Celsius Holdings, Inc. - Quarter Report: 2020 September (Form 10-Q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTIONS 13 OR 15 (d) OF THE SECURITIES AND EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

Commission file number: 001-34611

CELSIUS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

Nevada		20-2745790
(State or Other Jurisdiction of		(I.R.S. Employer
Incorporation or Organization)		Identification No.)

2424 N Federal Highway, Suite 208, Boca Raton, Florida 33431

(Address of Principal Executive Offices)

(561) 276-2239

(Registrant’s telephone number, including area code)

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (ss.232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

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

Title of Each Class		Trading Symbol(s)		Name of Each Exchange on Which Registered
Common Stock, $.001 par value		CELH		Nasdaq Capital Market

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large Accelerated Filer	☐	Accelerated Filer	☐
Non-accelerated filer	☐	Smaller reporting company	☒
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of November 11, 2020 was 71,651,556 shares.

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements.	1
	Consolidated Balance Sheets as of September 30, 2020 (unaudited) and December 31, 2019	1
	Consolidated Statements of Operations and comprehensive income for the three and nine months ended September 30, 2020 and 2019 (unaudited)	2
	Consolidated Statements of Changes in Stockholders’ Equity for three and nine months ended September 30, 2020 (unaudited)	3
	Consolidated Statements of Changes in Stockholders’ Equity for the three and nine months ended September 30, 2019 (unaudited)	4
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	25

Item 3.	Quantitative Disclosures About Market Risks.	29

Item 4.	Controls and Procedures.	30

PART II – OTHER INFORMATION		31

Item 1.	Legal Proceedings.	31

Item 1A.	Risk Factors.	31

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	32

Item 3.	Defaults Upon Senior Securities.	32

Item 4.	Mine Safety Disclosures.	32

Item 5.	Other Information.	32

Item 6.	Exhibits.	33

SIGNATURES		34

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Celsius Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets

	September 30, 2020			December 31, 2019 ⁽¹⁾
	(Unaudited)
ASSETS
Current assets:
Cash	$	52,158,098		$	23,090,682
Accounts receivable-net (note 2)		16,561,371			7,774,618
Note receivable-current (note 6)		1,810,773			1,181,116
Inventories-net (note 4)		15,679,192			15,292,349
Prepaid expenses and other current assets (note 5)		4,731,887			4,170,136
Total current assets		90,941,321			51,508,901

Notes Receivable (note 6)		9,053,866			10,630,040
Property and equipment-net (note 8)		467,380			132,889
Right of use assets		415,595			809,466
Long term security deposits		60,875			104,134
Intangibles (note 9)		16,740,838			17,173,000
Goodwill (note 9)		10,419,321			10,023,806
Total Assets	$	128,099,196		$	90,382,236

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses (note 11)	$	18,117,611		$	17,292,647
Lease liability obligation (note 7)		397,931			649,074
Bonds payable-net (note 13)		9,540,007			8,634,279
Other current liabilities (note 12)		716,678			107,399
Total current liabilities		28,772,227			26,683,399

Long-term liabilities:
Lease liability obligation (note 7)		124,978			239,848
Total Liabilities		28,897,205			26,923,247

Commitments and contingences (note 17)

Stockholders’ Equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 71,651,556 and 68,941,311 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively (note 15)		71,652			68,942
Additional paid-in capital		156,548,446			127,552,998
Accumulated other comprehensive loss		(866,664	)		(753,520	)
Accumulated deficit		(56,551,443	)		(63,409,431	)
Total Stockholders’ Equity		99,201,991			63,458,989
Total Liabilities and Stockholders’ Equity	$	128,099,196		$	90,382,236

⁽¹⁾

Derived from Audited Consolidated Financial Statements

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)

	For the three months ended September 30,						For the nine months ended September 30,
	2020			2019			2020			2019
Revenue (note 3)	$	36,839,149		$	20,423,847		$	95,061,265		$	51,031,426
Cost of revenue (note 2)		19,305,416			11,801,478			51,512,534			29,821,968
Gross profit		17,533,733			8,622,369			43,548,731			21,209,458

Selling and marketing expenses		8,267,996			4,923,968			23,640,914			14,086,910
General and administrative expenses		4,557,438			2,194,530			12,460,009			7,249,378
Total operating expenses		12,825,434			7,118,498			36,100,923			21,336,288

Income/(loss) from operations		4,708,299			1,503,871			7,447,808			(126,830	)

Other Income (Expense):
Interest income on note receivable (note 6)		78,690			96,300			268,709			288,070
Interest on notes		-			(105,385	)		-			(348,493	)
Interest expense on bonds		(144,021	)		-			(391,458	)
Interest on other obligations		(3,419	)		(3,393	)		(13,400	)		(12,041	)
Amortization of discount on notes payable		-			(528,463	)		-			(707,285	)
Amortization of discount on bonds payable		(178,649	)		-			(506,100	)		-
Amortization of intangibles		(145,277	)		-			(429,307	)		-
Amortization of financial leases		(49,713	)		-			(289,277	)		-
Other miscellaneous income/(expense)		(62,817	)		-			(27,614	)		-
Gain on lease cancellations		-			-			152,112			-
Realized foreign exchange gain/(loss)		142,917			-			262,022			-
Gain/(loss) on investment repayment-China (Note Receivable Note 6)		407,593			(1,888	)		384,493			12,050,921
Total other income (expense)		45,304			(542,829	)		(589,820	)		11,271,172

Net Income		4,753,603			961,042			6,857,988			11,144,342

Other comprehensive income/(loss):
Unrealized foreign currency translation income/(losses).		110,027			(55,303	)		(113,144	)		(71,793	)
Comprehensive Income		4,863,630			905,739			6,744,844			11,072,549

Income per share:
Basic	$	0.07		$	0.02		$	0.10		$	0.19
Diluted	$	0.06		$	0.03		$	0.09		$	0.20
Weighted average shares outstanding:
Basic		70,473,351			59,307,404			70,184,071			58,023,685
Diluted ¹		74,848,239			62,532,510			73,524,209			62,050,032

⁽¹⁾

Please refer to Earnings Per Share section for further details

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2020

(Unaudited)

								Accumulated
					Additional			Other-
	Common Stock				Paid-In			Comprehensive			Accumulated
	Shares		Amount		Capital			Income (Loss)			Deficit			Total
Balance at December 31, 2019		68,941,311	$	68,942	$	127,552,998		$	(753,520	)	$	(63,409,431	)	$	63,458,989
Stock option expense						1,400,000									1,400,000
Issuance of common stock pursuant to exercise of stock options-Cashless		204,028		204		(204	)								-
Issuance of common stock pursuant to exercise of stock options-Cash		133,921		134		215,213									215,347
Foreign currency translation loss									(114,490	)					(114,490	)
Net Income												546,051			546,051
Balance at March 31, 2020		69,279,260	$	69,280	$	129,168,007		$	(868,010	)	$	(62,863,380	)	$	65,505,897
Stock option expense						1,174,999									1,174,999
Issuance of common stock pursuant to exercise of stock options-Cashless		106,327		106		(106	)								-
Issuance of common stock pursuant to exercise of stock options-Cash		176,914		177		489,140									489,317
Foreign currency translation loss									(108,681	)					(108,681	)
Net Income												1,558,334			1,558,334
Balance at June 30, 2020		69,562,501	$	69,563	$	130,832,040		$	(976,691	)	$	(61,305,046	)	$	68,619,866
Stock option expense						2,143,700									2,143,700
Issuance of common stock-Private Placement		1,437,909		1,438		21,981,678									21,983,116
Issuance of common stock pursuant to exercise of stock options-Cashless		86,405		86		(86	)								-
Issuance of common stock pursuant to exercise of stock options-Cash		564,741		565		1,591,114									1,591,679
Foreign currency translation loss									110,027						110,027
Net Income												4,753,603			4,753,603
Balance at September 30, 2020		71,651,556	$	71,652	$	156,548,446		$	(866,664	)	$	(56,551,443	)	$	99,201,991

