FOR
Commission file number: 001-34611
Nevada | 20-2745790 | |||||||
(State or | (I.R.S. Employer | |||||||
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2424 N Federal Highway, Suite 208, Boca Raton, Florida33431
(Address of Principal Executive Offices)
(561)
| 2424 N Federal Highway, Suite 208, Boca Raton, Florida | 33431 | |||||||
| (Address of principal executive offices) | (Zip Code) | |||||||
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Title of Each Class Trading Symbol(s) Name of Each Exchange on Which Registered Common Stock, $0.001 par value CELH Nasdaq Capital Market o o Large Accelerated Non-accelerated filer Smaller reporting company Emerging growth company o x Page value and share amounts) (Unaudited) September 30, December 31, ASSETS Current assets: Cash $ 592,134 $ 16,255 Restricted cash 134,838 — Accounts receivable-net (note 2) 117,003 38,741 Note receivable-current (note 7) 2,888 2,588 Inventories-net (note 5) 153,933 191,222 Prepaid expenses and other current assets (note 6) 12,096 13,555 Deferred other costs-current (note 13) 14,124 — Total current assets 1,027,016 262,361 Note receivable (note 7) 3,465 7,117 Property and equipment-net (note 9) 5,782 3,180 Deferred tax asset (note 17) — 9,019 Right of use assets-operating leases (note 8) 1,105 1,128 Right of use assets-finance leases (note 8) 222 86 Other long-term assets 242 300 Deferred other costs-non-current (note 13) 265,993 — Intangibles (note 10) 11,322 16,301 Goodwill (note 10) 12,502 14,527 Total Assets $ 1,327,649 $ 314,019 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses (note 11 & 13) $ 143,947 $ 91,479 Accrued distributor termination fees (note 2 & 13) 115,551 — Lease liability obligation-operating leases (note 8) 663 512 Lease liability obligation-finance leases (note 8) 95 157 Deferred revenue-current (note 2 & 13) 7,770 — Other current liabilities (note 12) 3,267 976 Total current liabilities 271,293 93,124 Long-term liabilities: Lease liability obligation-operating leases (note 8) 462 658 Lease liability obligation-finance leases (note 8) 167 45 Deferred tax liability (note 17) 25,457 3,146 Deferred revenue-non-current (note 2 & 13) 146,333 — Total Liabilities 443,712 96,973 Mezzanine Equity: Series A convertible preferred shares, $0.001 par value, 5% cumulative dividends; 1,467 and 0 shares issued and outstanding at September 30, 2022 and December 31,2021, respectively, aggregate liquidation preference of $550,000 and $0 as of September 30, 2022 and December 31, 2021, respectively (note 14) 824,488 — Stockholders’ Equity: Common stock, $0.001 par value; 100,000 shares authorized, 76,216 and 74,909 shares 76 75 Additional paid-in capital 281,133 267,847 Accumulated other comprehensive income (loss) (4,211 ) 614 Accumulated deficit (217,549 ) (51,490 ) Total Stockholders’ Equity 59,449 217,046 Total Liabilities, Mezzanine Equity and Stockholders’ Equity $ 1,327,649 $ 314,019 Income (Loss) For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Revenue (note 4) $ 188,233 $ 94,909 $ 475,640 $ 210,017 Cost of revenue (note 2) 109,583 57,216 283,778 123,495 Gross profit 78,650 37,693 191,862 86,522 Selling and marketing expenses 198,756 22,621 262,782 50,111 General and administrative expenses 27,493 23,257 54,135 43,363 Total operating expenses 226,249 45,878 316,917 93,474 Loss from operations $ (147,599 ) $ (8,185 ) $ (125,055 ) $ (6,952 ) Other income/(expense) Interest income on note receivable (note 7) 53 76 186 241 Interest income (expense), net (note 2) 1,396 (101 ) 1,393 (8 ) Foreign exchange loss (254 ) (327 ) (930 ) (452 ) Total other expense 1,195 (352 ) 649 (219 ) Net loss before income taxes $ (146,404 ) $ (8,537 ) $ (124,406 ) $ (7,171 ) Income tax expense (note 17) 35,492 834 41,653 834 Net loss $ (181,896 ) $ (9,371 ) $ (166,059 ) $ (8,005 ) Less: dividends on Series A convertible preferred shares (note 14) $ (4,596 ) $ — $ (4,596 ) $ — Net loss attributed to common shareholders $ (186,492 ) $ (9,371 ) $ (170,655 ) $ (8,005 ) Other comprehensive loss: Foreign currency translation gain/(loss) (2,038 ) 1,282 (4,813 ) 1,367 Comprehensive loss $ (188,530 ) $ (8,089 ) $ (175,468 ) $ (6,638 ) Loss per common share: Basic and dilutive $ (2.46 ) $ (0.13 ) $ (2.26 ) $ (0.11 ) Weighted average common shares outstanding: Basic and dilutive 75,796 74,609 75,625 73,759 Common Stock Mezzanine Equity Additional Accumulated Other Comprehensive Income (Loss) Accumulated Deficit Shares Amount Preferred Shares Amount Total Balance at December 31, 2021 74,909 $ 75 — $ — $ 267,847 $ 614 $ (51,490 ) $ 217,046 Share-based payment expense — — — — 4,310 — — 4,310 Issuance of common stock pursuant to stock incentive plan - cashless 248 — — — — — — — Issuance of common stock pursuant to stock incentive plan - cash 194 — — — 810 — — 810 Foreign currency fluctuations — — — — — (491 ) — (491 ) Net income — — — — — — 6,679 6,679 Balance at March 31, 2022 75,351 $ 75 — $ — $ 272,967 $ 123 $ (44,811 ) $ 228,354 Share-based payment expense — — — — 4,207 — — 4,207 Issuance of common stock pursuant to stock incentive plan - cashless 99 — — — — — — — Issuance of common stock pursuant to stock incentive plan - cash 172 — — — 449 — — 449 Foreign currency fluctuations — — — — — (2,296 ) — (2,296 ) Net income — — — — — — 9,158 9,158 Balance at June 30, 2022 75,622 $ 75 — $ — $ 277,623 $ (2,173 ) $ (35,653 ) $ 239,872 Share-based payment expense — — — — 6,263 — — 6,263 Issuance of common stock pursuant to stock incentive plan - cashless 58 — — — — — — — Issuance of common stock pursuant to stock incentive plan - cash 536 1 — — 1,843 — — 1,844 Issuance of Series A convertible preferred shares - net of issuance costs — — 1,467 824,488 — — — 824,488 Dividends paid to Series A convertible preferred shares — — — — (4,596 ) — — (4,596 ) Foreign currency fluctuations — — — — — (2,038 ) — (2,038 ) Net loss — — — — — — (181,896 ) (181,896 ) Balance at September 30, 2022 76,216 $ 76 1,467 $ 824,488 $ 281,133 $ (4,211 ) $ (217,549 ) $ 883,937 and Mezzanine Equity Accumulated Common Stock Additional Other Accumulated Shares Amount Capital Income (Loss) Deficit Total Balance at December 31, 2020 72,263 $ 72 $ 159,884 $ (202 ) $ (55,427 ) $ 104,327 Share-based payment expense — — 3,575 — — 3,575 Issuance of common stock pursuant to stock incentive plan - cashless 88 — — — — — Issuance of common stock pursuant to stock incentive plan - cash 235 1 716 — — 717 Foreign currency fluctuations — — — (193 ) — (193 ) Net income — — — — 585 585 Balance at March 31, 2021 72,586 $ 73 $ 164,175 $ (395 ) $ (54,842 ) $ 109,011 Share-based payment expense — — 7,202 — — 7,202 Issuance of common stock pursuant to stock incentive plan - cashless 316 — — — — — Issuance of common stock pursuant to stock incentive plan - cash 435 — 1,799 — — 1,799 Issuance of common stock from capital raise 1,134 1 67,768 — — 67,769 Foreign currency fluctuations — — — 277 — 277 Net income — — — — 780 780 Balance at June 30, 2021 74,471 $ 74 $ 240,944 $ (118 ) $ (54,062 ) $ 186,838 Share-based payment expense — — 17,920 — — 17,920 Issuance of common stock pursuant to stock incentive plan - cashless 118 — — — — — Issuance of common stock pursuant to stock incentive plan - cash 157 1 727 — — 728 Foreign currency fluctuations — — — 1,283 — 1,283 Net loss — — — — (9,371 ) (9,371 ) Balance at September 30, 2021 74,746 $ 75 $ 259,591 $ 1,165 $ (63,433 ) $ 197,398 For the nine months ended September 30, 2022 2021 Cash flows from operating activities: Net loss $ (166,059 ) $ (8,005 ) Adjustments to reconcile net loss to net cash provided by /(used in) operating activities: Depreciation 952 520 Amortization 402 551 Impairment of intangible assets 2,379 — Bad debt expense 705 (207 ) Amortization of deferred other costs 2,354 — Inventory excess and obsolescence 1,078 12 Share-based compensation expense 14,780 28,697 Gain on lease cancellations — (15 ) Un-realized exchange loss (gain) 1,007 (77 ) Changes in operating assets and liabilities: Accounts receivable-net (78,967 ) (28,307 ) Inventories-net 36,211 (103,920 ) Prepaid expenses and other current assets 1,459 (8,203 ) Accounts payable and accrued expenses 51,462 66,695 Accrued distributor termination fees 115,551 — Deferred tax-net 31,329 (182 ) Other assets 56 (185 ) Other current liabilities 2,291 532 Change in right of use assets and lease obligation-net (126 ) 30 Deferred revenue 154,103 — Net cash provided by/(used in) operating activities 170,967 (52,064 ) Cash flows from investing activities: Proceeds from note receivable 2,592 1,886 Purchase of property and equipment (3,477 ) (2,395 ) Net cash used in investing activities (885 ) (509 ) Cash flows from financing activities: Principal payments on finance lease obligations (49 ) (72 ) Proceeds from issuance of common stock — 67,769 Proceeds from exercise of stock options 3,104 3,242 Proceeds from issuance of Series A preferred shares, net of issuance costs 542,018 — Dividends paid on preferred shares (4,596 ) — Net cash provided by financing activities 540,477 70,939 Effect on exchange rate changes on cash 158 (236 ) Net increase in cash and restricted cash 710,717 18,130 Cash and restricted cash at beginning of the period 16,255 43,248 Cash and restricted cash at end of the period $ 726,972 $ 61,378 Supplemental cash flow disclosures: Cash paid during period for: Taxes $ 591 $ 398 2023 Celsius® brand name. Basis of Presentation and Principles of Consolidation Certain prior period amounts have been reclassified to conform with current period presentation in the consolidated financial statements and notes thereto. Accrued promotional allowance and income tax payable were reallocated from within Accounts payable and accrued expenses and are now reflected as standalone line items in the consolidated balance sheets and consolidated statements of cash flows, respectively. Segment Reporting — Operating segments are defined as components of an enterprise that engage in business activities, Concentrations of Risk — Substantially all of the Company’s revenue (Tabular dollars in thousands, except per share amounts) The Company determines expected credit losses using information such as its customers' credit history, financial condition, industry, credit reports, and current and future economic and market conditions. Allowances can be affected by changes in the industry, customer credit issues or customer bankruptcies when such events are reasonable and supportable. Historical information is used in addition to reasonable and supportable forecast periods, where applicable. 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, 2023 September 30, December 31, United States $ 5,462 $ 3,043 Sweden 1,249 1,050 Finland 383 301 Norway 15 — Long-lived assets related to foreign operations 1,647 1,351 Total long-lived assets-net $ 7,109 $ 4,394 Goodwill — The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead, goodwill is tested for impairment on an annual basis as of October Intangible Revenue Recognition — The Company recognizes revenue in accordance with ASC Topic 606 — The Company receives payments from certain distributors in new territories as reimbursement for contract termination costs paid to the prior distributors in those territories. Amounts received pursuant to these new did not have any accrued distributor termination fees Customer Advances — From time to time the Company requires deposits in advance of delivery of products and/or production runs. Such amounts are initially recorded as customer advances liability within deferred revenue. The Company recognizes such revenue as it is earned in accordance with revenue recognition policies. The Company had no customer advances as of September 30, Advertising Costs — Advertising costs are expensed as Research and Development — Research and development costs are charged to selling, general and administrative expenses as incurred and consist primarily of consulting fees, raw material usage and test Foreign Currency Gain/ China - Yuan, Earnings per Share for more information. Consolidated Statement of Operations and Comprehensive Income Consolidated Statement of Operations and Comprehensive Income For the three months ended September 30, 2021 (unaudited) For the nine months ended September 30, 2021 (unaudited) As Reported Adjustment As Restated As Reported Adjustment As Restated Revenue $ 94,909 $ — $ 94,909 $ 210,017 $ — $ 210,017 Gross Profit 37,693 — 37,693 86,522 — 86,522 General and administrative expenses1 11,140 12,117 23,257 28,066 15,297 43,363 Total operating expense 33,761 12,117 45,878 78,177 15,297 93,474 Income (loss) from operations 3,932 (12,117 ) (8,185 ) 8,345 (15,297 ) (6,952 ) Net income (loss) before income taxes 3,580 (12,117 ) (8,537 ) 8,125 (15,297 ) (7,172 ) Net income (loss) $ 2,746 $ (12,117 ) $ (9,371 ) $ 7,292 $ (15,297 ) $ (8,005 ) Net income (loss) per share Basic $ 0.04 $ (0.17 ) $ (0.13 ) $ 0.10 $ (0.21 ) $ (0.11 ) Diluted $ 0.03 $ - $ - $ 0.09 $ - $ - Consolidated Balance Sheet (unaudited) September 30, 2021 As Reported Adjustment As Restated Current assets $ 252,562 $ — $ 252,562 Total assets 294,978 — 294,978 Current liabilities $ 93,421 $ — $ 93,421 Total liabilities 97,580 — 97,580 Additional paid-in capital $ 244,294 $ 15,297 $ 259,591 Accumulated deficit (48,135 ) (15,297 ) (63,432 ) Total Stockholders' Equity Impact $ 197,398 $ — $ 197,398 For purposes of determining diluted earnings per common share, basic earnings per common share was Three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 Net loss attributed to common shareholders Net loss $ (181,896 ) $ (9,371 ) $ (166,059 ) $ (8,005 ) Less: dividends paid to Series A convertible preferred shareholders (4,596 ) - (4,596 ) - Net loss attributed to common shareholders $ (186,492 ) $ (9,371 ) $ (170,655 ) $ (8,005 ) Net loss per common share: Basic and dilutive $ (2.46 ) $ (0.13 ) $ (2.26 ) $ (0.11 ) Weighted average common shares outstanding: Basic and dilutive 75,796 74,609 75,625 73,759 •reimbursements given to the Company’s distributors for agreed portions of their promotional spend with retailers, including slotting, shelf space allowances and other fees for both new and existing products; For the three months ended September 30, For the nine months ended September 30, 2022 2021 2022 2021 North America $ 179,541 $ 84,490 $ 448,141 $ 177,094 Europe 7,546 9,536 23,540 30,695 Asia 964 706 2,857 1,861 Other 182 177 1,102 367 Net sales $ 188,233 $ 94,909 $ 475,640 $ 210,017 Pepsi refunded back to Pepsi. Pepsi. billbacks. September 30, December 31, Finished goods $ 97,878 $ 123,594 Raw Materials 60,078 70,201 Less: Inventory allowance for excess and obsolete products (4,023 ) (2,573 ) Inventories $ 153,933 $ 191,222 Note receivable, net consists of the Upon adoption of CECL on January 1, 2023, the Company recorded a reserve for estimated expected credit losses associated with the note receivable. September 30, December 31, Note receivable-current $ 2,888 $ 2,588 Note receivable-non-current 3,465 7,117 Total Note receivable $ 6,353 $ 9,705 has been immaterial. The Company’s leasing activities include The future annual minimum lease payments required under the Company’s operating and finance lease liabilities as of September 30, Operating Finance Future minimum lease payments Leases Leases Total 2022 $ 180 $ 31 $ 211 2023 681 �� 91 772 2024 319 36 355 2025 6 61 67 2026 — 58 58 Total future minimum lease payments 1,186 277 1,463 Less: Amount representing interest (61 ) (15 ) (76 ) Present value of lease liabilities 1,125 262 1,387 Less: current portion (663 ) (95 ) (758 ) Long-term portion $ 462 $ 167 $ 629 Property and September 30, December 31, Merchandising equipment - coolers $ 5,505 $ 3,052 Office Equipment 1,177 891 Vehicles 1,013 304 Less: accumulated depreciation (1,913 ) (1,067 ) Total $ 5,782 $ 3,180 September 30, December 31, Definite-lived intangible assets Customer relationships $ 12,263 $ 14,248 Less: accumulated amortization (1,349 ) (1,140 ) Definite-lived intangible assets, net $ 10,914 $ 13,108 Indefinite-lived intangible assets Brands $ 2,984 $ 3,193 Less: impairment (2,576 ) — Indefinite-lived intangible assets, net $ 408 $ 3,193 Total Intangibles $ 11,322 $ 16,301 The following is the future estimated annualized amortization expense related to customer relationships: As of September 30, 2022: 2022 $ 123 2023 491 2024 491 2025 491 2026 491 Thereafter 8,827 Total $ 10,914 Accounts payable and accrued expenses consist of the following: September 30, December 31, Accounts payable $ 27,595 $ 35,821 Due to Pepsi 19,312 — Promotional allowances 43,250 19,037 Freight 19,547 15,872 Accrued expenses 30,094 15,311 Unbilled purchases 4,149 5,438 Total $ 143,947 $ 91,479 Other current liabilities consist of the September 30, December 31, Short-term VAT payable $ 267 $ — State Beverage Container Deposit 2,975 976 Other 25 — Total $ 3,267 $ 976 Pepsi Lease sheets. 2023 redeemable because its redemption is contingent upon a change in control, an event not solely controlled by the Company. In compliance with ASR 268, the Company classified the Series A as mezzanine equity in the consolidated balance sheets and statements of changes in stockholders' equity for the periods ended September 30, 2023 and December 31, 2022, respectively. 2023 or 2022. which is likely to occur before the holder's right to request redemption becomes exercisable. common stock. 2023 FAIR VALUE MEASUREMENTS 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. For the nine months ended September 30, 2022 Level 1 Level 2 Level 3 Mezzanine equity: Series A convertible preferred shares $ — $ — $ 824,488 Indefinite-lived intangible assets: Brands — 408 — Total $ - $ 408 $ 824,488 The Company is subject to U.S. federal income tax as well as income tax in multiple state and foreign jurisdictions. 2023 2023. for more information. $6.3 million, respectively. For the nine months ended September 30, administrative expense. Weighted Average Weighted Shares Exercise Grant Date Fair Aggregate Average (000’s) Price Value Value (000’s) Term (Yrs) Options At December 31,2021 3,600 $ 7.47 $ 241,515 6.37 Granted — — — Exercised (979 ) $ 3.53 $ 79.17 $ 74,001 Forfeiture and cancelled (61 ) $ 5.05 — At September 30,2022 2,560 $ 8.92 $ 213,831 6.37 Exercisable September 30,2022 1,920 $ 6.48 $ 161,633 5.49 Outstanding Options Vested Options Number Number Outstanding Weighted Weighted Exercisable Weighted Weighted Range of at Averaged Averaged at Averaged Averaged Exercise September 30, Remaining Exercise September 30, Remaining Exercise Price Life Price Life Price $0.34 - $1.05 30 1.69 $ 0.58 30 1.69 $ 0.58 $1.97 - $2.955 5 3.27 $ 1.97 5 3.27 $ 1.97 $3.23 - $4.845 1,736 5.84 $ 3.83 1,400 5.58 $ 3.93 $5.59 - $8.385 409 3.95 $ 5.70 340 3.24 $ 5.72 $14.53 - $21.795 61 7.84 $ 14.53 40 7.84 $ 14.53 $21.80 - $32.70 18 8.08 $ 21.80 5 8.08 $ 21.80 $42.64 - $63.96 301 8.26 $ 42.67 100 8.26 $ 42.67 Outstanding options 2,560 5.83 $ 8.92 1,920 5.30 $ 6.48 For the nine months ended September 30, 2022 2021 Weighted Weighted Average Average Grant Date Grant Date Shares (000's) Fair Value Shares (000's) Fair Value Unvested at beginning of period 0.3 $ 14.72 66 $ 14.78 Transfers to restricted stock units — — (46 ) $ 34.02 Granted — — — — Vested — — (19 ) $ 22.30 Forfeiture and cancelled (0.3 ) $ 14.72 (1 ) $ 34.02 Unvested at end of period — $ — — $ - 2023, the Company had approximately $0.8 million, of unrecognized pre-tax non-cash compensation expense related to options to purchase shares, which the Company expects to recognize, based on a weighted-average period of 0.3 years. For the nine months ended September 30, 2022 2021 Weighted Weighted Average Average Grant Date Grant Date Shares (000's) Fair Value Shares (000's) Fair Value Unvested at beginning of period 566 $ 52.66 — $ — Transfers from restricted stock awards — — 46 $ 34.02 Granted 207 81.74 546 $ 51.03 Vested (183 ) 56.33 (1 ) — Forfeited and cancelled (47 ) 64.37 (15 ) $ 50.67 Unvested at end of period 543 $ 63.93 576 $ 50.82 A summary of the Company’s PSU activity for the nine months ended September 30, For the nine months ended September 30, 2022 2021 Weighted Weighted Average Average Grant Date Grant Date Shares (000's) Fair Value Shares (000's) Fair Value Unvested at beginning of period 15 $ 64.65 — $ — Granted 76 $ 102.92 — — Vested (18 ) $ 96.47 — — Forfeited and cancelled — — — — Unvested at end of period 73 $ 96.47 — $ — Consolidated Financial Statements (unaudited) The Company evaluates subsequent events and transactions that occur after the balance sheet date up to the date the consolidated financial statements are issued. Except for the matters discussed in 2022 increased brand awareness. For the three months ended September 30, Revenue Source 2022 2021 Change Total Revenue $ 188,233 $ 94,909 98.3 % North American Revenue $ 179,541 $ 84,490 112.5 % European Revenue $ 7,546 $ 9,536 (20.9 )% Asian Revenue $ 964 $ 706 36.5 % Other $ 182 $ 177 2.8 % 2022: Profit loss. Income (Loss) Attributable to Common Stockholders Diluted earnings (loss) per share was $0.89 and $(2.46), respectively, for the three months ended September 30, 2023 and 2022. 2022 For the nine months ended September 30, Revenue Source 2022 2021 Change Total Revenue $ 475,640 $ 210,017 126.5 % North American Revenue $ 448,141 $ 177,094 153.1 % European Revenue $ 23,540 $ 30,695 (23.3 )% Asian Revenue $ 2,857 $ 1,861 53.5 % Other $ 1,102 $ 367 200.3 % Profit Diluted earnings (loss) per share was $1.81 and $(2.26), respectively, for the nine months ended September 30, 2023 and 2022. cash. 2022. 2022. 2022. Procedures. 2023. 2023. Factors. 101.INS Inline XBRL Instance Document 101.SCH Inline XBRL Taxonomy Extension Schema Document 101.CAL Inline XBRL Taxonomy Extension Calculation Linkbase Document 101.DEF Inline XBRL Taxonomy Extension Definition Linkbase Document 101.LAB Inline XBRL Taxonomy Extension Label Linkbase Document 101.PRE Inline XBRL Taxonomy Extension Presentation Linkbase Document 104 The cover page from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, Filed herewith CELSIUS HOLDINGS, INC. By: /s/ John Fieldly John Fieldly, By: /s/ Jarrod Langhans Jarrod Langhans,Yesx ☒ No ☐(ss.232.405(§.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes Yesx ☒ No ☐company”company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:Accelerated Fileraccelerated filer☒xFilerfiler☐o☐o☐o☐o☐☐ Noo ☒No November 7, 2022October 31, 2023 was 77,225,007 shares.76,225,201 shares.11123456283232333333333333343535ivalue)
