Amended Annual Report (10-k/a)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K/A

AMENDMENT NO. 1

ANNUAL REPORT PURSUANT TO SECTIONS 13 OR 15(d)

THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2019

Commission File No. 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)

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

Common Stock, $0.001 par value

(Title of Class)

Name of each exchange on which registered: The Nasdaq Capital Market (Trading Symbol CELH)

Securities registered under Section 12(g) of the Exchange Act: None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. ☐ Yes ☒ No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. ☒ Yes ☐ No

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 during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). ☒ Yes ☐ No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See 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 aggregate market value of the common stock held by non-affiliates of the Registrant was approximately $62,459,070 as of June 30, 2019 for the Company’s common stock on such date on the Nasdaq Capital Market. For purposes of the foregoing computation, all executive officers, directors, and 10% beneficial owners of the Registrant are deemed to be affiliates.

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date. There were 69,239,260 shares of common stock outstanding as of March 11, 2020.

DOCUMENTS INCORPORATED BY REFERENCE: No documents are incorporated by reference into this Report except those Exhibits so incorporated as set forth in the Exhibit index.

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

EXPLANATORY NOTE

The Company is filing this Form 10-K/A Amendment No. 1 to its Annual Report on Form 10-K for the fiscal year ended December 31, 2019 (in response to certain comments of the Staff of the Securities and Exchange Commission (the “SEC”) with respect to our originally filed Annual Report on Form 10-K for the year ended December 31, 2019 (the “2019 Form 10-K”). This Form 10-K/A amends the 2019 Form 10-K as follows:

“Item 8. Financial Statements and Supplementary Data” of the 2019 Form 10-K is amended to present an amended Report of Independent Registered Public Accounting Firm to reflect the fact that the operations of Func Food Group, Oyj, (“Func Food”), our Nordic distributor which we acquired on October 25, 2019, was excluded from management’s assessment of internal control over financial reporting.

“Item 9A. Controls and Procedures” was amended to (i) include a revised management’s report on internal controls that identifies the acquired business and indicates the significance of the acquired business to the consolidated financial statements; and (ii) disclose that the Company’s disclosure controls and procedures, as it related specifically to the acquisition of Func Food, were not effective as of December 31, 2019 in light of the fact that (a) the aforementioned disclosures were inadvertently omitted; and (b) the historical financial statements of Func Food that were provided in the Company’s Current Report on Form 8-K/A filed on January 8, 2020, did not fully comply with Rule 3-05/8-04 of Regulation S-X, given that the audit opinion on Func Food’s financial statements for the year ended December 31, 2018 included therein, was qualified as it related to the evaluation of impairment of intangible assets.

Except as described above, this Form 10-K/A does not amend, update, or change any other items or disclosures in the 2019 Form 10-K and does not purport to reflect any information or events subsequent to the filing thereof.

Item 8. Financial Statements and Supplementary Data

The financial statements and supplementary data listed in “Item 15. Financials Statements and Exhibits” are attached to this Report.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

Not applicable.

Item 9A. Controls and Procedures.

Disclosure controls and procedures

Our President and Chief Executive Officer as well as 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 December 31, 2019, 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 December 31, 2019, our disclosure controls and procedures were in-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.

In the Company’s Form 10-K for the fiscal year ended December 31, 2019, originally filed with the SEC on March 12, 2020, the following disclosures were not explicitly detailed:

The Report of Independent Registered Public Accounting Firm in Part II-Item 8. Financial Statements and Supplementary Data did not reflect the fact that Func Food, our Nordic distribution partner, whose business the Company acquired on October 25, 2019, was excluded from management’s assessment of internal control over financial reporting, as permitted by the SEC in the fiscal year in which a business combination is consummated.

Management’s report on internal control in Part II-Item 9A. Controls and Procedures did not fully identify the acquired business and indicate the significance of the acquired business to the consolidated financial statements.

Additionally, the historical financial statements of Func Food that were provided in the Company’s Form 8-K/A filed on January 8, 2020 were not fully aligned with Rule 3-05/8-04 of Regulation S-X. This was due to the fact that (a) Func Food’s annual financial statements for the fiscal year ended December 31, 2018 contained a qualified audit opinion related to estimation of intangible assets and goodwill impairment and intercompany balances of the predecessor parent company, none of which has an impact on the accounting for the acquisition or its post-acquisition operations; and (b) we did not fully provide the required unaudited interim period historical financial statements. Specifically, the Form 8-K/A did not include the interim financial statements for the nine months ended September 30, 2018 and statements of comprehensive income, cash flows, and changes in stockholders’ equity for the nine months ended September 30, 2019 (balance sheet and income statement were included), primarily due to limited ability to obtain such information given that the predecessor Func Food entity was going through a debt restructuring as detailed in the Company’s Exchange Act filings.

While we believe there were mitigating circumstances around these areas, the Company nonetheless did not fully satisfy all of the disclosure requirements of the SEC. Accordingly, our President and Chief Executive Officer and our Chief Financial Officer have concluded that as of December 31, 2019, our disclosure controls and procedures were not effective.

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 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.

Management’s report on internal control over financial reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our President and Chief Executive Officer and our Chief Financial Officer, conducted an evaluation of the effectiveness of internal control over financial reporting as of December 31, 2019, based on the framework set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013). Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, the Company’s principal executive and financial officers and effected by the Company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

●

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

●

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

●

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

Management has excluded the acquired business from management’s report on internal control over financial reporting. The SEC’s general guidance permits the exclusion of an assessment of the effectiveness of a registrant’s controls and procedures as they relate to its internal control over financial reporting for an acquired business during the first year following such acquisition if, among other circumstances and factors, there is not an adequate amount of time between the acquisition date and the date of assessment. On October 25, 2019, we completed the acquisition of Func Food Group, Oyj (“Func Food”) and did not have time to perform an adequate assessment of their internal control environment. In accordance with the SEC guidance, the scope of our evaluation of internal controls over financial reporting as of December 31, 2019, did not include an assessment of the internal controls over financial reporting of these acquired operations. Net Revenue generated from the acquired operations only represented 8.8% as of December 31, 2019 and total assets of the acquired business represented approximately 30% of the Company’s total assets as of December 31, 2019.

Although we were not able to execute a thorough assessment, we began to perform evaluations of internal controls, on an on-going basis, over financial reporting for these acquired operations as well as their processes and systems with the assistance of a reputable international accounting firm. As such, it was deemed that the acquired operations and financial reporting processes did not have a material impact to our internal controls over financial reporting. As such, we have concluded that controls were effective as of the time of the acquisition and continue to be effective based on the work that has been performed. Additionally, we conducted multiple training sessions with their finance and administrative personnel, as it relates to our internal control environment and policies which were implemented as part of the integration process. Moreover, from a financial reporting perspective we review their figures and conduct thorough analytical reviews of their results and also validate the consolidation of their figures at the European level.

Based on the evaluation conducted under the above-referenced framework, our President and Chief Executive Officer and our Chief Financial Officer concluded that as of December 31, 2019, our internal control over financial reporting was effective.