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the three and nine months ended September 30, 2019

(Unaudited)

												Accumulated
	Preferred Stock				Common Stock				Additional Paid-In			Other- Comprehensive			Accumulated
	Shares		Amount		Shares		Amount		Capital			Income (Loss)			Deficit			Total
Balance at December 31, 2018		-	$	-		57,002,508	$	57,003	$	85,153,667		$	(26,997	)	$	(73,380,691	)	$	11,802,982
Stock option expense										1,358,503									1,358,503
Issuance of common stock pursuant to exercise of stock options-Cashless						115,107		115		(115	)								-
Issuance of common stock pursuant to exercise of stock options-Cash						80,750		80		24,680									24,760
Beneficial Conversion Feature on Convertible Instruments										166,667									166,667
Foreign currency translation gain													260,665						260,665
Net Income																11,656,594			11,656,594
Balance at March 31, 2019			$	-		57,198,365	$	57,198	$	86,703,402		$	233,668		$	(61,724,097	)	$	25,270,171
Stock option expense										1,095,792									1,095,792
Issuance of common stock pursuant to exercise of stock options-Cashless						79,488		80		(80	)								-
Issuance of common stock pursuant to exercise of stock options-Cash						93,334		93		122,574									122,667
Foreign currency translation loss													(256,974	)					(256,974	)
Net Loss																(1,473,295	)		(1,473,295	)
Balance at June 30, 2019		-	$	-		57,371,187	$	57,371	$	87,921,688		$	(23,306	)	$	(63,197,392	)	$	24,758,361
Stock option expense										900,000									900,000
Issuance of common stock-Capital Raise						7,986,110		7,986		26,947,451									26,955,437
Issuance of common stock-Notes Payable Conversion						3,196,460		3,197		10,230,136									10,233,333
Issuance of common stock pursuant to exercise of stock options-Cashless						250,000		250		(250	)								-
Issuance of common stock pursuant to exercise of stock options-Cash						71,500		72		76,584									76,656
Foreign currency translation loss													(547,814	)					(547,814	)
Net Income																961,042			961,042
Balance at September 30, 2019		-	$	-		68,875,257	$	68,876	$	126,075,609		$	(571,120	)	$	(62,236,350	)	$	63,337,015

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)

	For the nine months ended
	September 30, 2020			September 30, 2019
Cash flows from operating activities:
Net income	$	6,857,988			11,144,342
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		82,180			48.289
Amortization		1,224,684			713,360
Bad debt allowance		244,685			62,678
Inventory excess and obsolescence allowance		211,822			300,143
Stock-based compensation expense		4,718,699			3,354,295
Gain on China transaction		(384,493	)		(12,050,921	)
Gain on lease cancellations		(152,112	)		-
Changes in operating assets and liabilities:
Accounts receivable-net		(9,031,438	)		(4,405,426	)
Inventory		(598,665	)		2,136,895
Prepaid expenses and other current assets		(561,752	)		(2,087,991	)
Accounts payable and accrued expenses		824,964			(27,338	)
Deposits/deferred revenue and other current liabilities		257,023			(252,302	)
Change in Right to Use and Lease Obligation-net		149,925			97,512
Net cash provided/(used) in operating activities		3,843,510			(966,464	)

Cash flows from investing activities:
Proceeds from note receivable		1,331,011			-
Purchase of property and equipment		(416,671	)		(55,321	)
Cash paid to escrow for acquisition					(14,849,999	)
Net cash provided/(used) in investing activities		914,340			(14,905,320	)

Cash flows from financing activities:
Proceeds from notes payable-related-party, net		-			1,500,000
Principal payments financial lease obligations		(259,231	)		-
Proceeds from exercise of stock options		2,296,343			224,083
Net Proceeds from Sale of Common Stock		21,983,116			26,955,437
Net cash provided by financing activities		24,020,228			28,679,520

Effect on exchange rate changes on cash and cash equivalents		289,338			(19,026	)

Net increase in cash and cash equivalents		29,067,416			12,788,710
Cash and cash equivalents at beginning of the period		23,090,682			7,743,181

Cash and cash equivalents at end of the period	$	52,158,098		$	20,531,891

Supplemental disclosures:
Cash paid during period for:
Interest	$	299,394		$	131,528

Non-cash investing and financing activities:
Debt Conversion and Related Accrued Expenses	$	-		$	10,233,333

European Acquisition Adjustment:
Goodwill	$	395,515			-
Other liabilities	$	(395,515	)

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

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

Business —Celsius Holdings, Inc. (the “Company” or “Celsius Holdings”) was incorporated under the laws of the State of Nevada on April 26, 2005. On January 24, 2007, the Company entered into a merger agreement and plan of reorganization with Elite FX, Inc., a Florida corporation. Under the terms of the Merger Agreement, Elite FX, Inc. was merged into the Company’s subsidiary, Celsius, Inc. and became a wholly-owned subsidiary of the Company on January 26, 2007. In addition, on March 28, 2007 the Company established Celsius Netshipments, Inc. a Florida corporation as a 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 (see Note 10).

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

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation – The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These unaudited consolidated financial statements and the accompanying notes should be read in conjunction with the 10K filed for December 31, 2019. The consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All material inter-company balances and transactions have been eliminated.

Significant Estimates — The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue and expenses and disclosure of contingent assets and liabilities at the date of the financial statements. Actual results could differ from those estimates. Significant estimates include the allowance for doubtful accounts, allowance for inventory obsolescence, the useful lives and values of property, fixtures and equipment, impairment of intangible assets & goodwill, valuation of stock-based compensation, and deferred tax asset valuation allowance.

Reclassification of Prior Year Presentation – Certain prior year amounts in the consolidated statements of cash flows have been reclassified for consistency with the current year presentation. An adjustment has been made to present certain changes in operating assets and liabilities related to the China Settlement as part of the total net changes in operating assets and liabilities, rather than as separately presented items. Additionally, modifications have been made to present the effects of depreciation & amortization, bad debt allowance and inventory excess and obsolescence allowance as adjustments to reconcile net income/(loss) to net cash flows from operating activities, rather than as part of changes in operating assets and liabilities. These reclassifications had no effect on previously reported cash flows from operating, investing, or financing activities.

Segment Reporting — Although the Company has a number of operating divisions, separate segment data has not been presented, as they meet the criteria for aggregation as permitted by ASC Topic 280, Segment Reporting, (formerly Statement of Financial Accounting Standards (SFAS) No. 131, Disclosed About Segments of an Enterprise and Related Information.)

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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

Our chief operating decision-maker is considered to be our Chief Executive Officer (CEO). The CEO reviews financial information presented on a consolidated basis for purposes of making operating decisions and assessing financial performance. The financial information reviewed by the CEO is identical to the information presented in the accompanying consolidated statement of operations. Therefore, the Company has determined that it operates in a single operating segment. For the nine months ended September 30, 2020 and 2019 all material assets and revenues of the Company were in the United States except as disclosed in Note 3.

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

The Company uses single supplier relationships for its raw materials purchases and filling capacity, which potentially subjects the Company to a concentration of business risk. If these suppliers had operational problems or ceased making product available to the Company, operations could be adversely affected.

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit. At September 30, 2020, the Company had approximately $51.9 million in excess of the Federal Deposit Insurance Corporation limit.

For the nine months ended September 30, 2020 and 2019, the Company had the following 10 percent or greater concentrations of revenue with its customers:

	2020			2019
A*		16.6	%		12.9	%
B*		-			13.9	%
All other		83.4	%		73.2	%
Total		100.0	%		100.0	%

Revenues from customer A are derived from a customer located in the United States. Revenues from customer B were derived from a customer located in Sweden which was acquired on October 25, 2019. Please refer to note 10, for further details. All other revenues were mainly derived from customers in the United States.

