UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

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

☐

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2021

Commission file number: 001-34611

CELSIUS HOLDINGS, INC.

(Exact name of registrant as specified in its charter)

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

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

(Address of Principal Executive Offices)

(561) 276-2239

(Registrant’s telephone number, including area code)

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

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

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

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

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

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

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

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

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

The number of shares outstanding of the registrant’s common stock, $0.001 par value, as of August 11, 2021 was 74,482,303 shares.

TABLE OF CONTENTS

		Page

PART I – FINANCIAL INFORMATION		1

Item 1.	Financial Statements.	1
	Consolidated Balance Sheets as of June 30, 2021 (unaudited) and December 31, 2020	1
	Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2021 and 2020 (unaudited)	2
	Consolidated Statement of Changes in Stockholders’ Equity for three and six months ended June 30, 2021 (unaudited)	3
	Consolidated Statement of Changes in Stockholders’ Equity for the three and six months ended June 30, 2020 (unaudited)	4
	Consolidated Statements of Cash Flows for the three and six months ended June 30, 2021 and 2020 (unaudited)	5
	Notes to Consolidated Financial Statements (unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	24

Item 3.	Quantitative Disclosures About Market Risks.	31

Item 4.	Controls and Procedures.	31

PART II – OTHER INFORMATION		32

Item 1.	Legal Proceedings.	32

Item 1A.	Risk Factors.	32

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

Item 3.	Defaults Upon Senior Securities.	32

Item 4.	Mine Safety Disclosures.	32

Item 5.	Other Information.	32

Item 6.	Exhibits.	33

SIGNATURES		34

PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

Celsius Holdings, Inc. and Subsidiaries

Consolidated Balance Sheets


	June 30, 2021			December 31, 2020⁽¹⁾
	(Unaudited)
ASSETS
Current assets:
Cash	$	83,789,981		$	43,248,021
Accounts receivable-net (note 2)		32,398,823			14,986,213
Note receivable-current (note 6)		2,545,745			1,885,887
Inventories-net (note 4)		63,826,596			18,403,622
Prepaid expenses and other current assets (note 5)		22,744,642			14,626,922
Total current assets		205,305,787			93,150,665

Note receivable (note 6)		7,000,800			9,429,437
Property and equipment-net (note 8)		1,617,002			579,377
Right-of-use asset-operating leases		704,857			836,038
Right-of-use asset-finance leases		100,365			162,119
Long-term security deposits		112,456			122,733
Intangibles (note 9)		16,287,537			16,590,083
Goodwill (note 9)		10,419,321			10,419,321
Total Assets	$	241,548,125		$	131,289,773

LIABILITIES AND STOCKHOLDERS’ EQUITY

Current liabilities:
Accounts payable and accrued expenses (note 10)	$	52,992,075		$	25,412,753
Lease liability-operating leases (note 7)		318,142			321,283
Lease liability-finance leases (note 7)		191,753			205,824
Other current liabilities (note 11)		754,907			425,232
Total current liabilities		54,256,877			26,365,092

Long-term liabilities:
Lease liability-operating leases (note 7)		391,157			514,948
Lease liability-finance leases (note 7)		60,731			82,290
Total Liabilities		54,708,765			26,962,330

Commitments and contingences (note 15)

Stockholders’ Equity:
Common stock, $0.001 par value; 100,000,000 shares authorized, 74,470,539 and 72,262,829 shares issued and outstanding at June 30, 2021 and December 31, 2020, respectively (note 13)		74,471			72,263
Additional paid-in capital		237,763,609			159,884,154
Accumulated other comprehensive loss		(117,656	)		(202,142	)
Accumulated deficit		(50,881,064	)		(55,426,832	)
Total Stockholders’ Equity		186,839,360			104,327,443
Total Liabilities and Stockholders’ Equity	$	241,548,125		$	131,289,773

⁽¹⁾

Derived from Audited Consolidated Financial Statements

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

(Unaudited)


	For the three months ended June 30,						For the six months ended June 30,
	2021			2020			2021			2020
Revenue (note 3)	$	65,073,323		$	30,037,227		$	115,108,202		$	58,222,116
Cost of revenue (note 2)		36,823,954			17,024,412			66,279,738			32,207,118
Gross profit		28,249,369			13,012,815			48,828,464			26,014,998