2022
2021
issued and outstanding at September 30, 2022 and December 31, 2021, respectively (note 15)September 30, 2023 December 31, 2022 ASSETS Current assets: Cash and cash equivalents $ 760,022 $ 614,159 Restricted cash — 38,768 Accounts receivable-net 215,243 63,311 Note receivable-current-net 3,309 2,979 Inventories-net 198,704 173,289 Prepaid expenses and other current assets 23,747 11,341 Deferred other costs-current 14,124 14,124 Total current assets 1,215,149 917,971 Note receivable-non-current — 3,574 Property and equipment-net 21,061 10,185 Deferred tax assets 30,614 501 Right of use assets-operating leases 1,152 972 Right of use assets-finance leases 148 208 Other long-term assets 265 263 Deferred other costs-non-current 251,869 262,462 Intangibles-net 11,772 12,254 Goodwill 13,588 13,679 Total Assets $ 1,545,618 $ 1,222,069 LIABILITIES, MEZZANINE EQUITY AND STOCKHOLDERS’ EQUITY Current liabilities: Accounts payable and accrued expenses $ 121,088 $ 106,147 Income taxes payable 58,855 1,193 Accrued distributor termination fees — 3,986 Accrued promotional allowance 136,557 35,977 Lease liability obligation-operating leases 628 661 Lease liability obligation-finance leases 63 70 Deferred revenue-current 9,500 9,675 Other current liabilities 8,826 3,586 Total current liabilities 335,517 161,295 Long-term liabilities: Lease liability obligation-operating leases 512 326 Lease liability obligation-finance leases 135 162 Deferred tax liability 2,249 15,919 Deferred revenue-non-current 169,370 179,788 Total Liabilities 507,783 357,490 Commitments and contingencies (Note 19) Mezzanine Equity: Series A convertible preferred shares, $0.001 par value, 5% cumulative dividends; 1,466,666 shares issued and outstanding at September 30, 2023 and December 31, 2022, respectively, aggregate liquidation preference of $550,000 as of September 30, 2023 and December 31, 2022, respectively 824,488 824,488 Stockholders’ Equity: 77 76 Additional paid-in capital 277,980 280,668 Accumulated other comprehensive loss (2,541) (1,881) Accumulated deficit (62,169) (238,772) Total Stockholders’ Equity 213,347 40,091 Total Liabilities, Mezzanine Equity and Stockholders’ Equity $ 1,545,618 $ 1,222,069 1LossFor The Three Months Ended September 30, For The Nine Months Ended September 30, 2023 2022 2023 2022 Revenue $ 384,757 $ 188,233 $ 970,579 $ 475,640 Cost of revenue 190,675 109,583 503,685 283,778 Gross profit 194,082 78,650 466,894 191,862 Selling, general and administrative expenses 96,385 226,249 259,471 316,917 Income (loss) from operations 97,697 (147,599) 207,423 (125,055) Other income (expense): Interest income on note receivable 28 53 101 186 Interest income, net 7,197 1,396 17,666 1,393 Foreign exchange loss (177) (254) (1,226) (930) Total other income 7,048 1,195 16,541 649 Net income (loss) before income taxes 104,745 (146,404) 223,964 (124,406) Income tax expense (20,796) (35,492) (47,279) (41,653) Net income (loss) $ 83,949 $ (181,896) $ 176,685 $ (166,059) Dividends on Series A convertible preferred shares (6,875) (4,596) (20,512) (4,596) Income allocated to participating preferred shares (6,540) — (13,263) — Net income (loss) attributable to common stockholders $ 70,534 $ (186,492) $ 142,910 $ (170,655) Other comprehensive income (loss): Foreign currency translation loss, net of income tax (664) (2,038) (660) (4,813) Comprehensive income (loss) $ 69,870 $ (188,530) $ 142,250 $ (175,468) Earnings per share: Basic $ 0.92 $ (2.46) $ 1.86 $ (2.26) Diluted $ 0.89 $ (2.46) $ 1.81 $ (2.26) Weighted average shares outstanding: Basic 77,002 75,796 76,841 75,625 Diluted 79,091 75,796 78,962 75,625 2
Paid-In CapitalStockholders' Equity Common Stock Mezzanine Equity Shares Amount Additional
Paid-In
CapitalAccumulated
Other
Comprehensive
Income (Loss)Accumulated
DeficitTotal Stockholders'
EquityPreferred Shares Amount Balance at December 31, 2022 76,382 $ 76 $ 280,668 $ (1,881) $ (238,772) $ 40,091 1,467 $ 824,488 Adoption of accounting standard — — — — (82) (82) — — Stock-based compensation expense — — 5,507 — — 5,507 — — Issuance of common stock pursuant to exercise of stock options and vested restricted stock units - Cashless 251 1 — — — 1 — — Issuance of common stock pursuant to exercise of stock options - Cash 149 — 478 — — 478 — — Dividends paid to Series A convertible preferred shares — — (6,781) — (6,781) — Foreign currency translation — — — 594 — 594 — — Net income — — — — 41,227 41,227 — — Balance at March 31, 2023 76,782 $ 77 $ 279,872 $ (1,287) $ (197,627) $ 81,035 1,467 $ 824,488 Stock-based compensation expense — — 5,735 — — 5,735 — — Issuance of common stock pursuant to exercise of stock options and vested restricted stock units - Cashless 63 — — — — — — — Issuance of common stock pursuant to exercise of stock options - Cash 39 — 229 — — 229 — — Dividends paid to Series A convertible preferred shares — — (6,856) — — (6,856) — — Foreign currency translation — — — (590) — (590) — — Net income — — — — 51,509 51,509 — — Balance at June 30, 2023 76,884 $ 77 $ 278,980 $ (1,877) $ (146,118) $ 131,062 1,467 $ 824,488 Stock-based compensation expense — — 4,979 — — 4,979 — — Issuance of common stock pursuant to exercise of stock options and vested restricted stock units - Cashless 47 — — — — — — — Issuance of common stock pursuant to exercise of stock options - Cash 294 — 896 — — 896 — — Dividends paid to Series A convertible preferred shares — — (6,875) — — (6,875) — — Foreign currency translation — — — (664) — (664) — — Net income — — — — 83,949 83,949 — — Balance at September 30, 2023 77,225 $ 77 $ 277,980 $ (2,541) $ (62,169) $ 213,347 1,467 $ 824,488 3
Paid-In
ComprehensiveStockholders' Equity Common Stock Mezzanine Equity Shares Amount Additional
Paid-In
CapitalAccumulated
Other
Comprehensive
Income (Loss)Accumulated
DeficitTotal Stockholders'
EquityPreferred Shares Amount Balance at December 31, 2021 74,909 $ 75 $ 267,847 $ 614 $ (51,490) $ 217,046 — $ — Stock-based compensation expense — — 4,310 — — 4,310 — — Issuance of common stock pursuant to exercise of stock options - Cashless 248 — — — — — — — Issuance of common stock pursuant to exercise of stock options - Cash 194 — 810 — — 810 — — Foreign currency translation — — — (491) — (491) — — Net income — — — — 6,679 6,679 — — Balance at March 31, 2022 75,351 $ 75 $ 272,967 $ 123 $ (44,811) $ 228,354 — $ — Stock-based compensation expense — — 4,207 — — 4,207 — — Issuance of common stock pursuant to exercise of stock options - Cashless 99 — — — — — — — Issuance of common stock pursuant to exercise of stock options - Cash 172 1 449 — — 450 — — Foreign currency translation — — — (2,296) — (2,296) — — Net income — — — — 9,158 9,158 — — Balance at June 30, 2022 75,622 $ 76 $ 277,623 $ (2,173) $ (35,653) $ 239,873 — $ — Stock-based compensation expense — — 6,263 — — 6,263 — — Issuance of common stock pursuant to exercise of stock options - Cashless 58 — — — — — — — Issuance of common stock pursuant to exercise of stock options - Cash 536 — 1,843 — — 1,843 — — Issuance of Series A convertible preferred shares - net of issuance costs — — — — — — 1,467 824,488 Dividends paid to Series A convertible preferred shares — — (4,596) — — (4,596) — — Foreign currency translation — — — (2,038) — (2,038) — — Net income (loss) — — — — (181,896) (181,896) — — Balance at September 30, 2022 76,216 $ 76 $ 281,133 $ (4,211) $ (217,549) $ 59,449 1,467 $ 824,488 4For The Nine Months Ended September 30, 2023 2022 Cash flows from operating activities: Net income (loss) $ 176,685 $ (166,059) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 1,676 952 Amortization 445 402 Impairment of intangible assets — 2,379 Allowance for credit losses 1,880 705 Amortization of deferred other costs 10,593 2,354 Inventory excess and obsolescence 2,677 1,078 Loss on disposal of property and equipment 195 — Stock-based compensation expense 16,221 14,780 Deferred income taxes-net (44,303) 31,329 Foreign exchange loss 258 1,007 Changes in operating assets and liabilities: Accounts receivable-net (153,271) (78,967) Inventories-net (28,092) 36,211 Prepaid expenses and other current assets (12,406) 1,459 Accounts payable and accrued expenses 14,652 (3,050) Income taxes payable 57,662 30,299 Accrued promotional allowance 100,580 24,213 Accrued distributor termination fees (3,986) 115,551 Other current liabilities 5,239 2,291 Change in right of use and lease obligation-net (64) (126) Deferred revenue (10,593) 154,103 Other assets (2) 56 Net cash provided by operating activities 136,046 170,967 Cash flows from investing activities: Collections from note receivable 3,233 2,592 Purchase of property and equipment (12,687) (3,477) Net cash (used in) investing activities (9,454) (885) Cash flows from financing activities: Principal payments on finance lease obligations (33) (49) Proceeds from exercise of stock options 1,603 3,104 Proceeds from issuance of Series A preferred shares, net of issuance costs — 542,018 Dividends paid on preferred shares (20,512) (4,596) Net cash (used in) provided by financing activities (18,942) 540,477 Effect of exchange rate changes on cash and cash equivalents (555) 158 Net increase in cash and cash equivalents 107,095 710,717 Cash and cash equivalents at beginning of the period 652,927 16,255 Cash and cash equivalents at end of the period $ 760,022 $ 726,972 Supplemental disclosures: Cash paid for: Taxes $ 33,049 $ 591 2022—Celsius Holdings, Inc. (the “Company”“Company,” “Celsius Holdings” or “Celsius Holdings”"Celsius") 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,corporation, pursuant to which, on January 26, 2007, Elite FX, Inc. was merged into the Company’s wholly-owned subsidiary, Celsius, Inc., which survived the merger.became a wholly-owned subsidiarydistribution of “functional” calorie-burning energy drinks and liquid supplements under the Company on January 26, 2007. In addition, on March 28, 2007 the Company established Celsius Netshipments, Inc. a Florida corporation as a subsidiary of the Company.On February 7, 2018, the Company established Celsius Asia Holdings Limited, a Hong Kong corporation, as a wholly-owned subsidiary of the Company. On February 7, 2018 Celsius China Holdings Limited, a Hong Kong corporation, became a wholly-owned subsidiary of Celsius Asia Holdings Limited and on May 9, 2018, Celsius Asia Holdings Limited established Celsius (Beijing) Beverage Limited, a China corporation, as a wholly-owned subsidiary of Celsius Asia Holdings Limited.On October 25, 2019, the Company acquired 100% of Func Food Group, Oyj (“Func Food”). The Acquisition was structured as a purchase of all of Func Food’s equity shares and a restructuring of Func Food’s pre-existing debt. Func Food was the Nordic distributor for the Company since 2015. Func Food is a marketer and distributor of nutritional supplements, health food products, and beverages. (“Effective Date”), the Company and PepsiCo Inc. ("Pepsi"), entered into multiple agreements, including a Securities Purchase Agreement (“SPA”Purchase Agreement”), Lock-Up Agreements, a Registration Rights Agreement, a distribution agreementDistribution Agreement (“Distribution Agreement”), and a Channel Transition Agreement ("Transition Agreement"). The Securities Purchase Agreement, Lock-Up Agreements and Registration Rights Agreement pertain to the Company’s issuance of 1,466,666approximately 1.5 million shares of the Company's Series A Convertible Preferred Stock (“Series A” or “Series A Convertible Preferred Stock”) in exchange for cash proceeds of $550$550 million, excluding transaction costs. The Transition Agreement specifies payments to be made by Pepsi to Celsius in exchange for Celsius transitioning certain existing distribution rights to Pepsi. The Distribution Agreement resulted in Pepsi becoming the Company’s primary distribution supplier for the Company's products in the United States and certain international markets.States. See Note 4. Revenue, Note 13. Related Party Transactions, and Note 14. Mezzanine Equity for more information.The Company recognized totalThese termination expenses in sales and marketing of $155.4 million and $156.2 million in the three and nine-month periods ended September 30, 2022. These expenses were recognized by the Company upon delivery of termination notices to the other distributors, in accordance with ASC Topic 420 Exit or Disposal Cost Obligations.ObligationsThe. During the nine months ended September 30, 2023, the Company is engagedrefunded to Pepsi the difference between projected termination payments to distributors and the related payments received from Pepsi, resulting in the development, marketing, sale and distributionno refund liability due to Pepsi as of “functional” calorie-burning functional energy drinks and liquid supplements under the Celsius® brand name.September 30, 2023. See Note 13–— The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”GAAP”) for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and notes required by US GAAP for completeannual audited consolidated financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature.included. The results for the three and nine months ended September 30, 20222023 are not necessarily indicative of the results expected for any future period or the full year. These unaudited consolidated financial statements have been prepared on a basis that is substantially consistent with the accounting principles applied in ourthe Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021 (the “20212022 and the Amendment No. 1 to the Annual Report on Form 10-K”10-K/A, as filed by the Company with the Securities and Exchange Commission (collectively the "2022 Annual Report"). These unaudited consolidated financial statements and the accompanying notes should be read in conjunction with the 2021 Form 10-K.2022 Annual Report. The consolidated financial statements of the Company include the accounts of the Company and its wholly ownedwholly-owned subsidiaries. All inter-companyintercompany balances and transactions have been eliminated.doubtful accounts,current expected credit losses, allowance for inventory obsolescence promotional allowance,and sales returns, the useful lives of property and equipment, impairment of goodwill and intangibles, deferred taxes and related valuation allowance, promotional allowance, and valuation of stock-based compensation, deferred tax asset valuationcompensation.preferred share valuation, termination expense,for certain customers. This update resulted in a reduction to the accrual in the consolidated balance sheets and sales returns. Additionally,an increase to revenue in the businessconsolidated statements of operations and economic uncertainty resultingcomprehensive income (loss) for the current period. This increase was offset by various promotional-related adjustments from different customers, aside from the novel coronavirus (COVID-19) pandemiccustomers that triggered the change in estimate.made such estimates and assumptionsbeen applied prospectively. Refer to Note 4. Revenue for more difficult to calculate. Accordingly, actual results and outcomes could differ from those estimates.information on the promotional allowance.havemaintain discrete financial information, and whose operating results are regularly reviewedundergo regular review by the chief operating decision maker ("CODM") to make decisions about allocating resources and, who in this case, is the Chief Executive Officer. This review is performed to assess performance. Even thoughperformance and allocate resources.Company has operationsCompany's presence in several geographies,geographical regions, it operates as a single enterprise.entity. The Company's operations and strategies are centrally designed and executed given that ourdue to the substantial similarities among the geographical components are very similar. Ourcomponents. The CODM the CEO, reviewsevaluates operating results primarily from a consolidated perspective, and makes decisions and allocates resources basedprimarily on that review.6Celsius Holdings, Inc.Notesa consolidated basis due to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)The reason the Company's CODM focuses on consolidated results in making decisions and allocating resources is because of the significant economic interdependencies between the Company's geographical operations andoperations. As a result, the Company’s U.S. entity.derivesis derived from the sale of Celsius® functional energy drinks and liquid supplements.For The Three Months Ended September 30, For The Nine Months Ended September 30, 2023 2022 2023 2022 Pepsi 64.6 % 31.2 % 60.8 % 12.4 % Costco 8.9 % 12.9 % 11.4 % 15.1 % All others 26.5 % 55.9 % 27.8 % 72.5 % Total 100.0 % 100.0 % 100.0 % 100.0 % 2023 2022 Pepsi 73.2 % 47.6 % Amazon 7.5 % 11.8 % All others 19.3 % 40.6 % Total 100.0 % 100.0 % consist primarily ofinclude cash and cash equivalents, accounts receivable and notesnote 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 ("FDIC") limit. At September 30, 2023 and December 31, 2022, the Company had approximately $726.7$759.5 million and $652.4 million in excess of the Federal Deposit Insurance CorporationFDIC limit.For the nine months ended 2022, the Company had two customers which accounted for revenue concentrations of more than 10 percent. Costco accounted for approximately 15.1% and Pepsi accounted for approximately 12.4% of the Company's revenue for the nine months ended September 30, 2022. For the nine months ended September 30, 2021, the Company had two customers which accounted for a revenue concentration of more than 10%. Costco and Amazon accounted for 11.3% and 10.0% of revenue, respectively. At September 30, 2022, Pepsi represented the only customer with a 10 percent or greater concentration of accounts receivable representing 61.8% of the accounts receivable balance. At December 31, 2021, the Company had two customers with a 10 percent or greater concentration of accounts receivable. Publix accounted for approximately 10.3% and Amazon accounted for 22.7% of our accounts receivable balance, at December 31,2021.202320222023 and December 31, 2021,2022, the Company did not have any investments with original maturities of three months or less.greater.As disclosed in note 4. Revenues,During 2022, the Company received upfront payments from Pepsi in August 2022. Funds received from Pepsi arePepsi. These payments were contractually restricted and can only be used to satisfy termination payments due to former suppliers or have to bedistributors. Any unused payments were repaid to Pepsi.Pepsi during the nine months ended September 30, 2023. These upfront payments received from Pepsi cannotcould not be used for the Company's general operating activities of the Company and have beenwere classified as restricted cash based on the terms of the Transition Agreement.Accounts Receivable See Note 4. — Accounts receivable are reported at net realizable value. The Company establishes an allowance Revenue for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and othermore information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At September 30, 2022 and2023, the Company did not have any restricted cash. At December 31, 2021, there was an2022, the Company had $38.8 million of restricted cash.doubtful accounts receivable is developed using historical collection experience, current and future economic and market conditions, a review of approximately $the current status of customers’ trade accounts receivables, and where available, a review of the financial strength and credit ratings of larger customers. Customers are pooled based on sharing specific risk factors and the Company reassesses these customer pools on a periodic basis. The receivables allowance is based on aging of the accounts receivable balances and forward-looking information. The Company uses the probability of default and forward-looking information to assess credit risk and estimate expected credit losses for its note receivable related to Qifeng Food Technology (Beijing) Co. Ltd ("Qifeng"). See Note 7. 