

 

manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases;

 

“boiler room” practices involving high pressure sales tactics and unrealistic price projections by sales persons;

 

excessive and undisclosed bid-ask differentials and markups by selling broker-dealers; and

 

wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the inevitable collapse of those prices with consequent investor losses.

 

Our board of directors has the authority, without shareholder approval, to issue preferred stock with terms that may not be beneficial to common shareholders and with the ability to affect adversely shareholder voting power and perpetuate their control over us.

 

Our Articles of Incorporation allows us to issue shares of preferred stock without any vote or further action by our shareholders. Our board of directors has the authority to fix and determine the relative rights and preferences of preferred stock. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the preferred right to our assets upon liquidation, the right to receive dividend payments before dividends are distributed to the holders of common stock and the right to the redemption of the shares, together with a premium, prior to the redemption of our common stock.

 

The ability of our principal shareholders to control our business may limit or eliminate minority shareholders’ ability to influence corporate affairs.

 

Our principal shareholders own common stock and/or preferred stock which holds a majority of the voting power of our issued and outstanding capital. Accordingly, they will be able to effectively control the election of directors, as well as all other matters requiring shareholder approval. The interests of our principal shareholders may differ from the interests of other shareholders with respect to the issuance of shares, business transactions with or sales to other companies, selection of other directors and other business decisions. The minority shareholders have no way of overriding decisions made by our principal shareholders. This level of control may also have an adverse impact on the market value of our shares because our principal shareholders may institute or undertake transactions, policies or programs that result in losses, may not take any steps to increase our visibility in the financial community and / or may sell sufficient numbers of shares to significantly decrease our price per share.

 

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We do not expect to pay cash dividends in the foreseeable future .

 

We have never paid cash dividends on our common stock. We do not expect to pay cash dividends on our common stock at any time in the foreseeable future. The future payment of dividends directly depends upon our future earnings, capital requirements, financial requirements and other factors that our board of directors will consider. Since we do not anticipate paying cash dividends on our common stock, return on your investment, if any, will depend solely on an increase, if any, in the market value of our common stock.

 

The “market overhang” from our outstanding options, warrants and convertible securities could adversely impact the market price of our common stock .

 

We have 53,201,132 shares of common stock issuable upon exercise of outstanding options and warrants and conversion of outstanding convertible securities. Such “ market overhang ” could adversely impact the market price of our common stock as a result of the dilution which would result if such securities were exercised for or converted into shares of common stock.

 

Item 2.  Financial Information

 

Management's Discussion and Analysis of Financial Condition and Results of Operations

 

You should read the following discussion in conjunction with the audited financial statements and the corresponding notes, the unaudited financial statements and the corresponding notes included elsewhere in this information statement.  This Item 2 contains forward-looking statements.  The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements.  Please refer to " Item 1.A. Risk Factors " for a discussion of the uncertainties, risks and assumptions associated with these statements.

 

Results of Operations

 

Three months ended March 31, 2016 compared to three months ended March 31, 2015

 

Revenue

 

For the three months ended March 31, 2016, revenue was approximately $3.68 million, a decrease of $0.97 million or 21% from $4.65 million in revenue for same period in the prior year. The revenue decrease of 21% was mainly associated with a 68% decrease in international revenue from our Swedish distribution partner, who was adversely affected by a rebalancing of inventory. This decrease was offset by a 79% growth in domestic revenues associated from blended growth rates of 103% in retail accounts mainly from convenience store expansion initiatives, 16% in health and fitness accounts and 43% in internet retailer accounts from the same period in 2015.

 

Gross profit

 

For the three months ended March 31, 2016, gross profit decreased by approximately $319,000 or 17.3% to $1.52 million compared to $1.84 million for the same period in 2015. Gross Profit margins improved 1.8% to 41.3% in the three months ended March 31, 2016 from same period in 2015.

 

Sales and marketing expenses

 

Sales and marketing expenses for the three months ended March 31, 2016 were approximately $1.79 million, an increase of $890,000, or 99% from $899,000 in the same period in 2015. The increase is due primarily to increases in investments in marketing programs of $483,000 and increases in human resource investments of $407,000.

 

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General and administrative expenses

 

General and administrative expenses for the three months ended March 31, 2016 were approximately $875,000, an increase of $313,000, or 56%, from $562,000 for the three months ended March 31, 2015. The increase was primarily due to increases in option expense of $82,000, investments in human resources of $68,000, travel of $55,000, professional fees of $68,000, research and development costs of $12,000, and office related costs of $34,000, offset by savings in depreciation and amortization of $6,000.

 

Other expense

 

Total other expense decreased to approximately $57,000 for three months ended March 31, 2016 from $132,000 for the same period in 2015, as a result of $75,000 in savings in interest expense.

 

Net Income (Loss)

 

As a result of the all above, for the three months ended March 31, 2016, Celsius had a net loss of $1,200,557, and after giving effect to preferred stock dividends of $86,652, a net loss available to common shareholders of $1,287,209 or $0.03 per share based on a weighted average of 38,380,380 shares outstanding. This compares to, for the three months ended March 31, 2015, net income of $245,707, and after giving effect to preferred stock dividends of $33,001, net income available to common shareholders of $212,706 or $0.01 per share based on a weighted average of 20,459,032 shares outstanding.

 

Year ended December 31, 2015 Compared to Year ended December 31, 2014

 

Revenue

 

For the year ended December 31, 2015, revenue was approximately $17.2 million, an increase of $2.6 million or 18% from $14.6 million in revenue for year ending December 31, 2014. The revenue growth of 18% from 2014 to the 2015 was mainly associated with blended growth rates of 13% growth in international revenue growth and 22% growth in domestic sales. The domestic sales growth of 22% was mainly associated from blended growth rates of 18% from in retail accounts, 21% in health and fitness accounts and 46% in Internet retailer accounts from 2014.

 

Gross profit

 

For the year ended December 31, 2015, gross profit increased by approximately $1.44 million or 25.8% to $7.04 million compared to $5.60 million for 2014. Gross Profit margins improved 2.6% to 40.9% in the fiscal year ended December 31, 2015 from 2014.

 

Sales and marketing expenses

 

Sales and marketing expenses for the year ended December 31, 2015 were approximately $5.70 million, an increase of $880,000, or 18.2% from $4.82 million in 2014. The increase is due primarily to increases in investments in marketing programs of $596,000, increases in human resource investments of $239,000 and increases in warehousing costs totaling $44,000.

 

General and administrative expenses

 

General and administrative expenses for the year ended December 31, 2015 were approximately $3.17 million, an increase of $860,000, or 37.3%, from $2.31 million for the year ended December 31, 2014. The increase was primarily due to increases in stock based compensation of $582,000, professional fees of $129,000, research and development costs of $46,000, office related costs of $47,000, commercial insurance of $19,000, investor relations of $17,000, human resources of $13,000, and other general administration expenses of $12,000, offset by savings in depreciation and amortization of $4,000.

 

Other expense

 

Total other expense decreased to approximately $322,000 for year ended December 31, 2015 from $497,000 for the same period in 2014, as a result of $175,000 in savings in interest expense.

 

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Net Income (Loss)

 

As a result of the all above, for the year ended December 31, 2015, Celsius had a net loss of $2,149,804, and after giving effect to preferred stock dividends of $420,493, a net loss available to common shareholders of $2,570,297 or $0.07 per share based on a weighted average of 33,175,826 shares outstanding. This compares to, for the year ended December 31, 2014, a net loss of $2,027,136, and after giving effect to preferred stock dividends of $133,836, a net loss available to common shareholders of $2,160,972 or $0.10 per share based on a weighted average of 20,392,594 shares outstanding.

 

Liquidity and Capital Resources

 

As of March 31, 2016, we had cash of approximately $9.2 million and working capital of $12.2 million. Cash used in operations during the three months ended March 31, 2016 totaled $887,000.

 

As of December 31, 2015, we had cash of approximately $10.1 million and working capital of $13.2 million. Cash used in operations during the year ended December 31, 2015 totaled $755,000. In April 2015, the Company issued a total of 12,921,348 shares of common stock at $0.89 per share to an investor group in a private transaction for gross proceeds of $11.5 million.

 

Our current operating plan for next twelve (12) months plans on a sufficient financial condition and we do not contemplate obtaining additional financing. However, if our sales volumes do not meet our projections, expenses exceed our expectations, or our plans change, we may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, we may be required to adjust our business plan, by reducing marketing and other expenses or seek additional financing. There can be no assurance that such financing, if required, will be available on commercially reasonable terms if at all.

 

Off Balance Sheet Arrangements

 

As of March 31, 2016 and December 31, 2015, we had no off-balance sheet arrangements.

 

Item 3. Properties

 

At present, we do not own any real property.  We currently lease our principal executive offices located at 2424 N Federal Hwy, Boca Raton, Florida 33431. Our premises are leased for a monthly cost of $$6,408. The current lease expires on October 2020. The Company has no warehouses or other facilities as we store our product at third party contract warehouse facilities.

 

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Item 4. Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth, as of July 15, 2016, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own 5% or more of our common stock and by executive officers and directors as a group.  Unless otherwise stated, the address of the persons set forth in the table is c/o the Company, 2424 North Federal Hwy, Suite 208, Boca Raton, Florida 33431.

 

    Number of        
Names and addresses of   shares        
beneficial owners   of common stock (1)     Percentage of class (%)  
             
Gerry David     716,667 (2)     1.9  
                 
John Fieldy     370,833 (2)     1.0  
                 
Nickolas Castaldo     161,111 (2)     *  
                 
Hal Kravitz     0       0  
                 
Kevin Harrington     161,111 (2)     *  
                 
Christopher Lai     0       0  
                 
Tim Leissner     3,539,826       9.2  
                 
Thomas E. Lynch     163,111 (2)     *  
                 
William H. Milmoe     19,842,434 (3)     51.7  
                 
all officers and directors as a group (nine (9) persons)     24,955,093 (4)     65.0  
                 
Other 5% or greater shareholders:                
                 
Carl De Santis     19,678,823 (5)     51.3  
                 
Li Ka Shing     6,910,113 (6)     18.0  
                 
Solina Chau Hoi Shuen     4,606,742 (7)     12.0  

 

 

*            Less than 1%

 

The persons named above have full voting and investment power with respect to the shares indicated.  Under the rules of the SEC, a person (or group of persons) is deemed to be a “ beneficial owner ” of a security if he or she, directly or indirectly, has or shares the power to vote or to direct the voting of such security, or the power to dispose of or to direct the disposition of such security.  Accordingly, more than one person may be deemed to be a beneficial owner of the same security.

 

(1)          Includes shares of our common stock that are issuable upon exercise of stock options or conversion of preferred stock as of the date of this registration statement or within sixty (60) days thereafter.

 

(2)          Represents shares of common stock issuable upon the exercise of stock options.

 

(3)          Represents (a) 500 shares of common stock held of record by Mr. Milmoe; (b) 163,111 shares of common stock issuable upon exercise of stock options; (c) 8,554,289 shares of common stock held of record by CDS Ventures, LLC (“ CDS Ventures ”); (d) 4,576,923 shares of common stock issuable upon conversion of Preferred C Shares held of record by CDS Ventures; (e)1,896,448 shares of common stock held of record by CD Financial, LLC (“ CD Financial ”); and (f) 4,651,163 shares of common stock issuable upon conversion of Preferred D Shares held of record by CD Financial. Mr. Milmoe and Carl DeSantis share voting power with respect to shares of common stock beneficially owned by CDS Ventures and CD Financial. Mr. Milmoe does not have dispositive power with respect to such shares.

 

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(4)          Includes (a) the shares of common stock issuable upon the exercise of stock options held and the conversion of preferred stock beneficially owned by Mr. Milmoe as set forth in footnote (3) above; and (b) 1,735,944 shares of common stock issuable upon the exercise of stock options held by the Company’s other officers and directors.

 

(5)          Represents (a) 8,554,289 shares of common stock held of record by CDS Ventures; (b) 4,576,923 shares of common stock issuable upon conversion of Preferred C Shares held of record by CDS Ventures; (c) 1,896,448 shares of common stock held of record by CD Financial; and (d) 4,651,163 shares of common stock issuable upon conversion of Preferred D Shares held of record by CD Financial. Voting power of shares of common stock beneficially owned by CDS Ventures and CD Financial is shared by Mr. DeSantis and William H. Milmoe. Mr. De Santis has sole dispositive power with respect to such shares.

 

(6)          Represents shares of common stock held of record by Charmnew Limited, over which shares Mr. Li has voting and dispositive power.

 

(7)          Represents shares of common stock held of record by Grieg International Limited, over which shares Ms. Solina has voting and dispositive power.

 

Item 5. Directors and Executive Officers

 

The following sets forth the name of each of our officers and, directors and control persons and their positions with Celsius. The address for each of such individuals is c/o Celsius, 2424 N Federal Highway, Boca Raton, Florida 33431.

 

Name   Age   Position with the Company
         
Gerry David   64   Chief Executive Officer
         
John Fieldly   36   Chief Financial Officer
         
Nickolas Castaldo   65   Director
         
Hal Kravitz   59   Director
         
Kevin Harrington   60   Director
         
Chris Lai   29   Director
         
Tim Leissner   47   Director
         
Thomas E. Lynch   69   Director
         
William H. Milmoe   68   Director

 

 

 

Gerry David joined Celsius in October 2011 as its Chief Executive Officer and has served in that position since that time. Prior to joining the Company, Mr. David served as Executive Vice President of Oragenics, Inc., a publicly held pharmaceutical development company based in Tampa, Florida, from September 2008 until October 2011.

 

John Fieldly joined Celsius in January 2012 as its Chief Financial Officer and has served in that position since that time. Mr. Fieldy joined the Company from Oragenics, Inc., where he served as corporate controller from April 2010 until January 2012.

 

Nickolas Castaldo became a director of Celsius in March 2013. Since September 2004 he has served as Senior Vice President and Chief Marketing Officer of Anthony’s Coal Fired Pizza, Inc., a Florida based chain of casual dining restaurants.

 

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Hal Kravitz became a director of Celsius in April 2016. Since November 2014, Mr. Kravitz has served as Chief Executive Officer of AQUAhydrate, Inc., a company engaged in the manufacture, distribution and marketing of bottled water. He also served as a consultant to AQUAhydrate from August to November 2014 and in 2013, Mr. Kravitz helped form InterContinental Beverage Capital, a New York-based merchant bank focused on investments in the beverage industry. For over thirty (30) years prior thereto, Mr. Kravitz served as an executive officer and in other management positions in various units of the Coca-Cola system

 

Kevin Harrington joined Celsius’ board of directors in March 2013. He has almost forty (40) years experience in product introduction and direct marketing, being one of the first to market products through infomercials. Since 2005, he has been Chief Executive Officer of Harrington Business Development, Inc., a privately-held consulting firm. A serial entrepreneur, Mr. Harrington appeared as one of the original panelists on the ABC television program, “ Shark Tank .” He currently also serves as Chairman of the Board of As Seen On TV, Inc., a public company which focuses on marketing products through infomercials and other direct marketing.

 

Chris Lai joined our board of directors in April 2015. Since September 2012, he has served as a Project Manager for Horizon Ventures, Limited (“ Horizon Ventures ”), a Hong Kong based private investment fund. From April 2011 to September 2012, Mr. Lai was an analyst with Mooreland Partners, LLC, another private investment concern. Mr. Lai serves on the Board as one of two designees of an investor group led by Horizon Ventures (the “ Investors ”), pursuant to an Investors’ Rights Agreement entered into in April 2015 (the “ Investors’ Rights Agreement ”) by among the Company, the Investors, CD Financial and CDS Ventures, both of which are affiliates of Carl De Santis, one of our principal shareholders. The terms of April 2015 investment by the Investors and related transactions with CD Financial and CDS Ventures, as well as the terms of the Investors’ Rights Agreement and other related agreements entered into in connection with those transactions are more fully set forth in Item 10 of this Registration Statement.

 

Tim Leissner joined Celsius’ board of directors in April 2016 as the second designee of the Investors pursuant to the Investors’ Rights agreement. From December 2002 to February 2016, Mr. Leissner was a partner at Goldman Sachs, Inc. Since that time, he has been acting a private investor and business consultant. Mr. Leissner serves as a member of the board of directors of All Def Digital, Inc. (“ All Def Digital ”).

 

Thomas E. Lynch became a director of the Company in November, 2009. For over forty (40) years, Mr. Lynch has served as President of the Plastridge Agency, Inc., a five-office insurance agency based in Delray Beach, Florida, which traces its origins to 1919. He also serves as a director of First United Bancorp, Inc.

 

William H. Milmoe has served as a director of Celsius since August. 2008. Since June 2000, Mr. Milmoe has served as President of CDS International Holdings, Inc., a privately-held holding company based in Boca Raton, Florida, which oversees the business investments and holdings of Carl De Santis, one of our principal shareholders.

 

Terms of Directors and Executive Officers

 

Our directors are appointed for a one-year term to hold office until the next annual meeting of our shareholders and until their successors are appointed and qualified, or until their removal, resignation, or death.  Pursuant to the Investors’ Rights Agreement, the number of directors is set at seven (7) and the Investors have the right to appoint two (2) designees to the board of directors. Officers of the Company serve at the pleasure of the board of directors.

