You should read the following discussion in conjunction with the audited financial statements and the corresponding notes, the unaudited financial statements and the corresponding notes included elsewhere in this information statement. This Item 7 contains forward-looking statements. The matters discussed in these forward-looking statements are subject to risk, uncertainties, and other factors that could cause actual results to differ materially from those made, projected or implied in the forward-looking statements. Please refer to "Item 1A. Risk Factors" for a discussion of the uncertainties, risks and assumptions associated with these statements.





Results of Operations

Results of operations for the year ended December 31, 2019, include the operations for Func Food as of the date of acquisition on October 25, 2019.

Year ended December 31, 2019 compared to year ended December 31, 2018





Revenue

For the year ended December 31, 2019, revenue was approximately $75.1 million, an increase of $22.5 million or 43% from $52.6 million for the year ended December 31, 2018. This revenue growth in 2019 was mainly associated with the results of the North American region which delivered an increase of $20.8 million over last year or 53% increase from 2018. The European region provided $14.5 million, an increase of $5.2 million or 56% from $9.3 million for the year ended December 31, 2018. Asian revenues for the year ended December 31, 2019 reflect the change in our China business model from a distribution model to a royalty and license fee arrangement, effective January 1, 2019. Accordingly, Asian revenue for 2019 related to product sales was $492,000 and Asian revenue for 2019 related to royalties contributed an additional $349,000. Revenues from all other regions in 2019 was $191,000 a 4% increase from $183,000 in 2018. The total increase in revenues from the 2018 period to the 2019 period was primarily attributable to an increase in sales volume, as opposed to increases in product pricing.

The following table sets forth the amount of revenues by category and changes therein for the years ended December 31, 2019 and December 31, 2018:





                                  Year Ending
                                 December 31,
Revenue Source               2019             2018          Change (%)

Total Revenue            $ 75,146,546     $ 52,603,986               43 %

North American Revenue   $ 59,659,320     $ 38,905,235               53 %

European Revenue         $ 14,455,634     $  9,239,312               56 %

Asian Revenue            $    840,648     $  4,276,155              -80 %

Other Revenue            $    190,944     $    183,284                4 %




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Gross profit

For the year ended December 31, 2019, gross profit increased by approximately $10.2 million or 49% to $31.3 million from $21.1 million for the year ended December 31, 2018. Gross profit margins totaled 42% and 40% in the years ended December 31, 2019 and December 31, 2018, respectively. The increase in gross margin profitability is mainly related to reductions in product repackaging costs, freight costs and favorable impact of the consolidation of the European business as a result of the acquisition of Func Food. The increase in gross profit dollars from 2018 to 2019 is primarily attributable to the increases in revenue.





Sales and marketing expenses

Sales and marketing expenses for the year ended December 31, 2019, were approximately $21.1 million, a decrease of approximately $100,000 or .5% from $21.2 million for the year ended December 31, 2018. The decrease is due primarily to the change in our China business model from a distribution model to a royalty and licensing framework effective January 1, 2019, which no longer requires direct marketing investments by Celsius. Excluding the impact of the reduction in sales and marketing expenses related to the China investment which amounted to $7.2 million for the year ended December 31, 2019, our investment in marketing initiatives increased by $1.3 million or 20% from 2018. These figures now include the marketing investments that are performed in our European business as of October 25, 2019. Moreover, our support to distributors and investments in trade activities were $2.3 million higher for the year ended December 31, 2019 than for the same period last year, to support our expanded distribution network. Additionally, investments related to sales and marketing personnel costs which now include the European business as of the date of the acquisition, were $1.7 million higher for the year ended December 31, 2019 than for the same period last year. Furthermore, broker commissions and storage & distribution costs were $1.8 million higher in 2019, as compared to 2018, reflecting the increase in our business volume and the integration of Func Food's European operations following completion of the acquisition.

General and administrative expenses

General and administrative expenses for the year ended December 31, 2019 were approximately $11.6 million, an increase of $1.1 million, or 11%, from $10.5 million for the year ended December 31, 2018. However, the prior year figures included $1.0 million pertaining to a legal settlement with a former distributor. Therefore, the increase in general and administrative expenses excluding this prior year impact amounts to $2.1 million. This increase was primarily due to higher stock-based compensation of $540,000 and $580,000 of acquisition related costs. Additionally, there were incremental expenses of $452,000 pertaining to employee costs, $250,000 pertaining to higher professional services, $150,000 of depreciation & amortization and $130,000 pertaining to other administrative costs, as these expenses also included the impact of the integration of Func Food's European operations after the acquisition.