1.5Note Receivable millionfor more information on Qifeng and $the note receivable.0.8 million, respectively.Allowance for Expected Credit Losses Balance as of December 31, 2022 $ 2,147 Current period change for expected credit losses 642 Balance as of September 30, 2023 $ 2,789 include only the purchase cost and are statedvalued at the lower of cost andor net realizable value. Cost isvalue, with costs approximating those determined usingunder the FIFOfirst-in, first-out method. Inventories consist of raw materials and finished products. The Company establishes an inventory allowance to reduce the value of the inventory during the period in which such materials and products are no longer usable or marketable. Specifically, the Company reviews inventory utilization during the past twelve months and also customer orders for subsequent months. If there has been no utilization during the last 12 months and there are no orders in-place in future months which will require the use of an inventory item, then the inventory item will be included as part of the allowance during the period being evaluated. Inventory allowance pertains to excess and obsolete products and certain quality control costs. Management will then specifically evaluate whether these items may be utilized within a reasonable time frame (e.g., 3 to 6 months). At September 30, 20222023 and December 31, 2021,2022, there was an inventory allowance for excess and obsolete products of approximately $4.0$3.9 million and $2.6$8.4 million, respectively. The changesChanges in the allowance are included in cost of revenue.“Property,Property, Plant, and Equipment”Equipment the Company reviews the carrying value of long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An impairment loss is determined regarding a long-lived asset if its carrying amount is not recoverable and exceeds its fair value. The carrying amount is not recoverable when it exceeds the sum of the undiscounted cash flows expected to result from use of the asset over its remaining useful life and final disposition. The Company did not record any impairment charges during the nine months ended September 30, 2023. For the nine months ended September 30, 2022, the Company recorded an impairment charge related to the Func Foods brand name. Refer to Note 2. Basis of Presentation and 2021.Summary of Significant Accounting Policies - Intangible Assets72022Long-livedLong-Lived Asset Geographic Data — The following table sets forth long-lived asset information, which includes property and equipment andequipment-net, right-of-use assets, and definite-lived intangibles-net and excludes goodwill and indefinite-lived intangibles, where individual countries represent a significant portion of the total:
2022
2021September 30,
2023December 31,
2022United States $ 19,854 $ 9,750 Finland Finland 11,748 12,171 Sweden 2,058 1,251 Other Other 29 1 Long-lived assets related to foreign operations 13,835 13,423 Total long-lived assets-net $ 33,689 $ 23,173 1st,1st, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors such as macro-economic conditions, industry and market conditions, and cost factors as well as other relevant events, to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company determines that the fair value is less than the carrying value, the Company will recognize an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. At September 30, 2023 and December 31, 2022, there were no indicators of goodwill impairment.assetsAssets — Intangible assets are comprised of customer relationships and brands acquired in a business combination. TheIn accordance with ASC Topic 350, Intangibles - Goodwill, and Other, the Company amortizes intangible assets with a definitive life over their respective useful lives. The Company tests intangible long-lived assets for impairment when events suggest that the carrying amount may not be recoverable. The test involves comparing the asset's carrying amount to its estimated undiscounted future cash flows. If the carrying amount exceeds these cash flows, an impairment loss, equal to the difference between the carrying amount and the fair value, is recognized. Assets with indefinite lives are tested for impairment on an annual basis as of October 1st or more frequently if the Company believes that impairment indicators exist.hasin the prior year shifted the Company's focus to the USU.S. market, and as a consequenceresult it was determined that impairment indicators for the Func Foods Brands indefinite intangible asset were present. The Company no longer anticipatesdoesn't anticipate focusing on the expansion of Func Food branded products and the Company plans to focus on Celsius branded products. As a result of the strategic shift, which the Company considered a triggering event, the companyCompany quantitatively tested the Func Foods Brand Namebrand name for impairment utilizing the relief from royalty method to determine its fair value. As a result of the quantitative assessment, the Company recorded an impairment charge of $2.4$2.4 million during the three months ended September 30, 2022, andwhich is presented within Generalselling, general and Administrative expenses on the Consolidated Statementsadministrative expenses. At September 30, 2023, there were no further indicators of Operations.intangible asset impairment.“RevenueRevenue from Contracts with Customers.” The Company recognizes revenueCustomers ("ASC 606"). Revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control or title is transferred based on the commercial terms.terms of the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions See Note 4. Revenue for returns, discounts and allowances. Such provisions are calculated using historical averages and adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service, in which case the expense is classified as selling or marketing expense. Provisions for customer volume rebates are based on achieving a certain level of purchases and other performance criteria that are established on a situation basis. These rebates are estimated based on the expected amount to be provided to the customers and are recognized as a reduction of revenue. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives the Company offers to its customers and their customers. Additionally, for any agreements which are one year or less, the practical expedient under ASC 340-40-25-4 is applied to expense contract acquisition costs when incurred if the amortization period of the contract asset would have otherwise been recognized in one year or less. Sales taxes and other similar taxes are excluded from revenue. Management believes that adequate provision has been made for cash discounts, returns and spoilage based on the Company’s historical experience.more information.and/or amended distribution agreements entered into with certain distributors relating to the costs associated with terminating the Company’s prior distributors are accounted for as deferred revenue and recognized ratably over the anticipated life of the respective new or amended distribution agreements.Deferred Revenue — Amounts received from certain distributors at inception of their distribution contracts are accounted for as deferred revenue. As of September 30, 2023, the Company had approximately $178.9 million in deferred revenue, of which $169.4 million is classified as deferred revenue-non-current and $9.5 million is classified as deferred revenue-current, and as of December 31, 2022, the Company had approximately $154.1$189.5 million in deferred revenue, of which $146.3$179.8 million is classified as long-term and $7.8 million is short-term. The long-term and short-term deferred revenue are included in deferred revenue-non-current and $9.7 million is classified as deferred revenue-current withinin the consolidated balance sheets and are contract liabilities related to termination payments received fromPepsi which are recognized ratably over the twenty-year agreement with Pepsi. As of December 31, 2021, the Company didRefer to Note 13. not have any deferred revenue related to contract liabilities. There was noRelated Party Transactions deferred revenue recognized in net sales during 2021.for more information.distributor termination feesDistributor Termination Fees — The termination fee provided by Pepsi as an upfront payment, has been recorded in deferred revenue and is being amortized according to the twenty-year agreement term. Termination charges related to certain of the Company’s prior distributors are included in selling, general and marketingadministrative expenses upon termination. The Company recognized distributor termination expenses of approximately $155.4 million and $156.2$193.8 million for the three and nine monthsyear ended September 30, 2022, respectively.December 31, 2022. The Company also has a balance of $115.6 million in8Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)relatedas of September 30, 2023. Refer to the Pepsi agreement as well as payment due back to Pepsi in the amount of $Note 13. 19.3Related Party Transactions million as the projected payments to the prior distributors was less than the payment received from Pepsi.for more information.20222023 or December 31, 2021, respectively.2022.incurred.incurred and charged to selling, general and administrative expenses. The Company mainly uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising.advertising, including social media. The Company incurred marketing and advertising expenses of approximately $25.8$46.7 million and $11.2$25.8 million for the three months ended September 30, 2023 and 2022, and 2021 respectively. DuringFor the nine months ended September 30, 20222023 and 2021,2022, the Company incurred marketing and advertising expenses of approximately $55.0$114.2 million and $23.8$55.0 million, respectively.productionsproduction of beverages. The Company incurred expenses of approximately $0.1$0.5 million and $0.3$0.1 million, duringfor the three months ended September 30, 2023 and 2022, and 2021, respectively. DuringFor the nine months ended September 30, 20222023 and 2021,2022, the Company incurred research and development expenses of approximately $0.3$1.0 million and $0.7$0.3 million, respectively.LossesLoss — Foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates.re-measurementsremeasurements of their assets and liabilities denominated in non-functional currencies on a periodic basis and the gain or losses from these adjustments related to fluctuations in foreign exchange rates versus the U.S. dollar are included in the Statementconsolidated statement of Operationsoperations and comprehensive income (loss) as foreign exchange gains or losses. For three months ended September 30, 2022 exchange losses have amounted to approximately $0.3 million while during the three months ended September 30, 2021, the Company recognized2023 exchange loss was approximately $0.2 million versus foreign currency lossesexchange loss of approximately $0.3$0.3 million mainly related to fluctuations in exchange rates.for the three months ended September 30, 2022. For the nine months ended September 30, 20222023, the foreign exchange losses have amounted toloss was approximately $0.9$1.2 million while duringversus foreign exchange loss of approximately $0.9 million for the nine months ended September 30, 2021, the Company recognized foreign currency losses of approximately $0.5 million mainly related to fluctuations in exchange rates. 2022.Other Comprehensive Income.other comprehensive income (loss), net of tax. The Company incurred a foreign currency translation net loss during the three months ended September 30, 20222023 of approximately $2.0$0.7 million and a net gainloss of approximately $1.3$2.0 million duringfor the three months ended September 30, 2021.2022. The Company incurred foreign currency translation net loss duringof approximately $0.7 million for the nine months ended September 30, 2022 of approximately $4.8 million2023 and a net gainloss of approximately $1.4$4.8 million duringfor the nine months ended September 30, 2021.2022. The Company's primary operations in different countries required that it transacts in the following currencies:Chinese-YuanNorwegian-KroneSwedish-KronaFinland-Euro“AccountingAccounting for Income Taxes” which ("ASC 740-10"). This approach requires, among other things, an asset and liability approach to calculating deferred income taxes. The asset and liability approach require the recognition oftaxes, recognizing deferred tax assets and liabilities for the expected future tax consequences ofstemming from temporary differences between theasset and liability carrying amounts and thetheir tax bases of assets and liabilities. bases.providedestablished to offset any net deferred tax assets for which management believes it is more likely than notmore-likely-than-not that the net deferred asset will not be realized. The Company follows the provisions of the ASC 740-10 related to Accounting for Uncertain Income Tax Positions. When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any.Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 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 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.9Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)The Company’s tax returns for tax years in 2018 through 2020 remain subject to potential examination by the taxing authorities.—The— The Company computes earnings per share in accordance with ASC Topic 260 Earnings per Share (“ASC 260”), which requires earnings per share ("EPS") for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method. The two-class method is an allocation of earnings (distributed and undistributed) between the holders of common stock and a company’s participating security holders.preferred stockholders. Under the two-class method, earnings for the reporting period are allocated between common shareholdersstockholders and other security holders based on their respective participation rights in undistributed earnings. See Note 3. Earnings per Shareavailableattributable to common stockholders by the weighted average number of shares of basic common stock outstanding. The Company’s Series A Convertible Preferred Stock is classified as a participating security in accordance with ASC 260. Net income allocated to the holders of Series A Convertible Preferred Stock will be calculatedis based on the shareholders’Series A stockholders’ proportionate share of weighted average shares of common stock outstanding on an if-converted basis. See note 3. Earnings Per Share for more information.Share-Based Payments — The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the grants. On April 30, 2015, the Company adopted the 2015 Stock Incentive Plan (the "2015 Plan"). This 2015 Plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock. The 2015 Plan permits the grant of options and other share based awards for up to 5 million 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, 2017 (note 18). As of September 30, 2022, total shares available are 4.6 million.Cost of Revenue — Cost of Revenue consists of the cost of concentrates and or liquid bases, the costs of raw materials utilized in the manufacture of products, co-packing fees, repacking fees, in-bound & out-bound freight charges, as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products, inventory allowance for excess and obsolete products, and certain quality control costs. Raw materials account for the largest portion of the cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.Operating Expenses — Operating expenses include selling expenses such as warehousing expenses after manufacture, as well as expenses for advertising, samplings and in-store demonstrations costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), depreciation and other general and administrative costs.Shipping and Handling Costs — Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for three months ended September 30, 2022 and 2021 was approximately $14.6 million and $8.5 million, respectively. Freight expense on goods shipped for the nine months ended September 30, 2022 and 2021 was approximately $26.3 million. and $18.1 million, respectively.Recent Accounting PronouncementsThe Company adopts all applicable, new accounting pronouncements as of the specified effective dates.In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected credit losses. In November 2018, the FASB issued ASU 2018-19, which makes certain improvements to Topic 326. In April and May 2019, the FASB issued ASUs 2019-04 and 2019-05, respectively, which adds codification improvements and transition relief for Topic 326. In November 2019, the FASB issued ASU 2019-10, which delays the effective date of Topic 326 for Smaller Reporting Companies to interim and annual periods beginning after December 15, 2022, with early adoption permitted. The Company has elected the relief provided. In November 2019, the FASB issued ASU 2019-11, which makes improvements to certain areas of Topic 326. In February 2020, the FASB issued ASU 2020-02, which adds an SEC paragraph, pursuant to the issuance of SEC Staff Accounting Bulletin No. 119, to Topic 326. Topic 326 is effective for the Company for fiscal years and interim reporting periods within those years beginning after December 15, 2022. The Company is currently assessing the impact of adoption of this standard on our consolidated financial statements. Adoption of the new standard is not expected to have a material impact on our consolidated financial statements.Liquidity — These financial statements have been prepared assuming the Company will be able to continue as a going concern. At September 30, 2022, the Company had an accumulated deficit of approximately $217.5 million which includes a net loss of approximately $166.1 million for the nine months ended September 30, 2022. During the nine months ended September 30, 2022, the Company’s net cash provided by operating activities totaled approximately $171 million.As of September 30, 2021, the Company had an accumulated deficit of $63.4 million which includes a net loss available to common stockholders of $8 million for the nine months ended September 30, 2021. During the nine months ended September 30, 2021 the Company’s net cash used in operating activities totaled approximately $52.1 million.10Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)If our sales volumes do not meet our projections, expenses exceed our expectations, or our plans change, we may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, we may be required to adjust our business plan, by reducing marketing, lower our working capital requirements and reduce other expenses or seek additional financing. Furthermore, our business and results of operations may be adversely affected by changes in the global macro-economic environment related to the pandemic and public health crises related to the COVID-19 outbreak.Correction of Immaterial Errors — During the third quarter of 2021, the Company performed immaterial corrections to the previously reported consolidated financial statements related to the acquisition of Func Food Group Ovi ("Func Food") in 2019. As of September 30, 2021, goodwill increased by $3.7 million and deferred tax liabilities increased