Selling and marketing expenses		15,530,988			7,866,871			27,490,041			15,372,918
General and administrative expenses		9,119,532			3,897,619			16,926,198			8,426,165
Total operating expenses		24,650,520			11,764,490			44,416,239			23,799,083

Income from operations		3,598,849			1,248,325			4,412,225			2,215,915

Other income (expense):
Interest income on note receivable (note 6)		76,583			92,485			163,113			190,019
Interest expense on bonds		-			(111,419	)		-			(247,437	)
Interest on other obligations		(1,367	)		(9,981	)		(2,972	)		(9,981	)
Amortization of discount on bonds payable		-			(161,382	)		-			(327,451	)
Other miscellaneous income		108,659			29,863			97,038			35,203
Gain on lease cancellations		-			152,112			-			152,112
Foreign exchange gain/(loss)		177,620			318,331			(123,636	)		96,005
Total other income/(expense)		361,495			310,009			133,543			(111,530	)

Net income before income taxes		3,960,344			1,558,334			4,545,768			2,104,385

Income tax expense		-			-			-			-

Net income		3,960,344			1,558,334			4,545,768			2,104,385

Other comprehensive income:
Foreign currency translation gain/(loss)		276,995			(108,681	)		84,486			(223,171	)
Comprehensive Income		4,237,339			1,449,653			4,630,254			1,881,214

Income per share:
Basic	$	0.05		$	0.02		$	0.06		$	0.03
Diluted	$	0.05		$	0.02		$	0.06		$	0.03
Weighted average shares outstanding:
Basic		73,158,836			69,396,377			73,655,125			69,444,655
Diluted¹		77,238,389			71,473,065			77,658,318			71,073,534

⁽¹⁾

Please refer to Earnings Per Share section for further details.

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the three and six months ended June 30, 2021

(Unaudited)


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

Balance at December 31, 2020		72,262,829	$	72,263	$	159,884,154		$	(202,142	)	$	(55,426,832	)	$	104,327,443
Stock option expense		-		-		3,575,001			-			-			3,575,001
Issuance of common stock pursuant to exercise of stock options - cashless		88,312		88		(88	)		-			-			-
Issuance of common stock pursuant to exercise of stock options - cash		234,546		235		715,675			-			-			715,910
Short swing payment		-		-		-			-			-
Foreign currency translation		-		-		-			(192,509	)		-			(192,509	)
Net income		-		-		-			-			585,424			585,424
Balance at March 31, 2021		72,585,687	$	72,586	$	164,174,742		$	(394,651	)	$	(54,841,408	)	$	109,011,269
Stock option expense		-		-		4,022,259			-			-			4,022,259
Issuance of common stock pursuant to exercise of stock options - cashless		315,913		316		(316	)		-			-			-
Issuance of common stock pursuant to exercise of stock options - cash		434,986		435		1,798,672			-			-			1,799,107
Issuance of common stock from capital raise		1,133,953		1,134		67,768,252			-			-			67,769,386
Foreign currency translation		-		-		-			276,995			-			276,995
Net income		-		-		-			-			3,960,344			3,960,344
Balance at June 30, 2021		74,470,539	$	74,471	$	237,763,609		$	(117,656	)	$	(50,881,064	)	$	186,839,360

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Changes in Stockholders’ Equity

For the three and six months ended June 30, 2020

(Unaudited)

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

Balance at December 31, 2019		68,941,311	$	68,942	$	127,552,998		$	(753,520	)	$	(63,409,431	)	$	63,458,989
Stock option expense		-		-		1,400,000			-			-			1,400,000
Issuance of common stock pursuant to exercise of stock options - cashless		204,028		204		(204	)		-			-			-
Issuance of common stock pursuant to exercise of stock options - cash		133,921		134		215,213			-			-			215,347
Foreign currency translation		-		-		-			(114,490	)		-			(114,490	)
Net income		-		-		-			-			546,051			546,051
Balance at March 31, 2020		69,279,260	$	69,280	$	129,168,007		$	(868,010	)	$	(62,863,380	)	$	65,505,897
Stock option expense						1,174,999						-			1,174,999
Issuance of common stock pursuant to exercise of stock options - cashless		106,327		106		(106	)		-			-			-
Issuance of common stock pursuant to exercise of stock options - cash		176,914		177		489,140			-			-			489,317
Foreign currency translation		-		-					(108,681	)		-			(108,681	)
Net income		-		-		-			-			1,558,334			1,558,334
Balance at June 30, 2020		69,562,501	$	69,563	$	130,832,040		$	(976,691	)	$	(61,305,046	)	$	68,619,866