While we did determine that the Company’s disclosure controls and procedures were not effective, as discussed in the preceding section, this did not impact the conclusion that our internal control over financial reporting was effective. Disclosure controls and procedures are those which are designed to ensure that information required to be disclosed by the Company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized, and reported, within the time periods specified in the SEC’s rules and forms. While there is substantial overlap between a company’s disclosure controls and procedures and its internal control over financial reporting, some elements of disclosure controls and procedures are beyond the scope of internal control over financial reporting.

We believe the factors which led to the conclusion that the Company’s disclosure controls and procedures were not effective were of such an isolated nature and impact, that they are beyond the scope of the Company’s internal control over financial reporting, as they do not impact or pertain to the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Attestation Report of the Registered Public Accounting Firm

Effective with the filing of this report, the Company is deemed to be an “accelerated filer” as defined in Rule 12b-2 under the Exchange Act. Accordingly, we have included the Report of Independent Registered Public Accounting Firm in Item 8 setting forth our registered public accounting firm’s attestation report on the Company’s internal control over financial reporting in accordance with Item 308 (b) of Regulation S-K.

Changes in Internal Controls Over Financial Reporting

There were no changes in our internal controls over financial reporting that occurred during the fourth quarter of the year ended December 31, 2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Item 15. Financial Statements and Exhibits

(a)

The following documents are filed as part of this Report:

(1)

Financial Statements. The following consolidated financial statements and the report of our independent registered public accounting firm, are filed as “Item 8. Financial Statements and Supplementary Data” of this Report:

Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 31, 2019 and 2018

Consolidated Statements of Operations for the years ended December 31, 2019 and 2018

Consolidated Statements of Comprehensive Income for the years ended December 31, 2019 and 2018

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018

Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018

Notes to Consolidated Financial Statements

(2)

Financial Statement Schedules.

Financial Statement Schedules are omitted because the information required is not applicable or the required information is shown in the financial statements or notes thereto.

(3)

Exhibits.

Exhibit No.		Description

3.1		Articles of Incorporation, as amended*

3.2		Bylaws, as amended*

10.1		Loan and Security Agreement with CD Financial, LLC, as amended*

10.2		Investors’ Rights Agreement dated April 20, 2015*

10.3		Amended 2006 Incentive Stock Plan*⁺

10.4		2015 Incentive Stock Plan*⁺

10.5		Code of Ethics*

10.6		Audit Committee Charter*

10.7		Compensation Committee Charter*

10.8		Nominating and Corporate Governance Committee Charter*

10.9		Employment Agreement effective January 1, 2016 with John Fieldly*⁺

10.10		Common Stock Purchase Agreement dated April 20, 2015*

10.11		Employment Agreement effective January 1, 2017 between the Company and John Fieldly^+**

10.12		Addendum to Employment Agreement effective March 1, 2017 between the Company and John Fieldly^+**

10.13		Employment Agreement dated April 16, 2018 between the Company and John Fieldly^+***

10.14		Convertible Loan Agreement between the Company and Charmnew Limited dated December 12, 2019****

10.15		Convertible Loan Agreement between the Company and Grieg International Limited dated December 12, 2019****

10.16		Amended and Restated Convertible Loan Agreement between the Company and CD Financial, LLC dated December 14, 2018****

10.17		Convertible Promissory Note in favor of Charmew Limited dated December 12, 2018****

10.18		Convertible Promissory Note in favor of Grieg International Limited dated December 12, 2018****

10.19		Master Transfer Agreement dated effective September 11, 2019*****

21.1		Subsidiaries of Registrant******

23.1		Consent of Independent Registered Public Accounting Firm******

31.1		Section 302 Certification by Chief Executive Officer*******

31.2		Section 302 Certification by Chief Financial Officer*******

32.1		Section 906 Certification by Chief Executive Officer*******

32.2		Section 906 Certification by Chief Financial Officer******

⁺Management compensation plan or arrangement.

*Previously filed as an Exhibit to the Company’s Registration Statement on Form 10 and incorporated herein by reference.

**Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated February 27, 2017 and incorporated herein by reference.

***Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated April 20, 2018 and incorporated herein by reference.

****Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated December 19, 2018 and incorporated herein by reference.

*****Previously filed as an Exhibit to the Company’s Current Report on Form 8-K dated September 11, 2019 and incorporated herein by reference.

*****Previously filed as an Exhibit to the 2019 Form 10-K

^******Filed herewith.

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.

Date: May 13, 2021	CELSIUS HOLDINGS, INC.

	By:	/s/ John Fieldly
		John Fieldly, Chief Executive Officer (Principal executive officer)

By:

/s/ Edwin Negron-Carballo

Edwin Negron-Carballo, Chief Financial Officer

(Principal financial and accounting officer)

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

	Page

Report of Independent Registered Public Accounting Firm	F-2

Consolidated Balance Sheets as of December 31, 2019 and 2018	F-3

Consolidated Statements of Operations for the years ended December 31, 2019 and 2018	F-4

Consolidated Statements of Comprehensive Income/(loss) for the years ended December 31, 2019 and 2018	F-5

Consolidated Statements of Changes in Stockholders’ Equity for the years ended December 31, 2019 and 2018	F-6

Consolidated Statements of Cash Flows for the years ended December 31, 2019 and 2018	F-7

Notes to Consolidated Financial Statements	F-8

F-1

Amended Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Celsius Holdings, Inc.

Opinions on the Financial Statements and Internal Control over Financial Reporting

We have audited the accompanying consolidated balance sheets of Celsius Holdings, Inc. (the Company) as of December 31, 2019 and 2018, and the related consolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the years in the two-year period ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). We also have audited the Company’s internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2019 and 2018 and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2019, based on criteria established in Internal Control—Integrated Framework (2013) issued by COSO.

As described in the accompanying Management’s Report on Internal Control over Financial Reporting, management has excluded the acquired business of Func Food Group, from management’s report on internal control over financial reporting. We also excluded the acquired business from our audit of internal control over financial reporting.

Basis for Opinion

The Company’s management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s consolidated financial statements and an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.

Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.

Definition and Limitations of Internal Control over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ Assurance Dimensions

We have served as the Company’s auditor since 2017.

Coconut Creek, Florida
May 13, 2021

F-2

Celsius Holdings, Inc.

