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Acquisition-European Operations

9 Months Ended

Sep. 30, 2020

Acquisitioneuropean Operations [Abstract]

10.

ACQUISITION-EUROPEAN OPERATIONS

The Company acquired 100% of Func Food Group, Oyj (“Func Food”) on October 25, 2019 (the “Acquisition”). 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. Total consideration was $27,060,701, which consisted of approximately $14,188,000 in cash, $8,357,000 of newly issued bonds (see Note 13) and $4,516,000 related to the settlement of a pre-existing debt. In addition to the aforementioned bond issuance, the Company financed the acquisition by issuing new common shares.

Func Food is a marketer and distributor of nutritional supplements, health food products, and beverages that support sport activities and healthy living and lifestyles in Finland, Sweden, and Norway. Func Food has been the Nordic distributor of Celsius products since 2015 and, as a result of the acquisition, the Company expects to further increase its Nordic market share by leveraging collaborations, revamping its marketing strategy and focusing on core products. It also expects to reduce costs through economies of scale.

The Company recorded the acquisition in accordance with ASC-805, pertaining to business combinations. The following table summarizes the consideration paid for Func Food and the amounts of the assets acquired at fair market value and liabilities assumed recognized at the Acquisition date.

Acquisition consideration
Cash	$	14,188,056
Bonds payable		8,356,958
Settlement of pre-existing debt		4,515,687
Total consideration transferred		27,060,701

Assets acquired and liabilities assumed
Accounts receivable	$	1,300,468
Inventories		2,161,067
Prepaid expenses and other current assets		331,774
Property and equipment		616
Right of use asset		806,572
Other long-term assets		101,413
Intangible assets-Customer relationships		14,050,000
Intangible assets-Brands		3,123,000
Accounts payable and accrued expenses		(3,489,080	)
Lease liability Obligations		(817,041	)
Other current liabilities		(927,088	)
Total identifiable net assets	$	16,641,701
Goodwill	$	10,419,000

During the three months ended September 30, 2020, goodwill increased by approximately $395,000 due to an additional liability that the Company assumed from the Func Food Acquisition. The additional liability consisted of charges related to an uncertain fiscal position reflected in a 2016 filing. This increase in liabilities and goodwill was recorded as a measurement period adjustment to the net assets acquired from the Func Food Acquisition. The additional liability is reflected in other current liabilities.

For the three and nine months ended September 30, 2020, the amount of revenue of Func Food that is included in the Company’s consolidated income statement was approximately $9,530,000 and $26,552,000, respectively, and the amount of losses from Func Food for the same periods was approximately $25,600 and a loss of $742,000, respectively.

On a pro forma basis, if the Acquisition had occurred on January 1, 2019, the Company’s total consolidated revenue for the three and nine months ended September 30, 2019 would have been $27.4 million and $71.9 million, respectively. For the same periods, pro forma consolidated earnings would have been $(1.5) million and $2.9 million, respectively. Pro forma earnings include adjustments to reflect the additional amortization that would have been charged for the intangible assets recognized in the Acquisition.

Pro forma earnings for the three and nine months ended September 30, 2019 also include historical, non-recurring expenses of Func Food amounting to approximately $2.2 million and $6.7 million, respectively, which are not expected to have an ongoing effect after the Acquisition. These non-recurring expenses related to inventory impairment, restructuring, and interest on debt that was restructured as part of the Acquisition. Consequently, had these non-recurring expenses not been incurred, pro forma earnings for the three months ended September 30, 2019 would have amounted to $0.38 million and a pro forma loss for the nine months ended September 30, 2019 of $8.52 million.