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

Celsius Holdings, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(Unaudited)


	For the six months ended
	June 30, 2021			June 30, 2020
Cash flows from operating activities:
Net income	$	4,545,768		$	2,104,385
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation		178,425			50,351
Amortization		375,141			851,045
Bad debt allowance		854,606			221,182
Inventory excess and obsolescence allowance		1,260,076			(137,370	)
Stock-based compensation expense		7,597,260			2,574,999
Gain on China transaction		-			23,100
Gain on lease cancellations		-			(152,112	)
Changes in operating assets and liabilities:
Accounts receivable-net		(18,267,216	)		(4,668,549	)
Inventories-net		(46,683,050	)		(8,082,699	)
Prepaid expenses and other current assets		(8,117,719	)		(142,419	)
Accounts payable and accrued expenses		27,579,323			2,856,654
Deposits/deferred revenue and other current liabilities		339,952			109,313
Change in right-of-use asset and lease liability-net		7,970			146,042
Net cash used in operating activities		(30,329,464	)		(4,246,078	)

Cash flows from investing activities:
Proceeds from note receivable		1,876,273			1,331,011
Purchase of property and equipment		(1,216,050	)		(315,777	)
Net cash provided by investing activities		660,223			1,015,234

Cash flows from financing activities:
Principal payments on finance lease obligations		(49,592	)		(222,052	)
Proceeds from capital raise		67,769,386			-
Proceeds from exercise of stock options		2,515,017			704,664
Net cash provided by financing activities		70,234,811			482,612
Effect on exchange rate changes on cash and cash equivalents		(23,610	)		(231,635	)
Net increase (decrease) in cash and cash equivalents		40,541,960			(2,979,867	)
Cash and cash equivalents at beginning of the period		43,248,021			23,090,682

Cash and cash equivalents at end of the period	$	83,789,981		$	20,110,815
Supplemental disclosures:
Cash paid during period for: Interest	$	2,972		$	257,418

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

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

1.	ORGANIZATION AND DESCRIPTION OF BUSINESS

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

On February 7, 2018, the Company established Celsius Asia Holdings Limited a Hong Kong corporation as a wholly owned subsidiary of the Company. On February 7, 2018 Celsius China Holdings Limited a Hong Kong corporation became a wholly owned subsidiary of Celsius Asia Holdings Limited and on May 9, 2018, Celsius Asia Holdings Limited established Celsius (Beijing) Beverage Limited, a China corporation as a wholly owned subsidiary of Celsius Asia Holdings Limited.

On October 25, 2019, the Company acquired 100% of Func Food Group, Oyj (“Func Food”). The Acquisition was structured as a purchase of all of Func Food’s equity shares and a restructuring of Func Food’s pre-existing debt. Func Food was the Nordic distributor for the Company since 2015. Func Food is a marketer and distributor of nutritional supplements, health food products, and beverages.

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

2.	BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation and Principles of Consolidation – The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, the consolidated financial statements do not include all of the information and footnotes required by US GAAP for complete financial statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such adjustments are of a normal recurring nature. These unaudited consolidated financial statements and the accompanying notes should be read in conjunction with the Form 10-K filed for December 31, 2020. The consolidated financial statements of the Company include the Company and its wholly owned subsidiaries. All material inter-company balances and transactions have been eliminated.

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

Reclassification of Prior Year Presentation – Certain prior year amounts in the consolidated statements of operations and comprehensive income have been reclassified for consistency with the current year presentation. A reclassification has been made to present amortization of intangible assets and amortization of finance lease right-of-use assets in general and administrative expenses, rather than in other expenses. These reclassifications had no effect on previously reported net income and comprehensive income and did not have a material effect to the financial statements.