Consolidated Balance Sheets

	December 31, 2019			December 31, 2018
ASSETS

Current assets:
Cash	$	23,090,682		$	7,743,181
Accounts receivable-net (note 2)		7,774,618			12,980,396
Note receivable-current (note 6)		1,181,116			-
Inventories-net (note 4)		15,292,349			11,482,701
Prepaid expenses and other current assets (note 5)		4,170,136			2,299,375
Total current assets		51,508,901			34,505,653

Notes Receivable (note 6)		10,630,041			-
Property and equipment-net (note 8)		132,889			121,854
Right of use assets (note 7)		809,466			-
Long term security deposits		104,134			-
Intangibles (note 9)		17,173,000			-
Goodwill (note 9)		10,023,806			-
Total Assets	$	90,382,236		$	34,627,507

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses (note 11)	$	17,292,647		$	14,845,211
Lease liability obligation (note 7)		649,074			-
Bonds payable-net (note 14)		8,634,279			-
Other current liabilities (note 12)		107,399			19,933
Total current liabilities		26,683,399			14,865,144

Long-term liabilities:
Lease liability obligation (note 7)		239,848			-
Revolving line of credit-note payable-related party (note 13)		-			3,500,000
Convertible note payables-related party-net (note 13)		-			4,459,381
Total Liabilities		26,923,247			22,824,525

Commitments and contingences (note 20)
Stockholders’ Equity:
Preferred Stock, $0.001 par value; 2,500,000 shares authorized, zero shares issued and outstanding at December 31, 2019 and December 31, 2018 (note 15)		-			-
Common stock, $0.001 par value; 75,000,000 shares authorized, 68,941,311 and 57,002,508 shares issued and outstanding at December 31, 2019 and December 31, 2018, respectively (note 17)		68,942			57,003
Additional paid-in capital		127,552,998			85,153,667
Accumulated other comprehensive loss		(753,520	)		(26,997	)
Accumulated deficit		(63,409,431	)		(73,380,691	)
Total Stockholders’ Equity		63,458,989			11,802,982
Total Liabilities and Stockholders’ Equity	$	90,382,236		$	34,627,507

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

F-3

Celsius Holdings, Inc.

Consolidated Statements of Operations

	For the year
	ended December 31,
	2019			2018
Revenue	$	75,146,546		$	52,603,986
Cost of revenue		43,844,733			31,543,608
Gross profit		31,301,813			21,060,378

Selling and marketing expenses		21,129,722			21,213,530
General and administrative expenses		11,620,534			10,487,592
Total operating expense		32,750,256			31,701,122

Loss from operations		(1,448,443	)		(10,640,744	)

Other Income/(Expense):

Interest income on note receivable (note 6)		381,728			-
Interest expense		(509,430	)		(174,409	)
Interest on other obligations		(57,579	)		-
Loss on debt extinguishment		-			(377,048	)
Amortization of discount on notes payable		(707,286	)		(14,447	)
Amortization of discount on bonds payable		(119,188	)		-
Other miscellaneous expense		(29,579	)		-
Gain on investment repayment-(note 6)		12,461,037			-
Total Other Income/(Expense)		11,419,703			(565,904	)

Net Income/(Loss)		9,971,260			(11,206,648	)

Preferred stock dividend – other		-			(213,133	)
Net Income/(Loss) available to common stockholders	$	9,971,260		$	(11,419,781	)

Income/(Loss) per share:
Basic	$	0.16		$	(0.23	)
Diluted	$	0.16		$	(0.23	)
Weighted average shares outstanding:
Basic		60,761,995			50,050,696
Diluted¹		64,183,399			50,050,696

Please refer to Earnings per Share section for further details

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

F-4

Celsius Holdings, Inc.

Consolidated Statements of Comprehensive Income/(loss)

For the years ended December 31, 2019 and 2018

	For the year
	ended December 31,
	2019			2018
Net Income/(Loss) available to common stockholders, as reported	$	9,971,260		$	(11,419,781	)
Other comprehensive income/(loss):
Unrealized foreign currency translation (loss)/income		(60,580	)		12,381
Comprehensive income/(loss)	$	9,910,680		$	(11,407,400	)

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

F-5

Celsius Holdings, Inc.

Consolidated Statements of Changes in Stockholders’ Equity

For the Years Ended December 31, 2019 and 2018

														Accumulated
	Preferred Stock						Common Stock				Additional Paid-In			Other- Comprehensive			Accumulated
	Shares			Amount			Shares		Amount		Capital			Income (Loss)			Deficit			Total

Balance at December 31, 2017		6,760		$	7			45,701,593	$	45,702	$	79,101,824		$	(39,378	)	$	(61,960,910	)	$	17,147,245

Preferred stock C - conversion to common stock		(3,016	)		(3	)		5,806,022		5,806											5,803
Issuance of preferred stock for conversion of accrued dividends		256										255,903									255,903
Preferred stock D- conversion to common stock		(4,000	)		(4	)		4,651,163		4,651		(10,450	)								(5,803	)
Stock option expense												4,293,797									4,293,797
Issuance of common stock in exchange of service								60,000		60		279,540									279,600
Issuance of common stock pursuant to exercise of stock options - Cashless								313,008		313		(313	)								-
Issuance of common stock pursuant to exercise of stock options - Cash								470,722		471		301,252									301,723
Loss on debt extinguishment												377,048									377,048
Beneficial Conversion Feature on Convertible Instruments												555,066									555,066
Preferred stock dividend																		(213,133	)		(213,133	)
Foreign currency translation															12,381						12,381
Net loss																		(11,206,648	)		(11,206,648	)
Balance at December 31, 2018		-		$	-			57,002,508	$	57,003	$	85,153,667		$	(26,997	)	$	(73,380,691	)	$	11,802,982

Issuance of common stock from public offering								7,986,110		7,986		26,947,451									26,955,437
Issuance of common stock on conversion of note payable								3,196,460		3,196		10,230,136									10,233,332
Stock option expense												4,831,750									4,831,750
Issuance of common stock pursuant to exercise of stock options - Cashless								510,649		511		(511	)								-
Issuance of common stock pursuant to exercise of stock options - Cash								245,584		246		223,837									224,083
Beneficial Conversion Feature on Convertible Instruments												166,668									166,668
Foreign currency translation															(726,523	)					(726,523	)
Net income																		9,971,260			9,971,260
Balance at December 31, 2019		-		$	-			68,941,311	$	68,942	$	127,552,998		$	(753,520	)	$	(63,409,431	)	$	63,458,989

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

F-6

Celsius Holdings, Inc.

Consolidated Statements of Cash Flows

	For the year ended
	December 31, 2019			December 31, 2018
Cash flows from operating activities:
Net income/(loss)	$	9,971,260		$	(11,206,648	)
Adjustments to reconcile net income/(loss) to net cash provided/used in operating activities:
Depreciation		66,939			72,162
Amortization		826,474			-
Loss on Debt Extinguishment		-			377,048
Stock-based compensation expense for services		-			279,600
Stock-based compensation expense		4,831,750			4,293,797
Bad debt allowance		109,393			-
Inventory excess and obsolescence allowance		331,985			-
Gain on China transaction		(12,461,037	)		-
Changes in operating assets and liabilities:
Accounts receivable-net		(1,432,980	)		(6,604,738	)
Inventory		(2,239,254	)		(6,177,196	)
Prepaid expenses and other current assets		(805,571	)		(1,118,930	)
Accounts payable and accrued expenses		2,624,892			8,533,388	)
Accrued preferred dividends		-			(96,916	)
Change in Right to Use and Lease Obligation-net		105,943			-
Deposits/deferred revenue and other current liabilities		(895,806	)		2,013
Net cash used in operating activities		1,033,988			(11,646,420	)

Cash flows from investing activities:
Purchase of property and equipment		(77,974	)		(110,417	)
Cash consideration for acquisition-net of cash from acquisition		(14,188,056	)		-
Net cash used in investing activities		(14,266,030	)		(110,417	)