by $3.5 million attributable to tax implications of acquired intangible assets that had not been recorded in the purchase accounting treatment acquisition. The impact on the consolidated statements of operations and comprehensive income for the nine months ended September 30, 2021 resulted in a $0.2 million deferred tax benefit.Correction of previously issued financial statements — Subsequent to filing the Company’s Quarterly Reports on Form 10-Q for the periods ended June 30, 2021 and September 30, 2021, the Company determined that the calculation of share based compensation related to grants of stock options and restricted stock units (“RSUs”) issued to former employees and retired directors was materially understated during the three-and six-month periods ended June 30, 2021 and three-and nine-month periods ended September 30, 2021 (the “Affected Periods”), based on the application of US GAAP. During the Affected Periods, the stock options and RSUs were modified and the expense should have been calculated and recognized using the fair market value of the awards as of the date of modification and recognized over the remaining service period.In accordance with Staff Accounting Bulletin ("SAB") No. 99, Materiality, and SAB No. 108, Considering the Effects of Prior Year Misstatements when Quantifying Misstatements in Current Year Financial Statements, the Company evaluated the misstatements and based on an analysis of quantitative and qualitative factors determined that the impact of the misstatement to its interim reporting periods ending June 30, 2021, and September 30, 2021, was material. Accordingly, the Company restated its interim consolidated financial statements for the three- and six-months ended June 30, 2021, and three-and nine-months ended September 30, 2021, respectively, and included that restated financial information within its annual report for the period ending December 31, 2021.In connection with the filing of this Quarterly Report, the Company has revised the accompanying financial statements, and the related notes to reflect the correction of those misstatements that impacted such periods.The effects of the adjustments to the Company's previously reported unaudited 2021 quarterly consolidated statements of operations and comprehensive income (loss) on a standalone quarter basis are as follows:1 In order to correct previously reported share-based compensation for three months and nine months ended September 30, 2021, the Company is recognizing additional share-based compensation expense of approximately $12.1 million and $15.3 million, respectively.The effects of the adjustments to the Company's previously reported unaudited 2021 quarterly consolidated balance sheet are as follows:11Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)These corrections had no effect on the Company's previously reported net cash flows from operating activities, investing activities or financing activities for the three and nine months ended September 30, 2021.3. EARNINGS PER SHAREThe Company computes earnings per share in accordance with ASC Topic 260, Earnings per Share (“ASC 260”), which requires earnings per share for each class of stock (common stock and participating preferred stock) to be calculated using the two-class method. The two-class method is an allocation of earnings (distributed and undistributed) between the holders of common stock and a company’s participating security holders. Under the two-class method, earnings for the reporting period are allocated between common shareholders and other security holders based on their respective participation rights in undistributed earnings.Basic earnings per common share is computed by dividing income or loss available to common stockholders by the weighted average number of shares of basic common stock outstanding. The Company’s Series A Convertible Preferred Stock is classified as a participating security in accordance with ASC 260. Net income allocated to the holders of Series A Convertible Preferred Stock was calculated based on the shareholders’ proportionate share of weighted average shares of common stock outstanding on an if-converted basis. The Series A Convertible Preferred Stock do not participate in losses, thus no such losses have been allocated to the Series A Convertible Preferred Stock in the periods presented below.further adjusted to include the effect of potential dilutive common shares outstanding, includingoutstanding. These potential dilutive shares include unvested restricted stock and performance-based stock units, using theunits. The more dilutive of either the two-class method or the treasury stock method andis used for this adjustment. Additionally, Series A Convertible Preferred Stock is included using the if-converted method. Stock options and warrants that were out-of-the-money were not included in the denominator for the calculation of diluted EPS. of calculating diluted earnings per share, net income is reallocated to common stock, the Series A Convertible Preferred Stock, and all dilutive securities based on the contractual participating rights of the securityrespective securities to share in the current earnings as if all of the earnings for the period had been distributed.For The Three Months Ended September 30, For The Nine Months Ended September 30, 2023 2022 2023 2022 Numerator: Net income (loss) $ 83,949 $ (181,896) $ 176,685 $ (166,059) Less: dividends paid to Series A convertible preferred stockholders (6,875) (4,596) (20,512) (4,596) Undistributed income (loss) 77,074 (186,492) 156,173 (170,655) Income allocated to participating preferred shares (6,540) — (13,263) — Net income (loss) attributable to common stockholders $ 70,534 $ (186,492) $ 142,910 $ (170,655) Denominator: Weighted average basic common shares outstanding 77,002 75,796 76,841 75,625 Dilutive effect of common shares 2,089 — 2,121 — Weighted average diluted common shares outstanding 79,091 75,796 78,962 75,625 Earnings per share: Basic $ 0.92 $ (2.46) $ 1.86 $ (2.26) Dilutive $ 0.89 $ (2.46) $ 1.81 $ (2.26) 2022, 10,186 thousand and 10,230 thousand of2023, 7.3 million potentially dilutive securities were excluded from the computation of diluted net lossearnings per share related to common shareholdersstockholders, as their effect was antidilutive. For the three and nine months ended September 30, 2021, 3,865 thousand and 4,375 thousand, of potentially dilutive shares outstanding, were excluded from the computation of diluted net loss per share related to common shareholders as their effect was antidilutive.12Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)Topic 606 “Revenue from Contracts with Customers.” The Company recognizes revenue606.Revenue is recognized when performance obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred based on the commercial terms. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. Product sales are recorded net of variable consideration, such as provisions for returns, discounts and promotional allowances. Such provisions are calculated using historical averages and adjusted for any expected changes due to current business conditions. Consideration given to customers for cooperative advertising is recognized as a reduction of revenue except to the extent that there is a distinct good or service, in which case the expense is classified as selling or marketing expense. Provisions for customer volume rebates are based on achieving a certain level of purchases and other performance criteria that are established on a situation basis. These rebates are estimated based on the expected amount to be provided to the customers and are recognized as a reduction of revenue. The amount of consideration the Company receives and revenue the Company recognizes varies with changes in customer incentives that the Company offers to its customers and their customers. Additionally, for any agreements which are one year or less, the practical expedient under ASC 340-40-25-4 is applied to expense contract acquisition costs when incurred if the amortization period of the contract asset would have otherwise been recognized in one year or less.20222023 and 20212022 is as follows:For The Three Months Ended September 30, For The Nine Months Ended September 30, 2023 2022 2023 2022 North America $ 371,178 $ 179,541 $ 930,545 $ 448,141 Europe 11,038 7,546 31,599 23,540 Asia-Pacific 1,247 964 4,111 2,857 Other 1,294 182 4,324 1,102 Net sales $ 384,757 $ 188,233 $ 970,579 $ 475,640 Total foreign revenues are approximately $8.7 million and $10.4 million for the three months ended September 30, 2022 and 2021, respectively. Total foreign revenues are approximately $27.5 million and $32.9 million for the nine months ended September 30, 2022 and 2021, respectively. ofaccounting for approximately $5.3$7.4 million and $6.5$5.3 million for the three months ended September 30, 2023 and 2022, and 2021, respectively and $16.2respectively.$21.1$16.2 million for the nine months ended September 30, 2023 and 2022, and 2021, respectively.PepsiCo, Inc. ("Purchaser") on August 1, 2022, including a Distribution Agreement relating to the sale and distribution of certain of the Company’s beverage products in existing channels and distribution methods in the United States, excluding certain existing customer accounts, sales channels, Puerto Rico and the USU.S. Virgin Islands (the “Territory”). Under the Distribution Agreement, the Company has granted Pepsi the right to sell and distribute its existing beverage products in existing channels and distribution methods and future beverage products that are added from time to time as licensed products under the Distribution Agreement (collectively, the "Products") in defined territories. The Distribution Agreement represents a master service agreement and can be cancelled by either party without cause in the nineteenthnineteenth year of the term (i.e., 2041), the twenty-ninth year of the term (i.e., 2051) and each ten (10)10 year period thereafter (i.e., 2061, 2071, etc.) by providing twelve (12)12 months’ written notice to the other party on August 1st of eachany such year to the other party.year. Except for a termination by the Company “with cause” or a termination by Pepsi “without cause”,cause,” the Company is required to pay the PurchaserPepsi certain compensation upon a termination as specified in the Distribution Agreement.the PurchaserPepsi agreed to use commercially reasonable efforts to negotiate and execute with Pepsi a distribution agreement reasonably consistent with the Distribution Agreement for the sale and distribution of the Products in Canada, and Pepsi agreed to meet and confer in good faith with the Company regarding the terms and conditions upon which the PurchaserPepsi may be willing to sell or distribute the Products, either directly or through local sub-distributors in certain other additional countries. The Distribution Agreement includes other customary provisions, including non-competition covenants in favor of the Company, representations and warranties, indemnification provisions, insurance provisions and confidentiality provisions.On August 1, 2022, theathe Transition Agreement, providing for the Company’s transition of certain existing distribution rights in the Territory to Pepsi. Under the terms of the Transition Agreement, Pepsi wouldagreed to pay the Company up to $250$250 million in multiple tranches to facilitate the Company’s transition of certain distribution rights to Pepsi. Amounts received from Pepsi were contractually restricted to only be used to pay termination fees due to other distributors; any excess cash received over amounts due to other distributors is to be13Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts) In August 2022, the Company received an initial $174.7 million payment from Pepsi in accordance with the Transition Agreement. In the fourth quarter, the Company received a second payment from Pepsi under the Transition Agreement totaling $53.1 million as a result of negotiations with distributors whose territories were excluded from the first payment made by Pepsi.agreements executedAgreements Executed with PepsiCo, Inc.SPA,Securities Purchase Agreement, Transition Agreement, Distribution Agreement, and other agreements executed with Pepsi on August 1, 2022, as one combined contract sincebecause the agreements were executed on the same day, with the same counterparty, in contemplation of one another and contractual terms are defined and referenced across the agreements. These agreements will beare referred to collectively as the “Pepsi Arrangement” herein.. Management concluded that the Pepsi Arrangement was partially in the scope of ASC 606 Revenue from Contracts with Customers (“ASC 606”) and partially in the scope of ASC 505, Equity (“ASC 505") and ASC 480, Distinguishing liabilities from equity ("ASC 480"). The Company first applied the measurement and classification criteria in ASC 505 and ASC 480 with respect to the Company’s issuance of 1,446,666approximately 1.5 million shares of Series A Convertible Preferred Stock, as the substance of the issuance of the Series A Convertible Preferred Stock was determined to be a financing transaction. See Footnote 14, Note 14. Mezzanine Equity for the Company’s accounting conclusions with respect to the issuance of the Series A Convertible Preferred Stock.more information.Distinguishing liabilities from equity, the Company accounted for the residual revenue elements of the Pepsi Arrangement under ASC 606. The revenue elements of the Pepsi Arrangement consisted of (i) a $174.7$227.8 million upfront payment received from Pepsi under the Transition agreement and (ii) a $282.5$282.5 million implicit payment made to Pepsi by Celsius, representing the excess fair value over issuance proceeds received for the Series A Convertible Preferred Stock.The $174.7 See Note 13 million. Related Party Transactions for more information on the upfront payment received from Pepsi was only to be used by Celsius to transition territory rights from terminated distributors to Pepsi; any excess cash received from Pepsi over transition payments made by Celsiusand implicit payment related to the Company’s terminated distributors was contractually restricted and due back to Pepsi. As of September 30, 2022, the Company has recorded a refund liability of $19.3 million representing cash refunds due to back to Pepsi and recognized the difference of $155.4 million as deferred revenues (a contract liability). The deferred revenues will be recognized by Celsius ratablyexcess in fair value over the twenty-year year agreement term, which does not materially differ compared to anticipated delivery of goods. The Company recognized $issuance proceeds.1.3 million of deferred revenues in the Statement of Operations in the three and nine-month periods ended September 30, 2022.$282.5$282.5 million excess fair value over issuance proceeds of the Series A Convertible Preferred Stock representsrepresented an implicit payment made to a customer. The Company concluded that this implicit payment meetsmet the definition of an asset under FASB Concepts Statement 6, and has been recorded such implicit payment as a ‘Deferred Other Cost’deferred other cost in the statement of financial position.consolidated balance sheets, with a portion included as current representing current year amortization in the Company's consolidated balance sheets. The Company will amortize the asset balance as contra-revenues ratably over a twenty-yeartwenty-year period consistent with the term of the Distribution Agreement. The Company recognized contra-revenues of $2.4 million inassesses the Statement of Operations in the three and nine-month periods ended September 30, 2022. The Company will assess the Deferred Other Costdeferred other cost asset for impairment on a quarterly basis.at each reporting period.will recognizerecognizes revenues when control of the underlying goods are transferred to Pepsi based on the contractual terms of noncancellable purchase orders issued by Pepsi. The Company’s customary revenue recognition policy as explaineddescribed above is applied with respect to rebates.Qifeng Food Technology (Beijing) Co., Ltd (“Qifeng”).Qifeng. Under the agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize Celsius branded products in China. The term of the agreement is 50 years, with annual royalty fees due from Qifeng after the end of each calendar year. The royalty fees are based on a percentage of Qifeng’s sales of Celsius branded products; however, the fees are fixed for the first five years of the agreement, totaling approximately $6.9$6.9 million, and then are subject to annual guaranteed minimums over the remaining term of the agreement.grantsgranted Qifeng exclusive license rights and provides ongoing support in product development, brand promotion and technical expertise. The ongoing support is integral to the exclusive license rights and, as such, both of these represent a combined, single performance obligation. The transaction price consists of the guaranteed minimums and the variable royalty fees, all of which are allocated to the single performance obligation.thethis agreement was approximately $0.5$0.5 million, for each of the three months ended September 30, 2023 and 2022, and 2021, respectively and approximately $1.5$1.6 million and $1.2$1.5 million, for the nine months ended September 30, 20222023 and 2021,2022, respectively, which is reflected in the revenues from Asia.Asia-Pacific.14Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)Inventories consistfollowing at:
2022
2021September 30,
2023December 31,
2022Finished goods $ 143,418 $ 119,229 Raw materials 59,220 62,491 Less: Inventory reserve (3,934) (8,431) Inventories-net $ 198,704 $ 173,289 totaltotaled approximately $12.1$23.7 million and $13.6$11.3 million at September 30, 20222023 and December 31, 2021,2022, respectively, consisting mainly of prepaid advances to co-packers related to inventory production, advertising, prepaid insurance, prepaid slotting fees, value added tax payments and deposits on purchases.following at:following:September 30,
2023December 31,
2022Note receivable-current $ 3,377 $ 2,979 (68) — Note receivable-non-current — 3,574 Total $ 3,309 $ 6,553
2022
2021it relatesthey relate to the commercialization of its Celsius products (i.e., the license agreement and repayment of investment agreement with Qifeng, as described above)Qifeng). See Note 44. Revenue for information regarding the license agreement with Qifeng. Under a separate economic agreement, Qifeng willhas agreed to repay the marketing investments made by Celsius into the China market through 2018, over the samea five-year period as the license agreement.period. The repayment, which was formalized via a note receivable from Qifeng (the "Note"), will need to be serviced even if the licensing agreement is cancelled or terminated. The Note is denominated in Chinese-Yuan.Chinese Yuan.Scheduledplus accrued interest for the Note are due annually on March 31 of each year, starting in 2020.with the final payment scheduled for 2024. The note receivable is recorded at amortized cost and accrues interest at a rate per annum initially equal to the weighted average of 5% of the outstanding principal up to $5 million and 2% of the outstanding principal above $5 million. On June 12, 2020, it was agreed to fix the interest rate at 3.21% which reflected the weighted average interest rate for the 5-year period of the Note. For the three months ended September 30, 2022 and 2021, interestcost. Interest income forgenerated from the Note was approximately $0.1 million and $0.1 million, respectively. For the nine months ended September 30, 2022 and 2021, interest income for the Note was approximately $0.2 million and $0.2 million, respectively.period, by evaluating whether it is probableperiod. This evaluation considers the probability that the Company will be unable to collect all thescheduled contractual principal and interest payments, as scheduled in the Note, based on historical experience of Qifeng’s ability to pay, the current economic environment, forward-looking information, and other factors. If the Note is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows under the Note, discounted at the Note’s effective interest rate. At September 30, 2023 and December 31, 2022, the Note was not deemed to be impaired.impaired outside of the allowance for expected credit losses. Payment in-full was received in April 2022 pertaining tofor the amounts due on March 31, 2022.As evidence of solvency for the Note, a stock certificate in Celsius Holding's Inc. which amounts to 30,000 of shares owned by an affiliate under common control of Qifeng is being held at a brokerage account. A letter of guarantee was executed with several restrictions regarding their shares. In particular, it was agreed that the stock would not be sold or transferred without the prior written consent from Celsius Holding's, Inc. There are other restrictions and agreements, which include that a statement of account will be provided to Celsius on a quarterly basis to confirm and validate the existence of the remaining shares. The shares serve as one component of management's consideration when evaluating impairment indicators.LEASESan operating lease ofleases for its corporate office space from a related party (see note 13)Note 13. Related Party Transactions) and other operating and finance leases of vehicles and office space for the Company’s European operations.At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic15Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.Leases are classified as either finance leases or operating leases based on criteria in ASC Topic 842, “Leases”. The Company’s operating leases are generally comprised of real estate and vehicles, and the Company’s finance leases are generally comprised of vehicles.At lease commencement, the Company records a lease liability equal to the present value of the remaining lease payments, discounted using the rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. A corresponding right-of-use asset (“ROU asset”) is recorded, measured based on the initial measurement of the lease liability. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.Lease expense for operating leases is recognized on a straight-line basis over the lease term and is included in general and administrative expenses. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the shorter of the useful life of the asset or the lease term, and interest expense is calculated using the effective interest rate method.20222023 are as follows:Future minimum lease payments Operating