 

Family Relationships

 

There are no familial relationships among our officers and directors.

 

Board Committees and Independence

 

Our board of directors has established three standing committees, an audit committee, a compensation committee and a nominating and corporate governance committee. The audit committee currently consists of Messrs. Lynch, Kravitz and Milmoe, the compensation committee currently consists of Messrs. Lai, Castaldo and Harrington and the nominating and corporate governance committee currently consists of Messrs. Milmoe, Leissner and Lai. Our board of directors has determined that each of our directors is “ independent ” within the meaning of the applicable rules and regulations of the SEC and the listing standards of the Nasdaq Stock Market.

 

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In addition, we believe each of Messrs. Lynch, Kravitz, and Milmoe qualifies an “ audit committee financial expert ” as the term is defined by the applicable rules and regulations of the SEC 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. Lynch 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;

 

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review and approve corporate goals and objectives relating to Chief Executive Officer compensation and other executive officers of Celsius;

 

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. Lai 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 the Company; and to oversee the evaluation of the board of directors and Celsius’ 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.

 

Messrs. Milmoe and Leissner are the co-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 Boca Raton, Florida. A copy of our code of ethics is available on our website at www.celsius.com .

 

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Board of Directors Role in Risk Oversight

 

Members of the board of directors have periodic meetings with management and the Company’s independent auditors to perform risk oversight with respect to the Company’s internal control processes. The Company believes that the board’s role in risk oversight does not materially affect the leadership structure of the Company .

 

Item 6. Executive Compensation

 

Summary Compensation Table

 

The following table sets forth certain information concerning the compensation paid to our Chief Executive Officer, and Chief Financial Officer, who are our two executive officers, during the years ended December 31, 2015 and 2014.

 

                    Stock              
Name and Principal Position   Year   Salary ($)     Bonus ($)     Awards (#)     Other ($)     Total ($)  
                                   
Gerry David, CEO   2015     230,850       45,825       90,000 (1)     10,200 (2)     286,875  
    2014     225,000       56,025       100,000 (1)     20,400 (2)     301,425  
                                             
John Fieldly, CFO   2015     169,290       31,230       90,000 (1)     3,150 (2)     203,670  
    2014     165,000       36,630       100,000 (1)     10,800 (2)     212,430  

 

 

(1)           Represents stock options granted under our 2006 Stock Incentive Plan to purchase 90,000 shares of common stock at an exercise price of $1.05 per share and stock options granted to purchase 100,000 shares of common stock at an exercise price of $0.34 per share. The options vest in three annual installments commencing one year from the date of grant, subject to continued employment and expire ten (10) years from the date of grant.

 

(2)           Represents housing allowances.

 

In addition, Messrs. and Fieldy are entitled to participate in benefit plans maintained for employees of the Company generally.

 

Employment Agreements

 

Effective January 1, 2016, we entered into one-year employment agreements with each of Gerry David and John Fieldly, our Chief Executive Officer and Chief Financial Officer, respectively. The employment agreements provide for base annual salaries of $237,780 and $174,370 for Messrs. David and Fieldly, respectively, eligibility for performance-based incentive bonuses, pursuant to such criteria as may be established by our compensation committee, the grant of options to each executive officer to purchase 100,000 shares of our common stock and certain automobile and housing allowances. The employment agreements also provide for certain severance payments in the event of termination other than for “ cause ” (as defined therein and for “ golden parachute ” payments in the event of termination following a “ change in control ” (as defined therein). The employment agreements contain customary confidentiality and non-competition provisions.

 

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Compensation of Directors Table

 

The following table summarizes all compensation paid to our directors for the fiscal year ended December 31, 2015.

 

    Fees                                      
    Earned                       Non-Qualified              
    or                 Non-Equity     Deferred     All        
    Paid in     Stock     Option     Plan     Compensation     Other        
    Cash     Awards     Awards     Compensation     Earnings     Compensation     Total  
Name   ($)     ($)     (#) (1)     ($)     ($)     ($)     ($)  
                                           
Nickolas Castaldo     12,000             40,000                         12,000  
                                                         
Kathleen M. Dwyer (2)     12,000             40,000                         12,000  
                                                         
Kevin Harrington     12,000             40,000                         12,000  
                                                         
Thomas E. Lynch     12,000             40,000                         12,000  
                                                         
William H. Milmoe     12,000             40,000                         12,000  
                                                         
Timothy Leissner     9,000                                     9,000  
                                                         
Chris Lai                                          

 

 

(1) Represents options to purchase 40,000 shares of common stock at an exercise price of $1.05 per share granted under the 2006 Plan.

 

(2) Ms. Dwyer did not stand for reelection at the expiration of her term in April 2016.

 

Narrative Disclosure to the Director Compensation Table

 

Our non-employee directors will be compensated with options to purchase common stock or awards of common stock as determined by the Compensation Committee. Non-employee directors are also reimbursed for out-of-pocket costs incurred in connection with attending meetings.

 

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, 2015.

 

    Number of securities
underlying unexercised
    Number of securities underlying     Weighted average      
    Options (#) (1)     unexercised unearned options     option exercise price     Option expiration
Name   Exercisable     Unexercisable     (#) (1)     ($) (1)     date
                             
Gerry David     716,667       73,333       73,333     $ 0.35     2021-2025
CEO                                    
                                     
John Fieldly     370,833       69,167       69,167     $ 0.44     2022-2025
CFO                                    

 

 

(1) Represents grants under our Amended 2006 Stock Incentive Plan.

 

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Amended 2006 Incentive Stock Plan

 

In January 2007, we adopted our 2006 Incentive Stock Plan, which was amended in July 2009 (as amended, the “ 2006 Plan ”). The 2006 Plan provided for equity incentives to be granted to our employees, officers or directors or to key advisers or consultants. Equity incentives may be in the form of stock options with an exercise price not less than the fair market value of the underlying shares as determined pursuant to the 2006 Plan, stock appreciation rights, restricted stock awards, stock bonus awards, other stock-based awards, or any combination of the foregoing. The 2006 Plan is administered by the compensation committee of the board of directors. Options to purchase 4,634,166 shares of common stock are outstanding under the 2006 Plan and awards covering up to an additional 321,275 shares may be granted under the 2006 Plan prior to its expiration in January 2017.

 

2015 Incentive Stock Plan

 

Our 2015 Incentive Stock Plan (the “ 2015 Plan ”), adopted in April 2015, provides for equity incentives to be granted to our employees, executive 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 2015 Plan, restricted stock awards, other stock based awards, or any combination of the foregoing. The 2015 Plan is administered by the compensation committee of the board of directors. 5,000,000 shares of our common stock are reserved for issuance pursuant to the exercise of awards under the 2015 Plan. The number of shares so reserved automatically adjusts upward on January 1 of each year, so that the number of shares covered by the 2015 Plan is equal to 15% of our issued and outstanding common stock. Stock options to purchase an aggregate of 908,500 shares of our common stock are outstanding under the 2015 Plan as of the date of this report.

 

Compensation Committee Interlocks and Insider Participation

 

None.

 

Item 7. Certain Relationships and Related Transactions, and Director Independence

 

See “ Item 10. Recent Sales of Unregistered Securities ” with respect to the April 2015 investment by the Investors and related transactions with CD Financial and CDS Ventures.

 

The Company’s executive offices located at 2424 N Federal Hwy, Boca Raton, Florida 33431 are leased from a company affiliated with CD Financial. The lease expires in October 2020 and provides for monthly rent of $6,408. We believe that the monthly rent is commensurate with other properties available in the market.

 

In April 2015, the Company entered into a strategic marketing and advisory services agreement (the “ Advisory Services Agreement ”) with All Def Digital. Tim Leissner, a director of the Company is also a director of All Def Digital. As of December 31, 2015, the Company has paid All Def Digital $237,959, for services relating to the Advisory Services Agreement.

 

All related party transactions are subject to the review, approval or ratification of our board of directors or an appropriate committee thereof.

 

Item 8. Legal Proceedings

 

From time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.  We are not currently involved in any legal proceedings that could reasonably be expected to have a material adverse effect on our business, prospects, financial condition or results of operations.  We may become involved in material legal proceedings in the future.

 

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Item 9. Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters

 

Since January 11, 2016, our common stock has been on the OTCQX tier of the over-the-counter market maintained by OTC Markets Group, Inc., under the trading ticker “CELH.” Prior thereto, our common stock was quoted on the OTCPink tier of the over-the counter market maintained by OTC Markets Group, Inc. The trading price of our common stock has been volatile at times. Further, the stock market has from time to time experienced extreme volatility that has often been unrelated to the operating performance of particular companies. These kinds of broad market fluctuations may adversely affect the market price of our common stock. For additional information, see “ Item 1.A. Risk Factors ” above.

 

The following table sets forth the quarterly high and low sale prices of our common stock for the two most recent fiscal years, as reported on the OTC Market Group, INC. quotation system:

 

    High Sale     Low Sale  
Fiscal  Quarters   Price     Price  
2016                
First Quarter 2016   $ 2.40     $ 1.56  
                 
2015                
Fourth Quarter 2015   $ 2.48     $ 1.49  
Third Quarter 2015   $ 2.83     $ 1.71  
Second Quarter 2015   $ 3.55     $ 1.25  
First Quarter 2015   $ 1.25     $ 0.44  
                 
2014                
Fourth Quarter 2014   $ 0.61     $ 0.35  
Third Quarter 2014   $ 0.77     $ 0.44  
Second Quarter 2014   $ 0.94     $ 0.51  
First Quarter 2014   $ 1.20     $ 0.33  

 

Holders

 

As of July15, 2016, there were 52 holders of record of our common stock and in excess of 5,000 beneficial owners of our common stock.

 

Dividends

 

We have never declared or paid cash dividends on our common stock.  We anticipate that in the future we will retain any earnings for operation of our business. Accordingly, we do not anticipate declaring or paying any cash dividends in the foreseeable future.

 

Options, Warrants and Convertible Securities

 

As of the date of this report, there were:

 

·       4,412,775 shares of our common stock reserved for issuance upon exercise of outstanding options granted under the 2006 Plan and the 2015 Plan; and

 

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·       9,228,086 shares of our common stock reserved for issuance upon conversion of our outstanding convertible preferred stock.

 

Securities Authorized for Issuance under Equity Compensation Plans

 

Plan category   Number of securities to
be issued upon exercise of
outstanding options,
warrants and rights
    Weighted-average
exercise price of
outstanding options,
warrants and rights
    Number of securities
remaining
available for future
issuance under equity
compensation plans
(excluding securities
reflected in column (a))
 
                   
Equity compensation plans approved by security holders     5,542,666 shares (1)   $ 1.00       4,412,775 shares (1)
                         
Equity Compensation plans not approved by security holders     0 shares       n/a       0 shares  
                         
Total     5,542,666 shares (1)     None issued       4,412,775 shares (1)

 

 

(1) Represents shares of common stock reserved for issuance under the 2005 Plan and the 2015 Plan.

 

Item 10. Recent Sales of Unregistered Securities

 

April 2015 Transactions:

 

· On April 20, 2015, the Company entered into a common stock purchase agreement (the “ 2015 Purchase Agreement ”) with the Investors, pursuant to which the Company sold 12,921,348 shares of its common stock on a private placement basis (the “ Private Placement Shares ”) to the Investors for an aggregate consideration of $11,388,159, net of expenses. Certain of the Investors contemporaneously acquired an additional 5,000,000 shares of our common stock (the “ Conversion Shares ”) by purchasing an outstanding $1.5 million convertible note held by CDS Ventures (the “ CDS Note ”) and immediately converting the CDS Note into the Conversion Shares. In connection with the issuance of the Private Placement Shares and the Conversion Shares, Celsius relied upon the exemptions from registration afforded by Sections 4(a)(2) and 3(a)(9) of the Securities Act, respectively. The Private Placement Shares and the Conversion Shares are “ restricted securities ” of the Company. The certificates evidencing the Private Placement Shares and the Conversion Shares bear a legend (a) stating that the shares have not been registered under the Securities Act and applicable state securities laws; and (b) setting forth and referring to the restrictions on transferability and sale of the shares under the Securities Act and applicable state securities laws.

 

· We currently have shares of Series C Preferred Stock (the “ Preferred C Shares ”) and shares of Series D Preferred Stock (the “ Preferred D Shares ”) outstanding. On April 16, 2015, contemporaneously with the transactions with the Investors, the Company entered into an amendment to its existing Loan and Security Agreement (the “ Amendment ”) with CD Financial. Pursuant to the Amendment, the outstanding principal amount of the line of credit with CD Financial was reduced by $4.0 million, which amount was converted into 4,000 Preferred D Shares. Contemporaneously with the issuance of the Preferred D Shares, $180,000 of accrued but unpaid dividends on outstanding Preferred C Shares was paid through the issuance of an additional 180 Preferred C Shares (the “ Additional Preferred C Shares ”). In connection with the issuance of the Preferred D Shares and the Additional Preferred C Shares, Celsius relied upon the exemption from afforded by Section 4(a)(2) of the Securities Act. The Preferred D Shares and the Additional Preferred C Shares issued by Celsius are “ restricted securities ” of the Company. The certificates evidencing the Preferred D Shares and the Additional Preferred C Shares issued by Celsius bear a legend (i) stating that the shares have not been registered under the Securities Act and applicable state securities laws, and (ii) setting forth and referring to the restrictions on transferability and sale of the shares under the Securities Act and applicable state securities laws.

 

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· At closing of the April 20, 2015 transactions, Celsius, the Investors, CDS Ventures and CD Financial into the Investors’ Rights Agreement, pursuant to which, among matters, our board of directors was expanded to seven (7), two of whom shall be designated by the Investors, the shareholder parties were accorded certain registration rights for their respective shares of our common stock or underlying shares of common stock, as the case may be, under the Securities Act and the shareholder parties were granted certain participation rights as to future offerings of securities by Celsius. In order to effect the transactions, Celsius’ Amended and Restated Articles of Incorporation were amended as authorized by our board of directors, which amendment increased required), to increase the number of authorized shares of the which amendment increased the number of authorized shares of common stock from 50,000,000 to 75,000,000, increased the number of authorized Preferred C Shares from 2,200 to 3,000 and designated the newly created Preferred D Shares.

 

Other Issuances of Common Stock

 

During 2014, the Company issued a total of 280,000 “ restricted ” shares of its common stock as compensation pursuant to celebrity endorsement agreements at an aggregate fair value of $216,100, 250,000 shares were issued at $0.79 per share on March 11 , 2014 and 30,000 shares were issued at $0.62 per share on August 13 , 2014 with each per share valuation representing the closing stock price on the day of issuance.

 

On April 12, 2016, the Company issued a total 250,000 “ restricted ” shares of its common stock as compensation pursuant to celebrity endorsement agreements at a fair value of $560,000, or $2.24 per share representing, the closing stock price on that date.

 

Item 11. Description of Registrant’s Securities to be Registered

 

Capital Stock

 

Our authorized capital stock consists of 75,000,000 shares of common stock, par value $0.001 per share and 2,500,000 shares of preferred stock, par value $0.001 per share. Our shares of common stock are the securities covered by this registration statement.

 

Common Stock

 

As of the date of this report, we have 38,666,451 shares of our common stock issued and outstanding. 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 Preferred C Shares and Preferred D Shares 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. 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 shares of 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.

 

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Preferred Stock

 

General

 

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. We currently have 3,000 shares of preferred stock designated as Preferred C Shares designated, of which 2,380 Preferred C Shares are issued and outstanding and 4,000 shares of preferred stock designated as Preferred D Shares, all of which are issued and outstanding.

 

Preferred C Shares

 

The Preferred C Shares are convertible into our common stock at the option of the holder thereof at a conversion price of $0.52 per share at any time until December 31, 2018, at which time they will automatically convert into shares of our common stock determined by dividing the liquidation preference of $ 0.52 per Preferred C Share by the conversion price then in effect. The conversion price is subject to adjustment in the event of stock dividends, stock splits and similar events. The Preferred C Shares accrue cumulative annual dividends at the rate of 6% per annum, payable by the issuance of additional Preferred C Shares. The holder of Preferred C Shares votes 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.

 

Preferred D Shares

 

The Preferred D Shares are convertible into our common stock at the option of the holder thereof at a conversion price of $0.86 per share until the earlier of the January 2, 2020 due date of our line of credit with CD Financial or such earlier date as the line of credit is satisfied (the “ Mandatory Redemption Date ”). The conversion price is subject to adjustment in the event of stock dividends, stock splits and similar events. The Preferred D Shares accrue cumulative annual cash dividends at the rate of 5% per annum, payable quarterly in cash and have a liquidation preference of $1,000 per share. On the Mandatory Redemption Date, the Preferred D Shares automatically convert into shares of our common stock in a number determined by dividing the $1,000 per Preferred D Share liquidation preference plus any accrued but unpaid dividends, by the conversion price then in effect. The Preferred D Shares may also be redeemed by us at any time on or after December 31, 2016, at a redemption price equal to 104% of the liquidation preference. The holder of the Preferred D Shares votes 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.