Cash flows from financing activities:
Principal Payments-Finance Leases		(26,486	)		-
Proceeds from notes payable-related-party, net		1,500,000			5,000,000
Net proceeds from sale of common stock		26,955,437			-
Proceeds from exercise of stock options		224,083			301,013
Net cash provided by financing activities		28,653,034			5,301,013

Effect on exchange rate changes on cash and cash equivalents		(73,491	)		(12,381	)

Net increase/(decrease) in cash and cash equivalents		15,347,501			(6,443,443	)

Cash and cash equivalents at beginning of the year		7,743,181			14,186,624

Cash and cash equivalents at end of the year	$	23,090,682		$	7,743,181
Supplemental disclosures:
Cash paid during period for:
Interest	$	131,528		$	174,409
Preferred Dividends	$	-		$	40,000
Non-cash investing and financing activities:
Accrued preferred dividends	$	-		$	-
Debt conversion and related accrued expenses into common stock	$	10,233,332		$	-
Non-Cash Items Related to China Settlement:
Accounts Receivable	$	3,314,146		$	-
Inventory	$	258,688		$	-
Pre-paid expense and other current assets	$	175,185		$	-
Accounts payable and accrued expenses	$	(3,748,019	)	$	-
European acquisition detail of assets acquired & liabilities assumed:
Accounts Receivable	$	1,300,468		$	-
Inventory	$	2,161,067		$	-
Other assets	$	1,240,375		$	-
Intangible assets	$	17,173,000		$	-
Goodwill	$	10,024,000		$	-
Accounts payable and accrued expenses	$	(3,489,080	)	$	-
Lease liability obligations	$	(817,041	)	$	-
Bonds Payable	$	(8,356,958	)	$	-
Other liabilities	$	(532,088	)	$	-

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

F-7

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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 two subsidiaries 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 September 3, 2019 the Company established Celsius European Holdings B.V. as a wholly- owned subsidiary of the Company. On October 25, 2019, Func Food Group Oyj became a wholly-owned subsidiary of Celsius European Holdings B.V.

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

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

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

Consolidation Policy — The accompanying consolidated financial statements include the accounts of Celsius Holdings, Inc. and its subsidiaries. All material inter-company balances and transactions have been eliminated in consolidation.

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

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.)

F-8

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

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

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

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents and accounts receivable. The Company places its cash and cash equivalents with high-quality financial institutions. At times, balances in the Company’s cash accounts may exceed the Federal Deposit Insurance Corporation limit. At December 31, 2019, the Company had approximately $22.8 million in excess of the Federal Deposit Insurance Corporation limit.

For the years ended December 31, 2019 and 2018, the Company had the following 10 percent or greater concentrations of revenue with its customers:

	2019			2018
A*		12.0	%		8.0	%
B*		-			15.8	%
All other		88.0	%		76.2	%
Total		100.0	%		100.0	%

At December 31, 2019 and 2018, the Company had the following 10 percent or greater concentrations of accounts receivable with its customers:

	2019			2018
A**		19.2	%		7.2	%
B**		-			38.2	%
C**		-			25.2	%
All other		80.8	%		29.4	%
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, further details. All other revenues customers were mainly derived from the United States.

**Receivables from customer A are obtained from a customer located in the United States. Receivables from customer B were derived from a customer located in Sweden which was acquired on October 25, 2019. Please refer to note 10, further details. Receivables from customer C pertained to a customer in China which now reflects the change in our China business model to a royalty and licensing framework.

Cash Equivalents — The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. At December 31, 2019 and 2018, the Company did not have any investments with maturities of three months or less.

Accounts Receivable — Accounts receivable are reported at net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At December 31, 2019 and 2018, there was an allowance for doubtful accounts of $292,400 and $183,000, respectively.

F-9

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

Inventories — Inventories include only the purchase cost and are stated at the lower of cost and net realizable value. Cost is determined using the FIFO method. Inventories consist of raw materials and finished products. The Company establishes an inventory reserve 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 reserve 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). In 2019 and 2018, the Company recorded inventory reserves in the amount of $332,000 and $74,650, respectively. The increase in reserve is related to recording European inventories at fair market value. The inventory reserve is included in cost of revenue. Free Samples are recorded as cost of sales.

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

Impairment of Long-Lived Assets — In accordance with ASC 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 use a two-step process to determine the amount of goodwill impairment. The first step requires comparing the fair value of the reporting unit to its net book value, including goodwill. A potential impairment exists if the fair value of the reporting unit is lower than its net book value. The second step of the process, performed only if a potential impairment exists, involves determining the difference between the fair value of the reporting unit’s net assets, other than goodwill, and the fair value of the reporting unit. An impairment charge is recognized for the excess of the carrying value of goodwill over its implied fair value. For the year ended December 31, 2019, there were no indicators for impairment.

On October 25, 2019 the Company acquired 100% of Func Food Group Oyj (“Func Food”) their distributor in the Nordics. As a result of the acquisition goodwill of approximately $10,024,000 resulted from the excess of the consideration paid and the fair value of net tangible and intangible assets (see note 10). There was no other activity related to goodwill during the years ended December 31, 2019 or 2018.

F-10

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

Intangible assets – Intangible assets are comprised of customer relationships and brands acquired in a business combination. The Company amortizes intangible assets with a definitive life over their respective useful lives. Intangibles with indefinite lives are tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist.

Revenue Recognition — The Company recognizes revenue in accordance with ASC Topic 606 “Revenue from Contracts with Customers.” The Company recognizes revenue when performance 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.

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

As of December 31, 2019, and 2018, the Company did not have any customer advances.

Advertising Costs — Advertising costs are expensed as incurred. The Company uses mainly radio, local sampling events, sponsorships, endorsements, and digital advertising. The Company incurred marketing and advertising expenses of approximately $7.9 million and $13.8 million, during years ending December 31, 2019 and 2018, 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 $341,000 and $572,000 during years ending December 31, 2019 and 2018, 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 exchange gains and losses on intercompany balances of long-term investment nature, are included in Comprehensive Income. The Company incurred foreign currency translation losses during the year ending in December 31, 2019 of approximately $60,500 and a gain of approximately $12,400 during the year ending December 31, 2018.

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

F-11

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

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

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

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

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

Other than these noted previously, the Company did not have any other assets or liabilities measured at fair value at December 31, 2019 and 2018.

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.

F-12

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

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

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

The Company’s tax returns for tax years in 2016 through 2019 remain subject to potential examination by the taxing authorities.

Earnings per Share — Basic earnings per share are calculated by dividing net income (loss) available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents outstanding during the period. 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.

The effects of dilutive instruments have been presented for the year-to-date net income as of December 31, 2019. Other periods presented do not reflect the dilutive shares, as the effects would be anti-dilutive due to the fact that losses are being reflected for those periods. Please refer to the below table for additional details:

	For the years ended December 31,
	2019		2018
Net income (loss) available to common stockholders	$	9,971,260	$	(11,419,781	)
Adjustments for diluted earnings:
Preferred Stock Dividend		-		213,133
Interest expense on convertible notes		348,493		-
Amortization of discount on notes payable		239,570		-
Diluted net income (loss) available to common stockholders	$	10,559,323	$	(11,206,648	)

Income (Loss) per share:
Basic	$	0.16	$	(0.23	)
Diluted	$	0.16	$	(0.23	)
Weighted average shares outstanding:
Basic		60,761,995		50,050,696
Diluted		64,183,399		50,050,696

F-13

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

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 (note 19).