LeasesFinance
LeasesTotal 2023 $ 221 $ 39 $ 260 2024 598 39 637 2025 233 66 299 2026 160 63 223 2027 — — — Total future minimum lease payments 1,212 207 1,419 Less: Amount representing interest (72) (9) (81) Present value of lease liabilities 1,140 198 1,338 Less: current portion (628) (63) (691) Long-term portion $ 512 $ 135 $ 647 equipment consistequipment-net consists of the following at:
2022
2021Estimated Useful Life in Years September 30,
2023December 31,
2022Merchandising equipment - coolers 3-7 $ 18,703 $ 9,885 Office equipment 3-7 1,399 1,124 Vehicles 5 4,617 1,257 Less: accumulated depreciation (3,658) (2,081) Total $ 21,061 $ 10,185 $0.4$0.7 million and $0.3$0.4 million for the three months ended September 30, 20222023 and 2021,2022, respectively. Depreciation expense amounted to approximately $1.0$1.7 million and $0.5$1.0 million for the nine months ended September 30, 2023 and 2022, and 2021, respectively.20222023 and December 31, 2021,2022, goodwill consistsconsisted of approximately $12.5$13.6 million and $14.5$13.7 million, respectively, resulting from the excess of the consideration paid over the fair value of net tangible and intangible assets acquired from the Func Food acquisition.Intangible assets consist of acquired customer relationships and brands from the Func Food acquisition. respectively. gross carrying amount and accumulated amortization of intangible assets as of September 30, 20222023 and December 31, 2021,2022, respectively, were as follows:16Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)
2022
2021September 30,
2023December 31,
2022Definite-lived intangible assets Customer relationships $ 13,328 $ 13,418 Less: accumulated amortization (1,999) (1,610) Definite-lived intangible assets, net $ 11,329 $ 11,808 Indefinite-lived intangible assets Brands $ 446 $ 2,984 Less: impairment — (2,576) Effect of exchange rate changes Effect of exchange rate changes (3) 38 Indefinite-lived intangible assets, net $ 443 $ 446 Intangibles-net Intangibles-net $ 11,772 $ 12,254 20222023 and 20212022 was approximately $0.1$0.1 million. Amortization expense for each of the nine months ended September 30, 20222023 and 20212022 was approximately $0.4 million and $0.4 million, respectively.$0.4 million. Amortization expense is reflected in selling, general and administrative expenses. See noteNote 2. Basis of Presentation and Summary of Significant Accounting Policies, for more information regarding ourthe indefinite-lived intangible asset, Brands.brands.Other fluctuations in the amounts of goodwill and intangible assets are due to currency translation adjustments.2023 $ 133 2024 533 2025 533 2026 533 2027 533 Thereafter 9,064 Total $ 11,329 following at:September 30,
2023December 31,
2022Accounts payable $ 28,146 $ 36,248 — 34,807 Accrued freight 4,110 8,532 Accrued expenses 34,777 7,425 Accrued legal 5,197 10,463 Unbilled purchases 48,858 8,672 Total $ 121,088 $ 106,147
2022
2021following at:
2022
2021September 30,
2023December 31,
2022VAT payable $ 322 $ 198 State Beverage Container Deposit 8,504 3,388 Total $ 8,826 $ 3,586 17Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)PepsiCo Inc.1414. Mezzanine Equity, on August 1, 2022, the Company issued 1,466,666approximately 1.5 million shares of non-voting Series A Convertible Preferred stock (“Series A”) to Pepsi. On an as-converted basis the Series A held by Pepsi accountsThe shares accounted for approximately 8.5%8.5% of the Company’s outstanding Common Stock, bothcommon stock on the date of issuance, and as of September 30, 2022. Also, as discussed Note 14, the Securitieson an as-converted method. The Purchase Agreement entered into on August 1, 2022 (the Purchase Agreement”) granted Pepsi the right to designate a nominee for election to the Company’s nine-member board of directors, so long asprovided Pepsi meets certain ownership requirements with respect to the Company’s stock.requirements. During the quarteryear ended September 30, 2022, a Pepsi executive was nominated by Pepsi and elected to the Company’s board of directors.has concluded that Pepsi represents a related party to the Company. As of September 30, 2022, theThe following transactions were recognized in the Company’s financial statements:$58.8$248.6 million and $590.0 million, respectively, for the three and nine months ended September 30, 2023 and $58.8 million for each of the three and nine months ended September 30, 2022, and are included in revenue on the accompanying consolidated statement of operations.revenue.$72.3$160.9 million and $31.6 million, respectively, and are included in accounts receivable, net on the Company’s consolidated balance sheet. sheets.$174.7$227.8 million in cash in the third quarter under the Transition Agreement.Agreement during the year ended December 31, 2022. This amount was used to payfor settling termination fees owed bywith former distributors; any excess cash was contractually restricted and due back to Pepsi. As of September 30, 2023, the Company to terminated distributors. Therecorded deferred revenues (a contract liability) of $178.9 million, net of the $2.4 million and $7.1 million, for the three and nine months ended September 30, 2023, respectively, in the consolidated statements of operations. As of December 31, 2022, the Company has recorded deferred revenues of $154.1$189.5 million, which is presented net of $1.3$4.2 million of revenue recognized. The deferred revenues will be recognized at September 30, 2022, and a liability payableby Celsius ratably over the twenty-year agreement term.$19.3$34.8 million as of December 31, 2022, representing refund liabilities owed to Pepsi under the Transition Agreement, which are included inwere recorded to accounts payable and accrued expenses on the accompanying consolidated balance sheet assheets. As of September 30, 2022. The $19.3 million represents2023, payments due to Pepsi had been fully refunded, and the excess of payments received from Pepsi less amounts paid and expected to be paid to terminated distributors.Company did not have a refund liability.issuance ofCompany issued Series A to Pepsi was recorded atConvertible Preferred Stock with a fair value determined to be $832.5of $832.5 million for an issuance price of $550 million on August 1, 2022. Cash proceeds from the issuance of Series A received from Pepsi were $550 million. See Note 14 for more information.• Company has recorded a $282.5 million asset as Deferred Other Costs, representing the excess of the $832.5 million fair value of the Series A Preferred Stock over the issuance proceeds, amounting to $282.5 million, has been recorded as deferred other costs in the accompanying consolidated balance sheets. See Note 14. Mezzanine Equity for more information. As of $550 million. Amounts representing theSeptember 30, 2023 unamortized deferred other costs of $14.1$14.1 million and $266$251.9 million, are presentedwere recorded in deferred other costs-current and deferred other costs-non-current, respectively net of $2.4 million of accumulated amortization in the accompanying consolidated balance sheet onsheets. As of December 31, 2022 unamortized deferred other costs of $14.1 million and $262.5 million were recorded as deferred other costs-current and deferred other costs-non-current, respectively in the consolidated balance sheets. Amortization of deferred other costs for the three and nine months ended September 30, 2022.2023, was $3.5 million and $10.6 million, respectively. This was recorded as an offset to revenue.Leasesrentedleased from a company affiliated with CD Financial, LLC which is controlled by one of our major shareholders.LLC. The current lease expires onextends until December 2024 with a monthly base rent of approximately $35 thousand, which is included in general$35 thousand.administrativeCD Financial, LLC entered into an amendment to the lease that expanded the leased space, effective on the accompanying consolidated statementJuly 1, 2023. The expansion space extends until December 2024 with a monthly rent of operations and in the operating leases in consolidated balance sheet.$8 thousand.hashad designated and authorized 1,466,666approximately 1.5 million shares of Series A Convertible Preferred Stock with a par value of $0.001$0.001 per share and a stated value of $375$375 per share. The stated value per share may be increased from time-to-timetime to time in the event dividends on the Series A are paid-in-kind (“PIK dividends”Dividends”) pursuant to the Series A Certification of Designation (the “Series A Certificate”). On August 1, 2022, pursuant to the Purchase Agreement, the Company issued 1,466,666all of the authorized shares of Series A, representing 100% of the authorized Series A shares, to Pepsi for stated cash consideration aggregating $550$550 million, excluding issuance costs. TheThis issuance of the Series A was issued concurrentlyexecuted in accordance with the execution of Distribution Agreement and the Transition Agreement. The Company determined that the aggregate fair value of the Series A on the issuance date was $832.5$832.5 million, or approximately $568$568 per share. Accordingly, theThe Series A Convertible Preferred Stock was recorded at that amount,fair value, net of issuance costs of $8.0$8.0 million, in the Company’s consolidated balance sheet and statement of stockholders’ equity.S99-3A(2) ofAccording to the SEC's Accounting Series Release No. 268 ("ASR 268") requires, preferred securities that are redeemable for cash or other assets tomust be classified outside of permanent equity if they are redeemable for cash or other assets. This includes redemption (i) at a fixed or determinable price on a fixed or determinable date, (ii) at the option of the holder, or (iii) upon the occurrence ofdue to an event that is not solely within the control of the issuer. Preferred securities that are mandatorily redeemable are required to be classifiedcontrolled by the issuer as liabilities whereas under ASR 268 guidance an issuer should classify a preferred security whose182022redemption is contingent on an event not entirely in control of the issuer as mezzanine equity. The Series A is not mandatorily redeemable, however, a change in control is not solely in control of the Company, accordingly, the Company determined that mezzanine treatment is appropriate for the Series A and has presented it as such in our consolidated balance sheet and consolidated statement of changes in stockholders' equity as of and for the period ending September 30, 2022. redeemable.hashave certain rights and is also subjectrestrictions with respect to various restricttheir percentage ownership of the Company’s outstanding common shares on an as-converted basis, throughwhich includes both open-market purchases of the Company’s Common Stock in the open market and the accumulation of PIK dividends.Dividends. Additionally, pursuant to the Purchase Agreement grants Pepsi has the right to designate one nominee for election to the Company’s board of directors, for so long as Pepsi (together with its affiliates) beneficially owns at least 3,666,665approximately 3.7 million shares of the Company’s outstanding Common Stockcommon stock on an as-converted basis. In August of 2022, the Company expanded the number of seats from eight to nine in connection with the election of a Pepsi representative to the Company’s board of directors.Common Stock,common stock, (ii) on parity with any class or series of capital stock of the Company expressly designated as ranking on parity with the Series A, and (iii) junior to any class or series of capital stock of the Company expressly designated as ranking senior to the Series A. The aggregate liquidation preference of the Series A is $550was $550 million onas of both September 30, 2023 and December 31, 2022.does havehas a contractual right to representation on the Company’s Board of Directors, subject to certain share holdingsshareholding thresholds.5.00%5.00% per annum, subject to adjustment as set forth in the Series A Certificate. In addition to such quarterly Regular Dividends, shares of Series A also entitle the holder to participate in any dividends paid on the Company’s Common Stockcommon stock on an as-converted basis. During the quarter ended September 30, 2022, theThe Company declared and paid $4.6$6.9 million and $20.5 million in Regular Dividends on the Series A, which amounted to $3.13$4.69 and $13.98 per share of Series A.A for the three and nine months ended September 30, 2023, respectively. There arewere no cumulative undeclared dividends on the Series A at September 30, 2022.2023. In addition, there were no dividends issued to common shareholders as offor either the nine months ended September 30, 2022 and 2021Redemption Date,redemption date, plus (ii) without duplication, all accrued and unpaid dividends previously added to the stated value of such share of Series A, and all accrued and unpaid dividends per share of Series A through such Redemption Dateredemption date (the “Redemption Price”).Common Stock ( thecommon stock (the “Ten-Day VWAP”) does not exceed the conversion price on the date immediately prior to the date the Company delivers a redemption notice to the holders, and (ii) the cancellation of the Distribution Agreement by the Company, if the Ten-Day VWAP does not exceed the Conversion Price on the date immediately prior to the date the Company delivers a redemption notice to the holders, the Company shall havehas the right to redeem all (and not less than all) of the then-outstanding shares of Series A at the Redemption Price. In the event of a Companythe Company's optional redemption, the Company shall effectaffect such redemption by paying the entire Redemption Price on or before the date that is thirty days after the delivery of the Company’s redemption notice and by redeeming all the shares of Series A on such date. or (ii) any merger, consolidation or reorganization of the Company with or into any other entity or entities as a result of which the holders of the Company’s outstanding capital stock (on a fully-diluted basis) immediately prior to the merger, consolidation or reorganization no longer represent at least a majority of the voting power of the surviving or resulting Company or other entity; or (iii) any sale or series of sales, directly or indirectly, beneficially or of record, of shares of the Company’s capital stock by the holders thereof which results in any Personperson or group of Affiliated Personsaffiliated persons owning capital stock holding more than 50%50% of the Company's voting power of the Company (a “Changepower.Control”) the Company (or its successor) shall redeem all (and not less than all) of the then-issuedcontrol and outstanding shares19Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)of Series A. Upon such redemption, the Company will pay or deliver, as applicable, to each holder in respect of each share of Series A held by such holder will receive, an amount equal to the greater of (A) cash in an amount equal to the Redemption Price in cash, and (B) the amount of cash and/or other assets (including securities) such holder would have received hadif each share of Series A held bywere converted into a number of shares of common stock equal to the then-applicable conversion ratio and participated in such holdertransaction resulting in such change of control as of the close of business on the business day immediately prior to the effective date of such transaction resulting in a Change of Control, converted into a number of shares of Common Stock equal to the then-applicable Conversion Ratio and participated in such transaction resulting in such Change of Control as a holder of shares of Common Stock (such greater amount, the “Change of Control Redemption Price”). transaction. in connection with a transaction resulting in a Change of Control, the Company or its successor shall not have sufficient funds legally available under the Nevada law governing distributions to stockholders to redeem all outstanding shares of Series A, then the Company shall (A) redeem, pro rata among the holders, a number of shares of Series A equal to the number of shares of Series A that can be redeemed with the maximum amount legally available for the redemption, of such shares of Series A under the Nevada law governing distributions to stockholders, and (B) redeem all remaining shares of Series A not redeemed because of the foregoing limitations at the applicable Changechange of Control Redemption Pricecontrol redemption price as soon as practicable after the Company (or its successor) is able to make such redemption out of assets legally available for the purchase of such shareshares of Series A. The inability of the Company (or its successor) to make a redemption payment for any reason shall not relieve the Company (or its successor) from its obligation to effectaffect any required redemption when, as and if permitted by applicable law.the August 1, 2035, the majority holders shallof the Series A have the right, upon no less than six months prior written notice to the Company, to request that the Company redeem all (and not less than all) of the then-outstanding shares of Series A, at the Redemption Price.holder optionalholder-optional redemption, the Redemption Price shallwill be payable, and the shares of Series A redeemed byCompany shall redeem the Company,shares in three equal installments. These installments commencingwould commence on August 1, 2029, August 1, 2032, or August 1, 2035, as applicable, and in each case on the fifteenth- and thirtieth-month anniversary thereafter (each a "Redemption Date”).thereafter. On each Redemption Dateredemption date for a holder optionalholder-optional redemption, the Company shallwill redeem shares of Series A on a pro rata basis in accordance withaccording to the number of shares of Series A owned by each holder, thatholder. The number of outstanding shares of Series Awill be determined by dividing (i) the total number of shares of Series A shares outstanding immediately prior to such Redemption Dateredemption date by (ii) the number of remaining Redemption Datesredemption dates (including the Redemption Dateredemption date to which such calculation applies).Redemption Date,redemption date, legal constraints under the Nevada law governing distributions to stockholders or the terms of any indebtedness of the Company to banks and other financial institutions engaged in the business of lending money preventprevents the Company from redeeming all shareshares