Segment Reporting — Operating segments are defined as components of an enterprise that engage in business activities, have discrete financial information, and whose operating results are regularly reviewed by the chief operating decision maker (CODM) to make decisions about allocating resources and to assess performance. Even though we have operations in several geographies, we operate as a single enterprise. Our operations and strategies are centrally designed and executed given that our geographical components are very similar. Our CODM, the CEO, reviews operating results primarily from a consolidated perspective, and makes decisions and allocates resources based on that review. The reason our CODM focuses on consolidated results in making decisions and allocating resources is because of the significant economic interdependencies between our geographical operations and the Company’s U.S. entity.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

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 June 30, 2021, the Company had approximately $77.8 million in excess of the Federal Deposit Insurance Corporation limit.

For the six months ended June 30, 2021 and 2020, the Company had the following 10 percent or greater concentrations of revenue with its customers. Specifically, as a result of the growth of our business and the increase in online related in part to the COVID-19 pandemic, one customer, Amazon, accounted for approximately 10.0% and 17.4% of our revenues during the six months periods ended June 30, 2021 and June 30, 2020, respectively. Notwithstanding the foregoing, we do not believe that we are dependent on our sales to Amazon for our continued growth and profitability.


	2021			2020
Amazon		10.0	%		17.4	%
All other		90.0	%		82.6	%
Total		100.0	%		100.0	%

At June 30, 2021 and December 31, 2020, the Company had the following 10 percent or greater concentrations of accounts receivable with its customers:

	2021			2020
Amazon		13.2	%		11.3	%
All other		86.8	%		88.7	%
Total		100.0	%		100.0	%

Cash Equivalents — The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents. At June 30, 2021 and December 31, 2020, the Company did not have any investments with maturities of three months or less.

Accounts Receivable — Accounts receivable are reported a net realizable value. The Company establishes an allowance for doubtful accounts based upon factors pertaining to the credit risk of specific customers, historical trends, and other information. Delinquent accounts are written-off when it is determined that the amounts are uncollectible. At June 30, 2021 and December 31, 2020, there was an allowance for doubtful accounts of $1,404,179 and $549,573, respectively.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

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 allowance to reduce the value of the inventory during the period in which such materials and products are no longer usable or marketable. Specifically, the Company reviews inventory utilization during the past twelve months and also customer orders for subsequent months. If there has been no utilization during the last 12 months and there are no orders in-place in future months which will require the use of inventory item, then inventory item will be included as part of the allowance during the period being evaluated. Management will then specifically evaluate whether these items may be utilized within a reasonable time frame (e.g., 3 to 6 months). At June 30, 2021 and December 31, 2020, the Company recorded an allowance of $2,873,131 and $1,613,000, respectively. The changes in the allowance are included in cost of revenue.

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

Impairment of Long-Lived Assets — In accordance with ASC Topics 350 “Goodwill and Other Intangibles” and 360, “Property, Plant, and Equipment” the Company reviews the carrying value of intangibles and other long-lived assets for impairment at least annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of long-lived assets is measured by comparison of its carrying amount to the undiscounted cash flows that the asset or asset group is expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the property, if any, exceeds its fair value. The Company did not record any impairment during the six months ended June 30, 2021.

Long-lived Asset Geographic Data

The following table sets forth long-lived asset information, which includes property, plant and equipment and lease right-of-use assets and excludes goodwill and intangibles, where individual countries represent a material portion of the total:


	June 30,		December 31,
	2021		2020

United States	$	1,478,298	$	694,697

Sweden		356,569		431,959
Finland		587,357		450,878
Long-lived assets related to foreign operations		943,926		882,837
Total long-lived assets	$	2,422,224	$	1,577,534

Goodwill — The Company records goodwill when the consideration paid for an acquisition exceeds the fair value of net tangible and intangible assets acquired, including related tax effects. Goodwill is not amortized; instead, goodwill is tested for impairment on an annual basis, or more frequently if the Company believes indicators of impairment exist. The Company first assesses qualitative factors to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying value. If the Company determines that the fair value is less than the carrying value, the Company will recognize an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. At June 30, 2021, there were no indicators of impairment.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

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 June 30, 2021, the Company had customer advances of $3,280 and no advances of December 31, 2020.