 

Item 12. Indemnification of Directors and Officers

 

Pursuant to our Articles of Incorporation and Bylaws, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his or her position, if he or she acted in good faith and in a manner he or she reasonably believed to be in our best interest.  In certain cases, we may advance expenses incurred in defending any such proceeding.  To the extent that the officer or director is successful on the merits in any such proceeding as to which such person is to be indemnified, we must indemnify him or her against all expenses incurred, including attorney's fees.  With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order.  The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.

 

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Item 13. Financial Statements and Supplementary Data

 

The financial statements and supplementary data listed in “ Item 15 Financials Statements and Exhibits ” are included with this registration statement.

 

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

 

None.

 

Item 15. Financial Statements and Exhibits

 

(a) Financial Statements

 

The following consolidated financial statements of the Company are included herewith:

 

Report of Independent Registered Public Accounting Firm  
   
Consolidated Balance Sheets as of December 31, 2015 and 2014  
   
Consolidated Statements of Operations for the years ended December 31, 2015 and 2014  
   
Consolidated Statements of Changes in Stockholders’ Equity (Deficit) for the years ended December 31, 2015 and 2014  
   
Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014  
   
Notes to Consolidated Financial Statements  
   
Consolidated Balance Sheets as of March 31, 2016 (unaudited) and December 31, 2015  
   
Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited)  
   
Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)  
   
Notes to Consolidated Financial Statements (unaudited)  

 

(b)

 

Exhibit No.   Description
     
3.1   Articles of Incorporation, as amended
     
3.2   Bylaws, as amended
     
10.1   Loan and Security Agreement with CD Financial, LLC, as amended
     
10.2   Investors’ Rights Agreement dated April 20, 2015
     
10.3   Amended 2006 Stock Incentive Plan*
     
10.4   2015 Stock Incentive Plan*
     
10.5   Code of Ethics
     
10.6   Audit Committee Charter
     
10.7   Compensation Committee Charter
     
10.8   Nominating and Corporate Governance Committee Charter
     
10.9   Employment Agreement with Gerry David*
     
10.10   Employment Agreement with John Fieldly*
     
21.1   Subsidiaries of Registrant
     
23.1   Consent of Independent Registered Public Accounting Firm

 

 

*Management compensation plan or arrangement.

 

  30  

 

 

SIGNATURES

 

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Date: July 22, 2016 CELSIUS HOLDINGS,, INC.
     
  By: /s/ Gerry David
    Gerry David, Chief Executive Officer
     
  By: /s/ John Fieldly
    John Fieldly, Chief Financial Officer

 

  31  

 

 

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

  Page
   
Report of Independent Registered Public Accounting Firm F-2
   
Consolidated Balance Sheets as of December 31, 2015 and 2014 F-3
   
Consolidated Statements of Operations  
for the years ended December 31, 2015 and 2014 F-4
   
Consolidated Statements of Changes in Stockholders’ Equity (Deficit)  
for the years ended December 31, 2015 and 2014 F-5
   
Consolidated Statements of Cash Flows  
for the years ended December 31, 2015 and 2014 F-6
   
Notes to Consolidated Financial Statements F-7
   
Consolidated Balance Sheets  
as of March 31, 2016 (unaudited) and December 31, 2015 (audited) F-22
   
Consolidated Statements of Operations  
for the three months ended March 31, 2016 and 2015 (unaudited) F-23
   
Consolidated Statements of Cash Flows  
for the three months ended March 31, 2016 and 2015 (unaudited) F-24
   
Notes to Consolidated Financial Statements (unaudited) F-25

 

F- 1  

 

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

Celsius Holdings, Inc. and Subsidiaries

 

We have audited the accompanying consolidated balance sheets of Celsius Holdings, Inc. and Subsidiaries as of December 31, 2015 and 2014 and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the two years ended in the period December 31, 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated 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 consolidated 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. Our audit included consideration of 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement 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 consolidated financial position of Celsius Holdings, Inc. and Subsidiaries as of December 31, 2015 and 2014 and the results of their operations and their cash flows for each of the two years in the period ended December 31, 2015, in conformity with accounting principles generally accepted in the United States of America.

 

  /s/ D’Arelli Pruzansky, P.A.
   
  Certified Public Accountants

 

Coconut Creek, Florida

March 24, 2016

 

 

F- 2  

 

 

Celsius Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

 

    December 31,
2015
    December 31,
2014
 
ASSETS                
                 
Current assets:                
Cash   $ 10,128,320     $ 349,072  
Accounts receivable, net     2,127,060       2,612,191  
Inventories, net     2,322,904       1,686,935  
Prepaid expenses and other current assets     666,267       259,056  
Total current assets     15,244,551       4,907,254  
                 
Property and equipment, net     21,319       43,950  
Total Assets   $ 15,265,870     $ 4,951,204  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 1,805,931     $ 828,049  
Accrued preferred dividend     190,847       180,403  
Deferred revenue and other current liabilities     25,057       356,602  
Total current liabilities     2,021,835       1,365,054  
                 
Long-term liabilities:                
Convertible note payable - related party     -       1,500,000  
Line of credit note payable-related party     4,500,000       9,250,000  
Total Liabilities     6,521,835       12,115,054  
                 
Stockholders’ Equity (Deficit):                
Preferred Stock, $0.001 par value; 2,500,000 shares authorized, 6,380 and 2,200 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively     6       2  
Common stock, $0.001 par value; 75,000,000 shares authorized, 38,380,380 and 20,459,032 shares issued and outstanding at December 31, 2015 and December 31, 2014, respectively     38,380       20,459  
Additional paid-in capital     58,626,212       40,165,955  
Accumulated deficit     (49,920,563 )     (47,350,266 )
Total Stockholders’ Equity (Deficit)     8,744,035       (7,163,850 )
Total Liabilities and Stockholders’ Equity (Deficit)   $ 15,265,870     $ 4,951,204  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 3  

 

 

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

 

    For the year  
    ended December 31,  
    2015     2014  
Revenue   $ 17,217,944     $ 14,610,090  
Cost of revenue     10,177,986       9,011,923  
Gross profit     7,039,958       5,598,167  
                 
Selling and marketing expenses     5,701,845       4,823,014  
General and administrative expenses     3,165,573       2,305,086  
Total operating expense     8,867,418       7,128,100  
                 
Loss from operations     (1,827,460 )     (1,529,933 )
                 
Other Income (Expense):                
Interest expense     (322,344 )     (497,203 )
Total Other Income (Expense)     (322,344 )     (497,203 )
                 
Net Loss     (2,149,804 )     (2,027,136 )
Preferred stock dividend - beneficial conversion feature     (139,535 )        
Preferred stock dividend - other     (280,958 )     (133,836 )
Net Loss available to common stockholders   $ (2,570,297 )   $ (2,160,972 )
                 
Weighted average shares outstanding     33,175,826       20,392,594  
Loss per share, basic and diluted   $ (0.07 )   $ (0.10 )

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 4  

 

 

Consolidated Statements of Changes in Stockholders’ Equity (Deficit)

For the Years Ended December 31, 2015 and 2014

 

                Additional              
    Preferred Stock     Common Stock     Paid-In     Accumulated        
    Shares     Amount     Shares     Amount     Capital     Deficit     Total  
                                           
Balance at December 31, 2013     2,200     $ 2       20,179,032     $ 20,179     $  39,263,208       (45,189,294 )   $  (5,905,905 )
                                                         
Issuance of common stock in exchange of service                     280,000       280       215,820               216,100  
Stock option expense                                     686,927               686,927  
Preferred stock dividend                                             (133,836 )     (133,836 )
Net loss                                             (2,027,136 )     (2,027,136 )
Balance at December 31, 2014     2,200       2       20,459,032       20,459       40,165,955       (47,350,266 )     (7,163,850 )
                                                         
Issuance of preferred stock in exchange of note     4,000       4                       3,999,996               4,000,000  
Issuance of preferred stock in exchange of accrued dividend     180       0.18                       180,000               180,000  
Issuance of common stock upon conversion of convertible note                     5,000,000       5,000       1,495,000               1,500,000  
Issuance of common stock pursuant to private placement                     12,921,348       12,921       11,375,238               11,388,159  
Stock option expense                                     1,270,488               1,270,488  
Preferred stock dividend - beneficial conversion feature                                     139,535       (139,535 )     -  
Preferred stock dividend - other                                             (280,958 )     (280,958 )
Net loss                                             (2,149,804 )     (2,149,804 )
Balance at December 31, 2015     6,380     $ 6       38,380,380     $ 38,380     $ 58,626,212       (49,920,563 )   $ 8,744,035  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 5  

 

 

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

 

    For the year ended  
    December 31,
2015
    December 31,
2014
 
Cash flows from operating activities:                
Net Loss available to common stockholders   $ (2,570,297 )   $ (2,160,972 )
Adjustments to reconcile net loss to net cash used in operating activities:                
Depreciation and amortization     33,043       37,256  
Stock-based compensation expense     1,270,488       903,027  
Preferred stock dividend –beneficial conversion feature     139,535       -  
Changes in operating assets and liabilities:                
Accounts receivable, net     485,131       (1,120,641 )
Inventory     (635,969 )     (865,664 )
Prepaid expenses and other current assets     (313,942 )     258,338  
Accounts payable and accrued expenses     1,168,400       121,828  
Deposits/deferred revenue and other current liabilities     (331,544 )     (92,389 )
Net cash used in operating activities     (755,155 )     (2,919,217 )
                 
Cash flows from investing activities:                
Purchase of property and equipment     (10,412 )     (12,493 )
                 
Net cash (used in) investing activities     (10,412 )     (12,493 )
                 
Cash flows from financing activities:                
Borrowing under revolving note payable, related-party     450,000       3,150,000  
Repayment on short term notes payable, related-party     (1,200,000 )     -  
Net proceeds from sale of common stock     11,388,084       -  
Payments on short term notes payable     (93,269 )     (91,124 )
Net cash provided by financing activities     10,544,815       3,058,876  
                 
Net increase in cash and cash equivalents     9,779,248       127,166  
                 
Cash and cash equivalents at beginning of the year     349,072       221,906  
                 
Cash and cash equivalents at end of the year   $ 10,128,320     $ 349,072  
Supplemental disclosures:                
Cash paid during period for:                
Interest   $ 401,808     $ 460,589  
Taxes   $ -     $ -  
Non-cash investing and financing activities:                
Borrowing under short term notes payable for prepaid expense   $ 93,269     $ 91,124  
Accrued preferred dividends   $ 280,958     $ 133,836  
Preferred stock issued in exchange for cancellation of revolving note payable - related party   $ 4,000,000     $ -  
Conversion of convertible note to common shares - related party   $ 1,500,000     $ -  
Conversion of accrued preferred dividend into preferred shares - related party   $ 180,000     $ -  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 6  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Business —Celsius Holdings, Inc. (the “Company” or “Celsius Holdings”) was incorporated under the laws of the State of Nevada on April 26, 2005. On January 24, 2007, the Company entered into a merger agreement and plan of reorganization with Elite FX, Inc., a Florida corporation. Under the terms of the Merger Agreement, Elite FX, Inc. was merged into the Company’s subsidiary, Celsius, Inc. and became a wholly-owned subsidiary of the Company on January 26, 2007. In addition, on March 28, 2007 the Company established Celsius Netshipments, Inc. a Florida corporation as a wholly-owned subsidiary of the Company.

 

Since the merger, the Company is engaged in the development, marketing, sale and distribution of “functional” calorie-burning fitness beverages under the Celsius® brand name.

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

Consolidation Policy — The accompanying consolidated financial statements include the accounts of Celsius Holdings, Inc. and its 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. Significant estimates include the allowance for doubtful accounts, reserves for inventory obsolescence, the useful lives and values of property, fixtures and equipment, valuation of stock based compensation, and deferred tax asset valuation allowance.

 

Concentrations of Risk — Substantially all of the Company’s revenue derives from the sale of Celsius ® beverages.

 

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 and accounts receivable. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit. At December 31, 2015 the Company had approximately $10.0 million in excess of the Federal Deposit Insurance Corporation limit.

 

F- 7  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

At December 31, 2015 and 2014, the Company had the following 10 percent or greater concentrations of revenue with its customers:

 

    2015     2014  
A*     48.3 %     49.8 %
B     9.1 %     10.0 %
All other     42.6 %     40.2 %
Total     100.0 %     100.0 %

 

At December 31, 2015 and 2014, the Company had the following 10 percent or greater concentrations of accounts receivable with its customers:

 

    2015     2014  
A*     50.0 %     68.0 %
B     11.8 %     8.5 %
All other     38.2 %     23.5 %
Total     100.0 %     100.0 %

 

*Revenues and receivables from customer A are derived from a distributor located in Sweden.

 

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, 2015 and December 31, 2014, the Company did not have any investments with maturities of three months or less.

 

Accounts Receivable — Accounts receivable are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At December 31, 2015 and December 31, 2014, there was an allowance for doubtful accounts of $3,500 and $3,500, respectively.

 

F- 8  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 reserved against inventory during the period in which such materials and products are no longer usable or marketable. In 2015 and 2014, the Company recorded a reserve of $329,075 and $30,059, respectively. The changes in reserve are included in cost of revenue. Free Samples are recorded as cost of sales.

 

Property and Equipment — Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful life of the asset generally ranging from three to seven years.

 

Impairment of Long-Lived Assets — In accordance with ASC Topic 360, “Property, Plant, and Equipment” the Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

 

Revenue Recognition — Revenue is derived from the sale of beverages. Revenue is recognized when persuasive evidence of an agreement exists, the products are delivered, sales price is fixed or determinable, and collectability is reasonably assured. Any discounts, slotting fees, sales incentives or similar arrangements with the customer are estimated at time of sale and deducted from revenue.

 

Deferred Revenue — From time to time the Company requires prepayments for deposits in advance of delivery of products and/or production runs. Such amounts are initially recorded as deferred revenue. The Company recognizes such revenue as it is earned in accordance with revenue recognition policies.

 

Advertising Costs — Advertising costs are expensed as incurred. The Company uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising. The Company incurred advertising expense of approximately $3.2 million and $2.2 million, during year ending December 31, 2015 and 2014, 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 beverages. The Company incurred expenses of $71,166 and $25,510 during year ending December 31, 2015 and 2014, respectively.

 

Fair Value of Financial Instruments — The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable approximates fair value due to their relative short-term maturity and market interest rates.

 

F- 9  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurements - ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
   
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
   
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company did not have any assets or liabilities measured at fair value at December 31, 2015 and December 31, 2014.

 

Income Taxes — The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

 

F- 10  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (continued) — Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.

 

The Company files its tax returns on a fiscal year September 30 th tax year. The Company’s tax returns for tax years ended September 30, 2015 (although not yet filed), 2014, 2013, and 2012 remain subject to potential examination by the taxing authorities.

 

Earnings per Share — Basic earnings per share are calculated by dividing net income (loss) 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 convertible debt, exercise of stock options and warrants (calculated using the reverse treasury stock method). As of December 31, 2015 there were options outstanding to purchase 4.6 million shares, which exercise price averaged $0.80, Series C Preferred Stock warrants outstanding to convert to 4.6 million common shares at $0.52 price per share and Series D Preferred Stock warrants outstanding to convert to 4.7 million common shares at $0.86 price per share. There were no other dilutive common shares equivalents, including convertible notes and warrants, as no common share equivalents had an exercise price below the ending closing price of the year. The effects of dilutive instruments have not been presented as the effects would be anti-dilutive.

 

F- 11  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Share-Based Payments —Effective January 1, 2006, the Company has fully adopted the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the grants. On April 30, 2015, the Company adopted the 2015 Stock Incentive Plan, This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company's common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,000,000 shares. In addition, there is a provision for an annual increase of 15% to the shares included under the plan, with the shares to be added on the first day of each calendar year, beginning on January 1, 2016.

 

Shipping and Handling Costs — Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for year ended December 31, 2015 and 2014 was $1,161,088 and 1,007,054, respectively.

 

Recent Accounting Pronouncements

 

The Company adopts all applicable, new accounting pronouncements as of the specified effective dates.

 

In September 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by requiring the acquirer to (i) recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined, (ii) record, in the same period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, and (iii) present separately or disclose the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years, and interim periods within, beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU 2015-16 on January 1, 2016 to its consolidated financial position or results of operations.

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (consistent with debt discounts).  

 

F- 12  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements (continued)

 

In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting) (“ASU 2015-15”). ASU 2015-15 allows debt issuance costs related to line-of-credit agreements to be presented in the balance sheet as an asset. ASU 2015-03 and ASU 2015-15 are effective for fiscal years, and interim periods within, beginning after December 15, 2015. Early adoption is permitted. The Company plans to early adopt ASU 2015-03 and ASU 2015-15 as of December 31, 2015; the adoption is not expected to have a material impact on its consolidated financial position or results of operations.

 

All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position.