of Series A, to be redeemed, the Company shallwill ratably redeem the maximum number of shares that it may legally redeem, consistent with such law, and shallwill redeem the remaining shares as soon as it may lawfully do so under such law.Ifso.Redemption Date are not redeemedredemption date remain unredeemed for any reason on such Redemption Date, (x)redemption date, the following will occur: from such Redemption Date untilthe redemption date to the fifteen-month anniversary of such Redemption Date,redemption date, the dividend rate with respect to such unredeemed share of Series A shallwill automatically increase to 8%8% per annum, (y) fromannum. From such fifteenth-month anniversary of such Redemption Date untilto the thirtieth-month anniversary of such Redemption Date,redemption date, the dividend rate with respect to such unredeemed share of Series A shallwill automatically increase to 10%10% per annum and (z) from and afterannum. After such thirtieth-month anniversary of such Redemption Date,redemption date, the dividend rate with respect to any such unredeemed share of Series A shallwill automatically increase to 12%12% per annum, in each case until such share is duly redeemed or converted.Common Stockcommon stock pursuant to the Series A Certificate either at the option of the Company or subject to an automatic conversion as discussed below. The Series A was issued with a conversion price of $75$75 which is potentially subject to adjustment pursuant to the Series A Certificate. The Conversion Ratioconversion ratio is of all accrued and unpaid dividends previously added to the stated value of such share of Series A, and without duplication, all accrued and unpaid dividends per share of Series A through the applicable conversion date; divided by (b) the conversion Priceprice as of the conversion date. As of September 30, 2022,2023, the conversion ratio of the Series A into common was 1 to 5.5. At September 30, 2022, 7,333,3302023, approximately 7.3 million shares of the Company’s Common Stockcommon stock are issuable upon conversion of the Series A Convertible Preferred Stock.The calculationsearnings per share for all periods presented herein during whichSeptember 30, 2023, the Series A was outstanding do not treat conversionprobable of the Series A as if it had occurred,becoming redeemable, as the effectmost likely method of settlement is through conversion would be anti-dilutive.Common Stock.20Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)Common Stockcommon stock upon the occurrence of any of the following, each an “Automatic Conversion Event”:Conversion Priceconversion price of such share as of such date. In the case of an automatic conversion,Automatic Conversion Event, each share of Series A then outstanding shall be converted into the number of shares of Common Stockcommon stock equal to the Conversion Ratioconversion ratio of such share in effect as of the automatic conversion date. The occurrence of an Automatic Conversion Event will terminate any right of the holder to receive a redemption at their request even if such request has already been submitted, provided that the Series A shares have not already been redeemedredeemed.However, in order to perform this analysis, theThe Company was first required to evaluate the economic risksperformed an evaluation and characteristics of each series ofdetermined the Series A in its entirety as being either akin to equity or akin to debt, usingand the “whole instrument” approach. The Company’s evaluation concluded that the Series A was more akin to an equity-like contract largely due to the fact the financial instrument is not mandatorily redeemable for cash, participates in common dividends, and has a redemption feature that is out-of-the money at issuance by approximately $282.5 million, when the redemption value of the instrument is compared to its estimated fair value. Other features of the Preferred Stock that operate like equity, such as the conversion features, afforded more evidence, in the Company’s view, that thehost instrument is more akin to equity. As a result, the embedded conversion features are clearly and closely related to their equity host instruments. Therefore, the embedded conversion features do not require bifurcation and classification as derivative liabilities. The Company identified certain embedded redemption and conversion features which it also evaluated for bifurcation. The Company considered whether these features met the definition of a derivative according to ASC 815, which is a condition which must be met for bifurcation to occur. It was concluded that these features did not provide for net settlement, as the preferred stock host instrument was more akin to equity and not readily convertible to cash, and therefore did not meet the definition of a derivative under ASC 815. Accordingly,determined no bifurcation of these redemptionembedded or conversion features was required or performed.required.1,307,5391.3 million shares of its common stock pursuant to the exercise of stock options granted under the Company’s 2015 Plan and the 2006 Incentive Stock Plan (collectively, the "Stock Incentive Plans").Plan. The Company received aggregate proceeds of approximately $3.1$3.1 million for 901,6750.9 million options exercised for cash, with the remaining balance of the options having been exercised on a “cashless” basis.During the nine months ended September 30, 2021, the Company issued an aggregate of 1,349,142 shares of its common stock pursuant to the exercise of stock options granted under the Company’s Stock Incentive Plans. The Company received aggregate proceeds of approximately $3.2 million for 826,994 options exercised for cash, with the balance of the options having been exercised on a “cashless” basis.June 2021 Public OfferingOn June 9, 2021, the Company and certain selling stockholders (the "Selling Stockholders”) entered into an underwriting agreement (the "Underwriting Agreement”) with UBS Securities LLC and Jefferies LLC, as representatives (the "Representatives”) of the several underwriters (the "Underwriters”), relating to the sale of 6,518,267 shares of common stock of the Company at a public offering price of $62.50 per share less underwriting discounts and commissions in a registered public offering (the "Offering”). The Company and certain Selling Stockholders also granted the Underwriters an option, exercisable for 30 days, to purchase up to an additional 977,740 shares of its common stock. The Underwriters partially exercised their option to purchase 873,141 shares of the Company’s common stock on June 11, 2021; 1,133,953 of which were sold by the Company and 739,188 of which were sold by certain of the Selling Stockholders. The Offering closed on June 14, 2021. The Company issued and sold 1,133,953 shares of common stock, and the Selling Stockholders sold 6,257,455 shares, in the aggregate, of common stock in the Offering. The Offering generated net proceeds for the Company of $67,769,386 and net proceeds for the Selling Stockholders of $375,447,300. The Company intends to use the proceeds for general corporate purposes. The Company did not receive any proceeds from the sale of shares by the Selling Stockholders.16.FAIR VALUE MEASUREMENTS22212022expertfirm to assist in determining the fair value of the 1,466,666approximately 1.5 million shares of Series A Convertible Preferred Stock issued on August 1, 2022. The Series A Convertible Preferred Stock is classified in mezzanine equity, see Note 14, 14. Mezzanine Equity and thefor more information. The valuation of the Series A Convertible Preferred Stock represents a non-recurring fair value measurement. WeThe Company used a Monte Carlo simulation model to determine the fair value of the Series A Convertible Preferred Stock on August 1, 2022. The Monte Carlo simulation utilized multiple level 2 input variables to determine the value of the Series A Convertible Preferred Stock including a volatility rate of 45%45%, risk free interest rate of 2.69%2.69%, 5.0%5.0% dividend rate, the closing price of the Company’s common stock on the issuance date of $98.87,$98.87, a debt discount rate of 12.5%12.5% and a discount for lack of marketability attributed to the registration period of the underlying stock. The selected historical volatility was based on Celsius and a certain peer group. The risk-free interest rate was based on the USU.S. STRIPS Rate with a corresponding term as of issuance date. The 5.0%5.0% dividend rate is consistent with the provisions of the Series A Convertible Preferred Stock and with the Company’s past payments or such dividends made in cash. The debt discount rate was based on estimated credit analysis and corresponding market yields as of the issuance date. The Company applied a nominal discount for lack of marketability with respect to the assumed registration period of the underlying shares.The Company used the relief from royalty method model to determine the fair value of the Brand Name on September 30, 2022. The fundamental concept underlying this method is that in lieu of ownership, the acquirer can obtain comparable rights to use the subject asset via a license from a hypothetical third-party owner. The Relief from Royalty method utilized multiple input variables to determine the value of the Brand Name including forecasted sales, discount rate, and royalty rates. The selected royalty rate was based on comparable brands. The debt discount rate was based an expected debt and equity rate of return as of September 30, 2022.The following is a tabular presentation of the non-recurring fair value measurement along with the level within the fair value hierarchy:Other than those noted previously, the Company did not have any other assets or liabilities measured at fair value at September 30, 2022 and December 31, 2021.period-to-periodperiod to period based on recurring and non-recurring factors including the geographical mix of earnings, enacted tax legislation, and state and local income taxes.20222023 was (33.5%). The effective income tax rate for the nine months ended September 30, 202221.1% and differed from the statutory federal income tax rate of 21%21.0% primarily due to windfall benefits on stock-based compensation awards, disallowed stock-based compensation expense and state income taxes.$282.5$282.5 million Series A Convertible Preferred Stock fair value adjustment. This adjustment which is recorded as "DeferredDeferred Other Costs"Costs in the consolidated balance sheets and will be amortized over twenty years for book purposes. As this expense is non-deductible for tax purposes, the Company recorded a $71.4$71.4 million deferred tax liability in the third quarter deferred tax expenseof 2022 as a discrete item. Theitem of deferred tax expense. Additional factors impacting the effective income tax rate for the nine months ended September 30, 2022 was also impacted byrates included disallowed stock-based compensation expense and state and local income taxes andtaxes. For the nine-month period, the rate was further affected by the release of certain state income tax reserves.Company recognizes thoseCompany’s tax positions that meetreturns for tax years 2020 through 2022 remain subject to potential examination by the more-likely-than-not recognition threshold and establishes tax reserves for uncertain tax positions that do not meet this threshold. Interest and penalties associated with income tax matters are included in the provision for income taxes in the consolidated statements of operations.222022awardsunder such plan have their own schedule of terminations. As such, thenot yet been terminated. The Company is no longer granting awards under this plan and there are no unvested awards as of September 30, 2022.Plan, whichPlan. The increase shall be added on the first day of the calendar year beginning January 1, 2016, equal to 15% of the number of shares outstanding as of such date (note 15). date. As of September 30, 2022,2023, approximately 4.65.9 million shares arewere available for issuance under the 2015 Plan. See Note 15 Stockholders' Equity Thedetermines the fair valuerecognized stock-based compensation expense of restricted stock-based awards based on the market price on the date of grant. The Company uses the Black-Scholes option-pricing model to estimate the fair value of its stock option awardsapproximately $5.0 million and warrant issuances and recognizes forfeitures as they occur.20222023 and 2021,2022, the Company recognized anstock-based compensation expense of approximately $14.8$16.2 million and $28.7$14.8 million, respectively, of non-cashrespectively. Stock-based compensation expense (includedis included in Generalselling, general and Administrative expense in the accompanying consolidated statement of operations).Under the 2015 Plan, the Company has issued stock options to purchase approximately $2.6 million shares at an average price of $8.92 with a fair value of $213.8 million. For the nine months ended September 30, 2021, the Company issued stock options to purchase 304,750 shares. No options were issued during the nine months ended September 30, 2022. Upon exercise, shares of new common stock are issued by the Company.A summary of the status of the Company’s outstanding stock options as of September 30, 2022 and changes during the periods ending on that date is as follows:
Intrinsic
RemainingThe following table summarizes information about employee stock options outstanding at September 30, 2022:23Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)
2022
2022As of September 30, 2022, the Company had approximately $4.4 million of unrecognized pre-tax non-cash compensation expense related to options to purchase shares, which the Company expects to recognize, based on a weighted-average period of 1.2 years. The Company used straight-line amortization of compensation expense over the two to three-year requisite service or vesting period of the grant. The maximum contractual term of the Company's stock options is 10 years. The Company recognizes forfeitures as they occur. There are stockwere options to purchase approximately 1.6 million and 1.9 million shares that have vested as of September 30, 2022.Restricted Stock AwardsRestricted2023 and December 31, 2022, respectively. No stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the holder leaves the Company before the restrictions lapse. The holders of a restricted stock award are generally entitled after the release to transact and obtain the same rights as rights of a shareholder of the Company, including the right to vote the shares. The holders of unvested restricted stock awards do not have the same rights as shareholders including but not limited to any dividends which may be declared by the Company, and do not have the right to vote. The value of restricted stock awards that vest over time is established by the market price on the date of its grant.A summary of the Company’s restricted stock award activityoptions were issued for the nine months ended September 30, 20222023 and 2021 is presented in the following table:year ended December 31, 2022.There were no shares vestedended ending on that date is as follows:Weighted Average Aggregate
Intrinsic
Value
(000’s)Weighted
Average
Remaining
Term (Yrs)Shares
(000’s)Exercise
PriceGrant Date
Fair
ValueAt December 31, 2022 2,266 $ 9.66 $ 213,914 5.43 Exercised (585) 4.72 138.76 78,598 Forfeiture and cancelled (16) 24.49 At September 30, 2023 1,665 $ 11.44 $ 266,770 4.73 Exercisable at September 30, 2023 1,560 $ 9.40 $ 253,031 4.56 2022. There are no2023restricted stock awards asat September 30, 2023: Outstanding Options Vested Options Range of Exercise Price Number Outstanding at September 30, 2023 (000's) Weighted Average Remaining Life Weighted Average Exercise Price Number Exercisable at September 30, 2023 (000's) Weighted Average Exercise Price Weighted Average Remaining Life $1.05 - $1.97 15 1.69 $ 1.36 15 $ 1.36 1.69 $3.23 - $4.85 1,118 4.04 3.89 1,118 3.89 4.04 $5.59 - $8.39 185 4.47 5.79 185 5.79 4.47 $14.53 - $21.80 35 6.84 14.53 35 14.53 6.84 $21.8 - $32.70 13 7.08 21.80 7 21.80 7.08 $42.64 - $63.96 299 7.26 42.67 200 42.67 7.26 Outstanding options 1,665 4.73 $ 11.44 1,560 $ 9.40 4.56 2022.including but not limited to any dividends which may be declared by the Company, and do not have the right to receive any dividends or right to vote. The value of restricted stock units that vest over time is established by the market price onor the date of its grant. A summary of the Company’s restricted stock unit activity for the nine months ended September 30, 20222023 and 20212022 is presented in the following table:24Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)Nine Months Ended September 30, 2023 September 30, 2022 Shares (000's) Weighted
Average
Grant Date
Fair ValueShares (000's) Weighted
Average
Grant Date
Fair ValueUnvested at beginning of period 539 $ 60.73 566 $ 52.66 Granted 144 105.42 207 81.74 Vested (206) 58.50 (183) 56.33 Forfeited and cancelled (64) 72.66 (47) 64.37 Unvested at end of period 413 $ 94.26 543 $ 63.93 $9.7 million.$22.1 million and $9.7 million, respectively. Unrecognized compensation expense related to outstanding restricted stock units to employees and directors as of September 30, 2023 and 2022 and 2021 was $29.3$20.0 million and approximately $36.1$29.3 million, respectively, and is expected to be expensed over the next 2.01.9 years.issuesissued stock-based awards to third-party consultants for providing marketing, sales, and general business development services related to Celsius products. The stock-based awards are in the form of restricted stock units with performance vesting conditions (“performance stock units” or “PSUs”). The holders of unvested PSUs do not have the same rights as stockholders including but not limited to any dividends which may be declared by the Company, and do not have the right to vote. Some of the PSU performance vesting conditions are linked to the consultants obtaining specified incremental earnings for the Company in a given year over the performance vesting period typically(typically five yearsyears) and some of the awards are linked to employees of the Company and have specific performance-based metrics to be met in year one and year two of the issuance. The fair value of PSUs is based on the market price of the underlying stock on the grant date. The Company recognizes compensation cost for performance stock awards issued to non-employees in the same manner and periods as though cash had been paid for services received.“Performance-based RSUs”PSUs to certain employees which represented restricted share units with performance-based vesting.employees. The aggregate grant date fair value of $7.5$7.5 million included an immediate vesting of 20%20% of the shares as well as specific performance-based metrics to be met in year one and year two of the issuance. The Company believes the performance-based metrics are probable of being achieved and will recognize expense for each tranche of the awards separately using the accelerated attribution method according to ASC 718.20222023 and 20212022 is presented in the following table:The total fair value of awards vested during the nine months ended September 30, 2022 was approximately $2.3 million. Nine Months Ended September 30, 2023 September 30, 2022 Shares (000's) Weighted
Average
Grant Date
Fair ValueShares (000's) Weighted
Average
Grant Date