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 $12.6 million and $5.9 million, during the six months ended June 30, 2021 and 2020, 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 $432,000 and $231,000 during the six months ended June 30, 2021 and 2020, 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 net gains during the six months ended June 30, 2021 of approximately $84,000 and net losses of approximately $223,000 during the six months ended June 30, 2020. Our operations in different countries required that we transact in the following currencies:

Chinese-Yuan

Norwegian-Krone

Swedish-Krona

Finland-Euro

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

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

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

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

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

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

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

Other than these noted previously, the Company did not have any other assets or liabilities measured at fair value at June 30, 2021 and December 31, 2020.

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

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

The Company has adopted ASC 740-10-25 Definition of Settlement, which provides guidance on how an entity should determine whether a tax position is effectively settled for the purpose of recognizing previously unrecognized tax benefits and provides that a tax position can be effectively settled upon the completion of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled, an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be sustained based solely on the basis of its technical merits and the statute of limitations remains open. The Company’s tax returns for tax years in 2018 through 2020 remain subject to potential examination by the taxing authorities.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

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

Earnings per Share — Basic earnings per share are calculated by dividing net income available to stockholders by the weighted-average number of common shares outstanding during each period. Diluted earnings per share are computed using the weighted average number of common and dilutive common share equivalents, pertaining to stock options, outstanding during the period. Please refer to the below table for additional details:

Schedule of anti-dilutive shares
	For the three months ended June 30,				For the six months ended June 30,
	2021		2020		2021		2020
Net income	$	3,960,344	$	1,558,334	$	4,545,768	$	2,104,385

Income per share:
Basic	$	0.05	$	0.02	$	0.06	$	0.03
Diluted	$	0.05	$	0.02	$	0.06	$	0.03
Weighted average shares outstanding:
Basic		73,158,836		69,396,377		73,655,125		69,444,655
Diluted		77,238,389		71,473,065		77,658,318		71,073,534

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 14). As of June 30, 2021, total shares available are 3.6 million.

Cost of Sales — Cost of sales consists of the cost of concentrates and or beverage bases, the costs of raw materials utilized in the manufacture of products, co-packing fees, repacking fees, in-bound & out-bound freight charges, as well as certain internal transfer costs, warehouse expenses incurred prior to the manufacture of the Company’s finished products, inventory allowance for excess and obsolete products and certain quality control costs. Raw materials account for the largest portion of the cost of sales. Raw materials include cans, bottles, other containers, flavors, ingredients and packaging materials.

Operating Expenses — Operating expenses include selling expenses such as warehousing expenses after manufacture, as well as expenses for advertising, samplings and in-store demonstrations costs, costs for merchandise displays, point-of-sale materials and premium items, sponsorship expenses, other marketing expenses and design expenses. Operating expenses also include such costs as payroll costs, travel costs, professional service fees (including legal fees), depreciation and amortization, and other general and administrative costs.

Shipping and Handling Costs — Shipping and handling costs for freight expense on goods shipped are included in cost of sales. Freight expense on goods shipped for six months ended June 30, 2021 and 2020 was $9.7 million and $4.2 million, respectively.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

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

Recent Accounting Pronouncements

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

In September 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326) (“ASU 2016-13”), which requires the immediate recognition of management’s estimates of current and expected credit losses. In November 2018, the FASB issued ASU 2018-19, which makes certain improvements to Topic 326. In April and May 2019, the FASB issued ASUs 2019-04 and 2019-05, respectively, which adds codification improvements and transition relief for Topic 326. In November 2019, the FASB issued ASU 2019-10, which delays the effective date of Topic 326 for Smaller Reporting Companies to interim and annual periods beginning after December 15, 2022, with early adoption permitted. In November 2019, the FASB issued ASU 2019-11, which makes improvements to certain areas of Topic 326. In February 2020, the FASB issued ASU 2020-02, which adds an SEC paragraph, pursuant to the issuance of SEC Staff Accounting Bulletin No. 119, to Topic 326. Topic 326 is effective for the Company for fiscal years and interim reporting periods within those years beginning after December 15, 2022. Early adoption is permitted for interim and annual periods beginning December 15, 2019. The Company is currently evaluating the potential impact of adopting this guidance on our consolidated financial statements.