At September 30, 2020 and December 31, 2019, the Company had the following 10 percent or greater concentrations of accounts receivable with its customers:

	2020			2019
A**		19.9	%		19.2	%
All other		80.1	%		80.8	%
Total		100.0	%		100.0	%

**	Receivables from customer A are obtained from a customer located in the United States.

Cash Equivalents — The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. At September 30, 2020 and 2019, the Company did not have any investments with maturities of three months or less.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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

Accounts Receivable — Accounts receivable are reported a net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At September 30, 2020 and December 31, 2019, there was an allowance for doubtful accounts of $537,000 and $292,400, respectively.

Inventories — Inventories include only the purchase cost and are stated at the lower of cost and net realizable value. Cost is determined using the FIFO method. Inventories consist of raw materials and finished products. The Company establishes an inventory allowance to reduce the value of the inventory during the period in which such materials and products are no longer usable or marketable. Specifically, the Company reviews inventory utilization during the past twelve months and also customer orders for subsequent months. If there has been no utilization during the last 12 months and there are no orders in-place in future months which will require the use of inventory item, then inventory item will be included as part of the allowance during the period being evaluated. 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, 2020 and December 31, 2019, the Company recorded an allowance of $1,077,000 and $865,000 respectively. The changes in the allowance are included in cost of revenue.

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

Impairment of Long-Lived Assets — In accordance with ASC Topics 350 “Goodwill and Other Intangibles” and 360, “Property, Plant, and Equipment” the Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value.

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, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors 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, 2020, there were no indicators of impairment.

Revenue Recognition — As of January 1, 2018, the Company adopted Revenue from Contracts with Customers (Topic 606) (“ASC 606”). The new guidance sets forth a new five-step revenue recognition model which replaces the prior revenue recognition guidance in its entirety and is intended to eliminate numerous industry-specific pieces of revenue recognition guidance that have historically existed in U.S. GAAP. The underlying principle of the new standard is that a business or other organization will recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects what it expects to receive in exchange for the goods or services. The standard also requires more detailed disclosures and provides additional guidance for transactions that were not addressed completely in the prior accounting guidance. The Company adopted the standard using the modified retrospective method and the adoption did not have a material impact on its consolidated financial statements.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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

Revenue is derived from the sale of beverages. The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. 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. Any discounts, slotting fees, sales incentives or similar arrangements with the customer are estimated at time of sale and deducted from revenue. Sales taxes and other similar taxes are excluded from revenue.

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

Advertising Costs — Advertising costs are expensed as incurred. The Company uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising. The Company incurred advertising expense of approximately $9.6 million and $5.4 million, during nine months ending September 30, 2020 and 2019, respectively.

Research and Development — Research and development costs are charged to general and administrative expenses as incurred and consist primarily of consulting fees, raw material usage and test productions of beverages. The Company incurred expenses of $280,000 and $246,000 during the nine months ending September 30, 2020 and 2019, respectively.

Foreign Currency Translation — Foreign subsidiaries’ functional currency is the local currency of operations and the net assets of foreign operations are translated into U.S. dollars using current exchange rates. The U.S. dollar results that arise from such translation, as well as unrealized exchange gains and losses on intercompany balances of long-term investment nature, are included in Comprehensive Income. The Company incurred foreign currency translation gains during the nine months ended September 30, 2020 of approximately $113,000 and a loss of approximately $72,000 during the nine months ended September 30, 2019. Our operations in different countries required that we transact in the following currencies:

Chinese-Yuan

Norwegian-Krone

Swedish-Krona

Finland-Euro

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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

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

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

	Level 1:	Observable inputs such as quoted market prices in active markets for identical assets or liabilities.

	Level 2:	Observable market-based inputs or unobservable inputs that are corroborated by market data.

	Level 3:	Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.

Other than these noted previously, the Company did not have any other assets or liabilities measured at fair value at September 30, 2020 and December 31, 2019.

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

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

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The Company’s tax returns for tax years in 2017 through 2019 remain subject to potential examination by the taxing authorities.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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

Earnings per Share — Basic earnings per share are calculated by dividing net income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. Under ASC 260-10-45-16, the calculation of diluted earnings per share, the numerator should be adjusted to add back any convertible dividends and the after-tax amount of interest recognized in the period associated with any convertible debt. The denominator should include the number of additional common shares that would have been outstanding if the dilutive potential common shares had been issued. Please refer to the below table for additional details:

	For the three months ended September 30,				For the nine months ended September 30,
	2020		2019		2020		2019
Net income available to common stockholders	$	4,753,603	$	961,042	$	6,857,988	$	11,144,342
Adjustments for diluted earnings
Interest expense on convertible notes		-		105,385		-		348,493
Amortization of discount on notes payable		-		528,464		-		707,286
Diluted net income (loss) available to common stockholders	$	4,753,603	$	1,594,891	$	6,857,988	$	12,200,121

Income per share:
Basic	$	0.07	$	0.02	$	0.10	$	0.19
Diluted	$	0.06	$	0.03	$	0.09	$	0.20
Weighted average shares outstanding:
Basic		70,473,351		59,307,404		70,184,071		58,023,685
Diluted		74,848,239		62,532,510		73,524,209		62,050,032

Share-Based Payments — The Company follows the provisions of ASC Topic 718 “Compensation — Stock Compensation” and related interpretations. As such, compensation cost is measured on the date of grant at the fair value of the share-based payments. Such compensation amounts, if any, are amortized over the respective vesting periods of the grants. On April 30, 2015, the Company adopted the 2015 Stock Incentive Plan. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,000,000 shares. In addition, there is a provision for an annual increase of 15% to the shares included under the plan, with the shares to be added on the first day of each calendar year, beginning on January 1, 2017. As of September 30, 2020, total shares available are 880,000.

Cost of Sales — Cost of sales consists of the cost of concentrates and or beverage 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 & 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 nine months ended September 30, 2020 and 2019 was $6.5 million and $4.5 million, respectively.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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

Recent Accounting Pronouncements

The 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. 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. Early adoption is permitted for interim and annual periods beginning December 15, 2019. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. Adoption of this ASU did not have a material effect on our consolidated financial statements.

On January 1, 2020, the Company adopted ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. Adoption of this ASU did not have a material effect on our consolidated financial statements.

All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position with the exception of the updated previously disclosed above, there have been no new accounting pronouncements not yet effective that have significance to 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, 2020, the Company had an accumulated deficit of $56,551,443 which includes a net income of $6,857,988 for the nine months ended September 30, 2020. During the nine months ending September 30, 2020 the Company net cash provided in operating activities of $3,843,510

If our sales volumes do not meet our projections, expenses exceed our expectations, our plans change, we may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, we may be required to adjust our business plan, by reducing marketing, lower our working capital requirements and reduce other expenses or seek additional financing. Furthermore, our business and results of operations may be adversely affected by changes in the global macro-economic environment related to the pandemic and public health crises related to the COVID-19 outbreak. Please refer to the Item 1.A. Risk Factors, for further details regarding this situation.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

3.	REVENUE

The Company recognizes revenue when obligations under the terms of a contract with the customer are satisfied. Product sales occur once control is transferred upon delivery to the customer. Revenue is measured as the amount of consideration the Company expects to receive in exchange for transferring goods. 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. Sales taxes and other similar taxes are excluded from revenue.

Information about the Company’s net sales by geographical location for the nine months ended September 30, 2020 and 2019 are as follows:

	For the nine months ended
	September 30,		September 30,
	2020		2019
North America	$	67,083,888	$	42,607,433
Europe		26,799,756		7,635,845
Asia		868,915		629,028
Other		308,706		159,120
Net sales	$	95,061,265	$	51,031,426

License Agreement

In January 2019, the Company entered into a license and repayment of investment agreement with Qifeng Food Technology (Beijing) Co., Ltd (“Qifeng”). Under the agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize Celsius branded products in China. 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 $6.6 million, and then are subject to annual guaranteed minimums over the remaining term of the agreement.