 

Liquidity — These financial statements have been prepared assuming the Company will be able to continue as a going concern. At December 31, 2015, the Company had an accumulated deficit of $49,920,563 which includes a net loss available to common stockholders of $2,570,297 for year ended December 31, 2015. While these factors alone may raise doubt as to the Company’s ability to continue as a going concern, the Company’s sale of common stock to an investor group on April 20, 2015 for a total of $11.5 million is deemed sufficient to alleviate substantial doubt regarding the Company’s ability to continue as a going concern.

 

3. INVENTORIES

 

Inventories consist of the following at:

 

    December 31,     December 31,  
    2015     2014  
Finished goods   $ 2,309,288     $ 1,570,201  
Raw Materials     342,691       146,793  
Less: Inventory Reserve     (329,075 )     (30,059 )
Inventories, net   $ 2,322,904     $ 1,686,935  

 

F- 13  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets total $666,267 and $259,056, at December 31, 2015 and December 31, 2014, respectively, and consist mainly of prepaid consulting agreement with D3M Licensing Group, advertising, prepaid insurance, prepaid slotting fees, deposits on purchases, and customer deposits.

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at:

 

    December 31,     December 31,  
    2015     2014  
Furniture and equipment   $ 264,495     $ 254,083  
Less: accumulated depreciation     (243,176 )     (210,133 )
Total   $ 21,319     $ 43,950  

 

Depreciation expense amounted to $33,043 and $37,256 during year ended December 31, 2015 and 2014, respectively

 

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following at:

 

    December 31,     December 31,  
    2015     2014  
Accounts payable   $ 1,207,353     $ 360,062  
Accrued expenses     598,578       467,987  
Total   $ 1,805,931     $ 828,049  

 

F- 14  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

7. DEFERRED REVENUE AND OTHER CURRENT LIABILITIES

 

Deferred revenue and other current liabilities consist of the following at:

 

    December 31,     December 31,  
    2015     2014  
Customer deposits   $ 13,063     $ 351,716  
State bottle bill liability     11,994       4,886  
Total   $ 25,057     $ 356,602  

 

8. LINE OF CREDIT NOTE PAYABLE - RELATED PARTIES

 

Line of credit note payable - related parties consists of the following as of:

 

    December 31,     December 31,  
Note Payable – line of credit   2015     2014  
In July 2010, the Company entered into a line of credit note payable with a related party which carries interest of five percent per annum. The Company can borrow up to $4,500,000. The Company has pledged all of its assets as security for the line of credit. The notes mature in January 2020, at which time the principal amount is due. During April 2015, the Company issued $4,000,000 of convertible series D preferred series in exchange for cancellation of $4,000,000 of this line.                
Long-term portion   $ 4,500,000     $ 9,250,000  

 

9. CONVERTIBLE NOTE PAYABLE - RELATED PARTIES

 

Convertible note payable   December 31,     December 31,  
    2015     2014  
Convertible note payable, related party   $ 0     $ 1,500,000  

 

In September 2009, the Company entered into a convertible note payable with a related party, a majority shareholder which carries interest at six percent per annum. The outstanding balance is convertible into the Company’s common stock at a conversion price of $0.30 per share. The Company is obligated to file a registration statement upon written notice from the creditor and such registration statement must be effective within 180 days of the date of notice. If after the 180 days the Company has not complied with the agreement it shall pay $65,000 per month in penalty, until the registration statement is effective.

 

F- 15  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

9. CONVERTIBLE NOTE PAYABLE - RELATED PARTIES (CONTINUED)

 

The note matures in December 2016, at which time the principal amount is due. In April 2015, the note holder converted the outstanding portion of $1,500,000, into shares of common stock in accordance with the conversion terms of the agreement. The creditor also terminated all registration rights and waived any penalties that might have been incurred in connection therewith. The outstanding balance on the loan as of December 31, 2015 and December 31, 2014 was $0 and $1,500,000, respectively.

 

10. PREFERRED STOCK – RELATED PARTY

 

On August 26, 2013, the Company entered into a securities purchase agreement (the “2013 Purchase Agreement”) with CDS Ventures of South Florida, LLC (“CDS”) and CD Financial, LLC (“CD”). CDS and CD are limited liability companies which are affiliates of Carl DeSantis, the Company’s principal shareholder. The Company issued 2,200 shares of its Series C Preferred Stock (the “Preferred C Shares”) in exchange for the conversion of a $550,000 short term loan from CDS and the conversion of $1,650,000 in indebtedness under the Company’s line of credit with CD (the “CD Line of Credit”). The Preferred C Shares can be converted into Company common stock at any time until December 31, 2018 at a conversion price of $0.52 per share. The conversion price per share is based on the weighted average of the ten daily VWAPs for the 10 trading days immediately preceding the closing date of August 26, 2013. The Preferred C Shares accrue a 6% annual cumulative dividend, payable in additional Preferred C Shares. The Preferred C Shares are mandatorily redeemable on December 31, 2018 and are redeemable only in shares of the Company’s common stock. In April 2015, the Company issued 180 Preferred C Shares valued at $180,000 in settlement of $180,000 in accrued preferred C dividends. As of December 31, 2015, $139,736 of dividends has been accrued. The Preferred C Shares mature on December 31, 2018 and are redeemable only in exchange for shares of Company common stock.

 

On April 16, 2015, the Company entered into an amendment to its existing Loan and Security Agreement (the “Amendment”) with CD an affiliate of CDS Ventures and Mr. DeSantis. Pursuant to the Amendment, the outstanding principal amount of the CD Line of Credit was reduced by $4.0 million, which amount was converted into 4,000 shares of a newly-designated Series D Preferred Stock (the “Preferred D Shares”). This related party was given a conversion price of $0.86 per common share, whereas other investors purchased common shares at $0.89 in the private placement, as discussed in note 12. The difference of $0.03 per share, which resulted in $139,535, was recorded as a dividend in accordance with ASC 470-20-35, subsequent measurement for debt with conversion and other options. The Preferred D Shares can be converted into Company common stock at any time until the expiration date of the line of credit in 2020 or its earlier satisfaction in full, at a conversion price of $0.86 per share. The Preferred D Shares accrue a 5% annual cumulative cash dividend, payable quarterly and accords the holders thereof voting rights on an “as converted” basis. As of December 31, 2015, $51,111 of dividends has been accrued regarding these shares.

 

F- 16  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

11. RELATED PARTY TRANSACTIONS

 

The Company’s office is rented from a company affiliated with CD which is controlled by our majority shareholder Carl DeSantis. Currently, the lease expires on October 2020 with monthly rent of $6,408. The rental fee is commensurate with other properties available in the market.

 

In April 2015, the Company entered into a strategic marketing and advisory services agreement with All Def Digital. Tim Leissner, a director and shareholder of the Company is also a director and shareholder in All Def Digital. As of December 31, 2015, the Company has paid All Def Digital $237,959, for services relating to the strategic marketing and advisory services agreement.

 

Other related party transactions are discussed in notes 8, 9, and 10,

 

12. STOCKHOLDERS’ EQUITY (DEFICIT)

 

Issuance of common stock pursuant to services performed

 

During 2014, the Company issued a total of 280,000 unregistered shares as compensation in connection with celebrity endorsement agreements at an aggregate fair value of $216,100, 250,000 shares were issued at $0.79 per share on March 11 th , 2014 and 30,000 shares were issued at $0.62 per share on August 13 th , 2014, with each per share valuation representing the closing stock price on the day of issuance.

 

Issuance of common stock pursuant to conversion of note

 

In April 2015, the Company issued 5,000,000 unregistered common shares upon conversion of $1,500,000 of convertible notes, at contractual terms.

 

Issuance of common stock pursuant to private placement

 

In April 2015, the Company issued a total of 12,921,348 shares of common stock at $0.89 per share for gross proceeds of $11.5 million (see note 10). Expenses incurred of $111,841 were charged to additional paid in capital and the Company received net proceeds of $11,388,159.

 

Issuance of preferred stock pursuant to private placement

 

Refer to note 10 for discussion on preferred stock issuances.

 

13. INCOME TAXES

 

Due to recurring losses for book and tax purposes, for the years ended December 31, 2015 and 2014, the Company’s net tax provision was zero.

 

F- 17  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

13. INCOME TAXES (CONTINUED)

 

The difference between the effective income tax rate and the applicable statutory federal income tax rate is summarized as follows:

 

    2015     2014  
Statutory federal rate     (35.0 )%     (35.0 )%
State income tax rate, net of federal benefit     (3.5 )%     (3.5 )%
Permanent differences, including stock based compensation     25.3 %     18.5 %
Change in valuation allowance     13.5 %     20.0 %
Effective tax rate     0.0 %     0.0 %

 

At December 31, 2015 and 2014, the Company’s deferred tax assets were as follows:

 

Deferred Tax Assets   2015     2014  
             
Net operating loss carry forwards     16,029,000       16,303,000  
Less: Valuation allowance net deferred tax assets     (16,029,000 )     (16,303,000 )
Net deferred tax assets     0.0       0.0  

 

Due to taxable income before net operating loss carryforwards during tax year ending in 2015, the valuation allowance decreased by approximately $274,000 in 2015. Total net operating loss carry forwards at December 31, 2015 were approximately $41.6 million. The losses, if unused, expire through 2035.The Company’s net operating loss carry forwards may be limited due to ownership changes pursuant to Internal Revenue Code section 382.

 

14. 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. During 2013 the majority of the shareholders approved to increase the total available shares in the plan from 2.5 million to 3.5 million shares of common stock. During May 2014, the majority of the shareholders approved to increase the total available shares in the plan from 3.5 million to 4.25 million shares of common stock, during February 2015, the majority of the shareholders approved to increase the total available shares in the plan from 4.25 million to 4.6 million shares of common stock and during April 2015, the majority of the shareholders approved to increase the total available shares in the plan from 4.6 million to 5.1 million shares of common stock. Until 2017, options to acquire 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.

 

F- 18  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

14. STOCK-BASED COMPENSATION (CONTINUED)

 

The Company adopted the 2015 Stock Incentive Plan on April 30, 2015. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company's common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,000,000 shares. In addition, there is a provision for an annual increase of 15% to the shares included under the plan, with the shares to be added on the first day of each calendar year, beginning on January 1, 2016.

 

Cumulatively since inception, the Company has issued options to purchase approximately 4.6 million shares at an average price of $0.81 with a fair value of $5.3 million. For the year 2015 and 2014, the Company issued options to purchase 1.3 million and 1.4 million shares. For the year ended December 31, 2015 and 2014, the Company recognized an expense of $1,270,488 and $686,927, respectively, of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of Operations) determined by application of a Black Scholes option pricing model with the following inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of December 31, 2015, the Company had approximately $742,000 of unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period of 0.5 years. The Company used 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 4.3 million shares that have vested, of which 267,000 shares were exercised as of December 31, 2015.

 

The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances. The calculation of the fair value of the awards using the Black - Scholes option-pricing model is affected by the Company’s stock price on the date of grant as well as assumptions regarding the following:

 

    Year ended December 31,
    2015   2014
Expected volatility   306%   172% - 328%
Expected term   4 Years   3 - 5 Years
Risk-free interest rate   0.89%   0.91% - 1.69%
Forfeiture Rate   0.00%   0.00%
Expected dividend yield   0.00%   0.00%

 

F- 19  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

14. STOCK-BASED COMPENSATION (CONTINUED)

 

The expected volatility was determined with reference to the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.

 

A summary of the status of the Company’s outstanding stock options as of December 31, 2015 and changes during the period ending on that date is as follows:

 

                            Weighted  
          Weighted Average     Aggregate     Average  
          Exercise     Fair     Intrinsic     Remaining  
    Shares     Price     Value     Value     Term (Yrs)  
Options                                        
At December 31, 2013     2,374     $ 0.44     $ 0.33     $ 366       8.5  
Granted     1,417       0.78       0.56                  
Exercised                                        
Forfeiture and cancelled     (295 )     0.42       0.38                  
At December 31, 2014     3,496     $ 0.49     $ 0.41     $ 588       6.5  
Granted     1,306       1.61       0.33                  
Exercised                                        
Forfeiture and cancelled     (168 )     0.52       0.38                  
At December 31, 2015     4,634     $ 0.81     $ 0.41     $ 5,300       5.49  
                                         
Exercisable at December 31, 2015     4,056     $ 0.73     $ 1.21     $ 477       6.1  

 

The following table summarizes information about employee stock options outstanding at December 31, 2015:

 

    Outstanding Options     Vested Options  
    Number                 Number              
    Outstanding     Weighted     Weighted     Exercisable     Weighted     Weighted  
Range of   at     Averaged     Averaged     at     Averaged     Averaged  
Exercise   December 31,     Remaining     Exercise     December 31,     Exercise     Remaining  
Price   2015 (000's)     Life     Price     2015 (000's)     Price     Life  
$0.20 - $0.42     2,522       5.90     $ 0.26       2,495     $ 0.26       5.96  
$0.53 - $1.42     1,431       5.37     $ 0.87       1,009     $ 0.80       7.61  
$1.80 - $3.80     637       4.30     $ 2.29       509     $ 2.26       5.39  
$4.25 - $9.40     30       3.89     $ 5.57       30       5.57       3.89  
$10.80 - $22.00     14       2.78     $ 14.87       14     $ 14.87       2.78  
Outstanding options     4,634       5.49     $ 0.81       2,707     $ 0.55       6.28  

 

F- 20  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements

 

December 31, 2015

 

15. 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 management’s belief that no such agreement has created any liability as of December 31, 2015.

 

The Company entered into an office lease with a related party (see note 11) effective October 2015. The monthly rent amounts to $6,408 per month and the lease terminates in October 2020. Future annual minimum payments required under operating lease obligations at December 31, 2015 are as follows:

 

Future Minimum Lease Payments

 

2016   $ 77,803  
2017   $ 82,792  
2018   $ 85,276  
2019   $ 87,834  
2020   $ 75,016  
Total   $ 408,721  

 

16. SUBSEQUENT EVENTS

 

We have evaluated events and transactions that occurred subsequent to December 31, 2015 through March 24, 2016, the date these financial statements were issued, for potential recognition or disclosure in the accompanying financial statements. We did not identify any events or transactions that should be recognized or disclosed in the accompanying financial statements.

 

F- 21  

 

 

Celsius Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

 

    March 31,
2016 (Unaudited)
    December 31,
2015 (1)
 
ASSETS                
                 
Current assets:                
Cash   $ 9,234,675     $ 10,128,320  
Accounts receivable, net     1,698,357       2,127,060  
Inventories, net     2,553,672       2,322,904  
Prepaid expenses and other current assets     993,135       666,267  
Total current assets     14,479,839       15,244,551  
                 
Property and equipment, net     24,333       21,319  
Total Assets   $ 14,504,172     $ 15,265,870  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY                
                 
Current liabilities:                
Accounts payable and accrued expenses   $ 1,842,161     $ 1,805,931  
Accrued preferred dividend     226,389       190,847  
Deferred revenue and other current liabilities     224,081       25,057  
Total current liabilities     2,292,631       2,021,835  
                 
Long-term liabilities:                
Line of credit note payable-related party     4,500,000       4,500,000  
Total Liabilities     6,792,631       6,521,835  
                 
Stockholders’ Equity:                
Preferred Stock, $0.001 par value; 2,500,000 shares authorized, 6,380 and 6,380 shares issued and outstanding at March 31, 2016 and December 31, 2015     6       6  
Common stock, $0.001 par value; 75,000,000 shares authorized, 38,380,380 shares issued and outstanding at March 31, 2016 and December 31, 2015     38,380       38,380  
Additional paid-in capital     58,880,927       58,626,212  
Accumulated deficit     (51,207,772 )     (49,920,563 )
Total Stockholders’ Equity     7,711,541       8,744,035  
Total Liabilities and Stockholders’ Equity   $ 14,504,172     $ 15,265,870  

 

(1) Derived from Audited Financial Statements

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 22  

 

 

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations

(Unaudited)

 

    For the three months  
    ended March 31,  
    2016     2015  
Revenue   $ 3,678,606     $ 4,649,026  
Cost of revenue     2,158,742       2,810,425  
Gross profit     1,519,864       1,838,601  
                 
Selling and marketing expenses     1,788,268       898,490  
General and administrative expenses     875,278       562,235  
Total operating expense     2,663,546       1,460,725  
                 
Income (Loss) from operations     (1,143,682 )     377,876  
                 
Other Income (Expense):                
Interest expense     (56,875 )     (132,169 )
Total Other Income (Expense)     (56,875 )     (132,169 )
                 
Net Income (Loss)     (1,200,557 )     245,707  
                 
Preferred stock dividend     (86,652 )     (33,001 )
Net Income (Loss) available to common stockholders   $ (1,287,209 )   $ 212,706  
                 
Income (Loss) per share:                
Basic   $ (0.03 )   $ 0.01  
Diluted   $ (0.03 )   $ 0.01  
Weighted average shares outstanding:                
Basic     38,380,380       20,459,032  
Diluted     38,380,380       31,569,411  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 23  

 

 

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

 

    For the three months ended  
    March 31,
2016
    March 31,
2015
 
Cash flows from operating activities:                
Net Income (Loss) available to common stockholders   $ (1,287,209 )   $ 212,706  
Adjustments to reconcile net income (loss) to net cash used in operating activities:                
Depreciation and amortization     3,394       9,118  
Stock-based compensation expense     254,715       172,274  
Changes in operating assets and liabilities:                
Accounts receivable, net     428,703       204,788  
Inventory     (230,768 )     236,735  
Prepaid expenses and other current assets     (326,868 )     (562,979 )
Accounts payable and accrued expenses     71,772       456,394  
Deferred revenue and other current liabilities     199,024       72,204  
Net cash provided by (used in) in operating activities     (887,237 )     801,240  
                 
Cash flows from investing activities:                
Purchase of property and equipment     (6,408 )     -  
                 
Net cash (used in) investing activities     (6,408 )     -  
                 
Cash flows from financing activities:                
Repayment on short term notes payable, related-party     -       (900,000 )
Payments on short term notes payable     -       (17,316 )
Net cash (used in) financing activities     -       (917,316 )
                 
Net decrease in cash and cash equivalents     (893,645 )     (116,076 )
                 
Cash at beginning of the period     10,128,320       349,072  
                 
Cash at end of the period   $ 9,234,675     $ 232,996  
Supplemental disclosures:                
Cash paid during period for:                
Interest   $ 56,875     $ 132,169  
Income Taxes   $ -     $ -  
Non-cash investing and financing activities:                
Borrowing under short term notes payable for prepaid expense   $ -     $ 91,099  
Accrued preferred dividends   $ 86,652     $ 33,001  

 

The accompanying notes are an integral part of these consolidated financial statements

 

F- 24  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

1. ORGANIZATION AND DESCRIPTION OF BUSINESS

 

Business —Celsius Holdings, Inc. (the “Company” or “Celsius Holdings”) was incorporated under the laws of the State of Nevada on April 26, 2005. On January 24, 2007, the Company entered into a merger agreement and plan of reorganization with Elite FX, Inc., a Florida corporation. Under the terms of the Merger Agreement, Elite FX, Inc. was merged into the Company’s subsidiary, Celsius, Inc. and became a wholly-owned subsidiary of the Company on January 26, 2007. In addition, on March 28, 2007 the Company established Celsius Netshipments, Inc. a Florida corporation as a wholly-owned subsidiary of the Company.