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

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

All new accounting pronouncements issued but not yet effective are not expected to have a material impact on our results of operations, cash flows or financial position with the exception of the updated previously disclosed above, there have been no new accounting pronouncements not yet effective that have significance to our consolidated financial statements.

Liquidity — These financial statements have been prepared assuming the Company will be able to continue as a going concern. At June 30, 2021, the Company had an accumulated deficit of $50,881,064 which includes net income of $4,545,768 for the six months ended June 30, 2021. During the six months ended June 30, 2021 the Company had net cash used by operating activities of $30,329,464.

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

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

3.	REVENUE

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

Information about the Company’s net sales by geographical location for the six months ended June 30, 2021 and 2020 is as follows:


	For the six months ended
	June 30,		June 30,
	2021		2020
North America	$	92,603,771	$	40,192,360
Europe		21,159,590		17,272,080
Asia		1,155,434		594,384
Other		189,407		163,292
Net sales	$	115,108,202	$	58,222,116

All of the Company’s North America revenue is derived from the United States, which is the Company’s country of domicile. Of the Company’s total foreign revenues of approximately $22.5 million and $18.0 million for the six months ended June 30, 2021 and 2020, respectively, the only individual country that represents a material portion of total consolidated revenue was Sweden, which had total revenues of approximately $14.5 million and $12.2 million for the six months ended June 30, 2021 and 2020, respectively. Revenues are attributed to countries based on the location of the customer.

License Agreement

In January 2019, the Company entered into a license and repayment of investment agreement with Qifeng Food Technology (Beijing) Co., Ltd (“Qifeng”). Under the agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize Celsius branded products in China. The term of the agreement is 50 years, with annual royalty fees due from Qifeng after the end of each calendar year. The royalty fees are based on a percentage of Qifeng’s sales of Celsius branded products; however, the fees are fixed for the first five years of the agreement, totaling approximately $6.6 million, and then are subject to annual guaranteed minimums over the remaining term of the agreement.

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

The Company recognizes revenue from the agreement over time because the customer simultaneously receives and consumes the benefits from the services. The Company uses the passage of time to measure progress towards satisfying its performance obligation because its efforts in providing the exclusive license rights and ongoing support occur on a generally even basis throughout the year. Total revenue recognized under the agreement was approximately $787,000 for the six months ended June 30, 2021 and is reflected in the Company’s Asia reporting.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

4.	INVENTORIES

Inventories consist of the following at:

Schedule of inventories
	June 30,			December 31,
	2021			2020
Finished goods	$	42,110,583		$	15,334,386
Raw Materials		24,589,144			4,682,291
Less: Inventory allowance for excess and obsolete products		(2,873,131	)		(1,613,055	)
Inventories	$	63,826,596		$	18,403,622

5.	PREPAID EXPENSES AND OTHER CURRENT ASSETS

Prepaid expenses and other current assets were approximately $22.7 22,744,642 million and $14.6 14,626,922 million at June 30, 2021 and December 31, 2020, respectively, 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. The increase of approximately $8.1 million is mainly related to advances to co-packers and deposits to raw material suppliers pertaining to the processing and the procuring of inventory.

6.	NOTE RECEIVABLE

Note receivable consists of the following at:

Schedule of note receivable
	June 30,		December 31,
	2021		2020
Note receivable-current	$	2,545,745	$	1,885,887
Note receivable-non-current		7,000,800		9,429,437
Total Note receivable	$	9,546,545	$	11,315,324

Effective January 1, 2019, we restructured our China distribution efforts by entering into two separate economic agreements as it relates to the commercialization of our Celsius products (i.e., license agreement) and a repayment of investment agreement with Qifeng. Under the license agreement, Qifeng was granted the exclusive license rights to manufacture, market and commercialize Celsius® brand products in China. Qifeng will pay a minimum royalty fee of approximately $6.6 million for the five years of the term of the agreement, transitioning to a volume-based royalty fee, thereafter. Under a separate economic agreement, Qifeng Food will repay the marketing investments made by Celsius into the China market through 2018, over the same five-year period. The repayment, which was formalized via a Note Receivable from Qifeng, will need to be serviced even if the licensing agreement is cancelled or terminated. The note receivable is denominated in the Chinese-Yuan and will need to be serviced even if the licensing agreement is cancelled or terminated.

