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

Note Regarding Forward Looking Statements

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





Business Overview

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

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

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

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





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

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





Results of Operations

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





Revenue

For the three months ended June 30, 2020, revenue was approximately $30.0 million, an increase of $13.9 million or 86% from $16.1 million for the second quarter of 2019. The revenue increase of 86% was attributable to continued strong growth of 44% in North American revenues, reflecting double digit growth from existing accounts, new distribution and expanded distribution to major retailers. European revenue for the three months ended June 30, 2020 was $8.8 million, an increase of 595% from prior year period revenue of $1.3 million. The 2020 results now reflect the full financial impact of consolidation of the results of operations of Func Food Group, Oyj ("Func Food"), our European distribution partner whom we acquired in October 2019. Asian revenues for the three months ended June 30, 2020 amounted to $326,100 which is comparable to the $381,280 for the 2019 quarter. The reduction of $55,180 is mainly related to currency devaluations and the impact of the health crisis in these markets. Other international markets provided $106,716 of revenue during the second quarter of 2019, an increase of $71,355 when compared to $35,361 for the prior year's second quarter. The total increase in revenue from the 2019 quarter to the 2020 quarter was primarily attributable to increases in sales volume, as opposed to increases in product pricing.

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





                                Three months ended June 30,
Revenue Source               2020             2019          Change

Total Revenue            $ 30,037,227     $ 16,121,929           86 %

North American Revenue   $ 20,833,191     $ 14,443,975           44 %

European Revenue         $  8,771,228     $  1,261,313          595 %

Asian Revenue            $    326,092     $    381,281          (14 )%

Other                    $    106,716     $     35,360          202 %




Gross profit

For the three months ended June 30, 2020, gross profit increased by approximately $6.1 million or 88% to $13.0 million, from $6.9 million for the same quarter in 2019. Gross profit margins for the three months ended June 30, 2020, were 43.3% which compares favorably to gross profit margins of 42.6% for the second quarter of 2019. The increase in gross profit in the from the 2019 quarter to the 2020 quarter reflects the impact of the consolidation of the operating results of Func Food and is primarily attributable to increases in sales volume from the 2019 quarter to the 2020 quarter, as opposed to increases in product pricing.





Sales and marketing expenses

Sales and marketing expenses for the three months ended June 30, 2020 were approximately $7.8 million, an increase of approximately $2.2 million or 39.3% from approximately $5.6 million in the same period in 2019. This increase reflects the impact of the consolidation of the operating results of Func Food following its October 2019 acquisition by the Company. Consequently, our marketing investments increased by 40% or $930,000. Similarly, all other sales and marketing expenses give effect to increases related to the consolidation of Func Food operations. Specifically, employee costs, which also includes investments in human resources to properly service our markets, increased to$1.2 million or 80% from the 2019 quarter to the 2020 quarter. Moreover, due to the increase in business volume from the 2019 quarter to the 2020 quarter, our support to distributors and investments in trade activities, our storage and distribution costs increased by $185,000 from the 2019 quarter to the 2020 quarter.





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General and administrative expenses

General and administrative expenses for the three months ended June 30, 2020 were approximately $3.6 million, an increase of approximately $1.2 million or 50.0%, from $2.4 million for the three months ended June 30, 2019. This increase similarly reflects the impact of the consolidation of Func Food's operations which were not present in the results for the 2019 quarter. As such, administrative expenses for the three months ended June 30, 2020 were $1.0 million, an increase of $403,500 or 67.5% from $597,950 for the prior year's quarter. Employee costs for the three months ended June 30, 2020, reflected an increase of $442,000 or 66.4%, not only attributable to the consolidation of Func Food operations, but also giving effect to investments in resources in order to properly support our higher business volume. All other increases for general and administrative expenses were approximately $280,000 from the 2019 quarter to the 2020 quarter. These increases mostly resulted from higher depreciation and amortization of $100,000, stock option expense of $80,000, operational taxes of $50,000 and research and development costs of $50,000.





Other income/(expense)

Total net other income for the three months ended on June 30, 2020 was $67,100, which compares favorably to other expenses of $344,641 for the same period in the prior year. Current year results reflect favorable impact related to currency fluctuations, which were partially offset by incremental financial expenses and amortization of intangibles and financial instruments. Specifically, the results for the 2020 quarter include foreign exchange gains of $318,000, a gain on lease cancellations of $152,000 partially offset by amortization expenses of $403,000, interest expense on bonds payable and financial lease obligations of $145,000 and the impact of all other expenses of $11,000.





Net Income/(Loss)

As a result of the above, for the three months ended June 30, 2020, net income was $1.6 million or $0.02 per share based on a weighted average of 69,396,377 shares outstanding and dilutive earnings per share of $0.02 based on a fully-dilutive weighted average of 71,473,065 shares outstanding, which includes the dilutive impact of outstanding stock options to purchase 2,076,688 shares. In comparison, for the three months ended June 30, 2019, the Company had net loss of approximately $1,473,295 or a $0.03 per share, based on a weighted average of 57,336,117 shares outstanding and a dilutive loss per share of $0.03 based on a fully-dilutive weighted average of 57,336,117 shares outstanding.