Under the agreement, the Company grants Qifeng exclusive license rights and provides ongoing support in product development, brand promotion and technical expertise. The ongoing support is integral to the exclusive license rights and, as such, both of these represent a combined, single performance obligation. The transaction price consists of the guaranteed minimums and the variable royalty fees, all of which are allocated to the single performance obligation.

The Company recognizes revenue from the agreement over time because the customer simultaneously receives and consumes the benefits from the services. The Company uses the passage of time to measure progress towards satisfying its performance obligation because its efforts in providing the exclusive license rights and ongoing support occur on a generally even basis throughout the year. Total revenue recognized under the agreement was approximately $570,000 for the nine months ended September 30, 2020 and is reflected in the Company’s Asia reporting segment which was determined by the minimum royalties due during first year, as per the licensing agreement.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

4.	INVENTORIES

Inventories consist of the following at:

	September 30,			December 31,
	2020			2019
Finished goods	$	12,056,353		$	12,990,044
Raw Materials		4,700,209			3,167,853
Less: Inventory allowance for excess and obsolete products		(1,077,370	)		(865,548	)
Inventories	$	15,679,192		$	15,292,349

5.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets total $4.7 million and $4.2 million at September 30, 2020 and December 31, 2019, respectively, consist mainly of prepaid advertising, prepaid insurance, prepaid slotting fees and net deposits on purchases.

6.	NOTE RECEIVABLE

Note receivable consists of the following at:

	September 30,		December 31,
	2020		2019
Note Receivable-current	$	1,810,773	$	1,181,116
Note Receivable-non-current		9,053,866		10,630,040
Total Note Receivable	$	10,864,639	$	11,811,156

On January 1, 2019, the Company entered into a license and repayment of investment agreement with Qifeng Food Technology (Beijing) Co., Ltd (“Qifeng”). Under the agreement, Qifeng will repay the market investment Celsius has made into China to date, over a five-year period, under an unsecured, interest-bearing note receivable (“Note”). The initial outstanding principal under the Note was approximately $12.2 million which is denominated in Chinese Renminbi (CNY) and was recorded as Other Income on the Consolidated Statements of Operations. The amount recognized considered the net of the balances of the accounts receivable, accounts payable and accrued expenses, as well as the marketing investments that were performed in the China market.

Scheduled principal payments plus accrued interest are due annually on March 31 of each year starting in 2020. The Note is recorded at amortized cost basis and accrues interest at a rate per annum 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 September 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 nine months ended September 30, 2020, interest income was approximately $270,000.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

6.	NOTE RECEIVABLE (Continued)

The Company assesses the Note for impairment periodically by evaluating whether it is probable that the Company will be unable to collect all the contractual interest and principal payments as scheduled in the Note agreement, based on historical experience about Qifeng’s ability to pay, the current economic environment and other factors. If the Note is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows under the Note, discounted at the Note’s effective interest rate. At September 30, 2020, the Note was not deemed to be impaired.

The first installment of the note and interest of RMB 10,848,193 as well as royalties in the amount of RMB 2,404,900 were due on March 31, 2020. We were requested to provide a 3-month consideration to delay payment until September 30, 2020, due to the impact of the health crisis in China. As of June 30, 2020, we received payment of the RMB 10,848,193. An additional extension of 3-months was requested regarding the payment of the RMB 2,404,900 pertaining to the royalties. As of September 30, 2020, we received payment in full of the royalties that were due.

In order to grant the aforementioned considerations, a guarantee was obtained for the full amount of the royalties that were payable as of September 30, 2020, as well as the amounts that become due on March 31, 2021 pertaining to the Note, related interest and royalties. As collateral, we maintain a stock certificate in Celsius Holdings, Inc., which amount to 337,079 shares. The consideration and guarantee were provided and therefore the payments pertaining to the royalties, principal and interest are expected to be paid in full when they become due.

7.	LEASES

The Company’s leasing activities include an operating lease of its corporate office space from a related party (see Note 14) and several other operating and finance leases of vehicles and office space for the Company’s European operations.

At the inception of a contract, the Company assesses whether the contract is, or contains, a lease. The Company’s assessment is based on: (1) whether the contract involves the use of a distinct identified asset, (2) whether the Company obtains the right to substantially all the economic benefit from the use of the asset throughout the term, and (3) whether the Company has the right to direct the use of the asset. The Company allocates the consideration in the contract to each lease and non-lease component based on the component’s relative stand-alone price to determine the lease payments. Lease and non-lease components are accounted for separately.

Leases are classified as either finance leases or operating leases based on criteria in Topic 842. 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, consisting of lease payments, is recognized on a straight-line basis over the lease term. 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.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

7.	LEASES (Continued)

The following is a summary of lease cost recognized in the Company’s consolidated statements of operations:

	Three months ended				Three months ended
	September 30, 2020				September 30, 2019
	Operating		Finance		Operating		Finance
	Leases		Leases		Leases		Leases
Lease cost in general and administrative expenses:
Operating lease expense	$	104,380	$	-	$	38,760	$	-
Amortization of finance lease ROU assets		-		49,713		-		-
Total lease cost in general and administrative expenses		104,380		49,713		38,760		-

Lease cost in other expense:
Interest on finance lease liabilities		-		21,530		-		-
Total lease cost in other expense		-		21,530		-		-
Total lease cost	$	104,380	$	71,243	$	38,760		-

	Nine months ended				Nine months ended
	September 30, 2020				September 30, 2019
	Operating		Finance		Operating		Finance
	Leases		Leases		Leases		Leases
Lease cost in general and administrative expenses:
Operating lease expense	$	297,459	$	-	$	118,146	$	-
Amortization of finance lease ROU assets		-		289,277		-		-
Total lease cost in general and administrative expenses		297,459		289,277		118,146		-

Lease cost in other expense:
Interest on finance lease liabilities		-		27,585		-		-
Total lease cost in other expense		-		27,585		-		-
Total lease cost	$	297,459	$	316,862	$	118,146		-

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

7.	LEASES (Continued)

The following is a summary of the impact of the Company’s leases on the consolidated statements of cash flows:

	Nine months ended
	September 30,
	2020			2019
Leasing activity in cash flows from operating activities:
Operating leases		(185,388	)		(112,071	)
Interest payments on finance lease liabilities		(27,585	)		-
Total leasing activity in cash flows from operating activities		(212,973	)		(112,071	)

Leasing activity in cash flows from financing activities:
Principal payments on finance lease liabilities		(259,232	)		-
Total leasing activity in cash flows from financing activities:		(259,232	)		(74,714	)

The weighted-average remaining lease terms and weighted-average discount rates for operating and finance leases at September 30, 2020 and December 31, 2019 were as follows:

	September 30,			December 31,
	2020			2019
Weighted average remaining lease term (years) - operating leases		1.0			0.8
Weighted average remaining lease term (years) - finance leases		1.3			-
Weighted average discount rate - operating leases		4.76	%		5.00	%
Weighted average discount rate - finance leases		3.87	%		-	%

The future annual minimum lease payments required under the Company’s leases as of September 30, 2020 are as follows:

	Operating			Finance
Future minimum lease payments	Leases			Leases			Total
2020	$	79,568		$	80,485		$	160,053
2021		148,984			126,958			275,942
2022		10,516			67,106			77,622
2023		-			23,162			23,162
Total future minimum lease payments		239,068			297,711			536,779
Less: Amount representing interest		(5,612	)		(8,258	)		(13,870	)
Present value of lease liabilities		233,452			289,453			522,909
Less: current portion		(205,427	)		(192,504	)		(397,931	)
Long-term portion	$	28,029		$	96,949		$	124,978

8.	PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

	September 30,			December 31,
	2020			2019
Furniture, equipment and vehicles	$	946,221		$	529,550
Less: accumulated depreciation		(478,841	)		(396,661	)
Total	$	467,380		$	132,889

Depreciation expense amounted to $82,180 and $48,289 for the nine months ended September 30, 2020 and 2019, respectively.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

9.	GOODWILL AND INTANGIBLES

Goodwill consists of approximately $10,419,000 resulting from the excess of the consideration paid and the fair value of net tangible and intangible assets acquired from the Func Food Acquisition (see Note 10). As detailed in Note 10 goodwill increased by $395,000. There was no further activity related to goodwill during the nine months ended September 30, 2020.