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 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-out expense on goods shipped are included in cost of sales expenses in the accompanying consolidated statements of income. Freight-out expense on goods shipped for years ended December 31, 2019 and 2018 was approximately $6.3 million and $5.5 million, respectively.

Recent Accounting Pronouncements

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

Leases — The Company adopted ASU No. 2016-02, as amended, effective January 1, 2019. The adoption of the standard will result in the recognition of right to use assets and lease liabilities that have not been previously recorded (note 7).

In January 2017, the FASB issued 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. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

In August 2018, the FASB issued 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. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Company is currently assessing the impact of this standard on their Financial Statements.

F-14

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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

Recent Accounting Pronouncements (continued)

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 December 31, 2019, the Company had an accumulated deficit of $63,409,431 which includes a net income available to common stockholders of $9,971,260 for year ended December 31, 2019. During the year ending December 31, 2019 the Company’s net cash provided by operating activities totaled approximately $1,034,000.

On September 16, 2019 the Company issued 7,986,110 in a public placement 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. Management deems that there is sufficient liquidity to properly operate the business for the next 12 twelve months.

3.	REVENUE

Information about the Company’s net sales by reporting segment for the twelve months ended December 31, 2019 and 2018 is as follows:

	For the years ended
	December 31,		December 31,
	2019		2018

North America	$	59,659,320	$	38,905,235
Europe		14,455,634		9,239,312
Asia		840,648		4,276,155
Other		190,944		183,284
Net sales	$	75,146,546	$	52,603,986

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 $6.9 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 $346,000 for the year ended December 31, 2019 which is included as part of other current assets 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.

4.	INVENTORIES

Inventories consist of the following at:

	December 31,			December 31,
	2019			2018
Finished goods	$	12,990,044		$	8,739,877
Raw Materials		3,167,853			2,817,477
Less: Inventory reserve		(865,548	)		(74,653	)
Inventories-net	$	15,292,349		$	11,482,701

F-15

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

5.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets total $4,170,000 and $2,300,000, at December 31, 2019 and 2018, respectively, and consist mainly of prepaid advances to co-packers related to inventory production, advertising, prepaid insurance, prepaid slotting fees, value added tax payments and deposits on purchases.

NOTE RECEIVABLE

Note receivable consists of the following at:

	December 31,		December 31,
	2019		2018

Note Receivable-current	$	1,181,116	$	-
Note Receivable-non-current		10,630,041		-
Total Note Receivable	$	11,811,157	$	-

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 for the year ended December 31, 2019. 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. For the year ended December 31, 2019, the weighted average interest rate was 3.21% and interest income was approximately $382,000.

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 December 31, 2019, the Note was not deemed to be impaired.

The first installment of the note in the amount of RMB 13,253,093 is due on March 31, 2020. We were requested to provide a 3-month consideration to delay payment until June 30, 2019, due to the impact of the health crisis in China. For this consideration, a guarantee was obtained for the full amount of the first-installment and offers as collateral stock certificates in Celsius Holdings, Inc., which amount to 570,412 shares. The consideration was provided and therefore payment in full of the first installment is expected to be provided on June 30, 2020.

F-16

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

LEASES

In February 2016, the FASB issued Accounting Standards Update 2016-02 (ASU 2016-02), Leases (Topic 842). Topic 842 requires lessees to recognize a right-of-use (ROU) asset and lease liability in the balance sheet for all leases, including operating leases with terms of more than twelve months. The Company adopted Topic 842, as amended, effective January 1, 2019.

Upon adopting Topic 842, the Company recognized a ROU asset of $259,358 and a corresponding lease liability pertaining to the Company’s operating lease of its corporate office space from a related party (see Note 20), measured based on the present value of the future minimum lease payments utilizing the Company’s incremental borrowing rate as the basis for the computations. 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. The adoption of Topic 842 did not have a material impact on our consolidated statements of operations or consolidated statements of cash flows, and did not result in a cumulative effect adjustment to retained earnings in the period of adoption.

The Company elected the package of practical expedients permitted under the transition guidance within the Topic 842, which allowed the Company to carry forward the historical lease classification, not reassess prior conclusions related to expired or existing contracts that are or that contain leases, and not reassess the accounting for initial direct costs.

In addition to the Company’s operating lease of its corporate office space, the Company acquired certain other leases of vehicles and office space as part of its Acquisition of Func Food during the fourth quarter of 2019 (see Note 10).

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. At inception of a lease, 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.

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 asset’s estimated useful life and interest expense is calculated using the effective interest rate method.

F-17

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

LEASES (CONTINUED)

The following is a summary of lease cost recognized in the Company’s consolidated statements of operations for the year ended December 31, 2019:

	Year ended December 31, 2019
	Operating Leases		Finance Leases
Lease cost in general and administrative expenses:
Operating lease expense	$	188,977	$	-
Amortization of finance lease ROU assets		-		97,478
Total lease cost in general and administrative expenses		188,977		97,478

Lease cost in other expense:
Interest on finance lease liabilities		-		2,288
Total lease cost in other expense		-		2,288

Total lease cost	$	188,977	$	99,766

The following is a summary of the impact of the Company’s leases on the consolidated statements of cash flows for the year ended December 31, 2019:

	Year ended December 31, 2019
Leasing activity in cash flows from operating activities:
Operating leases		(182,917	)
Interest payments on finance lease liabilities		(2,288	)
Total leasing activity in cash flows from operating activities		(185,205	)

Leasing activity in cash flows from financing activities:
Principal payments on finance lease liabilities		(26,486	)
Total leasing activity in cash flows from financing activities:		(26,486	)

The following is a summary of the weighted average remaining lease term and weighted average discount rate for the Company’s population of leases as of December 31, 2019:

	Operating Leases			Finance Leases
Weighted average remaining lease term (years)		1.5			1.2
Weighted average discount rate		6.88	%		2.62	%

The future annual minimum lease payments required under the Company’s leases as of December 31, 2019 are as follows:

	Operating Leases			Finance Leases			Total
Future minimum lease payments
2020	$	310,532		$	363,022		$	673,554
2021		102,343			88,134			190,477
2022		7,175			50,033			57,208
Total future minimum lease payments		420,050			501,189			921,239
Less: Amount representing interest		(17,823	)		(14,494	)		(32,317	)
Present value of lease liabilities		402,227			486,695			888,922
Less current portion		(294,916	)		(354,158	)		(649,074	)
Long-term portion	$	107,311		$	132,537		$	239,848

F-18

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

8.	PROPERTY AND EQUIPMENT

Property and equipment consist of the following at:

	December 31,			December 31,
	2019			2018
Furniture and equipment	$	529,550		$	451,576
Less: accumulated depreciation		(396,661	)		(329,722	)
Total	$	132,889		$	121,854

Depreciation expense amounted to $66,939 and $51,205 during year ended December 31, 2019 and 2018, respectively.