Other Income/(expense)

Total other income increased by approximately $11.9 million for year ended December 31, 2019 to $11.4 million from a loss of $565,000 for the year ended December 31, 2018, primarily as a result of the recognition of a gain pertaining to the restructuring agreement entered into with our Chinese distributor effective January 1, 2019, which, in addition to changing our business model from a distribution to a license and royalty arrangement, provided for the repayment of the investment the Company made in the China market during 2017 and 2018 over a five-year period, on an unsecured, interest-bearing basis. This has been recorded as a corresponding note receivable from our Chinese distributor on our balance sheet at December 31, 2019.





Net Income/Loss

As a result of all the above, for the year ended December 31, 2019, net income to common shareholders was approximately $10.0 million, or $0.16 per basic share based on a weighted average of 60,761,995 shares outstanding and after adding back interest expense on convertible notes of $348,493 and amortization of discount on notes payable of $239,570, a dilutive net income available to common shareholders of $10.6 million or $0.16 per share, based on a weighted average of 64,183,399 shares outstanding which includes the dilutive impact of the stock options of 1,153,231 shares and the dilutive effect of the convertible notes of 2,268,173 shares. In comparison, for the year ended December 30, 2018 we had net loss of approximately $11.2 million, and after giving effect to preferred stock dividends of approximately $213,133, a net loss available to common shareholders of $11.4 million or a loss of $0.23 per basic and diluted shares, based on a weighted average of 50,050,696 shares outstanding.



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Liquidity and Capital Resources

As of December 31, 2019, and December 31, 2018, we had cash of approximately $23.1 million and $7.7 million, respectively and working capital of approximately $24.8 million and $19.6 million, respectively. Cash provided by operations during the year ended December 31, 2019, totaled approximately $1.0 million reflecting the net adjusted economic profitability from operations of $3.7 million and an increase in accounts payable of $2.6 million which was partially offset by increases in accounts receivable, inventories, pre-paid expenses as well as decrease in other liabilities for a total use of cash in these areas of $5.3 million. Cash used in operations for the year ended December 31, 2018 was $11.6 million mainly related to increases in inventories on hand, pre-paid expenses, investments in sales and marketing programs as well as human resources initiatives.

In addition to cash flow from operations, our primary sources of working capital in recent years have been private placements of our securities and our credit facilities with CD Financial, LLC ("CD Financial"), an affiliate of Carl DeSantis, a principal shareholder of the Company, as well as Charmnew Limited ("Charmnew") and Grieg International Limited ("Grieg").

On September 16, 2019, the Company consummated a public offering of an aggregate of 7,986,110 shares, of its common stock at a public offering price of $3.60, which included the exercise in full by the underwriters of their option to purchase an additional 1,041,666 Shares. B. Riley FBR, Inc. acted as lead underwriter for the offering. The Company received net proceeds from the offering of approximately $26.9 million, after deducting underwriting discounts and commissions and estimated offering expenses payable by the Company. The Company used a portion of the net proceeds of the offering to fund the cash needed to consummate the acquisition of Func Food and related fees, costs and expenses. The remaining net proceeds of the offering are being used for general corporate purposes, including funding marketing initiatives and expanding European distribution of Celsius products.

Celsius had entered into Convertible Loan Agreements (with Charmnew and Grieg on December 12, 2018, and with CD Financial, on December 14, 2018, providing for aggregate loans to the Company in principal amounts of $3,000,000, $2,000,000 and $5,000,000, respectively. In connection with the Loan Agreements, the Company executed and delivered Convertible Promissory Notes (the "Notes") in favor of each of Charmnew, Grieg and CD Financial. The Notes had a maturity date of the second anniversary after issuance and bore interest at the rate of 5% per annum payable semi-annually. Upon consummation of our September 2019 public offering, the principal amount of and all accrued but unpaid interest on the Notes held by Charmnew, Grieg and CD Financial converted, in accordance with their terms, into 1,022,568, 681,712 and 1,492,180 shares of our common stock, at a conversion price of $3.04, $3.04 and $3.39, respectively.

Our current cash position and operating plan for the next twelve (12) months indicates a sufficient financial condition and we do not contemplate obtaining additional financing. However, if our sales volumes do not meet our projections, expenses exceed our expectations, or our plans change, we may be unable to generate enough cash flow from operations to cover our working capital requirements. In such case, we may be required to adjust our business plan, by reducing marketing and other expenses or seek additional financing. There can be no assurance that such financing, if required, will be available on commercially reasonable terms if at all.

Off Balance Sheet Arrangements

As of December 31, 2019, we had no off-balance sheet arrangements.

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