Intangible assets consist of acquired customer relationships and brands from the Func Food Acquisition. The gross carrying amount and accumulated amortization of intangible assets were as follows as of September 30, 2020 and December 31, 2019:

	September 30,			December 31,
	2020			2019
Intangible assets subject to amortization
Customer relationships gross carrying amount	$	14,047,671		$	14,006,244
Less: accumulated amortization		(473,589	)		-
Total	$	13,574,082		$	14,006,244

Intangible assets not subject to amortization
Brands total carrying amount	$	3,166,756		$	3,166,756
Total Intangibles	$	16,740,838		$	17,173,000

Customer relationships are amortized over an estimated useful life of 25 years and brands have an indefinite life. Amortization expense for the nine months ended September 30, 2020 was $429,307. There was no amortization expense related to intangible assets for the nine months ended September 30, 2019.

Other fluctuations in the amounts of intangible assets are due to currency translation adjustments.

The following is the future estimated amortization expense related to customer relationships:

As of September 30, 2020:
2020	$	132,057
2021		560,378
2022		560,378
2023		560,378
2024		560,378
Thereafter		11,200,513
	$	13,574,082

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

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.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

11.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at:

	September 30,		December 31,
	2020		2019
Accounts payable	$	5,191,208	$	10,159,900
Accrued expenses		12,926,403		7,132,747
Total	$	18,117,611	$	17,292,647

12.

OTHER LIABILITIES

Other current liabilities consist of the following at:

	September 30,		December 31,
	2020		2019
Other Liabilities-State Beverage Container Deposit	$	716,678	$	107,399
Total	$	716,678	$	107,399

13.

BONDS PAYABLE

Bonds payable consists of the following as of:

	September 30,		December 31,
	2020		2019
Bonds were originally issued by Func Food Group, Oyj and were reinstated as part of the purchase consideration to acquire the European Operations (see Note 10). The Bonds are Euro-denominated, unregistered, and were issued on October 25, 2019 at an initial nominal amount of approximately $9.1 million, less discount and issuance costs of approximately $0.7 million. The Bonds accrue interest at a stated interest rate of 6.00% per annum, due semi-annually in arrears, with the first interest payment due on April 30, 2020. The maturity date of the Bonds is October 30, 2020. The Bonds are carried at the nominal amount, less any unamortized discount and issuance costs. The original issuance discount amounted to approximately $381,000. The discount is amortized using the effective interest rate method. As of September 30, 2020, the unamortized balance of the discount is approximately $42,000. Amortization of the discount was approximately $339,000 for the nine months ended September 30, 2020. The bond issuance costs amounted to $188,000. The issuance costs are being amortized over a straight-line basis, given the short-term nature and that it does not result in a material difference from applying the effective interest rate method. Amortization of the total bond discounts for the nine months ended September 30, 2020 was $506,100. Fluctuations in currency resulted in a translation loss of $399,628, for the nine months ended September 30, 2020.

Upon maturity of the Bonds, Func Food Group, Oyj may, at its own election, convert up to 50% of the outstanding nominal amount of the Bonds into shares of common stock, at a conversion price relative to the 30-day weighted-average trading price of the Company’s common shares prior to the Acquisition.

At Func Food Group, Oyj’s election, the Bonds are callable at 103% at any time. Additionally, mandatory prepayments would be required in the event of either i) a capital raise consummated by the Company or ii) the sale of a certain product line of Func Food. To the fullest extent possible, the net proceeds derived from either event must first be applied towards prepayment of the bonds at 103%, plus any accrued but unpaid interest on the repaid amount.

The Bonds are unsubordinated and are guaranteed by Func Food and its direct and indirect subsidiaries. The Bonds are secured by substantially all the assets of Func Food. The Bonds contain certain financial covenants that are specific to Func Food, mainly related to minimum cash requirements at the end of each quarter. As of September 30, 2020, Func Food is in compliance with these covenants.	$	9,540,007	$	8,634,279

Total Bonds Payable	$	9,540,007	$	8,634,279

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

14.

RELATED PARTY TRANSACTIONS

The Company’s office is rented from a company affiliated with CD Financial, LLC which is controlled by one of our major shareholders. Currently, the lease expires on October 2020 with monthly rent of $12,826. The rental fee is commensurate with other properties available in the market.

15.

STOCKHOLDERS’ EQUITY

Issuance of common stock pursuant to exercise of stock options

During the nine months ended September 30, 2020, the Company issued an aggregate of 1,272,336 shares of its common stock pursuant to the exercise of stock options granted under the Company’s 2015 Stock Incentive Plan. The Company received aggregate proceeds of $2,296,343 for 875,576 options exercised for cash, with the balance of the options having been exercised on a “cashless” basis.

During the nine months ended September 30, 2019, the Company issued an aggregate of 690,179 shares of its common stock pursuant to the exercise of stock options granted under the Company’s 2015 Stock Incentive Plan. The Company received aggregate proceeds of $224,083 for 245,584 options exercised for cash, with the balance of the options having been exercised on a “cashless” basis.

Issuance of common stock pursuant to private placement

On August 25, 2020 the Company issued 1,437,909 shares of its common stock and obtained approximately $22,000,000 of cash as part of a private placement.

Issuance of common stock pursuant to public placement

On September 16, 2019 the Company issued 7,986,110 shares of common stock in a public offering and obtained gross proceeds of $28,749,996 and paid $1,585,000 in commissions & fees and incurred in $209,559 of expenses related to the capital raise thereby resulting in net-proceeds in the amount of $26,955,437.

16.

STOCK-BASED COMPENSATION

The Company adopted an Incentive Stock Plan on January 18, 2007. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. While the plan terminates 10 years after the adoption date, issued options have their own schedule of termination. During 2013, the majority of the shareholders approved to increase the total available shares in the plan from 2.5 million to 3.5 million shares of common stock. During May 2014, the majority of the shareholders approved to increase the total available shares in the plan from 3.5 million to 4.25 million shares of common stock, during February 2015, the majority of the shareholders approved to increase the total available shares in the plan from 4.25 million to 4.6 million shares of common stock and during April 2015, the majority of the shareholders approved to increase the total available shares in the plan from 4.6 million to 5.1 million shares of common stock. Upon exercise, shares of new common stock are issued by the Company.

The Company adopted the 2015 Stock Incentive Plan on April 30, 2015. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,000,000 shares. In addition, there is a provision for an annual increase of 15% to the shares included under the plan, with the shares to be added on the first day of each calendar year, beginning on January 1, 2017. As of September 30, 2020, 880,000 shares are available.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

16.

STOCK-BASED COMPENSATION (Continued)

Under the 2015 Stock Option Plan the Company has options outstanding to purchase approximately 5.6 million shares at an average price of $4.08 per share with a fair value of $94.2 million. For the nine months ended September 30, 2020 and 2019, the Company issued options to purchase 495,274 and 1.68 million shares. For the nine months ended September 30, 2020 and 2019, the Company recognized an expense of approximately $4,719,000 and $3,354,295 respectively, of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of Operations) determined by application of a Black Scholes option pricing model with the following inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of September 30, 2020, the Company had approximately $6,786,000 of unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period of 3 years. The Company used straight-line amortization of compensation expense over the two to nine-year requisite service or vesting period of the grant. There are options to purchase approximately 2.78 million shares that are vested as of September 30, 2020.