Scheduled principal payments plus accrued interest are due annually on March 31 of each year starting in 2020. The Note is recorded at amortized cost basis and accrues interest at a rate per annum equal to the weighted average of 5% of the outstanding principal up to $5 million and 2% of the outstanding principal above $5 million. On September 12, 2020, it was agreed to fix the interest rate at 3.21% which reflected the weighted average interest rate for the 5-year period of the Note. For the six months ended June 30, 2021, interest income was approximately $163,000.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

6.	NOTE RECEIVABLE (Continued)

The Company assesses the Note for impairment periodically by evaluating whether it is probable that the Company will be unable to collect all the contractual interest and principal payments as scheduled in the Note agreement, based on historical experience about Qifeng’s ability to pay, the current economic environment and other factors. If the Note is determined to be impaired, the impairment is measured based on the present value of the expected future cash flows under the Note, discounted at the Note’s effective interest rate. At June 30, 2021, the Note was not deemed to be impaired. As of June 30, 2021, Qifeng is current on all amounts due under the Note and the license agreement.

As collateral for the Note, a stock certificate in Celsius Holdings, Inc., which amounts to 337,079 of shares owned by an affiliate under common control with Qifeng is being held at a brokerage account. These shares were originally issued on April 20, 2015 via a private transaction which involved Risejoy Services Limited an affiliate under the common control of Qifeng, our Chinese licensee. Payment in-full was received timely pertaining to the amounts due on March 31, 2021. Furthermore, a letter of guarantee was executed with several restrictions regarding these shares. In particular, it was agreed that the stock would not be sold or transferred without the prior written consent from Celsius Holdings, Inc. There are several other restrictions and agreements, which include that a Statement of Account will be provided to Celsius on a Quarterly basis to confirm and validate the existence of the shares. These shares serve only as collateral and provide comfort as to the “ability to pay”.

7.	LEASES

The Company’s leasing activities include an operating lease of its corporate office space from a related party (see note 12) and several other operating and finance leases of vehicles and office space for the Company’s European operations.

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

Leases are classified as either finance leases or operating leases based on criteria in ASC Topic 842, “Leases”. The Company’s operating leases are generally comprised of real estate and vehicles, and the Company’s finance leases are generally comprised of vehicles.

At lease commencement, the Company records a lease liability equal to the present value of the remaining lease payments, discounted using the rate implicit in the lease or, if that rate cannot be readily determined, the Company’s incremental borrowing rate. A corresponding right-of-use asset (“ROU asset”) is recorded, measured based on the initial measurement of the lease liability. ROU assets also include any lease payments made and exclude lease incentives. Lease terms may include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option.

Lease expense for operating leases, consisting of lease payments, is recognized on a straight-line basis over the lease term. Included in lease expense are any variable lease payments incurred in the period that were not included in the initial lease liability. Lease expense for finance leases consists of the amortization of the ROU asset on a straight-line basis over the shorter of the useful life of the asset or the lease term, and interest expense is calculated using the effective interest rate method.

Celsius Holdings, Inc. and Subsidiaries

Notes to Consolidated Financial Statements (unaudited)

June 30, 2021

7.	LEASES (Continued)

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

Schedule of components of lease costs
	Three months ended				Three months ended
	June 30, 2021				June 30, 2020
	Operating		Finance		Operating		Finance
	Leases		Leases		Leases		Leases
Lease cost in general and administrative expenses:
Operating lease expense	$	125,553	$	-	$	97,873	$	-
Amortization of finance lease ROU assets		-		35,993		-		102,399
Total lease cost in general and administrative expenses		125,553		35,993		97,873		102,399

Lease cost in other expense:
Interest on finance lease liabilities		-

SEC Form 10-Q filed by Celsius Holdings, Inc.