 

Since the merger, the Company is engaged in the development, marketing, sale and distribution of “functional” calorie-burning fitness beverages under the Celsius® brand name.

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

 

Consolidation Policy — The accompanying consolidated financial statements include the accounts of Celsius Holdings, Inc. and its 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. Significant estimates include the allowance for doubtful accounts, reserves for inventory obsolescence, the useful lives and values of property and equipment, valuation of stock based compensation, and deferred tax asset valuation allowance.

 

Concentrations of Risk — Substantially all of the Company’s revenue derives from the sale of Celsius ® beverages.

 

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 accounts receivable. The Company places its cash with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit. At March 31, 2016 the Company had approximately $9.0 million in excess of the Federal Deposit Insurance Corporation limit but has incurred no losses with respect to there accounts.

 

F- 25  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

At March 31, 2016 and 2015, the Company had the following 10 percent or greater concentrations of revenue with its customers:

 

    2016     2015  
A*     27.2 %     67.5 %
B     11.5 %     1.0 %
All other     61.3 %     31.5 %
Total     100.0 %     100.0 %

 

At March 31, 2015 and December 31, 2015, the Company had the following 10 percent or greater concentrations of accounts receivable with its customers:

 

    2016     2015  
A*     31.0 %     50.0 %
B     11.2 %     11.8 %
All other     57.8 %     38.2 %
Total     100.0 %     100.0 %

 

*Revenues and receivables from customer A are derived from a distributor located in Sweden.

 

Cash Equivalents — The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. At March 31, 2016 and December 31, 2015, the Company did not have any investments with maturities of three months or less.

 

Accounts Receivable — Accounts receivable are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At March 31, 2016 and December 31, 2015, there was an allowance for doubtful accounts of $3,500.

 

F- 26  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

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 reserved against inventory during the period in which such materials and products are no longer usable or marketable. In March 31, 2016 and December 31, 2015, the Company recorded a reserve of $350,757 and $329,075, respectively. The changes in reserve are included in cost of revenue. Free Samples are also recorded as cost of revenue.

 

Property and Equipment — Property and equipment are stated at cost less accumulated depreciation and amortization. Depreciation of property and equipment is calculated using the straight-line method over the estimated useful life of the asset generally ranging from three to seven years.

 

Impairment of Long-Lived Assets — In accordance with ASC Topic 360, “Property, Plant, and Equipment” the Company reviews the carrying value of long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

 

Revenue Recognition — Revenue is derived from the sale of beverages. Revenue is recognized when persuasive evidence of an agreement exists, the products are delivered, sales price is fixed or determinable, and collectability is reasonably assured. Any discounts, slotting fees, sales incentives or similar arrangements with the customer are estimated at time of sale and deducted from revenue.

 

Deferred Revenue — From time to time the Company requires prepayments for deposits in advance of delivery of products and/or production runs. Such amounts are initially recorded as deferred revenue. The Company recognizes such revenue as it is earned in accordance with revenue recognition policies.

 

Advertising Costs — Advertising costs are expensed as incurred. The Company uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising. The Company incurred advertising expense of approximately $0.9 million and $0.4 million during the three months ending March 31, 2016 and 2015, 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 beverages. The Company incurred there expenses of $11,910 and $359 during the three months ending March 31, 2016 and 2015, respectively.

 

Fair Value of Financial Instruments — The carrying value of cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable approximates fair value due to their relative short-term maturity and market interest rates.

 

F- 27  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurements - ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:

 

Level 1: Observable inputs such as quoted market prices in active markets for identical assets or liabilities.
   
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data.
   
Level 3: Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

 

The Company did not have any assets or liabilities measured at fair value at March 31, 2016 and December 31, 2015.

 

Income Taxes — The Company accounts for income taxes pursuant to the provisions of ASC 740-10, “Accounting for Income Taxes,” which requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. A valuation allowance is provided to offset any net deferred tax assets for which management believes it is more likely than not that the net deferred asset will not be realized. The Company follows the provisions of the ASC 740 -10 related to, Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.

 

F- 28  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

3. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (continued) — Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for uncertain tax benefits in the accompanying balance sheet along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for uncertain tax benefits.

 

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open.

 

The Company files its tax returns on a fiscal year September 30 th tax year. The Company’s tax returns for tax years ended September 30, 2015, 2014, 2013 and 2012 remain subject to potential examination by the taxing authorities.

 

Earnings per Share — Basic earnings per share are calculated by dividing net income (loss) available to common 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 convertible debt, exercise of stock options and warrants (calculated using the reverse treasury stock method). As of March 31, 2016 there were options outstanding to purchase 5.6 million shares, which exercise price averaged $1.00, Series C Preferred Stock warrants outstanding to convert to 4.6 million common shares at $0.52 price per share and Series D Preferred Stock warrants outstanding to convert to 4.7 million common shares at $0.86 price per share. There were no other dilutive common shares equivalents, including convertible notes and warrants, as no common share equivalents had an exercise price below the ending closing price of the year. The effects of dilutive instruments have not been presented for the three months ended March 31, 2016, as the effects would be anti-dilutive.

 

F- 29  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Share-Based Payments —Effective January 1, 2006, the Company has fully adopted the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the grants. On April 30, 2015, the Company adopted the 2015 Stock Incentive Plan, This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company's common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,147,000 shares. In addition, there is a provision for an annual increase of 15% of the issued shares under the plan to the shares included under the plan, with the shares to be added on the first day of each calendar year, beginning on January 1, 2016. On January 1 st , 2016, the permitted number of available option grants increased 147,000 (see also note 12).

 

Shipping and Handling Costs — Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for three months ended March 31, 2016 and 2015 was $408,488 and $225,130, respectively.

 

Recent Accounting Pronouncements

 

The Company adopts all applicable, new accounting pronouncements as of the specified effective dates.

 

In September 2015, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2015-16, Simplifying the Accounting for Measurement-Period Adjustments (“ASU 2015-16”). ASU 2015-16 simplifies the accounting for adjustments made to provisional amounts recognized in a business combination by requiring the acquirer to (i) recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined, (ii) record, in the same period, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date, and (iii) present separately or disclose the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years, and interim periods within, beginning after December 15, 2015. Early adoption is permitted. The Company is evaluating the impact of the adoption of ASU 2015-16 on January 1, 2016 to its consolidated financial position or results of operations.

 

F- 30  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

2. BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Recent Accounting Pronouncements (continued)

 

In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”). ASU 2015-03 simplifies the presentation of debt issuance costs and requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability (consistent with debt discounts).

 

In August 2015, the FASB issued ASU No. 2015-15, Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting) (“ASU 2015-15”). ASU 2015-15 allows debt issuance costs related to line-of-credit agreements to be presented in the balance sheet as an asset. ASU 2015-03 and ASU 2015-15 are effective for fiscal years, and interim periods within, beginning after December 15, 2015. Early adoption is permitted. The Company has adopted ASU 2015-03 and ASU 2015-15 as of December 31, 2015; the adoption is not expected to have a material impact on its consolidated financial position or results of operations.

 

All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position.

 

Liquidity — These financial statements have been prepared assuming the Company will be able to continue as a going concern. At March 31, 2016, the Company had an accumulated deficit of $51,207,772 which includes a net loss available to common stockholders of $1,287,209 for the three months ended March 31, 2016. While these factors alone may raise doubt as to the Company’s ability to continue as a going concern, the proceeds remaining from the Company’s sale of common stock to an investor group on April 20, 2015 for a total of $11.5 million (see note 11) is deemed sufficient to alleviate substantial doubt regarding the Company’s ability to continue as a going concern.

 

3. INVENTORIES

 

Inventories consist of the following at:

 

    March 31,     December 31,  
    2016     2015  
Finished goods   $ 2,334,962     $ 2,309,288  
Raw Materials     569,467       342,691  
Less: Inventory Reserve     (350,757 )     (329,075 )
Inventories, net   $ 2,553,672     $ 2,322,904  

 

F- 31  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

4. PREPAID EXPENSES AND OTHER CURRENT ASSETS

 

Prepaid expenses and other current assets total $993,135 and $666,267, at March 31, 2016 and December 31, 2015, respectively, and consist mainly of prepaid consulting agreement with D3M Licensing Group, advertising, prepaid insurance, prepaid slotting fees, deposits on purchases, and customer deposits.

 

5. PROPERTY AND EQUIPMENT

 

Property and equipment consist of the following at:

 

    March 31,     December 31,  
    2016     2015  
Furniture and equipment   $ 270,903     $ 264,495  
Less: accumulated depreciation     (246,570 )     (243,176 )
Total   $ 24,333     $ 21,319  

 

Depreciation expense amounted to $3,394 and $9,118 during the three months ended March 31, 2016 and 2015, respectively

 

6. ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

Accounts payable and accrued expenses consist of the following at:

 

    March 31,     December 31,  
    2016     2015  
Accounts payable   $ 1,253,192     $ 1,207,353  
Accrued expenses     588,969       598,578  
Total   $ 1,842,161     $ 1,805,931  

 

F- 32  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

7. DEFERRED REVENUE AND OTHER CURRENT LIABILITIES

 

Deferred revenue and other current liabilities consist of the following at:

 

    March 31,     December 31,  
    2016     2015  
Customer deposits   $ 220,542     $ 13,063  
State bottle bill liability     3,539       11,994  
Total   $ 224,081     $ 25,057  

 

8. LINE OF CREDIT NOTE PAYABLE - RELATED PARTIES

 

Line of credit note payable - related parties consists of the following as of:

 

    March 31,     December 31,  
Note Payable – line of credit   2016     2015  
In July 2010, the Company entered into a line of credit note payable with a related party which carries interest of five percent per annum. The Company can borrow up to $4,500,000. The Company has pledged all of its assets as security for the line of credit. The notes mature in January 2020, at which time the principal amount is due. During April 2015, the Company issued $4,000,000 of convertible series D preferred series in exchange for cancellation of $4,000,000 of this line.                
Long-term portion   $ 4,500,000     $ 4,500,000  

 

F- 33  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

9. PREFERRED STOCK – RELATED PARTY

 

On August 26, 2013, the Company entered into a securities purchase agreement (the “2013 Purchase Agreement”) with CDS Ventures of South Florida, LLC (“CDS”) and CD Financial, LLC (“CD”). CDS and CD are limited liability companies which are affiliates of Carl DeSantis, the Company’s principal shareholder. The Company issued 2,200 shares of its Series C Preferred Stock (the “Preferred C Shares”) in exchange for the conversion of a $550,000 short term loan from CDS and the conversion of $1,650,000 in indebtedness under the Company’s line of credit with CD (the “CD Line of Credit”). The Preferred C Shares can be converted into Company common stock at any time until December 31, 2018 at a conversion price of $0.52 per share. The conversion price per share is based on the weighted average of the ten daily VWAPs for the 10 trading days immediately preceding the closing date of August 26, 2013. The Preferred C Shares accrue a 6% annual cumulative dividend, payable in additional Preferred C Shares. The Preferred C Shares are mandatorily redeemable on December 31, 2018 and are redeemable only in shares of the Company’s common stock. In April 2015, the Company issued 180 Preferred C Shares valued at $180,000 in settlement of $180,000 in accrued preferred C dividends. As of March 31, 2016, $175,833 of dividends has been accrued. The Preferred C Shares mature on December 31, 2018 and are redeemable only in exchange for shares of Company common stock.

 

On April 16, 2015, the Company entered into an amendment to its existing Loan and Security Agreement (the “Amendment”) with CD an affiliate of CDS Ventures and Mr. DeSantis. Pursuant to the Amendment, the outstanding principal amount of the CD Line of Credit was reduced by $4.0 million, which amount was converted into 4,000 shares of a newly-designated Series D Preferred Stock (the “Preferred D Shares”). This related party was given a conversion price of $0.86 per common share, whereas other investors purchased common shares at $0.89 in the private placement, as discussed in note 12. The difference of $0.03 per share, which resulted in $139,535, was recorded as a dividend in accordance with ASC 470-20-35, subsequent measurement for debt with conversion and other options. The Preferred D Shares can be converted into Company common stock at any time until the expiration date of the line of credit in 2020 or its earlier satisfaction in full, at a conversion price of $0.86 per share. The Preferred D Shares accrue a 5% annual cumulative cash dividend, payable quarterly and accords the holders thereof voting rights on an “as converted” basis. As of March 31, 2016, $50,556 of dividends has been accrued regarding these shares.

 

F- 34  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

10. RELATED PARTY TRANSACTIONS

 

The Company’s office is rented from a company affiliated with CD which is controlled by our majority shareholder Carl DeSantis (see note 13). Currently, the lease expires on October 2020 with monthly rent of $6,408. The rental fee is commensurate with other properties available in the market.

 

In April 2015, the Company entered into a strategic marketing and advisory services agreement with All Def Digital. Tim Leissner, a director and shareholder of the Company is also a director and shareholder in All Def Digital. For the three months ending as of March 31, 2016, the Company has paid All Def Digital $82,438, for services relating to the strategic marketing and advisory services agreement.

 

Other related party transactions are discussed in notes 8 and 9.

 

11. STOCKHOLDERS’ EQUITY (DEFICIT)

 

Issuance of common stock pursuant to conversion of note

 

In April 2015, the Company issued 5,000,000 unregistered common shares upon conversion of $1,500,000 of convertible notes, at contractual terms.

 

Issuance of common stock pursuant to private placement

 

In April 2015, the Company issued a total of 12,921,348 shares of common stock at $0.89 per share for gross proceeds of $11.5 million (see note 2). Expenses incurred of $111,841 were charged to additional paid in capital and the Company received net proceeds of $11,388,159.

 

Issuance of preferred stock pursuant to private placement

 

Refer to note 9 for discussion on preferred stock issuances.

 

F- 35  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

12. 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. During 2013 the majority of the shareholders approved to increase the total available shares in the plan from 2.5 million to 3.5 million shares of common stock. During May 2014, the majority of the shareholders approved to increase the total available shares in the plan from 3.5 million to 4.25 million shares of common stock, during February 2015, the majority of the shareholders approved to increase the total available shares in the plan from 4.25 million to 4.6 million shares of common stock and during April 2015, the majority of the shareholders approved to increase the total available shares in the plan from 4.6 million to 5.1 million shares of common stock. Until 2017, options to acquire 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 adopted the 2015 Stock Incentive Plan on April 30, 2015. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company's common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,147,000 shares. In addition, there is a provision for an annual increase of 15% of the issued shares under the plan to the shares included under the plan, with the shares to be added on the first day of each calendar year, beginning on January 1, 2016. On January 1 st , 2016, the permitted number of available option grants increased 147,000 (see also note 2).

 

Cumulatively since inception, the Company has issued options to purchase approximately 5.6 million shares at an average price of $1.00 with a fair value of $1.1 million. For the three months ended March 31, 2016 and 2015, the Company recognized an expense of $254,715 and $172,274, respectively, of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of Operations) determined by application of a Black Scholes option pricing model with the following inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of March 31, 2016, the Company had approximately $2,361,716 of unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period of 3 years. The Company used 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 1.1 million shares that have vested, of which 267,000 shares were exercised as of March 31, 2016.