Fair ValueUnvested at beginning of period 76 $ 91.48 15 $ 64.65 Granted — — 76 102.92 Vested (31) 98.28 (18) 96.47 Forfeited and cancelled (4) 74.62 — — Unvested at end of period 41 $ 91.36 73 $ 96.47 $6.8$1.3 million and $6.8 million, respectively, and is expected to be expensed over the next 2.20.9 years.ModificationsThere were certain Board of Directors members and employees whose service was terminated during 2021. In connection with their terminations, the vesting conditions of the previously granted awards were modified to accelerate the vesting of specified un-vested awards pursuant to board resolutions or severance agreements. Pursuant ASC 718, these were Type III modifications requiring re-valuation of un-vested awards to modification date fair value with recognition of compensation expense over the remaining service period. There have been no modifications in the three and nine months ended September 30, 2022. Modifications during the three-and nine-month period ended September 30, 2021 resulted25Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)in additional stock-based compensation expense of $12.1 million and $15.3 million, respectively. See note 2. Basis of PresentationSignificant Accounting Policies for more information.LegalIn November of 2020, McGovern Capital, Inc. and Kevin McGovern (collectively “McGovern”) filed a claim in arbitration related to its Representative Agreement with the Company as amended by the first amendment dated August 6, 2016. Pursuant to the Representative Agreement, McGovern is entitled to receive a fee of three percent (3%) of “Net Revenues” received by the Company from sales of the Company’s products in the People’s Republic of China for a period of four years from Initial Commercial Sale (which was September 1, 2017). “Net Revenues” are defined in the Representative Agreement as “the Company’s revenues net of actual discounts applied, credits and returns.” Effective January 1, 2019, the Company restructured its China operations from a distribution arrangement with Qifeng Food Technology (Beijing) Co. Ltd. (“Qifeng”), to a license and royalty arrangement and a loan, pursuant to which Qifeng will market and distribute the Company’s products in China, and Celsius will receive an annual royalty payment. The Company intended to pay McGovern its percentage of the annual royalty payment, but McGovern had objected claiming that McGovern is entitled to be paid commissions on the entire royalty payment and the amount of the loan to Qifeng. During the three months ended September 30, 2022, a confidential settlement agreement was signed for an amount included in the consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2022 that is not material to the financial results of the Company.In March of 2019, Daniel Prescod filed a putative class action lawsuit against the Company in the Superior Court for the State of California, County of Los Angeles, filed on March 19, 2019, (the “Prescod Litigation”). Daniel Prescod asserts that the Company’s use of citric acid in its products while simultaneously claiming “no preservatives” violates California Consumer Legal Remedies Act, California Business and Professions Code Section 17200, et seq., and California Business and Professions Code Section 17500, et seq., because citric acid acts as a preservative. The Company does not use citric acid as a preservative in its products, but rather as a flavoring, and therefore it believes that its “no preservatives” claim is fair and not deceptive. A motion to certify the case as a class action was filed and on August 2, 2021, that motion was granted. No fact discovery was conducted on the merits. On October 12, 2022, the Company and Mr. Prescod notified the courts that an agreement in principle to settle had been reached to resolve the case for an aggregate amount of $7.8 million. The Company and Mr. Prescod will submit the settlement agreement to the court for judicial approval and await final judgement and entry in the coming weeks. As of September 30, 2022, $7.8 million was accrued and included in accounts payable and accrued expenses in the consolidated balance sheet.havehad occurred. Subsequent to January 8, 2021, theThe Company has subsequently received subpoenas for the production of documents in connection with thethis matter. The investigation and requests from the SEC do not represent that the SEC has concluded that the Company or anyone else has violated the federal securities laws. The Company has cooperated and will continue to cooperate with the SEC staff in its investigation and requests. At this time, however, the Company cannot predict the length, scope, or results of the investigation or the impact, if any, of the investigation on ourthe Company's results of operations.Christian McCalliona putative securities class action lawsuit was filed against the Company and certain officers in the U.S. District Court for the Southern District of Florida, styled City of Atlanta Police Officers’ Pension Plan and City of Atlanta Firefighters’ Pension Plan v. Celsius Holdings, Inc., et al. On July 8, 2022, the lead plaintiffs filed an amended complaint alleging violations of the Securities Exchange Act of 1934. The allegations pertain to purported false and misleading statements or omissions made between August 12, 2021, and March 1, 2022, which allegedly affected the Company’s stock prices.putativemotion to dismiss on August 5, 2022, which was partially granted by the Court on March 22, 2023. To mitigate litigation uncertainties, the Company agreed in principle to a nationwide class action lawsuitsettlement on July 17, 2023, entailing a one-time cash payment of $7.9 million for a release of all claims related to allegations in the amended complaint, subject to final documentation, judicial endorsement, and other conditions. The $7.9 million was paid on September 7, 2023, and is included in selling, general and administrative expenses for the three and nine months ended September 30, 2023. The final fairness hearing is set for January 31, 2024.United StatesU.S. District Court of the District of Nevada. The complaint alleges (i) breach of fiduciary duty, (ii) unjust enrichment, and (iii) violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder. On April 14, 2023, the Court approved a joint stipulation regarding Stay of Litigation, postponing the defendants' time to respond. Plaintiff Lampert asserts that the same allegations giving rise to the City of Atlanta putative class action lawsuit discussed in the preceding paragraphs also supported claims for breach of fiduciary duty against the directors and former officer, among other claims.Plaintiff McCallion assertsAll these complaints make substantially similar allegations to the Lampert Complaint. For each of these complaints, the Court has entered an Order granting, in part, a stay of litigation, postponing the defendants’ time to respond. The foregoing stays are pending resolution of the City of Atlanta putative class action claim described above; however, the court overseeing the Hepworth Complaint and the Hammond complaints has required the parties to file a joint status report no later than December 29, 2023.becausethe Company breached two endorsement and licensing agreements that were entered into, between Plaintiffs and the Company in 2014 and 2016. Plaintiffs alleged the Company had reached certain revenue and sales benchmarks set forth in the 2014 agreement that entitled them to receive 750,000 shares of the Company's delaycommon stock. In addition, Plaintiffs claimed they were entitled to receive unspecified royalties under the 2016 agreement.filing its Annual Reportcompensatory damages. On April 27, 2023, the court denied the Company’s post-trial motions which sought (i) dismissal of the case notwithstanding the verdict based on Form 10-Kthe plain language of the contracts at issue; (ii) in the alternative, granting a new trial; or (iii) in the alternative, reducing the award of damages to $2.1 million, which reflects the Company’s stock price on the date that the jury found the relevant revenue and sales benchmarks at issue were met. The judgment will accrue post-judgement interest at 5.52% per year commencing February 13, 2023.year ended December 31, 2021, there was a decline inState of Florida on February 21, 2023, which is currently proceeding. The Company intends to vigorously challenge the market valuejudgment through the appeal processes, and filed its initial brief on October 6, 2023.Company’s securitiesjudgment will be affirmed is not probable. The Company has taken into consideration the events that have occurred after the reporting period and asbefore the financial statements were issued. The Company currently estimates a result, class members suffered significant lossesrange of possible outcomes between $2.1 million and damages. On June 6, 2022 Judge Middlebrooks appointed a lead class plaintiff$82.6 million plus interest, and the Company filed its Motionhas accrued a liability as of September 30, 2023 and December 31, 2022, reflected in accounts payable and accrued expenses in the consolidated balance sheets, at the low end of that range. The ultimate amount of the original judgement that the Company may be required to Dismiss on August 5, 2022. Aspay could be materially different than the amount the Company has previously disclosed in its periodic reports filed withaccrued. The Company cannot predict or estimate the SEC, prior to filing an application for an automatic fifteen (15) day extensionduration or ultimate outcome of this matter.original filing date,ordinary course of business, the Company experienced staffing limitations, unanticipated delaysis from time to time party to various disputes, litigation claims and identified material errorslegal proceedings, including without limitation, those concerning employment matters, intellectual property, false advertising, product liability and breach of contract. The Company vigorously defends all matters in previous filings. Thewhich the Company or its subsidiaries are named, and the Company maintains insurance intended to protect it against adverse judgments, settlements and assessments; however, the Company cannot predict with certainty the adequacy of existing insurance coverage or the outcome of any particular claim. Based on currently available information, the Company does not believe it has committedthat the ultimate outcome associated with any federal securities violationsknown ordinary course claims or made false and/or misleading statements and/orlitigation will have a material omissions as alleged in the complaint. The Company intends to contest the claims vigorouslyadverse effect on the merits.In additionCompany's financial condition or results of operations.the foregoing, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.withthat provide for the payment of liquidated damages in casethe event that the Company cancelsterminates the distribution agreements without cause. Cause has been defined in various ways. If management makes the decision to terminate an agreement without cause, an estimate of expected damages is accrued, and an expense is recorded within operatingselling, general and administrative expenses duringfor the period in which termination was initiated.we have contingent commitmentthe Company had purchase commitments to third parties of $17 million. Our$98.1 million and $30.7 million, respectively. The Company's guarantees are primarily related to third party suppliers and have arisen through the normal course of business. The guaranteespurchase commitments may have various terms, and none are individually significant.Additionally, our businessresultsother marketing activities.operations may be adversely affected byDirectors unanimously approved a three-for-one forward stock split of the businessCompany’s issued and economic uncertainty resultingoutstanding shares of common stock (the “Forward Stock Split”). The Forward Stock Split will become effective at 11:59 p.m. Eastern Time on November 13, 2023 (the “Effective Time”). At the Effective Time, each shareholder of record will receive two additional newly issued shares of common stock for each share of common stock of the Company held at such time. The par value of each share of common stock will remain unchanged. The common stock is expected to begin trading on a split-adjusted basis at market open of Nasdaq on November 15, 2023. The Company's common stock will continue trading on the Nasdaq Capital Market under the same symbol “CELH” and the CUSIP number will remain unchanged. No adjustments have been made to the historical financial statements, as the forward split has not been completed.pandemic and public health crisesratio of the Forward Stock Split. Neither the Certificate of Change nor the Forward Stock Split affects any stockholder’s ownership percentage of the common stock, alters the par value of the common stock or modifies any voting rights or other terms of the common stock.COVID-19 outbreak, which is affecting the macro-economic environment.Company's issuance of Preferred Shares, including those outlined in Note 1. Organization and Description of Business and Note 14. Mezzanine Equity.26Celsius Holdings, Inc.Notes to Consolidated Financial Statements (unaudited)September 30, 2022(Tabular dollars in thousands, except per share amounts)20.SUBSEQUENT EVENTSnote 19,this section and those discussed in Note 19. Commitments and Contingencies, there were no other subsequent events that would have required adjustment or disclosure in the consolidated financial statements.27“us”“us,” and “our” refer to Celsius Holdings, Inc. and its subsidiaries.Forward LookingForward-Looking Statementsthe potential ongoing impact of the continuing COVID-19 pandemic on us directly, or on our distributors or suppliers;•our expectations relating to macroeconomic conditions;• andoffrom public health crises, including of the current coronavirus outbreak;crises; and the performance, reliability and availability of our ecommercee-commerce platform and underlying network infrastructure.Our core offerings include pre- and post-workout functional energy drinks, as well as protein bars. Our flagship functional energy drink and liquid supplement brands are backed by science, being clinically proven to deliver health benefits by six self-funded studies published in various journals28including the Journal of the International Society of Sports Nutrition, the Journal of the American College of Nutrition, and the Journal of Strength and Conditioning Research. These studies have concluded that a single serving of Celsius burns 100-140 calories (by increasing a consumer’s resting metabolism an average of 12%, while providing sustained energy for up to three hours).We also offer a Celsius Heat and a Branch Chain Amino Acids line, catered to both pre- and post-workout consumer needs. Our products are currently offered in major retail channels in the US including conventional grocery, natural, convenience, fitness, mass market, vitamin specialty and e-commerce.20222023 compared to three months ended September 30, 20212022,2023, revenue was approximately $188.2$384.8 million, an increase of $93.3$196.6 million or 98%104% from $94.9$188.2 million for the three months ended September 30, 2021. Approximately 102% of this2022. The total increase in revenue was largely driven by continued gains in distribution points and Club Channel growth. This growth was as athe result of increased revenues from North America, where third quarter 20222023 revenues were $179.5$371.2 million, an increase of $95.1$191.6 million or 112%107% from the same period in 2021. The balance of the2022. North America was driven by increases in total distribution points, and higher SKUs per location.2022 quarter2023 were mainly attributable to European revenues of $7.5$11.0 million, which decreasedincreased by $2.0$3.5 million or 46% from the same period in 2021 due to foreign exchange rates and timing of new product launches and continuing supply chain challenges. Asian2022. Asia-Pacific revenues (which includeprimarily consist of royalty revenues from our China licensee) contributed an additional approximately $1.0$1.2 million, an increase of 37% from approximately $0.7$0.3 million or 29% for the same period in 2021, which include increases in royalties payable under our licensing agreement.2022. Other international markets generated approximately $0.2$1.3 million in revenues during the three months ended September 30, 2022 ,2023, an increase of 3% from $0.2 million for the same period in 2021.The total increase in revenue was largely attributable to increases in sales volume, as opposed to increases in product pricing. The primary factors behind the increase in North American sales volume were related to continued strong triple-digit growth in traditional distribution channels, combined with an increase in and optimization of our products’ presence in world class retailers (e.g., additional SKUs). Additionally,2022. International revenues increased as a result of building inventories at Pepsi warehousesin large part by successful innovation launches, increased velocity, and distribution centers in anticipation of the transition to the Pepsi distribution network resulting in delivery of approximately five million raw cases. These revenues were offset by the prior distribution network which reduced their inventory balances at both their distribution centers and within their network as a majority of the prior distribution system was terminated as of September 30, 2022.category and changes thereingeographical location for the three months ended September 30, 20222023 and 2021 (dollars in thousands):For The Three Months Ended September 30, Revenue Source 2023 2022 Total revenue $ 384,757 $ 188,233 North America revenue $ 371,178 $ 179,541 Europe revenue $ 11,038 $ 7,546 Asia-Pacific revenue $ 1,247 $ 964 Other revenue $ 1,294 $ 182 profit2022,2023, gross profit increased by approximately $41.0$115.4 million or 109%147% to $78.7$194.1 million, from approximately $37.7$78.7 million for the three months ended September 30, 2021.2022. Gross profit margins reflected an increase to 41.8%50% for the three months ended September 30, 20222023 from 39.7%42% for the same period in 2021 reflecting a 210 basis point improvement. Efficiencies2022. Gross profit improvements are attributed to continued savings in outbound freight, which were partially offset by volatility in fuel prices, generated 130 basis points of improvement, while average case costs drove improvements inpackaging and raw material costs.Salescost, decreased product waste/scrap, improved freight lane efficiency, and marketing expensesbenefits from improved leverage across promotional allowances.Salesmarketing expenses forAdministrative Expensesthree monthsquarter ended September 30, 2022 were approximately $198.82023, Selling, General and Administrative (SG&A) expenses totaled $96.4 million, an increasedown 57% or $129.8 million from $226.2 million in the same quarter of approximately $176.12022. The breakdown of changes within SG&A is comprised of a $149.5 million or 779% from approximately $22.6 million for the three months ended September 30, 2021. This increase wasdecrease primarily attributabledue to expense for termination fees paid to prior distributors which resulted in an2022, offset by increases to depreciation and amortization, research and development, use and excise taxes, and other selling expenses. The remaining changes include a $21.2 million increase of $155.4in marketing investments, a $2.2 million when compared to the prior year quarter. Additionally, employee costs increased by approximately $1.1 million from the year ago quarter as we continue to investincrease in this area in order to have the proper29infrastructure to support our growth. Marketing costs also increased by approximately $14.6 million as we expanded our footprint in stores across the United States. Lastly, storage and distribution expenses as well as broker costs accounted for the remainder of thedue to growing organic sales volume, a $3.9 million increase in this areaemployee costs reflecting our ongoing investments to support growth, and a $6.3 million, or approximately 56%, decrease in the amount of $4.4 million from the 2021 quarter to the 2022 quarter.General and administrative expensesGeneral and administrative expenses for the three months ended September 30, 2022 were approximately $27.5to $11.3 million an increase of $4.2 million or 18%, from $23.3 million for the three months ended September 30, 2021. Employee costs for the three months ended September 30, 2022 reflect an increase of $0.9 million as investments in this area are also required to properly support our higher business volume and the commercial and operational areas of the business, as well as travel expenses are now being incurred. Depreciation, amortization and impairment expenses increased by approximately $2.4 million when compared to the prior year quarter. These increases were offset by a $11.7 million decrease in stock-based compensation expense, which amounted to $6.3 million in the current quarter, when compared to the prior year quarter. Management deems it very important to motivate employees by providing them ownership in the business in order to promote over performance which translates into the continued success of our business based on key performance attributes. Administration expenses also increased by $12.3 million primarilymainly due to a litigation settlement in the amount of $7.8 million. Stock-based compensation decreased by $1.3 million as well as increased costs associatedto $5.0 million, a change driven by forfeited awards. However, this was offset in