9.	GOODWILL AND INTANGIBLES

Goodwill consists of approximately $10,023,806 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). There was no other activity related to goodwill during the years ended December 31, 2019 or 2018.

Intangible assets consist of acquired customer relationships and brands from the Func Food Acquisition, amounting to approximately $14,050,000 and $3,123,000, respectively. Customer relationships are amortized over an estimated useful life of 25 years and brands have an indefinite life.

The following is the future estimated amortization expense related to customer relationships as of December 31, 2019:

Year ending December 31,
2020	$	562,000
2021		562,000
2022		562,000
2023		562,000
2024		562,000
Thereafter		11,240,000
	$	14,050,000

F-19

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

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 14) 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		(532,088	)
Total identifiable net assets	$	17,036,701

Goodwill	$	10,024,000

F-20

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

10.

ACQUISITION-EUROPEAN OPERATIONS (CONTINUED)

The following pro-forma consolidated results of operations have been presented as if the acquisition occurred on January 1, 2018

	For the years
	ended December 31,
Supplemental Pro forma:	2019		2018
Revenues	$	96,078,631	$	82,373,802
Earnings/(loss)		1,714,124		(34,401,626	)

For the year ended December 31, 2019, pro forma earnings include approximately $6.7 million of historical, non-recurring charges of Func Food that are not expected to have an ongoing effect after the Acquisition. These non-recurring charges consist of $2.2 million of inventory impairment charges, $0.3 million of restructuring charges, and $4.2 million of incremental interest expense on Func Food’s historical debt that was restructured as part of the Acquisition. Consequently, 2019 earnings would have amounted to $8.5 million had these non-recurring expenses not been incurred.

For the year ended December 31, 2018, pro forma earnings includes approximately $15.3 million of historical, non-recurring charges of Func Food that are not expected to have an ongoing effect after the Acquisition. These non-recurring charges consist of $1.6 million of inventory impairment charges, $0.4 million of restructuring charges, $9.1 million of intangible asset and goodwill impairment, and $4.2 million of incremental interest expense on Func Food’s historical debt that was restructured as part of the acquisition. The year ended December 31, 2018 would have reflected a loss of $19.1million had these non-recurring expenses not been incurred.

11.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses consist of the following at:

	December 31,		December 31,
	2019		2018
Accounts payable	$	10,159,900	$	5,825,446
Accrued expenses		7,132,747		9,019,765
Total	$	17,292,647	$	14,845,211

F-21

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

12.

OTHER LIABILITIES

Other current liabilities consist of the following at:

	December 31,		December 31,
	2019		2018
Other Liabilities-State Beverage Container Deposit	$	107,399	$	19,933
Total	$	107,399	$	19,933

13.

NOTES PAYABLE - RELATED PARTY

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

	December 31,		December 31,
	2019		2018
Note Payable – line of credit
In July 2010, the Company entered into a line of credit note payable with a related party and major shareholder which carries interest of five percent per annum paid quarterly. The Company can borrow up to $9,500,000. The Company has pledged all its assets as security for the line of credit. The note matures in January 2020, at which time the principal amount is due. During April 2015, the Company issued $4,000,000 of convertible series D preferred series in exchange for cancellation of $4,000,000 of this line, reducing the amount to $4,500,000. During March 2018, the Company issued $1,000,000 of common stock in exchange for cancellation of $1,000,000 of this line, reducing the amount to $3,500,000. In December 2018, the Company amended and restated the note payable into a line of credit loan agreement continuing to carry a five percent per annum interest but payable semi-annually. The Company could borrow up to $5.0 million. As a result, of this substantial modification which was treated as a debt extinguishment, a new liability was established and a loss of $377,048 on the extinguishment of debt was recognized. The note had a maturity date of December 2020. In January 2019, the Company increased the borrowed amount by $1,500,000 and recognized a discount of $166,668 regarding to the beneficial conversion feature of the note payable. In September 16, 2019, the principal value of the note was converted into common shares as per promissory note which stated that in the event of financing greater than $25.0 million, there would be an automatic conversion of these balances. The principal balance of $5.0 million and the accrued but unpaid interest in the amount of $52,778 were converted into common shares. Consequently, a total of $5,052,778 were converted at the conversion price of $3.39 based on the on the average of the closing price for the shares during the ten (10) business days prior to the last advance date, less a discount of 10%, in accordance with the promissory note. As a result of the conversion of the promissory note, the Company recognized the remaining un-amortized balance of the discount of $108,454, as interest expense.
Long-term portion	$	-	$	3,500,000

F-22

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

	December 31,		December 31,
	2019		2018
Convertible Notes Payable
In December 2018, the Company entered into a line of credit note payable with a related party and shareholder which carries interest of five percent per annum paid semi-annually. The Company borrowed up to $3.0 million. This note had an unamortized discount of $324,371, as of December 31, 2018. The note would have matured in December 2020. The note had an unamortized discount on the date of conversion of $205,837 which was recognized as interest expense upon conversion. On September 16, 2019, the principal value of the note of $3.0 million and the accrued but unpaid interest in the amount of $108,333 were converted into common shares as per promissory note which stated that in the event of financing greater than $25.0 million, there would be an automatic conversion of these balances. A total of 3,108,333 were converted at the conversion price of $3.04 which was determined based on the average of the closing price for the shares during the ten (10) business days prior to the Advance Date, less a discount of 10%, resulting in the issuance of 1,022,568 shares.		-		2,675,629

In December 2018, the Company entered into a line of credit convertible note payable with a related party and shareholder which carries interest of five percent per annum paid semi-annually. The Company can borrow up to $2.0 million. This note had an unamortized discount of $216,248 as of December 31, 2018. The unamortized discount of $137,225 was recognized as interest expense on the conversion date. The note would have matured in December 2020. In September 16, 2019, the principal value of the note of $2.0 million and the accrued but unpaid interest in the amount of $72,222 were converted into common shares as per promissory note which stated that in the event of financing greater than $25.0 million, there would be an automatic conversion of these balances. A total of 2,072,222 were converted at the conversion price of $3.04 which was determined based on the average of the closing price for the shares during the ten (10) business days prior to the Advance Date, less a discount of 10%, resulting in the issuance of 681,712 shares.		-		1,783,752
Long-term portion-Net of Discount	$	-	$	4,459,381

F-23

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

14.

BONDS PAYABLE

Bonds payable consists of the following as of:

	December 31,		December 31,
	2019		2018
Bonds issued as part of the purchase consideration to acquire Func Food (see note 9). 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 discount is amortized using the effective interest rate method. As of December 31, 2019, the unamortized balance of the discount is approximately $377,000. Amortization of the discount was approximately $78,250 for the year ended December 31, 2019. The bond issuance costs amounted to $229,250. 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 bond issuance costs from the issuance date through December 31, 2019 was $40,938. Upon maturity of the Bonds, the Company may, at its own election, convert up to 50% of the outstanding nominal amount of the Bonds into shares of common stock of the Company, at a conversion price relative to the 30-day weighted-average trading price of the Company’s common shares prior to the Acquisition. At the Company’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 December 31, 2019, Func Food is in compliance with these covenants.	$	8,634,279	$	-
Bonds payable	$	8,634,279	$	-

F-24

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

15.