 

F- 36  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

 

12. STOCK-BASED COMPENSATION (CONTINUED)

 

The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awards and warrant issuances. The calculation of the fair value of the awards using the Black - Scholes option-pricing model is affected by the Company’s stock price on the date of grant as well as assumptions regarding the following:

 

    Three months ended March 31,
    2016   2015
Expected volatility   309%   306%
Expected term   4 Years   4 Years
Risk-free interest rate   0.89%   0.91% - 1.69%
Forfeiture Rate   0.00%   0.00%
Expected dividend yield   0.00%   0.00%

 

 

The expected volatility was determined with reference to the historical volatility of the Company’s stock. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted represents the period of time that options granted are expected to be outstanding. The risk-free interest rate for periods within the contractual life of the option is based on the U.S. Treasury rate in effect at the time of grant.

 

A summary of the status of the Company’s outstanding stock options as of March 31, 2016 and changes during the period ending on that date is as follows:

 

          Weighted Average     Aggregate     Average  
          Exercise     Intrinsic     Remaining  
    Shares     Price     Value     Term (Yrs)  
Options                                
Balance at December 31, 2015     4,634,166     $ 0.81     $ 5,346,349       5.49  
Granted     958,500     $ 1.96                  
Exercised     -       -                  
Forfeiture and cancelled     -       -                  
At March 31, 2016     5,592,666     $ 1.00     $ 1,060,472       6.22  
                                 
Exercisable at March 31, 2016     1,105,562     $ 1.40                  

 

F- 37  

 

 

Celsius Holdings, Inc. and Subsidiaries

 

Notes to Consolidated Financial Statements (unaudited)

 

March 31, 2016

     

13. 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 management’s belief that no such agreement has created any liability as of March 31, 2016.

 

The Company entered into an office lease with a related party (see note 10) effective October 2015. The monthly rent amounts to $6,408 per month and the lease terminates in October 2020. Future annual minimum payments required under operating lease obligations at March 31, 2016 are as follows:

 

Future Minimum Lease Payments

 

2016   $ 57,672  
2017   $ 82,792  
2018   $ 85,276  
2019   $ 87,834  
2020   $ 75,016  
Total   $ 388,590  

 

14. SUBSEQUENT EVENTS

 

We have evaluated events and transactions that occurred subsequent to March 31, 2016 through May 11, 2016, the date these financial statements were issued, for potential recognition or disclosure in the accompanying financial statements. We did not identify any events or transactions that should be recognized or disclosed in the accompanying financial statements.

 

F- 38  

Exhibit 3.1  

       

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 
 

 

 

 

EXHIBIT 3.2

 

BYLAWS

 

BYLAWS

 

OF

     

CELSIUS HOLDINGS, INC.

 

(A NEVADA CORPORATION)

 

 

 

 

INDEX

 

 

PAGE
NUMBER

   
ARTICLE ONE: OFFICES 1
Section 1. Principal Office  1
Section 2. Other Offices 1
   
ARTICLE TWO: MEETINGS OF SHAREHOLDERS  1
Section 1. Place 1
Section 2. Time of Annual Meeting 1
Section 3. Call of Special Meetings 1
Section 4. Conduct of Meetings 1
Section 5. Notice and Waiver of Notice 1
Section 6. Business and Nominations for Annual and Special Meetings 2
Section 7. Quorum 2
Section 8. Voting Rights Per Share 2
Section 9. Voting of Shares 2
Section 10. Proxies 3
Section 11. Shareholder List 3
Section 12. Action Without Meeting 3
Section 13. Fixing Record Date 3
Section 14. Inspectors and Judges 4
Section 15. Voting for Directors 4
   
ARTICLE THREE: DIRECTORS  4
Section 1. Number; Term; Election; Qualification 4
Section 2. Resignation; Vacancies; Removal 4
Section 3. Powers 4
Section 4. Place of Meetings 4
Section 5. Annual Meetings 4
Section 6. Regular Meetings 4
Section 7. Special Meetings and Notice 5
Section 8. Quorum and Required Vote 5
Section 9. Action Without Meeting 5
Section 10. Conference Telephone or Similar Communications Equipment Meetings 5
Section 11. Committees 5
Section 12. Compensation of Directors 6
   
ARTICLE FOUR: OFFICERS  6
Section 1. Positions 6
Section 2. Election of Specified Officers by Board 6
Section 3. Election or Appointment of Other Officers 6
Section 4. Compensation 6
Section 5. Term; Resignation; Removal; Vacancies 6
Section 6. Chairman of the Board 6
Section 7. Chief Executive Officer 6
Section 8. President 7
Section 9. Vice Presidents 7
Section 10. Secretary 7

 

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Section 11. Chief Financial Officer 7
Section 12. Treasurer 7
Section 13. Other Officers; Employees and Agents 7
   
ARTICLE FIVE: CERTIFICATES FOR SHARES 8
Section 1. Issue of Certificates 8
Section 2. Legends for Preferences and Restrictions on Transfer 8
Section 3. Facsimile Signatures 8
Section 4. Lost Certificates 8
Section 5. Transfer of Shares 8
Section 6. Registered Shareholders 8
   
ARTICLE SIX: GENERAL PROVISIONS 9
Section 1. Dividends 9
Section 2. Reserves 9
Section 3. Checks 9
Section 4. Fiscal Year 9
Section 5. Seal 9
Section 6. Gender 9
   
ARTICLE SEVEN: AMENDMENT OF BYLAWS 9

 

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BYLAWS

 

OF

 

CELSIUS HOLDINGS, INC.

 

ARTICLE ONE

 

OFFICES

 

Section 1. Principal Office . The principal office of Celsius Holdings, Inc., a Nevada corporation (the "Corporation"), shall be located at such place determined by the Board of Directors of the Corporation (the "Board of Directors") in accordance with applicable law.

 

Section 2. Other Offices . The Corporation may also have offices at such other places, either within or without the State of Nevada, as the Board of Directors may from time to time determine or as the business of the Corporation may require.

 

ARTICLE TWO

 

MEETINGS OF SHAREHOLDERS

 

Section 1. Place . All annual meetings of shareholders shall be held at such place, within or without the State of Nevada, as may be designated by the Board of Directors and stated in the notice of the meeting or in a duly executed waiver of notice thereof. Special meetings of shareholders may be held at such place, within or without the State of Nevada, and at such time as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof.

 

Section 2. Time of Annual Meeting . Annual meetings of shareholders shall be held on such date and at such time fixed, from time to time, by the Board of Directors, provided, that there shall be an annual meeting held every calendar year at which the shareholders shall elect a board of directors and transact such other business as may properly be brought before the meeting.

 

Section 3. Call of Special Meetings . Special meetings of the shareholders may be called for any purpose or purposes at any time by the Chairman of the Board or the President or by the Board of Directors and shall be called by the Secretary upon the written request of shareholders holding of record at least 50% of the outstanding shares of stock of the Corporation entitled to vote at such meeting. Such written request shall state the purpose or purposes for which such meeting is to be called.

 

Section 4. Conduct of Meetings . The Chairman of the Board of Directors (or in his absence, the President, or in his absence, such other designee of the Chairman of the Board of Directors) shall preside at the annual and special meetings of shareholders and shall be given full discretion in establishing the rules and procedures to be followed in conducting the meetings, except as otherwise provided by law or in these Bylaws.

 

Section 5. Notice and Waiver of Notice . Except as otherwise provided by law, written or printed notice stating the place, date and time of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called, shall be delivered not less than ten (10) nor more than sixty (60) days before the date of the meeting, either personally or by first-class mail or other legally sufficient means, by or at the direction of the Chairman of the Board, President, or the persons calling the meeting, to each shareholder of record entitled to vote at such meeting. If the notice is mailed at least thirty (30) days before the date of the meeting, it may be done by a class of United States mail other than first class. If mailed, such notice shall be deemed to be delivered when deposited in the United States mail addressed to the shareholder at the address appearing on the stock transfer books of the Corporation, with postage thereon prepaid. If a meeting is adjourned to another time and/or place, and if an announcement of the adjourned time and/or place is made at the meeting, it shall not be necessary to give notice of the adjourned meeting unless the Board of Directors, after adjournment, fixes a new record date for the adjourned meeting. Whenever any notice is required to be given to any shareholder, a waiver thereof in writing signed by the person or persons entitled to such notice, whether signed before, during or after the time of the meeting stated therein, and delivered to the Corporation for inclusion in the minutes or filing with the corporate records, shall constitute an effective waiver of such notice. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the shareholders need be specified in any written waiver of notice. Attendance of a person at a meeting shall constitute a waiver of (a) lack of or defective notice of such meeting, unless the person objects at the beginning to the holding of the meeting or the transacting of any business at the meeting, or (b) lack of or defective notice of a particular matter at a meeting that is not within the purpose or purposes described in the meeting notice, unless the person objects to considering such matter when it is presented.

 

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Section 6. Business and Nominations for Annual and Special Meetings . Business transacted at any special meeting shall be confined to the purposes stated in the notice thereof. At any annual meeting of shareholders, only such business shall be conducted as shall have been properly brought before the meeting in accordance with the requirements and procedures set forth in the Bylaws. Only such persons who are nominated for election as directors of the Corporation in accordance with the requirements and procedures set forth in the Bylaws shall be eligible for election as directors of the Corporation.

 

Section 7. Quorum . Shares entitled to vote as a separate voting group may take action on a matter at a meeting only if a quorum of those shares exists with respect to that matter. Except as otherwise provided in the Articles of Incorporation or applicable law, shares representing a majority of the votes pertaining to outstanding shares which are entitled to be cast on the matter by the voting group constitute a quorum of that voting group for action on that matter. If less than a quorum of shares are represented at a meeting, the holders of a majority of the shares so represented may adjourn the meeting from time to time. After a quorum has been established at any shareholders' meeting, the subsequent withdrawal of shareholders, so as to reduce the number of shares entitled to vote at the meeting below the number required for a quorum, shall not affect the validity of any action taken at the meeting or any adjournment thereof. Once a share is represented for any purpose at a meeting, it is deemed present for quorum purposes for the remainder of the meeting and for any adjournment of that meeting unless a new record date is or must be set for that adjourned meeting.

 

Section 8. Voting Rights Per Share . Every shareholder of record who is entitled to vote shall at every meeting of the shareholders be entitled to one vote for each share of stock held on the record date, except to the extent that the voting rights of the shares of any class are limited or denied by or pursuant to the Articles of Incorporation or the Nevada Corporations Code.

 

Section 9. Voting of Shares . A shareholder may vote at any meeting of shareholders of the Corporation, either in person or by proxy. Shares standing in the name of another corporation, domestic or foreign, may be voted by the officer, agent or proxy designated by the bylaws of such corporate shareholder or, in the absence of any applicable bylaw, by such person or persons as the board of directors of the corporate shareholder may designate. In the absence of any such designation, or, in case of conflicting designation by the corporate shareholder, the chairman of the board, the president, any vice president, the secretary and the treasurer of the corporate shareholder, in that order, shall be presumed to be fully authorized to vote such shares. Shares held by an administrator, executor, guardian, personal representative, or conservator may be voted by such person, either in person or by proxy, without a transfer of such shares into his name. Shares standing in the name of a trustee may be voted by such person, either in person or by proxy, but no trustee shall be entitled to vote shares held by such person without a transfer of such shares into his name or the name of his nominee. Shares held by or under the control of a receiver, a trustee in bankruptcy proceedings, or an assignee for the benefit of creditors may be voted by such person without the transfer thereof into his name. If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety or otherwise, or if two or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary of the Corporation is given notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, then acts with respect to voting shall have the following effect: (a) if only one votes, in person or by proxy, his act binds all; (b) if more than one vote, in person or by proxy, the act of the majority so voting binds all; (c) if more than one vote, in person or by proxy, but the vote is evenly split on any particular matter, each faction is entitled to vote the share or shares in question proportionally; or (d) if the instrument or order so filed shows that any such tenancy is held in unequal interest, a majority or a vote evenly split for purposes hereof shall be a majority or a vote evenly split in interest. The principles of this paragraph shall apply, insofar as possible, to execution of proxies, waivers, consents, or objections and for the purpose of ascertaining the presence of a quorum.

 

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Section 10. Proxies . Any shareholder of the Corporation, other person entitled to vote on behalf of a shareholder pursuant to law, or attorney-in-fact for such persons may vote the shareholder's shares in person or by proxy. Any shareholder of the Corporation may appoint a proxy to vote or otherwise act for such person by signing an appointment form, either personally or by his attorney-in-fact. An executed telegram or cablegram appearing to have been transmitted by such person, or a photographic, photostatic, or equivalent reproduction of an appointment form, shall be deemed a sufficient appointment form. An appointment of a proxy is effective when received by the Secretary of the Corporation (the "Secretary") or such other officer or agent which is authorized to tabulate votes, and shall be valid for up to 11 months, unless a longer period is expressly provided in the appointment form. The death or incapacity of the shareholder appointing a proxy does not affect the right of the Corporation to accept the proxy's authority unless notice of the death or incapacity is received by the Secretary or other officer or agent authorized to tabulate votes before the proxy authority under the appointment is exercised. An appointment of a proxy is revocable by the shareholder unless the appointment form conspicuously states that it is irrevocable and the appointment is coupled with an interest.

 

Section 11. Shareholder List . After fixing a record date for a meeting of shareholders, the Corporation shall prepare an alphabetical list of the names of all its shareholders who are entitled to notice of the meeting, arranged by voting group with the address of, and the number and class and series, if any, of shares held by each. The shareholders' list must be available for inspection by any shareholder for a period of ten (10) days prior to the meeting or such shorter time as exists between the record date and the meeting and continuing through the meeting at the Corporation's principal office, at a place identified in the meeting notice in the city where the meeting will be held, or at the office of the Corporation's transfer agent or registrar. Any shareholder of the Corporation or such person's agent or attorney is entitled on written demand to inspect the shareholders' list (subject to the requirements of law), during regular business hours and at his expense, during the period it is available for inspection. The Corporation shall make the shareholders' list available at the meeting of shareholders, and any shareholder or agent or attorney of such shareholder is entitled to inspect the list at any time during the meeting or any adjournment. The shareholders' list is prima facie evidence of the identity of shareholders entitled to examine the shareholders' list or to vote at a meeting of shareholders.

 

Section 12. Action Without Meeting . Any action required or permitted by law to be taken at a meeting of shareholders may be taken without a meeting or notice if a consent, or consents, in writing, setting forth the action so taken, shall be dated and signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all voting groups and shares entitled to vote thereon were present and voted with respect to the subject matter thereof.

 

Section 13. Fixing Record Date . For the purpose of determining shareholders entitled to notice of or to vote at any meeting of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purposes, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date in any case to be not more than seventy (70) days, and, in case of a meeting of shareholders, not less than ten (10) days, before the meeting or action requiring such determination of shareholders. If no record date is fixed for the determination of shareholders entitled to notice of or to vote at a meeting of shareholders or the determination of shareholders entitled to receive payment of a dividend, the date before the day on which the first notice of the meeting is mailed or the date on which the resolutions of the Board of Directors declaring such dividend is adopted, as the case may be, shall be the record date for such determination of shareholders. When a determination of shareholders entitled to vote at any meeting of shareholders has been made as provided in this Section, such determination shall apply to any adjournment thereof, except where the Board of Directors fixes a new record date for the adjourned meeting.

 

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Section 14. Inspectors and Judges . The Board of Directors in advance of any meeting may, but need not, appoint one or more inspectors of election or judges of the vote, as the case may be, to act at the meeting or any adjournment thereof. If any inspector or inspectors, or judge or judges, are not appointed, the person presiding at the meeting may, but need not, appoint one or more inspectors or judges. In case any person who may be appointed as an inspector or judge fails to appear or act, the vacancy may be filled by the Board of Directors in advance of the meeting, or at the meeting by the person presiding thereat. The inspectors or judges, if any, shall determine the number of shares of stock outstanding and the voting power of each, the shares of stock represented at the meeting, the existence of a quorum, the validity and effect of proxies, and shall receive votes, ballots and consents, hear and determine all challenges and questions arising in connection with the right to vote, count and tabulate votes, ballots and consents, determine the result, and do such acts as are proper to conduct the election or vote with fairness to all shareholders. On request of the person presiding at the meeting, the inspector or inspectors or judge or judges, if any, shall make a report in writing of any challenge, question or matter determined by him or them, and execute a certificate of any fact found by him or them.

 

Section 15. Voting for Directors . Unless otherwise provided in the Articles of Incorporation, directors shall be elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.

 

ARTICLE THREE

 

DIRECTORS

 

Section 1. Powers . The business and affairs of the Corporation shall be managed by the Board of Directors, which may exercise all such powers of the Corporation and do all such lawful acts and things as are not by statute or by the Articles of Incorporation or by these Bylaws directed or required to be exercised and done by the shareholders.