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

	Nine months ended September 30,
	2020			2019
Expected volatility		69.18%-81.11	%		58.62%-121.32	%
Expected term		4.84-5.00 Years			4.02-5.00 Years
Risk-free interest rate		0.23% - 1.39	%		1.79% - 2.72	%
Forfeiture Rate		0.00	%		0.00	%

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

A summary of the status of the Company’s outstanding stock options as of September 30, 2020 and changes during the period ending on that date is as follows:

				Weighted Average		Aggregate Intrinsic		Average
	Shares			Exercise		Value		Remaining
	(000’s)			Price $		($ 000’s)		Term (Yrs)
Options
Balance at December 31, 2019		6,528		$	3.55	$	8,978		6.58
Granted		495		$	7.07
Exercised		(1,293	)	$	2.40
Forfeiture and cancelled		(141	)	$	3.94
Balance at September 30, 2020		5,589		$	4.08	$	94,174		6.41

Exercisable at September 30, 2020		2,785		$	3.79

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

16.

STOCK-BASED COMPENSATION (Continued)

The following table summarizes information about employee stock options outstanding at September 30, 2020:

	Outstanding Options						Vested Options
	Number						Number
	Outstanding						Exercisable
	At		Weighted		Weighted		at		Weighted		Weighted
	September 30,		Average		Average		September 30,		Average		Average
	2020		Remaining		Exercise		2019		Exercise		Remaining
Range of Exercise Price	(000’s)		Term		Price $		(000’s)		Price $		Term
$0.20 - $0.53		130		2.34	$	0.27		130	$	0.27		2.34
$0.65 - $1.80		49		4.15	$	1.05		49	$	1.05		4.15
$1.83 - $2.84		258		0.75	$	1.97		258	$	1.97		0.75
$3.20 - $6.20		5,089		6.79	$	4.19		2,347		4.24		5.60
$7.20 - $22.00		63		9.58	$	14.53		0	$	0		0
Outstanding options		5,589		6.41	$	4.08		2,785	$	3.79		4.97

As of September 30, 2020, the Company had approximately $6,786,000 of unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period of 3 years.

Restricted Stock Awards

Restricted stock awards are awards of common stock that are subject to restrictions on transfer and to a risk of forfeiture if the holder leaves the Company before the restrictions lapse. The holder of a restricted stock award is generally entitled at all times on and after the date of issuance of the restricted shares to exercise the rights of a shareholder of the Company, including the right to vote the shares. The value of stock awards that vest over time was established by the market price on the date of its grant. A summary of the Company’s restricted stock activity for the nine months ended September 30, 2020 and 2019 is presented in the following table:

	For the Nine Months ended
	September 30, 2020					September 30, 2019
				Weighted				Weighted
				Average				Average
				Grant Date				Grant Date
	Shares			Fair Value		Shares		Fair Value
Unvested at beginning of period		90,000		$	3.23		38,889	$	-
Granted		92,444			14.72		-		-
Vested		(18,582	)		14.72		8,333		-
Unvested at end of period		163,862		$	8.41		30,556	$	3.64

Unrecognized compensation expense related to outstanding restricted stock awards to employees and directors as of September 30, 2020 was $614,870, and expected to be expensed over the next 18 months.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

September 30, 2020

17.

COMMITMENTS AND CONTINGENCIES

On April 8, 2019, Daniel Prescod filed suit against Celsius Holdings, Inc., Case No. 19STCV09321, pending in Superior Court for the State of California, County of Los Angeles (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. This matter is still in its early stages and discovery has only just begun. The Company intends to contest the claims vigorously. Since this matter is still in its initial stages, the Company is unable to predict the outcome at this time.

On January 24, 2020, Evlution Nutrition, LLC filed suit against Celsius Holdings, Inc., Case No. 0:20-cv-60159-BB, pending in federal court for the Southern District of Florida, for trademark infringement (the “Evlution Litigation”). Evlution asserts that Celsius’ BCAA dietary supplement product’s use of BCAA + ENERGY infringes upon Evlution’s registered trademarks. The Company believes that Evlution’s trademarks are invalid, merely descriptive, and unenforceable and Celsius has filed a cancellation proceeding regarding those trademarks with the Trademark Trial and Appeal Board, which has been stayed, but Celsius reasserted these claims in counterclaims filed in the Evlution Litigation. The Company intends to defend against Evlution’s claims vigorously. This matter is still in its early stages and discovery has only just begun. Since this matter is still in its initial stages, the Company is unable to predict the outcome at this time.

In June of 2020, McGovern Capital, Inc. (“McGovern”) indicated that it intended to pursue a claim in arbitration related to its Representative Agreement with Celsius Holdings, Inc. as amended by the first amendment dated August 6, 2016. Pursuant to the Representative Agreement, McGovern is entitled to receive a fee of three percent (3%) of “Net Revenues” received by the Company’s 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 intends to pay McGovern its percentage of the annual royalty payment, but McGovern has objected claiming that McGovern is entitled to be paid commissions on the entire royalty payment and the amount of the loan to Qifeng. The Company has obtained two opinions pursuant to GAAP and related accounting rules indicating that its agreements with Qifeng are not “Net Revenue” as it relates to the repayment of the investments which are accounted for as a note receivable to the Company, and therefore that it has not breached any obligations to McGovern under its agreements. The Company intends to defend against McGovern’s claims vigorously. This matter is still in its early stages and there has been no discovery. Since this matter is still in its initial stages, the Company is unable to predict the outcome at this time.

In addition to the foregoing, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.

The Company has entered into distribution agreements with liquidated damages in case the Company cancels the distribution agreements without Cause. Cause has been defined in various ways. It is management’s belief that no such agreement has created any liability as of September 30, 2020.

Additionally, our business and results of operations may be adversely affected by the pandemic and public health crises related to the COVID-19 outbreak which is affecting the macro-economic environment. Please refer to Item 1.A. Risk Factors for further details.

18.

SUBSEQUENT EVENTS

On October 30, 2020, the Bonds Payable as reflected in Note 13, were paid-in-full and a release letter was obtained from the Bond Holders’ agent thereby releasing Func Food Group from any related liability or debt, as well as the release of the security interest pertaining to Func Food Group assets.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

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

Note Regarding Forward Looking Statements

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

Business Overview

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

We seek to combine nutritional science with mainstream beverages by using our proprietary thermogenic (calorie-burning) MetaPlus® formulation, while fostering the goal of healthier everyday refreshment by being as natural as possible without the artificial preservatives often found in many energy drinks and sodas. Celsius® has no artificial preservatives, aspartame or high fructose corn syrup and is very low in sodium. Celsius® uses good-for-you ingredients and supplements such as green tea (EGCG), ginger, calcium, chromium, B vitamins and vitamin C. The main Celsius line of products are sweetened with sucralose, a sugar-derived sweetener that is found in Splenda®, which makes our beverages low-calorie and suitable for consumers whose sugar intake is restricted.

We have undertaken significant marketing efforts aimed at building brand awareness, including a wide variety of marketing vehicles such as television, radio, digital, social media, sponsorships, and magazine advertising. We also undertake various promotions at the retail level such as coupons and other discounts in addition to in-store sampling.

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

Potential Effects of the COVID-19 Pandemic on the Company’s Business

See “Part II – Item 1.A. Risk Factors” for disclosure with respect to the potential effects of the COVID-19 pandemic on the Company’s business and additional risk factors with respect thereto.