PREFERRED STOCK – RELATED PARTY

The Company entered into a securities purchase agreement with CDS Ventures of South Florida, LLC (“CDS”) and CD Financial, LLC (“CD”). CDS and CD are limited liability companies which are affiliates of Carl DeSantis, the Company’s principal shareholder. The Company issued 2,200 shares of its Series C Preferred Stock (the “Preferred C Shares”) in exchange for the conversion of a $550,000 short term loan from CDS and the conversion of $1,650,000 in indebtedness under the Company’s line of credit with CD (the “CD Line of Credit”). The Preferred C Shares are convertible into our common stock at the option of the holder thereof at a conversion price of $0.52 per share at any time until December 31, 2018, at which time they will automatically convert into shares of our common stock determined by dividing the liquidation preference of $1,000 per Preferred C Share by the conversion price then in effect. The conversion price is subject to adjustment in the event of stock dividends, stock splits and similar events. The Preferred C Shares accrue cumulative annual dividends at the rate of 6% per annum, payable by the issuance of additional Preferred C Shares. The holder of Preferred C Shares votes on an “as converted” basis, together with holders of common stock as a single class on all matters presented to shareholders for a vote, except as required by law. In April 2015, the Company issued 180 Preferred C Shares valued at $180,000 in settlement of $180,000 in accrued preferred C dividends. In October 2018, the Company issued 383 Preferred C Shares valued at $383,000 in settlement of $383,000 in accrued preferred C dividends. As of December 31, 2018, $255,903 of dividends has been accrued and converted into 256 of additional Preferred C. The Preferred C Shares matured on December 31, 2018 and were exchanged for shares of Company common stock in the amount of 5,806,022.

On April 16, 2015, the Company entered into an amendment to its existing Loan and Security Agreement (the “Amendment”) with CD an affiliate of CDS Ventures and Mr. DeSantis. Pursuant to the Amendment, the outstanding principal amount of the CD note payable was reduced by $4.0 million, which amount was converted into 4,000 shares of a newly-designated Series D Preferred Stock (the “Preferred D Shares”). This related party was given a conversion price of $0.86 per common share, whereas other investors purchased common shares at $0.89 in the private placement, as discussed in note 12. The difference of $0.03 per share, which resulted in $139,535, was recorded as a dividend in accordance with ASC 470-20-35, subsequent measurement for debt with conversion and other options. The Preferred D Shares are convertible into our common stock at the option of the holder thereof at a conversion price of $0.86 per share until the earlier of the January 2, 2021 due date of our note payable with CD Financial or such earlier date as the note payable is satisfied (the “Maturity Date”). The conversion price is subject to adjustment in the event of stock dividends, stock splits and similar events. The Preferred D Shares accrue cumulative annual cash dividends at the rate of 5% per annum, payable quarterly in cash and have a liquidation preference of $1,000 per share. On the Maturity Date, the Preferred D Shares automatically convert into shares of our common stock in a number determined by dividing the $1,000 per Preferred D Share liquidation preference plus any accrued but unpaid dividends, by the conversion price then in effect. The Holder shall have the right, at its election, to require the Company to redeem all or any portion of the shares held by the holder in exchange for cash or common stock upon the occurrence of certain events which management believes are under the control of the Company. As of March 31, 2018, none of the contingent events have occurred and in accordance with ASC-480-10-25 “Distinguishing Liabilities from Equity” and Regulation S-X-Rule 5-02-27, the Company has classified these shares as permanent equity. The Preferred D Shares may also be redeemed by us at any time on or after December 31, 2017, at a redemption price equal to 104% of the liquidation preference. The holder of the Preferred D Shares votes on an “as converted” basis, together with holders of common stock as a single class on all matters presented to shareholders for a vote, except as required by law. In March 2018, the Preferred D shares were converted into 4,651,163 shares of common stock.

F-25

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

16.

RELATED PARTY TRANSACTIONS

The Company’s office is rented from a company affiliated with CD Financial, LLC which is controlled by one of our shareholders Carl DeSantis. 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.

Other related party transactions are discussed in notes 13 and 15

17.

STOCKHOLDERS’ EQUITY

Issuance of common stock pursuant to exercise of stock options

During the year ended December 31, 2019, the Company issued an aggregate of 756,233 shares of its common stock pursuant to the exercise of stock options granted under the Company’s Stock Incentive Plans. The Company received aggregate proceeds of $224,083 for 245,584 options exercised for cash, with the balance of the options having been exercised on a “cashless” basis.

During the year ended December 31, 2018, the Company issued an aggregate of 783,730 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 $301,723 for 470,722 options exercised for cash, with the balance of the options having been exercised on a “cashless” basis.

Preferred stock

In December 2018, the 3,016 preferred C shares were converted into 5,806,022 of common stock.

In March 2018, the 4,000 preferred D shares were converted into 4,651,163 of common stock.

Refer to note 15 for discussion on preferred stock issuances.

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 placement 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.

Conversion of Notes Payable into common stock

On September 16, 2019, the company had three Notes Payable outstanding with related parties for a total principal value of $10 million. As per the terms of the agreements, the principal values of notes payable and any accrued but unpaid interest are convertible into common stock of the Company. Moreover, also as per the terms of the agreements, in the event of financing greater than $25.0 million, the principal value of the notes and any accrued but unpaid interest are automatically converted into the company’s common stock. As result of the public financing which raised $26,955,437, the principal balance of the notes payable and the accrued but unpaid interest of $10,233,332 were converted resulting in the issuance of 3,196,460, shares of common stock. The shares were issued at the contractual conversion prices per the loan agreements.

Refer to Note 13 for discussion on the conversion of the notes payable.

F-26

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

18.

INCOME TAXES

Due to recurring losses for the years ended December 31, 2019 and 2018, the Company’s net tax provision was zero.

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

	2019			2018
Statutory federal rate		21.0	%		(21.0	)%
State income tax rate, net of federal benefit		4.35	%		(4.35	)%
Permanent differences, including stock-based compensation		9.25	%		5.6	%
Change in valuation allowance, including effect of change in tax rates		(34.60	)%		19.75	%
Difference in foreign tax rates		—			—	%
Effective tax rate		0.0	%		0.0	%

At December 31, 2019 and 2019, the Company’s deferred tax assets were as follows:

Deferred Tax Liability	2019			2018

Property and equipment		(19,000	)		(2,000	)
Total deferred tax liability		(19,000	)		(2,000	)

Deferred Tax Assets	2019			2018

Federal and state net operating loss carry forward		8,400,000			12,082,000
Foreign net operating loss carry forward-Asia and Europe		7,900,000			3,123,000
Other temporary differences		169,000			63,000
Total deferred tax asset		16,469,000			15,268,000
Net deferred tax asset		16,450,000			15,266,000
Less valuation allowance		(16,450,000	)		(15,266,000	)
	$	—		$	—