 

Section 2. Number; Term; Election; Qualification . The number of directors of the Corporation shall be fixed from time to time, within the limits specified by the Articles of Incorporation, by resolution of the Board of Directors. Directors shall be elected in the manner and hold office for a one year term which shall terminate at the conclusion of the next annual meeting of the stockholders at which their successors shall be elected and qualified or until such director's earlier resignation, removal from office, death or incapacity. Notwithstanding any stated term, all directors shall continue in office until the election and qualification of their respective successors in office or the expiration of the term of the directorship held by the director. Directors must be natural persons who are 18 years of age or older but need not be residents of the State of Nevada, shareholders of the Corporation or citizens of the United States.

 

Section 3. Resignation; Vacancies; Removal . Any director may resign at any time by giving written notice to the Board of Directors or the Chairman of the Board. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. In the event the notice of resignation specifies a later effective date, the Board of Directors may fill the pending vacancy (subject to the provisions of the Articles of Incorporation) before the effective date if they provide that the successor does not take office until the effective date. Any director may be removed, with or without cause, at any time, by action of the holders of record of the majority of the issued and outstanding stock of the Corporation, and the vacancy or vacancies in the Board of Directors caused by any such removal may be filled by action of such a majority at such meeting or at any subsequent meeting or by consent. Any newly created directorships and vacancies occurring in the Board of Directors by reason of death, resignation, retirement, disqualification or removal, with or without cause, may be filled by the action of the holders of record of the majority of the issued and outstanding voting stock of the Corporation. The director so chosen, whether filling an existing vacancy or elected to a new directorship, shall hold office until the next meeting of stockholders at which the election of directors is in the regular order of business, and until his successor has been elected and qualifies, or until he sooner dies, resigns or is removed.

 

Section 4. Place of Meetings . Meetings of the Board of Directors, regular or special, may be held either within or without the State of Nevada.

 

Section 5. Annual Meetings . Unless scheduled for another time by the Board of Directors, the first meeting of each newly elected Board of Directors shall be held, without call or notice, immediately following each annual meeting of shareholders.

 

Section 6. Regular Meetings . Regular meetings of the Board of Directors may also be held without notice at such time and at such place as shall from time to time be determined by the Board of Directors.

 

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Section 7. Special Meetings and Notice . Special meetings of the Board of Directors may be called by the President or Chairman of the Board and shall be called by the Secretary on the request of a majority of the directors. At least forty-eight (48) hours' prior written notice of the date, time and place of special meetings of the Board of Directors shall be given to each director. Except as required by law, neither the business to be transacted at, nor the purpose of, any regular or special meeting of the Board of Directors need be specified in the notice or waiver of notice of such meeting. Notices to directors shall be in writing and delivered to the directors at their addresses appearing on the books of the Corporation by personal delivery, mail or other legally sufficient means. Subject to the provisions of the preceding sentence, notice to directors may also be given by telegram, teletype or other form of electronic communication. Notice by mail shall be deemed to be given at the time when the same shall be received. Whenever any notice is required to be given to any director, a waiver thereof in writing signed by the person or persons entitled to such notice, whether before, during or after the meeting, shall constitute an effective waiver of such notice. Attendance of a director at a meeting shall constitute a waiver of notice of such meeting and a waiver of any and all objections to the place of the meeting, the time of the meeting and the manner in which it has been called or convened, except when a director states, at the beginning of the meeting or promptly upon arrival at the meeting, any objection to the transaction of business because the meeting is not lawfully called or convened.

 

Section 8. Quorum and Required Vote . A majority of the prescribed number of directors determined as provided in the Articles of Incorporation shall constitute a quorum for the transaction of business and the act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors, unless a greater number is required by the Articles of Incorporation. Whenever, for any reason, a vacancy occurs in the Board of Directors, a quorum shall consist of a majority of the remaining directors until the vacancy has been filled. If a quorum shall not be present at any meeting of the Board of Directors, a majority of the directors present thereat may adjourn the meeting to another time and place, without notice other than announcement at the time of adjournment. At such adjourned meeting at which a quorum shall be present, any business may be transacted that might have been transacted at the meeting as originally notified and called.

 

Section 9. Action Without Meeting . Any action required or permitted to be taken at a meeting of the Board of Directors or committee thereof may be taken without a meeting if a consent in writing, setting forth the action taken, is signed by all of the members of the Board of Directors or the committee, as the case may be, and such consent shall have the same force and effect as a unanimous vote at a meeting. Action taken under this Section 9 is effective when the last director signs the consent, unless the consent specifies a different effective date. A consent signed under this Section 9 shall have the effect of a meeting vote and may be described as such in any document.

 

Section 10. Conference Telephone or Similar Communications Equipment Meetings . Directors and committee members may participate in and hold a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other. Participation in such a meeting shall constitute presence in person at the meeting, except where a person participates in the meeting for the express purpose of objecting to the transaction of any business on the ground the meeting is not lawfully called or convened.

 

Section 11. Committees . The Board of Directors, by resolution adopted by a majority of the whole Board of Directors, may designate from among its members an executive committee and one or more other committees, each of which, to the extent provided in such resolution, shall have and may exercise all of the authority of the Board of Directors in the business and affairs of the Corporation except where the action of the full Board of Directors is required by applicable law. Each committee must have two or more members who serve at the pleasure of the Board of Directors. The Board of Directors, by resolution adopted in accordance with this Article Three, may designate one or more directors as alternate members of any committee, who may act in the place and stead of any absent member or members at any meeting of such committee. Vacancies in the membership of a committee may be filled only by the Board of Directors at a regular or special meeting of the Board of Directors. The executive committee shall keep regular minutes of its proceedings and report the same to the Board of Directors when required. The designation of any such committee and the delegation thereto of authority shall not operate to relieve the Board of Directors, or any member thereof, of any responsibility imposed upon it or such member by law.

 

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Section 12. Compensation of Directors . The directors may be paid their expenses, if any, of 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 director. No such payment shall preclude any director from serving the Corporation in any other capacity and receiving compensation therefore. Similarly, members of special or standing committees may be allowed compensation for attendance at committee meetings or a stated salary as a committee member and payment of expenses for attending committee meetings. Directors may receive such other compensation as may be approved by the Board of Directors.

 

ARTICLE FOUR

 

OFFICERS

 

Section 1. Positions . The officers of the Corporation may consist of a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (any one or more of whom may be given the additional designation of rank of Executive Vice President or Senior Vice President), a Secretary, a Chief Financial Officer and a Treasurer. Any two or more offices may be held by the same person. Officers other than the Chairman of the Board need not be members of the Board of Directors. The Chairman of the Board must be a member of the Board of Directors.

 

Section 2. Election of Specified Officers by Board . The Board of Directors at its first meeting after each annual meeting of shareholders shall elect a Chairman of the Board, a Chief Executive Officer, a President, one or more Vice Presidents (including any Senior or Executive Vice Presidents), a Secretary, a Chief Financial Officer and a Treasurer.

 

Section 3. Election or Appointment of Other Officers . Such other officers and assistant officers and agents as may be deemed necessary may be elected or appointed by the Board of Directors, or, unless otherwise specified herein, appointed by the Chairman of the Board. The Board of Directors shall be advised of appointments by the Chairman of the Board at or before the next scheduled Board of Directors meeting.

 

Section 4. Compensation . The salaries, bonuses and other compensation of the Chairman of the Board and all officers of the Corporation to be elected by the Board of Directors pursuant to Section 2 of this Article Four shall be fixed from time to time by the Board of Directors or pursuant to its direction. The salaries of all other elected or appointed officers of the Corporation shall be fixed from time to time by the Chairman of the Board or pursuant to his direction.

 

Section 5. Term; Resignation; Removal; Vacancies . The officers of the Corporation shall hold office until their successors are chosen and qualified. Any officer or agent may be removed, with or without cause, at any time, by resolution adopted by the Board of Directors, but such removal shall be without prejudice to the contract rights, if any, of the person so removed. Any vacancy occurring in any office of the Corporation by death, resignation, removal or otherwise shall be filled by the Board of Directors, or, in the case of an officer appointed by the Chairman of the Board, by the Chairman of the Board or the Board of Directors. Any officer of the Corporation may resign from his respective office or position by delivering notice to the Corporation, and such resignation shall be effective upon receipt of such notice or at any later time specified therein, and the acceptance of such notice shall not be necessary to make it effective. If a resignation is made effective at a later date and the Corporation accepts the future effective date, the Board of Directors may fill the pending vacancy before the effective date if the Board provides that the successor does not take office until such effective date.

 

Section 6. Chairman of the Board . The Chairman of the Board shall preside at all meetings of the shareholders and the Board of Directors. The Chairman of the Board shall also serve as the chairman of any executive committee.

 

Section 7. Chief Executive Officer . Subject to the control of the Board of Directors, the Chief Executive Officer, in conjunction with the President, shall have general and active management of the business of the Corporation, shall see that all orders and resolutions of the Board of Directors are carried into effect and shall have such powers and perform such duties as may be prescribed by the Board of Directors. In the absence of the Chairman of the Board or in the event the Board of Directors shall not have designated a Chairman of the Board, the Chief Executive Officer shall preside at meetings of the shareholders and the Board of Directors. The Chief Executive Officer shall also serve as the vice-chairman of any executive committee.

 

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Section 8. President . Subject to the control of the Board of Directors, the President, in conjunction with the Chief Executive Officer, shall have general and active management of the business of the Corporation and shall have such powers and perform such duties as may be prescribed by the Board of Directors. In the absence of the Chairman of the Board and the Chief Executive Officer or in the event the Board of Directors shall not have designated a Chairman of the Board and a Chief Executive Officer shall not have been elected, the President shall preside at meetings of the shareholders and the Board of Directors. The President shall also serve as the vice-chairman of any executive committee.

 

Section 9. Vice Presidents . The Vice Presidents, in the order of their seniority, unless otherwise determined by the Board of Directors, shall, in the absence or disability of the President and the Chief Executive Officer, perform the duties and exercise the powers of the President. They shall perform such other duties and have such other powers as the Board of Directors, the Chairman of the Board or the Chief Executive Officer shall prescribe or as the President may from time to time delegate. Executive Vice Presidents shall be senior to Senior Vice Presidents, and Senior Vice Presidents shall be senior to all other Vice Presidents.

 

Section 10. Secretary . The Secretary shall attend all meetings of the shareholders and all meetings of the Board of Directors and record all the proceedings of the meetings of the shareholders and of the Board of Directors in a book to be kept for that purpose and shall perform like duties for the standing committees when required. The Secretary shall give, or cause to be given, notice of all meetings of the shareholders and special meetings of the Board of Directors and shall keep in safe custody the seal of the Corporation and, when authorized by the Board of Directors, affix the same to any instrument requiring it. The Secretary shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 11. Chief Financial Officer . The Chief Financial Officer shall be responsible for maintaining the financial integrity of the Corporation, shall prepare the financial plans for the Corporation and shall monitor the financial performance of the Corporation and its subsidiaries, as well as performing such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 12. Treasurer . The Treasurer shall have the custody of corporate funds and securities and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may be designated by the Board of Directors. The Treasurer shall disburse the funds of the Corporation as may be ordered by the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board and the Board of Directors at its regular meetings or when the Board of Directors so requires an account of all his transactions as Treasurer and of the financial condition of the Corporation. The Treasurer shall perform such other duties as may be prescribed by the Board of Directors, the Chairman of the Board, the Chief Executive Officer or the President.

 

Section 13. Other Officers; Employees and Agents . Each and every other officer, employee and agent of the Corporation shall possess, and may exercise, such power and authority, and shall perform such duties, as may from time to time be assigned to such person by the Board of Directors, the officer so appointing such person or such officer or officers who may from time to time be designated by the Board of Directors to exercise such supervisory authority.

 

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ARTICLE FIVE

 

CERTIFICATES FOR SHARES

 

Section 1. Issue of Certificates . The shares of the Corporation shall be represented by certificates, provided that the Board of Directors of the Corporation may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Corporation. Notwithstanding the adoption of such a resolution by the Board of Directors, every holder of stock represented by certificates (and upon request every holder of uncertificated shares) shall be entitled to have a certificate signed by or in the name of the Corporation by the Chairman of the Board or a Vice Chairman of the Board, or the Chief Executive Officer, President or Vice President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, representing the number of shares registered in certificate form.

 

Section 2. Legends for Preferences and Restrictions on Transfer . The designations, relative rights, preferences and limitations applicable to each class of shares and the variations in rights, preferences and limitations determined for each series within a class (and the authority of the Board of Directors to determine variations for future series) shall be summarized on the front or back of each certificate. Alternatively, each certificate may state conspicuously on its front or back that the Corporation will furnish the shareholder a full statement of this information on request and without charge. Every certificate representing shares that are restricted as to the sale, disposition, or transfer of such shares shall also indicate that such shares are restricted as to transfer, and there shall be set forth or fairly summarized upon the certificate, or the certificate shall indicate that the Corporation will furnish to any shareholder upon request and without charge, a full statement of such restrictions. If the Corporation issues any shares that are not registered under the Securities Act of 1933, as amended, or not registered or qualified under the applicable state securities laws, the transfer of any such shares shall be restricted substantially in accordance with the following legend:

 

"THESE SHARES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE LAW. THEY MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR PLEDGED WITHOUT (1) REGISTRATION UNDER THE SECURITIES ACT OF 1933 AND ANY APPLICABLE STATE LAW, OR (2) AT HOLDER'S EXPENSE, AN OPINION (SATISFACTORY TO THE CORPORATION) OF COUNSEL (SATISFACTORY TO THE CORPORATION) THAT REGISTRATION IS NOT REQUIRED."

 

Section 3. Facsimile Signatures . Any and all signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon such certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Corporation with the same effect as if he were such officer, transfer agent or registrar at the date of issue.

 

Section 4. Lost Certificates . The Board of Directors may direct a new certificate or certificates to be issued in place of any certificate or certificates theretofore issued by the Corporation alleged to have been lost or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost or destroyed. When authorizing such issue of a new certificate or certificates, the Corporation may, in its discretion and as a condition precedent to the issuance thereof, require the owner of such lost or destroyed certificate or certificates, or his legal representative, to advertise the same in such manner as it shall require and/or to give the Corporation a bond in such sum as it may direct as indemnity against any claim that may be made against the Corporation with respect to the certificate alleged to have been lost or destroyed.

 

Section 5. Transfer of Shares . Upon surrender to the Corporation or the transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment or authority to transfer, it shall be the duty of the Corporation to issue a new certificate to the person entitled thereto, cancel the old certificate and record the transaction upon its books.

 

Section 6. Registered Shareholders . The Corporation shall be entitled to recognize the exclusive rights of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of the State of Nevada.

 

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ARTICLE SIX

 

GENERAL PROVISIONS

 

Section 1. Dividends . The Board of Directors may from time to time declare, and the Corporation may pay, dividends on its outstanding shares in cash, property, stock (including its own shares) or otherwise pursuant to law and subject to the provisions of the Articles of Incorporation.

 

Section 2. Reserves . The Board of Directors may by resolution create a reserve or reserves out of earned surplus for any proper purpose or purposes, and may abolish any such reserve in the same manner.

 

Section 3. Checks . All checks or demands for money and notes of the Corporation shall be signed by such officer or officers or such other person or persons as the Board of Directors may from time to time designate.

 

Section 4. Fiscal Year . The fiscal year of the Corporation shall end on December 31 of each year, unless otherwise fixed by resolution of the Board of Directors.

 

Section 5. Seal . The Board of Directors may adopt a seal by resolution of the board. The corporate seal shall have inscribed thereon the name and state of incorporation of the Corporation. The seal may be used by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

Section 6. Gender . All words used in these Bylaws in the masculine gender shall extend to and shall include the feminine and neuter genders.

 

ARTICLE SEVEN

 

AMENDMENT OF BYLAWS

 

Except as otherwise set forth herein, these Bylaws may be altered, amended or repealed or new Bylaws may be adopted at any meeting of the Board of Directors at which a quorum is present, by the affirmative vote of a majority of the directors present at such meeting.

 

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SECRETARY'S CERTIFICATE OF ADOPTION OF

 

THE BYLAWS OF CELSIUS HOLDINGS, INC.

 

I hereby certify:

 

That the foregoing Bylaws, constitute the Bylaws of said corporation as duly adopted by the Board of Directors of the Corporation on December ____, 2006.

 

IN WITNESS WHEREOF, I have hereunder subscribed my name this _____ day of December, 2006.

 

   
Kristian Kostovski, Secretary  

 

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Exhibit 10.1

   

 

LOAN AND SECURITY AGREEMENT

 

This Loan and Security Agreement (hereinafter called "Agreement") is between CELSIUS HOLDINGS, INC. , a Nevada corporation, authorized to do business in Florida as CELSIUS PRODUCTS HOLDINGS, INC. whose address is 140 N.E. 4 th Avenue, Suite C, Delray Beach, Florida 33483 (hereinafter called "Debtor") and CD FINANCIAL, LLC , a Florida limited liability company (hereinafter called "Secured Party").