Results of Operations

Three months ended September 30, 2020 compared to three months ended September 30, 2019

Revenue

For the three months ended September 30, 2020, revenue was approximately $36.8 million, an increase of $16.4 million or 80.4% from $20.4 million for the same quarter of 2019. The revenue increase of 80.4% was attributable to continued strong growth of 60.4% in North American revenues, reflecting double digit growth from existing accounts, new distribution and expanded distribution to major retailers. European revenue for the three months ended September 30, 2020 was $9.5 million, an increase of 182.3% from 2019 quarter revenue of $3.4 million. The 2020 results now reflect the full financial impact of consolidation of the results of operations of Func Food Group, Oyj (“Func Food”), our European distribution partner whom we acquired in October 2019. Asian revenues (which primarily consist of royalty revenues from our China licensee) for the three months ended September 30, 2020 amounted to $274,532 an increase of 40.8% from $194,982 in the 2019 quarter. Other international markets generated $145,415 of revenue during the third quarter of 2020, an increase of $57,015 when compared to $88,400 for the same quarter in the prior year. The total increase in revenue from the 2019 quarter to the 2020 quarter was primarily attributable to increases in sales volume, as opposed to increases in product pricing.

The following table sets forth the amount of revenues by segment and changes therein for the three months ended September 30, 2020 and 2019:

	Three months ended September 30,
Revenue Source	2020		2019		Change
Total Revenue	$	36,839,150	$	20,423,848		80.4	%

North American Revenue	$	26,891,527	$	16,765,598		60.4	%

European Revenue	$	9,527,676	$	3,374,868		182.3	%

Asian Revenue	$	274,532	$	194,982		40.8	%

Other	$	145,415	$	88,400		64.5	%

Gross profit

For the three months ended September 30, 2020, gross profit increased by approximately $8.9 million or 103.4% to $17.5 million, from $8.6 million for the same quarter in 2019. Gross profit margins for the three months ended September 30, 2020, were 47.6%, which compared favorably to 42.2% for the same quarter in 2019. The increase in gross profit is mainly related to increase in sales volume from the 2019 quarter to the 2020 quarter, as opposed to increases in product pricing.

Sales and marketing expenses

Sales and marketing expenses for the three months ended September 30, 2020 were approximately $8.3 million, an increase of approximately $3.3 million or 67.9% from approximately $4.9 million in the 2019 quarter. This increase reflects the impact of the consolidation of the operating results of Func Food following its October 2019 acquisition by the Company, which resulted in an increase in our marketing investments of 88.3% or $1.7 million from the 2019 quarter to the 2020 quarter. Similarly, all other sales and marketing expenses give effect to increases related to the consolidation of Func Food’s operations. Specifically, employee costs, which also includes investments in human resources to properly service our markets, increased to $2.3 million or 70.9% from the 2019 quarter to the 2020 quarter. Moreover, due to the increase in business volume from the 2019 quarter to the 2020 quarter, our support to distributors and investments in trade activities, our storage and distribution costs increased by $705,000 from the 2019 quarter to the 2020 quarter.

General and administrative expenses

General and administrative expenses for the three months ended September 30, 2020 were approximately $4.6 million, an increase of approximately $2.4 million or 107.7%, from $2.2 million for the three months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Food’s operations which were not present in the results for the 2019 quarter. As such, administrative expenses for the three months ended September 30, 2020 were $1.3 million, an increase of $865,700 or 181.9% from $475,797 for the prior year’s quarter. Employee costs for the three months ended September 30, 2020, reflected an increase of $360,307 or 63.0%, not only attributable to the consolidation of Func Food’s operations, but also reflecting additional investments in resources in order to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 quarter to the 2020 quarter were approximately $1.1 million. These increases mostly resulted from higher stock option expense of $1.2 million and, additional depreciation and amortization of $15,000 which were partially offset by net decreases in all other administrative expense of $121,744.

Other income/(expense)

Total net other income for the three months ended on September 30, 2020 was $45,300, which compares favorably to other expenses of $543,000 for the same period in the prior year. The 2020 quarter results reflect a total favorable impact of $588,300 which includes $155,000 of lower amortization expenses, $143,000 gain related to foreign currency fluctuations, $407,600 gain on note receivable from China and net other miscellaneous expenses of $62,800 which were partially offset by higher net interest expenses of $54,500.

Net Income/(Loss)

As a result of the above, for the three months ended September 30, 2020, net income was $4.8 million or $0.07 per share based on a weighted average of 70,473,351 shares outstanding and dilutive earnings per share of $0.06 based on a fully-dilutive weighted average of 74,848,239 shares outstanding, which includes the dilutive impact of outstanding stock options to purchase 4,374,888 shares. In comparison, for the three months ended September 30, 2019, the Company had net income of approximately $961,042 or a $0.02 per share, based on a weighted average of 59,307,404 shares outstanding and a dilutive earnings per share of $0.03 based on a fully-dilutive weighted average of 62,532,510 shares outstanding.

Nine months ended September 30, 2020 compared to nine months ended September 30, 2019

Revenue

For the nine months ended September 30, 2020, revenue was approximately $95.1 million, an increase of $44.1 million or 86.3% from $51.0 million for the same period in 2019. The revenue increase of was attributable in large part to continued strong growth of 57.4% in North American revenues, reflecting double digit growth in both existing accounts, new distribution and expanded distribution to major retailers. European revenue was $26.8 million for the nine-months ended September 30, 2020, an increase of 251.0%, from to $7.6 million in revenue for the 2019 period. The 2020 results now reflect the full financial impact of the consolidation of the results of operations of Func Food. Asian revenues (which primarily consist of royalty revenues from our China licensee) for the nine months ended September 30, 2020 were $868,915 an increase of 38.1% from $629,028 for the 2019 period. Other international markets generated $308,706 of revenue during the nine months ended September 30, 2020 an increase of $149,586 from $159,120 for the same period in 2019. The total increase in revenue from the 2019 period to the 2020 period was primarily attributable to increases in sales volume, as opposed to increases in product pricing.

The following table sets forth the amount of revenues by category and changes therein for the nine months ended September 30, 2020 and 2019:

	Nine months Ended September 30,
Revenue Source	2020		2019		Change

Total Revenue	$	95,061,265	$	51,031,426		86.3	%

North American Revenue	$	67,083,888	$	42,607,433		57.4	%

European Revenue	$	26,799,756	$	7,635,845		251.0	%

Asian Revenue	$	868,915	$	629,028		38.1	%

Other Revenue	$	308,706	$	159,120		94.0	%

Gross profit

For the nine months ended September 30, 2020, gross profit increased by approximately $22.3 million or 105.3% to $43.5 million, from $21.2 million for the same period in 2019. Gross profit margins increased to 45.8% for the nine months ended September 30, 2020 from 41.6% for the same period in 2019. The increase in gross profit dollars and gross profit margins is mainly related to increases in volume, as opposed to increases in product pricing.

Sales and marketing expenses

Sales and marketing expenses for the nine months ended September 30, 2020 were approximately $23.6 million, an increase of approximately $9.5 million or 67.8% from approximately $14.1 million for the same period in 2019. This increase reflects the impact of the consolidation of the operating results of Func Food following its October 2019 acquisition by the Company. As a result, our marketing investments increased by 77.4% or $4.2 million from the 2019 period to the 2020 period. Similarly, all other sales and marketing expenses give effect to increases related to the consolidation of Func Food’s operations. Specifically, employee costs for the 2020 period, which also includes investments in human resources to properly service our markets, increased by $3.6 million or 87.9% from the 2019 period. Moreover, due to the increase in business volume, our support to distributors, investments in trade activities and storage and distribution costs increased by $1.7 million from the 2019 period to the 2020 period.

General and administrative expenses

General and administrative expenses for the nine months ended September 30, 2020 were approximately $12.5 million, an increase of $5.3 million or 71.9%, from $7.2 million for the nine months ended September 30, 2019. This increase similarly reflects the impact of the consolidation of Func Food’s operations which were not present in the results for the 2019 period. As such, administrative expenses reflected an increase of $2.6 million, which included an increase of $221,000 in our bad debt reserve, to cover potential collectability risks associated with the COVID-19 pandemic. Employee costs for the nine months ended September 30, 2020, reflect an increase of $1.1 million or 58.9%, not only attributable to the consolidation of Func Food’s operations, but also additional investments in resources in order to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 period to the 2020 period were $1.4 million. These increases mostly resulted from higher stock option expense of $1.3 million, depreciation and amortization of $34,000 and net increases in all other administrative expenses of $59,000.