The Company’s valuation allowance increased by $1,184,000 and $2,012,000 during 2019 and 2018 respectively. Total net operating loss carry forwards at December 31, 2019 were approximately $33.1 million, of which approximately $31.9 million, will expire between 2029 and 2037 and $1.2 million may be carried forward indefinitely. China has corporate tax rate of 25% with net operating loss carry forwards expiring after 5 years. The Company had $14.7 million of net operating loss carry forwards in China as of December 31, 2019. Hong Kong has a corporate tax rate of 17% with net operating loss carry forwards that don’t expire. The Company had $2.8million of net operating loss carry forwards in Hong Kong as of December 31, 2019. On October 25, 2019, the Company acquired wholly-owned foreign subsidiaries in Finland, Sweden and Norway. These companies had net operating loss carryforwards of $11.2 million in Finland and $12.9 million in Sweden. There were no net operating loss carryforwards in Norway. The Finland tax rate is 33.6% and the Sweden tax rate is 21.4%. Due to the uncertainty regarding the Company’s ability to retain the tax benefits of these losses in Sweden, the Company has not included these net operating loss carryforwards as part of their deferred tax assets. The Company’s net operating loss carry forwards may be limited due to ownership changes.

19.

STOCK-BASED COMPENSATION

The Company adopted an Incentive Stock Plan on January 18, 2007. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. While the plan terminates 10 years after the adoption date, issued options have their own schedule of termination. 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. Options to acquire shares of common stock may be granted at no less than fair market value on the date of grant. Upon exercise, shares of new common stock are issued by the Company.

F-27

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

19.

STOCK-BASED COMPENSATION (CONTINUED)

The Company adopted the 2015 Stock Incentive Plan on April 30, 2015. This plan is intended to provide incentives which will attract and retain highly competent persons at all levels as employees of the Company, as well as independent contractors providing consulting or advisory services to the Company, by providing them opportunities to acquire the Company’s common stock or to receive monetary payments based on the value of such shares pursuant to Awards issued. The 2015 Plan permits the grant of options and shares for up to 5,000,000 shares. In addition, there is a provision for an annual increase of 15% of the shares pertaining to the 2015 plan that are outstanding as of the last day of the prior year. As of December 31, 2019, approximately 400,000 shares are available.

Under the 2015 Stock Incentive Plan, the Company has issued options to purchase approximately 6.53 million shares at an average price of $3.58 with a fair value of $5.10 million. For the years ended December 31, 2019 and 2018, the Company issued options to purchase 1.20 million and 1.83 million shares. For the years ended December 31, 2019 and 2018, the Company recognized an expense of approximately $4.8 million and $4.3 million, respectively, of non-cash compensation expense (included in General and Administrative expense in the accompanying Consolidated Statement of Operations) determined by application of a Black Scholes option pricing model with the following inputs: exercise price, dividend yields, risk-free interest rate, and expected annual volatility. As of December 31, 2019, the Company had approximately $8,531,047 of unrecognized pre-tax non-cash compensation expense, which the Company expects to recognize, based on a weighted-average period of 3 years. The Company used straight-line amortization of compensation expense over the two to three-year requisite service or vesting period of the grant. There are options to purchase approximately 2.35 million shares that have vested as of December 31, 2019.

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

	Year ended December 31,
	2019			2018
Expected volatility		58.62-121.32	%		91% -142	%
Expected term		4.02-5.00 Years			4.02 – 5.06 Years
Risk-free interest rate		1.58%-2.72%	%		2.56% - 2.86	%
Forfeiture Rate		0.00	%		0.00	%
Expected dividend yield		0.00	%		0.00	%

F-28

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

19.

STOCK-BASED COMPENSATION (CONTINUED)

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

A summary of the status of the Company’s outstanding stock options as of December 31, 2019 and 2018 and changes during the periods ending on that date is as follows:

									Weighted
				Weighted Average			Aggregate		Average
	Shares			Exercise		Fair	Intrinsic		Remaining
	(000’s)			Price		Value	Value		Term (Yrs)
Options
At December 31, 2017		4,602			1.82		$	12,476		4.23
Granted		1,825			5.31
Exercised		(784	)		.57
Forfeiture and cancelled		(803	)		3.65
At December 31, 2018		4,840			3.04		$	5,338		5.05
Granted		2,874			3.61
Exercised		(912	)		.96
Forfeiture and cancelled		(274	)		3.57
At December 31, 2019		6,528			3.58			8,978		6.58

Exercisable at December 31, 2019		2,350			2.78					3.69

The following table summarizes information about employee stock options outstanding at December 31, 2019:

	Outstanding Options						Vested Options
	Number						Number
	Outstanding		Weighted		Weighted		Exercisable		Weighted		Weighted
Range of	at		Averaged		Averaged		at		Averaged		Averaged
Exercise	December 31,		Remaining		Exercise		December 31,		Exercise		Remaining
Price	2019 (000’s)		Life		Price		2019 (000’s)		Price		Life
$0.20 - $0.53		359		3.20	$	0.28		359	$	0.28		3.20
$0.65 - $1.80		342		1.35	$	1.05		342	$	1.05		1.35
$1.83 - $2.84		555		2.59	$	2.07		555	$	2.07		2.59
$3.20 - $6.20		5,273		7.57	$	4.50		1,094		4.50		5.13
Outstanding options		6,528		6.58	$	2.78		2,350	$	2.78		3.69

F-29

Celsius Holdings, Inc.

Notes to Consolidated Financial Statements

December 31, 2019 and 2018

20.

COMMITMENTS AND CONTINGENCIES

As previously reported, on December 18, 2018, Rockstar, Inc. (“Rockstar”) filed suit against Celsius in federal district court in the District of Nevada. Rockstar’s complaint alleged three claims for relief: (a) false advertising in violation of 15 USC §1125(a); (b) violation of the Nevada Deceptive Trade Practice Act; and (c) Nevada common law unfair competition. On January 16, 2020 the parties entered into a non-monetary settlement of this litigation.

On April 8, 2019, Daniel Prescod filed suit against Celsius in the 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. 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 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 of the United States Patent and Trademark Office. The Company intends to defend against Evlution’s claims vigorously. 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 December 31, 2019.

21.

SUBSEQUENT EVENTS

In February 2020, the Company’s board of directors and majority shareholders authorized an increase in the number of shares of common stock which the Company is authorized to issue from 75 million shares to 100 million shares. Implementation of the increase is subject to compliance with SEC requirements.

The first installment of the note receivable from Qifeng Food Technology (Beijing) Co., Ltd (Note 6) in the amount of RMB 13,253,093 was due on March 31, 2020. We were recently requested by Qifeng to provide a three-month extension of the due date for the first installment until June 30, 2019, due to the impact of the health crisis in China. In consideration of the extension, a guarantee was obtained for the full amount of the first-installment and the installment was collateralized by a pledge of 570,412 of our common shares held. Accordingly, Celsius granted the extension and as a result, payment in full of the first installment is expected to be paid on or before June 30, 2020.

Between January 1, 2020 and March 12, 2020, the Company issued an aggregate of 297,949 shares of its common stock pursuant to the exercise of stock options granted under the Company’s 2015 Stock Incentive Plan.

F-30

Celsius (NASDAQ:CELH)
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