Six months ended June 30, 2020 compared to six months ended June 30, 2019





Revenue

For the six months ended June 30, 2020, revenue was approximately $58.2 million, an increase of $27.6 million or 90.2% from $30.6 million for the same period in 2019. The revenue increase of was attributable in large part to continued strong growth of 56% in North American revenues, reflecting double digit growth in both existing accounts and new distribution. European revenue was $17.3 million for the six-months ended June 30, 2020, an increase of 305%, when compared to $4.3 million in revenue for the prior year's period. The 2020 results now reflect the full financial impact of consolidation of the results of operations of Func Food. Asian revenues for the six months ended June 30, 2020 amounted to $594,400 which is comparable to$434,000 in the 2019 period. The increase of $160,400 is mainly related to favorable results obtained during the first quarter months of 2020 which were partially eroded due to currency devaluations and the impact of the health crisis in these markets during the second quarter of 2020. Other international markets provided $163,300 of revenue during the six months ended June 30, 2020 an increase of $92,600 from $70,700 from the same period in 2019. The total increase in revenue from the 2019 period to the 2020 period was primarily attributable to an increases in sales volume, as opposed to increases in product pricing.







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





                                 Six months Ended June 30,
Revenue Source               2020             2019          Change

Total Revenue            $ 58,222,116     $ 30,607,579           90 %

North American Revenue   $ 40,192,360     $ 25,841,837           56 %

European Revenue         $ 17,272,080     $  4,260,976          305 %

Asian Revenue            $    594,384     $    434,045           37 %

Other Revenue            $    163,292     $     70,721          131 %




Gross profit

For the six months ended June 30, 2020, gross profit increased by approximately $13.4 million or 106% to $26.0 million, from $12.6 million for the same period in 2019. Gross profit margins increased to 44.7% for the six months ended June 30, 2020 from 41.1% for the same period in 2019. The increase in gross profit dollars and gross profit margins is mainly related to increases in volume, as opposed to increases in product pricing.





Sales and marketing expenses

Sales and marketing expenses for the six months ended June 30, 2020 were approximately $15.4 million, an increase of approximately $6.2 million or 67.4% from approximately $9.2 million for the same period in 2019. This increase reflects the impact of the consolidation of the operating results of Func Food following its October 2019 acquisition by the Company. As a result, our marketing investments increased by 71.5% or $2.5 million from the 2019 period to the 2020 period. Similarly, all other sales and marketing expenses give effect to increases related to the consolidation of Func Food operations. Specifically, employee costs, which also includes investments in human resources to properly service our markets, increased by $2.7 million or 96.4% from the 2019 period. Moreover, due to the increase in business volume, our support to distributors, investments in trade activities and our storage and distribution costs increased by $1.0 million from the 2019 period to the 2020 period.

General and administrative expenses

General and administrative expenses for the six months ended June 30, 2020 were approximately $7.9 million, an increase of $2.8 million or 54.9%, from $5.1 million for the six months ended June 30, 2019. This increase similarly reflects the impact of the consolidation of Func Food's operations which were not present in the results for the 2019 period. As such, administrative expenses reflected an increase of $1.5 million, which included an addition of $221,000 related to our bad debt reserve, in order to cover potential collectability risks associated with the Covid-19 situation. Employee costs for the six months ended June 30, 2020, reflected an increase of $744,585 or 57.2%, not only attributable to the consolidation of Func Food operations, but also giving effect to investments in resources in order to properly support our higher business volume. All other increases for general and administrative expenses from the 2019 period to the 2020 period totaled $510,400. These increases mostly resulted from higher depreciation and amortization of $209,000, stock option expense of $120,700, operational taxes of $110,400 and research and development costs of $70,300.





Other Income/(expense)

Total other expenses for the six months ended on June 30, 2020 was $635,124. This compares to other income of $11.8 million fo the six months ended on June 30, 2019, which included a gain of $12.1 million related to the recognition of a note receivable from our Chinese licensee, who, in connection with the change in our China business model effective January 1, 2019, agreed to repay the market investment Celsius has made into China over a five-year period, pursuant to an unsecured, interest-bearing promissory note. Excluding the $12.1 million gain, other expenses for the six-month period ended June 30, 2019 were $239,000. As such, the increase from the 2019 period the 2020 period was $396,124. These expenses mainly consisted of amortization expenses of $849,300, interest expense of $286,900 and other expenses of $12,600 which are partially offset by interest income $242,500, a gain on lease cancellations $152,100 and a realized exchange gain $119,105.





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Net Income

As a result of all of the above, for the six months ended June 30, 2020, the Company had a net income of $2.1 million or $0.03 per share based on a weighted average of 69,444,655 shares outstanding and a diluted net income of $2.1 million or $0.03 per share based on a weighted average of 71,073,534 shares outstanding, which includes the dilutive impact of outstanding stock options to purchase 1,628,879 shares. In comparison, for the six months ended June 30, 2019 there was net income of $10.2 million or $0.18 per share based on a weighted average of 57,267,622 shares outstanding, and after adding back interest expense on convertible notes of $243,000 and the amortization on discount on notes payable of $179,000, a diluted net income of $10.6 million or $0.17 per share based on a weighted average of 61,817,621 shares outstanding.

Liquidity and Capital Resources

As of June 30, 2020, and December 31, 2019, we had cash of approximately $20.1 million and $23.1 million, respectively, and working capital of approximately $31.8 million and $24.8 million, respectively. Cash used in operations during the three months ended June 30, 2020 and June 30, 2019, totaled approximately $4.2 million and $4.5 million, respectively, mainly reflecting investments in inventory, pre-payments and deposits and increase in accounts receivable.

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

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

Off Balance Sheet Arrangements

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

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