 

1.           Grant of Security Interest . Subject to the terms and conditions of the Note (as hereinafter defined) and this Agreement, Debtor, for consideration as defined herein, and to secure the full and prompt payment, observance and performance when due of all present and future obligations and indebtedness of Debtor to Secured Party, whether at the stated time, by acceleration or otherwise, howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, whether or not of the same or similar class or of like kind to any indebtedness incurred contemporaneously with the execution of this Agreement, and whether now or hereafter existing, or due or to become due, and whether such indebtedness from time to time is reduced and thereafter increased, or entirely extinguished and thereafter reincurred, including without limitation, the following:

 

(a)          Any and all amounts owed by Debtor, under, in connection with, and/or pursuant to the indebtedness evidenced by that certain Promissory Note of even date herewith, in the original principal sum of THREE MILLION AND NO/100THS DOLLARS ( $3,000,000.00 ) (the "Note"), with interest thereon according to the provisions thereof, and all obligations thereunder, in connection therewith and/or pursuant to any and all agreements and other documents in connection therewith; and

 

(b)          All sums advanced or expenses or costs paid or incurred (including without limitation reasonable attorneys' fees and other legal expenses) by Secured Party pursuant to or in connection with the Note or any other agreements and documents in connection therewith plus applicable interest on such sums, expenses or costs; and

 

(c)          Any extensions, modifications, changes, substitutions, restatements, renewals or increases or decreases of any or all of the indebtedness referenced above.

 

hereby grants to Secured Party a security interest in the collateral described in Schedule 1, same being attached to this Agreement and made a part hereof (hereinafter collectively called the "Collateral").

 

2. Definitions. The following terms shall have the following meanings

 

"Accounts" means all Accounts as that term is defined in Article 9 of the UCC;

 

"Chattel Paper" means all Chattel Paper as that term is defined in Article 9 of the UCC;

 

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"Commercial Tort Claims" means all Commercial Tort Claims as that term is defined in Article 9 of the UCC;

 

" Consignments " means all Consignments as that term is define in Article 9 of the UCC;

 

"Contracts" means all contracts, undertakings, franchise agreements or other agreements ( other than rights evidenced by Chattel Paper, Documents or Instruments, as those terms are defined above and below) in or under which the Debtor may now or hereafter have any right, title or interest, including, without limitation, with respect to an Account, and any agreement relating to the terms of payment or the terms of performance thereof;

 

"Copyrights" means (a) all copyrights of the United States or any other country; (b) all copyright registrations filed in the United States or in any other country; and (c) all proceeds thereof;

 

"Copyright License" means all agreements, whether written or oral, providing for the grant by the Debtor of any right to use any Copyright;

 

"Deposit Accounts" means all Deposit Accounts at that term is defined in Article 9 of the UCC; "Documents" means all Documents as that term is defined in Article 9 of the UCC; " Encumbrance (s)" means all Encumbrance(s) as that term is defined in Article 9 of the UCC; "Equipment" means all Equipment as that term is defined in Article 9 of the UCC;

 

"Fixtures" means all Fixtures as that term is defined in Article 9 of the UCC;

 

"General Intangibles " means all General Intangibles as that term is defined in Article 9 of the UCC;

 

"Goods" means all Goods as that term is defined in Article 9 of the UCC;

 

"Health-Care- Insurance Receivables" means all Health-Care-Insurance Receivables as that term is defined in Article 9 of the UCC;

 

"Instruments" means all Instruments as that term is defined in Article 9 of the UCC;

 

"Inventory" means all Inventory as that term is defined in Article 9 of the UCC;

 

"Investment Property " means all Investment Property as that term is defined in Article 9 of the UCC;

 

"Letters of Credit" means all Letters of Credit as that term is defined in the Article 5 of the UCC;

 

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"Letter-of-Credit Rights" means all Letter-of-Credit Rights as that term is defined in Article 9 of the UCC;

 

"Patents" means (a) all letters patent of the United States and all reissues and extensions thereof, (b) all applications for letters patent of the United States and all divisions, continuations and continuations-in-part thereof or any other country, including, without limitation, any thereof referred to in any schedule attached hereto and (c) all proceeds thereof, including the goodwill of the business connected with the use of and symbolized by the Patents;

 

"Patent License" means all agreements, whether written or oral, providing for the grant by the Debtor of any right to manufacture, use or sell any invention covered by a Patent, including, without limitation, any thereof referred to in any schedule attached hereto;

 

"Payment Intangibles" means all Payment Intangibles as that term is defined in Article 9 of the UCC;

 

"Proceeds" means all Proceeds as that term is defined in Article 9 of the UCC;

 

"Promissory Note(s)" means as that term is defined in Article 9 of the UCC;

 

"Software" means all Software as that term is defined in Article 9 of the UCC;

 

"Supporting Obligations" means all Supporting Obligations as that term is defined in Article 9 of the UCC;

 

"Tangible Chattel Paper" means all Tangible Chattel Paper as that term is defined in Article 9 of the UCC;

 

" Trademarks " means (a) all trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers and the goodwill associated therewith, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and all applications in connection therewith, whether registered in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof or otherwise, including, without limitation, any thereof referred to in any schedule attached hereto; (b) all renewals thereof; and (c) all proceeds thereof, including the goodwill of the business connected with the use of and symbolized by the Trademarks;

 

"Trademark License" means any agreement, written or oral, providing for the grant by the Debtor of any right to use any Trademark.

 

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"UCC" means the Uniform Commercial Code as in effect from time-to-time in the State of

Florida and State of Nevada.

 

3.           Representations, Warranties and Covenants of Debtor. Debtor expressly represents, warrants and covenants as follows:

 

(a)          The address appearing with Debtor's signature below is the address of Debtor's principal office. If any part of the Collateral is not located at Debtor's principal office, it will be located at such other locations as Debtor, or any other entity affiliated with Debtor, may utilize in its business from time to time, and Debtor hereby covenants to notify Secured Party of any such additional location(s).

 

(b)          If Debtor does not keep the records concerning the Collateral and concerning accounts, general intangibles, mobile goods and contract rights at Debtor's principal office, same will be located at such other locations as Debtor, or any other entity affiliated with Debtor, may utilize in its business from time to time, and Debtor hereby covenants to notify Secured Party of any such additional location(s).

 

(c)          Debtor will give Secured Party sixty (60) days prior written notice of any change in (i) Debtor's principal office, the location of the Collateral or the location of the records described above, or (ii) the Ownership of Debtor's business, (iii) the principals responsible for the management of Debtor's business, (iv) Debtor's company structure or identity, or (v) Debtor's name or trade name, or prior to commencing to use an assumed name not set forth in this Agreement.

 

(d)           If any of the Collateral is to be or has been attached to real estate, the legal description of the real estate is attached to this Agreement as Schedule 2 and made a part hereof.

 

(e)          If Debtor does not have a record interest in the real estate described above, the record

Owner is indicated on the attached Schedule 2.

 

(f)           Without the prior written consent of Secured Party, Debtor will not move, sell, lease, permit any encumbrance on or otherwise dispose of the Collateral, other than its inventory in the ordinary course of its business. Debtor represents and warrants that Debtor is the owner of the Collateral, free and clear of all liens, charges, interests, and encumbrances, other than in favor of Secured Party, that no other person or other entity has any interest in the Collateral whatsoever, and that Debtor will defend same against all adverse claims and demands.

 

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(g)          Debtor will keep the Collateral insured by such companies, in such amounts and against such risks as shall be acceptable to Secured Party, and the Secured Party hereby acknowledges that the current levels of insurance maintained by Debtor are acceptable for the first year of the Loan, with loss payable and additional insured clauses in favor of Secured Party as are satisfactory to Secured Party. Debtor will deposit such insurance policies with Secured Party. Debtor hereby assigns to Secured Party and grants to Secured Party a security interest in any return of unearned premium due upon cancellation of any such insurance and directs the insurer thereunder to pay to Secured Party all amounts so due. All amounts received by Secured Party in payment of insurance losses or return of unearned premium may, at Secured Party's option, be applied to the indebtedness by Secured Party, or all or any part thereof may be used for the purpose of repairing, replacing or restoring the Collateral. Notwithstanding the foregoing, if there is no default under the Loan, at the request of the Debtor, and upon the approval of Secured Party in its sole discretion, amounts received by Secured Party in payment of insurance losses or return of unearned premium shall be used for the purpose of repairing, replacing or restoring the Collateral. If Debtor fails to maintain satisfactory insurance, Secured Party shall have the option, but not the obligation, to obtain such insurance in such amounts as Secured Party deems necessary, and Debtor agrees to repay, with interest at the highest rate applicable to any indebtedness which this Agreement secures, all amounts so expended by Secured Party.

 

(h)           Debtor represents and warrants to Secured Party that all financial statements, income tax returns and credit information delivered by Debtor to Secured Party accurately reflect the financial condition and operations of Debtor at the times and for the periods therein stated. So long as this Agreement is in force and effect, Debtor agrees to deliver to Secured Party within one hundred twenty (120) calendar days after the end of each of Debtor's fiscal years, a complete and accurate copy of the consolidated audited financial statements (with notes) of Debtor prepared by an independent certified public accountant acceptable to Secured party ("CPA"), including statements of cash flow, and a balance sheet and statement of income, together with all schedules, all prepared in accordance with generally accepted accounting principles ("GAAP"). Debtor shall provide Secured Party with a copy of its federal income tax return within fifteen (15) days of filing (including all schedules and extensions). Debtor shall also provide internally prepared condensed monthly statements without notes but otherwise meeting all the requirements of the annual statements no later than thirty (30) days after each month end and internally prepared condensed quarterly financial statements with partial notes (which are included included in the Form 10-Q) but otherwise meeting all the requirements of the annual statements no later than forty five (45) days after the end of each fiscal quarter end or such other date as requested by Seemed Party for statements other than the quarterly statements, acceptable to Security Party and its accountants as well as financial statements at such other times as requested by Security Party.

 

(i)           Secured Party shall not be deemed to have waived any of its rights in any Collateral unless such waiver is in writing and signed by an authorized representative of Secured Party. No delay or omission by Secured Party in exercising any of Secured Party's rights shall operate as a waiver thereof or of any other rights. Secured Party shall have, in addition to all other rights and remedies provided by this Agreement or applicable law, the rights and remedies of a secured party under the Uniform Commercial Code.

 

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(j)          Debtor will maintain the Collateral in good condition and repair, reasonable wear and tear excepted, and will pay promptly all taxes, levies, and encumbrances and all repair, maintenance and preservation costs pertaining to the Collateral. If Debtor fails to make such payments, Secured Party shall have the option, but not the obligation, to pay the same and Debtor agrees to repay, with interest at the highest rate applicable to any indebtedness which this Agreement secures, all amounts so expended by Secured Party. Debtor will at any time and from time to time, upon request of Secured Party, give any representative of Secured Party access during normal business hours to inspect the Collateral or the books and records thereof.

 

(k)          Debtor agrees to pay to Secured Party on demand all expenses, including reasonable attorney fees and expenses, incurred by Secured Party in protecting or enforcing its rights in the Collateral or otherwise under this Agreement. After deducting all said expenses, the remainder of any proceeds of sale or other disposition of the Collateral shall be applied to the indebtedness due Secured Party in such order of preference as Secured Party shall determine.

 

(1)          Debtor hereby agrees to faithfully preserve and protect Secured Party's security interest in the Collateral at all times, and further agrees to execute and deliver, from time to time, any and all further, or other, documents, instruments, continuation statements and perform or refrain from performing such acts, as Secured Party may reasonably request to effect the purposes of this Agreement and to secure to Secured Party the benefits of all the rights, authorities and remedies conferred upon Secured Party by the terms of this Agreement. Debtor shall permit, or cause to be permitted, at Debtor's expense, representatives of Secured Party to inspect and make copies of the books and records of Debtor relating to the Collateral at any reasonable time or times upon prior notice.

 

4.             Loan Disbursements . Disbursements under the Note shall be made directly by the Secured Party to Debtor upon no less than seven (7) business days of written request from Debtor to Secured Party. All disbursements hereunder shall be for the purpose of providing funding for a mutually agreeable written plan between the Secured Party and the Debtor for marketing and advertising of the Debtor's and/or its wholly-owned subsidiaries' products which may include reimbursement to the Debtor for marketing and advertising expenses prepaid by the Debtor.

 

5.           Defaults . The occurrence of any of the following events shall constitute a default hereunder:

 

(a)          the Debtor shall default in the payment of principal of or interest on the Note or any other obligation to Secured Party as and when the same shall be due and payable and, in the case of an interest payment default, such default shall continue for five (5) Business Days after the date such interest payment was due, or the Debtor shall fail to perform or observe any other covenant, agreement, term, provision, undertaking or commitment under the Note, this Loan Agreement or any other agreement or document secured hereby or any other encumbrance or agreement securing the Note which remains uncured for ten (10) Business Days after the delivery to the Debtor of written notice that the Debtor is in default hereunder or thereunder;

 

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(b)          The breach of or failure to perform promptly any obligation or covenant set forth in this Agreement, the Note or any other agreement secured hereby or securing the Note unless otherwise approved in advance by Secured Party.

 

(c)          The suspension of business, insolvency, failure generally to pay debts as they became due, or the commission of any act constituting or resulting in a business failure, in each case on the part of the business of Debtor; the concealment or removal of any substantial portion of Debtor's property with the intent to hinder, delay or defraud any one or more creditors, or the making of any other transfer which is fraudulent or otherwise voidable under the Bankruptcy Code or other applicable federal or state law; the existence or creation of any lien, including without limitation any tax or judgment lien, upon the Collateral or any substantial part of Debtor's property; an assignment for the benefit of creditors; the commencement of any proceedings by or against Debtor (under the Bankruptcy Code or otherwise) seeking to adjudicate it bankrupt or insolvent, or seeking reorganization, arrangement, adjustment or composition of it or its debts under any law relating to bankruptcy, insolvency or reorganization or relief of debtors or seeking the appointment of a receiver, trustee or custodian for Debtor or for the Collateral or a substantial part of the property of Debtor; or the institution by Debtor or any other person or entity of any liquidation, dissolution or reorganization proceedings with respect to Debtor;

 

(d)          The failure to effectively and promptly discharge, stay or indemnify against, to Secured Party's satisfaction, any lien or attachment against any of Debtor's property or the Collateral;

 

(e)          Any representation or warranty contained herein or in any other document delivered by or on behalf of Debtor to Secured Party shall be false or misleading when made;

 

(f)           If Secured Party, in good faith, believes the prospect of payment secured by this Agreement is impaired, or believes that any of the Collateral is in danger of loss, misuse, seizure or confiscation;

 

(g)          The occurrence of any of the following without the Secured Party's written consent, which consent shall be in Secured Party's sole discretion: the transfer of any of the Debtor's assets not in the ordinary course of business; the merger or consolidation of Debtor with another company or entity; the change of the Debtor's name; the liquidation of Debtor.

 

6.           Remedies.

 

(a) Upon the occurrence of any default under this Agreement, Secured Party is authorized in its discretion to declare any or all of the indebtedness to be immediately due and payable without demand or notice to Debtor, and may exercise any one or more of the rights and remedies granted pursuant to this Agreement or given to a secured party under applicable law, including without limitation the Uniform Commercial Code, such rights and remedies to include without limitation the right to take possession and sell, lease or otherwise dispose of the Collateral. If reasonable notice of any disposition of Collateral or other enforcement is required, such requirement will be met if such notice is mailed, postage pre-paid, to the address of Debtor shown below Debtor's signature on this Agreement at least fifteen (15) days prior to the time of disposition or other enforcement. Debtor agrees that upon demand by Secured Party after default, Debtor will promptly assemble the Collateral and make the Collateral available to Secured Party at a place convenient to Secured Party.

 

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(b) Debtor agrees that all of the Collateral and all of the other security which may be granted to Secured Party in connection with the obligations secured hereby constitute equal security for all of the obligations secured hereby, and agrees that Secured Party shall be entitled to sell, retain or otherwise deal with any or all of the Collateral, in any order or simultaneously as Secured Party shall determine in its sole and absolute discretion, free of any requirement for the marshaling of assets or other restriction upon Secured Party in dealing with the Collateral or such other security.

 

(c) Upon the occurrence of any default under this Agreement, Debtor hereby irrevocably constitute and appoints Secured Party (and any employee or agent of Secured Party) as Debtor's true and lawful attorney-in-fact with full power of substitution, in Secured Party's name or Debtor's name or otherwise, for Secured Party's sole use and benefit, at Debtor's cost and expense, to exercise the following powers with respect to the Collateral:

 

(1)          To demand, sue for collection, receive, and give acquittance for any and all monies due or owing with respect to the Collateral;

 

(2)          To receive, take, endorse Debtor's name on, assign and deliver any checks, notes, drafts, documents or other instruments taken or received by Secured Party in connection with the Collateral;

 

(3)          To settle, compromise, prosecute, or defend any action or proceeding with respect to the Collateral;

 

(4)          To sell, transfer, assign or otherwise deal in or with the Collateral or the proceeds thereof, as fully as if Secured Party were the absolute Debtor thereof.

 

(5)          To sign Debtor's name to and file financing statements or such other documents and instruments as Secured Par