Other Income/(expense)

Total net other expense for the nine months ended on September 30, 2020 was $590,000, which reflects a variance of $11.9 million when compared to net total other income of $11.3 million for the same period in the prior year. The variance of $11.9 million is mainly related to the recognition of a gain of $12.1 million pertaining to a note receivable from our Chinese licensee. The note receivable is the part of an agreement executed with our China distributor, related to the restructuring of our business relationship to a royalty-based model, which requires the repayment, over a five-year period, pursuant to an unsecured, interest-bearing note, of the investment the Company made in the China market during 2017 and 2018.

Net Income

As a result of all of the above, for the nine months ended September 30, 2020, the Company had a net income of $6.9 million or $0.10 per share based on a weighted average of 70,184,071 shares outstanding and $0.09 per share based on a weighted average of 73,524,209 shares outstanding, which includes the dilutive impact of outstanding stock options to purchase 3,340,138 shares. In comparison, for the nine months ended September 30, 2019 there was net income of $11.1 million or $0.19 per share based on a weighted average of 58,023,685 shares outstanding, and after adding back interest expense on convertible notes of $348,493 and the amortization on discount on notes payable of $707,286, a diluted net income of $12.2 million or $0.20 per share based on a weighted average of 62,050,032 shares outstanding, which includes the dilutive impact of the stock options of 1,223,700 shares and the dilutive effect of the convertible notes of 2,802,647 shares.

Liquidity and Capital Resources

As of September 30, 2020, and December 31, 2019, we had cash of approximately $52.2 million and $23.1 million, respectively, and working capital of approximately $62.2 million and $24.8 million, respectively. Cash provided in operations during the nine months ended September 30, 2020 was approximately $3.8 million and cash used in operations was approximately $966,000 for the nine-month period ended September 30, 2019, mainly reflecting investments in inventory, pre-payments and deposits and increase in accounts receivable.

In addition to cash flow from operations, our primary sources of working capital have been private placements and public offerings of our securities (including a private placement of 1,437,909 shares at a price of $15.30 completed on August 25, 2020 and an underwritten public offering of 7,986,110 shares at an offering price of $3.60 per share completed on September 16, 2019) and our credit facility with CD Financial, LLC (“CD Financial”), an affiliate of a principal shareholder of the Company.

Our current operating plan for the next twelve (12) months reflects sufficient financial resources, notwithstanding the potential effects of the Covid-19 pandemic nevertheless; we do not contemplate obtaining additional financing.

Off Balance Sheet Arrangements

As of September 30, 2020, and December 31, 2019, we had no off-balance sheet arrangements.

Item 3. Quantitative Disclosures About Market Risks.

As a “smaller reporting company,” we are not required to provide the information required by this Item.

Item 4. Controls and Procedures

Management’s Report on Disclosure Controls and Procedures

Our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act, as of September 30, 2020, 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 President and Chief Executive Officer (our principal executive officer) and our Chief Financial Officer (our principal financial and accounting officer), or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.

Based on that evaluation, our President and Chief Executive Officer and our Chief Financial Officer have concluded that as of September 30, 2020, our disclosure controls and procedures were effective in that (a) we maintain records that in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (b) our records provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and board of directors; and (c) our records provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

Our President and Chief Executive Officer and our Chief Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officer and our Chief Financial Officer have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings.

In addition to matters previously reported in our periodic reports filed under the Securities Exchange Act of 1934, as amended, from time to time, we may become party to litigation or other legal proceedings that we consider to be a part of the ordinary course of our business.

Item 1.A. Risk Factors

The disclosure below amends and expands a number of the risk factors set forth in “Item 1.A -Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2019 to disclose the potential effects of the Coronavirus pandemic on the Company’s business. These risks and uncertainties, along with those previously disclosed in the Annual Report, could materially adversely affect our business or financial results.

Risks Relating to our Business

Deterioration of general economic conditions could harm our business and results of operations.

Our business and results of operations may be adversely affected by changes in the global macro-economic environment which may also reflect the negative impacts caused by pandemic and public health crises related to the COVID-19 pandemic. These macro-economic aspects may also impact inflation, currency exchange rates, interest rates, availability of capital markets, consumer demand, distribution and raw material costs.

Volatility in the financial markets and deterioration of global economic conditions could impact our business and operations in several ways, including the following:

●

Purchasing power of consumers may be reduced thereby affecting demand for our products;

●

Restrictions related to social distancing and other activities may limit the opportunity for our clients and consumers to purchase our products;

●

If a significant number of our employees are unable to work, including illness or travel restrictions in connection with COVID-19, our operations may be negatively impacted;

●

A shutdown of multiple co-packer facilities in connection with COVID-19 may affect our product availability;

●

Decreased demand for our products due to significant unemployment as a result of COVID-19 and macro-economic environment;

●

Limitations regarding our raw materials and other input components could substantially impact the availability of our products; and

●

If needed, it may become more costly or difficult to obtain debt or equity financing to fund operations or investment opportunities, or to refinance our debt, in each case, on terms and within a time period acceptable to us.

Disruption of our supply chain could have an adverse impact on our business, financial condition, and results of operations.

Our ability to commercialize our products is critical to our success. Damage or disruption to our supply chain, including third-party manufacturing or transportation and distribution capabilities, due to pandemics (such as the coronavirus (COVID-19)) and related aspects or other reasons beyond our control or the control of our suppliers and business partners, could impair our operations.

We are closely monitoring the COVID-19 pandemic and its potential impact on our supply chain, distribution and our consolidated results of operations. While we do not expect that the COVID-19 pandemic will have a significant adverse effect on our business, financial condition, or operations at this time, we are unable to accurately predict the impact that COVID-19 will have due to the uncertainties which include the ultimate geographic spread of the virus, the intensity of the virus, the duration of the outbreak, and/or actions that may be taken by governmental agencies.

We rely on our management team and other key personnel.

We depend on the skills, experience, relationships, and continued services of key personnel, including our experienced management team. In addition, our ability to achieve our operating goals also depends on our ability to recruit, train, and retain qualified individuals. We compete with other companies both within and outside of our industry for talented personnel, and we may lose key personnel or fail to attract and retain additional talented personnel. Any such loss or failure could adversely affect our product sales, financial condition, and operating results.

In particular, our continued success will depend in part, on our ability to retain the talents and dedication of key employees. If key employees finalize their employment, become ill as a result of the COVID-19 pandemic, or if an insufficient number of employees is retained to maintain effective operations, our business may be adversely affected and our management team may be distracted. Furthermore, we may not be able to locate suitable replacements for any of our key employees who leave or be able to offer employment to potential replacements on reasonable terms, all of which could adversely affect our procurement & distribution processes, sales & marketing activities, financial processes & condition and results of operations.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.

None.

Item 3. Defaults Upon Senior Securities.

None.

Item 4. Mine Safety Disclosures.

Not applicable.

Item 5. Other Information.

None.

Item 6. Exhibits.

Exhibit No.		Description of Exhibit
31.1		Section 302 Certification of Chief Executive Officer

31.2		Section 302 Certification of Chief Financial Officer

32.1		Section 906 Certification of Chief Executive Officer

32.2		Section 906 Certification of Chief Financial Officer

101.INS		XBRL Instance Document

101.SCH		XBRL Taxonomy Extension Schema Document

101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF		XBRL Taxonomy Extension Definition Linkbase Document

101.LAB		XBRL Taxonomy Extension Label Linkbase Document

101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

SIGNATURES

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

	CELSIUS HOLDINGS, INC.

Dated: November 12, 2020	By:	/s/ John Fieldly
		John Fieldly, Chief Executive Officer (Principal Executive Officer)

Dated: November 12, 2020	By:	/s/ Edwin Negron-Carballo
		Edwin Negron-Carballo, Chief Financial Officer (Principal Financial and Accounting Officer)