part by new awards issued to our expanding workforce, which aligns with third party service providers including audit fees, internal controlour strategy to encourage employee ownership and Sox compliance, andpromote exceptional performance, contributing to our continued business success based on key performance attributes.litigation. Lastly, all other administrative expenses which were mainly composed of research, development and quality control testing, increased by approximately $0.3 million from to the second quarter of 2021.Other income/(expense)Total net other expenseincome for the three months ended September 30, 2023 and 2022 is mainly related to interest income on cash and cash equivalents and foreign currency exchange which is offset by interest and non-operating income.Losslossincome attributable to common shareholdersstockholders for the three months ended September 30, 20222023 was $186.5$70.5 million, or $2.46$0.92 per share based on a weighted average of approximately 75,796,00077.0 million shares outstanding. The dilutive impact share-based awards of 10,185,781 shares, were excluded from the calculations due to the net loss position of the Company. In comparison, for the three months ended September 30, 2021,2022, the Company had a net loss attributable to common stockholders of approximately $9.4$(186.5) million, or $0.13$(2.46) per share based on a weighted average of 74,609,00075.8 million shares outstanding.20222023 compared to nine months ended September 30, 20212022,2023, revenue was approximately $475.6$970.6 million, an increase of $265.6$495.0 million or 126%104% from $210.0$475.6 million for the nine months ended September 30, 2021. Approximately 102% of this2022. The total increase in revenue was largely driven by continued gains in distribution points and Club Channel growth. This growth was as athe result of increased revenues from North America, where the first nine months of 20222023 revenues were $448.1$930.5 million, an increase of $271.0$482.4 million or 153%108% from the 2021 first nine months. The balance of thesame period in 2022. North America revenue was driven by continued gains in distribution points and SKUs per location.20222023 were mainly attributable to European revenues of $23.5$31.6 million, which decreasedincreased by $7.2$8.1 million or 34% from the prior year nine months primarily due to foreign exchange rates and timing of new product launches and continuing supply chain challenges. Asiansame period in 2022. Asia-Pacific revenues (which includeprimarily consist of royalty revenues from our China licensee) contributed an additional approximately $2.9$4.1 million, an increase of 54% from approximately $1.9$1.3 million or 44% for the prior year, which include increasessame period in royalties payable under our licensing agreement.2022. Other international markets generated approximately $1.1$4.3 million in revenues during the nine months ended September 30, 2022,2023, an increase of $0.7 million or 200.3% from $0.4$1.1 million for the prior year.The total increasesame period in revenue was largely attributable to increases in sales volume, as opposed to increases in product pricing. The primary factors behind the increase in North American sales volume were related to continued strong triple-digit growth in traditional distribution channels, combined with an increase in and optimization of our products’ presence in world class retailers (e.g., additional SKUs). Additionally, revenues increased as a result of building inventories at Pepsi warehouses and distribution centers in anticipation of the transition to the Pepsi distribution network resulting in delivery of approximately five million raw cases. These revenues were offset by the prior distribution network which reduced their inventory balances at both their distribution centers and within their network as a majority of the prior distribution system was terminated as of September 30, 2022.category and changes thereingeographical location for the nine months ended September 30, 20222023 and 2021 (dollars in thousands):2022:For The Nine Months Ended September 30, Revenue Source 2023 2022 Total revenue $ 970,579 $ 475,640 North America revenue 930,545 448,141 Europe revenue 31,599 23,540 Asia-Pacific revenue 4,111 2,857 Other revenue 4,324 1,102 30profit2022,2023, gross profit increased by approximately $105.3$275.0 million or 122%143% to $191.9$466.9 million, from $86.5approximately $191.9 million for the nine months ended September 30, 2021.2022. Gross profit margins reflected a decreasean increase to 40.3%48% for the nine months ended September 30, 2023 from 40% for the same period in 2022. Gross profit improvements are attributed to lower packaging and raw material unit cost, decreased product waste/scrap, and improved freight lane efficiency.from 41.2%a decrease of $57.4 million. The breakdown of changes within SG&A is comprised of a $141.6 million decrease primarily due to termination fees paid to distributors in 2022, offset by increases to depreciation and amortization, research and development, use and excise taxes, storage and distribution, and other selling expenses. The remaining expenses include a $59.3 million increase in marketing investments, a $9.3 million increase in employee costs reflecting our ongoing investments to support growth, and a $14.1 million, or approximately 33%, increase in administrative expenses to $43.2 million mainly due to higher audit, consulting, insurance, and office rent costs. Stock-based compensation increased by$1.4 million to $16.2 million, driven by new awards to our expanding workforce, in line with our strategy to encourage employee ownership and promote exceptional performance, contributing to our continued business success based on key performance attributes.2021, reflecting a 90 basis point reduction. Efficiencies in outbound freight, which were partially offset by volatility in fuel prices, generated 310 basis points of improved margin, which was more than offset by higher raw material costs including aluminum cans, ocean freight costs2023 and packing costs.Sales2022 is mainly related to interest income on cash and marketing expensesSalescash equivalents and marketing expensesforeign currency exchange loss.2022 were approximately $262.8 million, an increase of approximately $212.72023 was $142.9 million or 424% from approximately $50.1 million for the nine months ended September 30, 2021. This increase was partially attributable to higher marketing investment activities, which resulted in an increase of $31.2 million when compared to the prior year. Additionally, employee costs increased by approximately $5.9 million from the prior year as we continue to invest in this area in order to have the proper infrastructure to support our growth. Costs related to expense for termination fees to prior distributors, resulted in an increase of $156.2 million when compared to the prior year. Lastly, storage and distribution expenses as well as broker costs accounted for the remainder of the increase in this area in the amount of $19.4 million from the nine months ended September 30, 2021.General and administrative expensesGeneral and administrative expenses for the nine months ended September 30, 2022 were approximately $54.1 million, an increase of $10.8 million or 25%, from $43.4 million for the nine months ended September 30, 2021. This increase was primarily attributable to employee costs for the nine months ended September 30, 2022 which reflect an increase of $3.1 million, as investments in this area are also required to properly support our higher business volume and the commercial and operational areas of the business, as well as travel expenses are now being incurred. Depreciation, amortization, and impairment expenses increased by approximately $2.7 million when compared to the prior year quarter. These increases were offset by a $13.6 million decrease in stock-based compensation expense which amounted to $14.8 million for the nine months ended September 30, 2022, compared to $28.7 million in the prior year quarter. Management deems it very important to motivate employees by providing them ownership in the business in order to promote over performance which translates into the continued success of our business based on key performance attributes. Administrative expense also increased by $18.9 million primarily due to a litigation settlement in the amount of $7.8 million as well as increased costs associated with third party service providers including audit fees, internal control and Sox compliance and other litigation. Lastly, all other administrative expenses which were mainly composed of research, development and quality control testing, decreased by approximately $0.3 million during the nine months ended September 30, 2021.Other income/(expense)Total net other expense for the nine months ended September 30, 2022 is mainly related to foreign currency exchange which is offset by interest and non-operating income.Net LossNet loss attributable to common shareholders for the nine months ended September 30, 2022 was $170.7 million or $2.26$1.86 per share based on a weighted average of approximately 75,625,00076.8 million shares outstanding. The dilutive impact share-based awards of 10,229,657 shares, were excluded from the calculation due to the net loss position of the Company. In comparison, for the nine months ended September 30, 2021,2022, the Company had a net loss attributable to common stockholders of approximately $8$(170.7) million or $0.11$(2.26) per share, based on a weighted average of approximately 73,759,00075.6 million shares outstanding.2022,2023 and December 31, 2021,2022, we had cash of approximately $727$760.0 million and $652.9 million (including restricted cash of $135 million) and $16.3$38.8 million at December 31, 2022), respectively, and working capital of approximately $755.7$879.6 million and $169.2$756.7 million, respectively.In addition toflowavailable from operations will be sufficient for our working capital needs, including purchase commitments for raw materials and inventory, increases in accounts receivable and other assets, and purchases of capital assets and equipment for the next twelve (12) months with respect to our current operating plan. Please refer to "Risk Factors" in Part 1, Item 1A, in our 2022 Annual Report for these and other factors that may have a material impact on our operations. Our primary sources of working capital have been private placementscash included cash from operations and public offeringsproceeds from the issuance of our securities, including an underwritten public offering of 1,133,953 shares at an offering price of $62.50 per share completed in June 2021 and a private placement of 1,466,666 Series A convertible shares as partpreferred shares. These sources of cash are available to fund cash outflows that have both a short and long-term component.agreement with Pepsi at a priceco-packers, payments of $375 per share, completed in Augustaccounts payable, and income taxes payable are expected to remain our principal recurring uses of 2022.$171.0$136.0 million for the nine months ended September 30, 2022,2023, which compares to $52.1$171.0 million net cash used inprovided by operating activities for the nine months ended September 30, 2021.2022. The approximately $223.0approximate $35.0 million increasedecrease in cash generation was driven by theis primarily due to increased working capital spend in 2023 as a result of significant growth and timing of cash receipts and paymentsbenefits associated with the Pepsi transition as well as continued growthdistribution and share purchase activities in the operations of the Company.used in(used in) investing activities312022, which compares to cash used in investing activities of $0.5 million for the nine months ended September 30, 2021.2022. The increase in the cash used in investing activities when compared to the 20212022 period was primarily due to an increase of capitalincreased cash expenditures to $3.5 million offset by payment on our note receivable, as we received payment on our note receivable of approximately $2.6 millionfor property and equipment in April 2022.the current year.totaled approximatelyof $540.5 million for the nine months ended September 30, 2022, which compares to2022. The decrease in the cash provided by financing activities of $70.9 million for the nine months ended September 30, 2021. Cash provided by financing activities iswas mainly related to the one-time net proceeds of $542$542.0 million from issuancesthe issuance of the Series A convertible preferred shares related to Pepsi netin the 2022 period as well as three quarters of issuance costs. Net proceeds were received fromdividends paid to Pepsi in 2023 versus a public offeringpartial quarter in June 2021 for approximately $67.8 million.20222023 and December 31, 2021,2022, we had no off-balanceoff balance sheet arrangements.US GAAP,generally accepted accounting principles in the United States of America, which requires us to make estimates and assumptions that affect the reported amounts in our consolidated financial statements. Critical accounting estimates are those that management believes are the most important to the portrayal of our financial condition and results and require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and that have had, or are reasonably likely to have, a material impact on our financial condition or results of operations. Judgments and uncertainties may result in materially different amounts being reported under different conditions or using different assumptions. There have been no material changes to our critical accounting policies or estimates, aside from the change in estimate disclosed in the accompanying footnotes and from the information provided in “PartPart II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “PartPart II, Item 8, – Financial"Financial Statements and Supplementary Data – Note 2”Data" (Note 2), included in our 2022 Annual Report on Form 10-K for the fiscal year ended December 31, 2021.Procedures2022,2023, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms adopted by the SEC, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and our Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.are evaluatingevaluated whether our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.20212022 in our internal controls over financial reporting, which were not fully remedied as of September 30, 2022.2023. A material weakness is a deficiency or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected and corrected on a timely basis. As a result of these material weaknesses, we concluded that internal controls over the following areas were not effective as of December 31, 20212022 and were not fully remedied as of September 30, 2022.32 failed to design effective controls related to the application of U.S. GAAP guidance in their evaluation of modifications to share-based payment arrangements, resulting in the correction of errors in previously issued interim financial statements relating to the recognition of compensation expense;b)For a substantial portion of the year, management did not design and maintain effective controls over information technology general controls (ITGCs) relating to appropriate segregation of duties over program change management for information systems andcertain applications impacting the Company’s business processes that are relevant to the preparation of the consolidatedCompany’s internal control over financial statements. Specifically, managementreporting; and maintain: sufficient user access controls to ensure appropriate segregation of duties and adequately restrict user and privileged access to financial applications, programs and data to appropriate Company personnel; program change management controls to ensure that information technology (IT) program and data changes affecting financial information technology applications and underlying accounting records are authorized, tested, and implemented appropriately. As a result, business process controls (automated and it-dependent manual controls) that are dependent on the ineffective ITGCs, or that use data produced from systems impacted by the ineffective ITGCs were deemed ineffective at December 31 2021; andc)Management did not have an adequate process in place to monitor and provide oversight over the completion of its testing and assessment of the design and operating effectiveness of internal control over financial reporting in a timely manner. As such, we determined that management failed to fully implement components of the COSO framework,Framework to address all relevant risks of material misstatement, including elements of the control environment, information and communication, control activities and monitoring activities components, relating to: (i) providingto the identification, design, implementation, and monitoring of sufficient and timely management oversight and ownership over the internal control evaluation process; (ii) hiring and training sufficient personnelbusiness process controls related to timely support the Company’s internal control objectives; (iii) performing timely monitoring and oversightfinancial statement accounts to ascertain whether the components of internal control are present and functioning effectively.To addressissues associated with our material weaknesses as described above,date of this Quarterly Report on Form 10-Q, management is re-assessinghas reassessed the design of controls and modifyingmodified processes designed to improve our internal control over financial reporting and remediate the control deficiencies that led to the material weaknesses, including but not limited to (a) enhancing monitoring and oversight controls in the application of U.S. GAAP guidance pertaining to modifications of share-based payments, (b) hiring additional accounting and IT personnel with appropriate technical skillsets, (c) improving consistency in change management supported by standard operating procedures to govern the authorization, testing and approval of changes to information technology systems supporting all of the Company’s internal control processes, (d)(b) enhancing design and implementation of our control environment, including the expansion of formal accounting and IT policies and procedures and financial reporting controls, (c) continuing to identify, design and (e)implement effective review and approval controls, and (d) implementing appropriate timely review and oversight responsibilities within the accounting and financial reporting functions. However, as of September 30, 2022, the identified material weaknesses were not fully remedied.2022,2023, we have been implementing and will aggressively continue to implement changes that are both organizational and process-focused to improve the control environment. We anticipate the actions to be taken, and resulting process improvements, to generally strengthen our internal controls over financial reporting information technology general controls as well as our controls around share-based payments, and over time,ITGCs which will address the material weaknesses noted as of December 31, 2021.2022. These remedial measures were considered changes to our internal control environment which had a material effect on internal control over financial reporting. However, because certain of the remedial actions have only recently been undertaken and others will occur over the next several months, we have concluded that our controls and procedures in the areas listed above were not effective as of September 30, 2022. We will not be able to conclude whether the material weaknesses have been eliminatedremediated until the completion of our Annual Report on Form 10-K for the year ended December 31, 2022 annual report on Form 10-K.note 19 toNote 19. Commitments and Contingencies in the consolidated financial statements Commitments and Contingencies, in Part I, Item 1, of this Quarterly Report on Form 10-Q.1.A.1A. Risk Factors on Form 10-K for the year ended December 31, 2021.2022. At September 30, 2022,2023, there have been no material changes to the information.Not Applicable.33Not applicable.34(incorporated (incorporated by reference to Exhibit 3.2 to the Company’s Form 10-Q filed on August 9, 2022).2022,2023, formatted in Inline iXBRL and contained in Exhibit 101*Filed herewith**Furnished herewithDated:Date: November 9, 2022
Chief Executive Officer
(Principal Executive Officer)Dated:Date: November 9, 2022
Chief Financial Officer
(Principal Financial and Accounting Officer)35